[Senate Hearing 112-558]
[From the U.S. Government Publishing Office]
S. Hrg. 112-558
OVERSIGHT OF THE U.S. PATENT AND TRADEMARK OFFICE: IMPLEMENTATION OF
THE LEAHY-SMITH AMERICA INVENTS ACT AND INTERNATIONAL HARMONIZATION
EFFORTS
=======================================================================
HEARING
before the
COMMITTEE ON THE JUDICIARY
UNITED STATES SENATE
ONE HUNDRED TWELFTH CONGRESS
SECOND SESSION
__________
JUNE 20, 2012
__________
Serial No. J-112-81
__________
Printed for the use of the Committee on the Judiciary
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76-092 PDF WASHINGTON : 2012
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COMMITTEE ON THE JUDICIARY
PATRICK J. LEAHY, Vermont, Chairman
HERB KOHL, Wisconsin CHUCK GRASSLEY, Iowa
DIANNE FEINSTEIN, California ORRIN G. HATCH, Utah
CHUCK SCHUMER, New York JON KYL, Arizona
DICK DURBIN, Illinois JEFF SESSIONS, Alabama
SHELDON WHITEHOUSE, Rhode Island LINDSEY GRAHAM, South Carolina
AMY KLOBUCHAR, Minnesota JOHN CORNYN, Texas
AL FRANKEN, Minnesota MICHAEL S. LEE, Utah
CHRISTOPHER A. COONS, Delaware TOM COBURN, Oklahoma
RICHARD BLUMENTHAL, Connecticut
Bruce A. Cohen, Chief Counsel and Staff Director
Kolan Davis, Republican Chief Counsel and Staff Director
C O N T E N T S
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STATEMENTS OF COMMITTEE MEMBERS
Page
Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa...... 3
prepared statement........................................... 48
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 1
prepared statement........................................... 59
WITNESSES
Kappos, David J., Under Secretary of Commerce for Intellectual
Property, and Director, U.S. Patent and Trademark Office,
Washington, DC................................................. 4
QUESTIONS AND ANSWERS
Responses of David J. Kappos to questions submitted by Senators
Leahy, Klobuchar, Blumenthal, Grassley, Hatch, Cornyn, Lee and
Coburn......................................................... 23
SUBMISSIONS FOR THE RECORD
Kappos, David J., Under Secretary of Commerce for Intellectual
Property, and Director, U.S. Patent and Trademark Office,
Washington, DC, prepared statement............................. 52
OVERSIGHT OF THE U.S. PATENT AND TRADEMARK OFFICE: IMPLEMENTATION OF
THE LEAHY-SMITH AMERICA INVENTS ACT AND INTERNATIONAL HARMONIZATION
EFFORTS
----------
WEDNESDAY, JUNE 20, 2012
U.S. Senate,
Committee on the Judiciary,
Washington, D.C.
The Committee met, pursuant to notice, at 10:07 a.m., in
room SD-226, Dirksen Senate Office Building, Hon. Patrick J.
Leahy, Chairman of the Committee, presiding.
Present: Senators Leahy, Feinstein, Whitehouse, Klobuchar,
Coons, Grassley, Hatch, Lee, and Coburn.
OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
THE STATE OF VERMONT
Chairman Leahy. Mr. Kappos, if you could take a seat there,
I will explain what we are doing. Normally, I am one that likes
to take pictures. I am more interested in taking them than
being in them, but this is one where Mr. Kappos and I both were
at the signing of the Leahy-Smith America Invents Act, and you
can see both of us and, of course, the President. And I am
standing there because I am trying to take a picture of the
President's hand signing the bill. Over the years, I have been
able to get pictures of Presidents Ford, Carter, Reagan, both
Bushes, Clinton, and Obama, pictures of their hands, because no
other photographer stands behind the President when he is
signing a bill. But this particular picture, Mr. Kappos, as I
mentioned to you, has special significance to me because it was
taken by my son-in-law, who is one of the President's
photographers, and we just wanted you to have it.
Nine months ago, the U.S. Congress did something that has
become all too rare. It sent to the President bipartisan
legislation that is going to unleash American innovation to
create jobs and improve our economy. The Leahy-Smith America
Invents Act, signed by the President last September, was the
product of more than 6 years of hearings and markups, and I
thank all the Senators on both sides of the aisle that came to
all those hearings and markups. And we had countless hours of
meetings and negotiations, Republicans and Democrats, Senate
and House, sitting down together and working on legislation the
way we used to, the old-fashioned way.
The patent reform process was bipartisan and bicameral
effort right from the outset. Every member of this Committee
made important contributions to the legislation. Director
Kappos' leadership was also invaluable to this process. I had
known him before from his days in the corporate world. He did
not need a tutorial to know what was necessary. And Ambassador
Locke, who was Secretary of Commerce when the Senate first
passed the America Invents Act in March, I think of all the
number of times that Gary Locke sat in long meetings with all
of us, Republicans and Democrats, to work this out.
But the Act creates a more effective, efficient, and
streamlined patent system that will get the highest-quality
patents to issue from the PTO as quickly as possible. It
required major structural changes to the system of granting and
enforcing patents, and that will take the PTO time and work to
implement.
But it has begun. So far, the PTO has initiated more than
10 different rulemakings and hired more than 800 examiners and
40 administrative patent judges. It has conducted seven road
shows across the country to explain and receive feedback on
proposed rules, and I appreciate this transparent manner where
not just people in Washington but people in other parts of the
country can have their input.
I am pleased that even before the Act is fully implemented
the PTO has focused on reducing the backlog of patent
applications. Over the last 2 years, the backlog has been
reduced roughly 12 percent, and I want these numbers to
continue to improve.
But speed is only one part of the equation. The patents
that are issued need to be of high quality, because if they are
not, instead of being an incentive to inventions, they are
going to impede innovation. We have in the Leahy-Smith bill
important quality controls.
We also need to do more to protect American investors in
overseas markets. We should encourage other nations to adopt a
grace period similar to in our law.
We can make it easier for American inventors to seek patent
protection abroad by implementing the Patent Law Treaty and the
Geneva Act Treaty on design patents. Those have been supported
by both the Bush and the Obama administrations, so I hope,
following the bipartisan example of President Bush and
President Obama, that we can implement legislation in the same
bipartisan and bicameral manner as we did on patent reform.
So I think this is an efficient and effective patent
system, and this was one that had not been updated for half a
century. This will unleash American innovation and improve the
American economy.
So we have done our part in Congress, and I look forward to
hearing from the Director about the steps the administration is
taking to ensure the Leahy-Smith America Invents Act fulfills
its potential as I believe we are creating the first truly 21st
century patent system.
I will put my full statement in the record.
[The prepared statement of Chairman Leahy appears as a
submission for the record.]
Chairman Leahy. Senator Grassley.
STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR FROM THE STATE
OF IOWA
Senator Grassley. I will likewise put a full statement in
the record and refer to a couple points.
