[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]


 
                             INNOVATION ACT

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

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                                   ON

                                 H.R. 9

                               __________

                             APRIL 14, 2015

                               __________

                           Serial No. 114-20

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR S. SMITH, Texas                ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 HAKEEM JEFFRIES, New York
BLAKE FARENTHOLD, Texas              DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                SCOTT PETERS, California
RON DeSANTIS, Florida
MIMI WALTERS, California
KEN BUCK, Colorado
JOHN RATCLIFFE, Texas
DAVE TROTT, Michigan
MIKE BISHOP, Michigan

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                            C O N T E N T S

                              ----------                              

                             APRIL 14, 2015

                                                                   Page

                             THE BILL TEXT

H.R. 9, the ``Innovation Act''...................................     3

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     1
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Member, Committee on the Judiciary..    19
The Honorable Darrell E. Issa, a Representative in Congress from 
  the State of California, and Member, Committee on the Judiciary    20

                               WITNESSES

The Honorable Michelle Lee, Under Secretary of Commerce for 
  Intellectual Property and Director of the United States Patent 
  and Trademark Office
  Oral Testimony.................................................    22
  Prepared Statement.............................................    25
Kevin T. Kramer, Vice President, Deputy General Counsel for 
  Intellectual Property, Yahoo!
  Oral Testimony.................................................    67
  Prepared Statement.............................................    69
Robert A. Armitage, former Senior Vice President and General 
  Counsel, Eli Lilly & Co.
  Oral Testimony.................................................    81
  Prepared Statement.............................................    83
David M. Simon, Senior Vice President, Intellectual Property, 
  Salesforce.com
  Oral Testimony.................................................   120
  Prepared Statement.............................................   122
Hans Sauer, Deputy General Counsel for Intellectual Property, 
  Biotechnology Industry Organization
  Oral Testimony.................................................   135
  Prepared Statement.............................................   137

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Material submitted by the Honorable Bob Goodlatte, a 
  Representative in Congress from the State of Virginia, and 
  Chairman, Committee on the Judiciary...........................    33
Material submitted by the Honorable Steve King, a Representative 
  in Congress from the State of Iowa, and Member, Committee on 
  the Judiciary..................................................    45
Material submitted by the Honorable Darrell E. Issa, a 
  Representative in Congress from the State of California, and 
  Member, Committee on the Judiciary.............................    58
Material submitted by the Honorable Scott Peters, a 
  Representative in Congress from the State of California, and 
  Member, Committee on the Judiciary.............................   170

                                APPENDIX
               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, and 
  Member, Committee on the Judiciary.............................   179
Prepared Statement of the National Retail Federation (NRF).......   181
Response to Questions for the Record from the Honorable Michelle 
  Lee, Under Secretary of Commerce for Intellectual Property and 
  Director of the United States Patent and Trademark Office......   190
Response to Questions for the Record from Kevin T. Kramer, Vice 
  President, Deputy General Counsel for Intellectual Property, 
  Yahoo!.........................................................   195
Response to Questions for the Record from Robert A. Armitage, 
  former Senior Vice President and General Counsel, Eli Lilly & 
  Co.............................................................   201
Response to Questions for the Record from David M. Simon, Senior 
  Vice President, Intellectual Property, Salesforce.com..........   203
Response to Questions for the Record from Hans Sauer, Deputy 
  General Counsel for Intellectual Property, Biotechnology 
  Industry Organization..........................................   205

                             INNOVATION ACT

                              ----------                              


                        TUESDAY, APRIL 14, 2015

                        House of Representatives

                       Committee on the Judiciary

                            Washington, DC.

    The Committee met, pursuant to call, at 2:18 p.m., in room 
2141, Rayburn House Office Building, the Honorable Bob 
Goodlatte (Chairman of the Committee) presiding.
    Present: Representatives Goodlatte, Smith, Chabot, Issa, 
Forbes, King, Franks, Gohmert, Jordan, Marino, Labrador, 
Farenthold, Collins, DeSantis, Walters, Buck, Ratcliffe, Trott, 
Bishop, Conyers, Nadler, Lofgren, Jackson Lee, Johnson, Chu, 
Deutch, Bass, DelBene, Jeffries, Cicilline and Peters.
    Staff Present: (Majority) Shelley Husband, Chief of Staff & 
General Counsel; Branden Ritchie, Deputy Chief of Staff & Chief 
Counsel; Allison Halataei, Parliamentarian & General Counsel; 
Vishal Amin, Senior Counsel, Subcommittee on Courts, 
Intellectual Property, and the Internet; Kelsey Williams, 
Clerk; (Minority) Perry Apelbaum, Staff Director & Chief 
Counsel; Danielle Brown, Parliamentarian; and Norberto Salinas, 
Counsel.
    Mr. Goodlatte. Good afternoon. The Judiciary Committee will 
come to order, and without objection the Chair is authorized to 
declare recesses of the Committee at any time.
    We welcome everyone to this afternoon's hearing on H.R. 9, 
the ``Innovation Act.'' And I will begin by recognizing myself 
for an opening statement. Today we are here to discuss H.R. 9, 
the ``Innovation Act.'' The enactment of this bill is something 
I consider central to U.S. competitiveness, job creation, and 
our Nation's future economic security. This bill builds on our 
efforts over the past decade. It can be said that this bill is 
the product of years of work. We have worked with Members of 
both parties in both the Senate and the House, with 
stakeholders from all areas of our economy, and with the 
Administration, and the courts.
    In February, I along with a large bipartisan group of 
Members, reintroduced the Innovation Act. This bill was the 
product of multiple discussion drafts and hearings, passing the 
House last Congress with more votes than the landmark America 
Invents Act of 2011.
    Last week we recognized the 225th anniversary of the U.S. 
Patent Act. When President Washington signed the bill that laid 
the foundation for our patent system, even he could not have 
foreseen the revolution in technology that was yet to come. 
During these past two centuries, America has been at the 
forefront of innovation, from the industrial revolution to the 
telegraph and telephone, to advances in medicine, modern 
computers and the Internet. To a whole new era of mobile 
computing and personal devices. American inventors have led the 
world for centuries in new innovations, from Benjamin Franklin 
and Thomas Edison to the Wright brothers and Henry Ford. But if 
we want to continue as leaders in the global economy, we must 
continue to encourage the innovators of today to develop the 
technologies of tomorrow.
    The fuel that powers the innovation engine that is America 
is its people. But the rules of the road require regular 
adjustment, and during the last 200 years we have seen our 
patent laws updated and modernized. The most significant 
reforms took place in 1836, 1952, and most recently in 2011 
with the America Invents Act. Of interesting note is that 
Section 5 of the original 1790 Patent Act, included an early 
version of fee shifting that was updated by Section 285 of the 
1952 act, and today the Innovation Act further modernizes and 
clarifies that provision of the law.
    Many view the AIA as the most comprehensive overhaul to our 
patent system since the 1836 Patent Act. However, the AIA was 
in many respects a prospective bill. The problems that the 
Innovation Act will solve are more immediate and go to the 
heart of current abusive patent litigation practices. To that 
end, the Innovation Act includes heightened pleading standards, 
and transparency provisions requiring parties to do a bit of 
due diligence up front before filing an infringement suit is 
just plain common sense. It not only reduces litigation 
expenses, but saves the courts time and resources. Greater 
transparency and information makes our patent system stronger.
    The Innovation Act's fee shifting provisions are fair, 
predictable, and will be reliably enforced. If a party's 
position and conduct is reasonably justified in law and fact, 
then there will be no fees shifted, but if you bring an 
unreasonable case that is not justified in law and fact, then 
you take on the risk that the Court awards reasonable fees 
against you. The Innovation Act also provides for more clarity 
surrounding initial discovery, case management, joinder 
provisions to deal with insolvent shell companies, the common-
law doctrine of customer stays, and protecting IP licenses in 
bankruptcy.
    We will continue to work to perfect the customer stay 
provision and others, and we will work with interested parties 
to find reasonable solutions to the issue of demand letter 
abuse. Further, the bill's provisions are designed to work hand 
in hand with the procedures and practices of the Judicial 
Conference, including the Rules Enabling Act and the courts 
providing them with clear policy guidance while ensuring that 
we are not predetermining outcomes and that the final rules and 
the legislation's implementation in the courts will be both 
deliberative and effective.
    The bill contains needed reforms to address the issues that 
businesses of all sizes and industries face from patent troll 
type behavior while keeping in mind several key principles, 
including targeting abusive behavior rather than specific 
entities, preserving valid patent enforcement tools, preserving 
patent property rights, promoting invention by independence and 
small businesses, and strengthening the overall patent system.
    First, we are targeting abusive patent litigation behavior 
and not specific entities or attempting to eliminate valid 
patent litigation. When we use the term patent troll, it is 
more of an adjective describing behavior than a noun. Our goal 
is to prevent individuals from taking advantage of gaps in the 
system to engage in litigation extortion.
    Second, our bill does not diminish or devalue patent 
rights. The patent system is integral to U.S. competitiveness, 
and we must ensure that any legislative measure does not weaken 
the overall patent system or violate our international treaty 
obligations, and that it comports with the Constitution.
    Third, this bill strikes the right balance, pushing for 
robust legal reform measures while protecting property rights 
and innovation. Furthermore, supporters of this bill understand 
that if America's inventors are forced to waste time with 
frivolous litigation, they won't have time for innovation, and 
that's what innovation is really all about, isn't it? If you're 
able to create something, invent something new and unique, then 
you should be allowed to sell your product, grow your business, 
hire more workers, and live the American dream. We can no 
longer allow our economy and job creators to be held hostage to 
legal maneuvers and the judicial lottery. Congress, the Federal 
courts, and the USPTO, must take the necessary steps to ensure 
that the patent system lives up to its constitutional 
underpinnings. This bill holds true to the Constitution, our 
founders, and our promise to future generations that America 
will continue to lead the world as a fountain for discovery, 
innovation, and economic growth.
    We will continue to work with any and all stakeholders that 
are interested in helping us improve our patent system and this 
bill. As we take these steps toward eliminating the abuses of 
our patent system, discouraging frivolous patent litigation, 
and keeping U.S. patent laws up to date, we will help fuel the 
engine of American innovation and creativity, creating new jobs 
and growing our economy.
    [The text of the bill, H.R. 9, follows:]

______________________________________________________________
HR 9 IH   deg._________________________________________________

                                                                      I
114th CONGRESS
    1st Session

                                 H. R. 9

To amend title 35, United States Code, and the Leahy-Smith America 
    Invents Act to make improvements and technical corrections, and for 
    other purposes.
                               __________
                    IN THE HOUSE OF REPRESENTATIVES
                            February 5, 2015
Mr. Goodlatte (for himself, Mr. DeFazio, Mr. Issa, Mr. Nadler, Mr. 
    Smith of Texas, Ms. Lofgren, Mr. Chabot, Ms. Eshoo, Mr. Forbes, Mr. 
    Pierluisi, Mr. Chaffetz, Mr. Jeffries, Mr. Marino, Mr. Farenthold, 
    Mr. Holding, Mr. Johnson of Ohio, Mr. Huffman, Mr. Honda, Mr. 
    Larsen of Washington, and Mr. Thompson of California) introduced 
    the following bill; which was referred to the Committee on the 
    Judiciary
                               __________

                                 A BILL

To amend title 35, United States Code, and the Leahy-Smith America 
    Invents Act to make improvements and technical corrections, and for 
    other purposes.

    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 ``Innovation Act''.
    (b) Table of Contents.--The table of contents for this Act is as 
follows:

    Sec. 1. Short title; table of contents.
    Sec. 2. Definitions.
    Sec. 3. Patent infringement actions.
    Sec. 4. Transparency of patent ownership.
    Sec. 5. Customer-suit exception.
    Sec. 6. Procedures and practices to implement recommendations of 
the Judicial Conference.
    Sec. 7. Small business education, outreach, and information access.
    Sec. 8. Studies on patent transactions, quality, and examination.
    Sec. 9. Improvements and technical corrections to the Leahy-Smith 
America Invents Act.
    Sec. 10. Effective date.

SEC. 2. DEFINITIONS.

    In this Act:
            (1) Director.--The term ``Director'' means the Under 
        Secretary of Commerce for Intellectual Property and Director of 
        the United States Patent and Trademark Office.
            (2) Office.--The term ``Office'' means the United States 
        Patent and Trademark Office.

SEC. 3. PATENT INFRINGEMENT ACTIONS.

    (a) Pleading Requirements.--
            (1) Amendment.--Chapter 29 of title 35, United States Code, 
        is amended by inserting after section 281 the following:

``Sec. 281A. Pleading requirements for patent infringement actions

    ``(a) Pleading Requirements.--Except as provided in subsection (b), 
in a civil action in which a party asserts a claim for relief arising 
under any Act of Congress relating to patents, a party alleging 
infringement shall include in the initial complaint, counterclaim, or 
cross-claim for patent infringement, unless the information is not 
reasonably accessible to such party, the following:
            ``(1) An identification of each patent allegedly infringed.
            ``(2) An identification of each claim of each patent 
        identified under paragraph (1) that is allegedly infringed.
            ``(3) For each claim identified under paragraph (2), an 
        identification of each accused process, machine, manufacture, 
        or composition of matter (referred to in this section as an 
        `accused instrumentality') alleged to infringe the claim.
            ``(4) For each accused instrumentality identified under 
        paragraph (3), an identification with particularity, if known, 
        of--
                    ``(A) the name or model number of each accused 
                instrumentality; or
                    ``(B) if there is no name or model number, a 
                description of each accused instrumentality.
            ``(5) For each accused instrumentality identified under 
        paragraph (3), a clear and concise statement of--
                    ``(A) where each element of each claim identified 
                under paragraph (2) is found within the accused 
                instrumentality; and
                    ``(B) with detailed specificity, how each 
                limitation of each claim identified under paragraph (2) 
                is met by the accused instrumentality.
            ``(6) For each claim of indirect infringement, a 
        description of the acts of the alleged indirect infringer that 
        contribute to or are inducing the direct infringement.
            ``(7) A description of the authority of the party alleging 
        infringement to assert each patent identified under paragraph 
        (1) and of the grounds for the court's jurisdiction.
            ``(8) A clear and concise description of the principal 
        business, if any, of the party alleging infringement.
            ``(9) A list of each complaint filed, of which the party 
        alleging infringement has knowledge, that asserts or asserted 
        any of the patents identified under paragraph (1).
            ``(10) For each patent identified under paragraph (1), 
        whether a standard-setting body has specifically declared such 
        patent to be essential, potentially essential, or having 
        potential to become essential to that standard-setting body, 
        and whether the United States Government or a foreign 
        government has imposed specific licensing requirements with 
        respect to such patent.
    ``(b) Information Not Readily Accessible.--If information required 
to be disclosed under subsection (a) is not readily accessible to a 
party, that information may instead be generally described, along with 
an explanation of why such undisclosed information was not readily 
accessible, and of any efforts made by such party to access such 
information.
    ``(c) Confidential Information.--A party required to disclose 
information described under subsection (a) may file, under seal, 
information believed to be confidential, with a motion setting forth 
good cause for such sealing. If such motion is denied by the court, the 
party may seek to file an amended complaint.
    ``(d) Exemption.--A civil action that includes a claim for relief 
arising under section 271(e)(2) shall not be subject to the 
requirements of subsection (a).''.
            (2) Conforming amendment.--The table of sections for 
        chapter 29 of title 35, United States Code, is amended by 
        inserting after the item relating to section 281 the following 
        new item:

   ``281A. Pleading requirements for patent infringement actions.''.

    (b) Fees and Other Expenses.--
            (1) Amendment.--Section 285 of title 35, United States 
        Code, is amended to read as follows:

``Sec. 285. Fees and other expenses

    ``(a) Award.--The court shall award, to a prevailing party, 
reasonable fees and other expenses incurred by that party in connection 
with a civil action in which any party asserts a claim for relief 
arising under any Act of Congress relating to patents, unless the court 
finds that the position and conduct of the nonprevailing party or 
parties were reasonably justified in law and fact or that special 
circumstances (such as severe economic hardship to a named inventor) 
make an award unjust.
    ``(b) Certification and Recovery.--Upon motion of any party to the 
action, the court shall require another party to the action to certify 
whether or not the other party will be able to pay an award of fees and 
other expenses if such an award is made under subsection (a). If a 
nonprevailing party is unable to pay an award that is made against it 
under subsection (a), the court may make a party that has been joined 
under section 299(d) with respect to such party liable for the 
unsatisfied portion of the award.
    ``(c) Covenant Not To Sue.--A party to a civil action that asserts 
a claim for relief arising under any Act of Congress relating to 
patents against another party, and that subsequently unilaterally 
extends to such other party a covenant not to sue for infringement with 
respect to the patent or patents at issue, shall be deemed to be a 
nonprevailing party (and the other party the prevailing party) for 
purposes of this section, unless the party asserting such claim would 
have been entitled, at the time that such covenant was extended, to 
voluntarily dismiss the action or claim without a court order under 
Rule 41 of the Federal Rules of Civil Procedure.''.
            (2) Conforming amendment and amendment.--
                    (A) Conforming amendment.--The item relating to 
                section 285 of the table of sections for chapter 29 of 
                title 35, United States Code, is amended to read as 
                follows:

                   ``285. Fees and other expenses.''.

                    (B) Amendment.--Section 273 of title 35, United 
                States Code, is amended by striking subsections (f) and 
                (g).
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act and 
        shall apply to any action for which a complaint is filed on or 
        after the first day of the 6-month period ending on that 
        effective date.
    (c) Joinder of Interested Parties.--Section 299 of title 35, United 
States Code, is amended by adding at the end the following new 
subsection:
    ``(d) Joinder of Interested Parties.--
            ``(1) Joinder.--In a civil action arising under any Act of 
        Congress relating to patents in which fees and other expenses 
        have been awarded under section 285 to a prevailing party 
        defending against an allegation of infringement of a patent 
        claim, and in which the nonprevailing party alleging 
        infringement is unable to pay the award of fees and other 
        expenses, the court shall grant a motion by the prevailing 
        party to join an interested party if such prevailing party 
        shows that the nonprevailing party has no substantial interest 
        in the subject matter at issue other than asserting such patent 
        claim in litigation.
            ``(2) Limitation on joinder.--
                    ``(A) Discretionary denial of motion.--The court 
                may deny a motion to join an interested party under 
                paragraph (1) if--
                            ``(i) the interested party is not subject 
                        to service of process; or
                            ``(ii) joinder under paragraph (1) would 
                        deprive the court of subject matter 
                        jurisdiction or make venue improper.
                    ``(B) Required denial of motion.--The court shall 
                deny a motion to join an interested party under 
                paragraph (1) if--
                            ``(i) the interested party did not timely 
                        receive the notice required by paragraph (3); 
                        or
                            ``(ii) within 30 days after receiving the 
                        notice required by paragraph (3), the 
                        interested party renounces, in writing and with 
                        notice to the court and the parties to the 
                        action, any ownership, right, or direct 
                        financial interest (as described in paragraph 
                        (4)) that the interested party has in the 
                        patent or patents at issue.
            ``(3) Notice requirement.--An interested party may not be 
        joined under paragraph (1) unless it has been provided actual 
        notice, within 30 days after the date on which it has been 
        identified in the initial disclosure provided under section 
        290(b), that it has been so identified and that such party may 
        therefore be an interested party subject to joinder under this 
        subsection. Such notice shall be provided by the party who 
        subsequently moves to join the interested party under paragraph 
        (1), and shall include language that--
                    ``(A) identifies the action, the parties thereto, 
                the patent or patents at issue, and the pleading or 
                other paper that identified the party under section 
                290(b); and
                    ``(B) informs the party that it may be joined in 
                the action and made subject to paying an award of fees 
                and other expenses under section 285(b) if--
                            ``(i) fees and other expenses are awarded 
                        in the action against the party alleging 
                        infringement of the patent or patents at issue 
                        under section 285(a);
                            ``(ii) the party alleging infringement is 
                        unable to pay the award of fees and other 
                        expenses;
                            ``(iii) the party receiving notice under 
                        this paragraph is determined by the court to be 
                        an interested party; and
                            ``(iv) the party receiving notice under 
                        this paragraph has not, within 30 days after 
                        receiving such notice, renounced in writing, 
                        and with notice to the court and the parties to 
                        the action, any ownership, right, or direct 
                        financial interest (as described in paragraph 
                        (4)) that the interested party has in the 
                        patent or patents at issue.
            ``(4) Interested party defined.--In this subsection, the 
        term `interested party' means a person, other than the party 
        alleging infringement, that--
                    ``(A) is an assignee of the patent or patents at 
                issue;
                    ``(B) has a right, including a contingent right, to 
                enforce or sublicense the patent or patents at issue; 
                or
                    ``(C) has a direct financial interest in the patent 
                or patents at issue, including the right to any part of 
                an award of damages or any part of licensing revenue, 
                except that a person with a direct financial interest 
                does not include--
                            ``(i) an attorney or law firm providing 
                        legal representation in the civil action 
                        described in paragraph (1) if the sole basis 
                        for the financial interest of the attorney or 
                        law firm in the patent or patents at issue 
                        arises from the attorney or law firm's receipt 
                        of compensation reasonably related to the 
                        provision of the legal representation; or
                            ``(ii) a person whose sole financial 
                        interest in the patent or patents at issue is 
                        ownership of an equity interest in the party 
                        alleging infringement, unless such person also 
                        has the right or ability to influence, direct, 
                        or control the civil action.''.
    (d) Discovery Limits.--
            (1) Amendment.--Chapter 29 of title 35, United States Code, 
        is amended by adding at the end the following new section:

``Sec. 299A. Discovery in patent infringement action

    ``(a) Discovery in Patent Infringement Action.--Except as provided 
in subsections (b) and (c), in a civil action arising under any Act of 
Congress relating to patents, if the court determines that a ruling 
relating to the construction of terms used in a patent claim asserted 
in the complaint is required, discovery shall be limited, until such 
ruling is issued, to information necessary for the court to determine 
the meaning of the terms used in the patent claim, including any 
interpretation of those terms used to support the claim of 
infringement.
    ``(b) Discretion To Expand Scope of Discovery.--
            ``(1) Timely resolution of actions.--In the case of an 
        action under any provision of Federal law (including an action 
        that includes a claim for relief arising under section 271(e)), 
        for which resolution within a specified period of time of a 
        civil action arising under any Act of Congress relating to 
        patents will necessarily affect the rights of a party with 
        respect to the patent, the court shall permit discovery, in 
        addition to the discovery authorized under subsection (a), 
        before the ruling described in subsection (a) is issued as 
        necessary to ensure timely resolution of the action.
            ``(2) Resolution of motions.--When necessary to resolve a 
        motion properly raised by a party before a ruling relating to 
        the construction of terms described in subsection (a) is 
        issued, the court may allow limited discovery in addition to 
        the discovery authorized under subsection (a) as necessary to 
        resolve the motion.
            ``(3) Special circumstances.--In special circumstances that 
        would make denial of discovery a manifest injustice, the court 
        may permit discovery, in addition to the discovery authorized 
        under subsection (a), as necessary to prevent the manifest 
        injustice.
            ``(4) Actions seeking relief based on competitive harm.--
        The limitation on discovery provided under subsection (a) shall 
        not apply to an action seeking a preliminary injunction to 
        redress harm arising from the use, sale, or offer for sale of 
        any allegedly infringing instrumentality that competes with a 
        product sold or offered for sale, or a process used in 
        manufacture, by a party alleging infringement.
    ``(c) Exclusion From Discovery Limitation.--The parties may 
voluntarily consent to be excluded, in whole or in part, from the 
limitation on discovery provided under subsection (a) if at least one 
plaintiff and one defendant enter into a signed stipulation, to be 
filed with and signed by the court. With regard to any discovery 
excluded from the requirements of subsection (a) under the signed 
stipulation, with respect to such parties, such discovery shall proceed 
according to the Federal Rules of Civil Procedure.''.
            (2) Conforming amendment.--The table of sections for 
        chapter 29 of title 35, United States Code, is amended by 
        adding at the end the following new item:

          ``299A. Discovery in patent infringement action.''.

    (e) Sense of Congress.--It is the sense of Congress that it is an 
abuse of the patent system and against public policy for a party to 
send out purposely evasive demand letters to end users alleging patent 
infringement. Demand letters sent should, at the least, include basic 
information about the patent in question, what is being infringed, and 
how it is being infringed. Any actions or litigation that stem from 
these types of purposely evasive demand letters to end users should be 
considered a fraudulent or deceptive practice and an exceptional 
circumstance when considering whether the litigation is abusive.
    (f) Demand Letters.--Section 284 of title 35, United States Code, 
is amended--
            (1) in the first undesignated paragraph, by striking ``Upon 
        finding'' and inserting ``(a) In General.--Upon finding'';
            (2) in the second undesignated paragraph, by striking 
        ``When the damages'' and inserting ``(b) Assessment by Court; 
        Treble Damages.--When the damages'';
            (3) by inserting after subsection (b), as designated by 
        paragraph (2) of this subsection, the following:
    ``(c) Willful Infringement.--A claimant seeking to establish 
willful infringement may not rely on evidence of pre-suit notification 
of infringement unless that notification identifies with particularity 
the asserted patent, identifies the product or process accused, 
identifies the ultimate parent entity of the claimant, and explains 
with particularity, to the extent possible following a reasonable 
investigation or inquiry, how the product or process infringes one or 
more claims of the patent.''; and
            (4) in the last undesignated paragraph, by striking ``The 
        court'' and inserting ``(d) Expert Testimony.--The court''.
    (g) Effective Date.--Except as otherwise provided in this section, 
the amendments made by this section shall take effect on the date of 
the enactment of this Act and shall apply to any action for which a 
complaint is filed on or after that date.

SEC. 4. TRANSPARENCY OF PATENT OWNERSHIP.

