[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]


 
                  REVIEW OF RECENT JUDICIAL DECISIONS 
                             ON PATENT LAW

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

                                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

                               __________

                             MARCH 10, 2011

                               __________

                           Serial No. 112-20

                               __________

         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

                              ----------                              

                             MARCH 10, 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 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..................................     3

                               WITNESSES

Dan L. Burk, Chancellor's Professor of Law, University of 
  California, Irvine
  Oral Testimony.................................................     4
  Prepared Statement.............................................     7
Andrew J. Pincus, Partner, Mayer Brown LLP
  Oral Testimony.................................................    14
  Prepared Statement.............................................    16
Dennis Crouch, Associate Professor of Law, University of Missouri 
  School of Law
  Oral Testimony.................................................    31
  Prepared Statement.............................................    33

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Coalition for Patent Fairness..........    63
Prepared Statement of John Boswell, Senior Vice President and 
  General Counsel, SAS Institute.................................    68
Prepared Statement of Lateef Mtima, Professor, on behalf of the 
  Institute for Intellectual Property and Social Justice.........    73


                  REVIEW OF RECENT JUDICIAL DECISIONS 
                             ON PATENT LAW

                              ----------                              


                        THURSDAY, MARCH 10, 2011

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:06 p.m., in 
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Coble, Sensenbrenner, 
Issa, Poe, Reed, Griffin, Adams, Quayle, Watt, Conyers, Chu, 
and Nadler.
    Staff present: (Majority) Blaine Merritt, Subcommittee 
Chief Counsel; Olivia Lee, Clerk; and Stephanie Moore, Minority 
Counsel.
    Mr. Goodlatte. Good afternoon. The Subcommittee will come 
to order.
    I have a statement. At the outset I want to express my 
surprise, as well as delight, that the other body has acted so 
expeditiously on their Patent Reform Bill. I look forward to 
continuing to work with Chairman Smith, Ranking Member Watt and 
other Members of the Judiciary Committee to fashion the House 
bill. This is the closest we have come in the past 6 years to 
enacting comprehensive patent reform and I am optimistic that 
we can get a bipartisan, bicameral bill on the President's desk 
in the near future.
    Whatever the fate of patent reform in the coming weeks, we 
can all agree that Congress has found it difficult to enact a 
truly comprehensive reform bill. Why? The answer is twofold. 
First, different versions of the legislation have addressed 
many core provisions of the Patent Act. And second, a number of 
different stakeholders use the patent system in different ways. 
Businesses that devote significant resources on research and 
development have a greater financial need for patent protection 
than those spending less on R&D. In addition, some companies 
may generate one or two clearly understood patents that define 
an entire product while others, in the software or tech realms, 
may develop products that contain hundreds or even thousands of 
patents. In addition, many industries practice their patent 
portfolio defensively while other industries and patent-holding 
companies tend to go on the offensive to pursue their patent 
rights.
    What this means is that our unitary patent system does not 
treat or affect all patent players in the same way. Some 
companies don't need the Patent Act to innovate or operate; 
others couldn't exist without it and the rest fall somewhere in 
between the two extremes.
    All of these factors have certainly made Congress' task 
more difficult. Some patent observers believe that Congress 
cannot accommodate the concerns of all industry stakeholders 
with competing or incompatible financial interests every time a 
need to reform our patent law arises. They claim it would be 
far too time consuming and would generate substantial 
administrative cost for the courts and uncertainty for the 
stakeholders. There is also a strong likelihood that any 
industry specific legislative reform would ultimately fail 
because its lack of sufficient generality would not contemplate 
later changes in technology.
    Finally, it is possible that such Balkanization of the 
Patent Act violates our international obligations under various 
treaties or protocols such as TRIPS, the intellectual property 
component of the General Agreement on Tariffs and Trade.
    According to these patent critics, the courts are better 
positioned to generate appropriate reform over time, at least 
if Congress cannot do so legislatively. My belief is that 
Congress can learn from what the courts are doing and if the 
courts sufficiently have addressed an area of patent reform, 
then that may obviate the need for the Congress to act. In 
fact, one reason we are making greater progress on patent 
reform is because some of the more controversial issues that 
engendered the most disagreements are no longer addressed in 
the Senate bill. That is because the Supreme Court and the 
Federal Circuit have handed down decisions addressing many of 
the contentious issues we have grappled with over the years.
    This hearing will examine what the courts have done over 
the past 6 years to address the concerns Congress have 
expressed regarding--in the form of patent reform legislation 
and what remains for Congress to tackle.
    For example, when we first began to discuss patent reform I 
argued strongly that patent reform legislation needed to 
include reform of the way injunctions were being ordered by the 
courts in patent cases. The courts had developed a pattern of 
granting injunctions in almost all cases despite the plain 
reading of the statute. While finding common ground on a 
legislative solution proved extremely difficult, the Supreme 
Court addressed this issue conclusively with the eBay v. 
mercExchange decision in 2006.
    I look forward to hearing from our witnesses about other 
progress the courts have made in correcting some of the abuses 
that have been occurring with our patent laws. This hearing 
could not come at a more meaningful time in the process as the 
House readies its version of patent reform legislation for 
introduction.
    It is now my pleasure to recognize the Ranking Member of 
the Subcommittee, the gentleman from North Carolina, Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman and thank you for 
convening today's hearing. It is an important hearing and I 
think it will be valuable to us as we move forward in this area 
of crafting new patent legislation.
    As a former litigator of 22 years, I know both of the 
benefits of meaningful, warranted litigation and the burdens of 
frivolous, costly litigation, to the parties and to society at 
large. As a legislator for the past 19 years I also appreciate 
the need for Congress to monitor developments in the judicial 
system and where appropriate respond legislatively.
    Today's hearing fittingly provides us with the opportunity 
to examine recent developments in patent law, to assess whether 
the courts are trending in the direction we think best or 
whether we should just stay out of some areas and let what the 
courts have said continue to be the prevailing law there and 
avoid additional controversies.
    So for us to do that and do it appropriately and in a 
balanced way, I think we need to have a better understanding of 
what the courts have done, have not done, what people perceive 
are the gray areas, the nuances that we need to be evaluating. 
And I am looking forward to hearing the testimony with that in 
mind.
    With that, Mr. Chairman, I yield back.
    Mr. Goodlatte. I thank the gentleman. And it is now my 
pleasure to recognize the Ranking Member of the full Committee 
and a very consistent participate--participant in this 
Subcommittee, the gentleman from Michigan, Mr. Conyers?
    Mr. Conyers. Thank you, Mr. Chairman and Ranking Member. My 
congratulations on bringing us together at this point in time 
on a very important subject.
    Most of my opening statement deals with the fact that 
patent reform has frequently ended up bipartisan in this 
Congress and in the 110th and 109th too, as a matter of fact. 
And that the courts have helped us, as you have said, Chairman 
Goodlatte, in ferreting out a lot of issues that seems to me 
that we can take mostly off the table. There are a number of 
subject matter where the courts have been helpful: venue, 
injunctions, willfulness, damages, obviousness have all helped 
us a lot.
    We now have a Senate product and we will be meeting here, 
informally, with Chairman Smith, with our colleagues, Issa, 
Coble, Watt, Zoe Lofgren and of course Howard Berman. And so I 
think we are well on the way.
    I have got a list of decisions that have been very helpful 
in sorting out some issues that the court can handle, perhaps, 
arguably even better than the legislature and some issues that 
are--that are leaving us with issues that are unique to 
ourselves.
    And so we are pleased to have these witnesses before us and 
I look forward and yield back the balance of my time.
    Mr. Goodlatte. I thank the gentleman. Without objection, 
other Members' opening statements will be made a part of the 
record and we will now welcome our witnesses.
    We have a very distinguished panel today. Each of the 
witness's written statements will be entered into the record in 
its entirety. And I ask each witness to summarize their 
testimony in 5 minutes or less. To help you stay within that 
time limit there is a timing light on your table. When the 
light switches from green to yellow you have 1 minute to 
conclude your testimony. When the light turns red it signals 
that the witness' 5 minutes have expired.
    Before I introduce our witnesses I would like them to stand 
and as is the custom of this Committee, be sworn in.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you and be seated.
    Our first witness is Dan Burk, Chancellor's Professor of 
Law at the University of California, Irvine, School of Law. 
Professor Burk is an internationally prominent authority on 
legal and social issues related to high technology whose 
research encompasses the areas of patent, copyright, electronic 
commerce and biotechnology law.
    Some of his most recent work has considered the statutory 
policy levers used by courts to apply patent incentives to 
industries with diverse innovation profiles, as well as the 
affect of intellectual property rights on the structure of 
firms and of industries. He is the co-author, along with Mark 
Lemley, of ``The Patent Crisis and How the Courts Can Solve 
It.''
    Professor Burk received his BS in microbiology from Brigham 
Young University; his MS in molecular biology and biochemistry 
from Northwestern; his JD from Arizona State and his JSD from 
Stanford. He has covered the West Coast pretty well and even 
got as far as Illinois.
    Our next witness is Andrew J. Pincus, a partner at Mayer 
Brown here in Washington, D.C. Mr. Pincus will testify on 
behalf of the Business Software Alliance. He focuses on 
appellate practice on briefing and arguing cases before the 
U.S. Supreme Court and the Federal and State appellate courts. 
He is argued 22 cases before the Supreme Court and has filed 
Supreme Court briefs in more than 100 other cases. Mr. Pincus 
has also served as a Federal law clerk; general counsel of 
Anderson Worldwide and as the general counsel of the Department 
of Commerce.
    He was educated at Yale and the Columbia School of Law.
    Our final witness is Dennis Crouch, Associate Professor of 
Law at the University of Missouri. Prior to joining the 
Missouri faculty Professor Crouch taught at Boston University 
and practiced law in Chicago. He has also worked as a research 
fellow at NASA; a software developer at the Mayo Clinic and a 
Peace Corp volunteer in Ghana.
    He is perhaps best known as the editor of the popular 
patent blog, ``Patently-O''. Is that ``O'' or zero?
    Mr. Pincus. ``O.''
    Mr. Goodlatte. The--Professor Crouch earned his BSE in 
mechanical engineering from Princeton and his JD from the 
University of Chicago Law School.
    Welcome to you all and we will begin with Professor Burk.