First of all, Senators Leahy and Hatch and Members of the
House who were involved in this, you need to be complimented
for having the most comprehensive reform of patent law since
the 1836 patent law. It is a product of 6 years. The America
Invents Act makes the U.S. patent system more efficient and
streamlined. It will eliminate or at least cut down on
frivolous lawsuits. Transparency is very important. Patent
quality is very important. That will be enhanced. These reforms
contained in this law have helped the Patent Office to cut down
on its backlog and process patent applications more
expeditiously.
The law contained a number of provisions that required the
Patent Office to promulgate rules and regulations, so holding
this hearing is very important on our constitutional
responsibility of oversight to make sure that regulations
follow congressional intent.
We also want to determine whether the legislation has
produced any discrepancies, difficulties, or unintended
consequences that have been revealed during this
implementation. So I believe it is appropriate to ask whether
technical, clarifying, or other changes to the legislation are
warranted. If so, I expect to work with my colleagues in a
transparent and open manner to improve the America Invents
process, and hopefully nobody will try to use technical or
clarifying language to get something done that they could not
get done during the 6 years that this process was being
negotiated.
And also to point out, last, that in 2007 the Patent Law
Treaty and the Geneva Act of the Hague Agreement concerning the
International Registration of Industrial Designs, these were
ratified by the Senate. The Senate now needs to pass
implementing legislation, and I look forward to hearing more
about these treaties and how they can help American patent
holders.
That is only a part of my statement, so I will put the
whole thing in the record.
[The prepared statement of Senator Grassley appears as a
submission for the record.]
Chairman Leahy. Thank you very much, and thank you for your
help on this.
David Kappos is the Under Secretary of Commerce for
Intellectual Property and Director of the United States Patent
and Trademark Office, and he was invaluable to me and others in
providing counsel and guidance as we worked to pass the Leahy-
Smith America Invents Act.
Before he joined USPTO in 2009, he was vice president and
assistant general counsel for intellectual property at IBM;
bachelor's from the University of California, Davis; law degree
from the University of California at Berkeley; but, more
importantly, somebody who not only understands this, but has a
commitment to make the Patent Office work.
Director, it is all over to you. Go ahead.
STATEMENT OF THE HONORABLE DAVID J. KAPPOS, UNDER SECRETARY OF
COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT
AND TRADEMARK OFFICE, WASHINGTON, D.C.
Mr. Kappos. Well, Chairman Leahy, thank you very much;
Ranking Member Grassley, Members of the Committee. Thank you
for this opportunity to discuss the USPTO's ongoing efforts to
implement the Leahy-Smith America Invents Act and our pathway
to international patent law harmonization.
Mr. Chairman, you and your colleagues deserve special
praise for making patent reform a reality. Our Nation's
innovators and our economy are truly the beneficiaries of your
hard work. Thank you, thank you, thank you.
Mr. Chairman, I am pleased to report that our AIA
implementation efforts are indeed proceeding apace. We have
implemented seven provisions of the AIA--all within the
timeframes set by the Act. We have published proposed rules for
nine additional provisions, and we are on schedule to implement
all of them on time this summer.
While our stakeholders have expressed differing views on
some of our proposals, all of them have commented quite
favorably on the transparency of our implementation process and
the extent of our public outreach. Our AIA implementation team
continues to review hundreds of comments received from
individuals, IP organizations, IP practitioners, innovators,
government entities, and academic institutions. And our
ultimate goal, of course, is to produce rules consistent with
the language and intent of the AIA that will best serve the
needs of America's entire innovation community.
We will issue the final rules on or before August 16th of
this year. The rules will then become effective on September
16, 2012, to give us a window of a month or more to educate our
personnel and the public regarding the final rules in advance
of their implementation.
Now, in early February of this year, we published initial
proposed fees, as authorized by the AIA, for our patent
services, and we received substantial feedback and
recommendations from the public on them. We will also be
receiving a report from our Patent Public Advisory Committee on
the proposed fee structure before we issue a final rule late
this year or early next year.
Mr. Chairman, we should note that our stakeholders are
indeed already benefiting from the AIA. We launched the
prioritized examination program, known as Track One, that
provides for patent application processing in less than 12
months and offers small businesses a substantial discount.
Since its inception, we have received more than 4,000 Track One
applications, and we have completed first examination on more
than 2,300, an average of about 90 days, which is exactly what
we had intended to implement.
Needless to say, Mr. Chairman, our Satellite Office Program
has drawn quite a bit of interest. We will open our first
satellite office in Detroit, Michigan, next month. With respect
to additional offices, we are in the process of reviewing and
analyzing more than 600 comments and suggestions we received in
response to our Federal Register notice. We expect to announce
the locations of additional offices this summer.
Mr. Chairman, this is an exciting time in the patent world.
With the passage of the AIA and Europe's consideration of a
unitary patent, we are positioned to make real progress toward
the establishment of a more effective international patent
system overall. Adoption of the AIA has enabled the USPTO to
promote a new vision of an intellectual property world in which
national and regional patent systems are coordinated to create
an optimal environment for technologically innovative companies
and individuals globally.
The AIA provides an opportunity to restart long-stalled
discussions with our foreign counterparts toward substantive
harmonization that will help U.S. businesses succeed in the
global business environment. And a critical part of these
discussions is adoption by other countries of a modern grace
period. A grace period has been adopted in many patent systems
throughout the world, and it is recognized as a global best
practice. We look forward to continuing these discussions with
our overseas counterparties.
It is clear that policies supporting high-quality
intellectual property and a high-quality IP system are making a
difference in our Nation's economic recovery. The recent IP
jobs report ``Industries in Focus'' shows that America's core
strength continues to lie in our ability to innovate. Sensible
Government policies encouraging that spirit of innovation can
demonstrably contribute to job creation and economic well-
being.
So, Mr. Chairman, we look forward to working with you to
ensure that the innovation-advancing, job-creating, deficit-
neutral work conducted by the USPTO continues to best serve
America's innovators, and we appreciate your continued support
for the employees and operations of the USPTO.
[The prepared statement of Mr. Kappos appears as a
submission for the record.]
Chairman Leahy. Well, thank you very much, Director.
One of the things that I might mention, we had a grace
period we included in the transition to a first inventor to
file system. I have been told that has been essential to
researchers at universities, independent vendors seeking
venture financing. You said that you are working with other
countries to see if they will provide similar protections.
How are we coming with these other countries and trying to
get that kind of grace period?
Mr. Kappos. I think it is fair to say that we are making
pretty solid progress. As a result of the recent free trade
agreement between the U.S. and Korea, Korea now has a great
grace period. Japan has a good grace period. We have got to
work on a little bit of timing with them still. Other
countries, including Canada, Australia, have excellent grace
periods. We are working with folks over in Europe, the European
Union and the major countries over there, in the direction to
moving toward a grace period also. And I think it is fair to
say that across the board people are receptive because they
understand that a grace period is pro-innovation, it is pro-
tech transfer, it is pro-opportunity.
Chairman Leahy. In the European Union, they are probably a
bit distracted these days on other matters, but keep on with
them.
What are the biggest obstacles remaining as part of the
implementation of the new law?