    (a) Amendments.--Section 290 of title 35, United States Code, is 
amended--
            (1) in the heading, by striking ``suits'' and inserting 
        ``suits; disclosure of interests'';
            (2) by striking ``The clerks'' and inserting ``(a) Notice 
        of Patent Suits.--The clerks''; and
            (3) by adding at the end the following new subsections:
    ``(b) Initial Disclosure.--
            ``(1) In general.--Except as provided in paragraph (2), 
        upon the filing of an initial complaint for patent 
        infringement, the plaintiff shall disclose to the Patent and 
        Trademark Office, the court, and each adverse party the 
        identity of each of the following:
                    ``(A) The assignee of the patent or patents at 
                issue.
                    ``(B) Any entity with a right to sublicense or 
                enforce the patent or patents at issue.
                    ``(C) Any entity, other than the plaintiff, that 
                the plaintiff knows to have a financial interest in the 
                patent or patents at issue or the plaintiff.
                    ``(D) The ultimate parent entity of any assignee 
                identified under subparagraph (A) and any entity 
                identified under subparagraph (B) or (C).
            ``(2) Exemption.--The requirements of paragraph (1) shall 
        not apply with respect to a civil action filed under subsection 
        (a) that includes a cause of action described under section 
        271(e)(2).
    ``(c) Disclosure Compliance.--
            ``(1) Publicly traded.--For purposes of subsection 
        (b)(1)(C), if the financial interest is held by a corporation 
        traded on a public stock exchange, an identification of the 
        name of the corporation and the public exchange listing shall 
        satisfy the disclosure requirement.
            ``(2) Not publicly traded.--For purposes of subsection 
        (b)(1)(C), if the financial interest is not held by a publicly 
        traded corporation, the disclosure shall satisfy the disclosure 
        requirement if the information identifies--
                    ``(A) in the case of a partnership, the name of the 
                partnership and the name and correspondence address of 
                each partner or other entity that holds more than a 5-
                percent share of that partnership;
                    ``(B) in the case of a corporation, the name of the 
                corporation, the location of incorporation, the address 
                of the principal place of business, and the name of 
                each officer of the corporation; and
                    ``(C) for each individual, the name and 
                correspondence address of that individual.
    ``(d) Ongoing Duty of Disclosure to the Patent and Trademark 
Office.--
            ``(1) In general.--A plaintiff required to submit 
        information under subsection (b) or a subsequent owner of the 
        patent or patents at issue shall, not later than 90 days after 
        any change in the assignee of the patent or patents at issue or 
        an entity described under subparagraph (B) or (D) of subsection 
        (b)(1), submit to the Patent and Trademark Office the updated 
        identification of such assignee or entity.
            ``(2) Failure to comply.--With respect to a patent for 
        which the requirement of paragraph (1) has not been met--
                    ``(A) the plaintiff or subsequent owner shall not 
                be entitled to recover reasonable fees and other 
                expenses under section 285 or increased damages under 
                section 284 with respect to infringing activities 
                taking place during any period of noncompliance with 
                paragraph (1), unless the denial of such damages or 
                fees would be manifestly unjust; and
                    ``(B) the court shall award to a prevailing party 
                accused of infringement reasonable fees and other 
                expenses under section 285 that are incurred to 
                discover the updated assignee or entity described under 
                paragraph (1), unless such sanctions would be unjust.
    ``(e) Definitions.--In this section:
            ``(1) Financial interest.--The term `financial interest'--
                    ``(A) means--
                            ``(i) with regard to a patent or patents, 
                        the right of a person to receive proceeds 
                        related to the assertion of the patent or 
                        patents, including a fixed or variable portion 
                        of such proceeds; and
                            ``(ii) with regard to the plaintiff, direct 
                        or indirect ownership or control by a person of 
                        more than 5 percent of such plaintiff; and
                    ``(B) does not mean--
                            ``(i) ownership of shares or other 
                        interests in a mutual or common investment 
                        fund, unless the owner of such interest 
                        participates in the management of such fund; or
                            ``(ii) the proprietary interest of a 
                        policyholder in a mutual insurance company or 
                        of a depositor in a mutual savings association, 
                        or a similar proprietary interest, unless the 
                        outcome of the proceeding could substantially 
                        affect the value of such interest.
            ``(2) Proceeding.--The term `proceeding' means all stages 
        of a civil action, including pretrial and trial proceedings and 
        appellate review.
            ``(3) Ultimate parent entity.--
                    ``(A) In general.--Except as provided in 
                subparagraph (B), the term `ultimate parent entity' has 
                the meaning given such term in section 801.1(a)(3) of 
                title 16, Code of Federal Regulations, or any successor 
                regulation.
                    ``(B) Modification of definition.--The Director may 
                modify the definition of `ultimate parent entity' by 
                regulation.''.
    (b) Technical and Conforming Amendment.--The item relating to 
section 290 in the table of sections for chapter 29 of title 35, United 
States Code, is amended to read as follows:

       ``290. Notice of patent suits; disclosure of interests.''.

    (c) Regulations.--The Director may promulgate such regulations as 
are necessary to establish a registration fee in an amount sufficient 
to recover the estimated costs of administering subsections (b) through 
(e) of section 290 of title 35, United States Code, as added by 
subsection (a), to facilitate the collection and maintenance of the 
information required by such subsections, and to ensure the timely 
disclosure of such information to the public.
    (d) Effective Date.--The amendments made by this section shall take 
effect upon the expiration of the 6-month period beginning on the date 
of the enactment of this Act and shall apply to any action for which a 
complaint is filed on or after such effective date.

SEC. 5. CUSTOMER-SUIT EXCEPTION.

    (a) Amendment.--Section 296 of title 35, United States Code, is 
amended to read as follows:

``Sec. 296. Stay of action against customer

    ``(a) Stay of Action Against Customer.--Except as provided in 
subsection (d), in any civil action arising under any Act of Congress 
relating to patents, the court shall grant a motion to stay at least 
the portion of the action against a covered customer related to 
infringement of a patent involving a covered product or process if the 
following requirements are met:
            ``(1) The covered manufacturer and the covered customer 
        consent in writing to the stay.
            ``(2) The covered manufacturer is a party to the action or 
        to a separate action involving the same patent or patents 
        related to the same covered product or process.
            ``(3) The covered customer agrees to be bound by any issues 
        that the covered customer has in common with the covered 
        manufacturer and are finally decided as to the covered 
        manufacturer in an action described in paragraph (2).
            ``(4) The motion is filed after the first pleading in the 
        action but not later than the later of--
                    ``(A) the 120th day after the date on which the 
                first pleading in the action is served that 
                specifically identifies the covered product or process 
                as a basis for the covered customer's alleged 
                infringement of the patent and that specifically 
                identifies how the covered product or process is 
                alleged to infringe the patent; or
                    ``(B) the date on which the first scheduling order 
                in the case is entered.
    ``(b) Applicability of Stay.--A stay issued under subsection (a) 
shall apply only to the patents, products, systems, or components 
accused of infringement in the action.
    ``(c) Lift of Stay.--
            ``(1) In general.--A stay entered under this section may be 
        lifted upon grant of a motion based on a showing that--
                    ``(A) the action involving the covered manufacturer 
                will not resolve a major issue in suit against the 
                covered customer; or
                    ``(B) the stay unreasonably prejudices and would be 
                manifestly unjust to the party seeking to lift the 
                stay.
            ``(2) Separate manufacturer action involved.--In the case 
        of a stay entered based on the participation of the covered 
        manufacturer in a separate action involving the same patent or 
        patents related to the same covered product or process, a 
        motion under this subsection may only be made if the court in 
        such separate action determines the showing required under 
        paragraph (1) has been met.
    ``(d) Exemption.--This section shall not apply to an action that 
includes a cause of action described under section 271(e)(2).
    ``(e) Consent Judgment.--If, following the grant of a motion to 
stay under this section, the covered manufacturer seeks or consents to 
entry of a consent judgment relating to one or more of the common 
issues that gave rise to the stay, or declines to prosecute through 
appeal a final decision as to one or more of the common issues that 
gave rise to the stay, the court may, upon grant of a motion, determine 
that such consent judgment or unappealed final decision shall not be 
binding on the covered customer with respect to one or more of such 
common issues based on a showing that such an outcome would 
unreasonably prejudice and be manifestly unjust to the covered customer 
in light of the circumstances of the case.
    ``(f) Rule of Construction.--Nothing in this section shall be 
construed to limit the ability of a court to grant any stay, expand any 
stay granted under this section, or grant any motion to intervene, if 
otherwise permitted by law.
    ``(g) Definitions.--In this section:
            ``(1) Covered customer.--The term `covered customer' means 
        a party accused of infringing a patent or patents in dispute 
        based on a covered product or process.
            ``(2) Covered manufacturer.--The term `covered 
        manufacturer' means a person that manufactures or supplies, or 
        causes the manufacture or supply of, a covered product or 
        process or a relevant part thereof.
            ``(3) Covered product or process.--The term `covered 
        product or process' means a product, process, system, service, 
        component, material, or apparatus, or relevant part thereof, 
        that--
                    ``(A) is alleged to infringe the patent or patents 
                in dispute; or
                    ``(B) implements a process alleged to infringe the 
                patent or patents in dispute.''.
    (b) Conforming Amendment.--The table of sections for chapter 29 of 
title 35, United States Code, is amended by striking the item relating 
to section 296 and inserting the following:

               ``296. Stay of action against customer.''.

    (c) 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 
action for which a complaint is filed on or after the first day of the 
30-day period that ends on that date.

SEC. 6. PROCEDURES AND PRACTICES TO IMPLEMENT RECOMMENDATIONS OF THE 
                    JUDICIAL CONFERENCE.

    (a) Judicial Conference Rules and Procedures on Discovery Burdens 
and Costs.--
            (1) Rules and procedures.--The Judicial Conference of the 
        United States, using existing resources, shall develop rules 
        and procedures to implement the issues and proposals described 
        in paragraph (2) to address the asymmetries in discovery 
        burdens and costs in any civil action arising under any Act of 
        Congress relating to patents. Such rules and procedures shall 
        include how and when payment for document discovery in addition 
        to the discovery of core documentary evidence is to occur, and 
        what information must be presented to demonstrate financial 
        capacity before permitting document discovery in addition to 
        the discovery of core documentary evidence.
            (2) Rules and procedures to be considered.--The rules and 
        procedures required under paragraph (1) should address each of 
        the following issues and proposals:
                    (A) Discovery of core documentary evidence.--
                Whether and to what extent each party to the action is 
                entitled to receive core documentary evidence and shall 
                be responsible for the costs of producing core 
                documentary evidence within the possession or control 
                of each such party, and whether and to what extent each 
                party to the action may seek nondocumentary discovery 
                as otherwise provided in the Federal Rules of Civil 
                Procedure.
                    (B) Electronic communication.--If the parties 
                determine that the discovery of electronic 
                communication is appropriate, whether such discovery 
                shall occur after the parties have exchanged initial 
                disclosures and core documentary evidence and whether 
                such discovery shall be in accordance with the 
                following:
                            (i) Any request for the production of 
                        electronic communication shall be specific and 
                        may not be a general request for the production 
                        of information relating to a product or 
                        business.
                            (ii) Each request shall identify the 
                        custodian of the information requested, the 
                        search terms, and a time frame. The parties 
                        shall cooperate to identify the proper 
                        custodians, the proper search terms, and the 
                        proper time frame.
                            (iii) A party may not submit production 
                        requests to more than 5 custodians, unless the 
                        parties jointly agree to modify the number of 
                        production requests without leave of the court.
                            (iv) The court may consider contested 
                        requests for up to 5 additional custodians per 
                        producing party, upon a showing of a distinct 
                        need based on the size, complexity, and issues 
                        of the case.
                            (v) If a party requests the discovery of 
                        electronic communication for additional 
                        custodians beyond the limits agreed to by the 
                        parties or granted by the court, the requesting 
                        party shall bear all reasonable costs caused by 
                        such additional discovery.
                    (C) Additional document discovery.--Whether the 
                following should apply:
                            (i) In general.--Each party to the action 
                        may seek any additional document discovery 
                        otherwise permitted under the Federal Rules of 
                        Civil Procedure, if such party bears the 
                        reasonable costs, including reasonable 
                        attorney's fees, of the additional document 
                        discovery.
                            (ii) Requirements for additional document 
                        discovery.--Unless the parties mutually agree 
                        otherwise, no party may be permitted additional 
                        document discovery unless such a party posts a 
                        bond, or provides other security, in an amount 
                        sufficient to cover the expected costs of such 
                        additional document discovery, or makes a 
                        showing to the court that such party has the 
                        financial capacity to pay the costs of such 
                        additional document discovery.
                            (iii) Limits on additional document 
                        discovery.--A court, upon motion, may determine 
                        that a request for additional document 
                        discovery is excessive, irrelevant, or 
                        otherwise abusive and may set limits on such 
                        additional document discovery.
                            (iv) Good cause modification.--A court, 
                        upon motion and for good cause shown, may 
                        modify the requirements of subparagraphs (A) 
                        and (B) and any definition under paragraph (3). 
                        Not later than 30 days after the pretrial 
                        conference under Rule 16 of the Federal Rules 
                        of Civil Procedure, the parties shall jointly 
                        submit any proposed modifications of the 
                        requirements of subparagraphs (A) and (B) and 
                        any definition under paragraph (3), unless the 
                        parties do not agree, in which case each party 
                        shall submit any proposed modification of such 
                        party and a summary of the disagreement over 
                        the modification.
                            (v) Computer code.--A court, upon motion 
                        and for good cause shown, may determine that 
                        computer code should be included in the 
                        discovery of core documentary evidence. The 
                        discovery of computer code shall occur after 
                        the parties have exchanged initial disclosures 
                        and other core documentary evidence.
                    (D) Discovery sequence and scope.--Whether the 
                parties shall discuss and address in the written report 
                filed pursuant to Rule 26(f) of the Federal Rules of 
                Civil Procedure the views and proposals of each party 
                on the following:
                            (i) When the discovery of core documentary 
                        evidence should be completed.
                            (ii) Whether additional document discovery 
                        will be sought under subparagraph (C).
                            (iii) Any issues about infringement, 
                        invalidity, or damages that, if resolved before 
                        the additional discovery described in 
                        subparagraph (C) commences, might simplify or 
                        streamline the case, including the 
                        identification of any terms or phrases relating 
                        to any patent claim at issue to be construed by 
                        the court and whether the early construction of 
                        any of those terms or phrases would be helpful.
            (3) Definitions.--In this subsection:
                    (A) Core documentary evidence.--The term ``core 
                documentary evidence''--
                            (i) includes--
                                    (I) documents relating to the 
                                conception of, reduction to practice 
                                of, and application for, the patent or 
                                patents at issue;
                                    (II) documents sufficient to show 
                                the technical operation of the product 
                                or process identified in the complaint 
                                as infringing the patent or patents at 
                                issue;
                                    (III) documents relating to 
                                potentially invalidating prior art;
                                    (IV) documents relating to any 
                                licensing of, or other transfer of 
                                rights to, the patent or patents at 
                                issue before the date on which the 
                                complaint is filed;
                                    (V) documents sufficient to show 
                                profit attributable to the claimed 
                                invention of the patent or patents at 
                                issue;
                                    (VI) documents relating to any 
                                knowledge by the accused infringer of 
                                the patent or patents at issue before 
                                the date on which the complaint is 
                                filed;
                                    (VII) documents relating to any 
                                knowledge by the patentee of 
                                infringement of the patent or patents 
                                at issue before the date on which the 
                                complaint is filed;
                                    (VIII) documents relating to any 
                                licensing term or pricing commitment to 
                                which the patent or patents may be 
                                subject through any agency or standard-
                                setting body; and
                                    (IX) documents sufficient to show 
                                any marking or other notice provided of 
                                the patent or patents at issue; and
                            (ii) does not include computer code, except 
                        as specified in paragraph (2)(C)(v).
                    (B) Electronic communication.--The term 
                ``electronic communication'' means any form of 
                electronic communication, including email, text 
                message, or instant message.
            (4) Implementation by the district courts.--Not later than 
        6 months after the date on which the Judicial Conference has 
        developed the rules and procedures required by this subsection, 
        each United States district court and the United States Court 
        of Federal Claims shall revise the applicable local rules for 
        such court to implement such rules and procedures.
            (5) Authority for judicial conference to review and 
        modify.--
                    (A) Study of efficacy of rules and procedures.--The 
                Judicial Conference shall study the efficacy of the 
                rules and procedures required by this subsection during 
                the 4-year period beginning on the date on which such 
                rules and procedures by the district courts and the 
                United States Court of Federal Claims are first 
                implemented. The Judicial Conference may modify such 
                rules and procedures following such 4-year period.
                    (B) Initial modifications.--Before the expiration 
                of the 4-year period described in subparagraph (A), the 
                Judicial Conference may modify the requirements under 
                this subsection--
                            (i) by designating categories of ``core 
                        documentary evidence'', in addition to those 
                        designated under paragraph (3)(A), as the 
                        Judicial Conference determines to be 
                        appropriate and necessary; and
                            (ii) as otherwise necessary to prevent a 
                        manifest injustice, the imposition of a 
                        requirement the costs of which clearly outweigh 
                        its benefits, or a result that could not 
                        reasonably have been intended by the Congress.
    (b) Judicial Conference Patent Case Management.--The Judicial 
Conference of the United States, using existing resources, shall 
develop case management procedures to be implemented by the United 
States district courts and the United States Court of Federal Claims 
for any civil action arising under any Act of Congress relating to 
patents, including initial disclosure and early case management 
conference practices that--
            (1) will identify any potential dispositive issues of the 
        case; and
            (2) focus on early summary judgment motions when resolution 
        of issues may lead to expedited disposition of the case.
    (c) Revision of Form for Patent Infringement.--
            (1) Elimination of form.--The Supreme Court, using existing 
        resources, shall eliminate Form 18 in the Appendix to the 
        Federal Rules of Civil Procedure (relating to Complaint for 
        Patent Infringement), effective on the date of the enactment of 
        this Act.
            (2) Revised form.--The Supreme Court may prescribe a new 
        form or forms setting out model allegations of patent 
        infringement that, at a minimum, notify accused infringers of 
        the asserted claim or claims, the products or services accused 
        of infringement, and the plaintiff's theory for how each 
        accused product or service meets each limitation of each 
        asserted claim. The Judicial Conference should exercise the 
        authority under section 2073 of title 28, United States Code, 
        to make recommendations with respect to such new form or forms.
    (d) Protection of Intellectual-Property Licenses in Bankruptcy.--
            (1) In general.--Section 1522 of title 11, United States 
        Code, is amended by adding at the end the following:
    ``(e) Section 365(n) shall apply to cases under this chapter. If 
the foreign representative rejects or repudiates a contract under which 
the debtor is a licensor of intellectual property, the licensee under 
such contract shall be entitled to make the election and exercise the 
rights described in section 365(n).''.
            (2) Trademarks.--
                    (A) In general.--Section 101(35A) of title 11, 
                United States Code, is amended--
                            (i) in subparagraph (E), by striking 
                        ``or'';
                            (ii) in subparagraph (F), by striking 
                        ``title 17;'' and inserting ``title 17; or''; 
                        and
                            (iii) by adding after subparagraph (F) the 
                        following new subparagraph:
                    ``(G) a trademark, service mark, or trade name, as 
                those terms are defined in section 45 of the Act of 
                July 5, 1946 (commonly referred to as the `Trademark 
                Act of 1946') (15 U.S.C. 1127);''.
                    (B) Conforming amendment.--Section 365(n)(2) of 
                title 11, United States Code, is amended--
                            (i) in subparagraph (B)--
                                    (I) by striking ``royalty 
                                payments'' and inserting ``royalty or 
                                other payments''; and
                                    (II) by striking ``and'' after the 
                                semicolon;
                            (ii) in subparagraph (C), by striking the 
                        period at the end of clause (ii) and inserting 
                        ``; and''; and
                            (iii) by adding at the end the following 
                        new subparagraph:
            ``(D) in the case of a trademark, service mark, or trade 
        name, the trustee shall not be relieved of a contractual 
        obligation to monitor and control the quality of a licensed 
        product or service.''.
            (3) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act and 
        shall apply to any case that is pending on, or for which a 
        petition or complaint is filed on or after, such date of 
        enactment.

SEC. 7. SMALL BUSINESS EDUCATION, OUTREACH, AND INFORMATION ACCESS.

    (a) Small Business Education and Outreach.--
            (1) Resources for small business.--Using existing 
        resources, the Director shall develop educational resources for 
        small businesses to address concerns arising from patent 
        infringement.
            (2) Small business patent outreach.--The existing small 
        business patent outreach programs of the Office, and the 
        relevant offices at the Small Business Administration and the 
        Minority Business Development Agency, shall provide education 
        and awareness on abusive patent litigation practices. The 
        Director may give special consideration to the unique needs of 
        small firms owned by disabled veterans, service-disabled 
        veterans, women, and minority entrepreneurs in planning and 
        executing the outreach efforts by the Office.
    (b) Improving Information Transparency for Small Business and the 
United States Patent and Trademark Office Users.--
            (1) Web site.--Using existing resources, the Director shall 
        create a user-friendly section on the official Web site of the 
        Office to notify the public when a patent case is brought in 
        Federal court and, with respect to each patent at issue in such 
        case, the Director shall include--
                    (A) information disclosed under subsections (b) and 
                (d) of section 290 of title 35, United States Code, as 
                added by section 4(a) of this Act; and
                    (B) any other information the Director determines 
                to be relevant.
            (2) Format.--In order to promote accessibility for the 
        public, the information described in paragraph (1) shall be 
        searchable by patent number, patent art area, and entity.

SEC. 8. STUDIES ON PATENT TRANSACTIONS, QUALITY, AND EXAMINATION.

    (a) Study on Secondary Market Oversight for Patent Transactions To 
Promote Transparency and Ethical Business Practices.--
            (1) Study required.--The Director, in consultation with the 
        Secretary of Commerce, the Secretary of the Treasury, the 
        Chairman of the Securities and Exchange Commission, the heads 
        of other relevant agencies, and interested parties, shall, 
        using existing resources of the Office, conduct a study--
                    (A) to develop legislative recommendations to 
                ensure greater transparency and accountability in 
                patent transactions occurring on the secondary market;
                    (B) to examine the economic impact that the patent 
                secondary market has on the United States;
                    (C) to examine licensing and other oversight 
                requirements that may be placed on the patent secondary 
                market, including on the participants in such markets, 
                to ensure that the market is a level playing field and 
                that brokers in the market have the requisite expertise 
                and adhere to ethical business practices; and
                    (D) to examine the requirements placed on other 
                markets.
            (2) Report on study.--Not later than 18 months after the 
        date of the enactment of this Act, the Director shall submit a 
        report to the Committee on the Judiciary of the House of 
        Representatives and the Committee on the Judiciary of the 
        Senate on the findings and recommendations of the Director from 
        the study required under paragraph (1).
    (b) Study on Patents Owned by the United States Government.--
            (1) Study required.--The Director, in consultation with the 
        heads of relevant agencies and interested parties, shall, using 
        existing resources of the Office, conduct a study on patents 
        owned by the United States Government that--
                    (A) examines how such patents are licensed and 
                sold, and any litigation relating to the licensing or 
                sale of such patents;
                    (B) provides legislative and administrative 
                recommendations on whether there should be restrictions 
                placed on patents acquired from the United States 
                Government;
                    (C) examines whether or not each relevant agency 
                maintains adequate records on the patents owned by such 
                agency, specifically whether such agency addresses 
                licensing, assignment, and Government grants for 
                technology related to such patents; and
                    (D) provides recommendations to ensure that each 
                relevant agency has an adequate point of contact that 
                is responsible for managing the patent portfolio of the 
                agency.
            (2) Report on study.--Not later than 1 year after the date 
        of the enactment of this Act, the Director shall submit to the 
        Committee on the Judiciary of the House of Representatives and 
        the Committee on the Judiciary of the Senate a report on the 
        findings and recommendations of the Director from the study 
        required under paragraph (1).
    (c) Study on Patent Quality and Access to the Best Information 
During Examination.--
            (1) GAO study.--The Comptroller General of the United 
        States shall, using existing resources, conduct a study on 
        patent examination at the Office and the technologies available 
        to improve examination and improve patent quality.
            (2) Contents of the study.--The study required under 
        paragraph (1) shall include the following:
                    (A) An examination of patent quality at the Office.
                    (B) An examination of ways to improve patent 
                quality, specifically through technology, that shall 
                include examining best practices at foreign patent 
                offices and the use of existing off-the-shelf 
                technologies to improve patent examination.
                    (C) A description of how patents are classified.
                    (D) An examination of procedures in place to 
                prevent double patenting through filing by applicants 
                in multiple art areas.
                    (E) An examination of the types of off-the-shelf 
                prior art databases and search software used by foreign 
                patent offices and governments, particularly in Europe 
                and Asia, and whether those databases and search tools 
                could be used by the Office to improve patent 
                examination.
                    (F) An examination of any other areas the 
                Comptroller General determines to be relevant.
            (3) Report on study.--Not later than 1 year after the date 
        of the enactment of this Act, the Comptroller General shall 
        submit to the Committee on the Judiciary of the House of 
        Representatives and the Committee on the Judiciary of the 
        Senate a report on the findings and recommendations from the 
        study required by this subsection, including recommendations 
        for any changes to laws and regulations that will improve the 
        examination of patent applications and patent quality.
    (d) Study on Patent Small Claims Court.--
            (1) Study required.--
                    (A) In general.--The Director of the Administrative 
                Office of the United States Courts, in consultation 
                with the Director of the Federal Judicial Center and 
                the United States Patent and Trademark Office, shall, 
                using existing resources, conduct a study to examine 
                the idea of developing a pilot program for patent small 
                claims procedures in certain judicial districts within 
                the existing patent pilot program mandated by Public 
                Law 111-349.
                    (B) Contents of study.--The study under 
                subparagraph (A) shall examine--
                            (i) the necessary criteria for using small 
                        claims procedures;
                            (ii) the costs that would be incurred for 
                        establishing, maintaining, and operating such a 
                        pilot program; and
                            (iii) the steps that would be taken to 
                        ensure that the procedures used in the pilot 
                        program are not misused for abusive patent 
                        litigation.
            (2) Report on study.--Not later than 1 year after the date 
        of the enactment of this Act, the Director of the 
        Administrative Office of the United States Courts shall submit 
        a report to the Committee on the Judiciary of the House of 
        Representatives and the Committee on the Judiciary of the 
        Senate on the findings and recommendations of the Director of 
        the Administrative Office from the study required under 
        paragraph (1).
    (e) Study on Demand Letters.--
            (1) Study.--The Director, in consultation with the heads of 
        other appropriate agencies, shall, using existing resources, 
        conduct a study of the prevalence of the practice of sending 
        patent demand letters in bad faith and the extent to which that 
        practice may, through fraudulent or deceptive practices, impose 
        a negative impact on the marketplace.
            (2) Report to congress.--Not later than 1 year after the 
        date of the enactment of this Act, the Director shall submit a 
        report to the Committee on the Judiciary of the House of 
        Representatives and the Committee on the Judiciary of the 
        Senate on the findings and recommendations of the Director from 
        the study required under paragraph (1).
            (3) Patent demand letter defined.--In this subsection, the 
        term ``patent demand letter'' means a written communication 
        relating to a patent that states or indicates, directly or 
        indirectly, that the recipient or anyone affiliated with the 
        recipient is or may be infringing the patent.
    (f) Study on Business Method Patent Quality.--
            (1) GAO study.--The Comptroller General of the United 
        States shall, using existing resources, conduct a study on the 
        volume and nature of litigation involving business method 
        patents.
            (2) Contents of study.--The study required under paragraph 
        (1) shall focus on examining the quality of business method 
        patents asserted in suits alleging patent infringement, and may 
        include an examination of any other areas that the Comptroller 
        General determines to be relevant.
            (3) Report to congress.--Not later than 1 year after the 
        date of the enactment of this Act, the Comptroller General 
        shall submit to the Committee on the Judiciary of the House of 
        Representatives and the Committee on the Judiciary of the 
        Senate a report on the findings and recommendations from the 
        study required by this subsection, including recommendations 
        for any changes to laws or regulations that the Comptroller 
        General considers appropriate on the basis of the study.
    (g) Study on Impact of Legislation on Ability of Individuals and 
Small Businesses To Protect Exclusive Rights to Inventions and 
Discoveries.--
            (1) Study required.--The Director, in consultation with the 
        Secretary of Commerce, the Director of the Administrative 
        Office of the United States Courts, the Director of the Federal 
        Judicial Center, the heads of other relevant agencies, and 
        interested parties, shall, using existing resources of the 
        Office, conduct a study to examine the economic impact of 
        sections 3, 4, and 5 of this Act, and any amendments made by 
        such sections, on the ability of individuals and small 
        businesses owned by women, veterans, and minorities to assert, 
        secure, and vindicate the constitutionally guaranteed exclusive 
        right to inventions and discoveries by such individuals and 
        small business.
            (2) Report on study.--Not later than 2 years after the date 
        of the enactment of this Act, the Director shall submit to the 
        Committee on the Judiciary of the House of Representatives and 
        the Committee on the Judiciary of the Senate a report on the 
        findings and recommendations of the Director from the study 
        required under paragraph (1).

SEC. 9. IMPROVEMENTS AND TECHNICAL CORRECTIONS TO THE LEAHY-SMITH 
                    AMERICA INVENTS ACT.

