    [Senate Hearing 114-137]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 114-137

                      PATENT REFORM: PROTECTING INNOVATION
                              AND ENTREPRENEURSHIP

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

                                    HEARING

                                   BEFORE THE

                          COMMITTEE ON SMALL BUSINESS
                              AND ENTREPRENEURSHIP
                              UNITED STATES SENATE

                        ONE HUNDRED FOURTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 MARCH 19, 2015

                                   __________

        Printed for the Committee on Small Business and Entrepreneurship

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             Available via the World Wide Web: http://www.fdsys.gov

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               COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                        ONE HUNDRED FOURTEENTH CONGRESS

                                  ----------
                       DAVID VITTER, Louisiana, Chairman
                  BENJAMIN L. CARDIN, Maryland, Ranking Member
    JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
    MARCO RUBIO, Florida                 JEANNE SHAHEEN, New Hampshire
    RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
    TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
    DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
    CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
    JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
    KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
    MICHAEL B. ENZI, Wyoming
                      Zak Baig, Republican Staff Director
                     Ann Jacobs, Democratic Staff Director

                                C O N T E N T S

                                  ----------

                               Opening Statements

                                                                       Page

    Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
    Cardin, Hon. Benjamin L., a U.S. Senator from Maryland...........     2

                                   Witnesses

    Mr. David Winwood, President-Elect, Association of University
      Technology Managers, Chief Business Development Officer,
      Louisiana State University's Pennington Biomedical Research
      Center, Baton Rouge, LA........................................     4
    Mr. Robert N. Schmidt, Co-Chair, Small Business Technology
      Council, National Small Business Association, Fort Meyers, FL..    23
    Tim Molino, Director, Policy, BSA | The Software Alliance........    40
    Ms. Rachel King, Founder & CEO, GlycoMimetics, Chair of the
      Maryland Life Sciences Advisory Board, Gaithersburg, MD........    48
    Mr. Craig Bandes, President & CEO, Pixelligent Technologies,
      Baltimore, MD..................................................    57

              Alphabetical Listing and Appendix Material Submitted

    American Continental Group, Inc.
        Chart titled ``Litigation Rate 1991-2014''...................   114
    American Hotel and Lodging Association
        Statement dated March 19, 2015...............................    75
    Application Developers Alliance on Patent Reform
        Statement dated March 19, 2015...............................    77
    Association of American Universities
        Letter dated March 2, 2015...................................    80
    Association of Public and Land-grant Universities
        Statement dated March 3, 2015................................    81
    Bandes, Craig
        Testimony....................................................    57
        Prepared statement...........................................    60
        Responses to questions submitted by Chairman Vitter and
          Senator Booker.............................................   164
    Big Ten Since 1896
        Letter to Senator Cardin dated January 21, 2015..............    82
    Biotechnology Industry Organization
        Statement dated March 3, 2015................................    84
    Cardin, Hon. Benjamin L.
        Testimony....................................................     2
    Engine
        Statement of Julie Samuels, Executive Director...............    85
        Patent One Page Executive Summary 2015.......................    87
        Patent White Paper 2015......................................    88
    Innovation Alliance
        Statement dated March 3, 2015................................    97
    Institute of Electrical and Electronics Engineers (IEEE-USA)
        Letter to Senator Coons dated March 4, 2015..................    98
    Kappos, David J.
        Report titled ``The Great Patent Debate: Changing Horizons''.    99
        Report titled ``An Overview of the United States Patent
          System, 2015''.............................................   114
    King, Rachel
        Testimony....................................................    48
        Prepared statement...........................................    51
    Medical Device Manufacturers Association
        Statement....................................................   116
    Molino, Tim
        Testimony....................................................    40
        Prepared statement...........................................    42
    National Association of Home Builders
        Statement dated March 19, 2015...............................   118
    National Association of Realtors
        Letter dated March 17, 2015..................................   122
    National Retail Federation
        Statement dated March 19, 2015...............................   124
    National Venture Capital Association
        Statement dated March 3, 2015................................   133
    Pharmaceutical Research and Manufacturers of America
        Statement dated March 3, 2015................................   134
    Schmidt, Robert N.
        Letter dated March 4, 2015...................................    16
        Letter dated March 13, 2015..................................    20
        Testimony....................................................    23
        Prepared statement...........................................    25
        Responses to questions submitted by Chairman Vitter..........   148
    Startup Investors
        Letter dated March 17, 2015..................................   135
    Vitter, Hon. David
        Testimony....................................................     1
    Winwood, David
        Testimony....................................................     4
        Prepared statement...........................................     7

           PATENT REFORM: PROTECTING INNOVATION AND ENTREPRENEURSHIP

                                  ----------

                            THURSDAY, MARCH 19, 2015

                          United States Senate,
                            Committee on Small Business
                                          and Entrepreneurship,
                                                        Washington, DC.
        The Committee met, pursuant to notice, at 10:02 a.m., in
    Room 428, Russell Senate Office Building, Hon. David Vitter,
    Chairman of the Committee, presiding.
        Present: Senators Vitter, Risch, Gardner, Ernst, Cardin,
    Cantwell, Shaheen, Booker, Coons, Hirono, and Peters.

     OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S.
                         SENATOR FROM LOUISIANA

        Chairman Vitter. Let's go ahead and get started.
        Good morning and welcome, everybody, and welcome to our
    hearing on ``Patent Reform: Protecting Innovation and
    Entrepreneurship.''
        I want to thank our panel of witnesses for taking time away
    from their jobs and, in many cases, making the trip to
    Washington for this important hearing. We look forward to your
    testimony.
        As many in this room are aware, there is a growing call for
    the Senate to act swiftly and make patent reform legislation a
    priority for floor consideration once committees have done
    their work.
        Today, we are here to answer a sole question: How do we
    address patent reform while protecting innovation and not
    impose negative consequences on small businesses and
    entrepreneurs? It is important to ensure that any bill that
    moves to the U.S. Senate floor achieves this goal.
        Certainly, we want to combat frivolous lawsuits and patent
    trolling, but we also want to maintain a level playing field
    for small business investors and large companies alike.
        Patent jurisprudence has changed considerably over the past
    three years, and there are ample ongoing changes to the patent
    system which are still being implemented.
        Protecting small business and safeguarding those
    innovations is the responsibility of this Committee, not to
    mention the bedrock of the American entrepreneurial spirit.
        Similarly, it is essential to remember that many legitimate
    owners of intellectual property do not manufacture anything
    but, nonetheless, have very important legitimate claims of
    patent infringement against other parties. These include
    independent inventors, research and development companies, and
    universities, who all qualify as nonpracticing entities.
    Therefore, Congress should act decisively, but it should also
    act with prudence.
        We have heard pleas from businesses across the board that
    the patent system is increasingly becoming a forum for
    financial speculation and litigation rather than innovation.
    American innovators and small businesses across the country are
    being forced to divert critical resources to defend themselves
    against vague claims of patent infringement, resulting in
    substantial drains on our economy.
        Main Street businesses using off-the-shelf technology need
    to be protected against frivolous demand letters and suits.
    This must stop, but it would be similarly disturbing if we
    uprooted a major portion of the U.S. economy to address harmful
    behavior from a few bad actors.
        The discussion surrounding patent reform must include a
    detailed analysis of how legislation would further impact small
    businesses, investors, and universities.
        And as chair of this Committee on Small Business and
    Entrepreneurship, I certainly feel an obligation to highlight
    that our patent system fuels the economy.
        Unfortunately, many businesses have seen some bad actors,
    and patent abuse by bad actors certainly wastes vital funds
    that could otherwise go to productive activity. It is this
    reason that I fully support bringing the patent discussion
    forward to address specific targeted legislative fixes as long
    as that discussion carries the necessary protection for smaller
    businesses and startups.
        Unfortunately, when dealing with bad actors, there is very
    rarely a one-shot solution. I have seen disturbing efforts
    that, in an attempt to demonstrate a greater level of ``growing
    abuse,'' lump innocent, well-intended business suits in that of
    trolling.
        So legislation should not have the effect of allowing one
    group to strong-arm another smaller group simply because of
    immediate access to resources. Efforts to unbalance the system
    using misguided information will ultimately lead to less
    prosperity in our system.
        Licensing one's patents is not a bad thing. It is for that
    reason I believe the discussion deserves the necessary room to
    include what the legislation's further impacts will be on small
    businesses and investors and universities.
        And so it is my hope that today with our witnesses and
    experts across the spectrum, we can discuss how best to balance
    a path forward. And I certainly look forward to carrying this
    issue and discussion on as a member of the Senate Judiciary
    Committee as well.
        With that, let me turn the mic over to Senator Cardin.

     OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, A U.S. SENATOR
                             FROM MARYLAND

        Senator Cardin. Well, Chairman Vitter, first of all, thank
    you for convening this hearing. This is our first committee
    hearing here in Washington of the Small Business and
    Entrepreneurship Committee of this Congress, and I want to
    thank Senator Vitter and his staff for the cooperative
    arrangements that we have in putting together this particular
    hearing.
        It is very interesting; there are lots of committees in the
    Congress that deal with issues that affect small business.
        The Finance Committee deals with the tax code, and there is
    major impact on small businesses.
        The Environment and Public Works Committee deals with the
    regulatory environment for an environment that affects small
    business.
        The Banking Committee deals with the financial systems in
    this country that affect small business.
        And the Judiciary Committee deals with pensions and pension
    laws that affect and patent laws that affect--excuse me. They
    deal with patent laws that affect small businesses.
        Only this Committee focuses on the small business
    community, and it is very appropriate that we have a hearing
    dealing with the impact of these policies as they affect small
    business. So, Mr. Chairman, I am very pleased that we are
    having this hearing to deal with patents so that we can take a
    look at the impact it has on small business.
        We are trying to balance two different thoughts on how the
    patent system is working. We have our universities and large
    biotech companies that have one view, and we have smaller
    companies that have different views.
        And I would hope that we could harmonize those views. That
    may be asking a little bit too much, but I think this hearing
    can help us in trying to figure out how is the best way to deal
    with these conflicting roles.
        The role of small business is critical to the dialogue on
    patents. Small business produces 16 times more patents than
    larger businesses. And the ability of entrepreneurs to obtain
    patents often acts as a precursor to investors' willingness to
    provide funding at critical stages.
        An effective and functioning patent system is critical to
    the economic growth of the United States. Intellectual property
    has been a fundamental source of American innovation and
    economic prosperity since our nation's founding.
        Of late, there have been many efforts to improve the
    system. The administration issued a series of executive
    actions, and Congress passed the America Invents Act in 2011,
    which put in place our First-to-File system, procedural
    changes, fee revisions, and post-grant review.
        I look forward to hearing from today's witnesses as to how
    those reforms and executive actions are working in practice,
    the impact it has on businesses in our community.
        I also look forward to hearing from our witnesses about
    their experiences with the patent assertion entities, also
    known as patent trolls. Small businesses are particularly
    vulnerable, as the chairman pointed out. They do not have the
    deep pockets. They are particularly vulnerable to claims that
    their work is invalid or requires significant investment of
    time and money to litigate.
        Research institutions also play a significant role in the
    patent arena. University-owned research labs spur innovation by
    transferring patentable inventions developed in their labs to
    the private sector for commercialization as new technologies.
        In the State of Maryland, I have seen how technology
    transfer programs at the University of Maryland, the National
    Institutes of Health, the Johns Hopkins University have had to
    stimulate growth in my State; indeed, in the entire country.
        Nationwide, similar programs have generated hundreds of
    billions of dollars of economic activity and three million jobs
    in the past three decades alone.
        So, Mr. Chairman, this is an issue that this Committee is
    ideally suited, I hope, to find a common ground. The Small
    Business and Entrepreneurship Committee has had a reputation of
    working in a bipartisan way to help small business, and we will
    be challenged in this area, but I think today's hearing can
    help us find a way forward.
        I am very impressed by the witnesses that we have before
    us, and we look forward to your testimony and helping us
    understand how the current system is working, the challenges we
    have, how we can balance innovation moving forward, protecting
    intellectual property of creative people but also allowing
    companies to be able to move forward in more discoveries for
    the benefit of our economy.
        Chairman Vitter. Great. Thank you, Ben.
        We do have five great witnesses. I am going to introduce
    the first three before each of their testimony, and then
    Senator Cardin will introduce the remaining two.
        First, we will hear from Mr. David Winwood, President-Elect
    of the Association of University Technology Managers and Chief
    Business Development Officer of LSU's Pennington Biomedical
    Research Center.
        Prior to his current position, David served in research,
    business development, and company leadership roles in three
    startup businesses.
        Welcome, David, and please proceed.

      STATEMENT OF DAVID WINWOOD, PRESIDENT-ELECT, ASSOCIATION OF
    UNIVERSITY TECHNOLOGY MANAGERS, AND CHIEF BUSINESS DEVELOPMENT
      OFFICER, LOUISIANA STATE UNIVERSITY'S PENNINGTON BIOMEDICAL
                            RESEARCH CENTER

        Mr. Winwood. Thank you, Mr. Chairman.
        Chairman Vitter, Ranking Member Cardin, committee members,
    I am grateful for the opportunity and privilege to testify
    today.
        I am President-Elect of the Association of University
    Technology Managers, AUTM, a nonprofit organization dedicated
    to enhancing the global academic technology transfer
    profession, and as mentioned, I am also the Chief Business
    Development Officer of Louisiana State University's Pennington
    Biomedical Research Center in Baton Rouge.
        The Center's mission is to discover the triggers of chronic
    diseases through innovative research that improves human health
    across a life span.
        Well, university research has brought huge benefits to the
    American economy, national security, and health care. An
    independent survey released just this week indicates that since
    1996 academic industry patent licensing has contributed up to
    $1.18 trillion to the U.S. economy, bolstered U.S. GDP by up to
    $518 billion, and supported up to 3.82 million U.S. jobs.
        In that same 18-year period studied, AUTM reported the
    creation of more than 4,200 startup companies based on academic
    and nonprofit research.
        And, in 2013 alone, AUTM reported 24,000 inventions from
    academic research, inventions that helped launch 719 new
    products and served as the basis for the creation of more than
    800 startup companies.
        The Bayh-Dole Act in 1980 helped unleash the power of the
    patent and provided a framework in which universities are
    encouraged to engage with corporate partners to take inventions
    from the lab to the marketplace. Under Bayh-Dole, universities
    exercise a preference for licensing to small entities,
    including startup companies.
        Now Congress has been a partner with universities by
    funding the basic research that industry no longer performs,
    and the process by which federally funded inventions are moved
    to the market has been refined and improved as the technology
    transfer profession has matured over the years.
        Patenting is a complex, lengthy, unpredictable, and
    expensive process. Yet, it is crucial for the commercialization
    of most inventions, with patents often being used effectively
    as collateral to attract early stage investments to allow
    commercialization to proceed.
        And certainly, Chairman, the innovative proof of concept
    funding program recently implemented by the LSU Board of
    Supervisors to turn LSU research into companies and products
    requires evidence of IP protection before funding is approved.
        But there is a real concern among universities and small
    businesses regarding the sweeping changes to the U.S. patent
    system that some in Congress are advocating in bills such as
    H.R. 9., a concern that our efforts to fill a vital role in the
    innovation ecosystem will be stifled.
        Fee-shifting and joinder provisions proposed in the pending
    legislation could effectively exclude universities and our
    licensed startup companies from enforcing our legitimate patent
    claims, resulting in significant losses to the entrepreneurial
    and innovation ecosystem that propels the U.S. economy.
        Now going to court is always a last resort for patent
    holders, but if going to court becomes too risky then patents
    will lose their value to licensees and to investors. We believe
    the investment community would clearly be much less inclined to
    risk-making, early stage funding commitments, including to
    startups, if H.R. 9 became law.
        Now the university community understands the concerns of
    lawmakers and industry groups regarding what has become known
    as the patent troll issue. Indeed, in a February 2015 press
    release, six higher education associations commenting on H.R. 9
    clearly stated that our associations want Congress to pass
    legislation this year that would put an end to the abusive
    behavior of patent trolls.
        But in saying that, we mean a targeted, narrow approach
    that focuses on the abusive behavior, such as that recently
    proposed by Senator Coons in the STRONG Act, which is aimed at
    protecting small businesses, universities, and entrepreneurs
    from abusive patent litigation, addressing the problem but
    without the negative side effects the other legislation might
    cause by impeding legitimate patent holders from enforcing
    their patent rights. So we are happy to work with Congress
    toward that end.
        At AUTM, we see a broad landscape as having changed over
    the past year or so. The Supreme Court has issued rulings
    giving judges more discretion to assess legal fees to losers in
    litigation if the judge believes the case is unjustified. The
    FTC has recently pursued a patent troll who sent out misleading
    demand letters to hundreds of small retailers, and the
    Commission says it plans to do more. And, the PTO itself has
    new procedures in place that are helping remove bad patents
    before they ever get to trial.
        So, in closing, I would urge this Committee to express
    itself to the Senate Judiciary Committee and raise these
    concerns as that committee begins to work on its own version of
    patent litigation reform because we simply cannot allow
    overzealous pursuit of trolls to take the American patent
    system out of reach for universities, small businesses, and
    small inventors who are counting on you to protect them from
    legislation that overreaches.
        So I thank you for providing the opportunity for us to make
    these comments, and I will be happy to answer questions.
        [The prepared statement of Mr. Winwood follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Vitter. Great. Thank you very much.
        Next, we have Robert N. Schmidt, Co-Chair at the Small
    Business Technology Council and also with the National Small
    Business Association.
        For the past 25 years, Bob has been founding and growing
    companies in the medical device and aerospace fields. He is a
    professional engineer, an attorney, and specifically, a patent
    attorney. He has 31 patents to his name, and the 5 companies he
    has founded control over 160 U.S. patents and applications plus
    additional foreign patents.
        And also, one of the groups, Bob, as part of the National
    Small Business Association, along with its coalition partners,
    recently sent a letter to Representatives Goodlatte and Conyers
    and Senators Grassley and Leahy, imploring Congress to slow
    down and fully consider that legislation.
        And so I want to move that we make that part of the record.
    Without objection, so ordered.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Vitter. Bob, please proceed.

