    [Senate Hearing 117-814]
    [From the U.S. Government Publishing Office]

                                                            S. Hrg. 117-814

                          PROTECTING REAL INNOVATIONS
                          BY IMPROVING PATENT QUALITY

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

                                    HEARING

                                   before the

                     SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                                     OF THE

                           COMMITTEE ON THE JUDICIARY
                              UNITED STATES SENATE

                        ONE HUNDRED SEVENTEENTH CONGRESS

                                 FIRST SESSION

                                   __________

                                 JUNE 22, 2021

                                   __________

                              Serial No. J-117-25

                                   __________

             Printed for the use of the Committee on the Judiciary

                     [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

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

                                   ______

                     U.S. GOVERNMENT PUBLISHING OFFICE

    54-574                    WASHINGTON : 2026

                           COMMITTEE ON THE JUDICIARY

                       RICHARD J. DURBIN, Illinois, Chair

    PATRICK J. LEAHY, Vermont            CHARLES E. GRASSLEY, Iowa, Ranking
    DIANNE FEINSTEIN, California             Member
    SHELDON WHITEHOUSE, Rhode Island     LINDSEY O. GRAHAM, South Carolina
    AMY KLOBUCHAR, Minnesota             JOHN CORNYN, Texas
    CHRISTOPHER A. COONS, Delaware       MICHAEL S. LEE, Utah
    RICHARD BLUMENTHAL, Connecticut      TED CRUZ, Texas
    MAZIE K. HIRONO, Hawaii              BEN SASSE, Nebraska
    CORY A. BOOKER, New Jersey           JOSH HAWLEY, Missouri
    ALEX PADILLA, California             TOM COTTON, Arkansas
    JON OSSOFF, Georgia                  JOHN KENNEDY, Louisiana
                                         THOM TILLIS, North Carolina
                                         MARSHA BLACKBURN, Tennessee

                 Joseph Zogby, Chief Counsel and Staff Director
          Kolan L. Davis, Republican Chief Counsel and Staff Director

                     SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                        PATRICK J. LEAHY, Vermont, Chair

    CHRISTOPHER A. COONS, Delaware       THOM TILLIS, North Carolina,
    MAZIE K. HIRONO, Hawaii                  Ranking Member
    ALEX PADILLA, California             JOHN CORNYN, Texas
                                         TOM COTTON, Arkansas
                                         MARSHA BLACKBURN, Tennessee

                 Rajiv Venkataramanan, Majority Staff Director
                      Brad Watts, Minority Staff Director

                                C O N T E N T S

                                  ----------

                               OPENING STATEMENTS

                                                                       Page

    Leahy, Hon. Patrick J............................................     1
    Tillis, Hon. Thom................................................     3

                                   WITNESSES

    Asay, Bridget....................................................     4
        Prepared statement...........................................    24
        Responses to written questions...............................    99
    Contreras, Jorge.................................................     9
        Prepared statement...........................................    27
        Responses to written questions...............................   103
    Garceran, Julio..................................................     6
        Prepared statement...........................................    45
        Responses to written questions...............................   117
    Lester, Troy.....................................................     8
        Prepared statement...........................................    52
        Responses to written questions...............................    70

                                    APPENDIX

    Items submitted for the record...................................    23

                          PROTECTING REAL INNOVATIONS
                          BY IMPROVING PATENT QUALITY

                                  ----------

                             TUESDAY, JUNE 22, 2021

                                  United States Senate,
                         Subcommittee on Intellectual Property,
                                    Committee on the Judiciary,
                                                        Washington, DC.
        The Subcommittee met, pursuant to notice, at 2:46 p.m., in
    Room 226, Dirksen Senate Office Building, Hon. Patrick J.
    Leahy, Chair of the Subcommittee, presiding.
        Present: Senators Leahy [presiding], Coons, Hirono, Tillis,
    and Blackburn.

              OPENING STATEMENT OF HON. PATRICK J. LEAHY,

                A U.S. SENATOR FROM THE STATE OF VERMONT

        Chair Leahy. We'll come to order, and I was just saying to
    Senator Tillis I'm sorry we're starting a little bit late, but
    we had a vote right at 12:30, and so far as we have to vote in
    person, took a bit, but he's younger. He got here quicker.
        I note that patents are a powerful tool for innovation.
    During an exchange for disclosing how an invention works, the
    public grants an inventor a limited monopoly to produce and
    sell an innovative product, which is a great part of our legal
    system.
        If you're protecting a genuine innovation, that can attract
    the funding necessary to build a business, provide legitimacy
    to somebody who might be a nontraditional inventor to help
    create American jobs. Good quality patents provide more
    certainty to small businesses and inventors so they can defend
    their invention from infringers. Given the power that patent
    conveys ensures the U.S. Patent and Trademark Office issues the
    highest quality patents possible is, of course, what our
    Founders intended when they wrote the Constitution.
        There is another side to the patent quality coin, one that
    can result in serious consequences for our economy and society
    at large, if the system produces patents that never should have
    been issued in the first place. Vermonters faced these
    consequences firsthand when an out-of-State company asserted
    poor-quality patents against dozens of Vermont small businesses
    and nonprofits.
        We're a small and close-knit State, but Vermont mobilized
    in force against the company. They realized what was happening,
    and they came together. They--this company which held patents
    covering the common activity of scanning a document, an email,
    something that everyone of us has done at some time or another.
        Testifying about Vermont's experience will be Bridget Asay.
    I've had the pleasure of speaking with her earlier this year.
    She's going to be with us remotely. She led the Vermont
    attorney general's lawsuit against the company abusing these
    patents and did a superb job. But Vermont's experience is just
    one case study of what could happen when poor-quality patents
    infect the system.
        We're going to hear other examples today, including the
    disturbing story of how the disgraced Silicon Valley company
    Theranos and its founder, Elizabeth Holmes, obtained hundreds
    of patents for an invention we now know was fraudulent. But it
    becomes even worse than that. Not only do those patents for an
    imaginary invention still exist, some were issued even after
    the public knew about the fraud. What's more, they've been
    asserted against actual inventors and innovators who are
    working on steps that can be taken to curb COVID-19.
        Think about it for a moment. Here we have the whole world,
    not just the United States, but we're scrambling to respond to
    a devastating global pandemic. Millions of lives at stake.
    Genuine medical technology designed to help us understand the
    virus' spread was nearly blocked by patents for a fake
    invention. Actually, I wonder if it wasn't for the bad
    publicity that came up, these patents might have successfully
    thwarted real innovators, cost actual lives. We should all be
    outraged by this, but we also should make sure the law is such
    it can't happen.
        We think about patent quality. We should also keep in mind
    that 52 percent, more than half, of the U.S. patents are issued
    to foreign entities, even more than likely transferred to
    foreign entities after they're issued. We don't know how many
    patents are ultimately owned by foreign entities, because PTO
    does not require the patent owner tell the public, who might be
    on the hook for infringement later on if the patent was sold.
        There is a real risk that foreign companies build
    portfolios of poor-quality patents and weaponize them, and use
    them not to help their country, but to stifle American
    innovators. We have to improve patent quality. Getting patent
    quality right is real stakes. I'm proud of the work we did 10
    years ago in the Leahy-Smith America Invents Act, addressing
    patent quality after patents have been issued. The post-grant
    procedures we put in place have to invalidate some of the
    patents that were asserted against Vermonters last year.
        I respect the Supreme Court's decision yesterday in the
    Arthrex case, which touched on these proceedings. I am
    confident the PTO, the Patent Trial and Appeal Board, will
    contribute to be able to perform the duties that Congress gave
    them under the Leahy-Smith Act.
        The focus of our hearing today is on improving patent
    quality at the outset before a patent's issue. Preventing poor-
    quality patents from ever issuing is just as important as
    eliminating bad patents later. In fact, I'm--in many ways, it's
    more important.
        I know that Senator Tillis shares my concern about patent
    quality. He has expressed himself eloquently on this. I hope I
    can work with him. This should not be a partisan issue. I hope
    we can work together and find ways to protect. I yield to
    Senator Tillis.