       TESTIMONY OF DAN L. BURK, CHANCELLOR'S PROFESSOR 
            OF LAW, UNIVERSITY OF CALIFORNIA, IRVINE

    Mr. Burk. Thank you very much, Mr. Chairman.
    I am honored to be here with you, with the Committee today. 
I speak only for myself, as a scholar, but I am happy to 
present some of my research findings to the Committee.
    And I congratulate you, Mr. Chairman and that of our 
colleagues, on your leadership in addressing this question of 
patent reform and especially this question as to what has been 
decided by the courts, what could be decided by the courts and 
what might be the role of Congress at this point.
    Mr. Chairman, I would say that the news is good news. As 
you indicated in your opening statement, as we also hear from 
Mr. Watt and Mr. Conyers in their opening statements, many of 
the contentious and difficult issues that have been identified 
in the area of patent reform over the past several years and 
which were suggested as possible topics of legislative reform 
have been addressed by the courts. And what that tells us, Mr. 
Chairman, is that the system is working the way that it is 
supposed to, that the courts are applying the statute, that we 
have a robust and dynamic statute that can address the needs of 
innovators.
    Innovation is a messy and protracted and dynamic and often 
unexpected business. The needs of innovators vary widely, as 
you indicated in your opening statement, Mr. Chairman. The 
needs of the software industry are very different than the 
needs of the pharmaceutical industry. Both of their needs are 
very different than semiconductors and other industries. There 
are industries that we had not yet imagined or that are just 
emerging and all of them have very diverse innovation profiles.
    All of them need the assistance of the patent statute to 
help them innovate. How can that possibly happen? It is neither 
practical, nor desirable, nor necessary for this Committee or 
for the Members of Congress to sit and continually tweak and 
adjust the patent statute to meet all those different needs 
that you pointed out in your opening statement, Mr. Chairman. 
Rather, what can happen, what is happening is that Congress 
charts the course. Congress sets the goals, sets the rules of 
the game, if you will, and then supplies the tools, through the 
statute to the courts, and sometimes to the patent office, in 
order to continually update and adjust the law to meet the 
ongoing changing needs of American industry so that the 
innovation that we all depend on can happen.
    And we have seen that happen over the past several years. 
You gave a wonderful example in your opening statement, Mr. 
Chairman, of the way that injunctive relief has been addressed 
by the Supreme Court. And since that has happened we have seen 
empirically a drop off in the number of injunctions, 
incorrectly or improvidently granted, that might impede 
innovation.
    The same type of process is ongoing in other areas, such as 
inequitable conduct, venue for patent lawsuits or the size of 
damage awards. In each of those cases we see the courts 
addressing those issues, grappling with those issues and 
solving those issues. And the written statements contain 
information and data about those particular cases.
    Are there places where Congress needs to intervene? Each of 
the opening statements asked that question. I would say that 
the answer is yes. For example, if you want to make a 
fundamental change to the rules of the game, if you want to 
adjust the fundamentals of the patent system, such as, for 
example, the current proposals to switch from a first-to-invent 
system that we have now, to a first-to-file system, that has to 
happen in Congress. The costs of making that switch are very 
significant; it would be disruptive to nearly 200 years of 
established law; and the determination must be made before that 
happens that the costs are worth the benefits that might happen 
from the change. The courts can't do that, the courts should 
not do that, that is a determination that really has to be made 
here.
    Similarly, the question of post-grant opposition. It is a 
decision that the Patent Office can't make, the courts can't 
make, that is something for you here in this legislative body 
to address.
    So in summary, Mr. Chairman, as I say, the news is good. 
Many of the most difficult issues that were before Congress 7 
years ago have been resolved or are being resolved by the 
courts. That tells us that we have a robust statute, that the 
courts, and sometimes the Patent Office, can use to resolve 
most of these problems. And there remains a very small subset 
of problems, such as first-to-file or post-grant opposition, 
for this body to address.
    I again congratulate you on looking into this issue and I 
look forward to answering any questions, either oral or 
written, that you or the distinguished Members of the Committee 
might have for me. Thank you.
    [The prepared statement of Mr. Burk follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Professor Burk.
    Mr. Pincus, welcome.

            TESTIMONY OF ANDREW J. PINCUS, PARTNER, 
                        MAYER BROWN LLP

    Mr. Pincus. Thank you, Mr. Chairman, Ranking Member Watt--
--
    Mr. Goodlatte. You may want to turn that on and pull it 
close.
    Mr. Pincus. Got you. Thank you, Mr. Chairman, Ranking 
Member Watt and Members of the Subcommittee. It is an honor to 
appear before you today, as you noted, on behalf of the 
Business Software Alliance.
    As the Members of the Subcommittee know BSA has been a 
strong supporter of patent reform throughout the nearly 6 years 
that this Committee has been focused on modernizing the patent 
law. BSA companies are innovators, they are substantial patent 
holders and at the same time they are frequently named as 
defendants in patent infringement actions. And so they have a 
great interest in properly calibrating the standards for 
obtaining patents, for challenging dubiously granted patents in 
administrative proceedings and also for enforcing patents in 
the courts.
    This Committee's intense focus on the problems in the 
patent system since 2005 has had a real impact, significant 
impact on the court's interpretation of the patent law. From 
2000 to 2005 the Supreme Court decided only three patent cases. 
From 2006 through the end of the current term The Court will 
have ruled on eight patent issues. And the Federal Circuit has 
also been quite active in clarifying previously uncertain or 
unjustified legal principles.
    And the Supreme Court's opinions and the Federal Circuit's 
opinions have addressed, and largely cured, the imbalances in 
the law that created risks for inventors and diminished their 
incentives to innovate that this Committee focused on in its 
deliberations over this period. Just to name a few:
    The standard governing the issuance of injunctions in 
infringement cases, as you noted, Mr. Chairman, was a critical 
and very, very controversial issue in 2005 when the first bill 
was introduced. The Supreme Court resolved that issue 
unanimously in its eBay decision.
    The low standard for proof of willfulness, which results in 
the imposition of multiple damages and the associated 
unjustified intrusion on the attorney/client privilege, which 
was also the subject of a lot of the Committee's deliberations, 
were overturned by the Federal Circuit in the Knorr-Bremse and 
the Seagate decisions.
    The broad interpretation of Section 271F of the patent law, 
which led to significant extraterritorial application of our 
patent laws, was overturned by the Supreme Court in the 
Microsoft v. AT&T decisions.
    And the vague standards for calculating reasonable royalty, 
which is one of the principal drivers of abusive infringement 
litigation have been clarified. In a series of several rulings, 
the Federal Circuit has made clear that first of all, there 
will be appellate review of damages awards; there is not going 
to be a hands-off attitude by the Federal Circuit. That the 
entire market value rule, something this Committee focused on a 
lot is something that is inapplicable in most cases. And the 
compensatory damages, in the reasonable royalty context 
especially, should be based on the specific features of the 
defendant's product that are attributable to the infringed 
patent and that that is the rule, not the exception.
    And finally, as you noted, forum shopping has been 
addressed by a series of Federal Circuit rulings in which the 
Court, exercising its mandamus authority, has required 
plaintiffs to show a real connection between the forum and the 
litigation in order to maintain an action.
    So these key litigation issues have been resolved for the 
courts, at least for now. Obviously we will have to wait and 
see what will happen in the years ahead, no one can predict.
    But Congress still has an essentially role to play. The 
courts can interpret the statutory provisions governing 
infringement actions, as Professor Burk noted, but there is 
some issues the courts can't address, because they require new 
legislation. And BSA member companies urge the Committee to 
focus its patent reform efforts on these areas, in particular, 
funding of the PTO, which the PTO obviously needs the freedom 
to set its own fees, to reduce pendency and have the funds it 
needs to become the efficient operation that it can become and 
of course fee diversion should be ended.
    An effective administration system to weed out bad patent. 
The experts at the PTO are in the best position to decide if a 
patent has been poorly issued, and they need an effective 
procedure in place to allow them to do that so people can 
challenge patents that were issued unjustifiably, bring those 
issues to the PTO and that requires changes to the current 
inter partes system. Allowing third parties to submit prior art 
for consideration of the examination process, something--this 
has been in all the bills considered by this Committee; putting 
an end to the false marking litigation, cottage industry that 
has grown up, really a new issue that has just arise in the 
last couple of years, that really needs to be addressed is this 
plague of false marking cases. And finally, adopting the first 
inventor to file system with the accompanying prior user rights 
that go along with it.
    Thank you very much, Mr. Chairman. I look forward to 
addressing the Subcommittee's questions.
    [The prepared statement of Mr. Pincus follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Mr. Pincus.
    And Mr. Crouch, welcome.

