[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



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                       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:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    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:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    

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    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.]

                                 
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