[Congressional Record Volume 142, Number 104 (Tuesday, July 16, 1996)]
[Senate]
[Pages S7897-S7900]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HATCH:
  S. 1961. A bill to establish the United States Intellectual Property 
Organization, to amend the provisions of title 35, United States Code, 
relating to procedures for patent applications, commercial use of 
patents, reexamination reform, and for other purposes; to the Committee 
on the Judiciary.


                     The Omnibus Patent Act of 1996

  Mr. HATCH. Mr. President, today I am introducing the Omnibus Patent 
Act of 1996. The purposes of this bill are: First, to rationalize the 
way intellectual property policy is formulated; second, to provide for 
more efficient administration of the patent, trademark, and copyright 
systems; third, to save the U.S. taxpayers' money by making the patent, 
trademark, and copyright systems self-funding; fourth, to discourage 
gaming the patent system while ensuring against loss of patent term and 
theft of American inventiveness; fifth, to protect the rights of prior 
users of inventions which are later patented by another; sixth, to 
increase the liability of patents by allowing third parties more 
meaningful participation in the reexamination process; seventh, to make 
certain that American provisional applications are given the same 
weight as other countries' provisional applications in other countries' 
courts; eighth, to make technical corrections in the plant patent 
provisions of the Patent Act; ninth, to require the Federal Government 
to pay a successful plaintiff's reasonable attorney's fees in a suit 
for the taking of a patent; and tenth, to allow for the filing of 
patent and trademark documents by electronic medium.


                U.S. Intellectual Property Organization

  Intellectual property normally signifies patents, trademarks, and 
copyrights. Intellectual property is of vital importance not only to 
continued progress in science and the arts but also to the economy. A 
vast array of industries depend on intellectual property. From the 
chemical, electrical, biotechnological, and manufacturing industries to 
books, movies, music, and computer software and hardware. Indeed, 
trademark is important to all businesses, period.
  Intellectual property industries also contribute mightily to our 
balance of trade. American-produced software, for example, accounts for 
70 percent of the world market. U.S. recorded music constitutes 
approximately 60 percent of the international market, with annual 
foreign sales totaling in excess of $12 billion. Together, U.S. 
copyright industries accounted for an estimated $45.8 billion in 
foreign sales in 1993, an 11.7 percent increase over 1992 sales 
figures.
  The remarkable overall performance of these industries continues to 
manifest itself in their tremendous rate of growth. For example, 
between 1991 and 1993, core copyright industries grew at twice the 
annual rate of the U.S. economy, while the rate of employment growth in 
these industries outpaced the rate of employment growth in the Nation's 
economy as a whole by nearly 4 to 1 between 1988 and 1993.
  Keep in mind that these figures do not even begin to take into 
account the significant trade benefits attributable to the ever-
expanding world market for patented American inventions and products 
enjoying U.S. trademark or trade secret protection. While these 
benefits are more difficult to quantify, we need only to look at such 
American companies as DuPont, Ford, General Electric, IBM, Kodak, 
Motorola, Monsanto, Palaroid, Xerox, and countless others whose 
development was founded in large part on U.S. patent protection to 
realize the utility of strong intellectual property protection to our 
Nation's economy and our international predominance in creative 
industries.

[[Page S7898]]