        TESTIMONY OF DENNIS CROUCH, ASSOCIATE PROFESSOR 
          OF LAW, UNIVERSITY OF MISSOURI SCHOOL OF LAW

    Mr. Crouch. Mr. Chairman, thank you very much. Mr. Vice-
Chairman, Members of the Committee, I would like to thank you 
for inviting me here today.
    Last week in Missouri we held a major conference that 
focused on the role of the Court of Appeals for the Federal 
Circuit, in patent policy. And United States Patent and 
Trademark Office Director David Kappos was there, along with 
academics from around the world, as well as a couple of hundred 
patent law practitioners. There was broad consensus, amongst 
everyone there, without anyone voicing disagreement, that the 
Federal Circuit and the Supreme Court have been actively 
involved in patent policy over the past 6 years, and that we 
have had a tremendous and rapid development in patent law, in 
patent law doctrines over the past decade, even without 
congressional action.
    And it--with--in my law school I teach--in addition to 
teaching patent law I also teach real property. Real property 
is very much about the common law doctrine that had a radical 
change back in the day of William the Conqueror, 900 years ago, 
and has slowly plodded along since then, developing different 
doctrines in property.
    Patent law has been very much a counter-example of that. We 
have seen doctrines change rapidly these past 6 years. And I 
think the Federal Circuit and the structure of the Federal 
Circuit that Congress created almost 30 years ago is a big 
reason, although aided by the Supreme Court, why we have seen 
that rapid change.
    Over the past decade the Federal Circuit has heard well 
over 4,000 patent cases, which is a surprising number. Two 
weeks ago I sat in on a 10th Circuit Court of Appeals copyright 
case. Although the judges there, I believe, asked appropriate 
questions and will decide the copyright case very well, it 
turned out that none of might had ever heard a copyright case 
before, even though they had all been judges for upwards of a 
decade.
    At the Federal Circuit all of the judges hear 20 to 30 
patent cases every year. Every single major patent law doctrine 
arises multiple times each year before the Federal Circuit. 
What that means is that even as the Court makes incremental 
changes, case by case, over a short amount of time they can 
still make major developments just applying the common law 
doctrine and that is because they hear so many cases and the 
second reason because they are this nationwide court that has 
automatic, nationwide application of their decisions.
    Now I absolutely agree with Mr. Pincus and Mr. Burk that 
the decisions that have occurred in the past 6 years have 
related directly to the proposals that we have seen in this 
body and in the Senate over that time. And almost across the 
board and maybe actually across the board, all of the decisions 
on these particular issues have gone the way that the 
legislation was headed. That is, we have had legislation to 
control damage awards, and that is what the courts have 
directed--have worked to do. We have had legislation toward 
limiting injunctive relief, especially at times when we have an 
entity that is just a holding company and someone else 
manufacturing, and we want to allow that manufacturing to go on 
and have some kind of damage award. And that is what this body 
was thinking of and that is what the courts did.
    We had a similar approach with enhanced damages for willful 
infringement, that we limited--the courts limited the scope of 
that as well as venue and inequitable conduct, that has been 
discussed.
    I certainly believe that although this has been going on 
the past 6 years, it appears, and every indication that I have, 
makes it look like it will continue into the future.
    Now, in addition to legal changes, there is a lot of other 
changes that have happened this past 6 years. One of them is 
that the Patent Office backlog has continued to grow, something 
like up 30 percent from where it was 6 years ago, so that now 
we have about 1.2 million patent applications pending at the 
Patent Office, which is a serious problem. In addition, the 
Patent Office has its own internal board of review. Six years 
ago they had about 700 cases pending, now they have 20,000 
cases pending and a 3-year backlog just to hear those cases 
within the Patent Office.
    My--I guess my final point is maybe on a re-examination 
system. That 6 years ago people did not use re-examination as a 
form of post-grant opposition. These days most defendants who 
think they have a reasonable invalidity defense file for re-
examination at the Patent Office and many of them have been 
successful at invalidating the patent that way as opposed to 
through--as opposed to through the courts.
    And I look forward to taking your questions as well. Thank 
you.
    [The prepared statement of Mr. Crouch follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
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    Mr. Goodlatte. Thank you, Professor.
    I'll begin the questioning with one to each of you. That is 
to make the point, aren't the courts fallible, as the Congress 
may be fallible as well, and how can we be sure that they will 
make the right decisions? And as a corollary to that, let me 
ask you, are any of the decisions they have made in the last 
few years wrong-headed and therefore should be addressed by the 
Congress because the courts didn't get it right?
    We will start with you, Mr. Burk.
    Mr. Burk. Thank you, Mr. Chairman. Of course the courts are 
fallible. And what we see in the court system and in the common 
law system is, as I describe it to my students frequently, it 
is very much like an impressionist's picture. When you start 
with one dab of paint or two dabs of paint, you can't tell what 
the picture is going to look like, but as these dabs of paint 
build up over time, in the manner that Professor Crouch has 
described to you, you begin to see the picture.
    Mr. Goodlatte. Since my time is limited, let me get you to 
focus in on any decisions that they have made that you think we 
should attempt to improve up.
    Mr. Burk. I don't think there is one that I can think of at 
the moment, Mr. Chairman. As I said, I would urge you to focus 
on structural changes like first-to-file, post-grant opposition 
and so on.
    Mr. Goodlatte. Got you.
    Mr. Pincus?
    Mr. Pincus. In terms of decisions to focus on, I think the 
critical one is the false marking area. The Federal Circuit 
really took a bad turn in the Forest Group/Bon Tool case by 
saying that private plaintiffs who can invoke that false 
marking statute don't have to show any harm to themselves. And 
so anybody can bring these claims and it has really evolved 
into an avalanche of litigation, even though there may be no 
harm to anybody. And that is a real problem in terms of the 
litigation costs that are being visited on legitimate 
companies, for no good reason.
    Mr. Goodlatte. Thank you.
    Professor Crouch?
    Mr. Crouch. Yeah, I had--I had actually written down the 
same case that Mr. Pincus had written down, the Bon Tool case, 
which there may--the--you know, it is possible that there is no 
need to--for this chamber to act in that there is a District 
Court that has invalided that statute on constitutionality 
grounds, but that remains to be seen whether the Federal 
Circuit will address it in that manner.
    Although, the false marking cases, from my perspective, 
they appear to be a flash in the pan in that most companies 
were ignoring that doctrine that had been around since the 
1840's, but now that it has become such a hot ticket item, 
folks have--folks who are in business in manufacturing now 
understand what they need to do to avoid the problems. And so 
there has been a thousand cases filed in the past 2 years and I 
expect that in 5 years from now, if there are no changes, there 
may be something like 10 to 20 cases a year.
    Mr. Goodlatte. Are litigants making greater use of the 
existing inter partes re-examination system? And if so, should 
we change the proceeding in our patent reform bill?
    Professor Burk?
    Mr. Burk. Yes, Mr. Chairman, there is no doubt that re-
examination has become very popular. And as Professor Crouch 
indicated in his testimony, if re-examination is going to be 
used as a form of post-grant opposition, then it behooves this 
body to look at turning it into a real proceeding post-grant 
opposition, not the very limited one that we have today.
    Mr. Goodlatte. Mr. Pincus?
    Mr. Pincus. The numbers are up, Mr. Chairman. I think our 
view is it is not clear, especially for technology companies, 
that it is the useful process that it could be and that there 
are improvements. Frankly, the ones that were in the bill that 
this Committee reported on and the House passed in 2007, would 
really turn it into a system that would be very, very 
effective.
    Mr. Goodlatte. Professor Crouch?
    Mr. Crouch. Yeah. In my testimony I put a few numbers in 
that from the Year 2000 to 2004 there were 53 requests for 
inter partes re-exam, and--but in the past 5 years that has 
jumped up to 903.
    Now, ex parte re-exam is much more popular and it has about 
doubled in its popularity over that time period. From my 
discussions with people involved with this, it appears that the 
Patent Office has put their highest caliber examiners in what 
they call the Central Re-examination Unit. And I have not 
spoken to any individual on either side who has questioned the 
quality of the work being done by this re-examination unit.
    And we have also seen that a number of cases--or we have 
seen statistically that parties requesting this do get 
