[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]



                       PATENT REFORM ACT OF 2009

=======================================================================

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                                   ON

                               H.R. 1260

                               __________

                             APRIL 30, 2009

                               __________

                           Serial No. 111-92

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov






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                       COMMITTEE ON THE JUDICIARY

                 JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California         LAMAR SMITH, Texas
RICK BOUCHER, Virginia               F. JAMES SENSENBRENNER, Jr., 
JERROLD NADLER, New York                 Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia  HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina       ELTON GALLEGLY, California
ZOE LOFGREN, California              BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas            DANIEL E. LUNGREN, California
MAXINE WATERS, California            DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts   J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida               STEVE KING, Iowa
STEVE COHEN, Tennessee               TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr.,      LOUIE GOHMERT, Texas
  Georgia                            JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico         TED POE, Texas
MIKE QUIGLEY, Illinois               JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois          TOM ROONEY, Florida
BRAD SHERMAN, California             GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York

       Perry Apelbaum, Majority Staff Director and Chief Counsel
      Sean McLaughlin, Minority Chief of Staff and General Counsel







                            C O N T E N T S

                              ----------                              

                             APRIL 30, 2009

                                                                   Page

                            TEXT OF THE BILL

H.R. 1260, the ``Patent Reform Act of 2009''.....................     2

                           OPENING STATEMENTS

The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, and Chairman, Committee on the 
  Judiciary......................................................     1
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Ranking Member, Committee on the Judiciary.    22
The Honorable Howard Berman, a Representative in Congress from 
  the State of California, and Member, Committee on the Judiciary    24
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Member, Committee on the Judiciary..    24
The Honorable Brad Sherman, a Representative in Congress from the 
  State of California, and Member, Committee on the Judiciary....    26
The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Member, Committee on the Judiciary    26
The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California, and Member, Committee on the Judiciary    27
The Honorable Louie Gohmert, a Representative in Congress from 
  the State of Texas, and Member, Committee on the Judiciary.....    27
The Honorable Zoe Lofgren, a Representative in Congress from the 
  State of California, and Member, Committee on the Judiciary....    28
The Honorable Ted Poe, a Representative in Congress from the 
  State of Texas, and Member, Committee on the Judiciary.........    28
The Honorable William D. Delahunt, a Representative in Congress 
  from the State of Massachusetts, and Member, Committee on the 
  Judiciary......................................................    29

                               WITNESSES

Mr. David Simon, Chief Patent Counsel, Intel, Inc.
  Oral Testimony.................................................    30
  Prepared Statement.............................................    32
Mr. Phillip S. Johnson, Chief Intellectual Property Counsel, 
  Johnson & Johnson
  Oral Testimony.................................................    45
  Prepared Statement.............................................    47
Mr. John R. Thomas, Professor, Georgetown University Law School
  Oral Testimony.................................................    70
  Prepared Statement.............................................    72
Mr. Jack W. Lasersohn, Partner, Vertical Group
  Oral Testimony.................................................    78
  Prepared Statement.............................................    81
Mr. Dean Kamen, Inventor, DEKA Research and Development, Inc.
  Oral Testimony.................................................    87
  Prepared Statement.............................................    89
Mr. Mark Chandler, Senior Vice President, Cisco
  Oral Testimony.................................................    93
  Prepared Statement.............................................    96
Mr. Bernard J. Cassidy, Senior Vice President and General 
  Counsel, Tessera, INC.
  Oral Testimony.................................................   101
  Prepared Statement.............................................   103

                                APPENDIX

Material Submitted for the Hearing Record........................   147

 
                       PATENT REFORM ACT OF 2009

                              ----------                              


                        THURSDAY, APRIL 30, 2009

                          House of Representatives,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Committee met, pursuant to notice, at 10:16 a.m., in 
room 2141, Rayburn House Office Building, the Honorable John 
Conyers, Jr. (Chairman of the Committee) presiding.
    Present: Representatives Conyers, Berman, Boucher, Scott, 
Watt, Lofgren, Jackson Lee, Waters, Delahunt, Johnson, Sherman, 
Schiff, Sanchez, Smith, Sensenbrenner, Coble, Goodlatte, 
Lungren, Issa, King, Franks, Gohmert, Jordan, Poe, and 
Chaffetz.
    Staff present: Christal Sheppard, Majority Counsel; Blaine 
Merritt, Minority Counsel.
    Mr. Conyers. Good morning, ladies and gentlemen. The 
Committee will come to order. We are here today for the hearing 
on H.R. 1260, the ``Patent Reform Act of 2009.''
    You will recall that the Judiciary Committee passed this 
bill out in July of 2007--passed out of the House in September 
of 2007, but it did not receive dispositive action in the other 
body. So we continue it.
    We welcome the seven witnesses that have joined us today. 
In the time of economic crisis, seems to me that we need patent 
reform more than ever. And while necessity may be the mother of 
invention, invention could be the mother of recovery.
    We need a patent system that will help us invent our way 
out of recession. Now, we are aware that the Senate has reached 
a compromise on a number of issues. This body is no more a 
rubber stamp for the Senate than the Senate is a rubber stamp 
for the House.
    And so it is our intention to look at these issues, of 
which there are many, independently and ensure that the bill 
that comes out of the Judiciary Committee will be fair to all 
parties concerned, or as fair as we can get it, and will also 
serve the public interest.
    In the last Congress, there was an agreement on 
interparties reexamination. Unless something is arrived at, we 
expect that that will still be the prevailing way that we move 
this bill forward. The United States Patent and Trademark 
Office even now doesn't have a director.
    We need our leadership to comment on whether this bill has 
been drafted in a way that recognizes the challenges that the 
patent office faces. And while the bill doesn't currently 
contain language on inequitable conduct, we have made an 
agreement to work with Senator Hatch on this issue, and that 
agreement is still good.
    Now the Patent and Trademark Office has incredible 
responsibilities and really rather limited authority to meet 
them. I think that it may be time that we give them the power 
to set their own fees.
    And finally, it seems important that we keep our trigger on 
first to file language in order to pressure our trading 
partners to adopt grace period language that benefits the 
United States inventors.
    [The text of the bill, H.R. 1260, follows:

HR 1260 IH  ___________________________________________________
                               

 deg.

                                                                      I
111th CONGRESS
    1st Session

                                H. R. 1260

To amend title 35, United States Code, to provide for patent reform.
                               __________
                    IN THE HOUSE OF REPRESENTATIVES
                             March 3, 2009
Mr. Conyers (for himself, Mr. Smith of Texas, Mr. Berman, Mr. 
    Goodlatte, and Ms. Jackson-Lee of Texas) introduced the following 
    bill; which was referred to the Committee on the Judiciary
                               __________

                                 A BILL

To amend title 35, United States Code, to provide for patent reform.

    Be it enacted by the Senate and House of Representatives of the 
United States of America in Congress assembled,

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

    (a) Short Title.--This Act may be cited as the ``Patent Reform Act 
of 2009''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

    Sec. 1. Short title; table of contents.
    Sec. 2. Definition.
    Sec. 3. Right of the first inventor to file.
    Sec. 4. Inventor's oath or declaration.
    Sec. 5. Right of the inventor to obtain damages.
    Sec. 6. Post-grant procedures and other quality enhancements.
    Sec. 7. Definitions; patent trial and appeal board.
    Sec. 8. Study and report on reexamination proceedings.
    Sec. 9. Preissuance submissions by third parties.
    Sec. 10. Venue and jurisdiction.
    Sec. 11. Patent and trademark office regulatory authority.
    Sec. 12. Residency of Federal Circuit judges.
    Sec. 13. Micro-entity defined.
    Sec. 14. Technical amendments.
    Sec. 15. Effective date; rule of construction.
    Sec. 16. Study of special masters in patent cases.
    Sec. 17. Study on workplace conditions.
    Sec. 18. Study on patent damages.
    Sec. 19. Severability.

SEC. 2. DEFINITION.

    In this Act, the term ``Director'' means the Under Secretary of 
Commerce for Intellectual Property and Director of the United States 
Patent and Trademark Office.

SEC. 3. RIGHT OF THE FIRST INVENTOR TO FILE.

    (a) Definitions.--Section 100 of title 35, United States Code, is 
amended by adding at the end the following:
    ``(f) The term `inventor' means the individual or, if a joint 
invention, the individuals collectively who invented or discovered the 
subject matter of the invention.
    ``(g) The terms `joint inventor' and `coinventor' mean any 1 of the 
individuals who invented or discovered the subject matter of a joint 
invention.
    ``(h) The `effective filing date of a claimed invention' is--
            ``(1) the filing date of the patent or the application for 
        the patent containing the claim to the invention; or
            ``(2) if the patent or application for patent is entitled 
        to a right of priority of any other application under section 
        119, 365(a), or 365(b) or to the benefit of an earlier filing 
        date in the United States under section 120, 121, or 365(c), 
        the filing date of the earliest such application in which the 
        claimed invention is disclosed in the manner provided by the 
        first paragraph of section 112.
    ``(i) The term `claimed invention' means the subject matter defined 
by a claim in a patent or an application for a patent.
    ``(j) The term `joint invention' means an invention resulting from 
the collaboration of inventive endeavors of 2 or more persons working 
toward the same end and producing an invention by their collective 
efforts.''.
    (b) Conditions for Patentability.--
            (1) In general.--Section 102 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 102. Conditions for patentability; novelty

    ``(a) Novelty; Prior Art.--A patent for a claimed invention may not 
be obtained if--
            ``(1) the claimed invention was patented, described in a 
        printed publication, or in public use, on sale, or otherwise 
        available to the public--
                    ``(A) more than 1 year before the effective filing 
                date of the claimed invention; or
                    ``(B) 1 year or less before the effective filing 
                date of the claimed invention, other than through 
                disclosures made by the inventor or a joint inventor or 
                by others who obtained the subject matter disclosed 
                directly or indirectly from the inventor or a joint 
                inventor; or
            ``(2) the claimed invention was described in a patent 
        issued under section 151, or in an application for patent 
        published or deemed published under section 122(b), in which 
        the patent or application, as the case may be, names another 
        inventor and was effectively filed before the effective filing 
        date of the claimed invention.
    ``(b) Exceptions.--
            ``(1) Prior inventor disclosure exception.--Subject matter 
        that would otherwise qualify as prior art based upon a 
        disclosure under subparagraph (B) of subsection (a)(1) shall 
        not be prior art to a claimed invention under that subparagraph 
        if the subject matter had, before such disclosure, been 
        publicly disclosed by the inventor or a joint inventor or 
        others who obtained the subject matter disclosed directly or 
        indirectly from the inventor or a joint inventor.
            ``(2) Derivation, prior disclosure, and common assignment 
        exceptions.--Subject matter that would otherwise qualify as 
        prior art only under subsection (a)(2) shall not be prior art 
        to a claimed invention if--
                    ``(A) the subject matter was obtained directly or 
                indirectly from the inventor or a joint inventor;
                    ``(B) the subject matter had been publicly 
                disclosed by the inventor or a joint inventor or others 
                who obtained the subject matter disclosed, directly or 
                indirectly, from the inventor or a joint inventor 
                before the effective filing date of the application or 
                patent set forth under subsection (a)(2); or
                    ``(C) the subject matter and the claimed invention, 
                not later than the effective filing date of the claimed 
                invention, were owned by the same person or subject to 
                an obligation of assignment to the same person.
            ``(3) Joint research agreement exception.--
                    ``(A) In general.--Subject matter and a claimed 
                invention shall be deemed to have been owned by the 
                same person or subject to an obligation of assignment 
                to the same person in applying the provisions of 
                paragraph (2) if--
                            ``(i) the claimed invention was made by or 
                        on behalf of parties to a joint research 
                        agreement that was in effect on or before the 
                        effective filing date of the claimed invention;
                            ``(ii) the claimed invention was made as a 
                        result of activities undertaken within the 
                        scope of the joint research agreement; and
                            ``(iii) the application for patent for the 
                        claimed invention discloses or is amended to 
                        disclose the names of the parties to the joint 
                        research agreement.
                    ``(B) For purposes of subparagraph (A), the term 
                `joint research agreement' means a written contract, 
                grant, or cooperative agreement entered into by 2 or 
                more persons or entities for the performance of 
                experimental, developmental, or research work in the 
                field of the claimed invention.
            ``(4) Patents and published applications effectively 
        filed.--A patent or application for patent is effectively filed 
        under subsection (a)(2) with respect to any subject matter 
        described in the patent or application--
                    ``(A) as of the filing date of the patent or the 
                application for patent; or
                    ``(B) if the patent or application for patent is 
                entitled to claim a right of priority under section 
                119, 365(a), or 365(b) or to claim the benefit of an 
                earlier filing date under section 120, 121, or 365(c), 
                based upon 1 or more prior filed applications for 
                patent, as of the filing date of the earliest such 
                application that describes the subject matter.''.
            (2) Conforming amendment.--The item relating to section 102 
        in the table of sections for chapter 10 of title 35, United 
        States Code, is amended to read as follows:

    ``102. Conditions for patentability; novelty.''.
    (c) Conditions for Patentability; Nonobvious Subject Matter.--
Section 103 of title 35, United States Code, is amended to read as 
follows:

``Sec. 103. Conditions for patentability; nonobvious subject matter

    ``A patent for a claimed invention may not be obtained though the 
claimed invention is not identically disclosed as set forth in section 
102, if the differences between the claimed invention and the prior art 
are such that the claimed invention as a whole would have been obvious 
before the effective filing date of the claimed invention to a person 
having ordinary skill in the art to which the claimed invention 
pertains. Patentability shall not be negated by the manner in which the 
invention was made.''.
    (d) Repeal of Requirements for Inventions Made Abroad.--Section 104 
of title 35, United States Code, and the item relating to that section 
in the table of sections for chapter 10 of title 35, United States 
Code, are repealed.
    (e) Repeal of Statutory Invention Registration.--
            (1) In general.--Section 157 of title 35, United States 
        Code, and the item relating to that section in the table of 
        sections for chapter 14 of title 35, United States Code, are 
        repealed.
            (2) Removal of cross references.--Section 111(b)(8) of 
        title 35, United States Code, is amended by striking ``sections 
        115, 131, 135, and 157'' and inserting ``sections 131 and 
        135''.
    (f) Earlier Filing Date for Inventor and Joint Inventor.--Section 
120 of title 35, United States Code, is amended by striking ``which is 
filed by an inventor or inventors named'' and inserting ``which names 
an inventor or joint inventor''.
    (g) Conforming Amendments.--
            (1) Right of priority.--Section 172 of title 35, United 
        States Code, is amended by striking ``and the time specified in 
        section 102(d)''.
            (2) Limitation on remedies.--Section 287(c)(4) of title 35, 
        United States Code, is amended by striking ``the earliest 
        effective filing date of which is prior to'' and inserting 
        ``which has an effective filing date before''.
            (3) International application designating the united 
        states: effect.--Section 363 of title 35, United States Code, 
        is amended by striking ``except as otherwise provided in 
        section 102(e) of this title''.
            (4) Publication of international application: effect.--
        Section 374 of title 35, United States Code, is amended by 
        striking ``sections 102(e) and 154(d)'' and inserting ``section 
        154(d)''.
            (5) Patent issued on international application: effect.--
        The second sentence of section 375(a) of title 35, United 
        States Code, is amended by striking ``Subject to section 102(e) 
        of this title, such'' and inserting ``Such''.
            (6) Limit on right of priority.--Section 119(a) of title 
        35, United States Code, is amended by striking ``; but no 
        patent shall be granted'' and all that follows through ``one 
        year prior to such filing''.
            (7) Inventions made with federal assistance.--Section 
        202(c) of title 35, United States Code, is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``publication, on sale, or 
                        public use,'' and all that follows through 
                        ``obtained in the United States'' and inserting 
                        ``the 1-year period referred to in section 
                        102(a) would end before the end of that 2-year 
                        period''; and
                            (ii) by striking ``the statutory'' and 
                        inserting ``that 1-year''; and
                    (B) in paragraph (3), by striking ``any statutory 
                bar date that may occur under this title due to 
                publication, on sale, or public use'' and inserting 
                ``the expiration of the 1-year period referred to in 
                section 102(a)''.
    (h) Repeal of Interfering Patent Remedies.--Section 291 of title 
35, United States Code, and the item relating to that section in the 
table of sections for chapter 29 of title 35, United States Code, are 
repealed.
    (i) Action for Claim to Patent on Derived Invention.--Section 135 
of title 35, United States Code, is amended to read as follows:

``Sec. 135. Derivation proceedings

    ``(a) Dispute Over Right to Patent.--
            ``(1) Institution of derivation proceeding.--An applicant 
        may request initiation of a derivation proceeding to determine 
        the right of the applicant to a patent by filing a request 
        which sets forth with particularity the basis for finding that 
        an earlier applicant derived the claimed invention from the 
        applicant requesting the proceeding and, without authorization, 
        filed an application claiming such invention. Any such request 
        may only be made within 12 months after the date of first 
        publication of an application containing a claim that is the 
        same or is substantially the same as the claimed invention, 
        must be made under oath, and must be supported by substantial 
        evidence. Whenever the Director determines that patents or 
        applications for patent naming different individuals as the 
        inventor interfere with one another because of a dispute over 
        the right to patent under section 101, the Director shall 
        institute a derivation proceeding for the purpose of 
        determining which applicant is entitled to a patent.
            ``(2) Determination by patent trial and appeal board.--In 
        any proceeding under this subsection, the Patent Trial and 
        Appeal Board--
                    ``(A) shall determine the question of the right to 
                patent;
                    ``(B) in appropriate circumstances, may correct the 
                naming of the inventor in any application or patent at 
                issue; and
                    ``(C) shall issue a final decision on the right to 
                patent.
            ``(3) Derivation proceeding.--The Board may defer action on 
        a request to initiate a derivation proceeding until 3 months 
        after the date on which the Director issues a patent to the 
        applicant that filed the earlier application.
            ``(4) Effect of final decision.--The final decision of the 
        Patent Trial and Appeal Board, if adverse to the claim of an 
        applicant, shall constitute the final refusal by the United 
        States Patent and Trademark Office on the claims involved. The 
        Director may issue a patent to an applicant who is determined 
        by the Patent Trial and Appeal Board to have the right to 
        patent. The final decision of the Board, if adverse to a 
        patentee, shall, if no appeal or other review of the decision 
        has been or can be taken or had, constitute cancellation of the 
        claims involved in the patent, and notice of such cancellation 
        shall be endorsed on copies of the patent distributed after 
        such cancellation by the United States Patent and Trademark 
        Office.
    ``(b) Settlement.--Parties to a derivation proceeding may terminate 
the proceeding by filing a written statement reflecting the agreement 
of the parties as to the correct inventors of the claimed invention in 
dispute. Unless the Patent Trial and Appeal Board finds the agreement 
to be inconsistent with the evidence of record, it shall take action 
consistent with the agreement. Any written settlement or understanding 
of the parties shall be filed with the Director. At the request of a 
party to the proceeding, the agreement or understanding shall be 
treated as business confidential information, shall be kept separate 
from the file of the involved patents or applications, and shall be 
made available only to Government agencies on written request.
    ``(c) Arbitration.--Parties to a derivation proceeding, within such 
time as may be specified by the Director by regulation, may determine 
such contest or any aspect thereof by arbitration. Such arbitration 
shall be governed by the provisions of title 9 to the extent such title 
is not inconsistent with this section. The parties shall give notice of 
any arbitration award to the Director, and such award shall, as between 
the parties to the arbitration, be dispositive of the issues to which 
it relates. The arbitration award shall be unenforceable until such 
notice is given. Nothing in this subsection shall preclude the Director 
from determining patentability of the invention involved in the 
derivation proceeding.''.
    (j) Elimination of References to Interferences.--(1) Sections 6, 
41, 134, 141, 145, 146, 154, 305, and 314 of title 35, United States 
Code, are each amended by striking ``Board of Patent Appeals and 
Interferences'' each place it appears and inserting ``Patent Trial and 
Appeal Board''.
    (2) Sections 141, 146, and 154 of title 35, United States Code, are 
each amended--
            (A) by striking ``an interference'' each place it appears 
        and inserting ``a derivation proceeding''; and
            (B) by striking ``interference'' each additional place it 
        appears and inserting ``derivation proceeding''.
    (3) The section heading for section 134 of title 35, United States 
Code, is amended to read as follows:

``Sec. 134. Appeal to the Patent Trial and Appeal Board''.

    (4) The section heading for section 146 of title 35, United States 
Code, is amended to read as follows:

``Sec. 146. Civil action in case of derivation proceeding''.

    (5) Section 154(b)(1)(C) of title 35, United States Code, is 
amended by striking ``interferences'' and inserting ``derivation 
proceedings''.
    (6) The item relating to section 6 in the table of sections for 
chapter 1 of title 35, United States Code, is amended to read as 
follows:

    ``6. Patent Trial and Appeal Board.''.
    (7) The items relating to sections 134 and 135 in the table of 
sections for chapter 12 of title 35, United States Code, are amended to 
read as follows:

    ``134. Appeal to the Patent Trial and Appeal Board.
    ``135. Derivation proceedings.''.
    (8) The item relating to section 146 in the table of sections for 
chapter 13 of title 35, United States Code, is amended to read as 
follows:

    ``146. Civil action in case of derivation proceeding.''.
    (9) Certain Appeals.--Section 1295(a)(4)(A) of title 28, United 
States Code, is amended to read as follows:
                    ``(A) the Patent Trial and Appeal Board of the 
                United States Patent and Trademark Office with respect 
                to patent applications, interference proceedings 
                (commenced before the date of enactment of the Patent 
                Reform Act of 2009), derivation proceedings, and post-
                grant review proceedings, at the instance of an 
                applicant for a patent or any party to a patent 
                interference (commenced before the effective date of 
                the Patent Reform Act of 2009), derivation proceeding, 
                or post-grant review proceeding, and any such appeal 
                shall waive any right of such applicant or party to 
                proceed under section 145 or 146 of title 35;''.
    (k) Effective Date.--
            (1) In general.--The amendments made by this section--
                    (A) shall take effect 90 days after the date on 
                which the President issues an Executive order 
                containing the President's finding that major patenting 
                authorities have adopted a grace period having 
                substantially the same effect as that contained under 
                the amendments made by this section; and
                    (B) shall apply to all applications for patent that 
                are filed on or after the effective date under 
                subparagraph (A).
            (2) Definitions.--In this subsection:
                    (A) Major patenting authorities.--The term ``major 
                patenting authorities'' means at least the patenting 
                authorities in Europe and Japan.
                    (B) Grace period.--The term ``grace period'' means 
                the 1-year period ending on the effective filing date 
                of a claimed invention, during which disclosures of the 
                subject matter by the inventor or a joint inventor, or 
                by others who obtained the subject matter disclosed 
                directly or indirectly from the inventor or a joint 
                inventor, do not qualify as prior art to the claimed 
                invention.
                    (C) Effective filing date.--The term ``effective 
                filing date of a claimed invention'' means, with 
                respect to a patenting authority in another country, a 
                date equivalent to the effective filing date of a 
                claimed invention as defined in section 100(h) of title 
                35, United States Code, as added by subsection (a) of 
                this section.
            (3) Retention of interference procedures with respect to 
        applications filed before effective date.--In the case of any 
        application for patent that is filed before the effective date 
        under paragraph (1)(A), the provisions of law repealed or 
        amended by subsections (h), (i), and (j) shall apply to such 
        application as such provisions of law were in effect on the day 
        before such effective date.
    (l) Review Every 7 Years.--Not later than the end of the 7-year 
period beginning on the effective date under subsection (k), and the 
end of every 7-year period thereafter, the Director shall--
            (1) conduct a study on the effectiveness and efficiency of 
        the amendments made by this section; and
            (2) submit to the Committees on the Judiciary of the House 
        of Representatives and the Senate a report on the results of 
        the study, including any recommendations the Director has on 
        amendments to the law and other recommendations of the Director 
        with respect to the first-to-file system implemented under the 
        amendments made by this section.