Mr. Kappos. Well, relative to implementation of the law
overall, I actually do not see major obstacles. It is an
excellent piece of legislation. We have got the tools to
implement it. Financial resources are always a concern,
understandably, but we have gotten great support from Congress.
Our fee collections are running right about where we expected
them to. Our expenses are right about where we expected. And we
have got all the resources we need at this point to implement.
Chairman Leahy. I mean it as a compliment and not as a
pejorative when I talk about a roadshow, but have those worked
out pretty well in your mind?
Mr. Kappos. Yes. So we ran seven roadshows all over the
country--east coast, west coast, a number of places in between.
I thought they were excellent, and the reason is because they
gave an opportunity for people who do not often interact with
the USPTO to get in a room and spend an entire day with our
leadership team and understand the legislation, understand our
implementation and tell us how we can improve it. So we touched
over 1,300 people all over the country. We got tremendously
positive feedback. We got great comments and suggestions, all
the way from Sunnyvale to Boston and everywhere in between, so
much so that we are going to run a second set of roadshows----
Chairman Leahy. Mentioning that, there is one State that
has the most number of patents per capita of any State in the
country.
Senator Feinstein. Where are you going with that?
Chairman Leahy. I thought maybe we could go alphabetically,
starting with Vermont.
[Laughter.]
Chairman Leahy. I am sorry. Go ahead.
Mr. Kappos. Well, we will run a second set of roadshows
late this summer and early into the fall when the final rules
are out to touch, again, a many people as possible.
Chairman Leahy. Fall is a beautiful time in Vermont.
[Laughter.]
Chairman Leahy. I am concerned that standard essential
patents are becoming the new front of the tech patent wars.
Senator Kohl and I wrote to the administration expressing our
concern that preventing the use of these patents by going to
the International Trade Commission after promising to license
them on reasonable terms could have anticompetitive effects. I
think the Federal Trade Commission and I know other Members of
Congress have expressed similar concerns.
Are there times, in your view, when enforcing these types
of patents might harm consumers?
Mr. Kappos. Yes, I think that the situation is definitely
cause for careful study at this point. So standard essential
patents implicate a number of very important intellectual
property and also competition issues. You are talking about
situations where a number of competitors are agreeing to use
the same technology. Once that occurs, they go off and they
make commitments to manufacturing equipment and processes, and
they put networks in place. There is a tremendous lock-in
effect that creates extremely high value for the technology
that is in the end implemented.
When competitors get together and make pledges of fair,
reasonable, nondiscriminatory licensing, so-called FRAND
pledges, in the context of standard setting, those pledges need
to be kept, and what they mean is that licenses will be
offered. If later folks who have offered their patents under
FRAND terms then are able to get exclusion orders or
injunctions, you can certainly have some tremendously negative
side effects.
On the other hand, though, I think there is also a fair
point to be made that a FRAND commitment does not stand for
licensing under any terms and conditions, and you cannot wind
up in a situation where FRAND means no opportunity to enforce a
patent because what that will create is a situation where
nobody will have any incentive to take a license. So finding
the right balance is really the challenge.
Chairman Leahy. Well, and I agree with you. You explored
the poles on that, and I agree with you on both of them. But we
have got to find a way--not so much bring both sides together,
but find a way through this. And I do not begin to
underestimate the difficulty of threading that needle, but
please keep us posted on this, will you? Thank you.
Just one last thing. You mentioned the Patent Law Treaty
and the Geneva Act and the Hague as treaties since ratified,
but they require implementing legislation to be effective. I
assume you feel those are going to be pretty effective, pretty
helpful to this country if we get the implementing legislation
through?
Mr. Kappos. Yes, I do, Chairman Leahy. Both of those
treaties are pro-innovation. In the case of the Patent Law
Treaty, you are talking about a straightforward instrument that
will cut costs for U.S. patent filers and patent filers
globally, streamline the system, reduce redundancies, you know,
a very light lift. In the case of the Hague Act, you are
talking about design innovation, which has become a major,
major issue lately. Look at the corpus of innovation that Steve
Jobs created which showed us all that there is tremendous
action at the intersection between design and utility
innovation. And the Hague Act is all about providing a
streamlined single instrument that will enable American design
creators to get global protections. Both of those treaties are
pro-American innovation, pro-global innovation, pro-jobs, pro-
opportunity, very light lifts, and I would love to see
implementing legislation.
Chairman Leahy. Thank you. I will submit my other questions
for the record, especially one on the Patents for Humanity
Program.
Chairman Leahy. Senator Grassley.
Senator Grassley. Director, I hope you will recall that I
was instrumental in getting a provision dealing with tax
strategy patents included in this Act so that all taxpayers
would have equal access to strategy in complying with tax law.
These patents encumber the ability of taxpayers and advisers to
use the tax law freely, interfering with the voluntary tax
compliance system and undermining the fairness. Tax patents
provide windfalls to lawyers and patent attorneys by granting
them exclusive rights to use tax loopholes, which could provide
some businesses with unfair advantages. Some taxpayers could
face fees simply for complying with the Tax Code. Because tax
strategy patents are unlikely to be novel given the public
nature of the Tax Code, we included a provision in the law that
expressly provided that a strategy for reducing, avoiding, or
deferring tax liability cannot be considered a new or non-
obvious idea and, therefore, a patent on tax strategy cannot be
obtained.
So I am interested in hearing whether the tax patent
provisions included in the law are working out as Congress
intended. Specifically, is the Patent Office continuing to
receive patent applications involving tax strategy? And,
second, what procedures have been put in place to screen for
tax strategies and ensure that the law's provisions are
complied with?
Mr. Kappos. Well, right, thank you, Senator Grassley, for
the question, and we are indeed intent on accurately and
faithfully implementing that provision. It is an important part
of the law.
A couple of comments. Number one, it is a little early to
tell because patent applications that we have received since
the law went into effect have been small numbers, but we
received only small numbers ahead of that. We are talking like
in the neighborhood of 20 applications. Very, very small
numbers. We will examine them rigorously based on the
strictures in the law. So I think the law will be very helpful
for its intended purpose, but given the timelines of these
things when they get received and when they get examined, it is
too early for me to give you statistics on results yet.
The other thing I will say is that Section 18 of the AIA,
the covered business method review provision, is also going to
be extremely helpful, and with great guidance from Congress, we
have written rules that will ensure that tax strategy patents
will in, if not all cases, the very large majority of them be
applicable for Section 18. So that will give us an opportunity
at the request of third parties to take a close second look at
those patents. Section 18 will be helpful also.
The other thing I would say is that I have initiated on my
own signature Director-ordered re-examinations of two
particular tax strategy patents that I felt strongly had
serious validity problems with them. Both of them have been re-
examined in the USPTO. Both have been rejected. One has been
finally rejected and is on appeal. The other one is under
rejection, no claims deemed allowable in them.
So I think the guidance from Congress has been extremely
valuable to us. We are applying it as much as we can already,
and there will be more to come.
Senator Grassley. Would you be able to be consulting with
the IRS if you need guidance on tax law?