favorable outcomes. That is, they are able to invalidate 
patents through this mechanism. But I would say the biggest 
failure, especially of inter partes re-examination, is the 
timeline, in that these tend to be extremely slow, as are many 
things at the Patent Office. And if there can be something to 
be done to shorten up that timeline, then what we have for 
inter partes re-exam may be sufficient.
    Mr. Goodlatte. Finally, let me ask, I think Mr. Pincus you 
addressed this in your statement, but let me ask each of the 
other two, if you want to add something you're welcome to, what 
areas of patent law would you put into a patent reform bill and 
what areas should be skipped by the Congress.
    Professor Burk?
    Mr. Burk. So, as I mentioned, Mr. Chairman, structural 
changes are the ones that this body needs to address. If it is 
desirable to go to first-to-file, this body must address that. 
If it is desirable to have a better post-grant opposition, this 
body must address that. Certainly this body needs to address 
the question of funding for the Patent Office.
    I disagree a little bit with my colleagues to my left, my 
guess is that the courts will work out the problem on false 
marking, probably by the time that this body could address that 
problem.
    So those are the ones that I would focus on.
    Mr. Goodlatte. Professor Crouch?
    Mr. Crouch. I absolutely agree with Professor Burk on that 
point and I guess without taking a specific position on first-
to-file, if something is going to happen with that it has to 
happen here.
    And there is another issue in the background, in terms of 
the Patent Office's ability to really work as an administrative 
agency in interpreting the law. And thus for--thus far the 
Federal Circuit has been reluctant to give the Patent Office 
that power and so it is possible that that may be an additional 
kind of non-structural element that you could take.
    Mr. Goodlatte. Thank you.
    Gentleman from North Carolina, Mr. Watt is recognized.
    Mr. Watt. Thank you, Mr. Chairman.
    Professor Crouch, you indicated that doctrines have changed 
rapidly over the last several years and that is always--raises 
a potential red flag with legislators because it is sometimes 
hard for us to know whether the courts are interpreting the law 
or whether they are making the law.
    And I wasn't clear whether you were saying that they were 
interpreting the law and because of the number of cases they 
have clarified it and therefore doctrines have been changing, 
or that----
    Mr. Crouch. Right.
    Mr. Watt [continuing]. The courts are making the law. 
Which--where do you come down on that?
    Mr. Crouch. If the courts are not making the law, they are 
coming extremely close to that in how they are operating. Just 
because we--just by looking at how the doctrines have shifted, 
you know, it is clear to me they are setting policy, from a 
practical standpoint.
    Mr. Watt. Give me an example.
    Mr. Crouch. Now----
    Mr. Watt. Give me an example.
    Mr. Crouch. Well, so you know, there is the recent Supreme 
Court of KSR v. Teleflex, that is about the question of 
obviousness. And obviousness is really the core question of 
most patent law issues. Is this invention you have created a 
substantial step beyond what came before? That----
    Mr. Watt. Okay. Is that something we could legislate, a 
definition of obviousness?
    Mr. Crouch. Absolutely. You know, so if you look at what 
the European Patent Commission has done, they have, through 
essential legislature, spelled out exactly what they mean by 
obviousness, spelled out the steps that you would take to 
approach that question and try to figure it out. Now, there is 
always going to be a bit of subjective analysis, but certainly 
if this body wanted to you could, I would not recommend that. 
But----
    Mr. Watt. Okay. So you are comfortable with the courts 
making----
    Mr. Crouch. Right. Right.
    Mr. Watt [continuing]. The law in some areas? Okay.
    Mr. Crouch. Right. For--to a limited extent I think that is 
right. And the truth is----
    Mr. Watt. And in an area of innovation, I mean you--I 
presume you are a little bit more comfortable with the courts 
making the law as opposed to us having to come back every time 
a new innovation----
    Mr. Crouch. Right.
    Mr. Watt [continuing]. Gets made and having to change the 
law to fit the new innovation? I take it you are--all three of 
you are probably comfortable with that to some extent, or am I 
misreading?
    Mr. Pincus. I think that--I think so, Congressman. I guess 
I disagree with my colleague a little bit about what the courts 
have been doing. I think what has happened is patent law was a 
little bit like the part of a pier that is under water. And 
there had been a lot of growths, a lot of mussels and mollusks 
and things had sort of grown up over the years that people 
maybe hadn't thought a lot about. And there has been a lot of 
chipping away to get back to the basic principles.
    I mean I think willfulness is a perfect example. There was 
a principle, you get multiple damages for willful conduct, but 
somehow a series of decision had turned willfulness into 
negligence. And so the Federal Circuit said, you know what, we 
are going to go back to what this really means. And I think at 
several of the--in a number of these areas--eBay is another 
example, we are going to apply--the Supreme Court said, we are 
going to apply the equitable principles that have applied for 
200 years, not a different rule for patents, et cetera.
    Mr. Watt. I am going to run out of time if I pursue this 
academic discussion. Let me ask a couple of more practical 
questions, because we are having--I mean I enjoy the academic 
discussion but in 5 minutes it is hard to really pursue it.
    The Court of Appeals of the Federal Circuit has issued 
several recent opinions allowing defendants to obtain a 
transfer of venue when another district is potentially more 
convenient and appropriate. Let me ask you a couple questions 
about that.
    If a plaintiff is allowed to name several defendants in the 
same lawsuit, what analysis does the court use to decide where 
to transfer the case? Would a plaintiff be able to defeat a 
transfer of venue simply by naming several defendants from 
various different places? And have there been any decisions 
that would limit patent plaintiffs from suing multiple 
defendants where there is no rational relationship among the 
defendants or the products accused of infringing?
    So I am just trying to figure out, are there still any 
areas in this venue area that we need to be ratcheting up or 
concerned about or has that law been made enough that we ought 
to just stay out of it?
    Mr. Pincus. I am happy to take----
    Mr. Watt. Go ahead.
    Mr. Pincus [continuing]. It first. I think, Congressman, 
there is a lot of progress. Is it perfect? No.
    I mean first of all the Federal Circuit has to use its 
mandamus authority, which by definition means it can only deal 
sort of the outer edges of what is egregious. But it has begun 
to lay down a set of principles that at least deal with a one 
defendant case, deal with attempts to manufacture venue by 
moving things to districts before the lawsuit is filed.
    I am not aware of cases dealing with the multiple defendant 
situation. I will be happy to get back to you on that. But I 
think the Federal Circuit, you can see in the decisions that it 
sees the problem and is trying to address it, as the cases come 
to it.
    Mr. Watt. But generally, I mean we set the venue standards 
here, legislatively. We don't leave it to the courts to say 
what the venue of particular cases should be. Is that an 
appropriate area for a court to be making case law as--making 
law by case or is that something that we ought be doing here?
    Mr. Pincus. Well there is the out--the statute sets the 
outside limit. The problem is, if your products are distributed 
nationwide, the way the statute works, the case can be brought 
anywhere. And so the statute itself doesn't set the limits and 
so the courts are using the transfer power, which is, you know, 
convenience of witnesses, convenience of justice, in order to 
alleviate the worst kind of abuses that arise.
    Mr. Watt. Well get back to me on the multiple--if any of 
you know multiple----
    Mr. Crouch. Mr. Watt, there is one----
    Mr. Watt [continuing]. Are there cases? I am sorry, my time 
is expired. So--but you can answer the--answer that question--
--
    Mr. Crouch. Oh.
    Mr. Goodlatte. That is fine.
    Mr. Watt [continuing]. That I already asked it.
    Mr. Crouch. There is one case called In re: Nintendo in 
which there was a set of something like one party in 
California, another in New York and they brought the case in 
Texas and they said, well this is the middle of the country and 
it--you know, it is half way between each and the court said 
absolutely not. You absolutely cannot do that, there is no kind 
of central to our--all the parties' rule that allows you to 
bring it in Texas even though nobody is here.
    Mr. Reed [presiding]. Okay, thank you very much.
    At this point in time we will recognize my colleague from 
Florida, Ms. Adams.
    Ms. Adams. Thank you.
    It sounds to me like the legislative patent debate from '05 
to '11 at least has sparked the interest of the courts in 
getting involved, from your testimony.
    Is there something to be said for Congress maybe taking the 
first crack at amending the statute rather than deferring to 
the courts hoping they will adjudicate appropriately? Is--do 
you believe that might be the better way to go? Any of you.
    Mr. Burk. Well, Ms. Adams, that is a great question and I 
