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


 
                          AMERICA INVENTS ACT

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

                                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

                                   ON

                               H.R. 1249

                               __________

                             MARCH 30, 2011

                               __________

                           Serial No. 112-35

                               __________

         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 R. 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

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     DEBBIE WASSERMAN SCHULTZ, Florida
TED POE, Texas                       JERROLD NADLER, New York
JASON CHAFFETZ, Utah                 ZOE LOFGREN, California
TOM REED, New York                   SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania
SANDY ADAMS, Florida

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             MARCH 30, 2011

                                                                   Page

                            TEXT OF THE BILL

H.R. 1249, the ``America Invents Act''...........................     3

                           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........    39
The Honorable Lamar Smith, a Representative in Congress from the 
  State of Texas, and Chairman, Committee on the Judiciary.......    42

                               WITNESSES

The Honorable David J. Kappos, Under Secretary of Commerce for 
  Intellectual Property and Director, the United States Patent 
  and Trademark Office
  Oral Testimony.................................................    44
  Prepared Statement.............................................    46
The Honorable Steve Bartlett, President and Chief Executive 
  Officer, The Financial Services Roundtable
  Oral Testimony.................................................    56
  Prepared Statement.............................................    59
Steven W. Miller, Vice President and General Counsel for 
  Intellectual Property, Procter & Gamble Company
  Oral Testimony.................................................    65
  Prepared Statement.............................................    67
Mark Chandler, Senior Vice President, General Counsel, and 
  Secretary, Cisco Systems, Inc.
  Oral Testimony.................................................    79
  Prepared Statement.............................................    82
John C. Vaughn, Executive Vice President, Association of American 
  Universities
  Oral Testimony.................................................    92
  Prepared Statement.............................................    94

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by 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..................................   107

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of 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...........   125
Response to Post-Hearing Questions from the Honorable David J. 
  Kappos, Under Secretary of Commerce for Intellectual Property, 
  Director of the United States Patent and Trademark Office......   127
Prepared Statement of the Generic Pharmaceutical Association 
  (GPhA).........................................................   132


                          AMERICA INVENTS ACT

                              ----------                              


                       WEDNESDAY, MARCH 30, 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 1:32 p.m., in 
room 2141, Rayburn House Office Building, the Honorable Bob 
Goodlatte (Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Smith, Coble, 
Sensenbrenner, Chabot, Chaffetz, Reed, Griffin, Marino, Adams, 
Quayle, Watt, Conyers, Berman, Chu, Deutch, Sanchez, Lofgren, 
and Waters.
    Staff Present: (Majority) Blaine Merritt, Subcommittee 
Chief Counsel; Vishal Amin, Counsel; Olivia Lee, Clerk; and 
Stephanie Moore, Minority Subcommittee Chief Counsel.
    Mr. Goodlatte. Folks, we are going to just make an 
announcement. We will begin the hearing after this series of 
votes. We want to spend a little bit of time on our opening 
statements. So it is probably not enough time to get it in 
before the votes.
    Also, at 2:30 p.m., there is a briefing by some of our 
country's leaders regarding the situation in Libya, and so that 
all Members can participate, we are going to recess the hearing 
at 2:30 p.m. And then we will come back later on.
    So this is going to be a herky-jerky afternoon, it sounds 
like. But we will get this hearing done, and we will welcome 
the testimony of all our witnesses.
    So the Committee will stand in recess.
    [Recess.]
    Mr. Goodlatte. Take two. The Subcommittee will come to 
order, and I recognize myself for an opening statement.
    For the better part of the past decade, this Committee has 
been working to update our patent laws to ensure that the 
incentives our Framers envisioned when they wrote article 1, 
section 8 of our Constitution remain meaningful and effective. 
The U.S. patent system must work efficiently if America is to 
remain the world leader in innovation.
    It is only right that as more and more inventions with 
increasing complexity emerge, we examine our Nation's patent 
laws to ensure that they still work efficiently and that they 
still encourage and not discourage innovation.
    The core principles that have guided our efforts have been 
to ensure that quality patents are issued by the PTO in the 
first place and to ensure that our patent enforcement laws and 
procedures do not create incentives for opportunists with 
invalid claims to exploit, while maintaining strong laws that 
allow legitimate patent owners to enforce their patents 
effectively. H.R. 1249 addresses these principles.
    With regard to ensuring the issuance of quality patents, 
this legislation allows third parties to submit evidence of 
prior art prior to the examination process, which will help 
ensure examiners have the full record before them when making 
decisions. In addition, after the PTO issues a patent, this 
legislation creates a new post grant opposition system in which 
third parties can raise objections to a patent immediately 
after its issuance, which will both help screen out bad patents 
while bolstering valid ones.
    The bill also increases patent quality by eliminating fee 
diversion, which will allow the PTO to keep all the fees it 
collects from inventors. This fee diversion provision is 
crucial to allowing PTO to accomplish the mission we are asking 
it to do with this bill and will allow the PTO to allocate 
resources with certainty.
    H.R. 1249 also includes provisions to ensure that patent 
litigation benefits those with valid claims, but not those 
opportunists who seek to abuse the litigation process. Many 
innovative companies, including those in the technology and 
other sectors, have been forced to defend against patent 
infringement lawsuits of questionable legitimacy.
    When such a defendant company truly believes that the 
patent being asserted is invalid, it is important for it to 
have an avenue to request the PTO to take another look at the 
patent in order to better inform the district court of the 
patent's validity. This legislation retains an inter partes re-
exam process, which allows innovators to challenge the validity 
of a patent when they are sued for patent infringement.
    The Senate bill placed many restrictions on the use of the 
re-exam procedure, and the House bill relaxes some of those 
restrictions in order to maintain the usefulness of the inter 
partes re-exam process.
    H.R. 1249 is the culmination of years of work in both the 
House and the Senate from Democrats and Republicans, and it is 
important to note that the House and the Senate, over four 
Congresses, we have held dozens of hearings, met with numerous 
stakeholders from every industry sector, as well as small and 
large businesses and individual inventors, watched judicial 
decisions in the courts, and produced several pieces of 
legislation.
    By giving the necessary tools to the Patent Office to issue 
strong patents and procedures that will help ensure certainty 
for patentable inventions, we are paving the way for 
independent inventors as well as small, medium, and large-sized 
enterprises to raise capital and grow. I believe this 
legislation will spur innovation, economic growth, and jobs.
    However, I also believe some work still needs to be done on 
this bill. Specifically, I agree that the PTO needs to have 
more certainty with respect to its fee-setting authority. I 
want to ensure, however, that Congress maintains strong 
oversight over the PTO as it uses that authority.
    I also have concerns about the supplemental exam provisions 
in the bill and believe further work may need to be done on the 
inter partes re-exam procedure to make sure we are striking the 
right balance there.
    I look forward to hearing from our experts today, many of 
whom have been working on this effort for a long, long time.
    It is now my pleasure to recognize the Ranking Member of 
the Committee, the gentleman from North Carolina, Mr. Watt.
    [The text of the bill, H.R. 1249, follows:]

HR 1249 IH  ___________________________________________________

                                                                      I
112th CONGRESS
    1st Session

                                H. R. 1249

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

                               __________

                    IN THE HOUSE OF REPRESENTATIVES
                             March 30, 2011

Mr. Smith of Texas (for himself, Mr. Goodlatte, and Mr. Issa) 
    introduced the following bill; which was referred to the Committee 
    on the Judiciary, and in addition to the Committee on the Budget, 
    for a period to be subsequently determined by the Speaker, in each 
    case for consideration of such provisions as fall within the 
    jurisdiction of the committee concerned
                               __________

                                 A BILL

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

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

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

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

    Sec. 1. Short title; table of contents.
    Sec. 2. First inventor to file.
    Sec. 3. Inventor's oath or declaration.
    Sec. 4. Defense to infringement based on earlier inventor.
    Sec. 5. Post-grant review proceedings.
    Sec. 6. Patent Trial and Appeal Board.
    Sec. 7. Preissuance submissions by third parties.
    Sec. 8. Venue.
    Sec. 9. Fee setting authority.
    Sec. 10. Fees for patent services.
    Sec. 11. Supplemental examination.
    Sec. 12. Funding agreements.
    Sec. 13. Tax strategies deemed within the prior art.
    Sec. 14. Best mode requirement.
    Sec. 15. Marking.
    Sec. 16. Advice of counsel.
    Sec. 17. Ownership; assignment.
    Sec. 18. Transitional program for covered business method patents.
    Sec. 19. Clarification of jurisdiction.
    Sec. 20. Technical amendments.
    Sec. 21. Travel expenses and payment of administrative judges.
    Sec. 22. Patent and Trademark Office funding.
    Sec. 23. Satellite offices.
    Sec. 24. Patent Ombudsman Program for small business concerns.
    Sec. 25. Priority examination for technologies important to 
American competitiveness.
    Sec. 26. Designation of Detroit satellite office.
    Sec. 27. Effective date.
    Sec. 28. Budgetary effects.

SEC. 2. FIRST INVENTOR TO FILE.

    (a) Definitions.--Section 100 of title 35, United States Code, is 
amended by adding at the end the following:
    ``(f) The term `inventor' means the individual or, if a joint 
invention, the individuals collectively who invented or discovered the 
subject matter of the invention.
    ``(g) The terms `joint inventor' and `coinventor' mean any 1 of the 
individuals who invented or discovered the subject matter of a joint 
invention.
    ``(h) The term `joint research agreement' means a written contract, 
grant, or cooperative agreement entered into by 2 or more persons or 
entities for the performance of experimental, developmental, or 
research work in the field of the claimed invention.
    ``(i)(1) The term `effective filing date' for a claimed invention 
in a patent or application for patent means--
            ``(A) if subparagraph (B) does not apply, the actual filing 
        date of the patent or the application for the patent containing 
        a claim to the invention; or
            ``(B) the filing date of the earliest application for which 
        the patent or application is entitled, as to such invention, to 
        a right of priority under section 119, 365(a), or 365(b) or to 
        the benefit of an earlier filing date under section 120, 121, 
        or 365(c).
    ``(2) The effective filing date for a claimed invention in an 
application for reissue or reissued patent shall be determined by 
deeming the claim to the invention to have been contained in the patent 
for which reissue was sought.
    ``(j) The term `claimed invention' means the subject matter defined 
by a claim in a patent or an application for a patent.''.
    (b) Conditions for Patentability.--
            (1) In general.--Section 102 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 102. Conditions for patentability; novelty

    ``(a) Novelty; Prior Art.--A person shall be entitled to a patent 
unless--
            ``(1) the claimed invention was patented, described in a 
        printed publication, or in public use, on sale, or otherwise 
        available to the public before the effective filing date of the 
        claimed invention; or
            ``(2) the claimed invention was described in a patent 
        issued under section 151, or in an application for patent 
        published or deemed published under section 122(b), in which 
        the patent or application, as the case may be, names another 
        inventor and was effectively filed before the effective filing 
        date of the claimed invention.
    ``(b) Exceptions.--
            ``(1) Disclosures made 1 year or less before the effective 
        filing date of the claimed invention.--A disclosure made 1 year 
        or less before the effective filing date of a claimed invention 
        shall not be prior art to the claimed invention under 
        subsection (a)(1) if--
                    ``(A) the disclosure was made by the inventor or 
                joint inventor or by another who obtained the subject 
                matter disclosed directly or indirectly from the 
                inventor or a joint inventor; or
                    ``(B) the subject matter disclosed had, before such 
                disclosure, been publicly disclosed by the inventor or 
                a joint inventor or another who obtained the subject 
                matter disclosed directly or indirectly from the 
                inventor or a joint inventor.
            ``(2) Disclosures appearing in applications and patents.--A 
        disclosure shall not be prior art to a claimed invention under 
        subsection (a)(2) if--
                    ``(A) the subject matter disclosed was obtained 
                directly or indirectly from the inventor or a joint 
                inventor;
                    ``(B) the subject matter disclosed had, before such 
                subject matter was effectively filed under subsection 
                (a)(2), been publicly disclosed by the inventor or a 
                joint inventor or another who obtained the subject 
                matter disclosed directly or indirectly from the 
                inventor or a joint inventor; or
                    ``(C) the subject matter disclosed and the claimed 
                invention, not later than the effective filing date of 
                the claimed invention, were owned by the same person or 
                subject to an obligation of assignment to the same 
                person.
    ``(c) Common Ownership Under Joint Research Agreements.--Subject 
matter disclosed and a claimed invention shall be deemed to have been 
owned by the same person or subject to an obligation of assignment to 
the same person in applying the provisions of subsection (b)(2)(C) if--
            ``(1) the subject matter disclosed was developed and the 
        claimed invention was made by, or on behalf of, 1 or more 
        parties to a joint research agreement that was in effect on or 
        before the effective filing date of the claimed invention;
            ``(2) the claimed invention was made as a result of 
        activities undertaken within the scope of the joint research 
        agreement; and
            ``(3) the application for patent for the claimed invention 
        discloses or is amended to disclose the names of the parties to 
        the joint research agreement.
    ``(d) Patents and Published Applications Effective as Prior Art.--
For purposes of determining whether a patent or application for patent 
is prior art to a claimed invention under subsection (a)(2), such 
patent or application shall be considered to have been effectively 
filed, with respect to any subject matter described in the patent or 
application--
            ``(1) if paragraph (2) does not apply, as of the actual 
        filing date of the patent or the application for patent; or
            ``(2) if the patent or application for patent is entitled 
        to claim a right of priority under section 119, 365(a), or 
        365(b), or to claim the benefit of an earlier filing date under 
        section 120, 121, or 365(c), based upon 1 or more prior filed 
        applications for patent, as of the filing date of the earliest 
        such application that describes the subject matter.''.
            (2) Continuity of intent under the create act.--The 
        enactment of section 102(c) of title 35, United States Code, 
        under paragraph (1) of this subsection is done with the same 
        intent to promote joint research activities that was expressed, 
        including in the legislative history, through the enactment of 
        the Cooperative Research and Technology Enhancement Act of 2004 
        (Public Law 108-453; the ``CREATE Act''), the amendments of 
        which are stricken by subsection (c) of this section. The 
        United States Patent and Trademark Office shall administer 
        section 102(c) of title 35, United States Code, in a manner 
        consistent with the legislative history of the CREATE Act that 
        was relevant to its administration by the United States Patent 
        and Trademark Office.
            (3) Conforming amendment.--The item relating to section 102 
        in the table of sections for chapter 10 of title 35, United 
        States Code, is amended to read as follows:

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

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

    ``A patent for a claimed invention may not be obtained, 
notwithstanding that the claimed invention is not identically disclosed 
as set forth in section 102, if the differences between the claimed 
invention and the prior art are such that the claimed invention as a 
whole would have been obvious before the effective filing date of the 
claimed invention to a person having ordinary skill in the art to which 
the claimed invention pertains. Patentability shall not be negated by 
the manner in which the invention was made.''.
    (d) Repeal of Requirements for Inventions Made Abroad.--Section 104 
of title 35, United States Code, and the item relating to that section 
in the table of sections for chapter 10 of title 35, United States 
Code, are repealed.
    (e) Repeal of Statutory Invention Registration.--
            (1) In general.--Section 157 of title 35, United States 
        Code, and the item relating to that section in the table of 
        sections for chapter 14 of title 35, United States Code, are 
        repealed.
            (2) Removal of cross references.--Section 111(b)(8) of 
        title 35, United States Code, is amended by striking ``sections 
        115, 131, 135, and 157'' and inserting ``sections 131 and 
        135''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect upon the expiration of the 18-month period 
        beginning on the date of the enactment of this Act, and shall 
        apply to any request for a statutory invention registration 
        filed on or after that effective date.
    (f) Earlier Filing Date for Inventor and Joint Inventor.--Section 
120 of title 35, United States Code, is amended by striking ``which is 
filed by an inventor or inventors named'' and inserting ``which names 
an inventor or joint inventor''.
    (g) Conforming Amendments.--
            (1) Right of priority.--Section 172 of title 35, United 
        States Code, is amended by striking ``and the time specified in 
        section 102(d)''.
            (2) Limitation on remedies.--Section 287(c)(4) of title 35, 
        United States Code, is amended by striking ``the earliest 
        effective filing date of which is prior to'' and inserting 
        ``which has an effective filing date before''.
            (3) International application designating the united 
        states: effect.--Section 363 of title 35, United States Code, 
        is amended by striking ``except as otherwise provided in 
        section 102(e) of this title''.
            (4) Publication of international application: effect.--
        Section 374 of title 35, United States Code, is amended by 
        striking ``sections 102(e) and 154(d)'' and inserting ``section 
        154(d)''.
            (5) Patent issued on international application: effect.--
        The second sentence of section 375(a) of title 35, United 
        States Code, is amended by striking ``Subject to section 102(e) 
        of this title, such'' and inserting ``Such''.
            (6) Limit on right of priority.--Section 119(a) of title 
        35, United States Code, is amended by striking ``; but no 
        patent shall be granted'' and all that follows through ``one 
        year prior to such filing''.
            (7) Inventions made with federal assistance.--Section 
        202(c) of title 35, United States Code, is amended--
                    (A) in paragraph (2)--
                            (i) by striking ``publication, on sale, or 
                        public use,'' and all that follows through 
                        ``obtained in the United States'' and inserting 
                        ``the 1-year period referred to in section 
                        102(b) would end before the end of that 2-year 
                        period''; and
                            (ii) by striking ``prior to the end of the 
                        statutory'' and inserting ``before the end of 
                        that 1-year''; and
                    (B) in paragraph (3), by striking ``any statutory 
                bar date that may occur under this title due to 
                publication, on sale, or public use'' and inserting 
                ``the expiration of the 1-year period referred to in 
                section 102(b)''.
    (h) Derived Patents.--
            (1) In general.--Section 291 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 291. Derived Patents

    ``(a) In General.--The owner of a patent may have relief by civil 
action against the owner of another patent that claims the same 
invention and has an earlier effective filing date if the invention 
claimed in such other patent was derived from the inventor of the 
invention claimed in the patent owned by the person seeking relief 
under this section.
    ``(b) Filing Limitation.--An action under this section may be filed 
only before the end of the 1-year period beginning on the date of the 
issuance of the first patent containing a claim to the allegedly 
derived invention and naming an individual alleged to have derived such 
invention as the inventor or joint inventor.''.
            (2) Conforming amendment.--The item relating to section 291 
        in the table of sections for chapter 29 of title 35, United 
        States Code, is amended to read as follows:

    ``291. Derived patents.''.
    (i) Derivation Proceedings.--Section 135 of title 35, United States 
Code, is amended to read as follows:

``Sec. 135. Derivation proceedings

    ``(a) Institution of Proceeding.--An applicant for patent may file 
a petition to institute a derivation proceeding in the Office. The 
petition shall set forth with particularity the basis for finding that 
an inventor named in an earlier application derived the claimed 
invention from an inventor named in the petitioner's application and, 
without authorization, the earlier application claiming such invention 
was filed. Any such petition may be filed only within the 1-year period 
beginning the date of the first publication of a claim to an invention 
that is the same or substantially the same as the earlier application's 
claim to the invention, shall be made under oath, and shall be 
supported by substantial evidence. Whenever the Director determines 
that a petition filed under this subsection demonstrates that the 
standards for instituting a derivation proceeding are met, the Director 
may institute a derivation proceeding. The determination by the 
Director whether to institute a derivation proceeding shall be final 
and nonappealable.
    ``(b) Determination by Patent Trial and Appeal Board.--In a 
derivation proceeding instituted under subsection (a), the Patent Trial 
and Appeal Board shall determine whether an inventor named in the 
earlier application derived the claimed invention from an inventor 
named in the petitioner's application and, without authorization, the 
earlier application claiming such invention was filed. The Director 
shall prescribe regulations setting forth standards for the conduct of 
derivation proceedings.
    ``(c) Deferral of Decision.--The Patent Trial and Appeal Board may 
defer action on a petition for a derivation proceeding until the 
expiration of the 3-month period beginning on the date on which the 
Director issues a patent that includes the claimed invention that is 
the subject of the petition. The Patent Trial and Appeal Board also may 
defer action on a petition for a derivation proceeding, or stay the 
proceeding after it has been instituted, until the termination of a 
proceeding under chapter 30, 31, or 32 involving the patent of the 
earlier applicant.
    ``(d) Effect of Final Decision.--The final decision of the Patent 
Trial and Appeal Board, if adverse to claims in an application for 
patent, shall constitute the final refusal by the Office on those 
claims. The final decision of the Patent Trial and Appeal Board, if 
adverse to claims in a patent, shall, if no appeal or other review of 
the decision has been or can be taken or had, constitute cancellation 
of those claims, and notice of such cancellation shall be endorsed on 
copies of the patent distributed after such cancellation.
    ``(e) Settlement.--Parties to a proceeding instituted under 
subsection (a) may terminate the proceeding by filing a written 
statement reflecting the agreement of the parties as to the correct 
inventors of the claimed invention in dispute. Unless the Patent Trial 
and Appeal Board finds the agreement to be inconsistent with the 
evidence of record, if any, it shall take action consistent with the 
agreement. Any written settlement or understanding of the parties shall 
be filed with the Director. At the request of a party to the 
proceeding, the agreement or understanding shall be treated as business 
confidential information, shall be kept separate from the file of the 
involved patents or applications, and shall be made available only to 
Government agencies on written request, or to any person on a showing 
of good cause.
    ``(f) Arbitration.--Parties to a proceeding instituted under 
subsection (a) may, within such time as may be specified by the 
Director by regulation, determine such contest or any aspect thereof by 
arbitration. Such arbitration shall be governed by the provisions of 
title 9, to the extent such title is not inconsistent with this 
section. The parties shall give notice of any arbitration award to the 
Director, and such award shall, as between the parties to the 
arbitration, be dispositive of the issues to which it relates. The 
arbitration award shall be unenforceable until such notice is given. 
Nothing in this subsection shall preclude the Director from determining 
the patentability of the claimed inventions involved in the 
proceeding.''.
    (j) Elimination of References to Interferences.--(1) Sections 134, 
145, 146, 154, 305, and 314 of title 35, United States Code, are each 
amended by striking ``Board of Patent Appeals and Interferences'' each 
place it appears and inserting ``Patent Trial and Appeal Board''.
    (2)(A) Sections 146 and 157(a) of title 35, United States Code, are 
each amended--
                    (i) by striking ``an interference'' each place it 
                appears and inserting ``a derivation proceeding''; and
                    (ii) by striking ``interference'' each additional 
                place it appears and inserting ``derivation 
                proceeding''.
            (B) The subparagraph heading for section 154(b)(1)(C) of 
        title 35, United States Code, is amended to read as follows:
                            ``(C) Guarantee of adjustments for delays 
                        due to derivation proceedings, secrecy orders, 
                        and appeals.--''.
    (3) The section heading for section 134 of title 35, United States 
Code, is amended to read as follows:

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

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

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

    (5) The items relating to sections 134 and 135 in the table of 
sections for chapter 12 of title 35, United States Code, are amended to 
read as follows:

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

    ``146. Civil action in case of derivation proceeding.''.
    (k) Statute of Limitations.--
            (1) In general.--Section 32 of title 35, United States 
        Code, is amended by inserting between the third and fourth 
        sentences the following: ``A proceeding under this section 
        shall be commenced not later than the earlier of either the 
        date that is 10 years after the date on which the misconduct 
        forming the basis for the proceeding occurred, or 1 year after 
        the date on which the misconduct forming the basis for the 
        proceeding is made known to an officer or employee of the 
        Office as prescribed in the regulations established under 
        section 2(b)(2)(D).''.
            (2) Report to congress.--The Director shall provide on a 
        biennial basis to the Judiciary Committees of the Senate and 
        House of Representatives a report providing a short description 
        of incidents made known to an officer or employee of the Office 
        as prescribed in the regulations established under section 
        2(b)(2)(D) of title 35, United States Code, that reflect 
        substantial evidence of misconduct before the Office but for 
        which the Office was barred from commencing a proceeding under 
        section 32 of title 35, United States Code, by the time 
        limitation established by the fourth sentence of that section.
            (3) Effective date.--The amendment made by paragraph (1) 
        shall apply in any case in which the time period for 
        instituting a proceeding under section 32 of title 35, United 
        State Code, had not lapsed before the date of the enactment of 
        this Act.
    (l) Small Business Study.--
            (1) Definitions.--In this subsection--
                    (A) the term ``Chief Counsel'' means the Chief 
                Counsel for Advocacy of the Small Business 
                Administration;
                    (B) the term ``General Counsel'' means the General 
                Counsel of the United States Patent and Trademark 
                Office; and
                    (C) the term ``small business concern'' has the 
                meaning given that term under section 3 of the Small 
                Business Act (15 U.S.C. 632).
            (2) Study.--
                    (A) In general.--The Chief Counsel, in consultation 
                with the General Counsel, shall conduct a study of the 
                effects of eliminating the use of dates of invention in 
                determining whether an applicant is entitled to a 
                patent under title 35, United States Code.
                    (B) Areas of study.--The study conducted under 
                subparagraph (A) shall include examination of the 
                effects of eliminating the use of invention dates, 
                including examining--
                            (i) how the change would affect the ability 
                        of small business concerns to obtain patents 
                        and their costs of obtaining patents;
                            (ii) whether the change would create, 
                        mitigate, or exacerbate any disadvantages for 
                        applicants for patents that are small business 
                        concerns relative to applicants for patents 
                        that are not small business concerns, and 
                        whether the change would create any advantages 
                        for applicants for patents that are small 
                        business concerns relative to applicants for 
                        patents that are not small business concerns;
                            (iii) the cost savings and other potential 
                        benefits to small business concerns of the 
                        change; and
                            (iv) the feasibility and costs and benefits 
                        to small business concerns of alternative means 
                        of determining whether an applicant is entitled 
                        to a patent under title 35, United States Code.
            (3) Report.--Not later than the date that is 1 year after 
        the date of the enactment of this Act, the Chief Counsel shall 
        submit to the Committee on Small Business and Entrepreneurship 
        and the Committee on the Judiciary of the Senate and the 
        Committee on Small Business and the Committee on the Judiciary 
        of the House of Representatives a report regarding the results 
        of the study under paragraph (2).
    (m) Report on Prior User Rights.--
            (1) In general.--Not later than the end of the 4-month 
        period beginning on the date of the enactment of this Act, the 
        Director shall report, to the Committee on the Judiciary of the 
        Senate and the Committee on the Judiciary of the House of 
        Representatives, the findings and recommendations of the 
        Director on the operation of prior user rights in selected 
        countries in the industrialized world. The report shall include 
        the following:
                    (A) A comparison between patent laws of the United 
                States and the laws of other industrialized countries, 
                including members of the European Union and Japan, 
                Canada, and Australia.
                    (B) An analysis of the effect of prior user rights 
                on innovation rates in the selected countries.
                    (C) An analysis of the correlation, if any, between 
                prior user rights and start-up enterprises and the 
                ability to attract venture capital to start new 
                companies.
                    (D) An analysis of the effect of prior user rights, 
                if any, on small businesses, universities, and 
                individual inventors.
                    (E) An analysis of legal and constitutional issues, 
                if any, that arise from placing trade secret law in 
                patent law.
                    (F) An analysis of whether the change to a first-
                to-file patent system creates a particular need for 
                prior user rights.
            (2) Consultation with other agencies.--In preparing the 
        report required under paragraph (1), the Director shall consult 
        with the United States Trade Representative, the Secretary of 
        State, and the Attorney General.
    (n) Effective Date.--
            (1) In general.--Except as otherwise provided in this 
        section, the amendments made by this section shall take effect 
        upon the expiration of the 18-month period beginning on the 
        date of the enactment of this Act, and shall apply to any 
        application for patent, and to any patent issuing thereon, that 
        contains or contained at any time--
                    (A) a claim to a claimed invention that has an 
                effective filing date as defined in section 100(i) of 
                title 35, United States Code, that is on or after the 
                effective date described in this paragraph; or
                    (B) a specific reference under section 120, 121, or 
                365(c) of title 35, United States Code, to any patent 
                or application that contains or contained at any time 
                such a claim.
            (2) Interfering patents.--The provisions of sections 
        102(g), 135, and 291 of title 35, United States Code, as in 
        effect on the day before the date of the enactment of this Act, 
        shall apply to each claim of an application for patent, and any 
        patent issued thereon, for which the amendments made by this 
        section also apply, if such application or patent contains or 
        contained at any time--
                    (A) a claim to an invention having an effective 
                filing date as defined in section 100(i) of title 35, 
                United States Code, that occurs before the effective 
                date set forth in paragraph (1) of this subsection; or
                    (B) a specific reference under section 120, 121, or 
                365(c) of title 35, United States Code, to any patent 
                or application that contains or contained at any time 
                such a claim.