Mr. Kappos. We certainly will. And, in fact, the basis that
we have used for the Director-ordered re-exams that we have
done so far have been highly based on IRS regulations and
information. So their work is indeed seminal to our handling
these cases.
Senator Grassley. My next question involves some oversight
work I have been doing, and if you feel that you can answer it
in writing better than answering orally, I would give you that
option. Since you are before the Judiciary Committee now, I
want to take the opportunity to ask about my oversight
inquiries of the Patent Office expenditure relative to
international conferences. Preliminarily, I want to make clear
that I understand it is important for the United States to do
international outreach and training with respect to protection
of intellectual property rights, but we also need to know that
we do it in a smart way using taxpayers' money.
Last September, I wrote to you regarding the U.S. Patent
Office's sponsorship of a 2-day intellectual property
conference in Tokyo. It is my understanding that $180,000 was
spent for four high-level Patent Office staff members,
including yourself and six judges, and two staffers of the
Federal Circuit Court of Appeals. However, in the meeting I had
with Chief Judge Rader, he told me that Japan no longer has
significant intellectual property problems that are prevalent
elsewhere around the world. I asked the Patent Office and the
Federal Circuit Court of Appeals for specific documentation
about the amount of funding spent for this and other
international conferences. The Patent Office response provided
vague justification for the expenditures and no actual
documentation.
So I still want to receive the documents that are requested
in the September 2011 letter. I hope you would commit to
providing me with the conference and travel expense documents
that I requested. And I would like to have you explain why the
Patent Office spent over $180,000 for a conference in a country
that has already addressed its significant intellectual
property problems. Why was it necessary to send so many people,
by my count at least 12 individuals, to that conference? The
response that I received stated that the Patent Office would be
sponsoring an intellectual property conference in China this
year. I would like to know the status of that trip and who is
scheduled to attend and how much is going to be spent for the
sponsorship and travel expenses.
Again, the message I am trying to send to you is that in
this day of extremely limited resources, we all should be
looking for focus on our efforts where they need to be most,
and we should be trying to find as many ways as possible to
save money.
Mr. Kappos. Well, thank you for that question, Senator
Grassley, and I would start by saying I could not agree more
strongly with you that in this age--in fact, in any age but
especially this one--we need to be extremely judicious about
the way we spend money, especially travel money, because trips
can get expensive. And that is why, in specific, for the
conference in Japan, to my memory we took three people on that
trip: myself; the solicitor of the USPTO, who is my senior-most
litigators; and one staff person to help staff the trip.
I have ensured that USPTO pays only for coach class travel
for all travel that I do and all other USPTO employees. So our
travel is extremely cost-effective, even for extremely long
trips like a trip to Japan.
That conference, in my view, was enormously important and
was very successful. We were able to get together hundreds of
Japanese practitioners with their judiciary. Indeed, they have
got a great intellectual property system, respect the law
there. They are leaders in Asia, and by holding that conference
like we did, with a small U.S. Government footprint but helping
to bring together all the folks over in Japan and, in fact,
throughout Asia, we were able to get a first huge gathering of
Japanese judiciary with their practitioners, leaders from other
countries including the U.S. and other parts of Asia, and have
what I thought was an extremely valuable discussion about the
intellectual property system, the importance of patent,
trademark, copyright, trade secret enforcement all over Asia.
We did indeed, Senator Grassley--you correctly asked about
the follow-on conference in China. We help that conference just
a few weeks ago in Beijing. I attended that, again, along with
just a few other USPTO people, again, if my memory serves,
exactly two other folks: our solicitor and a staff person. It
was an enormous and successful conference. About 1,200 people
attended, including several hundred Chinese judges, members of
their Supreme People's Court who hear their intellectual
property-related cases, and it gave us a huge opportunity to
talk all at the same time in person and through the media in
China to literally hundreds and hundreds of people who we need
to help get on board with understanding and championing a
strong intellectual property rights system.
So in my job, as our administration's leader in
intellectual property policy development and promulgation, I
feel these were extremely valuable trips, lightly staffed by
the USPTO; and while we are not going to go doing these all
over the world, I think they clearly are the right things in
the right places in order to help move the rule of law and
respect for intellectual property forward.
Senator Grassley. Will you give me the documents I
requested, please?
Thank you, Mr. Chairman.
Chairman Leahy. Thank you.
I commend you on flying coach. All of us around this table,
when we fly overseas on Government business, usually fly either
business class, first class, or on a Government airplane. So
before we get too concerned about your flights, we want to make
sure that we are not throwing stones at a glass house.
Senator Feinstein.
Senator Feinstein. Thank you very much.
Welcome, Mr. Kappos. I wanted to talk to you a little bit
about the length of time it takes to get a patent and
recognizing that you now have funds to hire because you can now
increase filing fees, which I think is a very positive
development. The figure is that the average patent pendency has
essentially doubled over the last 20 years, from 18.2 months in
1991 to a high of 35.3 months in Fiscal Year 2010.
Now, I am very pleased to see that this has begun to
decline for the first time in 8 years to 33.7 months in Fiscal
Year 2011. This is the latest figure my staff could get.
I can tell you that in discussions with Silicon Valley CEOs
like Apple, this is their number one concern: the length of
time it takes to obtain a patent.
Here is my question. I see your hiring numbers on this
chart. I see how many applications come in, and I see really
out of that how few right at this time are on board, how few
have been made offers. The question comes. Are you setting a
goal for a patent? Let us take for me it is a high-tech patent.
How long can a company like Apple or Google expect for patent
processing?
Mr. Kappos. OK. Well, Senator Feinstein, thank you very
much for the question. As someone who came from the tech
industry, in fact, from Silicon Valley, I am extremely attuned
to the need for rapid processing by the tech sector. We do have
very explicit, very clear goals in this regard. We believe,
based on input we have gotten from all sectors of the U.S.
innovation economy that the optimal processing time for a
patent application is indeed 18 months to completion, on
average, and that you get to 18 months, on average, to
completion by getting a first office action, a first
substantive response in about 10 months. And that is why we
have set targets of 10 months to first action and 20 months to
final action which ensures that with a little bit of some cases
coming out early, the early cases will come out at 18 months,
the later cases will come out at about 22 months or so, and we
will not be pre-publishing patent applications before 18 months
but we will get them done very close to 18 months.
So the answer to your question is our target is first
action in 10 months, final action on an average of 20 months,
which, you know, gets you between 18 and 22 months, and we will
reach those targets by 2015 and 2016, and we are well on our
way to getting there.
Senator Feinstein. The biotech industry has given me a
question to ask you, and that is, patent examiners keeping up
to date on new developments. You mentioned your very successful
roadshows. I wonder if you could not do something like that
with respect to new technology to keep examiners up to date.
Now, this came from a big biotech company, and that was
their concern. What would your reaction to that be?
Mr. Kappos. Well, that is a very valid concern. Biotech as
an example operates, you know, at the very, very leading edge
of technological development, and it is challenging to keep
examiners, and we have got great examiners. In the biotech
area, we have got examiners who in general have Ph.D.s, very
highly educated, very capable, but keeping up on the latest
technology is a challenge. So we are doing two things to work
on that, and there is a third thing that I would like to start
doing in the future.
