[Senate Hearing 117-152]
[From the U.S. Government Publishing Office]


                                                         S. Hrg. 117-152

                       PRIDE IN PATENT OWNERSHIP:
                 THE VALUE OF KNOWING WHO OWNS A PATENT

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

                                HEARING

                               BEFORE THE

                     SUBCOMMITTEE ON INTELLECTUAL  
                                 PROPERTY

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            OCTOBER 19, 2021

                               __________

                           Serial No. J-117-41

                               __________

         Printed for the use of the Committee on the Judiciary
         
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                       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

        .........................................................

                 SUBCOMMITTEES 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

                              ----------                              

                      OCTOBER 19, 2021, 2:48 P.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     1

                               WITNESSES

Witness List.....................................................    22
Feldman, Professor Robin, Arthur J. Goldberg Distinguished 
  Professor of Law; Director, Center for Innovation, University 
  of California Hastings Law, San Francisco, California..........     7
    prepared statement...........................................    31
Kappos, Hon. David J., former Director, United States Patent and 
  Trademark Office; partner at Cravath, Swaine & Moore LLP, New 
  York, New York.................................................     9
    prepared statement...........................................    36
Rives, Abigail, IP Counsel, Engine, Washington, DC...............     5
    prepared statement...........................................    23
Stabinsky, Allon, senior vice president; Chief Deputy General 
  Counsel, Legal Department, Intel Corporatin, Santa Clara, 
  California.....................................................     3
    prepared statement...........................................    44

                               QUESTIONS

Questions submitted to Professor Robin Feldman by:...............
    Senator Leahy................................................    55
    Senator Tillis...............................................    58
    Senator Blackburn............................................    62
Questions submitted to Hon. David J. Kappos by:..................
    Senator Tillis...............................................    61
    Senator Blackburn............................................    63
Questions submitted to Abigail Rives by:.........................
    Senator Leahy................................................    56
    Senator Tillis...............................................    59
    Senator Blackburn............................................    64
Questions submitted to Allon Stabinsky by:.......................
    Senator Leahy................................................    57
    Senator Tillis...............................................    60
    Senator Blackburn............................................    65

                                ANSWERS

Responses of Professor Robin Feldman to questions submitted by:..
    Senator Leahy................................................    66
    Senator Tillis...............................................    67
    Senator Blackburn............................................    67
Responses of Hon. David J. Kappos to questions submitted by:.....
    Senator Tillis...............................................    70
    Senator Blackburn............................................    74

Responses of Abigail Rives to questions submitted by:............
    Senator Leahy................................................    76
    Senator Tillis...............................................    83
    Senator Blackburn............................................    90
Responses of Allon Stabinsky to questions submitted by:..........
    Senator Leahy................................................    94
    Senator Tillis...............................................    96
    Senator Blackburn............................................    98

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

Opening Remarks from Senator Tillis..............................   100

 
                         PRIDE IN PATENT OWNERSHIP: 
                   THE VALUE OF KNOWING WHO OWNS A PATENT

                              ----------                              


                         TUESDAY, OCTOBER, 2021

                               United States Senate
              Subcommittee on Intellectual Property
                                 Committee on the Judiciary
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 2:48 p.m., in 
Room 226, Dirksen Senate Office Building, Hon. Patrick J. 
Leahy, Chairman of the Subcommittee, presiding.
    Present: Senators Leahy [presiding], Coons, Hirono, 
Padilla, and Blackburn.

          OPENING STATEMENT OF HON. PATRICK J. LEAHY,

            A U.S. SENATOR FROM THE STATE OF VERMONT

    Chair Leahy. Sorry for the delay. As you could see by the 
lights in the back, we've been voting and, unlike the other 
body, we don't do proxy voting. That's where I was.
    I also note I also talk for Senator Tillis this morning. He 
has, along with others in his family, suffered from a stomach 
flu and they told him to stay home. He said that he had no 
objection to going forward with this hearing.
    He and I work very closely together. We both agree that our 
patent system would be improved by requiring more transparency 
in patent ownership. That's why we introduced the Pride in 
Patent Ownership Act. I do want to praise Senator Tillis 
because of his hard work and his staff's hard work in this 
because we know the most fundamental underpinning of our patent 
system is transparency.
    In exchange for limited exclusive rights, inventors 
disclose their intention to the public benefiting society as a 
whole. Same fundamental principal disclosure should extend to 
ownership information about a patent. Today, there's no 
requirement that ownership information be publicly available 
after a patent issues.
    The bill that Senator Tillis and I have put in is very 
simple. It's very straightforward. It requires the patent 
owners to record updated ownership information with the patent 
office when a patent changes hands. The information will be 
made publicly available and searchable in a data base 
maintained by the Patent Office. To ensure compliance, the bill 
provides the patent owners who fail to record ownership 
information in a timely manner can not obtain enhanced damages 
for the period in which the information was not recorded.
    Our bill also requires the disclosure of government funding 
of patent application maintenance fees, language that came at 
the suggestion of one of our witnesses today, former Patent 
Office Director Dave Kappos who is here with us.
    This is important legislation for a number of reasons. Many 
of us in both parties on this Subcommittee have heard horror 
stories about small businesses, entrepreneurs being forced to 
engage in costly litigation just to discover who exactly is 
accusing them of patent infringement and other claims. That 
shouldn't be the case. You shouldn't have to drain resources 
into expensive litigation just to discover who's suing you. And 
the lack of clarity about patent ownership information also 
brings about inefficient licensing discussions. They are 
important issues to solve, and, of course, they're not the only 
reason we should pass this bill.
    We are continuing to see that the competitiveness of 
American companies is at stake. Today, we know that 52 percent 
of U.S. patents are issued not to American companies, but to 
foreign entities. What we don't know is what happens to patents 
after they issue. It's critical information. Competitors like 
China are making serious efforts to increase their holdings of 
U.S. patents. In fact, China recently directed its centrally 
owned enterprises to double their holdings of U.S. and other 
foreign patents by 2025--to double them.
    Over the last 2 years, Huawei received an estimated $1.2 to 
$1.3 billion in patent licensing fees from an unknown number of 
patents covering an unknown array of technologies. As America 
positions itself to compete with China over the technologies 
that will drive our future such as 5G, we simply have to know 
how much of that intellectual property is in the hands of other 
countries. Greater transparency in patent ownership can play a 
vital role.
    In the efforts of our competitors are taking to gain an 
economic edge over us. That's why Senator Tillis and I first 
proposed this legislation as an amendment to the U.S. 
Innovation Competition Act earlier this year. At the time, we 
worked with Members of this Subcommittee and Chair Durbin to 
reach an agreement on language that was ultimately cleared for 
inclusion that bill manages to package.
    While that package was not adopted, I appreciate the good 
faith efforts of the Chair and others to work with us, find a 
solution that would result in greater transparency. Of course, 
since that time, we worked closely with stakeholders to make 
improvements to the bill. That resulted in the legislation we 
introduced last month. As we consider this legislation, I 
welcome input from the patent community, and from Members of 
this Subcommittee.
    In fact, hearing from stakeholders is part of the reason I 
was able yesterday to release Appropriations Committee language 
to ensure the Patent Office will be able to access all the fees 
it collects after an unfortunate proposed reduction in the 
Patent Office's budget for the coming fiscal year.
    What we want to do is arrive at an end product. We want 
something that might provide the Patent Office access to all 
the fees it collects, get strong support on both sides of the 
aisle, shine more light on patent ownership. I've long believed 
we should hear what everybody else wants to hear--say, and 
that's why I look forward to hearing our witnesses today. I 
think transparency is a core tenant, not just in our patent 
system, in our democracy itself. I've worked with Republicans 
and Democrats to improve that.
    I hope we can bring a little more transparency with this 
hearing. I know Senator Tillis, as he told me just a few 
minutes ago, had looked forward to being here to discuss the 
bill. I appreciate his and Ranking Member Grassley's 
willingness to say go ahead and continue even though they have 
to be absent. Of course, I will talk with both once we're done.
    Our first witness, who I believe is going to be appearing 
virtually--am I correct?--will be Allon Stabinsky, the senior 
vice president and chief deputy general counsel of the Law and 
Policy Group at Intel. Mr. Stabinsky leads the Intel Legal 
Department, an organization of approximately 500 legal 
professionals.
    He had been director of patent litigation, served in 
several deputy general counsel roles, also practiced at the law 
firm Latham & Watkins, received his bachelor's degree from the 
University of Colorado, his law degree from the University of 
California, Hastings College of Law. Mr. Stabinsky, if you're 
on, let's go ahead.