                 OPENING STATEMENT OF HON. THOM TILLIS,

            A U.S. SENATOR FROM THE STATE OF NORTH CAROLINA

        Senator Tillis. Thank you, Chairman Leahy. I want to thank
    you for holding today's hearing, and I really do appreciate
    your long-term commitment to ensuring patent quality. There's
    no--there's clearly a reason why the biggest patent quality
    reform in more than 60 years bears your name.
        A strong patent system promotes----
        Chair Leahy. Incidentally, if I could interject. I did not
    name it after myself. It was the Republican Chairman in the
    House who named it to me. I was just--it was one of the most
    happy moments I've had because he did it.
        Senator Tillis. It just proves that on issues of
    intellectual property, we can come together on a bipartisan
    basis.
        A strong patent system that promotes and protects American
    inventions is critical to our economic success, our job
    creation, and global competitiveness, but a strong patent
    system isn't judged by how many patents we issue. It's instead
    judged by the quality of those patents and their ultimate
    strength.
        If we think of each patent issued by the USPTO as a brick
    upon which we're building our innovation infrastructure, then
    our job, and that of the USPTO, is to ensure that those bricks
    are strong. Good, quality patents must stand the test of time,
    the scrutiny of the courts, and used as intended to support and
    not limit innovation.
        This type of quality control is going on--is ongoing, and
    it's an iterative process. Patent quality isn't an issue that's
    stuck in time or is fixed and then never readdressed. In 2019,
    when I was Chairman of the Subcommittee along with my
    colleague, Senator Coons, who was then Ranking Member, we held
    a hearing to address how Congress can help prevent the issuance
    of poor-quality patents.
        Since then, the USPTO has made many improvements to address
    patent quality concerns, including improvements to its quality
    control process, prior art searches, and how patents are
    assigned to examiners.
        Yet there's always room for further improvement and
    innovation, whether by enhancing technology used for prior art
    searches, increasing collaboration domestically and
    internationally, or helping to ensure clarity in written
    descriptions.
        One way Congress can assist in these efforts, for example,
    is to eliminate fee diversion. This would allow the USPTO to
    devote resources to hiring more examiners, improving training,
    and making sure that patents are of the highest quality.
    Congress should also look at ways to improve the USPTO's
    examination procedures as it relates to scope, written
    description, and enablement.
        There are simply too many over-broad patents being issued,
    especially in the software and financial services spaces. If we
    could simply reduce that over-breadth, we could solve a lot of
    problems.
        Finally, I think Congress should consider creating a gold-
    plated patent. In my mind, such a patent would undergo a more
    rigorous, more costly examination process to make sure it is
    truly new, innovative, and properly scoped. In return for doing
    so, we would guarantee the gold-plated patent holder that their
    innovation would be virtually impossible to challenge.
        I'm curious to hear from the witnesses on your thoughts
    about creating such a patent. I'm also interested in hearing
    from today's witnesses about their own ideas, no matter how big
    or small, to improve patent quality in our intellectual
    property system.
        With that, I want to thank you all for being here today. I
    look forward to your opening comments and your testimony. Thank
    you, Mr. Chair.
        Chair Leahy. Thank you, Senator. Here's the witnesses.
    We'll have Bridget Asay. She's a Vermont attorney. She's
    practicing with Stris & Maher. She's a member of the American
    Academy of Appellate Lawyers. Before she joined the law firm
    she's with now, in 2017, she worked in the Vermont attorney
    general's office for 18 years. She actually became Vermont's
    first solicitor general and did a tremendous job as such. She
    graduated from Harvard University and Yale Law School.
        We'll have Julio Garceran, chief intellectual property
    counsel with Cree, Inc., a semiconductor manufacturer located--
    headquartered in Durham, North Carolina. Nothing parochial in
    this hearing. The two lead witnesses. He has also participated
    in all aspects of patent practice. Previously a corporate
    counsel at a large multinational telecommunications company as
    a litigator. Patent prosecutor. Intellectual property law firm.
    Graduated from the University of Miami, the Florida State
    University College of Law.
        Troy Lester is vice president patents for Acushnet Company,
    a golf industry leader, manufacturer of Titleist. I always
    mispronounce that. Another famous brand. He has been
    responsible for their patent portfolio for over 20 years,
    participates in the patent policy working group of Global
    Innovation Policy Center, U.S. Chamber of Commerce, and
    received his JD and BS in mechanical engineering from Arizona
    State University.
        Jorge Contreras is a professor of law at the University of
    Utah, S.J. Quinney College of Law, serves as senior policy
    fellow at the Program on Information and Justice and
    Intellectual Property, American University College of Law. A
    graduate of Rice University and Harvard Law School.
        We will--Ms. Asay could testify first, and she'll be on one
    of these big computer screens, which I have nothing to do with.
    People who actually know what they're doing are going to put
    her on.