The first that we are doing is we have instituted a very
vibrant patent examiner technical training program where we
invite companies from all over the country--and it includes
tech and bio companies from California--to come to USPTO,
either in person or virtually, by teleconference or
videoconference, and give lectures to our applicable examiners.
They can be short or long. They can be 15 minutes or 2 hours.
We have had tremendous success with that. The numbers are
ramping up rapidly. Many thousands of hours of training a year
we are getting from that program. It is working extraordinarily
well. The examiners love it, and the companies that come in
rave about how great it is to get to spend time with our
examiners.
The second thing we are doing is we have reinstituted a
program that we had in past years of sending examiners out on
short, low-cost trips to actually spend a day or two with
various companies, and it includes companies in California
right there in the Valley. I know we have touched companies
that are ones that I am sure you are hearing from and sending
examiners to spend a day or two with them to understand their
processes, to really absorb the leading edge technology that
they are working on. So that is the second thing we are doing.
Of course, that becomes a financial issue because of the
money involved, so we are gradually ramping that up. We are
trying to be very, very cognizant of the travel cost, apropos
of the previous question, but we will continue investing in
that because, as you say, it is very, very valuable to get
examiners out.
The third thing that I would like to start doing and hope
to be able to institute in 2013 is to resume the USPTO
supporting our examiners in receiving technical training post-
graduation. So we have got examiners who are in the agency who
want to take a graduate course in biotech at some school,
hopefully here in the area, in some cost-effective way. I would
like us to be willing to at least partially, if not wholly, pay
the tuition expenses and help our examiners to continue to
develop their technical education even after they are on board.
Senator Feinstein. Could I just make one other comment? I
appreciate this. This is on software patents. It is my
understanding that studies, statistics, and companies show that
the patent system drains resources from high-tech industries.
Software and Internet patents are litigated about 8 times more
often than other patents, and much of this litigation is
brought by the so-called patent trolls, yet a quarter of all
patents issued are software patents.
Are you undertaking any initiatives in the Patent Office to
address this?
Mr. Kappos. Yes, absolutely. It is clearly a concern, and
we are doing several things. First of all, the AIA is going to
have and is starting to have an enormously positive impact. So
the AIA put in place Section 18, the covered business method
section, which touches on software patents because many
business methods are claimed as being implemented in software.
So that provision and our implementing rules will enable us to
provide a venue to take a second look at many of these business
method patents that have software concepts in them.
Second, inter partes review, post-grant opposition are all
about providing a fast, clear, inexpensive route to take a
second look at patents that we have granted, and I expect it
will be extremely helpful in the software area. Now, those
provisions, of course, go into place in September, so we have
got a few months we will be starting to work on them.
The other thing that we have already done is put in place
for the first time new guidelines that we put in place a little
over a year ago that were especially directed to the software
field to have our examiners spend more effort and be more
precise in our examination of patent applications for the
clarity of their disclosure, which is a key problem in the
software area. We had a lot of that set of guidelines--they are
called 112 guidelines. A lot of them were directed to issues
that come up with software patents. We have baselined, we have
done the statistics on changes that have occurred in the
agency, and, indeed, our examiners have put out increasing
effort and increasing objections and rejections in the areas
that you are concerned about. So we clearly are making
progress. We will be doing more there.
Chairman Leahy. We are going to go to Senator Hatch, then
Senator Klobuchar, Senator Coburn, Senator Coons, Senator Lee,
Senator Franken, and Senator Whitehouse. I have just been
advised we are going to have a vote at 11:30. I have tried to
be as flexible possible in giving extra time, but we are going
to have to keep it as close as we can because we will not come
back after we leave for the vote.
Senator Hatch.
Senator Hatch. Well, thank you, Mr. Chairman.
I just want to tell you that I am pleased with your
service. I think you are doing a very fine job, and I have very
little to criticize you with. But let me just say this. I
continue to follow closely how the USPTO plans to implement the
supplemental examination provisions of the America Invents Act.
By establishing the new process, USPTO would be asked to
reconsider or correct information believed to be irrelevant to
the patent, as I understand it.
As you know, the law enables patent holders to request a
supplemental examination of a patent if information arrives
after the initial examination. The goal, when crafting this
provision, was to provide the patent owner the ability to take
action to remedy any potential deficiencies, thus enhancing the
quality and accuracy of the patent examination record.
However, since the USPTO published its proposed rules to
implement the supplemental examination provisions, I have heard
some concerns that the proceeding would be very expensive, if
not cumbersome, to use. How do you respond to concerns that the
cost for filing a supplemental examination is steep and will
discourage patent owners from utilizing this procedure?
Mr. Kappos. Thanks for the question, Senator Hatch, and
that is indeed something that we are concerned. We want the
cost to be set at a level at which these processes are
affordable.
We have taken a lot of input on both the cost and, I will
say, the procedural difficulty issue that you raise, and we are
indeed looking for ways to simplify the procedures. We are
working on that right now. And we are looking for ways to
moderate the cost. So messages received in both cases, and we
are working on making improvements in both regards.
The one other thing I will say is that we are prepared to
make further improvements as we go forward. We will all get
some experience with these procedures once we put them in place
soon, and we are very amenable to then learning and further
simplifying as we learn what works.
Senator Hatch. Well, thank you. Would you mind commenting
on the opportunity patent owners now have with the supplemental
examination to improve the quality of their patents? It seems
one would think the costs associated with strengthening one's
patent may very well be worth the moneys that are invested up
front.
Mr. Kappos. Well, yes, I think that is clearly right, and
so the way we are trying to implement supplemental examination,
we will charge a more moderate fee up front for those patents
that just require the kind of clarification, Senator Hatch,
that you are pointing to and then reserve for further work in
re-examination as called for by the statute those cases that
require really substantial additional work.
Senator Hatch. OK. During consideration of the America
Invents Act, I joined 47 of my colleagues in supporting Senator
Coburn's amendment in which user fees would go directly into a
revolving fund for the USPTO, separate from annual
appropriations. Even though the Coburn amendment failed, we
were assured that the House compromise language, which created
a reserve fund for fees collected, would be more than enough to
provide the USPTO with the resources it needs to fulfill its
mission.
Now, recognizing that the reserve fund is tied to the
appropriations process, how does the continuing resolution
affect your operations? And do you believe that the House
agreement applies to continuing resolutions as well as
appropriations bills?
Mr. Kappos. Well, the reserve fund is indeed a much less
robust solution than the amendment that Dr. Coburn offered, and
thank you for raising the issue, Senator Hatch.
What I would say is so far, so good relative to funding. We
have not yet used the reserve fund because we have not had
money yet to put into it. It is just going to be coming into
effect next year.
During a continuing resolution period like we may be
entering this fall, we will be subject to the appropriations
process and the issues with CRs like we always have. In the
past, they have been challenging. However, we have been able to
plan for what could be a continuing resolution this fall that I
believe will enable the agency to continue our operations
seamlessly through the CR. And if the reserve fund works out
the way that it looks like it will, I believe it will be
helpful to us also in future periods because it will be a
corpus that we can then tap into during those periods.