               STATEMENT OF MR. ALLON STABINSKY,

        SENIOR VICE PRESIDENT, AND CHIEF DEPUTY GENERAL

         COUNSEL, LEGAL DEPARTMENT, INTEL CORPORATION,

                    SANTA CLARA, CALIFORNIA

    Mr. Stabinsky. Good afternoon. Chairman Leahy and Members 
of the Committee, thank you for the opportunity to address this 
important topic.
    Right now, the American public has no way of knowing who 
the true owner of a patent is. This lack of transparency gives 
an advantage to opportunistic bad actors who are weaponizing 
our patent system and leaving American businesses and inventors 
vulnerable to attack.
    The current imbalances in our patent system undermine 
American innovators and expose the U.S. to economic and 
national security risks. The Pride in Patent Ownership Act is 
an important step to restore balance to our patent system.
    Intel routinely places in the top 10 annually of worldwide 
spenders in research and development and in the number of 
patents granted by the United States Patent Office. We're 
incredibly proud to be a leader in innovation and proud to let 
the world know that we are clearly listed as the owner of our 
patents. Public disclosure is the bedrock of our patent system. 
Just as a patent must disclose the claimed invention to the 
public, so too should it disclose who actually owns the patent.
    Intel is the only leading-edge U.S. semiconductor company 
that both develops and manufactures its own technology. We have 
many semiconductor factories in the United States, and we're 
currently expanding our manufacturing footprint. We directly 
employ more than 52,000 people in the United States, and our 
broader economic impact supports over 721,000 jobs across the 
country, contributing over $102 billion to the U.S. GDP in 
2019.
    Greater transparency in patent ownership will result in 
numerous benefits to the public and our innovation economy. 
Today, I want to focus on one of those benefits: combatting the 
rise of investor-funded litigation and the mass aggregation and 
weaponization of patents by investment entities, often foreign 
entities, against American companies.
    The integrated circuit was invented in the United States 
over 60 years ago, and for decades, America let a vibrant 
worldwide industry of dozens of semiconductor manufacturers. 
However, as the complexity and cost of semiconductor 
manufacturing has skyrocketed, many companies exited the 
industry. Today, there are only three leading-edge 
manufacturers left in the world. Intel is proud to be the sole 
leading-edge semiconductor producer left here in the United 
States.
    However, the companies that exited the industry or ceased 
manufacturing possessed vast arsenal with tens of thousands of 
patents that they no longer need to protect their own 
businesses. These patents are scattering to the wind, going to 
the hands of well-funded professional litigants around the 
world who target successful domestic industries with the 
objective of securing outsized financial returns. It is a 
perverse result that the patents which were intended to promote 
innovation are now being used to stifle American innovation and 
investment.
    The scale of this phenomenon is absolutely staggering, and 
yet the flow of patents between owners is essentially a black 
box due to the current lack of transparency in who actually 
owns the patent. Abusive patent litigation is not limited to 
the semiconductor industry, and it impacts companies small and 
large in virtually every industry.
    While the U.S. legal system is intended to dispense 
justice, hedge funds and other players in the rapidly growing 
industry of litigation funding have used loopholes in our legal 
system to hijack our courts as a tool for securing outsized 
investment returns at the expense of legitimate American 
businesses and innovators. They're buying massive numbers of 
low quality, overly broad patents from failed or bankrupt 
companies, acquiring distressed assets for pennies on the 
dollar.
    They use sophisticated investment diversification 
strategies to deploy waves of predatory demand letters and 
lawsuits against small companies. Then they then use the 
proceeds from those campaigns to fund, high-dollar, get-the-
company lawsuits against big companies. For these investment 
entities, lawsuits aren't a byproduct of their business. The 
lawsuits are the business.
    The lack of transparency also poses a clear risk to 
economic and national security. Foreign competitors acting 
through a sovereign wealth fund or a private-sectored entity 
like a foreign hedge fund are making targeted investments in 
litigation funding, undermining critical U.S. industries like 
semiconductor manufacturing. Indeed, Intel has been the victim 
of patent lawsuits filed by mass aggregators supported by both 
foreign governments and by foreign investment entities who also 
own our competitors.
    Investment-driven patent litigation has moved from being a 
nuisance to a menace, and we need to take action now. While the 
Pride in Patent Ownership Act won't solve all these problems, 
it will go a long way toward helping us identify the scope of 
the problem, and it's a necessary first step in reigning in 
these abuses of our legal system that hamper our economic 
growth and harm our national security.
    Thank you again for allowing me to testify before your 
Committee today, and I look forward to answering any questions 
the Committee may have.
    [The prepared statement of Mr. Stabinsky appears as a 
submission for the record.]
    Chair Leahy. Thank you very much. We'll go through all the 
witnesses, then I'll ask questions.
    Ms. Abigail Rives is the Intellectual Property Counsel at 
Engine. It's a nonprofit focusing on research policy analysis 
and advocacy.
    I understand you work with thousands of startups across the 
country. Prior to joining that, Ms. Rives was an associate at 
an international law firm where she represented both defendants 
and plaintiffs in patent and trade secret disputes. She 
received her law degree from Emory University School of Law, 
and as I know, she worked on the Federal Circuit.
    Please go ahead.