                  STATEMENT OF BRIDGET ASAY, PARTNER,

                   STRIS & MAHER, MONTPELIER, VERMONT

        Ms. Asay. Thank you, Senator. Should I begin?
        Chair Leahy. We hear you. We don't see you yet. Ah, there
    you are. Hi. Good to see you.
        Ms. Asay. Thank you, Senator Leahy.
        Chair Leahy. You're making me jealous. You're probably in
    Vermont.
        Ms. Asay. I am. I am in Montpelier, Vermont today.
        Chair Leahy. I'm jealous. Go ahead.
        Ms. Asay. Thank you all, Members of the Committee, and
    Senator Leahy. My name is Bridget Asay. I'm an attorney
    practicing with Stris & Maher, and before joining the firm, I
    spent 18 years working for the Vermont attorney general's
    office, where I served as Vermont's first solicitor general.
        Thank you for the opportunity to testify today about a
    concrete example of the problems associated with low-quality
    patents.
        In 2013, when I was working for then Vermont Attorney
    General Bill Sorrell, our office received complaints from a
    number of small businesses, including two nonprofit agencies,
    that had received letters accusing them of patent infringement
    and referencing imminent litigation. One of these organizations
    operated on State and Federal funding to bring home care to
    developmentally disabled Vermonters. Another provided fiscal
    agent services to Vermonters with disabilities to assist them
    with daily living tasks.
        We later learned that about 75 Vermont businesses and
    nonprofits received these letters. The letters were sent under
    the names of a veritable alphabet soup of 40 different
    entities, with names like BarMas, LLC and HarNol, LLC.
    Regardless of name, the content was basically the same. What
    I'll call the first letter listed four patents and a pending
    application and said that the targeted businesses likely had
    infringing systems.
        What were these patents and infringement claims about? The
    letter described as the basis for infringement a typical office
    network with a server, computers running Outlook, and a scanner
    that permitted scanning a document directly to an employee
    email address as a PDF attachment. Pretty common office
    equipment.
        The letter said that the fair price for a license was
    $1,000 per employee, meaning easily $10,000 or more, even for a
    relatively small business. Follow-up letters came from a law
    firm. A number of the targeted businesses received a letter
    that included a copy of a legal complaint and said that the
    company would sue if they did not receive a response within 2
    weeks.
        This didn't just happen in Vermont. These letters were sent
    to small businesses across the country. The FTC conducted an
    investigation involving MPHJ Technology Investments, LLC. The
    owner of the patents and the documents from the FTC matter can
    be viewed on their website. The FTC alleged that over 16,000
    small businesses nationwide were contacted.
        Back in Vermont, these businesses weren't targeted because
    of any product they manufactured or sold. These were not
    software or tech companies. They didn't make scanners, and they
    weren't experienced in patent law. Receiving a letter like this
    puts a small business in a very difficult position. They don't
    know if the litigation threat is real. The amount of money is
    significant, but probably a lot less than they'd have to pay to
    defend a lawsuit.
        Patent law is specialized, so lawyers that handle their
    routine matters are not necessarily going to give advice on
    patent infringement. Patent lawyers are expensive, and
    consulting with one might cost as much as paying for the
    license.
        The Vermont Attorney General's Office filed a consumer
    protection lawsuit against MPHJ. That case alleged
    straightforward consumer protection claims. We did not contest
    the validity of MPHJ's patents because that's a matter of
    Federal law. I think the history of our State litigation is
    relevant because it highlights the point I made earlier, that
    most businesses can't take on the risk of litigation in this
    area.
        That case was filed in State court, removed to Federal
    court, remanded to State court, appealed to the Federal
    circuit, which upheld the remand, removed a second time to
    Federal court, remanded a second time, and appealed a second
    time to the Federal circuit, all in all lasting four years
    before it was settled. It took substantial resources to pursue
    that litigation. It was a lot for our office, which is small by
    national standards. A small business could not sustain that
    kind of litigation. The costs would be ruinous.
        As I mentioned, our litigation did not contest the patents
    because that's not a consumer protection matter. There were
    proceedings brought by large scanner corporations, and I
    provided citations to some of these proceedings in my written
    testimony.
        Ms. Asay. I'll just cite one example. The first letter that
    I referenced before referenced a pending patent application,
    that patent issued in 2013, and 4 years later in 2017, the
    Federal circuit upheld a decision, invalidating the claims in
    that patent. That one proceeding took 4 years. There were
    several other proceedings, and again, it took cases like HP,
    Xerox, and Ricoh to pursue those cases. A small nonprofit
    serving disabled Vermonters could never do that.
        As Vermont's example shows, there are real costs when low-
    quality patents are issued. I hope the Committee will consider
    concrete actions to improve patent quality.
        Thank you for the opportunity to testify today.
        [The prepared statement of Ms. Asay appears as a submission
    for the record.]
        Chair Leahy. Thank you very much, Ms. Asay. It's good to
    have you with us. Mr. Garceran from Durham, North Carolina.

                   STATEMENT OF JULIO GARCERAN, CHIEF

                     INTELLECTUAL PROPERTY COUNSEL,

                   CREE, INC., DURHAM, NORTH CAROLINA

        Mr. Garceran. Hello. Good afternoon. I would like to thank
    Chairman Leahy, Ranking Member Tillis, and distinguished
    Members of this Subcommittee on Intellectual Property for the
    opportunity to present my views today on patent quality. My
    name is Julio Garceran. I'm the chief intellectual property
    counsel for Cree, Incorporated. Cree is a compound
    semiconductor company based in Durham, North Carolina.
        Cree was founded in 1987 as a startup out of North Carolina
    State University and backed by North Carolina State University
    patents. Cree is an American success story, and patents were
    critical to that success. Throughout its history, Cree has been
    at the forefront of silicon carbide and gallium nitride
    materials and devices. Cree started the LED lighting revolution
    and is now leading the transition from traditional silicon to
    more energy-efficient and robust silicon carbide.
        Unlike some influential companies that rely on other
    mechanisms to protect their technology, Cree relies heavily on
    patents. Once Cree's products are sold in the marketplace,
    would-be competitors can obtain those products, reverse
    engineer them, and indiscriminately copy those products. Cree's
    patent portfolio is essential for preventing such behavior.
    Therefore, Cree, like domestic manufacturers and innovators,
    needs a strong patent system.
        Why are we here talking about improving patent quality?
    Low-quality patents hurt business. The high cost of patent
    litigation fuels a business model where patent trolls bring
    patent litigation, not to legitimately enforce a patent's
    technological scope, but to squeeze legal settlements from
    companies. The high cost of patent litigation can also create
    an incentive for low-quality patent-owners to file patent
    litigation against smaller competitors, not to recoup
    compensation for the use of patented technology, but to burden
    the competitor with increased spending.
        These costs are better spent on more productive endeavors,
    like research and development, and can be very detrimental to a
    small business. With increased patent quality, companies can at
    least make a rational business decision based on the
    technological merit of the patent. Increasing patent quality
    would hopefully lead judges to more confidently and
    consistently entertain making early case dispositive rulings.
        Low-quality patents also create an uncertain business
    environment. Patent quality adds certainty surrounding the
    validity and legitimate technological scope of the patent. An
    inventor or venture capitalist can be more confident in
    investing money in a new venture that owns or licenses high
    quality patents. When the Cree founders were trying to raise
    money, Cree's licenses to the North Carolina State University
    patents were critical.
        In my view, there are various practical steps that can be
    taken to increase patent quality. First, keep USPTO revenues in
    the USPTO. Diverted USPTO revenues could fund improvements to
    the examining force and the infrastructure of the USPTO.
        Increase the use of 35 U.S.C. Sec.  112 in examining
    patents. The outcome of a patent litigation typically hinges on
    the meaning of a single or a handful of claim terms. In some
    instances, the meaning of the claim term is ambiguous. In other
    instances, the meaning of the claim term is relatively clear,
    but the low-quality patent specification does not support a
    broad meaning for the claim term.
        Section 112 is supposed to ensure that claim terms are
    clearly defined, reflect the invention that was actually
    possessed by the inventor, and are enabled by the patent's
    specification. However, Section 112 rejections are generally
    considered nonsubstantive and are not pushed at all during
    patent prosecution.
        Finally, adjust examiner incentives. Examiner incentives
    need to be adjusted to make quality a priority. The current
    count-based system appears to encourage quantity over quality.
        In conclusion, efforts to improve patent quality should not
    weaken the patent system or result in overly narrow patents.
    However, American businesses are being hurt by the significant
    costs and uncertainty caused by patents of dubious quality.
    Instead of continuing to waste the resources of our Nation's
    industries on low-quality patents, we need to implement ways to
    improve patent quality on the front end. Thank you.
        [The prepared statement of Mr. Garceran appears as a
    submission for the record.]
        Chair Leahy. Thank you very much. Next we have Lester--Mr.
    Troy Lester, vice president of patents, Acushnet Company,
    Fairhaven.