think it relates to the question that Mr. Watt asked a moment 
ago.
    Ms. Adams. Yes.
    Mr. Burk. We have a very robust patent statute and Congress 
has done a marvelous job, you and your predecessors have done a 
marvelous job of setting, as Mr. Pincus says, ``the outside 
boundaries.'' And now the courts are working out the details.
    There are very few places where Congress needs to tinker 
with the statute because the goals or the outside boundaries 
are unclear. So to answer both your question and the question 
of Mr. Watt, as long as the courts are headed in the direction 
that Congress has indicated, and are achieving the goals that 
Congress has set--yes, they are making law and that is what 
they are supposed to do, that is what you have empowered them 
to do, and the statute is very robust and lets them do that.
    Ms. Adams. Anyone else?
    Mr. Pincus. As I said earlier, I think a lot of these 
problems were frankly of the courts making because they didn't 
follow Congress' directions in the first place. And so I think 
a lot of what has happened, in a number of these areas, and 
again, I go back to injunctions as sort of the classic, where 
the language in the patent law is the same as the language in 
other areas in which Congress has authorized courts to grant 
injunctions, but somehow in the patent statute it got 
interrupted differently than everywhere else. And the Supreme 
Court said, no, same words, Congress used the same words, it 
should mean the same thing.
    So I think a lot of this has been moving back to what 
Congress did in the first place. Even the KSR decision that 
someone referred to earlier, on obviousness, the Federal 
Circuit had just said, we are going to adopt an arbitrary rule 
on how you prove obviousness, it is not in the statute, it 
wasn't anywhere, we are just going to adopt this rule. And the 
Supreme Court said, the rule is not in the statute, so you 
can't make it up.
    So I actually think what has happened in the last 5 years 
has been to move closer to what Congress intended and carve 
away a lot of this stuff that had grown up.
    Mr. Crouch. Now, there is a big difference with patent law 
and copyright law in that if you pick up the copyright statute 
and drop it on the table it makes a loud thud, but the patent 
statute is, you know, one-tenth or maybe one--you know, maybe 
one-twentieth of the size of the copyright statute. And so in 
the patent world Congress has spoken with much less detail, 
which is one reason why the Court, I think, feels this leeway. 
And so although it is robust, right, there is still a lot of 
room for the courts to interpret and it is not as true in other 
areas of law and maybe with more recent statutes that have been 
developed. But I certainly don't see that as a problem.
    Ms. Adams. And is there any patent decisions the courts 
have gotten wrong, in your idea or beliefs, that may be still 
subject to appellate review?
    Mr. Crouch?
    Mr. Crouch. I don't think I understand the question.
    Ms. Adams. In other words, there is--you know, the 
decisions on the patent--the patent decisions from the courts 
that maybe you feel the courts were a little bit wrong and 
therefore are subject to appellate review and may be impacted 
by something we do here today or during this Congress.
    Mr. Crouch. You know, it is hard to say whether 
congressional action 6 years ago, right, that--right there 
were--there was no positive vote taken, but just from the way 
things worked out, it looks like courts responded to the 
activity in Congress. And we just don't know if that is true or 
not, because they were just taking the cases that came to them 
and deciding them. And after the series of cases it turned out 
we were Congress was headed.
    And so I--you know, I don't know, but I do know that, 
right, we know that this court is sitting here in D.C. and we 
know that courts are political actors just like everyone else, 
and they are listening, we just don't know in the future will 
they respond in the same way or if you need to push them do you 
have to take legislative action that actually has a kick to it.
    Mr. Pincus. I think this false marking area is an area of 
concern. I--some of my colleagues may disagree, but although 
the Federal Circuit has a case in which it could declare the 
statute unconstitutional, the government--the Administration is 
defending the statute, that might not happen. And if something 
isn't done, it is a big problem. And so that is an area where I 
think there is a big role for Congress.
    Mr. Burk. I do disagree a bit. I think that that the site 
an example for you of lower court decisions that are probably 
mistaken, that are probably counterproductive, but that is a 
work in progress.
    And as I said, earlier, I fully agree with Professor 
Crotch, that if we come back in 5 years I think we will find 
that most of that problem has been solved.
    Ms. Adams. Okay.
    Mr. Reed. Thank you, Ms. Adams.
    The Chair, at this point in time would recognize the former 
Chairman, Mr. Conyers, from Michigan.
    Mr. Conyers. Thank you, sir.
    Let us look at the first-to-file and the prior user rights 
provision. How do you feel about that when we don't have prior 
user rights--if we have first-to-file without prior user 
rights? Anybody want to volunteer?
    Mr. Pincus. I'm happy to. I think it is a significant 
problem. Obviously first-to-file is a shift from first-to-
invent. And the problem is you have first-to-file without prior 
user rights, that creates an opportunity--companies have one of 
two choices. Either they have to patent almost anything that is 
patentable, as soon as it happens to avoid the possibility that 
something that is incorporated into their product, even though 
they wouldn't patent it today, because it is not that 
significant, but in a first-to-file system, if they don't 
patent it and someone else does and there are no prior user 
rights, they have a big problem.
    So you force them into the situation of patenting 
everything, which is going to lead to more of a burden on the 
PTO, which is going to lead to more of a backlog, et cetera. 
The way to solve that is, as other countries have done, is to 
provide prior user rights that will protect companies that are 
users, from the possibility of an infringement action by some 
subsequent person who happens to be the first-to-file. But 
unfortunately, you know, that is not something that, for 
example, is in the Senate-passed bill, but we think it is very 
important.
    Mr. Conyers. Do you have some reservations, Professor?
    Mr. Burk. Mr. Conyers, what I would say is, is just what I 
said to my students, which is that a bill that implements 
first-to-file in the United States, should really be entitled, 
``The Patent Lawyers Full Employment Act of 2011.'' The reality 
is that that is an enormous change. It will create an enormous 
amount of work for my students and for my former students. And 
although it is perhaps a statement against interest, I think 
businesses probably want to create products and produce 
products more than they want to pay patent lawyers.
    So you have to think very carefully that the benefits of 
that change, and in particular the way that Mr. Pincus 
indicated, if you're going to have prior user rights----
    Mr. Conyers. So you are not for first-to-file to begin 
with?
    Mr. Burk. I am saying this can be very disruptive----
    Mr. Conyers. Yes.
    Mr. Burk [continuing]. And very expensive. And it may be 
that it is worth it, but I am not convinced.
    Mr. Conyers. Right. I can appreciate that.
    Mr. Crouch. Excuse me.
    Mr. Conyers. What is your feeling?
    Mr. Crouch. Thank you, Mr. Conyers. You know, the--I guess 
there is the first point that currently we don't have prior--we 
do not have prior user rights right now. And so there are cases 
that come up where someone was using a product before someone 
else independently invented it and then the patent law can stop 
them from using it.
    And you know, getting to Mr. Burk's point, I--you know, in 
reading the Senate bill, which may or may not be, you know, 
this House might present something different, but by just 
reading through it, time after time I ran across these words 
that are new, completely new to the patent system that we have 
had for 200 years and left undefined in the act.
    And I certainly don't want that to happen, because all that 
will lead to is litigation. And these cases are big cases and 
any single word like that that is left undefined is just going 
to lead to appeal after appeal, which I think is problematic.
    Mr. Conyers. What about inter partes re-examination? That 
could become a pretty big consideration. We have had it in our 
bill H.R. 1908, a couple of congresses ago, do we get general 
agreement on that? Are you okay on that as well?
    Mr. Crouch. I am okay on--and certainly, right, certainly 
we have had problems of current re-examination has limited 
scope.
    There are lots of reasons why people would want to 
invalidate a patent and they are not able to because of the 
current re-examination system. And so if we expanded that out I 
think it could actually improve our ability to get rid of 
patents that should have never issued.
    Mr. Conyers. Okay. Finally, inequitable conduct, patent 
amnesty, we may--we are going to be meeting with the Chairman 
of the Committee with Berman and Coble and Goodlatte and Zoe 
Lofgren, to try to work that out. How would you recommend us 
take care of this in a closed-room, secretly with nobody 
knowing that we had talked to you?
    Mr. Pincus. I think, Congressman Conyers, that inequitable 
conduct falls in the same category as a lot of the other 