       STATEMENT OF ROBERT N. SCHMIDT, CO-CHAIR, SMALL BUSINESS
        TECHNOLOGY COUNCIL, NATIONAL SMALL BUSINESS ASSOCIATION

        Mr. Schmidt. Senator Vitter, Senator Cardin, members, thank
    you very much for asking me to testify today on this very
    important matter for technology startups and small businesses.
        For the past 25 years, I have founded and led these
    companies, and we have about 80 employees in total and a dozen
    doctorate degrees and over $10 million in annual revenues. That
    gives you a scale of what we do, but we sell our products on
    seven continents.
        So I am here today as the co-chair of the Small Business
    Technology Council, speaking on behalf of the 5,000 firms who
    participate in the SBIR and SDTR programs. I do so to raise our
    concerns regarding the detrimental effects that patent reform,
    bills such as H.R. 9, the so-called Innovation Act, will have
    on small inventing companies.
        We would like to add small business to the list of
    individuals, of individual inventors, universities, venture
    capitalists, patent examiners, former patent commissioners, and
    patent court judges that oppose such legislation. Crafting a
    narrow and targeted alternative to this harmful legislation is
    important to small business inventors as patents are critical
    to all innovative firms and especially SBIR firms.
        The Federal Reserve found that patents are the number one
    indicator of regional wealth.
        Small businesses employ 37 percent of the scientists and
    engineers, 50 percent more than all the large corporations
    combined.
        SBIR firms have received about 121,000 patents.
        The Fortune 500 firms' share of R&D 100 Awards, the world's
    most valuable innovations, has dropped from over 40 percent in
    the 1970s and early 1980s to just 6 percent, or 1 in 16, while
    SBIR firms receive 4 times as many of these R&D 100 Awards as
    the Fortune 500 firms together.
        In short, SBIR firms and small business is where innovation
    happens.
        Large firms can, and do, survive without strong patents;
    small businesses cannot. Weakening patent rights threatens the
    very interest of universities and small business. Without
    strong patents, we cannot commercialize our inventions, and
    technology jobs will go overseas.
        The over-broad and sweeping proposed legislation in H.R. 9
    will have the effect of suppressing patent rights of all
    patentees and, in particular, will hurt the small, high-tech,
    job-creating SBIR businesses and, thus, the economy.
        Simply stated, patents are far more important to small
    business survival and growth than to large businesses, and
    licensed patents are the only way universities can
    commercialize their research.
        The Senate is now presented with a choice between two
    bills--the House's H.R. 9, the ill-named Innovation Act, or S.
    632, appropriately termed STRONG Patents Act of 2015.
        H.R. 9, which I believe should be more aptly named the
    Ending the American Dream Act, with functions such as those
    providing for endless review, clouds title to patents, weakens
    the patent holder's ability to economically enforce their
    patents, and undermines fundraising and licensing activities.
        In contrast, the STRONG Patents Act ends the invention tax
    by securing PTO user fees from diversion away from the Patent
    Office, ensuring that resources are commensurate with
    examination workload. And, the STRONG Patents Act protects
    patent holders from large patent ogres, those who would
    otherwise infringe small firms' invalid patents with impunity.
        Let me repeat. H.R. 9 does not eliminate trolls, but it
    will engender the large monopolistic and market dominant firms,
    encouraging more patent ogre activity.
        Finally, I want to put to rest the myth that small business
    supports the Innovation Act. H.R. 9 does not solve the troll
    problem.
        Virginia Gavin, a small business owner who had received two
    demand letters and paid twice, she was as anti-troll as one
    could be. But once she understood each and every provision of
    H.R. 3309, which was H.R. 9's predecessor, she stated, ``There
    is nothing in this bill that will help me and several items
    that will harm my business.''
        Thus, we oppose H.R. 9.
        However, we do support legislation proposed in the STRONG
    Patents Act and the Troll Act.
        Thank you very much.
        [The prepared statement of Mr. Schmidt follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Vitter. Thank you. Thank you very much, Bob.
        And next, we have Tim Molino, Director of Policy for BSA
    the Software Alliance.
        Mr. Molino has a long history of policy work related to
    patents, including as a former top Senate staffer and as chief
    counsel for Senator Amy Klobuchar. During his law career, Tim
    focused on patent litigation in the areas of software, medical
    devices, and biotech, and he also prosecuted patent
    applications and provided counseling regarding non-infringement
    and validity issues.
        Welcome, Tim, and please proceed.

     STATEMENT OF TIM MOLINO, DIRECTOR, POLICY, BSA | THE SOFTWARE
                                ALLIANCE

        Mr. Molino. Chairman Vitter, Ranking Member Cardin and
    members of the Committee, thank you for the opportunity to
    testify on this very important topic of patent reform.
        BSA is the world's leading voice for the software industry.
    From the way our children learn, how we communicate with
    colleagues and loved ones, the cars we drive, and to the
    medical devices that save our lives, software is making the
    world a better place.
        In order to keep this innovation thriving, BSA member
    companies believe that there is an urgent need for legislation
    to address abuse that all too often happens during patent
    litigation.
        The Small Business Committee is the ideal venue for an
    organization like BSA to present our views. Although our
    members range in size from very small to large, each of them
    was founded by one or two individuals with passion, an idea,
    and a vision for bringing that idea to the marketplace.
    Software-related patents are especially important for our
    members and other small businesses in many sectors of the
    economy that rely on the patent system--a patent system that is
    strong, predictable, efficient, and fair.
        In today's world, much of the innovation that is occurring
    comes through the development of software, whether it is
    building energy efficient offices and homes, running factories
    more safely and productively, or making transportation systems
    more efficient. Software patents play a vital role for small
    businesses by protecting their ideas against copiers,
    preserving the value of their innovation as they build their
    businesses, and providing a foundation to attract the
    investment capital needed to launch and grow.
        But the promise of software patents rings hollow if an
    inventor cannot properly enforce their rights or defend
    themselves when sued.
        There is no escaping the reality that patent litigation is
    enormously expensive and the costs are only growing.
    Unfortunately, the escalation often comes because bad actors
    drive up litigation costs by employing abuse tactics.
        And, more and more, they prey on smaller companies with
    limited experience of the patent system and limited resources.
    A small business that is the victim of abusive litigation
    tactics often faces the need to use scarce resources to fund
    the litigation rather than grow its business.
        To be clear, however, we firmly believe that the ability to
    legitimately enforce a valid patent is the foundation of a
    strong and effective patent system. We are just trying to end
    the abuse.
        Abusive litigation tactics serve none but the abuser. They
    do not create jobs. They do not deliver new products and
    services. And, they do not contribute to our innovation
    economy.
        Senate action to end abusive litigation is urgently needed.
        We believe that effective litigation must provide genuine
    notice by requiring plaintiffs to clearly set forth their
    allegations in their complaint, make discovery more efficient
    by having courts issue an early claims construction decision
    that will narrow the issues relevant to the suit before the
    expensive part of discovery begins, and deter weaker frivolous
    cases by awarding fees only when a party asserts objectively
    unreasonable claims, and then ensuring a party that is awarded
    fees has an efficient mechanism to collect them.
        By enacting such legislation, Congress will help foster
    innovation and entrepreneurship for businesses of all sizes.
        Some argue that no legislative changes are needed to the
    patent system because the Supreme Court has ruled on several
    patent cases in the last few years. The Supreme Court's
    decisions, however, only nibble at the edges of abuse. At
    bottom, the abuses have not ended and are not likely to end
    unless Congress takes action.
        Some have also proposed making changes to the America
    Invents Act passed by Congress in 2011. In BSA's view, doing
    this would be premature. The AIA has only been up and running
    for about two years. The lack of a track record under these
    programs argues against making any changes at this time.
        In conclusion, BSA is committed to ensuring that our robust
    patent system remains the envy of the world. To advance this
    goal, we believe patents should be available for all types of
    inventions, including software. We also believe that there is
    urgent need to end abusive litigation by focusing on
    legislation that addresses opportunistic behavior. We do not
    see these efforts as being inconsistent but, rather,
    complementary in promoting innovation and entrepreneurship.
        We urge the Senate to move quickly to enact reforms that
    support a robust patent system while deterring abuse.
        I look forward to answering your questions.
        [The prepared statement of Mr. Molino follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Vitter. Great. Thank you, Mr. Molino.
        And now I will turn to Senator Cardin who will introduce
    our next two witnesses.
        Senator Cardin. Well, let me first welcome Rachel King, the
    CEO of GlycoMimetics, to our Committee.
        GlycoMimetics is a small pharmaceutical company with about
    40 employees. Ms. King guided the company as it gathered $38
    million from venture companies--quite a task.
        GlycoMimetics' current patent portfolio includes two main
    pharmaceutical patents targeting sickle cell disease and
    leukemia. It is currently in a Phase II trial for sickle cell
    drugs.
        All their technology is homegrown within the company's own
    labs. It is located along the 270 corridor in Gaithersburg, one
    of the real high-tech areas of Maryland.
        We have a lot of high-tech areas in our State, and I think
    what Ms. King represents is really one of the growth areas in
    our country for good jobs and innovation.

     STATEMENT OF RACHEL KING, FOUNDER AND CEO, GLYCOMIMETICS, AND
           CHAIR OF THE MARYLAND LIFE SCIENCES ADVISORY BOARD