SEC. 3. INVENTOR'S OATH OR DECLARATION.

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

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

    ``(a) Naming the Inventor; Inventor's Oath or Declaration.--An 
application for patent that is filed under section 111(a) or commences 
the national stage under section 371 shall include, or be amended to 
include, the name of the inventor for any invention claimed in the 
application. Except as otherwise provided in this section, each 
individual who is the inventor or a joint inventor of a claimed 
invention in an application for patent shall execute an oath or 
declaration in connection with the application.
    ``(b) Required Statements.--An oath or declaration under subsection 
(a) shall contain statements that--
            ``(1) the application was made or was authorized to be made 
        by the affiant or declarant; and
            ``(2) such individual believes himself or herself to be the 
        original inventor or an original joint inventor of a claimed 
        invention in the application.
    ``(c) Additional Requirements.--The Director may specify additional 
information relating to the inventor and the invention that is required 
to be included in an oath or declaration under subsection (a).
    ``(d) Substitute Statement.--
            ``(1) In general.--In lieu of executing an oath or 
        declaration under subsection (a), the applicant for patent may 
        provide a substitute statement under the circumstances 
        described in paragraph (2) and such additional circumstances 
        that the Director may specify by regulation.
            ``(2) Permitted circumstances.--A substitute statement 
        under paragraph (1) is permitted with respect to any individual 
        who--
                    ``(A) is unable to file the oath or declaration 
                under subsection (a) because the individual--
                            ``(i) is deceased;
                            ``(ii) is under legal incapacity; or
                            ``(iii) cannot be found or reached after 
                        diligent effort; or
                    ``(B) is under an obligation to assign the 
                invention but has refused to make the oath or 
                declaration required under subsection (a).
            ``(3) Contents.--A substitute statement under this 
        subsection shall--
                    ``(A) identify the individual with respect to whom 
                the statement applies;
                    ``(B) set forth the circumstances representing the 
                permitted basis for the filing of the substitute 
                statement in lieu of the oath or declaration under 
                subsection (a); and
                    ``(C) contain any additional information, including 
                any showing, required by the Director.
    ``(e) Making Required Statements in Assignment of Record.--An 
individual who is under an obligation of assignment of an application 
for patent may include the required statements under subsections (b) 
and (c) in the assignment executed by the individual, in lieu of filing 
such statements separately.
    ``(f) Time for Filing.--A notice of allowance under section 151 may 
be provided to an applicant for patent only if the applicant for patent 
has filed each required oath or declaration under subsection (a) or has 
filed a substitute statement under subsection (d) or recorded an 
assignment meeting the requirements of subsection (e).
    ``(g) Earlier-Filed Application Containing Required Statements or 
Substitute Statement.--
            ``(1) Exception.--The requirements under this section shall 
        not apply to an individual with respect to an application for 
        patent in which the individual is named as the inventor or a 
        joint inventor and who claims the benefit under section 120, 
        121, or 365(c) of the filing of an earlier-filed application, 
        if--
                    ``(A) an oath or declaration meeting the 
                requirements of subsection (a) was executed by the 
                individual and was filed in connection with the 
                earlier-filed application;
                    ``(B) a substitute statement meeting the 
                requirements of subsection (d) was filed in the earlier 
                filed application with respect to the individual; or
                    ``(C) an assignment meeting the requirements of 
                subsection (e) was executed with respect to the 
                earlier-filed application by the individual and was 
                recorded in connection with the earlier-filed 
                application.
            ``(2) Copies of oaths, declarations, statements, or 
        assignments.--Notwithstanding paragraph (1), the Director may 
        require that a copy of the executed oath or declaration, the 
        substitute statement, or the assignment filed in the earlier-
        filed application be included in the later-filed application.
    ``(h) Supplemental and Corrected Statements; Filing Additional 
Statements.--
            ``(1) In general.--Any person making a statement required 
        under this section may withdraw, replace, or otherwise correct 
        the statement at any time. If a change is made in the naming of 
        the inventor requiring the filing of 1 or more additional 
        statements under this section, the Director shall establish 
        regulations under which such additional statements may be 
        filed.
            ``(2) Supplemental statements not required.--If an 
        individual has executed an oath or declaration meeting the 
        requirements of subsection (a) or an assignment meeting the 
        requirements of subsection (e) with respect to an application 
        for patent, the Director may not thereafter require that 
        individual to make any additional oath, declaration, or other 
        statement equivalent to those required by this section in 
        connection with the application for patent or any patent 
        issuing thereon.
            ``(3) Savings clause.--A patent shall not be invalid or 
        unenforceable based upon the failure to comply with a 
        requirement under this section if the failure is remedied as 
        provided under paragraph (1).
    ``(i) Acknowledgment of Penalties.--Any declaration or statement 
filed pursuant to this section shall contain an acknowledgment that any 
willful false statement made in such declaration or statement is 
punishable under section 1001 of title 18 by fine or imprisonment of 
not more than 5 years, or both.''.
            (2) Relationship to divisional applications.--Section 121 
        of title 35, United States Code, is amended by striking ``If a 
        divisional application'' and all that follows through 
        ``inventor.''.
            (3) Requirements for nonprovisional applications.--Section 
        111(a) of title 35, United States Code, is amended--
                    (A) in paragraph (2)(C), by striking ``by the 
                applicant'' and inserting ``or declaration'';
                    (B) in the heading for paragraph (3), by inserting 
                ``or declaration'' after ``and oath''; and
                    (C) by inserting ``or declaration'' after ``and 
                oath'' each place it appears.
            (4) Conforming amendment.--The item relating to section 115 
        in the table of sections for chapter 11 of title 35, United 
        States Code, is amended to read as follows:

    ``115. Inventor's oath or declaration.''.
    (b) Filing by Other Than Inventor.--
            (1) In general.--Section 118 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 118. Filing by other than inventor

    ``A person to whom the inventor has assigned or is under an 
obligation to assign the invention may make an application for patent. 
A person who otherwise shows sufficient proprietary interest in the 
matter may make an application for patent on behalf of and as agent for 
the inventor on proof of the pertinent facts and a showing that such 
action is appropriate to preserve the rights of the parties. If the 
Director grants a patent on an application filed under this section by 
a person other than the inventor, the patent shall be granted to the 
real party in interest and upon such notice to the inventor as the 
Director considers to be sufficient.''.
            (2) Conforming amendment.--Section 251 of title 35, United 
        States Code, is amended in the third undesignated paragraph by 
        inserting ``or the application for the original patent was 
        filed by the assignee of the entire interest'' after ``claims 
        of the original patent''.
    (c) Specification.--Section 112 of title 35, United States Code, is 
amended--
            (1) in the first undesignated paragraph--
                    (A) by striking ``The specification'' and inserting 
                ``(a) In General.--The specification''; and
                    (B) by striking ``of carrying out his invention'' 
                and inserting ``or joint inventor of carrying out the 
                invention'';
            (2) in the second undesignated paragraph--
                    (A) by striking ``The specification'' and inserting 
                ``(b) Conclusion.--The specification''; and
                    (B) by striking ``applicant regards as his 
                invention'' and inserting ``inventor or a joint 
                inventor regards as the invention'';
            (3) in the third undesignated paragraph, by striking ``A 
        claim'' and inserting ``(c) Form.--A claim'';
            (4) in the fourth undesignated paragraph, by striking 
        ``Subject to the following paragraph,'' and inserting ``(d) 
        Reference in Dependent Forms.--Subject to subsection (e),'';
            (5) in the fifth undesignated paragraph, by striking ``A 
        claim'' and inserting ``(e) Reference in Multiple Dependent 
        Form.--A claim''; and
            (6) in the last undesignated paragraph, by striking ``An 
        element'' and inserting ``(f) Element in Claim for a 
        Combination.--An element''.
    (d) Conforming Amendments.--
            (1) Sections 111(b)(1)(A) is amended by striking ``the 
        first paragraph of section 112 of this title'' and inserting 
        ``section 112(a)''.
            (2) Section 111(b)(2) is amended by striking ``the second 
        through fifth paragraphs of section 112,'' and inserting 
        ``subsections (b) through (e) of section 112,''.
    (e) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 1-year period beginning on the date 
of the enactment of this Act and shall apply to any patent application 
that is filed on or after that effective date.

SEC. 4. DEFENSE TO INFRINGEMENT BASED ON EARLIER INVENTOR.

    Section 273 of title 35, United States Code, is amended as follows:
            (1) Subsection (a) is amended--
                    (A) in paragraph (1), by striking ``use of a method 
                in'' and inserting ``use of the subject matter of a 
                patent in or outside'' ;
                    (B) by striking paragraph (3); and
                    (C) by redesignating paragraph (4) as paragraph 
                (3).
            (2) Subsection (b) is amended--
                    (A) in paragraph (1), by striking ``for a method'';
                    (B) in paragraph (2), by striking ``patented 
                method'' and inserting ``patented process'';
                    (C) in paragraph (3)--
                            (i) by striking subparagraph (A);
                            (ii) by redesignating subparagraphs (B) and 
                        (C) as subparagraph (A) and (C), respectively; 
                        and
                            (iii) by adding at the end the following:
                    ``(D) Funding.--
                            ``(i) Defense not available in certain 
                        cases.--A person may not assert the defense 
                        under this section if the subject matter of the 
                        patent on which the defense is based was 
                        developed pursuant to a funding agreement under 
                        chapter 18 of this title or by a nonprofit 
                        institution of higher education, or a 
                        technology transfer organization affiliated 
                        with such an institution, that did not receive 
                        funding from a private business enterprise in 
                        support of that development.
                            ``(ii) Definitions.--In this subparagraph--
                                    ``(I) the term `institution of 
                                higher education' has the meaning given 
                                that term in section 101(a) of the 
                                Higher Education Act of 1965 (20 U.S.C. 
                                1001(a)); and
                                    ``(II) the term `technology 
                                transfer organization' means an 
                                organization the primary purpose of 
                                which is to facilitate the 
                                commercialization of technologies 
                                developed by one or more institutions 
                                of higher education.''; and
                    (D) by amending paragraph (6) to read as follows:
            ``(6) Personal defense.--
                    ``(A) In general.--The defense under this section 
                may be asserted only by the person who performed or 
                caused the performance of the acts necessary to 
                establish the defense, as well as any other entity that 
                controls, is controlled by, or is under common control 
                with such person, and, except for any transfer to the 
                patent owner, the right to assert the defense shall not 
                be licensed or assigned or transferred to another 
                person except as an ancillary and subordinate part of a 
                good faith assignment or transfer for other reasons of 
                the entire enterprise or line of business to which the 
                defense relates.
                    ``(B) Exception.--Notwithstanding subparagraph (A), 
                any person may, on the person's own behalf, assert a 
                defense based on the exhaustion of rights provided 
                under paragraph (2), including any necessary elements 
                thereof.''.

SEC. 5. POST-GRANT REVIEW PROCEEDINGS.

    (a) Inter Partes Review.--Chapter 31 of title 35, United States 
Code, is amended to read as follows:

                   ``CHAPTER 31--INTER PARTES REVIEW

    ``Sec.
    ``311. Inter partes review.
    ``312. Petitions.
    ``313. Preliminary response to petition.
    ``314. Institution of inter partes review.
    ``315. Relation to other proceedings or actions.
    ``316. Conduct of inter partes review.
    ``317. Settlement.
    ``318. Decision of the Board.
    ``319. Appeal.
    ``320. Request for stay of certain proceedings.

``Sec. 311. Inter partes review

    ``(a) In General.--Subject to the provisions of this chapter, a 
person who is not the owner of a patent may file with the Office a 
petition to institute an inter partes review of the patent. The 
Director shall establish, by regulation, fees to be paid by the person 
requesting the review, in such amounts as the Director determines to be 
reasonable, considering the aggregate costs of the review.
    ``(b) Scope.--A petitioner in an inter partes review may request to 
cancel as unpatentable 1 or more claims of a patent only on a ground 
that could be raised under section 102 or 103 and only on the basis of 
prior art consisting of patents or printed publications.
    ``(c) Filing Deadline.--A petition for inter partes review shall be 
filed after the later of either--
            ``(1) the date that is 12 months after the grant of a 
        patent or issuance of a reissue of a patent; or
            ``(2) if a post-grant review is instituted under chapter 
        32, the date of the termination of such post-grant review.

``Sec. 312. Petitions

    ``(a) Requirements of Petition.--A petition filed under section 311 
may be considered only if--
            ``(1) the petition is accompanied by payment of the fee 
        established by the Director under section 311;
            ``(2) the petition identifies all real parties in interest;
            ``(3) the petition identifies, in writing and with 
        particularity, each claim challenged, the grounds on which the 
        challenge to each claim is based, and the evidence that 
        supports the grounds for the challenge to each claim, 
        including--
                    ``(A) copies of patents and printed publications 
                that the petitioner relies upon in support of the 
                petition; and
                    ``(B) affidavits or declarations of supporting 
                evidence and opinions, if the petitioner relies on 
                expert opinions;
            ``(4) the petition provides such other information as the 
        Director may require by regulation; and
            ``(5) the petitioner provides copies of any of the 
        documents required under paragraphs (2), (3), and (4) to the 
        patent owner or, if applicable, the designated representative 
        of the patent owner.
    ``(b) Public Availability.--As soon as practicable after the 
receipt of a petition under section 311, the Director shall make the 
petition available to the public.

``Sec. 313. Preliminary response to petition

    ``(a) Preliminary Response.--If an inter partes review petition is 
filed under section 311, the patent owner shall have the right to file 
a preliminary response within a time period set by the Director.
    ``(b) Content of Response.--A preliminary response to a petition 
for inter partes review shall set forth reasons why no inter partes 
review should be instituted based upon the failure of the petition to 
meet any requirement of this chapter.

``Sec. 314. Institution of inter partes review

    ``(a) Threshold.--The Director may not authorize an inter partes 
review to commence unless the Director determines that the information 
presented in the petition filed under section 311 and any response 
filed under section 313 shows that a substantial new question of 
patentability exists.
    ``(b) Timing.--The Director shall determine whether to institute an 
inter partes review under this chapter pursuant to a petition filed 
under section 311 within 3 months after--
            ``(1) receiving a preliminary response to the petition 
        under section 313; or
            ``(2) if no such preliminary response is filed, the last 
        date on which such response may be filed.
    ``(c) Notice.--The Director shall notify the petitioner and patent 
owner, in writing, of the Director's determination under subsection 
(a), and shall make such notice available to the public as soon as is 
practicable. Such notice shall include the date on which the review 
shall commence.
    ``(d) No Appeal.--The determination by the Director whether to 
institute an inter partes review under this section shall be final and 
nonappealable.

``Sec. 315. Relation to other proceedings or actions

    ``(a) Infringer's Civil Action.--
            ``(1) Inter partes review barred by civil action.--An inter 
        partes review may not be instituted if, before the date on 
        which the petition for such a review is filed, the petitioner, 
        real party in interest, or privy of the petitioner filed a 
        civil action challenging the validity of a claim of the patent.
            ``(2) Stay of civil action.--If the petitioner, real party 
        in interest, or privy of the petitioner files a civil action 
        challenging the validity of a claim of the patent on or after 
        the date on which the petitioner files a petition for inter 
        partes review of the patent, that civil action shall be 
        automatically stayed until either--
                    ``(A) the patent owner requests to lift the stay;
                    ``(B) the patent owner files a civil action or 
                counterclaim alleging that the petitioner, real party 
                in interest, or privy of the petitioner has infringed 
                the patent; or
                    ``(C) the petitioner, real party in interest, or 
                privy of the petitioner requests to dismiss the civil 
                action.
            ``(3) Treatment of counterclaim.--A counterclaim 
        challenging the validity of a claim of a patent does not 
        constitute a civil action challenging the validity of a claim 
        of a patent for purposes of this subsection.
    ``(b) Patent Owner's Action.--An inter partes review may not be 
instituted if the petition requesting the proceeding is filed more than 
9 months after the date on which the petitioner, real party in 
interest, or privy of the petitioner is served with a complaint 
alleging infringement of the patent. The time limitation set forth in 
the preceding sentence shall not apply to a request for joinder under 
subsection (c).
    ``(c) Joinder.--If the Director institutes an inter partes review, 
the Director, in his or her discretion, may join as a party to that 
inter partes review any person who properly files a petition under 
section 311 that the Director, after receiving a preliminary response 
under section 313 or the expiration of the time for filing such a 
response, determines warrants the institution of an inter partes review 
under section 314.
    ``(d) Multiple Proceedings.--Notwithstanding sections 135(a), 251, 
and 252, and chapter 30, during the pendency of an inter partes review, 
if another proceeding or matter involving the patent is before the 
Office, the Director may determine the manner in which the inter partes 
review or other proceeding or matter may proceed, including providing 
for stay, transfer, consolidation, or termination of any such matter or 
proceeding.
    ``(e) Estoppel.--
            ``(1) Proceedings before the office.--The petitioner in an 
        inter partes review under this chapter, or the real party in 
        interest or privy of the petitioner, may not request or 
        maintain a proceeding before the Office with respect to a claim 
        on any ground that the petitioner raised or reasonably could 
        have raised during an inter partes review of the claim that 
        resulted in a final written decision under section 318(a).
            ``(2) Civil actions and other proceedings.--The petitioner 
        in an inter partes review under this chapter, or the real party 
        in interest or privy of the petitioner, may not assert either 
        in a civil action arising in whole or in part under section 
        1338 of title 28 or in a proceeding before the International 
        Trade Commission under section 337 of the Tariff Act of 1930 
        that a claim in a patent is invalid on any ground that the 
        petitioner raised or reasonably could have raised during an 
        inter partes review of the claim that resulted in a final 
        written decision under section 318(a).

``Sec. 316. Conduct of inter partes review

    ``(a) Regulations.--The Director shall prescribe regulations--
            ``(1) providing that the file of any proceeding under this 
        chapter shall be made available to the public, except that any 
        petition or document filed with the intent that it be sealed 
        shall, if accompanied by a motion to seal, be treated as sealed 
        pending the outcome of the ruling on the motion;
            ``(2) setting forth the standards for the showing of 
        sufficient grounds to institute a review under section 314(a);
            ``(3) establishing procedures for the submission of 
        supplemental information after the petition is filed;
            ``(4) in accordance with section 2(b)(2), establishing and 
        governing inter partes review under this chapter and the 
        relationship of such review to other proceedings under this 
        title;
            ``(5) setting a time period for requesting joinder under 
        section 315(c);
            ``(6) setting forth standards and procedures for discovery 
        of relevant evidence, including that such discovery shall be 
        limited to--
                    ``(A) the deposition of witnesses submitting 
                affidavits or declarations; and
                    ``(B) what is otherwise necessary in the interest 
                of justice;
            ``(7) prescribing sanctions for abuse of discovery, abuse 
        of process, or any other improper use of the proceeding, such 
        as to harass or to cause unnecessary delay or an unnecessary 
        increase in the cost of the proceeding;
            ``(8) providing for protective orders governing the 
        exchange and submission of confidential information;
            ``(9) providing for the filing by the patent owner of a 
        response to the petition under section 313 after an inter 
        partes review has been instituted, and requiring that the 
        patent owner file with such response, through affidavits or 
        declarations, any additional factual evidence and expert 
        opinions on which the patent owner relies in support of the 
        response;
            ``(10) setting forth standards and procedures for allowing 
        the patent owner to move to amend the patent under subsection 
        (d) to cancel a challenged claim or propose a reasonable number 
        of substitute claims, and ensuring that any information 
        submitted by the patent owner in support of any amendment 
        entered under subsection (d) is made available to the public as 
        part of the prosecution history of the patent;
            ``(11) providing either party with the right to an oral 
        hearing as part of the proceeding; and
            ``(12) requiring that the final determination in an inter 
        partes review be issued not later than 1 year after the date on 
        which the Director notices the institution of a review under 
        this chapter, except that the Director may, for good cause 
        shown, extend the 1-year period by not more than 6 months, and 
        may adjust the time periods in this paragraph in the case of 
        joinder under section 315(c).
    ``(b) Considerations.--In prescribing regulations under this 
section, the Director shall consider the effect of any such regulation 
on the economy, the integrity of the patent system, the efficient 
administration of the Office, and the ability of the Office to timely 
complete proceedings instituted under this chapter.
    ``(c) Patent Trial and Appeal Board.--The Patent Trial and Appeal 
Board shall, in accordance with section 6, conduct each proceeding 
authorized by the Director.
    ``(d) Amendment of the Patent.--
            ``(1) In general.--During an inter partes review instituted 
        under this chapter, the patent owner may file 1 motion to amend 
        the patent in 1 or more of the following ways:
                    ``(A) Cancel any challenged patent claim.
                    ``(B) For each challenged claim, propose a 
                reasonable number of substitute claims.
            ``(2) Additional motions.--Additional motions to amend may 
        be permitted upon the joint request of the petitioner and the 
        patent owner to materially advance the settlement of a 
        proceeding under section 317, or as permitted by regulations 
        prescribed by the Director.
            ``(3) Scope of claims.--An amendment under this subsection 
        may not enlarge the scope of the claims of the patent or 
        introduce new matter.
    ``(e) Evidentiary Standards.--In an inter partes review instituted 
under this chapter, the petitioner shall have the burden of proving a 
proposition of unpatentability by a preponderance of the evidence.

``Sec. 317. Settlement

    ``(a) In General.--An inter partes review instituted under this 
chapter shall be terminated with respect to any petitioner upon the 
joint request of the petitioner and the patent owner, unless the Office 
has decided the merits of the proceeding before the request for 
termination is filed. If the inter partes review is terminated with 
respect to a petitioner under this section, no estoppel under section 
315(e) shall apply to that petitioner. If no petitioner remains in the 
inter partes review, the Office may terminate the review or proceed to 
a final written decision under section 318(a).
    ``(b) Agreements in Writing.--Any agreement or understanding 
between the patent owner and a petitioner, including any collateral 
agreements referred to in such agreement or understanding, made in 
connection with, or in contemplation of, the termination of an inter 
partes review under this section shall be in writing and a true copy of 
such agreement or understanding shall be filed in the Office before the 
termination of the inter partes review as between the parties. If any 
party filing such agreement or understanding so requests, the copy 
shall be kept separate from the file of the inter partes review, and 
shall be made available only to Federal Government agencies upon 
written request, or to any other person on a showing of good cause.

``Sec. 318. Decision of the Board

    ``(a) Final Written Decision.--If an inter partes review is 
instituted and not dismissed under this chapter, the Patent Trial and 
Appeal Board shall issue a final written decision with respect to the 
patentability of any patent claim challenged by the petitioner and any 
new claim added under section 316(d).
    ``(b) Certificate.--If the Patent Trial and Appeal Board issues a 
final written decision under subsection (a) and the time for appeal has 
expired or any appeal has terminated, the Director shall issue and 
publish a certificate canceling any claim of the patent finally 
determined to be unpatentable, confirming any claim of the patent 
determined to be patentable, and incorporating in the patent by 
operation of the certificate any new or amended claim determined to be 
patentable.
    ``(c) Data on Length of Review.--The Office shall make available to 
the public data describing the length of time between the institution 
of, and the issuance of a final written decision under subsection (a) 
for, each inter partes review.

``Sec. 319. Appeal

    ``A party dissatisfied with the final written decision of the 
Patent Trial and Appeal Board under section 318(a) may appeal the 
decision pursuant to sections 141 through 144. Any party to the inter 
partes review shall have the right to be a party to the appeal.

``Sec. 320. Request for stay of certain proceedings

    ``If a party seeks a stay of a civil action alleging infringement 
of a patent under section 281, or a proceeding before the International 
Trade Commission under section 337 of the Tariff Act of 1930, relating 
to an inter partes review under this chapter, the court shall decide 
whether to enter a stay based on--
            ``(1) whether a stay, or the denial thereof, will simplify 
        the issues in question and streamline the trial;
            ``(2) whether discovery is complete and whether a trial 
        date has been set;
            ``(3) whether a stay, or the denial thereof, would unduly 
        prejudice the nonmoving party or present a clear tactical 
        advantage for the moving party; and
            ``(4) whether a stay, or the denial thereof, will reduce 
        the burden of litigation on the parties and on the court.''.
    (b) Conforming Amendment.--The table of chapters for part III of 
title 35, United States Code, is amended by striking the item relating 
to chapter 31 and inserting the following:


``31. Inter Partes Review..................................     311.''


    (c) Regulations and Effective Date.--
            (1) Regulations.--The Director shall, not later than the 
        date that is 1 year after the date of the enactment of this 
        Act, issue regulations to carry out chapter 31 of title 35, 
        United States Code, as amended by subsection (a) of this 
        section.
            (2) Applicability.--
                    (A) In general.--The amendments made by subsection 
                (a) shall take effect upon the expiration of the 1-year 
                period beginning on the date of the enactment of this 
                Act and shall apply to any patent issued before, on, or 
                after that effective date.
                    (B) Graduated implementation.--The Director may 
                impose a limit on the number of inter partes reviews 
                that may be instituted under chapter 31 of title 35, 
                United States Code, during each of the first 4 1-year 
                periods in which the amendments made by subsection (a) 
                are in effect, if such number in each year equals or 
                exceeds the number of such inter partes reexaminations 
                that are ordered in the last fiscal year ending before 
                the effective date of the amendments made by subsection 
                (a).
    (d) Post-Grant Review.--Part III of title 35, United States Code, 
is amended by adding at the end the following:

                    ``CHAPTER 32--POST-GRANT REVIEW

    ``Sec.
    ``321. Post-grant review.
    ``322. Petitions.
    ``323. Preliminary response to petition.
    ``324. Institution of post-grant review.
    ``325. Relation to other proceedings or actions.
    ``326. Conduct of post-grant review.
    ``327. Settlement.
    ``328. Decision of the Board.
    ``329. Appeal.
    ``330. Request for stay of certain proceedings.

``Sec. 321. Post-grant review

    ``(a) In General.--Subject to the provisions of this chapter, a 
person who is not the patent owner may file with the Office a petition 
to institute a post-grant review of a patent. The Director shall 
establish, by regulation, fees to be paid by the person requesting the 
review, in such amounts as the Director determines to be reasonable, 
considering the aggregate costs of the post-grant review.
    ``(b) Scope.--A petitioner in a post-grant review may request to 
cancel as unpatentable 1 or more claims of a patent on any ground that 
could be raised under paragraph (2) or (3) of section 282(b) (relating 
to invalidity of the patent or any claim).
    ``(c) Filing Deadline.--A petition for a post-grant review may only 
be filed not later than the date that is 12 months after the date of 
the grant of the patent or of the issuance of a reissue patent (as the 
case may be).

``Sec. 322. Petitions

    ``(a) Requirements of Petition.--A petition filed under section 321 
may be considered only if--
            ``(1) the petition is accompanied by payment of the fee 
        established by the Director under section 321;
            ``(2) the petition identifies all real parties in interest;
            ``(3) the petition identifies, in writing and with 
        particularity, each claim challenged, the grounds on which the 
        challenge to each claim is based, and the evidence that 
        supports the grounds for the challenge to each claim, 
        including--
                    ``(A) copies of patents and printed publications 
                that the petitioner relies upon in support of the 
                petition; and
                    ``(B) affidavits or declarations of supporting 
                evidence and opinions, if the petitioner relies on 
                other factual evidence or on expert opinions;
            ``(4) the petition provides such other information as the 
        Director may require by regulation; and
            ``(5) the petitioner provides copies of any of the 
        documents required under paragraphs (2), (3), and (4) to the 
        patent owner or, if applicable, the designated representative 
        of the patent owner.
    ``(b) Public Availability.--As soon as practicable after the 
receipt of a petition under section 321, the Director shall make the 
petition available to the public.

``Sec. 323. Preliminary response to petition

    ``(a) Preliminary Response.--If a post-grant review petition is 
filed under section 321, the patent owner shall have the right to file 
a preliminary response to the petition within 2 months after the date 
on which the petition is filed.
    ``(b) Content of Response.--A preliminary response to a petition 
for post-grant review shall set forth reasons why no post-grant review 
should be instituted based upon the failure of the petition to meet any 
requirement of this chapter.