    (a) Post-Grant Review Amendment.--Section 325(e)(2) of title 35, 
United States Code is amended by striking ``or reasonably could have 
raised''.
    (b) Use of District-Court Claim Construction in Post-Grant and 
Inter Partes Reviews.--
            (1) Inter partes review.--Section 316(a) of title 35, 
        United States Code, is amended--
                    (A) in paragraph (12), by striking ``; and'' and 
                inserting a semicolon;
                    (B) in paragraph (13), by striking the period at 
                the end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(14) providing that for all purposes under this chapter--
                    ``(A) each claim of a patent shall be construed as 
                such claim would be in a civil action to invalidate a 
                patent under section 282(b), including construing each 
                claim of the patent in accordance with the ordinary and 
                customary meaning of such claim as understood by one of 
                ordinary skill in the art and the prosecution history 
                pertaining to the patent; and
                    ``(B) if a court has previously construed the claim 
                or a claim term in a civil action in which the patent 
                owner was a party, the Office shall consider such claim 
                construction.''.
            (2) Post-grant review.--Section 326(a) of title 35, United 
        States Code, is amended--
                    (A) in paragraph (11), by striking ``; and'' and 
                inserting a semicolon;
                    (B) in paragraph (12), by striking the period at 
                the end and inserting ``; and''; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(13) providing that for all purposes under this chapter--
                    ``(A) each claim of a patent shall be construed as 
                such claim would be in a civil action to invalidate a 
                patent under section 282(b), including construing each 
                claim of the patent in accordance with the ordinary and 
                customary meaning of such claim as understood by one of 
                ordinary skill in the art and the prosecution history 
                pertaining to the patent; and
                    ``(B) if a court has previously construed the claim 
                or a claim term in a civil action in which the patent 
                owner was a party, the Office shall consider such claim 
                construction.''.
            (3) Technical and conforming amendment.--Section 
        18(a)(1)(A) of the Leahy-Smith America Invents Act (Public Law 
        112-29; 126 Stat. 329; 35 U.S.C. 321 note) is amended by 
        striking ``Section 321(c)'' and inserting ``Sections 321(c) and 
        326(a)(13)''.
            (4) Effective date.--The amendments made by this subsection 
        shall take effect upon the expiration of the 90-day period 
        beginning on the date of the enactment of this Act, and shall 
        apply to any proceeding under chapter 31 or 32 of title 35, 
        United States Code, as the case may be, for which the petition 
        for review is filed on or after such effective date.
    (c) Codification of the Double-Patenting Doctrine for First-
Inventor-To-File Patents.--
            (1) Amendment.--Chapter 10 of title 35, United States Code, 
        is amended by adding at the end the following new section:

``Sec. 106. Prior art in cases of double patenting

    ``A claimed invention of a patent issued under section 151 
(referred to as the `first patent') that is not prior art to a claimed 
invention of another patent (referred to as the `second patent') shall 
be considered prior art to the claimed invention of the second patent 
for the purpose of determining the nonobviousness of the claimed 
invention of the second patent under section 103 if--
            ``(1) the claimed invention of the first patent was 
        effectively filed under section 102(d) on or before the 
        effective filing date of the claimed invention of the second 
        patent;
            ``(2) either--
                    ``(A) the first patent and second patent name the 
                same individual or individuals as the inventor; or
                    ``(B) the claimed invention of the first patent 
                would constitute prior art to the claimed invention of 
                the second patent under section 102(a)(2) if an 
                exception under section 102(b)(2) were deemed to be 
                inapplicable and the claimed invention of the first 
                patent was, or were deemed to be, effectively filed 
                under section 102(d) before the effective filing date 
                of the claimed invention of the second patent; and
            ``(3) the patentee of the second patent has not disclaimed 
        the rights to enforce the second patent independently from, and 
        beyond the statutory term of, the first patent.''.
            (2) Regulations.--The Director shall promulgate regulations 
        setting forth the form and content of any disclaimer required 
        for a patent to be issued in compliance with section 106 of 
        title 35, United States Code, as added by paragraph (1). Such 
        regulations shall apply to any disclaimer filed after a patent 
        has issued. A disclaimer, when filed, shall be considered for 
        the purpose of determining the validity of the patent under 
        section 106 of title 35, United States Code.
            (3) Conforming amendment.--The table of sections for 
        chapter 10 of title 35, United States Code, is amended by 
        adding at the end the following new item:

           ``106. Prior art in cases of double patenting.''.

            (4) Exclusive rule.--A patent subject to section 106 of 
        title 35, United States Code, as added by paragraph (1), shall 
        not be held invalid on any nonstatutory, double-patenting 
        ground based on a patent described in section 3(n)(1) of the 
        Leahy-Smith America Invents Act (35 U.S.C. 100 note).
            (5) 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 a patent or patent application only if both the first 
        and second patents described in section 106 of title 35, United 
        States Code, as added by paragraph (1), are patents or patent 
        applications that are described in section 3(n)(1) of the 
        Leahy-Smith America Invents Act (35 U.S.C. 100 note).
    (d) PTO Patent Reviews.--
            (1) Clarification.--
                    (A) Scope of prior art.--Section 18(a)(1)(C)(i) of 
                the Leahy-Smith America Invents Act (35 U.S.C. 321 
                note) is amended by striking ``section 102(a)'' and 
                inserting ``subsection (a) or (e) of section 102''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall take effect on the date of the 
                enactment of this Act and shall apply to any proceeding 
                pending on, or filed on or after, such date of 
                enactment.
            (2) Authority to waive fee.--Subject to available 
        resources, the Director may waive payment of a filing fee for a 
        transitional proceeding described under section 18(a) of the 
        Leahy-Smith America Invents Act (35 U.S.C. 321 note).
    (e) Clarification of Limits on Patent Term Adjustment.--
            (1) Amendments.--Section 154(b)(1)(B) of title 35, United 
        States Code, is amended--
                    (A) in the matter preceding clause (i), by striking 
                ``not including--'' and inserting ``the term of the 
                patent shall be extended 1 day for each day after the 
                end of that 3-year period until the patent is issued, 
                not including--'';
                    (B) in clause (i), by striking ``consumed by 
                continued examination of the application requested by 
                the applicant'' and inserting ``consumed after 
                continued examination of the application is requested 
                by the applicant'';
                    (C) in clause (iii), by striking the comma at the 
                end and inserting a period; and
                    (D) by striking the matter following clause (iii).
            (2) Effective date.--The amendments made by this subsection 
        shall take effect on the date of the enactment of this Act and 
        apply to any patent application that is pending on, or filed on 
        or after, such date of enactment.
    (f) Clarification of Jurisdiction.--
            (1) In general.--The Federal interest in preventing 
        inconsistent final judicial determinations as to the legal 
        force or effect of the claims in a patent presents a 
        substantial Federal issue that is important to the Federal 
        system as a whole.
            (2) Applicability.--Paragraph (1)--
                    (A) shall apply to all cases filed on or after, or 
                pending on, the date of the enactment of this Act; and
                    (B) shall not apply to a case in which a Federal 
                court has issued a ruling on whether the case or a 
                claim arises under any Act of Congress relating to 
                patents or plant variety protection before the date of 
                the enactment of this Act.
    (g) Patent Pilot Program in Certain District Courts Duration.--
            (1) Duration.--Section 1(c) of Public Law 111-349 (124 
        Stat. 3674; 28 U.S.C. 137 note) is amended to read as follows:
    ``(c) Duration.--The program established under subsection (a) shall 
be maintained using existing resources, and shall terminate 20 years 
after the end of the 6-month period described in subsection (b).''.
            (2) Effective date.--The amendment made by paragraph (1) 
        shall take effect on the date of the enactment of this Act.
    (h) Technical Corrections.--
            (1) Novelty.--
                    (A) Amendment.--Section 102(b)(1)(A) of title 35, 
                United States Code, is amended by striking ``the 
                inventor or joint inventor or by another'' and 
                inserting ``the inventor or a joint inventor or 
                another''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall be effective as if included in 
                the amendment made by section 3(b)(1) of the Leahy-
                Smith America Invents Act (Public Law 112-29).
            (2) Inventor's oath or declaration.--
                    (A) Amendment.--The second sentence of section 
                115(a) of title 35, United States Code, is amended by 
                striking ``shall execute'' and inserting ``may be 
                required to execute''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall be effective as if included in 
                the amendment made by section 4(a)(1) of the Leahy-
                Smith America Invents Act (Public Law 112-29).
            (3) Assignee filers.--
                    (A) Benefit of earlier filing date; right of 
                priority.--Section 119(e)(1) of title 35, United States 
                Code, is amended, in the first sentence, by striking 
                ``by an inventor or inventors named'' and inserting 
                ``that names the inventor or a joint inventor''.
                    (B) Benefit of earlier filing date in the united 
                states.--Section 120 of title 35, United States Code, 
                is amended, in the first sentence, by striking ``names 
                an inventor or joint inventor'' and inserting ``names 
                the inventor or a joint inventor''.
                    (C) Effective date.--The amendments made by this 
                paragraph shall take effect on the date of the 
                enactment of this Act and shall apply to any patent 
                application, and any patent issuing from such 
                application, that is filed on or after September 16, 
                2012.
            (4) Derived patents.--
                    (A) Amendment.--Section 291(b) of title 35, United 
                States Code, is amended by striking ``or joint 
                inventor'' and inserting ``or a joint inventor''.
                    (B) Effective date.--The amendment made by 
                subparagraph (A) shall be effective as if included in 
                the amendment made by section 3(h)(1) of the Leahy-
                Smith America Invents Act (Public Law 112-29).
            (5) Specification.--Notwithstanding section 4(e) of the 
        Leahy-Smith America Invents Act (Public Law 112-29; 125 Stat. 
        297), the amendments made by subsections (c) and (d) of section 
        4 of such Act shall apply to any proceeding or matter that is 
        pending on, or filed on or after, the date of the enactment of 
        this Act.
            (6) Time limit for commencing misconduct proceedings.--
                    (A) Amendment.--The fourth sentence of section 32 
                of title 35, United States Code, is amended by striking 
                ``1 year'' and inserting ``18 months''.
                    (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 action in 
                which the Office files a complaint on or after such 
                date of enactment.
            (7) Patent owner response.--
                    (A) Conduct of inter partes review.--Paragraph (8) 
                of section 316(a) of title 35, United States Code, is 
                amended by striking ``the petition under section 313'' 
                and inserting ``the petition under section 311''.
                    (B) Conduct of post-grant review.--Paragraph (8) of 
                section 326(a) of title 35, United States Code, is 
                amended by striking ``the petition under section 323'' 
                and inserting ``the petition under section 321''.
                    (C) Effective date.--The amendments made by this 
                paragraph shall take effect on the date of the 
                enactment of this Act.
            (8) International applications.--
                    (A) Amendments.--Section 202(b) of the Patent Law 
                Treaties Implementation Act of 2012 (Public Law 112-
                211; 126 Stat. 1536) is amended--
                            (i) by striking paragraph (7); and
                            (ii) by redesignating paragraphs (8) and 
                        (9) as paragraphs (7) and (8), respectively.
                    (B) Effective date.--The amendments made by 
                subparagraph (A) shall be effective as if included in 
                title II of the Patent Law Treaties Implementation Act 
                of 2012 (Public Law 112-21).

SEC. 10. EFFECTIVE DATE.

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

_______________________________________________________________________

    Mr. Goodlatte. I look forward to hearing from all of our 
witnesses on the Innovation Act and the issue of abusive patent 
litigation. And now it's my pleasure to recognize the Ranking 
Member of the Subcommittee on Courts, Intellectual Property and 
the Internet, the gentleman from New York, Mr. Nadler, for his 
opening statement.
    Mr. Nadler. Thank you, Mr. Chairman.
    Thank you, Mr. Chairman, for holding this hearing which 
will help us to examine the Innovation Act and the problem of 
abusive patent litigation. I am proud to join you as a 
cosponsor of this legislation so that we can deter patent 
trolls and protect individuals and businesses from abusive 
patent litigation. But as I have said before, and as many have 
said before, no legislation is perfect, and this hearing will 
help us to determine how H.R. 9 can be further improved.
    Our economy depends on innovation to grow and to thrive, 
and this has been true since the dawn of our Nation. The 
founders knew the importance of patent protection in fostering 
innovation and even wrote it into the Constitution. Last week 
the U.S. Patent and Trademark Office celebrated a 225th 
anniversary of the first U.S. patent act just days after 
issuing its 9 millionth patent. Strong patent protection has 
helped unleash unmatched creativity in this country, and it's 
vital that we maintain a strong and vibrant patent system.
    Unfortunately the system currently faces a wave of abusive 
litigation by patent trolls, which stifles innovation and 
threatens our economy. Patent trolls use litigation or the 
threat of litigation as a weapon to extort settlements from 
innocent defendants. They generally own weak patents and make 
vague claims that will require extensive and time-consuming 
discovery on the part of the defendant. Many patent trolls prey 
on end users who have no knowledge or control over the alleged 
infringing project. Their goal is to drive up the cost of 
litigation and force the defendant to determine that it simply 
makes financial sense to settle even a totally bogus claim 
early, rather than seeing litigation through to the end and 
paying the exorbitant legal fees that can go along with such a 
course of action. Such abusive litigation threatens small and 
large businesses alike. Those companies that refuse to give in 
to the patent trolls' demands may be forced to spend millions 
of dollars defending a frivolous lawsuit. And it is not just 
businesses that should be concerned about these lawsuits. 
Patent trolls harm all consumers searching for the next great 
invention to improve their lives. That is because every dollar 
spent fending off frivolous lawsuits is a dollar that cannot be 
spent on research and development or on improving customer 
service. When patent trolls win, the rest of us lose.
    I support the Innovation Act because a strong patent system 
requires that we protect businesses and consumers from the harm 
caused by abusive litigation. But I am mindful of the fact that 
in addressing the patent troll problem, we must not impose too 
great a burden on legitimate plaintiffs. A strong patent system 
also depends on inventors having the ability to protect their 
creations in court. We must be careful to ensure that the 
reforms included in this legislation do not have unintended 
consequences. For example, it is no secret that I have 
traditionally been an opponent of loser pays provisions. People 
or businesses with legally legitimate disputes should not be 
punished for trying to protect their interests in court.
    H.R. 9 attempts to strike a balance, that will deter patent 
trolls from filing frivolous suits while protecting those with 
reasonable but ultimately unsuccessful claims. I have made it 
clear, however, that my support for this legislation depends in 
part on a commitment that the fee shifting provision will not 
get any more stringent than in the current version of the 
legislation. I hope it can be improved further. In fact, I will 
be interested to hear from our witnesses their thoughts on 
whether this bill strikes an appropriate balance in this 
regard.
    I particularly want to welcome Michelle Lee and 
congratulate her on her recent confirmation as Director of the 
Patent and Trademark Office. I look forward to her testimony 
and to the testimony of all our witnesses as we explore the 
Innovation Act in depth. There are many provisions in this bill 
that require close consideration, and I appreciate the 
opportunity to examine them today.
    I thank you, Mr. Chairman, and I yield back the balance of 
my time.
    Mr. Goodlatte. I thank the gentleman.
    The Chair is now pleased to recognize the gentleman from 
California, the Chairman of the Subcommittee on Courts 
Intellectual Property, and the Internet, Mr. Issa, for his 
opening statement.
    Mr. Issa. Thank you, Mr. Chairman. I think it's altogether 
fitting that this be a full Committee hearing because, Ms. Lee, 
clearly you are at the heart of why we are, in fact, producing 
H.R. 9. Often Members of this body will talk about patent 
trolls. They'll talk about weak patents being used by these 
trolls. They'll talk about our friends in Marshall and Tyler, 
Texas who seemed to never find a patent they didn't want to 
consider valid and enforceable and infringed. However, since we 
passed the landmark legislation in 2011, it has become clear 
that to this day we still have a problem at the USPTO. This is 
not a problem of the making of the Patent and Trademark Office. 
As a matter of fact, as the Chairman just said, celebrating the 
9 millionth patent is quite a celebration.
    However, my little sister, born in 1961 could have 
celebrated the 3 millionth patent. We have in my lifetime 
produced more than three out of every four patents produced 
since our founding. This epidemic of innovation would be a good 
thing if, in fact, patents were rigorously defended throughout 
the process, the Patent Office had ever better information, and 
to be honest, if the bias had been toward obviousness not 
becoming the hallmark of innovation.
    During my lifetime it has become extremely common for 
inventors to simply take the inevitable direction of a new 
technology and re-patent what was previously patented under the 
previous technology. This occurs in the automotive industry, in 
all the sciences, including even in health care.
    So as we meet with our Under Secretary, it is very clear 
that our greatest goal in our reform is not just in Article III 
courts, where heightened pleading and fee shifting clearly will 
make a difference for trolls, but, in fact, every inventor 
should have to work harder, narrow further, their claims so 
that the real patent they receive from the Patent Office, they 
have patent certainty on.
    Often many of the companies in BIO come before this 
Committee and into my office, and they talk about certainty. 
And I tell them, if your patent is often reduced or even made 
invalid when scrutinized either by the Patent and Trademark 
Office or in an Article III court or even in the ITC, then in 
fact we have done you a disservice, but you have done yourself 
a disservice. An inventor is best off having a narrow patent, 
fully understood, so that he or she can assert that patent when 
appropriate and understand that innovation comes, quite 
candidly, from patents that you work around.
    So as we go into H.R. 9, as was said earlier, a bill that 
in the last Congress enjoyed a 33 to 5 in this Committee's 
support and 325 positive votes on the House floor, I want 
everyone to understand that like the Chairman of the full 
Committee and the other Members, I'll work tirelessly to try to 
find ways to make this bill better in the basic ways of both 
streamlining the activities that go on once a patent is granted 
but also work with the Patent and Trademark Office to ensure 
that in the future we will have patents which are either not 
granted, or granted more clearly so that once granted, an 
inventor understands what the limitations of their patent is.
    I think today, Mr. Chairman, we will undoubtedly hear from 
Ms. Lee in detail about the success of the CBM program and re-
examinations and where we can work with the Patent and 
Trademark Office to ensure that post-grant and other ways to 
improve patent quality are addressed in this bill. And I want 
to thank the Chairman again for giving us an opportunity for 
both of these important panels, and I yield back.
    Mr. Goodlatte. The Chair thanks the gentleman.
    Without objection all other Members' opening statements 
will be made a part of the record.
    We welcome our distinguished witness for today's first 
panel, and Ms. Lee, if you would rise, I will begin by swearing 
you in.
    Do you swear that the testimony that you are about to give 
shall be the truth, the whole truth and nothing but the truth 
so help you God?
    Thank you very much. Let the record reflect that the 
witness responded in the affirmative.
    Our first witness today is the Honorable Michelle Lee, 
Under Secretary of Commerce for Intellectual Property and 
Director of the United States Patent and Trademark Office. In 
her role as Director, she oversees one of the largest 
intellectual property offices in the world and serves as the 
principal adviser to the President on both domestic and 
international intellectual property matters. Prior to her role 
as director, Ms. Lee was Deputy Director and also served as the 
first director of the Silicon Valley USPTO.
    Her experience also includes being the first head of 
patents and strategy at Google while serving as the company's 
deputy general counsel. She received her J.D. from Stanford Law 
School and her M.S. and B.S. in electrical engineering and 
computer science from the Massachusetts Institute of 
Technology.
    Ms. Lee, welcome. Your testimony will be entered into the 
record in its entirety, and we ask that you summarize your 
statement in 5 minutes or less. And to help you with that, 
there's a timing light on the table. We again welcome you.

  TESTIMONY OF THE HONORABLE MICHELLE LEE, UNDER SECRETARY OF 
 COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE UNITED 
               STATES PATENT AND TRADEMARK OFFICE

