[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
CROSSING THE FINISH LINE ON PATENT REFORM: WHAT CAN AND SHOULD BE DONE
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
INTELLECTUAL PROPERTY,
COMPETITION, AND THE INTERNET
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
FEBRUARY 11, 2011
__________
Serial No. 112-8
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
64-407 WASHINGTON : 2011
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202�09512�091800, or 866�09512�091800 (toll-free). E-mail, [email protected].
COMMITTEE ON THE JUDICIARY
LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TOM REED, New York LINDA T. SANCHEZ, California
TIM GRIFFIN, Arkansas DEBBIE WASSERMAN SCHULTZ, Florida
TOM MARINO, Pennsylvania
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------
Subcommittee on Intellectual Property, Competition, and the Internet
BOB GOODLATTE, Virginia, Chairman
HOWARD COBLE, North Carolina, Vice-Chairman
F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
STEVE CHABOT, Ohio HOWARD L. BERMAN, California
DARRELL E. ISSA, California JUDY CHU, California
MIKE PENCE, Indiana TED DEUTCH, Florida
JIM JORDAN, Ohio LINDA T. SANCHEZ, California
TED POE, Texas DEBBIE WASSERMAN SCHULTZ, Florida
JASON CHAFFETZ, Utah JERROLD NADLER, New York
TOM REED, New York ZOE LOFGREN, California
TIM GRIFFIN, Arkansas SHEILA JACKSON LEE, Texas
TOM MARINO, Pennsylvania MAXINE WATERS, California
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
Blaine Merritt, Chief Counsel
Stephanie Moore, Minority Counsel
C O N T E N T S
----------
FEBRUARY 11, 2011
Page
OPENING STATEMENTS
The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Subcommittee on
Intellectual Property, Competition, and the Internet........... 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Intellectual Property, Competition, and the Internet........ 2
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Committee on the Judiciary....... 4
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet.................................. 6
WITNESSES
David Simon, Associate General Counsel, Intellectual Property
Policy, Intel Corporation, on behalf of the Coalition for
Patent Fairness
Oral Testimony................................................. 7
Prepared Statement............................................. 10
Carl Horton, Chief Intellectual Property Counsel, General
Electric, on behalf of the Coalition for 21st Century Patent
Reform
Oral Testimony................................................. 17
Prepared Statement............................................. 19
The Honorable Paul Michel (Ret.), former Chief Judge, U.S. Court
of Appeals for the Federal Circuit
Oral Testimony................................................. 32
Prepared Statement............................................. 34
CROSSING THE FINISH LINE ON PATENT REFORM: WHAT CAN AND SHOULD BE DONE
----------
FRIDAY, FEBRUARY 11, 2011
House of Representatives,
Subcommittee on Intellectual Property,
Competition, and the Internet,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to call, at 10:30 a.m., in
room 2141, Rayburn House Office Building, the Honorable Bob
Goodlatte (Chairman of the Subcommittee) presiding.
Present: Representatives Goodlatte, Smith, Coble, Chabot,
Pence, Poe, Jordan, Chaffetz, Reed, Griffin, Marino, Adams,
Quayle, Watt, Conyers, Chu, Deutch, Wasserman Schultz, Nadler,
Lofgren, Jackson Lee, and Waters.
Staff Present: (Majority) Blaine Merritt, Subcommittee
Chief Counsel; Vishal Amin, Counsel; Olivia Lee, Clerk; and
Stephanie Moore, Minority Counsel.
Mr. Goodlatte. The Subcommittee will come to order, and I
will recognize myself for an opening statement.
Nearly 60 years ago, Congress tackled the challenge of how
to structure our patent laws for what was then the modern
economy. Over those decades, we have gone from room-size
computers with vacuum tubes to hand-held tablets, and black and
white television to 3-D TV, and from wax cylinders and record
players to digital downloads and streaming. Our patent laws
have served us well, but as our industries have changed and new
areas of the economy have emerged, our patent laws are
beginning to show their age. That doesn't mean that we need to
start from scratch, but there are areas where we need to make
some reforms.
Modernizing our patent system is necessary to meet the
needs of our 21st century economy and necessary to create jobs
and economic growth. When an inventor or startup is able to
take their idea from the garage or the lab to the Patent
Office, it gives them the exclusive right to make use of that
invention. This right then enables them to raise capital and
get their business off the ground.
When improving our patent system, we need to take into
consideration the work the Federal Government has done in
addressing patent reform. Since we began debating comprehensive
patent reform over a half decade ago, the Federal courts have
issued numerous opinions that have touched on some of the very
reforms we have been working on, including injunctions,
willfulness, damages, and others. We need to assess those
decisions carefully and factor them into any legislation we
move.
I hope that in today's hearing we will talk more about what
can and should be done to achieve the meaningful patent reform
legislation that has eluded prior Congresses. Reform means
putting forward commonsense ideas and not simply blanket
opposition. Our goal is a patent system that allows for
increased certainty, higher quality patents being issued, and
reducing frivolous litigation.
In the past few years, frivolous lawsuits against high-
technology companies have doubled, costing on average $5
million to defeat each one of these questionable suits. These
costs take money away from worthwhile R&D that leads directly
to job creation. These costs discourage entrepreneurs from even
taking that first plunge toward establishing a business. And,
inevitably, these costs discourage overall innovation,
hindering our Nation's progress and future economic prosperity.
Some may say that this is just the cost of doing business.
If that is the case, then the cost of inaction is way too high.
Congress has a constitutional duty here to ensure that we have
an effective patent system.
We also need to make sure that the PTO has the resources it
needs to accomplish the tasks we will ask of it. Fee aversion
is an unacceptable tax on our Nation's innovators, and it
diverts funds the PTO needs to other unrelated government
programs. We must address this issue.
I look forward to hearing from our distinguished panel
today. They represent a variety of perspectives and industries.
And I look forward to working with my fellow colleagues in the
House and Senate and the stakeholder community to take the
steps necessary to ensure that meaningful patent reform is
completed during this Congress.
It is now my pleasure to recognize our Ranking Member, the
gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman; and thank you for
convening this hearing on patent reform.
The patent reform debate has percolated through Congress
for several sessions now. We have seen several iterations of a
patent reform bill in both Chambers, most recently S. 23, which
passed out of the Senate Judiciary Committee last week.
At the core of the debate lay at least two truths: one,
discovery and innovation is the engine of economic growth and
development domestically and throughout the world; and, two,
the U.S. Patent and Trade Office, this Nation's primary mode of
encouraging inventors and protecting their intellectual
property, is overburdened and in need of adequate resources to
perform its functions.
The interplay between innovation, economic competitiveness
and recovery and job creation has never been more widely
acknowledged and supported than it is today. In fact, our very
first hearing on the oversight of the PTO focused on the
connection between job creation and innovation and showcased
the increasingly important role of ideas in the global economy.
The President's State of the Union address later that same
evening reemphasized the Administration's commitment to
encouraging and protecting innovators and their intellectual
property.
And just this week the Administration issued an executive
order implementing provisions of the PRO-IP Act, the Conyers-
Smith--also co-sponsored by Goodlatte-Watt--bill, signaling to
the world and the community of innovators that intellectual
property stimulation and protection are at the top of the
Nation's agenda.
Against this backdrop of consensus on the need to shore up
the PTO and provide robust incentives and protections to our
innovators, however, is the ongoing talk of deep, across-the-
board budget cuts. I hope that we will all step back and make
rational decisions about how the taxpayers' money should be
spent in a way that continues, rather than retards, our course
of economic recovery.
Let me just say a word or two about our witnesses. I am
pleased that we have a panel of witnesses who have been active
participants in this debate over the years. These stakeholders
possess intimate knowledge of where we have been and have
informed perspectives on where we should be going. The 21st
Century Coalition and the Coalition for Patent Reform both
represent members that have skin in the game, while Judge
Michel comes from a vantage point of adjudicating patent cases
for decades. Each witness provides useful knowledge as we
consider how best to fashion policy choices for intellectual-
property-driven industries consistent with the needs of the
country.
I know that I speak for both myself and Chairman Goodlatte
when I say that the importance of developing a complete record
reflecting a full scope of views is at the heart of the panel
assembled today and necessary for our Committee's work. Indeed,
some of the laws and practices that prompted the effort to take
on patent reform in earnest several years ago have changed.
Hearing from these witnesses about what changes are adequate or
inadequate, how they have affected their prior positions and
current outlook is essential for us to understand the current
landscape and to resist the urge to simply hold firm to
positions that may no longer be constructive.
Mr. Chairman, that is my prepared statement. I want to go
off the reservation here a little bit. I don't get this
opportunity to have industry people that I can send a shot over
the bow very often. And I am new here, so I am going to take
the luxury here, I think.
I have been kind of assessing this against a backdrop where
I come from focusing most of my attention in the financial
services industry. I watched the financial services industry
fail to do some things, fail to come together on some things
until we were in an absolute chaotic disaster. And only then
could our Committee, the Financial Services Committee, and
Congress really take steps that were really necessary.
I think we are approaching in this situation not the kind
of crisis that we faced in the financial industry, but we are
approaching something that is very serious. Because we have
been holding the PTO and its funding hostage to this whole
discussion about patent reform. And nobody has been willing to
kind of run over the industries because they are too powerful,
just like in the financial services industry, and because we
really think the industries ought to get together.
I am kind of sending the shot over the bow that it is
really time, after 6 or 8 years, for the industries to get
together and sit down and work out their differences on these
issues so that we can move patent reform forward, so that we
can move PTO funding forward and not hold those two things
hostage to each other before we get to a crisis situation. We
are approaching that in the backlog of patent applications we
have at the PTO. And so I am earnestly suggesting to the
industries that they come back to the table and try to roll up
their sleeves and find common ground on a patent reform bill so
that we can move this process forward.
I know that is gratuitous. It wasn't in my prepared
statements, but I hope it is taken constructively.
Thank you, Mr. Chairman. I yield back.
Mr. Goodlatte. I thank the gentleman. I know it will be.
It is now my pleasure to recognize the Chairman of the full
Committee, someone who has worked long and diligently on this
issue, the gentleman from Texas, Mr. Smith.
Mr. Smith. Thank you, Mr. Chairman.
Mr. Chairman, let me say at the outset that I think this is
one of the most important Subcommittee hearings that the full
Judiciary Committee will have this year, and I am particularly
pleased with the Members who serve on this Subcommittee because
they are all knowledgeable, they are all interested, and many
of them have district interests as well that will be important
as we move forward in the process.
And I would only say to the Ranking Member, whose comments
I appreciated, that I am not sure this is a shot across the
bow, because I don't think that warning is necessarily needed.
I think everybody, as the gentleman concluded, is eager to move
forward in a bipartisan process and try to accomplish the task
so that we don't end up with a situation as we did with some of
the financial regulatory reform as well. So I thought his
comments were very appropriate, and I think that we all would
agree with what the gentleman said. And it is nice to have him
as Ranking Member.
Mr. Chairman, the foresight of the Founders to create an
intellectual property system demonstrates their understanding
of how patent rights ultimately benefit the American people. In
January, our Subcommittee touched on this theme when we
conducted our first hearing of the year on the importance of
the Patent and Trademark Office. We learned that the
technological innovation derived from our intellectual property
is linked to three-quarters of America's post-World War II
economic growth.
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 for over
half of all U.S. exports and represent 40 percent of our
economic growth.
Just a digression here, these companies, the intellectual
property companies--many of whom are high-tech companies--
actually represent about 5 percent of all the companies in
America, and yet they account for 40 percent of our economic
growth. So if we are going to have a healthy economy, we are
going to have to have a healthy high-tech sector, intellectual
property sector as well. These industries provide millions of
Americans with well-paying jobs.