        Ms. King. Thank you very much and thank you, Chairman
    Vitter and Ranking Member Cardin, for inviting me to testify
    today.
        And, thank you also for the opening remarks that you both
    made. I feel very encouraged by the perspective that you are
    bringing, the support of innovation, the critical recognition
    that we need balanced and bipartisan legislation that will
    continue to support entrepreneurship and small businesses. This
    is really critical and very important to biotechnology and to
    companies like ours. So thank you very much.
        I run a company, as Senator Cardin said, called
    GlycoMimetics based in Maryland. We are focusing on developing
    drugs for unmet medical needs, focused initially on sickle cell
    disease and on leukemia.
        And I have spent my career working in biotechnology, both
    in startup companies like these and on the venture capital
    side. So, from that perspective--from those perspectives, I
    have seen the really critical role that patents play in
    encouraging investment and how very important it is that we
    ensure a robust, dependable system.
        So, based on my experience in those different settings, I
    can say that I think biotechnology is probably one of the most
    dependent areas of the economy on a robust patent system. And
    one of the reasons for this is that our patents are--we often
    have products that depend on very small numbers of critical
    patents.
        So we do not have 20, 50, or 100 patents on our products.
    We might have 1 or 2 that are critically important for us to
    defend in order to bring our products forward.
        And, we have to do that in a setting where we have got to
    raise millions of dollars over many years at great risk.
        So the amount of money, the amount of time, and the amount
    of risk in our industry make it really critical that we have
    strong patents.
        In our company's case, we raised about $60 million through
    private venture capital. We had to raise that money to complete
    our initial study in sickle cell patients. We then had to do
    another major partnership with a pharmaceutical company to
    bring in more money. We raised another $64 million in an IPO
    last year. So our own company's story is one of many years of
    long, risky investment.
        And, if we are successful, it will probably take something
    like 15 years and tens of millions of dollars until we actually
    have a drug that could be available to patients. And, during
    that time we really, critically, have to be able to defend our
    patents.
        If patents can be invalidated under overly broad criteria
    or if we have difficulty enforcing them, then it makes it very
    difficult for us to raise funds.
        So I want to urge Congress as you look at issues related to
    patent trolls, I want you to also keep in mind the need to
    protect patent innovators, so to protect the people who
    actually generate patents in the first place, not to only look
    at abuses by patent owners but abuses perpetrated against
    patent owners and against innovators.
        And, in particular, one of the things that is of a great
    deal of concern to us in the biotech industry is this new
    system of patent challenges called Inter Partes Reviews, which
    is really having a game-changing effect on our industry because
    so many patents can be invalidated under that process.
    Something like 80 percent of the challenges that are brought
    result in the innovator's patent being invalidated.
        And, it is so bad now that people who have no standing are
    bringing these challenges because they are betting on the
    ability to invalidate these patents.
        We have cases in our industry, for example, where hedge
    funds will short a biotech company's stock, file an IPR, make
    money when then the company's stock goes down as a result of
    the announcement of the IPR just having been filed.
        I think that should be criminal. It is manipulation. It
    invalidates patents inappropriately. And, this whole IPR
    process basically sets a lower standard than the current
    district court standard has, which is very well-developed, with
    a lot of experience.
        And we cannot--we are particularly vulnerable to that type
    of challenge. So I really think that needs to be addressed.
        And so I am particularly appreciative of the STRONG Patents
    Act, and I want to thank Senators Coons, Durbin, and you,
    Senator Hirono, for sponsoring that Act. That would address a
    lot of the problems with the IPR case in our view and, I think,
    could be very important to continuing to support innovation in
    biotechnology.
        So I want to make the point--obviously, I am biased--I
    think biotechnology is not like just any other business. It is
    a business that we really, critically, have to support because
    of the important work that we are doing.
        We are not finished in developing cures for cancer,
    Alzheimer's disease, diseases like sickle cell. These are
    critically important needs that we need to continue to address
    in our society.
        And I want to ask you to specifically be concerned about
    the role that patents play in biotechnology and to continue to
    support us.
        Thank you.
        [The prepared statement of Ms. King follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Cardin. Well, thank you for your testimony.
        Mr. Craig Bandes is President and CEO of Pixelligent
    Technologies. It is a Baltimore-based company that creates nano
    materials that allow more light to be derived out of LED light
    bulbs, panel display, and optical components.
        Pixelligent started with 9 employees and currently has 42
    employees. They have received funding through both government
    and private investment sources during the course of their
    development.
        Pixelligent holds 25 patents, spends hundreds of thousands
    of dollars each year developing its patents and attorneys to
    ensure patent protection.
        They currently have an international reach and are looking
    to start distribution in Europe soon.
        It is a pleasure to have Mr. Bandes here.
        As I explained earlier, in Maryland we are proud throughout
    our State of having a lot of high-tech type operations in the
    Baltimore region and the Washington region and throughout our
    State.
        Mr. Bandes.