    Ms. Lee. Thank you. Chairman Goodlatte, Ranking Member 
Conyers, Chairman Issa, and Ranking Member Nadler, thank you 
for the opportunity to discuss with you our views on H.R. 9, 
the ``Innovation Act.'' Mr. Chairman, we are pleased that you 
have reintroduced the Innovation Act to begin the legislative 
patent reform efforts in the 114th Congress, to curtail abusive 
patent litigation, to increase patent transparency, and to 
level the playing field for all innovators.
    As a general matter, we believe that the final bill should 
target truly abusive practices while maintaining a patent 
owner's legitimate right to enforce his or her patent. Further, 
we believe that the final legislation should take a fair and 
balanced approach that neither favors nor disfavors any 
particular area of technology, industry, or business model. 
Finally, any current legislative effort should, of course, take 
into account recent changes in the patent system that have come 
from the courts through rulings and local rules, by the 
Judicial Conference via its rule changes and from the USPTO 
through its implementation and refinement of the America 
Invents Act post-grant trials, as well as its enhanced patent 
quality initiative.
    With these principles in mind, allow me to focus my limited 
time on a few key provisions in the Innovation Act. My written 
statement contains more detailed thoughts, factors to be 
weighed, and views regarding provisions in the bill.
    First, we generally support the bill's proposal to require 
an award of attorney's fees and expenses in patent cases where 
it is proven that the losing party's position or conduct was 
unreasonable. Fault-based fee shifting will raise the cost for 
those engaging in abusive tactics, whether plaintiffs or 
defendants. It gives the financial incentive to prepare and to 
present their cases responsibly, and it should discourage 
parties from bringing unjustified cases. This type of 
attorneys' fee provision will also help ensure consistency in 
fee awards across the judicial districts.
    Second, we believe it is good policy to have patent owners 
provide more information to defendants in a complaint about why 
they allegedly infringe a patent than is mandated by current 
law. Accordingly, we generally support the Innovation Act's 
requirement that a complaint explain how each element of a 
patent claim is met by an accused product or process or why 
such information is not readily accessible.
    We believe that requiring the identification of the 
allegedly infringing products and an explanation of how they 
infringe at least one claim of each asserted patent is 
important. But any requirement to plead additional claims in a 
patent at this early stage of litigation should be weighed in 
light of the burdens it would place on the patent owner, the 
potential that it creates for procedural motions that may not 
materially advance the case, and incentives that it creates to 
overplead marginally relevant patent claims.
    Legislation should account for the fact that a party often 
lacks a complete understanding of the case at the outset. We 
recognize that there are ongoing negotiations on how to craft 
the details of this proposal to address these various concerns, 
and we are supportive of those efforts.
    I would also like to address the Innovation Act's proposal 
to stay discovery until a court issues a claim construction 
ruling. Now let me begin by saying that I am well aware of the 
high cost of discovery in patent litigation cases. Discovery is 
a significant cost driver in litigation, and we are committed 
to working with the Committee and stakeholders to find 
proposals that will reduce these costs. But claim construction 
is complex, and it can be difficult to perform in a vacuum. 
Often it takes some amount of additional discovery to 
understand which claims and which technical terms in those 
claims are critical and must be construed, and claim 
construction alone may not dispose of a case, especially when 
there has been no discovery on infringement and invalidity. In 
those cases, discovery costs wouldn't be avoided, only delayed. 
We believe that there may be alternatives to reducing excessive 
discovery in patent litigation worth considering, and we 
welcome the opportunity to work with the Committee and 
stakeholders to develop such proposals.
    Finally, we generally support the bill's proposals to 
protect customers using off-the-shelf products such as a coffee 
shop that uses an Internet router. A customer stay provision 
would allow the party who understands the technology, the 
manufacturer, to handle the case. Of course, appropriate 
safeguards should be included. For example, the manufacturer 
and customer both agreeing to the stay, and in exchange for the 
stay, the customer agreeing to be bound by the ruling. With 
safeguards such as these, we believe strides can be made to 
help curtail some of the most coercive patent litigation abuses 
while simultaneously appropriately preserving limited judicial 
resources.
    We understand that there are extensive, or were extensive 
negotiations on this topic last year, and we are also 
supportive of these efforts. I will defer to my written 
statement for more details on the rest of the many important 
provisions in this bill, but briefly I will say that the USPTO 
generally supports the bill's provisions on; transparency, 
patent licenses in foreign bankruptcy proceedings, demand 
letters, and the many technical corrections.
    Mr. Chairman, thank you for the opportunity to share our 
views on these important issues. My staff and I are available 
to help in any way we can toward crafting meaningful, fair, and 
balanced legislative reforms that are so important to 
strengthening our patent system for American innovators. Thank 
you.
    Mr. Goodlatte. Thank you, Director Lee.
    [The prepared statement of Ms. Lee follows:]
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                               __________
    Mr. Goodlatte. And I'll begin the questioning. I appreciate 
your testimony, and seeing that the Administration continues to 
be committed to seeing patent reform enacted into law and that 
they view this as a high legislative priority, in that vein I'd 
like to ask for unanimous consent to submit the White House's 
Statement of Administration Policy on H.R. 3309, the 
``Innovation Act'' from last Congress, which expresses strong 
support for our bill.
    [The information referred to follows:]
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                               __________
    Mr. Goodlatte. Director, I'd also like to ask you to talk 
more about three things. First, the importance of the 
Innovation Act's fee-shifting provisions; second, the ways to 
make the joinder provisions clearer that they apply to 
insolvent shell companies that file frivolous suits and not 
legitimate startups and universities; and, third, on customer 
stay. As we look to improve that provision, do you support the 
customer stay language negotiated last May in the Senate?
    Ms. Lee. Thank you very much for your question, Mr. 
Chairman. Let me start with the first of the issues that you 
raised, fee shifting. As I mentioned, we are generally 
supportive of the provision introduced in H.R. 9 on fee 
shifting. We believe it raises the cost for those who are 
engaging in abusive tactics, and it provides the right 
financial incentives for both plaintiffs and defendants.
    With regard to ways to improve the joinder provision to 
make sure that we are targeting the right individuals but yet 
excluding others, I think as a general matter it is critical 
that we ensure that passive investors, those who do not have 
the ability to control or direct the litigation, are not 
subject to any kind of joinder or fee liability. We need to 
protect that because otherwise we can chill investment in some 
very important new enterprises which is so critical to our 
Nation's continued economic success.
    And as to universities, my thought there is the 
university's business model happens to be education, but we 
shouldn't distinguish between what people's business model is. 
If they're engaged in abusive behavior, as much as I appreciate 
universities and their ability to contribute to innovation, 
it's important that if they're engaged in abusive behavior and 
they direct and control abusive litigation, that they too 
should be responsible. So, whatever your business model, if you 
control or engage in abusive litigation, you should be able to 
bejoined or held liable. And the final issue was----
    Mr. Goodlatte. Customer stay language.
    Ms. Lee. Customer stay, we're generally supportive of the 
concepts in it.
    Mr. Goodlatte. And last May the Senate negotiated some 
language. If you're familiar with that, do you have an opinion 
on that?
    Ms. Lee. I think we are generally supportive with the 
concepts there.
    Mr. Goodlatte. Thank you. We have all heard about 
plaintiff-friendly venues and patent cases being brought in 
jurisdictions where neither party is conducting any business 
whatsoever. What are your thoughts on addressing the issue of 
venue.
    Ms. Lee. So venue is a very important issue, and many 
courts are working hard to actively manage their cases and 
control discovery in their district courts. A few courts permit 
broader discovery, and it appears to be limited to a small 
number of courts and Federal districts. So one option might be 
to focus on reducing the opportunities for forum shopping and 
the advantages of forum shopping by increasing or tightening 
the venue requirements. Making sure that the parties who end up 
in a district, have real ties, meaningful business ties, to 
that district, I think would benefit patent litigation 
throughout the entire process, not just early on in terms of 
discovery pre-claim construction, but at time of ruling for 
summary judgment, at trial, and so forth. So there are clear 
advantages to be had in considering proposals related to 
tightening venue restrictions.
    Mr. Goodlatte. Thank you. One last question. Just last week 
we saw that the Electronic Frontier Foundation succeeded in an 
inter partes review of Personal Audio's notorious podcasting 
patent. If someone is bringing a legitimate post-grant or IPR 
to the USPTO showing that there are problems with the patent, 
then that clearly goes to patent quality. But if someone is 
bringing a frivolous case or demanding cash settlements not to 
file, then that would appear to be a clear abuse of the system. 
I believe that the USPTO has full authority under the America 
Invents Act to address the latter. Understanding that any 
legislative fixes could potentially impede the USPTO's ability 
to address such issues, what is the USPTO doing to prevent the 
IPR process from being abused.
    Ms. Lee. Thank you very much for the question, Mr. 
Chairman. You are right. The USPTO is working hard to make sure 
that the proceedings, the AIA post-grant review proceedings are 
as efficient and fair as possible.
    And one of the first initiatives that I undertook when I 
became the head of the office, first as Deputy Director, was to 
reach out to the public who had been using the post-grant 
review proceedings and get input on what we were doing right, 
what was working, and what was not working, and what we could 
improve upon. And we engaged in an eight-city listening tour 
which I have to say each of the cities the attendance was very 
well attended, and we also solicited written comments on how to 
improve those proceedings. We have gotten that input. We have 
already issued some quick fixes, and by summertime you will see 
some proposed rules on how we can again strengthen the post-
grant review proceedings, trials, and make them fairer and more 
efficient, and we hope to complete that process by the end of 
the year.
    So Congress has given us the authority to implement those 
proceedings. We have implemented it. We also have the authority 
to refine it, and where we can within the congressional mandate 
we are doing everything that we can to make sure those 
proceedings are fair and efficient.
    Mr. Goodlatte. Thank you. The Chair recognizes the 
gentleman from New York, Mr. Nadler, for his questions.
    Mr. Nadler. Thank you, Mr. Chairman. Ms. Lee, in your 
testimony you say that a plaintiff should only be required to 
notify the defendant of a single representative claim. If the 
plaintiff conducts, as we would expect, the necessary 
investigation to determine how his or her patent was infringed, 
why would they not be able to bring all the claims alleged at 
the outset?
    Ms. Lee. Thank you, very much, Congressman Nadler, for the 
question. As a general matter, certainly earlier and greater 
notice with respect to claims pled, helps expedite the 
resolution of the case and streamline discovery. And we 
support, of course, the removal of Form 18 which provided a 
very low threshold for pleadings in patent cases and a 
complaint requiring as a baseline for at least one claim, a 
description of how each element is met by an accused product or 
process or the reasons why that information is not readily 
accessible.
    The issues of pleading and how much should be included in 
the complaint are complex and have many competing 
considerations that should be weighed. And a concern we have is 
that requiring the pleading of additional claims with greater 
specificity at the beginning of a litigation might unduly 
burden a patent owner, might encourage needless and early 
procedural motions in the form of motions to dismiss and not 
materially advance the case when all that is required is an 
appropriately pled, single claim in order for the case to move 
forward. Patent owners oftentimes lack full information about 
the case at the beginning when they're filing the complaint, 
but we recognize the need to have to balance on the one hand 
notice to defendants against the burden and fairness of the 
plaintiffs, and we recognize that there are negotiations going 
on to address these very important concerns and issues, and we 
look forward to supporting those and providing help where we 
can.
    Mr. Nadler. But pursuing the same vein, complaints, of 
course, can be amended as the discovery progresses; but if a 
plaintiff knows what other claims they believe are infringed 
when they initially file their complaint, why should they not 
be required to put all their complaints--of their claims in 
that complaint? Couldn't it be considered being deceptive if 
they only put some of them in?
    Ms. Lee. So if there is a heightened pleading requirement 
in the complaint, clearly there is an incentive to get every 
claim in that you think is allegedly infringed, including 
perhaps some of them that you have not fully developed. So, 
there maybe an incentive to over plead, and we have seen cases 
where you have patent litigation where there are multiple 
patents, and within each patent there are multiple claims 
asserted. Sometimes you can have upwards of tens if not close 
to a hundred claims. And that's a very voluminous complaint you 
have there if you're going element by element. All of that 
said, certainly greater specificity is beneficial, and you've 
got to weigh that against the burdens on the plaintiff pre-
discovery for providing that sort of information.
    Mr. Nadler. Okay. Now patent trolls, as we know, seek to 
leverage the cost of discovery to extort settlements from 
defendants. That's the whole point of--one of the major points 
of patent trolls. Everything we can do to focus discovery on 
genuine issues and eliminate the extraneous demands would both 
limit the trolls' leverage and enhance the efficient progress 
of the litigation. Do you agree that a district court is 
competent to manage such a process that would limit the 
parties' exchange to the core documents actually essential to 
the claimed infringement, and do you agree that parties could 
be required to pay for materials outside that core? And if not, 
why not?
    Ms. Lee. So, the question is, do we think a district court 
is competent to manage the production of core documents 
requiring the parties to pay for the production of core 
documents and the parties the other costs. I think there's a 
lot of sense to that proposal, and I think certainly many 
district courts across the country are very capable of doing 
that. And then the question is do we want a uniform standard 
across all district courts in the country, and do we want to 
legislate that to make sure that that happens?
    Mr. Nadler. And do you think----
    Ms. Lee. I think there's an advantage to uniformity in our 
system.
    Mr. Nadler. And therefore we should legislate that?
    Ms. Lee. It should be something that we consider amongst 
many others, but yes.
    Mr. Nadler. Thank you. I yield back.
    Mr. Issa [presiding]. Thank you. I recognize myself now. 
I'm going to follow up with the Ranking Member went through 
that. Is this something that we should allow the Fed circuit 
input into, so that in fact, we work in harmony with those 
rules? Essentially I think his point is a good one which is if 
you know that your elements on appeal are one court and you 
know that there is one USPTO, shouldn't we find a way, whether 
working with the courts or on our own and with you, to mandate 
a sufficient similarity of the courts that, in fact, forum 
shopping is less valuable?
    Ms. Lee. I'm in favor of anything we can do to decrease the 
opportunities and advantages of forum shopping. I think that it 
imposes a discipline across all district courts to provide 
consistency.
    Mr. Issa. And to that extent, I'd like to shift to the CBM 
program. Obviously that's a program designed to dramatically 
reduce the caseload on Article III courts. Could you give us an 
update on what it's done to reduce low-quality patents?
    Ms. Lee. Yes. Thank you very much, Chairman Issa, for that 
question. The USPTO has successfully implemented the CBM 
program pursuant to the America Invents Act, meeting its 
congressional intent. And it was meant to provide a faster, 
more efficient low-cost alternative to district court 
litigation with regard to a certain category of patents, those 
pertaining to financial services. And we have implemented 
those, and I want to share some statistics with you about them.
    We have received 321 filings to date with 206 institutions 
and 43 written decisions, and for the most part based upon the 
input that we've received from the roundtable discussions, the 
eight-city listening tour, I think stakeholders have found the 
proceedings to be helpful; and we have also heard from the 
stakeholders areas we can improve on it, and we are certainly 
working on that.
    Mr. Issa. And staying on the subject of patent improvement, 
the IPR process, you know, when I was producing products and 
applying for patents, it was an interesting world because there 
was a one-way exchange where I gave all the information to the 
patent examiner, and he or she may or may not have had the 
other side of the story in catalogues. And then if somebody 
presented a patent and I wanted to narrow that patent that 
somebody else had, I went through a reexamination process where 
I essentially threw material at the Patent Office and hoped 
that they would take it up and reconstruct the claims, but I 
had no input. So, can you give us the important difference in 
the IPR process?
    Ms. Lee. So I think, Chairman Issa, you hit exactly the 
point which is that in the IPR proceedings, you have two sides 
to a proceeding or----
    Mr. Issa. Three if we include you.
    Ms. Lee. I'm usually not a party to it, although I could 
be. But you have two sides, so by virtue of advocacy, each side 
is putting forth their best arguments as to either why the 
patent is valid or why it is invalid, and there is a benefit to 
that. So, the IPR proceedings, as Members of Congress intended, 
was meant to be a quality check on the patents that were 
already in the system. The USPTO is working on the quality of 
the patent it issues during an examination before it issues, 
but the IPR, the post-grant review proceedings, and the covered 
business method, those three categories of proceedings were 
meant to be a check on the quality of the patents in the patent 
system after issuance.
    Mr. Issa. Straightforward question; do you think the CBM 
program should be extended, or continued would be another way 
of putting it?
    Ms. Lee. So it is scheduled to expire, and the question is 
should it be extended? And I believe the intent of the CBM 
proceedings was to address some patents that had issued out of 
the United States Patent and Trademark Office in the area of 
business methods related to financial services. And that this 
program would be in effect for a period of time and that 
patents that should not have issued would be removed. And 
that's why it was meant to be a temporary program. As to 
whether it should be extended or not, I think that's up for----
    Mr. Issa. Let me ask you a leading question if I may.
    Ms. Lee. Okay.
    Mr. Issa. Isn't it true that in reviewing those financial 
patents, what you often discover is that there was a trade 
practice that was widely known but was not presented when the 
patent application was applied for; and, in fact, today aren't 
there many business practices that are widely used but not at 
your researchers' disposal?
    Ms. Lee. So the question is?
    Mr. Issa. Do you still not know what you find out later on 
in the CBM process at the time that you're granting new 
patents?
    Ms. Lee. I think we know many more things now than we did 
when some of the patents that are at subject or issue in the 
CBM proceedings were issued, because the USPTO's resources and 
databases are much richer and deeper. So, I think the USPTO has 
done a much better job at issuing the patents that should 
issue.
    Mr. Issa. Well I have so many more questions and no more 
time. With that is the Ranking Member ready? It's my pleasure 
to recognize the gentleman from Michigan, the Ranking Member, 
Mr. Conyers, for 5 minutes.
    Mr. Conyers. Thank you, Mr. Chairman. Excuse my tardiness. 
And of course Ms. Lee, I really wanted to be with you at your 
testimony. I thank you as the Director and Under Secretary. In 
your opening statement I believe it's been indicated whether 
the USPTO supports Section 3(d) of H.R. 9. And I wanted to give 
you an opportunity to enlighten us on that. The provision stays 
discovery in patent cases pending a ruling by the Court on 
claim construction. That provision might lead to duplication in 
discovery. Does USPTO or you support this as written, or are 
there other preferred alternatives?
    Ms. Lee. Well, thank you very much for the question. And I 
think I mentioned an alternative which is considering 
tightening the venue requirements. Another alternative might be 
to consider staying discovery pending a ruling by the district 
court on motions to transfer. Those are two alternatives that 
might be a possibility. But we recognize that discovery is a 
big, important driver in many patent litigations in terms of 
incentives and cost and so forth. And we certainly support H.R. 
9's provision to have the Judicial Conference look at 
imbalances between plaintiffs and defendants in discovery, and 
we believe that H.R. 9's stay provision on discovery pending 
claim construction, needs to be weighed carefully, both the 
benefits of delaying discovery in an attempt to save some costs 
up front against the cost of preventing the parties and the 
Court from developing a more complete understanding of the case 
through earlier and fuller discovery.
    And based upon my experience and also serving on the 
Northern District of California Local Patent Rules Committee, 
which is a committee that promulgates case management and 
discovery rules on patent cases, claim construction of 
technical terms is complicated. And one concern might be that 
it's hard to construe claims in a vacuum, in the abstract. And 
even a minimal amount of information early in a case including 
on validity or infringement, can facilitate an early resolution 
or settlement of a case. So further claim construction is 
oftentimes not always dispositive. So in that instance, 
discovery wouldn't be avoided. It would just be delayed.
    And there are differences, too, in patent infringement 
cases. In some cases claim construction and infringement is 
critically important, and the stay mentioned might actually 
just work out just fine. In other cases, you've got other 
issues that might be case dispositive such as inequitable 
conduct or laches. So, I think there are differences in patent 
cases, but we should definitely be considering all proposals to 
ensure that discovery facilitates early resolution, avoids 
excesses, and is fair to both plaintiffs and defendants.
    Mr. Conyers. Well, I'm glad to hear that you have some 
recommendations to make this a better bill. I had even more 
than you. I'm interested in working on it. I think H.R. 9 could 
be seriously improved, and this would be a start. Let me just 
ask about the written testimony in which you assert that the 
USPTO generally supports the concepts of Section 5 of H.R. 9, 
which provides for stays of customer suits in patent cases. Do 
you have offhand any recommendations for how we might improve 
that language?
    Ms. Lee. It's generally a good provision in concept. We're 
supportive of encouraging a stay of a case against retailers 
and customers while the case is being litigated by the 
manufacturer. We believe that the end user and the retailer, 
they oftentimes lack the technical understanding of how the 
product works. The manufacturer has that information, and the 
manufacturer also has the incentive to fight vigorously and 
defend vigorously, so they have the information, and they have 
the incentives and therefore they're probably the appropriate 
party.
    And so some thoughts into what might be necessary or 
included in such a provision are that you want to make sure 
that the manufacturer and the end user retailer are in 
agreement that that stay should be in effect. And secondly, you 
want to give the end user and retailer the option to opt out.
    Mr. Conyers. Let me get----
    Mr. Issa. I'd ask unanimous consent the gentleman have an 
additional minute. Without objection.
    Mr. Conyers. Thank you, sir. Let me just ask you in 
conclusion about the expansiveness of the joinder provision in 
3(c) in the bill, especially if it might be used to chill 
investments. Does that leave you as concerned as I am about 
that portion of the bill?
    Ms. Lee. I think that's an issue that is of great 
importance. I mean, you don't want to chill investments in new 
enterprises because those who are passive investors in a 
company are subject to a possible fee-shifting award or 
possibly being joined in a lawsuit.
    Mr. Conyers. Thank you very much. Thank the Chairman.
    Mr. Issa. And I thank the Ranking Member. We now go to the 
gentleman from Virginia for 5 minutes. Mr. Forbes.
    Mr. Forbes. Chairman, thank you. Ms. Lee, thank you for 
being here today. You stated in your testimony that the USPTO 
believes that identification of the allegedly infringing 
products, an explanation of how they infringe in at least one 
claim of each asserted patent, would provide needed notice to 
accused infringers. This is a lot less information than is 
currently required by H.R. 9, but it was my understanding that 
you had stated previously that H.R. 9 struck the right balance 
between placing burdens on the patent owner and the need to 
provide adequate information for defendants. Why the shift in 
policy and in your opinion?
    Ms. Lee. So, we definitely favor heightened notice to 
patent defendants in patent pleadings, and a proposal to 
heighten the pleading requirements for at least one claim, and 
certainly the removal of Form 18, would go a long ways and 
certainly accomplish that. Now, what beyond one claim, we need 
to require heightened pleading and specificity for a patent 
infringement claim. I think we need to take into account all 
the factors that I discussed. Right. We have to weigh and take 
into account the burden on the plaintiff, their access to 
information, and really trying to avoid over pleading of 
marginally relevant claims to make sure that our litigation 
process is streamlined.
    Mr. Forbes. But did you previously state that you felt that 
H.R. 9 struck the right balance between placing burdens on the 
patent owner and the need to provide adequate information for 
defendants.
    Ms. Lee. What we said is we generally agree with the 
heightened pleading requirements in H.R. 9, including an 
element-by-element explanation of how the product infringes a 
claim. But on the issue of the claims and which claims are 
required to be pled with specificity, at least one, and beyond 
one we should definitely weigh factors.
    Mr. Forbes. So it's your position today that you haven't 
changed your policy. That's always been your policy?
    Ms. Lee. Correct.
    Mr. Forbes. So you don't think that more information for 
defendants to adequately address the claims asserted would help 
improve the patent litigation system?
    Ms. Lee. More information would help, and certainly 
requiring heightened pleadings for at least one claim is an 
improvement. And the question is is that enough, and you need 
to take into account the other factors of determining. It's a 
balance. I mean, there are many competing factors, and we want 
to be fair to both the plaintiffs and defendants.
    Mr. Forbes. Now, as someone with extensive background in 
the technology industry, do you think that the technology 
industry is unique compared with other industries such that 
tech companies are more vulnerable to patent trolls than other 
IT-intensive industries due to its unique ecosystem? Do you 
think the current patent system hurts innovation and the 
ability of U.S. technology companies to compete globally?
    Ms. Lee. I think we have got one of the best intellectual 
property systems in the world. And now that I have had the 
privilege of having the job that I have and serving in it for 1 
year and having the opportunity to meet with individuals in 
foreign countries who lead other intellectual property offices, 
they all want to know what we're doing in the United States to 
incentivize the innovation that we incentivize. All of that 
said, I think I feel an obligation, and I think all of us want 
to make sure that we continue ensuring that the patent system 
in the United States is as strong as it can possibly be, and I 
think that's why we're all here today.
    Mr. Forbes. So you don't think that tech companies are more 
vulnerable to patent trolls than any other industry?
    Ms. Lee. I think patent litigation abuse can occur in a 
variety of industries. It's not limited to any one. So as we 
craft proposals, we want to craft proposals that are not 
industry-specific and that are just good policy.
    Mr. Forbes. Do you think in your analysis that the problems 
surrounding abusive patent litigation are the result of certain 
plaintiff-friendly judicial districts?
    Ms. Lee. The question one more time?
    Mr. Forbes. Yeah, do you think that the problems 
surrounding abusive patent litigation is the result of certain 
plaintiff-friendly judicial districts?
    Ms. Lee. I think the system would benefit by consistency 
across all Federal districts.
    Mr. Forbes. What can Congress do to send a better message 
to those districts to get that consistency?
    Ms. Lee. All the issues that you're considering in H.R. 9.
    Mr. Forbes. Okay. Thank you, Mr. Chairman. I yield back.
    Mr. Issa. Would the gentleman yield?
    Mr. Forbes. I would be happy to.
    Mr. Issa. I want to follow up on what Mr. Conyers said 
about, and your response on heightened pleading briefly. If I 
understood correctly, you're saying well--and without discovery 
sometimes it's hard to know what the, the product in the patent 
in suit is really about. In other words, you don't know enough 
about the defending product. Is that what you said, that would 
affect your heightened pleading in the beginning of the case?
    Ms. Lee. I think before you've conducted discovery, it's 
very hard to know all the claims that will be infringed or will 
be the cause of an infringement.
    Mr. Issa. Sure. But let me just be the devil's advocate for 
a moment. Let's assume for a moment you have the leave to amend 
when you discover more about the product than you knew in the 
beginning, and let's assume that you have the leave to add 
additional claims. But, as a basic concept, shouldn't you know 
everything about what your patent means on the day you file? In 
other words, in the heightened pleading one element is, you say 
this is what my patent means, which is what you live and die by 
whether you're overly broad and thus invalid based on prior 
art, shouldn't that be part of the heightened pleading early on 
so that you're held by the breadth or the narrowness of your 
claim? And don't you know all there is to know about your 
patent at the time that you file?
    Ms. Lee. So, yes, Mr. Chairman, as the patent owner I know 
everything about my patent claim hopefully, or I should. But 
what I don't know is how the alleged infringer's device may 
work. Many of these devices----
    Mr. Issa. Sure. And I know we'll get back to that. I was 
taking a limited amount of time. I just wanted to say that from 
a standpoint of--often what happens is the breadth of a claim 
by the plaintiff, widens and narrows through discovery and even 
morphs leading up to the last days of the Markman. So from a 
heightened pleading, I believe the bill intended--and Ms. 
Lofgren may follow-up on this--intended to both have you 
disclose what your patent means and then, of course, what you 
believe the product does. I was only asking about the former 
part of it, which is, as you said, you do know all about your 
product on the day that you filed.
    Ms. Lee. You should know about your patent.
    Mr. Issa. Thank you. Your patent. Thank you. Ms. Lofgren.
    Ms. Lofgren. Well, thank you very much. And, Ms. Lee, it's 
great to see you here. And just a quick report, the Silicon 
Valley office that you left to come here to Washington is 
proceeding apace, and we hope to have it open toward the end of 
this year or early next; so thank you for the leadership that 
you showed. You really got it off to a great start, and the 
people that you have selected to follow through on it are 
following your lead. So I didn't want to go further without 
thanking you and the City of San Jose for what they are doing 
to make this all possible.
    I had a couple of questions that have really been asked, in 
one case a proposal made to me by somebody in the Valley on 
demand letters. Now, in the bill we're doing a study of demand 
letters. It was suggested to me by an engineer that if we 
simply required all the demand letters to be posted and 
searchable, that that would have a very positive impact in 
terms of abusive demand letters, and it would allow people who 
are being victimized to actually find each other and solve 
problems together. What do you think of that idea?
    Ms. Lee. That's an interesting question. And, in my prior 
life I did a lot of patent licensing. And, I think you have to 
be careful. I mean, on the one hand, transparency and 
identifying who the senders of large volume, vague patent claim 
demand letters is helpful, because if you see somebody else who 
has been on the receiving end of that, you can perhaps work 
together, et cetera. On the other hand, if I'm a legitimate 
business. I've invented something, and my business is 
licensing, you know, I oftentimes put some confidential 
information, some business information in there; and I'm not so 
sure I would want everybody to see all the financial terms that 
I'm offering one particular recipient of a letter. So I guess 
it depends what is being put in the database; would there be 
portions redacted and what the problem is that we're trying to 
solve for.
    I do believe that transparency and patent ownership 
information is helpful. At the time you're doing a design of a 
product, you should know who owns government-granted monopoly 
rights and make intelligent and informed decisions at that 
time.
    Ms. Lofgren. Would you just think some more about it and 
ask around the office? I know that there is a small business 
education outreach information provision that requires posting 
of the filings. You know, I just promised this engineer I would 
raise it, and it sort of intrigued me as a sort of non-
legalistic approach, although the issue that you have raised, I 
certainly do understand that it maybe would preclude it.
    I want to ask another question. In 2010 the University of 
Michigan School of Law had a law review article trying to 
assess the number of patents per product by industry. And what 
they found or reported was that the average number of patents 
for a pharmaceutical drug is about 2.97 with a median of two 
per product and that the number of patents covering a drug 
varied from therapeutic classes from 1.79 to a high of 4.23 per 
drug.
    So in 2012, there was a study by another group that 
concluded that there are around 250,000 active U.S. patents 
relevant to smart phones, and I think other hardware-software 
products are similarly situated. Now, I think as we think about 
patent reform and litigation reform and how it hits, we need to 
think about startups. We need to think about the pharma-
biotechnical industry, the technology industry, and we value 
all of those elements of our economy. The discrepancy, though, 
between the number of tech patents and BIO patents makes the 
business completely different and makes IT products 
particularly vulnerable to abusive efforts.
    Now, the TRIPS agreement requires that patent rights be 
enjoyed without discrimination as to the place of invention, 
the field of technology, and whether products are imported or 
locally produced, but it doesn't say anything about the number 
of patents per product. I've been thinking, what would you 
think about an approach that made distinctions in remedies 
between products that have less than 10 patents versus more, as 
a way to kind of preserve the value for different industries 
without violating TRIPS?
    Ms. Lee. Well, that's a very interesting proposal, and I 
think it's the first I heard of it, but it's probably worthy of 
some consideration; and let me get back with you on that item 
as well. I think that's a very interesting idea because if 
nothing else, it's clear and it's simple; and it goes to the 
issue that there are fundamental differences amongst technology 
sectors, but it also goes to the value of the patent for a 
product in one industry versus another, which seems to be a lot 
of the tension in some of the proposals we're considering. So I 
think that's worthy of consideration. Absolutely.
    Ms. Lofgren. Thank you. I look forward to hearing your 
further comments.
    Mr. Issa. I thank the gentlelady. We now go to the 
gentleman from the State that candidates in both parties seem 
to be flocking to, Mr. King.
    Mr. King. Thank you, Mr. Chairman, and Director Lee. Thanks 
for your testimony. I think your responses have been very well 
done and on point here today. I'm very respectful of anyone who 
can emerge in the patent business, especially as a patent 
attorney and then given that there's so much knowledge base 
that has to be encompassed to be able to do a real job with 
this, with all of the other disciplines plus the legal 
discipline added together, and I just don't want that to be 
lost on this Committee or the people that are watching this 
hearing today.
    So these questions get complex and intricate, and there are 
a few patent holders in this Congress that focus their 
attention on this a great deal. And I would just ask you to 
give me a broader description if you could. If you have a sense 
of what it costs to establish a patent and get it 
commercialized?
    Ms. Lee. Yes. In my prior life I was head of patents for a 
company, and we filed for a lot of patents, and it does vary 
somewhat by industry. And certainly I would imagine in the 
biotech and pharmaceutical industries that there might be some 
additional costs because you do additional searching to 
determine more fully what has been done before.
    The most expensive costs for filing for a patent are not 
necessarily the USPTO filing fees. Those fees are relatively 
modest. It's really the attorney's fees, so the attorney's fees 
for writing the application, for conducting, interacting with 
the USPTO, and then another big variable is the cost in how 
much you spend on doing a prior art search. So when you add 
those pieces together, that's the actual cost of getting a 
patent; and after that you have to pay certain fees to maintain 
it.
    To commercialize it, I mean, you have your business people 
writing letters, reaching out to various licensees and whatever 
cost that is, and if you have to enforce it in patent 
infringement in order to get the licensing revenue, average 
cost of litigation in patent litigation it ranges from on the 
order of millions on up. Right. So it's an expensive endeavor 
to litigate. But to get the patent, it's relatively modest, 
more modest, and hopefully that answers your question.
    Mr. King. Typically, if we were talking about to get the 
patent and to commercialize, would we be looking at a figure 
typically under or over $100 million?
    Ms. Lee. Under or over how much?
    Mr. King. Under or over $100 million.
    Ms. Lee. Oh, less than that. I mean, it varies. To get a 
patent, maybe it is $20,000 including the attorney's fees. I am 
just ball-parking right now. And then after that, to 
commercialize it, depending on whether or not there is 
litigation, on the order of millions, right. $100 million is a 
lot of money.
    Mr. King. Yes.
    Ms. Lee. So, I think in some instances, absolutely, 
probably that number could be hit. But I wouldn't think in most 
instances.
    Mr. King. Mr. Chairman, I have a letter here in my file 
that has about 15 cosigners on it that stipulate some of these 
costs. I would ask unanimous consent to enter it into the 
record.
    Mr. Issa [presiding]. All 15 will be entered without 
objection.
    [The information referred to follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
           