``Sec. 324. Institution of post-grant review

    ``(a) Threshold.--The Director may not authorize a post-grant 
review to commence unless the Director determines that the information 
presented in the petition filed under section 321, if such information 
is not rebutted, would demonstrate that it is more likely than not that 
at least 1 of the claims challenged in the petition is unpatentable.
    ``(b) Additional Grounds.--The determination required under 
subsection (a) may also be satisfied by a showing that the petition 
raises a novel or unsettled legal question that is important to other 
patents or patent applications.
    ``(c) Timing.--The Director shall determine whether to institute a 
post-grant review under this chapter pursuant to a petition filed under 
section 321 within 3 months after--
            ``(1) receiving a preliminary response to the petition 
        under section 323; or
            ``(2) if no such preliminary response is filed, the last 
        date on which such response may be filed.
    ``(d) Notice.--The Director shall notify the petitioner and patent 
owner, in writing, of the Director's determination under subsection (a) 
or (b), and shall make such notice available to the public as soon as 
is practicable. The Director shall make each notice of the institution 
of a post-grant review available to the public. Such notice shall 
include the date on which the review shall commence.
    ``(e) No Appeal.--The determination by the Director whether to 
institute a post-grant review under this section shall be final and 
nonappealable.

``Sec. 325. Relation to other proceedings or actions

    ``(a) Infringer's Civil Action.--
            ``(1) Post-grant review barred by civil action.--A post-
        grant review may not be instituted under this chapter if, 
        before the date on which the petition for such a review is 
        filed, the petitioner, real party in interest, or privy of the 
        petitioner filed a civil action challenging the validity of a 
        claim of the patent.
            ``(2) Stay of civil action.--If the petitioner, real party 
        in interest, or privy of the petitioner files a civil action 
        challenging the validity of a claim of the patent on or after 
        the date on which the petitioner files a petition for post-
        grant review of the patent, that civil action shall be 
        automatically stayed until either--
                    ``(A) the patent owner requests to lift the stay;
                    ``(B) the patent owner files a civil action or 
                counterclaim alleging that the petitioner, real party 
                in interest, or privy of the petitioner has infringed 
                the patent; or
                    ``(C) the petitioner, real party in interest, or 
                privy of the petitioner requests to dismiss his civil 
                action.
            ``(3) Treatment of counterclaim.--A counterclaim 
        challenging the validity of a claim of a patent does not 
        constitute a civil action challenging the validity of a claim 
        of a patent for purposes of this subsection.
    ``(b) Preliminary Injunctions.--If a civil action alleging 
infringement of a patent is filed within 3 months after the date on 
which the patent is granted, the court may not stay its consideration 
of the patent owner's motion for a preliminary injunction against 
infringement of the patent on the basis that a petition for post-grant 
review has been filed under this chapter or that such a post-grant 
review has been instituted under this chapter.
    ``(c) Joinder.--If more than 1 petition for a post-grant review 
under this chapter is properly filed against the same patent and the 
Director determines that more than 1 of these petitions warrants the 
institution of a post-grant review under section 324, the Director may 
consolidate such reviews into a single post-grant review.
    ``(d) Multiple Proceedings.--Notwithstanding sections 135(a), 251, 
and 252, and chapter 30, during the pendency of any post-grant review 
under this chapter, if another proceeding or matter involving the 
patent is before the Office, the Director may determine the manner in 
which the post-grant review or other proceeding or matter may proceed, 
including providing for the stay, transfer, consolidation, or 
termination of any such matter or proceeding. In determining whether to 
institute or order a proceeding under this chapter, chapter 30, or 
chapter 31, the Director may take into account whether, and reject the 
petition or request because, the same or substantially the same prior 
art or arguments previously were presented to the Office.
    ``(e) Estoppel.--
            ``(1) Proceedings before the office.--The petitioner in a 
        post-grant review under this chapter, or the real party in 
        interest or privy of the petitioner, may not request or 
        maintain a proceeding before the Office with respect to a claim 
        on any ground that the petitioner raised or reasonably could 
        have raised during a post-grant review of the claim that 
        resulted in a final written decision under section 328(a).
            ``(2) Civil actions and other proceedings.--The petitioner 
        in a post-grant review under this chapter, or the real party in 
        interest or privy of the petitioner, may not assert either in a 
        civil action arising in whole or in part under section 1338 of 
        title 28 or in a proceeding before the International Trade 
        Commission under section 337 of the Tariff Act of 1930 that a 
        claim in a patent is invalid on any ground that the petitioner 
        raised during a post-grant review of the claim that resulted in 
        a final written decision under section 328(a).
    ``(f) Reissue Patents.--A post-grant review may not be instituted 
under this chapter if the petition requests cancellation of a claim in 
a reissue patent that is identical to or narrower than a claim in the 
original patent from which the reissue patent was issued, and the time 
limitations in section 321(c) would bar filing a petition for a post-
grant review for such original patent.

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

    ``(a) Regulations.--The Director shall prescribe regulations--
            ``(1) providing that the file of any proceeding under this 
        chapter shall be made available to the public, except that any 
        petition or document filed with the intent that it be sealed 
        shall, if accompanied by a motion to seal, be treated as sealed 
        pending the outcome of the ruling on the motion;
            ``(2) setting forth the standards for the showing of 
        sufficient grounds to institute a review under subsections (a) 
        and (b) of section 324;
            ``(3) establishing procedures for the submission of 
        supplemental information after the petition is filed;
            ``(4) in accordance with section 2(b)(2), establishing and 
        governing a post-grant review under this chapter and the 
        relationship of such review to other proceedings under this 
        title;
            ``(5) setting forth standards and procedures for discovery 
        of relevant evidence, including that such discovery shall be 
        limited to evidence directly related to factual assertions 
        advanced by either party in the proceeding;
            ``(6) prescribing sanctions for abuse of discovery, abuse 
        of process, or any other improper use of the proceeding, such 
        as to harass or to cause unnecessary delay or an unnecessary 
        increase in the cost of the proceeding;
            ``(7) providing for protective orders governing the 
        exchange and submission of confidential information;
            ``(8) allowing the patent owner to file a response to the 
        petition after a post-grant review has been instituted, and 
        requiring that the patent owner file with such response, 
        through affidavits or declarations, any additional factual 
        evidence and expert opinions on which the patent owner relies 
        in support of the response;
            ``(9) setting forth standards and procedures for allowing 
        the patent owner to move to amend the patent under subsection 
        (d) to cancel a challenged claim or propose a reasonable number 
        of substitute claims, and ensuring that any information 
        submitted by the patent owner in support of any amendment 
        entered under subsection (d) is made available to the public as 
        part of the prosecution history of the patent;
            ``(10) providing either party with the right to an oral 
        hearing as part of the proceeding; and
            ``(11) requiring that the final determination in any post-
        grant review be issued not later than 1 year after the date on 
        which the Director notices the institution of a proceeding 
        under this chapter, except that the Director may, for good 
        cause shown, extend the 1-year period by not more than 6 
        months, and may adjust the time periods in this paragraph in 
        the case of joinder under section 325(c).
    ``(b) Considerations.--In prescribing regulations under this 
section, the Director shall consider the effect of any such regulation 
on the economy, the integrity of the patent system, the efficient 
administration of the Office, and the ability of the Office to timely 
complete proceedings instituted under this chapter.
    ``(c) Patent Trial and Appeal Board.--The Patent Trial and Appeal 
Board shall, in accordance with section 6, conduct each proceeding 
authorized by the Director.
    ``(d) Amendment of the Patent.--
            ``(1) In general.--During a post-grant review instituted 
        under this chapter, the patent owner may file 1 motion to amend 
        the patent in 1 or more of the following ways:
                    ``(A) Cancel any challenged patent claim.
                    ``(B) For each challenged claim, propose a 
                reasonable number of substitute claims.
            ``(2) Additional motions.--Additional motions to amend may 
        be permitted upon the joint request of the petitioner and the 
        patent owner to materially advance the settlement of a 
        proceeding under section 327, or upon the request of the patent 
        owner for good cause shown.
            ``(3) Scope of claims.--An amendment under this subsection 
        may not enlarge the scope of the claims of the patent or 
        introduce new matter.
    ``(e) Evidentiary Standards.--In a post-grant review instituted 
under this chapter, the petitioner shall have the burden of proving a 
proposition of unpatentability by a preponderance of the evidence.

``Sec. 327. Settlement

    ``(a) In General.--A post-grant review instituted under this 
chapter shall be terminated with respect to any petitioner upon the 
joint request of the petitioner and the patent owner, unless the Office 
has decided the merits of the proceeding before the request for 
termination is filed. If the post-grant review is terminated with 
respect to a petitioner under this section, no estoppel under section 
325(e) shall apply to that petitioner. If no petitioner remains in the 
post-grant review, the Office may terminate the post-grant review or 
proceed to a final written decision under section 328(a).
    ``(b) Agreements in Writing.--Any agreement or understanding 
between the patent owner and a petitioner, including any collateral 
agreements referred to in such agreement or understanding, made in 
connection with, or in contemplation of, the termination of a post-
grant review under this section shall be in writing, and a true copy of 
such agreement or understanding shall be filed in the Office before the 
termination of the post-grant review as between the parties. If any 
party filing such agreement or understanding so requests, the copy 
shall be kept separate from the file of the post-grant review, and 
shall be made available only to Federal Government agencies upon 
written request, or to any other person on a showing of good cause.

``Sec. 328. Decision of the Board

    ``(a) Final Written Decision.--If a post-grant review is instituted 
and not dismissed under this chapter, the Patent Trial and Appeal Board 
shall issue a final written decision with respect to the patentability 
of any patent claim challenged by the petitioner and any new claim 
added under section 326(d).
    ``(b) Certificate.--If the Patent Trial and Appeal Board issues a 
final written decision under subsection (a) and the time for appeal has 
expired or any appeal has terminated, the Director shall issue and 
publish a certificate canceling any claim of the patent finally 
determined to be unpatentable, confirming any claim of the patent 
determined to be patentable, and incorporating in the patent by 
operation of the certificate any new or amended claim determined to be 
patentable.
    ``(c) Data on Length of Review.--The Office shall make available to 
the public data describing the length of time between the institution 
of, and the issuance of a final written decision under subsection (a) 
for, each post-grant review.

``Sec. 329. Appeal

    ``A party dissatisfied with the final written decision of the 
Patent Trial and Appeal Board under section 328(a) may appeal the 
decision pursuant to sections 141 through 144. Any party to the post-
grant review shall have the right to be a party to the appeal.

``Sec. 330. Request for stay of certain proceedings

    ``If a party seeks a stay of a civil action alleging infringement 
of a patent under section 281, or a proceeding before the International 
Trade Commission under section 337 of the Tariff Act of 1930, relating 
to a post-grant review under this chapter, the court shall decide 
whether to enter a stay based on--
            ``(1) whether a stay, or the denial thereof, will simplify 
        the issues in question and streamline the trial;
            ``(2) whether discovery is complete and whether a trial 
        date has been set;
            ``(3) whether a stay, or the denial thereof, would unduly 
        prejudice the nonmoving party or present a clear tactical 
        advantage for the moving party; and
            ``(4) whether a stay, or the denial thereof, will reduce 
        the burden of litigation on the parties and on the court.''.
    (e) Conforming Amendment.--The table of chapters for part III of 
title 35, United States Code, is amended by adding at the end the 
following:


``32. Post-Grant Review....................................     321.''


    (f) Regulations and Effective Date.--
            (1) Regulations.--The Director shall, not later than the 
        date that is 1 year after the date of the enactment of this 
        Act, issue regulations to carry out chapter 32 of title 35, 
        United States Code, as added by subsection (d) of this section.
            (2) Applicability.--
                    (A) In general.--The amendments made by subsection 
                (d) shall take effect upon the expiration of the 1-year 
                period beginning on the date of the enactment of this 
                Act and, except as provided in section 18 and in 
                paragraph (3), shall apply to any patent that is 
                described in section 2(n)(1).
                    (B) Limitation.--The Director may impose a limit on 
                the number of post-grant reviews that may be instituted 
                under chapter 32 of title 35, United States Code, 
                during each of the 4 years following the effective date 
                set forth in subparagraph (A).
            (3) Pending interferences.--
                    (A) Procedures in general.--The Director shall 
                determine, and include in the regulations issued under 
                paragraph (1), the procedures under which an 
                interference commenced before the effective date set 
                forth in paragraph (2) is to proceed, including whether 
                such interference--
                            (i) is to be dismissed without prejudice to 
                        the filing of a petition for a post-grant 
                        review under chapter 32 of title 35, United 
                        States Code; or
                            (ii) is to proceed as if this Act had not 
                        been enacted.
                    (B) Proceedings by patent trial and appeal board.--
                For purposes of an interference that is commenced 
                before the effective date set forth in paragraph (2), 
                the Director may deem the Patent Trial and Appeal Board 
                to be the Board of Patent Appeals and Interferences, 
                and may allow the Patent Trial and Appeal Board to 
                conduct any further proceedings in that interference.
                    (C) Appeals.--The authorization to appeal or have 
                remedy from derivation proceedings in sections 141(d) 
                and 146 of title 35, United States Code, and the 
                jurisdiction to entertain appeals from derivation 
                proceedings in section 1295(a)(4)(A) of title 28, 
                United States Code, shall be deemed to extend to any 
                final decision in an interference that is commenced 
                before the effective date set forth in paragraph (2) of 
                this subsection and that is not dismissed pursuant to 
                this paragraph.
    (g) Citation of Prior Art and Written Statements.--
            (1) In general.--Section 301 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 301. Citation of prior art and written statements

    ``(a) In General.--Any person at any time may cite to the Office in 
writing--
            ``(1) prior art consisting of patents or printed 
        publications which that person believes to have a bearing on 
        the patentability of any claim of a particular patent; or
            ``(2) statements of the patent owner filed in a proceeding 
        before a Federal court or the Office in which the patent owner 
        took a position on the scope of any claim of a particular 
        patent.
    ``(b) Official File.--If the person citing prior art or written 
statements pursuant to subsection (a) explains in writing the 
pertinence and manner of applying the prior art or written statements 
to at least 1 claim of the patent, the citation of the prior art or 
written statements and the explanation thereof shall become a part of 
the official file of the patent.
    ``(c) Additional Information.--A party that submits a written 
statement pursuant to subsection (a)(2) shall include any other 
documents, pleadings, or evidence from the proceeding in which the 
statement was filed that addresses the written statement.
    ``(d) Limitations.--A written statement submitted pursuant to 
subsection (a)(2), and additional information submitted pursuant to 
subsection (c), shall not be considered by the Office for any purpose 
other than to determine the proper meaning of a patent claim in a 
proceeding that is ordered or instituted pursuant to section 304, 314, 
or 324. If any such written statement or additional information is 
subject to an applicable protective order, it shall be redacted to 
exclude information that is subject to that order.
    ``(e) Confidentiality.--Upon the written request of the person 
citing prior art or written statements pursuant to subsection (a), that 
person's identity shall be excluded from the patent file and kept 
confidential.''.
            (2) Conforming amendment.--The item relating to section 301 
        in the table of sections for chapter 30 of title 35, United 
        States Code, is amended to read as follows:

    ``301. Citation of prior art and written statements.''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect upon the expiration of the 1-year period 
        beginning on the date of the enactment of this Act and shall 
        apply to any patent issued before, on, or after that effective 
        date.
    (h) Reexamination.--
            (1) Determination by director.--
                    (A) In general.--Section 303(a) of title 35, United 
                States Code, is amended by striking ``section 301 of 
                this title'' and inserting ``section 301 or 302''.
                    (B) Effective date.--The amendment made by this 
                paragraph shall take effect upon the expiration of the 
                1-year period beginning on the date of the enactment of 
                this Act and shall apply to any patent issued before, 
                on, or after that effective date.
            (2) Appeal.--
                    (A) In general.--Section 306 of title 35, United 
                States Code, is amended by striking ``145'' and 
                inserting ``144''.
                    (B) Effective date.--The amendment made by this 
                paragraph shall take effect on the date of the 
                enactment of this Act and shall apply to any appeal of 
                a reexamination that is pending before the Board of 
                Patent Appeals and Interferences or the Patent Trial 
                and Appeal Board on or after the date of the enactment 
                of this Act.

SEC. 6. PATENT TRIAL AND APPEAL BOARD.

    (a) Composition and Duties.--
            (1) In general.--Section 6 of title 35, United States Code, 
        is amended to read as follows:

``Sec. 6. Patent Trial and Appeal Board

    ``(a) In General.--There shall be in the Office a Patent Trial and 
Appeal Board. The Director, the Deputy Director, the Commissioner for 
Patents, the Commissioner for Trademarks, and the administrative patent 
judges shall constitute the Patent Trial and Appeal Board. The 
administrative patent judges shall be persons of competent legal 
knowledge and scientific ability who are appointed by the Secretary, in 
consultation with the Director. Any reference in any Federal law, 
Executive order, rule, regulation, or delegation of authority, or any 
document of or pertaining to the Board of Patent Appeals and 
Interferences is deemed to refer to the Patent Trial and Appeal Board.
    ``(b) Duties.--The Patent Trial and Appeal Board shall--
            ``(1) on written appeal of an applicant, review adverse 
        decisions of examiners upon applications for patents pursuant 
        to section 134(a);
            ``(2) review appeals of reexaminations pursuant to section 
        134(b);
            ``(3) conduct derivation proceedings pursuant to section 
        135; and
            ``(4) conduct inter partes reviews and post-grant reviews 
        pursuant to chapters 31 and 32.
    ``(c) 3-Member Panels.--Each appeal, derivation proceeding, post-
grant review, and inter partes review shall be heard by at least 3 
members of the Patent Trial and Appeal Board, who shall be designated 
by the Director. Only the Patent Trial and Appeal Board may grant 
rehearings.
    ``(d) Treatment of Prior Appointments.--The Secretary of Commerce 
may, in the Secretary's discretion, deem the appointment of an 
administrative patent judge who, before the date of the enactment of 
this subsection, held office pursuant to an appointment by the Director 
to take effect on the date on which the Director initially appointed 
the administrative patent judge. It shall be a defense to a challenge 
to the appointment of an administrative patent judge on the basis of 
the judge's having been originally appointed by the Director that the 
administrative patent judge so appointed was acting as a de facto 
officer.''.
            (2) Conforming amendment.--The item relating to section 6 
        in the table of sections for chapter 1 of title 35, United 
        States Code, is amended to read as follows:

    ``6. Patent Trial and Appeal Board.''.
    (b) Administrative Appeals.--Section 134 of title 35, United States 
Code, is amended--
            (1) in subsection (b), by striking ``any reexamination 
        proceeding'' and inserting ``a reexamination''; and
            (2) by striking subsection (c).
    (c) Circuit Appeals.--
            (1) In general.--Section 141 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 141. Appeal to the Court of Appeals for the Federal Circuit

    ``(a) Examinations.--An applicant who is dissatisfied with the 
final decision in an appeal to the Patent Trial and Appeal Board under 
section 134(a) may appeal the Board's decision to the United States 
Court of Appeals for the Federal Circuit. By filing such an appeal, the 
applicant waives his or her right to proceed under section 145.
    ``(b) Reexaminations.--A patent owner who is dissatisfied with the 
final decision in an appeal of a reexamination to the Patent Trial and 
Appeal Board under section 134(b) may appeal the Board's decision only 
to the United States Court of Appeals for the Federal Circuit.
    ``(c) Post-Grant and Inter Partes Reviews.--A party to a post-grant 
or inter partes review who is dissatisfied with the final written 
decision of the Patent Trial and Appeal Board under section 318(a) or 
328(a) may appeal the Board's decision only to the United States Court 
of Appeals for the Federal Circuit.
    ``(d) Derivation Proceedings.--A party to a derivation proceeding 
who is dissatisfied with the final decision of the Patent Trial and 
Appeal Board in the proceeding may appeal the decision to the United 
States Court of Appeals for the Federal Circuit, but such appeal shall 
be dismissed if any adverse party to such derivation proceeding, within 
20 days after the appellant has filed notice of appeal in accordance 
with section 142, files notice with the Director that the party elects 
to have all further proceedings conducted as provided in section 146. 
If the appellant does not, within 30 days after the filing of such 
notice by the adverse party, file a civil action under section 146, the 
Board's decision shall govern the further proceedings in the case.''.
            (2) Jurisdiction.--Section 1295(a)(4)(A) of title 28, 
        United States Code, is amended to read as follows:
                    ``(A) the Patent Trial and Appeal Board of the 
                United States Patent and Trademark Office with respect 
                to a patent application, derivation proceeding, 
                reexamination, post-grant review, or inter partes 
                review at the instance of a party who exercised that 
                party's right to participate in the applicable 
                proceeding before or appeal to the Board, except that 
                an applicant or a party to a derivation proceeding may 
                also have remedy by civil action pursuant to section 
                145 or 146 of title 35; an appeal under this 
                subparagraph of a decision of the Board with respect to 
                an application or derivation proceeding shall waive the 
                right of such applicant or party to proceed under 
                section 145 or 146 of title 35;''.
            (3) Proceedings on appeal.--Section 143 of title 35, United 
        States Code, is amended--
                    (A) by striking the third sentence and inserting 
                the following: ``In an ex parte case, the Director 
                shall submit to the court in writing the grounds for 
                the decision of the Patent and Trademark Office, 
                addressing all of the issues raised in the appeal. The 
                Director shall have the right to intervene in an appeal 
                from a decision entered by the Patent Trial and Appeal 
                Board in a derivation proceeding under section 135 or 
                in an inter partes or post-grant review under chapter 
                31 or 32.''; and
                    (B) by striking the last sentence.
    (d) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 1-year period beginning on the date 
of the enactment of this Act and shall apply to proceedings commenced 
on or after that effective date, except that--
            (1) the extension of jurisdiction to the United States 
        Court of Appeals for the Federal Circuit to entertain appeals 
        of decisions of the Patent Trial and Appeal Board in 
        reexaminations under the amendment made by subsection (c)(2) 
        shall be deemed to take effect on the date of enactment of this 
        Act and shall extend to any decision of the Board of Patent 
        Appeals and Interferences with respect to a reexamination that 
        is entered before, on, or after the date of the enactment of 
        this Act;
            (2) the provisions of sections 6, 134, and 141 of title 35, 
        United States Code, as in effect on the day before the date of 
        the enactment of this Act shall continue to apply to inter 
        partes reexaminations that are requested under section 311 of 
        such title before the effective date of the amendments made by 
        this section;
            (3) the Patent Trial and Appeal Board may be deemed to be 
        the Board of Patent Appeals and Interferences for purposes of 
        appeals of inter partes reexaminations that are requested under 
        section 311 of title 35, United States Code, before the 
        effective date of the amendments made by this section; and
            (4) the Director's right under the fourth sentence of 
        section 143 of title 35, United States Code, as amended by 
        subsection (c)(3) of this section, to intervene in an appeal 
        from a decision entered by the Patent Trial and Appeal Board 
        shall be deemed to extend to inter partes reexaminations that 
        are requested under section 311 of such title before the 
        effective date of the amendments made by this section.

SEC. 7. PREISSUANCE SUBMISSIONS BY THIRD PARTIES.

    (a) In General.--Section 122 of title 35, United States Code, is 
amended by adding at the end the following:
    ``(e) Preissuance Submissions by Third Parties.--
            ``(1) In general.--Any third party may submit for 
        consideration and inclusion in the record of a patent 
        application, any patent, published patent application, or other 
        printed publication of potential relevance to the examination 
        of the application, if such submission is made in writing 
        before the earlier of--
                    ``(A) the date a notice of allowance under section 
                151 is given or mailed in the application for patent; 
                or
                    ``(B) the later of--
                            ``(i) 6 months after the date on which the 
                        application for patent is first published under 
                        section 122 by the Office, or
                            ``(ii) the date of the first rejection 
                        under section 132 of any claim by the examiner 
                        during the examination of the application for 
                        patent.
            ``(2) Other requirements.--Any submission under paragraph 
        (1) shall--
                    ``(A) set forth a concise description of the 
                asserted relevance of each submitted document;
                    ``(B) be accompanied by such fee as the Director 
                may prescribe; and
                    ``(C) include a statement by the person making such 
                submission affirming that the submission was made in 
                compliance with this section.''.
    (b) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 1-year period beginning on the date 
of the enactment of this Act and shall apply to any patent application 
filed before, on, or after that effective date.

SEC. 8. VENUE.

    (a) Technical Amendments Relating to Venue.--Sections 32, 145, 146, 
154(b)(4)(A), and 293 of title 35, United States Code, and section 
21(b)(4) of the Trademark Act of 1946 (15 U.S.C. 1071(b)(4)), are each 
amended by striking ``United States District Court for the District of 
Columbia'' each place that term appears and inserting ``United States 
District Court for the Eastern District of Virginia''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of the enactment of this Act and shall apply to any 
civil action commenced on or after that date.

SEC. 9. FEE SETTING AUTHORITY.

    (a) Fee Setting.--
            (1) In general.--The Director may set or adjust by rule any 
        fee established, authorized, or charged under title 35, United 
        States Code, or the Trademark Act of 1946 (15 U.S.C. 1051 et 
        seq.), for any services performed by or materials furnished by, 
        the Office, subject to paragraph (2).
            (2) Fees to recover costs.--Fees may be set or adjusted 
        under paragraph (1) only to recover the aggregate estimated 
        costs to the Office for processing, activities, services, and 
        materials relating to patents (in the case of patent fees) and 
        trademarks (in the case of trademark fees), including 
        administrative costs of the Office with respect to such patent 
        or trademark fees (as the case may be).
    (b) Small and Micro Entities.--The fees set or adjusted under 
subsection (a) for filing, searching, examining, issuing, appealing, 
and maintaining patent applications and patents shall be reduced by 50 
percent with respect to the application of such fees to any small 
entity that qualifies for reduced fees under section 41(h)(1) of title 
35, United States Code, and shall be reduced by 75 percent with respect 
to the application of such fees to any micro entity as defined in 
section 123 of that title (as added by subsection (f) of this section).
    (c) Reduction of Fees in Certain Fiscal Years.--In each fiscal 
year, the Director--
            (1) shall consult with the Patent Public Advisory Committee 
        and the Trademark Public Advisory Committee on the advisability 
        of reducing any fees described in subsection (a); and
            (2) after the consultation required under paragraph (1), 
        may reduce such fees.
    (d) Role of the Public Advisory Committee.--The Director shall--
            (1) not less than 45 days before publishing any proposed 
        fee under subsection (a) in the Federal Register, submit the 
        proposed fee to the Patent Public Advisory Committee or the 
        Trademark Public Advisory Committee, or both, as appropriate;
            (2)(A) provide the relevant advisory committee described in 
        paragraph (1) a 30-day period following the submission of any 
        proposed fee, in which to deliberate, consider, and comment on 
        such proposal;
            (B) require that, during that 30-day period, the relevant 
        advisory committee hold a public hearing relating to such 
        proposal; and
            (C) assist the relevant advisory committee in carrying out 
        that public hearing, including by offering the use of the 
        resources of the Office to notify and promote the hearing to 
        the public and interested stakeholders;
            (3) require the relevant advisory committee to make 
        available to the public a written report setting forth in 
        detail the comments, advice, and recommendations of the 
        committee regarding the proposed fee; and
            (4) consider and analyze any comments, advice, or 
        recommendations received from the relevant advisory committee 
        before setting or adjusting (as the case may be) the fee.
    (e) Publication in the Federal Register.--
            (1) Publication and rationale.--The Director shall--
                    (A) publish any proposed fee change under this 
                section in the Federal Register;
                    (B) include, in such publication, the specific 
                rationale and purpose for the proposal, including the 
                possible expectations or benefits resulting from the 
                proposed change; and
                    (C) notify, through the Chair and Ranking Member of 
                the Committees on the Judiciary of the Senate and the 
                House of Representatives, the Congress of the proposed 
                change not later than the date on which the proposed 
                change is published under subparagraph (A).
            (2) Public comment period.--The Director shall, in the 
        publication under paragraph (1), provide the public a period of 
        not less than 45 days in which to submit comments on the 
        proposed change in fees.
            (3) Publication of final rule.--The final rule setting or 
        adjusting a fee under this section shall be published in the 
        Federal Register and in the Official Gazette of the Patent and 
        Trademark Office.
            (4) Congressional comment period.--A fee set or adjusted 
        under subsection (a) may not become effective--
                    (A) before the end of the 45-day period beginning 
                on the day after the date on which the Director 
                publishes the final rule adjusting or setting the fee 
                under paragraph (3); or
                    (B) if a law is enacted disapproving such fee.
            (5) Rule of construction.--Rules prescribed under this 
        section shall not diminish--
                    (A) the rights of an applicant for a patent under 
                title 35, United States Code, or for a trademark under 
                the Trademark Act of 1946; or
                    (B) any rights under a ratified treaty.
    (f) Retention of Authority.--The Director retains the authority 
under subsection (a) to set or adjust fees only during such period as 
the Patent and Trademark Office remains an agency within the Department 
of Commerce.
    (g) Micro Entity Defined.--
            (1) In general.--Chapter 11 of title 35, United States 
        Code, is amended by adding at the end the following new 
        section:

``Sec. 123. Micro entity defined.