       STATEMENT OF CRAIG BANDES, PRESIDENT AND CEO, PIXELLIGENT
                              TECHNOLOGIES

        Mr. Bandes. Thank you, Senator Vitter and Senator Cardin,
    for the opportunity to come speak today.
        There has been a lot of discussion on the panel already,
    which I will save us all from repeating.
        Our company is very focused on--and patent protection is
    critical to our ultimate success as a company. We believe when
    we think about patents that there is both the focus on
    protecting patents and protecting innovation but also
    accelerating the innovation that we have here in the United
    States.
        So, again, my name is Craig Bandes. I am the CEO of
    Pixelligent Technologies.
        And the materials that we make here in Baltimore enable us
    to take materials, put them into a number of devices, and
    materials that are commonly used in electronics today. Our main
    focus is in LED lighting, which is sweeping the world really in
    next-generation lighting, and OLED lighting, where using our
    materials makes those lights more efficient, gets more light
    out, and actually creates better economics.
        Our materials also go into things like touch screens to
    help improve scratch resistance and overall image quality.
        The company has been funded today through a combination of
    private equity funding, some venture but a lot of what you
    would call ``super angel'' type of investment, about $23
    million to date, and we also have received about $11 million of
    funding from government programs.
        All of this funding has really gone to initially focus on
    building a team of technologists, manufacturing experts, sales
    and marketing folks, but it is all based on the core of our IP.
        Ultimately, when we go to market and we are selling to big
    multinationals, which include today 3M and Dow Chemical and
    Samsung and OSRAM and LG, on a global basis, the first thing
    they do is take a sample and see if it works. Then they figure
    out, okay, well, the economics work to get a product into their
    system. All that is very hard and takes anywhere from six
    months to a year. So it is easier said than done.
        And then, if you get through all of that, you then go
    through a process of having to show that the IP they are going
    to incorporate, our IP, into their products will not infringe
    when they go to the marketplace. And it goes through a pretty
    exhaustive process called the Freedom to Operate.
        So here is where the challenges come in, where invariably
    just because of how many technologies there are in our space--
    nano has become a very active space for patenting--that they
    will find something that may give them some concern.
        Our job then is to show them that we can beat back that
    concern. The best way we can do it is having very strong
    patents that are defensible and having a broad set of patents
    that show they really cover the landscape and the areas that we
    focus on, which are making the material, how we coat that
    material, how we put it into our customers' material, and then
    how we manufacture that material.
        And we have to be able to prove that we have protection
    really across that to convince someone like a 3M, for example,
    because ultimately if there is a problem, someone that would
    come after the company more will focus on a 3M with much deeper
    pockets than a Pixelligent which is just now starting to
    commercialize.
        So our focus really is making sure that the patents that we
    have and we put into the Patent and Trademark Office come out
    and are strong and defensible.
        One of the challenges that we see today is less because we
    have not been directly involved in any kind of troll situation.
    And I think the panel here has covered the universe on the
    issues there, and a balanced approach clearly is the best
    answer.
        But our focus is when we file a patent it takes 2.3 years
    to get that patent out of the Patent and Trademark Office.
    There are currently 600,000 patents in backlog in the PTO. You
    think about the amount of economic value and real value that is
    being held up in that.
        Now these folks work hard. Examiners work hard. They care
    about their jobs. There just are not enough of them.
        And when you think about the PTO, it is one of the few
    agencies in the government that actually self-funds and
    actually makes what we call in our world a net profit--about
    $300 million addition, or 350, on almost every year beyond the
    $3 billion they get appropriated to go spend. And then there is
    a battle over who gets that money.
        Imagine if you reinvested that money like a business would,
    to create a more efficient system, bring in more people, and
    drive more value.
        Not only will there be more value and more fees--and it is
    a great strategy because you pay once and then you pay forever,
    or at least the 23 years while your patents are active, but the
    ability to unlock all of that innovation so that I do not have
    today 23 patents pending.
        Today, maybe I only have 10 patents pending, which means
    when I go and I talk to 3M or Dow or Samsung or whoever, I am
    saying we have a broader portfolio of patents that are actually
    issued and we can defend them versus pending and waiting.
        So I would encourage this Committee to think about this
    concept of innovation and protecting and accelerating patents
    beyond just the issues of litigation.
        Thank you.
        [The prepared statement of Mr. Bandes follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Chairman Vitter. Okay. Thanks to all of you.
        We will now have a round, a five-minute round of questions
    from the members here. I will start and then Senator Cardin,
    and then we will alternate sides using the ``early bird'' rule.
        Mr. Winwood, you mentioned that universities conduct 15
    percent of all R&D and over 50 percent of all basic research in
    the U.S. and spend over $65 billion in research funds, $40
    billion is from Federal sources, and that results in all sorts
    of inventions and patent applications.
        How does abusive patent litigation affect universities now,
    number one?
        And, number two, you specifically referenced mandatory
    joinder and presumptive fee-shifting as provisions you would
    oppose in any patent bill. Why don't you elaborate on that, and
    why would this be bad for universities?
        Mr. Winwood. Thank you, Chairman Vitter.
        Yes, how does this affect universities now? I think our
    primary area of interest here is our relationship, our very
    close relationship, with our startups and our small businesses,
    and the fact that most university technology licensing offices
    run on a very, very narrow margin.
        We are determined to help bring our technologies to the
    private sector, who can move it on into the marketplace for the
    benefit of consumers.
        When it comes to taking that extra risk of maybe being
    exposed to some of the abusive litigation, our universities
    simply do not have the depth of pocket to make that happen.
        And so there is a reluctance to engage, presumably, in this
    pursuit of moving technologies out to the marketplace if we
    have the threat over our head of this kind of abusive
    litigation, if we are in the firing line, if you will, along
    with our licensees and startup companies.
        So, in particular, the fee-shifting and joinder provisions
    cause us great concern. Imagine following the joinder
    provisions through whereby anyone with a financial interest in
    the outcome of a litigated procedure could be joined.
        So the universities certainly, but as you know, our
    universities share our royalty revenues with our inventors.
    These may be faculty members. These may be students. They may
    be post-docs. I suspect that there would be a chilling effect
    on disclosure to my office, and many other offices, if those
    inventors were aware that they might suddenly be joined into a
    suit with--maybe it is a hedge fund at the helm of this thing,
    as mentioned by Rachel.
        So there is a real chilling effect, I suspect, that is
    possible on participation from our universities and our
    inventors because we just do not have the capacity in this kind
    of combat. We run on very, very narrow margins to keep these
    things moving into the private sector.
        Chairman Vitter. Okay. Thank you.
        And, Mr. Molino, can you give some thoughts about how
    ongoing activity addresses some areas of abuse and if you think
    it is adequate for those areas or not?
        For instance, there are ongoing judicial conference changes
    related to the Federal Rules of Civil Procedure. What is your
    thought about that work and how it will properly address those
    possible areas of abuse or not?
        Mr. Molino. So thank you for the question.
        We are very encouraged by the judicial conference's work.
    However, we do not think that the judicial conference is going
    to address the abuses that actually happen in patent cases.
        I think the judicial conference's work is more based on
    overall litigation. While that will be helpful, there are
    certain things in patent cases that only occur with patent
    cases, such as a Markman decision.
        No other area of law has something called a Markman
    decision, where a court actually issues an order defining what
    the scope of the patent is. Because of that, oftentimes, once
    you have a Markman order, the scope of the case narrows and the
    cost of discovery narrows.
        We do not believe the judicial conference is going to
    address that. So I think that while the judicial conference is
    doing a lot of good things they certainly are not going to be
    addressing the specific issues to patent law.
        Chairman Vitter. Okay. Thank you.
        And going back to Mr. Winwood, some small inventors have
    raised the issue of a so-called integrity loophole cause by a
    court decision denying judicial relief to patent holders whose
    patents have been subject to fraudulent or sham petitions for
    reexamination at the Patent and Trademark Office.
        Do you agree that this is a problem? Would you support
    Congress restoring a judicial remedy specifically to that?
        Mr. Winwood. Yes, Chairman Vitter. Clearly, there are areas
    of disagreement regarding patent reform, but one area where we
    believe everyone should agree is that fraud cannot be
    tolerated, or deliberate abuse of patent reexaminations, or
    post-grant reviews.
        Applicants are held to a very high standard of honesty in
    dealing with the PTO, or else they risk losing their patent
    rights. So we believe that third-party requesters should be
    held to a similar standard. The patent owner currently has to
    be truthful, but a third-party requester can basically commit
    fraud with no financial penalty due to some recent court
    decisions.
        So it appears the door is wide open for unscrupulous
    parties around the world to abuse our system, knowing that it
    will take the patent owner years and cost them hundreds of
    thousands of dollars of effort just to defend their patent in
    the U.S. PTO.
        So this, as indicated by some of my small business
    colleagues here, is time and money that they just do not have
    and cannot afford to fight such challenges. It can really deny
    them access to desperately needed venture funding while there
    is a cloud over the patent, as referenced earlier, or delay
    entry into the marketplace for valuable new drugs, medicines,
    and so on.
        So we think that there should be an opportunity to restore
    traditional rights of patent owners to sue for damages in these
    cases and that will close this integrity loophole, if we are
    able to do this, and particularly prevent it being used against
    small companies who would seem to be very vulnerable in this
    regard. And, obviously, many of those small companies are our
    startups and licensees.
        Chairman Vitter. Right. Okay. Thank you.
        Now, Senator Cardin.
        Senator Cardin. Well, thank you, Mr. Chairman.
        Again, I thank all five witnesses for your time here today.
    It is extremely helpful to us.
        Your testimony recalls some of the hearings that I attended
    when I was on the Senate Judiciary Committee, and they were
    long hearings, and it is a technical field.
        But I cannot imagine the fear that a small high-tech firm
    must go through if they receive a letter where they do not know
    really the source of who is behind it, who threatens their
    existence, challenging their legitimacy to the work that they
    have done.
        And it is very interesting; there are two sides here, and I
    am not sure why there are two sides to this debate because both
    sides agree that we have got to protect intellectual property
    and both sides believe that fraudulent activity and patent
    trolling is wrong.
        So I am going to start with the two business owners that
    are here. Could you just highlight what you think the most
    important change could be in our patent laws to protect the
    work that you are doing?
        There are two different companies here. One relies on
    basically one patent to advance a drug. The other is advancing
    a final product that will contain what you are doing, which
    will rely upon a lot of patents, ultimately.
        What is the one change we could make, or the two changes we
    could make, in the patent laws that would protect your type of
    work, give you better access to capital so that you can get
    more predictable funding, and yet, avoid the problems of
    fraudulent activity or at least make it less vulnerable?
        Ms. King. I can begin by answering that I would suggest