  Because intellectual property protection is so essential to our 
economy, intellectual property policy must be given a high priority, 
and because our markets are becoming increasingly global, international 
intellectual property policy will inevitably loom larger. In some 
instances, domestic policy will be affected by international 
developments. For example, as a direct result of the General Agreement 
on Tariffs and Trade [GATT], the basic U.S. patent term of 17 years 
from issuance was changed to 20 years from filing. I certainly don't 
advocate a slavish following of foreign models. Whatever is one's view 
of what international policy should be, however, the fact remains that 
international policy will have a great impact on domestic intellectual 
property policy.
  These developments argue for better coordination between 
international and domestic intellectual property policymaking. 
Currently, there is no official agency in the U.S. Government 
centralizing intellectual property policy formulation. Indeed, not only 
are there two government entities that deal with intellectual 
property--the Patent and Trademark Office [PTO] and the Copyright 
Office--but they are in different branches. The PTO is in the executive 
branch, while the Copyright Office is in the legislative branch of the 
Government.
  The conduct of international affairs has constitutionally been 
delegated to the executive branch. Because the international aspects of 
intellectual property will increasingly affect domestic intellectual 
property policy, it is appropriate that intellectual property policy 
should be initially formulated in the executive branch. Thus, the bill 
I am introducing today creates a U.S. Intellectual Property 
Organization [USIPO] in the executive branch.
  By centering the initial formulation of intellectual property policy 
in the executive branch, my bill not only predicts a trend but reflects 
the current reality. Despite the fact that there is no official 
intellectual property office, international and domestic intellectual 
property policy for the current administration is originating largely 
from the Patent and Trademark Office. Despite its name, the PTO is 
heavily involved in copyright policy as well. For example, the current 
negotiations for a Protocol and a New Instrument for the Berne 
Convention, the world's premiere copyright treaty, are being led by PTO 
personnel. In addition, the Commissioner of Patents and Trademarks 
chaired the working group that drafted the original version of the 
National Information Infrastructure Copyright Protection Act. This de 
facto intellectual property office is unlikely to disappear regardless 
of the outcome of the Presidential elections because it simply makes 
sense. My bill makes it official.

  I want to make clear that this restructuring of intellectual property 
policy is not motivated by dissatisfaction with the performance of the 
Copyright Office. I have the highest respect for the Register of 
Copyrights, Ms. Marybeth Peters, and I have always found her advice and 
that of her staff to be extremely helpful. Indeed, on a number of 
occasions, I have modified my legislation after listening to her wise 
counsel. This, however, does not detract from the fact that I believe 
that there would be an improvement in formulating and coordinating 
intellectual property policy if the Copyright Office were located 
within the USIPO, as I have proposed.
  Under current practice, the role of the Copyright Office in 
international policy formulation has diminished. Under this bill, with 
the elimination of the bifurcation of intellectual property policy 
between the legislative and the executive branches, it is likely that 
its role would be enhanced. In formulating copyright policy, the 
Commissioner of Intellectual Property would naturally turn to the 
Copyright Office subdivision of the USIPO for assistance and advice.
  In addition to policymaking, the PTO administers the system which 
grants patents and registers trademarks. The Copyright Office registers 
copyrights and oversees adjudication incident to the compulsory 
licenses. Under my bill, these administrative functions would continue 
under the umbrella of the USIPO. The bill provides for three 
subdivisions within the USIPO: the Patent Office, the Trademark Office, 
and the Copyright Office. Each Office is responsible for the 
administration of its own system. Each Office controls its own budget 
and its management structure and procedures. Each Office must generate 
its own revenue.
  The efficiency of the Patent, Trademark, and Copyright Offices will 
be enhanced by the status of the USIPO as a Government corporation, as 
proposed in my bill. This status allows the USIPO and its subdivisions 
to function without the bureaucratic restraints that bedevil much of 
the Federal Government.
  The personnel problems of the Copyright Office illustrate this point. 
As a part of the Library of Congress, the Copyright Office is subject 
to the rigid complexity and great delay which characterize the 
Library's hiring policy. For example, the Copyright Office has been 
unable to fill the position of General Counsel for several years.
  A management review of the Library of Congress prepared for the 
General Accounting Office [GAO] by Booz, Allen and Hamilton notes in 
its May 7, 1996 report that the median time for hiring a replacement 
worker is 177 days, much longer than for other Government agencies. 
Currently, the Library utilizes a 30-step hiring process with multiple 
hand-offs.
  The report levels many other criticisms at the Library of Congress' 
management, but time does not permit me to detail them here. For 
purposes of this legislation, however, the most important conclusion 
was that ``[t]here is little operational reason for housing the 
copyright function at the Library of Congress.''
  Although I concur in this conclusion, I am sensitive to the concern 
of the Librarian of Congress, Dr. James Billington, about the 
importance for the collection of the Library of the deposits made 
incident to copyright registrations. This bill makes no change in the 
deposit requirement, and it makes the Librarian of Congress a member ex 
officio of the Management Advisory Board of the Copyright Office to 
insure that this very important matter is given the attention it 
deserves.
  This legislation also simplifies and streamlines the adjudication 
that takes place under the auspices of the Copyright Office regarding 
compulsory licenses. Currently, the Copyright Office oversees the work 
of ad hoc arbitration panels, called Copyright Arbitration Royalty 
Panels [CARPs], which engage in rate setting and distribution 
proceedings as provided by the Copyright Act for certain compulsory 
licenses. I was an original cosponsor of the legislation that created 
them, and I had great hopes that they would be less costly than the 
Copyright Royalty Tribunal [CRT] that they replaced. Recent experience 
with distribution proceedings under the cable compulsory license, 
however, have proved otherwise. Whereas the last annual budget of the 
CRT was nearly $1 million for all rate setting and distribution, the 
cable distribution alone has to date exceeded $700,000 under the CARPs, 
and it is still not concluded.
  This bill returns to the tried and true method of administrative 
adjudication, namely, decisions rendered by administrative law judges 
subject to the Administrative Procedure Act. This solution is a natural 
one for a government body in the executive branch, although in the 
legislative branch this solution was always problematic under Buckley 
versus Valeo. Indeed, because of separation of powers constitutional 
concerns, the ultimate authority in the current CARP system is the 
Librarian of Congress, not the Register of Copyrights, because the 
Librarian is a Presidential appointee.