                STATEMENT OF MS. ABIGAIL RIVES,

               IP COUNSEL, ENGINE, WASHINGTON, DC

    Ms. Rives. Thank you, Chairman Leahy, and Members of the 
Subcommittee for inviting me to testify today. Engine is a 
nonprofit----
    Chair Leahy. Bring the microphone just a little bit----
    Ms. Rives. Can you hear me? Is that better?
    Chair Leahy. Oh, yes. There you go.
    Ms. Rives. Oh, thanks. Thank you for inviting me to testify 
today.
    As you noted, Engine is a nonprofit that bridges the gap 
between policymakers and thousands of high-tech, high-growth 
startups across the country through research, policy analysis, 
and advocacy.
    Right now, there is a lack of transparency and patent 
ownership that has opened doors to abuse that harms startups 
and small businesses. Bringing greater transparency would 
discourage abuse, reduce wasteful spending, equip startups with 
valuable information, and inform innovation policy. Your 
efforts to promote transparency will contribute to a patent 
system that works for all stakeholders, including startups 
across the country, and the broader public.
    Starting off with one startup's experience, Ken Carter, 
general counsel at Bitmovin, recently told me about their first 
experience with a patent assertion entity. He said, ``While we 
did our homework, the truth is that we got lucky, because by 
chance, we interviewed an attorney who knew the owner behind 
the LLC suing us. This attorney had litigated against a 
different LLC controlled by the same person. Being able to link 
the two entities gave us what we needed to respond in a way 
that got the lawsuit almost immediately dismissed.''
    Bitmovin CEO Stefan Lederer added, ``If that lawsuit had 
come 6 months earlier or 18 months later in the middle of a 
fundraise, it could have been an end-the-company event because 
no venture capitalist wants to invest in a company being 
extorted by trolls.''
    Public notice is central to the bargain of our patent 
system. Patent ownership should not be an exception. Indeed, 
startups stand to benefit when others know with confidence that 
they own high-quality patents.
    As Rachael Lamkin, an IP attorney with almost two decades 
of experience representing early stage tech companies and small 
businesses put it, ``When someone starts a company, we get to 
see who owns it. It is a very odd thing that you have owners of 
a Government-granted patent right, yet no one can see who owns 
that.''
    Likewise, when it comes to things like patent clearance, 
licensing, and litigation, the details of who owns what are 
critical. As Jean Anne Booth, CEO of UnaliWear, a med tech 
startup that advances safety and independence for vulnerable 
populations, recently told me, ``The whole purpose of patents 
is that you are putting information out there so others can 
learn from it, build from it, license it. If you could actually 
reach out to someone with a patent and tell them, ``Hey, I want 
to pull your great idea into the work I am doing,' as opposed 
to waiting for them to find and sue you.''
    Importantly, abusive patent litigants can do more damage to 
startups when they conceal information about patent ownership 
and control. First, hiding behind shell companies is a common 
tactic that enables abusive patent assertion. An example can 
help illustrate this.
    In 2012, Project Paperless was sending letters to small 
businesses across the country. Based on a claim that anyone 
using an off-the-shelf scanner infringed, Project Paperless 
wrote demanding about $1,000 per employee. But a few companies 
realized they were in the same boat and decided to fight back.
    Websites like Stop Project Paperless popped up. That site 
provided details about likely end validity of the patents, the 
assertion campaign, and the attorneys behind it. From then on, 
someone who received a demand from Project Paperless was only a 
few clicks away from learning these were dubious accusations. 
Project Paperless then unloaded its patents into a newly 
created holding company, MPHJ. Instead of sending over 16,000 
demand letters on its own letterhead, small businesses were 
hearing from AccNum, AdzPro, InterPar, or one of MPHJ's more 
than 80 newly created shell companies.
    While public awareness would make it harder for this 
campaign to continue under the Project Paperless name, once 
there were dozens of new names, the same patents and 
accusations could carry on, even though the MPHJ patents 
asserted in those cases were later found invalid by the PTO.
    We just heard many others engage in similar tactics today 
of obfuscation, including massive hedge funds that are funding 
patent assertion entities and creating shell companies for 
assertion. Anonymity is enabling abusive tactics that 
prioritize volume and disregard the merits. Knowing who is 
behind those assertions would be useful to small business in 
the court of public opinion and beyond.
    Second, concealing patent ownership helps patent assertion 
entities avoid liability for vexatious behavior. For example, 
with fee shifting, plaintiffs litigating very weak cases in an 
unreasonable manner are affectively judgment-proof if they file 
cases through shell companies. This tactic also helps avoid 
consequences under State laws enacted to address abusive 
assertion.
    Vermont and North Carolina are among the many States that 
have passed such laws, but those only work if you can see who 
is in violation. The State of Vermont received complaints from 
businesses and nonprofits, which prompted it to sue MPHJ. A 
North Carolina packaging company is currently suing Landmark, 
alleging baseless assertion of infringement against it and 
other small companies. Simply put, allowing bad actors to hide 
patent ownership enables abusive conduct and frustrates the 
ability to deter baseless litigation.
    Third, as I've detailed in my written testimony, lack of 
clarity around ownership creates protracted headaches around 
standing, which can drive litigation costs further out of reach 
for startups. Defending even a lower stakes assertion entity 
case costs about $1.8 million, which is more than the average 
seed-stage startup raises to cover its entire operations for 2 
years.
    To sum up with another reflection from Ken Carter, this is 
the type of law we needed 3 years ago. This information would 
give us some of the tools we need to protect ourselves from 
low-quality patent assertions. Thank you again for inviting me 
to testify today. We very much appreciate your efforts to bring 
greater transparency to the system and are grateful you're 
giving tech startups a seat at the table.
    [The prepared statement of Ms. Rives appears as a 
submission for the record.]
    Chair Leahy. Would you just repeat that $1.8 million figure 
again?
    Ms. Rives. Yes. Just defending against a lower stakes 
assertion entity case costs $1.8 million. Our research shows 
that the average seed-stage startup raises $1.2 million to 
cover its entire expenses for 2 years. That's a pretty wealthy 
startup.
    Chair Leahy. Thank you very much. Our next witness, 
Professor Robin Feldman, is the Arthur J. Goldberg 
Distinguished Professor of Law and the Albert Abramson 1954 
Distinguished Professor of Law Chair at the University of 
California Hastings Law, where she's also the director of the 
UC Hastings Center for Innovation.
    The professor has published four books, more than 70 
scholarly articles. I know she's testified Congress before. She 
had her testimony of congressional record cited by the White 
House and various governmental reports. She received her 
bachelor's degree from Stanford University, a law degree from 
Stanford Law School, and clerked on the Ninth Circuit. 
Professor, please go ahead.

        STATEMENT OF PROFESSOR ROBIN FELDMAN, ARTHUR J.