    reforming the current problems that we have under the IPR
    system.
        And, as I mentioned in my testimony, I think that the fact
    that a hedge fund could come out of nowhere and short a company
    stock, knowing that they are about to file an IPR, which then
    drives the company stock down. I think that is criminal, and I
    think that is an abuse that really needs to be corrected.
        One way to correct that is to address the issue of standing
    because that is the case where a hedge fund would have no
    commercial standing to bring that case.
        But the basic problem, I think, with the IPR system as it
    currently is, is that it currently sets a lower standard than
    the district court current system sets. And so--and we can see
    that because there is so much abuse that has started now, where
    people try to bring these challenges through that system.
        So, in my view, that would be the critical thing that we
    would need to correct.
        Senator Cardin. Thank you.
        Mr. Bandes.
        Mr. Bandes. So I would say in the--two areas.
        One is, you know, in business there is nothing that will
    make you more nervous, or an investor more nervous, than
    uncertainty. And so having a blind letter that does not really
    tell you who it is and what the actual rights are they are
    saying you may be infringing on is an impossible battle.
        So there should be full disclosure. If you are going to get
    contacted and say that there may be a patent issue, they need
    to be forthright in telling you what the issues are so you can
    address them early.
        I would say the second piece is--you know, I read this a
    little bit, and I think it was in one of the acts, and I have
    read many in the past few days--about the concept of loser
    pays.
        I mean, there really is no risk. You know, if you are a big
    fund and you are going after a small company, you know, part of
    what you are trying to do is just bleed them dry. You know, you
    do not have the resources, and so you can play bully tactics.
        But if there is a chance that if they lose they have to pay
    up for all of the costs involved in that case, then maybe they
    think a little more about it before they just, you know, send a
    letter and try and use bully tactics.
        Senator Cardin. I think that, Ms. King, your suggestion is
    one that could be addressed rather quickly.
        I think the points that you raise, Mr. Bandes, are more
    complicated because the judicial system is not always amenable
    to the statutes we pass as to how they enforce. So it is not as
    easy to deal with some of the issues you did.
        Several of you mentioned the patent office itself. How
    effective is the patent office? Do you think they have the
    resources they need in order to expedite this process?
        You mentioned something about hundreds of thousands of
    backlogs.
        Mr. Schmidt.
        Mr. Schmidt. Yeah, 600,000 is the backlog.
        And you should be very thankful for your 2.3 years because
    most of ours are 6 years and over; we have got some that are 8
    years now, that are pending. So this means things do not get
    commercialized as timely as they could. It is an extreme
    problem.
        So, right now, we have $1.7 billion that has been diverted
    from the patent office that could be paid for, you know, better
    examiners, more qualified examiners, and more time for an
    examiner versus roughly a week to be able to--or, pardon me, a
    day to be able to look at a patent and examine it and be able
    to rule on it, which means almost everything gets rejected the
    first time through.
        So you submit an application, and if it is not rejected you
    are just shocked.
        So, you know, this is all because of this huge diversion,
    what I call the invention tax on inventors that, you know,
    Congress and the system extracts from us and then uses the
    money for something else.
        So just letting the patent office keep their own money
    would be a huge benefit to be able to plough back into the
    system.
        Senator Cardin. Thank you.
        Thank you, Mr. Chairman.
        Chairman Vitter. Okay. Next, we have Senator Peters.
        Senator Peters. Thank you, Mr. Chairman, and thank you to
    our panelists here today.
        Certainly, a very important topic. There is not anything
    more important for the productivity of this country than to
    have innovation that is the driver of economic well-being for
    everybody, middle-class families, and everybody in this
    country, and you are a big part of that.
        And I appreciate this discussion because this debate is
    going to be important for us to move that forward.
        I just want to pick up on some of the comments on the
    patent office and the backlog because I think that is very
    significant.
        Mr. Bandes, I appreciate your comments. This is not about
    just litigation. We also have to make sure we are moving this
    through the process.
        And I am happy, as the Senator from Michigan and Detroit,
    we actually had the first field office of the U.S. Patent
    Office in Detroit. I want everyone to know that. It was not in
    Silicon Valley. It was not in the Research Triangle of North
    Carolina. It was in Detroit, Michigan, because of the work that
    we do.
        But it is a significant problem when you have a backlog of
    600,000 cases now, 2.3 years.
        When I was in the House, I actually led a letter to try to
    deal with this tax, which it is; it is an inventor's tax.
        When we had the sequestration, the sequestration actually
    funneled money away--these across-the-board cuts that then took
    the seed corn, which is the patents, away from it.
        So I would just like a yes or no from each of the
    panelists. Do we need to have--the Congress has to put in law
    that we do not need additional congressional action.
        This is a user fee. All of these resources need to be
    applied to the patent office. That is probably one of the top
    priorities as we are dealing with this issue. Would all of you
    agree this would have a significant impact on our ability to be
    a leader in patents?
        We will start with Mr. Winwood, just yes or no or a brief
    comment.
        Mr. Winwood. Yes, I would agree with you it is a big
    problem.
        Mr. Schmidt. Yes, we are supportive of that.
        Ms. King. Yes, I would agree.
        Mr. Bandes. No question.
        Senator Peters. I have never found anybody against it.
        [Laughter.]
        So this just approves that.
        So, Congress, we need to act on this, and I think this has
    got to be at the top of our priorities.
        Next, what I want to do is go to the litigation aspect and
    to Mr. Winwood.
        Since the House passed the Innovation Act, the judiciary
    has made some progress towards patent litigation, and I think
    some of you have referred to that, particularly on fee-
    shifting, where the Supreme Court decisions have led to fees
    being awarded in more cases than prior to those decisions.
        However, Judge Gilstrap, who had about 20 percent of all
    patent cases last year filed in front of him, said in a recent
    Law360 article that Highmark and Octane does not really change
    much.
        He said, ``I really do not see it changing what we would
    have determined was appropriate for the award of fees even
    before the case came out.''
        He also said, ``I do not think it changed the internal
    dynamics of what judges like me or my colleagues would be
    convinced is exceptional but made it clear we have the option
    at our disposal.''
        So you, Mr. Winwood, have articulated a concern with the
    proposed fee-shifting position.
        And I am concerned that the decision, the Octane Fitness
    decision, may not have provided sufficient guidance for some of
    patent litigation.
        So, if you could talk maybe specifically about language in
    the bill that you particularly find problematic, if that is
    possible.
        And, what if the potential fee-shifting role was not
    presumptive but, rather, we just provided the court with some
    additional guidance on how to deal with fee-shifting? Is that
    something you think may make some sense?
        Mr. Winwood. First of all, thank you for the question.
        Yeah, I am not an attorney. So I am not going to give the
    specificity that you may be looking for in that particular
    language.
        But I do believe that we want to make sure that this is a
    discretionary and appropriate shifting rather than presumptive,
    which I think would really tend to persuade most universities
    and startup companies that they cannot engage in these
    activities.
        And this is our main fear, that if this is sort of a
    mandatory aspect of any engagement, then our boards of trustees
    and supervisors will simply say we do not have that capacity.
        So I think the language, as I understand it, is a little
    beyond what we would be comfortable with in the higher ed
    associations community, and we prefer to defer to what the
    judges have set out as discretionary decisions to levy costs as
    they see appropriate in justified cases.
        Senator Peters. Well, if the judge, as I mentioned, who I
    quoted, reviews 20 percent of all patent litigation cases, does
    not believe that the Supreme Court has made a substantial
    change, do you agree that there might still be some work that
    should be done by Congress in that area?
        Mr. Winwood. It is quite possible that there is work to
    clarify how this should be implemented.
        Senator Peters. Very good. Thank you.
        Thank you, Mr. Chairman.
        Chairman Vitter. Okay. Next, we have Senator Shaheen.
        Senator Shaheen. Thank you, Mr. Chairman.
        Thank you all for being here today.
        You know, when we passed the America Invents Act in 2011,
    one of the selling points was that that was supposed to
    expedite the patent process. Have we seen any improvements as
    the result of that legislation in the backlog of patents?
        I am up for anybody who would like to address that.
        Mr. Bandes. The data would say we may be moving in the
    right direction, but it is, you know, a slow-turning barge. I
    think it is--the backlog has been running around the same
    level, in the 600,000 range, for the last 3 or 4 years.
        There is a goal, I think by 2019, to go from 2.3 years to 2
    years or 23 months.
        But I think if you pass an act but do not give the
    resources to deliver on the changes that that act is trying to
    enable, you are tying their hands.
        So, you know, back to the innovation tax that we are
    talking about here, you know, we are all paying fees into it.
    And, ultimately, why that should not be reinvested in PTO to
    bring on more resources and more examiners does--you are not
    going to fix it if you keep taking the resources away.
        In fact, you should be doing the opposite. You should be
    trying to find ways to put in more resource because you
    actually see a significant economic return on those
    investments.
        Senator Shaheen. Anyone else want to respond to that?
        I mean, I certainly agree with that and agree with the
    point that Senator Peters was making, that the resources are
    there; we need to use them for innovation and to keep the
    patent system moving.
        One of the challenges--as someone who is not an attorney,
    who is dealing with a very technical issue, one of the
    challenges I have--coming from a small state where we have a
    number of large businesses, technology businesses represented,
    but we also have a lot of innovation in our small businesses--
    is balancing what the larger firms say they would like to see
    with respect to patent reform versus what the small businesses
    say with respect to patent reform, and they are not on the same
    page.
        So I do not know if--and certainly, the university, or main
    research university, is also not on the same page.
        So I do not know, Mr. Winwood, if you have any--as someone
    who represents an academic perspective, a research perspective,
    who I think may generally be viewed as having less of an ax to
    grind on this issue, if you have a view about how we balance
    those interests.
        Mr. Winwood. I think it really is--and thank you for asking
    me that.
        I think it is really important to balance those issues; I
    think between the divide, whether it is between large companies
    and small companies. It may actually be between different
    industries as much as it is between size of company.
        You have heard a little bit about the length of time it
    takes to get a patent issued.
        Senator Shaheen. Right.
        Mr. Winwood. And I think while the hundreds of thousands of
    backlog cases is certainly serious, it varies between art
    groups within the office.
        I think, Bob, you recognize that within different groups
    you might wait six or eight years to get a patent issued;
    others may be much faster than that. So there is a massive
    imbalance.
        And when you then look at--I think Mr. Bandes referenced
    taking 6 to 12 months to do a proof of concept study.
        Well, I think if Rachel could do a proof of concept study
    in 6 to 12 months she would be a very happy person.
        The two sides of the industry coin are very different. So I
    think that is probably one of the areas that really leads to
    some of these perceived frictions.
        What I wrote down earlier in the testimony here was we are
    in raging agreement about almost everything except for how to
    implement it because I think we all are opposed to patent----
        Senator Shaheen. Sounds like Congress.
        [Laughter.]
        Mr. Winwood. Yeah. I will let you say that and not me.
