[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
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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
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.judiciary.senate.gov
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
55-152 WASHINGTON : 2024
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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
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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
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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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