          GOLDBERG DISTINGUISHED PROFESSOR OF LAW, AND

         DIRECTOR, CENTER FOR INNOVATION, UNIVERSITY OF

       CALIFORNIA HASTINGS LAW, SAN FRANCISCO, CALIFORNIA

    Professor Feldman. Mr. Chairman, esteemed Members of the 
Committee, it's an honor to be here today.
    Mr. Chairman, as you pointed out in the opening of this 
hearing, American capitalism is founded on the preset that 
markets should be open and free. In this spirit, and going all 
the way back to the First Patent Act of 1790, Congress 
determined that notice and disclosure are essential tools for 
encouraging innovation and making innovation markets fair, 
transparent, and efficient.
    Patents are quintessentially a notice system. If you want 
to make a product, you're supposed to be able to look through 
the patent office files, find any patent rights that might be 
implicated, and then show up on the patent holder's door, hat 
in hand, asking for a license. You are not expected to dance in 
the dark. When a patent holder provides that information, it's 
part of the quid pro quo for receiving this extraordinarily 
valuable patent from the Government in the first place.
    Over the last 15 years however, patent markets have begun 
to resemble the Wild West with no sheriff in sight. So, new 
types of large and complex entities have appeared on the scene, 
some of which hold their patents in thousands of different 
shell companies in order to hide ownership and avoid liability. 
These shell companies exist in hidden network relationships 
with the parent company. The problem is it makes it very 
difficult for those who receive a patent demand to challenge 
the validity of the underlying patent. If you can't figure out 
who controls a patent, you can't bring them into court.
    In addition, many ordinary companies now place their 
patents in foreign subsidiaries as a tax avoidant strategy. 
Given the scramble to create shell companies, limited liability 
companies, foreign subsidiaries, basic information about patent 
ownership and control is getting lost in the stampede. To put 
it very simply, shell games in hide-and-seek rarely make for a 
fair and efficient marketplace.
    A company doesn't have to be a massive entity to wreak 
havoc on unsuspecting people and small businesses. Working with 
just five patents, one company created more than 100 
subsidiaries, sending thousands of demand letters to small 
businesses. When the target is a small player like that who has 
very little knowledge about the patent system, it can end up 
making multiple payments to what's essentially the same entity 
when it already holds a license, or it may not have needed to 
take a license in the first place. A small business just can't 
afford to spend a fortune playing detective, and the patent 
system shouldn't ask them to do so.
    It's even more challenging for those who are trying 
proactively to do the right thing, for example, trying to 
understand if they need a license and whom to approach, they 
cannot rely on Patent Office information because, as my 
research has shown, patent holders are able to transfer 
ownership without full and timely disclosure.
    Even when ownership information is available, that's just 
the tip of the iceberg because patent owners can transfer 
enough of the right for someone else to assert the patent 
without formally transferring ownership; thus, understanding 
the money flow can be an essential part of understanding who is 
actually in control. We have similar issues that come up with 
stock ownership, and we know how to solve them. We should be 
able to find analogies here as well.
    Transparency is particularly appropriate here because 
patents are Government-conferred grants. Society should never 
tailor a government system in a way that encourages information 
asymmetry and economic distortion. Of course, processes that 
allow people to take advantage of and dupe the small player are 
inconsistent with the fundamental goals of the American patent 
system.
    Finally, information on the identity of who holds interest 
in patent rights is important from another societal perspective 
because, currently, we have no way of knowing the extent to 
which foreign entities control our intellectual capital. These 
are the crown jewels of our country's economic system, and it 
would hardly be in the Nation's interest if our intellectual 
capital becomes largely controlled outside the country. And 
yet, we have no way to know if that's the case.
    In short, as Justice Brandeis once famously said, 
``Sunlight is the best of disinfectants.'' I look forward to 
answering your questions. Thank you.
    [The prepared statement of Professor Feldman appears as a 
submission for the record.]
    Senator Leahy. Thank you, Professor. I think you'll find 
very strong support across the board and in our Committees 
about concerns of our patents being held overseas, no matter 
what the country is. We know of at least one country that's 
trying very, very hard to corner the market.
    The next witness, David Kappos, a partner at the law firm 
of Cravath, Swaine & Moore, but for this--especially for this 
Committee, 2009, 2013, he was Undersecretary of Commerce, but 
Director of also the U.S. Patent and Trademark Office. I know I 
spent a great deal of time with him as we were writing and 
implementing the Leahy-Smith America Invents Act, which is the 
first real overhaul all of our patent laws in about 50 years. 
Of course, he spent, prior to his service in government, 25 
years at IBM and various executive posts in the company's legal 
department.
    Bachelor's degree from the University of California Davis, 
law degree from the University of California Berkley. I think 
most of us know him very, very well. It's good to have you here 
again, Director. Go ahead.