SEC. 4. INVENTOR'S OATH OR DECLARATION.

    (a) Inventor's Oath or Declaration.--
            (1) In general.--Section 115 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 115. Inventor's oath or declaration

    ``(a) Naming the Inventor; Inventor's Oath or Declaration.--An 
application for patent that is filed under section 111(a), that 
commences the national stage under section 363, or that is filed by an 
inventor for an invention for which an application has previously been 
filed under this title by that inventor shall include, or be amended to 
include, the name of the inventor of any claimed invention in the 
application. Except as otherwise provided in this section, an 
individual who is the inventor or a joint inventor of a claimed 
invention in an application for patent shall execute an oath or 
declaration in connection with the application.
    ``(b) Required Statements.--An oath or declaration under subsection 
(a) shall contain statements that--
            ``(1) the application was made or was authorized to be made 
        by the affiant or declarant; and
            ``(2) such individual believes himself or herself to be the 
        original inventor or an original joint inventor of a claimed 
        invention in the application.
    ``(c) Additional Requirements.--The Director may specify additional 
information relating to the inventor and the invention that is required 
to be included in an oath or declaration under subsection (a).
    ``(d) Substitute Statement.--
            ``(1) In general.--In lieu of executing an oath or 
        declaration under subsection (a), the applicant for patent may 
        provide a substitute statement under the circumstances 
        described in paragraph (2) and such additional circumstances 
        that the Director may specify by regulation.
            ``(2) Permitted circumstances.--A substitute statement 
        under paragraph (1) is permitted with respect to any individual 
        who--
                    ``(A) is unable to file the oath or declaration 
                under subsection (a) because the individual--
                            ``(i) is deceased;
                            ``(ii) is under legal incapacity; or
                            ``(iii) cannot be found or reached after 
                        diligent effort; or
                    ``(B) is under an obligation to assign the 
                invention but has refused to make the oath or 
                declaration required under subsection (a).
            ``(3) Contents.--A substitute statement under this 
        subsection shall--
                    ``(A) identify the individual with respect to whom 
                the statement applies;
                    ``(B) set forth the circumstances representing the 
                permitted basis for the filing of the substitute 
                statement in lieu of the oath or declaration under 
                subsection (a); and
                    ``(C) contain any additional information, including 
                any showing, required by the Director.
    ``(e) Making Required Statements in Assignment of Record.--An 
individual who has assigned rights in an application for patent may 
include the required statements under subsections (b) and (c) in the 
assignment executed by the individual, in lieu of filing such 
statements separately.
    ``(f) Time for Filing.--A notice of allowance under section 151 may 
be provided to an applicant for patent only if the applicant for patent 
has filed each required oath or declaration under subsection (a) or has 
filed a substitute statement under subsection (d) or recorded an 
assignment meeting the requirements of subsection (e).
    ``(g) Earlier-Filed Application Containing Required Statements or 
Substitute Statement.--The requirements under this section shall not 
apply to an individual with respect to an application for patent in 
which the individual is named as the inventor or a joint inventor and 
that claims the benefit under section 120 or 365(c) of the filing of an 
earlier-filed application, if--
            ``(1) an oath or declaration meeting the requirements of 
        subsection (a) was executed by the individual and was filed in 
        connection with the earlier-filed application;
            ``(2) a substitute statement meeting the requirements of 
        subsection (d) was filed in the earlier filed application with 
        respect to the individual; or
            ``(3) an assignment meeting the requirements of subsection 
        (e) was executed with respect to the earlier-filed application 
        by the individual and was recorded in connection with the 
        earlier-filed application.
    ``(h) Supplemental and Corrected Statements; Filing Additional 
Statements.--
            ``(1) In general.--Any person making a statement required 
        under this section may withdraw, replace, or otherwise correct 
        the statement at any time. If a change is made in the naming of 
        the inventor requiring the filing of 1 or more additional 
        statements under this section, the Director shall establish 
        regulations under which such additional statements may be 
        filed.
            ``(2) Supplemental statements not required.--If an 
        individual has executed an oath or declaration under subsection 
        (a) or an assignment meeting the requirements of subsection (e) 
        with respect to an application for patent, the Director may not 
        thereafter require that individual to make any additional oath, 
        declaration, or other statement equivalent to those required by 
        this section in connection with the application for patent or 
        any patent issuing thereon.
            ``(3) Savings clause.--No patent shall be invalid or 
        unenforceable based upon the failure to comply with a 
        requirement under this section if the failure is remedied as 
        provided under paragraph (1).
    ``(i) Acknowledgment of Penalties.--Any declaration or statement 
filed pursuant to this section shall contain an acknowledgment that any 
willful false statement made in such declaration or statement is 
punishable under section 1001 of title 18 by fine or imprisonment of 
not more than 5 years, or both.''.
            (2) Relationship to divisional applications.--Section 121 
        of title 35, United States Code, is amended by striking ``If a 
        divisional application'' and all that follows through 
        ``inventor.''.
            (3) Requirements for nonprovisional applications.--Section 
        111(a) of title 35, United States Code, is amended--
                    (A) in paragraph (2)(C), by striking ``by the 
                applicant'' and inserting ``or declaration'';
                    (B) in the heading for paragraph (3), by striking 
                ``and oath''; and
                    (C) by striking ``and oath'' each place it appears.
            (4) Conforming amendment.--The item relating to section 115 
        in the table of sections for chapter 11 of title 35, United 
        States Code, is amended to read as follows:

    ``115. Inventor's oath or declaration.''.
    (b) Specification.--Section 112 of title 35, United States Code, is 
amended--
            (1) in the first paragraph--
                    (A) by striking ``The specification'' and inserting 
                ``(a) In General.--The specification''; and
                    (B) by striking ``of carrying out his invention'' 
                and inserting ``or joint inventor of carrying out the 
                invention'';
            (2) in the second paragraph--
                    (A) by striking ``The specifications'' and 
                inserting ``(b) Conclusion.--The specifications''; and
                    (B) by striking ``applicant regards as his 
                invention'' and inserting ``inventor or a joint 
                inventor regards as the invention'';
            (3) in the third paragraph, by striking ``A claim'' and 
        inserting ``(c) Form.--A claim'';
            (4) in the fourth paragraph, by striking ``Subject to the 
        following paragraph,'' and inserting ``(d) Reference in 
        Dependent Forms.--Subject to subsection (e),'';
            (5) in the fifth paragraph, by striking ``A claim'' and 
        inserting ``(e) Reference in Multiple Dependent Form.--A 
        claim''; and
            (6) in the last paragraph, by striking ``An element'' and 
        inserting ``(f) Element in Claim for a Combination.--An 
        element''.

SEC. 5. RIGHT OF THE INVENTOR TO OBTAIN DAMAGES.

    (a) Damages.--Section 284 of title 35, United States Code, is 
amended to read as follows:

``Sec. 284. Damages

    ``(a) In General.--Upon finding for the claimant the court shall 
award the claimant damages adequate to compensate for the infringement 
but in no event less than a reasonable royalty for the use made of the 
invention by the infringer, together with interest and costs as fixed 
by the court, subject to the provisions of this section.
    ``(b) Determination of Damages; Evidence Considered; Procedure.--
The court may receive expert testimony as an aid to the determination 
of damages or of what royalty would be reasonable under the 
circumstances. The admissibility of such testimony shall be governed by 
the rules of evidence governing expert testimony. When the damages are 
not found by a jury, the court shall assess them.
    ``(c) Standard for Calculating Reasonable Royalty.--
            ``(1) In general.--The court shall determine, based on the 
        facts of the case and after adducing any further evidence the 
        court deems necessary, which of the following methods shall be 
        used by the court or the jury in calculating a reasonable 
        royalty pursuant to subsection (a). The court shall also 
        identify the factors that are relevant to the determination of 
        a reasonable royalty, and the court or jury, as the case may 
        be, shall consider only those factors in making such 
        determination.
                    ``(A) Entire market value.--Upon a showing to the 
                satisfaction of the court that the claimed invention's 
                specific contribution over the prior art is the 
                predominant basis for market demand for an infringing 
                product or process, damages may be based upon the 
                entire market value of that infringing product or 
                process.
                    ``(B) Established royalty based on marketplace 
                licensing.--Upon a showing to the satisfaction of the 
                court that the claimed invention has been the subject 
                of a nonexclusive license for the use made of the 
                invention by the infringer, to a number of persons 
                sufficient to indicate a general marketplace 
                recognition of the reasonableness of the licensing 
                terms, if the license was secured prior to the filing 
                of the case before the court, and the court determines 
                that the infringer's use is of substantially the same 
                scope, volume, and benefit of the rights granted under 
                such license, damages may be determined on the basis of 
                the terms of such license. Upon a showing to the 
                satisfaction of the court that the claimed invention 
                has sufficiently similar noninfringing substitutes in 
                the relevant market, which have themselves been the 
                subject of such nonexclusive licenses, and the court 
                determines that the infringer's use is of substantially 
                the same scope, volume, and benefit of the rights 
                granted under such licenses, damages may be determined 
                on the basis of the terms of such licenses.
                    ``(C) Valuation calculation.--Upon a determination 
                by the court that the showings required under 
                subparagraphs (A) and (B) have not been made, the court 
                shall conduct an analysis to ensure that a reasonable 
                royalty is applied only to the portion of the economic 
                value of the infringing product or process properly 
                attributable to the claimed invention's specific 
                contribution over the prior art. In the case of a 
                combination invention whose elements are present 
                individually in the prior art, the contribution over 
                the prior art may include the value of the additional 
                function resulting from the combination, as well as the 
                enhanced value, if any, of some or all of the prior art 
                elements as part of the combination, if the patentee 
                demonstrates that value.
            ``(2) Additional factors.--Where the court determines it to 
        be appropriate in determining a reasonable royalty under 
        paragraph (1), the court may also consider, or direct the jury 
        to consider, any other relevant factors under applicable law.
    ``(d) Inapplicability to Other Damages Analysis.--The methods for 
calculating a reasonable royalty described in subsection (c) shall have 
no application to the calculation of an award of damages that does not 
necessitate the determination of a reasonable royalty as a basis for 
monetary relief sought by the claimant.
    ``(e) Willful Infringement.--
            ``(1) Increased damages.--A court that has determined that 
        an infringer has willfully infringed a patent or patents may 
        increase damages up to 3 times the amount of the damages found 
        or assessed under subsection (a), except that increased damages 
        under this paragraph shall not apply to provisional rights 
        under section 154(d).
            ``(2) Permitted grounds for willfulness.--A court may find 
        that an infringer has willfully infringed a patent only if the 
        patent owner presents clear and convincing evidence that acting 
        with objective recklessness--
                    ``(A) after receiving written notice from the 
                patentee--
                            ``(i) alleging acts of infringement in a 
                        manner sufficient to give the infringer an 
                        objectively reasonable apprehension of suit on 
                        such patent, and
                            ``(ii) identifying with particularity each 
                        claim of the patent, each product or process 
                        that the patent owner alleges infringes the 
                        patent, and the relationship of such product or 
                        process to such claim,
                the infringer, after a reasonable opportunity to 
                investigate, thereafter performed 1 or more of the 
                alleged acts of infringement;
                    ``(B) the infringer intentionally copied the 
                patented invention with knowledge that it was patented; 
                or
                    ``(C) after having been found by a court to have 
                infringed that patent, the infringer engaged in conduct 
                that was not colorably different from the conduct 
                previously found to have infringed the patent, and 
                which resulted in a separate finding of infringement of 
                the same patent.
            ``(3) Limitations on willfulness.--
                    ``(A) In general.--A court may not find that an 
                infringer has willfully infringed a patent under 
                paragraph (2) for any period of time during which the 
                infringer had an informed good faith belief that the 
                patent was invalid or unenforceable, or would not be 
                infringed by the conduct later shown to constitute 
                infringement of the patent.
                    ``(B) Good faith established.--An informed good 
                faith belief within the meaning of subparagraph (A) may 
                be established by--
                            ``(i) reasonable reliance on advice of 
                        counsel;
                            ``(ii) evidence that the infringer sought 
                        to modify its conduct to avoid infringement 
                        once it had discovered the patent; or
                            ``(iii) other evidence a court may find 
                        sufficient to establish such good faith belief.
                    ``(C) Relevance of not presenting certain 
                evidence.--The decision of the infringer not to present 
                evidence of advice of counsel is not relevant to a 
                determination of willful infringement under paragraph 
                (2).
            ``(4) Limitation on pleading.--Before the date on which a 
        court determines that the patent in suit is not invalid, is 
        enforceable, and has been infringed by the infringer, a 
        patentee may not plead and a court may not determine that an 
        infringer has willfully infringed a patent.''.
    (b) Report to Congressional Committees.--
            (1) In general.--Not later than 2 years after the date of 
        enactment of this Act, the Director shall report to the 
        Committee on the Judiciary of the House of Representatives and 
        the Committee on the Judiciary of the Senate, the findings and 
        recommendations of the Director on the operation of prior user 
        rights in selected countries in the industrialized world. The 
        report shall include the following:
                    (A) A comparison between patent laws of the United 
                States and the laws of other industrialized countries, 
                including the European Union, Japan, Canada, and 
                Australia.
                    (B) An analysis of the effect of prior user rights 
                on innovation rates in the selected countries.
                    (C) An analysis of the correlation, if any, between 
                prior user rights and start-up enterprises and the 
                ability to attract venture capital to start new 
                companies.
                    (D) An analysis of the effect of prior user rights, 
                if any, on small businesses, universities, and 
                individual inventors.
                    (E) An analysis of legal and constitutional issues, 
                if any, that arise from placing trade secret law in 
                patent law.
            (2) Consultation with other agencies.--In preparing the 
        report required under paragraph (1), the Director shall consult 
        with the Secretary of State and the Attorney General.
    (c) Defense to Infringement Based on Earlier Inventor.--Section 
273(b)(6) of title 35, United States Code, is amended to read as 
follows:
            ``(6) Personal defense.--The defense under this section may 
        be asserted only by the person who performed or caused the 
        performance of the acts necessary to establish the defense as 
        well as any other entity that controls, is controlled by, or is 
        under common control with such person and, except for any 
        transfer to the patent owner, the right to assert the defense 
        shall not be licensed or assigned or transferred to another 
        person except as an ancillary and subordinate part of a good 
        faith assignment or transfer for other reasons of the entire 
        enterprise or line of business to which the defense relates. 
        Notwithstanding the preceding sentence, any person may, on its 
        own behalf, assert a defense based on the exhaustion of rights 
        provided under paragraph (3), including any necessary elements 
        thereof.''.
    (d) Effective Date.--The amendments made by this section shall 
apply to any civil action commenced on or after the date of enactment 
of this Act.
    (e) Review Every 7 Years.--Not later than the end of the 7-year 
period beginning on the date of the enactment of this Act, and the end 
of every 7-year period thereafter, the Director shall--
            (1) conduct a study on the effectiveness and efficiency of 
        the amendments made by this section; and
            (2) submit to the Committee on the Judiciary of the House 
        of Representatives and the Committee on the Judiciary of the 
        Senate a report on the results of the study, including any 
        recommendations the Director has on amendments to the law and 
        other recommendations of the Director with respect to the right 
        of the inventor to obtain damages for patent infringement.

SEC. 6. POST-GRANT PROCEDURES AND OTHER QUALITY ENHANCEMENTS.

    (a) Citation of Prior Art.--Section 301 of title 35, United States 
Code, is amended to read as follows:

``Sec. 301. Citation of prior art

    ``(a) In General.--Any person at any time may cite to the Office in 
writing--
            ``(1) prior art consisting of patents or printed 
        publications which that person believes to have a bearing on 
        the patentability of any claim of a particular patent;
            ``(2) written statements of the patent owner filed in a 
        proceeding before a Federal court, the Patent and Trademark 
        Office, or the United States International Trade Commission 
        under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337), 
        in which the patent owner takes a position on the scope of one 
        or more patent claims; or
            ``(3) documentary evidence that the claimed invention was 
        in substantial public use or on sale in the United States more 
        than 1 year prior to the date of the application for patent in 
        the United States.
    ``(b) Submissions Part of Official File.--If the person citing 
prior art, written submissions, or documentary evidence under 
subsection (a) explains in writing the pertinence and manner of 
applying the prior art or documentary evidence to at least one claim of 
the patent, the citation of the prior art or documentary evidence (as 
the case may be) and the explanation thereof shall become a part of the 
official file of the patent.
    ``(c) Procedures for Written Statements.--
            ``(1) Submission of additional materials.--A party that 
        submits written statements under subsection (a)(2) in a 
        proceeding shall include any other documents, pleadings, or 
        evidence from the proceeding that address the patent owner's 
        statements or the claims addressed by the written statements.
            ``(2) Limitation on use of statements.--Written statements 
        submitted under subsection (a)(2) shall not be considered for 
        any purpose other than to determine the proper meaning of the 
        claims that are the subject of the request in a proceeding 
        ordered pursuant to section 304 or 313. Any such written 
        statements, and any materials submitted under paragraph (1), 
        that are subject to an applicable protective order shall be 
        redacted to exclude information subject to the order.
    ``(d) Identity Withheld.--Upon the written request of the person 
making the citation under subsection (a), the person's identity shall 
be excluded from the patent file and kept confidential.''.
    (b) Request for Reexamination.--The first sentence of section 302 
of title 35, United States Code, is amended to read as follows: ``Any 
person at any time may file a request for reexamination by the Office 
of any claim on a patent on the basis of any prior art or documentary 
evidence cited under paragraph (1) or (3) of subsection (a) of section 
301 of this title.''.
    (c) Reexamination.--Section 303(a) of title 35, United States Code, 
is amended to read as follows:
    ``(a) Within three months following the filing of a request for 
reexamination under section 302, the Director shall determine whether a 
substantial new question of patentability affecting any claim of the 
patent concerned is raised by the request, with or without 
consideration of other patents or printed publications. On the 
Director's own initiative, and at any time, the Director may determine 
whether a substantial new question of patentability is raised by 
patents and publications discovered by the Director, is cited under 
section 301, or is cited by any person other than the owner of the 
patent under section 302 or section 311. The existence of a substantial 
new question of patentability is not precluded by the fact that a 
patent or printed publication was previously considered by the 
Office.''.
    (d) Request for Inter Partes Reexamination.--Section 311(a) of 
title 35, United States Code, is amended to read as follows:
    ``(a) In General.--Any third-party requester at any time may file a 
request for inter partes reexamination by the Office of a patent on the 
basis of any prior art or documentary evidence cited under paragraph 
(1) or (3) of subsection (a) of section 301 of this title.''.
    (e) Conduct of Inter Partes Proceedings.--Section 314 of title 35, 
United States Code, is amended--
            (1) in the first sentence of subsection (a), by striking 
        ``conducted according to the procedures established for initial 
        examination under the provisions of sections 132 and 133'' and 
        inserting ``heard by an administrative patent judge in 
        accordance with procedures which the Director shall 
        establish'';
            (2) in subsection (b), by striking paragraph (2) and 
        inserting the following:
    ``(2) The third-party requester shall have the opportunity to file 
written comments on any action on the merits by the Office in the inter 
partes reexamination proceeding, and on any response that the patent 
owner files to such an action, if those written comments are received 
by the Office within 60 days after the date of service on the third-
party requester of the Office action or patent owner response, as the 
case may be.''; and
            (3) by adding at the end the following:
    ``(d) Oral Hearing.--At the request of a third party requestor or 
the patent owner, the administrative patent judge shall conduct an oral 
hearing, unless the judge finds cause lacking for such hearing.''.
    (f) Estoppel.--Section 315(c) of title 35, United States Code, is 
amended by striking ``or could have raised''.
    (g) Reexamination Prohibited After District Court Decision.--
Section 317(b) of title 35, United States Code, is amended--
            (1) in the subsection heading, by striking ``Final 
        Decision'' and inserting ``District Court Decision''; and
            (2) by striking ``Once a final decision has been entered'' 
        and inserting ``Once the judgment of the district court has 
        been entered''.
    (h) Post-Grant Opposition Procedures.--
            (1) In general.--Part III of title 35, United States Code, 
        is amended by adding at the end the following new chapter:

               ``CHAPTER 32--POST-GRANT REVIEW PROCEDURES

    ``Sec.
    ``321. Petition for post-grant review.
    ``322. Timing and bases of petition.
    ``323. Requirements of petition.
    ``324. Prohibited filings.
    ``325. Submission of additional information; showing of sufficient 
grounds.
    ``326. Conduct of post-grant review proceedings.
    ``327. Patent owner response.
    ``328. Proof and evidentiary standards.
    ``329. Amendment of the patent.
    ``330. Decision of the Board.
    ``331. Effect of decision.
    ``332. Settlement.
    ``333. Relationship to other pending proceedings.
    ``334. Effect of decisions rendered in civil action on post-grant 
review proceedings.
    ``335. Effect of final decision on future proceedings.
    ``336. Appeal.

``Sec. 321. Petition for post-grant review

    ``Subject to sections 322, 324, 332, and 333, a person who is not 
the patent owner may file with the Office a petition for cancellation 
seeking to institute a post-grant review proceeding to cancel as 
unpatentable any claim of a patent on any ground that could be raised 
under paragraph (2) or (3) of section 282(b) (relating to invalidity of 
the patent or any claim). The Director shall establish, by regulation, 
fees to be paid by the person requesting the proceeding, in such 
amounts as the Director determines to be reasonable.

``Sec. 322. Timing and bases of petition

    ``A post-grant proceeding may be instituted under this chapter 
pursuant to a cancellation petition filed under section 321 only if--
            ``(1) the petition is filed not later than 12 months after 
        the issuance of the patent or a reissue patent, as the case may 
        be; or
            ``(2) the patent owner consents in writing to the 
        proceeding.

``Sec. 323. Requirements of petition

    ``A cancellation petition filed under section 321 may be considered 
only if--
            ``(1) the petition is accompanied by payment of the fee 
        established by the Director under section 321;
            ``(2) the petition identifies the cancellation petitioner;
            ``(3) for each claim sought to be canceled, the petition 
        sets forth in writing the basis for cancellation and provides 
        the evidence in support thereof, including copies of patents 
        and printed publications, or written testimony of a witness 
        attested to under oath or declaration by the witness, or any 
        other information that the Director may require by regulation; 
        and
            ``(4) the petitioner provides copies of the petition, 
        including any evidence submitted with the petition and any 
        other information submitted under paragraph (3), to the patent 
        owner or, if applicable, the designated representative of the 
        patent owner.

``Sec. 324. Prohibited filings

    ``A post-grant review proceeding may not be instituted under 
section 322 if the petition for cancellation requesting the 
proceeding--
            ``(1) identifies the same cancellation petitioner and the 
        same patent as a previous petition for cancellation filed under 
        such section; or
            ``(2) is based on the best mode requirement contained in 
        section 112.

``Sec. 325. Submission of additional information; showing of sufficient 
                    grounds

    ``(a) In General.--The cancellation petitioner shall file such 
additional information with respect to the petition as the Director may 
require. For each petition submitted under section 321, the Director 
shall determine if the written statement, and any evidence submitted 
with the request, establish that a substantial question of 
patentability exists for at least one claim in the patent. The Director 
may initiate a post-grant review proceeding if the Director determines 
that the information presented provides sufficient grounds to believe 
that there is a substantial question of patentability concerning one or 
more claims of the patent at issue.
    ``(b) Notification; Determinations Not Reviewable.--The Director 
shall notify the patent owner and each petitioner in writing of the 
Director's determination under subsection (a), including a 
determination to deny the petition. The Director shall make that 
determination in writing not later than 60 days after receiving the 
petition. Any determination made by the Director under subsection (a), 
including whether or not to institute a post-grant review proceeding or 
to deny the petition, shall not be reviewable.