    ``(a) In General.--For purposes of this title, the term `micro 
entity' means an applicant who makes a certification that the 
applicant--
            ``(1) qualifies as a small entity, as defined in 
        regulations issued by the Director;
            ``(2) has not been named as an inventor on more than 4 
        previously filed patent applications, other than applications 
        filed in another country, provisional applications under 
        section 111(b), or international applications filed under the 
        treaty defined in section 351(a) for which the basic national 
        fee under section 41(a) was not paid;
            ``(3) did not, in the calendar year preceding the calendar 
        year in which the examination fee for the application is being 
        paid, have a gross income, as defined in section 61(a) of the 
        Internal Revenue Code of 1986, exceeding 3 times the median 
        household income for that preceding calendar year, as reported 
        by the Bureau of the Census; and
            ``(4) has not assigned, granted, or conveyed, and is not 
        under an obligation by contract or law to assign, grant, or 
        convey, a license or other ownership interest in the 
        application concerned to an entity that, in the calendar year 
        preceding the calendar year in which the examination fee for 
        the application is being paid, had a gross income, as defined 
        in section 61(a) of the Internal Revenue Code of 1986, 
        exceeding 3 times the median household income for that 
        preceding calendar year, as most recently reported by the 
        Bureau of the Census.
    ``(b) Applications Resulting From Prior Employment.--An applicant 
is not considered to be named on a previously filed application for 
purposes of subsection (a)(2) if the applicant has assigned, or is 
under an obligation by contract or law to assign, all ownership rights 
in the application as the result of the applicant's previous 
employment.
    ``(c) Foreign Currency Exchange Rate.--If an applicant's or 
entity's gross income in the preceding year is not in United States 
dollars, the average currency exchange rate, as reported by the 
Internal Revenue Service, during the preceding year shall be used to 
determine whether the applicant's or entity's gross income exceeds the 
threshold specified in paragraphs (3) or (4) of subsection (a).
    ``(d) Public Institutions of Higher Education.--
            ``(1) In general.--For purposes of this section, a micro 
        entity shall include an applicant who certifies that--
                    ``(A) the applicant's employer, from which the 
                applicant obtains the majority of the applicant's 
                income, is an institution of higher education, as 
                defined in section 101 of the Higher Education Act of 
                1965 (20 U.S.C. 1001), that is a public institution; or
                    ``(B) the applicant has assigned, granted, 
                conveyed, or is under an obligation by contract or law 
                to assign, grant, or convey, a license or other 
                ownership interest in the particular application to 
                such State public institution.
            ``(2) Director's authority.--The Director may, in the 
        Director's discretion, impose income limits, annual filing 
        limits, or other limits on who may qualify as a micro entity 
        pursuant to this subsection if the Director determines that 
        such additional limits are reasonably necessary to avoid an 
        undue impact on other patent applicants or owners or are 
        otherwise reasonably necessary and appropriate. At least 3 
        months before any limits proposed to be imposed pursuant to 
        this paragraph shall take effect, the Director shall inform the 
        Committee on the Judiciary of the House of Representatives and 
        the Committee on the Judiciary of the Senate of any such 
        proposed limits.''.
            (2) Conforming amendment.--Chapter 11 of title 35, United 
        States Code, is amended by adding at the end the following new 
        item:

    ``123. Micro entity defined.''.
    (h) Electronic Filing Incentive.--
            (1) In general.--Notwithstanding any other provision of 
        this section, a fee of $400 shall be established for each 
        application for an original patent, except for a design, plant, 
        or provisional application, that is not filed by electronic 
        means as prescribed by the Director. The fee established by 
        this subsection shall be reduced by 50 percent for small 
        entities that qualify for reduced fees under section 41(h)(1) 
        of title 35, United States Code. All fees paid under this 
        subsection shall be deposited in the Treasury as an offsetting 
        receipt that shall not be available for obligation or 
        expenditure.
            (2) Effective date.--This subsection shall take effect upon 
        the expiration of the 60-day period beginning on the date of 
        the enactment of this Act.
    (i) Effective Date.--This section and the amendments made by this 
section shall take effect on the date of the enactment of this Act.

SEC. 10. FEES FOR PATENT SERVICES.

    (a) General Patent Services.--Subsections (a) and (b) of section 41 
of title 35, United States Code, are amended to read as follows:
    ``(a) General Fees.--The Director shall charge the following fees:
            ``(1) Filing and basic national fees.--
                    ``(A) On filing each application for an original 
                patent, except for design, plant, or provisional 
                applications, $330.
                    ``(B) On filing each application for an original 
                design patent, $220.
                    ``(C) On filing each application for an original 
                plant patent, $220.
                    ``(D) On filing each provisional application for an 
                original patent, $220.
                    ``(E) On filing each application for the reissue of 
                a patent, $330.
                    ``(F) The basic national fee for each international 
                application filed under the treaty defined in section 
                351(a) entering the national stage under section 371, 
                $330.
                    ``(G) In addition, excluding any sequence listing 
                or computer program listing filed in an electronic 
                medium as prescribed by the Director, for any 
                application the specification and drawings of which 
                exceed 100 sheets of paper (or equivalent as prescribed 
                by the Director if filed in an electronic medium), $270 
                for each additional 50 sheets of paper (or equivalent 
                as prescribed by the Director if filed in an electronic 
                medium) or fraction thereof.
            ``(2) Excess claims fees.--
                    ``(A) In general.--In addition to the fee specified 
                in paragraph (1)--
                            ``(i) on filing or on presentation at any 
                        other time, $220 for each claim in independent 
                        form in excess of 3;
                            ``(ii) on filing or on presentation at any 
                        other time, $52 for each claim (whether 
                        dependent or independent) in excess of 20; and
                            ``(iii) for each application containing a 
                        multiple dependent claim, $390.
                    ``(B) Multiple dependent claims.--For the purpose 
                of computing fees under subparagraph (A), a multiple 
                dependent claim referred to in section 112 or any claim 
                depending therefrom shall be considered as separate 
                dependent claims in accordance with the number of 
                claims to which reference is made.
                    ``(C) Refunds; errors in payment.--The Director may 
                by regulation provide for a refund of any part of the 
                fee specified in subparagraph (A) for any claim that is 
                canceled before an examination on the merits, as 
                prescribed by the Director, has been made of the 
                application under section 131. Errors in payment of the 
                additional fees under this paragraph may be rectified 
                in accordance with regulations prescribed by the 
                Director.
            ``(3) Examination fees.--
                    ``(A) In general.--
                            ``(i) For examination of each application 
                        for an original patent, except for design, 
                        plant, provisional, or international 
                        applications, $220.
                            ``(ii) For examination of each application 
                        for an original design patent, $140.
                            ``(iii) For examination of each application 
                        for an original plant patent, $170.
                            ``(iv) For examination of the national 
                        stage of each international application, $220.
                            ``(v) For examination of each application 
                        for the reissue of a patent, $650.
                    ``(B) Applicability of other fee provisions.--The 
                provisions of paragraphs (3) and (4) of section 111(a) 
                relating to the payment of the fee for filing the 
                application shall apply to the payment of the fee 
                specified in subparagraph (A) with respect to an 
                application filed under section 111(a). The provisions 
                of section 371(d) relating to the payment of the 
                national fee shall apply to the payment of the fee 
                specified in subparagraph (A) with respect to an 
                international application.
            ``(4) Issue fees.--
                    ``(A) For issuing each original patent, except for 
                design or plant patents, $1,510.
                    ``(B) For issuing each original design patent, 
                $860.
                    ``(C) For issuing each original plant patent, 
                $1,190.
                    ``(D) For issuing each reissue patent, $1,510.
            ``(5) Disclaimer fee.--On filing each disclaimer, $140.
            ``(6) Appeal fees.--
                    ``(A) On filing an appeal from the examiner to the 
                Patent Trial and Appeal Board, $540.
                    ``(B) In addition, on filing a brief in support of 
                the appeal, $540, and on requesting an oral hearing in 
                the appeal before the Patent Trial and Appeal Board, 
                $1,080.
            ``(7) Revival fees.--On filing each petition for the 
        revival of an unintentionally abandoned application for a 
        patent, for the unintentionally delayed payment of the fee for 
        issuing each patent, or for an unintentionally delayed response 
        by the patent owner in any reexamination proceeding, $1,620, 
        unless the petition is filed under section 133 or 151, in which 
        case the fee shall be $540.
            ``(8) Extension fees.--For petitions for 1-month extensions 
        of time to take actions required by the Director in an 
        application--
                    ``(A) on filing a first petition, $130;
                    ``(B) on filing a second petition, $360; and
                    ``(C) on filing a third or subsequent petition, 
                $620.
    ``(b) Maintenance Fees.--
            ``(1) In general.--The Director shall charge the following 
        fees for maintaining in force all patents based on applications 
        filed on or after December 12, 1980:
                    ``(A) Three years and 6 months after grant, $980.
                    ``(B) Seven years and 6 months after grant, $2,480.
                    ``(C) Eleven years and 6 months after grant, 
                $4,110.
            ``(2) Grace period; surcharge.--Unless payment of the 
        applicable maintenance fee under paragraph (1) is received in 
        the Office on or before the date the fee is due or within a 
        grace period of 6 months thereafter, the patent shall expire as 
        of the end of such grace period. The Director may require the 
        payment of a surcharge as a condition of accepting within such 
        6-month grace period the payment of an applicable maintenance 
        fee.
            ``(3) No maintenance fee for design or plant patent.--No 
        fee may be established for maintaining a design or plant patent 
        in force.''.
    (b) Delays in Payment.--Subsection (c) of section 41 of title 35, 
United States Code, is amended--
            (1) by striking ``(c)(1) The Director'' and inserting:
    ``(c) Delays in Payment of Maintenance Fees.--
            ``(1) Acceptance.--The Director''; and
            (2) by striking ``(2) A patent'' and inserting ``(2) Effect 
        on rights of others.--A patent''.
    (c) Patent Search Fees.--Subsection (d) of section 41 of title 35, 
United States Code, is amended to read as follows:
    ``(d) Patent Search and Other Fees.--
            ``(1) Patent search fees.--
                    ``(A) In general.--The Director shall charge the 
                fees specified under subparagraph (B) for the search of 
                each application for a patent, except for provisional 
                applications. The Director shall adjust the fees 
                charged under this paragraph to ensure that the fees 
                recover an amount not to exceed the estimated average 
                cost to the Office of searching applications for patent 
                either by acquiring a search report from a qualified 
                search authority, or by causing a search by Office 
                personnel to be made, of each application for patent.
                    ``(B) Specific fees.--The fees referred to in 
                subparagraph (A) are--
                            ``(i) $540 for each application for an 
                        original patent, except for design, plant, 
                        provisional, or international applications;
                            ``(ii) $100 for each application for an 
                        original design patent;
                            ``(iii) $330 for each application for an 
                        original plant patent;
                            ``(iv) $540 for the national stage of each 
                        international application; and
                            ``(v) $540 for each application for the 
                        reissue of a patent.
                    ``(C) Applicability of other provisions.--The 
                provisions of paragraphs (3) and (4) of section 111(a) 
                relating to the payment of the fee for filing the 
                application shall apply to the payment of the fee 
                specified in this paragraph with respect to an 
                application filed under section 111(a). The provisions 
                of section 371(d) relating to the payment of the 
                national fee shall apply to the payment of the fee 
                specified in this paragraph with respect to an 
                international application.
                    ``(D) Refunds.--The Director may by regulation 
                provide for a refund of any part of the fee specified 
                in this paragraph for any applicant who files a written 
                declaration of express abandonment as prescribed by the 
                Director before an examination has been made of the 
                application under section 131.
                    ``(E) Applications subject to secrecy order.--A 
                search of an application that is the subject of a 
                secrecy order under section 181 or otherwise involves 
                classified information may be conducted only by Office 
                personnel.
                    ``(F) Conflicts of interest.--A qualified search 
                authority that is a commercial entity may not conduct a 
                search of a patent application if the entity has any 
                direct or indirect financial interest in any patent or 
                in any pending or imminent application for patent filed 
                or to be filed in the Office.
            ``(2) Other fees.--
                    ``(A) In general.--The Director shall establish 
                fees for all other processing, services, or materials 
                relating to patents not specified in this section to 
                recover the estimated average cost to the Office of 
                such processing, services, or materials, except that 
                the Director shall charge the following fees for the 
                following services:
                            ``(i) For recording a document affecting 
                        title, $40 per property.
                            ``(ii) For each photocopy, $.25 per page.
                            ``(iii) For each black and white copy of a 
                        patent, $3.
                    ``(B) Copies for libraries.--The yearly fee for 
                providing a library specified in section 12 with 
                uncertified printed copies of the specifications and 
                drawings for all patents in that year shall be $50.''.
    (d) Fees for Small Entities.--Subsection (h) of section 41 of title 
35, United States Code, is amended to read as follows:
    ``(h) Fees for Small Entities.--
            ``(1) Reductions in fees.--Subject to paragraph (3), fees 
        charged under subsections (a), (b), and (d)(1) shall be reduced 
        by 50 percent with respect to their application to any small 
        business concern as defined under section 3 of the Small 
        Business Act, and to any independent inventor or nonprofit 
        organization as defined in regulations issued by the Director.
            ``(2) Surcharges and other fees.--With respect to its 
        application to any entity described in paragraph (1), any 
        surcharge or fee charged under subsection (c) or (d) shall not 
        be higher than the surcharge or fee required of any other 
        entity under the same or substantially similar circumstances.
            ``(3) Reduction for electronic filing.--The fee charged 
        under subsection (a)(1)(A) shall be reduced by 75 percent with 
        respect to its application to any entity to which paragraph (1) 
        applies, if the application is filed by electronic means as 
        prescribed by the Director.''.
    (e) Technical Amendments.--Section 41 of title 35, United States 
Code, is amended--
            (1) in subsection (e), in the first sentence, by striking 
        ``The Director'' and inserting ``Waiver of Fees; Copies 
        Regarding Notice.--The Director'';
            (2) in subsection (f), by striking ``The fees'' and 
        inserting ``Adjustment of Fees.--The fees'';
            (3) by repealing subsection (g); and
            (4) in subsection (i)--
                    (A) by striking ``(i)(1) The Director'' and 
                inserting the following:
    ``(i) Electronic Patent and Trademark Data.--
            ``(1) Maintenance of collections.--The Director'';
                    (B) by striking ``(2) The Director'' and inserting 
                the following:
            ``(2) Availability of automated search systems.--The 
        Director'';
                    (C) by striking ``(3) The Director'' and inserting 
                the following:
            ``(3) Access fees.--The Director''; and
                    (D) by striking ``(4) The Director'' and inserting 
                the following:
            ``(4) Annual report to congress.--The Director''.
    (f) Adjustment of Trademark Fees.--Section 802(a) of division B of 
the Consolidated Appropriations Act, 2005 (Public Law 108-447) is 
amended--
            (1) in the first sentence, by striking ``During fiscal 
        years 2005, 2006 and 2007,'', and inserting ``Until such time 
        as the Director sets or adjusts the fees otherwise,''; and
            (2) in the second sentence, by striking ``During fiscal 
        years 2005, 2006, and 2007, the'' and inserting ``The''.
    (g) Effective Date, Applicability, and Transition Provisions.--
Section 803(a) of division B of the Consolidated Appropriations Act, 
2005 (Public Law 108-447) Division B of Public Law 108-447 is amended 
by striking ``and shall apply only with respect to the remaining 
portion of fiscal year 2005 and fiscal year 2006''.
    (h) Electronic Filing Incentive.--
            (1) In general.--Notwithstanding any other provision of 
        this section, a fee of $400 shall be established for each 
        application for an original patent, except for a design, plant, 
        or provisional application, that is not filed by electronic 
        means as prescribed by the Director. The fee established by 
        this subsection shall be reduced by 50 percent for small 
        entities that qualify for reduced fees under section 41(h)(1) 
        of title 35, United States Code. All fees paid under this 
        subsection shall be deposited in the Treasury as an offsetting 
        receipt that shall not be available for obligation or 
        expenditure.
            (2) Effective date.--This subsection shall take effect upon 
        the expiration of the 60-day period beginning on the date of 
        the enactment of this Act.
    (i) Reduction in Fees for Small Entity Patents.--The Director shall 
reduce fees for providing prioritized examination of utility and plant 
patent applications by 50 percent for small entities that qualify for 
reduced fees under section 41(h)(1) of title 35, United States Code, so 
long as the fees of the prioritized examination program are set to 
recover the estimated cost of the program.
    (j) Effective Date.--Except as provided in subsection (h), this 
section and the amendments made by this section shall take effect on 
the date of the enactment of this Act.

SEC. 11. SUPPLEMENTAL EXAMINATION.

    (a) In General.--Chapter 25 of title 35, United States Code, is 
amended by adding at the end the following:

``Sec. 257. Supplemental examinations to consider, reconsider, or 
                    correct information

    ``(a) Request for Supplemental Examination.--A patent owner may 
request supplemental examination of a patent in the Office to consider, 
reconsider, or correct information believed to be relevant to the 
patent, in accordance with such requirements as the Director may 
establish. Within 3 months after the date a request for supplemental 
examination meeting the requirements of this section is received, the 
Director shall conduct the supplemental examination and shall conclude 
such examination by issuing a certificate indicating whether the 
information presented in the request raises a substantial new question 
of patentability.
    ``(b) Reexamination Ordered.--If the certificate issued under 
subsection (a) indicates that a substantial new question of 
patentability is raised by 1 or more items of information in the 
request, the Director shall order reexamination of the patent. The 
reexamination shall be conducted according to procedures established by 
chapter 30, except that the patent owner shall not have the right to 
file a statement pursuant to section 304. During the reexamination, the 
Director shall address each substantial new question of patentability 
identified during the supplemental examination, notwithstanding the 
limitations in chapter 30 relating to patents and printed publication 
or any other provision of such chapter.
    ``(c) Effect.--
            ``(1) In general.--A patent shall not be held unenforceable 
        on the basis of conduct relating to information that had not 
        been considered, was inadequately considered, or was incorrect 
        in a prior examination of the patent if the information was 
        considered, reconsidered, or corrected during a supplemental 
        examination of the patent. The making of a request under 
        subsection (a), or the absence thereof, shall not be relevant 
        to enforceability of the patent under section 282.
            ``(2) Exceptions.--
                    ``(A) Prior allegations.--Paragraph (1) shall not 
                apply to an allegation pled with particularity, or set 
                forth with particularity in a notice received by the 
                patent owner under section 505(j)(2)(B)(iv)(II) of the 
                Federal Food, Drug, and Cosmetic Act (21 U.S.C. 
                355(j)(2)(B)(iv)(II)), before the date of a 
                supplemental examination request under subsection (a) 
                to consider, reconsider, or correct information forming 
                the basis for the allegation.
                    ``(B) Patent enforcement actions.--In an action 
                brought under section 337(a) of the Tariff Act of 1930 
                (19 U.S.C. 1337(a)), or section 281 of this title, 
                paragraph (1) shall not apply to any defense raised in 
                the action that is based upon information that was 
                considered, reconsidered, or corrected pursuant to a 
                supplemental examination request under subsection (a), 
                unless the supplemental examination, and any 
                reexamination ordered pursuant to the request, are 
                concluded before the date on which the action is 
                brought.
    ``(d) Fees and Regulations.--
            ``(1) Fees.--The Director shall, by regulation, establish 
        fees for the submission of a request for supplemental 
        examination of a patent, and to consider each item of 
        information submitted in the request. If reexamination is 
        ordered under subsection (b), fees established and applicable 
        to ex parte reexamination proceedings under chapter 30 shall be 
        paid, in addition to fees applicable to supplemental 
        examination.
            ``(2) Regulations.--The Director shall issue regulations 
        governing the form, content, and other requirements of requests 
        for supplemental examination, and establishing procedures for 
        reviewing information submitted in such requests.
    ``(e) Rule of Construction.--Nothing in this section shall be 
construed--
            ``(1) to preclude the imposition of sanctions based upon 
        criminal or antitrust laws (including section 1001(a) of title 
        18, the first section of the Clayton Act, and section 5 of the 
        Federal Trade Commission Act to the extent that section relates 
        to unfair methods of competition);
            ``(2) to limit the authority of the Director to investigate 
        issues of possible misconduct and impose sanctions for 
        misconduct in connection with matters or proceedings before the 
        Office; or
            ``(3) to limit the authority of the Director to issue 
        regulations under chapter 3 relating to sanctions for 
        misconduct by representatives practicing before the Office.''.
    (b) Conforming Amendment.--The table of sections for chapter 25 of 
title 35, United States Code, is amended by adding at the end the 
following new item:

    ``257. Supplemental examinations to consider, reconsider, or 
correct information.''.
    (c) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 1-year period beginning on the date 
of the enactment of this Act and shall apply to any patent issued 
before, on, or after that effective date.

SEC. 12. FUNDING AGREEMENTS.

    (a) In General.--Section 202(c)(7)(E)(i) of title 35, United States 
Code, is amended--
            (1) by striking ``75 percent'' and inserting ``15 
        percent''; and
            (2) by striking ``25 percent'' and inserting ``85 
        percent''.
    (b) Effective Date.--The amendments made by this section shall take 
effect on the date of enactment of this Act and shall apply to any 
patent issued before, on, or after that date.

SEC. 13. TAX STRATEGIES DEEMED WITHIN THE PRIOR ART.

    (a) In General.--For purposes of evaluating an invention under 
section 102 or 103 of title 35, United States Code, any strategy for 
reducing, avoiding, or deferring tax liability, whether known or 
unknown at the time of the invention or application for patent, shall 
be deemed insufficient to differentiate a claimed invention from the 
prior art.
    (b) Definition.--For purposes of this section, the term ``tax 
liability'' refers to any liability for a tax under any Federal, State, 
or local law, or the law of any foreign jurisdiction, including any 
statute, rule, regulation, or ordinance that levies, imposes, or 
assesses such tax liability.
    (c) Exclusions.--This section does not apply to that part of an 
invention that--
            (1) is a method, apparatus, technology, computer program 
        product, or system, that is used solely for preparing a tax or 
        information return or other tax filing, including one that 
        records, transmits, transfers, or organizes data related to 
        such filing; or
            (2) is a method, apparatus, technology, computer program 
        product, or system used solely for financial management, to the 
        extent that it is severable from any tax strategy or does not 
        limit the use of any tax strategy by any taxpayer or tax 
        advisor.
    (d) Rule of Construction.--Nothing in this section shall be 
construed to imply that other business methods are patentable or that 
other business-method patents are valid.
    (e) Effective Date; Applicability.--This section shall take effect 
on the date of enactment of this Act and shall apply to any patent 
application pending, and any patent issued, on or after that date.

SEC. 14. BEST MODE REQUIREMENT.

    (a) In General.--Section 282 of title 35, United State Code, is 
amended in its second undesignated paragraph by striking paragraph (3) 
and inserting the following:
            ``(3) Invalidity of the patent or any claim in suit for 
        failure to comply with--
                    ``(A) any requirement of section 112, except that 
                the failure to disclose the best mode shall not be a 
                basis on which any claim of a patent may be canceled or 
                held invalid or otherwise unenforceable; or
                    ``(B) any requirement of section 251.''.
    (b) Conforming Amendment.--Sections 119(e)(1) and 120 of title 35, 
United States Code, are each amended by striking ``the first paragraph 
of section 112 of this title'' and inserting ``section 112(a) (other 
than the requirement to disclose the best mode)''.
    (c) Effective Date.--The amendments made by this section shall take 
effect upon the date of the enactment of this Act and shall apply to 
proceedings commenced on or after that date.

SEC. 15. MARKING.

    (a) Virtual Marking.--
            (1) In general.--Section 287(a) of title 35, United States 
        Code, is amended by striking ``or when,'' and inserting ``or by 
        fixing thereon the word `patent' or the abbreviation `pat.' 
        together with an address of a posting on the Internet, 
        accessible to the public without charge for accessing the 
        address, that associates the patented article with the number 
        of the patent, or when,''.
            (2) Effective date.--The amendment made by this subsection 
        shall apply to any case that is pending on, or commenced on or 
        after, the date of the enactment of this Act.
    (b) False Marking.--
            (1) Civil penalty.--Section 292(a) of title 35, United 
        States, Code, is amended by adding at the end the following: 
        ``Only the United States may sue for the penalty authorized by 
        this subsection.''.
            (2) Civil action for damages.--Subsection (b) of section 
        292 of title 35, United States Code, is amended to read as 
        follows:
    ``(b) A person who has suffered a competitive injury as a result of 
a violation of this section may file a civil action in a district court 
of the United States for recovery of damages adequate to compensate for 
the injury.''.
            (3) Effective date.--The amendments made by this subsection 
        shall apply to any case that is pending on, or commenced on or 
        after, the date of the enactment of this Act.

SEC. 16. ADVICE OF COUNSEL.

    (a) In General.--Chapter 29 of title 35, United States Code, is 
amended by adding at the end the following:

``Sec. 298. Advice of counsel

    ``The failure of an infringer to obtain the advice of counsel with 
respect to any allegedly infringed patent, or the failure of the 
infringer to present such advice to the court or jury, may not be used 
to prove that the accused infringer willfully infringed the patent or 
that the infringer intended to induce infringement of the patent.''.
    (b) Conforming Amendment.--The table of sections for chapter 29 of 
title 35, United States Code, is amended by adding at the end the 
following:

    ``298. Advice of counsel.''.

SEC. 17. OWNERSHIP; ASSIGNMENT.

    The fourth undesignated paragraph of section 261 of title 35, 
United States Code, is amended by inserting before the period the 
following: ``and identifies all real parties in interest and those 
entities that control, directly or indirectly, such real parties in 
interest''.

SEC. 18. TRANSITIONAL PROGRAM FOR COVERED BUSINESS METHOD PATENTS.

