    [Senate Hearing 114-899]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-899

                       S.1137, THE ``PATENT ACT''--FINDING
                         EFFECTIVE SOLUTIONS TO ADDRESS
                            ABUSIVE PATENT PRACTICES

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

                                    HEARING

                                   BEFORE THE

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION
                                   __________

                                  MAY 7, 2015
                                   __________

                               Serial No. J-114-16
                                   __________

             Printed for the use of the Committee on the Judiciary

                        [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                            www.judiciary.senate.gov
                                www.govinfo.gov

                                   __________

                        U.S. GOVERNMENT PUBLISHING OFFICE

    52-845                     WASHINGTON : 2024

                           COMMITTEE ON THE JUDICIARY

                      CHARLES E. GRASSLEY, Iowa, Chairman
    ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont, Ranking
    JEFF SESSIONS, Alabama                   Member
    LINDSEY O. GRAHAM, South Carolina    DIANNE FEINSTEIN, California
    JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
    MICHAEL S. LEE, Utah                 RICHARD J. DURBIN, Illinois
    TED CRUZ, Texas                      SHELDON WHITEHOUSE, Rhode Island
    JEFF FLAKE, Arizona                  AMY KLOBUCHAR, Minnesota
    DAVID VITTER, Louisiana              AL FRANKEN, Minnesota
    DAVID PERDUE, Georgia                CHRISTOPHER A. COONS, Delaware
    THOM TILLIS, North Carolina          RICHARD BLUMENTHAL, Connecticut

                    Kolan L. Davis, Majority Staff Director
                    Kristine Lucius, Minority Staff Director

                                C O N T E N T S

                                  ----------

                             MAY 7, 2015, 9:34 A.M.

                        STATEMENTS OF COMMITTEE MEMBERS

                                                                       Page

    Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     1
        prepared statement...........................................   125
    Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3
        prepared statement...........................................   127

                                   WITNESSES

    Witness List.....................................................    47
    Chandler, Mark, senior vice president and general counsel for
      Cisco..........................................................     6
        prepared statement...........................................    48
    Hadad, Henry, senior vice president and deputy general counsel-
      intellectual property for Myers Squibb.........................    11
        prepared statement...........................................    63
    Lettelleir, Diane, senior managing counsel of litigation at J.C.
      Penney.........................................................    10
        prepared statement...........................................    76
    Rhodes, Kevin H., vice president and chief intellectual property
      counsel for 3M Company, St. Paul, Minnesota....................     8
        prepared statement...........................................    82
    Samuels, Julie, executive director and president of the board at
      Engine.........................................................    13
        prepared statement...........................................   116

                                   QUESTIONS

    Questions submitted to Mark Chandler by:
        Senator Grassley.............................................   129
    Questions submitted to Kevin Rhodes by:
        Senator Grassley.............................................   129
    Questions submitted to Diane K. Lettelleir by:
        Senator Grassley.............................................   130
    Questions submitted to Henry Hadad by:
        Senator Grassley.............................................   130
    Questions submitted to Julie P. Samuels by:
        Senator Grassley.............................................   130
    Questions submitted to Mark Chandler by:
        Senator Grassley.............................................   129

                                    ANSWERS

    Responses of Mark Chandler to questions submitted by:
        Senator Grassley.............................................   131
    Responses of Henry Hadad to questions submitted by:
        Senator Grassley.............................................   133
    Responses of Diane Lettelleir to questions submitted by:
        Senator Grassley.............................................   135
    Responses of Kevin Rhodes to questions submitted by:
        Senator Grassley.............................................   138
    Responses of Julie Samuels to questions submitted by:
        Senator Grassley.............................................   144

                    MISCELLANEOUS SUBMISSIONS FOR THE RECORD

    Submitted by Senator Grassley's Office:

        Letter from Federal Circuit Bar Association dated April 13,
          2015.......................................................   149
        R Street letter dated April 29, 2015.........................   150
        Google letter dated April 29, 2015...........................   151
        JCPenny letter dated April 29, 2015..........................   153
        The Latino Coalition letter dated April 29, 2015.............   155
        National Association of Realtors letter dated April 29, 2015.   157
        National Council of Chain Restaurants (NCCR) letter dated
          April 29, 2015.............................................   159
        National Restaurant Association letter dated April 29, 2015..   161
        NRF, The Voice of Retail letter dated April 29, 2015.........   162
        Oracle Letter dated April 29, 2015...........................   164
        Redhat letter dated April 29, 2015...........................   166
        Samsung Electronics America, Inc. letter dated April 29, 2015   167
        SAS, The Power to Know letter dated April 29, 2015...........   168
        Sprint letter dated April 29, 2015...........................   169
        Verizon News Release dated April 29, 2015....................   170
        Adobe Letter from Dana Rao dated April 29, 2015..............   172
        American Gaming Association (AGA) letter dated April 29, 2015   173
        Application Developers Alliance from Sarah Elliot dated April
          29, 2015...................................................   174
        Competitive Carriers Assocation (CCA) letter dated April 29,
          2015.......................................................   175
        Consumer Electronics Association (CEA) letter dated April 29,
          2015.......................................................   176
        Cisco letter dated April 29, 2015............................   178
        American Hotel and Lodging Association (AHLA) letter dated
          April 29, 2015.............................................   179
        Intuit letter dated April 29, 2015...........................   182
        Coalition for Patent Fairness letter dated April 29, 2015....   183
        Microsoft letter from Kathryn Stack dated April 29, 2015.....   184
        SAS Letter from John G. Bowell dated April 29, 2015..........   185
        Computer & Communications Industry Aassocation (ccia) letter
          dated April 29, 2015.......................................   186
        Biotechnology Industry Organization letter from George Goodno
          dated April 29, 2015.......................................   187
        The Coalition for 21st Century Patent Reform
          letter from Brian Walsh dated April 29, 2015...............   189
        United for Patent Reform letter dated April 29, 2015.........   191
        America Trucking Association letter from Dave Osiecki dated
          April 30, 2015.............................................   195
        Tyco letter from Judith A. Reinsdorf dated April 30, 2015....   197
        Food Marketing Institute letter dated April 30, 2015.........   199
        Global Automakers letter dated April 30, 2015................   200
        Internet Association letter dated May 1, 2015................   202
        Merick Sharp & Dohme Corp. letter from William Krovatin dated
          May 4, 2015................................................   203
        National Association of Broadcasters (NAB) letter dated May
          4, 2015....................................................   204
        International Trademark Association letter dated May 5, 2015.   205
        Whataburger letter dated May 5, 2015.........................   206
        National Association of Convenience Stores (NACS) letter
          dated May 6, 2015..........................................   208
        National Association of Home Builders letter dated May 6,
          2015.......................................................   210
        The Pharmaceutical Research and Manufacturers of America
          (PhRMA) letter from Charles M. Clapton dated May 6, 2015...   212
        Rackspace letter dated May 7, 2015...........................   213
        Sabre letter dated May 7, 2015...............................   214
        SIIA letter dated May 7, 2015................................   215
        Statement for the Record by financial institutions dated May
          7, 2015....................................................   216
        NRF, The Voice of Retail dated May 7, 2015...................   224
        Dell Applauds Senate PATENT Act..............................   232
        Engine Statement of Engine Executive Director Julie Samuels
          re: Introduction of the PATENT Act.........................   233
        ETA Electronic Transactions Association letter dated April
          29, 2015...................................................   234
        Facebook Supports PATENT Act.................................   235
        Higher Education Asspcoatopm Statement dated April 30, 2015..   236
        Letter from various institutions dated May 13, 2015..........   237
        Statement by Dick O'Brien....................................   239

    Submitted by Senator Coon's Office:

        Key Provisions Chart dated March 23, 2015....................   146
        National Venture Capital Association Letter dated May 7, 2015   147

                      S.1137, THE ``PATENT ACT''--FINDING
                         EFFECTIVE SOLUTIONS TO ADDRESS
                            ABUSIVE PATENT PRACTICES

                                  ----------

                             THURSDAY, MAY 7, 2015

                                           U.S. Senate,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 9:34 a.m., in
    room SD-226, Dirksen Senate Office Building, Hon. Charles E.
    Grassley, Chairman of the Committee, presiding.
        Present: Senators Grassley, Hatch, Cornyn, Lee, Flake,
    Perdue, Tillis, Leahy, Feinstein, Schumer, Durbin, Whitehouse,
    Klobuchar, Franken, Coons, and Blumenthal.

     OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR
                         FROM THE STATE OF IOWA

        Chairman Grassley. Before I and Senator Leahy give our
    opening statements, we have a vote at 10:30, and this is such
    an important hearing that I hope that we can keep the meeting
    going by people going over and voting. Even though I am not
    here and, in fact, even if just the Democrats here, I hope you
    would feel free to go ahead and take use of the time in your
    turn to ask questions if I am not here.
        Senator Schumer. Can we move to change staff allocations?
        [Laughter.]
        Chairman Grassley. I want to go even further than you. We
    want to make sure that that does not happen January 5, 2017.
        [Laughter.]
        Senator Durbin. I understand your concern.
        Senator Leahy. I am staying out of this one.
        Senator Whitehouse. I would like to get involved.
        Chairman Grassley. Just on a gentleman's agreement, keep
    the questions going when we are voting.
        Good morning. We are here to discuss the problem of abusive
    patent practices and the solutions offered by the PATENT Act.
    Abusive patent litigation is having a serious impact on small
    companies, innovators, manufacturers, Main Street businesses,
    high-tech firms, and consumers. The patent troll problem is
    being felt across every sector of the economy, from small town
    Iowa to Silicon Valley. It is critical that we enact reforms to
    prevent this from further stifling the innovation and
    entrepreneurship that our patent system is designed to protect.
        The volume of abusive patent litigation has exploded in
    recent years. By some accounts it is costing the U.S. economy
    upwards of $80 billion annually. Bad actors are exploiting the
    high costs of patent litigation and using deceptive tactics to
    prey on businesses.
        Last week, several of us on the Judiciary Committee
    introduced the bipartisan PATENT Act. Since the process started
    in the last Congress, we have engaged stakeholders that have
    been targeted by patent abuse. In addition, we have sought to
    be responsive to concerns raised by other industries and
    constituencies. Because of this, we have made significant
    progress. As I have maintained from day one, patent holders
    have a very legitimate right to enforce their patents against
    infringement. Our efforts must strike the right balance.
        As a result of these efforts, the PATENT Act has received a
    tremendous positive response. The bill has the support of
    groups as diverse as hotels, retailers, tech companies,
    realtors, automakers, broadcasters, homebuilders, and
    restaurants. Further, other stakeholders such as the
    associations representing higher education and universities,
    the Coalition for 21st Century Patent Reform, and
    Biotechnology Industry Organization have recognized our
    commitment to finding effective solutions that do not produce
    unintended consequences or impinge upon the ability of good-
    faith actors to enforce patent rights. I ask unanimous consent
    to put several letters and statements in the record in support
    of the bill.
        [The letters follow as submissions for the record]
        Chairman Grassley. The PATENT Act deters abusive litigation
    through a series of targeted reforms. I would like to state
    briefly some of the key provisions. The PATENT Act establishes
    clear uniform pleading standards in patent infringement
    lawsuits and gives defendants clear notice of the claims
    against them. It increases transparency of the parties bringing
    lawsuits.
        It places standards on demand letters and clarifies that
    the widespread sending of deceptive demand letters are covered
    by Section 5 of the FTC Act. The bill also allows
    manufacturers--rather than end users--to litigate cases in
    order to protect consumers--customers who are targeted for
    patent infringement just because they buy a product off the
    shelf.
        Further, the bill deters frivolous suits and abusive
    litigation practices by allowing the award of attorney fees if
    a court determines that the position or conduct of a non-
    prevailing party that was not--was not objectively reasonable.
    It creates a mechanism for a court to recover fees where an
    abusive litigant is judgment-proof. Finally, in order to deal
    with the asymmetries in discovery burdens and litigation costs,
    the bill requires courts to stay discovery pending the
    resolution of certain preliminary motions such as dismissal or
    transfer venue.
        Because of the wide-ranging positive reactions to the
    PATENT Act, I am comfortable with where we are on the language
    contained in the bill. However, I am also aware of concerns
    about processes at the Patent and Trademark Office that have
    been recently raised by patent holders. They worry that
    administrative proceedings created by the America Invents Act--
    the inter partes review and post-grant review proceedings--are
    being abused and are stacked against patent holders. Other
    stakeholders, however, are of the view that these new
    proceedings have been very effective at weeding out weak
    patents.
        I am committed to looking at these concerns, determining
    whether they are valid or not, and working with my colleagues,
    particularly all the cosponsors, to see what can be done to
    improve this process.
        We will be hearing from witnesses on where they stand on
    these proceedings, so we will be able to evaluate what should
    and can be done to ensure that they are fair to all parties.
        As we move forward with this legislation, it is important
    that we continue the collaborative process that has
    characterized its created--creation and best represented by the
    cooperation of the cosponsors of the bill. Again, I thank my
    colleagues for their dedication and constructive engagement on
    this bill.
        It is my friend Senator Leahy's turn.

    OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM
                          THE STATE OF VERMONT