Senator Hatch. Well, thank you. My time has expired. I do
have a few more questions, so I will submit them in writing.
Senator Hatch. Thank you so much. We appreciate the work
you are doing. I think you are really, really accomplishing
quite a bit down there. I appreciate it.
Mr. Kappos. Thank you, Senator Hatch.
Chairman Leahy. Senator Klobuchar.
Senator Klobuchar. Thank you very much. Thank you, Director
Kappos. Thanks for your good work in this area. This was an
incredibly complex bill and something that I worked hard on, as
did many members of this Committee, truly a bipartisan effort
to get this done.
As you can imagine, our State, the State of Minnesota, has
a great history of innovation. We have given the world
everything from the Post-it Note to Scotch tape, water skis,
pop-up toaster, and rollerblades, just to name a few. I do not
know if you knew that, but it is true. And what we know is that
one of the keys to innovation and economic growth is making
sure a country's inventors that work for small businesses or
even in their own garages can get patents for their inventions.
And the America Invents Act directed the PTO to work with
intellectual property lawyers to create pro bono programs that
assist individual investors and small businesses with applying
for patents. I used to be at a law firm. I know how expensive
patent lawyers can be, and that is one of the ideas here, is to
try to get smaller inventors an easier way in.
I am pleased to see that you are collaborating with Legal
Corps, which is a Minnesota nonprofit that connects IP lawyers
with inventors to provide that kind of pro bono assistance and
are taking the program to cities across America.
Can you provide an update on how that is working?
Mr. Kappos. Right. Well, Senator Klobuchar, thank you very
much for the question. Indeed, the congressionally mandated pro
bono initiative has gotten off to an extremely good start. We
started the first chapter, as you mentioned, in the Twin Cities
in Minnesota. It has been extremely effective. In fact, I just
received an e-mail this morning indicating that the very first
patent has now issued, so we have reached yet another
milestone.
Inventors from the Minnesota area, that whole area of the
Upper Midwest around the Twin Cities, are receiving legal
advice and getting help preparing patent applications. The
program is going extraordinarily well. We started the second
chapter in the Denver, Colorado, area. We have got five more
that we are working on. We will have as many as 13 additional
up and running next year that are well in the pipeline, and we
intend to have complete coverage for the U.S. by 2014.
So the program is going along extraordinarily well. The
push from Congress in the AIA was exactly what we needed, and
we are really making good use of it.
Senator Klobuchar. Then also the America Invents Act
included reduced fees for small businesses and micro entities.
Do you think that will be a help to increase the number of
patents filed by small businesses and individuals?
Mr. Kappos. Well, I think clearly. Now, the micro entity
fees have not yet gone into effect. They are subject to the new
rulemaking in AIA, so I put out the draft rules on those. They
are in the clearance process right now, or if they have not
already emerged from it. So we will be implementing the micro
entity fees. But relative to small entities, another fact that
I should mention is that the Track One Initiative enabling
applicants to get very fast patent protection by paying a few,
has been used in very high proportions by small entities. In
fact, I think about a third of the usage of that program is by
small entities, so that to me really stands for the proposition
that small entities need patents quickly, that fee discounts
work for them, and that they will go out and create opportunity
by getting through the patent system promptly.
Senator Klobuchar. One of the key provisions in the America
Invents Act is moving from a first to invent to a first
inventor to file system, as you are aware. Can you describe the
preparations that are underway to make sure that the PTO is
ready for this important switch in March 2013.
Mr. Kappos. Yes, there is a lot going on in that regard. We
are in the process of preparing the draft rules or what is
called the Notice of Proposed Rulemaking that will go out and
begin getting comments. We plan to hold a roundtable, a special
roundtable on just that provision in order to get input,
especially from small entities and independent inventors. And
we will go through the whole rulemaking process, make sure that
we put out rules that are simple and that help especially the
small inventor community to understand the change and to
implement it effectively.
Senator Klobuchar. Well, very good, and I will have some
additional questions for the record.
Senator Klobuchar. I want to thank you for your work and
again stress how important this is to our country and
especially my State, where at 3M we actually have the same
number of patents as we do employees. So, literally, we can say
that every employee invented something. All right?
Mr. Kappos. Thank you, Senator Klobuchar.
Senator Klobuchar. Thank you very much.
Chairman Leahy. Thank you.
Senator Coburn.
Senator Coburn. Thank you, Mr. Chairman.
Director Kappos, thanks for being here. Thanks for the
great job that you and your group are doing. One of the things
I would hope you would consider no matter who wins this next
election is staying on in your position. I will lobby for you
no matter who the President is. I think the continuity is
important for this office, and it is very important for our
country and our economic growth.
I want to go back a little bit to your fees. First of all,
talking about--we saw this big runup in filings prior to the
end of September in anticipation of the new fees. And it looks
like from Fiscal Year 2011 about $210 million was diverted from
the Patent Office. Have you seen any of that money come back?
Mr. Kappos. Yes, that is a great issue, Dr. Coburn. Indeed,
there were a lot of fees paid at the very end of the financial
year just in advance of the fee change, and it was very
unfortunate. That money was diverted, has gone away, and it has
not come back in the sense of somehow being, you know----
Senator Coburn. Redirected to the----
Mr. Kappos. Redirected. It has not.
However, our filings have rebounded, and fee collections
have rebounded, and so we have been able to accommodate the
loss of that revenue.
Senator Coburn. Just so the American people know, the fees
for the Patent Office are meant to be directed for the
processing and granting of patents. And, unfortunately, now
over $1 billion of applicant fees have never been given to the
Patent Office, and, consequently, our frequency or our ability
to respond to patent applications is much slower than what it
would have been had that $1 billion actually been directed to
where individuals pay for it.
One other question on fees, if I might. In your setting of
fees, is your goal to cover the costs associated with those
fees? Or are you using fee setting to try to direct some policy
or make some direction? Could you comment on that?
Mr. Kappos. Yes. Mostly we are setting the fees to recover
the costs of performing the services. However, not across the
board. So as an example, we are still fly subsidizing the cost
of patent application filing and basic processing. We are not
proposing to charge anywhere near the cost of examination in
the fees that we charge for initial filings. So, obviously, you
have to make that up somewhere else in the process. We are
proposing to make it up largely through the renewal fees or
what is called the maintenance fees and through some of the
other surcharges like surcharges for late filing of documents
and for extensions of time. So mostly we are trying to charge
what the cost is, but with some modifications here and there.
Senator Coburn. Let me go to one other area. It is my
understanding you have been working with certain Members of
Congress in terms of technical corrections to the America
Invents Act, and I just want to be on record that I am fine
with technical corrections, but things greater than technical
corrections deserve a full and comprehensive hearing where all
stakeholders have an opportunity to have input.
Could you discuss with us the areas other than true
technicalities that you are working on with Members of
Congress?