                               __________
    Mr. King. Thank you, Mr. Chairman. Returning to our 
witness, I appreciate that testimony. And I also would state 
that in some of the discussions I have had with patent holders, 
I have seen those numbers go up to 7-,$800 million, or even $1 
billion in the extreme cases that are extensively litigated. So 
I am concerned that it is getting more and more difficult to 
establish a patent, and that this great creative country that 
we are is losing its international edge. Do you think that this 
bill helps our international edge that we have traditionally 
held since the time of the founding of the republic? Or does 
it, perhaps, diminish our edge?
    Ms. Lee. So I do believe that the issues in this bill are 
critically important, that Congress needs to act. And some of 
these issues that we are considering in H.R. 9 are what is 
needed to make sure that our IP system continues to incentivize 
innovation.
    Mr. King. Thank you. And then I see also that the bill 
allows defendants to join other parties, or other parties to 
join the defendant and the distribution of the loser pays 
component of this. Would there be any reason for plaintiffs not 
to be able to also have that same opportunity?
    Ms. Lee. The attorney's fees shifting provision should 
apply equally to plaintiff and defendant. So if you are a 
plaintiff and you have pursued a case too aggressively, and you 
lost and the other side won and won fees, you should pay. If 
you defended too vigorously, then you should also be required 
to pay.
    Mr. King. I appreciate your testimony. And that concludes 
my questioning. And I would yield back the balance of my time.
    Mr. Issa. I thank the gentlemen. And we now go to the 
gentlelady from Texas.
    Ms. Jackson Lee. Thank you very much, Mr. Chairman.
    Mr. Issa. Ms. Sheila Jackson Lee. I am sorry.
    Ms. Jackson Lee. You had a moment?
    Mr. Issa. I had a moment and I got the Texas--you had just 
come back and I----
    Ms. Jackson Lee. I was in the anteroom here.
    Mr. Issa. Well, you were missed.
    Ms. Jackson Lee. Thank you so very much.
    Mr. Issa. The gentlelady is recognized for a full 5 
minutes.
    Ms. Jackson Lee. As you know, Mr. Chairman, we do double 
duty with our constituents, and we must be in a number of 
places. So thank you for your courtesy. Let me thank our 
witness for serving our Nation, and particularly let me thank 
you for the many in the patent bar who have indicated that they 
have found the Patent Office to be responsive and sensitive 
under your leadership. So, again, we appreciate very much your 
service. Thank you so very much. Can I just start with your 
assessment of this bill. Are you and the Administration 
supporting it in its present form?
    Ms. Lee. In my written testimony, I think we have gone 
through sort of issue by issue the areas that we support, where 
we think other considerations might be taken. We are generally 
supportive of the goal. And many of the issues here, in one 
form or another, we believe are necessary to ensure meaningful 
and balanced reforms necessary to continue to incentivize 
innovation in the United States.
    Ms. Jackson Lee. I think that is a very important point. I 
am going to have a series of questions. I know the Chairman is 
listening intently, that it will be important as we proceed 
with a markup.
    Mr. Issa. And the sooner the better.
    Ms. Jackson Lee. That we are open to the concerns expressed 
in your testimony and some of the concerns that we will be 
expressing as we go through this. Let me ask the Chairman to 
allow me to submit into the record a letter from the Texas 
Bankers Association, I am submitting it as a Texan, and on 
April 13, 2015, to let the Texas Bankers Association know that 
we are concerned of their issues and we will discuss the merits 
of the issues, but we are concerned of their issues. Ask 
unanimous consent to put this letter into the record.*
---------------------------------------------------------------------------
    *Note: The submitted material was not received by the Committee at 
the time of the printing of this hearing record on June 25, 2015.
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    Mr. Issa. The letter will be placed in the record without 
objection.
    Ms. Jackson Lee. Thank you very much. Let me just ask, Ms. 
Lee, on the issue of an increase in abusive patent litigation, 
whether or not you believe it has been and how the abusive 
patent litigation has harmed inventors and innovation? And 
specifically, do you see this legislation mitigating that?
    Ms. Lee. This legislation with the various proposals I 
think will go a good part of the way to helping to curtail 
abusive patent.
    Litigation. But I think change will occur throughout our 
system; you are already seeing the courts through the court 
rulings, including on issues on attorney's fees, including on 
issues on what is patent-eligible subject matter, making 
improvements to the patent law. You are seeing the USPTO 
implementing the post-grant review proceedings which allow 
parties to remove patents from the system that should not have 
issued. You are seeing the USPTO focus on patent quality.
    So, all the pieces and all the stakeholders in the patent 
ecosystem really need to work together. And legislation is a 
necessary piece of that.
    Ms. Jackson Lee. Let me quickly move to my next question. 
Thank you very much. I have always raised the question of the 
impact of legislation dealing with innovation and patents on 
small businesses. So I specifically ask whether H.R. 9 would 
assist new and small businesses that often lack the resources 
to defend themselves in these very complex and expensive 
lawsuits.
    Ms. Lee. Right. So in H.R. 9, I think a provision that 
would be helpful to small businesses in particular is the 
customer stay provision. This is meant to protect the end user 
and retailer. So, for example, in the case of the Internet 
router and the coffee shop, often times the retailer or the end 
user is a small business. So I think there are protections to 
be had there for the smaller businesses and so forth. But a lot 
of the changes that we are talking about in the patent system, 
making sure that discovery is streamlined; making sure that 
there is heightened pleadings so everybody knows roughly what 
the case is about, and ensuring that there is fee shifting 
where there is behavior that exceeds that's what should happen 
or overly aggressive behavior, pursuing claims overly 
aggressively, whether you are on the plaintiff side or the 
defense side. All of those have benefits, I think, to players 
big and small.
    Ms. Jackson Lee. Let me follow up with this question and 
specifically go to the USPTO's enhanced patent quality 
initiative. As I often hear, there needs to be improvements 
made to the quality of the patents at the Patent Office. And so 
I want to ask whether this initiative has improved patent 
quality? Are there additional steps that Congress should take?
    And then specifically, I want to ask if you would comment 
on whether H.R. 9 properly assesses the kind of research that 
is done in universities, particularly those that have 
institutes, who have a number of endowed chairs, where there 
are professors who are designated, or teams that are designated 
specifically for very sophisticated research to be produced. It 
comes to mind the universities in my community, but 
particularly M.D. Anderson, not an institute, a university, but 
it is very much engaged in research among other hospitals that 
we represent in the area. So would you respond to that please.
    Ms. Lee. We certainly need to do all that we can to 
continue to ensure that our universities are an engine of 
innovation. And I think the changes that we are contemplating 
in H.R. 9 give everybody confidence in our patent system. If we 
can make these improvements and we can achieve them and we can 
achieve the necessary changes in legislation and beyond, to the 
extent that everyone has greater confidence in the patent 
system, that will benefit universities, that will benefit 
businesses and so forth.
    And with regard to what the USPTO is doing in terms of 
enhancing quality, I could probably go on and on on that topic. 
But just let me just say that we have launched an enhanced 
patent quality initiative. We had a 2-day summit where we are 
looking at everything, internally, externally. We have engaged 
stakeholders. We had over a thousand participants. I have 
appointed a deputy commissioner for patent examination quality 
to focus on patent quality now and in the future. And I have to 
say the funds that we have received, because Congress has given 
us the right to set our fees and we are now able to, for the 
most part, collect the full amount of our appropriated fees and 
keep it and have an operating reserve, make a huge difference 
in terms of USPTO's ability to be able to focus on initiatives 
really long-term, deep initiatives that cost money, like the 
patent quality initiative.
    Mr. Issa. I thank the gentlelady.
    Ms. Jackson Lee. Thank you. And I will just put this on the 
record for your contemplation. I hope as we proceed, one of the 
issues that I mentioned to the patent director, I am very 
interested in small and new businesses. I really want to see an 
emphasis through this legislation. And specifically as well, 
universities I think need to be addressed. Those are the 
innovators, the next level of innovation in America. So I thank 
the gentleman for yielding to me and I yield back.
    Mr. Issa. I thank the gentlelady. We now go to the next 
person from Texas, the gentleman from Corpus Christi, Mr. 
Farenthold.
    Mr. Farenthold. Thank you very much, Mr. Chairman. Ms. Lee, 
we have heard a lot of discussion about discovery. And one of 
the solutions that has been batting around is a stay of 
discovery pending a motion to transfer venue. In your opinion, 
is that a good idea?
    Ms. Lee. I think that is an idea that is worthy of 
consideration. And there is a lot of merit to it for a couple 
of reasons. One is that a motion to transfer occurs early on in 
a patent litigation case. Oftentimes, it doesn't take long for 
a judge to rule on it. And it doesn't involve extensive 
discovery on the substance of the patent case. So the claim 
construction, the infringement, any of that, you don't have to 
touch that. It is oftentimes where is the principal place of 
business? Where do they have an R&D center? Do they have ties 
to the area? So staying discovery pending transfer, ruling on a 
motion to transfer perhaps in combination with the venue 
restrictions and tightening that might be a good combination in 
terms of really helping and improving the system overall, 
whether it be discovery or other abuses that may be occurring.
    Mr. Farenthold. Right. Now, I have, heard a lot about how 
IPR supposedly knocked out nearly 80 percent of claims. But 
looking at the USPTO website, I noticed this chart from earlier 
this year, that out of 9,000 claims challenged, 2,200 had been 
found unpatentable, which is far less than 80 percent. What am 
I missing here? Is the kill rate of IPR being dramatically 
overstated?
    Ms. Lee. Well, thank you for the question. And, you know, I 
think at the USPTO, we keep track of the statistics. And you 
can characterize statistics however you would like. Some may 
say it is a lot; Some may say it is not a lot. But the bottom 
line is our judges work very, very hard to work on each and 
every single case. And they look at the facts and they look at 
the record and they apply the law in as accurate a manner as 
possible, given the case and the record. And I would like to 
say that the good work so far, knock on wood, all of the cases 
that have come out of the Patent Trial Appeal Board when they 
have gone up on appeal have been affirmed. So we hope to keep 
up that good record. And we will let the statistics fall where 
they may.
    Mr. Farenthold. All right. Great. As someone who supports 
the BRI standard to weed out weak patent claims, I would also 
be interested in finding out ways to alleviate some of the 
concerns so that we can preserve it. Is there a reason that 
amendments have largely not been allowed to claims, according 
to some of the interested parties, at least that is what they 
are saying? And is there a fix in place to help deal with this 
concern? Also, to use district court construction. And can you 
tell me why it is important to repeal the right to amend?
    Ms. Lee. Yes. Thank you very much for the question, 
Congressman. And the issue of amendment is an issue that came 
up when we went on that eight-city listening tour as we 
evaluated the Patent Trial and Appeal Board proceedings. And we 
got a lot of input on that. And that is one of the issues that 
we are looking at, which is we are reviewing the procedures and 
the requirements and even the page limits that are permitted in 
filing a motion to amend. So we are looking at everything. And 
we want to make sure that it is as flexible and as effective as 
possible.
    Mr. Farenthold. Great. You got all my questions in record 
time.
    Mr. Issa. If the gentleman would yield.
    Mr. Farenthold. I would be happy to yield.
    Mr. Issa. Because I think Mr. Farenthold asked a great 
question and I would like to follow up on it. If I apply for a 
patent and I fail to disclose all the inventors, I could have 
an invalidity problem. If I fail to disclose known prior art, I 
can have an invalidity problem. If I fail to honestly state any 
number of items, the patent is invalid. If I claim a broader 
claim than I can have, and I then take that forward and sue 
somebody, why wouldn't that be another wrongful act that would 
essentially invalidate the claim? In other words, following up 
on the gentleman's statement about amendments, when is it too 
late to amend?
    Is it too late to amend while you are going through the 
process of applying for your patent? Of course not. Is it too 
late to amend once you have asserted a very broad claim that 
really doesn't exist and you are now trying to save your 
patent, either before an Article III court or before the USPTO? 
If you touch on that, it is important to us because we are 
looking at legislation and we want to know do you have the 
tools and do you think it is an appropriate balance today?
    Ms. Lee. Obviously, during the application process, you can 
always pull back on your claims. After the patent issues, as a 
patent owner, through supplemental examination, you can always 
put your patent back into that process, put it back before the 
USPTO, introduce prior art and----
    Mr. Issa. You can reexamine your own patent?
    Ms. Lee. Exactly.
    Mr. Issa. But if, in fact, you go before an Article III 
court and you expand the meaning of your patent dramatically, 
and then once they accept that, if that is true, then, in fact, 
there is lots of prior art, should you be able to amend your 
assertion at that point?
    Ms. Lee. One more time?
    Mr. Issa. Everybody goes through a patent process and they 
narrow and narrow and narrow what their patent means. As soon 
as they receive a patent, they almost always think that it is a 
pioneering patent with broad everything when they look at their 
competition. Historically, the Article III courts have been 
inconsistent on whether or not you have hoisted yourself by 
asserting a broader claim than you should. Because of the 
heightened pleading that we are asserting, what level of 
accountability should entities have when they receive a patent 
by saying I am fairly narrow, just give us a simple patent, and 
then they assert it against others and broadly claim that you 
violate their patent even though you are much beyond what they 
actually claim?
    Ms. Lee. Thank you for clarifying that question. There are 
rules in the Federal Rules of Civil Procedure which require you 
to make your assertions in good faith after due diligence and 
so forth. So if you don't have a basis for bringing the 
lawsuit, it is not grounded upon actual diligence and 
investigation, and then later on the discovery that you get 
about the allegedly infringing product, then you are asserting 
the case in bad faith.
    And I want to go back and correct one thing. I believe with 
regard to go to supplemental examination, you cannot invoke it 
at any time. I believe that if there is an IPR proceeding going 
on, you can't actually take the patent out of that proceeding 
to supplemental examination. So I just wanted to clarify that 
as well.
    Generally speaking, when there is not anything going on and 
you think the patent issued more broadly or maybe you are 
getting ready to assert it, supplemental examination is a tool 
created to allow you to make sure that your claims are solid.
    Mr. Issa. And I think, without trying to do your job better 
than your job, because you do it well, if you are in 
reexamination by a third party, you can supplement information. 
You can actually further say you are absolutely right and I 
have discovered something else. But you are right, you can't 
take it out of that for good reason. We now have the pleasure 
of going to the gentleman from Georgia next, Mr. Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. You make a good 
point, Ms. Lee, about needing to be specific, complaints, 
particularly. And if a complaint is not complete or is not 
legally sufficient, one can always file under Rule 12(e) for a 
motion for a more definitive statement, isn't that correct?
    Ms. Lee. You can amend to clarify.
    Mr. Johnson. Well, you can amend and you can force, a 
defendant can force someone to amend their complaint by filing 
a motion for a more definitive statement. And if that doesn't 
work, a motion for judgment on the pleadings. But you, in your 
testimony, you state that the USPTO supports the Innovation 
Act's limits on discovery, fee shifting provisions, and 
heightened pleading requirements. Although I might point out 
that as far as heightened pleading requirements are concerned, 
that only applies to a complaint filed by a plaintiff alleging 
patent infringement. It does not apply to a defendant who can 
generally deny, just generally deny the allegations set forth 
in a petition or in a complaint. Isn't that correct?
    Ms. Lee. That is correct.
    Mr. Johnson. And this legislation that we are here about 
today does not impose any heightened pleading requirements on a 
defendant, just the plaintiff. This heightened pleading 
requirement, it would make it harder and more costly for small 
businesses to assert their patent claims and, indeed, large 
businesses too, isn't that correct? And individuals, be they 
rich or poor, it would be more costly?
    Ms. Lee. There would be additional obligations earlier on 
with the goal of streamlining discovery.
    Mr. Johnson. It would make it tougher for the plaintiff. 
But the defendant would be left to just generally deny and to 
continue to infringe if, in fact, the allegations of the----
    Ms. Lee. Well, I think there are benefits here to the 
defendant as well. The fee shifting provision is party neutral. 
And even----
    Mr. Johnson. But the defendant already has the ability to 
hold the plaintiff accountable under Rule 11 for fees for 
abusive litigation, isn't that correct?
    Ms. Lee. I am sorry, the question was?
    Mr. Johnson. The defendant already has the ability to hold 
the plaintiff accountable for attorneys fees and costs under 
Rule 11 should the complaint be found to be vexatious, or not 
in good faith or for a number of other reasons.
    Ms. Lee. If it rises to that level, if it rises to the 
level of not meeting Rule 11 requirements?
    Mr. Johnson. I think it is pretty well known that under 
Rule 11, courts can award attorneys fees and costs to 
defendants to punish plaintiffs from bringing frivolous 
lawsuits.
    Mr. Issa. Would the gentleman yield?
    Mr. Johnson. Yes, I will.
    Mr. Issa. Briefly, I believe Rule 11 is against the 
counsel, the attorneys for their actions. And this is slightly 
different than what we do in the bill. But I know the point you 
are making.
    Mr. Johnson. Attorneys and parties can be held accountable 
under Rule 11. Let me ask this question, ma'am: The Supreme 
Court decided six patent cases in 2014, including the Alice 
case and the Octane Fitness case which make it easier for 
district courts to award attorneys fees and costs to prevailing 
parties in meritless cases. And the judicial conference has 
adopted rules to raise pleading standards in patent cases to 
match those in all Federal cases. And, in addition, the America 
Invents Act, which was the largest overhaul of the patent 
system in half a century, has only been fully implemented for 2 
years. And the AIA's new post-grant inter partes review 
procedures are proving very popular as a litigation 
alternative. So shouldn't we wait to assess the impact to the 
patent system of these new measures over the past couple of 
years before we put our thumb on the scale and tip the scales 
in balance of patent infringers?
    Ms. Lee. Thank you very much for the question, Congressman. 
You are right, there are a lot of changes that are going on in 
the patent system now. But we still need the legislative reform 
on a handful of issues because these are issues that only 
Congress can address. And any change that Congress addresses 
needs to take into account the changes in the courts, the 
changes at the USPTO, the procedures we are implementing and so 
forth so that we collectively and comprehensively have 
meaningful and balanced reform.
    Mr. Johnson. Thank you, Mr. Chairman.
    Mr. Issa. I thank you. We now go to the gentleman from 
Idaho, who has been patiently waiting, Mr. Labrador.
    Mr. Labrador. Thank you, Mr. Chairman. Ms. Lee, thanks for 
being here. The Federal Circuit recently decided in the case of 
In Re: Cuozzo Speed Technologies, which you are very familiar 
with, and in that decision, the majority determined that 
because Congress enacted the AIA with full awareness of the 
100-year-old tradition at USPTO of applying the broadest 
reasonable interpretation, or the BRI standard, and gave no 
indication that a different standard should obtain, they 
decided that the BRI should continue to apply in IPR decisions, 
correct? That are coming before the board? Do you agree that 
legislative ratification compels application of BRI in board 
reviews of patents in different review proceedings?
    Ms. Lee. So the application, when the USPTO implemented 
these post-grant review proceedings, we implemented it with the 
BRI standard and not the district court claim construction. The 
idea is that in the proceedings before the Patent Trial and 
Appeal Board, we have the ability to amend claims. And 
oftentimes when you have the ability to amend, it is in the 
public interest, in terms of improving quality, to come to the 
applicant or the patent owner with as much prior art as 
possible and say you tell me how your invention is different 
from the prior art. So that was the thought behind it.
    And we are grateful that the Federal Circuit said that we 
were within the congressional intent. And all I would say is 
that if there is a change to district court claim construction 
from the broadest reasonable interpretation, that we revisit 
the issue of whether or not amendments should be permitted. If 
we are applying district court claim construction, then there 
shouldn't be an ability to amend.
    Mr. Labrador. That was going to be my follow-up question. 
What else should we be looking at?
    Ms. Lee. Besides?
    Mr. Labrador. Besides what you just said with respect to 
allowing amendments in?
    Ms. Lee. Well, we are looking at many other aspects of the 
Patent Trial and Appeal Board proceedings. We are looking at 
the ease and the ability for litigants to amend. We are looking 
at how we staff the trials with the judges, whether you get the 
same three-panel of judges at the time of institution as well 
as determining of the merits. So we are really revisiting and 
trying to improve everywhere we can to make sure that those 
proceedings are more efficient and more fair, at least within 
the congressional mandate to the extent that we can.
    Mr. Labrador. And are you advocating for eliminating the 
BRI standard?
    Ms. Lee. Not advocating. All I am simply noting is that it 
is a quality issue. I mean, the broader the pull of prior art 
that you bring before the applicant or the patent owner, you 
put upon them the opportunity to hem in and tighten their 
claims. But whichever way Congress deems is best appropriate as 
far as standards go, we would apply it. But just keep in mind 
that the standard oftentimes is related to the ability to 
amend.
    Mr. Labrador. Okay. You have no position. You are not 
advocating for a change. And you wouldn't be recommending that 
we don't change it?
    Ms. Lee. For consistency purposes, I mean a lot of our 
proceedings at the USPTO are conducted using the broadest 
reasonable interpretation, during examination, during a lot of 
our other proceedings. So it would be a little odd, too, if we 
had a patent or a claim being construed in a different 
proceeding, that is being construed under broadest reasonable 
interpretation. But under the PTAB proceeding, it is being 
construed under district court. So there is a possibility of an 
inconsistency there.
    I also flagged the quality issue. But these are 
multifaceted issues. And you have to take into account 
competing interests.
    Mr. Labrador. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Issa. I thank the gentleman. We now go to the 
gentlelady from California, Ms. Chu.
    Ms. Chu. Director Lee, first I would like to congratulate 
you on your confirmation as USPTO's new director. As one of 
your first acts, you launched an initiative to enhance the 
quality of patents that are granted. I am so glad to hear this, 
because we often hear about the problem of vague or overly 
broad patents. Could you talk about the core elements of the 
enhanced patent quality initiative and what you are trying to 
achieve? Also, I know that this is one of several actions taken 
administratively to address potentially frivolous patent 
litigation, and you have stated that legislation is still 
necessary to fully tackle abusive patent litigation. Could you 
address that as well?
    Ms. Lee. Yes. Thank you very much, Congresswoman Chu, for 
the question. I launched the enhanced patent quality initiative 
last fall. And now is the time to really, for the USPTO, to 
focus on patent quality. We have always had it as a priority. 
But when your backlog and pendency are going up and up, it is 
your first duty to make sure you get that under control. And I 
have to say recently, our backlog and pendency numbers have 
gone down. And they continue to go down. And we will continue 
to drive them down.
    And in light of all the discussion we are having here today 
about the importance of patents and the abuses in the system, 
it is even more incumbent on the USPTO to issue the very best 
quality patents possible. So we are looking at a bunch of 
things. We have three pillars. One is making sure that we have 
excellence in the quality of our prosecution. Second is we make 
sure that we have excellence in customer service, of course. 
And the third pillar is that we have excellence in terms of 
measurement of patent quality. And that is not such an easy 
thing to address. But we are engaged with stakeholders. We are 
getting lots of ideas from our own internal examiners. We are 
going to gather all the ideas and everything is on the table. 
And that which we can implement, we will do. That which will 
take longer, we will also take a look and make sure we take 
steps to do it to the extent we can.
    So, that is the patent quality initiative. I am very 
excited about it. I can go on much further. But I also want to 
get to your second question. The second question was with 
regard to frivolous litigation and sort of is it still 
necessary in light of all the changes. And as I have said, I 
think it is. I mean, there are only certain things that 
Congress can do. You have the ability to establish uniformity 
across this country where there are variances in district court 
application of law.
    So we have law from the Supreme Court on the issue of 
attorneys fees. And it is being applied, in some cases, 
varyingly over the various different district courts. So I 
think it would help to have legislation, for example, in that 
area for uniformity. That is just one issue. Discovery, 
heightened pleading also as well. So there is still a need.
    Ms. Chu. In fact, that brings me to my second question. 
Many of us here are concerned about the downstream users of 
products. Oftentimes they receive demand letters alleging 
patent infringement, even though they had no part in 
manufacturing the product. You state that there is a growing 
need for a national approach to demand letter regulation, and 
that at least 18 States have enacted laws on this matter.
    Could you discuss what effect this patchwork approach may 
have on stakeholders who use and rely on patents? How is 
compliance more difficult? And how different are the State laws 
from one compared to the other?
    Ms. Lee. Thank you very much, Congresswoman Chu, for that 
question. I was on the business side, in fact, I did a lot of 
patent licensing in my prior life. And if, for example, a 
business has invented something, files for a patent, and their 
business model is to license patent technology rather than to 
manufacture it, think about it, if you have to go into 50 
States and reach out to potential licensees in 50 States, but 
before you do that, you need to consult the regulations in each 
of the 50 States to determine to make sure that your letter, 
reaching out to that business, complies with that State's laws, 
that is rather inefficient. I am not saying they are different 
in all 50 States. But I did have my office conduct a study of 
the legislation that had passed and some of the pending 
legislation. And while there is a fair amount of commonality, 
there are quite a few differences. So that is why, I think, an 
even greater need for a Federal standard that is clear, if 
nothing else, as a business matter.
    Ms. Chu. And, finally, you stress in your testimony that 
with regard to customers' stay, customers should be bound or 
should be required to be bound by the outcome of the 
manufacturer's case. Why do you believe that this should be the 
case?
    Ms. Lee. I think that is only fair because if you think 
about it, you are a patent owner, you have now stayed your case 
against end users and retailers while you are litigating a case 
against the manufacturer. Let's say you get the ruling you 
want. You shouldn't have to re-litigate that case, the same 
issues, against every end user and every retailer. That is just 
simply unfair. So we are trying to both be fair to the patent 
owner, but also conserve judicial resources. That is not an 
efficient use of our very limited, very precious judicial 
resources.
    Ms. Chu. Thank you. I yield back.
    Mr. Issa. Could the gentlelady yield to me for a follow-up 
question?
    Ms. Chu. Certainly.
    Mr. Issa. In your case, though, if the manufacturer loses, 
you are envisioning that the fees wouldn't come from the 
downstream anyway, because you only collect once. So your 
assumption is the indemnification inherently goes with the 
damages provision, that if you collect from the manufacturer, 
you have no further collection from the retailer possible.
    Ms. Lee. Yes. Under patent law, you can only collect once. 
You cannot collect multiple times downstream.
    Mr. Issa. So there is an inherent indemnification in this 
process, would you say?
    Ms. Lee. I am not sure what you mean by indemnification.
    Mr. Issa. Well, if you take on the case, the manufacturer, 
and you win, then there is no fee. And if you lose, then, by 
definition, you are going to pay the damages on behalf of that 
product that was originally sued, is that right?
    Ms. Lee. I think that is right.
    Mr. Issa. I think that sort of brings an answer to your 
question. I now would ask unanimous consent that letters from 
Mr. Conyers: a coalition letter from PhRMA, BIO, and others; a 
letter from the agricultural companies and organization; a 
letter from the Big 10 universities; a letter from several 
conservative groups; a letter from the Eagle Forum; a letter 
from the Federal Circuit Bar Association; a letter from the 
American Universities; a letter from USIJ, the Alliance for 
U.S. Start-Ups; a letter from the Medical Device Manufacturers, 
MDMA; and a letter from the Innovative Alliance be placed in 
the record.**
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    **Note: The submitted material is not printed in this hearing 
record but is available at the Committee and can be accessed at: http:/
/docs.house.gov/Committee/Calendar/ByEvent.aspx?EventID=103304.
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    Without objection, so ordered. As long as I am doing Mr. 
Conyers, I would ask unanimous consent that the excerpt page 
from Popular Mechanics, March 1951, Page 158, be placed in the 
record, in that it congratulates America on the 2,500,000th 
patent which was granted in March 1951. And it includes some 
key information on milestones and the speed and acceleration of 
innovation throughout the 18th and 19th and early 20th 
centuries. Without objection, so ordered. We now go to Mr. 
Deutch.
    [The information referred to follows:]
    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
         