By any set of metrics, intellectual property is a driver in
our national economy, one that creates wealth and jobs. And our
patent laws, which provide a time-limited monopoly to inventors
in exchange for their creative talents, are the key to
perpetuating this prosperity. The original Patent Act was
written in 1790 and has been amended multiple times over the
past 220 years, and it is time for further change. We can't act
like disinterested spectators as frivolous lawsuits that
typically cost $5 million each to defend prevent true inventors
and industrious companies from creating amazing products and
generating high-paying jobs. So we need to update our patent
laws.
We must work with the Senate to enact a bill that enhances
patent quality, discourages frivolous litigation, harmonizes
international patent principles, and enforces core rights.
Our Committee undertook this initiative more than 5 years
ago because patent changes are necessary to bolster the
American economy and our Nation's global competitiveness. Every
industry directly or indirectly affected by patents, including
finance, automotive, manufacturing, high tech and
pharmaceuticals will benefit if we do our job correctly.
The purpose of today's hearing is not to recycle and recite
each argument made by every stakeholder who participated in the
debate. We don't have time for this. Instead, we must identify
common ground and establish priorities. That is why today's
hearing will focus on the doable, the practical, and ultimately
achievable patent reform.
We have all followed the recent developments in the Senate
Judiciary Committee which reported their bill on February 3;
and I am pleased that Chairman Leahy, Ranking Member Grassley,
and other interested Senators are working to develop further
revisions in advance of floor consideration. I met at some
length with Senator Leahy a couple of weeks ago, and I am
absolutely convinced that we are going to be able to find
common ground.
We have been developing a bill on the House side for our
Committee as well. While the Senate vehicle is a good start, I
am hoping we can work together with the other body to make
additional improvements. We need a few more tweaks to inhibit
the abuses that gave rise to the project back in 2005.
Politics is the art of the possible. I supported stronger
language on such issues as apportionment of damages, willful
infringement, and venue, but we have reached a point where no
one member, industry, company, trade association, or advocacy
group is going to be completely happy with the outcome, though
I do hope they will be, say, 60 or 65 percent happy.
All of us should maintain a holistic perspective as we
develop a bipartisan, bicameral bill; and we must keep our
common goal in mind: Better patents increase productivity and
lead to economic prosperity. A modernized patent system will
rev the engine of American competitiveness, put inventors and
innovators in gear, and drive economic growth and job creation.
I look forward to hearing from our witnesses today, Mr.
Chairman, and once again appreciate the Subcommittee having a
hearing on this subject. I yield back.
Mr. Goodlatte. I thank the Chairman.
Now it is my pleasure to recognize the Ranking Member of
the full Committee, the gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Mr. Chairman and Members.
I just wanted to particularly thank former Judge Michel for
being with us today. He has a distinguished background. I
welcome all our witnesses, but Judge Michel's commitment to
public service is extraordinary to me, and I am glad he is
here.
The only thing I would like to say with this opportunity
that comes to me is that somewhere in the appropriations
process the funds that are paid into the Patent and Trademark
Office never get back to the Patent and Trademark Office. I
think this is something that this distinguished Committee ought
to look at and see what we can do about right away, because
they are hurting.
I know that there are conservative Members in the body in
the 112th Congress that want to cut $100 billion from the
budget, and then some want to cut $32 billion from the budget,
and then now I think the figure has gone up to $64 billion in
the budget, so I am glad that we are going out this afternoon.
I will be holding my breath when we come back on Monday.
But this doesn't involve those kind of breath-taking
reductions from the Federal budget. This involves giving the
Patent and Trademark Office funds that they have already
collected. They go into the mysterious Byzantine process of the
Appropriations Committee behind closed doors; and, lo and
behold, they never get the funds they have already raised. This
is creating a serious negative impact on the whole concept of
patents and trademarks; and, to me, that is the number one
issue that this Committee and these distinguished witnesses can
assist us in trying to resolve.
Thank you for your generosity, Mr. Chairman.
Mr. Goodlatte. I thank the gentleman. And, without
objection, other Members' opening statements will be made a
part of the record.
It is now my pleasure to introduce the very distinguished
panel of witnesses we have today. Each of the witnesses'
written statements will be entered into the record in its
entirety, and I ask that each witness summarize his testimony
in 5 minutes or less. To help you stay within that time, there
is a timing light on your table. When the light switches from
green to yellow, you will have 1 minute to conclude your
testimony. When the light turns red, it signals that the
witness' 5 minutes have expired.
Before I introduce the witnesses, I would like to ask them
to stand and be sworn in.
[Witnesses sworn.]
Mr. Goodlatte. Thank you, and you may be seated.
Our first witness is David Simon, Intel Corporation's
Associate General Counsel for Intellectual Property Policy. He
will be testifying on behalf of the Coalition for Patent
Fairness.
Prior to joining Intel in 1997, David was in private
practice in Los Angeles for 15 years and specialized in
intellectual property matters, including licensing and high-
technology law. He has been a featured speaker at a number of
intellectual property seminars. He holds a B.S. In electrical
engineering from MIT and a J.D. From Georgetown University.
Mr. Simon has testified before the House and Senate IP
Committees on the need for patent reform and has been an active
participant in the industry and bar group negotiations to
arrive at a compromised bill. He currently is a member of the
Board of Directors of the Intellectual Property Owners
Association and the Coalition for Patent Fairness.
Our next witness is Carl Horton, Chief IP Counsel for
General Electric. He will be testifying on behalf of the
Coalition for 21st Century Patent Reform.
Earlier in his career, Mr. Horton served as the lead IP
counsel for GE's health care business, its electrical
distribution and control business, and its industrial systems
business. He has also worked as an IP counsel for several of
GE's plastic and advanced materials divisions.
Prior to joining GE, Mr. Horton worked at the IP law firm
of Burns, Doane, Swecker, & Mathis in Alexandria, Virginia. He
received a chemical engineering degree with honors from the
University of Utah and a J.D. Cum laude from George Washington
University.
Our final witness is Paul Michel, who was appointed to the
United States Court of Appeals for the Federal Circuit in 1988
and assumed the duties of chief judge in 2004 before retiring
last May. During his career as a jurist, Judge Michel handled
thousands of appeals and wrote more than 800 opinions,
approximately one-third of which were patent cases.
Prior to his appointment to the bench, Judge Michel served
in the executive and legislative branches for 22 years. His
work experience includes stints as an Assistant District
Attorney, an assistant special Watergate prosecutor, an
assistant counsel for the Senate Select Committee on
Intelligence, Acting Deputy Attorney General, and counsel and
chief of staff to former Senator Arlen Specter. Judge Michel is
a graduate of Williams College and the Virginia School of Law.
Welcome to you all, and we will begin with Mr. Simon's
opening statement.
Mr. Watt. Mr. Chairman, before you do that, I practiced law
for 22 years and never mispronounced a judge's name, so I want
to just apologize to the judge.
Mr. Goodlatte. Thank you for emphasizing that.
Mr. Watt. I know how important that is. I may have to go
back into the practice of law one day.
TESTIMONY OF DAVID SIMON, ASSOCIATE GENERAL COUNSEL,
INTELLECTUAL PROPERTY POLICY, INTEL CORPORATION, ON BEHALF OF
THE COALITION FOR PATENT FAIRNESS
Mr. Simon. Thank you, Mr. Chairman and Ranking Member Watt.
I am here on behalf of Intel Corporation and the Coalition
for Patent Fairness.
For Intel, innovation is our lifeblood. Every 18 months,
what was our state-of-the-art product is now obsolete; and, as
a result, we have to constantly continue to innovate. And in
doing that we also have to literally invest billions of dollars
to design the products, get the process ready, build the
factories--of which every year for the last few years we have
been investing about $5 billion a year in our factories in this
country to make mostly processors. And that is really important
for us.
As the Chairman recognized in his opening comments and
Chairman Smith recognized in an op-ed piece, patents do help
protect innovation when they are the right patents; and when
they are the wrong patents, they actually hurt innovation. And
it is very important for us to make sure this does not
continue.
Since we started this effort on patent reform several years
ago, there were a number of issues that at that time were very
critical to us. Thanks in part to the leadership of this
Committee and the courts, many of those issues have now gone
away, and I think many of them will contribute to those issues
having gone away--if not in the bill will contribute to
reaching an accommodation between all concerned on patent
reform.
On the other hand, what we still face is people recognize
that they can use patents as a way to hold up industry. These
are patents, many of which, when we read them, they are on very
esoteric subjects, but for those who are experts in the field
recognize that they should not have issued. For that reason,
this remains an important issue for us; and to us we think that
the way to deal with this is primarily through the Patent and
Trademark Office.
As both the Chairman and the Ranking Member said, get the
patent office its money--we are very open to you even giving it
more money if the office is going to get that money--and to use
that to modernize the office systems, but not merely to
modernize the computer systems so that they can send each other
e-mail. But also the systems that the Patent and Trademark
Office, unfortunately, uses today in the examination of patents
do not take advantage of the technology to actually
affirmatively do that examination.
Just by way of example, and as outlined in more detail in
my testimony, one of the things that the Patent and Trademark
Office is supposed to do is to read through the patent
application and make sure that the claims--which are these run-
on sentences, as you all know, at the end of the patent--
actually are supported by the specification. That is a
difficult task to do when you have many other things to do as
an examiner, and computers can really help that. And to us that
is where we think the efforts should really be devoted first
and foremost before we start hiring additional staff.
It is not that the office doesn't need the additional
staff, as Chief Judge Michel points out, but they need the
right tools to do the job. Because just hiring additional staff
and having relatively inexperienced examiners turned loose on
applications is not going to help issue good-quality patents,
and that is what we really need. When we have good-quality
patents, industry understands what is a good quality patent. We
are willing to pay, if we happen to be using somebody else's
patent, when it is a good-quality patent, but we are not
willing to be held up by people who think that the patent
system is a method of being a business lottery.
As the Chairman rightly pointed out, this litigation is
expensive. We frequently find ourselves being told that we
ought to settle because the cost of the settlement is going to
be much less than the cost of litigation, and a system that
encourages people to do that is not right. What it needs to do
is focus on let's get the resources to the examining office.
In addition to getting those resources to the examining
office initially, it is also important that patents be examined
when they issue. If they are invalid, that there be
methodologies to get back to the office and that those
methodologies remain open. Inter partes re-exam has worked very
well for us in that, and we are very concerned that some
people's proposals for that would limit access to the inter
partes re-exam, so that concerns us.
And, finally, one final note on the idea of moving toward
harmonization, we think that is really important. On the other
hand, we also think it is important that a harmonization be
full harmonization, and that includes prior user rights. Those
rights are important to us because they both ensure that we can
file patents on the things that we think we should patent and
not file patents on the things that we don't think we should
patent because we want to be able to continue to use them. But
a system without that, if it switches, will cause us problems.
Thank you.
[The prepared statement of Mr. Simon follows:]
__________
Mr. Goodlatte. Thank you, Mr. Simon.
Mr. Horton, welcome.
TESTIMONY OF CARL HORTON, CHIEF INTELLECTUAL PROPERTY COUNSEL,
GENERAL ELECTRIC, ON BEHALF OF THE COALITION FOR 21ST CENTURY
PATENT REFORM
Mr. Horton. Mr. Chairman, Members of the Subcommittee, I
very much appreciate the opportunity to testify today in my
capacity as chair of the 21st Century Patent Coalition.
As Chief IP Counsel of GE and a practicing patent attorney
for 20 years, this subject is near and dear to my heart. The
21st century Coalition is a diverse group of nearly 50
innovative companies that employ millions of Americans in well-
paying jobs. These companies represent over 18 different
industry sectors and thus bring the type of balanced
perspective that is essential to assuring that improvements to
the patent laws maximize the benefits to all industry sectors.
GE also represents multiple industries. In fact, given that
the various GE businesses have very different views on the
issues involved in the patent reform debate, I can assure you
that almost no one has been forced to seek a more balanced and
holistic solution to these issues than I have.