litigation issues that we have been discussing, venue and 
injunctions and the rest. As my colleagues both note in their 
testimony, there--the Federal Circuit has decided one 
inequitable conduct case that tightens up on the standards for 
inequitable conduct. It has another case before it on--now, 
that seems to be another one of these areas where the courts 
are working it out and Congress doesn't have to intervene.
    Mr. Conyers. Thank you very much, Mr. Chairman.
    Mr. Reed. Thank you, Mr. Conyers.
    I'll recognize myself at this point in time.
    I'm concerned about any reform that we enact and 
encouraging or allowing for frivolous type of lawsuits, or be 
it also in a litigation setting but also the administrative 
review, the post-grant review, et cetera.
    Could you offer any comments on ways that we can make sure 
that we don't open up the door to frivolous type of action 
going down the road.
    We'll start with Mr. Burk, if you don't mind.
    Mr. Burk. Again, I think that the courts are well 
positioned to deal with that. So if you set the broad 
parameters, if you say, you know, we are going to have post-
grant opposition review and we are going to allow the Patent 
Office or we are going to create a remedy in the courts to deal 
with frivolous problems, that can be worked out. So I guess I 
would advise you not to try to tinker too much.
    Mr. Reed. Okay.
    Mr. Pincus?
    Mr. Pincus. I think in terms of the courts a lot of what 
they have done is helping to solve what has been a real problem 
with abusive litigation in this area And as I say, the false 
marking piece is sort of the last piece left.
    In the administrative process I think empowering the PTO to 
take action against abuses of its processes is the way to go 
there. I don't think you need artificial limits on how it 
works, you could certainly prevent people from bringing some 
repetitive administrative claims but also just giving the PTO 
the power to issue regulations to prevent abuse of its 
processes I think would do the trick.
    Mr. Reed. What type of tools would you envision them 
having, other than repetitive filings?
    Mr. Pincus. The--the same kinds of tools that the courts 
have now. If parties bring repeat, unjustified claims they can 
be sanctioned, sort of a Rule 11 equivalent--for the PTO 
process. They can be, as I say, barred from being repetitive 
claims.
    Mr. Reed. Okay.
    Mr. Crouch?
    Mr. Crouch. Yeah, I would--I think--I agree with Mr. 
Pincus, but I want to make a slight distinction in that I think 
there is little chance for abusive opposition filings. And the 
reason is because it--unlike, you know, unlike--sometimes we 
talk about abusive litigation where someone files a claim 
seeking some settlement amount of money, right, with these 
oppositions, right, you would only file these to invalidate 
someone else's patent. And there is no kind of money that tends 
to change hands with those and so far, with our re-examination 
system we really have not seen any accusations of this 
happening and no examples of that happening.
    But what we have seen is within the process. So once a re-
examination is ongoing, then folks are abusing the process. And 
one problem is, I think at this point, the Patent Office just 
isn't as good as an Article III judge at kind of managing what 
is essentially litigation within this administrative body.
    Mr. Reed. Yeah, because I--I guess I am concerned about 
also is not only just the commencement of frivolous actions, be 
it in the administrative venue in order to force negotiations, 
you know, of using it as a tool rather than for the endgame or 
the ultimate result, but using it from a practical--I used to 
be a former litigator before I came here and a lot of times 
there was strategy involved by utilizing litigation as a tool.
    So that is what I'm getting to. There may not be a 
financial problem, but a leveraging piece that could be 
utilized. Is that what you are touching upon?
    Mr. Crouch. Yeah, that is exactly right, but also, you 
know, I--last week I was talking with the Patent Office 
director, Dave Kappos, and he was speaking to me about, you 
know, at times with these--especially with inter partes re-
examination, they receive petition after petition after 
petition and at this point they don't feel like they have the 
power to enact rules that stop that.
    And so one way, potentially, and maybe this is the way that 
they would like, is for you to give them power to do that as 
opposed to explicitly spelling out, you know, what abusive 
process means and what the sanction would be and so forth. But 
then you just have to trust the Patent Office can do a good job 
of setting forth those rules.
    Mr. Reed. Okay. Thank you.
    I'll yield back the balance of my time. And the Chair will 
recognize, I believe, the colleague from California, Miss Chu?
    Ms. Chu. Thank you, Mr. Chair.
    I wanted to go back to the first-to-file and the prior user 
rights issue. Of course as you know this, the Senate Bill 23 
does put in the first-to-file system so that we can harmonize 
with the rest of the world. On the other hand, there is the 
prior user rights issue, and I know that Mr. Burk had--has 
problems with that.
    But I'm wondering, Mr. Pincus, is there some way for us to 
address the concerns that universities have with prior user 
rights and the expansion of that, if we are to try to move to a 
first-to-file system?
    Mr. Pincus. I think Congresswoman, there are--there is a 
way to do that. I think part of the problem is, you know, there 
hasn't been the willingness of everyone to really get around 
the table and talk about what the problems--what the specific 
issues are, what the specific concerns are. But, I think you 
know, what is critical is the tech companies that are worried 
about this problem are worried that basically their ongoing 
business and processes are going to be--something they are 
using is going to be disrupted and that is their concern, that 
is what they wanted protected.
    As you know right now, the prior user rights privilege only 
applies to methods, it doesn't apply to the other types of 
patents. So there are problems in scope, there are problems in 
use that we think have to be addressed. And I think there 
probably is a way to do that that wouldn't make educational 
institutions concerned that their investments in patents could 
somehow be overcome by the fact that there were these prior 
users out there, who, after all, have developed this thing 
separately. It is not like they looked at the patent and then 
magically started using that product or service or process, 
they have done it independently.
    Ms. Chu. Should there be a carve out for universities?
    Mr. Pincus. That certainly is one thing that could be 
talked about. It was talked about in other parts of the bill 
and earlier incarnations, with things like the venue provision, 
when it was in the bill. And there may be some way to do that. 
But I think that the critical interests, the balance are 
finding a way to make sure the universities are protected, but 
also making sure that businesses are protected. And also, you 
know, frankly, any kind of carve out that is developed is 
susceptible to other people trying to use it and so it would 
have to be----
    Ms. Chu. That is true.
    Mr. Pincus. Drafted pretty tightly to avoid that problem.
    Ms. Chu. Let me ask also about patent trolls in the eBay 
decision. Have firms whose business models primarily focused on 
purchasing and asserting patents, the so-called patent trolls, 
been able to obtain injunctions after the eBay decision?
    Mr. Pincus and then Mr. Burk?
    Mr. Pincus. I think Mr. Burk actually has some study about 
that and----
    Mr. Burk. The--a number of scholars looked at this and in 
fact I think that some of this is in Professor Crouch's written 
treatment. And I would also commend to you the FTC report that 
was issued last week that has some of this data.
    The number of such injunctions has dropped dramatically 
since the--that decision, which is why it is one of the real 
success stories in addressing a current patent reform problem 
by applying, as Mr. Pincus said, the statute as Congress wrote 
it, so that legitimate injunctions can still be issued for 
first time innovators. Patent--non-practicing entities or 
patent trolls can still get their monetary damages, so they can 
still get their income from the patents, but the statute 
indicates there is no reason they ought to get an injunction 
and I think that has been a real success story of the courts 
addressing that problem.
    Ms. Chu. Is this a success story that is left well enough 
alone or should Congress consider addressing it?
    Mr. Burk. As far as we can tell, Congress did address it in 
the original statute. As Mr. Pincus said, the Supreme Court 
reminded the lower courts of that and it seems to be working 
itself out.
    Ms. Chu. Okay. And then finally, how--what is your 
assessment of how the damages provision in the current patent 
statute has been handled by the courts? Do you believe that the 
current case law properly assesses damages for patent 
infringement or does the current system allow patent owners to 
be overly compensated?
    Mr. Pincus. I think, Congressman, that was--this was one--
after injunctions it probably is the biggest problem as when 
this Committee started looking at this issue in 2005. And I 
think although it is not quite as great a success story as 
maybe the eBay decision, as I think the Federal Circuit in 
several recent decisions has moved down the road of explaining 
that the way reasonable royalty damages especially, which are 
the royalties that are sought by non-practicing entities, 