``Sec. 326. Conduct of post-grant review proceedings

    ``(a) In General.--The Director shall prescribe regulations, in 
accordance with section 2(b)(2)--
            ``(1) establishing and governing post-grant review 
        proceedings under this chapter and their relationship to other 
        proceedings under this title;
            ``(2) establishing procedures for the submission of 
        supplemental information after the petition for cancellation is 
        filed; and
            ``(3) setting forth procedures for discovery of relevant 
        evidence, including that such discovery shall be limited to 
        evidence directly related to factual assertions advanced by 
        either party in the proceeding, and the procedures for 
        obtaining such evidence shall be consistent with the purpose 
        and nature of the proceeding.
In carrying out paragraph (3), the Director shall bear in mind that 
discovery must be in the interests of justice.
    ``(b) Post-Grant Regulations.--Regulations under subsection 
(a)(1)--
            ``(1) shall require that the final determination in a post-
        grant proceeding issue not later than one year after the date 
        on which the post-grant review proceeding is instituted under 
        this chapter, except that, for good cause shown, the Director 
        may extend the 1-year period by not more than six months;
            ``(2) shall provide for discovery upon order of the 
        Director;
            ``(3) shall provide for publication of notice in the 
        Federal Register of the filing of a petition for post-grant 
        review under this chapter, for publication of the petition, and 
        documents, orders, and decisions relating to the petition, on 
        the website of the Patent and Trademark Office, and for filings 
        under seal exempt from publication requirements;
            ``(4) shall prescribe sanctions for abuse of discovery, 
        abuse of process, or any other improper use of the proceeding, 
        such as to harass or to cause unnecessary delay or unnecessary 
        increase in the cost of the proceeding;
            ``(5) may provide for protective orders governing the 
        exchange and submission of confidential information; and
            ``(6) shall ensure that any information submitted by the 
        patent owner in support of any amendment entered under section 
        329 is made available to the public as part of the prosecution 
        history of the patent.
    ``(c) Considerations.--In prescribing regulations under this 
section, the Director shall consider the effect on the economy, the 
integrity of the patent system, and the efficient administration of the 
Office.
    ``(d) Conduct of Proceeding.--The Patent Trial and Appeal Board 
shall, in accordance with section 6(b), conduct each post-grant review 
proceeding authorized by the Director.

``Sec. 327. Patent owner response

    ``After a post-grant proceeding under this chapter has been 
instituted with respect to a patent, the patent owner shall have the 
right to file, within a time period set by the Director, a response to 
the cancellation petition. The patent owner shall file with the 
response, through affidavits or declarations, any additional factual 
evidence and expert opinions on which the patent owner relies in 
support of the response.

``Sec. 328. Proof and evidentiary standards

    ``(a) In General.--The presumption of validity set forth in section 
282 shall not apply in a challenge to any patent claim under this 
chapter.
    ``(b) Burden of Proof.--The party advancing a proposition under 
this chapter shall have the burden of proving that proposition by a 
preponderance of the evidence.

``Sec. 329. Amendment of the patent

    ``(a) In General.--In response to a challenge in a petition for 
cancellation, the patent owner may file one motion to amend the patent 
in one or more of the following ways:
            ``(1) Cancel any challenged patent claim.
            ``(2) For each challenged claim, propose a substitute 
        claim.
            ``(3) Amend the patent drawings or otherwise amend the 
        patent other than the claims.
    ``(b) Additional Motions.--Additional motions to amend may be 
permitted only for good cause shown.
    ``(c) Scope of Claims.--An amendment under this section may not 
enlarge the scope of the claims of the patent or introduce new matter.

``Sec. 330. Decision of the Board

    ``If the post-grant review proceeding is instituted and not 
dismissed under this chapter, the Patent Trial and Appeal Board shall 
issue a final written decision addressing the patentability of any 
patent claim challenged and any new claim added under section 329.

``Sec. 331. Effect of decision

    ``(a) In General.--If the Patent Trial and Appeal Board issues a 
final decision under section 330 and the time for appeal has expired or 
any appeal proceeding has terminated, the Director shall issue and 
publish a certificate canceling any claim of the patent finally 
determined to be unpatentable and incorporating in the patent by 
operation of the certificate any new claim determined to be patentable.
    ``(b) New Claims.--Any new claim held to be patentable and 
incorporated into a patent in a post-grant review proceeding shall have 
the same effect as that specified in section 252 for reissued patents 
on the right of any person who made, purchased, offered to sell, or 
used within the United States, or imported into the United States, 
anything patented by such new claim, or who made substantial 
preparations therefor, before a certificate under subsection (a) of 
this section is issued.

``Sec. 332. Settlement

    ``(a) In General.--A post-grant review proceeding shall be 
terminated with respect to any petitioner upon the joint request of the 
petitioner and the patent owner, unless the Patent Trial and Appeal 
Board has issued a written decision before the request for termination 
is filed. If the post-grant review proceeding is terminated with 
respect to a petitioner under this paragraph, no estoppel shall apply 
to that petitioner. If no petitioner remains in the proceeding, the 
panel of administrative patent judges assigned to the proceeding shall 
terminate the proceeding.
    ``(b) Agreement in Writing.--Any agreement or understanding between 
the patent owner and a petitioner, including any collateral agreements 
referred to in the agreement or understanding, that is made in 
connection with or in contemplation of the termination of a post-grant 
review proceeding, must be in writing. A post-grant review proceeding 
as between the parties to the agreement or understanding may not be 
terminated until a copy of the agreement or understanding, including 
any such collateral agreements, has been filed in the Office. If any 
party filing such an agreement or understanding requests, the agreement 
or understanding shall be kept separate from the file of the post-grant 
review proceeding, and shall be made available only to Government 
agencies on written request.

``Sec. 333. Relationship to other proceedings

    ``(a) In General.--Notwithstanding subsection 135(a), sections 251 
and 252, and chapter 30, the Director may determine the manner in which 
any reexamination proceeding, reissue proceeding, interference 
proceeding (commenced with respect to an application for patent filed 
before the effective date provided in section 3(k) of the Patent Reform 
Act of 2009), derivation proceeding, or post-grant review proceeding, 
that is pending during a post-grant review proceeding, may proceed, 
including providing for stay, transfer, consolidation, or termination 
of any such proceeding.
    ``(b) Stays.--The Director may stay a post-grant review proceeding 
if a pending civil action for infringement of a patent, or a pending 
proceeding before the United States International Trade Commission 
under section 337 of the Tariff Act of 1930 (19 U.S.C. 1337), addresses 
the same or substantially the same questions of patentability raised 
against the patent in a petition for the post-grant review proceeding.
    ``(c) Effect of Commencement of Proceeding.--The commencement of a 
post-grant review proceeding--
            ``(1) shall not limit in any way the right of the patent 
        owner to commence an action for infringement of the patent; and
            ``(2) shall not be cited as evidence relating to the 
        validity of any claim of the patent in any proceeding before a 
        court or the International Trade Commission concerning the 
        patent.

``Sec. 334. Effect of decisions rendered in civil action or ITC 
                    proceeding on post-grant review proceedings

    ``If a final decision is entered against a party in a civil action 
arising in whole or in part under section 1338 of title 28, or a 
determination made by the United States International Trade Commission 
against a party in a proceeding under section 337 of the Tariff Act of 
1930 (19 U.S.C. 1337) has become final, establishing that the party has 
not sustained its burden of proving the invalidity of any patent 
claim--
            ``(1) that party to the civil action or proceeding (as the 
        case may be) and the privies of that party may not thereafter 
        request a post-grant review proceeding on that patent claim on 
        the basis of any grounds, under the provisions of section 321, 
        which that party or the privies of that party raised or could 
        have raised; and
            ``(2) the Director may not thereafter maintain a post-grant 
        review proceeding that was requested, before the final decision 
        was so entered or final determination was so made (as the case 
        may be), by that party or the privies of that party on the 
        basis of such grounds.

``Sec. 335. Effect of final decision on future proceedings

    ``If a final decision under section 330 is favorable to the 
patentability of any original or new claim of the patent challenged by 
the cancellation petitioner, the cancellation petitioner may not 
thereafter, based on any ground that the cancellation petitioner raised 
during the post-grant review proceeding--
            ``(1) request or pursue a reexamination of such claim under 
        chapter 31;
            ``(2) request or pursue a derivation proceeding with 
        respect to such claim;
            ``(3) request or pursue a post-grant review proceeding 
        under this chapter with respect to such claim;
            ``(4) assert the invalidity of any such claim in any civil 
        action arising in whole or in part under section 1338 of title 
        28; or
            ``(5) assert the invalidity of any such claim in defense to 
        a proceeding brought under section 337 of the Tariff Act of 
        1930 (19 U.S.C. 1337).

``Sec. 336. Appeal

    ``A party dissatisfied with the final determination of the Patent 
Trial and Appeal Board in a post-grant proceeding under this chapter 
may appeal the determination under sections 141 through 144. Any party 
to the post-grant proceeding shall have the right to be a party to the 
appeal.''.
    (i) Conforming Amendment.--The table of chapters for part III of 
title 35, United States Code, is amended by adding at the end the 
following:

                                    ``32. Post-Grant Review Proceedings
                                                     321''.
    (j) Repeal.--Section 4607 of the Intellectual Property and 
Communications Omnibus Reform Act of 1999, as enacted by section 
1000(a)(9) of Public Law 106-113, is repealed.
    (k) Effective Dates.--
            (1) In general.--The amendments and repeal made by this 
        section shall take effect at the end of the 1-year period 
        beginning on the date of the enactment of this Act.
            (2) Applicability to ex parte and inter partes 
        proceedings.--Notwithstanding any other provision of law, 
        sections 301 and 311 through 318 of title 35, United States 
        Code, as amended by this section, shall apply to any patent 
        that issues before, on, or after the effective date under 
        paragraph (1) from an original application filed on any date.
            (3) Applicability to post-grant proceedings.--The 
        amendments made by subsections (h) and (i) shall apply to 
        patents issued on or after the effective date under paragraph 
        (1).
    (l) Regulations.--The Under Secretary of Commerce for Intellectual 
Property and Director of the United States Patent and Trademark Office 
(in this subsection referred to as the ``Director'') shall, not later 
than the date that is 1 year after the date of the enactment of this 
Act, issue regulations to carry out chapter 32 of title 35, United 
States Code, as added by subsection (h) of this section.

SEC. 7. DEFINITIONS; PATENT TRIAL AND APPEAL BOARD.

    (a) Definitions.--Section 100 of title 35, United States Code (as 
amended by section 3 of this Act), is further amended--
            (1) in subsection (e), by striking ``or inter partes 
        reexamination under section 311''; and
            (2) by adding at the end the following:
    ``(k) The term `cancellation petitioner' means the real party in 
interest requesting cancellation of any claim of a patent under chapter 
31 of this title and the privies of the real party in interest.''.
    (b) Patent Trial and Appeal Board.--Section 6 of title 35, United 
States Code, is amended to read as follows:

``Sec. 6. Patent Trial and Appeal Board

    ``(a) Establishment and Composition.--There shall be in the Office 
a Patent Trial and Appeal Board. The Director, the Deputy Director, the 
Commissioner for Patents, the Commissioner for Trademarks, and the 
administrative patent judges shall constitute the Patent Trial and 
Appeal Board. The administrative patent judges shall be persons of 
competent legal knowledge and scientific ability who are appointed by 
the Secretary of Commerce. Any reference in any Federal law, Executive 
order, rule, regulation, or delegation of authority, or any document of 
or pertaining to the Board of Patent Appeals and Interferences is 
deemed to refer to the Patent Trial and Appeal Board.
    ``(b) Duties.--The Patent Trial and Appeal Board shall--
            ``(1) on written appeal of an applicant, review adverse 
        decisions of examiners upon application for patents;
            ``(2) on written appeal of a patent owner, review adverse 
        decisions of examiners upon patents in reexamination 
        proceedings under chapter 30;
            ``(3) conduct derivation proceedings under subsection 
        135(a); and
            ``(4) conduct post-grant opposition proceedings under 
        chapter 32.
Each appeal and derivation proceeding shall be heard by at least 3 
members of the Patent Trial and Appeal Board, who shall be designated 
by the Director. Only the Patent Trial and Appeal Board may grant 
rehearings. The Director shall assign each post-grant review proceeding 
to a panel of 3 administrative patent judges. Once assigned, each such 
panel of administrative patent judges shall have the responsibilities 
under chapter 32 in connection with post-grant review proceedings.''.

SEC. 8. STUDY AND REPORT ON REEXAMINATION PROCEEDINGS.

    The Director shall, not later than 2 years after the date of the 
enactment of this Act--
            (1) conduct a study of the effectiveness and efficiency of 
        the different forms of proceedings available under title 35, 
        United States Code, for the reexamination of patents; and
            (2) submit to the Committee on the Judiciary of the House 
        of Representatives and the Committee on the Judiciary of the 
        Senate a report on the results of the study, including any of 
        the Director's suggestions for amending the law, and any other 
        recommendations the Director has with respect to patent 
        reexamination proceedings.

SEC. 9. PREISSUANCE SUBMISSIONS BY THIRD PARTIES.

    Section 122 of title 35, United States Code, is amended by adding 
at the end the following:
    ``(e) Preissuance Submissions by Third Parties.--
            ``(1) In general.--Any person may submit for consideration 
        and inclusion in the record of a patent application, any 
        patent, published patent application, or other publication of 
        potential relevance to the examination of the application, if 
        such submission is made in writing before the earlier of--
                    ``(A) the date a notice of allowance under section 
                151 is mailed in the application for patent; or
                    ``(B) either--
                            ``(i) 6 months after the date on which the 
                        application for patent is published under 
                        section 122, or
                            ``(ii) the date of the first rejection 
                        under section 132 of any claim by the examiner 
                        during the examination of the application for 
                        patent,
                whichever occurs later.
            ``(2) Other requirements.--Any submission under paragraph 
        (1) shall--
                    ``(A) set forth a concise description of the 
                asserted relevance of each submitted document;
                    ``(B) be accompanied by such fee as the Director 
                may prescribe;
                    ``(C) include a statement by the person making such 
                submission affirming that the submission was made in 
                compliance with this section; and
                    ``(D) identify the real party-in-interest making 
                the submission.''.

SEC. 10. VENUE AND JURISDICTION.

    (a) Venue for Patent Cases.--Section 1400 of title 28, United 
States Code, is amended by striking subsection (b) and inserting the 
following:
    ``(b) Notwithstanding section 1391 of this title, in any civil 
action arising under any Act of Congress relating to patents, a party 
shall not manufacture venue by assignment, incorporation, or otherwise 
to invoke the venue of a specific district court.
    ``(c) Notwithstanding section 1391 of this title, any civil action 
for patent infringement or any action for declaratory judgment may be 
brought only in a judicial district--
            ``(1) where the defendant has its principal place of 
        business or in the location or place in which the defendant is 
        incorporated or formed, or, for foreign corporations with a 
        United States subsidiary, where the defendant's primary United 
        States subsidiary has its principal place of business or is 
        incorporated or formed;
            ``(2) where the defendant has committed substantial acts of 
        infringement and has a regular and established physical 
        facility that the defendant controls and that constitutes a 
        substantial portion of the operations of the defendant;
            ``(3) where the primary plaintiff resides, if the primary 
        plaintiff in the action is--
                    ``(A) an institution of higher education as defined 
                under section 101(a) of the Higher Education Act of 
                1965 (20 U.S.C. 1001(a)); or
                    ``(B) a nonprofit organization that--
                            ``(i) qualifies for treatment under section 
                        501(c)(3) of the Internal Revenue Code (26 
                        U.S.C. 501(c)(3));
                            ``(ii) is exempt from taxation under 
                        section 501(a) of such Code; and
                            ``(iii) serves as the patent and licensing 
                        organization for an institution of higher 
                        education as defined under section 101(a) of 
                        the Higher Education Act of 1965 (20 U.S.C. 
                        1001(a)); or
            ``(4) where the plaintiff resides, if the sole plaintiff in 
        the action is an individual inventor who is a natural person 
        and who qualifies at the time such action is filed as a micro-
        entity pursuant to section 123 of title 35.
    ``(d) If a plaintiff brings a civil action for patent infringement 
or declaratory judgment relief under subsection (c), then the defendant 
may request the district court to transfer that action to another 
district or division where, in the court's determination--
            ``(1) any of the parties has substantial evidence or 
        witnesses that otherwise would present considerable evidentiary 
        burdens to the defendant if such transfer were not granted;
            ``(2) such transfer would not cause undue hardship to the 
        plaintiff; and
            ``(3) venue would be otherwise appropriate under section 
        1391 of this title.''.
    (b) Interlocutory Appeals.--Subsection (c) of section 1292 of title 
28, United States Code, is amended--
            (1) by striking ``and'' at the end of paragraph (1);
            (2) by striking the period at the end of paragraph (2) and 
        inserting ``; and''; and
            (3) by adding at the end the following:
            ``(3) of an appeal from an interlocutory order or decree 
        determining construction of claims in a civil action for patent 
        infringement under section 271 of title 35.
Application for an appeal under paragraph (3) shall be made to the 
court within 10 days after entry of the order or decree. The district 
court shall have discretion whether to approve the application and, if 
so, whether to stay proceedings in the district court during pendency 
of the appeal.''.
    (c) Technical Amendments Relating to Venue.--Sections 32, 145, 146, 
154(b)(4)(A), and 293 of title 35, United States Code, and section 
21(b)(4) of the Act entitled ``An Act to provide for the registration 
and protection of trademarks used in commerce, to carry out the 
provisions of certain international conventions, and for other 
purposes'', approved July 5, 1946 (commonly referred to as the 
``Trademark Act of 1946'' or the ``Lanham Act'' (15 U.S.C. 1071(b)(4)), 
are each amended by striking ``United States District Court for the 
District of Columbia'' each place that term appears and inserting 
``United States District Court for the Eastern District of Virginia''.

SEC. 11. PATENT AND TRADEMARK OFFICE REGULATORY AUTHORITY.

    (a) Fee Setting.--
            (1) In general.--The Director shall have authority to set 
        or adjust by rule any fee established or charged by the Office 
        under sections 41 and 376 of title 35, United States Code or 
        under section 31 of the Trademark Act of 1946 (15 U.S.C. 1113) 
        for the filing or processing of any submission to, and for all 
        other services performed by or materials furnished by, the 
        Office, provided that such fee amounts are set to reasonably 
        compensate the Office for the services performed.
            (2) Reduction of fees in certain fiscal years.--In any 
        fiscal year, the Director--
                    (A) shall consult with the Patent Public Advisory 
                Committee and the Trademark Public Advisory Committee 
                on the advisability of reducing any fees described in 
                paragraph (1); and
                    (B) after that consultation may reduce such fees.
            (3) Role of the public advisory committee.--The Director 
        shall--
                    (A) submit to the Patent or Trademark Public 
                Advisory Committee, or both, as appropriate, any 
                proposed fee under paragraph (1) not less than 45 days 
                before publishing any proposed fee in the Federal 
                Register;
                    (B) provide the relevant advisory committee 
                described in subparagraph (A) a 30-day period following 
                the submission of any proposed fee, on which to 
                deliberate, consider, and comment on such proposal, and 
                require that--
                            (i) during such 30-day period, the relevant 
                        advisory committee hold a public hearing 
                        related to such proposal; and
                            (ii) the Director shall assist the relevant 
                        advisory committee in carrying out such public 
                        hearing, including by offering the use of 
                        Office resources to notify and promote the 
                        hearing to the public and interested 
                        stakeholders;
                    (C) require the relevant advisory committee to make 
                available to the public a written report detailing the 
                comments, advice, and recommendations of the committee 
                regarding any proposed fee;
                    (D) consider and analyze any comments, advice, or 
                recommendations received from the relevant advisory 
                committee before setting or adjusting any fee; and
                    (E) notify, through the Chair and Ranking Member of 
                the Committee on the Judiciary of the House of 
                Representatives and the Committee on the Judiciary of 
                the Senate, the Congress of any final decision 
                regarding proposed fees.
            (4) Publication in the federal register.--
                    (A) In general.--Any rules prescribed under this 
                subsection shall be published in the Federal Register.
                    (B) Rationale.--Any proposal for a change in fees 
                under this section shall--
                            (i) be published in the Federal Register; 
                        and
                            (ii) include, in such publication, the 
                        specific rationale and purpose for the 
                        proposal, including the possible expectations 
                        or benefits resulting from the proposed change.
                    (C) Public comment period.--Following the 
                publication of any proposed fee in the Federal Register 
                pursuant to subparagraph (A), the Director shall seek 
                public comment for a period of not less than 45 days.
            (5) Congressional comment period.--Following the 
        notification described in paragraph (3)(E), Congress shall have 
        not more than 45 days to consider and comment on any proposed 
        fee under paragraph (1). No proposed fee shall be effective 
        prior to the end of such 45-day comment period.
            (6) Rule of construction.--No rules prescribed under this 
        subsection may diminish--
                    (A) an applicant's rights under this title or the 
                Trademark Act of 1946; or
                    (B) any rights under a ratified treaty.
    (b) Fees for Patent Services.--Division B of Public Law 108-447 is 
amended in title VIII of the Departments of Commerce, Justice and 
State, the Judiciary, and Related Agencies Appropriations Act, 2005, in 
section 801(a) by striking ``During fiscal years 2005, 2006 and 2007'', 
and inserting ``Until such time as the Director sets or adjusts the 
fees otherwise,''.
    (c) Adjustment of Trademark Fees.--Division B of Public Law 108-447 
is amended in title VIII of the Departments of Commerce, Justice and 
State, the Judiciary and Related Agencies Appropriations Act, 2005, in 
section 802(a) by striking ``During fiscal years 2005, 2006 and 2007'', 
and inserting ``Until such time as the Director sets or adjusts the 
fees otherwise,''.
    (d) Effective Date, Applicability, and Transitional Provision.--
Division B of Public Law 108-447 is amended in title VIII of the 
Departments of Commerce, Justice and State, the Judiciary and Related 
Agencies Appropriations Act, 2005, in section 803(a) by striking ``and 
shall apply only with respect to the remaining portion of fiscal year 
2005, 2006 and 2007.''.
    (e) Rule of Construction.--Nothing in this section shall be 
construed to affect any other provision of Division B of Public Law 
108-447, including section 801(c) of title VII of the Departments of 
Commerce, Justice and State, the Judiciary and Related Agencies 
Appropriations Act, 2005.
    (f) Definitions.--In this section:
            (1) Director.--The term ``Director'' means the Director of 
        the United States Patent and Trademark Office.
            (2) Office.--The term ``Office'' means the United States 
        Patent and Trademark Office.
            (3) Trademark act of 1946.--The term ``Trademark Act of 
        1946'' means an Act entitled ``Act to provide for the 
        registration and protection of trademarks used in commerce, to 
        carry out the provisions of certain international conventions, 
        and for other purposes'', approved July 5, 1946 (15 U.S.C. 1051 
        et seq.) (commonly referred to as the Trademark Act of 1946 or 
        the Lanham Act).

SEC. 12. RESIDENCY OF FEDERAL CIRCUIT JUDGES.

    Section 44(c) of title 28, United States Code, is amended by 
striking the second sentence.

SEC. 13. MICRO-ENTITY DEFINED.