Moving from a first-to-invent to a first-inventor-to-file
system is long overdue. The fact is most American companies
already operate as if the U.S. had adopted a first-inventor-to-
file system. Why, you ask? Because our export markets hang in
the balance. U.S. inventors have lost patent rights to foreign
companies because they unwisely relied upon the possibility
that they could prove that they were first to invent something
rather than acknowledging that the global patents go to those
inventors who are not only first to invent but who are also
first to reach the patent office steps. Exporting products made
in America to these non-U.S. markets is crucial to the growth
and prosperity of U.S. manufacturers.
Both pre-issuance submission of prior art and post-grant
review are perfectly suited to help the U.S. PTO separate valid
patents that drive innovation and growth from invalid patents
that do not. Pre-issuance submission of art will allow
technical experts outside the office to assist the U.S. PTO by
submitting relevant prior art and explaining to the examiner
why the applicant is attempting to patent something that is
already known in the art.
Post-grant review would also provide a workable process to
third parties to promptly and affordably challenge the validity
of a patent. The benefits of this system do not require a leap
of faith on our part as workable post-grant review proceedings
exist all over the world. The post-grant review procedures in
S. 23, as unanimously reported out of the Senate Judiciary
Committee last week, represent a workable compromise that I, as
a practitioner, would love to have as an alternative to
litigation to challenge the arguably invalid patents that
occasionally issue. And if I can prove my case of invalidity, I
can invalidate the patent, thereby releasing resources that
have been reserved awaiting determination of the validity of
the patent. Even if I am wrong and the patent is valid, then I
can report to my management that we must either license the IP
or design around it. Either way, I have certainty of action at
a cost I can afford.
I won't belabor the issue of adequately funding the U.S.
PTO as I know that Director Kappos already made that case
before this Subcommittee. However, users are prepared to pay
what it costs to promptly issue patents after a full and
thorough examination, but as some of the largest customers of
the U.S. PTO, our Coalition members believe it fair to ask that
we receive $100 worth of service for every $100 we pay to the
Patent Office. Any diversion of such funding is, in reality, a
tax on the innovation that might otherwise be creating jobs.
False marking is undoubtedly one of the most antiquated
components of the patent system. Unfortunately, there has been
an explosion of false patent marking cases in just the past 15
months, 800 or so, to be precise. That mandates that we take
immediate action. These plaintiffs, virtually none of which
have suffered any competitive injury, are exploiting the qui
tam provisions of section 292 to chase mass-produced products
where old, expired patent markings have yet to be removed. This
is arguably the worst recent example of truly wasteful
litigation.
Let me conclude with three issues that don't necessarily
need to be redressed through patent reform legislation, namely,
venue, willfulness, and patent damages. The Federal Circuit is
already reining in inappropriate forum shopping by requiring
transfer of venue when the transferee venue is clearly more
convenient than the venue chosen by the plaintiff. Similarly,
the Federal Circuit has clarified the standard of willful
infringement to require proof of objective recklessness by the
infringer before trouble damages may be awarded. Given that the
current legislative proposals are attempting little more than
the codification of the In Re Seagate decision, legislation
pertaining to willfulness is likewise unnecessary.
Finally, the Federal Circuit's decision in Lucent v.
Gateway is now requiring judges to act as gatekeepers in
challenging the sufficiency of evidence supporting patent
damage theories. Also, in Uniloc v. Microsoft, the Federal
Circuit eliminated as inflexible and unreliable the 25 percent
rule of thumb for calculating reasonable royalty damages. These
cases and others like it have obviated the need to
legislatively address patent damages.
Again, the Coalition appreciates the opportu9nity to offer
our views on what can and should be done on patent reform and
stand ready to assist Congress in identifying achievable patent
reform which can cross the finish line in the 112th Congress.
I would be pleased to answer any questions you may have.
Thank you.
[The prepared statement of Mr. Horton follows:]
__________
Mr. Goodlatte. Thank you, Mr. Horton.
Judge Michel, do I have that right now? I have a former
employee by the same name and the same pronunciation and a
former minority leader of the other pronunciation that I use. I
think highly of both of them as I do of you, so welcome.
TESTIMONY OF THE HONORABLE PAUL MICHEL (RET.), FORMER CHIEF
JUDGE, U.S. COURT OF APPEALS FOR THE FEDERAL CIRCUIT
Mr. Michel. Chairman Goodlatte, Ranking Member Watt,
Chairman Smith, and Ranking Member of the full Committee
Conyers, it is certainly understandable that there would be
confusion about the pronunciation of my name----
Mr. Watt. Is your mic on?
Mr. Michel. Yes, I think it is. The confusion about the
pronunciation of my name is so understandable in the House of
Representatives because of the long tenure of Congressman Bob
Michel from Illinois. We may actually be distantly related, but
I am not sure. And I want to assure you, Mr. Chairman, that as
someone who used to enforce red lights, I will be sure not to
be an offender over the time limit.
I would like to very briefly address five general points.
First, in my judgment, the principal problem in the
American patent system, in the Patent Office, and in the courts
can be summarized in a single phrase, ``excessive delay.'' The
delays in examination average 3 years; and often it takes
applicants 5, 6, 8, 9 years to get a patent issued. The
reexamination process also is taking years and years and years
to conclude, and very often the reexamination going on in the
Patent Office holds up court cases and causes further delay
there as well. Harmful results follow, including the drying up
of investment capital from venture capitalists and equity funds
and other sources of risk capital that is needed for the growth
and for the job creation and the technological advance of so
many companies and industries.
Just consider this: Of the 1.2 million applications pending
today, we know, based on historical grant rates, that over
700,000 will result in granted patents. So you really could say
that trapped in the Patent Office today are private-sector
business assets that will produce economic growth and job
creation if only they can get out of the Patent Office. So, in
my judgment, fixing the funding problem is overwhelmingly the
greatest need of patent reform from where we are today.
I think the Patent Office has made many internal
improvements and it continues to do so within the limit of its
resources, but I don't see any way that it can get where it
needs to get on speed. And Edison, as I recall, got his patent
in 6 week, not 6 years, which is common today.
They can't get there without substantial new resources.
They do need more examiners. On this, I have to disagree with
Mr. Simon. They also need a great many more board judges. The
board is swamped. Its inventory went from 3,000-some to 20,000
over the last couple of years. The delays there are also years
and years and getting worse, just like the re-exam delays and
the delays in initial examinations. And the resource gap, the
difference between the workload and the resources, has grown
every single year for nearly a decade. So fixing the funding is
the overwhelming need. I would say it is 80 percent of patent
reform, given where we are today.
As to post-issuance procedures, I want to make clear I am
not against patent reform; I am in favor of patent reform. I am
not against post-issuance procedures; I am in favor of them.
I do think that because delay is so harmful and so
ubiquitous in the PTO and in the courts that great care would
have to be taken in crafting the provisions so that post-
issuance procedures, whether they are the same as we have now,
additional ones, substitute ones, or however you end up
choosing to do it, must contain sufficiently strong safeguards,
things like a clear threshold, a meaningful threshold, or else
you will have frivolous PTO proceedings. When frivolous court
cases are a great concern, frivolity in either place, obviously
is quite harmful and must be avoided. So strong safeguards are
needed, a threshold, a clear burden of proof, estoppel effects,
and a ban on serial attacks on the same patent are examples of
those safeguards.
Next, I want to say that I agree with Mr. Horton--and Mr.
Simon agrees, at least to an extent--that the court-related
provisions in recent patent reform bills are no longer needed.
Now you could say, well, what is the harm if they just sort of
codify current practice? But, in my view, there is harm because
they will add uncertainty, they will add complexity, and,
therefore, costs will go up instead of down and delay will go
up instead of down. So I urge the Committee to be very cautious
about anything relating to the courts; and, in my view, it
would be better to leave out all of the court-related
provisions.
We have such an unusual situation here where industry,
represented by these two distinguished gentlemen at the table
with me, are eager to pay higher fees if they can get faster,
better work from the Patent Office. And they can get faster and
better work if, as has been said, the fees collected are
adequate, number one, and, number two, can be accessed in their
entirety by the Patent Office and don't go off to support other
governmental activities.
And, of course, no taxpayer money is involved. So we are
really not talking about Federal spending. We are really not
talking about the Federal deficit. This is private money for a
private purpose to achieve a private property right that ends
up having huge public benefits if we can keep the system on the
tracks.
And I would like to stress, finally, that the benefits of
much greater speed--and quality will go along with more
resources as well as speed--will be all companies, all
industries, all technologies at all stages of growth, from
little startups to emerging companies that are growing fast, to
companies that are ready to go into the public stock market to
get even further funding, so everyone will benefit if we can
solve the problem of speed. No one will be hurt. But those who
will benefit the most are the smaller, newer, technology-
driven, patent-dependent companies.
And it turns out--and the Commerce Department approves
this. The Kauffman Foundation approves this. The President is
saying this, experts everywhere are saying this, most of the
new jobs, most of the new wealth, most of the new technologies
come from these emerging companies. They are the Intels of the
future, but they need to be able to grow, and that is what
speeding the work in the Patent Office and the courts will
allow.
Thank you very much.
[The prepared statement of Mr. Michel follows:]
__________
Mr. Goodlatte. Thank you, Judge.
Let me ask both Mr. Simon and Mr. Horton, apart from patent
pendency, about which you have all testified being a priority
for you, and I think there is uniformity of agreement up here
as well, apart from that, what is the one big worry that keeps
you up at night regarding our patent system?
Mr. Simon.
Mr. Simon. Well, I will try to go to the biggest one, but
there are many worries that keep me up at night. The biggest
one to me is making sure that what the Patent Office does is in
fact quality work. It is all too often we get a lawsuit where
it is the first time we have heard about this patent--which is
years after the patent issued, never heard of the company. We
greet the patent and we go, look, this was not examined right;
it should never have gotten through the system. And the problem
then is we have to deal with it frequently through the
litigation system, and that is an immensely expensive process.
We recently had a case where we got a patent invalidated
because the claims literally didn't make sense, but it cost us
$8.5 million to get there.
Mr. Goodlatte. We are with you on that, too. And since my
time is limited, let me just ask you to refine that and tell me
what would be the one thing you would do to improve that patent
quality.
Mr. Simon. I think the biggest thing to improve patent
quality--and I think the office really wants to do it in my
discussions with them--is to start using computer technology to
do a better job examining patents. I have been practicing for
about 30 years. The Patent Office is always saying we are going
to get it faster. We are going to hire more examiners to get it
faster. Unfortunately, I think they need more examiners, but I
don't think that is going to solve the problem.
Mr. Goodlatte. Mr. Horton.
Mr. Horton. I would say I agree with what Mr. Simon says.
And one of the ways I think to help that as well would be to
move to a first-inventor-to-file system to speed things up and
reduce the complexity.
But I would say the companion thing that also concerns me
is the ability to effectively challenge some of those invalid
patents, shall we say. So to lead your question I guess would
be, what do we do about it? I think the current post-grant
structure is a good compromise between trying to allow rights
holders the chance to get clear title to their inventions
promptly and affordably while at the same time preserving the
ability for those who disagree with the ruling of the Patent
Office the chance and meaningful opportunity, again, on an
affordable basis, to challenge the validity of that patent and
clear up the issue once and for all so that you can have an
actionable property right at the end of that.
Mr. Goodlatte. Okay.
Mr. Simon, Mr. Horton agrees with your top suggestion. What
is your opinion of his top suggestion?
Mr. Simon. His top suggestion is a very good one. I think
we have some disagreements about the implementation of that top
suggestion, though.
Mr. Goodlatte. Can we close that gap?
Mr. Simon. We will work on it, Mr. Chairman.
Mr. Goodlatte. Turning to you now, Judge, my question for
you is a little different.