      STATEMENT OF HON. DAVID J. KAPPOS, FORMER DIRECTOR,

         UNITED STATES PATENT AND TRADEMARK OFFICE, AND

            PARTNER AT CRAVATH, SWAINE & MOORE LLP,

                       NEW YORK, NEW YORK

    Mr. Kappos. Good afternoon, Chairman Leahy, and Members of 
the Subcommittee on Intellectual Property. Thank you for 
introducing this legislation and for offering me the 
opportunity to provide my views on patent ownership and funding 
transparency. I am testifying today solely on my own behalf.
    Patent ownership transparency is a topic that I have been 
keenly interested in going back to when I was in corporate 
practice and found it frustrating to discover patents my client 
may have been licensed to, or may have wanted to seek a license 
under, but not knowing who owned them. The issue has become 
more acute in the intervening years. There's a new issue: State 
actors paying for the filing of patents that may exclude 330 
million Americans from access to technology without visibility 
to those actors.
    When I was at the USPTO, we studied patent ownership 
transparency, initiating outreach on actions for the Government 
to increase transparency. In the years since, I have 
participated in a global effort to increase patent ownership 
transparency through a UK-based nonprofit called ORoPO. ORoPO 
member companies voluntarily disclosed their ownership 
interests in patents.
    This global effort recognizes that patent ownership 
transparency is a problem impacting innovation worldwide, and 
participation by major companies in ORoPO demonstrates that it 
is possible without major burden for patent owners to make such 
disclosures.
    I'm pleased to see this legislation signaling that the time 
has finally come for patent ownership transparency, and I'm 
pleased to see the U.S. leading. This is an opportunity for us 
to once again set the gold standard for the global IP system.
    Turning to the legislation itself, it covers the essentials 
well. Requiring disclosure of ownership interests and patents 
will enable the public to understand who owns what, whether 
those owners are domestic or foreign, small, or large. I 
applaud the disclosure requirements for patent filings funded 
by government actors and the paired grant of authority to the 
USPTO enabling it to ensure we understand the extent of foreign 
government actor influence on our patent system.
    I especially like having the USPTO determine what creates 
an interest requiring disclosure. Given the need to reach 
beyond mere ownership and address control, not necessarily 
cabined to ownership, the approaches used by CFIUS and others 
who have previously considered these issues will be beneficial.
    The above being said, I'd like to now discuss some aspects 
of the bill that can benefit from further refinement. Crafting 
consequences for noncompliance is challenging. But the penalty, 
loss of recovery for willful infringement, doesn't seem 
connected to the requirement. It has the unfortunate 
consequence of rewarding the most egregious infringers with a 
windfall. If the willful infringement penalty is retained, one 
approach in seeking balance and fairness is to require the 
willful infringer to show it was actually prejudiced by the 
lack of disclosure before receiving the benefit of relief from 
willful infringement consequences.
    It would also be constructive to consider positive 
incentives in addition to negative ones. My experience with 
patent holders is that the vast majority operate in good faith 
and respond conscientiously to positive incentives. We focused 
in recent years on penalties for patentees on the presumption 
that patentees are the main abusers of the patent system. We 
should move to a balanced posture, recognizing that parties on 
all sides of the system engage in strategic behavior and plenty 
of copyists take advantage of weakened patent rights to 
infringe valid patents.
    Instead of only penalizing those who do not record, the law 
could also reward patentees for recording ownership. While it 
is appropriate for the USPTO to devise implementation details, 
it is important for the bill itself to provide a north star for 
the agency specifying--or specifics regarding the policy 
objectives and the purpose for the PTO's implementation. This 
will ensure mission clarity at the USPTO as it defines certain 
rights and interests in a patent triggering recordation.
    Chairman Leahy, Members of the Subcommittee, the time has 
finally come for patent ownership transparency. If helpful, I'd 
be pleased to assist the Committee as it refines the bill. 
Thank you again for your efforts in this legislation, and I 
look forward to addressing your questions.
    [The prepared statement of the Mr. Kappos appears as a 
submission for the record.]
    Chair Leahy. Thank you all very much.
    Let me begin, Ms. Rives, with you. The Pride in Patent 
Ownership Act has a remedy that may tend to encourage patent 
owners to comply without unduly punishing mistakes. When the 
patent owner has not registered her or his ownership, enhanced 
damages are not available in later litigation but only for the 
window of time in which the ownership was not registered.
    How often--my question is how often do courts grant 
enhanced damages now, and is there remedy and windfall for 
willful infringers or a reasonable consequence of failing to 
give the information about a patent?
    Ms. Rives. Thank you for the question, Senator. To the 
first part of your question, I looked at a study recently that 
found that, over the last 5 years, of the thousands of court 
cases filed in district courts across the country, only 158 of 
those decisions even considered willfulness and enhanced 
damages. Of those, only 31 total had awarded enhanced damages. 
It's a very, very small number.
    To the broader part of your question, I think that the 
proposed remedy here is a reasonable and balanced one. I think 
there's something very logical because what we're concerned 
about with willful damages is that somebody knew about the 
patent and knew what they were doing and did it anyway. If 
there's a lack of information about who owns the patent rights, 
it kind of melts away some of the fundamental underpinning of 
willfulness.
    I will also note that, of course, with the Pride in Patent 
Ownership Act, the patentee would still be able to seek 
reasonable royalties and lost profits and be able to made 
whole. It's really just giving up that ability to push damages 
higher because it failed to make a public disclosure under the 
act.
    Chair Leahy. Thank you. Professor Feldman, do you agree 
with that?
    Professor Feldman. I do. Laws are only effective if there's 
a way to enforce them. There must be something that has at 
least a little bit of a bite. If the remedy is too complex and 
just sets off more litigation, it may not be helpful in the 
long run.
    Chair Leahy. You know, I think if you buy a house, actually 
buy a car, in most states, you know, the requirements, you got 
to record the transfer of ownership, who bought it and from 
whom. Shouldn't it be something analogous if we--during patent 
transfers?
    Professor Feldman. Absolutely. Houses, cars, shares of 
stock. If you transfer any of these assets, you're required to 
register that transfer of ownership with the Government. It's 
part of ensuring a fair and efficient marketplace. We should 
certainly have the same for the patent marketplace.
    Chair Leahy. Thank you. A question I have--a couple 
questions for both Mr. Stabinsky who is still on, I believe, 
and Mr. Kappos.
    Mr. Stabinsky, you've mentioned in your testimony lack of 
transparency poses a risk to our national and economic 
security. Companies in other countries can buy U.S. patents 
without any way for the public to know, so, I don't mean to 
keep pounding on the 5G network, but let's do so. We don't know 
the size of the royalties U.S. citizens will be paying to other 
countries to use basic American infrastructure.
    What are the consequences for American competitiveness if 
we don't have more insight into what type of patents are being 
bought up by foreign entities? And I'll start with Mr. 
Stabinsky.
    Mr. Stabinsky. Thank you for the question, Senator. The 
implications to American competitiveness are profound. Since 
you mentioned 5G, if you--there was a recent study looking at 
the top 5G patent holders. Amongst the top 10 patent holders, 
there's only one American company. The single country with the 
largest representation is China where four companies are there. 
Two out of Europe, one out of Japan. But like I said, 1 out of 
10 is an American company. You have to ask the question, who 
are those royalties going to be paid for?
    We've answered that half of the equation. They're going to 
be paid to foreign entities from American companies. And then 
we ask, well, who are those American companies? If we look in 
the smartphone industry, innovative companies like Apple and 
Google. If we talk about connected PCs, Dell, HP, Apple. We 
talk about connected cars increasingly happening here. We talk 
about Ford, General Motors.
    It's not just with respect to the standards patents where 
we talk about 5G and cell phones. We're seeing it firsthand in 
semiconductors, as I explained in more detail in my witness 
testimony, where we're seeing large amount of semiconductor 
patents being aggregated by foreign investment entities and 
foreign government-sponsored entities. They're coming to 
America, and they're taxing America's last standing leading-
edge manufacturer, Intel. The proceeds are going offshore, 
Senator. That's a profound implication for American 
competitiveness.
    Chair Leahy. I have other questions for the record, but I 
would just--one I would ask. Mr. Kappos, do you have national 
security concerns stemming from lack of transparency around 
patent ownership?
    Mr. Kappos. Yes. Thank you, Senator. I do. They come from a 
