[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
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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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