        Senator Leahy. Thank you, Mr. Chairman.
        Last week, we had seven bipartisan members of this
    Committee that came together, and we introduced legislation to
    address abusive [Video stopped as this point] conduct in our
    patent system. [Video started back up] We have been working on
    this issue for almost 2 years. Senator Lee and I introduced
    bipartisan legislation in the fall of 2013 that has been
    included in this package. Last Congress, Senators Cornyn and
    yourself and Senator Hatch and Senator Schumer and Senator
    Feinstein all had individual bills. Senator Klobuchar had her
    views. After long negotiations, we brought people together, and
    I think we have crafted a strong and fair compromise that will
    address abusive conduct while preserving the strength of our
    patent system, and I think legislation is needed.
        I hear this--I am home a number of times every month, and
    we are a small State and everybody knows everybody else. Just
    walking around the small businesses in Vermont, I hear what
    they have been threatened with. It is the same every Senator
    has, how they have been threatened with patent suits simply for
    using equipment they purchased off-the-shelf. Website owners
    have faced costly litigation for using basic software in e-
    commerce. Predatory conduct that takes advantage of the
    complexity of patent law does not serve the important goal for
    which our patent system was intended. It was intended to
    advance science and the useful arts.
        Writing legislation that involves our patent system
    requires care and balance. It can be a Rubik's Cube. Congress
    spent years and years developing what ultimately became the
    Leahy-Smith America Invents Act of 2011. Throughout our
    negotiations on this patent abuse bill--and I see a number of
    the people that we have worked with on the Leahy-Smith bill and
    now worked on this bill--I have emphasized the need to work
    with manufacturers, universities, and other patent holders to
    ensure we get the right balance. The administration--in fact, a
    number of those groups have written to this Committee to
    welcome the changes we made in the Senate bill. The
    administration has praised this legislation. Yesterday, the New
    York Times Editorial Board came out in support of the bill.
        As the legislation heads to markup, we should continue to
    work on reasonable amendments--reasonable amendments--to
    improve the bill. Some have raised concerns about unfair
    practices that are taking place in the post-grant review
    proceedings at the Patent and Trademark Office. I think we
    should look at that. Those proceedings are an important tool to
    improve patent quality, but if they are being misused, then let
    us address it. We are already working on those ideas, and I
    think we will discuss them today.
        Our patent system is a wonderful thing to have, and bad
    actors that use abusive practices, they discredit it. No one's
    interest that they continue. Let us act on behalf of Main
    Street and the patent system alike.
        I welcome the witnesses that are here. Mr. Chairman, I
    thank you for having this hearing. I think it is extremely
    important.
        Chairman Grassley. I thank you for your cooperation through
    all the weeks of negotiation on this bill.
        Senator Leahy. There have been a lot of them.
        Chairman Grassley. Yes. I am going to call on Senator
    Klobuchar because we have a Minnesota person here, but
    remember, this Minnesota person was born in Iowa.
        [Laughter.]
        Senator Klobuchar. All right. Let me begin. Mr. Kevin
    Rhodes was born in Iowa, but there is just a little bit more to
    his resume, but really maybe I need to say nothing else. He is
    actually the vice president and the chief intellectual property
    counsel of 3M Company. Senator Franken and I are very proud of
    that company, and I think that their work is very----
        Senator Franken. What do the three M's stand for?
        Senator Klobuchar. Minnesota Mining and Manufacturing.
    Thank you. It is a company that has so many patents that it
    actually has more patents than it has employees, and it has a
    lot of employees. We like to say that it has a patent for every
    employee. They care very much about the topic today.
        Kevin is responsible for managing the global intellectual
    property assets of 3M Company and its worldwide affiliates. He
    serves as the chairman of the Steering Committee of the
    Coalition for 21st Century Patent Reform. He is a
    member of the Board of Directors of the American Intellectual
    Property Law Association. He also serves on the Executive
    Committee of the Association of Corporate Patent Counsel.
        He has used his expertise as well as the expertise of all
    of the patent holder companies that are involved in 21st
    Century Patent Reform to make significant and constructive
    changes to this bill, and I just want to thank Senator
    Grassley, Senator Leahy, Senator Cornyn, Senator Schumer,
    Senator Hatch, and Senator Lee. We have all worked together to
    make this bill a balance--and we know that people will have
    different views on it, but a balance of not only going after
    the patent trolls and the lawsuits, but also making sure that
    we have made some changes to the bill that allow companies like
    3M that have to assert their rights to protect patents to be
    able to continue to do that.
        I want to thank him for his constructive work, and thank
    you, Mr. Chairman.
        Chairman Grassley. I am glad to do it.
        Before I introduce the other people, I want to inform my
    colleagues from Minnesota that one of the reasons I am voting
    for Trade Promotion Authority is because the Knoxville plant of
    3M exports about 40 percent of their product.
        Our first witness is Mark Chandler, senior vice president
    and general counsel, Cisco. Mr. Chandler joined Cisco in 1996
    upon acquisition of StrataCom, Inc., where he had been general
    counsel. Prior to working at StrataCom, he worked as vice
    president of corporate development and general counsel of
    Maxtor Corporate, a manufacturer of hard disk drives. In 2010,
    the National Law Journal named Mr. Chandler one of the 40 Most
    Influential Lawyers of the Decade. In 2013, American Lawyer
    numbered him among the ``Top 50 Big Law Innovators of the Last
    50 Years.'' Mr. Chandler holds a bachelor's degree in economics
    summa cum laude from Harvard College and a juris doctor from
    Stanford Law School.
        I am going to pass over for obvious reasons Mr. Rhodes.
        Third on our panel is Diane Lettelleir, who is senior
    managing counsel--litigation at J.C. Penney, where she is
    responsible for all patent litigation matters. Prior to joining
    J.C. Penney, Ms. Lettelleir was a shareholder at Winstead PC,
    Dallas, and a member of the Intellectual Property and
    Commercial Litigation Practice Group. Ms. Lettelleir's
    litigation experience includes complex patent, copyright, and
    trademark matters, including patent infringement, patent
    invalidity, copyright infringement, copyright in violation of
    technical--technology licensing agreements. She holds a
    bachelor's degree from Indiana State University magna cum laude
    and a juris doctorate from Southern Methodist Dedman School of
    Law.
        Henry Hadad is senior vice president and deputy general
    counsel intellectual property, Bristol Squibb-Myers Squibb,
    where he is responsible for all aspects of patent and trademark
    procurement, counseling, litigation, and even policy. Mr. Hadad
    previously held positions as vice president and associate
    general counsel at Schering-Plough Corporation where he was
    chief IP counsel until 2009. Immediately prior to joining BMS
    in 2011, he was associate patent counsel at Johnson & Johnson.
    He is a member of the Board of Directors of the Intellectual
    Property Owners Association, American Intellectual Property Law
    Association Education Foundation. He holds a bachelor of
    science in biology from Haverford College and a juris doctor
    cum laude from American University Washington College of Law.
        Our fifth witness is Julie Samuels who is executive
    director and president of the board at Engine, a nonprofit
    focused on technology entrepreneurship and giving startups a
    seat at the table of policy debates. Ms. Samuels is a frequent
    commentator on technology and policy issues for national media,
    particularly the intellectual property space, and she has filed
    briefs with the Supreme Court and has testified before
    Congress. Ms. Samuels came to Engine by way of the Electronic
    Frontier Foundation, where she was senior staff attorney and
    Mark Cuban Chair to Eliminate Stupid Patents. That is what it
    says here.
        [Laughter.]
        Chairman Grassley. I think I will stop there.
        [Laughter.]
        Senator Leahy. Tell us what is really on your mind.
        Chairman Grassley. We will go left to right here. Start,
    Mr. Chandler. Then we will wait until everybody has testified
    before we have questions.

     STATEMENT OF MARK CHANDLER, SENIOR VICE PRESIDENT AND GENERAL
              COUNSEL, CISCO SYSTEMS INC., WASHINGTON, DC.

        Mr. Chandler. Mr. Chairman, Ranking Member Leahy, and
    members of the Committee, at Cisco we have over 25,000
    engineers who have obtained over 12,000 U.S. patents----
        Senator Leahy. Is his microphone on?
        Chairman Grassley. Is your microphone on? Is the red light
    on?
        Mr. Chandler. I have a red-green----
        [Laughter.]
        Mr. Chandler. There we go. OK. Thank you. Sorry about that.
        Senator Leahy. We get things done technically here.
    [Laughter.]
        With our low-tech machines.
        Senator Klobuchar. Yes, just a little 3M technology over
    there.
        [Laughter.]
        Mr. Chandler. Chairman Grassley, Ranking Member Leahy,
    members of the Committee, at Cisco we have over 25,000
    engineers who have obtained over 12,000 U.S. patents who are
    working hard to extend and secure the Internet. Our coalition,
    United for Patent Reform, includes thousands of companies in
    the automotive, retail, hospitality, and other industries.
        Mr. Chairman, Ranking Member Leahy, Senators Hatch,
    Klobuchar, and Lee--and I would like to thank Senator Cornyn
    and Senator Schumer as well--thank you for introducing the
    PATENT Act. You are addressing a fundamental systemic imbalance
    that is simple to illustrate. Last year, over 4,400 patent
    suits were filed, the third highest in history, and almost
    double the number 10 years ago, with the pace rising this year.
    Sixty-three percent of those, or about 3,000, came from
    entities who do not make any product but seek only the reward
    of litigation gamesmanship, compared to only 20 percent of
    suits 10 years ago, a rate of about 400 or 500 a year 10 years
    ago up to about 3,000 now. An astounding 40 percent of the
    suits last year were filed in only two judicial districts,
    where less than 1.5 percent of Americans live.
        When plaintiffs and defendants pervasively believe, rightly
    or wrongly, that judicial results depend on where an action is
    brought, fundamental precepts of legal integrity and
    consistency of legal application are endangered.
        Behind these dry statistics, of course, are stories of
    abuse. In one recent case, a lawyer bought semiconductor
    patents related to Wi-Fi that were close to expiration and set
    up a company he cynically called ``Innovatio.'' These standard-
    essential patents had previously been heavily licensed to other
    chip companies, so the majority of Wi-Fi devices did not need
    any new license at all. Innovatio and the Niro law firm sent
    over 14,000 letters to small businesses ranging from cafes to
    bakeries to children's health clinics, anyone they thought
    might use Wi-Fi. They did not tell them that most devices were
    already licensed but demanded $2,000 to $3,000 per location.
    They did not tell the victims that Cisco had intervened to
    protect its customers but, rather, told them that equipment
    manufacturers had not stepped in.
        They planned to extract $4 billion from the productive part
    of the American economy. Before we stopped them, they collected
    several million. We, with other companies, litigated
    aggressively, and a judge determined that the patents were, in
    fact, worth 3.2 cents per chip for the ones that were not
    licensed already. We got the right result, but we had to pay
    $13 million in legal fees to get there.
        This issue is hard because, while our cause is just--and
    who comes here to testify without saying that--the concerns of
    those who do not yet support the PATENT Act are also
    understandable. Both sides suffer from abuse. Yes, I am
    outraged by those who game the patent litigation system,
    forcing Cisco alone to spend a quarter of a billion dollars in
    the last decade on legal fees for cases that never should have
    been brought, or who shake down small businesses with
    misleading demand letters. I am equally outraged by the
    activity of hedge funds, often the same people who bring the
    suits against us, who use the inter partes review system to
    throw doubt on the legitimacy of innovative companies' hard-won
    patents in order to short the stocks and make a quick buck.
        How do we get to yes? We can fix the problem by ensuring
    that patents that never should have been granted are
    invalidated by giving more transparency to the process and by
    limiting extortion litigation games that artificially raise
    costs.
        As to bad patents, while everyone supports patent quality,
    few raise their hands to have their own bad patents
    invalidated. Patent rights are not inalienable natural rights
    endowed by the Creator like life, liberty, and pursuit of
    happiness. They are a Government-created tool designed, as our
    Constitution says, for an industrial policy purpose, to promote
    progress in science and the useful arts. They allow the patent
    holder to exclude from the market even those who innocently and
    independently arrive at similar results. For every entrepreneur
    who is given a monopoly right in order to promote innovation,
    others are precluded from exercising their God-given talents.
        I do urge you to directly address, such as through
    securities laws, the issue of the hedge funds I referred to.
    This legitimate issue should not be used to justify unrelated
    steps making it harder to invalidate bad patents like the
    misguided STRONG Act proposes to do. The IPR and covered
    business method programs, while limited in scope, are effective
    because they provide a consistent mechanism for review.
        Second, we support transparency efforts reflected in the
    heightened pleading standards and disclosure of true interests
    behind litigation, and we support ensuring that those
    benefiting from patent litigation cannot hide behind shell
    entities in egregious cases where attorneys' fees are imposed.
        Third, the PATENT Act helps address procedural abuse.
    Provisions on pleading, customer stay, and fee shifting are
    strong steps in the right direction. We would prefer to have an
    absolute stay of discovery before the Markman ruling,
    understand the concerns of other industries, but we think
    tightening the venue rules and the transfer rules and limiting
    discovery further prior to transfer would ameliorate our
    concerns.
        Thank you again for the opportunity to appear today and for
    your efforts to fix a national problem that each year sucks
    billions of dollars from the inventive and productive parts of
    our economy.
        [The prepared statement of Mr. Chandler follows as a
    submission for the record]
        Chairman Grassley. Thank you, Mr. Chandler, for keeping
    within the time limit.
        Now, Mr. Rhodes.

        STATEMENT OF KEVIN H. RHODES, VICE PRESIDENT AND CHIEF
     INTELLECTUAL PROPERTY COUNSEL, 3M COMPANY, ST. PAUL, MINNESOTA

        Mr. Rhodes. Chairman Grassley, Ranking Member Leahy,
    members of the Committee, thank you for the opportunity to
    testify here this morning, and thank you, Senator Klobuchar,
    for that very kind introduction this morning.
        Because of the longstanding importance of the patent system
    to 3M and other member companies of the Coalition for 21st
    Century Patent Reform, we have been engaged with members of
    this Committee and your terrific staffs and many other
    stakeholders for years in discussions of patent law and policy.
    We bring a balanced perspective to these issues as 3M, like
    other 21C member companies, has diverse business interests in
    several industry segments, and we litigate patent disputes as
    both a plaintiff and as a defendant. We thus support measure
    reforms to curb the patent litigation abuses that undeniably do
    exist today, but balanced against the need to ensure that the
    ability of all patent owners to enforce their rights against
    infringers is not unduly undermined by unbalanced or overly
    broad reactions to litigation abuses by some patent owners.
    That is the elusive balance that we have been seeking in the
    patent reform legislation that was proposed last year and in
    this Congress, and we very much appreciate the opportunity to
    continue this dialog today.
        21C congratulates Chairman Grassley, Ranking Member Leahy,
    and the other cosponsors--Senators Cornyn, Schumer, Hatch,
    Klobuchar, and Lee--on the introduction of the PATENT Act. We
    do believe that the bill represents a significant, thoughtful,
    and constructive contribution to the patent reform effort.
        I will be pleased to explain further this morning, we
    appreciate that the language of the bill reflects a number of
    welcome compromises on such litigation issues as the way it
    balances pleadings and early disclosures, the customer stay,
    the stay of discovery pending early motion practice, calling
    upon the expertise of the Judicial Conference to develop in-
    court discovery and case management procedures for patent
    cases, and fee shifting and making sure that fees are
    recoverable against parties who ought to be paying them, as
    well as non-parties.
        21C does not believe that the PATENT ACT is ready to be
    reported out of this Committee just yet. The job of patent
    reform is not yet done. In our view, meaningful patent reform
    legislation must also include provisions to ensure that the so-
    called AIA review proceedings, the IPR and PGR proceedings that
    were referenced in Senators Grassley' and Leahy's opening
    remarks, are balanced and fair to patent challengers and patent
    owners alike. We ask this Committee to prioritize reforms of
    these AIA review proceedings equally with litigation reforms.
        Let me be clear: AIA reviews are critical elements in the
    overall framework of a properly functioning patent system. They
    serve an essential role in providing faster and less expensive
    alternatives to litigation to determine the validity of issued
    patents. That is why we supported their creation in the first
    place in the Leahy-Smith America Invents Act. They should be
    conducted in a manner that is equitable to all participants,
    not so skewed against patent owners that they invite
    gamesmanship and abuse, which regrettably is the case today. I
    look forward to discussing this morning some common-sense
    changes to the way AIA reviews are handled that will address
    the concerns without undermining their effectiveness.
        It is a Rubik's Cube, as Senator Leahy said this morning.
    There are a lot of moving parts. What we would propose is a
    comprehensive set of reforms that gets at these issues:
        First, reforming the procedures used when the PTO is
    considering petitions to institute reviews, to level the
    playing field in that process.
        Second, allowing patent owners to have issues raised in
    review proceedings first considered in reissue or reexamination
    proceedings where they can amend the claim and BRI is
    appropriate in that examination, and that would take place
    prior to IPR or PGR review.
        Third, applying the same standards in reviews that do take
    place then as are applied in court, including claim
    construction, burden of proof, and presumptions.
        As Mr. Chandler said just a minute ago, the validity of
    patents ought not to--or how patents are litigated ought not to
    depend on the court. The validity of patents ought not to
    depend on where it is determined either. These are intended to
    be faster, cheaper alternatives to district court litigation.
    They ought to apply the same standards and get generally the
    same results.
        These reforms will achieve increased fairness, balance, and
    consistency in adjudications of patent validity in PTO and in
    the courts. By addressing the questions and uncertainty that
    now exist concerning these reviews, Congress can reassure the
    innovation community that our patents can be relied upon to
    protect and support the investments in research, development,
    commercialization, technology transfer, and collaboration that
    are so essential to future innovation.
        As always, I, 3M, and 21C remain committed to working with
    members of this Committee, their staffs, and other stakeholders
    to couple the provisions in the PATENT Act as introduced with
    provisions to restore balance and fairness in AIA reviews. We
    look forward to lending our strong support for a bill that
    addresses both patent litigation and AIA review proceedings in
    an effective, balanced, and comprehensive fashion.
        I will be pleased to answer any questions or supply any
    additional information for the record today. Thank you very
    much.
        [The prepared statement of Mr. Rhodes follows as a
    submission for the record]
        Chairman Grassley. Thank you, Mr. Rhodes.
        Now, Ms. Lettelleir.