number of directions. One is, again, a lack of knowledge of who 
owns what patents makes it difficult to get licenses to them 
when you need to, to know how to challenge them, to know what 
your risks are relative to them.
    There's another component as well though that deserves 
mentioning, which is the possible instability of the funding 
source for the United States Patent and Trademark Office. One 
of the issues we face is with increasing numbers of filings 
coming from overseas funded by nation states, right? Those 
nation states typically will pay the cost to file a patent 
application, and to prosecute it, as you know, that's a 
subsidized cost. Normally, that's then recouped by maintenance 
fees that are paid in three, seven, nine years out. Those 
foreign governments don't pay the maintenance fee.
    In effect, they're taking a subsidy from the U.S. 
Government. Then they're not paying back the subsidy 
potentially leaving the U.S. Patent and Trademark Office with 
tremendous funding deficits going forward. That's another--an 
instability of the system that's going to come about here.
    Chair Leahy. I thought you'd be the one that would be 
familiar with that.
    Senator Blackburn has joined us, and please go ahead with 
your questions.
    Senator Blackburn. Thank you, Mr. Chairman. Thank you for 
this hearing.
    I have to tell you all, I was just on the phone--or not. I 
was doing a Zoom with some of our innovators in Tennessee, some 
of our creative community that primarily work in the music and 
film industry. Of course, intellectual property is a major 
issue with them, as you all can appreciate. Last week, I was up 
at a demonstration project we have at Oak Ridge, which is 
between University of Tennessee and the labs.
    Mr. Kappos, am I saying your name right, Kappos?
    Mr. Kappos. That's fine. Thank you, Senator.
    Senator Blackburn. I want to be sure I say it properly.
    Mr. Kappos. Okay. Kappos.
    Senator Blackburn. Kappos. Okay. That helps. Thank you.
    Let's talk about China. There's a lot of concern about the 
subsidy measures around Chinese companies. Then their directed 
investment into U.S. companies and a lot of concern around 
Huawei. Of course, Huawei's been criticized for their numerous 
yet low quality patent applications. How China infringes in 
this entire process is of tremendous concern to our innovators 
whether they are working on tool and die and next generation or 
new composites.
    What I'd like for you to do is describe Huawei's 
involvement in the U.S. patent system, including the 
approximate number of patents that they hold.
    Mr. Kappos. Thank you, Senator. That's a great question. To 
get to that level of detail, I would have to answer by going 
back and doing some research for you. I believe Huawei----
    Senator Blackburn. That would be great.
    Mr. Kappos. I'd be happy to do that. I could tell you 
directionally it's likely they own thousands of patents in the 
U.S.
    Senator Blackburn. Okay.
    Mr. Kappos. But I could follow-up.
    Senator Blackburn. That would be helpful because as I talk, 
you know, we have a significant auto industry in Tennessee. You 
have LG and SK that are both doing big investments in our State 
with batteries for electric vehicles. There is a good bit of 
concern around this and how China is trying to push into some 
of this lithium battery components. When you look at Huawei and 
the communication systems that are involved, people are really 
quite concerned about this and how they will capture that data, 
how they're going to really end up diminishing the value of 
U.S. held patents because they have infringed and done their 
own patent application.
    Let's see. Let me come--let me ask another question, the 
intellectual property issue. Let me go there because that is a 
problem for so many of our innovative industries. IP theft. IP 
theft and--is it Ms. Feldman? Yes.
    Professor Feldman. Yes, it is.
    Senator Blackburn. Let me come to you on that. Is this a 
major issue with the companies that you're in communication 
with, and what impacts do you see this having on businesses, 
especially businesses where they're stock and trade and their 
evaluation is held in intellectual property?
    Professor Feldman. Our ideas, our innovation, our 
intellectual capital, these are the crown jewels of the 
American economy. It is extremely important that those not be 
siphoned off overseas by others who are not observing 
intellectual property rules properly. I know administrations 
have worked very hard to try to bring greater--greater strength 
to bear on those issues, but it's tremendously important for 
American companies and for our economic stability.
    Senator Blackburn. Yes. Anybody else want to add something 
on the intellectual property theft?
    Mr. Kappos. I could just perhaps add that the fear that I 
have is these technology transfers like out of Tennessee in the 
lithium-ion battery space, they tend to be in one direction. 
The foreign company comes in. It learns a lot from Americans in 
Tennessee. It takes that technology back overseas, and we never 
see it again. It creates jobs and economic prosperity overseas. 
So that's I think where the concern in my mind goes as a kind 
of a tech drain that's occurring.
    Senator Blackburn. Yes. I think a lot of this happens 
through the talent program and China's talent program. They 
send people over, and then they take the ideas back and 
monetize those ideas, undercutting the innovators that actually 
did that work here. Tightening up who we let into our research 
universities is probably a big part of protecting our patents. 
Thank you all. Thank you, Mr. Chairman.
    Chair Leahy. Thank you, Senator. Senator Coons, you've 
certainly had a great deal of experience as Chair to all of 
this Committee. Go ahead.
    Senator Coons. Thank you, Chairman Leahy, and thank you to 
all of our witnesses.
    I do think it's an important conversation for us to be 
having today about ownership transparency, particularly with 
regards to ownership and the potential consequences of 
transfers in ownership in ways that disadvantage the United 
States. I do want us to also be mindful about not inadvertently 
harming U.S. inventors or innovators in the process. Making 
sure that we're not weakening patent rights or creating 
administrative pitfalls for their proper enforcement because I 
think we strengthen our global competitiveness, as you were 
just discussing with the Senator from Tennessee, when we find 
ways to advantage and strengthen the rights and opportunities 
for innovation here in the United States.
    Professor Feldman, let me start with you if I might. You 
testified about the costs and the burdens, the balance of 
equities in this bill. This bill, the current proposed 
mechanism is to penalize patentees who fail to timely record by 
precluding willful infringement damages, increased damages for 
willful infringement. One argument that has been made is that 
that rewards and encourages the very worst actors in the patent 
system, the most willful.
    Are there other ways we might provide appropriate 
incentives such as incentives for timely recordation?
    Professor Feldman. As I noted before, laws aren't helpful 
unless they can be enforced. Both positive and negative 
enforcement mechanisms, I believe, are helpful in the legal 
context. To cite an old adage, trust everyone, but cut the 
cards. We do need a way to hold people's feet to the fire.
    This bill has chosen an area which, as was discussed 
previously, I believe is connected to the notion of 
willfulness. Full--if there's not full information, it is 
difficult to hold someone willfully accountable if they don't 
actually have the information. And I believe it touches on a 
limited area of the patent litigation flow. I do believe some 
areas must be there in order to hold people accountable for 
their behaviors.
    In terms of the cost, I'd simply say that there are always 
costs in providing information for the market. Those costs pale 
in comparison to the costs of economic efficiency when we allow 
hide-and-seek to happen. Thank you.
    Senator Coons. Director Kappos, you also made a reference 
about encouraging recordation. I'd be interested in your 
thoughts on whether or not it's appropriate for there to be 
some opportunity to cure where there's been a purely 
administrative error that has led to a timely recordation.
    Mr. Kappos. Yes. Sure. Thank you, Senator Coons. Happy to 
address that.
    First, if I could just momentarily correct the record on 
the issue of willful infringement, willful infringement in the 
patent law has absolutely nothing to do with the owner of the 
patent. What's required for willful infringement is knowledge 
of the patent, not the owner of the patent. We just want to get 
the record straight there.
    In terms of other incentives, what I go to is opportunities 
to reduce maintenance fees and opportunities to reduce issuance 
fees.
    Senator Coons. You mean as a positive incentive toward 
timely recordation of the transfer of ownership?
    Mr. Kappos. Right. Right. Going then to your question 
directly, Senator Coons, there are any number of instances in 
which mistakes will be found. One place I see it is in M&A 
deals where, after a client acquires a university-owned patent 
or a startup company that maybe wasn't very careful about 
keeping track of its ownership interests, you discover in 
diligence problems that they had.
    We should provide a mechanism in this bill to go back and 
fix those things in good faith because the policy justification 
behind the bill, which I strongly agree with, is to keep the 
ownership records correct at all points in time. If that's the 
policy goal, you have to accept there will be mistakes. Things 
will change. We need to build into the bill the kind of robust 
mechanisms that enable and incent parties, acquiring parties, 
the original party, whoever, to keep the records clear.