        But we are in agreement that abusive behavior is bad.
        And I think whether you are a large or small company,
    abusive behavior is inappropriate, is wrong, and should be
    stymied and corrected, if necessary by congressional action.
        But do not make that action an impediment to those of us
    who are trying to push our technologies from the very, very
    fundamental and basic research level out to companies such as
    the ones represented here along the panel with me.
        That is the key thing to do--balance and target.
        Senator Shaheen. Yes, I think addressing abuse is the
    critical issue, and I acknowledge the difficulty in balancing
    these concerns.
        And I think we--you know, we live through this too when we
    try to make our own points. We all need a strong system.
        And I think what happens often--you know, you pass a law,
    and then we see the unintended consequences. So if you could go
    after the abuses, I think we could all benefit.
        And, thank you.
        I am almost out of time, but I just wondered; in 2014, the
    Patent and Trademark Office launched an online tool kit to help
    consumers and mainstream retailers deal with patent trolls. Is
    anybody familiar with this effort?
        Have you heard of anybody using it?
        Do you think it would be helpful? No?
        Mr. Molino.
        Mr. Molino. So I am aware of it, and I think it is a
    helpful tool because one of the biggest things that patent
    abusers do is focus on those that are not educated about the
    system and take advantage of that. So any education that we are
    doing for smaller businesses, retailers that do not usually
    involve themselves in the patent system I think is a very
    positive thing.
        Some of our members have used it, our smaller members, but
    it is a positive thing.
        Senator Shaheen. Mr. Schmidt.
        Mr. Schmidt. Well, one of the things we need to remember is
    this is all about how do you make sure you can try and
    invalidate patents. The entire U.S. PTO system there is to say,
    you know, we want to keep people and defend them from patents
    that we are issuing.
        There is nothing there that says we want strong patents and
    we want to enforce it. There is no balancing. There is no
    balancing in any part of H.R. 9 to be able to say we would like
    strong patents.
        It is all about how do we take away the rights of patent
    owners, how do we eliminate these, you know, smaller patents.
    And this is just very bad for small inventors.
        The whole thing with the fee-shifting, it is like I do not
    think anybody understands.
        When a big company says, oh, you have got to pay $5 million
    to that thing, well, you know, let's take it out of the petty
    cash thing.
        For me, it is I not only lose my company. They then take my
    house. When they take my house, they take my spouse, and my
    children go with it. I am betting my entire life on a patent.
        And this is just, oh, it is fee-shifting. You should be
    able to do this.
        Well, I am submitting myself to, you know, the problems of
    the court who may go any way. So I cannot enforce my own
    patent.
        So Congress is telling me, Schmidt, you are too poor to
    invent. Stop inventing. Stop inventing.
        Senator Shaheen. But you are speaking to the House bill.
    You are not speaking to the effort to educate.
        Mr. Schmidt. Yes, that is absolutely correct.
        And since we have two-thirds of the Coons-Hirono bill, I
    would like to thank you both for your support of that because
    you obviously have seen the light. Thank you.
        Senator Shaheen. Thanks very much.
        Thank you, Mr. Chairman.
        Chairman Vitter. Great. Next is Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman, for holding this
    hearing.
        And as long as I believe that two out of the five panel
    people have read the STRONG bill, I would like to know whether
    the other panelists have also read the STRONG bill.
        Okay. Good. Then I would like to ask what your view is
    about the STRONG bill because as one of the supporters of the
    STRONG bill we obviously are against patent trolls, but we
    would like to present a balanced approach to how we are going
    to make those changes.
        So I would like to ask each of the witnesses, very briefly,
    if you think that the approach represented by the STRONG bill
    is a good approach.
        Go ahead. We will just start from Mr. Winwood.
        Mr. Winwood. Yes. Thank you, Senator.
        Yes, the higher education associations, in general, have
    written and supported very strongly the legislation that was
    introduced by yourself, Senators Coons and Durbin recently.
        We do support this targeted, balanced approach. We think it
    really hits the right way for doing this, to let the FTC take
    care of these issues rather than burden or really mangle the
    patent system, which we believe is really the great strength of
    the U.S. economy and innovation system. So we are very
    supportive of it.
        Mr. Schmidt. Again, thank you very much.
        The Small Business Technology Council, the 5,000 firms that
    participate in the SBIR program, we can take your bill just as
    it is. It is much better than any other alternative we have
    seen in the past.
        However, there are some other things that, you know, since
    we are doing legislation, that I would love to see--is the
    return of the one-year grace period. This is a disaster for
    America's budding scientists and engineers.
        Out of--a group of 150 patent attorneys were asked, can you
    explain whether you have a grace period or not? No one would
    raise their hand to be able to respond to that issue. It is so
    unclear as to whether we have a grace period in America.
        And the only person that would dare to answer said, yes, I
    tell all my clients there is no grace period.
        So that is gone in America.
        And I have had 5 different people come up to me that had
    gone to inventors fairs or science fairs dealing with 15- and
    17-year-olds, and they are telling them: Why are you here? You
    should not be presenting your material. Stop talking about
    this.
        And so this is squashing innovation. So that is number one.
        Number two, patentable subject matter. Since the Supreme
    Court cannot decide what is patentable subject matter, somebody
    needs to be able to help them. So that is a Section 101, which
    is--the first one with the grace period was 102. This is
    Section 101.
        The third thing is greater elasticity for punitive
    behavior.
        So since the Supreme Court cannot tell me whether my patent
    is valid or not, or has trouble with it--obviously, they do at
    the end, but there is great concern--how am I supposed to know
    as a little inventor of whether this is patentable or not?
        And all of a sudden I fall into this trap. I have sued
    somebody, and now I get my patent invalidated. I did it in good
    faith. I thought I was on right standing. And all of a sudden,
    you know, I go through my lose my house, spouse, children
    routine. And you know, that is a problem.
        And so I am looking for a get-out-of-jail card for honest
    people. So that is the third thing.
        And then, finally, there should be a balance between
    plaintiffs and defendants because the whole way these other
    bills are all done it is all on the--you know, it all protects
    the infringer rather than the patent enforcer. And so I am
    looking for a balance there.
        Thank you.
        But other than that, we can take everything the way it is.
        Senator Hirono. Mr. Molino, we are running out of time. So
    if we can----
        Mr. Molino. We are unable to support it right now.
        We think that the AIA has just been implemented basically
    about two years ago. We are seeing some issues pop up, but I
    think it is too early to tell if those are going to be
    systematic problems that require Congress to act.
        Senator Hirono. But aren't you supporting the Innovation
    Act?
        Mr. Molino. We do support the Innovation Act.
        Senator Hirono. Which is very broad. It is much broader
    than what we are proposing in the STRONG Act. So I am a little
    bit confused about your position.
        Mr. Molino. The Innovation Act addresses abuses that occur
    in the litigation system that have been going on for over a
    decade, to which there has been a ton of study showing that
    these abuses happen. There have been years and years of
    academic, congressional research on this.
        Whereas, the Innovation Act--and the alleged abuses that
    are beginning to pop up, I think it is a little too early to
    tell whether those are actually going to continue and deserve
    congressional action.
        Senator Hirono. I am sorry. Did you say you are not
    supporting the Innovation Act or you are?
        Mr. Molino. No. We do support the Innovation Act, yes.
        Senator Hirono. Okay. I guess there are differences of
    opinion on that.
        Ms. King.
        Ms. King. Yeah, I respectfully disagree.
        I think that these are not alleged abuses. These are
    clearly abuses. And I think that the way that you have
    addressed them is really right on point.
        Three things: Setting the same standard for what is
    happening in IPRs and what happens in district court, allowing
    greater flexibility in amending claims, and addressing this
    issue of standing. I think those are three critical issues.
        We have seen the abuses, and I really appreciate what you
    are doing with this bill to address them.
        Senator Hirono. Mr. Chairman, if I can ask the last panel
    person to respond briefly.
        Chairman Vitter. Sure.
        Mr. Bandes. Yeah. So, far from an expert, but from what we
    have seen, we are also in favor of the STRONG Act.
        I think having the FTC involved is great, but I would go
    back to a similar theme around the PTO. Make sure you give them
    enough resources because if you give them the enforcement but
    not the capability to actually help with this problem my
    question would be how quickly will they be able to resolve
    issues. So, if you are going to ask them to do it, make sure
    you give them the resources they need to go do it.
        Senator Hirono. All right. Thank you, Mr. Chairman.
        Chairman Vitter. Great. Thank you.
        Senator Coons is next.
        Senator Coons. Thank you, Mr. Chairman.
        And thank you, Senator Hirono, for your great partnership
    in this work, and Ranking Member Cardin.
        I want to say that it is, for me, exciting to hear this
    being considered in the Small Business Committee as well as on
    the Judiciary Committee on which I serve.
        As someone who was in-house counsel for eight years to a
    highly inventive company that had thousands of engineers but
    that began literally in a basement by a sole inventor, I had
    the experience and the excitement of working with a company
    that was constantly generating ideas and filing patents and
    relied on that patent protection to grow from a new small
    startup to, ultimately, a more sustained and successful
    company.
        So I am pleased we have had a chance today, Mr. Chairman,
    to hear from this impressive group of witnesses, all of whom
    have testified to the enormous importance of a strong and
    predictable patent system, a system of patent rights that is at
    the basis of our nation's innovative ecosystem.
        This property right, rooted in our Constitution, is one I
    think we should be very careful about how we revise, or amend,
    and how we change the system of litigation.
        Now there has been a lot of talk--there has been not just
    talk but legislation in the last Congress--about how we need to
    diminish the rights of patent owners for the benefit of small
    businesses, but today's hearing has done no less than turn that
    argument, in many ways, on its head.
        And what we have heard today is that strong predictable
    patent rights, the ability of a patent owner to enforce that
    patent against infringement, is central to the ability of small
    businesses in technology, biomedical, and material sciences to
    survive by attracting and sustaining investment.
        So, to address these abuses, Senator Hirono and I, along
    with Senator Durbin, have introduced the STRONG Patents Act, as
    has been discussed, which streamlines and strengthens pleading,
    empowers the FTC to go after the real patent trolls, those who
    really have no basis in law or fact for their suits, tackle
    some of the recent and notable abuses of the post-grant review
    system at PTO.
        When a hedge fund can erase $100 million or more of
    investor capital simply by filing a PGR, solely for the purpose
    of shorting the stock, I think it is time for us to look
    seriously at acting.
        And it ends fee diversion to fully fund the Patent and
    Trademark Office and improve patent quality, something I think
    everyone can support.
        So I look forward to listening and working with my
    colleagues to enact meaningful, targeted reforms that respect
    the diversity of the innovative ecosystem.
        And, if I might, Mr. Chair, I would like to submit for the
    record letters that support either explicitly the STRONG
    Patents Act or its approach from the National Venture Capital
    Association, the National Small Business Association, the
    Biotech Industry Association, the Association of American
    Universities, the Association of Public and Land-Grant
    Universities, the Medical Device Manufacturers, the
    Pharmaceutical Research Manufacturers, the Innovation Alliance,
    and the IEE-USA.
        Chairman Vitter. Without objection, so ordered.
        [The information follows:]
        [GRAPHICS NOT AVAILABLE IN TIFF FORMAT]