    (a) References.--Except as otherwise expressly provided, wherever 
in this section language is expressed in terms of a section or chapter, 
the reference shall be considered to be made to that section or chapter 
in title 35, United States Code.
    (b) Transitional Program.--
            (1) Establishment.--Not later than the date that is 1 year 
        after the date of the enactment of this Act, the Director shall 
        issue regulations establishing and implementing a transitional 
        post-grant review proceeding for review of the validity of 
        covered business method patents. The transitional proceeding 
        implemented pursuant to this subsection shall be regarded as, 
        and shall employ the standards and procedures of, a post-grant 
        review under chapter 32, subject to the following:
                    (A) Section 321(c) and subsections (b), (e)(2), and 
                (f) of section 325 shall not apply to a transitional 
                proceeding.
                    (B) A person may not file a petition for a 
                transitional proceeding with respect to a covered 
                business method patent unless the person or the 
                person's real party in interest has been sued for 
                infringement of the patent or has been charged with 
                infringement under that patent.
                    (C) A petitioner in a transitional proceeding who 
                challenges the validity of 1 or more claims in a 
                covered business method patent on a ground raised under 
                section 102 or 103, as in effect on the day before the 
                date of the enactment of this Act, may support such 
                ground only on the basis of--
                            (i) prior art that is described by section 
                        102(a) (as in effect on the day before the date 
                        of the enactment of this Act); or
                            (ii) prior art that--
                                    (I) discloses the invention more 
                                than 1 year before the date of the 
                                application for patent in the United 
                                States; and
                                    (II) would be described by section 
                                102(a) (as in effect on the day before 
                                the date of the enactment of this Act) 
                                if the disclosure had been made by 
                                another before the invention thereof by 
                                the applicant for patent.
                    (D) The petitioner in a transitional proceeding, or 
                the petitioner's real party in interest, may not 
                assert, either in a civil action arising in whole or in 
                part under section 1338 of title 28, United States 
                Code, or in a proceeding before the International Trade 
                Commission, that a claim in a patent is invalid on any 
                ground that the petitioner raised during a transitional 
                proceeding that resulted in a final written decision.
                    (E) The Director may institute a transitional 
                proceeding only for a patent that is a covered business 
                method patent.
            (2) Effective date.--The regulations issued under paragraph 
        (1) shall take effect upon the expiration of the 1-year period 
        beginning on the date of the enactment of this Act and shall 
        apply to any covered business method patent issued before, on, 
        or after such effective date, except that the regulations shall 
        not apply to a patent described in the first sentence of 
        section 5(f)(2) of this Act during the period that a petition 
        for post-grant review of that patent would satisfy the 
        requirements of section 321(c).
            (3) Sunset.--
                    (A) In general.--This subsection, and the 
                regulations issued under this subsection, are repealed 
                effective upon the expiration of the 4-year period 
                beginning on the date that the regulations issued under 
                to paragraph (1) take effect.
                    (B) Applicability.--Notwithstanding subparagraph 
                (A), this subsection and the regulations issued under 
                this subsection shall continue to apply, after the date 
                of the repeal under subparagraph (A), to any petition 
                for a transitional proceeding that is filed before the 
                date of such repeal.
    (c) Request for Stay.--
            (1) In general.--If a party seeks a stay of a civil action 
        alleging infringement of a patent under section 281 relating to 
        a transitional proceeding for that patent, the court shall 
        decide whether to enter a stay based on--
                    (A) whether a stay, or the denial thereof, will 
                simplify the issues in question and streamline the 
                trial;
                    (B) whether discovery is complete and whether a 
                trial date has been set;
                    (C) whether a stay, or the denial thereof, would 
                unduly prejudice the nonmoving party or present a clear 
                tactical advantage for the moving party; and
                    (D) whether a stay, or the denial thereof, will 
                reduce the burden of litigation on the parties and on 
                the court.
            (2) Review.--A party may take an immediate interlocutory 
        appeal from a district court's decision under paragraph (1). 
        The United States Court of Appeals for the Federal Circuit 
        shall review de novo the district court's decision to ensure 
        consistent application of established precedent.
    (d) Venue of Infringement Actions.--Notwithstanding section 1400(b) 
of title 28, United States Code, an action for infringement under 
section 281 of title 35, United States Code, of a covered business 
method patent may be brought only in a judicial district--
            (1) where the defendant has its principal place of business 
        or is incorporated;
            (2) where the defendant has committed acts of infringement 
        and has a regular and established place of business;
            (3) where the defendant has agreed or consented to be sued; 
        or
            (4) for foreign defendants that do not meet the 
        requirements of paragraphs (1) or (2), in accordance with 
        section 1391(d) of title 28, United States Code.
    (e) Attorney's Fees and Costs.--In an action for infringement under 
section 281 of title 35, United States Code, of a covered business 
method patent, the prevailing party shall be entitled to reasonable 
attorney's fees and costs.
    (f) ATM Exemption for Venue Purposes.--In an action for 
infringement under section 281 of title 35, United States Code, of a 
covered business method patent, an automated teller machine shall not 
be deemed to be a physical facility for purposes of section 1400(b)(2) 
of title 28, United States Code.
    (g) Definition.--
            (1) In general.--For purposes of this section, the term 
        ``covered business method patent'' means a patent that claims a 
        method or corresponding apparatus for performing data 
        processing or other operations used in the practice, 
        administration, or management of a financial product or 
        service, except that the term does not include patents for 
        technological inventions.
            (2) Regulations.--To assist in implementing the 
        transitional proceeding authorized by this subsection, the 
        Director shall issue regulations for determining whether a 
        patent is for a technological invention.
    (h) Rule of Construction.--Nothing in this section shall be 
construed as amending or interpreting categories of patent-eligible 
subject matter set forth under section 101.

SEC. 19. CLARIFICATION OF JURISDICTION.

    (a) State Court Jurisdiction.--Section 1338(a) of title 28, United 
States Code, is amended by striking the second sentence and inserting 
the following: ``No State court shall have jurisdiction over any claim 
for relief arising under any Act of Congress relating to patents, plant 
variety protection, or copyrights.''.
    (b) Court of Appeals for the Federal Circuit.--Section 1295(a)(1) 
of title 28, United States Code, is amended to read as follows:
            ``(1) of an appeal from a final decision of a district 
        court of the United States, the District Court of Guam, the 
        District Court of the Virgin Islands, or the District Court of 
        the Northern Mariana Islands, in any civil action arising 
        under, or in any civil action in which a party has asserted a 
        compulsory counterclaim arising under, any Act of Congress 
        relating to patents or plant variety protection;''.
    (c) Removal.--
            (1) In general.--Chapter 89 of title 28, United States 
        Code, is amended by adding at the end the following new 
        section:

``Sec. 1454. Patent, plant variety protection, and copyright cases

    ``(a) In General.--A civil action in which any party asserts a 
claim for relief arising under any Act of Congress relating to patents, 
plant variety protection, or copyrights may be removed to the district 
court of the United States for the district and division embracing the 
place where the action is pending.
    ``(b) Special Rules.--The removal of an action under this section 
shall be made in accordance with section 1446 of this chapter, except 
that if the removal is based solely on this section--
            ``(1) the action may be removed by any party; and
            ``(2) the time limitations contained in section 1446(b) may 
        be extended at any time for cause shown.
    ``(c) Clarification of Jurisdiction in Certain Cases.--The court to 
which a civil action is removed under this section is not precluded 
from hearing and determining any claim in the civil action because the 
State court from which the civil action is removed did not have 
jurisdiction over that claim.
    ``(d) Remand.--If a civil action is removed solely under this 
section, the district court--
            ``(1) shall remand all claims that are neither a basis for 
        removal under subsection (a) nor within the original or 
        supplemental jurisdiction of the district court under any Act 
        of Congress; and
            ``(2) may, under the circumstances specified in section 
        1367(c), remand any claims within the supplemental jurisdiction 
        of the district court under section 1367.''.
            (2) Conforming amendment.--The table of sections for 
        chapter 89 of title 28, United States Code, is amended by 
        adding at the end the following new item:

    ``1454. Patent, plant variety protection, and copyright cases.''.
    (d) Transfer by Court of Appeals for the Federal Circuit.--
            (1) In general.--Chapter 99 of title 28, United States 
        Code, is amended by adding at the end the following new 
        section:

``Sec. 1632. Transfer by the Court of Appeals for the Federal Circuit

    ``When a case is appealed to the Court of Appeals for the Federal 
Circuit under section 1295(a)(1), and no claim for relief arising under 
any Act of Congress relating to patents or plant variety protection is 
the subject of the appeal by any party, the Court of Appeals for the 
Federal Circuit shall transfer the appeal to the court of appeals for 
the regional circuit embracing the district from which the appeal has 
been taken.''.
            (2) Conforming amendment.--The table of sections for 
        chapter 99 of title 28, United States Code, is amended by 
        adding at the end the following new item:

    ``1632. Transfer by the Court of Appeals for the Federal 
Circuit.''.
    (e) Effective Date.--The amendments made by this section shall 
apply to any civil action commenced on or after the date of the 
enactment of this Act.

SEC. 20. TECHNICAL AMENDMENTS.

    (a) Joint Inventions.--Section 116 of title 35, United States Code, 
is amended--
                    (1) in the first undesignated paragraph, by 
                striking ``When'' and inserting ``(a) Joint 
                Inventions.--When'';
                    (2) in the second undesignated paragraph, by 
                striking ``If a joint inventor'' and inserting ``(b) 
                Omitted Inventor.--If a joint inventor''; and
                    (3) in the third undesignated paragraph--
                            (A) by striking ``Whenever'' and inserting 
                        ``(c) Correction of Errors in Application.--
                        Whenever''; and
                            (B) by striking ``and such error arose 
                        without any deceptive intent on his part,''.
    (b) Filing of Application in Foreign Country.--Section 184 of title 
35, United States Code, is amended--
            (1) in the first undesignated paragraph--
                    (A) by striking ``Except when'' and inserting ``(a) 
                Filing in Foreign Country.--Except when''; and
                    (B) by striking ``and without deceptive intent'';
            (2) in the second undesignated paragraph, by striking ``The 
        term'' and inserting ``(b) Application.--The term''; and
            (3) in the third undesignated paragraph, by striking ``The 
        scope'' and inserting ``(c) Subsequent Modifications, 
        Amendments, and Supplements.--The scope''.
    (c) Filing Without a License.--Section 185 of title 35, United 
States Code, is amended by striking ``and without deceptive intent''.
    (d) Reissue of Defective Patents.--Section 251 of title 35, United 
States Code, is amended--
            (1) in the first undesignated paragraph--
                    (A) by striking ``Whenever'' and inserting ``(a) In 
                General.--Whenever''; and
                    (B) by striking ``without any deceptive 
                intention'';
            (2) in the second undesignated paragraph, by striking ``The 
        Director'' and inserting ``(b) Multiple Reissued Patents.--The 
        Director'';
            (3) in the third undesignated paragraph, by striking ``The 
        provisions'' and inserting ``(c) Applicability of This Title.--
        The provisions''; and
            (4) in the last undesignated paragraph, by striking ``No 
        reissued patent'' and inserting ``(d) Reissue Patent Enlarging 
        Scope of Claims.--No reissued patent''.
    (e) Effect of Reissue.--Section 253 of title 35, United States 
Code, is amended--
            (1) in the first undesignated paragraph, by striking 
        ``Whenever, without any deceptive intention,'' and inserting 
        ``(a) In General.--Whenever''; and
            (2) in the second undesignated paragraph, by striking ``In 
        like manner'' and inserting ``(b) Additional Disclaimer or 
        Dedication.--In the manner set forth in subsection (a),''.
    (f) Correction of Named Inventor.--Section 256 of title 35, United 
States Code, is amended--
            (1) in the first undesignated paragraph--
                    (A) by striking ``Whenever'' and inserting ``(a) 
                Correction.--Whenever''; and
                    (B) by striking ``and such error arose without any 
                deceptive intention on his part''; and
            (2) in the second undesignated paragraph, by striking ``The 
        error'' and inserting ``(b) Patent Valid if Error Corrected.--
        The error''.
    (g) Ownership; Assignment.--The fourth undesignated paragraph of 
section 261 of title 35, United States Code, is amended by inserting 
before the period the following: ``and identifies all real parties in 
interest''.
    (h) Presumption of Validity.--Section 282 of title 35, United 
States Code, is amended--
            (1) in the first undesignated paragraph--
                    (A) by striking ``A patent'' and inserting ``(a) In 
                General.--A patent''; and
                    (B) by striking the third sentence;
            (2) in the second undesignated paragraph, by striking ``The 
        following'' and inserting ``(b) Defenses.--The following''; and
            (3) in the third undesignated paragraph--
                    (A) by striking ``In actions involving the validity 
                or infringement of a patent'' and inserting ``(c) 
                Notice of Actions; Actions During Extension of Patent 
                Term.--In an action involving the validity or 
                infringement of patent, the party asserting 
                infringement shall identify, in the pleadings or 
                otherwise in writing to the adverse party, all of its 
                real parties in interest, and''; and
                    (B) by striking ``Claims Court'' and inserting 
                ``Court of Federal Claims''.
    (i) Action for Infringement.--Section 288 of title 35, United 
States Code, is amended by striking ``, without deceptive intention,''.
    (j) Reviser's Notes.--
            (1) Section 3(e)(2) of title 35, United States Code, is 
        amended by striking ``this Act,'' and inserting ``that Act,''.
            (2) Section 202 of title 35, United States Code, is 
        amended--
                    (A) in subsection (b)(3), by striking ``the section 
                203(b)'' and inserting ``section 203(b)''; and
                    (B) in subsection (c)(7)--
                            (i) in subparagraph (D), by striking 
                        ``except where it proves'' and all that follows 
                        through ``small business firms; and'' and 
                        inserting: ``except where it is determined to 
                        be infeasible following a reasonable inquiry, a 
                        preference in the licensing of subject 
                        inventions shall be given to small business 
                        firms; and''; and
                            (ii) in subparagraph (E)(i), by striking 
                        ``as described above in this clause (D);'' and 
                        inserting ``described above in this clause;''.
            (3) Section 209(d)(1) of title 35, United States Code, is 
        amended by striking ``nontransferrable'' and inserting 
        ``nontransferable''.
            (4) Section 287(c)(2)(G) of title 35, United States Code, 
        is amended by striking ``any state'' and inserting ``any 
        State''.
            (5) Section 371(b) of title 35, United States Code, is 
        amended by striking ``of the treaty'' and inserting ``of the 
        treaty.''.
    (k) Unnecessary References.--
            (1) In general.--Title 35, United States Code, is amended 
        by striking ``of this title'' each place that term appears.
            (2) Exception.--The amendment made by paragraph (1) shall 
        not apply to the use of such term in the following sections of 
        title 35, United States Code:
                    (A) Section 1(c).
                    (B) Section 100.
                    (C) Section 101.
                    (D) Subsections (a) and (b) of section 105.
                    (E) The first instance of the use of such term in 
                section 111(b)(8).
                    (F) Section 157(a), in the matter preceding 
                paragraph (1).
                    (G) Section 161.
                    (H) Section 164.
                    (I) Section 171.
                    (J) Section 251(c), as so designated by this 
                section.
                    (K) Section 261.
                    (L) Subsections (a), (g), and (h) of section 271.
                    (M) Section 287(b)(1).
                    (N) Section 289.
                    (O) The first instance of the use of such term in 
                section 375(a).
    (l) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 1-year period beginning on the date 
of the enactment of this Act and shall apply to proceedings commenced 
on or after that effective date.

SEC. 21. TRAVEL EXPENSES AND PAYMENT OF ADMINISTRATIVE JUDGES.

    (a) Authority To Cover Certain Travel Related Expenses.--Section 
2(b)(11) of title 35, United States Code, is amended by inserting ``, 
and the Office is authorized to expend funds to cover the subsistence 
expenses and travel-related expenses, including per diem, lodging 
costs, and transportation costs, of non-federal employees attending 
such programs'' after ``world''.
    (b) Payment of Administrative Judges.--Section 3(b) of title 35, 
United States Code, is amended by adding at the end the following:
            ``(6) Administrative patent judges and administrative 
        trademark judges.--The Director has the authority to fix the 
        rate of basic pay for the administrative patent judges 
        appointed pursuant to section 6 of this title and the 
        administrative trademark judges appointed pursuant to section 
        17 of the Trademark Act of 1946 (15 U.S.C. 1067) at not greater 
        than the rate of basic pay payable for Level III of the 
        Executive Schedule. The payment of a rate of basic pay under 
        this paragraph shall not be subject to the pay limitation of 
        section 5306(e) or 5373 of title 5.''.

SEC. 22. PATENT AND TRADEMARK OFFICE FUNDING.

    (a) Definition.--In this section, the term ``Fund'' means the 
United States Patent and Trademark Office Public Enterprise Fund 
established under subsection (c).
    (b) Funding.--
            (1) In general.--Section 42 of title 35, United States 
        Code, is amended--
                    (A) in subsection (b), by striking ``Patent and 
                Trademark Office Appropriation Account'' and inserting 
                ``United States Patent and Trademark Office Public 
                Enterprise Fund''; and
                    (B) in subsection (c), in the first sentence--
                            (i) by striking ``To the extent'' and all 
                        that follows through ``fees'' and inserting 
                        ``Fees''; and
                            (ii) by striking ``shall be collected by 
                        and shall be available to the Director'' and 
                        inserting ``shall be collected by the Director 
                        and shall be available until expended''.
            (2) Effective date.--The amendments made by paragraph (1) 
        shall take effect on the later of--
                    (A) October 1, 2011; or
                    (B) the first day of the first fiscal year that 
                begins after the date of the enactment of this Act.
    (c) USPTO Revolving Fund.--
            (1) Establishment.--There is established in the Treasury of 
        the United States a revolving fund to be known as the ``United 
        States Patent and Trademark Office Public Enterprise Fund''. 
        Amounts shall be deposited in the Fund as an offsetting receipt 
        and shall be available for use by the Director without fiscal 
        year limitation.
            (2) Derivation of resources.--There shall be deposited into 
        the Fund, on and after the effective date set forth in 
        subsection (b)(2)--
                    (A) any fees collected under sections 41, 42, and 
                376 of title 35, United States Code, except that--
                            (i) notwithstanding any other provision of 
                        law, if such fees are collected by, and payable 
                        to, the Director, the Director shall transfer 
                        such amounts to the Fund; and
                            (ii) no funds collected pursuant to section 
                        9(h) of this Act or section 1(a)(2) of Public 
                        Law 111-45 shall be deposited in the Fund; and
                    (B) any fees collected under section 31 of the 
                Trademark Act of 1946 (15 U.S.C. 1113).
            (3) Expenses.--Amounts deposited into the Fund under 
        paragraph (2) shall be available, without fiscal year 
        limitation, to cover--
                    (A) all expenses to the extent consistent with the 
                limitation on the use of fees set forth in section 
                42(c) of title 35, United States Code, including all 
                administrative and operating expenses, determined in 
                the discretion of the Director to be ordinary and 
                reasonable, incurred by the Director for the continued 
                operation of all services, programs, activities, and 
                duties of the Office relating to patents and 
                trademarks, as such services, programs, activities, and 
                duties are described under--
                            (i) title 35, United States Code; and
                            (ii) the Trademark Act of 1946; and
                    (B) all expenses incurred pursuant to any 
                obligation, representation, or other commitment of the 
                Office.
    (d) Annual Report.--Not later than 60 days after the end of each 
fiscal year, the Director shall submit a report to Congress which 
shall--
            (1) summarize the operations of the Office for the 
        preceding fiscal year, including financial details and staff 
        levels broken down by each major activity of the Office;
            (2) detail the operating plan of the Office, including 
        specific expense and staff needs for the upcoming fiscal year;
            (3) describe the long-term modernization plans of the 
        Office;
            (4) set forth details of any progress towards such 
        modernization plans made in the previous fiscal year; and
            (5) include the results of the most recent audit carried 
        out under subsection (f).
    (e) Annual Spending Plan.--
            (1) In general.--Not later than 30 days after the beginning 
        of each fiscal year, the Director shall notify the Committees 
        on Appropriations of both Houses of Congress of the plan for 
        the obligation and expenditure of the total amount of the funds 
        for that fiscal year in accordance with section 605 of the 
        Science, State, Justice, Commerce, and Related Agencies 
        Appropriations Act, 2006 (Public Law 109-108; 119 Stat. 2334).
            (2) Contents.--Each plan under paragraph (1) shall--
                    (A) summarize the operations of the Office for the 
                current fiscal year, including financial details and 
                staff levels with respect to major activities; and
                    (B) detail the operating plan of the Office, 
                including specific expense and staff needs, for the 
                current fiscal year.
    (f) Audit.--The Director shall, on an annual basis, provide for an 
independent audit of the financial statements of the Office. Such audit 
shall be conducted in accordance with generally acceptable accounting 
procedures.
    (g) Budget.--The Fund shall prepare and submit each year to the 
President a business-type budget in a manner, and before a date, as the 
President prescribes by regulation for the budget program.

SEC. 23. SATELLITE OFFICES.

    (a) Establishment.--Subject to available resources, the Director 
shall, by not later than the date that is 3 years after the date of the 
enactment of this Act establish 3 or more satellite offices in the 
United States to carry out the responsibilities of the Patent and 
Trademark Office.
    (b) Purpose.--The purpose of the satellite offices established 
under subsection (a) are to--
            (1) increase outreach activities to better connect patent 
        filers and innovators with the Patent and Trademark Office;
            (2) enhance patent examiner retention;
            (3) improve recruitment of patent examiners; and
            (4) decrease the number of patent applications waiting for 
        examination and improve the quality of patent examination.
    (c) Required Considerations.--
            (1) In general.--In selecting the location of each 
        satellite office to be established under subsection (a), the 
        Director--
                    (A) shall ensure geographic diversity among the 
                offices, including by ensuring that such offices are 
                established in different States and regions throughout 
                the Nation;
                    (B) may rely upon any previous evaluations by the 
                Patent and Trademark Office of potential locales for 
                satellite offices, including any evaluations prepared 
                as part of the Office's Nationwide Workforce Program 
                that resulted in the 2010 selection of Detroit, 
                Michigan, as the first ever satellite office of the 
                Office.
            (2) Open selection process.--Nothing in paragraph (1) shall 
        constrain the Patent and Trademark Office to only consider its 
        evaluations in selecting the Detroit, Michigan, satellite 
        office.
    (d) Report to Congress.--Not later than the end of the first 3 
fiscal years that begin after the date of the enactment of this Act, 
the Director shall submit a report to Congress on--
            (1) the rationale of the Director in selecting the location 
        of any satellite office required under subsection (a);
            (2) the progress of the Director in establishing all such 
        satellite offices; and
            (3) whether the operation of existing satellite offices is 
        achieving the purposes required under subsection (b).

SEC. 24. PATENT OMBUDSMAN PROGRAM FOR SMALL BUSINESS CONCERNS.

    Subject to available resources, the Director may establish in the 
Office a Patent Ombudsman Program. The duties of the Program's staff 
shall include providing support and services relating to patent filings 
to small business concerns.

SEC. 25. PRIORITY EXAMINATION FOR TECHNOLOGIES IMPORTANT TO AMERICAN 
                    COMPETITIVENESS.

    Section 2(b)(2) of title 35, United States Code, is amended--
            (1) in subparagraph (E), by striking ``and'' after the 
        semicolon;
            (2) in subparagraph (F), by inserting ``and'' after the 
        semicolon; and
            (3) by adding at the end the following:
                    ``(G) may, subject to any conditions prescribed by 
                the Director and at the request of the patent 
                applicant, provide for prioritization of examination of 
                applications for products, processes, or technologies 
                that are important to the national economy or national 
                competitiveness without recovering the aggregate extra 
                cost of providing such prioritization, notwithstanding 
                section 41 or any other provision of law;''.

SEC. 26. DESIGNATION OF DETROIT SATELLITE OFFICE.

    (a) Designation.--The satellite office of the United States Patent 
and Trademark Office to be located in Detroit, Michigan, shall be known 
and designated as the ``Elijah J. McCoy United States Patent and 
Trademark Office''.
    (b) References.--Any reference in a law, map, regulation, document, 
paper, or other record of the United States to the satellite office of 
the United States Patent and Trademark Office to be located in Detroit, 
Michigan, referred to in subsection (a) shall be deemed to be a 
reference to the ``Elijah J. McCoy United States Patent and Trademark 
Office''.

SEC. 27. EFFECTIVE DATE.

    Except as otherwise provided in this Act, the provisions of this 
Act shall take effect 1 year after the date of the enactment of this 
Act and shall apply to any patent issued on or after that effective 
date.

SEC. 28. BUDGETARY EFFECTS.

    The budgetary effects of this Act, for the purpose of complying 
with the Statutory Pay-As-You-Go Act of 2010, shall be determined by 
reference to the latest statement titled ``Budgetary Effects of PAYGO 
Legislation'' for this Act, submitted for printing in the Congressional 
Record by the Chairman of the House Budget Committee, provided that 
such statement has been submitted prior to the vote on passage.
                                 