As a Judge, we hope that you don't have to stay up late at
night, but we would ask you this: If you were still on the
bench, and apart from the issue of funding and pendency, what
would be your greatest concern? And you can elaborate on both
of their comments as well.
Mr. Michel. Mr. Chairman, I think that, in addition to more
examiners, it is important to focus on the quality of the
examiners themselves, their experience level, their expertise
level. Too large a proportion of the current examining corps
are rather young and inexperienced. It will take resources to
hire quality people of greater experience and expertise. So
that is part of the package, and it will help quite a lot.
I think the courts, like the Patent Office, in recent years
have been moving rapidly to make improvements. For example, now
it is much more common for a patent to be invalidated early in
the litigation on summary judgment without having to go through
full discovery and trial, which is certainly expensive. And
there are also cases now where costs are being imposed for
bringing weak or frivolous lawsuits against those who do so. I
think the courts have ample tools, and they are beginning to
use them much more aggressively in recent years than in the
past. And I think that will continue and will greatly limit any
court-level abuses.
Mr. Goodlatte. Thank you.
Mr. Simon, you state in your testimony that there shouldn't
be any limitations placed on a post-grant review system. Do you
think this position compromises the rights of legitimate patent
holders by placing a perpetual cloud over their patents,
something that Judge Michel alluded to in his remarks?
Mr. Simon. Well, under our system, patents have always
been--whether a patent is valid or not has always been an open
question. There is no quiet title process by which you can
acquire title to a patent, for many reasons. Even if the Patent
Office does the best job it can do--because they are pretty
much limited to prior art that is in the Patent Office and
publications and can't see what happened in industry--that is a
big limitation. In addition to which, we have actually done a
study. There are about 90,000 patents a year that issue in the
tech industry. For us to have to go through 90,000 patents a
year as to our products and then think through we have a
pipeline of products that is 10 years long where we have
started working on design and try to figure out which patents
may impact that 90,000 every year, that means as a result we
are very rarely going to be able to use it if it is a closed
system.
Mr. Goodlatte. Mr. Horton, do you want to respond to that?
Mr. Horton. Actually, yes, I would.
I would argue two things. First, I would say that the
current proposals that seem to have garnered the greatest
amount of support--granted, we haven't satisfied the people on
either end of the extreme, but we have a very large center
around this kind of compromise proposal about having an all-
issues post-grant review for a limited period of time. Again,
anything you want to challenge, bring it in. You get the
benefits of a level playing field across the board. That is the
time, that is the opportunity to get those issues resolved.
But there is a fail-safe mechanism as well. The inter
partes still does allow you to go forward and challenge those
rights for the life of the patent provided you can come forward
with the right prior art. And so I think that is a good--the
way I analogize this is to purchasing a home. If some point I
want to put an addition on my home, I want to know that this
property is mine, that I am free to build on it, that I am free
to expand upon it, and that someone is not going to come along
5 years later and say, oh, you know what? My uncle told me that
he left me that in a deed, in a will. And if I ask to try and
get it, they can't produce it, but he is sure that it happened,
I can't live with that. I would have to sacrifice that.
So there needs to be a process by which you can resolve the
title to that property. Because the thing that is different
about intellectual property, it is an actionable property
right. We get them with the intention of doing something with
them--investing in them, building with them, manufacturing. So
we need to have quiet title at some point in time. It is only
fair.
Mr. Goodlatte. And, finally, Judge Michel, you earlier on
this subject said that there must be a clear threshold, a clear
burden of proof, and an effective estoppel system. Anything you
want to add to that or comment on what they have said?
Mr. Michel. Mr. Chairman, I think that those safeguards
would be adequate. I think a post-grant system, including the
two procedures that Mr. Horton described, can be made to work
effectively. But the key thing to remember is that the patent
isn't self-enforcing. It is not self-executing. Unless you can
go to court and get enforcement of the patent, it actually has
no value. It is something like a prize at a high school science
fair. It is a piece of paper that recognizes an achievement,
but economically, in terms of industry growing, it is nothing
unless and until it can be enforced.
So the problem is how to balance--as courts often have to
do and now Congress will have to do the same--the need for
certainty, the need for clear title, the need for things to not
be forever challenged and rechallenged and rechallenged in the
PTO before you can even get a court decision against the rights
to have adequate challenges.
I think that the compromises that have been worked out are
pretty good and maybe need a little more refinement but are on
the right track. But, at the end of the day, you have got to be
able to go to court sooner than 5 or 10 years after issuance of
your patent or the patent system will have no effect to drive
the economy forward.
Mr. Goodlatte. Thank you.
The gentleman from North Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
I think the Chairman has been gently nudging you all to
identify your differences so we can see if they can be
reconciled. I am going to be a little bit more aggressive, I
think, in trying to nudge you in that direction.
I think I heard Judge Michel say that the court-related
provisions in legislation are no longer needed and would in
fact be harmful--or could in fact be harmful. I think I heard
Mr. Horton say that there is no need for legislation on
damages. I assume those two things are saying essentially the
same thing. Where are you on that, Mr. Simon?
Mr. Simon. I am in agreement with them.
Mr. Watt. Okay. You are speaking for a bunch of people
here. They are in the audience. I didn't see any frowns on many
faces back there.
All right. This process has been going on for quite a
while, and the two parties here at the table have been involved
in it. What do you see, Mr. Simon and Mr. Horton, as the
major--just tell me two major issues that divide you. Don't
elaborate on them yet. I will give you a chance to come back
and do that. But just tell me what the issues are first. Mr.
Simon, you give me one. Then Mr. Horton give me one, and then
Mr. Simon give me one, and Mr. Horton give me one. I am giving
everybody equal chance here. Go ahead.
Mr. Simon. One of the issues that still divides us is what
limitations, if any, are placed around inter partes re-
examination and post-grant oppositions.
Mr. Watt. Okay. Mr. Horton.
Mr. Horton. Prior to today, I would have said venue would
have divided it--damages----
Mr. Watt. Hey, don't go there. We got that one cleared up.
Mr. Horton. Honestly, I would have to say number one is how
we optimize the post-grant review proceedings for both parties.
I can't think of any other--the judicial ones have always been
the real thorny, complex problems we have been dealing with.
Mr. Watt. So we are close here. There is not a second one
then.
Have you got a second one to identify, Mr. Simon.
Mr. Simon. Well, I am not sure it is appropriate to
identify it as an issue that separates Mr. Horton and I, but
another issue that we are concerned about is prior user rights.
I don't think Mr. Horton's Coalition is opposed to them, but
there are apparently others who may be.
Mr. Watt. Okay. Well, let's talk about the one that got the
wlimitations on--tell me what the issue is. Identify it again
so I am sure I understand what I am talking about.
Mr. Simon. This is on inter partes re-examination and post-
grant opposition.
Mr. Watt. Okay. Re-exams and post-grant opposition. And
describe for me, if you can, what the differences are in the
various positions so I am clear on what we are arguing about.
Mr. Simon. So the differences are when you can use them.
So, for example--and I believe Mr. Horton's coalition is
supportive of the provision in S. 23--there are limitations of
when you can use an inter partes re-exam if you are involved in
litigation. So from our company's standpoint--and there are
similar ones on post-grant opposition in addition to the time
limitation after the patent issues.
So in our industry, frequently the patents come out of the
woodwork as complete surprises. We have never heard of them
before we got sued, we have never heard of the company before
we got sued, and we have no meaningful way of knowing about it.
And if you have--from the time you get the complaint, if you
have only a limited time in which to decide whether it is
appropriate to use inter partes review or post-grant opposition
before the time window closes and to find the art, it is
totally inappropriate, in our view.
Mr. Watt. How would you solve that problem?
Mr. Simon. Well, under the current system on inter partes,
for example, there is no time limit currently. You can file an
inter partes re-examination----
Mr. Watt. Would you leave it like that?
Mr. Simon. I think that that is an appropriate way.
Mr. Watt. How do you address Judge Michel's concern that
that leaves this open forever and a day and never gets
resolved? I don't know how you can do that.
Mr. Simon. Well, in the current statute, there are actually
res judicata provisions about the effect of inter partes re-
exam. From our standpoint, we think, with a couple of minor
issues, those work.
The whole point is that frequently it is very difficult to
argue to a jury why a patent is invalid. We think the Patent
Office is the better place to deal with it. And we have had
issues where what the interpretation of what the patent means
is decided for us literally in the middle of the trial,
sometimes even at the end of the trial; and that can have a
dramatic effect as to whether the patent claims, in our view,
is valid or not.
Mr. Watt. Judge Michel, just give me your perspective on
this. My time is up.
Judge Michel. What's happening already is that court
proceedings that are ongoing are being stalled by things going
back to the Patent Office for reexamination under the current
system because the threshold to get there is meaningless.
Ninety-five percent of the times that meaningless threshold of
a so-called ``substantial new question'' is readily met. Any
patent lawyer worth his salt can raise a substantial new
question in virtually every case. So there has to be some kind
of meaningful threshold for this procedure back in the Patent
Office or a pending litigation is subject to severe and
unlimited abuse.
So I think the big difference between Mr. Simon and Mr.
Horton is Mr. Simon wants the right to be able to be in the
Patent Office virtually forever, no matter what's happening in
the courthouse, and Mr. Horton wants limits. And since patents
can only be enforced in the courthouse and not in the Patent
Office, it seems to me that a meaningful threshold for all
post-grant procedures is absolutely critical.
Mr. Watt. My time has expired.
I would let you respond to that, Mr. Simon, but I am out of
time. If you want to respond--I mean I would be interested in
hearing a response.
Mr. Simon. Thank you.
So, a couple of things. First of all, if you look at the
statistics of the inter partes reexams that have actually gone
through the system, the judge is correct that 94 and 95 percent
of them have been granted. But the other thing is in 90 percent
of them, at least one claim--or just about 90 percent of them--
at least one claim was changed because of apparently the art
that was found.
So, A, it is having an effect, and B, it doesn't appear
that frivolous inter partes reexams is a big problem. So that's
one issue.
The second issue is when you decide to pull out the inter
partes reexam, you have to be really careful because if you
lose it, you basically have the Patent Office now reconfirm the
validity of the patent over your opposition, and you've dug
yourself a huge hole. So it is something you have to think long
and hard about before you use it.
Mr. Watt. I appreciate it. This has been helpful.
I apologize to the Chair for abusing the time.
Mr. Goodlatte. No, not at all. I did the same thing.
The gentleman from Utah is now recognized. And we will
remind the Members that under the Chairman's new process, we
recognize Members in order of seniority based upon being here
at the time of the start of the hearing; and then after that,
based upon their time of arrival.
So the gentleman from Utah is recognized.
Mr. Chaffetz. Thank you, Mr. Chairman. Thank you all for
being here. We do all appreciate it.
Perhaps we can start with the judge.
My question is about the transition to first-to-file, what
the ramifications of that are from your standpoint. And
particularly as it relates to small businesses and independent
inventors and whatnot who aren't necessarily represented here
at the table. What are the implications, pros and cons?
Judge Michel. Congressman, it's a very good question and I
think actually the answer is ``no one knows.'' As far as I've
been able to discern, there isn't an adequate factual record
based on careful study to be able to assess whether--I don't
know the answer--but whether there would be undue negative
effects on smaller companies, individual inventors, some
universities and others at that end of the size scale, with
Intel, of course, at the other end.
So it seems to me that until Congress could satisfy itself
that there wouldn't be significant negative effects, it should
be cautious about moving to a first-to-file system. It would
have certain advantages. There's no question about that,
particularly for certain companies like ones that do lots of
international business. And again, I am not against moving to
first-to-file, but it seems to me that you might want to have a
delay before it kicks in, and before you made that decision,
you'd want to know that it doesn't have undue negative effects
on small business.
Mr. Chaffetz. Thank you.