Mr. Kappos. Sure. So, you know, we are in the role of
technical adviser in these kinds of things. There are a number
of pure technicals, kind of clerical mistakes that we would
like to correct. There are some issues beyond those. We talked
about a couple of them already, you know, the PLT and the Hague
Agreement.
There are also discussions that have gone on about one of
the estoppel provisions as an example. There are discussions
about prior user rights. There are discussions about a
provision in Section 102, the basic definition of ``prior art''
that some folks want to modify. So there have been discussions
about a number of things that I would readily agree are beyond
technicals.
Senator Coburn. Well, I just want to be on the record that
I am fine with a pure technical correction bill, but anything
that significantly changes the estoppel provisions in the bill
we passed needs to have the full consideration of all the
stakeholders and all the members of this Committee before we
would do that.
Mr. Chairman, I yield back.
Chairman Leahy. Thank you very much, Dr. Coburn.
Senator Coons.
Senator Coons. Thank you, Chairman Leahy, and thank you,
Director Kappos, for the very strong leadership you have
provided to the Patent and Trademark Office. As someone who was
in-house counsel to a materials-based science company that
critically relied on its intellectual property, I heard for
years bitter complaints about fee diversion, concerns about
pendency, quality of examiners, and I think there is very
broadly shared amongst members of this panel and the
communities that we represent enthusiasm for your leadership
and the direction you have taken.
I was encouraged by your testimony previously to Senator
Feinstein about a goal to reduce pendency to 18 months. I was
pleased to hear how you are doing with Track One and with its
early implementation and the balance that you are striking with
lower fees for those who are small or early-stage inventors.
I am interested in how you retain, train, motivate, and pay
qualified examiners because the absence of a sufficient number
of qualified examiners is an absolutely critical barrier to
your success. Now that we have made, I think, significant
progress toward dealing with fee diversion, do you feel that
the fees you are able to set are likely to be necessary for you
in order to be able to pay examiners appropriately? And what
are the barriers to your being able to pay examiners
sufficiently that you can retain and train the most qualified
folks possible?
Mr. Kappos. Right, yes, that is a great question.
Chairman Leahy. And before you answer it, just a
housekeeping thing. I have to be at another matter. It is not
that I am disinterested by any means. Senator Franken will take
the gavel in my absence.
Mr. Kappos. Yes, so retention is incredibly important in
any enterprise. As a leader, I am always extremely concerned
and committed to the view that if we cannot retain our work
force, we cannot succeed. So it is fundamental to success.
I am happy to report that our retention is actually quite
strong these days. Our attrition rate is about 3.2 percent,
which is very functional, very appropriate commercial grade. No
problem right now.
We are helped by the Detroit satellite office where we have
had tremendous success, having very qualified judges and new
experienced examiners. So the satellite office program I think
is going to be very helpful because it gets us access to a new
demographic that we just do not have in the Washington, D.C.,
area.
Senator Coons. I presume it also gets you access to a lower
cost of living since you are more competitive.
Mr. Kappos. Absolutely, yes.
Senator Coons. There are many other places that would serve
as excellent locations for field offices, Minneapolis probably
top of the list, and you are announcing two more.
Senator Franken. Why, thank you.
Senator Coons. Recognizing that two Minnesotans sit to my
right, which has a certain amount of wisdom, I hope, and that
Delaware is close enough, frankly, that a field office in
Delaware is probably not on the top of your list. You will
announce two more field offices in July, I believe.
Mr. Kappos. We hope this summer.
Senator Coons. Do you have the authority you need to
explore further initiatives? You are allowing some of your more
senior examiners to work from home through a hoteling program.
If you find some success in these field offices, which I am
confident you will, is that something you have the authority
and ability to move more aggressively to expand rapidly?
Mr. Kappos. Yes. Thanks, Senator Coons. For the most part,
yes, we actually do have the authorities that we need. Our
telework program has been extraordinarily successful. It
enables examiners to live and work from literally every State
in the continental U.S. It has been a great program. We will
continue with that. The satellite office program, we have got
all the authorities we need there.
The one area that we are a little bit challenged is on the
salary cap for our highest qualified primary examiners.
Unfortunately, they get cut off by the salary cap that we have
for our workers and then literally have to stop working. And so
we have done statistical work that shows that if we had
statutory permission to relax that somewhat, even temporarily
for short-term small amounts, the value of the work that those
examiners do is extremely productive. It is much more cost-
effective than hiring the like number of new people we would
need.
Senator Coons. Well, given how long it takes for you to
break in and develop the proficiency of examiners, that makes
great sense to me.
My last question would be: Given that PTO is a
predominantly user fee-funded agency at this point, I have done
some outreach in the intellectual property community in my home
State. I want to commend you for how much outreach you have
been doing with the roadshows, how open you have been to user
community input. I have had more than one lawyer who represents
a firm or individual who leads a company that relies critically
on your office's services say if the fees are not being
diverted, they would pay significantly more than the current
fees. They would pay whatever it took in order to get the
pendency down and the quality of the examiners up.
Do you think that is a widely held view? And do you think
you could raise the fees significantly and get the pendency
down below 18 months and the quality of the examiners up?
Mr. Kappos. Yes, I think it is a widely held view. I am
cognizant that there are limits on everything, and that as we
are getting the office in better shape and reducing pendency--
in fact, the total backlog just dropped to 627,000, which is a
new low point in many years. So we are continuing to whittle
away and make progress. What I am finding is that the amount of
money that we need and, therefore, the amount we need to
increase the fees is by no means astronomical, is by no means
mind-boggling. And so we will raise the fees as we need to. We
are getting great support on that. But I do not think we need
to do anything that anyone would consider outlandish.
So apropos some of the other questions, what we are trying
to do now is tune our fee changes so that they are good policy,
we are incenting use of these processes, and we are not either
undercollecting or overcollecting.
Senator Coons. Well, as you move through the final
rulemaking processes, I just want to close by urging you to be
bold, striking a fair balance, that it respects small inventors
and making sure that they have access to a fair and appropriate
process as we work through technical amendments. But I am just
grateful for your leadership and excited to see what the AIA is
going to bring for our economy and for our country in the year
ahead, and I look forward to working with you closely on this.
Mr. Kappos. Thank you very much, Senator Coons.
Senator Coons. Thank you.
Senator Franken. [Presiding.] Senator Lee.
Senator Lee. Thank you very much for joining us, Director
Kappos. A number of individuals and organizations, including
some Members of Congress, the FTC, and industry groups, have
expressed some concern to the International Trade Commission
regarding the use of exclusion orders in cases involving
standard essential patents. As you know from your work at the
PTO as well as time prior to that that you spent in the private
sector, the adoption of these internationally recognized
standards has contributed quite significantly to competition,
and in so doing has really contributed substantially to
innovation and to consumer choice in the marketplace,
particularly within the tech industry.
The standard-setting process that occurs relies for its
existence and for its success on a commitment from companies
that are contributing technology to license their standard
essential patents to all the parties that happen to be
implementing this agreed-upon standard and to do so on a reason
and non-discriminatory basis, on RAND terms, as they say.