    Mr. Watt. Thank you, Mr. Chairman.
    And at the outset, I am going to ask the Chairman for a 
little indulgence today to give a slightly longer statement 
than I usually do.
    As late as yesterday afternoon, I had hoped to start this 
opening statement by proudly proclaiming that I was one of the 
many cosponsors of a broadly bipartisan, widely supported 
patent reform bill, which, while perhaps not perfected to the 
point of deserving final passage, the legislative counterpart 
to receiving an A rating on a first patent application review, 
would surely lead us ultimately to the long-awaited patent 
reform promised land.
    I had hoped that making that broad-based bipartisan start 
would put us well on the way to our inter partes dispute 
resolution process with the Senate and ultimately to the 
President of the United States granting our patent. I mean, 
signing our legislation into law.
    Unfortunately, we are not there yet. So I need to begin 
this opening statement at a much more basic place, with 
reminders of where this all starts and why it is so important.
    I start with the Constitution. The Constitution gives 
Congress the power to promote the progress of science and 
useful arts by securing for limited times to authors and 
inventors the exclusive right to their respective writings and 
discoveries.
    The objective of the Patent Act is to implement this 
constitutional authority by encouraging, supporting, and 
rewarding the ingenuity of our inventors by providing them 
exclusionary rights to their creation for a period of 20 years. 
In exchange, the inventor discloses to the public the details 
of his or her invention, setting off a ripple effect of further 
creativity and development.
    This simple concept embedded in our Constitution--
congressional promotion of innovation--finds itself in yet 
another term of Congress in search of a modern-day viable 
patent reform bill. Today, Chairman Smith introduced the 
America Invents Act to begin that process. I applaud him for 
his efforts.
    And while I am encouraged by discussions with Chairmen 
Smith and Goodlatte and other Members of this Subcommittee, and 
the full Committee, to borrow a phrase from one of our earlier 
hearings, there is still work ahead of us to get comprehensive 
reform ``across the finish line.''
    During the past debates on comprehensive patent reform, I 
don't need to tell most people in this room there have been 
numerous declarations to the effect that ``the time is now for 
true patent reform.'' And yet the finish line has proven 
elusive, and reform efforts have dissipated or certainly failed 
to cross the finish line.
    But we now have a unique opportunity to accomplish that 
goal and get across the finish line. Past debates have provided 
a solid foundation for optimism. Chairman Smith, Chairman 
Goodlatte, Mr. Conyers, Mr. Coble, Mr. Berman, and many other 
Members of this Committee, past and present, have cosponsored 
bills over the years aimed at transforming our patent system 
into an efficient forum for America's inventors.
    Their steadfast leadership has no doubt contributed to the 
widespread recognition of the importance of the patent system 
to our economy, job creation, and prominence in intellectual 
property advancement in the world.
    Today, we find all three branches of Government taking an 
active interest and energetic role in modernizing the patent 
system. Both the Supreme Court and the Federal Circuit have 
taken on and resolved many of the litigation-related issues 
that animated earlier calls for legislative relief.
    President Obama has made patent reform, along with 
education and intellectual property protection and enforcement 
activities, the centerpieces of his innovation agenda. Director 
Kappos has played a vital role in that agenda, convening 
special sessions with key stakeholders to mediate some of the 
competing concerns.
    The Senate has passed a bill, and we have initiated the 
process of establishing a robust statutory framework that will 
stimulate innovation and growth, provide adequate safeguards 
against abuses, and shore up the PTO to meet its crucial 
responsibilities.
    The question each participant in this process should now be 
asking is, ``Will I allow all that hard work and momentum to 
dissipate because I don't get exactly what I want on every 
issue that impacts me?'' If your personal answer to that 
question is yes, let me say unequivocally that I think you are 
in the wrong place.
    The bill introduced by Chairman Smith definitively provides 
the resources the PTO earns and deserves by permanently ending 
the practice of fee diversion and by guaranteeing to the PTO 
access to all the user-generated fees it collects. This 
provision has universal support, and I thank the Chairman for 
accepting some language that we offered to ensure compliance 
with new House CUTGO rules. This provision will go a long way 
toward helping the PTO to stabilize and eventually eliminate 
its 700,000 backlog of applications.
    Other provisions in the America Invents Act and some that 
have not been included I believe require further examination 
and, at this juncture, have less than universal support. But 
despite the appearance that may be projected by the failure to 
have a broad bipartisan bill at this point, these divisions are 
not partisan. I repeat, they are not partisan.
    Rather, they consist of legitimate substantive differences 
and approaches based on a variety of factors. For example, 
conversion from a first-to-invent to a first-to-file system has 
been portrayed by some as necessary to harmonize U.S. practice 
with the international community. Others argue that true 
harmonization and, indeed, balancing the interest of first 
filers, who may not actually be first inventors, with real 
first inventors, who may not be first filers, requires that 
expansion of prior use rights comparable to that employed by 
the rest of the patent-issuing countries, with some exceptions, 
still needs to be implemented.
    Still others have expressed the view that prior user rights 
have no place in our country that has a public university 
system unlike any other that engages in valuable public-private 
collaborative research and development. Patent law currently 
affords first inventors a 1-year grace period during which an 
inventor can disclose, publish, or use his invention without 
fear of forfeiting his right to a patent, provided he applies 
before the expiration of the grace period.
    The grace period is uncommon in the rest of the world and 
yet has become an integral part of the PTO patenting process 
and is coveted by most innovators. How the grace period will 
operate in a first-to-file system, i.e., whether the duration 
of the grace period should be adjusted upward or downward, is a 
legitimate, substantive question.
    Finally, what mechanisms are necessary to afford effective 
and affordable post grant review procedures? Under current law, 
there are two tracks available to challenge a patent after it 
has been issued, each with its own limitations. Is a third 
track similar to the post grant reviews in other countries a 
necessary tool, or will it pile onto the already overburdened, 
understaffed PTO or add further unwarranted delays to getting 
final court determinations?
    Again, I believe these are not frivolous questions. Many of 
these issues have been central to the debate in past 
Congresses, and yet we have already seen that a sea change in 
the judicial approach to patent law dispense with the need for 
the litigation-related reform proposals of old.
    We should not allow this debate to become a missed 
opportunity to effectuate genuine, long-lasting, effective 
reform of what most consider an antiquated system by holding 
onto our selfish, sometimes myopic views and refusing to 
compromise.
    Over the past few decades, our economy has shifted from a 
manufacturing economy to one rooted in intellectual property 
rights. It is extremely important that our patent system 
continue to incentivize ideas and protect engines of growth. 
Innovation will no doubt continue despite a sluggish patent 
system, as evidenced by the ongoing backlog and intake of 
applications.
    But I believe we need to get this right. Unless we are 
prepared to relinquish our positions at the forefront of 
innovation, invention, and ingenuity, we must produce a bill 
that at a minimum exceeds even the best components of patent 
systems around the world.
    I believe this Subcommittee, with an infusion of new blood 
on both sides of the aisle and the invaluable experience of our 
veterans, stands ready to negotiate a bipartisan product that 
we can all be proud of, one that embodies core features that 
will produce quality patents, efficient procedures, effective 
reviews, affordable processes, and safeguards against abuse and 
harassment.
    In closing, Mr. Chairman, a little anecdote. In my 
district, I engage in a project called Trading Places. Maybe 
some of you are more familiar with the television show 
Undercover Boss. Both operate on the premise that you can 
acquire a deep appreciation of the other guy when you are 
required to experience life in his perspective.
    If there is one important lesson that has been reinforced 
for me throughout my time in Congress is that progress requires 
compromise, simple give and take on everyone's views. In the 
practice of law, we always said that the definition of a good 
compromise was one that made all parties unhappy.
    So I would encourage all of the stakeholders involved to 
optimize the results of this process by concentrating their 
efforts on the genuine, universal changes essential to making 
the patent process work for everybody. The alternative is, in 
the words of Yogi Berra, ``deja vu all over again.''
    I thank the Chairman for his indulgence and yield back.
    Mr. Goodlatte. I thank the gentleman.
    The Chair now recognizes the Chairman of the Judiciary 
Committee and the sponsor of this legislation, the gentleman 
from Texas, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    And also, Mr. Chairman, I appreciated your opening 
statement and also appreciated Mr. Watt's opening remarks as 
well. While lengthy, he raised a number of good points, and I 
would only add to Mr. Watt's comment or his definition of 
compromise is that maybe we can come up with a compromise plus. 
Rather than making everybody equally unhappy, maybe we can make 
everybody just a little bit happy and come up with a good 
product in the end.
    Mr. Chairman, the foresight of the Founders in creating an 
intellectual property system in the Constitution demonstrates 
their understanding of how patent rights ultimately benefit the 
American people. Technological innovation derived from our 
intellectual property is linked to three-quarters of America's 
economic growth, and American IP industries now account for 
over half of all U.S. exports. These industries also provide 
millions of Americans with well-paying jobs.
    Our patent laws, which provide a time-limited monopoly to 
inventors in exchange for their creative talents, perpetuate 
this prosperity. The last major patent reform was nearly 60 
years ago. Since then, American inventors have helped to put a 
man on the Moon, developed cell phones, and created the 
Internet.
    But we cannot protect the technologies of today with the 
tools of the past. The current patent system is outdated and 
bogged down by frivolous lawsuits and uncertainty regarding 
patent ownership. Frivolous lawsuits that typically cost $5 
million to defend prevent legitimate inventors and industrious 
companies from creating amazing products and generating high-
paying jobs.
    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. The 
major problem plaguing the patent system is the lack of 
resources available to the PTO. The bill allows the director to 
adjust the fee schedule with appropriate congressional 
oversight and authorizes the agency to keep all the revenue it 
raises.
    This will enable PTO to become more efficient and 
productive. Patent quality will improve on the front end, which 
will reduce litigation on the back end.
    And while we are pleased with the Senate's action, the 
Senate bill doesn't make inter partes re-examination as user 
friendly as it might be. Every industry affected by patents, 
including finance, automotive, manufacturing, high tech, and 
pharmaceuticals, will benefit from these reforms.
    The purpose of today's hearing is to identify common ground 
and establish priorities. For example, given the political 
context in which we must legislate, I think we have been very 
fair to high tech. Also, the bill doesn't address many 
litigation reform issues because the courts are handing down 
decisions on damages, venue, and other subjects.
    And we lengthened the filing deadlines for post grant 
opposition and inter partes re-exam, lowered the threshold 
trigger for inter partes, and enhanced prior user rights in 
response to tech request. Also, the bill includes a clear 
exclusion for the university community to prior user rights and 
a Bayh-Dole provision that allows universities to keep a 
greater share of their patent licensing revenue. It is a good 
deal for many in the university community.
    However, it disappoints me that some stakeholders are only 
concentrating on what they don't have. Ultimately, this patent 
reform must strike a delicate balance. There is a reason why 
patent reform bills have not been enacted over the last four 
Congresses. It is impossible for any one group to get 
everything that they want.
    This bill represents a fair compromise and creates a better 
patent system than exists today for inventors in our innovative 
industries. All of us should maintain a broader perspective if 
we want to enact 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.
    Thank you, Mr. Chairman. Yield back.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    We are improvising as we move along here. As we announced 
earlier, the Committee is going to stand in recess for the 
briefing on Libya by some of our country's leaders.
    However, I have just learned that Mr. Kappos has to be 
leaving the country shortly. So what I would like to do is I 
will stay, and anyone is invited to stay as well, to hear his 
testimony.
    And then we will recess, and we will submit any questions 
we have in writing to you. When we return, we will begin with 
the second panel.
    So, briefly, I will introduce the Honorable David J. 
Kappos, the Under Secretary of Commerce for Intellectual 
Property and Director of the United States Patent and Trademark 
Office. In this role, he advises the President, the Secretary 
of Commerce, and the Administration on intellectual property 
matters.
    Before joining the PTO, Mr. Kappos led the intellectual 
property law department at IBM. He has served on the Board of 
Directors of the American Intellectual Property Law 
Association, the Intellectual Property Owners Association, and 
the International Intellectual Property Society. He has held 
various other leadership positions in intellectual property law 
associations in Asia and the United States and has spoken on 
intellectual property topics around the world.
    Mr. Kappos received his Bachelor of Science degree in 
electrical and computer engineering from the University of 
California-Davis in 1983 and his law degree from the University 
of California at Berkeley in 1990.
    Welcome, Mr. Kappos.
    Mr. Sensenbrenner. Mr. Chairman? If the Chairman will yield 
for a bit? Is Mr. Kappos going to be able to answer questions 
after his testimony, or is he just going to split?
    Mr. Goodlatte. He is going to have to leave, and we are 
going to submit questions to him in writing, which we will ask 
him to answer promptly.
    Mr. Sensenbrenner. Well, I hope he comes back because that 
is not acceptable.
    Mr. Goodlatte. I thank the gentleman.
    Mr. Kappos, welcome.

TESTIMONY OF THE HONORABLE DAVID J. KAPPOS, UNDER SECRETARY OF 
  COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR, THE UNITED 
               STATES PATENT AND TRADEMARK OFFICE

    Mr. Kappos. Well, thank you, Chairman Goodlatte, Ranking 
Member Watt, and Chairman Smith, Members of the Subcommittee. 
Thank you for this opportunity to discuss the Department of 
Commerce's and the USPTO'S views on patent reform today.
    Mr. Chairman, we commend you and your colleagues for 
introducing H.R. 1249. Reforming our patent system will support 
and encourage innovation that improves American 
competitiveness, economic prosperity, and job growth. It is 
past due.
    We believe that enactment of the legislation now under 
consideration will significantly improve our patent processes, 
reduce litigation uncertainties and costs, and increase the 
value of patent rights for American innovators.
    There are several critical proposals under consideration. 
We view the proposed transition to a first-inventor-to-file 
system as an essential feature of any final bill. The 
transition will simplify the process of acquiring rights while 
maintaining a 1-year grace period that protects innovators. It 
will reduce legal costs, improve fairness, objectivity, and 
transparency, and support U.S. innovators doing business 
abroad.
    Some contend that the proposed transition will only benefit 
large patent owners to the disadvantage of independent 
inventors. This fear is unfounded and inconsistent with the 
facts.
    In the past 7 years of over three million patent 
applications filed in the USPTO, only 25 patents were granted 
to small entities that were the second inventor to file but 
were able to prove they were first to invent. And of those 25, 
only one patent was granted to an independent inventor.
    Thus, in the last 7 years, only one independent inventor's 
filing would have received a different outcome under the first-
inventor-to-file system. That is 1 in 3 million.
    Further, the cost of proving who is a first to invent under 
the current system is prohibitive. It costs an average of 
$400,000 to $500,000 in legal fees to engage in interference 
proceedings. Most independent inventors simply do not have the 
resources for these proceedings.
    Mr. Chairman, the facts demonstrate that the current system 
actually favors those with deep pockets and works to the 
disadvantage of small companies and independent inventors with 
limited resources. The new first-to-file system will instead 
benefit small entity filers by giving them a transparent, 
objective, simple system with no hidden traps or costs.
    With respect to funding, we are pleased that the proposed 
legislation includes authority for the USPTO to establish and 
adjust its fees. Fee-setting authority would be accompanied by 
strong oversight and input from our advisory committees, by 
stakeholders, and by Congress, in addition to the oversight we 
receive from OMB and from the Department of Commerce.
    Fee-setting authority, coupled with full availability of 
fee collections through a revolving fund, will permit the USPTO 
to achieve a stable funding model that supports long-term 
improvements in operations.
    Mr. Chairman, we also support establishment of a new post 
grant review proceeding and the retooling of our existing post 
grant re-examination procedure. These review proceedings will 
minimize costs and increase certainty by offering efficient 
alternatives to litigation as a means of reviewing questions of 
patent validity. Several factors provided in this legislation 
will ensure manageable implementation, including the delayed 
effective dates, the authority to set fees and issue 
administrative and procedural regulations, and the authority to 
impose limits on the number of reviews during the first 4 
years.
    Also, we are confident that the provisions will prevent 
delay and abusive challenges while enabling challenges based on 
meritorious grounds.
    Mr. Chairman, as a quality-focused measure, we support 
provisions that increase the opportunity for third parties to 
submit relevant prior art after publication and before 
examination. We are pleased to see that the legislative process 
has refocused to specifically address patent quality and patent 
operations improvements that can be implemented by the USPTO.
    In light of recent court decisions relating to damages 
assessments, willfulness, and venue considerations, we support 
removal of related provisions in patent reform legislation. The 
House bill would also expand current prior user defense to all 
areas of technology and includes an exemption when this defense 
is raised in litigation against a university.
    Expanding the prior user defense is pro-manufacturer, pro-
small business, and on balance, good policy. But I am aware of 
university community concerns and would like to help address 
them.
    Mr. Chairman, again, we commend you for introducing H.R. 
1249. We look forward to working with you toward enactment of 
patent reform legislation that supports America's innovators 
and spurs economic growth and job creation.
    Thank you.
    [The prepared statement of Mr. Kappos follows:]

    
    
    
    
    
    
    
    

                               __________
    Mr. Goodlatte. Thank you, Mr. Kappos.
    The Ranking Member and I have consulted. And in order to 
accommodate the concerns of the Chairman emeritus, I am going 
to ask him to take the Chair and ask the questions that he 
would like to ask. And then ask him to recognize the 
gentlewoman from California, Ms. Lofgren, who will ask some 
questions.
    I believe that will just about use up your time and keep 
you on schedule, and the rest of us will submit our questions 
in writing.
    We may want to defer to the Chairman of the Committee as 
well.
    Mr. Sensenbrenner [presiding]. Well, I thank the Chair of 
the Subcommittee for this minor modification of what is not 
acceptable. This is a pretty important bill. And simply to have 
Mr. Kappos here and answer questions from two or three Members 
of the Subcommittee and not have another shot at you, you know, 
I think gets this bill off to a very, very wrong foot.
    And it is my hope that we do a little bit better job in 
terms of scheduling things so that we can get the issues on the 
table, which, in my opinion, is a necessary precondition in 
order to get the support to pass this bill.
    Now, Mr. Kappos, I have got a big concern about prior user 
rights and the changes this bill proposes and which apparently 
the Administration supports. During my tenure as Chairman of 
both the Science and Judiciary Committees, I have learned 
firsthand the importance of publication and disclosure in the 
patent law.
    And in 2007, I coauthored with Ms. Baldwin an amendment on 
the House floor to remove the prior user rights expansion from 
the patent reform bill then under consideration, and now it is 
back on the table. I fear that expanding prior user rights will 
harm inventors who share their knowledge and discovery and 
reward those who choose to stay silent, keep innovation secret, 
and don't contribute to the products of science.
    Now the Obama administration has given an indication of 
support for section 4 of the America COMPETES Act, which 
significantly increases prior user rights, which goes directly 
opposite to the amendment that Ms. Baldwin and I offered. And 
that effectively puts trade secrecy in the patent law with a 
powerful incentive--a royalty-free statutory license.
    Section 4 also confers its benefits outside the United 
States. So, for example, can the Chinese simply raise a prior 
user rights defense against a patent infringement claim, and 
how does that help America compete?
    Mr. Kappos. Well, thank you very much, Representative 
Sensenbrenner. Thank you for giving me an opportunity to 
respond on prior user rights.
    So, first of all, I want to point out there is no 
Administration position on prior user rights yet, with the bill 
just having been introduced.
    Mr. Sensenbrenner. When will there be because this is not a 
new issue to be debated?
    Mr. Kappos. Well, now that the bill is introduced, we will 
be putting together a position here as quickly as possible. I 
would offer a few observations of my own, if that is okay? And 
those include, number one, that we are very concerned about 
university concerns and university issues. We are listening to 
the universities and want to continue to work with them.
    We want to have a prior user rights provision that meets 
the needs of America's important university community. So we 
stand very much with you on that point.
    I believe there are, however, many incentives to file 
patent applications in front of the USPTO. We will receive more 
than 500,000 patent applications this year. And so, I do not 
view a prior user provision as being in conflict with all of 
the good reasons to file patent applications and with the 
disclosure incentive of the patent system.
    I also think that prior user rights have the advantage of 
being very pro-American manufacturing. Currently, there is 
actually an incentive for American businesses to locate their 
factories overseas, whether it be China or any other country. 
And the reason is because all of those other countries have 
prior user rights.
    And that means that if a patent is registered, if a patent 
is enforced in that country, it cannot be used against your 
manufacturing if your manufacturing facility qualifies for the 
prior user rights in those countries. The U.S., not having a 
prior user rights system, is at a comparative disadvantage with 
those other countries, and the message that we are sending to 
our manufacturers, especially small manufacturers, is that you 
are in jeopardy.
    Even if you set up a manufacturing plant in this country 
and have it running for several years, you are in jeopardy of 
being attacked with a patent that is potentially filed much 
later than your manufacturing. And so, you can avoid that 
dilemma by locating your factory overseas. I would like to see 
that competitive advantage----
    Mr. Sensenbrenner. Well, I strongly disagree with you. I 
think that the prior user rights expansion is going to end up 
giving China a ``get out of jail free'' card. And I have spent 
a good part of the last 15 years yelling about Chinese piracy 
of intellectual property rights, and I am afraid that we are 
just legalizing that with the prior user rights expansion that 
is contained in the draft bill, and this very well could be a 
poison pill.
    Now the other point that I want to make is I think that it 
would be very wise to separate out the ban on fee diversion so 
that can be passed independently of the base patent bill, which 
I think is going to become very controversial. I think 
everybody here agrees that getting rid of the fee diversion is 
a step in the right direction.
    And there might be those that want to use that as a way to 
boost a bad bill to the goal line. I think that the thing to do 
is to free the fee diversion and let it be passed and signed, 
and then let the rest of the bill sink or swim.
    My time is up. The gentlewoman from California, Ms. 
Lofgren?
    Ms. Lofgren. Thank you, Mr. Sensenbrenner.
    And I agree that it would be terrific to have more time to 
discuss this with the director. I would like to say that this 
is the first time I have walked in on a patent hearing when we 
had to have an overflow room. So that was exciting.
    You know, I have a number of questions. First, on the re-
exam, inter partes re-exam. It is my understanding that from 
1999 to the end of last year that the office issued decisions 
in the total of 221 re-exams. And that of those cases, 90 
percent resulted in invalidation of at least one claim of the 
patent that was being challenged. Is that correct?
    Mr. Kappos. Right offhand, that sounds like it is correct.
    Ms. Lofgren. So that would seem to say that in the 
overwhelming majority of these matters, the re-exams have some 
merit?
    Mr. Kappos. Yes.
    Ms. Lofgren. And that allegations that the current system 
is being abused might be off the mark. Would you say that is 
correct?
    Mr. Kappos. I would agree with that.
    Ms. Lofgren. Some have said that the current standard for 
initiation is too low. Now it seems to me that you should be 
able to require at least a prima facie showing of invalidity to 
move something forward. On the other hand, we don't want you, 
as the director, to make the decision before everything has 
been made. What is your thought on that issue?
    Mr. Kappos. Right. Well, your statistics are, indeed, 
consistent with what we are seeing continuing into this year. 
We have processed now hundreds of inter partes re-examinations, 
and what we are finding is that our rate of what is called 
``false positives,'' or cases that get over the SNQ threshold, 
is relatively low.
    Now that is new factual information that we have over the 
last few years that puts us in a position to be comfortable 
with the SNQ standard, both because we have become successful 
at implementing it, and because we have shown statistically 
that we don't have a high level of these false positives.
    We also are cognizant, though, of the higher standard that 
has been proposed on the Senate side of a reasonable 
likelihood, and that standard does have an advantage built into 
it of enabling us to filter out more cases at the threshold and 
compress our timescale.
    Ms. Lofgren. Well, it might be easier on the office, but it 
is going to be harder on the system, and we will see more 
matters litigated at more expense to the American economy. It 
might be better to give you the resources to deal with it, 
wouldn't you say?
    Mr. Kappos. Right. That is a fair point. My view is that, 
on balance, it is more costly to our economy to have false 
negatives.
    Ms. Lofgren. Right.
    Mr. Kappos. Those are cases where we should be taking a 
substantive look at the patent, but we didn't because the 
threshold was set too high.
    Ms. Lofgren. Right. Well, and right now, I mean, there is 
significant disincentive to bring an action because in the 
litigation, anything that could have been raised can't be used. 
And therefore, I am assuming, just you have got 90 percent 
there is a problem, and yet this major disincentive to even 
using the system. That if we were to make this more accessible 
and give your office the resources to deal with it, that we 
would divert a lot of matters that could be dealt with 
successfully in this process. Wouldn't you say that is true?
    Mr. Kappos. Well, that is right. If I can say that in my 
own words also, that I believe there are significant advantages 
for patentees who successfully go through the post grant 
system--in this case, inter partes review--because of those 
estoppel provisions. Those estoppel provisions mean that your 
patent is largely unchallengeable again by the same party.
    Ms. Lofgren. Right.
    Mr. Kappos. And so, there is a tremendous disincentive 
already built in against bringing frivolous inter parte----
    Ms. Lofgren. I am going to interrupt because I am almost 
out of time, and I want to ask you just one final question. The 
engineers have talked to me about third-party submission of 
prior art. A lot of them think that may be the most important 
part of this bill. It is an open-sourcing patent information.
    But it looks like there is evidence that patent examiners 
already ignore a lot of information except what they find 
through their own search. If we have third-party submission of 
prior art that is vigorous and reenergized, how are you going 
to get your examiners to actually accept that information, take 
it seriously, and utilize it in a way that would optimize the 
submissions?
    Mr. Kappos. Right. Well, that is a question of training, 
coaching, and incentives, and we are engaged in those very 
processes because we want our examiners to use the best art, no 
matter whether it is art they found or whether it is art that 
came in from some other source.
    We have found, however, in the pilot that we are currently 
running on this third-party review system that the examiners 
really enjoy using it and that they are using the prior art 
that is coming in. So it may be that having this commentary and 
additional help from third parties that they are getting 
through the pilot gives examiners that kind of----
    Ms. Lofgren. My time is off, and maybe you could send us 
some more information on that pilot after the hearing? I would 
be very interested.
    And I thank you, Mr. Chairman.
    Mr. Sensenbrenner. The gentleman from Texas, the Chairman 
of the Committee, Mr. Smith is recognized for 5 minutes.
    Mr. Smith. Thank you, Mr. Chairman.
    Director Kappos, thank you for being here and also thank 
you for your good work at the PTO. It is appreciated by 
everybody who knows what you do.
    I have two short questions. And if you could give me brief 
responses, I am going to yield the balance of my time to the 
gentleman from North Carolina, Mr. Watt. And then we will be 
able to get you to the airport on time.
    First question is this. How do independent inventors and 
the smaller entities benefit specifically from this bill? The 
independent inventors and the smaller entities, how do they 
benefit specifically from this bill?
    You talked in general terms. I just wondered if you could 
go into more detail?
    Mr. Kappos. Sure. Yes, I would be happy to mention that.
    Well, first and foremost--well, first anyway, independent 
inventors and small entities will benefit, micro entities will 
benefit from a new 75 percent discount on the fees that they 
pay. Secondly, independent inventors and small entities will 
benefit from the USPTO then being able to extend, or the 
legislation now extending, 50 percent discounts to new areas 
that we are implementing like our Track I examination system, 
which will provide 3-month turnaround to first office action 
and 1 year to completion of a patent application, which is 
something that the independent inventor and small entity 
community has been asking us for repeatedly.
    We applaud the introduction in this legislation of a 50 
percent discount. This gives USPTO the ability to give those 
kinds of discounts when we put in place new helpful measures 
for that community in the future.
    Mr. Smith. Okay. And second question is why should we give 
the PTO authority to set the patent fees?
    Mr. Kappos. Well, you know, the processes of innovation are 
moving so fast, and the different ways that the innovation 
community is using our services are changing so fast that we 
need, at the USPTO, the ability to adjust our fees to keep up 
with what is going on.
    Our cost to implement the various services that we perform 
change over time and sometimes change rather rapidly. The 
amount of demand for services changes, which requires us to put 
new infrastructure in place. All of that reflects itself in for 
us the cost of doing business, the cost of providing services.
    And if we had the ability to adjust our fees, we would be 
able to meet the timeframes of the American innovation 
community and----
    Mr. Smith. The end result is better patents more quickly 
approved, I suspect. Okay.
    Thank you. I will yield the balance of my time to Mr. Watt.
    Mr. Watt. I think I have agreed to submit my questions in 
writing in the interest of Mr. Kappos's time. I understand, you 
know, he was the first witness. We had to recess for votes, and 
so he has got time problems. So I am content with that.
    I will yield back, Mr. Chairman.
    Mr. Sensenbrenner. The classified briefing is supposed to 
end at 3:30 p.m., but usually they don't. So with that in mind, 
the Chair is going to recess the Committee, subject to the call 
of the Chair for the second panel.
    Bon voyage and safe travels, Mr. Kappos. And without 
objection, the Committee is recessed, subject to the call of 
the Chair.
    [Recess.]
    Mr. Goodlatte [presiding]. Take three. We have a very 
distinguished second panel of witnesses today, and each of the 
witnesses' written statements will be entered into the record 
in its entirety.
    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's 5 
minutes have expired.
    Before I introduce our first witness, I would like all of 
them to stand and be sworn.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you, and be seated.
    Our first witness is the Honorable Steve Bartlett. He will 
be testifying on behalf of the Financial Services Roundtable in 
his capacity as president and CEO. The roundtable is comprised 
of 100 integrated financial services companies in the United 
States.
    Mr. Bartlett has also served as a member of the Dallas City 
Council, a Member of Congress, and the Mayor of Dallas. He 
founded Meridian Products Corporation, a manufacturer of 
injection-molded plastics in 1976, divesting his interest in 
1999.
    Mr. Bartlett is a graduate of the University of Texas at 
Austin, later serving as adjunct professor at the LBJ School of 
Public Affairs.
    Our next witness is Steven Miller, Procter & Gamble's vice 
president and general counsel for intellectual property. He has 
worked in a variety of positions for P&G since joining the 
company in 1984.
    Mr. Miller has authored numerous P&G patents and patent 
applications and has participated in interferences, 
arbitrations, and litigation in the United States and abroad. 
He is a member of many intellectual property organizations and 
bar groups. Mr. Miller received his undergraduate and law 
degrees from the Ohio State University.
    Our next witness is Mark Chandler, senior vice president, 
general counsel, and secretary for Cisco. He joined Cisco in 
1996 after the company acquired StrataCom, where he served as 
general counsel. Earlier in his career, Mr. Chandler was vice 
president for corporate development and general counsel for 
Maxtor Corporation. Mr. Chandler was educated at Harvard and 
Stanford School of Law.
    Our final witness is John Vaughn, executive vice president 
of the Association of American Universities, whose membership 
includes 60 U.S. and 2 Canadian universities with strong 
programs of research and graduate and professional education. 
Dr. Vaughn has responsibility for association activities in the 
area of intellectual property, information technology, research 
libraries, and scholarly communication.
    Dr. Vaughn received his undergraduate degree from Eastern 
Washington State College and his Doctorate in Experimental 
Psychology from Minnesota. He was also awarded an NIH Post 
Doctoral Traineeship and served as a post doctoral fellow at 
Duke.
    And I would now like to yield to the gentleman from Ohio, 
Mr. Chabot, who would like to also say something about the 
witness from Ohio.
    Mr. Chabot. Thank you very much, Mr. Chairman.
    I would like to expound upon the great words that the 
Chairman already expressed relative to Mr. Miller. It is 
definitely a great honor to introduce one of the witnesses, 
Steve Miller.
    He is here as vice president and general counsel of 
intellectual property for the Procter & Gamble Company, P&G, 
which is headquartered in Cincinnati, Ohio. And Procter & 
Gamble has an outstanding record, both locally and globally. 
Two small businessmen, William Procter and James Gamble, 
founded this company in Cincinnati all the way back in 1837 to 
sell candles and soap. Today, the company has grown to include 
23 different brand names, with over $1 billion in annual sales 
in each.
    Procter & Gamble employs 35,000 people throughout the 
United States, paying $4 billion in domestic wages annually. 
Additionally, P&G provides a positive example of a responsible 
charitable corporation, donating approximately $100 million to 
charitable organizations every year.
    Steve Miller has had a successful career as in-house 
counsel with P&G for over 25 years. He is now vice president 
and general counsel on intellectual property, where he oversees 
approximately 150 patent and trademark attorneys worldwide and 
advises P&G's senior management on IP issues.
    Mr. Miller has also authored numerous P&G patents and 
patent applications and has also been involved in a number of 
license agreements, acquisitions, interferences, arbitrations, 
and litigation both in the U.S. and abroad.
    Mr. Miller is also the current president of the 
Intellectual Property Owners Association Education Foundation, 
on the Board of Directors and past president of the 
Intellectual Property Association, and on the Board of 
Directors for the National Inventors Hall of Fame.
    I know we look forward to learning more as we hear from Mr. 
Miller on patent reform this afternoon and the other witnesses 
as well.
    And I thank the Chairman greatly for yielding.
    Mr. Goodlatte. I thank the gentleman.
    Welcome to all of our witnesses, and we will begin with Mr. 
Bartlett.