because they don't have any lost profits to recover, have to 
be--that the lower courts sort of reflective use of the entire 
market value rule, which as you know, meant that the royalty 
could be based on the whole product even if the patent involved 
just a tiny little aspect of what the product delivered, that 
that rule really is the exception and not the rule and the 
Federal Circuit has been very firm on laying that down. It has 
been very firm in saying that a rule of thumb, that royalties 
should be 25 percent just because that seemed like a good place 
to start, was specifically rejected.
    And that in the most recent--in the Unilock decision saying 
that the basic rule should be that the royalties have to be 
commensurate with what the infringement adds to the product and 
that is the critical focus. And if that principle gets applied 
in subsequent decisions that is going to really do for the 
damages issue what eBay did for the injunction issue.
    Ms. Chu. Thank you.
    I yield back.
    Mr. Reed. Okay. Thank you very much.
    The Chair, at this point, would recognize Mr. Griffin.
    Mr. Griffin. Thank you, Mr. Chairman.
    Mr. Burk, I want to follow up on your comments on first-to-
file.
    Mr. Burk. Yes.
    Mr. Griffin. I have spoken to a lot of people about this 
and I am told that a lot of our actors act as if first-to-file 
is already in place, particularly people who are operating 
internationally. And so I am interested in hearing your 
comments on the impact of moving to a first-to-invent system, 
if people are in fact already acting as if we have a first-to-
file system.
    Can you comment on that?
    Mr. Burk. I think you are certainly correct that 
internationally people have to take into account the fact that 
most countries are first-to-file. And there is no question that 
in some ways it would be cheaper and easier for everyone to be 
first-to-file, for those companies that are doing that.
    But within the United States, as Professor Crouch mentioned 
earlier, this is going to have a very disruptive effect on 
domestic patenting and on companies that are primarily focused 
on domestic patenting. We are going to have to figure out what 
all these terms mean, unless they are very carefully defined 
and so that is the disruption that I mentioned.
    Mr. Griffin. And what about the major tech companies that 
are doing business internationally, are they already acting as 
if we have a first-to-file?
    Mr. Burk. Well, they certainly are internationally and 
thinking about when and where to file. All right. But again, 
domestically when they file in the United States there are all 
kinds of provisions and Section 102 and 103 that they will have 
to figure out what that means in the U.S.
    Mr. Griffin. Some of the testimony that we have hard has 
basically said that with a first-to-invent system, your 
disadvantaging smaller businesses because they don't have the 
resources or the funds to be in prolonged litigation. And if we 
go to a first-to-file then that will somehow help in that area.
    Can you comment on that and that is for all three of you.
    Mr. Burk. I think it is very difficult to assess that. 
There are arguments both ways. I have both heard that first-to-
file disadvantages small businesses because they don't have the 
resources to file as quickly. And then I have heard that first-
to-invent disadvantages small businesses, as you indicated, 
because they don't have the resources to be tied up in 
interferences and other kinds of litigation.
    So I think everyone is guessing at that. What I do know 
is----
    Mr. Griffin. Could I stop you there for a second?
    Mr. Burk. Sure.
    Mr. Griffin. And I don't know if you are familiar with 
this, but the witnesses who testified previously in some other 
hearings, one in particular cited some studies, a Hasting Law 
Review study, and where they had gathered data on litigation. 
And you know, you have probably seen those, if you haven't I 
would certain commend that to you because that sort of 
convinced me, to some extent, that they were guessing, that 
they had some data to back up their argument on that. But I 
welcome your comment on that.
    Mr. Burk. No, you are absolutely correct, Mr. Griffin. I 
mean people have tried to gather some data There is also data 
that goes the other direction and I think the data we have is 
inconclusive. So I am not sure whether it will advantage or 
disadvantage small businesses. What I do know is we will spend 
the next decade figuring out what that means for domestic 
patent law, which as I said, is going to be great job security 
for my students, but it may or may not be good for businesses.
    Mr. Griffin. Sure. Do you all want to comment on that 
particular?
    Mr. Crouch. I have a quick comment. And there is no way 
that I will be able to convince people to change the name of 
this away from first-to-invent verse first-to-file, but the 
change that occurs is not really about the patent race between 
two entities. Right? The biggest change for most patent 
applicants is that under the current system there is a 
potential to focus on your invention date, which is some time 
in history versus focusing on your filing date.
    And if we look at what the Senate has passed, basically we 
have take amount--some amount of prior art that didn't used to 
be prior art under the old system, because you could claim back 
to your invention date, and now if we go to first-to-file there 
is going to be a lot more prior art that is everything that 
came out from the day you invented to the day you filed. And 
all of that can be used against you, not just in litigation or 
these protracted battles, but just when you are trying to get 
your patent through the Patent Office. And the Patent Office 
can find those and make it easier to invalidate the patent.
    Mr. Griffin. I want to get one more question in, you can 
answer it and my time is about up.
    Look at the universe of decisions, and that is really what 
this hearing is supposed to be about, can you identify 
particular decisions that have either positively or negative 
impacted certain sizes of business, small business versus big 
business and what that impact has been? Because as we have gone 
through this debate we have heard a lot about the impact of 
changes in the law on either small business or big business, 
businesses with resources, those that don't have them.
    So if there is anything in particular that--any cases you 
would want to point out, I would love to hear it.
    Thank you, Mr. Chairman.
    Mr. Pincus. I think the decisions we have been talking 
about, eBay, the damages decisions, the willfulness decisions, 
the venue decisions all go to the burden on defendants. And I 
think those defendants can be large or small. There is 
certainly, I know, in the Committee's past hearings on this 
issue over the last 6 years, there have been a number of small 
businesses that have said that they were victims of lawsuits, 
either by MPEs or by others and just had to settle because they 
couldn't afford to defend them under the rules that existed. 
And now that playing field has been leveled in a way that 
hopefully they can afford to defend them.
    Mr. Reed. Thank you, Mr. Griffin.
    At this point in time I will recognize the gentleman from 
New York, Mr. Nadler?
    Mr. Nadler. Thank you. Thank you, Mr. Chairman. Gentlemen, 
I have been listening to your testimony and let us get down to 
one brass tack in particular. Given what you have all said 
about the progress that we have made in solving some of these 
problems through the courts, in particular perhaps the measure 
of damages question that was of great concern and which may 
have been taken care of through the courts, take a look 
specifically at the Senate bill that just passed the Senate. In 
your opinion, should we pass it? Should we ignore it? Should we 
modify it?
    For all three of you. One at a time.
    Mr. Burk. I guess my first answer would be I was fairly 
encouraged that the bill that passed the Senate, whatever you 
may think about the individual provisions, seems to focus on 
the kinds of things that I said earlier Congress ought to focus 
on. So most of the issues that we have said the courts have 
dealt with seem to have disappeared out of that bill. There is 
this kind of funny thing about tax patents, I am not sure what 
that is doing in there.
    Mr. Nadler. Tax patents?
    Mr. Burk. Yes, there is provisions----
    Mr. Nadler. Oh. Tax strategies?
    Mr. Burk. Exactly, yeah. I am not sure that is something 
that this body needs to take up.
    But for the most part, the questions are the structural 
questions that Congress needs to think about, first-to-file, 
post-grant opposition and those kinds of things. So I find that 
encouraging.
    Mr. Nadler. Would you--and you would encourage us to pass 
that bill?
    Mr. Burk. I would encourage you to focus on those same 
questions.
    Mr. Nadler. Okay.
    Mr. Pincus. I think I would encourage you to look at the 
bill but probably make some changes. I think in particular the 
re-examination, post-grant review provision that was in H.R. 
1908 that the Committee reported out in 2007 and the House 
passed is a much superior administrative process for the PTO.
    Mr. Nadler. Why? Why is that provision superior to the 
provision in the Leahy bill?
    Mr. Pincus. Because the Senate-passed bill actually makes 
the administrative process less open, less useful than current 
law, in terms of the standard for starting the process is 
higher, there are rules about when the administrative process 
can be initiated that make it very difficult because they are 
very tight after the--after someone has been sued they have a 