       STATEMENT OF DIANE K. LETTELLEIR, SENIOR MANAGING COUNSEL-
        LITIGATION, J.C. PENNEY CORPORATION, INC., PLANO, TEXAS

        Ms. Lettelleir. Chairman Grassley, Ranking Member Leahy,
    and members of the Judiciary Committee, I am Diane Lettelleir,
    senior managing counsel of litigation for J.C. Penney
    Corporation. I want to thank you for the opportunity to testify
    today about the devastating impact of abusive patent litigation
    on J.C. Penney. It is an honor to present the company's
    perspective, and I can assure you that our views are shared by
    many other Main Street businesses around the country, including
    other retailers, grocers, homebuilders, convenience stores,
    advertisers, restaurants, realtors, and hoteliers.
        On behalf of J.C. Penney, I also want to thank the
    bipartisan sponsors of the PATENT Act for their commitment to
    tackling this very important issue. This legislation will make
    great strides toward addressing the abusive patent litigation
    facing J.C. Penney and other Main Street businesses.
        In 1902, James Cash Penney opened his first store in
    Wyoming. Since that humble beginning, J.C. Penney has grown to
    be one of the Nation's largest retailers. Today J.C. Penney has
    over 1,000 stores employing approximately 114,000 associates
    across 49 States and Puerto Rico.
        J.C. Penney's business model is simple, but we use a
    complex array of technologies to enhance our customers'
    shopping experience. J.C. Penney, like countless other Main
    Street businesses, has been ravaged by the exponential growth
    and aggressiveness of patent troll industries.
        While abusive patents initially targeted the high-tech
    industry, they expanded their focus to include Main Street
    businesses. In fact, in 2012, for the first time, non-
    practicing entities reportedly sued more Main Street companies
    than technology companies. The motivation for this strategy is
    easy to understand. Main Street businesses that only use
    technology are easy prey because they often lack the technical
    or legal expertise to fight patent infringement claims. Abusive
    patentees take advantage of these weaknesses and strategically
    offer settlements at a level set below the cost of defense.
    Faced with this calculus, many Main Street businesses have
    little choice but to pay.
        J.C. Penney's experience provides a framework for
    understanding why this legislation is so important to Main
    Street businesses. J.C. Penney has been a defendant in 30 non-
    practicing entity lawsuits just in the last 6 years. In
    addition, J.C. Penney received countless threatening demand
    letters demanding settlements for what we consider to be very
    weak patents or invalid patents. None of these NPE lawsuits or
    demand letters relates to items we sell; every claim relates to
    the technology we use to operate. NPEs frequently seek tens of
    millions of dollars in damages in these cases.
        J.C. Penney agrees that innovation and the U.S. patent
    system are important to the U.S. economy, and J.C. Penney
    respects the intellectual property rights of others. While
    patent protection and the right of enforcement are important
    components of the innovation ecosystem, so, too, is the
    adoption of innovation. Innovation without the opportunity for
    commercial adoption does not lead to economic growth or further
    innovation. The current patent infringement litigation
    environment is undercutting the opportunity for Main Street
    businesses to adopt innovation.
        In parallel to the direct costs of patent infringement
    allegations, the steady stream of claims has disrupted J.C.
    Penney's adoption of innovation offered by small businesses.
    The disruption manifests itself in two ways. First, J.C. Penney
    knows that by adopting new technology, it becomes a target for
    abusive patent litigation. Second, the small technology company
    itself becomes a target by virtue of its efforts to
    commercialize its innovation. In both instances, J.C. Penney
    knows that the small company will not have the financial
    strength to defend itself or J.C. Penney against these threats.
        This dynamic has caused a shift in how J.C. Penney and many
    other Main Street businesses approach the adoption of
    innovation. J.C. Penney's shift away from small companies has
    not been driven by concerns that the new technology actually
    infringes any patent. In most cases, the small companies
    themselves own patents covering the technologies they offered
    to J.C. Penney. Instead, J.C. Penney's shift away from small
    technology companies is driven by the cost of defense of patent
    litigation.
        J.C. Penney and Main Street businesses fully support the
    rights inventors and patent holders to market their products
    and to bring claims to enforce their intellectual property
    rights. We believe that the thoughtful and balanced patent
    litigation reforms set forth in the PATENT Act will preserve
    these rights while curbing abusive patent litigation.
        Thank you once again, Chairman Grassley, Ranking Member
    Leahy, and members of the Committee, for holding this critical
    hearing. We urge this Congress to pass meaningful reform
    without delay.
        Thank you.
        [The prepared statement of Ms. Lettelleir follows as a
    submission for the record]
        Chairman Grassley. Thank you, Ms. Lettelleir.
        Mr. Hadad.

      STATEMENT OF HENRY HADAD, SENIOR VICE PRESIDENT AND DEPUTY
     GENERAL COUNSEL-INTELLECTUAL PROPERTY, BRISTOL-MYERS SQUIBB,
                           NEW YORK, NEW YORK

        Mr. Hadad. Chairman Grassley, Ranking Member Leahy, and
    members of the Committee, thank you for the opportunity to
    appear on this panel.
        Bristol-Myers Squibb is a global biopharmaceutical company
    with over 25,000 employees focused on our mission to discover,
    develop, and deliver innovative medicines that help millions of
    patients prevail over serious disease. In 2014 alone, BMS spent
    over $4.5 billion in research and development. BMS leads the
    industry with our ground-breaking immuno-oncology therapies and
    pipeline which harness the body's own immune system to target
    and detect cancer cells. Given the extraordinary challenges,
    expense, and time it takes to discover and develop a new drug,
    BMS depends on strong and predictable IP protection to justify
    this investment.
        BMS acknowledges the patent litigation concerns expressed
    by other members of this panel and appreciates the significant
    efforts by the bill's sponsors and their staffs to strike a
    balance between curbing abuses of the patent litigation process
    and promoting innovation.
        Provisions around early disclosure of ownership
    information, Judicial Conference involvement in discovery and
    case management, and customer stay should improve the
    litigation process overall. Provisions around fee shifting
    appropriate focus on objectively unreasonable behavior by a
    non-prevailing party, while the fee recovery provisions reflect
    a balanced and improved approach. And the discovery stay and
    pleadings provisions include important concepts that should
    reduce potential abuse.
        Despite this significant progress, however, BMS strongly
    urges the Committee to strengthen the bill by addressing
    abusive litigation practices not only in the district courts
    but also in the context of IPR and PGR proceedings before the
    USPTO. We commend the USPTO and the PTAB for their efforts in
    professionally and diligently managing nearly 3,000 IPR
    filings. Unfortunately, in an effort to timely address the
    deluge of filings, these proceedings have been implemented in a
    manner that lacks due process protections and unfairly
    prejudices patent owners.
        Recent statistics show that the PTAB grants IPR petitions
    and finds at least some of the challenged claims invalid over
    75 percent of the time. Moreover, 80 percent of the patents
    challenged in IPRs are also asserted in parallel district court
    proceedings. Given this data, it is not surprising to see
    increasing abuse of these proceedings, including IPR petitions
    filed by hedge funds that are short-selling stock based largely
    on investor anxiety around these proceedings, by parties
    primarily seeking to extract a financial settlement from patent
    holders, and by litigants presenting the same or substantially
    the same arguments that were presented in Federal court.
        The same challenges and serial harassment that confront
    other members of this panel regarding patent assertion entities
    are mirrored in the abuses of the IPR-PGR system. The stakes
    are high. If there is a reduced confidence in the patent
    system, the biopharmaceutical industry will innovate less,
    invest less, and employ fewer. To that end, there will be fewer
    ground-breaking therapies for patients.
        There are three procedural changes that, if enacted
    together, would more fairly balance these proceedings, aid in
    their efficient adjudication to the benefit of patent owners
    and challenges alike, and provide faith and predictability in
    the patent system.
        First, in IPR and PGR proceedings, the PTAB apply the same
    ``correct'' claim construction standard as district courts
    rather than the ``broadest reasonable'' interpretation.
        Second, the PTAB also should respect the presumption of
    validity for granted patents and apply the same ``clear and
    convincing'' evidentiary standard as applied in district courts
    for establishing invalidity of the patent. By doing so, this
    would minimize inconsistent results and duplicative proceedings
    between the courts and the PTAB and ultimately increase
    fairness and predictability.
        The second proposal would be that patent owners should be
    permitted to make minor amendments to claims during the
    proceeding and more substantial amendments through the filing
    of a reissue or reexamination application prior to the
    institution of any IPR or PGR.
        My third and last proposal is that the procedural rules
    governing IPR and PGR should be revised to ensure fairness and
    due process for patent owners, including equal opportunity to
    submit evidence, reducing potential bias by having someone
    other than the PTAB Merits Panel decide whether to institute
    the petition, and by permitting live testimony on key issues.
        I would be pleased to address these proposals in more
    detail if there are any questions. The PATENT Act, with the
    suggested modifications to USPTO post-grant proceedings, is a
    productive step that will curb abusive practices and minimize
    unintended consequences for legitimate patent owners.
        I thank you for the opportunity to appear today and look
    forward to answering any questions you may have. Thank you.
        [The prepared statement of Mr. Hadad follows as a
    submission for the record]
        Chairman Grassley. Before I ask questions, I just got
    notice from the floor that the 10:30 vote will probably be now
    around 1:30. If you have got any other information, let me
    know.
        I will start, and we are going to have 5-minute rounds---I
    screwed up your introduction, so I might as well do that. Go
    ahead.
        [Laughter.]
        Ms. Samuels. No problem.