  Currently, whenever the Copyright Office is tasked with an executive-
type function, the constitutional question arises. This concern 
discourages utilization of the Copyright Office from playing a more 
significant role in copyright matters. This issue has arisen, for 
example, in discussions about instituting virtual magistrates in the 
Copyright Office to render quick decisions on on-line service provider 
liability and on fair use.
  In sum, my bill vests primary responsibility for intellectual 
property policy in the head of the USIPO, the Commissioner of 
Intellectual Property and primary responsibility for administration of 
the patent, trademark, and copyright systems in the respective 
Commissioners of Patents, Trademarks,

[[Page S7899]]

and Copyrights. The corporate form of the USIPO inoculates the Patent, 
Trademark, and Copyright Offices as much as possible from the 
bureaucratic sclerosis that infects many Federal agencies.
  Although I considered making the USIPO an independent agency in the 
executive branch, this bill links the USIPO to the Secretary of 
Commerce by providing that the Commissioner of Intellectual Property, 
the head of the USIPO, will be the policy advisor of the Secretary 
regarding intellectual property matters.
  The parties interested in patents, copyrights, and trademarks support 
having close access to the President by having the chief intellectual 
policy advisor directly linked to a cabinet officer. The Secretary of 
Commerce is a logical choice. The PTO, which today has the major role 
in intellectual property policy as such is in the Department of 
Commerce. I do not believe, however, that the USIPO necessarily belongs 
there.
  Mr. President, although the creation of the USIPO may be the most 
dramatic part of this bill, it also contains several important changes 
to substantive patent law that will, taken as a whole, dramatically 
improve our patent system.
  With the adoption of the GATT provisions in 1994, the United States 
changed the manner in which it calculated the duration of patent terms. 
Under the old rule, utility patents lasted for 17 years after the grant 
of the patent. The new rule under the legislation implementing GATT is 
that these patents last for 20 years from the time the patent 
application is filed.
  In addition to harmonizing American patent terms with those of our 
major trading partners, this change solved the problem of submarine 
patents. A submarine patent is not a military secret. Rather, it is a 
colloquial way to describe a legal but unscrupulous strategy to game 
the system and unfairly extend a patent term.
  Submarine patenting is when an applicant purposefully delays the 
final granting of his permit by filing a series of amendments and 
delaying motions. Since, under the old system, the term did not start 
until the patent was granted, no time was lost. And since patent 
applications are secret in the United States until a patent is actually 
granted, no one knows that the patent application is pending. Thus, 
competitors continue to spend precious research and development dollars 
on technology that has already been developed.
  When a competitor finally does develop the same technology, the 
submarine applicant springs his trap. He stops delaying his application 
and it is finally approved. Then, he sues his competitor for infringing 
on his patent. Thus, he maximizes his own patent term while tricking 
his competitors into wasting their money.
  Mr. President, submarine patents are terribly inefficient. Because of 
them, the availability of new technology is delayed and instead of 
moving to new and better research, companies are fooled into throwing 
away time and money on technology that already exists.
  By changing the manner in which we calculate the patent term to 20 
years from filing, we eliminated the submarine problem. Under the 
current rule, if an applicant delays his own application, it simply 
shortens the time he will have after the actual granting of the patent. 
Thus, we have eliminated this unscrupulous, inefficient practice by 
removing its benefits.
  Unfortunately, the change in term calculation potentially creates a 
new problem. Under the new system, if the Patent Office takes a long 
time to approve a patent, the delay comes out of the patent term, thus 
punishing the patent holder for the PTO's delay. This is not right.
  The question we face now, Mr. President, is how to fix this new 
problem. Some have suggested combining the old 17 years from granting 
system with the new 20 years from filing and giving the patent holder 
whichever is longer. But that approach leads to uncertainty in the 
length of a patent term and even worse, resurrects the submarine patent 
problem by giving benefits to an applicant who purposefully delays his 
own application. I believe that titles II and III of the Omnibus Patent 
Act of 1996 solve the administrative delay dilemma without recreating 
old problems.