    Chapter 11 of title 35, United States Code, is amended by adding at 
the end the following new section:

``Sec. 123. Micro-entity defined

    ``(a) In General.--For purposes of this title, the term `micro-
entity' means an applicant who makes a certification under either 
subsections (b) or (c).
    ``(b) Unassigned Application.--For an unassigned application, each 
applicant shall certify that the applicant--
            ``(1) qualifies as a small entity, as defined in 
        regulations issued by the Director;
            ``(2) has not been named on 5 or more previously filed 
        patent applications;
            ``(3) has not assigned, granted, or conveyed, and is not 
        under an obligation by contract or law to assign, grant, or 
        convey, a license or any other ownership interest in the 
        particular application; and
            ``(4) does not have a gross income, as defined in section 
        61(a) of the Internal Revenue Code, exceeding 2.5 times the 
        median household income, as reported by the Bureau of the 
        Census, in the calendar year immediately preceding the calendar 
        year in which the examination fee is being paid.
    ``(c) Assigned Application.--For an assigned application, each 
applicant shall certify that the applicant--
            ``(1) qualifies as a small entity, as defined in 
        regulations issued by the Director, and meets the requirements 
        of subsection (b)(4);
            ``(2) has not been named on 5 or more previously filed 
        patent applications; and
            ``(3) has assigned, granted, conveyed, or is under an 
        obligation by contract or law to assign, grant, or convey, a 
        license or other ownership interest in the particular 
        application to an entity that has 5 or fewer employees and that 
        such entity has a gross income, as defined in section 61(a) of 
        the Internal Revenue Code, that does not exceed 2.5 times the 
        median household income, as reported by the Bureau of the 
        Census, in the calendar year immediately preceding the calendar 
        year in which the examination fee is being paid.
    ``(d) Income Level Adjustment.--The gross income levels established 
under subsections (b) and (c) shall be adjusted by the Director on 
October 1, 2009, and every year thereafter, to reflect any fluctuations 
occurring during the previous 12 months in the Consumer Price Index, as 
determined by the Secretary of Labor.''.

SEC. 14. TECHNICAL AMENDMENTS.

    (a) Joint Inventions.--Section 116 of title 35, United States Code, 
is amended--
                    (1) in the first paragraph, by striking ``When'' 
                and inserting ``(a) Joint Inventions.--When'';
                    (2) in the second paragraph, by striking ``If a 
                joint inventor'' and inserting ``(b) Omitted 
                Inventor.--If a joint inventor''; and
                    (3) in the third paragraph, by striking 
                ``Whenever'' and inserting ``(c) Correction of Errors 
                in Application.--Whenever''.
    (b) Filing of Application in Foreign Country.--Section 184 of title 
35, United States Code, is amended--
            (1) in the first paragraph, by striking ``Except when'' and 
        inserting ``(a) Filing in Foreign Country.--Except when'';
            (2) in the second paragraph, by striking ``The term'' and 
        inserting ``(b) Application.--The term''; and
            (3) in the third paragraph, by striking ``The scope'' and 
        inserting ``(c) Subsequent Modifications, Amendments, and 
        Supplements.--The scope''.
    (c) Reissue of Defective Patents.--Section 251 of title 35, United 
States Code, is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) In General.--Whenever'';
            (2) in the second paragraph, by striking ``The Director'' 
        and inserting ``(b) Multiple Reissued Patents.--The Director'';
            (3) in the third paragraph, by striking ``The provision'' 
        and inserting ``(c) Applicability of This Title.--The 
        provisions''; and
            (4) in the last paragraph, by striking ``No reissued 
        patent'' and inserting ``(d) Reissue Patent Enlarging Scope of 
        Claims.--No reissued patent''.
    (d) Effect of Reissue.--Section 253 of title 35, United States 
Code, is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) In General.--Whenever''; and
            (2) in the second paragraph, by striking ``in like manner'' 
        and inserting ``(b) Additional Disclaimer or Dedication.--In 
        the manner set forth in subsection (a),''.
    (e) Correction of Named Inventor.--Section 256 of title 35, United 
States Code, is amended--
            (1) in the first paragraph, by striking ``Whenever'' and 
        inserting ``(a) Correction.--Whenever''; and
            (2) in the second paragraph, by striking ``The error'' and 
        inserting ``(b) Patent Valid if Error Corrected.--The error''.
    (f) Presumption of Validity.--Section 282 of title 35, United 
States Code, is amended--
            (1) in the first undesignated paragraph, by striking ``A 
        patent'' and inserting ``(a) In General.--A patent'';
            (2) in the second undesignated paragraph, by striking ``The 
        following'' and inserting ``(b) Defenses.--The following''; and
            (3) in the third undesignated paragraph, by striking ``In 
        actions'' and inserting ``(c) Notice of Actions; Actions During 
        Extension of Patent Term.--In actions''.

SEC. 15. EFFECTIVE DATE; RULE OF CONSTRUCTION.

    (a) Effective Date.--Except as otherwise provided in this Act, this 
Act and the amendments made by this Act shall take effect upon the 
expiration of the 12 month period beginning on the date of the 
enactment of this Act and shall apply to any patent issued on or after 
that effective date.
    (b) Continuity of Intent Under the Create Act.--The enactment of 
section 102(b)(3) of title 35, United States Code, under section 3(b) 
of this Act is done with the same intent to promote joint research 
activities that was expressed, including in the legislative history, 
through the enactment of the Cooperative Research and Technology 
Enhancement Act of 2004 (Public Law 108-453; the ``CREATE Act''), the 
amendments of which are stricken by section 3(c) of this Act. The 
United States Patent and Trademark Office shall administer section 
102(b)(3) of title 35, United States Code, in a manner consistent with 
the legislative history of the CREATE Act that was relevant to its 
administration by the United States Patent and Trademark Office.

SEC. 16. STUDY OF SPECIAL MASTERS IN PATENT CASES.

    (a) In General.--Not later than 1 year after the date of the 
enactment of this Act, the Director of the Administrative Office of the 
United States Courts shall conduct a study of, and submit to the 
Committee on the Judiciary of the House of Representatives and the 
Committee on the Judiciary of the Senate a report on, the use of 
special masters in patent litigation who are appointed in accordance 
with Rule 53 of the Federal Rules of Civil Procedure.
    (b) Objective.--In conducting the study under subsection (a), the 
Director of the Administrative Office of the United States Courts shall 
consider whether the use of special masters has been beneficial in 
patent litigation and what, if any, program should be undertaken to 
facilitate the use by the judiciary of special masters in patent 
litigation.
    (c) Factors To Consider.--In conducting the study under subsection 
(a), the Director, in consultation with the Federal Judicial Center, 
shall consider--
            (1) the basis upon which courts appoint special masters 
        under Rule 53(b) of the Federal Rules of Civil Procedure;
            (2) the frequency with which special masters have been used 
        by the courts;
            (3) the role and powers special masters are given by the 
        courts;
            (4) the subject matter at issue in cases that use special 
        masters;
            (5) the impact on court time and costs in cases where a 
        special master is used as compared to cases where no special 
        master is used;
            (6) the legal and technical training and experience of 
        special masters;
            (7) whether the use of special masters has an impact on the 
        reversal rate of district court decisions at the Court of 
        Appeals for the Federal Circuit; and
            (8) any other factors that the Director believes would 
        assist in gauging the effectiveness of special masters in 
        patent litigation.

SEC. 17. STUDY ON WORKPLACE CONDITIONS.

    The Comptroller General shall, not later than 2 years after the 
date of the enactment of this Act--
            (1) conduct a study of workplace conditions for the 
        examiner corps of the United States Patent and Trademark 
        Office, including the effect, if any, of this Act and the 
        amendments made by this Act on--
                    (A) recruitment, retention, and promotion of 
                employees; and
                    (B) workload, quality assurance, and employee 
                grievances; and
            (2) submit to the Committee on the Judiciary of the House 
        of Representatives and the Committee on the Judiciary of the 
        Senate a report on the results of the study, including any 
        suggestions for improving workplace conditions, together with 
        any other recommendations that the Comptroller General has with 
        respect to patent reexamination proceedings.

SEC. 18. STUDY ON PATENT DAMAGES.

    (a) In General.--The Director shall conduct a study of patent 
damage awards in cases where such awards have been based on a 
reasonable royalty under section 284 of title 35, United States Code. 
The study should, at a minimum, consider cases from 1990 to the 
present.
    (b) Conduct.--In conducting the study under subsection (a), the 
Director shall investigate, at a minimum, the following:
            (1) Whether the mean or median dollar amount of reasonable-
        royalty-based patent damages awarded by courts or juries, as 
        the case may be, has significantly increased on a per case 
        basis during the period covered by the study, taking into 
        consideration adjustments for inflation and other relevant 
        economic factors.
            (2) Whether there has been a pattern of excessive and 
        inequitable reasonable-royalty-based damages during the period 
        covered by the study and, if so, any contributing factors, 
        including, for example, evidence that Federal courts have 
        routinely and inappropriately broadened the scope of the 
        ``entire market value rule'', or that juries have routinely 
        misapplied the entire market value rule to the facts at issue.
            (3) To the extent that a pattern of excessive and 
        inequitable damage awards exists, measures that could guard 
        against such inappropriate awards without unduly prejudicing 
        the rights and remedies of patent holders or significantly 
        increasing litigation costs, including legislative reforms or 
        improved model jury instructions.
            (4) To the extent that a pattern of excessive and 
        inequitable damage awards exists, whether legislative proposals 
        that would mandate, or create a presumption in favor of, 
        apportionment of reasonable-royalty-based patent damages would 
        effectively guard against such inappropriate awards without 
        unduly prejudicing the rights and remedies of patent holders or 
        significantly increasing litigation costs.
    (c) Report.--Not later than 1 year after the date of the enactment 
of this Act, the Director shall submit to the Congress a report on the 
study conducted under this section.

SEC. 19. SEVERABILITY.

    If any provision of this Act or of any amendment or repeals made by 
this Act, or the application of such a provision to any person or 
circumstance, is held to be invalid or unenforceable, the remainder of 
this Act and the amendments and repeals made by this Act, and the 
application of this Act and such amendments and repeals to any other 
person or circumstance, shall not be affected by such holding.
                                 



    Mr. Conyers. And now I turn to my friend, the Ranking 
Member, Lamar Smith, for his comments.
    Mr. Smith. Thank you, Mr. Chairman, and thank you for your 
opening statement as well.
    Mr. Chairman, our Committee's jurisdiction over patent law 
is described in Article 1, Section 8 of the Constitution. The 
foresight of our founders, particularly Thomas Jefferson, in 
creating an intellectual property system, demonstrates their 
understanding of how patent rights ultimately benefit the 
American people.
    In the previous two Congresses, we laid a substantial 
foundation for patent reform by passing bills in the House. We 
have continued that momentum this year with the introduction of 
H.R. 1260, the Patent Reform Act of 2009. Chairman Conyers and 
I have discussed the text of this legislation, and we agree 
that modifications need to be made when appropriate, but we do 
not want to amend an otherwise sound bill.
    We support the core principles that have animated our work 
these past 5 years. We must enact a bill that enhances patent 
quality, discourages frivolous litigation, harmonizes 
international patent principles, and enforces core rights.
    Frankly, our bill promotes these goals better than the 
Senate version. In terms of individual issues, I am concerned 
about the Senate Judiciary Committee's treatment of damages, 
post-grant opposition, and venue.
    On damages, the key sticking point in our debate during 
previous years, the House bill acknowledges the difficulty with 
which courts and juries have struggled with evaluating the 
actual contributions made by patent holders defending their 
rights versus contributions made by other.
    The Senate gate keeper treatment needs more review. I am 
concerned that it may result in confusion for jurors when 
called upon to apportion value fairly when calculating damages. 
Concerning post-grant opposition, one of the achievements from 
the 110th Congress was the compromise we struck to create a 
robust 1-year window of review coupled with an enhanced 
interparties reexamination construct that would substitute for 
a second window.
    I know there are parties who want to jettison reexamine in 
favor of a limitless second window. Unless the principles and 
the stakeholders can unanimously agree to this change, I think 
we may end up going backwards on an issue of significant 
importance.
    As for venue, many of us are digesting the recent court 
cases, especially In re TS Tech, which may obviate the need to 
legislate in this area. But TS Tech didn't address a 
complicated factual scenario or require highly nuanced legal 
reasoning.
    Given the simple fact at issue in TS Tech, we may need to 
insist on a legislative response that provides greater guidance 
and clarity about time, litigant presence, and behavior to a 
particular judicial district.
    This Committee has taken the initiative because patent law 
changes are necessary to bolster the U.S. economy and our 
Nation's global competitiveness and to improve the quality of 
living for all Americans.
    A recent study valued U.S. intellectual property at 
approximately $5 trillion or about half of the U.S. gross 
domestic product. American IP industries now account also for 
over half of all U.S. exports and represent 40 percent of our 
economic growth.
    These industries provide millions of Americans with well-
paying jobs. This progress will end unless we address frivolous 
patent litigation against high-tech companies, which has 
doubled in the last 5 years. This bill eliminates the legal 
gamesmanship, and it rewards lawsuit abuses over genuine 
innovation and creativity.
    It enhances the quality of patents and increases public 
confidence and their integrity. All industries directly or 
indirectly affected by patents including finance, automotive 
manufacturing, high tech, bio tech, and pharmaceuticals will 
benefit.
    H.R. 1260 will help all legitimate enterprises from the 
lone inventor in their garage to a high-tech company that files 
1,000 patents each year and all business in between.
    Mr. Chairman, I look forward to hearing from our witnesses 
today and to working with you and others on this legislation in 
the weeks ahead, and I will yield back the balance of my time.
    Mr. Conyers. Thank you for an excellent statement. Does any 
other Member feel the desire to make a brief comment before we 
start?
    Yes. Well, let me look this side first.
    Mr. Berman? Have you an opening comment?
    Mr. Berman. If you are going to open it up for comments, I 
have an opening comment.
    Mr. Conyers. Open for comment.
    Mr. Berman. Okay. First I want to thank you really very 
much for taking on and leading the effort on this complex and 
thorny and not always exciting issue.
    Congressman Boucher and I were concerned about poor patent 
quality and started some of these reform efforts, we think, 6 
or 7 years ago. As we get older, our memory is--well, never 
mind.
    But we got a lot of bolstering on that notion from the 
National Academies of Science report and the FDC report, and as 
you said, we think a robust patent protection promotes 
innovation, but we want patents to protect only those 
inventions that are truly innovative.
    If a patent system allows questionable patents to issue and 
doesn't provide adequate safeguards about patent abuses, the 
system stifles innovation and interferes with the competitive 
market forces.
    So I felt last year we really tried very hard to find a 
compromise on almost every single issue. We addressed an issue 
that was pushed by a number of witnesses here, Mr. Johnson, to 
deal with what was viewed at--we talk about frivolous 
litigation, but you made a case for frivolous defenses and the 
inequitable conduct defense and the abuse and the cost.
    And I notice in the Senate bill there is not a word of 
reform on what for you, at that time, was a huge burden and an 
unfair burden. So I wanted that dig. And then I think the 
Chairman would like me to close. Mr. Smith, as well as the 
Chairman, we have all been heavily involved in all of this.
    On the damages issue, I will just say this: There are 
problems of overbroad claiming, juries not having adequate 
guidance, costs of litigation versus settlement, and the case 
for some valuation of the nature of the infringement in the 
context of the total product. Is the gate keeper system a way 
of dealing with those problems, or is it just simply a 
formalized codification of existing law.
    I think that is going to be a big issue for our Committee 
as we look at it, and I think the Chairman made reference at 
the end of his comments, which I just want to reaffirm this 
whole notion of the budget deficit at PTO, the backlog, all the 
problems caused there, we got to find a way of number one, 
insuring against the diversion, and ensuring that that system 
is adequately financed to not let our innovation suffer because 
of the time it takes for an inventor to get a patent approved.
    Thank you.
    Mr. Conyers. Thank you.
    Bob Goodlatte?
    Mr. Goodlatte. Thank you, Mr. Chairman. I want to thank you 
and Ranking Member Smith. We have been working for many years 
to update our patent laws to ensure that the incentives our 
framers envisioned when they wrote Article 1, Section 8 of our 
Constitution remain meaningful and effective.
    The U.S. patent system must work efficiently if America is 
remain the world leader in innovation. It is only right that as 
more and more inventions with increasing complexity emerge, we 
should examine our Nation's patent laws to ensure that they 
still work efficiently, and that they still encourage and not 
discourage innovation.
    However, it is becoming increasingly clear that current 
patent laws and the court's interpretation of those laws do not 
sufficiently contemplate the complexities of today's economy. 
Cottage industries are springing up that seek to take advantage 
of this complexity as well as loopholes in our patent laws to 
extort money from companies both large and small.
    To be sure, these problems are not limited to the high-tech 
industry. Inventors in all industries are increasingly facing 
these types of problems. The solutions to these problems 
involve both insuring that quality patents are issued in the 
first place and ensuring that we take a good hard look at 
patent litigation and enforcement laws to make sure that they 
do not create incentives for opportunists with invalid claims 
to exploit.
    H.R. 1260 addresses both of these concerns. It would create 
a new post-grant opposition system in which interested parties 
would request the U.S. PTO to review the scope and validity of 
a patent after its issuance. It also includes provisions to 
ensure that patent litigation benefits those valid claims but 
not those opportunists who seek to abuse the litigation 
process.
    The Senate is also working on this issue, and I am 
encouraged by the Senate Judiciary Committee's action on patent 
reform this year. The Senate Judiciary Committee has reported 
out legislation that tackles many big problems that innovators 
face in today's economy.
    I look forward to seeing the final version that emerges 
from the Senate floor. However, I would caution the House 
against automatically taking up the Senate bill on the House 
floor. While that bill goes a long way, it needs further 
improvement.
    One area in particular that needs additional work is the 
damages section. The Senate legislation takes positive steps 
forward by requiring determinations on the record as to the 
appropriate methodologies used to calculate damages; however, I 
believe further guidance is needed in order to bring more 
predictability to the process.
    While I am sympathetic to the arguments of those who work 
in fields where there are relatively few patents involved in 
any one product, I also believe that the advent of products 
comprised of hundreds and even thousands of patented inventions 
requires that more attention be given to the apportionment of 
damages. I look forward to working with all the parties to come 
up with language that addresses this issue.
    Another issue that is missing in the Senate and House bills 
this year is the controversial award of tax strategy patents. 
Increasingly, individuals and companies are filing patents to 
protect tax strategy. When one individual or business is given 
the exclusive right to a particular method of complying with 
the tax code, it increases the cost and complexities for every 
other citizen or tax preparer to comply with the tax code.
    It is not difficult to foresee a situation where taxpayers 
are forced to choose between paying a royalty in order reap the 
best tax treatment and complying with the tax code in another 
less favorable way. These types of disincentives add additional 
costs and complications to an already overly complex process.
    I play to join Representative Boucher in reintroducing 
legislation addressing tax strategy patents, and it is my hope 
that this issue can be addressed in H.R. 1260 as well.
    Again, I applaud you, Mr. Chairman, and Ranking Member 
Smith for holding this important hearing, and I look forward to 
working closely with you as we seek to improve our Nation's 
patent laws.
    Mr. Conyers. Thank you, Mr. Goodlatte.
    Brad Sherman?
    Mr. Sherman. Thank you, Mr. Chairman. I want to echo the 
comments of the gentleman from California that we need the 
patent office to be funded properly and without diversion and 
echo the comments of the gentleman from Virginia on tax 
strategy patents but perhaps with a slightly different 
viewpoint.
    The purpose of patent law is to encourage useful 
innovation. There is some cost to the taxpayer in operating a 
patent system. We do that to encourage useful innovation. Why 
we should use taxpayer money to encourage the innovation of tax 
avoiding strategies is something I have yet to figure out.
    And so while there is one circuit court opinion that may 
close the door on these absurd tax strategy patents, we ought 
to shut the door completely, bolt it, and do it in this bill if 
at all possible. I yield back.
    Mr. Conyers. Thank you.
    Howard Coble?
    Mr. Coble. Mr. Chairman, I thank you. I will not take 5 
minutes, Mr. Chairman. You and Mr. Sensenbrenner and Mr. Berman 
and I have been exposed to this issue for a long, long time, 
and I recall, Mr. Chairman, some years ago when we were on the 
House floor, we had Democrats fighting Democrats and 
Republicans fighting Republicans on this issue.
    And I shared this with Howard, a reporter from the west 
coast called me, and he said, the law of patents is the most 
dull, boring area of the law. He said it induces sleep, but he 
said until now it is interesting, because they had each other 
fighting one another.
    Hopefully, we can avoid that this time. But, Mr. Chairman, 
as we all know, patent reform is a national priority. It is 
important to all aspects of our economy, and we should be 
concerned about changing the system without a new captain in 
the wheelhouse.
    Now, I know that the Obama administration has had a full 
plate, but I hope they can fully appreciate the urgency and 
importance of installing the new undersecretary at the U.S. 
Patent and Trademark Office. It is difficult for us, Mr. 
Chairman, in the Congress to bolster our patent system and 
address the needs of the patent office without an office to 
promote their policies, which its experts believe will best 
serve the people.
    And I thank you, Mr. Chairman, for calling this hearing and 
thank the witnesses for being here. I yield back.
    Mr. Conyers. Thanks for all of your work in this, Mr. 
Coble.
    Darrell Issa?
    Mr. Issa. Thank you, Mr. Chairman, and thank you for 
leading this bipartisan effort to find the right balance. And I 
must admit that I have been a cosponsor of the bill in the past 
with Ranking Member Smith, Mr. Coble, yourself, and Mr. Berman.
    You have been very generous in allowing me to have positive 
input that appears in this bill. I am not a cosponsor in this 
Congress not because I lack enthusiasm for the legislation, but 
because I am quite concerned that we need to make sure that 
there are some honest brokers who have a price that they want 
to extract in order to get their vote.
    And in this case, the price that I would extract is that it 
has to be on the House side something which I believe the 
Senate can embrace at least in a conference. And so I will work 
with the Chairman and the Ranking Member and Mr. Berman, of 
course, to get to that point to make sure that what leaves the 
House is something that we have come to an understanding with 
the Senate that whether we can come to a full bill or not 
always remains to be seen.
    But I do not want to have repeat of what we had in the last 
Congress where we put together a bill that we knew was not 
perfect. We moved it out in a dutiful way, in a bipartisan way, 
only to have it languished in the Senate.
    So I look forward to finding the best possible bill. I 
might note that in the last Congress I encouraged that perhaps 
less of a bill would be the better bill to move and things to 
come back to. I am pleased to report that in the Senate, they 
saw the bill that we passed unanimously on patent pilot as so 
good that they included it in their version of the legislation.
    So perhaps I will have to consider if it becomes law that 
more could be better at times too in addition to less. I thank 
the leadership at the dais and yield back.
    Mr. Conyers. Thank you.
    Judge Gohmert?
    Mr. Gohmert. Thank you, Chairman Conyers. And I will 
surprisingly be brief as well. Like Ranking Member Smith 
indicated, the founders of this country recognized that there 
was one area where we felt like monopoly would be okay, and 
that would be copyright and patent.
    To protect intellectual property, we would give you such 
time to recoup all of the ingenuity that went into the design--
to the creation, and so as the patent system has evolved over 
the years, and as we look at trying to tweak it further to get 
it to where it is even more effective, I just want to encourage 
we have got to be careful that we do not hurt the system in our 
zealousness to help the system.
    We don't need patent trolls gaming the system. At the same 
time, we need to be careful on venue, and perhaps the TS Tech 
is helpful in this area, but we don't need to force cases to go 
to the most reversed circuit in the country where cases may be 
drug out for many, many years so that it takes forever to get 
to trial, and once you get to trial, you have the best chance 
of being reversed and having to retry it again.
    We don't need to change damages so substantially that even 
after years of litigation in a rifle case, there is no chance 
of recovering enough to make it worth while. And then that 
would lead to the situation so that the movie ``Flash of 
Genius'' would be just that. It would be a flash. There would 
be no compensation. It would not be the incentives for people 
to create and have that creation protected.
    And so I appreciate both sides of the aisle being concerned 
about that issue so that we don't have people who created their 
inventions, got wealthy, and I am grateful for it, and then 
pulled up the ladder behind them so that others could not 
follow.
    And I appreciate the opportunity to work with others in 
getting to that point. Thank you, Mr. Chairman.
    Mr. Conyers. Thank you very much, and my appreciation for 
not naming the circuit that you had in mind.
    Mr. Berman. [Presiding.] Oh, more opening statements.
    Judge Poe?
    Oh, Ms. Lofgren. Forget everything. We have had a couple of 
gentlemen from that side of the aisle.
    Mr. Scott? Did you have opening, no?
    Ms. Lofgren is recognized.
    Ms. Lofgren. I will be brief, because I want to hear from 
the witnesses. I think obviously everyone in the room is in 
favor of strong patent protections, high quality patents, the 
prevention of litigation abuses. The problem is, having agreed 
on the details, how do we achieve that? And I think in the end 
it is in a way more important where we end up than where we 
started.
    I think this hearing is certainly a positive step forward 
to hear from the various perspectives about what the Senate 
did, what the thoughts are in terms of whether we have achieved 
that overarching goal. As I look at the witness stand, I think 
I am pretty familiar with most of the people here. They are 
smart people with great knowledge but in different elements of 
the whole issue.
    So I am sure that we will know more at the end of this 
hearing than we do at the beginning, and I yield back, Mr. 
Chairman.
    Mr. Berman. Thank the gentlelady.
    And the gentleman from Texas is recognized.
    Mr. Poe. Thank you, Mr. Chairman. I appreciate the 
witnesses that have been here. Patent law is difficult. That is 
why like my friend from Massachusetts, we chose criminal law 
where things are a whole lot simple, stealing and killing.
    But I am concerned about four issues: The small 
entrepreneurs who I think have fueled advancement in this 
country since our beginning, that we don't kill their work. I 
am concerned about the length of time it takes to get a patent. 
It takes forever. You know, the OJ Simpson trial lasted a 
shorter time than some of these patents do to get a patent.
    And thirdly, I am concerned about diminishing the value of 
patents to persons who actually have those patents in the 
country. For example, and fourthly, I am very concerned about 
the transfer of wealth from the United States to other 
countries, and I hope that we don't do anything to tinker with 
that and make it harder on Americans that have patents by the 
wealth going to foreign countries.
    So with that, I yield back. Thank you, Mr. Chairman.
    Mr. Berman. The gentleman from Massachusetts.
    Mr. Delahunt. Yes. Thank you, Mr. Chairman. I just simply 
want to associate myself with everything that everybody has 
said. With that, I yield back.
    Mr. Berman. Is there anything left to say? If not, we will 
go to the people who know what they are saying.
    I am pleased to introduce the witnesses for today's 
hearing. The first is David Simon, who is chief patent counsel 
for Intel, where he is involved in running intellectual 
property matters. Prior to joining Intel in 1996, Mr. Simon was 
in private practice in Los Angeles for 15 years specializing in 
intellectual property matters, licensing and high technology 
law.
    Second is Phillip Johnson, chief intellectual property 
counsel for Johnson & Johnson. Mr. Johnson's also president of 
the IPO Education Foundation and chairman of the board of 
AIPLA's Educational Foundation and heads AIPLA's Patent 
Litigation Committee.
    We will hear from J. Thomas, once again, professor at 
Georgetown University Law School. Professor Thomas served as 
the visiting scholar in economic growth and entrepreneurship at 
the Congressional Research Service.
    His extensive patent experience includes clerking for Chief 
Judge Helen Nies at the Federal circuit, teaching at George 
Washington University, Cornell, and the University of Tokyo, a 
visiting fellowship at the Max Planck Institute in Germany, and 
serving as a research scholar at the Institute of Intellectual 
Property in Tokyo, Japan. He has also been in private practice 
and has published numerous articles and five books on 
intellectual property law.
    Next will be Jack Lasersohn, a partner with the Vertical 
Group, a venture capital fund and here representing the 
National Venture Capital Association. Mr. Lasersohn serves on 
the board of directors of Kyphon, Incorporated, a NASDAQ listed 
medical technology company as well as on the boards of 
directors of a number of privately held medical device 
companies.
    Fifth is Dean Kamen, an inventor and engineer who has 
testified 2 years ago whose inventions include the Segway 
Electric Transporter, the first portable insulin pump, and a 
prototype wheelchair called the iBot that allows users to climb 
stairs and raise themselves upright.
    He founded and is now president of DEKA Research and 
Development Corporation to develop internally generated 
inventions and conduct R and D for corporate clients. Mr. Kamen 
also founded FIRST, standing for, For Inspiration and 
Recognition of Science and Technology.
    FIRST is a program to encouraging young scientists and 
inventors using wholesale marketing and media techniques to 
motivate the next generation to learn about science and 
technology. It hosts national robotics championships each year 
at Walt Disney World's EPCOT Center that break attendance 
records.
    Mr. Kamen also served on the Patent Public Advisory 
Committee for the U.S. Patent and Trademark Office and has won 
numerous awards and honors and been dubbed the pied piper of 
technology by Smithsonian Magazine.
    Sixth is Mark Chandler, senior vice president and general 
counsel and secretary of Cisco Systems. Previously, he was 
managing attorney for Europe, the Middle East, and Africa based 
in Paris and before that, he was general counselor for 
StrataCom, which Cisco acquired in 1996.
    Mr. Chandler also serves on the board of visitors of 
Stanford Law School and the advisory council of the Woodrow 
Wilson International Center for Scholars in Washington.
    And last, we will hear from Bernard Cassidy, senior vice 
president and general counsel and secretary of Tessera 
Technologies. Mr. Cassidy held a similar position at Tumbleweed 
Communications Corp, and before that, was in private practice 
for 10 years.
    Thank you all for being with us today. It is an unusually 
large panel, and without objection, your written statements 
will be placed in the record. It would be very appreciative if 
you would limit your oral remarks to 5 minutes. We have a 
lighting system that starts with a green light, at 4 minutes, 
it turns yellow, then red at 5 minutes, and then the gavel.
    Mr. Simon? Will you proceed with your testimony?