                     STATEMENT OF TROY LESTER, VICE

                     PRESIDENT OF PATENTS, ACUSHNET

                   COMPANY, FAIRHAVEN, MASSACHUSETTS

        Mr. Lester. Hello, everyone. Thank you, Chairman Leahy and
    Ranking Member Tillis and Members of the Intellectual Property
    Subcommittee, for allowing me to discuss the importance of
    improving the quality of patents. Patent law is extremely
    important to our economy, and we need to get it right. We want
    to fuel innovation, not stimulate litigation.
        Good patents, patents that are directed to new innovations
    and that stand up to scrutiny, help promote further innovations
    and promote a company's research spending. Overly broad patents
    do not teach anything and stifle innovation.
        For more than 20 years, I've led the patent group at
    Acushnet Company, the owner and steward of golf's leading
    brands, Titleist and FootJoy. We have manufactured golf balls
    in the United States since 1935. We are extremely proud to
    manufacture in the United States. Doing so allows us to control
    our manufacturing processes. However, manufacturing in the
    United States also subjects us to bad patents.
        We understand the value in possessing good patents and
    believe in the patent system. We have obtained about 2,700
    golf-related patents over the last 20 years. Acushnet has
    licensed and purchased good patents from individual inventors.
    When we conduct freedom top rate searches, patents will be
    discovered, and we'll have the opportunity to obtain rights and
    use the ideas. Acushnet has successfully asserted good patents
    when necessary. I would much rather spend money asserting a
    sound patent than one that is likely to be invalid.
        Conversely, Acushnet has been sued by patent trolls. Patent
    assertion entities take resources that could otherwise be
    better allocated toward research and development, improving
    manufacturing facilities, and creating jobs.
        Patent litigation abuse is not just an Acushnet problem.
    There are numerous entities that send letters to over 1,000
    various companies, demanding a license fee. However, litigation
    abuse only addresses half the problem of overly broad patents.
    Bad patents often stifle innovation without ever being asserted
    because they create barriers for companies to create products
    or implement process improvements.
        Companies like Acushnet often avoid implementing technology
    altogether in the presence of a weak patent because we know
    that juries can be completely--be completely unpredictable when
    faced with a claim of invalidity. We recently canceled a
    multimillion-dollar order for equipment made by another U.S.
    manufacturer because an invalid patent issued.
        More importantly, bad patents generally do not teach
    anything new and thus are antithetical to the system's purpose.
    It is inevitable that there will be some bad patents that
    issue, however, because they stifle innovation, we should try
    to reduce them.
        As a starting point, I would recommend resources be set
    aside for additional examiner review. When Acushnet reviews an
    invention disclosure, several attorneys review it and determine
    what the invention is. The examining process could be improved
    by a similar approach. Moreover, approximately 10 years ago,
    the Patent Office was forced with a significant backlog of
    applications. Examiners increased the number of cases being
    examined, and training of new examiners decreased from 6 months
    to 6 weeks. In other words, there was a focus on an increase in
    the quantity of cases, but not on an improvement in the quality
    of cases.
        More importantly, I believe improvements in the
    implementation of Section 112 are imperative. Section 112
    requires the claims to particularly point out and distinctly
    claim the subject matter the inventor regards as the invention.
    Section 112 should make inventors claim their actual invention,
    like a golf club configuration, and not the base properties
    resulting from their experimentation, like golf club frequency.
    Similarly, Section 112 should require claims to use the same
    language that is in the specification.
        Finally, steps should be taken to reduce the continuation
    abuse practice. There are applications with hundreds of claims
    that date back to the 1970s and 1980s. I know of golf club
    cases that have about 100 priority claims.
        In closing, valid patents encourage and protect innovation
    and are critical to our economy. Overly broad patents, in
    contrast, stifle innovation and spur litigation. Litigation
    abuse harms companies and our economy. Bad patents also create
    roadblocks that prevent companies from innovating and making
    new products and creating jobs.
        I think, with improvements, we can begin course correcting.
    We need to get it right. Thank you.
        [The prepared statement of Mr. Lester appears as a
    submission for the record.]
        Chair Leahy. No, thank you very much. That was very
    helpful. Now, we have Professor Contreras, who's actually here
    with us. Go ahead, Professor.