    Senator Coons. My understanding is the Patent and Trademark 
Office reported I think it was 6 years ago that the average 
time for recordation was about 180 days for transactions being 
executed. That's about twice as long as proposed in the bill. 
What are your thoughts on what's an appropriate timeline for an 
expectation of recordation?
    Mr. Kappos. Right. I do think it probably needs to be 
longer than what it currently is. I recall the PTO statistics 
that show that it takes a while to record. I also see in the 
real world of transactions and putting these recordals in place 
that, many times, changes come about as result of larger 
transactions that have lots of moving parts in them. Becomes 
very difficult to record in a short period of time, much less 
if you're a small company or a startup and you don't have all 
the infrastructure in place.
    I would agree, Senator Coons, that providing some 
additional time makes sense.
    Senator Coons. Last question. Do you think there's 
sufficient clarity about what the contours are of the rights or 
interests that should trigger recordation? How do you think the 
Patent and Trademark Office might use discretion to delineate 
that?
    Mr. Kappos. Yes. That's really the key question. Two things 
there. Number one, I feel like as I mentioned before, some kind 
of a north star, some kind of policy contours need to be 
provided in the bill. Then, the hard work is for the U.S. 
Patent and Trademark Office, and they're going to need to get 
into the details. Does a relationship with an affiliate company 
trigger a recording requirement? That can get really 
complicated, and there are millions of those kinds of 
relationships. What about stock ownership? What about options? 
What about ROFRs, right to first refusal, right to first 
negotiation? There are myriad interests, exclusive licenses, 
sole and exclusive licenses, and we need to think through every 
one of those so that we could provide clarity so that parties, 
as you say in good faith, can know what they need to record, 
but they can also know what they don't need to record.
    Senator Coons. This will also make searching and clarity 
about chain of ownership and title and searching patent states 
more efficient in the future.
    Thank you. Thank you, Mr. Chairman, for your indulgence. 
Thank you for your testimony to all the Members of the 
Committee.
    Chair Leahy. Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman.
    I share the concern about the appropriate balance here 
because I think that we are all in favor of more transparency 
as to who owns the patent or even that there is a patent. I do 
have a concern about the fact that some could argue that we are 
letting the worst infringers, the willful infringers from the 
kind of liability that they should be exposed to.
    I understand that the Patent and Trademark Office already 
voluntarily accepts registration. How--what percentage do you 
think--this is for you, Mr. Kappos. What percentage of patent 
holders are registering their patents voluntarily?
    Mr. Kappos. There's a significant percent that register. 
While I don't have statistics in front of me, I would tell you 
from experience, there are already some pretty good incentives. 
It's well more than 50 percent. It's a large majority.
    Senator Hirono, the problem that we found when we've looked 
at the accuracy of that recording is it's pretty spotty. There 
are plenty of errors. That's why I definitely agree this bill 
is needed. The recordal needs to be accurate at all points in 
time, and it needs to be 100 percent. So, 80 percent, of that's 
what it is, that's not quite good enough.
    Senator Hirono. The Patent Office would have to add 
additional resources to be able to truly support the patent 
owner's registration efforts.
    Mr. Kappos. My sense is that while there would be some new 
tasks and some marginal new resources, the USPTO has got very 
sophisticated and capable IT systems. Since it's already got a 
recordal capability, the addition will be incremental in my 
view. It's got a budget of, as Senator Leahy was saying 
earlier, well over $4 billion. It can certainly manage standing 
up a new recordal system.
    Senator Hirono. Do you recommend to your clients that they 
register their patents?
    Mr. Kappos. Absolutely.
    Senator Hirono. You do that because it is actually to their 
benefit of the patent holders to do that.
    Mr. Kappos. Yes. You get advantages against subsequent 
recordals of interest from good faith purchasers.
    Senator Hirono. There are already incentives for the 
registration. The kind of system that this is putting in place 
where through some kind of clerical error or if you're a small 
patent holder, in fact, some of the discussion is that it takes 
some time to even have your registration shown--showing up as 
having been registered.
    Since we already have what I understand are incentives for 
registering, then why would we want to put in place a kind of 
what I would say not exactly a balanced situation if, through 
no fault of the patent holder, that their patent isn't 
registered, and somebody willfully infringes that patent, and 
that person cannot get enhanced damages?
    Mr. Kappos. Right----
    Senator Hirono. Isn't that going a little overboard?
    Mr. Kappos. Balance is certainly a challenge, and that's 
one of the things that I've testified on here. I do think there 
are ways to improve balance, including reserving the 
willfulness penalty for the most egregious parties who either 
flaunt the requirement or behave in fraud.
    I do think the current recordal system is--while it's got 
some incentives, they're clearly not strong enough to cause all 
parties to record.
    Senator Hirono. My question really is that we can talk 
about further incentives for patent registration, but is the 
incentive that if you actually can show that someone willfully 
infringed your patent that you're not going to get the sort of 
enhanced damages that you are going to need to show that you're 
entitled to? Is that the kind of incentive that you think is 
appropriate?
    Mr. Kappos. That's where I feel like the incentive isn't 
really very well-matched and would like to see and help with 
some more work to get the incentives to be more aligned.
    Senator Hirono. I tend to agree with you. I think that if 
somebody is willfully infringing a patent--and by the way, Mr. 
Kappos, isn't that kind of a high standard to show willful 
infringement?
    Mr. Kappos. It is a very high standard.
    Senator Hirono. Of all the cases that are brought, I have 
no idea what percentage of those cases that are brought against 
patent infringers that's shown to be a willful infringement. 
Perhaps the other two people testifying, if you'd like to weigh 
in.
    Ms. Rives. Yes. Thank you for the question, Senator. To 
your last point about the statistics, as I mentioned earlier, a 
paper written by Veena Tripathi in 2019 showed--counted over 5 
years, 158 district court decisions of the several thousand 
filed between 2013 and 2018 reached a final decision on willful 
infringement. Of those, only about 62 found willfulness, and of 
those, only 31 awarded enhanced damages. It's a very small 
number of the overall universe of patent litigation that gets 
to this question.
    Senator Hirono. Except that if you're one of those people 
who you were able to show willful--because that could just mean 
that to show willfulness is a very high standard, and 
therefore, not very many litigants can meet that standard of 
proof. It could mean that.
    Anyway, my point is that I think we can find maybe other 
kinds of incentives for registering which is something that I 
certainly would support more transparency in who is holding 
patents. Thank you, Mr. Chairman.
    Chair Leahy. Thank you very much, Senator. Senator Padilla, 
please.
    Senator Padilla. Thank you, Mr. Chairman, for holding this 
Subcommittee hearing. I'm thrilled to have such excellent 
California representation here today and extend a special 
welcome to Mr. Stabinsky and Professor Feldman.
    Colleagues, California is home to a wide range of thriving 
industries, academic centers, and millions of consumers who 
rely on a patent system that encourages innovation to flourish 
throughout our economy. You know, on the topic of today's 
hearing, there appears to be a general consensus that there 
should be enhanced transparency about patent ownership. After 
all, a patent is a government grant exchanged for the 
disclosure of adequate information about an invention. If 
someone else wants to make use of that invention, it should be 
easy to know who to approach.
    I'd first like to focus on how this issue impacts startups 
and smaller companies who often operate on a slim margins and 
have limited time and resources. It's important that we have an 
environment that allows them to successfully create and to 
compete.
    Ms. Rives, I'll begin with you. In your testimony, you 
highlighted that smaller companies and startups are 
particularly vulnerable to abusive patent practices when there 
is an asymmetry of information about the owner of a patent, and 
that our current system makes it difficult for startups to deal 
with patent clearance, licensing, and litigation. Would 
enhanced reporting obligations about patent ownership improve 
the ability of small businesses and startups to compete against 
larger businesses? If so, why?
    Ms. Rives. Thank you for the question, Senator. I think the 
answer to your question is yes. First, I think bringing greater 
transparency to the system, as you noted and I noted in my 
testimony, would reduce abuse of the system. We know that 
startups that face litigation from nonpracticing entities, 
patent assertion entities, suffer a great deal and can 
sometimes have to shut down.
    In addition, the ability to know who is accusing you of 
patent infringement can bring a great deal of value in terms of 
strategic response. Then, I would finally note that, in terms 