                               __________
    Mr. Deutch. Thank you, Mr. Chairman. Thanks to you and the 
Ranking Member for continuing the Committee's efforts to 
address abusive practices in patent litigation. And I think 
Director Lee for being here and offering her testimony and your 
expertise. From the start of this Congress, we continue to 
explore patent reforms that may be necessary to stop the well 
documented and abusive tactics of so-called patent trolls. And 
I have long agreed that we have to curb these abuses, many of 
which result from a lack of transparency. However, I also 
believe that Congress must take care not to push our system of 
patent litigation too far beyond the direction the courts are 
already taking it. Why? Because in every sector of our economy, 
the strength and the reliability of our patent system has 
helped drive investment and innovation.
    Our goal must be to address the abuses of bad actors 
without undermining the work of all the good ones, the 
independent inventors, the medical researchers at our 
universities, scientists and engineers leading corporate 
research and development. And simply to highlight the work that 
is being done in 2013; 719 new commercial products were made 
available. And the net product sales arising from research 
through these products from U.S. universities, hospitals, 
research institutions, and Federal labs exceeded $22 billion 
annually.
    That is what is at stake. And the goal in addressing the 
problems is a goal that is reflected by my own legislation, the 
End Anonymous Patents Act. My bill would help curb the abuses 
of patent trolls who often hide behind a web of shell companies 
and subsidiaries in order to avoid accountability. The End 
Anonymous Patents Act would require transparency of ownership 
and real party interest for new patents, patent transactions, 
and updated information as part of regular patent maintenance. 
These requirements would go beyond the transparency provisions 
in section 4 of H.R. 9, which are limited to disclosure 
requirements of plaintiffs who have filed infringement claims 
in court.
    Now, Director Lee, in your testimony, you offer support for 
disclosure by those filing patent claims in court required by 
section 4 of the bill. Would you expand on some of the benefits 
from expanding transparency more broadly throughout the patent 
system.
    Ms. Lee. Thank you very much, Congressman, for the 
question. And transparency of patent ownership information is 
something that the USPTO has looked deeply into and thought 
deeply about. And we believe it is a benefit to our overall 
ecosystem, the patent ecosystem. We had a number of round 
tables in 2013 and 2014 exploring the benefits of patent 
transparency, increasing patent transparency ownership 
information. And, basically, to the extent that businesses know 
who else have and hold government granted monopoly rights, at 
the time that they are making important design decisions, 
engineering design decisions, they can make a more informed 
decision.
    If you know that your arch rival competitor has the way of 
doing a certain thing and you are never going to get a license, 
you are going to do a design-around. Or if you know it is 
somebody else and you can get a license, then that will inform 
your decision. You can make a better informed cost-benefit 
decision,rather than building the product, building the 
factory, selling the product, having the product in channel, 
and then after the product is in channel, you find out it is 
infringing and then having to stop it.
    Mr. Deutch. That is very helpful. I would like to shift 
gears for a second. You support the joinder and fee shifting 
provisions, you have spoken to that. You have also said that 
you want our universities to continue to be innovative. You 
recognize the contributions that they make. There are concerns 
that the universities have raised about losing funding and 
incurring fees when they don't control litigation. Can you 
address those, are you, is the suggestion that you are making 
or that the Administration is making that the concerns of the 
universities are unfounded? I would just like to understand it 
better.
    Ms. Lee. Thank you very much for the opportunity to clarify 
it because that is certainly not what I meant. All I meant is 
that whether you are a university or you are a business, if you 
are investing in a company and that company engages in patent 
assertion behavior that is abusive, and later on fees are, they 
must pay fees, you have to be careful about protecting the 
passive investor. And whether that passive investor is a 
private company or a university, if they don't control or 
direct the litigation, we need to be very careful not to put 
them, or expose them to liability for some of the fee shifting.
    Mr. Deutch. I only have a second left. I appreciate your 
saying that. The concern as it has been addressed by the 
universities is that this legislation would do exactly that. 
Are they wrong?
    Ms. Lee. Which, provision would do exactly what?
    Mr. Deutch. When you talk about the concerns for investors 
and what would happen if they are not, if they don't control 
litigation and ultimately the liability would accrue to them.
    Ms. Lee. If universities are not controlling, directing the 
litigation, they, too, should be protected just as private, a 
passive investor should be protected, because we want to 
incentivize the universities to license their technology out. 
We want to incentivize investors to invest in companies and 
development of technology. So we do need to make sure we 
protect both passive investors or the situation where you have 
got a university and they are not actively controlling or 
directing the litigation, you need protections for those 
entities. Thanks for the opportunity to clarify.
    Mr. Deutch. Thank you.
    Ms. Lee. Thank you.
    Mr. Issa. I thank the gentleman. Now we go to the 
gentlelady from Washington, Ms. DelBene.
    Ms. DelBene. Thank you, Mr. Chair. And thank you, Director 
Lee, for being with us for so long today. We appreciate it. I 
just wanted to follow up on the past comments on transparency. 
The Innovation Act requires the plaintiff in a patent suit to 
provide detailed information about all interests in a patent. 
But I understand that the USPTO is currently proposing rules 
and holding some of the discussions you just talked about on 
procedures that might achieve a similar result through a 
different approach. So I wanted to get your feedback on any 
insights you have gleaned so far and your views on addressing 
transparency through rulemaking versus section 4(a) of the 
Innovation Act.
    Ms. Lee. Thank you very much for that question. And we did 
do extensive stakeholder outreach on some of the transparency 
proposed rules that the USPTO has put forth, and basically 
concluded that, after reading a lot of input and talking to a 
lot of stakeholders, that it is really Congress is in the best 
position to enact rules on transparency, because you have 
better authority to ask for that kind of information at time of 
litigation. I mean, keep in mind the patent has already left 
the Patent and Trademark Office, oftentimes for many years. And 
we are not, we don't have a touch point with a patent after it 
leaves, except for certain very discrete points after it issues 
and maintenance fees are paid. But if you want transparency at 
time of litigation where there is potential for abusive 
assertion and even if you want transparency of patent ownership 
information before the assertion of the lawsuit, our view is 
that really Congress is in the best position to implement those 
laws and rules.
    Ms. DelBene. Thank you. I know you are preparing to open a 
satellite office in Dallas, I believe, later this year. I 
wondered if you could elaborate on the impact of having 
satellite offices on your ability to serve innovators, and do 
you consider opening any other offices or do you think this is 
a good way to help innovators in a local area.
    Ms. Lee. I was the first head of the Silicon Valley 
satellite offices, Congresswoman Lofgren knows. And I am a huge 
fan of the satellite offices. And I think having the USPTO 
outside of the Washington, D.C. Area, in the innovation 
communities, reaching out to the small inventors, the small 
businesses who don't have the funds to fly out to Washington to 
participate in our round tables, to provide input on how what 
we do affects them benefits all of us.
    So I could go on and on. But these satellite offices, as 
far as us being able to serve the American innovation 
community, better serving their needs and really enabling us to 
do the job as best we can are invaluable. And all I would like 
to say is with regard to additional offices, I get that 
question asked frequently, is that we are focused on getting 
those four up and running. And after we are done with that, 
then we need to make sure they are integrated into the work of 
the USPTO. And we went through a pretty rigorous process in 
selecting, we tried to choose across the country to get broad 
representation. And I think we have done a pretty good job.
    Ms. DelBene. So kind of following up on that, like myself, 
I know you spent time with start-ups earlier in your career. 
And there was a question asked earlier about small businesses. 
But, in particular, you look at it from the view of a start-up, 
how do you think the Innovation Act either benefits or gets in 
the way, maybe, of some of the work happening at start-ups and 
facilitating future innovation?
    Ms. Lee. I think addressing the issue of abusive litigation 
is critically important to big businesses and small businesses. 
But I think it is really important for small businesses because 
coming from the start-up world, an average round of capital 
venture funding is on the order of several million. And patent 
litigations, one patent litigation in that same range, you can 
easily see how, if you are pulled into an abusive patent 
litigation, that could easily consume basically all your 
resources for a round of funding or possibly two.
    So I think it is critically important that we curtail 
abusive litigation where we can, as best we can. And that is 
for the benefit of both the small and the big, but especially 
for the small companies.
    Ms. DelBene. Thank you very much for all your time and 
feedback. And I will yield back.
    Mr. Gohmert [presiding]. Thank you. And we do appreciate 
your being here. I haven't been able to be here for much of the 
hearing. But, Director Lee, we appreciate your service. And as 
we have gone through bills in past Congresses, one of the 
common things we have heard over and over is we have got to do 
something about patent trolls. And as a former judge and chief 
justice, I would review the law and go this really doesn't 
address what we are being told it addresses. The patent troll 
issue still is alive and well. And so here we come back again. 
I am curious, what do you think would be the single biggest 
help to businesses, small businesses that are named as 
defendants who really unknowingly were using, for example, 
banks, processing checks, what would be the best way to, or the 
best item in any bill that you have seen to address that 
particular issue? I think the stay seems to be a big help. What 
is your opinion?
    Ms. Lee. I think the customer stay is incredibly helpful. 
As I described, it tends to benefit the smaller players, the 
less patent savvy players. I also think that the Patent Trial 
and Appeal Board proceedings provide an attractive, cost-
efficient alternative to district court litigation. And it can 
happen much more quickly than district court litigation. And if 
a patent is being asserted against you that should not have 
issued, with a little bit less discovery and a little bit less 
money and a panel of three technically-trained judges looking 
at the issue, you may have a solution to your problem.
    Now, that is not a guarantee because, of course, it may not 
come out of a Patent Trial and Appeal Board, the allegedly 
infringed claim may not be invalidated. But I would also say 
that all the other factors working together are all needed. You 
need the heightened discipline in terms of the actions of the 
attorneys in prosecuting and defending these cases.
    Mr. Gohmert. Okay. But when we don't have that, then where 
do we go? The heightened discipline among the attorneys? That 
is why we are in the trouble we are in.
    Ms. Lee. Heightened discipline, I mean prompted by things 
like attorneys fees and the shifting of attorneys fees.
    Mr. Gohmert. So a loser pays system?
    Ms. Lee. What is set forth in H.R. 9. And then heightened 
pleadings also provides both parties greater information about 
the issues in the litigation and, therefore, streamline the 
discovery and the motions practice and so forth. So I think you 
really need a combination of many of those other pieces. But if 
I were to point to a handful that are particularly useful to 
small players, it would certainly be the end user customer 
stay. It would certainly be, for example, having available to 
them the Patent Trial and Appeal Board proceedings. And we have 
a patent litigation tool kit that USPTO has stood up where we 
pool together resources that all the patent attorneys probably 
in this room have access to in their law firms and know how to 
get to that information, but if you are not a sophisticated and 
frequent user of the patent system, this is a single place 
where you can go to get some very, very basic information. We 
think that will help too.
    Mr. Gohmert. Do you see a shift from first to invent to 
first to file? Did you see that being any assistance in dealing 
with the patent troll issue?
    Ms. Lee. I don't think that affects the patent troll issue 
so much. I think it goes to clarity of patent rights. And it 
also goes to harmonizing the system in the United States with 
the rest of the world. And there are important reasons for 
that. But it doesn't really go to the issue of abusive patent 
litigation.
    Mr. Gohmert. Well, we share that opinion. And that is why I 
was telling people making that change doesn't help the patent 
troll issue. But, anyway, we obviously have a lot of work to 
do. There are lots of businesses that suffer unnecessarily. And 
the last thing that I would want to do is eliminate the ability 
for entrepreneurs to be encouraged and be properly remunerated 
in coming up with their innovation. And so it is a delicate 
balance. And I appreciate your servicein trying to pursue that. 
I get the impression that is what you are doing. So we 
appreciate that very much. I understand Mr. Jeffries will be 
next for 5 minutes, recognized for 5 minutes.
    Mr. Jeffries. Thank you, Mr. Chair. And thank you, Director 
Lee, for your service and for your presence here today. I think 
we could all agree that the litigation system is an important 
part of our democracy in the context of making sure that we 
resolve disputes in a manner consistent with the rule of law. 
But in order for the litigation system to work, I think we have 
got to make sure that disputes that are brought into the 
litigation context are resolved or the parties to those 
disputes are incentivized to resolve them based on the merits 
of the underlying claim, as opposed to, for instance, in the 
context of abusive patent litigation, the high, burdensome cost 
of litigation, particularly centered around discovery.
    So I think what many of us have attempted to do in the 
context of dealing with this problem is to address that 
discovery issue in a way that is fair to both sides. But I want 
to focus on another area that I think raises some concernand 
that relates to venue. I think there are 94 district courts 
that are in this country. Would it be fair to say that a 
disproportionately high number of abusive litigation matters 
are brought in just a handful of those district courts?
    Ms. Lee. I appreciate the question, Congressman. I haven't 
done a study, but I know there is a lot of good work going on 
in a lot of district courts in terms of establishment of local 
patents rules and active management of patent cases and 
controlling of discovery. So I couldn't give you a number.
    Mr. Jeffries. I think there was a recent study that 
suggested that for a period of time, I believe between 2007 and 
2011, approximately a third of patent troll type litigation 
matters were brought in just three of the 94 district courts. 
So if you will posit that there is a venue problem as it 
relates to forum shopping, would you agree that part of making 
sure that there is fundamental fairness in the litigation 
system is making sure that the matter is being litigated in the 
correct forum, is that fair to say?
    Ms. Lee. I couldn't agree with you more. As I said earlier, 
to the extent that we can decrease the opportunities and 
advantages for gamesmanship and venue shopping, I think the 
system will be better off.
    Mr. Jeffries. Now, when a someone in a party finds itself 
in what they believe to be an inappropriate venue, I think it 
is section 1404, permits that party to move, to transfer venue. 
But if you look at 1404, there is no requirement in statute 
that sets forth a time frame within which a district court 
judge needs to make a venue transfer decision, is that correct?
    Ms. Lee. That is my understanding. And that is why, 
perhaps, as we contemplate tightening the new restrictions, 
perhaps that in combination with staying discovery pending a 
court's ruling on a motion to transfer would incentivize an 
early and prompt ruling on that. And if it belongs in that 
district, great. It should stay there. But if it doesn't belong 
there, it should be moved.
    Mr. Jeffries. Well, you anticipated my question. I am 
pleased to hear that you agree with that is something we should 
at least consider in terms of this Committee. Because if you 
have got someone who is inappropriately brought into a 
jurisdiction as a result of gamesmanship, resulting from forum 
shopping because of a belief that within that jurisdiction, 
perhaps in Delaware, Central District of California, wherever 
the case may be, because of a belief that justice may not be 
served in that particular venue, it seems like before the 
litigation proceeds, particularly deeply into discovery, which 
is what allows for some to abuse the system and use as a hammer 
the high cost of discovery, that you have a decision up or down 
in terms of whether you are in the appropriate venue.
    I think my time is running out. But let me focus on 
something you also touched on with Representative Deutch, and 
that is this notion of the passive investor. I think in your 
written testimony, you mention that section 3(c) should include 
some kind of clear exemption for passive investors, those who 
lack the ability to direct or control the company's litigation. 
Could you give us some color in terms of who you would view as 
a passive investor? How we might define that?
    Ms. Lee. That is a hard issue and we will probably have to 
spend quite a bit of time discussing the precise language of 
that. But drawing the lines that we have roughly--appropriately 
would be critically important. What is the definition of 
control? What does directing mean? What is directing? What is 
indirect? Those are all issues that I think certainly my team 
would look forward to working with stakeholders and Members of 
Congress to iron out. But that is critical to protecting the 
passive investor.
    Mr. Jeffries. Thank you. I yield back.
    Mr. Issa [presiding]. Thank you. We now go to the gentleman 
from Rhode Island, Mr. Cicilline.
    Mr. Cicilline. Thank you, Mr. Chairman. Thank you, Director 
Lee. Congratulations on your confirmation and congratulations 
also on your initiative for the enhanced patent quality. I 
think that will bear fruit many generations into the future. 
And I also want to thank you for your approach to satellite 
offices and hope that you think about smaller and midsize 
cities and the impact that a patent office will have in those 
communities as well, like Providence, for example.
    I want to first turn to the issue of attorneys fees. It 
sounded like from reviewing your written testimony that H.R. 9 
requires the award of attorneys fees upon motion of a party. 
And then the burden shifts to the losing party to prove that 
the litigation position was reasonably justified. It sounds 
like in your written testimony, you are suggesting that it 
makes sense for the party seeking the award to bear the burden 
of demonstrating that they are entitled to it. It seems as if 
you are suggesting a modification or an amendment to H.R. 9 
that would incorporate, designate who really bears the burden 
of proof.
    Ms. Lee. Thank you for reading my written testimony so 
carefully. And you are absolutely right.
    Mr. Cicilline. Do you have a recommendation as to what that 
burden of proof should be, what the standard should be?
    Ms. Lee. How much? We haven't, no.
    Mr. Cicilline. I would love to know your thoughts on that, 
what the standard of proof should be. And also would you just 
sort of tell us why you think that that is the appropriate 
place for the burden of proof to rest?
    Ms. Lee. In many areas of American jurisprudence, if you 
are the party that is requesting some thing, you both bear the 
burden of moving or the burden of production, and the burden of 
proof, why do you think you are entitled to? Why do you think 
the other side's behavior was unreasonable? What specific 
elements? Right, at least articulate that. It seems only fair.
    Mr. Cicilline. Thank you. With respect to the discovery 
provisions, you also, again, in your written testimony, said 
that the U.S. Patent and Trademark Office believes that there 
may be better alternatives for achieving the goal of reducing 
excessive discovery in patent litigation cases. Would you share 
with us what some of those might be?
    Ms. Lee. Absolutely. So clearly, discovery is a big cost 
driver in patent litigation. And we support H.R. 9's provision 
to have the Federal Judicial Conference look at it and consider 
further. But our thought is that many district courts and 
Federal districts are taking active steps to manage their cases 
and to control discovery. But certain courts are not per 
Congressman Jeffries' point.
    So to the extent that we can focus on tightening venue 
requirements, to make sure that parties are in a jurisdiction 
where they have real meaningful ties, where they have an R&D 
center, where they have a principal place of business, and they 
are not just there because they find that venue attractive for 
a variety of reasons that have nothing to do with their 
contacts to the location, their business contacts, I think it 
makes good sense.
    I think it provides an incentive for district courts to 
apply the law as is handed down and that you don't get any more 
clients because you favor one side or another. So tightening 
venue requirements, perhaps in combination with a stay of 
discovery, pending a ruling on a motion to transfer would 
encourage district court judges to rule quickly and promptly to 
get the litigation in the proper district.
    Mr. Cicilline. Thank you. And, finally, you made reference 
in testimony just a moment ago about what was happening with 
the patchwork of demand letters, 18 legislatures have enacted 
provisions. And this bill, H.R. 9, has a set of requirements 
for demand letters in the context of willful infringement. Does 
it make sense to think about those same requirements in the 
context of demand letters generally in terms of establishing a 
national standard? Should we look at that? And are there other 
things we should be looking at that particularly protect the 
small innovator, the small entrepreneur who is really 
challenged in the current environment and maybe not have the 
resources or support staff to defend against or to prosecute 
those claims?
    Ms. Lee. So does it make sense? H.R. 9 has a provision 
which requires, you are not entitled to enhanced damages unless 
you identify the patent, identify the allegedly infringing 
product, identify the patent owner and who the ultimate current 
entity is, and how the infringement is occurring. And I think 
those sorts of things would be helpful to have in demand 
letters as well.
    Mr. Cicilline. As a national standard?
    Ms. Lee. Certainly to consider, right, the precise details 
and so forth all to be worked out. But there should be some 
level of notice, so you avoid the problem of these vague patent 
demand letters where you receive it and you really have no idea 
what the issue is or what is allegedly the infringing product 
even.
    Mr. Cicilline. Thank you very much. I yield back, Mr. 
Chairman.
    Mr. Issa. Thank you. Ms. Lee, I understand that you have a 
plane to catch.
    Ms. Lee. Who told you?
    Mr. Issa. You have a very good staff. We have a second 
panel. Is there anyone that truly needs any further questions? 
Or can we let the first panel be dismissed?
    In that case----
    Mr. Johnson. Mr. Chairman, anytime I hear anybody ask that 
question, I am always prompted to respond in the affirmative. 
But since our witness has a plane to catch, I will defer.
    Mr. Issa. I thank the gentleman from Georgia. Ms. Lee, 
obviously after today's testimony, the discussion will 
continue. I think that a lot of people recognize your 
willingness to engage in specific dialogue. And we welcome 
that. So when you return from this got to catch the plane now, 
we look forward to working with you further on each of these 
issues.
    Ms. Lee. Thank you. Thank you for your work on this 
important bill.
    Mr. Issa. Thank you. We will now take a very short recess 
to set up for the second panel.
    [Recess.]
    Mr. Issa. The Committee will come to order. We now welcome 
our second panel: Mr. Kevin Kramer, Vice President, Deputy 
General Counsel for Intellectual Property at Yahoo!; Mr. Robert 
Armitage, former Senior Vice President and General counsel at 
Eli Lilly & Company; Mr. David M. Simon, Senior Vice President 
Intellectual Property at Salesforce.com; and Mr. Hans Sauer, 
Deputy General Counsel For Intellectual Property Biotechnology 
Industry Organization.
    Pursuant to the Committee Rules, I must ask you to please 
rise, raise your right hand, and take the oath.
    Do you solemnly swear or affirm that the testimony that you 
are about to give will be the truth, the whole truth and 
nothing but the truth?
    Thank you, please be seated. Let the record reflect that 
all witnesses answered in the affirmative.
    I want to thank all of you. I noticed you were here for the 
first panel, and it was informative for all of us. As you can 
see, the second panel might go slightly shorter, but we do have 
votes coming within the next hour, so our hope is to conclude 
by that time. And with that I'll go right down the row, 
starting with Mr. Kramer for 5 minutes.

 TESTIMONY OF KEVIN T. KRAMER, VICE PRESIDENT, DEPUTY GENERAL 
           COUNSEL FOR INTELLECTUAL PROPERTY, YAHOO!

    Mr. Kramer. Thank you. Thank you, Mr. Chairman, Members of 
the Committee. Thank you for inviting me to testify today. I 
appreciate the opportunity to appear before the Committee for 
the second time on reducing abusive patent litigation. This 
issue is extremely important to Yahoo.
    Patent trolls are bad for our business, bad for our 
industry, and bad for innovation in America. Trolls are 
typically shell corporations that use the law as a sword to 
extract money from operating businesses. Businesses that 
conduct research, create products, employ people, and take all 
the risk of driving the economic engine of our country.
    I believe in the patent system, and I want to make sure 
that it thrives so that it can be used by operating businesses 
for its intended purpose.
    Yahoo holds over 2,000 U.S. patents, and we have enforced 
those patents against our competitors when we felt the need to 
do so. We also have an active licensing program. In short, we 
are active participants in the system. Because Yahoo has been 
both a defendant and a plaintiff in the system, we appreciate 
how very important it is for Congress to get this issue right. 
We need a solution to the patent troll problem that curtails 
abuse and understands that patents matter.
    H.R. 9, the ``Innovation Act,'' is that solution. The 
Innovation Act would help reduce--excuse me, would help restore 
the balance between encouraging innovation and discouraging 
abuse. It would do that by focusing the litigation from the 
start, prioritizing important decisions like claim 
construction, limiting unnecessary discovery, joining real 
parties in interest to the litigation, and establishing a 
presumption toward fee shifting for unreasonable cases. These 
common sense changes would benefit both plaintiffs and 
defendants while giving the courts the autonomy to manage their 
dockets.
    Yahoo's experience highlights why we need Congress to act. 
Between 1995 and 2006, at any given time during that time 
period, we faced only two to four cases on our docket. Since 
2007, that number has increased almost tenfold, and we have 
spent more than $100 million defending ourselves in outside 
counsel fees alone in these types of cases. That number does 
not include confidential settlements, and it also doesn't 
include the untold lost hours of our engineers and others who 
get pulled away from projects to do document production, give 
depositions and go to trial. All this time and money could be 
spent more productively researching new technologies, 
developing new products, and employing people. Instead, we 
continue to devote time and attention to fighting patent 
trolls, and the rest of the industry does too. In fact, patent 
litigation brought by trolls remains at historically high 
levels.
    Unified Patents, which is a company that tracks patent 
troll assertions, reported that the first quarter of this year 
saw 13 percent more new district court cases than the prior 
year. Unified also reported that troll assertions made up 84 
percent of new cases against high-tech companies in Q-1 2015, 
compared to only 70 percent in 2014.
    Clearly patent troll litigation is not going away. Neither 
Supreme Court case law, nor USPTO post-grant procedures have 
deterred new cases. In our experience, the cases being filed 
are still overreaching. For example, Yahoo was recently accused 
of infringing patent claims requiring a digital camera 
apparatus. We don't sell those devices. Another case was filed 
against us simply to provoke a settlement from a third-party 
patent aggregator to which we have no relationship.
    Cases are also still inefficient. When a complaint is filed 
against Yahoo, 90 percent of the time we're left guessing as to 
the true scope of the case. We have to spend typically 3 to 6 
months of litigation to find out, during which time we spent 
several hundred thousand dollars. It takes another 6 months to 
a year before the court provides a claim construction decision, 
during which time we have typically spent another million 
dollars on the case. If we go to trial, that's another several 
million dollars on the case. All this points to the need for 
Congress to pass H.R. 9. The bill is a bipartisan bill and 
makes common sense reforms that would make a real difference. 
It includes requiring genuine notice pleading in patent cases, 
prioritizing important decisions like claim construction, 
providing presumptive limits on discovery, and ensuring that 
only reasonable cases are brought.
    These provisions would give companies the ability to better 
defend themselves against patent trolls. We encourage Congress 
to pass H.R. 9 quickly.
    Again, thank you for attention to this important issue. 
Yahoo looks forward to working with you as the bill moves 
through Congress, the legislative process, and I welcome your 
questions.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Kramer follows:]
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                               __________
    Mr. Issa. Mr. Armitage.

 TESTIMONY OF ROBERT A. ARMITAGE, FORMER SENIOR VICE PRESIDENT 
              AND GENERAL COUNSEL, ELI LILLY & CO.

    Mr. Armitage. Thank you, Chairman Issa and Members of the 
Committee. Thanks for the opportunity to appear here today to 
testify. Let me begin right way with the loser pays provision. 
I believe the loser pays default rule could be a significant 
check on abusive patent litigation practices, whether they're 
undertaken by the patent owner or by the accused infringer. It 
should in reality make strong patents even stronger and 
questionable patents more problematic to assert. I would urge 
the Committee to maintain this provision as-is as a centerpiece 
of its patent reform litigation efforts.
    Second, H.R. 9 would make deferral of most types of 
discovery in patent lawsuits until a so-called Markman ruling 
on claim construction has been decided, a mandatory provision. 
This provision, however, has been criticized even today as 
potentially overreaching. However, I think the provision could 
be readily recrafted so it poses fewer fairness issues for 
patent owners. In this respect the Committee might wish to 
consider whether this section of the bill should instead 
mandate discovery stays pending resolution of venue disputes 
and drop all together the Markman-related provision.
    Third, H.R. 9 heightens pleading requirements on plaintiffs 
filing patent infringement complaints. This is another 
provision where concerns expressed by critics could readily be 
addressed while preserving the early disclosure intent of this 
provision. Mandatory initial disclosure requirements now exist 
under local patent rules in several district courts and apply 
in equal measure to both patent owners and accused infringers. 
The mandated initial disclosures under these rules track, at 
least in part, the heightened pleading standards currently in 
H.R. 9. These local patent rules therefore create an 
opportunity for rewriting H.R. 9's provisions.
    First, the bill could set out a set of heightened pleading 
standards that simply mirror the best practices among the 
existing local rules and, second, impose new pleading standards 
only on plaintiffs where the district court's initial 
disclosure rules don't meet the best practices standard. This 
formulation could have a number of benefits, including spurring 
more district courts to adopt optimal patent case management 
procedures.
    Next, the customer stay, patent transparency, and judicial 
conference mandate provisions in H.R. 9 appear to have broad 
support across a wide spectrum of interests. Any concerns that 
have been expressed go more to the details of the operation of 
these provisions rather than their substance. Further, H.R. 9 
contains laudable provisions addressing what the bill 
characterizes as abusive demand letter practices that limit the 
patent owner's ability to secure treble damages while leaving 
unaffected the patent owner's right to be made whole in the 
case the patents are found to be infringed.
    The bill, of course, has other provisions of significant 
importance. H.R. 9 would make needed corrections to the America 
Invents Act, the most important of which is correcting a 
legislative error that resulted in a too broad judicial 
estoppel provision in post-grant review. Tied to this change is 
a related provision on claim construction that would apply both 
to post-grant review and to inter partes review procedures. 
These changes are essential to the PGR and IPR laws. They are 
needed to assure that USPTO adjudications on the validity of 
patent claims are not premised on the assumption that the 
patent covers more than it actually does.
    This brings me to the topic of IPR, the inter partes review 
procedure. Let me here jump right to the conclusion. Congress 
needs to make statutory changes to the IPR process to assure 
that this procedure treats the patent owner fairly and to 
assure that this procedure has the appearance of fairness. In 
my view this can best be accomplished if Congress makes changes 
now to the IPR law to provide a presumption that patents in IPR 
proceedings are not only valid, but assure that evidence of 
invalidity is clear and convincing. I would urge the Committee 
to place the issue of IPR remediation at the top of the list of 
things to be accomplished as H.R. 9 proceeds through the 
legislative process.
    My hope is that the hearing today will provide the impetus 
for making the adjustments in H.R. 9 that will not only assure 
that it will again overwhelmingly pass the House, but also 
assure that House action spurs the Senate into moving forward 
with its patent reform agenda to the common end of producing 
another set of much needed improvements to our Nation's patent 
laws. Thank you.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Armitage follows:]
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                               __________
    Mr. Issa. Mr. Simon.