               STATEMENT OF JORGE CONTRERAS, PRESIDENTIAL

           SCHOLAR AND PROFESSOR OF LAW, S.J. QUINNEY COLLEGE

            OF LAW, UNIVERSITY OF UTAH, SALT LAKE CITY, UTAH

        Professor Contreras. Thank you. Chairman Leahy, Ranking
    Member Tillis, and distinguished Members of the Committee, my
    name is Jorge Contreras, and I am a professor of law at the
    University of Utah.
        As Chairman Leahy alluded to in his introduction, on March
    9th, 2020, 2 days before the World Health Organization declared
    COVID-19 to be a global pandemic, a patent assertion entity
    named Labrador Diagnostics--oops, sorry. Should I? I'm sorry.
    Technical difficulty. Even live, these happen. Patent assertion
    entity--thank you.
        On March 9th, 2020, 2 days before the World Health
    Organization declared COVID-19 to be a global pandemic, a
    patent assertion entity called Labrador Diagnostics sued a
    company that was about to release one of the first diagnostic
    tests for COVID-19. The most surprising thing about this suit
    was the source of the patents asserted. They were just two of
    more than close to 1,000 patents originally held by Theranos,
    the defunct blood analysis company exposed by journalist John
    Carreyrou of the Wall Street Journal.
        According to these and other reports, Theranos never
    finished developing the tests that it sold to Walgreens and
    others for millions of dollars. As a result, Theranos founder,
    Elizabeth Holmes, the lead inventor on both patents, is
    currently under Federal indictment for multiple counts of
    criminal conspiracy and fraud.
        The Theranos patent litigation highlights a disturbing
    reality. More than a few issued patents cover inventions that
    were never made or, at least, never worked. Why does this
    matter?
        Commenting on a widely-derided U.S. patent claiming an
    anti-gravity driven spaceship, one senior PTO advisor opined
    that it doesn't cause any problems because the patents are
    useless. It seems that the prevailing view, both at the PTO and
    among some patent attorneys, is that patents on nonexistent and
    impossible inventions are mere curiosities. Unfortunate, but
    ultimately harmless.
        The recent assertion of the Theranos patents offers stark
    evidence to the contrary. Here are just a few examples of the
    very real harms that can flow from these bad patents.
        First, a bad patent can act as prior art, preventing later
    inventors from getting a patent they deserve after actually
    developing the claimed technology.
        Second, the holder of a bad patent can enforce the patent
    against others who are more successful at developing the
    technology. This doesn't just happen in court. In fact, this
    morning, I read a news story about the settlement of a case in
    the Northern District of Illinois relating to a, quote, ``bogus
    patent'' used by a pet supplements company to gain the Amazon
    takedown procedure for competitive products.
        Third, even if a bad patent can eventually be invalidated
    in court, and not all can, patent litigation is costly, and
    many defendants may prefer to settle, leaving the bad patent on
    the books to be used against others.
        Fourth, the existence of bad patents can itself chill new
    research and innovation, thus reducing market entry, technology
    development, and competition.
        More than half a century ago, the Supreme Court recognized
    in Lear v. Adkins the threat that invalid patents posed to the
    market and identified the important public interest in
    permitting full and free competition in the use of ideas, which
    are in reality a part of the public domain. In short, bad
    patents allow unscrupulous actors to put fences around not yet
    invented technologies that should be available to the public.
        For all of these reasons, we need to try harder to prevent
    the issuance of bad patents. To that end, I suggest the
    following reality checks to help the PTO more closely align
    patent allowances to technical realities and to deter
    fraudulent behavior before the PTO.
        First, increase vigilance for inoperable inventions. At the
    examination stage, the PTO should check inventor names against
    lists of retracted papers, criminal indictments, securities
    investigations, disciplinary proceedings, and other forms of
    behavior that might cast doubt on the assertions made in an
    application. The PTO could also flag other questionable
    applications, such as miracle cures, cold fusion, and
    interstellar spacecraft.
        Second, demonstrate reduction to practice. If an
    application is flagged as potentially problematic, the PTO
    should be able to get a third-party verification that the
    claimed invention has actually been reduced to practice or that
    reduction to practice is both feasible and likely, perhaps
    resulting in some of the gold plating that Senator Tillis
    mentioned earlier.
        Third, involve the public. In many technical areas,
    competitors, academics, and other members of the public are
    more likely to appreciate the technical challenges faced by a
    given invention. Thus, the PTO should revive and expand the
    limited peer-to-patent program, which enlisted expert
    volunteers in the examination process from 2007 to 2011. In
    addition, the PTO's preissuant submission procedure should be
    expanded to permit members of the public to raise enablement
    concerns without the expense or formality of a full inter
    partes review.
        Fourth, enhance penalties for fraud. Other than
    unenforceability of the patent in question, there is no
    explicit penalty for fraud, either private or administrative,
    under the Patent Act. Accordingly, the penalties for seeking to
    procure a patent for fraud, or to enforce such a patent, should
    be expanded to include both criminal sanctions and substantial
    fines.
        It is in everyone's interest to eliminate bad patents. I
    hope that these modest suggestions can help us achieve this
    important goal, and I thank you for giving me the opportunity
    to testify today.
        [The prepared statement of Professor Contreras appears as a
    submission for the record.]
        Chair Leahy. Thank you all very much. Ms. Asay, you
    explained in your testimony that the Vermont Attorney General's
    Office heard from two nonprofits that were threatened by the
    entity asserting low-quality scan to mail patents. I believe
    they demanded as much as $1,000 per employee to settle. What
    type of impact would a settlement of $1,000 per employee have
    on the ability of these nonprofits to support the communities
    they were serving?
        Ms. Asay. As you well know, Senator, things operate often
    on a much smaller scale in Vermont, and the impact of facing a
    financial demand for 10 or 20 or 25 thousand dollars for a
    small nonprofit working in a community, it could be
    substantial. Even having to involve counsel to assess the
    letters that a nonprofit receives and decides how to act is
    money that could have gone to other services and instead had to
    be spent to fend off these kinds of claims.
        Chair Leahy. You know, I think about all of the work that
    goes into this. You did some research looking into the status
    of MPHJ's patents to determine whether any of the claims, any
    of the claims asserted against Vermonters, were still valid
    today. I use Vermont as an example because this could be any
    State. Did it take significant work to learn the status of the
    patents?
        Ms. Asay. It did. I spent a fair amount of time going back
    and, you know, I have a law degree and I have access to
    Westlaw, which is a paid legal research service, and it took me
    a fair amount of time to track back through the litigation on
    multiple different patents and determine the outcome. It was
    not an easy task, and I think not something that a layperson,
    you know, working at a nonprofit or small business could easily
    have done.
        Chair Leahy. Most small businesses don't have a large legal
    department that can take time to do this. I wonder if you had a
    claim that was invalidated, either at the PTO or in the court.
    What if the status of that claim were clear on the face of the
    patent? Would that help?
        Ms. Asay. Yes, I think that would help. I think
    transparency is a terrific goal in this area, and it's my
    recollection that back in 2014, when this issue of patent
    enforcement was something that State attorneys general were
    learning about, that there was a bipartisan coalition of State
    attorneys general that joined in some letters and some
    suggestions about reforms, and that they, in particular,
    focused on the need for transparency, the importance for people
    to know who they were dealing with and the status of the
    patents that they were being faced with.
        Chair Leahy. You could almost say that makes common sense.
        Ms. Asay. Yes, yes, Senator.
        Chair Leahy. Professor Contreras, you mentioned that
    Theranos had almost 1,000 patents. I'm still boggled by these
    numbers considering what it was for a company. They later sold
    that to a holding company. I understand that Elizabeth Holmes
    was indicted for fraud in 2018. But then, isn't it true the PTO
    continued to issue patents in the name of Theranos and with
    Elizabeth Holmes as a named inventor into 2020, 2 years after
    she was indicted for fraud? Is that correct?
        Professor Contreras. Yes, Mr. Chairman, that is correct.
    One of the two patents that was asserted against BioFire, the
    medical testing company in Utah that I mentioned, was issued in
    January of 2020, which was 2 years after the criminal
    indictment.
        Chair Leahy. The indictment--everybody knows she hadn't
    actually invented the diagnostic method she claimed. Is there
    any real basis on which she should have gotten those patents?
        Professor Contreras. My opinion is that the patents should
    not have been issued, and that's why I'm here testifying before
    you, Mr. Chairman. I do believe that the PTO--there are signals
    that the PTO should be aware of and should respond to when
    applications come down the pike for inventions that are not
    actually reduced to practice as they need to be.
        Chair Leahy. We had some talk about where fees are. I'd ask
    Mr. Lester. The PTO was funded by user fees, and those fees are