Mr. Horton. If I may.
I look at the small, medium-sized enterprise individual
inventors, and I break them into two different groups. As a
practicing practitioner, that's my perspective. Group one is
that group who's hoping at some point to be able to export
their products outside the United States. In my mind, that
group clearly benefits because now they are playing on a level
playing field. They're playing the way everybody else in the
world plays. And so they're playing to win the same game.
They're not playing a different game, where they were relying
unwisely on the potential to delay getting to the Patent Office
only to find out they lost everywhere but the U.S.
Group number two is the group where they're never going to
export outside the United States. It is solely a U.S. Market
question. And for that one, I take one step back first in this
analysis; and that is, remember the patent is the best friend
of the small guy. It is one of the few and only tools that
would allow Joe Inventor to take on a company the size of GE
and win.
But there is one huge caveat. In the first-to-invent system
we have today, the only way Joe Inventor wins is if he can duke
it out in court in the Patent Office, in the interference
proceeding, and prove that he was first to invent.
Let us give a hypothetical. For example, Joe Inventor
invents the idea, but he delays slightly in getting to the
Patent Office. In the meantime, foreign company X comes along,
files the patent in country X, whatever country they reside in,
ahead of Joe Inventor. Then you come to the U.S. Patent Office
where Joe eventually does file his patent application and they
have to fight it out.
The problem Joe Inventor faces is--and Gerald Mossinghoff,
the ex-commissioner of the Patent Office--ran some studies to
prove this, Joe Inventor loses more times than he wins because
he has to come up with the necessary proofs. And the burden is
on him to prove that he was first to invent because the other
party, the foreign party, will be presumed to be the first to
invent because he was first to file.
Mr. Chaffetz. Thank you.
Mr. Simon, I am going to change the equation just a little
bit on you, but be happy to address that portion of the
question.
Let's talk about trolls. How do we limit the trolls that
are out there and the problems that companies like yours deal
with with the trolls that are out there that cause undue
headaches that are slow, bog us down? How do we deal with that?
Mr. Simon. Well, thank you. And I just want to point out,
just so the Committee appreciates it, that Mr. Horton and I
also agree on that point.
Mr. Chaffetz. Duly noted.
Mr. Simon. By the way, just to give you an idea of how
small an issue I think this actually works out to be, Intel has
filed over its history something like 25,000 to 30,000 patents
in the United States. We've been involved in one interference
in that amongst those 25,000 to 30,000 patents over a 40-plus
year history.
But turning to the issue of people who are in the business
of using patents basically as a legal form of, quite frankly,
extortion, you know I think the best thing we can do at this
point is--I mean, the courts have done some things that have
been very helpful. And then I think the other thing that we can
do is I think we need to work on the office and make sure that
the number of patents that get out, that are bad, is very, very
small. It is impossible for them to be perfect. No one is.
On the other hand, right now, given how underresourced they
are and given the antiquated systems that they have, it is a
real problem.
Mr. Chaffetz. Thank you. Yield back. Thank you.
Mr. Goodlatte. Thank the gentleman.
I am now pleased to recognize the Ranking Member, the
gentleman from Michigan, Mr. Conyers.
Mr. Conyers. Thank you, Chairman Goodlatte. This has been a
very useful discussion here today. I commend all of the
witnesses.
Let's go back to what I consider a key problem is that
instead of the funds that are paid to the PTO going directly to
the PTO--I would like to find who the legislator or legislators
were that invented this process--that it goes back to the
Appropriations Committee and they'll get it over to you for us.
And therein lies a lot of difficulty.
Not only are we--are the applicants paying for this, but
they'd be willing to pay more if we could all get what they're
actually paying in.
And so without assessing blame too readily, the
appropriators seem to not come up in a very favorable light the
way I am describing this.
And then we happen to have found out that, as we call them,
``the other body,'' they don't seem to like the idea of
eliminating the appropriators from this process.
To me, this is a very key problem, central to everything
else we're discussing.
Could you all comment on that, starting with the judge?
Judge Michel. Chairman Conyers, I think that the harm
caused by lack of access to all of the fees collected is
actually quite substantial. I've seen many figures and they all
exceed $800 million in collected fees that didn't end up
supporting operations in the Patent Office. That's a lot of
money; given the Patent Office scale of spending, it could have
done a lot of good if they had gotten it.
The second thing is that I think it is an issue of
fairness. People don't pay user fees for patents as a gift to
the society. They're making an investment to get a property
right, and they're required by law to pay the fee. They have no
choice. They're forced to pay the fee and they pay it so that
the Patent Office can examine their patent carefully and
quickly.
So I think it's an issue of fairness to private industry
who pay these fees under the compulsion of law, as well as a
serious drain on the Patent Office. And it really ought to be
stopped, and it is long overdue to stop it, in my judgment.
Mr. Horton. If I may, Chairman Conyers.
I couldn't agree more, both with what you articulated as
well as the judge. And to that I will add I believe this is a
unique moment in time for us. We have a director at the U.S.
Patent and Trademark Office that enjoys widespread acclaim.
Amongst the user groups we trust him, we respect him. He comes
from the industry so he knows what he's doing, and I think
people are generally quite pleased with all of the progress
he's made as well as the ambitious plans they've laid down. So
I think it is an opportunity for us to grab this moment in time
to see if we can't change that paradigm and get it fixed.
Mr. Conyers. Thank you.
Mr. Simon. I couldn't agree more with both Judge Michel and
Mr. Horton. So I will just leave it at that.
Mr. Conyers. Well now, I think this gets inside this mania
for deficit reduction that seems to be driving this new
Congress, because we're not talking about adding to the deficit
or creating more obligations. And so it is a win-win-win.
Now, you should ask me after the hearing that, if
everybody's in so much agreement, why don't we do it? And so
I'll ask you since we're at the hearing--I mean, what's holding
this up? Maybe I should----
Mr. Watt. Do you want me to attempt it?
Mr. Conyers. I am always afraid when Watt volunteers to
help me out. That's a very dangerous position for any
questioner to get in. But that seems to be underlying the first
steps toward the corrections that you all articulated so well.
So I'm sure not going to yield to him. So I'll turn back the
balance of my time.
Mr. Goodlatte. I thank the gentleman.
And it is now my pleasure to recognize the gentleman from
New York, Mr. Reed.
Mr. Reed. Well, thank you very much, Mr. Chairman. I
appreciate all of the testimony I've heard here today.
And I am just a country lawyer, and a lot of times I'll say
a lot of the problems here, blame it on the lawyers. And one
thing that's been brought to my attention that I am greatly
concerned about is law firms, such as a group called the Patent
Assassins. I don't know if you've heard of them. But some
advertising came into my office where they specialize in going
through and attacking legitimate patents, in my opinion,
through the reexamination post-grant review process.
And I'm concerned about that because in their materials
they talk a lot about, well, we have the expertise, we have the
specialty to tie these legitimate patents up. They don't use
the term ``legitimate patents,'' obviously, but tie these up
and we can attack it through the PTO Office. And to me that's
just a symbol of something that demonstrates commitment to
frivolous action that's going to abuse the process.
So I am concerned about, in particular, the post-grant
review proposals that are in the Senate bill or the House bill.
And, Judge, with all due respect, you're the gentleman I was
most eager to listen to today--with respect to these folks,
too, over here--because you're 22 years on the bench. What are
your thoughts on that?
Judge Michel. Congressman, the challenger is always going
to say, ``the patent is obviously bad. My people told me so.
This is not an abusive challenge. This is a solid challenge and
I think I'm going to win.'' The other side is going to say
``no, this is a frivolous challenge that's needlessly delaying
court litigation and keeping things open in terms of do I own a
right or not,'' as Mr. Horton said.
So obviously what you need is some kind of mechanism in
trying to separate the wheat from the chaff. That's why I think
it's so important to have a meaningful threshold. And the
threshold suggested in some of the recent proposals--and I
believe it's still in the current Senate proposal--is that
there has to be a likelihood shown in order to start the
proceeding that at least one claim of the patent is invalid.
That seems to me to be a pretty good threshold. But if you've
no threshold, it is wide open to abuse and I think it will
happen.
Look, the reality is lawyers, litigators, get paid to get
advantage for their client any way they can, and they're very
tempted to press the limits. That's the nature of the
litigation system. It's true in the courthouse, it's true in
the Patent Office. So in both the courthouse and the Patent
Office, you have to have meaningful thresholds to prevent
abuse; because otherwise, sure as can be, it will happen.
Mr. Reed. And because I was also interested in your
testimony about in the courts. You seem to be comfortable that
the courts are using tools to sanction frivolous behavior. Are
any of those tools available to the administrative process to
the Patent Office that may be applicable to be applied there to
make sure this abuse doesn't occur in the administrative
process?
Judge Michel. I don't think so. The Patent Office is quite
handicapped. They don't have subpoena power, so you can't force
the production of witnesses or documents, except what's pretty
much volunteered by the parties. And they, of course, can
disbar lawyers if they lie, cheat, and steal or do something
blatant and prevent them from practicing in the Patent Office
in the future. But realistically, their power to prevent
frivolous filings is nil.
So the question then is can they screen them out by
declining to move forward with the proceeding because the
threshold is not met?
Mr. Reed. I appreciate that. Mr. Horton.
Mr. Horton. Yes. I think part of what is so attractive
about the current compromise that has been reached is the fact
that it tries to address both these dynamics that have been
brought forward. The first is to address your very concern: We
need a narrow window for an all-issues post-grant review. It
doesn't have to have a high threshold because you want to keep
a level playing field in the event the Patent Office didn't do
something right. So provide a narrow window, again, a very
short period to get that resolved quickly and allow litigants
the chance to make their case once and for all.
But once that's done, you need a point in time where you
can draw a line in the sand and say it's time to invest. I
deserve my presumption of validity on this patent, and now to
the extent that any one wants to challenge me going forward,
there ought to be a higher threshold, there ought to be a
limitation on the types of evidence that be can brought in to
make a challenge against a patent like that. That's precisely
what the current compromise language is attempting to do.
Mr. Reed. Mr. Simon, your thoughts.
Mr. Simon. Well, unfortunately, as we all know, lawyers
advertise interesting things. Anybody who suffers from insomnia
gets to see plenty of questionably tasteful--tasteless ads.
But the point that I have to make is one, you know, if you
look at the statistics, the statistics are a very small
percentage of either inter partes reexam or ex-parte reexam
actually end up where nothing happened. So that means that it's
a relatively small and confined problem.
The second thing is it's a much less expensive problem than
the opposite of when you're in court litigating one of these
patents with a presumption of clear and convincing evidence
that the patent is valid.
And as to the delay, I think possibly one thing that the
Committee could look at is whether--I know that the Patent
Office has been complaining in inter partes reexam of largely
the patent owners filing what are really frivolous petitions
which delay the proceeding and keep the proceeding advancing
through the Patent Office. And that may be one place where you
could put limitations, because I don't believe--at least my
current reading of the rules--is they're not permitted to do
that.
Thank you.
Mr. Reed. Thank you. I see my time has expired. Thank you,
Mr. Chairman.
Mr. Coble. [Presiding.] The gentleman's time has expired.
I'm told the next witness, Ms. Chu from California, is
recognized for 5 minutes.
If you will delay. I want to apologize to my colleagues and
to the panel. I have been involved in a hearing regarding the
oil spill of last fall, so I missed all of the testimony and I
regret that. But I know the panelists contributed very
favorably. It is good to be here even though belatedly.
Ms. Chu, you're recognized for 5 minutes.
Ms. Chu. Thank you, Mr. Chair.
Well, I believe that we in Congress have to be focused on
jobs, jobs, jobs. And it caught my eye, Judge Michel, when you
argued that fully funding the PTO and relieving the backlog
would create up to 2.25 million new jobs. It sounds like a
great investment, but I am wondering whether simply
appropriating $1 billion to the Patent Office, without doing
more, would truly reform the system.