  TESTIMONY OF DAVID SIMON, CHIEF PATENT COUNSEL, INTEL, INC.

    Mr. Simon. Thank you, Congressman Berman. I would like to 
thank the Chairman and Ranking Member Smith and the other 
Members of this Committee for this opportunity to come here and 
testify on a subject near and dear to my heart, patent reform.
    I think you were right, Congressman Berman, that it was 
about 6 years ago that you held hearings in this room on 
patents, and I think it was like two or three Members of the 
Committee, then two or three patent attorneys each trying to 
get my business and a bunch of homeless people. Things have 
changed a little bit.
    So this is a vitally important issue to Intel. We spend 
over $5 billion a year on R&D every year. We are currently in 
the process of investing over $7 billion in our manufacturing 
capacity. In the United States they are--on our new line 
products, and these products, which are each the size of 
roughly your fingernail, have over a billion transistors in 
them.
    And you can just imagine how many different parts beyond 
those billion transistors are in there. As a result, we had 
gone through the exercise some years ago--this isn't even for 
our latest product--that one of our then state-of-the-art 
processors had over 1,500 patents in it and that wasn't the 
limit, we just stopped counting at that point.
    We make very complex products, and because of the 
complexity of the products, the system creates lots of problems 
for us currently. Many of the members write the comment about 
some of the difficulties in the patent office and the quality 
issues that over the years hampered the patent office.
    The Patent and Trademark Office is an extremely difficult 
job to deal with the 400,000 plus patent applications they get 
a year and the amount of resources that are available to them 
to examine those. As a result, even with their best efforts, we 
do get many patents that are quite frankly problematic, and 
those are the patents that we then see in the litigation system 
and then become subject to abuse.
    Currently, just to give the Committee some idea of the 
amount of money and effort that is pursuing this, there is over 
three-and-a-half billion dollars, and I actually believe it is 
substantially more than that, of funds being put into the 
purchase of patents for licensing and bringing of lawsuits, and 
many of those will eventually make their way to Intel.
    In 2007 alone, the number of defendants doubled in patent 
cases--not the number of cases doubled, but the number of 
defendants doubled, because what we now have is a phenomena 
with cases having many defendants.
    I have a list of cases in my written testimony, which by 
the way, for example, in the Odum case, there are 28 software 
companies being sued. In the Clearwoods Computers case, there 
are, I think, two cases, but there are 52 companies being sued 
in one case for a patent.
    Now, we all know patents tend to be a very complex, and I 
will apologize, sometimes dull subject, but the issue that we 
have is that when you have a complex subject matter with lots 
of defendants, all of whom do things somewhat differently, this 
leads for further complexity in the case.
    And then you have the problem that in a typical case, you 
have a relatively short time period for actual trial testimony. 
Our Federal courts have many other pressing matters that need 
to be heard. As much as patents are important to me, I think 
one of the congressmen was right to comment that there are 
other pressing issues that the courts are faced with.
    As a result, there is a limited amount of time that courts 
can hear a case, and it is a limited amount of time that the 
jury can get educated on the both technical complexity and the 
business issues that are involved. And this is further 
exacerbated by the current standard that we have for damages, 
which is on reasonable royalties, it is the--Georgia-Pacific 
factors.
    The Federal circuit has made it clear that if you instruct 
the jury on those 15 factors, they will not reverse a case on 
damages unless the jury verdict is ``monstrous.'' They have yet 
to see a verdict that is monstrous.
    As a result, we--and although the patent cases themselves 
are--actually go through trial and go through--including 
damages are relatively small percentage--in most cases settle. 
Those jury verdicts do drive the settlement values of the 
cases. As a result, this is something that we find increasingly 
difficult.
    In addition, the other issue that I wanted to touch briefly 
on is venue. Many of the members have rightly commented on TS 
Tech, but there is another decision that has come down after TS 
Tech, a published decision called In re Telular on venue. And 
in that case, because there were witnesses in--the parties were 
in Illinois, witnesses in Atlanta, the court said, well, it is 
not clearly more convenient to be in Illinois than some place 
else, so we are going to leave the case where it is.
    [The prepared statement of Mr. Simon follows:]
                   Prepared Statement of David Simon



                               __________

    Mr. Berman. I am sorry. The time has expired.
    And, Mr. Johnson, welcome back, and look forward to your 
testimony.

 TESTIMONY OF PHILLIP S. JOHNSON, CHIEF INTELLECTUAL PROPERTY 
                   COUNSEL, JOHNSON & JOHNSON

    Mr. Johnson. Thank you. Distinguished Members of the 
Committee, we very much appreciate the opportunity to be here 
today on behalf of the 21st Century Coalition.
    We strongly agree with the sponsors of H.R. 1260 and many 
of the Members who have spoken here today that patent reform is 
really all about stimulating our economy through innovation and 
the creation and maintenance of jobs.
    Within Johnson & Johnson, we conservatively estimate that 
60,000 of our 118,000 employees jobs depend on patents. We 
estimate that during their 20-year lives, each of our patents 
preserves and protects 150 job years. During the past 3 years, 
Johnson & Johnson companies have invested an average of $7.5 
billion per year in R&D, or about $15 million for each patent 
granted.
    These R&D expenditures resulted in well-paying jobs for 
thousands of people throughout the United States. We want to 
preserve and protect the patent systems incentives to invest 
heavily in R&D so we can keep these jobs and hopefully create 
many, many more.
    But to do this in this challenging economic environment, we 
need to make it clear to inventors and investors alike that our 
patent system will live up to its promise. They need to know 
that it will protect the deserving inventions that come out of 
the R&D, and that the resulting U.S. patents will serve as a 
solid base upon which to build future businesses.
    To accomplish these goals, we need to strengthen not weaken 
the value of American patents. Now we can do this, as many of 
the speakers have already mentioned, by improving the quality 
of the original patent examination so that the patents issued 
by our patent office are readily and reliably enforceable 
against those who don't respect them.
    This should be accomplished by immediately harmonizing our 
patent system with the rest of the world, not waiting for a 
trigger that may never come to pass, and by giving our patent 
office a reliable source of adequate funding to get the job 
right.
    Now H.R. 1260 goes a long way toward reaching these goals 
but not yet quite far enough. But we shouldn't stop there. A 
balance needs to be struck between the public's interest in 
questioning a patents validity, and the public's desire to 
induce continued investment in the patented technology.
    A system that overly favors continuing third party patent 
challenges destroys the quiet title that is needed to stimulate 
further investment. Our coalition believes that the post-grant 
provisions of H.R. 1260, which are based on the hard work of 
the Members of this Committee in this and the last Congress, 
comes very close to striking the proper balance.
    It allows an initial period of post-grant opposition 
followed by life of the patent reexaminations. But contrary to 
how H.R. 1260 is now written, the basis under which 
examinations may be brought should be limited as they were in 
H.R. 1908. The question is based on prior patents and printed 
publications not prior uses and sales.
    When it comes to patent damages, we do urge the Committee 
to adopt the gate keeper compromise that is now included in S. 
515 as ordered reported. After years and years of trying, this 
damages compromise has the most support of any proposed during 
years and years of stakeholder wrangling.
    It will provide fairness and uniformity to the way 
reasonable royalty damages issues are handled in the courts, 
and ensure that orderly development of the case law may 
continue on contentious issues such as the proper application 
of the entire market value rule, regular and established 
royalties, and apportionment.
    Most importantly, it will not pick winners and losers among 
different stakeholders. All will benefit from the gate keeper 
approach. Other patent damages alternatives that at their 
hearts rely upon prior--subtraction are ill advised and 
politically untenable. It makes no sense to base reasonable 
royalty awards on less than all of these elements that were 
shown to be required to achieve the patent.
    During the original patent examination, opposition, 
reexamination and in the validity and infringement phases of 
the patent trial, all of the elements of the patents claimed 
are deemed essential. Having thus proven entitlement to 
protection of the entirety of what is claimed, there is no 
justification for awarding damages on anything less.
    Valuation that the invention contributes, however, is quite 
a different matter. Here the question is what is the invention 
worth, and this is best addressed, as the law does, by looking 
to a willing licensee, willing licensor model.
    My time is up, but I do very much appreciate the 
opportunity to testify today as does our coalition, and our 
coalition looks forward to working with the Committee in order 
to achieve a bill that can quickly be enacted into law.
    Thank you very much.
    [The prepared statement of Mr. Johnson follows:]
                Prepared Statement of Phillip S. Johnson



                               __________
    Mr. Berman. Thank you, Mr. Johnson.
    And, Professor Thomas?

            TESTIMONY OF JOHN R. THOMAS, PROFESSOR, 
                GEORGETOWN UNIVERSITY LAW SCHOOL

    Mr. Thomas. Distinguished Members of the Committee, I am 
grateful to testify today on my own behalf as a concerned 
member of the public and as a concerned observer of the patent 
system. Allow me to thank you and your staff for your many 
years of hard work on patent-related issues.
    Expanded efforts to derive value from patents have 
increased demand for greater precision in patent law damages 
principles. Unfortunately, the perception is widely shared that 
the rules pertaining to damages are less certain than many 
other patent doctrines. Many observers believe that the 
substantive law of patent damages is undisciplined and 
indefinite.
    The lack of a coherent standard for assessing reasonable 
royalties and not leaning toward over compensation are among 
the areas of concern. The result has been insufficiently 
predictable awards that served the purposes of the patent 
system poorly.
    To address these concerns, two types of patent damages 
reforms have been proposed before the 111th Congress. Proposed 
evidentiary reforms, while potentially valuable, appear largely 
to focus attention upon existing standards.
    Patent trial practice already allows for extensive 
discovery into the litigants' theories of damages, the 
discovery exchanges of expert reports, depositions of relative 
witnesses and experts. Accused infringers may file daubert 
motions or a post-verdict motions to the extent they feel there 
were evidentiary short comings.
    Despite these standards and procedures, many innovative 
firms have continued to voice concerns about the state of 
patent damages law. So absent reforms of substantive law that 
then applies the facts of individual cases, evidentiary reforms 
may ultimately work--improvement to the current environment of 
patent damages.
    In addition, inherent limitations upon the judiciary appear 
to render the legislature the more appropriate venue for 
achieving meaningful reforms to damages law. The prominent use 
of juries in patent trials, the differential standard of review 
that they receive and the limited time one has to state 
arguments on appeal don't place the Federal circuit or other 
judicial fora in an enviable position to work meaningful 
reforms to damages law as compared to other doctrines.
    Now prevailing substantive reforms as I have mentioned have 
been criticized for their indeterminacy and logical 
shortcomings. Experience suggests simply that the Georgia-
Pacific factors are difficult to apply consistently. Although, 
the Georgia-Pacific case provides a long list of ingredients, 
it provides no recipe, no guiding principle or mechanism for 
weighing one of the seemingly randomly ordered elements more 
heavily than the others.
    Indeed, the laundry list of Georgia-Pacific factors often 
include several subcomponents with each factor. They can't 
plausibly consider it a standard at all. The result has been a 
grab bag of factors that experts may apply with virtually 
unlimited discretion.
    The hypothetical negotiation framework also possesses 
shortcomings, because in theory, two people come to the 
bargaining table and both walk away with something valuable. 
Yet judicial decisions at times seem to have lost sight that a 
bargain for exchange is supposed to offer a benefit to both 
negotiating parties.
    Several judicial opinions issues quite recently during 
discussions on the Hill on this issue of ordered royalties that 
are higher than the infringements in that profit margin. So for 
these and other reasons, damages rulings are widely viewed as 
unpredictable and difficult to review but also as tending 
toward overcompensation.
    A promising first step toward patent damages reform would 
be to replace the hypothetical negotiating issues of Georgia-
Pacific with ostensible rule that tracks real-world decision 
making. And in my opinion, that is what the House bill does.
    Now faced with the choice of using a proprietary technology 
and manufactured to size, what advantage would accrue through 
the use of that technology in comparison with the next best 
alternative including public domain technology, designing 
distinct technology itself or not incorporating that 
functionality into the adjudicated infringement at all.
    The difference in that value is between the patented 
technology and the next best alternative should comprise the 
maximum amount of the damages award and the amount that the 
patent owner would effectively share through the payment of a 
reasonable royalty from one party to the next.
    Let me close by noting that patent damages reform is an 
important element in ensuring a strong patent system that meets 
modern needs and can ensure that the patent system remains 
robust but also recognize that in patent law, one person's 
incentive is another person's limitation.
    I believe that both evidentiary and substantive reforms 
would ultimately bring greater rationality and predictability 
to the patent system.
    Thank you.
    [The prepared statement of Mr. Thomas follows:]
                  Prepared Statement of John R. Thomas



                               __________

    Ms. Lofgren. [Presiding.] Thank you, Professor.
    And we would love to hear from you, Mr. Lasersohn.

           TESTIMONY OF JACK W. LASERSOHN, PARTNER, 
                         VERTICAL GROUP

    Mr. Lasersohn. Distinguished Members, thank you very much 
for inviting us to testify.
    My name is Jack Lasersohn. I have been a venture capital 
investor since 1981 in high tech, clean tech and bio tech. I am 
also a board member of the National Venture Capital 
Association, the NVCA, which represents over 460 venture firms 
across the country.
    It is my privilege to be here today to representing the 
NVCA to share our views on the patent reform proposals. Venture 
backed companies currently account for more than 10 million 
jobs and $2.3 trillion dollars in U.S. revenue, representing 10 
percent of U.S. sector employment and 20 percent of U.S. GDP.
    Most of the semiconductor, networking, personal computer, 
software, Internet, medical device, and bio tech industries 
were created based upon the support of the venture capital 
system. More recently clean tech has become one of the fastest-
growing areas for investment for us.
    Many household names including many at this table, 
Genentech, AMJEN, Intel, Cisco, Google, Medtronic, Microsoft, 
eBay were started with venture capital dollars. Their need for 
fundamental breakthroughs is increasing out of the millions of 
patents that will be filed, only a few are really going to 
affect the future in enormously important ways--inventions to 
cure cancer, inventions to address obesity, diabetes, and 
Alzheimer's disease; inventions that treat pandemics; 
inventions that end our dependence on foreign oil.
    If history is any guide, these inventions will likely come 
from small venture backed entrepreneurial companies and, 
indeed, I can tell you that we are working on all of these 
projects right now. All of them are highly dependent on a very 
strong U.S. patent system.
    This vial contains crude oil made by algae from carbon 
dioxide extracted from the atmosphere. It has already powered 
an airplane, of course, a very small airplane, but the venture 
capital firms that invested more than $150 million in this 
project have relied completely on the strength of our patent 
system to justify this investment.
    It is one of the reasons that the United States has been at 
the center of all major technological innovations. And, in 
fact, the relatively weaker patent systems in other countries 
are an important reason why they lag so far behind us. I would 
like to discuss damages in particular.
    In general, the venture capital community believes the 
current methodology for calculating damages is appropriate and 
working. And that patentees are not systematically 
overcompensated. I hope that we can all accept the longstanding 
principle that an inventor is entitled to the fuel economic 
value of his invention and that damages should reflect that.
    However, we understand that there have been outlier 
infringement cases that have involved excessive damage awards. 
However, a large number of larger technology companies have 
proposed a change to patent law on damages so that damages will 
only reflect the incremental value of an infringement product 
that is attributable to specific contribution over the prior 
art and not the full economic impact of the invention as under 
current law.
    NVCA believes that the value of the patent features is 
almost always difficult to separate from its impact on the 
value of the whole product. Almost all innovation takes place 
in small incremental steps and is combined with prior art.
    And while the incremental step can appear modest, 
especially compared to the complexity of the underlying 
product, the change can result in dramatic shifts in market 
shares for the combined product, creating much more value than 
just the incremental improvement.
    A new coating on a solar cell that increases its conversion 
efficiency just a little bit can dramatically shift the market 
through the entire multi-billion dollar solar energy plant. A 
more effective drug on a drug looting stint can shift the 
entire stint market. In both cases the question is, who is 
entitled to what share of the profits arising from those 
shifts, the inventor or the infringer?
    As these examples illustrate, there is no simple answer. 
Apportioning damages as proposed in the bill appears to be 
designed to deprive patent owners of the true full economic 
value of their patents and will lead to tremendous uncertainty 
about the value of patent. Determining its value is extremely 
complicated and manufacturers in circumstances, in fact, need 
to be considered.
    As Albert Einstein famously said, ``You should make 
something as simple as possible but no more.'' We support an 
approach to calculating these damages which would maintain the 
current Georgia-Pacific multi-factored analysis for the 
majority of cases and incorporate language directing an 
enhanced gate-keeper function.
    We also believe the most important reform we can make is to 
improve the quality of patents. If the patent's office 
consistently issued high quality patents, many of these 
problems would disappear. To this end, we support increased 
funding and the end of the diversion. We do support a limited 
12-month window after a patent is granted to allow time for 
challenges to file opposition, but we must realize that many 
large competitors will use this system to delay issuances of 
patents by small startups, and the system must avoid these 
abuses.
    Thank you very much for your attention.
    [The prepared statement of Mr. Lasersohn follows:]
                Prepared Statement of Jack W. Lasersohn



                               __________

    Mr. Conyers. [Presiding.] Thank you, sir.
    Mr. Dean Kamen? Welcome.