    set by the PTO. Now, the application fees are low and
    maintenance fees incurred after a patent issued are
    comparatively high. Many companies game that system. They apply
    for a huge number of patents rather than focusing on securing
    the highest quality ones. Then, years later, many of these
    patents are abandoned before maintenance fees are paid. It
    seems almost like a Ponzi scheme.
        I wonder if increasing upfront application fees might help
    mitigate that kind of gaming. My time is really up, but I ask
    you one question. I'll spend all this for the record. Would you
    be comfortable with a tradeoff of paying more up front for your
    patent applications and paying less in maintenance fees later?
        Mr. Lester. Senator, from my experience, the recent
    increases in maintenance fees made us seriously scrutinize
    every patent in our portfolio. From every quarter, we review
    all of the patents that have maintenance fees, and we
    particularly scrutinize the ones that have the third
    maintenance fees. The increase in cost obviously made us
    streamline our portfolio to stay in budget, and, as a patent
    attorney, the only cases you regret are the ones you abandon.
        An increase in examination fees would have a similar effect
    in that it might deter application filings, and thus, kind of
    stifle the objective of applications of teaching new
    technologies. High maintenance fees allow applications to be
    filed and teach, but then frees up technologies so that others
    can still use them. However, I understand that this is much
    more difficult for the Patent Office to budget.
        Another thought would be that continuation applications
    really don't teach anything new. They are literally the same
    application filed again and again. That is how a lot of these
    entities file thousands of applications. With the many problems
    arising from continuation applications and the continuation
    applications accounting for, I believe, about 25 percent of the
    pending cases, an increase in continuation filing fees might be
    a prudent approach.
        Chair Leahy. Thank you. Senator Tillis.
        Senator Tillis. Thank you, Mr. Chairman. Mr. Lester, Mr.
    Garceran, can you share any experience with responding to
    assertions based on fraudulent patents in your current
    positions?
        Mr. Garceran. I guess I'll start. This is Julio Garceran. I
    have had some experience with--I wouldn't say it was
    fraudulent, just bad patents, that they had no business
    asserting those patents against our products, and we had that,
    on multiple occasions, that we had to spend money to respond to
    them. In fact, we used certain threats under Section 285,
    saying that if they came after us and actually sued us, we
    would seek attorney's fees.
        We also used the Anti-Abusive Patent Assertion Act that is
    enacted in some States, such as North Carolina, and threatened
    them with that, also. We've had success in warding off the more
    serious and egregious violations, but some of the ones that I
    think are less so, they won't go away as easily.
        Senator Tillis. Mr. Lester.
        Mr. Lester. Yes, unfortunately, we've had our share of
    nonpracticing entities asserting patents against us. Innovatio
    asserted patents against us for using the Wi-Fi. They stated
    that we had three manufacturing plants in Massachusetts. They
    must have Wi-Fi, therefore you infringed. Helferich asserted
    patents relating to sending out tweets, and he offered a
    license for $15 per 1,000 tweets. If you have a million
    followers and you send out a tweet, that's going to cost you
    $15,000.
        The most egregious is probably Eclipse. Eclipse was an
    entity that had a number of patents. In fact, they had a number
    of patents invalid in 2014, and they still received two more
    patents in 2015 after those cases had been invalid.
        Those types of situations--they got on our website, ordered
    a golf club, said, ``Well, that golf club, you must keep track
    of it in your warehouse, therefore it's a mobile thing. Then
    you sent us an email back saying that you would ship it to
    us.'' That is standard practice of anyone sending out products
    to somebody, and we were very, very fortunate.
        In doing our due diligence, we found out that Federal
    Express had settled with them. We went to Federal Express,
    thinking they would have much better prior art than we would on
    this type of technology. They did, but they also had an
    agreement with Eclipse that they wouldn't file any cases
    against Federal Express customers. The next day, Federal
    Express happily sent Eclipse a letter saying that they were in
    breach of contract, and the following day, the case was
    dropped.
        You know, we were again very fortunate that we had the
    means to be able to go out and look for all of that
    information. It took months and it took a lot of resources, but
    again, we were on the very fortunate side of that.
        Senator Tillis. This is happening every single day. I have
    a question for--Mr. Lester, maybe for you, also--but Professor
    Contreras and Mr. Garceran. We've, over the years, heard a lot
    of stakeholders being concerned with patents being issued that
    do not appear to satisfy the enablement or written descriptions
    found in Section 112. We think that maybe the interpretation or
    the application of Section 112 is inconsistent within the
    USPTO. What's your view? What should we do if you agree that
    its application and its interpretation is inconsistent--what
    suggestions would you have as a matter of statutory changes to
    correct that, not only for the USPTO but for the court's
    application of 112? Mr. Contreras, we'll start with you.
        Professor Contreras. Thank you. I'm happy to start, and
    thank you for the question, Senator. I do agree with you. I
    think that a lot of these problems do arrive under Section 112
    enablement, which has really two prongs. There is the adequacy
    of the written description. Do you actually enable somebody to
    make the invention? There's a lot of litigation with respect to
    that prong.
        I think the more important prong, and where we see the
    bigger problem, is did you actually reduce the invention to
    practice yourself before getting those claims? This is where I
    think we see a lot of, quote-unquote, ``wishful thinking''
    being issued patents.
        I do think that the examination process can be made more
    stringent in order to try to catch those unpracticed, non-
    enabled inventions before patents are issued, by doing things
    like having triggers within the PTO to alert examiners when
    there are particularly suspect inventions that are coming down
    the pike, getting outside expert reviews.
        I know that the PTO staff is limited and stretched very
    thin, but we could enlist the aid of outside peer reviewers, as
    we do in the scientific community with journal articles, to
    attest to whether or not an invention is reduced to practice,
    or likely to be reduced to practice before it's issued.
        Then there's the idea of peer-to-patent, which was tried
    out on a very limited basis from 2007 to 2011, but which
    enlisted members of the public, experts, university people,
    competitors to look at prior art with respect to patents that
    were in the application process. That could be used to deal
    with enablement, as well as prior art, and I think in a very
    useful way.
        Senator Tillis. Mr. Garceran, do you have anything to add?
        Mr. Garceran. Yes, I'd like to add that I do think that the
    enablement standard is not applied early enough. I think we do
    have the laws on the books, but usually it takes for litigation
    for them to be applied, and we really need the examiners to
    have some incentives put in place, or at least some training or
    something, but incentive where they need to be examining using
    an enablement standard to show proof that the invention the
    inventor is trying to obtain, they actually have, and they
    actually possess the invention, and they're teaching society
    how to use the invention, and how to get the invention. That is
    not currently pushed very significantly at all in the
    examination stage.
        Senator Tillis. Thank you all. Mr. Chair, thank you. I just
    want to reinforce I believe that there are a lot of people in
    the USPTO that do a good job. I do think a part of this is
    resources. That's why I feel strongly that we should end fee
    diversion, reinvest in information technology, reinvest in more
    resources.
        Mr. Contreras, you mentioned in the one case dating back
    from last year that having examiners have access to information
    sources that they're not using today. I think you were talking
    about criminal records, et cetera. I think that we should also
    take a look at better collaboration and use of information for
    prior art searches, all the way from, let's say, collaborating
    with the whole of government, the FDA and other resources that
    may be helpful to have a more fulsome set of data as they're
    going through the examination process.
        Thank you all for being here. Thank you for letting me go
    over, Mr. Chair.
        Chair Leahy. Thank you, Senator Tillis. You and Senator
    Coons led this Committee so well, and I have the honor of
    following Senator Coons, and I yield to him.
        Senator Coons. Thank you, Mr. Chairman, Ranking Member.
    Thank you to the panel for this conversation. I'll follow-up on
    the comments just made, just more broadly recognizing that a
    decade on, the America Invents Act deserves the reexamination,
    the discussion it's having today.
        Patent quality really matters, and making the investments
    and making the changes in the system that can improve patent
    quality is an important thing for us to have done. Mr.
    Chairman, I'll congratulate you again on the America Invents
    Act, which I think was critically needed at the time to
    significantly improve patent quality at a moment when the
    patent system was improvidently granting a very wide range of
    patents, and there were a lot of challenges and issues to look
    at.
        I'll also agree, I think with both the Ranking Member and
    the Chairman and a number of the witnesses, that we need to
    invest. If we're going to have the best quality patents in the