                           Early Publication

  Title II of the bill provides for the early publication of patent 
applications. It would require the Patent Office to publish pending 
applications 18 months after the application was filed. An exception to 
this rule is made for applications filed only in the United States. 
Those applications will be published 18 months after filing or 3 months 
after the office issues its first response on the application, 
whichever is later. By publishing early, competitors are put on notice 
that someone has already beaten them to the invention and thus allowing 
them to stop spending money researching that same invention.
  The claims that early publication will allow foreign competitors to 
steal American technology are simply not true. To start with, between 
75 and 80 percent of patent applications filed in the United States are 
also filed abroad where 18 month publication is the rule. Further, I 
have provided in my bill for delayed publication of applications only 
submitted in the United States to protect them from competitors. 
Additionally, once an application is published, title II grants the 
applicant provisional rights, that is, legal protection for his 
invention. Thus, while it is true that someone could break the law and 
steal the invention, that is true under current law and will always be 
true. And the early publication provision will result in publication 
only 2 or 3 months before the granting of most patents, so there is 
little additional time for would-be pirates to steal the invention.


                        Patent Term Restoration

  Title III deals directly with the administrative delay problem by 
restoring to the patent holder any part of the term that is lost due to 
undue administrative delay. This title is very similar to a bill I 
introduced earlier this Congress, S. 1540. Some concerns were raised 
about that bill because it left the decision of what was an undue delay 
to the Commissioner of the PTO. I took those concerns to heart and 
adopted the provision that appears in H.R. 3460, Congressman Moorhead's 
Omnibus Patent bill, giving clear deadlines for the Patent Office to 
act. Any delay beyond those deadlines is considered undue delay and 
will be restored to the Patent term. Thus, title III solves the 
administrative delay problem in a clear, predictable, and objective 
manner.


                     Prior Domestic Commercial Use

  Title IV deals with people who independently invent something and use 
it in commercial sale but who never patent their invention. 
Specifically, this title provides rights to a person who has 
commercially sold an invention more than 1 year before that invention 
was patented by another person. Anyone in this situation will be 
permitted to continue to sell his product without being forced to pay a 
royalty to the patent holder. This basic fairness measure is aimed at 
protecting the innocent inventor who chooses to use trade secret 
protection instead of pursuing a patent and who has expended enough 
time and money to begin commercial sale of the invention. It also 
serves as an incentive for those who wish to seek a patent to seek it 
quickly, thus reducing the time during which others may acquire prior 
user rights. The incentives of this title will improve the efficiency 
of our patent system by protecting ongoing business concerns and 
encouraging swift prosecution of patent applications.