              TESTIMONY OF DEAN KAMEN, INVENTOR, 
              DEKA RESEARCH AND DEVELOPMENT, INC.

    Mr. Kamen. First, I would like to thank you for 
specifically pointing out in your opening remarks that we 
should be inventing a way out of problem.
    I think this whole debate, sadly, has come to be a 
discussion of all of the costs of patents--all of the costs, 
some of which everybody, I think, agrees are appropriate, some 
of which, in fact, some people think are inappropriate, and 
they may be right.
    But collectively, the costs of all these patents, I think, 
pales in comparison to the value of them, and I don't think 
anybody in this room would question that. Look at this country, 
look at our wealth, look at the rest of the world. There is a 
reason. We have innovators; we have inventors; we take risks, 
and I think the founding fathers got it right.
    That clause in the Constitution is one of my favorite 
things. I hope you guys don't screw it up. So I would just like 
to very quickly explain maybe an issue that I first found out 
about the first time I was asked to come here.
    I listened to a bunch of people speak about this problem, 
and I found out that I am a troll, because I heard that the 
definition of a troll is somebody who doesn't build and sell 
their product. I am happy to hear that phrase has gone away, 
but there is a new phrase, which are NPEs, nonpracticing 
entities.
    I am not sure if becoming an NPE today is going to be a 
step up or down from being a troll, but I think I am one of 
those two. I will explain to you why I think that is not so 
bad, and why I am concerned if you do anything substantial to 
further weaken the patent system.
    I had a business when I wasn't an NPE. I started it in high 
school. I had an older brother who is a brilliant guy, an MD-
Ph.D. student at the time, treating babies with cancer. He 
needed ways to deliver drugs to these kids.
    I started building on that stuff in the basement of my 
parent's house. It turned into a business. I was building these 
things mostly for his little research applications, but later 
it turned out I had some big applications like treating large 
populations of people, for instance, with diabetes.
    After a number of years, nearly a decade, it had become a 
pretty big business from my perspective, and I realized that 80 
or 90 percent of the people involved in that business were 
doing manufacturing, marketing, sales, support, purchasing, 
worrying about global reach, worrying about supply chain 
management. That is not my strength.
    I sold that business knowing I probably could have made 
more if I held onto it, but I sold it because I thought I 
should get back to doing what I do well, work on inventing. 
There is no shortage of big problems out there. In fact, I also 
got to see the big companies are very good, very good at cost 
effectively, efficiently, reaching out, getting products to 
people way more than I could with the small product line that 
had to support a whole manufacturing operation and a whole 
distribution operation.
    So I sold that to one of the big medical companies, and 
said I am going to go back to doing what I do well then I will 
partner up with these guys and make a win-win-win out of it. 
And in the last 25 years, my little company, which no longer 
does the manufacturing, sales, marketing, distribution has 
grown to 300 technology people and engineers, and I am working 
in virtually--I don't know this man, but we are working on 
diabetes, obesity, energy systems. We work on lots of things 
that we hope that these other companies will bring to market to 
make the world a better place.
    But I have spent on all these products many tens of 
millions of dollars, and in the end, all I ever end up with is 
a patent, and every once in a while, those patents turn out to 
be valuable, because I can show up at the door of these big 
companies and say, here it is. I can promise you the exclusive 
right to put this in production, which will cost them in many 
cases $50 or $100 or $200 million in return for giving us some 
royalties.
    And oh, by the way, what we use those royalties for is to 
go on and invest in the next thing that most of these, in fact, 
large companies are sometimes reluctant to do. In the last 7 or 
8 years, my little company has invested in excess of $50 
million trying to develop systems to deliver water to the 
developing world, to develop electricity to the developing 
world.
    We hope our patents on those will be good. We hope the 
products will work, and we hope to go out to some of these big 
companies and ask them to put in the enormous amounts of money 
it is going to take to bring these things to market.
    The only thing I show up with when I sit across the table 
from some big company is a patent. And if I can't be sure that 
that is going to be reliable, I can't run my business. I can't 
get support. I can't sell my ideas to the world, because if you 
can have them for free, nobody will pay for them. And you can 
do a lot of work to reduce the cost of patents, but when you 
finish doing that, you might have protected nothing. There will 
be nothing left.
    I have to stop.
    [The prepared statement of Mr. Kamen follows:]
                    Prepared Statement of Dean Kamen



                               __________

    Mr. Conyers. Those bells weren't for you.
    Mr. Mark Chandler, senior vice president, Cisco.

    TESTIMONY OF MARK CHANDLER, SENIOR VICE PRESIDENT, CISCO

    Mr. Chandler. Chairman Conyers, Ranking Member Smith, 
Members of the Committee, thanks for the opportunity to appear 
before you today. Nearly 2 years ago, patent reform legislation 
was reported by this Committee and passed by the House with a 
strong bipartisan majority.
    The bill before you today is very similar to the earlier 
bill and should be approved by this Committee. CISCO believes 
in a strong patent system, because our success as a company is 
a direct result of successful and continuous innovation 
starting from two people on a university campus 24 years ago. 
Today, we hold over 5,200 U.S. patents, have another 5,000 
pending, and we spend $4 billion a year on research and 
development.
    We have over 14,000 engineers working in the United States 
to develop and support new product. The patent law should 
ensure that in case of infringement of valid patents, the 
inventor should and must receive fair compensation. But by the 
same token, those who are developing and manufacturing real 
product should not be forced to pay a patent holder if a patent 
wasn't properly granted or be forced to pay damages based on 
value not commensurate with the innovation described in the 
patent.
    Yet that is what is happening. At a time of economic 
crisis, the flaws in our current patent law drain resources 
away from R&D manufacturing and toward defending unjustified 
patent suits with overblown damage requests.
    I will focus my oral testimony on the importance of 
clarifying vague patent litigation damages rules, because 
reform in this area is essential to eliminate burdens on 
innovation that are preventing job creation. For technology 
companies, patent litigation means spending increasing amounts 
on increasing number of infringement claims.
    I can choose to spend millions of dollars per case on 
defense fees, millions of dollars per case on settlement 
payments or both, but it is virtually certain that every new 
claim whether justified or not will require the expenditure of 
millions of dollars.
    The number of these claims has been increasing. Royalty 
requests are up 650 percent over 4 years. Litigation measured 
by total number of patent defendants has increased 
significantly in that time as well. Total litigation costs born 
by technology companies have doubled in that period to an 
estimated $4.6 billion.
    In my own company, we have gone from defending three 
infringement suits a decade ago, all involving competitors, to 
over 30 today with only a small fraction involving companies 
that actually produced a product. Patent litigation expenses 
are now the single biggest cost in my legal budget. We have got 
literally hundreds of royalty demands as well.
    Increasingly, our courts have become a magnet for suits by 
foreign patent holders who prefer to sue in our courts rather 
than in their own countries where the patents were originally 
issued. In the last 5 years, French, German, Australian, 
Canadian, Finnish, and Israeli patent holders with no products 
of their own have broadly sued across the entire industry 
including my company draining my company and our country of 
important R&D resources.
    Why is this happening? The reason is that the imbalance in 
patent litigation rules has triggered the creation of well-
funded litigation syndicates that purchase patents not to 
develop innovative products but rather to obtain licensing 
payments from companies that have brought innovative products 
to market.
    Fully 88 percent of the patent claims against technology 
companies are asserted by folks who don't make any product. 
Unlike the typical model for the small inventor, the one that 
Mr. Kamen described who seeks to license intellectual property 
to those who can develop a product and build a market, these 
syndicates typically lie in wait until an industry is 
developed, often get going after those who are relying on 
established industry standards with far fetched claims that 
leverage the uncertainty and the possibility of a jury jackpot 
award.
    The patent systems litigation rules were designed when 
claims typically were filed by manufacturers such as Cisco's 
patent for being infringed by a competitor. The built-in 
protections that prevented against unjustified opportunistic 
claims are not effective against the syndicate.
    Just as flaws in financial services regulation led to 
financial engineering that lacked economic substance, today's 
dysfunctional patent litigation rules have produced a new form 
of patent engineering instead of product engineering, which is 
a task on those who are actually building products and 
employing people.
    Key among the culprits is a vague test for calculating 
reasonable royalty damages. The litigation syndicates don't 
seek lost profits since they don't manufacture a product. They 
leverage a vague 15-factor test that threatens large jury 
verdicts; they run a volume business suing numerous defendants 
at a time as they attack an entire industry.
    The threats coerce settlement payments from defendants 
unwilling to spend millions in litigation costs and run the 
risk of a jackpot verdict.
    In conclusion, in our sector alone, reform of the 
reasonable royalties standard will create tens of thousands of 
jobs over the next 5 years, and if nothing is done, research 
shows our economy can lost tens of thousands of jobs from 
continued adverse effect of the legal standards.
    We have this effect in Cisco today. But this issue is not 
simply about jobs, it is about our continued technological 
leadership. Less resources for research and development at 
Cisco in the U.S. means the next key innovation is more likely 
to come from a competitor in Europe, in India, in China, not in 
our country.
    Thank you, and I look forward to answering the Committee's 
questions.
    [The prepared statement of Mr. Chandler follows:]
                  Prepared Statement of Mark Chandler





                               __________
    Mr. Conyers. Before we go for a vote on the rule on the 
credit card bill, we will hear from the senior vice president 
and general counsel of Tessera, attorney Bernard Cassidy.

  TESTIMONY OF BERNARD J. CASSIDY, SENIOR VICE PRESIDENT AND 
                 GENERAL COUNSEL, TESSERA, INC.

    Mr. Cassidy. Thank you, Chairman Conyers, Ranking Member 
Smith and distinguished Members of the Committee.
    Tessera is a high-tech company, nearly 300 of our 400 
employees are engaged in research and development. We develop 
innovative technologies to make consumer products faster, 
better, and cheaper. If you have a cell phone that fits in your 
pocket, you are using our technology.
    Rather than talk about damages, I will defer to the 
testimony of Mr. Johnson, Mr. Lasersohn, and Mr. Kamen and my 
written testimony. I would like to take up the lonely and 
perhaps painful task of addressing post-grant review.
    I understand the Congress, the House at least, has done a 
lot of hard work on this topic and may not wish to reopen it, 
but notwithstanding that hard work, we urge Congress to look at 
post-grant review with a fresh eye.
    The reason is the slew of cases from the Supreme Court and 
Federal circuit that have come down since those provisions were 
drafted that have significantly tilted the balance in favor of 
patent users rather than patent holders.
    At a policy level, patent reexamination and other forms of 
post-grant review are designed as a limited safety valve to 
catch and repair the agency level patents that were 
inadvertently or improvidently granted.
    The idea is similar to en banc review by a court of 
appeals. In neither case is the extra review process designed 
to be a lengthy or a disdainful reaction to the initial review 
process that preceded it.
    The epilog should not be longer than the book. In practice, 
however, even the current re-exam process has become an 
instrument of abuse and patent nullification. Patents, of 
course, are time bound property rights. Specialist law firms 
have emerged to brag about their ability to use the re-exam 
process to nullify patents.
    Let me offer you two quotes from a white paper one such law 
firm in California has published. The firm can proceed 
anonymously to ``create a simulated swell of opposition to the 
patent. This can hide your identity and even draw the patent 
owners higher toward your competitors.''
    Secondly, ``By creating uncertainty about a patent and 
tying it up in a long re-exam process, the firm can effectively 
nullify the patent.'' That is the system today without the 
bill. At a high level, the cumulative effect of the bill's 
proposed procedures would be to create a post-grant review 
system that heavily favors the interest of the challenger 
regardless of the challenger's motives.
    A challenger would be permitted to initiate a PGO 
proceeding with no meaningful evidence of invalidity to attack 
the patent's validity on any ground, to tie up the patent 
holder in expensive discovery and evidentiary proceedings, and 
to invalidate the patent according to a very low evidentiary 
standard of proof.
    And after a patent holder manages to survive this 
unbalanced system, she will remain vulnerable to successive 
attacks by the same challengers and different ones as well.
    So specifically, we oppose the bill's expansion of 
reexamination to permit challengers based on prior public use 
or sell. This provision is unfair to patent holders. The prior 
use and sell language was not part of the compromise bill that 
this House passed in the last Congress and has been deleted 
from the compromised Senate bill reported out of the Senate 
Judiciary Committee. We urge the same here.
    Second, the bill should preserve the existing estoppel 
effect applicable to interparties reexamination. Estoppel is 
necessary to encourage efficient and proper use of the limited 
reexamination proceedings and to prevent serial attacks against 
the patent.
    Third, the bill should establish a firm 12-month deadline 
for completion of interparties proceedings. Current average is 
about 33 months. Without a firm statutory deadline, the 
interparties reexamination process will subject the patent 
holders to a lengthy and costly proceeding and serve, in 
effect, as a rolling nullification of legitimately issued 
patents.
    Fourth, the bill should impose a more rigorous threshold 
test for initiating interparties and post-grant opposition 
challenges. The current threshold, ``a substantial question of 
patentability,'' sounds impressive, but it is not meaningful in 
practice.
    The PTO grants an estimated 97 percent of reexamination 
requests based on this test. A higher standard is necessary. 
Fifth, the bill should affirm that a patent is presumed valid 
when challenged in a post-grant proceeding.
    It is completely unreasonable to strip an issued patent of 
its presumption of validity by merely filing a piece of paper. 
A system that creates such a whimsical vulnerability would 
immediately devalue all U.S. patents as an asset class, whether 
or not a particular patent is challenged.
    And finally, the bill should explicitly allow the PTO to 
extend the patent term of a challenge patent simply out of 
fairness to the patent holder.
    In short, the current proposal is troubling. It would allow 
repeated frivolous challenges to U.S. patents resulting in 
increased costs, decreased certainty and lower value patents 
for the entire asset class. That, in turn, will undermine 
patent rights, threaten the jobs that depend upon them, and 
discourage investment in new technology.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Cassidy follows:]
                Prepared Statement of Bernard J. Cassidy