    STATEMENT OF JULIE P. SAMUELS, EXECUTIVE DIRECTOR AND PRESIDENT
                OF THE BOARD, ENGINE, NEW YORK, NEW YORK

        Ms. Samuels. Chairman Grassley, Ranking Member Leahy, and
    members of the Committee, I am Julie Samuels, executive
    director of Engine, an organization started several years ago
    to help advocate for high-tech, high-growth entrepreneurship.
    Using policy analysis and economic research, we represent
    startups nationwide. I am also a recovering patent lawyer. It
    is an honor to be here today, and I look forward to discussing
    effective solutions to the patent troll problem, especially
    because this problem disproportionately harms the community of
    high-tech, high-growth startups I represent.
        Today I am going to tell you about what the startup
    community needs from a functioning patent system--fairness and
    balance--and why the PATENT Act would help ensure those things.
        Patent trolls are armed with two weapons: low-quality,
    impossible-to-understand patents, on the one hand, and the
    outrageous costs, both in time and money, of patent litigation,
    on the other. Imagine you are a small startup, cash-strapped
    and hungry, and you get a patent demand from a company you have
    never heard of, claiming to own some basic technology. Your
    choices are: hire a lawyer and spend valuable time and limited
    resources fighting back, or simply pay the troll to go away,
    which is why I want to talk today about fairness and balance.
        Right now we have a system that across the board favors
    patent holders who want to abuse that system. Those parties
    have exclusive access to all of the relevant information
    surrounding the patent, basic things such as who owns it, who
    else has rights to it, along with the ability to singlehandedly
    drive up the costs of litigation with motion practice and
    discovery. It is a system that essentially allows for legalized
    extortion, and that leaves startups nearly powerless to fight
    back without great personal risk and expense.
        Take the experience of Jump Rope, a Chicago startup founded
    by Peter Braxton. An Air Force veteran and former combat pilot,
    Peter found himself facing a troll suit less than 1 month after
    he launched Jump Rope. Peter's lawyers advised him to settle,
    but he instead decided to fund the litigation himself.
    Ultimately the court found no infringement and that the
    plaintiff failed to conduct even due diligence before filing
    suit, but not before Peter was forced to spend more than
    $250,000 on his defense.
        Or take Life360, an app keeps over 55 million families safe
    and connected. After raising $50 million in capital early last
    year, the company was hit with a troll suit that it decided to
    fight. In spite of a jury finding the troll's claims meritless,
    Life360 still had to spend over $1.5 million to defend itself,
    with no reasonable recourse to recover that money.
        Many of the startups--and this is incredibly important, I
    think. Many of the startups who support reform are also patent
    holders themselves, like Foursquare, which currently faces four
    rolls. This year's legal budget set aside enough money for
    these cases alone that could otherwise have been enough to hire
    between six and ten engineers--good jobs that now do not exist.
        There are countless other companies in our network, too,
    who invest in the patent system, yet still support strong
    reform. Many asked that I not use their names because they are
    afraid of attracting more troll suits.
        One startup general counsel told me, and I quote, ``The
    system is set up in such a way that it pretty much guarantees
    that the troll gets paid. It has nothing to do with the
    patent's claims, but with the litigation fees. We were
    bombarded with letters, emails, discovery requests, and
    motions. It was all meaningless paper, but we still had to
    spend time and money to respond.''
        In each case, startups divert resources from innovating,
    growing their business, and creating new jobs to fight what are
    often meritless claims. To make matters worse, the bulk of this
    money never finds its way back to inventors or R&D departments.
        For a small startup, even one troll suit can ruin its
    business, and the mere threat can cause significant disruption.
    No small business owner should be forced to put her company at
    risk to defend what she knows is right, which is why we need
    the kind of comprehensive set of reforms that is the PATENT
    Act. The PATENT Act would bring much needed transparency to the
    system through heightened pleading and demand letter reform,
    giving startups tools to understand the scope of the threat
    they face, helping them decide how to respond. The bill creates
    the appropriate incentives for startups facing meritless suits
    to fight back. By shifting fees and allowing for real recovery
    and by reforming discovery, the PATENT Act allows parties a
    fighting chance in court.
        Right now, a startup worried about its bottom line has
    almost no choice but to pay a troll to go away. The PATENT Act
    would dramatically change this calculation and keep the
    courthouse doors open to everyone. Taken together with the
    strong post-grant review procedures from the America Invents
    Act, the PATENT Act represents an important package of
    incentives that would rebalance and restore faith in a broken
    system.
        To be clear, no single reform in the bill can accomplish
    this task alone. It is only when they are all taken together
    that we can find the missing balance and fairness.
        Opponents of reform argue that proposed changes in the law
    would have the unintended consequence of making it harder to
    assert valid claims. In fact, nothing in the PATENT Act would
    hinder an inventor from monetizing, asserting, or enforcing
    valid patents, or making claims that are substantially
    justified or objectively reasonable.
        The freedom to innovate has always been a central part of
    the American dream. For the sake of our economy and our
    identity, we must not let innovation become a legal liability.
    A patent should be valued for what is covers and how it
    incentivizes innovation, not for its litigation value. The
    PATENT Act would go a long way to making that the case.
        Thank you, and I look forward to your questions.
        [The prepared statement of Ms. Samuels follows as a
    submission for the record]
        Chairman Grassley. We will have 5-minute rounds.
        I am going to start with Mr. Chandler. We have heard
    concerns that the PATENT Act could have the unintended effect
    of undermining patent property rights. In your opinion, because
    Cisco, I have been told, has 12,000 patents, are you concerned
    that this bill would devaluate your company's extensive patent
    portfolio?
        Mr. Chandler. Not at all. Our portfolio is used to stop
    others when they are infringing our patents. We also cross-
    license freely with other companies so that each of us can be
    empowered by each other's patents when that makes sense for us
    to do so with other companies.
        The PATENT Act is a series of changes that will bring
    litigation fairness, that will allow for removing artificially
    imposed costs in the system that do not produce useful results.
        You know, the IPR process has been discussed a little bit
    this morning, and the IPR process is good for Cisco because it
    is good for the integrity of the patent system. We recently
    brought litigation against a company which systematically used
    our patented technology as well as word-for-word copying of our
    copyrighted materials. They have asked for IPR review at the
    Patent Office of our patents in the case.
        Of course, I do not want my patents invalidated, and I
    believe our patents are strong. If I do not like the result of
    the IPR, there is an appeal process. But at the end of the day,
    the patents need to be more than just a blank and unexamined
    check to bring litigation. It really needs to stand for true
    innovation. If some of my patents are invalidated after getting
    a closer look under the rules that exist before I am able to
    enforce them, so be it. We will have a stronger, more credible
    patent system as a result, even if I do not like a particular
    short-run result.
        We strongly support the PATENT Act, and we do not buy the
    need to undermine the ability of the Patent Office to undertake
    the reviews that were created in the America Invents Act.
        Chairman Grassley. I would have questions for Chandler,
    Samuels, and Lettelleir, hopefully a short answer: Do you
    believe that the PATENT Act is effective in addressing the
    patent troll problem? Would you in a short way say what you
    think is the most important reform in the bill? I will start
    with Chandler.
        Mr. Chandler. I think the most--the answer is yes, and the
    most important reform in the bill is the fee-shifting, fee
    recovery provisions that ensure that people with weak lawsuits
    and weak patents think twice before bringing them.
        Chairman Grassley. Ms. Samuels.
        Ms. Samuels. I would also answer yes to the first--sorry.
    Sorry about that. Yes, I think it is effective, and I actually
    have a hard time saying that there is one most effective
    provision. I think the most effective characteristic of the
    bill is that it is comprehensive and that, when taken together,
    we have a package of incentives that can rebalance the system.
        Chairman Grassley. Ms. Lettelleir.
        Ms. Lettelleir. I agree with Ms. Samuels. I think that it
    is a very important piece of legislation and will be a powerful
    tool for those that are the victims of abusive patent
    litigation tactics. I feel like the most important attribute of
    the PATENT Act is the fact that the provisions complement each
    other, and one provision makes another provision more
    effective, more meaningful, as it is applied to individual
    scenarios. I think the fact that they work together, they
    complement each other, and they strengthen each other--if you
    start picking apart one aspect, one provision, it weakens
    another provision. It is a very carefully crafted piece of
    legislation, and we think that has been very well crafted, and
    we support all the provisions as they work together.
        Chairman Grassley. A short question for Mr. Rhodes. Do you
    believe that the PATENT Act's litigation provisions strike the
    right balance between patent holders and petitioners?
        Mr. Rhodes. Yes, thank you for the question, Chairman
    Grassley. Yes, we think a lot of very welcome compromises have
    been made to the provisions that get it to that balance and
    really address the concerns that we have heard about on the
    panel this morning, while still providing balance and for the
    ability of patent owners to assert their rights against true
    infringement and to attain effective and prompt and expeditious
    relief. We think that the improvements that I mentioned in my
    opening statement are welcome advances in that regard.
        Chairman Grassley. I am skipping over a question here
    because my time is running out. For Ms. Samuels, as you note in
    your testimony, patent abuse is a problem that
    disproportionately targets startups and small businesses, so
    legislation trying to put a stop to these predatory practices
    is something that companies should welcome. However, at the
    same time, concerns have been expressed that some of the
    proposed patent reform bills will negatively impact the ability
    of these same startups and small businesses to attract
    investment.
        Since you are someone that deals with startups on a daily
    basis, do you believe that the PATENT Act will have an adverse
    impact on venture capital investment for small companies and
    startups?
        Ms. Samuels. Thank you for the question, Chairman Grassley.
    I absolutely do not think this will have any impact on the
    venture capital as opposed to startups.
        Chairman Grassley. OK. Senator Leahy?
        Senator Leahy. Thank you, Mr. Chairman.
        Mr. Rhodes, you are a chief of intellectual property
    counsel for 3M, but you also wear another hat, the chair of
    21C. Let me ask you, you have been involved in this. An
    important part of the PATENT Act was the customer stay
    provision. Those who are not familiar with that, it allows end
    users and retailers to stay a lawsuit against them when the
    manufacturer is available to litigate the case instead.
        Some have criticized this for not focusing on end users.
    They have said, and I believe incorrectly, that the provision
    would leave patent owners without redress for infringement by
    foreign manufacturers outside of the jurisdiction of U.S.
    courts.
        Senator Lee and I authored this provision in our original
    bill last Congress. I hate to think of the number of hours and
    months we spent reworking it to address those exact concerns.
    As a patent holder and a manufacturer, can you share your views
    of the concerns that have been raised?
        Mr. Rhodes. Yes, thank you for the question, Ranking Member
    Leahy. I have heard those concerns. I do not share them. I
    think the customer stay provision is a very carefully crafted
    compromise among many different stakeholder groups, some of
    whom are sitting at this table this morning. We are really
    talking, with respect to customer stay, about a three-part
    negotiation balancing the interests of the patent holder, the
    manufacturer, and the customer. I will assure you that we
    looked very carefully at the issues that you talked about in
    reaching those compromises.
        In particular, with respect to retailers and end users, we
    did define ``covered customer'' to only encompass those
    entities, not entities who either manufacture products or who
    modify the products in a way that gives rise to the charge of
    infringement. Those are the parties that should be defending
    against the infringement charge.
        As to foreign, if you would like me to answer that
    question, the stay is only available if the manufacturer is
    either a party to the case in U.S. court with the covered
    customer or a party to another case in U.S. Federal district
    court. We added that language into the bill to address the
    exact concern you mentioned, so it is just not possible that a
    manufacturer beyond the jurisdiction of U.S. courts could--its
    customer could avail itself of the stay. That is just not
    possible.
        Senator Leahy. I assumed that was going to be your answer,
    but after all the time that Senator Lee and I spent on that, I
    am glad to have that answer.
        Mr. Hadad, you raised concerns about abuses of post-grant
    review programs created by the America Invents Act, and I am
    troubled by the behavior you described. It is vital, I think we
    would all agree, that PTO programs remain a strong tool for
    patents to be reviewed in an efficient setting. Of the reforms
    you are suggesting, what is most important? Can you assure us
    that those reforms would not undermine the law as it is now,
    the America Invents Act?
        Mr. Hadad. Thank you for the question, Ranking Member
    Leahy. I think the three proposals I set out are somewhat
    interconnected, and I think they all serve to make it a fair,
    more balanced proceeding. I think----
        Senator Leahy. You would make them of equal importance?
        Mr. Hadad. I do, but I would say the first one, though, I
    think really sets the tone for the rest, which is the standards
    that the claims are reviewed by, whether it is a claim
    construction standard that is used in district court, which
    takes into account the extensive examination record of the
    patent that took place before the USPTO; whether it is the
    clear and convincing evidentiary standard for establishing
    invalidity; or the presumption of validity.
        What those things do, when you think about it, is make a
    patent the property right that it is. When you diminish that,
    it undermines the strength and, frankly, the predictability of
    whether that patent right can be invested in in the future.
        I think that piece of it, coupled with if the standards
    were the same, you would actually have decreased duplicative
    proceedings because then the courts and the USPTO would
    acknowledge each other's determinations as being of equal
    weight.
        Senator Leahy. My time is almost up, and if anybody wants
    to add anything for the record, either in agreement or
    disagreement to what Mr. Hadad said, please do so. I did want
    to ask Ms. Samuels, you talked about the abusive letters, and,
    man, I hear that all the time in Vermont. We address it by
    making clear that it is a deceptive trade practice to send
    misleading demand leaders and the power of the FTC to give
    civil penalties. Does that make sense? And do you have examples
    from your own experience why we have got to have Federal
    legislation here?
        Ms. Samuels. Thank you for the question, Senator Leahy. I
    think that definitely makes sense, and I applaud what this
    bill, this piece of legislation does to address the demand
    letter problem. The demand letter problem is such a big
    problem, and we cannot even know the scope because it is all
    pre-complaint, right? There is no public record. I think when
    you empower the FTC, what you do is you really get at the worst
    actors, and those are the people who are sending the abusive
    demand letters. I think that that is a great step in the right
    direction.
        Senator Leahy. Thank you. Thank you very much, Mr.
    Chairman.
        Chairman Grassley. Thank you, Senator Leahy.
        Now, Senator Hatch.
        Senator Hatch. We are happy to have all of you here. This
    is a really, really important hearing. All of us have worked
    for a long time to try and get a patent bill that had pretty
    much great success.
        Let me ask you this, Ms. Samuels: As you know, especially
    over the past year, I have been working on a fee recovery
    provision to ensure that those who defend against abusive
    patent litigation and are awarded fees will actually get paid
    for them, and I am pleased that the PATENT Act includes this
    provision.
        From the small inventor startup point of view, can you
    explain how important the recovery provision would be in
    stopping patent trolls from litigating and dashing?
        Ms. Samuels. Yes, thank you, Senator Hatch, and thank you
    so much for making sure that recovery language was in the bill,
    because as you say, if we are going to have any kind of fee
    shifting, without an effective way to actually recover those
    fees, the fee shifting would be meaningless. We think that fee
    shifting is a core principle that is so important for small
    startups and for anyone facing abusive patent litigation,
    because right now, when you are a startup facing a patent
    demand, facing a lawsuit, you are looking at years of
    litigation and millions--potentially millions of dollars in
    legal fees. That is untenable. When there is no real
    expectation that you might see some of that money back, there
    is no incentive to fight back. If there is no incentive to
    fight back, then we are just, you know, emboldening the trolls'
    continued behavior.
        What you are doing is you are giving these tools to these
    small companies to really push back, and there are really
    important safeguards in the recovery language. I am not worried
    about any abuse. I mean, it has to be objectively reasonable,
    the case that is brought. I think we are in really good shape
    with the language as it is.
        Senator Hatch. Thank you.
        Mr. Chandler, the PATENT Act includes a provision to stay
    discovery if the defendant files certain motions like a motion
    to transfer venue. The provision also allows courts to order
    the exchange of information such as infringement intentions.
        What type discovery is typically required to create
    infringement contentions? With respect to motions to transfer
    venue, do you think that infringement contentions and any
    subsequent discovery should be postponed until the case is
    actually transferred to the appropriate court?
        Mr. Chandler. Yes, Senator, we do believe that the--all
    discovery should be stayed pending the resolution of the
    transfer motion, and there should be pressure on the judges to
    rule quickly on the transfer motion. Infringement and
    invalidity contentions can involve voluminous discovery. In
    fact, the invalidity contentions could end up implicating the
    majority of the discovery that would happen in the case. Costs
    typically can exceed $1 million to proceed with that discovery.
    The proposed legislation refers to the district court or local
    rules in terms of what would be required for discovery, and we
    see no reason to permit that discovery to proceed pending a
    transfer motion. The judge should rule quickly on the transfer
    motion. There should be an interlocutory appeal available on