relatively short period of time to initiate a post-grant 
review. Remember, they have to file all their evidence at the 
beginning, so they have a very--it is 6 months. It seems long, 
but you have to file your entire case upfront, so it is really 
not that long at all, if you are starting from a standstill.
    It continues to have the broad estoppel which could have 
raised--which as the Committee remembers from its 
deliberations, makes going into the administrative process a 
very treacherous thing for a company that may not know about a 
potential grounds for challenging a patent, but gives it up by 
not raising it even though it didn't know about it. And then in 
a subsequent proceeding there is lots of litigation about 
whether they could have known----
    Mr. Nadler. Would you remove that estoppel from that 
provision?
    Mr. Pincus. Excuse me?
    Mr. Nadler. Would you remove that estoppel from that 
provision?
    Mr. Pincus. Yes, the House-passed bill has said there was 
only estoppel for things that were actually raised, and we 
think that makes the provision sensible and eliminates this 
sort of treachery.
    And also the inequitable conduct provision that is in the 
Senate bill, we don't believe is necessary given what the 
courts are doing on inequitable conduct.
    And finally, as I said before, on prior user rights, we 
think that is sort of a critical aspect of first-to-file is 
broadening prior user rights as every country that has first-
to-file has done.
    Mr. Nadler. And this does not do that?
    Mr. Pincus. No.
    Mr. Nadler. Professor Crouch?
    Mr. Crouch. Yes, sir. I have not made it all the way 
through the Senate bill and so I don't know all the details.
    Mr. Nadler. Most of us don't make it all through--all the 
way through any Senate product, so that is okay.
    Mr. Crouch. But I do know that the Senate had an 
opportunity to pass a bill and they rushed to complete that and 
certainly even if you want to enact this, the purpose behind 
the Senate bill, there is a lot of work that needs to go into 
it and the onus is now on you guys to fix a lot--what I might 
call ``technical problems'' with the bill. And I think we have 
mentioned some, in terms of definitions and language that is 
there.
    There is also some--you know, there is an entirely new 
jurisdiction portion that essentially overrules a Supreme Court 
case called Holmes v. Vornado that is maybe a 2002, 2003 
Supreme Court case and takes certain cases that might have 
patents as a counterclaim or a patent type defense and brings 
those into Federal courts. And in my view that is a wholly new 
provision and I never--I have never actually heard of Congress 
holding a hearing on that topic. And so there are some new 
things in there that I think got added at the last minute that 
need some special look.
    Mr. Nadler. Thank you.
    Let me ask just one other question, to any of you. You have 
identified a number of areas in which there are outstanding 
issues that--to be resolved in patent law. Are there any 
particularly significant cases now pending that you can advise 
us of, on the appeals level, that may resolve these issues in a 
way that you think is acceptable or will clarify the law? Any 
particularly notable cases we could keep an eye out?
    Mr. Pincus. I think there are a number of cases, the 
Supreme Court has two, there are a number of cases pending in 
the Federal Circuit. I don't know that any of them address the 
issues that we think should be in the bill, with the exception 
of, to go back to the false marking issue, there is a case 
pending in the Federal Circuit. I think our concern is it 
doesn't seem likely that it is going to resolve that issue but 
that is certainly something that is out there.
    Mr. Nadler. I see my time has expired. Thank you.
    Mr. Goodlatte [presiding]. Thank you.
    At this point in time I will recognize the Ranking Member 
Mr. Watt?
    Mr. Watt. Thank you, Mr. Chairman. Just to--I have three 
more questions and I will direct one to each panelist.
    Mr. Burk I didn't--I ran out of time before you got a 
chance to respond to my question about multiple defendants and 
some--the possibility that somebody might game the system by 
just adding additional defendants, the venue system. Did you 
have a response that you wanted to make to that?
    Mr. Burk. I think the short response, Mr. Watt, is that we 
don't know, that has not been decided yet. But the courts are 
working on it, and that is the kind of thing that I think the 
courts can and will solve. It is not clear to me that you need 
to focus your attention on----
    Mr. Watt. So we don't need to deal with it? Okay.
    Second, Mr. Pincus, I saw something in one of the drafts 
about the possibility of you take a--you get a second review 
before the Patent and Trademark Office and that becomes the 
absolute final opportunity. I mean there is no right of appeal 
to the court. As a lawyer I always react to that in a negative 
way. And I wonder if I am over reacting to that in a negative 
way.
    Are there any other precedents for something of that kind 
or is there a reason why that should be done in this particular 
area of the law?
    Mr. Pincus. I know that it----
    Mr. Watt. You are familiar with what I am talking about?
    Mr. Pincus. Are you talking about--there is a provision 
that says if the director declines to initiate an inter partes 
or a post-grant proceeding, that that decision not to allow it 
to be initiated is non-reviewable.
    Mr. Watt. No. I thought there was a possibility at least 
that we might come up with something that said if you go 
through the post-grant review process, if you ever go through 
it, that is the end of it. Is that--am I miss--I am not talking 
about something that is----
    Mr. Pincus. I----
    Mr. Watt [continuing]. In the law, I am talking about 
something that somebody proposed.
    Mr. Pincus. Yeah. I am not aware of it. And I agree with 
you, it seems to me important that if that process is opened 
and the PTO makes a decision on the merits about the validity 
issue that is before it, that it is hard to imagine why there 
wouldn't be judicial review of that decision.
    Mr. Watt. All right. Mr. Crouch, all three of the witnesses 
seem very comfortable with the court either making or 
clarifying or interpreting law. We won't get into that 
distinction, whether they are making or clarifying or 
interpreting.
    Is there something in the current law that will enable the 
court to make a good judgment interpreting law, as opposed to 
making law, on two outstanding issues: business methods and tax 
strategy patents? Is that something we can leave to the courts 
to resolve or is that something we have got to deal with by 
statute?
    Mr. Crouch. Well, last year the Supreme Court decided a 
business method case called In re: Bilski or Bilski v. Kappos 
and that case was not a tax case but what it involved was 
Bilski had invented a method of hedging, basically buying 
commodities to hedge against the risk of bad weather, which for 
a commodities trader sounds obvious, but I think there were 
some potentially non-obvious, some inventive features. And the 
Patent Office refused to give him a patent on grounds that that 
is not the type of thing that they allow patents on.
    The Supreme Court took the case and agreed, although their 
reasoning maybe was slightly different, the Supreme Court said, 
we have had a rule for over a 100 years that we don't give 
patents on abstract ideas and the general idea of hedging is an 
abstract idea, and therefore no patent on that. And I would----
    Mr. Watt. Wait, now, remember I am on the Financial 
Services----
    Mr. Crouch. Okay. Yes.
    Mr. Watt.--Committee so it is not abstract to those guys.
    Mr. Crouch. Right. Right, I agree. You know, and you know, 
I went to Princeton University and at this point in the 
engineering school where I went, right, they had--they now have 
a financial engineering department where you know, that--they 
are doing engineering and using the same differential equations 
that I used for mechanical and aerospace engineering, they are 
using for financial issues and so they certainly believe that 
is engineering.
    And if those are the type of--right, that this is something 
that is amenable to some legislation, but I--but there is a big 
concern in that our--the statute that we have now on patentable 
subject matter has been essentially identical since it was 
passed, I think in 1794. And it has changed by two to three 
words and that is--and there are about 50 to 60 Supreme Court 
cases in that interim interpreting that particular statute. 
And----
    Mr. Watt. Do I read between the lines, if we change more 
than two or three words we are going to be asking for more 
litigation and reinterpretation----
    Mr. Crouch. Absolutely. Absolutely.
    Mr. Watt [continuing]. Than we are going to solve the 
problem? That is what you think on both business methods and 
tax?
    Mr. Crouch. You know but the Supreme Court did not 
absolutely ban those. And so if that is what you want to do, 
then you may have to take action.
    Mr. Watt. All right. I thank the Chairman for yielding me a 
second round of questions. And I thank the witnesses for what I 
think has been a very informative and instructive set of 
responses.
    Mr. Goodlatte. Well, thank you. The gentleman yields.
    At this point in time I would like to thank the 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 
part of the--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 and this hearing is 
adjourned.
    [Whereupon, at 2:29 p.m., the Subcommittee was adjourned.]


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