                               __________
    Mr. Conyers. Thank you. We will examine the credibility of 
your persuasiveness when we return.
    Thank you all. We will immediately return after this one 
vote. There are cafeterias and feeding places on the B level if 
you think you can grab a sandwich in the next 20 minutes or so.
    The Committee stands in recess.
    [Recess.]
    Mr. Conyers. The Chair recognizes Lamar Smith for 
questions.
    Mr. Smith. Thank you, Mr. Chairman. Mr. Chairman let me 
direct my first question to Mr. Chandler, and also ask Mr. 
Simon, Mr. Johnson, and Professor Thomas if they would respond 
very briefly as well.
    This goes to the subject of damages, no surprise. And what 
I want to mention, Mr. Chandler, to you is that a compromise 
has been proposed, and it would define a reasonable royalty as 
an appropriate share of the value of the patented technology 
over the next best alternative.
    I am not necessarily promoting it, I just want to put the 
idea and see what kind of a response we get for that kind of a 
compromise.
    Mr. Chandler. Thanks. The Senate bill is an important but 
not a sufficient step to address what is going on with the 
damage awards, and we are real concerned that the gate keeping 
provision while advising the judge to take a more active hand--
fixes some of the procedural problems in the way things are 
given to the jury but doesn't really help in setting a 
substantive standard that would be available for appeal and put 
some certainty into the system.
    We also think that that gate keeper function should occur 
earlier in the litigation. The Senate bill says it should occur 
no later than the final pre-trial order, but we would like to 
move it forward. In terms of nearest not available alternative, 
I will just say intuitively to me, one of the problems that 
that potentially raises is the number of cases that we have 
that are based on industry standards where it is unclear how 
you do an alternative.
    What I would say though is there is a--I think David Simon, 
who you mention in your question, will do a better job on that. 
There is a good reason that my title is general and his is 
intellectual.
    Mr. Smith. Okay. Thank you.
    The compromise I mentioned is actually not in the Senate 
bill. That is it is a new concept that--Mr. Simon? Real 
quickly.
    Mr. Simon. Thank you. I would like to echo Mr. Chandler's 
comments on the importance of more than a gate keeper. If I 
may, the issue you get into is really fundamentally an issue of 
complexity.
    From my view, you would have to do this at the time the 
design is occurring, and if you--in other words, you know, once 
we have already designed something into the product and it is 
out there, and sometimes we get sued on a patent that issues 
years after our products have first embodied whatever we are 
being sued on. It can, you know, taking it out of products, and 
particularly if there are other products that rely on it, is 
very difficult.
    So you really have to go back in time to look at when it 
was designed in. And then you get into some other issues such 
as, you know, at that time, nobody is sure which technique is 
going to work. And you get into--I have sat in design 
meetings----
    Mr. Smith. More complicated than we might think.
    Mr. Johnson? Real quickly.
    Mr. Johnson. Georgia-Pacific factor number nine already 
relates to the--advantages of the patented property over the 
old modes or devices if any that have been used for working out 
similar results. So it is a factor, and it is a good factor. 
But whether how important the factor is depends upon the 
circumstances between the parties. Are they competitors, you 
know, what is the impact of infringing and so on?
    Mr. Smith. Okay.
    Professor Thomas? Any thoughts?
    Mr. Thomas. I favor that approach, because I believe it 
best mimics what happens in the real world when technologists 
make decisions about whether these are proprietary rights or 
not.
    Mr. Smith. Okay. That is helpful. Thank you. Next question, 
Mr. Cassidy, you mentioned this in your testimony, the post-
grant opposition system. Just a real practical question, do you 
think PTO is able to handle a post-grant opposition system?
    Mr. Cassidy. I believe we have been told by the PTO that 
they are overburdened already, and this is a very serious step 
to create another layer of administrative patent judges and so 
forth. I think it is with great caution the Congress should go 
ahead and create a new system.
    Mr. Smith. My time couldn't possibly be up, Mr. Chairman.
    Mr. Kamen? Real quickly, and I am going to sneak in one 
more question if I can to Professor Thomas. Do you think they 
could--PTO can handle--do you agree with Mr. Cassidy on that?
    Mr. Kamen. As a former member of the PPAC, I can tell you 
we spent a lot of time there trying to figure out how to deal 
with all the strains their under now. They have a pendency of 
three-quarters of a million patents. Some of them are 4 years 
old. The last thing we need to do is give them another burden.
    Mr. Smith. Okay.
    Mr. Kamen. So I would say no.
    Mr. Smith. And that is not a surprising answer. Thanks.
    Professor Thomas? Last question for you real quickly. A lot 
has been made about the excessive royalties, the unfair 
damages, some people claim that is exaggerated. What do you 
think about it? And Mr. Chandler, you did a lot in your 
testimony to answer the question as well, but I wanted to see 
what Professor Thomas had to say.
    Mr. Thomas. I believe that the uncertainty may be the 
biggest problem at this point. However, I believe that there is 
a tendency toward overcompensation. The average award--but are 
reported are high, and when rates are rewarded in court rooms 
that are higher than our--would be bargained for in board 
rooms, it promotes speculation and litigation.
    Mr. Smith. Okay. Thank you. Thank you, Mr. Chairman.
    Mr. Conyers. Thank you very much, Lamar.
    Zoe Lofgren?
    Ms. Lofgren. Well thank you, Mr. Chairman. I just have a 
couple of questions, and as I said in my brief opening remarks, 
this has been an interesting process over the past, I think it 
is almost 10 years now of sorting through these issues, and the 
frustrating thing, I think, for all of us is that there are--
all the witnesses said some things that were actually in 
conflict with each other, and how do we get to a point that 
really works for the American economy in a very vigorous way.
    Along those lines, Mr. Simon, you talk about non-practicing 
entities and the meritless litigation brought by some of them 
that weakens the patent system. And I know that in some cases 
that is correct, and yet, we also know that there are non-
practicing entities that license--that are legitimate 
businesses, and so how do you make that distinction if you are 
trying to approach this in a legislative way?
    Mr. Simon. Well, I frankly don't think that you can make 
that distinction in a legislative way of saying these non-
practicing entities are good other than that their leader's 
name starts with Dean, and these others are not so good.
    I think what you really have to do is you have to have, 
from my view, some objective standards that remove uncertainty, 
and if you do that, I think you go a long way to helping the 
system.
    A big part of the problem is that just the cost are so 
tilted to one side in a patent litigation today with 
contingency fee cases that, you know, we have had instances 
where it has cost us $10 million just to produce the electronic 
documents. And, you know, the other side doesn't bare any of 
those----
    Ms. Lofgren. No, I am aware of that.
    Mr. Simon [continuing]. And that creates--you know, that is 
part of it. And there is----
    Ms. Lofgren. Well, it pushes to settle whether it is 
meritorious or not just because of the cost of litigation.
    Mr. Chandler? Do you have any thoughts on that same 
subject?
    Mr. Chandler. I think that we need to recognize that 
liquidity in the patent system is very important. People need 
to be able to enter into transactions to license their patents, 
and I think Dean Kamen's stories of his creative activity and 
invention and the way he has helped bring those products to 
market by being able to do transactions with companies that can 
then do that for him in terms of marketing and sales and all 
the other things that go into it----
    Ms. Lofgren. Yes, legitimate.
    Mr. Chandler. Legitimate and critical, and it is also 
critical that if others try to piggyback on that without the 
right to do so under his patent that there be an ability to 
stop them or to force them to pay compensation. So that is 
purely legitimate.
    What we are the issue is uncertainty. And I don't think 
that--I can't speak for Mr. Kamen, but I don't get any sense 
that he benefits from uncertainty in being able to value patent 
rights. I think we all do. I think there are people who want to 
enforce patents who think that the biased toward 
overcompensation that comes from uncertainty is people will pay 
a premium to avoid risk is what is the issue in the system.
    And those who like the idea that the idea that--like a 
hiker on a trail who makes himself very large to scare off the 
bear, people who are doing that like the idea that they may 
seem larger than they really are, and yet, there is a huge 
economic impact when we allow the law to let people look larger 
than they really are.
    And I think the problem will be solved in a way that 
protects people like Mr. Kamen who are doing what they are 
doing and eliminate the people who are leveraging the system if 
we simply come up with a clearer set of rules. The non-
practicing entities are a symptom. They are not the disease.
    Ms. Lofgren. Mr. Kamen? Do you have opinions on that?
    Mr. Kamen. I violently agree with everything. Uncertainty 
is the biggest issue. The reason I am sitting here today is if 
the uncertainty that already exists, which is problematic some 
of if it due to the you wait 5 years to get your patent. So I 
would urge you whatever you do, make sure the patent office has 
the resources to respond quickly.
    We couldn't run banks where they wait 5 years to tell you 
where your money is or you couldn't build houses if you needed 
5 years to get your title to your deed or that if you had after 
your deed a post-deed review where they said, after you build 
your house, we will come back in a year or 2 with some 
different rules, and maybe the deed's good and maybe we will 
take your land away. Your deed has to have certainty.
    The timing has to be efficient. The certainty is critical 
to me, and one of my concerns is, well intentioned as they are, 
some of these things that we are talking about in perhaps 
unintended consequences are going to add uncertainty. The 
second window adds uncertainty. Some of these issues add 
uncertainty.
    I would ask you to think about the fact that right now you 
may be trying to solve an insoluble problem if you want a one 
size fits all. I really do believe that if you have got billion 
dollar investments and making a dive, it takes 5 years to do, 
you have got 1,500 patents, clearly, people have demonstrated 
and everybody is sympathetic to the fact that people are gaming 
the system. We ought to go after the bad actors.
    But when you have got a great system, and you have got a 
few bad actors, the goal should be take out the bad actors, 
don't bring down the system. And right now, we see that there 
is real issues here. We have got a fire in a wastebasket and it 
is blazing. But you don't flood the house to put out that fire.
    I would say, as the Chairman said, we need invention here. 
Maybe the invention is a fire extinguisher. You ought to find a 
way to deal with the specific problems that exist without 
taking some of the fundamental systems and making them more 
uncertain and putting them into a system where there is more 
change especially at a fragile time like this.
    Ms. Lofgren. Mr. Chairman, I know my time has expired. I 
don't know if there is going to be a second round, but I guess 
I have to yield back.
    Mr. Conyers. If you have a last final urgent question, we 
will entertain it. Well, I had two, but maybe I will have to 
choose between them.
    Let me just ask this: Mr. Johnson, you have spoken 
favorably of the first to file concept. Mr. Kamen has expressed 
grave reservations about that system. I wonder if the two of 
you could address whether it is possible to reconcile those 
competing points of view.
    Mr. Johnson. I think it is, because I think Mr. Kamen's 
concerns relate as much as to an orderly transition to first to 
file as to an objection to first to file itself. I see he is 
nodding yes, so I will yield my time to Mr. Kamen.
    Mr. Kamen. I would agree with that. Of all the issues out 
there now, that one if it is carefully implemented, if the 
transition is well taken care of, but I would point out that 
you have some of the icon of the tech industry, of the bio 
tech, of the medical products companies of the world here, I 
think the individual inventors, rightly or wrongly, the 
inventors around the country have a knee-jerk reaction by which 
they are very concerned.
    And in some cases, I think, appropriately concerned that 
unless some accommodation is made, the individual inventor is 
going to see that I have got to run to the patent office every 
time I have a good idea, because if it is first to file, I am 
in trouble, and the little inventor then is going to (A) swamp 
the patent office with marginally prepared patents, it is going 
to cost them a fortune.
    So even though I might admit I could deal with some of 
this, I think dealing with your real small individual 
inventors, they ought to have a voice.
    Ms. Lofgren. The other question I was going to ask and 
maybe I will just have to ask for--I don't know if there is 
time, but----
    Mr. Issa. I guess we continue enjoying her second round, 
right?
    Ms. Lofgren. Bilski. You know, there was discussion had--
some of the Members talked about patenting, you know, tax 
preparation. I mean, there is a lot of angst about some of the 
stupid stuff that is going on here, honestly. But there still 
is, in my judgment--well, I mean, take a look at Oracle, I 
mean, there is a role for patents in the software arena.
    I think Bilski moves us in a direction but it is still a 
little spongy, and it has been suggested that perhaps we might 
use this opportunity to put a little more certainty onto 
Bilski. I am not sure that is correct, and I am wondering if 
anybody has a firm view on that?
    Mr. Johnson. I think that the nature of case law is when 
you make a major change, which Bilski is that good case law 
develops by not trying to decide everything in one decision, 
because we have a very complex technological landscape here, 
and I think as the case law goes on, these individual issues 
will come up to the courts and be handled appropriately.
    It is quite different, of course, in legislation where you 
have to do one rule and that is it, and you are done. So I 
would agree with you. Spongy isn't the word I would have used, 
but not completely defined is probably better. But I do have 
great faith that as the courts then take up individual 
additional cases in that framework that we will have 
substantial improvement in the area.
    Mr. Lasersohn. Just one aside, not directly on the question 
of methods for tax preparation, but the whole business method 
question is a very important question and the method question 
is a very important question and so, I can tell you that many, 
many patents that the venture capital community relies on in 
starting companies are based on methods.
    Some of them begin to spill over to business methods, and 
drawing those lines about what is a business method versus say 
a technical method can be very difficult. I will point out in 
Europe, where method patents are just generally not allowed, 
many industries don't exist for that reason.
    And so we have to be very, very careful not, again, to draw 
those lines very carefully.
    Mr. Conyers. Darrell Issa?
    Mr. Issa. Thank you, Mr. Chairman. I make note that our 
unwillingness to properly protect designer dresses and suits in 
our patent law has been a source of problems for us and not the 
French.
    Mr. Kamen. And not for me.
    Mr. Issa. Dean, I must say that when you wear timeless 
clothes, you know, no one need question that.
    First of all, I would like to say although I saw this is as 
a hearing about what we had already all heard about it, it is 
never a bad idea to have a gathering of brain trusts in one 
room that is this great to bounce ideas off of, particularly 
since Thomas Jefferson is long since dead, you are the next 
best thing. Perhaps with Dean here maybe the same thing.
    The questions that come today, particularly as to the gate 
keeper--I think, Mr. Chandler, I will lead off with you. 
Knowing that Markman decisions are supposed to be decided early 
but not always decided early, and since they are something with 
a judge much comes to grips with and most often, a good Markman 
causes both sides to see their product and patent and dispute 
differently.
    Should we consider linking those two inseparably in the 
discovery process so that both are encouraged by the judge so 
that then a potential quiet period of reflection could lead to 
settlement often?
    Mr. Chandler. Moving that function earlier in the process 
than, for instance, is reflected in the Senate bill as reported 
by the Judiciary Committee, would be positive. The Markman is 
one possible place to link it, but I wouldn't necessarily adopt 
the word ``inseparably'' that you posed in the question----
    Mr. Issa. Well I posed it for a reason----
    Mr. Chandler [continuing]. To do it.
    Mr. Issa. If there is no Markman, can you really--if you 
have not yet defined the patent and the product, then without a 
Markman, can you do the gate keeper?
    Mr. Chandler. I certainly think it would be hard to do 
before the Markman. I just would need to think about it some 
more to decide whether the word ``inseparably'' should be part 
of that.
    But certainly the goal of having decision making as early 
in the case that give guidance to the parties as to the factors 
that are going to be relevant in determining damages, will then 
remove the jackpot element and allow the parties to have a 
successful negotiation, and that is what we believe the patent 
system should aim to look like a good functioning commercial--
system where people can negotiate to transfer rights at prices 
they can agree on.
    Mr. Issa. Okay.
    Mr. Johnson? You clearly want to weigh in on this.
    Mr. Johnson. Thank you. I wouldn't link them because I 
think that the Markman frequently would be earlier than you 
could do the gate keeper. The nature of the development of a 
pretrial action requires the fact discovery to be completed 
before the experts can really opine on what the evidence is, 
and the gate keeper really comes as a pretrial procedure.
    You need the experts testimony that would then be 
challenged in gate keeper. So you are pretty far down the line, 
and so----
    Mr. Issa. So you buy them as sequential but not 
inseparable?
    Mr. Johnson. No, because what you would be doing is you 
would be delaying the Markman, and I don't think you want to 
delay the Markman.
    Mr. Issa. I do not ever want to delay the Markman, trust 
me.
    Mr. Johnson. So I think you shouldn't link them.
    Mr. Issa. Okay. The question came up on the post-grant 
review, and this whole window and whether the PTO was equipped 
to handle it.
    What I heard and, Mr. Kamen, I think I will choose you. You 
often are very smart at showing why people throwing a lot of 
money at something do not necessarily reach the conclusion that 
somebody throwing a better idea at is does.
    So let me pose it this way: Since we generally only throw 
money at things and perhaps some rules of the road that help 
from time to time, if, in fact, the money were made available 
either through the fee process, eliminating fee diversion 
completely or through additional fees, is there any reason to 
believe that the PTO could not develop the ability to be the 
best place should this law pass as it is to do it rather than 
some other entity, whether it be modeled after the ITC over at 
Commerce or men and women in black robes.
    Is there any inefficiency that you see there, because 
wherever we put this, we want to fund it, but also wherever we 
put this, I am sure we want to make sure we put it in the most 
efficient place.
    Mr. Kamen. I can't comment on all the other places you 
could put it and what would be the intended and unintended 
consequences. I could say as a general statement, I just 
believe that whenever you have a problem of any kind--instead 
of putting Band-Aids on it or patches over it, you ought to 
first--and it is generally the hardest part of solving any 
problem is defining it well.
    And if we absolutely believe that we could give the patent 
office right up front the best resources, the best technology, 
the best training, the incentives to keep their people--up 
until a few years ago, the turnover among young people there 
was so extraordinary that you would see why they have such 
great pendency now.
    If the pendency has left the problem, if the quality has 
left a sea of problems, trying to put other systems around is 
putting Band-Aids on there. You go back, and you say, let's 
make sure that they have the right tools, they have a right 
amount of time, they are trained properly, and they give you a 
good patent quickly.
    After that, to the extent that there needs to be something 
done, I think it should be done by those people in one place, 
cost effectively and quickly, and I would beg you all to make 
sure whatever you have them do it is--that is such a rigid 
timeframe on it, and it has got such a clear definition to it 
that we don't make it a source of more mischief and more cost 
and more uncertainty.
    Until you deliver the guy his patent or the woman her 
patent that says, it is real, I can count it, you are adding 
tremendous problems to the system, and adding other agencies, I 
don't think----
    Mr. Issa. Thank you, Mr. Chairman. I have just 35 more 
questions, but I will limit it to one, if I may?
    Mr. Conyers. You always do.
    Mr. Issa. Thank you, Mr. Chairman.
    And, Dean, by the way, I spoke to two graduating classes at 
the PTO on Monday, and you said it better than I did, but mine 
was a prepared speech.
    The earlier comment on--and I think rightfully so--on 
people who invest tens or hundreds of millions or even billions 
of dollars in a new product go along, produce the product and 
then intrinsically in this product and follow ons become some 
feature which is later claimed successfully in a patent.
    Do you believe--and it is not in the legislation--do you 
believe that as we look at the history of laches developing, 
that we should put into this legislation some sort of 
protection for--and some has been done by eBay but for the 
threat of a injunctive relief being limited when, in fact, by 
definition, these known technologies have been allowed to 
develop, investments made, and they have gone a very far along, 
because today, as we all know, you can sit on your rights a 
substantial period of time, then make the claim and have little 
or now harm done to the moving party.
    Well, many of you know that you can be in a jackpot when 
they make the claim. So is that something that is not in the 
legislation that should be spoken to above or below the line in 
order to provide further guidance to the courts?
    Yes, Mr. Lasersohn?
    I will let you all answer if the Chairman will.
    Mr. Lasersohn. I would say that we would have to be very, 
very careful about a system like that. I think the key question 
is did the inventor, in fact, invent it or not?
    And if the inventor, in fact, really did invent it, there 
are many reasons, as you know even better than I, why it may 
not be in the first issued patent or why the patent may take 
time to issue.
    As Dean points out, the issuance of the patent, the timing 
of the issuance is not within our control. And so, I think the 
operative question gets back to the main point, which is who 
really invented it? If the inventor, in fact, did invent that, 
he or she is entitled to the economic value of that.
    Mr. Issa. And I want you all to be able to answer, but I 
want to make sure the question is properly narrowed. I am only 
speaking to the injunctive relief further guidance. There is no 
question that we must make sure the actual inventor is entitled 
to fair compensation. What we are speaking of is the Intel 
chip, for example, that is 4 years down the road and second 
generation and somebody gains a patent on it, and a whole 
industry and even standards have been built on that technology.
    Is it a reasonable royalty as a matter of law or is 
injunctive relief an appropriate hammer, and like I say, the 
court's been deciding some, should we weigh in because we have 
further guidance that we might need to give.
    Mr. Lasersohn. I would just say injunctive relief is a 
major, major question for us and for our companies. eBay has 
already created a high level of uncertainty about when we are 
entitled to injunctive relief. And very often, that is in fact 
the bargaining chip that allows an inventor----
    Mr. Issa. And now from the other side, a little bit, 
please.
    Mr. Lasersohn [continuing]. The economic benefit.
    Mr. Simon. If I may? The specific issue brought to mind an 
incidence of a few years ago, Congressman Issa, where we were 
presented with a pending application that had been filed over a 
decade before, never claimed anything like what they were 
claiming, and then, very late in the process, stuck in a claim 
even though the patent was going to expire not that far into 
the future if these claims would have issued on fundamental 
memory technology that was used in every single computer.
    We solved the problem. We bought the patent. It took care 
of it, and we have never asserted it either.
    Mr. Issa. By the way, a problem is defined as something 
which money cannot solve. So you solved it, it must not have 
been a problem, it was a business decision.
    Mr. Simon. My boss doesn't quite view that the same way. 
Certainly not my CFO. There is a problem here. I am not sure 
that the injunction is necessary the right way. There used to 
be a doctrine in some circuits before the advent of the Federal 
circuit called the doctrine of late claiming, which is--and 
disfavored for a variety of reasons.
    Whether that might be a solution, whether there might be 
some other laches type solution, all of them should be 
considered. I mean, there is an evidentiary issue of how do you 
show, did they really claim this when they filed the 
application or did they later on say, we didn't reclaim 
something here, but you know, we have seen what industry has 
done.
    If they have done it 10, 15 years after the fact, I don't 
think they invented it, quite frankly.
    Mr. Issa. Mr. Cassidy?
    Mr. Cassidy. Congressman, I think the eBay case does solve 
a great deal of the problems, especially the prong of the 
equitable test of does this harm the public interest. If 
something is placed in the commerce and the public is largely 
dependent upon it, it is very difficult for a court today, 
after eBay, to enjoin the use of that product.
    Mr. Issa. Thank you very much, Mr. Chairman. I would say 
that we have jurisdiction over the courts, and they agree with 
us mostly. We do not have jurisdiction over the ITC, and they 
do not yet agree with us.
    Thank you.
    Mr. Conyers. Thank you.
    Sheila Jackson Lee?
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. As 
usual, I appreciate, I think, what is certainly a detailed 
hearing and, Mr. Chairman, I hope that we will make a home run 
this session with respect to, I think, helping to ensure the 
inventiveness of America.
    I would like to focus my questions on this concept of 
reasonable royalty damages. And I would appreciate comments 
from a willing witness that wants to make the argument that 
there needs to be a more definitive language and possibly a 
language that suggests Federal damages and/or in another form. 
So that is my first question.
    I would like to pointedly ask Mr. Lasersohn the question 
dealing with the apportionment of damages based on a patent-
specific contribution over the prior art. It is suggested that 
you feel that that would encourage infringement rather than 
licensing arrangements for the product. So it would not do what 
I think we would want it to do.
    And then to Dean Kamen, forgive me for approving of your 
comfortable attire, you give off the signals of an inventor. 
And we need more of you. I would appreciate your sort of ending 
your testimony--and you thought the bell ended--but I would 
like you to give one addition to this legislation that would 
create the vast or the more attractive atmosphere.
    I think we have a very solid document here, but that would 
open up even more for our inventors. And I will just end on 
this note as I offer--I would like some volunteers on my first 
question on the reasonable damages. But I think in the light of 
the economy that we have now, and this whole opportunity of 
turning around the economic engine.
    It will be based upon the next generation of inventions, 
and I want to see as vast an opportunity as possible and as 
fair an opportunity as possible, and I do think we are on a 
very positive track with the underlying bill, H.R. 1260.
    Mr. Simon, and others? Would you like to comment on this 
reasonable damage question, please?
    Mr. Simon. Sure. Thank you. So I do think there is 
something that we clearly need to do on having a meaningful 
damages standard rather than to say, here is the key factors. 
When I was at the FDC hearings a few weeks ago, they had five 
economists who basically all said the same thing. I can reach 
any result you want from the 15 factors.
    As to the idea of treble damages, their currently is a 
provision in the law about the treble damages, as I think you 
are aware, but that is for really bad conduct--infringement. 
You have to be careful in sending the appropriate remedies.
    If you make patent damages too low, you have the problem 
that you are not protecting invention, but if you make it too 
high, you stifle innovation because people will not invent 
around patents or avoid patents or try to come up with their 
own inventions for fear that if they didn't do it well, they 
are going to get hit with a punitive type damage.
    Ms. Jackson Lee. So you argue for tightening the language?
    Mr. Simon. Yes.
    Ms. Jackson Lee. Okay.
    Mr. Johnson. Johnson.
    Ms. Jackson Lee. Johnson, everybody is seated in a 
different--Mr. Johnson, thank you.
    Mr. Johnson. The problem when you talk about damages is 
that it is a very complex business world out there, and Mr. 
Simon, in his written testimony, for example, has spent a lot 
of time explaining to us the particular circumstances of his 
business and what they face when they receive charges, but that 
is only one business. That is only one setting.
    And there are literally millions of settings out there, and 
when you come down and try to write one rule, one rule that 
will fit everything, what we found in years of trying is it is 
difficult to impossible to write a rule for patent damages that 
will fit everybody is business circumstance.
    Yet, I think most of the witnesses on this panel would 
agree that it should be business appropriate what the damages 
are. Mr. Simon just said it. Others have said it that it should 
be market based, and so right now, we do have 15 factors.
    I don't agree with the people Mr. Simon mentioned who say 
they can come out anywhere, because the one thing that 
businesses are really good at is figuring out how much they are 
likely to make by selling a product and how much they are 
making if they sell a product, and if somebody comes in and 
interferes with that, and they infringe the patent, they are 
also pretty good at figuring out how much they really lose from 
it.
    And that is with the current flexibility in the law, which 
is, indeed, using the Georgia-Pacific factors. You can take 
into account all these business realities and come up with, I 
think, the overwhelming number of cases, you come up with a 
pretty fair result. And I think there is actually pretty 
widespread agreement to that.
    Ms. Jackson Lee. Mr. Lasersohn? Thank you.
    Thank you, Mr. Chairman, for letting them answer the 
questions.
    Mr. Lasersohn. With respect to your specific question, I 
think my answer is that our understanding is that an 
apportionment of damage type test as the only test would reduce 
damage awards, and that would lower the cost of infringement, 
and therefore, there would be more infringement.
    In fact, we were very surprised to see an article last year 
in the middle of this debate coming from the head of the 
Chinese patent court who wrote a paper reviewing the 
legislation--this particular idea--suggesting that that would, 
in fact, be the case. That is, it would enable Chinese 
companies to infringe with much less risk.
    With respect to the broader question, the answer really is 
that Georgia-Pacific is complicated because the question is 
complicated. You can't make it any less complicated than it 
actually is. Figuring out when I negotiate patent royalties or 
patent arrangements or deals between a small company and a 
large company, this goes on for weeks and months, and it is an 
enormously complicated negotiation where all of these factors 
in Georgia-Pacific, in fact, come into play.
    This isn't a hypothetical case at all. They actually enter 
into our negotiations almost every single one of them. We weigh 
them, and sometimes, one is more important than the other. 
Sometimes five are more important than three, but it is simply 
that complicated, because it is that complicated.
    Ms. Jackson Lee. Mr. Kamen? Thank you.
    Mr. Kamen. You asked a couple of things. I thank you for 
that, by the way. One of them, you asked what are we going to 
do to ensure the next generation of great innovators and 
inventors, and I think that is the only real solution this 
country is going to count on.
    I did deliver to the counsel to the Chairman a bunch of 
pieces of data, Congresswoman Lofgren, actually, hopefully will 