        Senator Coons. Let me, in the time I have left, ask a
    question or two.
        Ms. King, your testimony goes to the heart of my interest
    and concerns about this debate, and I am appreciative of your
    support for the STRONG Patents Act.
        You explained that in raising $64 million just to support
    your R&D pipeline focused on patients with sickle cell anemia,
    it was possible only because of the strength of your patent
    portfolio.
        And you note every biotech exec has stories to tell about
    very promising compounds that ultimately did not work out and
    the risks taken.
        And your comment: The injection of additional systemic
    uncertainty by making the enforceability of patents more
    uncertain negatively affects which new cures and treatments may
    be available a decade from now.
        So let me just summarize that in plain terms. If we make it
    harder for a small company like yours to enforce your patent
    rights, they will suffer from less external investment and
    narrow the scope of diseases we could otherwise hope to cure in
    the next decades.
        Ms. King. Absolutely.
        Senator Coons. Is that right?
        Ms. King. Yeah, that is absolutely correct.
        And, as I said at the end of my testimony, we have so much
    work still to do in terms of diseases that need to be treated
    that we really have to thoughtfully continue to incentivize
    investment in this sector.
        And, the ability to hold and to defend and to really depend
    upon patents is critical to our ability to raise the amounts of
    money that we need to raise over the long periods of time for
    which we have to get the investment. So it is absolutely
    critical to us.
        Senator Coons. And Mr. Molino just commented that it is too
    early for us to try and address abuses in the Inter Partes
    Review or the post-grant review processes.
        Isn't that abuse actually directly affecting the ability of
    companies like yours to attract and sustain investment?
        Ms. King. Yeah. Well, the example you gave is a biotech
    company, and the difference we have in biotech versus some
    other industries is that our products have very few critical
    patents associated with them. So, unlike a cell phone that may
    have hundreds of patents, you know, we might have a drug that
    has one or two critical patents, and that is why it is so open
    to the possibility of abuse if someone files an IPR against us.
    So these are extremely problematic, currently.
        Senator Coons. Well, my core view is that how you see
    patents and their importance, in some ways, depends on the
    sector you are in, whether you are in software or in bio or
    pharmaceuticals or materials.
        And we should first do no harm. We should not address--we
    should not adopt a legislative solution that is so over-broad
    that it will kill the ability of a small inventor to defend
    their patent or that will impart other agendas into trying to
    fix the real patent troll issue in a way that defeats the
    ability of patent owners to exercise their right.
        I see I am out of time.
        Thank you very much, Mr. Chairman, for bringing this
    hearing forward today.
        Chairman Vitter. Thank you, Senator.
        Senator Cantwell is next.
        Senator Cantwell. Thank you, Mr. Chair.
        You know, my colleagues comments provoke me to comment on
    the last--the bill that we passed. I think we do need to take
    inventory of where we are and what it has done to impact small
    inventors.
        But I think I want to turn--keep going with you, Ms. King,
    on the issue of the uniqueness of the biotech industry and on
    the patents and how you think this litigation reform proposal
    will impact the industry uniquely.
        And I also see where the House already did like a carve-out
    on some generic drugs and so if you would comment on that as
    well.
        Ms. King. As far as the challenges that we face, I mean,
    because our products, as I said, are often covered by just a
    very few number of patents, if any one of those is challenged
    or invalidated, it has a great impact on our ability to raise
    money and on the value of the----
        Senator Cantwell. And I think what people do not understand
    is juxtaposed to Mr. Molino's group, who can build and ship a
    product, or show you a beta, in 6 months, you sometimes have to
    work for 18 for 20 years before you can even--and you have to
    get capital during that whole process.
        Ms. King. Yeah, exactly. And if we are successful at our
    company, it is going to take us about 15 years and tens of
    millions of dollars to get our first drug on the market.
        And so we have successfully raised a lot of money so far,
    but we are constantly continuing to face that issue.
        And so, if our patents were to be invalidated, that would
    completely undermine our ability to raise the funds to go
    through that long period of time that is required for our
    development.
        Senator Cantwell. Okay. And any comments about what the
    House is looking at--various legislation where they would do
    carve-outs?
        Ms. King. Actually, I am not familiar with the specific
    carve-out.
        Senator Cantwell. Okay. We will get you information on
    that.
        Mr. Molino, what about the software innovations and recent
    developments? Do they raise concerns for you?
        Mr. Molino. Yes. Thank you very much, Senator.
        The Supreme Court recently ruled on a case involving
    software patentability called Alice v. CLS Bank. One good thing
    about that decision is it reaffirmed the patentability of
    software, which some have questioned. However, the Supreme
    Court did not provide a ton of guidance for lower courts on how
    they should analyze these types of cases.
        So our organization is very active in working with both the
    PTO to ensure that software patents remain available and also
    through our amicus filings in court to try to give lower courts
    and the PTO sufficient guidance on how to analyze these cases.
        Thank you.
        Senator Cantwell. Well, I think, Mr. Chairman, I am glad
    you are having this hearing and certainly support efforts to
    make sure that small businesses and their innovations are
    protected.
        So I think looking at what we did--and, again, to my
    colleague's point, it would have been great if we did major
    reform and protected the dollars in the patent office, but we
    did not accomplish that, and then moving first to--I am sorry.
    Moving to the European model I also do not believe is helping
    us.
        But I think let's see what the patent office is coming up
    with in details, and let's look at it.
        Thank you.
        Chairman Vitter. Great. Thank you.
        Next is Senator Ernst.
        Senator Ernst. Thank you, Mr. Chair.
        And I appreciate the witnesses' testimony today. So thank
    you for being here and raising such an important issue on a
    wide range of interests, especially to Iowa, from small
    businesses and individual inventors to our universities as
    well. And so we look at larger agricultural and biotech
    companies. Many of them are interested, very interested, in
    this topic.
        So I know that Senators Leahy and Lee have been pursuing
    legislation to prevent misleading demand letters, specifically
    making it an unfair trade practice.
        And do you believe that this should be part of an approach
    within patent reform? Could any of you answer that, please, and
    your thoughts?
        Mr. Schmidt. Well, unfortunately, you missed my comment on
    H.R. 9, which to a large extent is very similar to what Leahy
    and Lee were pushing in the Senate last year. Our concerns are
    numerous about this.
        First thing, I want to put some historical perspective on
    this whole patent issue because we went through this in the
    1990s with General Motors, and it is always about large,
    dominant players weakening patents because market-dominant
    companies do not need patents. And all patents do is keep them
    from keeping their market share because it is these new patents
    that are going to come and eat their lunch and eventually put
    them out of business.
        So it was the AT&Ts of the world that were supporting this
    previously, and you know, now they are gone. And GM is, you
    know, a new GM.
        And so we are going to see that with these new market-
    dominant companies if we can keep a strong patent system, and
    so this is very important to be able to allow our companies to
    have creative destruction with new patents.
        Senator Ernst. Thank you.
        Any other thoughts from the panel?
        Yes, sir.
        Mr. Molino. So, yeah, thank you very much for the question.
        From our members' perspective, we are in favor of figuring
    out how to end the widespread sending of bad faith demand
    letters. We think it is a real problem. We think it preys on
    those that are the least educated on this with regard to the
    patent system, and it should be stopped.
        At the same time, we also note that a lot of states are
    implementing their own laws, and for national companies it is
    very challenging to try to navigate various state laws that can
    be very specific.
        So, from our perspective, not only do we want to end the
    widespread sending of bad faith demand letters, but we would
    like to have a national standard for that as well.
        Senator Ernst. Okay. Any other thoughts?
        Yes, sir.
        Mr. Winwood. Well, Senator, I would just say that last year
    Senator Leahy introduced legislation in the last Congress,
    1720, which we were quite supportive of. It was withdrawn later
    in the session, but that approach was one that was favored
    pretty well by all of the higher education association groups
    last year.
        Senator Ernst. Very good. Thank you.
        And, following up with that, as we talk about our
    universities, how do we balance the interests of the
    universities, smaller companies, larger technology and biotech?
        Many patent holders have the legitimate rights and claims
    that need to be available to them, but we also have a litany of
    frivolous law suits, legal tactics that are causing significant
    challenges to small businesses and inventors. So there has to
    be a balance that we can find.
        And, to all of you, if you were a legislator for a day,
    what would be your answer?
        Ms. King. I want to, first of all, acknowledge the
    complexity that you reference because it is absolutely correct
    that this is challenging to find a balanced perspective.
        I think that the best thing that we can do now is to go
    after what we know are examples of abuse because a lot of the
    system actually does work pretty well in terms of getting
    patents. You know, we can be proud of what we have been able to
    accomplish in this country with the system that we have.
        However, I think we can improve it, and I think we can
    certainly address abuses.
        The bill that Senator Coons and others have introduced, I
    think, does that quite well. So I would support that STRONG
    Act. I think that is a great step in the right direction.
        Mr. Molino. So we are also very interested in trying to
    prevent abuses--abuses that we know have been going on in the
    litigation system for well over a decade.
        So the things that we would be most interested in are just
    making sure:
        That when somebody actually files a case they clearly
    disclose why they are filing the case and what their claims
    are;
        That we do not start really expensive discovery until we
    figure out what the scope of the case is going to be, and a
    judge issues an order in patent cases unlike any other case
    that actually does that, and do not start discovery until then;
        That we do implement a fee-shifting provision that only
    shifts fees if a party brings an objectionably unreasonable
    claim.
        Again, both sides of the--both defendants and plaintiffs
    would be subject to this standard.
        And I think those are the main issues that we are concerned
    about.
        Senator Ernst. Okay. Well, I--yes, sir, did you have
    something?
        [Pause.]
        Well, I thank the witnesses very much.
        Thank you, Mr. Chair.
        Chairman Vitter. Great. Thank you.
        And I think Senator Cardin has some final questions or
    thoughts.
        Senator Cardin. Well, thank you, Mr. Chairman.
        I, again, want to thank the witnesses not only for their
    testimony but their candid response.
        As I said in the beginning of the hearing, we are very
    concerned to make sure we protect intellectual property.
    Whether it is a university so that we can get tech transfer to
    create jobs, whether it is a large multinational company that
    needs to be protected in the United States on global
    competition, we are concerned.
        The focus of this Committee is on small business, and that
    is why I think it was particularly important to hear from a
    small pharmaceutical company and a small high-tech company that
    is dealing with adding to the technology and value of larger
    products as to how the system is working.
        What impressed me is that it seems to me that we can do a
    better job--and I am glad that Senator Coons is still here--in
    dealing with areas where there should not be much controversy.
        There should not be much controversy in requiring standing
    for someone to challenge.
        There should not be much controversy to go after those who
    try to manipulate the value of stock by what they do in order
    to make a profit on that. We should be able to correct that.
        We should be able to have more transparency in the process,
    that you know who is challenging.
        And, we should be altogether against abusive practices,
    whether it is challenging for the purposes of trying to get a
    nuisance settlement on your legitimacy to use a patent or to
    review a patent that you currently have.
        I think in those cases we should be able to come together.
        And I thank Senator Coons and Senator Hirono for their
    leadership, and Senator Durbin.
        I am not endorsing a bill today; do not get me wrong.
        But I do think it is important that we have to take action
    to deal with those types of abuses in a way that we can find
    common agreement among the different stakeholders because there
    is no disagreement that we want to end abusive practices and we
    want to protect legitimate patent rights. So let's figure out
    where we can make some progress.
        And, lastly, I think there is also agreement that we have
    to make sure the resources are there in the patent office to
    give timely considerations to all these issues because it does
    delay the certainty that is necessary for Ms. King's
    contemporaries and colleagues to be able to get the type of
    financing they need in order to do their very, very creative
    work.
        I applaud the creative people that are here for what you
    have done, and I know that there are people in Maryland and
    throughout our country who are going to benefit from your
    creativity. And our economy certain benefits from a strong
    patent system that protects that type of intellectual property.
        Chairman Vitter. Great. I am going to move to Senator
    Coons.
        But before I do, I want to just say--briefly, because I am
    going to have to excuse myself and I am going to give the gavel
    to Senator Cardin if that is all right--thanks to all of our
    witnesses. You are all great witnesses.
        This is actually the first hearing in D.C. of the Senate
    Committee on Small Business and Entrepreneurship this Congress.
    I think this was an extremely appropriate topic because, quite
    frankly, there has been a lot of discussion and some activity
    elsewhere that I do not think appropriately focuses on the role
    and the interest of small business entrepreneurs, including our
    universities. So I am very glad this was a robust discussion
    and our first hearing.
        And certainly, I am committed to continuing to recognize
    that patents are a fundamental property right that our founders
    recognized and valued, that is in the Constitution--we need to
    protect that--and that our U.S. patent system has been strong
    and unique in a good way, and we should not rush to match other
    parts of the world necessarily that have very different
    systems, I think, and are not as positive as ours, and that
    certainly small businesses and innovators and entrepreneurs are
    absolutely at the center of our economy and prospects for
    better economic growth.
        So, thank you.
        With that, Senator Coons.
        Senator Coons. Thank you, Chairman.
        That was a beautiful, thorough, broad summary. I could ask
    other questions, but frankly, I think we should let that be the
    last word.
        Thank you for calling this great hearing.
        Chairman Vitter. You are just concerned about my handing
    the gavel to Senator Cardin, obviously.
        [Laughter.]
        Well, with that, thanks to all of our witnesses, and the
    hearing is adjourned.
        [Whereupon, at 11:29 a.m., the hearing was adjourned.]

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