TESTIMONY OF THE HONORABLE STEVE BARTLETT, PRESIDENT AND CHIEF 
      EXECUTIVE OFFICER, THE FINANCIAL SERVICES ROUNDTABLE

    Mr. Bartlett. Thank you, Mr. Chairman.
    Mr. Chairman, Ranking Member Watt, Mr. Coble, Mr. Chabot, 
it's good to be here.
    This is a very important piece of legislation. It's a 
legislation that in some ways is long overdue. I commend the 
Committee and the present draft, and we're here--I'm here to 
support the present draft language of the House version in its 
current form.
    I'm here to speak on behalf of the Financial Services 
Roundtable, as you noted, Mr. Chairman. But I should note up 
front that the roundtable has worked closely with other 
groups--the American Bankers Association, the Clearing House, 
credit unions, the ICBA, the community bankers, NAFCU, SIFMA, 
and others--to address this problem of nonpracticing entities 
that we believe exploit flaws in the current patent system.
    My testimony today is consistent with the views of these 
other trades. These nonpracticing entities, Mr. Chairman, or 
NPEs, as they're called, have built an industry based on filing 
onerous lawsuits involving low-quality business method patents 
with the expectation of securing large settlements. These are 
widely described as meritless lawsuits and settlements--and the 
settlements then help to distort the marketplace.
    Fundamental to the operation of the financial services 
sector is the interoperability of complex financial systems 
that facilitate the movement of data relating to every type of 
financial transaction. So it is this network of financial 
technology infrastructure that is so fundamental that it has 
been designated as a critical national infrastructure by the 
Department of Defense.
    So given the importance of the financial services sector to 
the Nation's economy and infrastructure, it's important that 
the patent system work for everyone, and currently, it does 
not.
    So, instead, the confluence of interoperability, forum 
shopping, and a lack of quality prior art, particularly in the 
area of business method patents, has conspired to leave 
financial firms, from the smallest community banks or local 
credit union or insurance agent to the largest global company, 
mired in what we believe are meritless litigation over patents 
of dubious quality. This litigation has a direct impact on 
consumers, as capital that could otherwise be deployed for 
business lending in our communities is tied up with court costs 
and settlements.
    Historically, Mr. Chairman, business methods had not been 
patented in any significant quantity. This was profoundly 
changed in 1998 by the State Street decision. So between 1997 
and 1998, new applications for business method patents tripled 
and have tripled again. So by the end of 2009, some 11,000 new 
applications for patents on business methods were being filed 
each and every year, with 40,000 pending in 2010.
    According to a study by Harvard University, the 
proliferation of business method patents has resulted in a 
flood of patent litigation in the financial services industry, 
occurring at a rate of 39 times greater than the patents as a 
whole. Now, Mr. Chairman, other than NPEs, there's no 
reasonable explanation for a 39 times greater rate of patent 
litigation in the financial services industry.
    These nonpracticing entities then are increasingly 
exploiting the current system to hold hostage entire classes of 
industry players in a single lawsuit, and thus, 
interoperability comes into play. Neither 90--nearly 90 percent 
of infringement cases against the top 20 banks, just as one 
data point, name multiple financial services companies as 
defendants, often including 20, 40, or even 60 institutions in 
a single action.
    Now business method patents are not bad, per se, but they 
do lend themselves to abuse, given the current system. I could 
cite a number of examples. You've probably heard multiple 
examples.
    One case, scores of banks and insurance companies were sued 
in the Eastern District of Texas for infringing on a business 
method patent related to marketing. The patents in this suit 
covered the printing of marketing materials at the bottom of 
the back of billing statements instead of on a separate 
statement stuffer. Now it's difficult to see anything novel or 
nonobvious in where you print the statement information that 
would have merited a patent with a 20-year property right.
    The cost to all the sectors of the financial services 
industry and our customers continue to grow at an alarming 
rate. So, therefore, we support the House draft establishing an 
opposition proceeding at the PTO to review qualified business 
method patents against a best prior art.
    Under this draft legislation, the PTO would determine 
whether a patent is qualified, would undertake a review for a 
maximum of no more than 1 year, and then, critically, examine 
the patent against the best available prior art, including the 
evidence of prior use, sale, or offer for sale.
    The House bill improves the language related to a stay also 
of district court litigation by requiring the Federal Circuit 
to review the decision of the lower court de novo. It's our 
belief that this stay should be mandatory, but short of it 
being mandatory, this de novo language is essential to ensure 
that neither plaintiffs nor dependents--nor defendants bear the 
cost of parallel proceedings.
    Mr. Chairman, with this provision included, we support the 
draft bill before the Committee. We would, as an industry, 
strongly oppose any efforts to weaken it.
    I thank you, Mr. Chairman.
    [The prepared statement of Mr. Bartlett follows:]

    
    
    
    
    
    
    
    
    
    
    
    

                               __________
    Mr. Goodlatte. I thank the gentleman.
    Mr. Miller, welcome.

   TESTIMONY OF STEVEN W. MILLER, VICE PRESIDENT AND GENERAL 
  COUNSEL FOR INTELLECTUAL PROPERTY, PROCTER & GAMBLE COMPANY

    Mr. Miller. Thank you, Mr. Chairman and Members of the 
Subcommittee. I thank you for the opportunity to---
    Mr. Goodlatte. Mr. Miller, you may want to turn on your 
microphone.
    Mr. Miller. Sorry about that.
    Thank you, Mr. Chairman. I thank you for opportunity to 
testify on various aspects of patent law reform.
    Although I am active in a number of professional 
organizations, I'm appearing today in my capacity as vice 
president and general counsel for intellectual property for the 
Procter & Gamble Company and its affiliates.
    I'm a registered patent attorney with 26 years of patent 
law experience, including patent prosecution and litigation. 
I've negotiated with individual inventors, universities, 
startups, and companies of all sizes.
    An essential reform for significantly simplifying the 
patent laws is the first inventor to file principle that is 
included in H.R. 1249. The adoption of the first inventor to 
file principle would make patentability determinations more 
transparent, based on objective criteria using publicly 
available information. It will benefit all American inventors 
and improve their global competitiveness.
    H.R. 1249 would also make a number of other improvements in 
our patent law and the operation of the patent system. 
Curtailing the plague of false marking litigation, providing 
adequate funding for the USPTO, limiting the consequences of 
the subjective best mode requirement, expanding the 
opportunities for the public to submit relevant information to 
patent examiners, adding a robust time-limited opportunity to 
promptly challenge patents after grant, and providing for 
supplemental examination are among the many significant 
improvements H.R. 1249 would bring to our patent system.
    There are, however, some features of H.R. 1249 that move in 
the opposite direction. P&G is concerned that the delicate 
compromises reached by numerous stakeholders after years of 
negotiations may be upset by a handful of the new provisions in 
the bill.
    In particular, the following provisions are of such 
significance that they may cause stakeholders to withdraw the 
support for the bill. First is retaining their threshold for 
initiating reviews in second window proceedings.
    Under this threshold, 95 percent of all requests are 
granted, resulting in a waste of limited USPTO resources. A 
higher threshold, a reasonable likelihood that the petitioner 
would prevail with respect to at least one claim, is far 
preferable.
    Second is the addition of a new stay provision to both the 
first window and second window post grant procedures. Not only 
does listing such stay factors improperly constrain a court's 
and the International Trade Commission's freedom to decide the 
issue, it overly emphasizes the possibility that a stay should 
be granted.
    P&G believes a stay should be granted only where it is 
clearly appropriate under existing case law as it evolves. 
Moreover, the ITC proceedings are designed to be expeditious 
and should not be stayed.
    Third are three new provisions that have been added to the 
transitional program related to financial business method 
patents. The transitional program is very controversial and was 
agreed among stakeholders only after extensive negotiations. 
These new provisions unduly limit venue where an action may be 
brought, mandate de novo interlocutory appeals, and impose a 
loser pays regime involving such patents.
    The injection of a controversial venue provision 
reintroduces a debate settled by the Federal Circuit. By also 
mandating de novo reviews of stayed decisions and introducing 
the highly charged issue of loser pays, H.R. 1249 could very 
well change what is at best reluctant acceptance of the 
transitional program into outright opposition.
    Fourth is the expansion of prior user rights to all 
inventions. P&G is concerned that the opposition among various 
stakeholders to expanding prior user rights could place in 
jeopardy the passage of comprehensive patent reform.
    Fifth is the change in time during which the new law issues 
post grant review procedure could be initiated. This procedure 
was conceived to allow patents to be promptly challenged after 
grant on any of the grounds of validity. This procedure should 
be as expeditious as possible.
    Notwithstanding a growing consensus that 9 months is more 
than adequate time, the bill would extend this period by an 
additional 3 months to a total of 12 months, adding further 
unnecessary delay and uncertainty.
    Thank you for the opportunity to present P&G's views. I'd 
be pleased to answer any questions.
    [The prepared statement of Mr. Miller follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Mr. Miller.
    Mr. Chandler, welcome.

  TESTIMONY OF MARK CHANDLER, SENIOR VICE PRESIDENT, GENERAL 
          COUNSEL, AND SECRETARY, CISCO SYSTEMS, INC.

    Mr. Chandler. Thank you, Chairman Goodlatte, Ranking Member 
Watt, Members of the Subcommittee.
    I'm Mark Chandler, senior vice president and general 
counsel of Cisco Systems.
    I'm here representing technology companies with hundreds of 
thousands of employees in the United States and more than 
75,000 U.S. patents and patent applications.
    I'm here because I believe passionately that our patent 
system must not go astray in ways that will weaken our 
companies or weaken our country's technology leadership. I have 
four specific suggestions to offer regarding the bill before 
you. I've also provided a written statement. I'm grateful that 
that's being included in the record.
    My company is the world's largest manufacturer of 
telecommunications equipment that powers the Internet, with 
over $40 billion in annual sales and more than 70,000 
employees. Three-quarters of our engineers, more than half of 
all our employees are here in the United States.
    The Coalition for Patent Fairness, for whom I speak today, 
includes hundreds of members, such as Apple, Autodesk, Dell, 
Google, Intel, Micron, Oracle, RIM, SAP, and Symantec. Our 
companies invest tens of billions of dollars in research and 
development, and we believe in the patent system.
    We understand that the scope for action is limited, given 
the passage of S. 23. We also understand that this process is 
one of a combination of interests with diverse goals. We 
appreciate the work that Senator Leahy did in the Senate in 
driving toward patent legislation, though we were unable to 
support S. 23 in its final form.
    With the suggestions we make today, we hope to be 
supporters, rather than opponents, of legislation and to see a 
law enacted.
    Our four suggestions are as follows. First, hold your 
ground on the proposed prior user rights in conjunction with 
the move to a first-to-file system. Every developed country on 
Earth with a first-to-file system includes prior user rights.
    Among U.S. industrial groups, support for prior user rights 
is virtually uniform. The AIPLA has testified in favor of prior 
user rights, and Gary Griswold, who's with us today, is chair 
of the 21st Century Patent Coalition, which sees many issues 
differently from the way we do, wrote an article entitled, 
``Prior User Rights: A Necessary Part of a First-to-File 
System.'' Here is why.
    It's not practical to file a patent application on every 
change we make to a product. Where we enhance our products in a 
way which is unlikely to be copied by a competitor because the 
change is specific to our designs, the traditional view is that 
a patent makes no sense.
    In the current first-to-invent system, no one else could 
get a patent that would be valid for those changes either. The 
patent would be invalid under 102(g). In a first-to-file system 
without prior user rights, however, we can expect patent mills 
and competitors here and abroad to file patent applications on 
unpatented inventions which they find in our products in order 
to hold us hostage, and there's nothing we could do about it. 
This is just not fair.
    The alternative for us is to rush to massively increase our 
patent filings, not to exclude competitors from copying our 
products, but to protect ourselves against those who would use 
our own inventions against us in court. That would be a totally 
unproductive distraction of ours and the PTO's resources.
    Director Kappos, in his written testimony, while supporting 
prior user rights, states there was no rush to increase filings 
in Canada after the switch to a first-to-file system. Of 
course, there wasn't. For over a century, Canada has had a 
robust prior user rights system. Commend you to section 56 of 
the Canadian Patent Act in that regard.
    It would be a tragedy if, in a rush to harmonize with the 
European and Chinese systems in the wake of the TRIPS accords, 
we ignored key protections for manufacturers that virtually 
every other country has.
    We understand some groups oppose first-to-file in general. 
Absent prior user rights, we would join them. We believe the 
interests of universities are adequately met by exemptions for 
Bayh-Dole and other patents, which you thoughtfully included in 
the House legislation. So we strongly support what you've done 
in the legislation in that respect.
    Second, some changes are needed to the inter partes review 
proposals to mitigate aspects of the Senate bill particularly 
that are a step backward from current law. The extension of the 
time period from 6 months to 9 months after service of 
litigation for introducing an inter partes re-exam is laudable. 
But a better approach would be to tie the deadline to the 
Markman ruling so that the review could reflect the claims 
interpretation that the district court made.
    Also, if there isn't a mandatory stay, which we would 
support, as does the Financial Services Roundtable, we think 
that in the four factor test in the bill, the reference to 
clear tactical advantage to the moving party as the basis for 
denying a stay should be removed. The patent holder's interests 
are sufficiently addressed by the requirement that there be no 
undue burden.
    And also, initiation of a declaratory judgment action on 
matters unrelated to an inter partes re-exam should not make it 
impossible to introduce an exam.
    Our third suggestion is many stakeholders across the 
spectrum--and I believe you referred to this, Mr. Chairman--
believe judicial action will obviate the need for the proposed 
supplemental review system for cases where patent applicants 
have been, shall we say, less than forthcoming with the Patent 
Office. We agree.
    Nonetheless, if there is to be such a system, we think 
minor modifications would immeasurably improve it, and I'm 
happy to elaborate on that.
    Fourth and finally, this bill presents an appropriate 
opportunity to coordinate better between the ITC and the 
courts. The bill should require the ITC to follow the Supreme 
Court's eBay holding in determining whether to grant an 
exclusion order.
    With these changes, the bill would meet our minimum needs. 
It won't meet all our aspirations. It will reflect what's 
possible, given stakeholders with different interests and a 
patent system that desperately needs rejuvenation.
    Thank you.
    [The prepared statement of Mr. Chandler follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    


                               __________
    Mr. Goodlatte. Mr. Vaughn, welcome.

    TESTIMONY OF JOHN C. VAUGHN, EXECUTIVE VICE PRESIDENT, 
              ASSOCIATION OF AMERICAN UNIVERSITIES

    Mr. Vaughn. Chairman Goodlatte, Ranking Member Watt, 
Members of the Subcommittee, thank you for this opportunity to 
present the views of the university community on H.R. 1249.
    Let me begin by saying how much the university community 
appreciates the dedication that you and your Judiciary 
colleagues have devoted to this extremely important issue. 
After more than 6 years, the collective effort is making great 
progress toward a balanced set of proposals that, indeed, will 
strengthen our present patent system to create jobs at home and 
strengthen our economic competitiveness abroad.
    Universities use the patent system to license our 
inventions to a wide range of private sector companies. In 
order for this university technology transfer system to work, 
we need a level of patent certainty that will allow our 
licensees to develop these discoveries in confidence.
    H.R. 1249 includes a number of key provisions that 
strengthen patent certainty. Among these are adoption of a 
first-inventor-to-file system, which will harmonize the U.S. 
patent system with that of our major trading partners; a new 
post grant opposition proceeding to challenge patents 
immediately after their issuance, eliminating patents that 
should not have been granted and strengthening those that 
survive the challenge; providing increased resources to the PTO 
through expanded fee-setting authority and provisions allowing 
the office to retain those fees that it collects; allowing 
third parties to submit prior art to the PTO concerning patents 
under examination.
    However, we have two major concerns with the draft bill. 
First, we are very concerned about the broad expansion of prior 
user rights. From its origins in the Constitution, the U.S. 
patent system has effectively promoted the progress of science 
and the useful arts by establishing a quid pro quo of granting 
monopoly rights for an invention in return for disclosure to 
the public of information about that invention.
    Universities believe that expanding prior user rights is an 
unwise expansion of immunity from the assertion of patent 
rights. Such expansion would reduce patent certainty, and that 
reduction in patent certainty would impair university 
technology transfer.
    We are also concerned about the impact of expanding prior 
user rights on academic publishing. While the effective grace 
period included in H.R. 1249 would encourage publication by 
protecting inventors from others patenting their inventions, 
expanding prior user rights would have exactly the opposite 
effect.
    Early publication would permit others to prepare a 
competing trade secret product that could be immune from a 
charge of infringement of a patented product or process 
emerging from that published research.
    We do acknowledge and appreciate the attempt to address 
university concerns by providing a legislative carve-out for 
university patents under which the prior use defense could not 
be applied to university patents arising from Federal or 
university funding. While such a carve-out could mitigate the 
harmful impact on university licensing, clear problems would 
remain.
    Many companies to which universities license their patents 
intermingle university patents with their own in developing new 
products. The commercial prospects for those products would be 
at risk with the expansion of prior user rights since it would 
increase the vulnerability of nonexempt patents to a prior use 
defense by a competitor.
    This problem would be especially acute for the small, often 
undercapitalized startup companies to which universities 
frequently license their inventions.
    The second area which we believe needs to be addressed is 
the threshold by which an inter partes review can be initiated. 
The Senate bill, S. 23, includes two provisions that reduce the 
prospect of using the inter partes procedure to mount harassing 
serial challenges--first, by expanding the estoppel provisions 
to include issues that reasonably could have been raised and, 
second, by raising the threshold for initiating an inter partes 
review.
    The House bill reduces the threshold to the lower current 
law standard. We appreciate the retention in the House bill of 
the broadened estoppel language, but urge the Judiciary 
Committee to reinstate the higher threshold for initiating an 
inter partes review.
    Universities applaud the many strong provisions that are 
contained in H.R. 1249. We hope that we can work with the House 
Judiciary Committee and with relevant stakeholders to address 
the two concerns raised here so that the recent progress 
continues toward a successful completion of this 
extraordinarily important endeavor to enact comprehensive 
patent reform.
    [The prepared statement of Mr. Vaughn follows:]

    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Mr. Vaughn.
    As everyone can observe, we have 4 minutes and 45 seconds, 
now 36 seconds left in this vote. So the Committee will stand 
in recess, and we will begin when we return with a brief 
opening statement, well into the hearing, from the Ranking 
Member of the full Committee and then immediately go into 
questions for the witnesses. If you all can remain, we 
appreciate your forbearance.
    The Committee will stand in recess.
    [Recess.]
    Mr. Goodlatte [presiding]. The Committee will reconvene for 
take four, and we hope this is the last stretch here.
    We thank all of you for your patience all afternoon, and I 
will recognize myself for questions.
    When Ranking Member Conyers gets here, we will allow him to 
give his opening statement a little late into the program. But 
still welcome.
    Let me start with a question for you, Mr. Chandler. How 
would you address the concerns of those who argue that an 
overexpansion of inter partes would be used to harass 
independent inventors and small businesses?
    Mr. Chandler. I'm sensitive to that concern. I think it's 
extremely important in the inter partes process to strike a 
balance between the need to ensure that there is a review 
process by which patents that shouldn't have been granted are 
looked at and, at the same time, not create undue cost or 
burdens or delay for patent holders, whether independent 
inventors or otherwise, who have the right to enforce their 
patents against those who are infringing.
    And striking that balance is not easy, as we've seen in the 
process of putting this legislation together. I think there are 
several principles that are useful to keep in mind.
    First, in the case of litigation, we--there should be a 
time period within which an inter partes review is initiated so 
that one does not litigate for years, try to get to a 
conclusion, and then, all of a sudden, find oneself in another 
forum back at the Patent Office.
    It's our view that while moving from 6 months to 9 months 
in the legislation that's before you today was a move in the 
right direction, it's conceptually better to tie it to the 
Markman exam because then you have the claims construction as 
part of the review.
    At the same time----
    Mr. Goodlatte. Is that in your testimony, when you said you 
had ideas for improving the supplemental exam provision in the 
bill, is that some other ideas you have there as well?
    Mr. Chandler. Yes, on supplemental exam, I understand the 
concerns you raise about the process as a whole, given judicial 
action. But right now, it says that if supplemental--you can't 
use the results of a supplemental exam in pending litigation. 
We think that a supplemental exam procedure that also said you 
can't use a supplemental exam to cure a problem if you've been 
actively pursuing nonexclusive licensees in a way that would 
allow the potential licensee to file a DJ against you, you 
shouldn't be able to seek the supplemental exam in that case 
either.
    So that people don't go out and start licensing programs to 
collect money on a patent where they know they weren't 
forthcoming, and then only when they're faced with litigation 
do they go in and cure the problem. But with that kind of 
modification, I think we could move forward with that 
supplemental exam.
    Mr. Goodlatte. Mr. Vaughn, can you speak to the 
universities' perspective on the prior user rights provision 
that includes an absolute exemption for universities and 
technology transfer organizations? And what changes would you 
make?
    Mr. Vaughn. Well, I--changes--there are some changes I 
think that could be made that----
    Voice. Push your microphone button.
    Mr. Vaughn [continuing]. Would improve it. But I think our 
broader concern is just the impact on the system overall, 
independent of a university carve-out. The concern we have 
about a carve-out is that it would not cover, say, privately 
funded university patents, and frequently, funding for research 
projects includes a mix of Federal, university, and private 
funds.
    We are also very concerned about the issue I mentioned of 
the intermingling of patents that would be exempt in a carve-
out with patents in a product that wouldn't be exempt. And 
particularly, the concern about the impact of expanded prior 
user rights on the startups that often emerge out of university 
research that wouldn't be touched by in their own IP with--with 
a university carve-out.
    So I mean, I think I want to be clear that----
    Mr. Goodlatte. You are clear, and I need to get one more 
question in here with my time.
    Is the shift from first-to-invent to first inventor to file 
constitutional? And I will ask any of you this question. Is it 
true that our current filing system was created through the 
1952 act and has not necessarily been the same since our 
Nation's founding?
    Anybody want to take a stab at that? Mr. Miller?
    Mr. Miller. I'll be happy to, Mr. Chairman.
    The Constitution says that the Congress shall grant to 
inventors, and a first-inventor-to-file system also includes 
that that person is an inventor. They are an inventor of the 
technology, and so it would be within the Constitution.
    In fact, all of the studies that we've had since 1965 on 
haven't questioned the constitutionality of a first inventor to 
file provision. So I don't think that there's a real issue here 
at all because it's just a procedural mechanism as to determine 
who gets the rights as an inventor.
    Mr. Goodlatte. Thank you.
    The gentleman from North Carolina, Mr. Watt, is recognized.
    Mr. Watt. Thank you, Mr. Chairman.
    Mr. Miller, I identified several issues that you and Mr. 
Bartlett and Mr. Chandler were at odds about, and I probably 
have forgotten some of them. But I do remember this whole stay 
provision was one of them.
    I just wanted to give you the opportunity to give us your 
perspective on it, and then I would ask Mr. Chandler and Mr. 
Bartlett to do the same and see if there is some way we can 
reconcile what the three of you all are saying. I am in the 
reconciliation business, as you have probably gathered by now.
    Mr. Miller. Thank you, Mr. Watt.
    You know, I think we're in the reconciliation business, 
too, and we've done a lot to try to get there. My concerns are 
by both lowering the standard for getting into an inter partes 
re-exam and really putting these stay provisions that a court 
has to look at, that we allow abuse by serial infringers to 
come in and try to delay proceedings by taking the lower 
threshold, finding a new question of patentability, and then 
slowing down the litigation process as much as possible so that 
we don't get a quick resolution that Mr. Chandler was 
mentioning.
    So that's my concern is that the combination of those two 
are going to give an advantage to an infringer to the detriment 
of patentees that need to quickly assert their patent rights.
    Mr. Watt. And Mr. Chandler, and then I want to go back to 
Mr. Miller to see whether there is--well, you tell me what you 
have to say on this, and then I will listen to Mr. Bartlett. 
But at the end of this, my ultimate question is, is there a way 
to reconcile where the three of you are on this issue?
    Mr. Chandler. Well, first of all, one of the key provisions 
in the currently considered legislation is--and this goes along 
with the funding for the Patent Office and the ability to keep 
the fees that we users of the system pay--is a commitment that 
re-exams will be completed within 12 months. And that's a very 
important part of the Administration of the re-exam process 
that is covered here. So we're not talking about a long delay. 
We're talking about coordinating processes between different 
bodies that have responsibility here.
    Our view of the stay provision is four factors is the right 
number of factors if you don't make it an automatic stay. The 
provision bill is for a short-term stay to begin with, only 
through the period of the re-exam anyway.
    If we were going to have four factors, we'd keep four 
factors. But on one of them, it says that there has to be a 
finding there is no undue burden to the patent holder and no 
clear tactical advantage to the movant. We simply want to say 
no undue burden to the patent holder because we think that 
standard of clear tactical advantage can be used by any judge 
to deny a stay since, obviously, there is an advantage to 
having a stay because you avoid getting a district court making 
a finding that's inconsistent with what the Patent Office is 
doing. That's why you're seeking the stay, and that's why 
you've sought the re-exam.
    So that's mine.
    Mr. Watt. All right. We are going to come back and 
reconcile this in a little bit.
    Mr. Bartlett?
    Mr. Bartlett. Mr. Watt, in the efforts----
    Mr. Watt. I am so used to seeing you over in Financial 
Services, I am feeling like you are out of place over here.
    Mr. Bartlett. I've been all over. It's my hope at the 
conclusion of the hearing that we will--we will see you as an 
original cosponsor of the legislation, Mr. Watt, as you started 
off at the beginning.
    In an attempt to reconcile, first of all, it's my opinion, 
it's my belief that what we're talking about, which is the 
business method patent, is not applied to the topic of--the 
other topic of the mandatory stay. So this is carved out 
specifically for this.
    The reason I think it is reconciled is that at least we had 
believed and still believe that the right answer would be a 
mandatory stay, an automatic stay, and we were not able to 
convince the bill's sponsors of that. So, absent that, then a 
stay that is a de novo stay would make it work.
    Without a de novo stay, it would be a meaningless right. 
Our attorneys have looked through the records, and without a de 
novo stay, it would revert to an abuse of discretion standard, 
and we can find no civil litigation which an abuse of 
discretion standard has been applied to apply for a stay. So we 
think that the--that the de novo stay is essential to make this 
work. Otherwise, it just doesn't work.
    Mr. Watt. Why did I think the whole financial services 
community would be on the opposite side of business methods 
stuff? I thought the financial institutions would be the ones 
that would be developing business methods rather than the ones 
that were being attacked by these business methods patents, and 
I was just absolutely off base on that, I found out after I 
started studying this issue.
    Mr. Bartlett. Mr. Watt, this is a serious, serious issue 
for the financial services industry. It's overwhelmingly----
    Mr. Watt. I shouldn't have gone there. That is all right. I 
ran out of time. I need to get this reconciled. That is another 
issue. I will talk to you about that one off record.
    Reconcile you all's positions for me. Is there some way to 
reconcile?
    Mr. Miller. I'm not sure. We're going to have to sit down, 
and maybe you can help us with that, Mr. Watt.
    Mr. Watt. All right.
    Mr. Chandler. I think you might ask Mr. Kappos as well. I 
spent a good part of February locked in a room with Under 
Secretary Kappos, with the general counsel of the Commerce 
Department, and with one of my counterparts who is the general 
counsel of a large pharmaceutical company. And some of the 
language that Under Secretary Kappos has circulated was a 
reflection of those discussions, where we tried to be very, 
very reasonable in coming up with an approach that would----
    Mr. Watt. I take it that is not in the Chairman's bill? 
That is not the language that is in the----
    Mr. Chandler. It's not precisely, but we're happy to work 
further on that.
    Mr. Watt. Thank you, Mr. Chairman. I'm sorry----
    Mr. Goodlatte. No problem. I thank the gentleman.
    I now recognize the gentlewoman from Florida, Mrs. Adams, 
who does not have a question. We now yield to the Chairman of 
the full Committee, Mr. Smith.
    Mr. Smith. Thank you, Mr. Chairman.
    Mr. Chairman, first of all, I would like to thank all of 
our witnesses because they directly or indirectly had an impact 
and a positive impact on this bill. And we sat down, either 
with you all individually or with the organizations you 
represented, and appreciate your being willing to work with us.
    Mr. Bartlett, let me direct my first question to you, which 
is going to be an easy question. I appreciate a former 
colleague being with us today as well.
    You touched upon this in your opening statement. But 
basically, I just would like for you to say specifically how 
some provisions in this bill positively impact financial 
institutions. And since I wasn't here for all of Mr. Watt's 
questions, maybe he already asked you that. And if so, we can 
fast forward to the next one.
    But if you could be specific about how you find this bill 
helpful, that would be good.
    Mr. Bartlett. Thank you, Mr. Chairman.
    Because the current law gums up the system particularly 
because it's interoperable. It involves multiple institutions 
all engaged in answering a telephone or check imaging or--so 
it's all interoperable. So they all get sued, basically, and 
the system just kind of stops without some kind of protection 
for a post grant review.
    So what this draft legislation does is it provides a post 
grant review based on these new factors as a way of reviewing 
prior art to determine if it should be a valid patent or not. 
And without that, then, in essence, our companies end up just 
settling because of the enormous cost of litigation and the 
threat of losing because the odds are stacked against them. 
They can't get a review as to whether it's a valid patent in 
the first place.
    So this legislation for our section of it allows a valid--a 
review that's a valid review of whether it's a valid patent.
    Mr. Smith. Okay. Thank you, Mr. Bartlett.
    Mr. Miller, let me ask you a question. You are with Procter 
& Gamble, and you represent a certain segment of companies in 
America, in fact, a very large segment of companies in America. 
How does the bill positively impact you all? And if you could 
be specific, that would be helpful, too.
    Mr. Miller. Sure. Absolutely, Mr. Chairman, thank you.
    The bill positively affects us because we deal with a lot 
of small inventors. We deal with universities. We have an open 
innovation program that I'd referred to my written testimony. 
And the first-inventor-to-file system is going to make our 
system more transparent, able for us to make better decisions 
on whether we're going to be willing to invest capital.
    It also lets us get rid of the poorer patents, the poorer-
quality patents that come out of the Patent Office, through a 
post grant review proceeding and even, if necessary, an inter 
partes review proceeding. It fixes the false marking problem 
that many of our companies have been subjected to, and it also 
allows the Patent Office to get full funding.
    The Patent Office needs full funding to do its job, but it 
also needs these other tools. And so, I think those are the key 
provisions of this bill that are going to help all of us 
throughout the United States spur innovation and create more 
jobs.
    Mr. Smith. Okay. Thank you, Mr. Miller.
    Mr. Vaughn, let me jump to you and say as a preliminary 
statement that the goal in drafting this bill--during the 
entire process of researching, talking, negotiating, and 
developing--was not to get a bill that is going to make people 
necessarily 100 percent happy. Because if you do that, you also 
have a lot of people who are zero percent happy.
    Now the goal to me was to try to get most people about 60 
to 70 percent happy and have them emphasize the positive rather 
than the 30 percent where they were unhappy.
    We have done a lot in this legislation that I think is 
beneficial to the university communities, and I understand that 
they are not entirely happy. But they certainly should be 
appreciative of the carve-out that they received, which might 
be looked upon as benefitting them more than some others might 
benefit.
    But I would like to ask you a similar question, which is in 
what ways do you see the university community benefited by this 
bill? And even though you may not approve of it 100 percent, I 
would like to suggest that at least it is about 70 percent 
helpful to the communities.
    And I did hear your opening statement. I understand the 
three or four points that you would like for us to take a 
further look at. But if you would, in this instance, tell me 
the positive aspects of the bill?
    Mr. Vaughn. I'd be happy to, Mr. Smith.
    I think, first of all, that universities will benefit----
    Mr. Goodlatte. Mr. Vaughn, you need to turn your microphone 
on.
    Mr. Vaughn [continuing]. Directly or indirectly from 
provisions that strengthen the system overall. So even though 
it is not directly to the universities, increasing resources to 
the PTO is going to be enormously helpful to everybody.
    In 2005 when the decision was made to incorporate first 
inventor to file, we spent a lot of time working with this 
Committee, working with other stakeholders to adjust the grace 
period, which is so critical to university publishing, and that 
has been fit perfectly to a first inventor to file. That will 
be an enormous benefit for universities.
    We think that the new post grant opposition procedure will 
be very useful. We won't use it. Universities don't very often 
get into court, litigate their own patents. But I think it's 
going to be very helpful to our startups. Sometimes it will be 
that their patents will be challenged, but if they're solid 
patents, coming through that is going to give them a 
strengthened patent going forward.
    And we think that the--the third-party input of information 
during a patent examination is going to be helpful. We've 
actually been working with IBM on trying to find ways to 
organize the graduate students, engineers, law students to 
organize systematic input to the patent system for providing 
better information. That's going to improve the quality of 
patents, and that will help as well.
    Mr. Smith. Thank you, Mr. Vaughn.
    To me, the standard against which this bill is measured is 
the status quo, not necessarily the ideal. And to the extent 
that it is better than the status quo, then I would argue that 
it deserves support. So I appreciate your comments.
    Thank you, Mr. Chairman.
    Mr. Goodlatte. I thank the Chairman, and I am now pleased 
to recognize the gentlewoman from California, Ms. Lofgren.
    Ms. Lofgren. Thank you, Mr. Chairman.
    Mr. Goodlatte. Oh, I am sorry. If you would suspend, I have 
forgotten I promised the Ranking Member that he could make a 
unanimous consent request.
    Mr. Watt. Mr. Chairman, I ask unanimous consent to submit 
for the record a letter from our former colleague Steve 
Largent, dated March 29, 2011. He is now the president and CEO 
of the CTIA Wireless Association. A statement of Brian Fontes, 
dated March 30, 2011, and a 3-page statement from Claudio 
Ballard.
    Mr. Goodlatte. Without objection, it will be made a part of 
the record.
    [The information referred to follows:]