Do you truly think that no additional reforms are
necessary?
Judge Michel. Congresswoman, I think lots of efficiency
measures are needed in the Patent Office. A great many have
already been put in place in the 18 months under the new
director, David Kappos. New ones are being hatched practically
by the week. So of course they need to continue to improve
efficiency.
With respect to--I think you're alluding to an editorial
that I co-authored last summer, in which I said in the ideal
world, there ought to be an investment on behalf of the
country's future of public money, not the user fee money, but
taxpayer money, in the order of magnitude of a billion dollars
because the Patent Office is so far behind, so badly
backlogged. But given the current fiscal situation, I'm no
longer making that suggestion because I don't think it's
realistic. It's not going to happen.
So second best is raise the fees and let the Patent Office
keep every dollar of the fees collected to be used in the
current year, and in future fiscal years as well, so they can
plan ahead and operate more like an efficient business than in
the past.
Ms. Chu. So, Mr. Simon, and Mr. Horton, do you agree with
that assessment?
Mr. Simon. Well, I certainly think that having patents
delayed in the Patent Office unnecessarily is a bad thing for
innovation. On the other hand, I just need to reflect again
that, you know, what we want is good patents to issue, valid
patents to issue, properly examined patents to issue. And I
think providing the office with the tools--I think I agree
wholeheartedly with Mr. Horton's and Judge Michel's comments
about the current leadership at the office. If we do that, we
have a much better chance of getting to that point.
Ms. Chu. Mr. Horton.
Mr. Horton. You know, in my mind you've got two things
working simultaneously. And you have to optimize them both to
get the optimal result. We need not only adequate funding for
the PTO, but we also need the right system in place. So it's
the combination of systems and tools together with the adequate
funding.
The best analogy I can come up with is a sports car. Right
now, poor Director Kappos is having to drive a 1979 Dodge
Aspen. I know what that's like. I drove one in law school. You
don't want to be there. But if we were to get the system
upgraded pursuant to the legislation we're pursuing, we could
be putting him behind the wheel of a new Cadillac CPS V coup
and that would do wonders.
Now, if you're curious whether I drive that today, let me
be clear. I don't. I can't afford it. And my wife wouldn't let
me even if I could.
But the combination of those two things really would give
us the maximum efficiency. Together, the money and the system
and tools.
Ms. Chu. I see.
Judge Michel, it seems to me that you're assuming that all
patents are created equal and there is no economic value being
created by any of the ideas that are waiting for review at the
Patent Office. But one of the key differences between some of
the parties to this debate is that they rely on different
technologies and business models. For example, the companies in
the biotech community and the high-tech community rely on
patents in different ways.
How does your analysis change when you consider these
differences?
Judge Michel. Congresswoman, I think it's very important
for the patent system to work for every industry, to be fair to
every industry. So it's a little bit of a balancing act. It's
not going to be perfect from Mr. Simon's standpoint unless it's
terrible for lots of other people. So it's going to have to be
somewhere in the middle. And finding the optimal balance, of
course, is challenging.
But I think that Mr. Horton has us on the right track when
he talks about adequate provisions to prevent abuses, as well
as greater resources, having the right systems in place.
You know, we can't afford to not get this problem solved
because the word you used is the most important word uttered in
this room today, which is ``jobs.'' We've got 16 million people
unemployed or underemployed in this country, as you all know,
and we have new workers joining the workforce in large numbers
every year. So to just stay even, we have to create a very
large number of new jobs every month.
The patent system can play a great role in this. Now, it's
true there are lots of important companies that don't depend
very much on patents. Fine. They're doing well without patents.
There's no requirement that you use patents, but it needs to be
there for those companies that do need it, and there are many.
And it is not only the pharmaceutical industry or biotech
industry, it is a broad range of companies. Most of them are
members of Mr. Horton's very diverse coalition.
So it would not be right to say this is a battle between
big PhRMA and the California high-tech companies like Intel. I
think that's a very misleading description that you sometimes
see in the press. It is a question of finding what would work
pretty well for everybody, even if imperfectly, for any
particular company or industry.
So it is finding the balance, and I think we're getting
closer and closer.
Ms. Chu. Thank you. I yield back.
Mr. Coble. The gentlelady's time has expired.
Mr. Griffin, the gentleman from Arkansas, is recognized for
5 minutes.
Mr. Griffin. Thank you, Mr. Chairman.
I want to follow up, Mr. Horton, on your testimony. You
mentioned the studies that deal with first-to-invent versus
first-to-file. And I think you mentioned Mr. Mossinghoff's
study.
In your testimony, you refer to Professor Linley's study as
well, and you indicate that it suggests that the current first-
to-invent contest, more often used by large entities, challenge
the priority of small entities, and not the reverse. And I see
that you're citing a Hastings Law Journal article.
Could you talk a little--could you talk a little bit about
that data, or are you familiar?
Mr. Horton. I don't believe I cited the Linley study in my
testimony. That's the reason I raised my eyebrows. We did speak
in my oral testimony about the Mossinghoff study.
Mr. Griffin. Okay. In your statement. I am sorry.
Mr. Horton. So the question?
Mr. Griffin. If you could talk a little bit about, if
you're able, if you're familiar with that data, if you could
talk a little bit about the Linley study and maybe that data
versus the Mossinghoff study. What sort of data was used to
write that Hastings Law Journal article?
Mr. Horton. I am most familiar with the Mossinghoff study.
Do you want me to comment on that?
Mr. Griffin. Sure. Sure.
Mr. Horton. What Gerald Mossinghoff was attempting to look
at is the frequency where the small inventor really did in
fact--was successful in the Patent Office in a challenge
contest over who was first to invent; the interference
proceeding, essentially. And I think one of the things they
were keyed in on--it's not simply big versus small--it's a
question of who was first to invent, obviously, but it's a big
question of proofs.
An interference proceeding, if you haven't been in one,
it's very akin to a litigation. It takes a great deal of time.
It is worse, as Judge Michel would say. It's very lengthy, very
expensive, and in all intents and purposes, the same. So the
small inventor is at a significant disadvantage financially and
otherwise to go up against the bigger companies. Not
surprisingly, therefore, they win less than 50 percent of the
time.
Mr. Griffin. To a large degree it's simply a matter of who
can fund the litigation and who can't.
Mr. Horton. Yes, because you're looking at proofs, who can
come up with the proofs and substantiate it. It's not whether I
invented it first; it's can I prove that I invented it first.
Mr. Griffin. The judge mentioned the concept of balance
here, and from what you've written and from the testimony I've
heard, the first-to-file, a change to the first-to-file system
may benefit small businesses or smaller inventors.
What impact, if any, would it have other than maybe
balancing things; what impact would it have on the bigger
companies? Is it a more balanced approach, or does it just turn
the advantage the other way?
Mr. Horton. You know, it's funny you should ask that
because Dave can comment on this as well. I am sure he feels
very similar.
We've been operating for years as if that were the system
that the U.S. was using, because we have to. We're global
companies, so big companies that export, we have to play that
way because it's all about who gets to the office first. We
stop thinking about who was first to invent and keeping
detailed, you know, recording inventor notebooks that they
keep. We stopped playing that game because we figured the
safest way to win every single time everywhere is to get to the
office first.
Judge Michel. Congressman, if I can add, I don't think it
is so much a question of who wins these long complicated
interference proceedings. I don't challenge the statistics that
have been mentioned. But from what I understand it's more a
question of who can fund early filing. And apparently there's
some evidence--I don't purport to be able to weigh it because
it is not all on the table in front of me--but there is some
evidence that some universities, some smaller entities, have
difficulty in funding the early filing of the patent.
So I'm simply saying--I'm not against first-to-invent--
pardon me, first to file--and I'm not for it either because I
don't know enough about it. My only pitch is that the Congress,
before it makes the final decision, should assure itself that
it doesn't unduly hurt some of those universities and smaller
entities. I'm not saying it does. I'm not saying it doesn't.
But it's worth finding out.
Mr. Horton. I'll just mention one caveat. That to the
extent that it is a question of cost, obviously the S-23 is
looking at that issue and creating even a microentity status
that gives them a full 75 percent cost reduction to make it
even more affordable for them to afford that early filing.
Mr. Griffin. Sure. Just one--you had something to say.
Mr. Simon. Yes. The statistics I've seen are similar to the
study that Mr. Horton refers.
The only caveat I would say is I think it's important for
small businesses that have a prior user right, because if you
actually can show that you used it first, the fact that
somebody else patented it before you did, you're still
protected.
Mr. Griffin. One quick follow-up, if I've got a second.
If there is additional data and additional empirical
studies that aren't mentioned in your statement, or you didn't
mention in your testimony, that would help us and fill in some
of the gaps maybe that the judge was referring to, if you could
get us that information, the citations would be real helpful.
Thank you, Mr. Chairman.
Mr. Coble. Time's expired. I'm told that we're applying the
Chairman's first-come-first-serve rule, Mr. Marino, and I
inadvertently bypassed you, and I didn't mean to do that.
The Chair now recognizes the gentlelady from California,
Ms. Waters, for 5 minutes. Ms. Waters is recognized for 5
minutes.
Ms. Waters. Thank you very much, Mr. Chairman.
I've been listening to this discussion of our witnesses,
and as Mel Watt indicated, we have a lot to learn in a short
period of time, trying to understand the issues that are
important to those who are seeking using and protecting their
patents.
But I'm really drawn to the testimony of Judge Michel
because he seems so fair, so balanced, and so completely
understanding of what's happening with our Patent Office. And I
agree. I am not so sure I agree that the taxpayers should fund
the operation, but I do agree that through fees, they should be
able to use all of the money that they can collect in order to
have a system that works.
But I'm really drawn to where he finally took us in talking
about jobs, and that what we're hearing is that the reason this
discussion is so important is because we're all interested in
innovation and job creation, and that's what patents represent.
But I am not so sure that I understand whether or not our
country is benefiting from the patents that are being sought
and utilized by some of the biggest operations in the country.
Let me just ask a few questions.
In the quarter ending September 30, 2010, GE's corporate
profits reached an all-time high of 1.66 trillion on an annual
basis, according to the Commerce Department. This is in
contrast to the fear and uncertainty in 2008 that led Mr.
Immelt to seek participation in the Federal Government economic
stabilization efforts.
In 2008, GE and its subsidiary, GE Capital, accessed nearly
100 billion through programs created by the Federal Reserve and
Federal Deposit Insurance Corporation to combat frozen credit
markets. This includes 16 billion from the Federal Reserve
while Mr. Immelt was at the time on the board of the Federal
Reserve Bank.
In 2009, GE received over 20 million in stimulus money to
help stimulate U.S. economic development, yet continued to ship
jobs overseas. In that same year, GE paid no income taxes in
the U.S. As its homeland operations were operating at a loss
compared to its overseas businesses.
Since Mr. Immelt took over in 2001, GE has shed 34,000 jobs
in the U.S., according to its most recent annual filing with
the Securities and Exchange Commission, but you've added 25,000
jobs overseas. In 2009, GE employed 36,000 more people abroad
than it did in the U.S., and in 2000 it was nearly the
opposite.
Foreign work has proven lucrative to GE. In 2007 it derived
half of its global sales from work abroad. In 2009, that share
increased to 54 percent. U.S. sales have shrunk. And the
investment was not in the U.S. The company has decided to look
elsewhere.
In 2008 and 2009, GE decided to indefinitely reinvest prior
years' earnings outside the country according to SEC filings.
That helped the firm lower its tax rate. In 2009 the
Connecticut-based firm effectively had a negative tax rate
thanks to the 498 million loss it booked on U.S. operations
versus the 10.8 billion in earnings it booked abroad, and GE
realized a 1 point billion tax benefit in 2009.