of competition, this greater--this greater ability to operate 
free from threats of abusive litigation and a reduction of that 
burden in the startup ecosystem, including in California, of 
course, would just bring greater vibrancy to smaller 
innovators.
    Senator Padilla. Appreciate that. But want to ask an 
important follow-up because I can, you know, hear folks who may 
disagree already. How can we be sure that additional reporting 
obligations aren't overly burdensome, right? That we don't go 
overboard by burdening small businesses and startups who seek 
to obtain or currently have patents?
    Ms. Rives. Yes. Thank you for the question. I think that's 
such an important question.
    First of all, this recording your ownership with the PTO 
isn't a substantial burden, and I'll go into that in a bit. As 
I noted, the transparency can reduce a lot of burden. We hear 
from tech startups all the time about burdens that they do 
face, and this just isn't on the radar.
    First, businesses have to comply with a lot of regulatory 
and legal requirements already. Transparency is very frequently 
a part of that, so they're used to participating in, for 
example, recording their business with the Secretary of State.
    Second, what we're talking about is updating information 
with the PTO. If you're assigning a patent right, you've 
already got a contract. You've papered that up. We're talking 
about telling the public that you entered into that contract. I 
went through the PTO's online system for uploading that 
information this weekend. It took me less than 7 minutes. 
That's what we're talking about here.
    Then third, there are very real barriers to entering in the 
patent system, and I would be very happy to talk with your 
office after the fact about things that we could do to lower 
barriers to entry in meaningful ways to reduce burdens for 
startups that want to obtain high-quality patents.
    Senator Padilla. Thank you. That would be helpful. In the 
spirit of striking the balance of my two previous questions, 
can you just offer a couple more examples? What kind of 
reporting and notice about patent ownership do you think would 
be most helpful to startups?
    Ms. Rives. Sure. I think first, as we've talked about 
already, I have confidence that the PTO, through rulemaking, 
would take a thoughtful and deliberate process to hearing from 
numerous stakeholders about what needs to be recorded. Things 
like assignment and actual ownership, I think, is contemplated 
by the bill and certainly makes sense. There are, as Mr. Kappos 
alluded to, some perhaps more difficult questions, and I think 
it will be important for the PTO to provide clear and 
consistent instructions to the community of patent owners, so 
they know what they do and do not need to record.
    Then, in addition to the transparency that could be 
recorded with the patent office, I think we would be interested 
in seeing other opportunities to bring greater sunshine into 
patent litigation. So not just issues of patent ownership, 
perhaps on down the line in another vehicle thinking about 
litigation finance and other tools that are allowing really 
wealthy hedge funds to target, among others, startups.
    Senator Padilla. Okay. Thank you, Ms. Rives. Thank you, Mr. 
Chair. Look forward to our ongoing work.
    Chair Leahy. Thank you very much. I know with these kind of 
hearings, it seems like we go into the weeds. The effect on our 
patent holders and innovators, it all can be tremendous.
    I was thinking, Mr. Kappos, you and I have talked before 
about your concerns about foreign countries being involved, 
China in particular, and paying for patent applications, fees, 
and costs to file U.S. patent applications. Do you want to 
explain that a little bit more, your concerns about foreign 
countries and subsidizing U.S. patent applications?
    Mr. Kappos. Sure. Thank you, Mr. Chairman. The way I would 
sum it up is that each patent, of course, provides the owner 
with a right to exclude all others from practicing the 
invention for up to 20 years from the filing. Each time a 
foreign government takes out a patent in the U.S., our whole 
country is potentially impacted by it. You could imagine 
diagnostics that can't go into the marketplace. You can imagine 
products that can't go into the marketplace. Not having 
transparency knowledge of who owns that patent, right, a 
foreign government or a state-owned enterprise or a state-
affiliated enterprise strikes me as being very dangerous for 
national security for the American people generally.
    It's troubling enough when you're dealing with foreign 
enterprises that are hard to research, hard to figure out how 
they're related to one another, hard to figure out who runs 
them. It's even more troubling when you're talking about a huge 
government that is potentially able to exclude 330 million 
Americans from access to products and services.
    Chair Leahy. Good. Thank you very much. I might ask Ms. 
Rives this question. I'm trying to think of the registering and 
so on. Let's talk about patent owners who have to register to 
change as an ownership. How does that burden compare to the 
burdens placed on public or small businesses who have to figure 
out who they're negotiating with over patent licenses?
    Ms. Rives. Yes. Thank you for the question, Senator. As I 
just mentioned, the burden here to upload information with the 
patent office about who owns what patent is not very high. The 
burden of being accused of infringement, of course, even in a 
demand letter, not getting to the cost of litigation, is very 
substantial for startups. They can put a cloud over their 
ability to fundraise, their ability to attract customers. 
There's a lot there.
    I will also note, I think as Professor Feldman alluded to, 
the inefficiencies in the patent assertion system and 
litigation system of, at the point of assertion, trying to 
figure out who owns what are substantial. In a recent lawsuit, 
Uniloc did not have standing to sue Apple, but Apple had to 
litigate for two full years to get to that conclusion engaging 
in extensive discovery. That's just something a startup 
couldn't afford.
    Chair Leahy. Thank you very much. I know some of the--and I 
listened to what some of the things that can involve those. 
Again, the patent system is one thing if you're a very large 
company even though you might get angry that you're being held 
up the 2-years you're talking about. They have a major law 
firm, I might say, and it's the cost of doing business.
    I worry about so many of the small innovators, well, my 
State, your State, in any other one. I know Professor Feldman 
among others have talked about diversity and access to the 
patent system, find out who's applying, also gives us a chance 
to encourage more, whether you have representation of women or 
minorities, others historically underrepresented.
    I was thinking about a young inventor talking about what 
all she went through shortly after she graduated from 
Middlebury College in Vermont. In fact, I had the opportunity 
last week to be having lunch with the president of Middlebury 
and we were talking about this young woman and her innovation 
and all that she had to do.
    You mentioned in your written testimony the information can 
clarify the extent to which the patent system reaches a diverse 
set of inventors, and that I would hope would unleash American 
innovation and strengthen our economy. Do you want to expand on 
that? Discuss the benefits of knowing who owns U.S. patents for 
the purpose of understanding the demographic and the geographic 
diversity of patent owners.
    Professor Feldman. Thank you, Senator. Studies suggest that 
women and women of color in particular are seriously 
underrepresented in the patent system. Without additional data, 
we have no way of knowing the true extent to which these very 
valuable rights that the Government is handing out are 
bypassing important segments of the population, important 
creative, and important to this country in so many ways.
    Senator, if I could for one minute just return to the 
question of willfulness and the remedy because that seemed to 
be much of the discussion in the hearing, Mr. Kappos suggested 
that willfulness is about the contours of the patent, which is 
true. The contours of the patent are very difficult to 
determine, even for those of us who are steeped in patent law 
and love patent. Very hard to figure that out. Knowing who owns 
the patent, being able to engage with that party, seeing how 
that patent is being asserted, those are all part of 
understanding the contours of the patent. That's why 
willfulness is a very reasonable way to reach trying to 
understand and deal with this openness problem.
    Chair Leahy. No, I appreciate that. I'm a lawyer. I've 
dealt with a whole lot of different things. I go into some of 
these same issues you just raised, and I'm fortunate that I 
have brilliant members of the staff who understand it probably 
better than I do, and you feel like sometimes you're chasing 
something through a maze.
    I do appreciate all of you. I will keep the record open for 
those who wish to add other statements, including the--I keep--
four witnesses. We have another online. We'll keep the record 
open for 10 days for anybody who wants to add further matters 
or Senators who want to.
    Do we have anything else that--oh, and of course. I 
mentioned at the beginning of this I talked with Senator Tillis 
just as I was coming over here, and he has really been looking 
forward to being here but encouraged us to go forward with the 
hearing just the same. He does have a statement, and of course 
that'll be put in at the beginning of the hearing.
    Thank you all very, very much. With that, we'll stay in 
recess.
    [Whereupon, at 4:30 p.m., the hearing was adjourned.]
    [Additional material submitted for the record follows.]

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