    that, and the case should get going as quickly as possible in
    the appropriate court.
        Senator Hatch. Well, thank you.
        Mr. Rhodes, for several months now I have heard a great
    deal about what many stakeholders argue is an unanticipated
    abuse of the inter partes review process we established in the
    America Invents Act. I am committed to working to address any
    illegitimate instances of what some now refer to as ``reverse
    trolling.'' I was looking for realistic reforms that address
    the problem, but also ensure that the IPR process remains an
    effective option for ridding the system of invalid patents.
        Do you have any thoughts on what might fit that
    description?
        Mr. Rhodes. Yes, thank you very much for the question,
    Senator Hatch. The patent system is a Rubik's Cube. The patent
    ecosystem is very complex. We have heard here this morning the
    proponents for litigation reform saying it is interlocking, you
    know, multiple provisions are needed. We have heard those
    concerns. We have worked in good faith and constructively to
    address them on the litigation side. We think the mirror, the
    reverse, the converse is true with respect to PGR and IPR
    reforms in the Patent Office.
        I listed to three big buckets in my opening statement, and
    I think, you know, more fairness in reviewing petitions so both
    parties can submit the same evidence, different bodies consider
    it initially within the PTAB, and then at the end of the day,
    there is an obligation to disclose evidence at the outset. We
    think the hybrid approach which will make the right to amend
    real and put BRI in its proper place in the reexamination and
    reissue of claims, and then the fairness in burdens and
    presumptions that Mr. Hadad mentioned.
        We think just as the litigation reforms that we have
    listened to and responded to are interlocking, so, too, are our
    reforms that we are asking for in IPR and PGR interrelated and
    interlocking.
        Senator Hatch. Mr. Chairman, my time is up. I will submit
    the rest of my questions.
        Chairman Grassley. Yes.
        [The questions of Senator Hatch follow as a submission for
    the record]
        Chairman Grassley. Senator Schumer--well, she came after--
    yes, Senator Schumer, and then Senator Durbin.
        Senator Feinstein. He came after me.
        Senator Schumer. No. I was here earlier.
        Chairman Grassley. No. He was here at----
        Senator Whitehouse. Ladies first.
        Senator Feinstein. OK.
        Senator Schumer. Would you like to go?
        Senator Feinstein. No.
        Senator Hatch. Typical of----
        Senator Schumer. Chauvinism is dead.
        Chairman Grassley. We are wasting----
        Senator Klobuchar. Senator Grassley says you are wasting--
    --
        Chairman Grassley. We are wasting time. Go ahead.
        Senator Schumer. Excuse me. Do you want to go?
        Senator Feinstein. No. You go.
        Senator Schumer. OK. She was busy showing me the terrible
    thing that ISIS puts out, which people should look at, called
    ``Inspire.''
        Senator Durbin. Another patent troll.
        Senator Schumer. They could be.
        I want to thank Chairman Grassley and Ranking Member Leahy
    for organizing this hearing and for your leadership and
    partnership on this issue. I really want to thank Senator
    Cornyn, whom we have worked closely with on this, as well as
    Senators Klobuchar, Lee, and Hatch, our cosponsors who have
    done a great job on this legislation.
        I am grateful that the Committee has the opportunity to
    hear today about the incredible strides we have been crafting
    in coming to a meaningful solution to the scourge of patent
    trolls without damaging the rights of legitimate patent
    holders.
        It is clear, based on what we are hearing today, that this
    is not yesterday's patent bill. This bill is different, and we
    are going to get it done. There will be patent legislation
    along the lines of what we proposed on the President's desk
    this year. I truly believe that. I think the panel, which last
    year, if all of you came, there would have been a much wider
    disparity. The consensus is growing around this bill, and we
    thank you for that, particularly our 21C friends who are
    helping us and being very constructive. Thank you.
        I want to make sure everyone watching this hearing
    understands what a breakthrough we have before us. Today's
    hearing marks the first time Congress is hearing a unified
    chorus that legislation we have drafted balances the interests
    of traditional patent holders and businesses that are only on
    the receiving end of infringement accusations.
        Have we made everybody happy? Of course not. That is
    literally impossible in the patent space, as we learned during
    the debate over the AIA. But I feel confident we have taken
    tremendous steps toward the goal that my colleagues and I all
    identified: solve the problem of frivolous, expensive lawsuits
    without damaging the legitimate claimants. I am committed to
    working with those who have opposed previous iterations of
    reform, especially those in the life science industry, to
    identify workable solutions to the problems they perceive in
    the PTO system.
        I do want to sound a note of caution. Just as we have said
    for years that it is important that patent litigation reform
    not undermine the legitimate rights of patent holders, it is
    similarly critical that the reforms to the post-grant system
    not undermine the ability of the PTO to provide cost-effective,
    efficient alternatives to litigation for the consideration of
    poor-quality patents.
        I have said many times, my lodestars in this debate are the
    small New York startups. These are the seed corn of New York's
    economy and similar companies throughout the country of
    America's economy. These are the companies, the future Googles
    and the future Facebooks and the future Oracles, that are going
    to create thousands and thousands of jobs and export so much
    materials. They are snuffed out by these parasitic trolls, and
    we cannot allow that to happen.
        The post-grant proceedings at the PTO are particularly
    important to those companies who simply do not have the
    resources to litigate or who benefit from the collective
    efforts of others who have been hit by the same troll to
    invalidate bad patents.
        I will not be able to support any deal on post-grant that
    does not preserve the viability of the process for these little
    startups. I do have to say that, again, we are making good
    progress here. There are ways we can all come together.
        My questions: First, to Mr. Samuels--Ms. Samuels, you
    represent exactly the kind of startup companies I care about in
    New York and elsewhere. Do you think that this bill solves
    their problems? You can give a short answer?
        Ms. Samuels. I will be very short. I think, yes, it mostly
    does. Obviously, there are some things we can discuss, but it
    is a good compromise bill, and it will allow those companies to
    do what they do, which is innovate and create jobs, in New York
    and all across the country.
        Senator Schumer. I know Mr. Chandler and Ms. Lettelleir,
    because Senator Grassley asked the question, feel the same
    about problems faced by Cisco and J.C. Penney. It is amazing.
    One of the reasons we are gaining support is Main Street is
    being hit by these trolls. A restaurant owner said to me in New
    York that, ``They are going to sue me because they say they
    patented the spoon.''
        OK. Now, to Mr. Rhodes, last question, to Mr. Rhodes and
    Mr. Hadad. Both of you represent companies that have had
    substantial concerns about previous versions of patent reform
    legislation. Do you feel like the sponsors of this bill have
    listened to you, been responsive to the concerns you have
    raised? You may answer any way you choose. Mr. Rhodes?
        Mr. Rhodes. Yes, I am happy to go first. Thank you, Senator
    Schumer. We do think we have been listened to. We think many of
    our concerns have been addressed, and that is why in the
    context of an overall bill that addresses our additional
    concerns about IPR and PGR, we would look forward to supporting
    the bill as a whole moving forward.
        Senator Schumer. We have been mindful of your concerns,
    because you have a lot of expertise in your organization.
        Mr. Hadad, who represents retailers who have just all of a
    sudden been right in the cross hairs of these horrible trolls.
        Mr. Hadad. I represent Bristol-Myers Squibb, and I agree
    with----
        Senator Schumer. Sorry. Represents pharmaceuticals.
        [Laughter.]
        They retail pharmaceutical drugs.
        Mr. Hadad. In the interest of time, I agree with Mr.
    Rhodes' characterization.
        Senator Schumer. Right. J.C. Penney, a retailer, agrees as
    well. That is who I was referring to.
        OK, Mr. Chairman. My time has expired.
        Chairman Grassley. Senator Lee.
        Senator Lee. Thank you, Mr. Chairman, and thanks to all of
    you for your help and for your insight today.
        I would like to thank all of the other original
    cosponsors--Senators Leahy, Cornyn, Schumer, Hatch, and
    Klobuchar--for their work in putting together this really
    important legislation.
        In the last Congress, Senator Leahy and I proposed
    legislation to deal with abusive patent practices directed at
    small businesses: sending demand letters, extorting money, and
    filing expensive patent infringement lawsuits filed against
    retailers and other end users of products instead of against
    the manufacturers of those products. We are pleased to report
    that in the PATENT Act, with the support of a bipartisan array
    of cosponsors, we will finally be able to enact these reforms.
    It has been a pleasure working with this great bipartisan group
    and with so many people in the industry who have provided such
    valuable insight.
        I would like to start with you, Ms. Lettelleir. You said in
    your testimony that you support a statutory customer stay. I
    just want to make sure that everyone understands why that is
    important. J.C. Penney is in the retail sales business. You all
    do not manufacture technology or design complex software for a
    living, right? You sell clothing and you sell other
    merchandise. You do not know anything about the microprocessors
    in the bar code reader or some other technology that you use in
    order to get on with your business. When you get slapped with a
    patent infringement lawsuit over some product that you did not
    design, that you did not manufacture, you are not going to be
    able to evaluate the merits of that suit. The manufacturer has
    to do that. Yet, according to your testimony, district courts
    are currently somewhat reluctant to stay litigation against
    retailers or against end users, even when the manufacturer is
    already defending its patent litigation.
        Can you tell us a little bit more about that and about how
    you think the customer stay language in this bill will help in
    the industry?
        Ms. Lettelleir. Yes, thank you for your question, Senator
    Lee. We have been called upon to defend various aspects of
    technology we have acquired from other companies, companies
    like Cisco, companies like Oracle, intel processors, the whole
    array of technology that you can imagine we have been called
    upon to try and defend. You can imagine when J.C. Penney is
    sued on the premise that an intel chip that resides in its
    point-of-sale terminal in its store, that we are at a severe
    disadvantage in terms of even beginning to defend that
    technology. We do not have access to the evidence that would
    even be required to defend that.
        A customer stay is very important to us with respect to
    those particular types of suits. It is not all the suits that
    we see, but it is a good percentage of them. I think the
    customer stay provision is really geared toward getting to the
    truth. Does the chip infringe? It addresses the issue of who is
    the best party to defend that issue, and we feel it is the
    manufacturer, and we think that the language that has been
    carefully crafted to balance all the different interests of the
    different stakeholders is the best way to get to that result.
    It does not absolve us of liability, but it does shift the
    burden of proving and addressing the infringement allegations
    to the manufacturer who actually supplied the technology.
        Senator Lee. Thank you.
        Mr. Rhodes, you have been focused, and appropriately so, on
    ensuring balance in our litigation reform proposals. You have
    been an honest broker in this process, and I hope you know how
    much we appreciate that.
        Are you satisfied that under our proposal eligibility for a
    customer stay is sufficiently far down the chain of
    distribution?
        Mr. Rhodes. Yes, thank you for the question, Senator Lee. I
    do think that we took careful pains, as I mentioned earlier, in
    the definition of who a ``covered customer'' is to limit it to
    retailers and end users who are reselling products from covered
    customers who are in a position to defend the case. They have
    not manufactured, they have not modified the product in a way
    that gives rise to the charge of infringement. They are well
    positioned if they have done that to defend based on their
    modifications.
        I think with those protections in place, we are not talking
    about absolving people of liability. I think that is an
    important principle on which I agree. We are talking about, in
    the first instance at least, having the parties well positioned
    to defend the case have the first and foremost role in
    defending it.
        Senator Lee. Thank you very much.
        I see my time has expired. Thank you, Mr. Chairman.
        Chairman Grassley. Thank you.
        Senator Durbin.
        Senator Durbin. Thank you, Mr. Chairman.
        Chairman Grassley. Senator Durbin, and then it will be
    Senator Perdue. I am going to go to Agriculture for a few
    minutes.
        Senator Durbin. Thank you, Senator. Let me thank the panel.
        Throughout the morning we have heard the word ``balanced''
    used repeatedly. I thank you for coming here to testify, but it
    appears that this panel is divided between those who love the
    bill and those who really love the bill.
        There are some people who may not be in that category. They
    include the National Venture Capital Association, which said of
    this bill, ``We think as presently worded it will raise the
    cost and risk of patent litigation for startups that need to
    defend their intellectual property against much larger
    incumbents and will discourage investment in any new company
    that wants to enter lines of business where patents are
    important.''
        The U.S. Alliance for Startups and Inventors for Jobs said
    of this bill, ``It will make it far more difficult for small
    companies to protect and enforce their patented technologies
    against larger competitors.''
        There is another side to this story which has not been
    given a chance to speak this morning, and I hope that during
    the course of considering this bill we can reflect on it.
        Let me also say to Mr. Chandler from Cisco, I do not think
    you started with your strongest argument, your strong argument
    that you spent $50 million in legal fees defending against
    these nuisance lawsuits. The revenues of Cisco last year were
    $47 billion; $50 million represents one-tenth of 1 percent of
    your revenues. It is as if a $1 million corporate making
    $20,000 a week had to spent $20 a week in legal fees. Let me
    ask you, since both you and Mr. Rhodes represent companies that
    have patents, how many patent lawsuits did you file to protect
    your patent lawsuits last year?
        Mr. Chandler. We filed one lawsuit last year.
        Senator Durbin. Only one?
        Mr. Chandler. Only one.
        Senator Durbin. Mr. Rhodes?
        Mr. Rhodes. We filed--over the last 5 years, 60 percent of
    our patent lawsuits have been patent--when we have asserted our
    patents against others. We currently have a dozen of those
    suits pending and only three cases that we are defending.
        Senator Durbin. This is what it gets down to is Large
    corporations either filing one or more lawsuits have the
    resources to play under this new law as proposed, because it
    takes quite an effort under the proposed law to assert your
    rights under a patent. You have the requirement of detailed
    pleadings. You have the reduction of opportunities for
    discovery. You have fee shifting, and in a great number of
    cases at least leads to the possibility of fee shifting, which
    could discourage the small patent holder.
        One small business witness said in the Small Business
    Committee, ``If you need to pay $5 million in order to assert
    your patent rights, that is not petty cash for me. It is taking
    my house, my spouse, and my children.''
        This responsibility that is put into the law makes it much
    more difficult than it might for Cisco or for 3M.
        Ms. Samuels, the case that you referred to here, the Jump
    Rope case, where a patent troll called Smart Options sued them,
    you are aware of the fact that the court awarded fees after
    finding that Smart Options, the patent troll, failed to perform
    even minimal due diligence before suing.
        Ms. Samuels. That is right, Senator Durbin, but then the
    patent troll came back and sued again under new patents, and
    they have just recovered a small fraction. What I would like
    to----
        Senator Durbin. Do you know what percentage of cases now
    recover fees for this type of nuisance litigation under patent
    law?
        Ms. Samuels. I understand it is still a very, very low
    percentage, and in certain districts it has not happened at all
    since the----
        Senator Durbin. It turns out, according to the Federal
    Circuit Court Bar Association, defendants have a 50-percent
    chance of winning these fees. It is not as if we are dealing
    with a remote possibility. Under the current law, a 50-percent
    chance of winning these fees.
        Ms. Samuels. Fees are not granted in 50 percent of patent
    litigation.
        Senator Durbin. This is the Federal Circuit Court Bar
    Association. You are welcome to look at their report.
        May I ask the panel here, particularly those who are
    representing the larger corporations, there are exemptions
    built into this law, exemptions from fee shifting, pleadings,
    and discovery. One of the exemptions relates to bill--patent
    infringement lawsuits between generic and brand-name drug
    companies. In other words, the bill protects this one type of
    patent litigation from the burdens and risks the bill would
    impose on all other patent holders.
        I am not saying that drug patent cases should not be
    exempt. Maybe they should. Why does the bill draw the line
    there? Shouldn't we also protect original inventors in the
    bill? They are not trolls. They earned their patent. What about
    small businesses and universities? Can you tell me why we have
    carved out one group in this bill to say that they would be
    exempt from the more demanding procedural requirements than
    these other categories? Would anyone like to----
        Mr. Hadad. Senator Durbin, I will, since I am in the
    industry. As you know, with cases under 271(e), or the so-
    called Hatch-Waxman procedure, these cases have to get done
    within a 30-month period--that is sort of a statutory mandate--
    because that is the period where the FDA is stayed from
    approving any products while a litigation is pending. Anything
    that would delay the case would somehow maybe derail, I think,
    the balance of that statute, and that is, I believe, why those
    exemptions are in there.
        When it comes to the fee shifting, I have to say I have a
    bit of mixed feelings about that one myself, because I believe
    that the standards for behavior in cases should be applied
    equally in all cases, and so I do not see the need to
    necessarily differentiate here.
        Senator Durbin. I may come to a different conclusion as to
    fee shifting, but I would say that since we are dealing with
    patent trolls, which, according to the GAO, represent 20 to 25
    percent of all the patent litigation, this new proposed law
    applies to all patent litigation, I think--except for the ones
    that I mentioned, the expectation that was made.
        I yield back to whoever is presiding. I think it may be
    Senator Lee at this point.
        Chairman Lee. [Presiding.] Thank you.
        Senator Perdue.
        Senator Perdue. Thank you, Mr. Chairman, and thank you,
    panelists, this morning for your testimony.
        You know, in my experience--I have been on both sides of
    this in my career--the economic boom of the last 70 years is
    really attributable, in my opinion, to three things: one is
    innovation; two is our ability to form capital; and, three, the
    rule of law. Unfortunately, today we face abuses in several of