Now, I am pointing this out--and I could talk about Intel,
too. I have some facts and data here.
Why should we be so concerned to make sure that you can
receive your patents abroad and maybe even imfringe on small
inventors and folks who maybe got the patent but didn't have
the resources to pursue development or anything else related to
it? And I don't see your effort resulting in job creation and
innovation, which is what this is supposed to be all about.
Now, maybe I am on the wrong track here. But, Mr. Simon,
what do you say about that?
Mr. Simon. Well, I obviously, Congresswoman Waters, can't
answer questions on behalf of GE. I'll leave that to Mr.
Horton.
Ms. Waters. Okay.
Mr. Simon. But maybe I should ask him for some tax advice.
Ms. Waters. Mr. Horton, what do you say to that?
Mr. Horton. Look. It is a good question. Are we investing
overseas? Absolutely. Fifty percent of global growth is
overseas. We would be an unwise company if we weren't investing
where the growth is.
At the same time, however--and this is I think critical to
this hearing--is that intellectual property is one of those
tools that allows us to compete globally with jobs in the
United States. It levels the playing field because we're not
having to chase simply cost of labor, which is very often the
case when you're manufacturing very labor-intensive, very
commodity-intensive resources. You go where the cost is the
cheapest.
But I'll give you an example. We've got technology today
that we're trying to scale up in the United States around,
let's say, green technology batteries. We're trying to replace
the old lead-based batteries with sodium or lithium ion type
batteries that last 10 times as long and deliver enough power.
That's key. We're putting a plant--we spent, I would say, $150
million in the U.S. On developing that Next Generation
technology. We're spending a hundred million dollars this year
to put a plant in the State of New York where we will put 350
new jobs in play, hopefully to grow that to a billion-dollar
business over the duration, and that came from two sources of
R&D--not only what we're spending on jobs in the research and
development on the technology here in the U.S.
Mr. Coble. The gentlelady's time has expired. If you could
wrap up.
Mr. Horton. But the other is we've invested $70 million in
a venture capital group, also here in the U.S., that has
complementary technology to what we have invested solely so
that we can manufacture the stuff in the U.S. and keep foreign
manufacturers from beating us on price.
Ms. Waters. Thank you, Mr. Chairman. I appreciate that.
But you know, this is going to be an issue as we take a
look at where you invest to where you're creating the jobs and
what you are doing in the United States. This is going to be an
issue because everybody is supposedly so focused on job
creation, helping small businesses, and innovation. So look
out.
Mr. Coble. The gentlelady's time has expired.
The gentleman from Indiana is recognized for 5 minutes.
Mr. Pence. Thank you, Mr. Chairman. Thank you for filling
in so graciously on this hearing for Chairman Goodlatte. And
all I know is that I want to patent Howard Coble. If I could
get a round of applause on that it probably wouldn't offend
him.
Mr. Watt. Can we patent him without cloning him?
Mr. Pence. I knew that would be your request.
Let me say I am intrigued at the written testimony. I want
to appreciate this panel. You're serious. These are serious
minds that are coming before this Committee. This is the
beginning of a conversation that I hope will be more fruitful
in this Congress than it is been in previous Congresses.
Let me commend the modeling of bipartisanship that shows up
at this table, showing that Patent Fairness and the 21st
Century Coalition can sit next to one another civilly. And
Judge Michel, thank you for your written testimony which I
reviewed and your remarks today.
I do think this is about jobs. I think that intellectual
property, like other forms of private property, is a pillar of
economic prosperity, and whether it be with regard to
protecting intellectual property overseas or creating pro-
growth environment in this country, we have to modernize our
laws with regard to intellectual property. And I have been
committed to that and attempted to be a constructive force as a
Member of this Committee in years past, and as I return to the
Committee, I intend to be active in this.
I also want to associate myself strongly with Judge Michel,
your comment about this isn't about winners or losers. I am
paraphrasing now. But it's about developing a comprehensive
reform that works pretty well for everybody. We can't have a
zero-sum game. The varied interests in this debate represent
bulwarks in the American economy and we want everybody to win.
We want everybody to prosper. And so I want to associate myself
with those remarks.
Speaking specifically about the PTO, Judge Michel, you make
some interesting comments that--particularly that the classic
story of thousands of foreign engineers sitting, not doing
research, but rather at computer screens reading U.S. patent
applications. When you marry that with the extraordinary delays
that we're faced with, we start to figure out why America is
losing the battle on innovation--exporting our best ideas
inadvertently because we aren't meeting that 2-year time frame.
But you call in your testimony, Judge Michel, for several
thousand additional examiners, dozens of additional board of
appeals members.
Now I know that this is a fee-based system, or at least it
is supposed to be, that former Chairman Conyers I thought made
some very useful comments today about this business of ending
fee diversion. And Congress is a place where we love to find
money that really wasn't supposed to be there. And it does
strike me as we think about reform, we ought to think about
ensuring that what are effectively user fees here being paid
out of the industry don't end up subsidizing other priorities
within the national government.
I guess my question in that vein is, as we think about
addressing this extraordinary backlog which seems to be the
enemy of our prosperity, is there a role--and I would be open
to the panel speaking to this--is there a role for the private
sector in this process? Can we in effect talk about outsourcing
the role of examiners, at least in the first instance? Or is
that fraught too much with peril because of the specific
interests that are associated thereto? It does seem to me it
warms the cockles of this conservative's heart to think about
maybe further invigorating the private sector in this country
without expanding the size and scope of government.
Could we address this backlog in a way where we at least
conduct some of the modernization by utilizing outsourcing and
private sector as a way of expediting this examination; or is
it the judgment of this panel that it has to involve government
employees?
Judge Michel. Congressman Pence, I understand that some
outsourcing to private contractors is already done with respect
to certain PTO operations and that the continuation of that
program, like the hiring of new examiners and modernizing the
information technology systems, has been badly crimped by the
funding problem. So they do some and they're trying to do more,
but the money problem is limiting what they can do in every
direction.
The other thing I would say is that, in a way, hiring a
thousand or two or three unemployed scientists and engineers
and other intellectual property professionals in a way would be
its own jobs programs. These are highly trained, expert,
talented people, many of whom who are now unemployed in cities
all around America.
So in a way, it is not like taking government workers who
are permanent from one agency and putting them in some other
agency. It would be hiring scientists and engineers from the
private sector, who are now unemployed, to beat this backlog
down so that we can create a million or two or three jobs just
out of the current backlog. And every year there's another
500,000 new patent applications that come in, and staying
current on them every year going forward will continue to
create more jobs.
So I think it is very important to get the right number and
the right level of examiners. And it would also provide jobs
for deserving people as well. And of course they're taxpayers
and voters, and it benefits the communities they're in and
spreads benefits widely.
Mr. Pence. Mr. Chairman, by your forbearance if they can't
answer the question, I would welcome a written statement. But
the Chairman can call the ball here.
Mr. Griffin. The time has expired.
You need a few more seconds.
Mr. Pence. If the panel is permitted to give an answer or
two, and I would welcome any thoughts about outsourcing or
expanding existing outsourcing of which I was not aware of the
PTO from our panel.
Mr. Horton. I would differentiate two things. One would be
operations, as Judge Michel talked about. There are things that
they could, I think, outsource effectively. What I think would
be difficult to outsource and probably unwise is the
examination itself. The real intellectual horsepowers ought to
come from an objective, independent third party. We as users
would like to see a stamp of approval from some objective body.
And I think the government does that well.
If I were going to hire someone to run this private
enterprise, it would be Director Kappos. So key is getting
somebody in there who can run it efficiently and run the
operations and know where to do it most effectively and
efficiently.
Mr. Simon. I am not going to quite break out into kumbayah
but I would agree with Mr. Horton's comments.
Mr. Griffin. [Presiding.] Thank you.
Ms. Lofgren, you are recognized for 5 minutes.
Ms. Lofgren. Thank you very much.
My apologies for my brief absence. I had a meeting I had to
attend, I could not get out of. But I am very pleased that we
are having this hearing.
And as the witnesses know, this is something I've been
working on for many, many years. And it is an area where we've
had a bipartisan effort to address the deficiencies in the
Patent Office as well as patent law.
I've come to the conclusion over the years that the
differences of opinion that exist are really based on different
business models more than anything else, and that finding
common ground in certain areas is very difficult just because
of that fact.
Having said that, though, I know, because we have actually
crafted some measures, that there can be consensus on certain
items and that would be helpful.
I am interested and I wanted a chance--obviously, the
testimony of all of the witnesses is very important. I wanted
to specifically thank David Simon because he's from my neck of
the woods in Santa Clara County, ground central for innovation
in America.
It seems that there's at least this consensus, that the one
thing that the Congress can do that the courts cannot do is to
provide resources, to provide oversight to our new director who
is committed to modernizing the office. That's something that,
as the cases get decided and clean up problems, the courts
can't possibly do that.
So would you agree that that is one thing, that ought to be
job one of the Congress to focus on that issue?
Mr. Simon. Yes. I think that making sure that the office
has the resources to do the job properly is key both to
reducing the backlog and making sure that the patents that come
out are valid patents.
Ms. Lofgren. As well as modernization of the computer
systems and the like.
Mr. Horton. To that I would add also it is not just a
matter of funds, because you need a better system as well. So
as long as you provide those two parts together, I think you
will optimize them.
Ms. Lofgren. If we just hire more people but don't change
the technology, we're never going to get caught up.
Mr. Horton. Precisely.
Ms. Lofgren. Let me ask this. I think it is very helpful to
hear about all of the Federal court decisions that have made
measurable progress against some of the problems in the patent
system, especially abusive litigation.
Could more of these decisions be on the way, Mr. Simon, do
you know? What are some of the other issues that are currently
making their way up through the system that we ought to be
keeping our eyes on?
Mr. Simon. Well, one decisions that's currently before the
Supreme Court actually is in the I4I case where the question is
the presumption of validity, whether it should be clear and
convincing or whether it should be something else in at least
some set of circumstances. That's one example.
There are a number of other cases winding through on
further refinements on damages and some of the other issues
that have proven difficult. Some of the--they're continuing to
be a series of venue decisions eliminating some of the
arbitrariness that was going on with venue.
So those are just some of the things that are happening
today.
Ms. Lofgren. I remember years ago, maybe about 5 or 6 years
ago, somebody in the valley, in Silicon Valley, saying well,
the courts ultimately will get to this, but it will be so slow,
so we're looking to the Congress. And actually the courts have
ended up moving a little bit faster than we have on this
subject matter.
I am thinking, in addition to resources, what the courts
will not be able to address. Obviously, I thought we had a
great venue statute in our bill that really everybody on both
the coalition supported and that we worked very carefully on.
The court's decision left some holes. They've got to circle
back and fix that. I have confidence they will.
But it seems to me an additional item that the court can't
really fix is third-party submission of prior art that I think
is an important element.
Do you have a comment on that, whether we should also,
right after resources, be addressing that issue?
Judge Michel. I don't see any argument against allowing
anyone who has helpful information to put it on the table at
the Patent Office. It certainly seems like a sensible thing to
do. I don't think there's opposition to it. How much it would
help, who knows, but it would help some. That's in some of the
bills and it seems to me like it is a good provision. I think
it's fairly minor compared to the post-issuance procedures,
which also would have to be done legislatively; can't be done
by the courts, or by the Patent Office.
Ms. Lofgren. We may have to go step by step into this.
But I remember about, again, half a decade ago, maybe more
than that, going out to a major technology company in Silicon
Valley, and instead of the general counsel and the patent
lawyers, they had the engineers there talking to me. And they
thought the most important thing was third-party submission of
prior art. And I thought, well, nobody else is talking about
that. And they really thought about it as sort of the
wickifying patent submissions.
And it got me thinking that, although the lawyers weren't
looking at that, the engineers in this case might actually have
a very good point on that, and that it would get a lot of bad
patents out of the way.