    
    


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                               __________
    Prepared Statement of Claudio Ballard, Inventor and Entrepreneur







                               __________

    Mr. Goodlatte. And the gentlewoman is recognized.
    Ms. Lofgren. Thank you, Mr. Chairman.
    And I will be brief, as this is the end of a long day, but 
not the end of a very long process that goes back. I think I 
first started working on this in 1997, and I think all of us 
here have been working on this for--well, except for the new 
parties, but really this has been more than a decade's work. 
And we have made tremendous progress.
    As the Chairman knows, I am not yet a cosponsor of this 
bill because I think there are a few areas where we could 
improve it even further. And I say that certainly without 
criticism of the Chairman of the Committee, who has worked 
tirelessly with me and the others for over a decade to get to 
where we are today.
    I believe, listening to Mr. Chandler and the work that Mr. 
Kappos has put into this, I would like to see what kind of 
resolution was reached. Obviously, you don't bind anybody else. 
You are just one general counsel and general counsel for some 
company and the patent commissioner.
    But I sense that the defects here could be resolved by the 
stakeholders in a way that would work for everyone. And so, I 
am really eager to work with Mr. Smith and Mr. Goodlatte to see 
if we can't take that one step further.
    I also think that--and nobody has really mentioned the 
inequitable conduct provisions here, but I think we need a 
little more work there, honestly. I certainly don't want to 
give a broad grant of immunity to people, license to lie to the 
Patent Office. And I think that we could tweak the provisions 
here and make some improvements, and I think we would all be 
satisfied if we did that.
    On the first-to-file, I realize there are other challenges 
that we will face in the House on the whole first-to-file 
issue. Not every person in America thinks it is a good idea. 
But if we are going to have first-to-file, clearly we have to 
have adequate prior user rights, and I think someone mentioned 
that the only country that doesn't have prior user rights with 
first-to-file is Cyprus, hardly a role model for the United 
States.
    As you know, I come from Silicon Valley, and I got an email 
this morning. And I won't read the whole thing, but it is from 
the general counsel of Stanford University. And she says, 
``Universities in general are very supportive of the bill, 
appreciating the comprehensive reform with first-to-file. We 
know that some universities are opposed to any expansion of 
prior user rights, even with the carve-out for university 
inventions derived from federally sponsored research. However, 
Stanford is satisfied with the current language. The most 
important thing is to get the reform bill passed with the 
first-to-file and not have the bill die because of a dispute 
with high-tech companies over prior user rights, which would 
leave us with the status quo.''
    So I think it is very significant that Stanford, with its 
enormous patent portfolio, has been willing to step forward and 
say let's do this, understanding that, as the Chairman has 
said, nothing is necessarily perfect. But I am satisfied with 
this statement from Stanford that we have struck the right 
balance there.
    I was a little bit concerned, Mr. Vaughn, about your 
testimony about publishing, and I am having a hard time 
understanding the point that you have made. I don't see how 
prior user rights could create problems for academic 
publishing.
    Publication within the 1-year grace period for the filing 
would be protected from any prior use during that period, and a 
company could not get a prior use right for something that was 
started in response to a publication in the grace period. And 
if the publisher published outside of the 1-year grace period, 
then the publication would become prior art that would prevent 
the idea from being patented in the first place.
    So I am seeking to understand your point. And because if it 
were a chill on publication, obviously that would be of concern 
to all of us. Can you explain?
    Mr. Vaughn. Well, I think, Congresswoman, that, absent a 
carve-out, there is concern that the timing could be such and 
with the murky sort of records of trade secret processes that 
you could publish something that would give somebody an idea, 
and they could develop that based on work that they had already 
started----
    Ms. Lofgren. I see.
    Mr. Vaughn [continuing]. And be able to show that they had 
developed the product within the time period. Having a carve-
out would help that, although it wouldn't account for privately 
funded.
    Ms. Lofgren. I see that my time has expired, Mr. Chairman. 
I think, if I would just ask--I don't want to get in a debate. 
But I think the terms of the bill itself protect against the 
concern that you have expressed and would urge a further review 
of the language.
    And I would yield back with my intention to work further 
with the Chairman of the Committee. I think that we can get to 
where we need to be, and I, for one, am willing to continue to 
work on it.
    Thank you very much.
    Mr. Goodlatte. The Chair thanks the gentlewoman and thanks 
her for her commitment to this legislation.
    And I am now pleased to recognize the gentleman from 
Pennsylvania, Mr. Marino, for 5 minutes.
    Mr. Marino. Thank you, Chairman.
    Congressman, knowing that I have 5 minutes, my colleague, 
the Ranking Member, started to ask a question, and I am going 
to ask my question and perhaps you can elaborate on it and 
expand on it for a minute or two because I have another follow-
up.
    I notice a small, but significant difference between the 
House and the Senate bills that I would like for you to 
discuss. Under section 18 of the House bill, the standard of 
review for the interlocutory appeals is stronger, providing 
that the Federal Circuit shall review de novo the district 
court's decision to ensure consistent application of the 
established precedent.
    Can you describe the significance of this and why it is 
important?
    Mr. Bartlett. Well, the reason--first of all, the 
fundamental reason it's important why the stay can be granted 
is because, otherwise, you're in two venues at once, and it 
gums up the whole works. So the post grant review becomes 
meaningless or at least more costly.
    There have been several iterations. The iteration that came 
from the other body in the Committee, the Senate Judiciary 
Committee, was a mandatory stay of litigation, which was what 
we think ought to happen. That didn't survive the full body, 
and the draft legislation in front of you has a satisfactory 
solution, not as good as a mandatory stay, but it does have a 
solution that is, as I said earlier, that is a de novo appeal. 
So we think if it's a de novo appeal, then a stay will be 
granted when it's warranted.
    Without a de novo appeal, though, then it reverts to what's 
called an abuse of discretion, where to get a stay, you have to 
prove an abuse of discretion, and we find that to be--I find 
that to be, in my terms, a meaningless standard. It just simply 
cannot be achieved, and we haven't found it achieved anywhere 
else.
    So we think that mandatory would be better. But with four 
factors and a de novo appeal, we think that works just fine.
    Mr. Marino. And my last question, I understand and support 
the goals of section 18 of the bill, which establishes a 
transitional review proceeding at PTO where certain financial 
service business methods, method patents can be examined. I 
also understand that the point of the transitional review 
program is to weed out spurious or invalid patents at an early 
stage.
    My concern is in regards to certain patents that have, one, 
already been litigated to a jury verdict and found to be valid 
and/or, two, if the Patent Office has already completed a full 
re-examination of that particular patent and found it to be 
valid. Can you explain to me why it would be either fair or 
good policy to subject the transitional program in section 18 
to a patent that has been found valid through ex parte re-
examination or a full jury trial?
    Is there room for some sort of limits on how far back or 
which patents this transitional program can reach so that we 
aren't relitigating and reevaluating patents that have been 
found again and again to be valid?
    Mr. Bartlett. In layman's terms, because this--this post 
grant review process would be the first--would be the first 
review under these terms, and the other processes that occurred 
didn't occur under these terms. So we think that this is a 
program to be administered by the Patent Office, and the Patent 
Office would do a post grant review based on prior art for 1 
year, and we think it would help to clear out the system, as 
well as establish these new valid reviews.
    So we don't think in those cases where there's been a prior 
review that it would obviate the need for this review.
    Mr. Marino. Mr. Miller, could you add anything to that?
    Mr. Miller. Well, I think it's just one more delay. If a 
court's already adjudicated the issue, I don't know why we'd 
want to go back to the Patent Office under this transitional 
provision and subject that person to another round of review. 
It seems like a waste of time and effort on both parties' side. 
You know, this isn't a good use of resources of the PTO or of 
the court.
    Mr. Marino. Thank you, and I yield my time, Chairman.
    Mr. Goodlatte. Thank the gentlemen, and the Chair yields to 
the gentleman from Florida, Mr. Deutch for 5 minutes.
    Mr. Deutch. Thank you. Thank you, Mr. Chairman.
    I would like to just continue that line of questions. I 
appreciate the hearing very much, Mr. Chairman, and there were 
a number of questions I wanted to ask. But since this last 
exchange reminds me of a specific situation with a Floridian, I 
would like to actually walk through, and I always find it 
helpful if there is some detail, some real-life experiences to 
draw on instead of speaking only in the abstract.
    So, if I may, Mr. Chairman, let me just share the story of 
Claudio Ballard, who, in the mid 1990's, Claudio, who is a 
Floridian, had an invaluable idea that would improve businesses 
in the United States by replacing paper with electronic images. 
The change would save business money by being more efficient, 
promote faster processing.
    He built a prototype of the computer system that would put 
his idea into effect. He showed the prototype to investors, 
began raising money to put the idea into effect, and filed 
patent applications to protect his idea and the invention.
    Once the patent applications were filed, numerous companies 
began expressing interest in the invention. One industry that 
showed particularly strong interest in the product was the 
banking industry, which, Mr. Bartlett, is why I would like to 
focus on this particular example.
    Claudio met with the industry and demonstrated that his 
invention could remove paper checks from the payment process 
and replace them with electronic images, change that could 
potentially save the industry billions of dollars. In an effort 
to protect his invention, he signed contracts that he thought 
would prevent his products that were still pending for patents 
from being taken without his permission.
    As time went on, he was unable to sell his invention to any 
banks. He founded a company to raise capital, attempt to sell 
his invention. However, he became aware that the reason he 
couldn't sell the invention was because many banks had already 
decided to use the invention themselves without paying his 
company even one penny.
    Now because Claudio had patents on his product, he filed 
lawsuits in Federal court against the banks for infringing on 
his patents. In response to the lawsuits, there was an effort 
made by the banks to invalidate the patents. First, a request 
that the Patent Office conduct a re-examination and strike the 
patents. The courts delayed the litigation during the 2 years 
that the Patent Office re-examined them, and ultimately, they 
found the patents were validated.
    Next, one bank decided to continue to pursue the 
litigation, and last year, a jury verdict, after reviewing all 
of the evidence in the case, rendered a decision that the 
patents were valid. Jury also found the patents were being 
willfully infringed by the banks. And so, after 8 years, when 
the first lawsuit was filed, many of the banks have licensed 
his patents. They are using the technology he invented, and 
they are paying his company royalties for the use of the 
product.
    So now, drawing back to today's hearing, section 18 of the 
legislation is a transitional program for business method 
patents. And again, this is following up on the last line of 
questioning. And while I fully support, Mr. Chairman, the 
purpose of section 18 and the creation of a transitional 
program to weed out invalid and poor-quality patents from the 
old system, I have got real concerns that the scope of the 
section could, in effect, invalidate patents that have been 
found valid by a jury in our court system.
    And so, Mr. Bartlett, just now having added some 
specificity to this line of questions, if the purpose of the 
section, section 18 is to target invalid patents, why is it--
and I wasn't clear in your response, your last response--why is 
it that in cases in which a patent has already been re-examined 
by the Patent Office and found to be valid, and that it has 
been found valid by a jury, why should these patents be 
included within the scope specifically of this section 18 
review?
    And aren't we invalidating Federal court decisions and 
giving losing litigants--in the case of Claudio, the banking 
industry--another try at invalidating patents that have already 
been found valid by a jury and by the Patent Office?
    Mr. Bartlett. Well, first, this section only applies to 
business method patents and not to other patents, and it could 
well be that that was not a business method patent. But 
secondly----
    Mr. Deutch. Let us assume that it is.
    Mr. Bartlett. Then for the record, I might be able to offer 
additional for the record on that. But, and the answer is 
because without this, then there has not been a post grant 
review based on best prior art. So perhaps a lot of other 
things were taken into account by the court or by the Patent 
Office, but there was never an authorization to examine it 
against best prior art.
    So we think that what is needed here to clear out the 
system and to stop what is clearly to us the abuse is a review 
against best prior art. And that has not been permitted in 
prior cases.
    Mr. Deutch. Mr. Chairman, if I could ask the other 
witnesses, if there is in a situation like this where the 
patent has been re-examined, a thorough examination by the 
Patent Office, are they precluded from looking at prior? Is 
there anything in that review that is problematic in a system 
that has existed now and has provided for this sort of thorough 
review? If someone else could speak to this?
    Mr. Miller. I'll be happy to try, Congressman.
    I think this is the whole balancing issue that we have to 
really address with these provisions. We don't want to have 
legitimate inventions given to infringers to have second, 
third, and fourth bites at the apple. And unfortunately, this 
transitional provision, even though it's limited to narrow 
business method patents for financial institutions, in essence, 
gives a second or third bite at the apple to folks that have 
had to go through other processes.
    And I think it's a good idea perhaps to look at building an 
estoppel, just like we built an estoppel into the post grant 
review and inter partes re-exam procedure.
    Mr. Deutch. Mr. Chairman, I just would hope, as we move 
forward, that we look at different ways to create some sort of 
estoppel system for patents that have already been through re-
examination by the office, found to be valid, and found to be 
valid by a court of law as well.
    I yield back. Thank you, Mr. Chairman.
    Mr. Goodlatte. Good point. Thank you, Mr. Deutch.
    The gentleman from New York, Mr. Reed, is recognized for 
his questions.
    Mr. Reed. Thank you, Mr. Chairman.
    Thank you, gentlemen, for your testimony today.
    I just want to focus on one area in particular. I have 
looked at some of the statistics and reports from the PTO, and 
I have concerns. When we see that inter partes reviews are 
successful 90 percent of the time either invalidating or 
narrowing the patents, ex parte reviews are successful 77 
percent of the time, you know, that begs the question to me why 
are we adding an additional administrative proceeding when it 
comes to post grant review?
    But I think that has already come and gone, and that battle 
seems to be behind us, and we are moving forward on it. So I 
guess I raise the question about whenever we add a proceeding 
that can be utilized by litigation tactics and things like 
that, I am very sensitive to frivolous, exposing it to 
frivolous claims.
    I am familiar with one that was sent to our office. One 
group called the ``patent assassins,'' I have shared that 
information with Members of the Committee and others, where 
they market, in my opinion, their business model is to attack 
patents on a frivolous nature to essentially, my opinion, shake 
people down and corporations down for financial purposes.
    But could you, I guess, Mr. Miller, I will direct the 
question to you. Could you just clarify or add your experience 
or testimony as to abuses you have seen with the existing inter 
partes system? It may be helpful to the----
    Mr. Miller. Yes, we had one particular--thank you for the 
question, Congressman Reed.
    We had one particular case that we brought that was a 
pretty egregious infringement on a packaging for our Folger's 
coffee can, and we asked for a preliminary injunction. And the 
response was by the alleged infringer to immediately run to the 
Patent Office and ask for an inter partes re-exam and then ask 
for a stay in the proceeding in the district court.
    And so, the whole litigation tactic was let's open a second 
front, where we can have a second bite at the apple against 
this, get the original litigation stayed, try to avoid a 
preliminary injunction, and then move forward.
    Well, we took an appeal to that to the Federal Circuit. The 
Federal Circuit reversed and said you have to decide the 
preliminary injunction motion. You can't just stay the 
proceedings, and that's one of my concerns with stays. And lo 
and behold, the case settled after the court said that they 
had--we had to have a preliminary injunction hearing because 
the other party knew that they would probably be enjoined from 
further using the invention.
    So, you know, I think that there are litigation abuses and 
litigation tactics that we have to control and have to be 
sensitive as we develop the procedures in this bill.
    Mr. Reed. Well, and that is where I look at the Senate 
bill, and I see higher thresholds for the post grant review and 
inter partes review language in those bills. I guess from your 
experience, would you see those helping to reduce that higher 
threshold, reducing those frivolous actions and abuses that you 
may have described there?
    Mr. Miller. I do. I do. I think that----
    Mr. Reed. And why is that? Why would that work?
    Mr. Miller. Well, I think that we see a lot of times 
where--and I say any good patent attorney worth its salt can 
find a new question of patentability by finding some reference 
that wasn't cited at the Patent Office. We ought to hold folks 
to the standard that there is a reasonable likelihood that one 
claim is going to be invalid in the patent, and that ensures 
that there is actually something amiss with the patent, that 
there needs to be a correction that needs to be made.
    And so, that we can go forward with the assurance of using 
all the resources that the PTO is going to use within this 
quick 1-year timeframe with all the estoppels to get this 
through and make sure that that problem is fixed. If we go to 
the lower standard, we may get to the point where we've gone 
through this whole procedure, and there are no problems. And 
that's wasting not only PTO resources, but both of the parties' 
time.
    And that's why I think the higher threshold is extremely 
important in these.
    Mr. Reed. I understand, Mr. Chandler, you may have a 
different opinion on this issue. But do you see any risk to the 
post grant review process being opened up, if we lower the 
threshold or even went lower? I think in your testimony, you 
wanted to go lower on the threshold. Do you see any risk of 
that frivolous abuse that Mr. Miller is referring to?
    Mr. Chandler. No, we--we're actually not in favor of 
lowering the threshold. We're in favor of maintaining current 
law, which is----
    Mr. Reed. Okay.
    Mr. Chandler [continuing]. The question of patentability.
    Mr. Reed. Which is a lower threshold than what the Senate 
bill has?
    Mr. Chandler. It is. But under the current threshold, the--
there have been 1,115 inter partes re-exams since 1999, when 
the procedure was implemented. In 89 percent of the cases, at 
least one claim was invalidated. In 47 percent of the cases--
that's almost half of them--the patent itself was thrown out 
completely.
    So when you have 89 percent subject to change, and Mr. 
Miller advised me during the recess that about a quarter of 
those may have been more administrative fixes to patents, even 
if a quarter of them were that, when you get that level of 
result, it would seem that the threshold doesn't need to be 
raised.
    And I think Director Kappos spoke directly to the question 
of whether it would be a use of resources, distraction of 
resources to leave the threshold where it is, and he seemed 
comfortable with that, given those percentages.
    Mr. Reed. So, essentially, you are saying the existing 
system works. Why go to the post grant review, if I am 
understanding your testimony correctly?
    Mr. Chandler. And this, actually, is very relevant to the 
question Mr. Deutch posed a moment ago because the types of 
information that are allowed in as part of the re-exam are 
different under the post grant review, which is only available 
in the first year after issuance.
    Mr. Reed. Okay.
    Mr. Chandler. Once you get past that, inter partes is a 
very narrowly constrained type of information that can be 
looked at related to other patents and published prior art. So 
they are different.
    I would suggest coordinating them so that if someone wanted 
to start an inter partes review immediately after the patent 
granted, if litigation, for instance, was brought at that 
point, that the director could consolidate post grant and inter 
partes requests so that you don't have duplicative proceedings 
on the same patent. I think that would be a procedural 
improvement to the structure of what's in the legislation 
today.
    Mr. Reed. Thank you.
    I see my time has expired. I will yield back. Thank you, 
Mr. Chairman.
    Mr. Goodlatte. Thank you, Mr. Reed.
    The gentlewoman from California, Ms. Chu, is recognized for 
her questions.
    Ms. Chu. Thank you.
    Mr. Chandler, in his testimony, Mr. Miller characterized 
the changes to the inter partes process in the Senate bill as 
``safeguards.'' Do you agree with his characterization, and do 
you think the changes actually make the inter partes process 
more fair and less burdensome?
    Mr. Chandler. Actually, I think that the Senate bill's 
provisions on inter partes are a step backward compared to 
current law. As Chairman Smith alluded to in his opening 
statement, there is an issue that affects technology community, 
particularly related to frivolous lawsuits. And that inter 
partes review is a major step that is used in order to have the 
Patent Office look at unmeritorious patents and invalidate them 
where required with the very high statistics that I cited.
    So I don't think it makes it more fair, and I think 
certainly some of the changes that are reflected in the draft 
legislation today fix some of that, don't go quite far enough, 
and that's why I suggested a couple of other modifications that 
could move us to the position of being enthusiastic supporters 
of the bill.
    I would say that the opportunity provided by the unusual 
schedule this afternoon facilitated a number of sidebar 
conversations during the recesses, and I think we're making 
progress on some of these issues.
    Ms. Chu. Mr. Chandler, under the House bill, defendants 
would have only 9 months to file a request for inter partes re-
exam after getting sued. What is the deadline under current 
law? Do you believe a deadline is necessary or actually 
improves the inter partes process?
    Mr. Chandler. There is no deadline under current law, but 
I'm sensitive to the fact that patent holders ought to get some 
certainty with respect to their patents and be able to proceed 
with litigation. The commitment in the legislation having a 1-
year period for inter partes review is very important for 
patent holders, and we're supportive of that requirement and 
the funding that facilitates it.
    I think a time limit is a good idea. I think it is better 
calculated by the Markman examination, Markman determination by 
the judge rather than by an arbitrary time period. We have some 
litigation that involved tens of defendants, 61 patents, 1,975 
different claims, this past litigation which you may be 
familiar with. And in those cases, it is very, very hard prior 
to Markman to figure out how to initiate an inter partes 
review.
    And that would, I think, cause the patent holder as well to 
want to speed up the Markman so that there would be a clear 
claim interpretation. But we do not object to the idea that 
there should be a limiting event or time.
    Ms. Chu. Mr. Miller?
    Mr. Miller. I'd just like to comment on one thing Mr. 
Chandler said. Waiting to a Markman hearing can be way too 
late. Some courts don't even hold a Markman hearing until maybe 
a week or so before the trial, and so you've already gone 
through discovery. You've already gone through getting ready 
for the trial, and then to file for an inter partes re-exam 
that late in the game just isn't fair to some patentees.
    And so, our district courts vary on the times when Markman 
hearings are held. So I think it's a better policy to have a 
date certain as to when these have to be filed.
    Ms. Chu. Mr. Chandler, how do you respond to that?
    Mr. Chandler. As someone who is most often a defendant in 
these litigations, we do not find it advantageous to have the 
Markman hearing wait to before trial for exactly the judicial 
inefficiency aspects that Mr. Miller alluded to. And I think 
that with a change such as I proposed, both plaintiff and 
defendant would have an interest in pushing for a faster 
Markman proceeding, and that would have an impact then on the 
pace with which the district courts handle that.
    Ms. Chu. Okay. And just switching topics, Mr. Vaughn, as 
you know, some startup companies, small businesses and 
independent inventors and universities are concerned that the 
grace period in the House and Senate bills may force them to 
publicly disclose their technology before they are ready to 
enter the marketplace.
    Do you agree with this concern? Do you have recommendations 
for ways to improve the grace period to ensure that the patent 
system works for all inventors?
    Mr. Vaughn. Well, I've heard a lot of expressions about the 
grace period that suggest to me that there may not be a full 
understand of the changes that have been made. Because the 
grace--the grace period that is in the current legislation is 
fit to move to a first inventor to file, such that the 
publications of an inventor provide a 12-month period for that 
person to file a patent application, and that person's 
publication is not prior art. But it would be prior art for 
someone else trying to file a patent.
    So I think you've kind of carved out a space to give 
yourself time, if you're a startup company, to explore the 
marketability of your patent, and the grace period protects 
that time.
    Ms. Chu. Okay. Thank you, and I yield back.
    Mr. Goodlatte. Thank you, Ms. Chu.
    I think that concludes our questions today, which also 
brings the hearing to an end.
    And want to thank you all for your very helpful testimony. 
It has been very instructive. Who knows? We may have even made 
some progress.
    And Mr. Chandler, if we can't make everybody enthusiastic, 
maybe we can at least make everybody feel better, and we will 
take that as a victory as well.
    So thank you again very much. I appreciate your testimony, 
appreciate your being here.
    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 to 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.
    We stand adjourned.
    [Whereupon, at 6:04 p.m., the Subcommittee was adjourned.]

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