    those areas, and I have got a real concern that we find the
    right balance that does not hinder our ability to form capital.
        Ms. Samuels, I think you mentioned this earlier,
    particularly as it relates to the fee shifting part of this
    bill. Can you give us your views? You are the closest to--I do
    not know how many rounds you have been through. I am part of a
    little startup--have been part of a little startup. We went
    through four rounds, and I know what impact this can have on
    small companies' abilities to raise capital.
        I share Senator Durbin's concern about the small player,
    the young player, getting from that angel stage into the
    venture capital stage, and then being hit by a fraudulent or
    problematic lawsuit that is totally frivolous.
        Ms. Samuels. Thank you for the question, Senator Perdue. As
    a preliminary matter, the VC community--and particularly the
    venture capital community that invests in high-tech, high-
    growth entrepreneurship, that invests in software companies--by
    and large supports this kind of comprehensive legislation. I
    can happily provide lots of examples. I have some written down,
    but I would rather just get to the meat of what is going on
    here. I think what we see is that those venture capitalists who
    are investing in small startups, their interests are so closely
    aligned with the small startups, of course. It is in their
    benefit to see those startups succeed.
        When a patent troll comes after that company, you run into
    a lot of problems because a small company, even backed by
    venture capital, does not have a lot of resources to fight
    back. That is incredibly problematic.
        I think, you know, to address some of the things that
    Senator Durbin said that play into this, there is some concern
    that this kind of legislation makes it harder to attract
    investment. I do not think that is true at all. This
    legislation is a compromise piece of legislation. It is really
    measured.
        The kinds of things that this bill wants a company to do
    before filing suit, like basic due diligence, are the kinds of
    things anyone should do before they take advantage of the
    Federal court system in our country.
        Senator Perdue. Right. Thank you very much.
        Ms. Samuels. Thank you.
        Senator Perdue. Ms. Lettelleir, I competed with Penney and
    I also sold to Penney, but welcome this morning. I just have a
    question about balance. We have heard that mentioned several
    times today. The balance I am concerned about is between, you
    know, the focus on pleading and the initial disclosure
    provisions of the bill. Can you speak from your perspective
    about have we found that balance? Or do you still have
    concerns?
        Ms. Lettelleir. I think the bill has done--it presents a
    very finely crafted compromise position between all the
    stakeholders, and I think that it achieves what we will need to
    make meaningful changes to the system. You know, as a target of
    this type of litigation, we receive just ridiculously broad
    assertions.
        For example, I just received one last month that they list
    a patent number and then beside it they have only the word ``e-
    commerce,'' and that constitutes my notice of what they are
    alleging. I do not even know where to start in terms of
    analyzing the potential risk, whether, in fact, I should seek a
    license, or if I think that, in fact, we do not actually
    practice the invention.
        I think that the pleading requirements that are set forth
    will be very helpful, I think the requirements in the demand
    letters will be very helpful, in terms of moving the ball down
    the path in a less expensive way for all the parties.
        Senator Perdue. Thank you.
        Mr. Rhodes, relating to demand letters, in your written
    testimony I think you suggested that provisions of the bill on
    abusive demand letters may encourage a ``sue now, talk later''
    approach. I would like to give you an opportunity to expand on
    that, because we are really trying to make sure that these
    provisions will actually--well, basically you are saying that
    this increases the likelihood of litigation. Is that correct?
    Is that a correct observation from your testimony?
        Mr. Rhodes. Thank you, Senator Perdue, and that is the
    concern. I think the risk is if companies that want to put
    others on notice of their patent rights confront the current
    landscape that we are dealing with, with demand letters, the
    risk may be too high, and we may be incented into a ``sue
    first, talk later'' strategy--not because we do not want to get
    the information out there, but because the risks of doing so
    under the current regime are too high. What I mean by that is
    two problems and two proposed solutions.
        One is if it is not clear what the rules of the road are
    with respect to a particular demand letter, you might not know
    what you should or should not put in the demand letter. And
    people just want clear rules of the road. We do not have that
    today because different States have different rules now where
    they have legislated demand letter provisions. What we would
    like is national uniformity, consistency. We are asking that
    the U.S. FTC be allowed to enforce the uniform standard. If
    they do not, State Attorneys General would be empowered to step
    in and enforce that uniform standard. But it would be uniform
    so we would not have to wonder, you know, what we put in a
    letter in this State or that State.
        We also think the addition of a bad-faith requirement, as
    is in the bill proceeding in the House Energy and Commerce
    Committee, would be helpful to help really distinguish the
    truly bad-faith assertion letters that we heard about from some
    of the panelists this morning, from parties legitimately trying
    to put others on notice of their rights or promote licensing
    discussions, who may, for whatever reason, make a mistake.
        Senator Perdue. Thank you.
        I will now yield to Senator Klobuchar, who I think is next.
        Senator Klobuchar. Very good. Thank you very much. Thank
    you to all the witnesses. I know we have mentioned all of the
    cosponsors of this bill many times, but I also want to thank
    Senator Coons for his work. He knows a little bit, having been
    a counsel in the past, about how important it is to protect the
    rights of patent holders, as well as in a previous life in the
    private sector, as well as the work of Senator Durbin. I know
    people have some differing views here, but I think this is very
    important, and I really came around to working with our patent
    holder companies and making sure that there were provisions in
    the bill, as Mr. Rhodes has expressed, that make sure that we
    can differentiate some between legitimate assertions of patents
    and then the troll situation.
        I do not know if anyone has brought out this stat, but
    there were more cases filed by patent trolls in 1 month, in
    January 2015, than in the entire year of 2004--250 compared to
    234, just to give a sense of this changing problem and why we
    are doing something about it today.
        I also believe that we need to make some--look at some of
    the additional needs with this bill, and I deeply appreciate
    everyone's willingness to work on this issue.
        I thought I would start with one of the most poignant
    examples that I heard when I did a roundtable with 50 patent
    lawyers in Minnesota. It was a lot of fun. I heard at the
    roundtable the story about an infusion pump used to administer
    critical medicines to patients, including premature babies. The
    maker of the pumps has been sued by a patent troll who is
    claiming that the patent on the--that the infusion pump
    infringes on a fuel delivery system that is intended for the
    use in tractor-trailers. The litigation reforms in the PATENT
    Act are aimed at stopping, of course, these kinds of abuses.
        I have also heard, of course, from small inventors who are
    concerned about how this legislation might affect them, so I
    guess I would start with you, Ms. Samuels, and how you balance
    that, the small inventor's interest and then the effect on so
    many businesses across the country.
        Ms. Samuels. Thank you for the question, Senator Klobuchar.
    For starters, we have in our network of startups people who
    strongly support this reform and are patent holders themselves,
    and I think it is because we have crafted the kind of
    compromise here that I really do not believe puts much of a
    burden on a small patent holder. I mean, you are talking about,
    before you file a lawsuit in Federal court, doing certain due
    diligence. The fee-shifting standard, for instance, that you
    bring an objectively reasonable case, that is the kind of
    behavior we want to incentivized, right? And ``objectively
    reasonable case'' does not mean you have to win. You can lose
    and not get your fee shifted, right? You just need to give some
    thought before you go and sue someone in Federal court.
        I think--you know, to take a quick step back, I think part
    of the problem here is there is this knee-jerk reaction in a
    lot of what we are discussing, where people just assume that a
    patent is, as someone else said, some kind of God-given right
    to make money, and it is not. A patent exists to incentivize
    innovation, the progress of science and useful arts. And that
    is what we are talking about here.
        I actually think, to answer your question, that the
    balancing act that this bill does both protects small
    businesses who are targeted by trolls, but it also protects
    small businesses who have patents and want to assert them.
        Senator Klobuchar. OK. Thank you.
        Mr. Rhodes, as I mentioned in your introduction, innovation
    has been key to your company. You brought the world the Post-it
    Note, as we know, and as you point out in your testimony, some
    stakeholders continue to claim that the customer stay provision
    is subject to abuse that will harm legitimate patent rights. Do
    you agree with this concern?
        Mr. Rhodes. Thank you for the question, Senator Klobuchar.
    I do not. As I mentioned earlier, I think really the trick
    there was that delicate three-part negotiation: the patent
    holder, the covered manufacturer, and the covered customer. We
    really focused at the end of the supply chain so that the stay
    would be available for retailers or end users who really should
    be in the position of obtaining a stay.
        Senator Klobuchar. When you and I talked yesterday, you
    talked about some of the additional reforms that you thought
    could be helpful here. Do you want to enumerate those?
        Mr. Rhodes. Yes, and certainly I mentioned those this
    morning with the post-grant review procedures and inter partes
    review procedures in the Patent Office. I mentioned, you know,
    three buckets of interlocking reforms that we would like to see
    added to the bill: at the institution phase, leveling the
    playing field there; having sort of the hybrid approach where
    claim amendments could be considered if a patent owner elected
    to take the patent into a reexamination or reissue proceeding;
    and then for those claims that are examined--or, I am sorry,
    are adjudicated under IPR and PGR proceedings, making those
    consistent with the court.
        I would just like to emphasize that on the litigation
    pieces we have listened to the concerns of those who have
    called for changes to litigation practice to address imbalance
    and unfairness. We would now ask for the same attention and
    concerns on our side to what we perceive to be imbalance and
    unfairness to be brought to real solutions on the IPR and PGR
    front. Thank you.
        Senator Klobuchar. Thank you very much.
        Chairman Grassley. [Presiding.] Now, we have Senator
    Tillis.
        Senator Tillis. Thank you, Mr. Chair.
        Mr. Hadad, I had a question for you. I have heard from a
    lot of pharmaceutical companies about maybe one of the
    unintended consequences of the America Invents Act is some of
    this economic espionage that is going on with manipulating
    stock prices. I think you mentioned some of that in your
    opening testimony.
        Do you believe in the bill's current form that it
    adequately address those threats going forward?
        Mr. Hadad. No, it does not.
        Senator Tillis. Can you give me some idea of what we could
    potential look at that would improve our standing in that area?
        Mr. Hadad. Absolutely. Today I enumerated three proposals
    modifying the U.S. PTO's post-grant review proceedings which
    would make them more fair. What we are asking for is--and I
    just want to make it clear. BMS and other industry members are
    on both sides of this issue. Yes, we are patent holders, but we
    are also defendants at times. What we are looking for is a
    proceeding which is fair, which is a faster, cheaper, and
    analogous proceeding to what is going on in district court, but
    one that does not arrive at greatly different results every
    time, which is what we are seeing right here.
        The things that you mentioned about hedge funds trying to
    torpedo patents and take advantage of the stock market anxiety
    around this are really a symptom of an underlying condition.
    The underlying condition is these proceedings are at least
    perceived to be slanted against the patent holder, and they
    just need to be balanced.
        I also just want to follow-up, too. We have talked a lot
    about startups today and concerns of startups around patent
    assertion entities, but I would also want to point out that
    there are a lot of startups in the biotech area, and those
    startups, when bigger companies are looking to do deals with
    them, they have to have IP protection, meaningful IP protection
    for that investment and for that drug to be developed. I do not
    want that to be lost in the mix as well. Thank you.
        Senator Tillis. I talked with a pharmaceutical company down
    in North Carolina, the CEO, and we were talking about, because
    of this uncertainty, the long-term impact it has on very
    important business decisions. This particular company is in the
    middle of getting an Alzheimer's treatment drug ready. It is
    about 4 years out. They have to start making decisions about
    manufacturing capability today, billion dollar investments.
    With this level of uncertainty, it really changes the matrix
    for them in terms of making those sorts of capital
    expenditures, which are delaying good outcomes that the
    pharmaceutical industry is poised to provide.
        I do have another question. Mr. Rhodes, this may go to you
    because you mentioned, I think, a case for preemption.
    Generally speaking, I do not like the Federal Government
    preempting States' efforts. I understand the complexity that
    comes from having different rules in different jurisdictions.
        Last year, when I was Speaker of the House, we actually
    passed a bill that I think actually goes further. It
    essentially created a cause of action against entities who
    assert a bad-faith patent infringement and claims or who made
    bad-faith infringement assertions and demand letters.
        Do you believe that--it sounds like you would be arguing
    for a position that this may be preempted. Do you believe that
    the bill right now preempts that sort of law in North Carolina?
        Mr. Rhodes. Thank you for the question, Senator Tillis. I
    do not believe there is a preemption in the bill as introduced,
    no. To be clear, you know, what I am seeking, I think what the
    overwhelming majority of patent holders in this country are
    seeking, are, as I said, clear rules of the road so there is no
    ambiguity or confusion as to what we should or should not put
    in our demand letters. We have no wish to send out false or
    deceptive demand letters. We just want to know what we can put
    in the letter in this State or that State. You know, much like
    we are trying to make sure that we have a level playing field
    outside the U.S. with our trading partners and their patent
    laws, within the U.S. we would like that same kind of level
    playing field and certainty and uniformity.
        Patent law has always been a creature of Federal statute. I
    think it is really up to Congress, the Federal courts, and
    Federal agencies to develop that policy, and there is certainly
    a role for concurrent enforcement, but I would like that to be
    a uniform standard for enforcement.
        Senator Tillis. Ms. Lettelleir, the customer stay
    provision, the thing that concerns me is the way that that
    process could be gamed in terms of maybe technologies that have
    a 24-or 48-month cycle, components of products that may be a
    brand, and people could game the system to where it would be
    very difficult for someone who ultimately proves that their
    patent has been infringed upon actually collecting anything. Do
    you think there are safeguards in the proposed legislation
    against that?
        Ms. Lettelleir. I think that the very fact that the
    customer stay does not absolve the end user from liability,
    from the recovery potentially of damages, is the safeguard. It
    is just the way it mechanically would work. All it really would
    do would pause the cause of action against the end user while
    the manufacturer case proceeds on liability questions. Then at
    the conclusion of that, whatever may remain in terms of issues
    to be resolved with the end user simply picks back up, and you
    continue down that path. I do not see there--it does not really
    significantly delay or hinder their ability to be made whole
    if, in fact, there was infringement.
        Senator Tillis. My question more is once they get to the
    original offending entity, whether or not there is anything
    there to help make them be made whole. My time has expired. We
    will follow-up with questions. Thank you.
        Chairman Grassley. Thank you, Senator Tillis.
        Senator Franken.
        Senator Franken. Thank you, Mr. Chairman.
        Mr. Rhodes, I appreciate that you are here to offer 3M's
    perspective, and I know that abusive tactics have harmed 3M, as
    well as other Minnesota companies. I also understand that your
    business relies heavily on the continued strength of the United
    States patent system, and I remain hopeful that we can support
    that system with narrowly tailored legislation that targets bad
    actors while preserving our innovation economy.
        I know you have been involved in the discussions
    surrounding the PATENT Act, but you also wrote in your
    testimony,``. . . we do not believe that the PATENT Act is
    ready to be reported out of this Committee just yet . . .''
        Can you tell me how your perspective has changed over the
    last year overall, but also and specifically as it relates to
    the growing popularity of post-grant review proceedings?
        Mr. Rhodes. Yes, thank you very much for the question,
    Senator Franken. I think my perspective over the last year has
    changed in two respects: one is I am very much appreciative of
    the work that has been done by the Committee and their staffs
    to address some of the imbalance and concerns that we had
    expressed with the bill that--or prior bills that had been
    introduced. I agree this is different and improved in many
    ways.
        I think concurrently with that, the concern has growing--
    has been growing with respect to the IPR and PGR proceedings in
    the Patent Office. We now have over 3,000 of those filed, we
    think under procedures that are not fair even beginning at the
    outset, where the challenger can put in all of its evidence to
    begin a review; the patent holder really has to respond with
    one hand tied behind its back and cannot put in testimony to
    rebut expert testimony put in by the challenger. The same body
    then decides on that incomplete record that it is more likely
    than not that one of the claims is invalid. That same body then
    carries through and is sort of in a position of justifying that
    initial decision in the final ruling.
        When you get into the proceedings, the right to amend
    claims that was codified in the AIA has effectively been
    negated. The way the rules have been set up, only a very small
    handful of amendments to claims have ever been granted. We
    think taking the amendment process out of perhaps what is not a
    good mix in the context of IPR and PGR and putting in a new
    hybrid process where you could have an effective ability to
    examine amended claims and BRI would make sense is a way to go.
    Then for those claims that really are adjudicated in IPR and
    PGR, those are supposed to be faster, more cost-effective
    alternatives to district court litigation. Let us make them
    that.
        You know, again, as was said this morning, we want to have
    consistent among courts. I think we ought to also have
    consistency among adjudicatory bodies when they are looking at
    patent claims. We ought not to have, as in the example I listed