    world, we need the best examiners. We need to end fee
    diversion. We need to make sure that investments that companies
    are making in the system actually produce improvements.
        We need to invest in modernizing the technology, and in
    providing ways that we get the best-in-class examiners who are
    actually not just capable, competent, even masters of the
    fields in which they're conducting examinations. I think
    there's a lot of work to do that we can all agree on to improve
    patent examination and patent quality.
        I do want to make sure that the pursuit of patent quality
    as such is not used as an excuse to weaken enforcement
    mechanism protections for all patent owners. Let me just ask of
    the panel a few questions, if I might.
        The USPTO's 2020 Performance and Accountability Report
    concluded that examiners are correctly applying the statutory
    patentability criteria about 93 percent of the time. Is this a
    relevant and effective gauge of the quality of patent
    examination, and what's your perspective on this analysis? If I
    might, Mr. Garceran and Professor Contreras, and then the other
    members of the panel who are not physically with us.
        Mr. Garceran. I'll say 93 percent sounds like a pretty good
    grade. I don't know what the exact parameters that went into
    that grade, but I do think, as we've been talking about, and
    while we're having this meeting, there are clearly some issues
    with patent quality.
        Again, I agree with some of the testimony here and some of
    the statements that the use of Section 112, especially
    enablement and written description type of examining standards,
    if they are consistently used, that could lead a lot to
    improving patent quality on the front end.
        Senator Coons. Thank you. Mr. Contreras--Professor
    Contreras.
        Professor Contreras. Thank you, Senator. Yes, so I don't
    doubt those statistics at all, but I would point out that the
    rules, the examination rules, don't actually require that the
    examination look into the actual reduction to practice of
    patents. To do that would be difficult because, of course,
    examiners don't have the ability to test apparatus. We don't
    submit working models anymore to the Patent Office, so that is
    very difficult.
        We also have doctrines like constructive reduction to
    practice. Simply filing a patent application is good enough to
    count as reducing the invention to practice, and prophetic
    examples that appear in lots of patent applications,
    particularly in the biopharma sector, where they describe
    experiments that are just hypothetical. Those hypothetical
    experiments that were never conducted are good enough to
    demonstrate reduction to practice.
        I think changing some of those rules might actually help in
    grounding some of the issuances in inventions that are actually
    real and reduced to practice.
        Senator Coons. Mr. Lester, if you might, and then Ms. Asay.
        Mr. Lester. Yes, very quickly, I'd like to add for example,
    in the Eclipse litigation, those claims were directed to
    sending signals to a bus or a taxi to see when it was going to
    arrive at your stop. All right? The claims were directed to a
    mobile thing. That is the situation where something was taken
    completely out of context and then asserted against thousands
    of people for selling things on the internet.
        The application of 112 and reducing that to what is
    actually the invention in the application would go a long way
    to stopping these overly broad patents.
        Senator Coons. Ms. Asay.
        Ms. Asay. Thank you. I would just reiterate what other
    witnesses have said about the importance of strengthening the
    examination process to improve the quality of issue patents.
    Thanks.
        Senator Coons. Ms. Asay, a great deal has changed in patent
    law and its actual practice and application since you were
    litigating the issues with MPHJ Technologies and the
    infringement letters you were describing, now more than 5 years
    ago. Do you have a sense how prevalent the demand letter
    practice you were describing is today, 5 years later?
        Ms. Asay. I can say that when I was researching and trying
    to prepare for today, I did see that--and I don't have any
    personal knowledge of this, but I did see that the attorney
    general of Washington State has recently filed a consumer
    protection action addressing demands by a nonpracticing entity.
    Although I didn't pursue that further, it does look like there
    has been renewed interest from at least one State attorney
    general.
        I do--I think in the time when we were litigating this,
    back in 2013 and 2014, this became an issue of consumer
    protection that registered for many attorneys general who were
    hearing from small businesses about the challenges of being a
    small business in the tech field and trying to develop a
    product and develop a company and dealing with patent
    infringement litigation.
        I definitely encourage States attorneys general again, the
    National Association of Attorneys General, to perhaps again
    engage on this topic, because I know that they're often
    contacted--contacted when problems arise, and really have kind
    of a boots-on-the-ground understanding of what is going on.
        Senator Coons. I would agree that I, too, heard a lot about
    this as a concern 7 and 8 years ago, and I think there have
    been significant changes and shifts in law and practice that
    have largely addressed it. I'll simply close--I know I'm over
    my time, Mr. Chairman, by saying that ending PTO fee diversion
    and making sure that we're investing in high quality patents
    and in examinations that are properly incentivized, properly
    structured, is the right way for us to move forward in a way
    that we can all support. Thank you.
        Chair Leahy. Thank you very much. Senator Blackburn.
        Senator Blackburn. Thank you, Mr. Chairman, and thank you
    to our witnesses that are here in person and joining us
    virtually. I represent Tennessee, and as you probably are well
    aware, the auto industry is there. We have a lot of patent
    holders. In this, we have many individuals that have single
    patents. I think Ms. Asay, I want to come to you with this.
    Talk a little bit about the process that an examiner goes
    through when reviewing a single patent, and is that
    standardized, or are there noted outstanding issues and
    differences with the consistency of a patent quality? Because
    many of our people file and they have a single patent for a
    single process, especially when it comes to the auto industry.
        Then my follow-up on that would be, how can the USPTO best
    streamline the review process so that it is more consistent and
    so that individuals that do these single patent filings have an
    idea of consistency through the process?
        Ms. Asay. Thank you, Senator. I'll be quite upfront that
    I'm not an expert in the patent examination process. When we
    heard about the concerns that arose in Vermont, we really came
    at this from a consumer protection standpoint and tried to
    understand what was happening and why these demands were being
    made and how businesses could respond to them. I think, you
    know, what we kept hearings, over and over again, was the cost
    of patent litigation, how difficult it is, how expensive it
    would be, and the challenges that particularly small entities
    face on that end of it.
        I certainly agree that improving patent quality at the
    outset is an important step in preventing the kinds of problems
    that we were seeing on the other side, after patents have
    issued and are being used by nonpracticing entities. I would
    defer to the other witnesses to----
        Senator Blackburn. Okay.
        Ms. Asay [continuing]. Speak more to the examination
    process.
        Senator Blackburn. Mr. Garceran.
        Mr. Garceran. Yes, thank you. I would say we need to spend
    more resources into the USPTO because I think streamlining it
    would be difficult, whether it be for a single inventor or a
    big company that has multiple patents. I think it's--I think
    they're doing their best. I think that they're a little
    stretched for time. I think that one of the solutions would be
    increase resources to the USPTO so they can have better
    training, better standard training, so that everyone's
    operating kind of in a similar fashion, and there's not
    inconsistency between the examining force. I think that would
    go a long way.
        Senator Blackburn. Okay. Mr. Contreras.
        Professor Contreras. Yes, thank you, Senator. I mean, one
    thing that I know that the PTO does, and I would encourage them
    to do to an even greater degree is offer fee discounts for
    small inventors and small businesses. When we talk about fees
    and fee diversion, I completely agree with the sentiments of
    Senator Coons and Senator Tillis that we should give the PTO
    the resources it needs, but I do think that large companies can
    bear much of that burden, and we don't need to burden small
    inventors with this.
        That being said, I do think that we need to apply the same
    degree of scrutiny to inventions that are applied for by every
    applicant. It is the case that in some cases, patent assertion
    entities scoop up patents from small inventors with the promise
    of ready cash payment, so that they can then be----
        Senator Blackburn. Patent controls. Yes.
        Professor Contreras. In less complimentary terms, yes.
    We've heard about some of the problems that that creates.
        Senator Blackburn. Right, let me ask you this. Then, what
    about the two-tier system like Germany has, where you can get
    the petty patent, or the smaller patent, or the gold-plated
    patent? Talk a little bit about that and that impact.
        Professor Contreras. That's actually a really interesting
    idea, and a number of countries have this. Petty patents,
    utility models, they're called, where anybody can get it. In
    China, they do this, and, in fact, it's become de rigueur for
    college applications to the top Chinese universities that your
    child should have a few patents to put on their application to
    show just what a brilliant person they are.
        Those have some value, and a lot of industries, I can see
    value if you're trying--if it's a relatively straightforward