Yesterday, I along with several of my colleagues sent a
letter to the ITC expressing some concern about the
implications of granting an exclusion order in a case involving
standard essential patents. Are you concerned at all about any
negative consequences that might flow from an ITC exclusion
order in cases like these, any implications they might have on
consumers, on innovation, and on the standard-setting process
as a whole?
Mr. Kappos. Yes, well, thanks, Senator Lee. I am. Senator
Leahy asked a similar question earlier, and I share the
concern. I think that the standard setting is extremely
important in many industries, especially the tech industry. The
network effects that result from standards are hugely
beneficial, but can also be very dangerous if patents then that
are pledged under FRAND terms are later enforced for exclusion
orders or injunctions. And I think that the holdup power that a
patent gains over whatever standard is chosen can actually be
quite dangerous and debilitating to an industry if it is
misused.
Now, by the same token, we need to come up with a solution
here that acknowledges that FRAND does not and really has never
stood for licensing under any terms and conditions, and what we
need to send is the right messages to both sides of the
equation, both the patent holders who want to enforce and the
folks engaging in standard setting who would otherwise perhaps
say, well, why should we bother taking a license at all when
the worst thing that can happen is we will get sued and after
litigation we will just pay whatever we were going to pay for
the license.
Senator Lee. Right.
Mr. Kappos. So finding that balance is what is really key
here.
Senator Lee. Right. And I guess that is significant because
the ITC does not really--there is no process, as I understand
it, whereby you can get the International Trade Commission to
do anything other than issue an exclusion order. Is that right?
Mr. Kappos. That is correct. That is the only tool they
have.
Senator Lee. You cannot get the ITC to decide what a
reasonable non-discriminatory royalty for patent infringement
might be. How does this contrast with the remedies that might
be available in a Federal district court?
Mr. Kappos. Well, of course, district courts have the full
range of remedies available. Damages, injunctions--everything
is available to them.
Senator Lee. And would you agree with the overall
assessment that some have made that allowing an order like this
in this context could start to unravel this process or at least
unravel the incentives that lead people into this process of
negotiating these standard essential patents?
Mr. Kappos. Yes, I think I would accept that it could. This
is why letters like the one you sent are helpful, in my view,
to guiding everyone to reach the right balance.
Senator Lee. OK. Mr. Chairman, I see my time is about to
expire. I yield my time back. Thank you.
Senator Franken. Thank you, Senator Lee.
Under Secretary Kappos, I want to thank you for coming here
to talk about the progress in implementing the Leahy-Smith
America Invents Act. You have done a commendable job rolling
out these reforms, and while there is a long way to go, you
have put a noticeable dent into the staggering application
backlog.
I would also like to thank you for mentioning the Minnesota
pilot Pro Bono Inventor Assistance Program and congratulate
them as well on securing their first patent for a small
inventor just this week--or last week, I guess. I care a lot
about small business and inventors, and I think we should be
doing as much as possible to make sure that the guy inventing
the next cool gadget in his or her garage has reasonable access
to the patent system.
I would also like to thank Senator Coons for pitching the
Twin Cities for the next satellite office. As you may remember,
I have written you a letter suggesting the very same thing, and
I believe so has Senator Klobuchar. And so it probably will not
surprise you that I am not going to pass up this opportunity to
make a pitch to you in person.
Minnesota, as you know, is home to some of the most
innovative companies and research institutes in the world, like
the Mayo Clinic and 3M and Medtronic. Minnesota is ranked among
the top ten patent filers for the past 3 years, and the number
of patents obtained by Minnesotans grew by 32 percent from 2008
to 2011.
My State is also fourth in the Nation in the percentage of
population with college or advanced degrees, and more than 35
percent of those degrees are in science, engineering, or
technology.
Is this impressing you?
[Laughter.]
Senator Franken. Well, there is more. Minnesota is also
ranked third for patent-intensive employment in the country,
and there is really no place in the country that can boost the
same level of affordability, which I think Senator Coons
referenced. And my goodness, he is not from Minnesota. He is
from Delaware. And so it is not just me saying it, is what I am
saying.
Are you getting this?
Mr. Kappos. Yes, I have got it.
[Laughter.]
Senator Franken. OK. I love Minnesota, but that is not the
reason that you should locate your office there. It is because
it makes a lot of good sense. And, again, retention will be
important.
Let me ask you a question that is not a shameless pitch for
Minnesota. I have been asked about this from Minnesota
companies. The administrative review process that was created
in the America Invents Act was designed to reduce the expense
and time associated with filing a lawsuit in Federal court. In
fact, it is supposed to serve as a substitute, but I am hearing
from a number of prominent Minnesota companies that your
proposed standard for reviewing patent applications in
administrative proceedings and the broadest reasonable
interpretation standard is much broader than standards used by
courts and the International Trade Commission.
This seems a bit odd, especially since it can place a
higher burden on patent holders to defend themselves in
administrative proceedings. Why are these two standards not
harmonized?
Mr. Kappos. OK. Well, a couple of reasons. One, the
broadest reasonable interpretation standard is the standard
called for by the AIA, so I believe that the correct reading of
the legislation is that Congress has directed us to evaluate
for patentability, not for validity, and an evaluation for
patentability is an evaluation that applies the broadest
reasonable interpretation standard. So we are implementing the
legislation. That is sort of reason number one.
Reason number two is the USPTO has applied the broadest
reasonable interpretation standard literally for decades. For
all the time we have been running post-grant processes, we have
uniformly used this one single standard, and it comes from good
policy actually. The policy reasoning is that when you are in
front of the PTO, you have the opportunity by statute to amend
your claims, and these new post-grant processes continue to
give patent holders the right to amend their claims. And in
that context, it is the mission of the USPTO to look out for
the public's best interest to apply the claims using their
broadest reasonable interpretation so that the claims can be
viewed clearly in the future, giving the applicant then an
opportunity to narrow or add precision to their claims as they
need to, generating patents that are as clear and defensible as
possible.
So I think Congress really has got the policy right on this
one, and we are implementing the law, and we are using a policy
that I think on balance is the right approach.
Senator Franken. Thank you. My time has expired, and I know
Senator Grassley wants to say something, so I will pass it off
to him, but not before I make a pitch for your next satellite
office being in the Twin Cities.
Senator Grassley.
Senator Grassley. I would say you answered my last question
very lengthily, and I appreciate that, and I do not find fault
with the answer you gave. But do not forget I did ask you were
you going to supply the documents that we requested in our
letter of last September.
Mr. Kappos. And, Senator Grassley, I will certainly go back
and look at the request and make sure that we do everything we
can to supply answers to your questions.
Senator Grassley. Well, thank you. It is very necessary
that we have the cooperation in order to do our job of
constitutional oversight.
Thank you.
Senator Franken. Thank you, Senator.
Well, we thank you again for testifying, Under Secretary,
and we will keep the record of the hearing open for other
questions for a week.
The hearing is adjourned.
[Whereupon, at 11:23 a.m., the Committee was adjourned.]
[Questions and answers and submissions for the record
follow.]
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