    in my testimony, 4 years of district court litigation and then
    all the way up to the Federal circuit, a patent claim is
    upheld, its validity is upheld, and then you turn around and
    get an IPR petition that expressly leverages the difference in
    claim construction between the two to start over from scratch?
    That is not what--I would submit that is not what Congress
    intended when it set up these procedures of the AIA.
        Senator Franken. Thank you.
        Mr. Hadad, in your testimony you focus heavily on
    statistics that some in the pharmaceutical industry have argued
    demonstrate a pro-challenger bias in the post-grand review
    proceedings. What would you say to those on the opposite side
    who say that these statistics actually reflect the fact that
    the PTO has all too often issued overly broad patents? In other
    words, the people on the other side would say that these
    statistics demonstrate that these proceedings are serving the
    precise function they were intended to. What would you say to
    that?
        Mr. Hadad. Thank you, Senator Franken, for the question.
        I think when you look at the analogous proceedings in
    district court, I think no one has thus far, in my mind,
    criticized the excellent work the district courts have been
    doing in adjudicating patents in terms of the merits. The
    procedure has been somewhat onerous, the discovery and the
    like. Those statistics, from what I understand, are far lower
    in terms of the overturning of patents, certainly around, I
    think, 40 percent or so from the last statistics I saw. When
    you look at the USPTO, that is about a 75-percent rate of
    invalidation.
        I think that delta tells a story that suggests that perhaps
    if there were level standards, as I mentioned earlier, Senator
    Franken, they would consider these things in a corresponding
    way. I do not think bad patents would survive more reasonable
    standards any more than they would under these current
    standards. I think bad patents will go down in either case.
        Senator Franken. OK. Well, thank you.
        Thank you, Mr. Chairman.
        Chairman Grassley. Senator Coons.
        Senator Coons. Thank you, Chairman Grassley, for calling
    this hearing. It is my hope that this will be the first of
    several hearings on the proposed reforms to the patent system
    and that we will have an opportunity to hear from as broad a
    range as possible of the folks who will be affected by the
    proposed changes, including some of the critical voices not on
    today's panel, which I think essentially includes small
    businesses who rely on patent protection for attracting
    investment, especially in the bio and pharma and materials
    spaces and the venture capital community that invests in them.
        While I congratulate my colleagues on their bipartisan
    effort, this is not a bill that I can support. While it has
    made progress and is less bad than H.R. 9, currently under
    consideration in the House, there are still, in my view, two
    central concerns that I have in reviewing this act.
        First, the reforms in this bill that will make it harder to
    enforce patents are not targeted toward trolls but will affect
    all patent holders. What this will mean in practice is that
    small investors, small inventors, startup businesses taking the
    biggest risks will be potentially hit the hardest by the
    proposed litigation reforms.
        Second, the bill contains nothing to encourage the
    innovation that our patent system is designed to support. In
    particular, there is nothing in this bill to remedy the well-
    documented abuse of post-grant proceedings, and I greatly
    appreciate the comments of my colleagues Chairman Grassley and
    Senator Cornyn who have expressed a desire to incorporate
    improvements in these areas in markup.
        Allow me to briefly elaborate on both points, if I might.
        I am starting with the bill before us today. Our panelists
    have described some truly egregious conduct by trolls,
    including companies sending thousands of letters to small
    businesses or retailers and a company suing based on nearly
    expired patents. Yet none of those circumstances are
    limitations actually embedded in the provisions of this bill.
    Instead, it changes the rules for all patent holders.
        Specifically the provisions in heightened pleading
    requirements, delayed discovery, enhanced fee shifting do not
    even attempt to distinguish between patent trolls and the
    startups and small businesses across America that are
    potentially creating jobs and making new discoveries and
    delivering life-saving cures. We can make that distinction, and
    we must. The patent system is simply too important to make
    speed the ultimate goal of our efforts rather than accuracy.
        Several of you have described it as a Rubik's Cube, a
    complex system where there is a real risk of unintended
    consequences, and I think, frankly, the point about post-grant
    review makes that abundantly.
        Do not just take this from me. I have a letter--and, Mr.
    Chairman, I would ask permission to enter this into the
    record--from the National Venture Capital Association, which
    does----
        Chairman Grassley. Without objection, so ordered.
        Senator Coons. Thank you.
        [The letter follows as a submission for the record]
        Senator Coons. Which does speak on behalf of all of the
    venture capital community, that speaks to the significant
    unintended consequences that we may face, and I quote: ``It is
    important to recognize a patent is only as strong as the
    owner's ability to enforce it and the awareness of others of
    that ability. If the bill as written were to pass, NVCA
    believes both of these parameters would be impaired, making it
    more difficult to invest in early stage companies working on
    life-saving cures or significant breakthroughs.''
        To further understand these views, I encourage any of my
    colleagues or staff to watch the hearing and associated
    testimony from the recent Small Business and Entrepreneurship
    Committee hearing chaired by Senator Vitter. In that hearing,
    we heard from Rachel King, CEO of a small biotech company
    developing potentially life-saving treatments for blood
    cancers. She testified, quote ``If the ability to enforce
    patents becomes limited due to excessive lawsuit filing
    requirements or undue delays, third parties would be less
    likely to invest in or license our technology, and major
    sources of R&D funding would dry up.''
        We also heard from Robert Schmidt, co-chair of the Small
    Business Technology Council, who expressed fear that weakening
    patent laws would only benefit large, dominant firms in
    maintaining their market power.
        On the second issue, there is nothing in this bill that
    helps inventors attract investment to find new cures or disrupt
    current technologies, and I am pleased to hear Mr. Chandler's
    testimony in which he acknowledged that recent abuses of post-
    grant review is outrageous and the expressed concerns by Mr.
    Rhodes and Mr. Hadad that these need to be addressed. My STRONG
    Patents Act, which Senator Vitter has joined Senators Durbin
    and Hirono in cosponsoring, really would address IPR abuse, and
    I would be interested, if I might, Mr. Chairman, in hearing Mr.
    Hadad speak to what are the changes in IPR and PGR proceedings
    that you would like to see incorporated into the bill. Since
    Mr. Rhodes has already had an opportunity to address that, I
    would be interested, Mr. Hadad, in how you see the changes
    needed to really deal with this issue.
        Mr. Hadad. Thank you, Senator Coons, and thank you for your
    concerns and considerations of these issues in your STRONG
    Patent Act.
        Many of the proposals that I brought up have analogous
    provisions in the existing text of the STRONG Patent Act. There
    are refinements, as thinking has continued, to really target
    this to the abusive conduct and really tailor it in a way that
    makes sense. As I mentioned, having the equivalent standards as
    the district court, giving an alternative to amending claims
    through this reissue or reexamination, and then providing some
    basic fairness and equity in terms of the type of information
    you can introduce, those three areas that I said--and I think
    Mr. Rhodes agrees with--are areas that would be areas of focus
    going forward, in my mind.
        Senator Coons. Thank you, Mr. Hadad.
        Thank you, Mr. Chairman.
        Chairman Grassley. Now, Senator Whitehouse.
        Senator Whitehouse. Thank you all. Let me begin by thanking
    the cosponsors and negotiators who worked so hard on this bill.
    I am at this point in undecided mode. I am waiting to let my
    Rhode Island universities have a chance to digest the bill a
    little bit more and to have a better sense from the small
    business and startup community in Rhode Island weigh in a
    little bit more with me. I echo Senator Coons' suggestion that
    there should be more hearings on this that bring in a wider
    range of viewpoints.
        My concern is that among the different conflicts that
    inhabit this patent space includes the ones we have talked
    about, like patent holders versus patent infringers or alleged
    patent infringers; includes the difference between the
    pharmaceutical companies, which have a huge stake in a
    particular patent but want to defend it at all costs, and tech
    companies that may have a product that implicates potentially
    thousands of patents and that gives them very, very different
    motivation in this space.
        Behind all of that, as somebody who used to do a certain
    amount of litigation, is the conflict of big versus little and
    the advantage that our litigation system kind of systemically
    gives to big, particularly through the ability to just crush a
    small plaintiff with endless discovery, lots of paper blizzard
    litigation techniques and strategies that basically prevent the
    small plaintiff company from ever getting to the merits. If you
    are gigantic incumbent, then you have enormous power to crush
    potentially disruptive competition by climbing into their space
    and simply overpowering them in court. All of the moves that
    were made in this bill with respect to heightened pleading
    standards and discovery limits and adding a threat of a
    potentially game-ending fee-shift award into the equation seem
    to move in the direction of big versus little.
        I am going to need to hear a little bit more from my
    universities, which tend to represent smaller folks, and from
    small businesses. I do think that a lot of progress has been
    made.
        I do think it is also going to be important that we have a
    clear understanding, Mr. Chairman, as we go forward, that if we
    reach an agreement that is very solid in the Senate, that we
    have some reassurance that we will not just get rolled in the
    conference process and end up with a bill that looks like the
    House bill, which I think is really unacceptable to most of us
    and would do real wrong as opposed to this, which I think is--
    you know, we are in the hunt on this bill, and the question is:
    Have we got it right yet?
        My basic question, I would like to ask it to each of you.
    If you want to expand a little bit, please feel free to, but I
    think it is a yes-or-no question. If you had to sit down and
    write a definition of what a troll was so that you could tell a
    troll apart from a legitimate patent holder, would you be able
    to do that? Mr. Chandler.
        Mr. Chandler. I have felt for a long time that the issue
    here is abuse of the litigation process by big and small alike
    potentially, by active companies and inactive, that certainly
    there has been a huge increase in the number of suits brought
    by companies that are basically investment vehicles for buying
    patents and litigation. The reforms we are looking at in this
    legislation should improve the patent system overall.
        Mr. Whitehouse. My point is: Can you tell a troll apart
    from other litigants? Is there a way to define--we use the word
    a lot. Would you be capable of defining it if you had to?
        Mr. Chandler. Certainly--well, I do not use the term
    because I think the problem is systemic.
        Senator Whitehouse. OK.
        Mr. Chandler. I think you have rats running through a
    maze----
        Senator Whitehouse. Mr. Rhodes----
        Mr. Chandler [continuing]. because there is food at the end
    of it.
        Senator Whitehouse [continuing]. Would you be able to
    define the term if you had to?
        Mr. Rhodes. I do not use the term because I do not think
    there is any common or understood definition to it that people
    agree on, certainly that I am aware of, and I think it is
    important----
        Senator Whitehouse. Ms. Lettelleir?
        Mr. Rhodes [continuing]. to identify behavior, not people.
        Ms. Lettelleir. I have to agree with my colleagues on that
    because I really think it--at one point it might have been more
    easily defined, say 10 years ago when this movement started.
    Over time the vortex of behavior has drawn in what previously
    might not have been----
        Senator Whitehouse. Two seconds left on my clock. Mr.
    Hadad?
        Mr. Hadad. No.
        Senator Whitehouse. No.
        Ms. Samuels. I agree. It is trolling behavior, not troll as
    a party.
        Senator Whitehouse. Got it. OK. Thank you very much.
        I yield back my time, and I guess that puts Senator Cornyn
    in charge.
        Chairman Cornyn. [Presiding.]
        Good morning. Thank you for being here today. I was just
    getting a little update on what has happened. We have a
    remarkable way of scheduling multiple meetings and hearings at
    the same time around the Senate.
        I understand there was some concern about the process
    leading up to today's hearing, and I just would like to remind
    all of my colleagues, we got very close to actually bringing a
    bill from the Senate Judiciary Committee to the floor last
    year. Senator Reid, who then was Majority Leader, reportedly
    told the Chairman of the Judiciary Committee, ``Do not bother
    because I am not going to schedule it for debate and votes.''
    We were unsuccessful bringing the bill to the floor then, but
    it has been a 2-year process, as many of you know, because we
    have consulted with each of you, and we have had intense
    involvement with stakeholders, an incredibly diverse array of
    stakeholders. This is the second hearing we have had on this
    issue this Congress.
        I just wanted to say that to remind all of my colleagues
    that we have worked very hard to get to where we are today,
    which is not to the finish line, but we are a lot closer. My
    thanks to each of you for your contribution to help us get to
    where we are today. I realize we are not done, but we are much
    closer.
        Mr. Chandler, I understand that Senator Durbin has some
    questions about the fee-shifting provisions. This is something
    that Senator Schumer and I worked hard to try to get right. As
    a former judge--State court judge, I had some concerns about
    the presumptive fee-shifting idea. I have seen a lot of people
    lose lawsuits that were not frivolous. They just lost. In cases
    where there is objective unreasonableness of the position, I
    think one of the things that is important is to have the fee-
    shifting mechanism that we have tried to put in this
    legislation to make sure that it acted as an additional
    deterrent and did justice to the people who were sued based on
    a frivolous claim.
        Could you talk about the importance of fee shifting a
    little bit more and explain why the Supreme Court's decision in
    Octane Fitness was not enough?
        Mr. Chandler. Thank you, Senator Cornyn, and thank you for
    your sponsorship of the PATENT Act.
        The Supreme Court decisions are based on a statute that
    still refers to exceptional cases and have been very spottily
    applied. In fact, in one district a judge has indicated that he
    felt it was a suggestion, not mandatory law. The number of fee
    awards still based on the principle of exceptionality has been
    very low and we do not think serves as a sufficient
    disincentive to unmeritorious litigation.
        We do--we would prefer the presumptive language in the
    Innovation Act in the House but understand the process of
    crafting this bill and are comfortable with the way the
    language is presented in the PATENT Act to address this and to
    provide the district judges with a uniform national standard,
    which has not been the result from the Supreme Court decisions
    last year.
        Chairman Cornyn. I thought it was important to have--to
    require a hearing and to require evidence be introduced at that
    hearing and then to have an opportunity for appellate review to
    keep the district judges doing what Congress intended them to
    do when it comes to considering this matter.
        Mr. Rhodes, thank you for your contribution to this effort
    and working with us. Can you explain why this fee-shifting
    provision is an improvement over current law in your view?
        Mr. Rhodes. Yes, thank you for the question, Senator
    Cornyn. I do believe that the interests of uniformity are
    important. As Mr. Chandler said, you know, we currently have
    the Supreme Court opinions. We have long supported more
    frequent fee shifting in patent cases to drive the right
    behavior. The Supreme Court in giving district courts more
    discretion is still working within the confines of existing
    Section 285, which is an exceptional case. The Supreme Court
    defined that as cases that stand out from others, but, you
    know, there is still a lot of ambiguity in that.
        I would submit that having the protections, the safeguards
    that you mentioned, as well as making it clear that fees are
    not automatically shifted--that has been one of our core
    principles. It really should target bad behavior, not parties,
    got to go both ways and be premised on, as the bill says, you
    know, behavior or conduct that is not objectively reasonable.
    There is an interest-of-justice exception at the end.
        I think there is actual protection as compared to current
    law that this statute would provide to those who are concerned
    about more frequent fee shifting.
        Chairman Cornyn. I've heard--on a different topic, I have
    heard from life sciences industries and other concerns about
    inter partes review that was created by the 2011 America
    Invents Act, and I would like to hear from people on both sides
    of that discussion here. Mr. Hadad, you have testified your
    belief that reforms to IPR are necessary, in part because of
    what you view as a high rate of invalidation of patents after
    they have been issued, and I can understand the uncertainty
    that that might create, and particularly if there are different
    legal standards that apply to litigation as opposed to the IPR
    process. Could you share your views with us on that?
        Mr. Hadad. Thank you, Senator Cornyn. Yes, I do believe the
    IPR proceedings, as they have been implemented--and I think
    they have been implemented in the best of intentions by the
    USPTO, but there is a considerable deluge of these IPRs, and
    they have to be managed. I think to some degree lost in the mix
    a little bit have been some of the procedural safeguards to
    ensure a fair and level playing field between parties.
        You mentioned the standards, and I had mentioned them
    earlier. I think what they would do would be to give basically
    analogous type of decisionmaking to the district courts and the
    USPTO. We are looking for the USPTO to be a more efficient
    forum, not to be a different forum in terms of the level of
    invalidations.I think what we are seeing is an increased lack
    of confidence in patent--for patent holders in terms of
    investment when you consider that there is effectively a 75-
    percent chance that your patent at one point will go down in a
    USPTO proceeding, at least based on current statistics.
        Mr. Chandler. Senator, may I address that as well?
        Chairman Cornyn. Certainly.
        Mr. Chandler. Thank you. I think first we ought to get a
    grip on the statistics. There are 2.48 million outstanding and
    in-force patents in the United States. There have been 3,000
    petitions for IPR review. The PTO has granted about 1,300 out
    of those 3,000, and that has resulted in 391 patents having
    some or all of their claims eliminated.
        I can understand why that is painful for the people who
    have that happen. I also understand that they are going to
    petition Congress for redress.
        The fundamental issue, though, that we see is things like
    this hedge fund activity that is initiating IPRs and then
    trying to short stocks. We ought to address that directly
    through securities laws, for instance. That is not acceptable
    behavior, in our view.
        The reforms that are being proposed to the IPR process