      TESTIMONY OF DAVID M. SIMON, SENIOR VICE PRESIDENT, 
             INTELLECTUAL PROPERTY, SALESFORCE.COM

    Mr. Simon. Thank you, Mr. Chairman, and Members of the 
Committee. I appreciate the opportunity to talk to you about 
H.R. 9, which addresses the abuses in the patent litigation 
system. It is a problem that I have been talking to this 
Committee about since 2002.
    My name is David Simon. I'm the Senior Vice President for 
Intellectual Property, for IP, at Salesforce, which Forbes has 
named for an unprecedented 4 years the most innovative company 
in the world. So I understand the importance of having good 
intellectual property laws to protect that innovation. At the 
same time, I also understand there is a need for balance to 
protect that.
    The result of not having the appropriate balance in my view 
has resulted in too much money being made available for people 
who speculate on the patent system and their financiers who 
finance their use of litigation inefficiencies that results in 
an unfair tax on American industry.
    We really appreciated the AIA, which helped address many 
patent quality issues, though many more unfortunately remain. 
But in the 4 years since the passage of the AIA, the problem 
has not gotten better with patent abuse. It has gotten worse. 
It has gone from Silicon Valley to Main Street. We think H.R. 9 
takes a balanced approach in trying to address some of these 
problems.
    First, I would like to highlight the provision that stays 
discovery until the scope of the government monopoly is spelled 
out. Taking FCC monopolies as a comparison, with an FCC grant, 
the exact amounts in spectrum is clearly defined. Patents 
depend on words which inherently are ambiguous, as we all know. 
We think before permitting parties to launch into a multi-
million dollar discovery effort that tends to place almost all 
the burdens on the defendant, we should know what rights has 
the government actually granted. Get that district court to 
tell us what that is. We think that's fair and balanced. We 
also think it exempts companies who have government-imposed 
deadlines on the uses of their patents, and it also has carve 
outs for competitive litigation. So, we think it's a great 
provision.
    Second, pleading. Just one of many egregious examples of 
boilerplate pleadings in my written statement where you don't 
know whose product is at issue, whether it's even your product 
that is at issue, and what product it is, what claims you're 
being sued on, which could be one of hundreds of claims in a 
patent, et cetera. This needs to stop. Some opponents of this 
legislation have said the dropping of Form 18 of the Federal 
Rules of Civil Procedure is sufficient. We disagree vehemently. 
First of all, until we go through at least a decade of 
litigation, no one will know what exactly is required for 
pleading. Section 3 of the Act spells it out in clear detail. 
We think that is far better to have that specifics because 
otherwise what will happen, as several Members have alluded to 
earlier, is you will get forum shopping. People will go to 
those jurisdictions that will have the lowest standard, 
plaintiffs will. And that will lead to even more forum shopping 
given that, at least last year, 70 percent of all NPE 
litigation was brought in two districts.
    Finally, the third provision I think is what the attorney's 
fees provision does, which goes far beyond what the Supreme 
Court has done. First of all, it forces shell companies to 
reveal who their investors are so we now know who is financing 
the litigation. Secondly, it says if you have been responsible 
for financing unjustified litigation, being involved in that 
litigation, you are personally accountable for it. We think all 
of that helps make patent litigation fairer. It makes things 
clearer. It will get people to behave better because we will 
know who they are. So we think that is another huge step 
forward.
    In sum, we are at, from my personal view, approaching the 
end of what I hope to be a 13-year process, because I'm sure 
you're very tired of seeing me back.
    Mr. Issa. No. We're just beginning to get warmed up. We can 
do this for decades, but would like to do incremental 
legislation.
    Mr. Simon. I appreciate that, Mr. Chairman. This bill has 
already been amended many times to address the concerns of 
multiple stakeholders. We hope you see fit to pass the bill, 
and I am happy to answer any questions. Thank you.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Simon follows:]
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                                   __________
    Mr. Issa. Mr. Sauer.

      TESTIMONY OF HANS SAUER, DEPUTY GENERAL COUNSEL FOR 
   INTELLECTUAL PROPERTY, BIOTECHNOLOGY INDUSTRY ORGANIZATION

    Mr. Sauer. Chairman Issa, Members of the Committee, thank 
you for the opportunity to testify here today. The 
biotechnology industry supports this Committee's efforts to 
protect the patent system from opportunists who seek only their 
own financial gain without promoting innovation. And in 
scrutinizing dubious practices by some patentholders, Congress 
should not overlook abuses by others who are undermining the 
patent system for similarly illegitimate reasons, whether these 
occur in the courts or at the USPTO, whether by patent owners 
or against patent owners.
    Unfortunately misuse of the patent system against patent 
owners is also a real and growing problem. In particular the 
USPTO's inter partes review system of administrative patent 
challenges is undermining the value and predictability of 
longstanding investment-backed patent rights. Questionable 
entities have begun to approach biotech companies with threats 
of dragging their key patents into IPR proceedings unless 
payments are made. And recently the Wall Street Journal 
reported on a speculation scheme that involves taking a short 
position in the stock of a biotech company and then challenging 
its key patents in IPR proceedings to drive down the company's 
stock.
    Hedge funds have already targeted multiple biotech 
companies using this strategy in just the past 2 months and 
have promised many more. The first victim was a small biotech 
company whose main product is a new drug that helps patients 
with multiple sclerosis walk better. This company lost more 
than $150 million, over 10 percent of its market 
capitalization, on the day the IPR challenge was filed. I want 
to emphasize there has been no finding that these patents are 
invalid. The Patent Office has not yet even agreed to accept 
the petition, but to the company, the damage was done.
    Markets react in this way because the IPR system unfairly 
stacks the deck against patent owners in many ways, leading to 
patent invalidation rates clearly exceeding those seen in 
district court patent litigation. Investors have become acutely 
aware of these high invalidation rates and are now routinely 
raising questions about possible IPR proceedings when 
evaluating a proposed deal. This is a disturbing development 
for a process that very few people had heard of just 1 year 
ago, and it shows just how necessary it is for Congress to 
restore balance to this system quickly.
    H.R. 9 contains one necessary change requiring the Patent 
Office to use the same claim interpretation approach as would 
be used in district court, but any final bill must go further 
to ensure that the IPR process can no longer be gamed to the 
unfair detriment of patent owners.
    With respect to broader patent reform, we believe consensus 
can be achieved on a range of issues, including enhancing 
transparency of patent ownership and enforcement, curtailing 
unfair deceptive demand letters, addressing how patents can be 
enforced against blameless end users or consumers of infringing 
products, and making the IPR system more balanced and fair.
    Biotech companies both assert and defend against patents. 
Eighty percent are small pre-commercial companies that well 
understand the need for balanced opportunities to resolve 
patent disputes.
    We remain concerned, however, and therefore that certain 
proposals contained in H.R. 9 lack this requisite balance as 
currently drafted. Exhaustive pleading requirements, mandatory 
stays of merits discovery, customer stays that would allow 
infringing manufacturers to deflect lawsuits to others higher 
up in the supply chain, enjoinder of unwilling third parties 
under the threat of attorney fee awards unduly raise the cost 
and risk of patent enforcement for all patent owners, not just 
so-called patent trolls.
    Without predictable and enforceable patents, many investors 
would decrease or stop investing in biotech innovation, 
degrading our ability to provide solutions to the most pressing 
challenges faced by this Nation today.
    This Committee should also not ignore a series of 
developments in patent law over the past 2 years that have 
clearly trended toward more protections for accused patent 
infringers. Today patents are litigated at lower rates and are 
invalidated at higher rates than when the Innovation Act was 
first conceived. Just yesterday the Federal Circuit Bar 
Association reported that attorney fee awards have tripled 
since Octane Fitness was decided. And this, however, does not 
mean that Congress should not act to curb abusive practices. 
Rather these changes do reenforce the need to ensure that any 
patent legislative package does not swing the pendulum too far 
in any direction.
    In closing, BIO believes that the Congress can play an 
important role in bringing together diverse stakeholders to 
reach reasonable compromises, as it did in the 2011 Leahy-Smith 
America Invents Act, and as it is doing in the current 
companion Senate process. A process that has been inclusive and 
that has made substantial progress in narrowing differences. 
For example, BIO has worked with Senator Hatch and a group of 
high tech and university stakeholders to develop an alternative 
construct that addresses attorney fee awards from patent shell 
companies.
    We are optimistic that targeted solutions that address 
other practices of entities who unfairly enforce or attack 
patents can similarly be achieved, and I look forward to your 
questions. Thank you.
    Mr. Issa. Thank you.
    [The prepared statement of Mr. Sauer follows:]
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                                   __________
    Mr. Issa. I'm going to hold to a strict 5 minutes in hopes 
that we get everyone in before the vote occurs. I also will 
waive asking my questions first. I would caution the four 
witnesses also, that there are many questions, so if you're 
asked a question, answer it as briefly as you can; and others 
weigh in only if the person asking the question would like 
additional answers. And that will allow a maximum number of 
questions. We'll get as much in as we can. And with that I'll 
go to Mr. Franks of Arizona.
    Mr. Franks. Well, thank you, Mr. Chairman. Mr. Sauer, I'm 
going to ask you the questions first here. Could you please 
just speak to your thoughts in general on the value of 
intellectual property, specifically patents in driving 
innovation and economic growth in the United States. I know 
that's the blooming obvious question of the century, but I'd 
love to have it restated.
    Mr. Sauer. Well to an industry that's as dependent on 
outside investments as the biotech industry, and we feel we are 
extremely dependent on investors. Bringing a biotech medicine 
to market takes an average fully capitalized investment of $1.2 
billion. That kind of investment over a decade before a product 
reaches the market cannot be sustained just from the resources 
of a single company alone. So biotech companies very much 
depend on their intellectual property working under a slow 
innovation cycle to attract the investment and partnering to 
bring these products to market. If patents become more risky 
and less easy to enforce, less meaningful, if you will, why 
would anyone license this kind of technology? Why would anyone 
invest in a company that depends on this kind of IPR to bring 
these products to market? That is the driving concern that we 
hear from all our members every time a bill is proposed that 
systematically raises the risk and cost of patent enforcement 
and makes them harder to enforce.
    Mr. Franks. Well, I think that's a good answer. The Supreme 
Court has been active on patent issues, as you know, in recent 
years. One area is fee shifting where Supreme Court decisions 
have already led to fees being awarded in more cases than in 
prior to those decisions, and it seems like this is an area 
where the courts may already be addressing some of the issues. 
Another area is the pleading requirements. The Judicial 
Conference has recommended eliminating the standard form for 
patent infringement complaints, and this would mean that 
patents would be subjected to the same higher pleading 
standards as in other cases. Do you think Congress needs to 
legislate on fee shifting and pleading requirements for patent 
cases?
    Mr. Sauer. On fee shifting, our members have different 
views. We have large member companies who are not just 
comfortable, but support the notion of fee shifting; and we 
have a lot of small member companies who have expressed the 
access to justice concerns that you might perhaps expect. As an 
organization as a whole, I believe we're on the fence. Our 
concerns about fee shifting relate mainly to the enforcement 
provisions that attach to them. Impleader for the purpose of 
collecting fees, those have created a lot of concern among our 
members, but it's an ancillary issue.
    The question of pleadings, nobody disagrees that pleadings 
in patent cases should conform to the same standards that apply 
in other civil litigation. Our concern with the pleadings is 
that in the exhaustive way in which the bill proposes to do 
this, H.R. 9, it will allow a lot of gaming, unproductive 
litigation, and churn in litigation before the litigation can 
even get underway, even in cases where a judge may agree that 
there is enough for a lawsuit.
    I was heartened to hear Michelle Lee's comments earlier 
about perhaps finding a compromise where we talk about pleading 
at least one claim of one patent to the required degree of 
specificity, and that would mean there's enough for a lawsuit. 
And then the disclosure requirements that kick in in patent 
litigation would take care of the rest of fleshing out the 
case. I think there's an opening there, and I do believe 
compromise can be found.
    Mr. Franks. Thank you, sir. Mr. Chairman, I'm going to 
yield back the balance of my time.
    Mr. Issa. Thank you so much. Moving right along, we will 
now go to the gentlelady from San Jose.
    Ms. Lofgren. Thank you very much. Mr. Sauer, you were 
describing basically a shakedown using IPR, not lawsuits, in 
terms of extorting settlements. Have you seen that now drift 
over to actually litigation, as the IT sector has? I'm asking 
because there was a Law Review article done about a year and a 
half ago that predicted that PhRMA and BIO would be the next 
victims of abusive patent litigation.
    Mr. Sauer. The answer is not really. So we haven't heard a 
lot of complaints from many of our members of being subjected 
to abusive litigation. In principle, as Director Lee said, it 
could happen in any industry. Personally I do believe in the 
biotech industry where the value for patent is so much higher, 
that those who would abuse the system for their own financial 
gain might gravitate toward using the IPR system which lends 
itself very well to attacking specific IT assets----
    Ms. Lofgren. Because it's cheap.
    Mr. Sauer--rather than bringing litigation. That's right.
    Ms. Lofgren. Let me ask a question in terms of money. Mr. 
Simon, you talked about--I believe it was you. No, no. It was 
you, Mr. Kramer, about the costs that Yahoo is experiencing, 
you say a hundred million dollars, and that's not all of it. 
Recently the president of the Consumer Electronics Association, 
Gary Shapiro, said that, and this is a quote: ``This legalized 
extortion racket costs our economy an estimated $1.5 billion a 
week.'' I don't know where he got that figure. Can you tell me, 
Mr. Kramer, what does abusive patent litigation cost Yahoo just 
in terms of dollars and as a percentage of revenue or profit? 
Can you answer that?
    Mr. Kramer. Sure. Thank you for that question. I can 
certainly answer the question of how much does it cost us. 
Since 2007, I think we have had about 79 cases. We have spent 
on outside counsel fees a hundred million dollars. That's just 
on outside counsel fees alone. That doesn't include licenses, 
settlements, the time and expense, effort of actually getting 
people prepared, collecting documents, going to trial, and 
that's just Yahoo. Our competitors have many more cases than we 
do, some of them. Some of them have less, but it's been an 
uphill battle since about 2007. That's going on 8 years.
    Ms. Lofgren. So have you done an assessment of what the 
cost--obviously when you're sued it is not just the outside 
legal fees. You have got staff time to respond and search for 
documents for discovery and a lot of other things. Have you 
ever like added it all up?
    Mr. Kramer. You are exactly correct. I have not spent the 
time to add that all up, but certainly I can say in terms of 
man hours over the last 8 years it has been hundreds of man 
hours lost to these cases when they could have been spending 
time more productively on developing new products.
    Ms. Lofgren. Do you have any idea what percentage that is 
of your revenue or profit?
    Mr. Kramer. I do not.
    Ms. Lofgren. Mr. Simon, let me ask you the same question. 
Do you have information along those lines?
    Mr. Simon. No, I do not have specific numbers that I can 
give you, but I can tell you you're right in pointing out there 
are many hidden costs that result from this, from the time 
taken talking to the engineers to the impact of the engineers 
after they're being deposed or having gone to a trial where 
they're now gun shy to design things they should be designing.
    Ms. Lofgren. Let me ask you very quickly. I asked Ms. Lee 
about the idea of having, for example, post-grant review 
procedures and the like, tiered rule, so that if you had under 
5 or under 10 patents, it wouldn't apply to you. If you had 100 
or 1,000, it would. Do you think that's a workable idea? Does 
it solve any problems for the different ways industries use 
patents? Maybe I should ask Mr. Sauer also.
    Mr. Simon. If I understand what you're proposing, is 
basically based off the number of proceeds that would apply----
    Ms. Lofgren. Patents for product, yeah.
    Mr. Simon. Then you would get somewhat different treatment 
as a result. I've only heard of that one time before--I 
actually think it's a good idea--and it was in a discussion 
with a member of the pharmaceutical industry where we both 
agreed it was a good idea when we were trying to work something 
out. However, we both went back to other stakeholders that 
early morning----
    Ms. Lofgren. My time is up. I know the Chairman wants to--
I'll just say that certainly PHARMA has a different business 
model than IT, and that's important.
    Mr. Simon. Yep.
    Ms. Lofgren. On the other hand, we're rolling the dice on 
who's going to win, who's going to lose; and it might be time 
to talk some compromise.
    Mr. Issa. Would the gentlelady like to place Mr. Shapiro's, 
that article in the record.
    Ms. Lofgren. Yeah, I just you a the article in the paper.
    Mr. Issa. Yeah, we'll put the article in the record. We now 
go to the gentleman from Texas, Mr. Farenthold.
    Mr. Farenthold. Mr. Simon, you might as well leave your mic 
on. I'm going to start with you. We have heard a lot about 
abuses of the discovery system. Understanding that we want to 
stop these abuses, what alternatives are available to Markman? 
Specifically I'd like you to comment on the proposal to tie 
discovery to venue, and how can we make that work or do you 
have other alternatives you'd like to propose?
    Mr. Simon. Thank you. Although we're very happy with the 
provisions in the bill on Markman, there are potentially other 
ways to try to deal with this issue. Certainly we have seen 
instances where various courts try to do a pocket veto on a 
motion to transfer, particularly since motions to transfer are 
discretionary. And then they eventually say, well, the Court is 
now so familiar with the case the public interests factors 
outweigh the private interest factors. So certainly there are 
ways to tie discovery on venue and motions to dismiss to 
encourage speedy rulings and that we think those things might 
be things to consider.
    Mr. Farenthold. Great. Now Mr. Kramer, we also hear a lot 
about the need for further compromise in this. To me, and I 
think Chairman Goodlatte when he started this hearing way back 
when, said that H.R. 9 was the result of some compromises. I 
think it would be helpful to review the fact. Can you tell us a 
little bit about what's not in the bill that the tech community 
has given up to get to this compromise?
    Mr. Kramer. Sure. Let me first say I fully support the bill 
as is. I think that it is a great bill. I think it does the 
things we need to do to help solve the problem. Certainly some 
things that are not in the bill that the tech community would 
support are the venue issue, which you mentioned. Clarity on 
damages provisions would be extremely helpful. One of the 
things that we see in every case, it's routinely pled--I would 
call it a plague on the system--is willfulness. You know, just 
because I got a complaint, all of a sudden I'm a willful 
infringer. I think I would like to see that addressed too. 
Having said that, I think this bill goes a long way to solving 
the abusive litigation practices, and I would like to see 
Congress act on it.
    Mr. Farenthold. Great. And I guess, Mr. Armitage, you're 
with the pharmaceutical industry. You all gave up some stuff 
that you all would want, too, didn't you?
    Mr. Armitage. First of all, I'm here for myself.
    Mr. Farenthold. You're familiar with it. I guess we've got 
to ask Mr. Sauer, if you'd rather punt that question.
    Mr. Armitage. Let me just say a couple things. For issues 
like willfulness, for example, I wish there were a way to go 
forward on that because I think frankly willful infringement, 
treble damages, don't quite fit as well in the patent system as 
they should. Venue is a great issue to deal with. It turns out 
every time we have tried we have come close; we have not made 
it. Is it worth trying again? I think everybody should be open 
to that. You can be skeptical, but please be open to it.
    Mr. Farenthold. All right. Mr. Simon, I think the BRI 
standard makes some sense for the Patent and Trademark Office. 
But there's an issue with amendability of claims as I hear from 
some of the biopharmacy industry, so we're struck with district 
court construction. Would repealing the right to amend make 
that standard more workable from your perspective?
    Mr. Simon. Which one of us?
    Mr. Farenthold. I'll ask that of Mr. Simon. We'll let Mr. 
Sauer, we'll follow-up with you.
    Mr. Simon. First of all, the current rules do permit 
amendment on a one-on-one replacement. They are very specific 
because Congress placed a tight timeline on the Patent Office 
to handle these AIA proceedings, and I think there have been a 
number of cases recently where an amendment has been granted. I 
think part of the problem is that the amendment rules were 
adopted from interference practice, which is a truly 
specialized practice, and many people didn't understand how 
they worked well. I think they actually do work just fine. In 
terms of the other part of your question about, you know, going 
through the standard in district court, I'm really worried that 
the standard in district court doesn't work for the reasons 
that are set forth in detail in my written statement. I don't 
want to take all that time to go through that.
    Mr. Farenthold. I've got about 30 seconds. I'll let Mr. 
Sauer weigh in on that.
    Mr. Sauer. There is no realistic right to amend claims. The 
AIA says there is. The Patent Office has granted as far as we 
know 3 motions to amend claims out of 3,000 proceedings that 
were requested. I think that will probably require some work. 
More importantly, the right to amend claims or the amendment of 
claims and its connection to the broadest reason of a claim 
interpretation standard historically applies when the Patent 
Office examines claims, that is when it affirmatively grants 
rights. IPR proceedings are different in kind. They're 
adjudications where the Patent Office decides whether the claim 
is invalid or not. It doesn't grant rights.
    Mr. Farenthold. All right. I appreciate your answer. Mr. 
Chairman, I see my time is expired.
    Mr. Issa. We now go to the gentleman from Georgia, Mr. 
Johnson.
    Mr. Johnson. Thank you, Mr. Chairman. Mr. Kramer, you cited 
79 cases on which you hired outside counsel since 2007. Is that 
correct?
    Mr. Kramer. Yes.
    Mr. Johnson. At a cost of about $100 million. Is that 
correct?
    Mr. Kramer. That is correct.
    Mr. Johnson. What percentage of those 79 cases were 
adjudicated in favor of Yahoo?
    Mr. Kramer. So we have been to trial in the Eastern 
District of Texas four times. We have won three of those 
trials. The other one we lost, but we won on appeal. In the 
last 8 years, I have won probably 8 summary judgment motions. 
The rest of the cases I have settled.
    Mr. Johnson. Settled them because they were meritorious?
    Mr. Kramer. Typically settlement arises because the 
plaintiff comes to a position where economically it makes sense 
to settle.
    Mr. Johnson. Some meritorious claims in there I would 
assume?
    Mr. Kramer. I would not be here today saying that all cases 
are meritless.
    Mr. Johnson. And so all patent cases are not cases that are 
brought by patent trolls. Correct?
    Mr. Kramer. I would agree that not every plaintiff is a 
troll. For example, Yahoo, we assert our patents. I would not 
consider us a troll. We are an operating company.
    Mr. Johnson. What percentage of cases or demand letters and 
cases filed are what we would call patent trolls?
    Mr. Kramer. That's a really good question. If a troll is a 
shell corporation above anything else, then that's a troll.
    Mr. Johnson. Well, now, we can get at some of these shell 
companies, judgment-proof shell companies. That's not unique to 
patent law, and there are some existing statutory and case law 
that provide clear and proven opportunities to get at that kind 
of situation, but, you know, I recognize that there is a 
problem with patent trolls, but I think that because patents 
are so important, they drive innovation in America, and they 
contribute to economic growth in this country; and I'm 
concerned about slamming the courthouse door shut, particularly 
on smaller patent holders who have not acquired the ends or the 
finances that a Yahoo would have to be able to pay, say, a 
thousand dollars an hour to a law firm that, you know, 
sometimes the principals in a company that their sister-in-law 
might practice law with one of the big firms that charges a 
thousand dollars an hour, so you end up getting a whole lot of 
litigation costs like that. But I'm concerned about closing the 
litigation door, the courthouse door, on small people who have 
invented something. They've secured a patent, and someone, a 
big corporate goon, takes it and starts using it and dares you 
to sue them because they know that if there's a loser pay 
provision in there, Mr. Armitage, that they're going to be able 
to pay those lawyers a thousand dollars an hour for a thousand 
hours to win the case, as you've done on your four cases you 
prevailed that went into litigation, you prevailed. And if the 
loser had to pay fees, that would cause a lot of small people 
to just not be able to have the burden or to take up the burden 
of asserting their own patent claim. Do you agree with that, 
Mr. Sauer?
    Mr. Sauer. We have heard from our own small member 
companies concerns as the ones you've described, yes.
    Mr. Johnson. Do you care about that, Mr. Simon and you Mr. 
Armitage?
    Mr. Simon. Anybody who has a good patent that a large 
company is infringing, they get a contingency fee lawyer to 
represent them. They need to get a contingency fee lawyer to 
represent them.
    Mr. Johnson. Go up against that $1,000 dollar an hour 
lawyer who is usually going to win the case.
    Mr. Simon. Yes, sir.
    Mr. Johnson. And then there's a loser pay provision that 
prevents the plaintiff, that coerces the plaintiff not to file 
that suit. Do you care about that? I guess not. But thank you, 
Mr. Chairman.
    Mr. Issa. While the gentleman is sitting down, we'll give 
Ms. DelBene--oh, I'm sorry. I missed Mr. Ratcliffe. It is your 
moment. The gentleman from Texas.
    Mr. Ratcliffe. Thank you, Mr. Chairman. I want to thank the 
witnesses for being here today to discuss this important issue. 
You know, the phrase American ingenuity is often used to 
describe our country. Americans are known around the world for 
our can-do attitude and the fact that no challenge is too great 
and no invention is out of reach, and this is certainly 
stimulated by the assurance that our ideas, including our 
intellectual property, are protected. The patent system is so 
central to this idea in the American spirit that it's actually 
enshrined in our Constitution. I know that all the witnesses 
here and probably most of the folks in this room know that our 
patent system empowers any individual from any walk of life to 
turn an idea into a product and in turn transform our society. 
Our patent system is one of the things that has allowed us to 
be at the cutting edge of innovation and make us the envy of 
the rest of the world. So it is certainly vital that we protect 
the patent system and address its abuses, and hopefully that is 
something we all can agree upon here today. My familiarity with 
this issue started before I came to Congress where I was the 
U.S. attorney for the Eastern District of Texas, a district 
mentioned by Mr. Kramer in answering some of the questions, and 
the district sometimes referred to as the rocket docket. As the 
U.S. attorney, I often felt that some of the judicial resources 
that I needed to go after hardened criminals and drug 
traffickers and child predators were instead sometimes diverted 
to handle patent litigation because patent plaintiffs, and I 
think this is not in dispute, flock to our area because they 
saw it as a quote-unquote plaintiff friendly environment. So 
Mr. Kramer, you discussed this in your testimony and in 
answering one of the questions as it relates to the fee 
shifting provision that exists in the current law. So I'd like 
to follow-up and ask you whether in your opinion, are the 
problems surrounding, from your perspective, abusive patent 
litigation the result of plaintiff-friendly judicial districts 
like the Eastern District of Texas? And if so, what do you 
think we can do here in Congress to send a message to judicial 
districts that are tipping the scales in favor of abusive 
patent behavior?
    Mr. Kramer. Sure. Thank you for the question. Excellent 
question. Thank you for all your hard work in the Eastern 
District. Certainly I think that forum shopping is part of the 
problem. One of the things that Congress can do is put 
everybody on the same playing field, and H.R. 9 does that, and 
it is very friendly to both plaintiffs and defendants because 
it does the things that you would do if you were going to 
design a system from the beginning. For example, let's focus 
the case from the start. Let's prioritize important decisions 
like claim construction, like venue. Let's make sure that we 
avoid needless discovery disputes. Let's make sure that we get 
all the parties who really have an interest in the litigation 
present in the litigation, and let's make sure that the cases 
that are being brought are reasonable cases. If they're not 
reasonable, then they should not have been brought in the first 
place, but so long as a case is reasonable, fees will not be 
shifted and that's a good thing. So H.R. 9 does those things. 
That's why we support it.
    Mr. Ratcliffe. Thank you, Mr. Kramer. I'd like to follow-up 
on a point because I've had conversations with stakeholders 
across the spectrum on this issue. I have heard from folks who 
both support this bill and oppose this bill, and a common 
concern from some of them, and specifically universities and 
others seem to be on the fee-shifting provision which has been 
described to me as a strict loser pays system. As I read the 
bill, losers are required to pay only if the claims are not 
reasonably justified. But I understand that some are concerned 
that this provision would chill the ability of inventors to 
challenge infringing parties. So, Mr. Kramer, provide some 
clarity for me here. Specifically, does this bill give judges 
enough room to address this issue. And can you speak, or will 
you speak to some of the folks' concerns that the fee shifting 
provision here would deter venture capitalists, for example, 
from investing in patents.
    Mr. Kramer. Thank you for the question. Let me address the 
fee-shifting issue. Certainly the provisions in the bill allow 
for the judge to take into consideration special circumstances 
and whether it's an individual inventor, for example. So 
there's plenty of room in the bill for the judge to make 
exceptions, and it is not a strictly loser pays provision 
because, again, if you have a reasonable case, even if you 
lose, you don't have to pay. So I think it's a good provision 
for that reason.
    With respect to venture capital companies, certainly when 
venture capital companies invest in innovation, they invest in 
real products, they invest in jobs, that is all good behavior 
that will not be at all affected by the provisions of H.R. 9. 
If a venture capital company is supporting litigation for the 
sake of litigation, then they may be drawn in for purposes of 
the joinder provision for fee shifting if, indeed, they have 
sponsored litigation that is unreasonable. And that is the 
least I would expect of any corporate entity, any individual. 
If you bring an unreasonable case, as a society we should not 
really tolerate that.
    Mr. Ratcliffe. Thank you, Mr. Kramer. And, again, I have 
questions I wish I could ask from each of you. Thank you for 
being here. I'm out of time. I yield back.
    Mr. Issa. I thank the gentleman. We now go to the 
gentlelady from Washington, Ms. DelBene.
    Ms. DelBene. Thank you, Mr. Chair. And thanks to all of you 
for being here so late on this panel. I guess I'll start with 
Mr. Kramer. In Yahoo's experience, how has discovery worked in 
patent cases that you've defended yourself against, and what 
improvements do you think, if any, are necessary in this 
process right now?
    Mr. Kramer. Sure. Thank you, Congresswoman, for that 
question. I can give you a great example from the three trials 
that I attended on behalf of Yahoo in Texas. In each of those 
cases there was a discovery period where we produced hundreds 
of thousands of pages of documents electronically. In those 
cases we used less than 1 percent of the documents that we 
produced. So very minimal discovery is actually used at the end 
of the day in trial to prove a case. It is an expense that we 
could have avoided. In a typical case, I think what you want to 
do is prioritize claim construction because in our experience 
that is pivotal. It crystalizes the parties' decisions, and 
we're able to reach settlement more quickly and easily once we 
have that decision from the Court. I think if you push off some 
of that unnecessary discovery until you get the claim 
construction decision, that's going to help a lot. And H.R. 9 
does that, and that's why we support it.
    Ms. DelBene. Now, you were just speaking with Mr. Johnson 
about the trial you said in your testimony and just now that 
you prevailed at three trials and won eight summary judgments. 
Is that correct?
    Mr. Kramer. If memory serves, yes.
    Ms. DelBene. In the last few years, but in none of those 
cases were you awarded attorney's fees?
    Mr. Kramer. That is correct.
    Ms. DelBene. And so with the Supreme Court's decision in 
Octane Fitness and Highmark, do you think it would make it more 
likely that you would receive attorney's fees if you prevail in 
similar cases in the future, or if so, or if not, why not?
    Mr. Kramer. I would hope that it would. It is unclear at 
this time whether we would prevail certainly in some forums. I 
think if you look at the statistics that have been gathered so 
far on those fee shifting cases, it is on a forum-by-forum 
basis, and that again feeds into plaintiff's choice of forum. A 
lot of times I cannot get a case transferred, so it's an issue. 
So even if a plaintiff brings a bad case, even with the Octane 
Fitness case, I'm not sure that I would get my fees recovered 
in that case. The reason is because even though the Supreme 
Court granted, they loosened the standard a little in the 
Octane Fitness case, in the companion case, the Highmark case, 
they said appropriately it was for the discretion of the 
district court. But as we know, on a district-by-district basis 
it's going to vary, and what H.R. 9 does, is it puts all the 
jurisdictions, all the forums on the same playing field, and so 
I think that would be a vast improvement.
    Ms. DelBene. Do others have feedback on what they think the 
impact of Octane Fitness or Highmark would have on future 
cases?
    Mr. Simon. I guess I was asked this. I think it will have a 
mild impact; but, again, the Supreme Court also said two 
things. One Mr. Kramer said about it's about discretion of the 
court, which means venue becomes all the more important. I 
think the second that matters is that it said it's still 
exceptional; so it's going to happen very, very rarely.
    Mr. Armitage. There's actually some data on the IPO website 
where they track each decision on a motion for attorneys' fees. 
I think in the month of March, for example, there were 6 cases 
in which they were awarded and 19 cases in which they weren't, 
more or less.
    Mr. Sauer. The Federal Circuit Bar Association yesterday 
sent a letter to the Chairman of this Committee giving more 
recent updates, and so according to their account, it's more 
than tripled the rate. But with that said, what I'm hearing is 
I think this discussion would benefit, and especially our 
members would benefit from an understanding of how often 
exactly, you know, would Congress intend for fees to be 
shifted? There seems to be an assumption that under the 
standards that are proposed in the bill, fee shifting would be 
rare; it would be a very unusual occasion. And what I hear from 
the testimony is it's not often enough. It would have to happen 
more often. So I would like to get a better understanding at 
the end of the day how often is then, you know, is the sweet 
spot, because either it's very rare, or we want it to be a lot 
more common; but how a lot more common is kind of unclear to 
me.
    Mr. Armitage. I think one of the virtues of this bill is it 
changes behavior. It sets a default rule that you will get your 
fees unless your defenses are reasonable in law or fact. And, 
therefore, if you're a patent owner with strong patent, you're 
likely to be up against someone who will not defend as they 
might otherwise have defended if they don't have a good case of 
noninfringement against your patent. It makes strong patents 
stronger, and basically makes weak patents pretty much 
unenforceable because you've doubled down on your attorney 
costs.
    Ms. DelBene. My time is expired. Thank you very much. And I 
yield back, Mr. Chair.
    Mr. Issa. We now go to the gentleman from San Diego who 
recently named the John Rhoades Federal Judiciary Center in his 
district, an expansive complex that normally would have more 
patent cases being heard, but they do seem to end up in Texas. 
Mr. Peters is recognized.
    Mr. Peters. Thank you, Mr. Chairman. Thank you for your 
excellent work on that as well. I want to thank all the 
witnesses for being here. I want to thank Mr. Kramer in 
particular for spending some time with me on the phone, and I 
hope you will continue to take my calls as we sort through 
this. Just on those three cases you won, were the plaintiff's 
claims reasonable under the standards set forth by H.R. 9?
    Mr. Kramer. In my opinion, I think the first case, the 
Bright Response case which I believe is in my testimony was 
clearly unreasonable, and I should have gotten my attorney's 
fees. But I think it's an exceptional case because the 
plaintiff essentially came to court knowing that their patent 
was invalid, yet they made me take it all the way through 
trial.
    Mr. Peters. Under the new jurisprudence under the Supreme 
Court, would that be a case where a court could consider fees 
under a loosened standard?
    Mr. Kramer. It would be, yeah.
    Mr. Peters. I just think that the point is, sort of 
implication from the question from Ms. DelBene was you had 
three cases and you didn't get your fees. What's the right 
rate? I had the same question pop in my head that maybe Mr. 
Sauer did. I want to give Mr. Sauer just a chance maybe if you 
would. Your testimony did say and I think your written 
testimony and your oral testimony that you believe in targeted 
patent reforms, and I wanted to give you a chance to say what 
those are, in particular to distinguish them from, to explain 
why they would be different from what's in H.R. 9, either in 
degree, or also if H.R. 9 is missing any reforms that you would 
include.
    Mr. Sauer. I will take the last one first. You know, what 
is not an H.R. 9 but should be there is we need to talk more 
about how to make the IPR proceeding of administrative patent 
challenges a more fair and balanced proceeding that has more 
due process protections for patentees.
    With respect to the Innovation Act, what I heard and that 
is shared by BIO's members, is there are a lot of shared 
objectives, things we want to do. When we say more targeted 
reforms, we don't just mean the ones where we see clearly there 
is going to be a good chance for consensus, that is 
transparency, that is dealing with demand letters, small 
business protections. But we also think that those provisions 
should deal with enhanced pleadings. You know, we agree that 
pleadings should be elevated to the standards that apply to 
other civil litigation. And we can work to make these 
pleadings, pleading requirements more targeted.
    You know, Michelle Lee testified about this concept of at 
least one claim apply to at least one product in a way that 
states a plausible claim. I think all these ways will make the 
provisions more targeted. Likewise, I was encouraged to hear 
the number of alternative ideas to come to grips with discovery 
stays. I think that is what we mean with targeting the bill. 
Like we urge moderation without abandoning the same objectives.
    Mr. Peters. Right. I might also mention that, the question 
I heard from Mr. Ratcliffe before he left about venture 
capital, that has been addressed by the venture capital 
industry themselves, who have indicated that particularly the 
personal liability for sponsoring litigation does have a 
tremendously chilling effect probably both on the litigation 
itself but also on the investment side. And I think that is 
something that we should probably resolve as part of going 
forward with the patent reform.
    And, finally, Mr. Chairman, if we could, Biocom wrote a 
letter dated today, April 14, about their concerns with this 
bill. I would ask that it be included in the record.
    Mr. Issa. Without objection, so ordered.
    [The information referred to follows:]
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                                  __________
    Mr. Peters. And thank you. I yield back.
    Mr. Issa. Thank the gentleman. We now go to the Ranking 
Member of the full Committee, Mr. Conyers.
    Mr. Conyers. Thank you, sir. I apologize for my absences 
during the hearing. But I did want to ask Deputy General 
Counsel Sauer a question or two. I apologize to Mr. Kramer, 
Armitage, and Simon. In your testimony, you suggest that that 
the new impleader authority in the measure under consideration, 
H.R. 9, is one-sided because it benefits only winning 
defendants. Why do you think this does harm to small companies 
and individual inventors if you do in fact?
    Mr. Sauer. There are two aspects about the impleader 
provision in particular that we believe really interfere with 
the ability of biotech companies to operate in their licensing 
and partnership and financing ecosystems.
    The first is the provision that talks about the notices of 
potential liability under the impleader provision of the bill. 
At the defendant's option, the accused infringer would get to 
send out notices to all the patentee's business partners, the 
licensors and their VC companies, to invite those to either 
renounce their interest in the patent or otherwise dissolve, if 
you will, their business relationship with the patentee or else 
be subjected to potential attorneys fee awards. So early in the 
case, there is a letter that will come to business partners 
that exposes them to liability and has a certain menace 
attached to it. That is one. We think that will interfere with 
business relationships.
    Secondly, the definition of those who could be impleaded, 
you know, is quite broad and could capture, for example, VC 
investors if they have certain voting rights. It is all those 
who stand to benefit from the litigation and have the right to 
direct or have the right and direct to control the litigation. 
So that captures universities, VCs who have a seat on the 
board. And these are the kind of entities that small biotech 
companies very much need to do business with in order to 
advance their innovations. And so those were the two main 
concerns.
    Mr. Conyers. Thank you. In what I think was your testimony, 
you have described H.R. 9 as an overbroad attempt to deter 
abusive patent litigation. But, at the same time, I read into 
your remarks that it is woefully inadequate. What should H.R. 9 
include other than inter partes review? Is that a fair 
question?
    Mr. Sauer. That is a fair question because the patent 
system has to work for all industries. And as the biotech 
industry, right we don't operate in a vacuum. I think it 
behooves us to take account of the needs of other industries 
for whom the patent system may not work in the same way. So if 
you are asking me what else should the bill include, I would 
say the bill should include that, which other industries need 
to the extent it doesn't hurt biotech and to the extent it 
makes for a better patent system that works for everybody who 
has to participate in it, not just biotech. So you know, we 
want to be quite reasonable in that sense.
    Mr. Conyers. I see. Would H.R. 9 affect your member 
companies and other small businesses and individual inventors 
to obtain much needed funding? Would it help? Or would the bill 
have negative consequences for the innovation economy itself?
    Mr. Sauer. It would, there is no doubt in our mind that it 
would have negative consequences, at least on innovation in 
biotechnology because we depend so much on external funding. To 
say it again, it takes us more than a decade to bring a product 
to market. And once we are on the market, these products are 
very long-lived. So we depend on investors' confidence. And 
those investors expect that their investments will be secured, 
among other things, by patents that are meaningful and 
enforceable.
    Mr. Conyers. Finally, let me ask you about the suggestion 
that limiting discovery is too rigid and would delay litigation 
costing plaintiffs market share and potentially increasing 
damages for a defendant. In what ways, in your opinion, does 
this proposed measure make matters worse?
    Mr. Sauer. The proposed measure proposes to stay basically 
merits discovery until the court has ruled on the 
interpretation of the patent claim. The problem beyond that is 
that going into the litigation, at the very beginning, the 
parties don't really know what kind of information they need to 
discover to even interpret the patent claim. In district courts 
that do this often, there are local patent rules that have set 
up a streamlined process to get to a claim construction process 
and claim construction ruling quickly. And these processes, you 
know, lay out certain categories of information that need to be 
exchanged by both parties, to both parties with documents to 
back them up. I think it would be a good idea for Congress to 
look to local patent rules in the more sophisticated districts 
for inspiration of how such a streamlined process could be 
crafted. Our objective too would be, if we can, to get to a 
claim construction hearing in cases where that is necessary 
within a year or less. I think that would be a good outcome.
    Mr. Conyers. I thank you. And I thank Chairman Issa.
    Mr. Issa. I thank all of you. And hopefully I am last but 
not least. Did you go? No, you didn't. Well then I won't be 
last. Thank you for returning, Mr. Deutch. The gentleman is 
recognized.
    Mr. Deutch. Thank you, Mr. Chairman. That is too kind. I 
appreciate it.
    First, I would like to thank the witnesses for your 
testimony today. We are well aware of the serious abuses that 
have plagued the patent system in recent years. The question is 
what scope of congressional action will stop these abuses 
without also endangering America's innovation economy? That is 
what we are grappling with here.
    The legislation that we are considering is the same as 
legislation that passed out of this Committee in 2013. But as 
all of our witnesses have noticed, the context surrounding this 
bill has changed dramatically. The Supreme Court has issued six 
landmark patent decisions related to subject matter eligibility 
and fee shifting standards. The standard pleading form for 
patent complaints will be eliminated later that year. The 
Patent and Trademark Office is in the process of implementing 
the America Invents Act to improve patent quality. District 
courts with high volumes of patent filing have updated their 
local rules. And the FTC is exercising its powers to protect 
end users from abusive demand letters.
    Undoubtedly, all of those charged with building a strong 
and efficient patent system have more to do to put an end to 
abusive behavior. My primary concern with H.R. 9, as currently 
drafted, centers on the broader litigation reforms. These 
reforms push the patent litigation system in a direction that 
it is already heading and may result in unintended consequences 
that harm legitimate patent owners, including entrepreneurs and 
small businesses, independent inventors, and major research 
universities. Now, Mr. Armitage, a question for you, section 
3(a) of H.R. 9 would add pleading requirements just as the 
judicial conference eliminates form 18. And the question is 
won't eliminating form 18 impose the specificity requirements 
in Twombly and Iqbal on patent cases and won't the pleading 
rules in H.R. 9 go further than the pleading standard for other 
Federal courts?
    Mr. Armitage. One way to compare the standards currently in 
H.R. 9 is actually to go read local patent rules that have been 
put in place in recent years, look at what the initial 
mandatory disclosures are in those rules. I looked at two for 
the purposes of this hearing, Northern District of Illinois and 
California, and what I discovered is they're great 
similarities. What I was proposing in my testimony was very 
simple, use those rules as a template for pleading standards in 
H.R. 9, have them only apply to those district courts where 
they don't actually have best practices in local rules. That 
way you would encourage uniformity across district court with 
best practices, not have a statutory provision that would be 
out of step with Twombly requirements, and probably have much 
less concern among critics of that provision.
    Mr. Deutch. Okay. Thank you. Mr. Sauer, you note in your 
testimony that limiting discovery before claims construction 
could delay discovery on merits by at least 12 months. Can you 
explain just a bit more from your perspective why this may have 
negative, unintended consequences for legitimate patent owners 
among your members. And could you give examples of instances 
where a delay in discovery would be wasteful or harm a patent 
holder's right to defend their property rights?
    Mr. Sauer. The delay in discovery could certainly be 
wasteful because in the exchange of contentions that Mr. 
Armitage described is also embedded a production of documents 
to back up these contentions. So, in other words, in districts 
where it works pretty well, the parties have to not just work 
toward claim construction but also lay bare their theory of the 
case and the evidence that backs it up. This is not relevant 
just for claim construction. If this kind of evidence can be 
developed in a patent case, it is relevant for claim 
construction and also often gets the case in a position for 
early summary judgment because we discover relevant information 
alongside that which is relevant for claim construction.
    This is not to say that, you know, there are certain kinds 
of evidence that, especially under the modified rules of civil 
procedure, you know, which are going to be required to be 
proportionate to the needs of the case, the judges shouldn't 
take a hard look at the kinds of evidence that should be 
produced in every case. Damages discovery may not be relevant 
in every case. Willfulness discovery may not be relevant in 
every case. Discovery about inequitable conduct may not be 
relevant in a lot of cases before liability has even been 
established. So that is the response to the second half of your 
question. I forgot the first half.
    Mr. Deutch. That is a perfectly appropriate response as we 
are headed down to vote. And I am out of time. Thanks again to 
the witnesses. And, Mr. Chairman, thank you. For giving me the 
time.
    Mr. Issa. Of course. Thanks for your participation on both 
panels. We now get to just me and I am up against the clock 
too. Mr. Kramer, Mr. Armitage, Mr. Simon, I am going to ask you 
because you sort of have firsthand knowledge of your companies. 
Earlier we had a figure that came from Gary Shapiro at the 
Consumer Electronics Association and everyone said well, how 
did he get that figure. I just want to ask it in a different 
way. I did the arithmetic, it is 3/10ths of 1 percent of GDP. 
So the question is, is 3/10ths of 1 percent something that, in 
fact, you think excess patent litigation could, in fact, be 
hurting innovation and, thus, our GDP by that amount? Sometimes 
the only way to break something down is to say, you know, 3/
10ths of a cent per dollar, do these trolls and excess 
litigation of this sort, does it cost us that, not in actual 
legal fees, but in the hit to all parts of it including 
innovation?
    Mr. Kramer. My answer is that it is a problem. It continues 
to be a problem. I have not quantified it in terms of GDP. But 
certainly for the high tech industry, we see new cases all the 
time. Even if we settle them, we tend to get more. I just won a 
case under 101, only for the troll to go and sue me again in 
another country on a similar patent, the foreign equivalent. So 
this problem is not going away. Because it is not going away, I 
think it deserves our attention. Because it is a significant 
problem, we should address it. H.R. 9 does that. Thank you.
    Mr. Issa. Mr. Armitage, would you say that your time at Eli 
Lilly that 3/10ths of 1 percent might have been spent directly 
and indirectly related to litigation?
    Mr. Armitage. So when I am enforcing a patent that is worth 
$20 or $30 billion, no one asks me what the cost of defense is, 
that is true. But the problem is that same order of magnitude 
of cost for defense applies to patents that, for example, may 
only be worth $5 or $10 million. It makes them effectively 
worthless. So unless you address abusive litigation practices 
across the board, what you are saying to a whole spectrum of 
inventors is, go get your patents but they are effectively 
unenforceable. Or when you are faced with a patent infringement 
allegation that costs millions to defend, you effectively have 
no defense. I think that is why we are here today, the 
integrity of the patent system is at stake.
    Mr. Issa. Mr. Simon, just a guess, you have spent a few 
dollars related to troll activity, what do you think it costs 
you?
    Mr. Simon. Well, I have seen studies that at least I 
personally find credible in the tens of billions of dollars. So 
the numbers don't surprise me. But however it is measured, for 
our company, millions of dollars means lots of engineers, means 
lots of R&D, means lots of things we cannot do for our 
customers.
    Mr. Issa. Okay. For all of you, I am going to ask a final 
set of questions and they really have to do with, Ms. Lee. With 
the director, we talked earlier about fee shifting. And 
throughout the day, there has been a lot of discussion about 
shell corporations and so on. She had some concerns. You all, 
Mr. Sauer, has some concerns. Let's talk about what a shell 
corporation isand so on.
    So, Mr. Kramer, I will start with you. When you sue on 
behalf of Yahoo, you put the whole company behind it, right? 
You don't form a separate shell and stick the patent in there?
    Mr. Kramer. That is exactly correct.
    Mr. Issa. Okay. And you do control--all three of you in 
your roles, you controlled the conduct of the patent?
    Mr. Kramer. Correct.
    Mr. Issa. Okay. Now, a passive investor, let's see if we 
can go through a definition, because it is important to me that 
we get the bill right. If a passive investor is somebody who 
gives money to a venture and that venture includes the 
activities that might lead to suits but also includes, let's 
say, a university looking for people to produce the product, to 
license, perhaps even that venture is going to produce a 
product using that technology, would you say that is a shell 
corporation or would that, by definition, shield the limited 
partners because it had purposes other than just litigation? In 
the current bill and in your history. Mr. Kramer, you have got 
the biggest smile, I will start with you.
    Mr. Kramer. Yeah, it is a complex fact pattern, number one.
    Mr. Issa. The bill does say that if your primary purpose of 
the enterprise is more than just the litigation, then there is 
no piercing of that corporate veil. And that is where I want to 
ask. Because I think we have real questions about what a 
passive investor is. Is it an investor in a lawsuit or is it an 
investor in a technology?
    Mr. Kramer. A passive investor would be the investor in the 
technology, right. We should support investment in technology 
because that is how we get jobs, that is how we grow the 
industry. We don't grow the GDP by investing in suing each 
other. And that is the problem. So I think if you have an 
interest, a direct interest in the litigation, you have an 
active stream of revenue from that litigation, then I think the 
joinder provision should kick in. And if the shell corporation 
cannot pay the fees, then whoever is backing it financially 
should be on the hook.
    Mr. Issa. So are the rest of you comfortable with that, 
that if the corporation has some purpose other than just suing 
and we make that clear, if it is not already clear in the 
legislation, you are comfortable with that, that an enterprise 
that, let's say, has licensed half a dozen people, is actively 
supporting that, and may be developing more technology would be 
exempt, even if they have no money, even if their claim was 
frivolous. In your experience, are you comfortable with us not 
dealing with that part of the so-called troll, you know troll 
industry? Because that is the way I think the bill is 
structured today. And I think that is what even, Mr. Sauer, I 
think that is what you would want to see is that somebody who 
is actively trying to do something more than just sue would 
find themselves exempt from their investors being at risk.
    I just want to make sure that we have got that consensus. 
Because I think it is important because that is the intent of 
what I think the bill does. And I want to make sure I 
understand today, and with Ms. Lee, I want to make sure that we 
get the bill to say that in a term everybody understands. So 
any final comments? Mr. Armitage?
    Mr. Armitage. I think I am with you. Remember, this is a 
context where someone takes a patent, asserts it, it has no 
reasonable basis on which to assert the patent, it loses, it 
has no money, and, therefore, this provision means nothing 
unless someone pays. So, I think in that context what you said 
is fair. But you can't have too much sympathy for a passive 
investor if the only purpose of the investment was to bring 
relatively meritless claims on patents of this type.
    Mr. Issa. Mr. Simon, you are dealing with a lot more start-
ups, a lot more people who have these sort of one-off patents. 
How do you feel about that, you know, that limited protection 
that we are giving you to pierce the corporate veil in this 
case?
    Mr. Simon. Well, given the press of time, I will say I 
think Mr. Armitage pretty much stated it very well, as he 
normally does, even when I disagree with him. But this time, I 
agree with them.
    Mr. Issa. Okay. And, finally, you get the last word on this 
subject.
    Mr. Sauer. And I will keep it short. I think there is a lot 
of unanimity trying to achieve the same goals. I do note the 
provision in H.R. 9 is different from the one that was in the 
Cornyn bill in the last Congress. Right so there are a number 
of different ways one can get at this. There is yet a different 
provision that is circulating that Senator Hatch is working on. 
I think we can make a lot of progress and I would urge maybe 
getting a bunch of stakeholders together which I believe has 
worked well during the AIA.
    Mr. Issa. Well, we are going to continue to do that. And I 
want to thank all of you for your testimony. Pursuant to the 
rules, I will say this concludes today's hearing. I want to 
thank all of my witnesses. Without objection, all Members will 
have 5 legislative days to submit additional written questions 
for you all and additional materials for the record.
    And with that, we stand adjourned.
    [Whereupon, at 5:40 p.m., the Committee was adjourned.]
                            A P P E N D I X