be a supporter here, but we started an organization, a not-for-
profit, 16 years ago with 20 some odd of these companies 
sponsoring high schools around the country to help teach them 
how to be inventive and creative.
    It has grown such that this year we have 16,000 schools. We 
took over the Georgia Dome for our finals last week. That is 
what this is. But I can tell you that women and minorities in 
the United States are not underrepresented; they are virtually 
unrepresented in the world of patents, and it is really quite 
outrageous to me. And 39 percent of the kids we have on these 
teams doing science and technology are women. So we are working 
on that separately.
    To your other question, what one thing would I do? I think 
it is sort of what I would say to Congressman Issa, let's get 
back to the basic problem. If we don't trust the patents that 
we get--if they are going to be attacked, and sometimes rightly 
so, if people are going to act inappropriately, the first thing 
we got to do is make sure that the patent office is properly 
equipped to deal, frankly, with the good news that so many 
people are filing so many patents.
    Again, as Congressman Issa pointed out, we ought to run 
this thing like a business. Not too many businesses out there 
would be saying, whoa is me; what am I going to do? I have got 
750,000 orders I just can't ship. I think GM and Ford would 
love to have that problem today.
    But the patent office is sitting there now saying we have a 
problem. We have pendency. Well, if we know that there are more 
and more patents being filed, and we know people are willing to 
pay to get these things done, the idea that they have got a 
backlog of 700,000 of them is hurting everybody everywhere.
    It is hurting the people that need to know what they got to 
protect against. It is hurting the people that could be adding 
these great solutions to the economy. So I would say, no matter 
what else you put in this reform bill, let's add some stuff to 
make sure that the patent office gets all the resources it 
needs to make the highest quality patents and reject all the 
crummy ones, but make the highest quality patents as fast as 
you can. Get them out there, but then leave us with something 
we can trust when we are done.
    And, you know, I really have to continue to say, I am 
genuinely sympathetic to unique problems, but they are unique 
problems. If you got a fire in that waste basket, let's not 
assume that we got to write a law that floods the building to 
put it out, and let's focus on solving the problem.
    And, again, this might sound a little callous, but if those 
industries are now so big that somehow even your own numbers 
point out it is a few billion dollars, and trust me, I know 
that is a lot of money--never have that kind of money--but in 
context, of all the other places our economy is dealing with 
money, if somebody said to you, our $16 trillion economy now 
has $3 billion that has gone out in these kinds of cases, let's 
say 50 percent of which might not have gone out appropriately, 
you got a billion or $2 billion that people are gaming the 
system of which we have a national economy of $15 trillion or 
$16 trillion, 60 percent of which is purely based on 
innovation.
    I am not sure I would put at risk the large part of that 
$16 trillion to try to make this other thing perfect. We got to 
deal with this situation in context and innovation and finding 
ways to keep creating more incentive for innovation and 
rewarding it is more important than ever and solving this 
little problem by destroying a magnificent process and model we 
have in this country.
    I would just ask you to focus more on the value than on the 
cost.
    Mr. Conyers. Mr. Kamen? Were you a salesman before you were 
an inventor? Or are you a salesman and an inventor?
    Mr. Kamen. Both. Mr. Chairman, I am just afraid that my 
ability to continue to keep 300 people working on projects 
could be dramatically reduced or eliminated if I can't go out 
to these companies and say, here, I have got something that is 
going to be valuable to you.
    Ms. Jackson Lee. Very crucial issue, Mr. Chairman. I don't 
know if Mr. Chandler wanted to answer the treble damages or the 
reasonable damages really quickly if the Chairman will indulge?
    Mr. Chandler. Sure. Thank you for the question. We 
certainly support----
    Ms. Jackson Lee. Thank you----
    Mr. Chandler [continuing]. The treble damages in cases of 
willfulness, and that is a very important part of the law. It 
is a strong disincentive to infringement. I think we have to 
remember that patent infringement does not require any kind of 
copying.
    One infringes simply by doing something that someone is 
able to prove to a jury looks enough like what is in the patent 
that a finding is made of infringement. What we do need is to 
have that willfulness standard so that people who set out to 
infringe someone else's intellectual property will be made to 
stop.
    And we support that. We view that as a separate question 
from figuring out what the appropriate damages should be for 
nonwillful infringement.
    Ms. Jackson Lee. Thank you.
    Mr. Cassidy? Do you have any comments?
    Mr. Cassidy. Thank you, Congresswoman. Yes, I think it is 
important to focus on the data. The data that we have is over 
the last 5 years, there is about 100 cases per year that go to 
conclusion and patent arena. Those are resolved at an average 
price when there is a grant of an award of $5 million. If you 
include cases where the plaintiff loses, it is $2 million.
    So that is the data. It is not a national calamity that 1 
percent of our Federal cases deal with patent issues. It is not 
a calamity that the average award at the end of those cases is 
$2 million. The cost is $5 million. So we need to keep that in 
mind and not just the giant figures that the other witnesses 
are tossing around.
    Thank you.
    Ms. Jackson Lee. You want to quickly?
    Mr. Chandler. If I might. I think that looking at the cases 
that are in court that result in judgment is looking at the 
very tip of an iceberg and trying to define what the iceberg 
looks like. There is a huge amount of settlement activity that 
is based on threat and leverage.
    And in the case of my own company, that amounts to hundreds 
and hundreds of millions of dollars from situations where you 
are trying to avoid a jackpot situation. You can't. This is a 
very real and significant problem with these syndicates that 
have set up that leverage uncertainty in the system.
    And I think it is a complete red herring to look only at 
cases that are reported in court and ignore the rest of the 
environment that we are all trying to operate in today.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman. My last 
word in concluding is of the Mr. Lasersohn's comment about a 
very large competitor of sorts, China. And whatever we do in 
this bill, I hope that we will protect the ingenuity and the 
inventiveness of America as we share it with the world.
    I yield back, Mr. Chairman.
    Mr. Conyers. Mr. Brad Sherman?
    Mr. Sherman. Thank you, Mr. Chairman. I believe I am last. 
I am certainly least in my knowledge of patent law. I know as 
much about patent law as the average tax attorney.
    So I may be asking questions that are just kind of 
discordant with the way people who do know about patent law 
think about these issues.
    First, Mr. Chairman, the one thing everybody seems to agree 
on is that the patent office be adequately funded. And I hope 
that we pass full patent reform soon, but perhaps we want a 
separate piece on that to go through more quickly, and I know 
the appropriators love the opportunity, or at least some of 
them, to steal money from the patent fees.
    I can't think of anything stupider to do. We spend tens of 
billions of dollars having an investment tax credit that may or 
may not generate patents and, you know, I think it does, but to 
underfund the patent office in order to allow the appropriators 
to spend $5 or $10 or $50 million dollars more is--I mean, it 
is tough to do the absolute stupidest thing that is done in 
Washington to the economy, but that might be it.
    So perhaps a bill that allows the patent office to set fees 
and prohibit those feels from being stolen could be passed 
expeditiously.
    Mr. Issa. Would the gentleman yield?
    Mr. Sherman. I will yield.
    Mr. Issa. The gentleman, I don't know was on the Committee 
the last time we dealt with this. We are less stupid than we 
used to be, because we used to just divert, and in the 
beginning of the Bush administration, they asked for huge 
increase, all of which would have been diverted.
    But the Senate is----
    Mr. Sherman. So that is the inventor tax. Any country that 
has an investment tax--no, not investment tax, excuse me, an 
R&D tax credit. I was referring to the R&D tax credit earlier. 
But, yes.
    Mr. Issa. For the gentleman's edification, the Senate is 
working, and we will be working with them and the appropriators 
to find a fix for this backlog and the shortage of funds the 
PTO now has and possibly we can use the remaining fee 
diversion, because there is some that is legacy in order to do 
it.
    But the amazing thing is you should have been here in 2000 
when we found out how dumb we used to be.
    Mr. Sherman. Well, I am grateful for the improvement, and I 
would point out I think we ought to have a patent office that 
has speakers going out to colleges saying, we are waiting for 
more applications rather than the other way around.
    There has been discussion here of, in effect, our trade 
deficit and how this affects American jobs as opposed to 
others. And it seems to me that there are kind of three 
elements here.
    You have got invention, marketing integration, and 
manufacturing. We are pretty good at invention, perhaps even 
better at marketing and integration, and manufacturing, we have 
pretty much figured out a way to destroy in this country.
    Likewise, we have a lot of assets in invention. Americans 
own a lot of patents. We own a lot of trademarks and marketing 
machines, and if we have any manufacturing plants, we are in 
the process of dismantling them.
    So I can see how protecting patents is in our interest vis 
a viz other countries, but is there anything in our law that 
gives ore of an incentive to a guy in a basement in the United 
States versus tin the basement of Calcutta?
    Is there anything we could do in our patent law that would 
help us vis a viz our trade deficit and the rest in the global 
system other than just recognize that at least at this stage, 
we are better at inventing than we are at this other stuff so, 
we better protect invention one way or the other?
    Does anybody have a comment?
    Yes, Mr. Lasersohn?
    Mr. Lasersohn. I think it is a very, very important 
question, and I think part of the answer is that, in fact, 
those inventors--and there are clearly issues around this, but 
many of those inventors in Calcutta and China where there are, 
in fact, extraordinarily weak patent systems where they cannot 
protect their inventions come here and start----
    Mr. Sherman. Well, yes, they don't have to come here, they 
just have to send their patent application here.
    Mr. Lasersohn. Well in many cases, at least in Silicon 
Valley and the companies that we finance, I can tell you many 
of those entrepreneurs today are, in fact, coming here and 
starting companies. They are not just sending their patents. 
They are coming here and starting companies.
    One reason is that they find starting the company in their 
home territories won't necessarily give them the patent 
protection that they----
    Mr. Sherman. But wouldn't it be just as perfectly fine 
business plan to say we are going to have a Calcutta based 
research company who is going to get all its money by filing 
patents in the United States?
    Mr. Lasersohn. You would think so, but it doesn't work that 
way.
    Mr. Sherman. There is just a tendency for people who view 
the U.S. market and the U.S. patent system as their revenue 
source.
    Mr. Lasersohn. And it is an echo system, so I don't mean to 
suggest the only factor, obviously, the patent. But it is a 
major factor. The whole echo system--the fact that we have 
Silicon Valley, that we have a venture capital industry, that 
we support and frankly honor inventors in ways here that they 
don't necessarily in other places. All of that goes into that 
decision.
    Mr. Sherman. The boogey man here is the outfit that buys a 
patent or even the inventor that develops a patent never 
intending to do anything with it except hope that somebody else 
invents something pretty much along the same lines and then sue 
them.
    Can we add something to our patent laws that just says, you 
get far less in damages? We will let Mr. Simon write the damage 
provision calculation and the venue provision for any inventor 
or patent holder who has failed diligently to try to exploit 
their inventions?
    Yes, Mr. Johnson?
    Mr. Johnson. I would redefine who that boogey man is, and I 
would say it is people who collect patents to assert not 
because of the merits of the patent but simply to trigger the 
tremendous cost on defendants that comes for defending against 
those claims.
    Mr. Sherman. Well, are you saying that a Chinese should 
have less rights than----
    Mr. Johnson. No, not at all. I think that, in fact, it 
might be that Mr. Kamen could have an excellent invention, and 
that he may need to sell it to Mr. Lasersohn who may need to 
enforce it, because he raises the venture capital to make it a 
business, and I don't want to see Mr. Lasersohn not be able to 
give Mr. Kamen what is fair, because I want Mr. Kamen to come 
up with more inventions.
    Because sitting at this table, J&J may be the party----
    Mr. Sherman. So the boogey man would be an assignee who has 
no intention to exploit except through the court system?
    Mr. Johnson. I would say it would be anyone who is gaming 
the litigation system when they have a frivolous suit----
    Mr. Sherman. You are using pejorative terms like gaming and 
frivolous----
    Mr. Johnson. Okay, I will----
    Mr. Sherman. I mean we could just say low damages to bad 
plaintiffs.
    Mr. Johnson. No.
    Mr. Sherman. That doesn't----
    Mr. Johnson. I would say it is someone who brings a suit 
not intending to have that suit decided on the merits of their 
rights, but rather one who intends to use it to settle out at 
less than the cost of litigation cost, which is what I 
understand happens about 75 percent of the time in some----
    Mr. Sherman. I don't know how we could write a statute that 
focused on what was going on in the mind of the plaintiff, 
because I guarantee you every plaintiff will put in their 
pleadings, we are bringing this lawsuit for the purpose of 
winning. And a few of the times, they will win.
    If they had no chance of winning, you guys wouldn't settle.
    Mr. Johnson. When they bring a claim against us for $50 
million----
    Mr. Sherman. Right.
    Mr. Johnson. And then, when you sit down to talk about 
settlement, and they say, well, it is going to cost you $5 
million to defend, we will settle this lawsuit for $2 million; 
pay us $2 million, and we will be on our way, one does--no 
matter how----
    Mr. Sherman. Let's put it this--I don't think a statute 
that prohibits plaintiffs from telling you in negotiations what 
your cost of defense is going to be----
    Mr. Johnson. No, no----
    Mr. Sherman [continuing]. Is going to make your lives any 
easier.
    Mr. Johnson. And I wasn't suggesting any of that.
    Mr. Sherman [continuing]. And they will all be able to----
    Mr. Johnson. I was suggesting what the problem is that we 
perceive.
    Mr. Sherman. Yes. Obviously, in any kind of lawsuit, 
somebody brings a frivolous lawsuit for the purpose of 
collecting not based on the merits of the lawsuit but based on 
the cost of defense. I if there was a way to stop that, we 
would want to stop it.
    Mr. Johnson. But it is a uniquely difficult problem as Mr. 
Simon points out, because it can cost the defendant $20 million 
or so to defend.
    Mr. Sherman. Does anyone else have a way to define the kind 
of plaintiff who should be getting lower damages because, while 
they do own a patent, they can show infringement. They were not 
doing anything to allow--I mean, the purpose of the patent is 
to encourage people to do things that are going to be useful.
    So if you put the patent in the drawer, maybe you are 
entitled to far less ownership. Does anyone else have a 
comment?
    Yes, Mr. Lasersohn?
    Mr. Lasersohn. I would just suggest, I mean, the one 
problem is what if the invention really matters?
    So if Dean Kamen invents something extraordinarily 
important but for whatever set of reasons he chooses that he 
doesn't want to pursue it as a development project, and he 
licensed it to somebody else----
    Mr. Sherman. Well, I am not--I mean, there are many ways to 
exploit an invention--licensing, trying to license are all ways 
to exploit an invention. I mean Kamen here may never invent 
anything. I mean, correction, he may never manufacture 
anything, but he is going to invent an awful lot of things and 
work very hard to exploit them.
    Mr. Lasersohn. Right.
    Mr. Sherman. But what we are talking about here is the 
person who owns a patent and has no intention of having that 
patent be useful to the manufacturing process.
    Mr. Lasersohn. But he is interested in making money, and to 
make money----
    Mr. Sherman. But, yes, one way to make money is to invent 
something and then to have all your inventive work be 
absolutely useless to society. To take your invention, put it 
in a drawer, do nothing to exploit it, and then wait and hope 
that somebody else invents it, and then you can sue them.
    And the question is, should that person get the same level 
of damages as someone who invents something and diligently 
tries to get it manufactured one way or another.
    Mr. Lasersohn. I am just pointing out that the problem with 
looking at the nature of the entity that is bringing the 
lawsuit is that, I think, what really ultimately matters is the 
value of the patent.
    So there can be cases where the value is enormous, but you 
don't--there is all sorts of reasons the inventor has chosen 
not to pursue the development of it--has chosen, for example, 
to want to license it to somebody----
    Mr. Sherman. I am including people who diligently try to 
get it licensed. I am talking about the inventor who puts it in 
the drawer, doesn't go around trying to find somebody to buy 
it, license it, manufacture it or uses it--who has as only one 
business plan, and that is to wait for somebody else to invent 
the same thing, and then sue them.
    What do we do with that business plan.
    Mr. Lasersohn. I am just pointing out that these 
organizations in many cases are, in fact, attempting to get the 
economic value of the invention through a negotiation with 
these companies who are using--they didn't invent it; Dean 
invented it first, so he is the inventor.
    They are using the invention, and these organizations are 
simply trying to get the economic value. All of these 
discussions--what the other side forgets to tell you, is that 
these discussions start with the licensing negotiation. The so-
called trolls go to these organizations and say, will you 
please license this for whatever----
    Mr. Sherman. Right, but will you license something--will 
you pay us for a license on an invention where our inventive 
efforts have done nothing to help society, because, in fact, 
while we invented something useful, upon inventing it, we put 
it in a drawer. We told no one. We made no effort to license it 
to anyone. We waited for years.
    Mr. Johnson?
    Mr. Johnson. Well, when you apply for a patent, it becomes 
public knowledge, and in fact, the reason that a patent is 
granted is because you make your invention known. And depending 
on what the invention is, it could be the invention of the 
laser. People read patents. They come out. They are available 
on the Internet.
    They may then rush to their laboratory and build them. They 
may build plants, and so on, taking advantage of someone's 
invention. The patent system doesn't require that the inventor 
become the manufacturer, and he is not putting it in a drawer. 
He is putting it up for the world to see.
    Mr. Sherman. Maybe just filing for the patent is a 
marketing plan, although, not a very aggressive one.
    Mr. Johnson. He could invent the laser and, indeed, stick 
it in a drawer and keep it secret, and that would be terrible 
for society because we wouldn't get it, and the original 
historical foundations of the patent system came from exactly 
that in medieval Europe with the guilds where they would not 
share information.
    So the basis of patents is the public disclosure of 
information.
    Mr. Sherman. Okay. I think I am well over time--questions. 
Thank you.
    Mr. Conyers. Thank you very much.
    The Chair recognizes the gentlelady from California, Linda 
Chavez who, as the most imminent mother in the Congress, has 
all of us on pins and needles for these last 2\1/2\ weeks.
    Ms. Sanchez. Thank you, Mr. Chairman. I have been following 
the discussion with some degree of interest also in the back 
room, and I appreciate all of our panelists for being here and 
the different perspectives that you lend to this complex issue.
    I am sort of going to go off in a different direction here, 
because I know that, sort of, the emphasis in trying to reform 
patents is to trying to keep innovation alive and well in the 
United States and trying to make sure that American innovation 
and technology leads in the world.
    But, sort of, scratching the surface, one thing that I have 
become aware of and this is what I specifically want to ask all 
of our panelists about, is--and in particular, I am concerned 
about business methods patents, especially because of late, it 
has been brought to my attention that there are business method 
patents that are being awarded for tax strategies, some of 
which don't even comply with U.S. tax law, which I find highly 
amusing.
    So I am interested in knowing from our panelists, and I am 
just going to have each of you respond, in kind, what your 
thoughts on business method patents are, generally speaking, 
whether or not you that there are patents that are too broad 
for business methods that are being issued? How would each of 
you address those kinds of patents in a less costly and more 
effective and efficient alternative to legislation?
    I am just, sort of, trying to get, generally speaking, all 
of your thoughts on that, and we can just go down the line.
    Mr. Simon. Thank you. So briefly, I just want to be very 
careful here. For example, the way that you would tune a radio 
used to be with physical components called resisters, 
capacitors, inductors. That has all now changed to, in almost 
all instances, to what you, in essence, call a software 
patent--computer implement invention--called filtering 
electronically. Filtering is done mostly on computer these 
days. And so we want to be very careful that we don't take out 
areas of things that I think most people would agree should be 
patentable.
    If it is purely, gee, how you feel out the form, I think 
the Bilski decision goes a long way to fixing that problem. but 
you have to be careful if you know--and I think there is some 
other cases that have said, or at least suggested that all you 
have done is computerize something that was already out there. 
That is not good enough to be patentable from an obvious 
standard.
    But I think we want to be very careful about how we deal 
this, because it is very--and you can actually find instances 
where filtering functions can be used in taxes as bizarre as 
that may seem. So we need to be somewhat careful about that.
    And with that, I apologize, Mr. Chairman, I am under strict 
orders from the chairman of my household to be home tonight. I 
have to leave--if I may leave?
    Mr. Conyers. Of course.
    Mr. Simon. Thank you.
    Mr. Johnson. I think the Bilski decision went along way 
toward solving some of the concerns, many of the concerns, 
about business method patents. I would comment on the tax 
strategy part that I think there is a long tradition that the 
patent office can deny the grant of a patent if it is not in 
the public interest. You, for example, can't get patents on 
ways to commit crimes and the like.
    Mr. Thomas. Congresswoman, I share your concerns about 
business method patents. Patents on marketing, finance, 
insurance, sports methods have clogged up the patent rules. 
They have made the United States look like a laughing stock 
compared to our trading partners. They have been inflicted upon 
industries with no grace period.
    The patent office just grants patents that pertain to these 
fields, and there is no waiver or notice. We just do it. That 
is the way we roll in the patent system. I am less confident 
than some that the Bilski opinion has taken care of all of 
these problems.
    Because I believe the Bilski opinion still leaves room for 
clever patent drafters--you don't have to be that clever simply 
to draft something that looks more machine based, that looks 
more apparatus oriented even though what you have truly done is 
invented something that lies with outside traditional 
technological areas.
    So I believe there is still room for legislation, and 
particularly in targeted areas like tax legislation or tax 
patent legislation. Thank you.
    Mr. Lasersohn. I am very happy to be able to agree with Mr. 
Simon on something, and that is, obviously, patents that are 
illegal, that practice in something that is illegal, we should 
just throw out, and the obviousness test is critical here. 
Again, filling out a form is obvious and should be able to be 
thrown out on that basis.
    However, it is complicated. I am sorry?
    Ms. Sanchez. I don't think--oh, there we go. Sometimes, 
though, that can take a lot of litigation before something that 
is clearly obvious to most people like peanut butter and jelly 
sandwiches without the crust, you know, gets litigated to the 
point where they say, oh, this was pretty obvious.
    Mr. Lasersohn. And that is, I think, exactly where I was 
going here, which is one of the way we do support post-grant 
review. There really is a need to improve the quality of 
patents that are issued.
    We should do something, and I think if we had more money 
for the patents office, we all are in favor of that, and some 
type of a limited carefully managed post-grant review that many 
of these really silly patents would never really see the light 
of day, but we have to be very careful about throwing out the 
method concept as a whole.
    It is really very critical and gives us a competitive 
advantage in many industries versus, for example, Europe and 
countries that do not have method patterns.
    Ms. Sanchez. Okay.
    Mr. Kamen. All I would say, not to risk sounding like the 
broken record, but get the quality up. Obviously, I include in 
that package of quality, as you were saying, overly broad 
claims. I mean, speaking against my own interests here, every 
time I try to get a patent, I think I have invented something 
great, and they keep coming back at you with this and this and 
this, and as long as everybody is judged the same way, and as 
long as when you finally get it in the end, it shouldn't be 
overly broad.
    So it will be not that--it shouldn't be obvious. It 
shouldn't be not in the best interest of the--it should meet 
all those standards, but all of those standards are encompassed 
in give us the capability to get smart people on the other side 
to grant a high quality patent, and I think all those issues 
really will dramatically, dramatically fade.
    Mr. Chandler. I agree with everybody else.
    Ms. Sanchez. I think I found common ground among all of our 
panelists. Do I get a gold star for that, Mr. Chairman?
    Mr. Cassidy. We propose a gold star for the congresswoman. 
We agree Bilski was an important step in the direction of 
avoiding ridiculous patents. Personally, I would favor that 
this not be a subject of legislation. The courts have this well 
in hand and should be allowed to develop this in the case law 
arena rather than trying to get it right on the legislative 
front and possibly not getting it right----
    Ms. Sanchez. So if I am hearing you correctly, you trust 
the judiciary more than you do your Members of Congress?
    Mr. Cassidy. I trust the judiciary to resolve problems that 
it has created, which it did in----
    Ms. Sanchez. Very diplomatically put. I yield back, Mr. 
Chairman.
    Mr. Conyers. Thank you very much, Ms. Sanchez.
    Howard Coble?
    Mr. Coble. Mr. Chairman, I apologize to you and to the 
witnesses. I had three previously scheduled hearings today. I 
am late getting here, but I have four very short questions, Mr. 
Chairman, if I may?
    Mr. Cassidy? I am a longtime opponent of diversion of 
patent fees from the patent office. Application filings have 
decreased, as we all know, because of the soft economy. And now 
the office must deal with pending applications and close this 
new funding gap.
    Should we include a provision in H.R. 1260 to prevent the 
diversion of patent fees from the patent office? Mr. Cassidy? I 
looked at the wrong end of the table.
    Mr. Cassidy. I have a simple answer, absolutely, if the 
appropriators will allow you to include it----
    Mr. Coble. That is the problem. I concur with you.
    Mr. Johnson? Your testimony raises a number of concerns 
with the bill as introduced specifically with the damages 
provision. Is there language that you would support, and how 
does it differ from what is in the present bill?
    Mr. Johnson. We would support the language which is in S. 
515 as ordered reported, which is the gate keeper solution. And 
it differs from the language in the bill in that the language 
in the bill relies on a prior art subtraction approach and 
forces a methodology that steps through that would not allow 
people to rely on the existing breadth of the case law to 
handle individual circumstances to get to the right result.
    Mr. Coble. I thank you, sir.
    Mr. Chandler? Has the best mode requirement outlived its 
efficacy, and should it be left alone, amended, or eliminated?
    Mr. Chandler. I believe the best mode is a useful way to 
ensure that patents are granted with the inventor having to 
show why the invention is useful and the best way that it can 
be applied as part of the teaching process of patents to 
explain to the world why it is a valuable invention and how to 
use it. So that when it does expire, it can be best exploited.
    Certainly, that is an area where I think there is room for 
discussion as we move the bill forward. There are a number of 
defenses that those accused of patent infringements have 
available to them that have taken on a life of their own 
through judicial decision making, where as part of a 
comprehensive patent reform, it is worth looking at them and 
figuring out what really makes sense.
    And there are other areas in addition to best mode that we 
could look at modifying to achieve that end of a more rational 
patent system. Right now, we have a system where each side 
tries to amass as many nuclear weapons as it can instead of 
trying to rationally function like a commercialized system 
would to encourage trading of rights and economic development, 
which is what our patent system should be about.
    Mr. Coble. I thank you, sir.
    And, Mr. Chairman, one final question to Mr. Kamen.
    Mr. Kamen? You invent things. You are an inventor and 
hopefully that, in turn, creates jobs. In your opinion, which 
provisions of H.R. 1260 will encourage innovation?
    Mr. Kamen. Sadly, I think, this bill in its entirety is 
focusing on getting rid of problems, some of which to some 
extent are real and people can vary on how real they are, but I 
think what this bill in its entirety is missing is the other 
half, and I said a couple of times today, they are focusing on 
the cost of patents, and some of them are unreasonable and bad 
costs.
    There is nothing in that bill that recognizes or focuses on 
the value of the system that drives innovation in this country.
    A simple one that somebody recommended, Congressman 
Sherman, that I think everybody agreed with was at the very 
least let's make a bill or even go so quickly make it a 
separate bill that we fund the whole patent office.
    And frankly, while they are down now in new applications, 
don't let them let some of their workforce go. They have 1,200 
or 1,500 examiners, use this golden opportunity to quickly get 
rid of all this pendency, and bring them to a new standard 
where nothing takes more than a year or at most 2 years to 
review.
    None of you would live in a place where you wait 2 years to 
find out whether there is a deed for that lot you want to build 
your house on.
    But then I would say to each and every provision in this 
bill, if you could make sure when you step back and look at it, 
did it add certainty so that at least when you got your patent, 
it is something that we know how to value and move into 
commerce. So if there is a second window, make it clear, make 
it short, make it once. If there is issues about the damages--
if anything you do, in any way, can encourage somebody to make 
the rational business decision that the penalties aren't so bad 
for essentially infringing, I will just do it and as 
Congressman Issa said, it is the cost of business.
    It is going so far in the wrong direction, it will 
instigate more lawsuits. It will burden the system even more. 
It will take good actors and put them in a suit with bad 
actors, and I think all the stuff about damages is adding more 
uncertainty and less clarity to something that is desperately 
in need----
    Mr. Coble. Well, Mr. Kamen, I want to beat that red light 
before the Chairman gets on me. I want to thank the Chairman 
for having called this hearing and thank you all for 
participating.
    Thank you, Mr. Chairman.
    Mr. Conyers. And I thank the witnesses for their intellect 
and their stamina, and we declare this hearing adjourned.
    [Whereupon, at 1:05 p.m., the Committee was adjourned.]
                            A P P E N D I X

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               Material Submitted for the Hearing Record




                                 
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