    industry, a mechanical device. We've had important patent cases
    revolve around things like key chains and tennis shoe designs.
    Absolutely. There's no need for the type of examination you
    would have for a drug or for a semiconductor device.
        I think this is certainly something that we should look
    into.
        Senator Blackburn. Thank you. Thank you, Mr. Chairman.
        Chair Leahy. Thank you very much, Senator Blackburn.
    Senator Hirono.
        Senator Hirono. Thank you, Mr. Chairman. Mr. Garceran and
    Mr. Lester, you both spoke about the need for the PTO to better
    enforce Section 112 in the examination process. Are there
    changes to the statute to Section 112 you think are necessary,
    or is it an issue of priority at the PTO as they do the
    application examinations?
        Mr. Garceran. I would say, in my opinion, it's a matter of
    prioritizing at the USPTO and making sure that they're doing
    that. It may be that the USPTO, and maybe the judicial system,
    needs some more explicit guidelines because Section 112 was not
    very long. It's just a few words. There is a lot of common law
    out there to explain what that means, and I don't see there
    being any problem with that common law, it just needs to be
    used in the examination process early on at the USPTO.
        Senator Hirono. For example, some of the factors that
    they're supposed to review, whether it's a patentable subject
    matter, anticipation, obviousness. Those are areas that maybe
    are easier for the examiner to ascertain, and maybe you would
    suggest that they prioritize the written description or the
    enablement parts of Section 112?
        Mr. Garceran. I think they can obviously do the prior art
    searching and things like that, and that's essential and needs
    to be done. You can look at a claim and if it's very broad in
    the way it's being applied, or there is--I think it just needs
    to be prioritized. I don't think it has to be done in every
    single case, but it needs to be done, especially when you're
    dealing with a very overly broad patent or something where it's
    clear that the whole scope of the patent may not be enabled
    here. I really need to push this issue if I'm an examiner.
        Senator Hirono. Is that the part that relates to the
    written description as being overly broad, or more attention
    should be paid to that aspect of a patent application?
        Mr. Garceran. It would be--I think both written description
    and enablement----
        Senator Hirono. Okay.
        Mr. Garceran [continuing]. Which they're very related----
        Senator Hirono. Yes.
        Mr. Garceran [continuing]. But I think it would apply to
    both.
        Senator Hirono. What about you, Mr. Lester? Do you agree?
        Mr. Lester. I completely agree. I believe that the Patent
    Office has the capability and the foresight to be able to do
    it, I think it just needs to be part of their process to take a
    look at the application when it's filed, look at what is trying
    to be claimed, and then look at the specification and say, is
    this really supported? I think that's something that can be
    done. If we have a very good Director in the Patent Office, he
    can set the parameters for it, and this would be an easy thing
    to implement.
        Senator Hirono. Maybe more resources to the PTO, such as--I
    think we're all in agreement that we should end the PTO fee
    diversion. For both of you once again, too often, efforts to
    address claims of so-called bad patents weaken patent rights.
    Innovators who paid their application fees and prosecuted their
    patents often, over a period of years, now have to survive
    sometimes multiple challenges before the PTAB before they can
    try to enforce their patents against infringers.
        I hear from many small inventors who are abandoning the
    patent system because getting a patent just isn't worth their
    time and investment. Both of your companies rely on patents to
    protect your investments and to prevent competitors from simply
    copying your respective technology. What have your experiences
    been with the PTAB?
        Mr. Garceran. I would say initially, a lot of the IPRs that
    were filed, you would get multiple IPRs against your patents,
    and it was a tactic that's used and a tactic that can be used
    very effectively if you're a small inventor who does not have
    the resources to pay for such serial IPRs or reexaminations.
    However, more recently in the last few years, I think the PTAB
    has been very good about if an IPR has been filed, they won't
    institute on some follow-on IPRs because they, I guess, caught
    wind of this. I've seen, at least anecdotally, my understanding
    is that PTAB has put an end somewhat to that practice.
        Senator Hirono. Would you agree, Mr. Lester?
        Mr. Lester. We've had a significant amount of experience in
    the PTAB with interparty reexaminations, and I've found that
    PTAB is extremely good at reviewing patents and providing well
    thought out evaluations of the validity. Right now, of the IPRs
    that are being filed, I believe only 50 percent of them are
    actually initiated, which shows that they're taking a very good
    look at the patents and the prior art that's being cited to
    determine if this should be really going forward or not.
        What I believe is happening is that when an entity files
    300 litigations, they will end up with a lot of IPRs filed
    against them. When you have an entity that is filing one
    litigation and pursuing their claims against somebody that
    practices in that field, most likely they're going to end up
    with one IPR. If that patent is valid, it's going to survive
    the IPR. It might not even get initiated, and I think that's
    the way the system really is intended to work. I think there is
    an issue with the abuse of the IPR really when there's a lot of
    litigation going on.
        Senator Hirono. Thank you. Mr. Chairman, with your
    permission, I'd like to ask just one short question for Ms.
    Asay. Vermont passed the first State law against bad faith
    patent assertion in 2013, and you were with the attorney
    general's office, and you testified that you looked at these
    issues, these kind of litigation from a consumer protection
    standpoint, and I think that is very appropriate for the
    attorney general's office to focus on. Since then, more than 30
    States have passed similar laws. What has been the impact of
    these laws been on stopping clear abuses of the patent system
    like MPHJ, Ms. Asay?
        Ms. Asay. I could not find any record that the Vermont law
    has been used yet, although it may have been and I just didn't
    find it. I did do some research to try to see how these laws
    have played out, and it looks like they've been asserted
    occasionally. I believe one of the other witnesses mentioned
    that their company may have used the North Carolina statute
    successfully, so he may have something further to say.
        In the research that I did, I didn't find a lot of evidence
    that the laws are being used that frequently and that the
    claims were surviving motion practice. As I said earlier, I do
    see that the State of Washington has recently filed a new
    lawsuit that does rely in part on a statute like that out in
    the State of Washington. Perhaps there will be some further
    litigation.
        There have been questions raised about preemption of these
    statutes in a number of courts.
        Senator Hirono. When we were dealing with the issue of
    patent trolls and the hundreds, sometimes thousands of demand
    letters being sent to often small businesses who paid up, it
    seemed to me that it was really more a consumer protection
    issue, and that is why the Stronger Patents Act, a bill I've
    cosponsored in multiple Congresses include provisions that
    would similarly police bad faith patent assertion. Thank you,
    Mr. Chairman.
        Chair Leahy. Thank you very much. Senator Tillis, you said
    you have no further questions. We'll keep the record open for a
    week for questions from Members of the Committee.
        I want to thank everybody who appeared personally and
    virtually. This is a complex subject, but it's one where, I
    think, we have some pretty common concerns, and I appreciate
    all of the advice we got here today. Thank you very much.
        Also when you view your testimony, if any of the people who
    testified find that there was something they wanted to add to
    it, please do so, and we'll include that in the record.
        Thank you. Senator Tillis.
        Senator Tillis. Just briefly, two things. I walked over to
    your staff before we started the hearing to thank them for the
    positive feedback I'm getting from my staff and working
    together on this. I consider this a journey. I'm not a patent
    attorney. I'm a management consultant. I think we have a
    problem, and it involves people, technology, and
    infrastructure. We welcome your feedback. Consider this a
    dialog, not just a once and done encounter and working with--I
    think I speak for the Chair in working with both of our offices
    on good ideas for legislation as it moves forward. Thank you,
    Mr. Chair.
        Chair Leahy. Thank you. Over the years, I've learned far
    more about patent law than I ever did in law school, or in
    practice, or from the days when I was a prosecutor. I've been--
    found very helpful some of the things that Ms. Asay has done in
    Vermont, but I found it very helpful the testimony from
    everybody here, so thank you very much. Maybe we should do a
    hearing in Durham and one in Montpelier.
        [Laughter.]
        Thank you. Thank you all. We stand in recess.
        [Whereupon, at 3:59 p.m., the hearing was adjourned.]
        [Additional material submitted for the record follows.]

                                A P P E N D I X

    Miscellaneous submissions:

     Alliance For Automotive Innovation...............................   143

     Coalition Against Patent Abuse (CAPA)............................   127

     Engine...........................................................   122

     United for Patent Reform (UFPR)..................................   125

     United Inventors Association (UIA)...............................   145

     USMADE...........................................................   148

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