                              ----------                              


               Material Submitted for the Hearing Record

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, and Member, Committee on the 
                               Judiciary
    We all agree that the exploitation of the patent process and 
abusive patent litigation practices must be stopped.
    In responding to these serious problems, however, Congress must not 
harm our patent system, discourage innovation, weaken patent rights, or 
increase patent litigation.
    Unfortunately, H.R. 9 goes too far in its approach. And, for that 
reason, I continue to have serious concerns with this legislation.
    To begin with, the bill does not take into consideration current 
ongoing developments.
    For instance, the United States Patent and Trademark Office is in 
the midst of implementing the America Invents Act and has undertaken 
various efforts to prevent problems of abusive patent litigation. And, 
the Office just held a Patent Quality Summit to address the issues 
surrounding weak quality patents.
    The legislation should also reflect how the federal courts are 
changing the patent litigation landscape.
    For example, the Supreme Court will soon eliminate the use of Form 
18 in patent proceedings, which will lead to the higher pleading 
requirements of Twombly and Iqbal.
    Recent Supreme Court decisions such as Octane Fitness, which 
lowered the standard by which a court may award attorneys' fees, and 
Highmark, which gives deference to district court decisions on appeal, 
should effectively make it much easier for prevailing parties to obtain 
attorneys fees.
    And other decisions, such as Alice, which declared that abstract 
ideas could not be patented, and Nautilus, which set a higher standard 
for certainty and specificity for patent claims, will make it easier to 
invalidate many vaguely-worded software patents and business method 
patents and prevent the Office from granting them in the first place.
    Further, many lower courts are adopting model discovery orders and 
guidelines that limit discovery in patent lawsuits, while others are 
promoting early and active judicial case management.
    Legislation also should not ignore the actions the Federal Trade 
Commission and state Attorneys General are taking to stop deceptive 
practices in sending vague patent demand letters.
    Cumulatively, these various efforts address many of the concerns 
about abusive patent litigation.
    Unfortunately, H.R. 9 ignores the changing landscape and goes well 
beyond tackling abusive patent litigation. It actually weakens every 
single patent in America.

          H.R. 9's heightened pleading requirements simply 
        create needless hurdles for legitimate inventors to access the 
        courts.

    These requirements will work an unfairness against patent holders 
across the board because they are drafted in a one-sided manner; they 
will prolong litigation; and are unnecessary because the courts are 
already addressing pleading standards.

          The bill's fee shifting requirement favors wealthy 
        parties and chills meritorious claims. They are drafted in an 
        over-broad manner to apply beyond patent infringement actions. 
        They deprive courts of discretion and will confuse courts and 
        litigants about who is the prevailing party in an action. And, 
        again, they are unnecessary in light of recent Supreme Court 
        decisions.

          The bill's discovery limitations are counter-
        productive. They will delay litigation; lead to greater 
        expenses for the parties; and are more properly dealt with by 
        the courts.

          Further, H.R. 9 mandates that the federal judiciary 
        adopt a series of new rules and judicial changes. The federal 
        judiciary, with its very deliberative rule-making process, 
        would do far better than Congress legislating changes.

    By unbalancing the patent system, we send a signal to inventors 
that their inventions are not worthy of full legal protection. And, 
overly broad legislation, such as H.R. 9, could engender more rather 
than less litigation, while weakening patent enforcement protections.
    Finally, legislation to stop abusive patent litigation should 
target the underlying issues fostering abusive patent litigation.
    One of the most effective steps we can take in responding to 
abusive patent litigation is to ensure that poor quality patents are 
not issued to begin with.
    We need to provide our examiners the resources they need to review 
and analyze the hundreds of thousands of complex and interrelated 
patent applications they receive every year.
    Therefore, we must stop the diversion of patent fees, which has 
already led to an estimated $1 billion in fees diverted over the last 
two decades. And to protect these funds from a sequester or 
appropriators' decisions to siphon money from the U.S. Patent and Trade 
Office.
    Legislation should also address the problem of the extortionist use 
of demand letters. At every hearing on abusive patent litigation, 
witnesses have requested a legislative fix to curtail the use of vague 
and deceptive patent demand letters.
    Yet, H.R. 9 does not do enough to resolve this issue. Legislation 
should be drafted to apply to all parties because certain defendants 
can employ abusive litigation tactics too.
    In responding to the problem of abusive patent litigation, Congress 
should do so in a more balanced and effective approach than H.R. 9.

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 Response to Questions for the Record from the Honorable Michelle Lee, 
 Under Secretary of Commerce for Intellectual Property and Director of 
             the United States Patent and Trademark Office

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Response to Questions for the Record from Kevin T. Kramer, Vice 
  President, Deputy General Counsel for Intellectual Property, Yahoo!
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Response to Questions for the Record from Robert A. Armitage, 
   former Senior Vice President and General Counsel, Eli Lilly & Co.
   
   
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Response to Questions for the Record from David M. Simon, 
    Senior Vice President, Intellectual Property, Salesforce.com

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Response to Questions for the Record from Hans Sauer, Deputy General 
 Counsel for Intellectual Property, Biotechnology Industry Organization
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