    would basically force the Patent Office to use standards that
    were set for the district court rather than taking a fair look
    at whether a patent was granted in the first place. The types
    of standards that the PTO uses where they use broadest
    reasonable interpretation to figure out what the scope of a
    patent should be, where they do not apply a clear and
    convincing evidence standard that we put in the district courts
    because they are not the experts the way the Patent Office is.
    All that does is roll back the ability of the PTO, which was a
    fundamental part of the process that was implemented in the
    America Invents Act, to take a fair look, should this patent
    have been granted in the first place, using the same standards
    that were used when the patent was looked at in the first
    place. If a mistake was made, let us fix it. There is no excuse
    for letting a mistaken patent grant result in a 20-year
    monopoly that raises costs to customers and keeps other
    entrepreneurs out of the marketplace.
        We think there are targeted reforms that should be
    implemented, but rolling back the standards the PTO uses is not
    the right answer.
        Chairman Cornyn. I know there are different views on the
    panel----
        Mr. Chandler. There sure are.
        Chairman Cornyn [continuing]. and that is the reason for
    the hearing in the first place so we can flesh this out and we
    can hopefully make better decisions.
        Mr. Rhodes.
        Mr. Rhodes. Yes, I think that, you know, these states that
    there are 2 million patents and only 3,000 IPRs have been file
    so far, that misses the point that this is not a representative
    sampling of the 2 million patents that are in force.
        What patents do you think are being challenged right now?
    The most important ones, the most valuable ones, the ones that
    are either in litigation or that others would like to be able
    to practice. Therein lies the problem.
        There is less confidence than has ever been, and this goes
    beyond the life sciences sector that we heard from Mr. Hadad.
    There is less confidence now, when I am talking to business
    decisionmakers, about whether we can safely put investments in
    commercializing patented technology and building products based
    on that technology, can we assure investments by knowing that
    we have patent rights that can protect them. That is a less
    certain question than it has ever been. It is because of the
    uncertainty, the perception of unfairness, the reality of
    unfairness that I mentioned in several respects this morning,
    and that directly drives business decisions, and it is beyond
    the life sciences sector.
        We have proposed a series of reforms. You know, we hope
    that our ask is listened to. The same way those who said there
    was imbalance in litigation that needed to be addressed, we
    hope our concerns are listened to as well in terms of the post-
    issuance proceedings.
        Chairman Cornyn. Ms. Lettelleir, I should have recognized
    you first since you are a constituent, but welcome to today's
    hearing. We have heard testimony on the alignment or we should
    not align the IPR standards with those in district courts. What
    is your view of that?
        Ms. Lettelleir. I think the one thing that is very
    important for the Committee to keep in mind as it considers
    these requests for changes is that the post-grant review
    proceedings that were adopted as part of the AIA was part of a
    carefully structured provision, and if you now go in and try
    and pick just one element of that or two elements of that, you
    disrupt the balance of what was accomplished in the AIA.
        While I have heard the arguments that there is an imbalance
    between the district court standards and the PTO standards, the
    reality is that throughout the rules governing IPR and PGR that
    have been adopted and applied, there are imbalances. If you
    just start looking to making one element of those proceedings
    line up with district courts, then you have changed
    fundamentally the balance between challengers and patent
    holders. We are very concerned of disrupting the balance that
    was achieved when AIA was accomplished.
        As challengers of patents before the PTO in the context of
    these post-grant review proceedings, we are seeing unfairness
    as to the challenger as well. There may be a broader discussion
    that needs to be had down the road, but as part of this, I do
    not think you can just take one element and disrupt the entire
    balance that was achieved in the AIA.
        Chairman Cornyn. I have gone over my time for now. I will
    recognize Senator Blumenthal, who I think is next.
        Senator Blumenthal. Thanks, Senator Cornyn, and thank you
    all for being here. Thank you for the excellent testimony. I
    had to step out to attend one of the numerous conflicting
    hearings and meetings that we find we have in the Senate.
        I am very, very interested in this dilemma. For me it is a
    dilemma. I have wrestled with it for quite some time. I
    recently heard, for example, from a Connecticut Navy veteran
    names Michael Skelps whose photography company was, in fact,
    sued by a patent troll. The troll claimed to have patented the
    idea of taking pictures at a finish line and selling them to
    racers. I am a runner. I know about these photographs at finish
    lines. They are done commonly. Michael Skelps was threatened
    with this lawsuit. In fact, he was sued, and the troll's demand
    letter contained no information about his supposed patent. It
    made the case to Mr. Skelps that it would be cheaper to settle
    than to litigate, and it announced that the troll had already
    forced nine businesses to settle with much the same kind of
    claim.
        Mr. Skelps fought it as hard as he could. He spent $100,000
    and ultimately all three of the troll's patents were
    invalidated. He won the battle. He lost the war. I learned last
    night that Mr. Skelps will file Chapter 13 bankruptcy this
    month, and within 60 days his business will be gone.
        I have heard from innovators who are afraid what could
    happen if patent reform goes too far, but I am convinced that
    there are ways to focus and target legislation to help not only
    big companies and very well resourced entrepreneurs, but also
    the Michael Skelpses of the world, of America. He happens to be
    a veteran who obviously was not going to give up without a
    fight, and he fought and he won. Ultimately, though, he lost.
        I am hopeful that we will have a result here that
    vindicates the legal rights of people in America generally,
    both the entrepreneurs and the innovators, the business people,
    and our veterans. I want to thank all the bill's sponsors. I am
    not one of them. I hope that we can improve even more on what
    has been done already, which leads to the question that I have
    for you, and I will accept volunteers. Do you think there are
    parts of the bill that can and should be improved? What would
    you do to make it better and--what always troubles me,
    especially in an area that is so complex and challenging--to
    avoid unintended consequences?
        Ms. Samuels. I can answer that. Thank you, Senator
    Blumenthal, for the question. I think that this bill represents
    a really good compromise, which means, of course, that I do not
    think it is perfect. Right? That is the definition of
    compromise. Some of the things that I wish we saw in there
    were--I wish that we were dealing with quality, like we talked
    about last year, 2 years ago, with an expanded covered business
    method review; that we more directly were talking about
    improving patent quality, which for people in my industry, in
    the small startups in the tech space and not unlike the
    photographer, Mr. Skelps--if I got that correctly.
        Senator Blumenthal. You did.
        Ms. Samuels. That is what would really help. That is the
    core of this problem. I--actually the discovery provisions have
    been dialed back some during compromise, and I wish that were
    not the case, because I was so glad to hear your story and I
    will be quick just to say that there has been a lot of talk
    today about small businesses and they hurt on both sides of the
    equation, and I think that is probably always true. In this
    instance, we are so worried about small businesses having
    access to the courthouse, and that just does not mean
    plaintiffs, but it really means defendants in these cases, so
    that you do not have to spend $100,000, $200,000, $1 million to
    defend yourself, but you can go to court and make your case. So
    thank you for the question.
        Senator Blumenthal. Thank you.
        Mr. Chandler. We would--thank you, Senator. We would
    support making sure that the discovery stay in the case of
    transfer motions, motions to dismiss, motions to sever be more
    robust. Right now it allows for local rules that could impose a
    significant amount of discovery while a transfer motion is
    being considered, and we would hope there would be an
    interlocutory appeal on the transfer motions as well. As we
    noted, 40 percent of the patent litigation is now brought in
    two judicial districts where only 1.5 percent of Americans
    live. That imbalance forces people to bring large numbers of
    witnesses and travel to places that are very, very
    inconvenient, but cases are brought there for reasons that are
    obscure to us.
        Mr. Rhodes. We would certainly hope that any of the welcome
    compromises that we mentioned would not be dialed back in the
    bill. We think that would be a big step backward.
        Beyond that, I have mentioned two areas where we think
    improvement should be had this morning--no surprise to those of
    you who have been here the whole morning--AIA reviews as well
    as the demand letter section. We think if we could couple
    changes to those with what is in the bill today, at that point
    we would be in a position where we could support the overall
    package.
        Ms. Lettelleir. Senator Blumenthal, from the Main Street
    perspective, we recognize the balance that has been struck, and
    we accept that. While we would always hope to have stronger
    provisions, we accept the balance that has been struck.
    However, any further erosion of the critical provisions of the
    PATENT Act would greatly challenge our continued support for
    the PATENT Act as introduced.
        Mr. Hadad. To finish it up, we appreciate the compromises
    in the current existing bill. We do remain concerned about
    these post-grant proceedings and believe a comprehensive bill
    addressing abusive litigation procedures would also include
    those as well. Thank you.
        Senator Blumenthal. Thank you. I want to thank you all. As
    my colleague Senator Schumer remarked at the very beginning,
    the witnesses that we have before us today reflect a consensus,
    but it also may be without some of the disagreeing views, some
    of the other views, which may not be reflected simply because
    others have not been invited for whatever reason. I think that
    this Committee has an obligation to reach out for views that
    represent the diversity and continue to work to improve it
    without necessarily disrupting the compromise that has been
    struck. Even with a compromise, I think there may be room for
    improvement.
        Thank you, Mr. Chairman.
        Chairman Cornyn. Thank you, Senator Blumenthal.
        I agree with Senator Blumenthal, there is always room for
    improvement. But we----
        Senator Blumenthal. I want to thank the Chairman for his
    role in forging this compromise, along with our colleagues
    Senator Leahy, Senator Grassley, Senator Schumer, and Senator
    Klobuchar.
        Chairman Cornyn. We have learned, even with consensus
    legislation, which this is not yet, it is still hard to pass
    legislation in the Senate. We are going to keep at it. We are
    trying to make sure that we do get the views of stakeholders,
    and we have worked very hard at that, and, again, I will thank
    you once more for your sharing that with us and working with us
    in good faith.
        This to me is the sort of important piece of legislation--
    maybe it is not important on a global scale, but it is to a lot
    of people. I have heard from everybody from restaurant owners
    to hotel/motel owners to operators, to people in the building
    trades that they are somehow swept up by the patent trolls
    litigation, and it is just incredibly destructive and unfair.
        Ms. Samuels, I think you had a great phrase: ``defendants
    access to justice.'' Sometimes we focus on the plaintiffs'
    access to justice in a lawsuit but do not give adequate
    recognition to the defendants' access to justice as well.
        I might just cover with you--and I apologize if you have
    talked about this before when I was not able to be here and I
    was at one of those other conflicting meetings and hearings
    that Senator Blumenthal alluded to. How would the pleading rule
    in this proposal help small businesses?
        Ms. Samuels. Thank you for the question, Senator Cornyn,
    and I have to thank you so much for your leadership on this
    effort.
        I think the heightened pleading provision is actually one
    of the most important parts, particularly for startups, for
    small businesses, for individuals who face threats from patent
    trolls, because you need to be able to understand the scope of
    the threat you face before you can make appropriate decisions
    about how to proceed, and without basic information, you cannot
    make those decisions.
        I think this is especially true when we are talking about a
    patent system--a patent system that is a system of public
    notice. That is the point of the patent system, and right now
    it does not operate like that. When we talk about property, we
    are talking about metes and bounds. If you want to grow a
    company, make some innovation, put something out there, it is
    literally impossible right now to know the scope of your rights
    because there is no information out there to help delineate
    that. The heightened pleading requirement would help fix that
    problem.
        Chairman Cornyn. Mr. Rhodes, you testified to the
    safeguards and the pleading rule. Would you describe those and
    perhaps explain those a little more?
        Mr. Rhodes. Yes, thank you for the question, Senator
    Cornyn. I think the trick with pleadings is to achieve, as in
    so many other areas of the bill, the right balance between
    putting all parties, both plaintiffs and defendants, on fair
    notice of the claims and the defenses at issue in the case
    without making the requirements too high or onerous that there
    is an access-to-justice issue or that the pleading targets do
    not just become a motion to dismiss--that it does not become a
    target for motions to dismiss. I think, you know, that is a
    balance we are trying to strike here.
        I was encouraged that some of the initial information that
    is not required to establish a claim for relief was moved to
    initial disclosures, so that cannot serve as the basis for a
    motion to dismiss.
        There is also an ability to plead matters generally,
    consistent with the Plaintiff's Rule 11 obligation, but more
    generally if information is not available to the plaintiff at
    the time the complaint is file.
        In addition, there is confirmation within the heightened
    pleadings requirement of the right to amend pleadings
    consistent with the standards in Rule 15(a) of the Federal
    Rules of Civil Procedure. I think those safeguards are
    important.
        Chairman Cornyn. If we can turn to the issue of discovery,
    if I worry about--the two things I worry about the most about
    our civil justice system is the costs and the delays necessary
    to resolve disputes. Not everybody can afford a high-priced
    lawyer or the discovery costs associated with protracted
    litigation. One of the things we tried to address here is a way
    to deal with this in an appropriate way. It is an item of
    consensus because you have plaintiffs who complain about
    discovery, and you have defendants who complain about
    discovery, too. But some, especially those with little to
    produce, rely upon the high cost of discovery to extract
    settlements regardless of the merits of the case.
        Since the introduction of the Patent Abuse Reduction Act 2
    years ago, which included a discovery stay, I have heard a lot
    from both sides about the right way to address discovery costs.
        Ms. Samuels, would you please tell us how you view the
    discovery stay in the PATENT Act and its impact on startup
    companies?
        Ms. Samuels. Of course, Senator Cornyn. Thank you for the
    question. You know, I think that a lot of what I said about
    heightened pleading is also true with regard to the discovery
    reforms in the early stays. What you are allowing startup small
    companies without a lot of resources to do is really take the
    necessary time with the necessary information to understand the
    scope of what they are facing, to understand as they make these
    decisions whether they should pay a lawyer and continue to
    fight, whether they should settle. These are the kinds of
    things we need to give these folks so that they, like we have
    talked about, have access to the courthouse.
        To be honest, while I am glad that the stay is in here, I
    wish it went farther. I wish it were to Markman. I understand
    we have a compromise and that is life, so we just think that
    anything that allows these people to get into the courthouse is
    a good thing.
        Chairman Cornyn. Mr. Rhodes, I think you touched on this,
    but let me just ask you again. Do you think we have reached a
    balanced approach on deterring frivolous litigation without
    unduly burdening patent holders who need to assert their rights
    when it comes to discovery?
        Mr. Rhodes. Yes, I think with respect to the discovery
    stay, that was a major area of concern for 3M and for 21C. As
    the original proposal that you referenced was drafted, it would
    stay discovery pending claim construction, and that is a
    complex and often protracted procedure that takes place in
    every case, nearly every patent case before the claims are
    construed. We were very concerned, as a company that makes
    investments based on our patent rights and, unfortunately,
    sometimes has to enforce those patents to prevent infringement,
    that staying all discovery in a case pending the claim
    construction process might delay our ability to get fast,
    expeditious, and effective relief.
        I think walking that back to preliminary motions does
    address concerns. The discovery proceeds while motions to
    transfer, for example, are not ruled upon. It does address some
    of that concern about discovery taking place in a court where
    maybe the case is not even going to proceed, while balancing
    the risk--against the risk of a protracted delay of that
    discovery stay as pending claim construction.
        I do disagree strongly with the pushback that we have heard
    this morning about the exception for initial disclosures. I
    think if you look across the country at the patent courts that
    have done the best job of--at the district courts that have
    done the best job of managing patent cases, a common
    denominator that you see are initial disclosure requirements,
    local patent rules that provide for an early exchange of
    information that helps narrow the issues in dispute. It helps
    identify opportunities on issues for early resolution. It helps
    identify early settlement opportunities. I think allowing that
    process to proceed in an orderly fashion, drawing upon the
    experience and the expertise of the Federal judiciary that has
    adopted that process is very important, even if we stay more
    intrusive discovery pending those preliminary motions.
        Chairman Cornyn. Thank you. I know Senator Blumenthal
    mentioned some concern about people who are not represented at
    today's hearing. I just wanted to note for the record that at
    the last hearing one of the universities were engaged, and I am
    pleased that as a result of the work we have done reaching out
    to the various university groups, we have welcomed both their
    input, and I think we were in a pretty much better place as far
    as their concerns and the compromise that we have reached,
    which is, as we have all said, is not perfect, but seems to be
    a consensus--we have reached a consensus, by and large, with
    some notable exceptions on the IPR and other areas where we
    need to continue to work.
        Senator Blumenthal, do you have any other questions you
    would like to ask?
        Senator Blumenthal. I do not. Thank you.
        Chairman Cornyn. OK. Thank you. Well, since we have run out
    of Senators and questions, thank you for your patience and your
    time, and thanks for continuing to work with us and get this
    right. Thanks. The hearing is adjourned.
        [Whereupon, at 11:54 a.m., the Committee was adjourned.]

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