I mean, the worst thing that can happen, worse even then
pendency is the issuance of bad patents that just mess up the
system.
I think my time has expired. I thank the gentleman for
yielding.
Mr. Griffin. Mr. Nadler, you're recognized for 5 minutes.
Mr. Nadler. Thank you.
Judge Michel, you said that 80 percent of the patent issue
is in increased funding levels. Everything else is 20 percent,
but 80 percent of the problems that we have would be satisfied
with increased funding levels. And we've heard about that from
all of the witnesses. In the continuing resolution for fiscal
year 2011 that we're going to be considering, I think next
week, the Republican majority plans to reduce funding in
general to 2008 levels. We haven't seen the text, so we're not
sure, but we suspect that this may reduce the Patent Office to
2008 funding levels as well. At our oversight hearing last
month, Director Kappos said that doing this would be a
disaster.
What is your assessment of what such a decision would do to
the Patent Office and to jobs?
Judge Michel. Well, it could be catastrophic. The Patent
Office can't function at the level of resources it has now in
an effective way. And if it were reduced even lower than the
current level, everything would get worse. Delays would go up,
quality would go down. The system would melt down.
So I hope that that's not what comes out of whatever the
Congress has to do to address the fiscal problems of the
country, because the Patent Office really is a different kind
of operation. It is really not a government regulatory agency.
It deals with private property rights, not governmental
programs in the normal sense. It seems to me it shouldn't
really be counted as part of the budget. It shouldn't have
anything to do with a spending reduction, because it is not
spending taxpayer money in the first place.
Mr. Nadler. So in other words, it deals with private
property rights, as does something like the Securities and
Exchange Commission, which we know is going to take a funding
hit, presumably. But it is financed independently, which the
SEC is not. That's what you're saying.
Judge Michel. Yes.
Mr. Nadler. But it would be catastrophic if it were reduced
substantially. Thank you.
Now, you also said--we talked about perhaps codifying some
of the court decisions that have been rendered that have solved
some of the ambiguities that we have had. And you said, I
think, that codifying the court decisions would be an
unfortunate course of action for Congress to take because it
would add to uncertainty.
Why would codifying court decisions add to uncertainty?
Judge Michel. Congressman, the reason is that the bills use
different language than the court decisions do. That gives
lawyers a field day to fight over exactly what does the new
language mean. So it really does add, I think, uncertainty and
complexity.
Mr. Nadler. Excuse me, but don't the lawyers have a field
day arguing over what the court decision means? Why would they
have a greater field day over what Congress meant?
Judge Michel. It gives them more to fight over. It is
certainly true that they disagree often about what a sentence
in a court decision means.
But, you know, the other thing is this is a very dynamic
process. The Federal Circuit decides 3 or 400 patent-related
cases every single year. Every month, every judge has patent
cases on their desk. So they have endless opportunities to keep
adjusting and refining the law in the face of new litigation
tactics, in the face of new economic developments, new
technology and so forth.
So the courts have a huge advantage, because for them it's
not a one-time thing, it's every day, every month, every year.
So they keep making improvements.
If you legislatively codify what they did last year, that's
going to bar them from doing even better next year by freezing
them in place. So they have to follow the statute.
Mr. Nadler. That's an argument in favor of common law
against any statutory law.
Judge Michel. Well, it's in favor of letting a broad
statute have sufficient common-law development which can
continue because it is not then frozen in place by a later
statute.
Mr. Nadler. Okay. Thank you.
Before my time expires, let me ask Mr. Horton, you talked
about the first-to-file problem for Joe inventor, for the
little guy, and how he files a patent and someone comes in and
the big corporation says, no, no, you weren't the first to
invent it. Then he's got to defend, and the burden of proof is
on him and it's very expensive and difficult. Presumably, you
think the solution to that is to go to a first-to-file rather
than a first-to-invent standard, which raises other problems.
Let me ask you this; what would happen if we kept the
first-to-file, the first-to-invent standard but shifted the
burden of proof?
Mr. Horton. So I if I understand correctly, you are saying
that, even though a party was first to file for a patent, you
wouldn't give them the presumption.
Mr. Nadler. No.
Mr. Horton. That's why they have the presumption, is
because they were the first one to come forward and say----
Mr. Nadler. Well, they have the presumption, but, as I
understand what you said, if someone contests them, they have
the burden to prove that they were first to invent, no?
Mr. Horton. Well, the party who is not the first to file is
the one who faces the uphill battle to prove that they were
first to----
Mr. Nadler. Then I don't understand your contention, or
your statement. It makes sense that the challenger of the first
to file should have the burden of proof, intuitively and
intellectually, but if that's the case, then Joe inventor, the
little guy, he files his patent, how does he get the burden to
prove that he was first?
Mr. Horton. Well, in my hypothetical I gave, he was, let's
just say, using the U.S. crutch, you know, the fact that he
could prove he was first to invent at some point in time. So he
wasn't quick in getting to the office. He didn't race down
there in an expeditious manner. Others around the world are
accustomed to doing that. That's how they think, and so they
tend to run to the office faster. So that would put him at a
disadvantage, because he was not first to file because they
filed ahead of him. And that's the concern. That's why we as
global companies always run to the office first, because we
know that----
Mr. Nadler. So you're saying it's a problem because of--let
me just ask one last question as I see the red light is on.
This is a problem because of a difference of culture between
the United States and foreigners, where foreigners run to file
faster. Well, could you solve that by saying, okay, somebody
who filed a patent abroad has the burden of proving first?
Mr. Horton. I think we would face the WTO in that regard.
Mr. Nadler. Okay. Thank you.
Mr. Griffin. Ms. Jackson Lee is recognized for 5 minutes.
Ms. Jackson Lee. Thank you very much, Mr. Chairman; and I
thank the Ranking Member.
This is an important hearing, and I thank the witnesses
that are here. Some of you are wise enough to place behind you
friends that we have worked with for a very long period of
time, maybe you orchestrated that, and they will tell you that
I'm still a good person and will maintain our friendship.
We are on the floor of the House debating a regulatory
scheme that would call on this body to exert itself over every
regulatory--major regulation that would come out of the
executive. And I only say that because what I see here are some
crucially important issues that want me to rush toward patent
reform for the ability to create jobs, and I would offer to say
in the United States.
I am going to ask a question and then a series of quickly
moving questions, but you can weave this particular answer in
because I'm excited about the brilliance of this country. I
served 12 years on the Science Committee, and I would always
say that science is the work of the 21st century, and here we
are. It's amazing to be in the 21st century.
My general question is, is there a genius factor in
America? Do we still have it? Is it a genius factor of
inventiveness and invention? And let me go now to my questions.
Please weave in your answers as to whether or not we've
abandoned it, whether we don't have any more abilities.
Judge, let me say that I agree wholeheartedly with you on a
thousand, several thousand more examiners, dozens of additional
Board of Appeal members, major modernization of the IT systems.
I don't see why we can do any less. Inventions create jobs. And
I'll go back to Thomas Edison, who I believe was a United
States citizen, and the light bulb.
In addition, I would like to stop fee diversion. And,
frankly, you are dependent on fees. I don't know whether
there's something in our CR that is going to cut patent
operations even further since that is the mindset of cut and
grow--wrongly so, I believe.
But, Mr. Simon, let me quickly move. We have an 18-month
period of display. All of your Intel is shown for about 18
months. Tell me whether or not we could shorten that time
frame. You've already debated the question of first to file. Do
we need to use first to use? And since you're so large--and,
Mr. Horton, I want this question to you. Let me ask you first.
How many people do you employ here in the United States, Mr.
Simon?
Mr. Simon. Something over 40,000.
Ms. Jackson Lee. And how many around the world?
Mr. Simon. Less than that.
Ms. Jackson Lee. Somewhere around----
Mr. Simon. I'm not sure of the exact number. I know that's
over half----
Ms. Jackson Lee. And that's 40. And so you may do 20 or 30
around the world?
Mr. Simon. It would probably be something in that area.
Ms. Jackson Lee. Mr. Horton, how many are in the United
States?
Mr. Horton. I'd have to ask Congresswoman Waters to give me
those numbers. I think she read them earlier. But 300,000
globally, and my last recollection is we were somewhere around
50/50. I know revenue-wise we're more outside the U.S., but I
think employee-wise we're still more in the U.S.
Ms. Jackson Lee. Alright, thank you.
Mr. Simon, I want to go to the 18-month structure. Do we do
well to pull that back? Do we do first to file, first to use?
Mr. Simon. So, in terms of, first----
Ms. Jackson Lee. Your mic is not on, and I still have a
green light, but I'm going to ask you to speak in bionic speed.
Mr. Simon. I'm from New York. I'll do it really fast.
I think the country still has genius. We're investing over
$5 billion in our latest generation manufacturing plants in
this country just because of that, so I don't think that's the
problem.
In terms of publication, we've long ago come to the
conclusion that there is a certain amount of information. If
you want to get a patent, part of the price you pay is you're
going to disclose information to the public.
Ms. Jackson Lee. Can we shorten it?
Mr. Simon. The only way you could shorten it is actually
speeding up the Patent Office. And I would rather have the
Patent Office do its job right than----
Ms. Jackson Lee. Speed up the process, but leave the 18
months?
Mr. Simon. Yes.
Ms. Jackson Lee. What about first to file, first to use?
Mr. Simon. First to file, first to use, the concern that I
have there, if we go to a first-to-file system, if you don't
have prior user rights there, you're forcing companies like
Intel, who normally do not want to file because we don't want
to disclose, for example, how we test and validate our
products, we would be forced to file much more in that area.
And we know, as Judge Michel said in his testimony, that people
will be reading those patents. So we actually would really
think having a prior user right so we can avoid that problem
would be really important to us.
Ms. Jackson Lee. Mr. Horton, we live in a hackers'
paradise. And I have a lot of good friends around the world, in
China, and so I want to preface it by saying they're good
friends--I want you to answer what he said--they are good
friends, but I understand they are genius in hacking. So my
question is, if you would answer that and finish--and when I
say answer, answer the same question but also finish in terms
of how you, being so large, hamper the little guys that I hope
hold the genius that can help to create jobs even more than
some of your larger companies? And how will you use your patent
to build jobs in America versus around the world? Patents
plural.
Mr. Horton. For one, I would say we're absolutely bullish
on America and we are bullish on working with small inventors.
Just recently, you may have seen in the press, we issued an
Ecoimagination challenge where we put $100 million out there
for no other purpose than to reach out to the small guys and
find out who's inventing in our space.
I would like to think we're fairly good at inventing
ourselves. We're one of the biggest patent holders in the world
because we've been doing this for 120 years. So we're just as
bullish on investing in our own researchers in Niskayuna and
Atlanta and elsewhere within the U.S. But I think there's a
place to come together, particularly on these new and nascent
technologies where they have yet to be developed, which is why
we both invest in VC money in trying to find those, but also
these problems like the Ecoimagination challenge where we're
trying to flush them out of the woodwork. This is the place we
want to invent. The patent system helps us afford to do that
and then bring the manufacturing behind that and also do it in
the U.S. and be able to compete effectively with the lower cost
of labor elsewhere.
Ms. Jackson Lee. Well, we want to give you an effective
patent system; we want you to give us jobs. It is not so
attractive to me to see the peaking number of GE jobs--or
anyone else--and not have the same jobs here in the United
States.
I yield back. Thank you.
Mr. Griffin. I thank our witnesses for their testimony
today.
Without objection, all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses, which we will forward and ask the witnesses to
respond as promptly as they can so that their answers may be
made part of the record.
Without objection, all Members will have 5 legislative days
to submit any additional materials for inclusion in the record.
With that, again, I thank the witnesses.
The hearing is adjourned.
[Whereupon, at 12:50 p.m., the Subcommittee was adjourned.]