                      Patent Reexamination Reform

  Title V provides for a greater role for third parties in patent re-
examination proceedings. It is taken almost verbatim from my free-
standing re-examination bill, S. 1070.
  Nothing is more basic to an effective system of patent protection 
than a reliable examination process. Without the high level of faith 
that the PTO has earned, respect for existing patents would fall away 
and innovation would be discouraged for fear of a lack of protection 
for new inventions.
  In the information age, however, it is increasingly difficult for the 
PTO to keep track of all the prior art that exists. It does the best 
job it can, but inevitably someone misses something and grants a patent 
that should not be granted. This is the problem that Title V addresses.
  Title V allows third-parties to raise a challenge to an existing 
patent and to

[[Page S7900]]

participate in the re-examination process in a meaningful way. Thus, 
the expertise of the patent examiner is supplemented by the knowledge 
and resources of third-parties who may have information not known to 
the patent examiner. Through this joint effort, we maximize the flow of 
information, increase the reliability of patents, and thereby increase 
the strength of the American patent system.


                  Provisional Applications for Patents

  Title VI is comprised of miscellaneous provisions. First, it fixes a 
matter of a rather technical nature. Some foreign courts have 
interpreted American provisional applications in a way that would not 
preserve their filing priority. This title amends section 115 of title 
35 of the United States Code to clarify that if a provisional 
application is converted into a nonprovisional application within 12 
months of filing, that it stands as a full patent application, with the 
date of filing of the provisional application as the date of priority. 
If no request is made within 12 months, the provisional application is 
considered abandoned. This clarification will make certain that 
American provisional applications are given the same weight as other 
countries' provisional applications in other countries' courts.


                             Plant Patents

  Title VI also makes two fairly technical corrections to the plant 
patent statute. First, the ban on tuber propagated plants is removed. 
This depression-era ban was included for fear of limiting the food 
supply. Obviously, this is no longer a concern. Second, the plant 
patent statute is amended to include parts of plants. This closes a 
loophole that foreign growers have used to import the fruit or flowers 
of patented plants without paying a royalty because the entire plant 
was not being sold.


                 Attorney's Fees for Takings of Patents

  Title VI has an additional provision that requires the Federal 
Government to pay a successful plaintiff's reasonable attorney's fees 
in a suit for the taking of a patent. This is only fair as the nature 
of both patent litigation and takings litigation is long and expensive. 
In many cases the award that is finally won is reduced dramatically 
when attorney's fees are factored in. This provision allows a 
successful plaintiff to truly be made whole.


                           Electronic Filing

  Last, this title also allows for the filing of patent and trademark 
documents by electronic medium.
  Mr. President, I have already mentioned H.R. 3460, Congressman 
Moorhead's omnibus patent bill. H.R. 3460 provides for restructuring of 
the Patent and Trademark Office and deals with virtually all of the 
substantive patent issues that are in my bill, and in a similar way. 
The most significant difference is that my bill restructures all of 
intellectual property policymaking and administration by the Federal 
Government. If we are going to restructure patents and trademarks, I 
believe that copyright policymaking and administration cannot be 
ignored.
  H.R. 3460 has been reported out of the House Committee on the 
Judiciary and is awaiting floor action. I hope for swift action by the 
Senate on the bill I am introducing today.
  Mr. President, I ask unanimous consent that additional material be 
printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

            Omnibus Patent Act of 1996 Summary   July 16, 1996


     Title I--The United States Intellectual Property Organization

       This title establishes the United States Intellectual 
     Property Organization (USIPO). The USIPO brings together in 
     one entity patent, trademark, and copyright policy 
     formulation and the administration of the patent, trademark, 
     and copyright systems. The USIPO is a government corporation 
     connected to the Department of Commerce.
       The USIPO is headed by a Commissioner of Intellectual 
     Property [CIP] who is the chief advisor to the President 
     through the Secretary of Commerce regarding intellectual 
     property policy. He or she is appointed by the President with 
     Senate confirmation, and he or she serves at the pleasure of 
     the President.
       The USIPO has three autonomous subdivisions: the Patent 
     Office, the Trademark Office, and the Copyright Office. Each 
     office is responsible for the administration of its own 
     system. Each office controls its own budget and its 
     management structure and procedures. Each office must 
     generate its own revenue in order to be self-sustaining and 
     to provide for the office of the CIP. The Patent, Trademark 
     and Copyright Offices are headed by the Commissioner of 
     Patents, the Commissioner of Trademarks, and the Commissioner 
     of Copyrights, respectively. The three Commissioners are 
     appointed by the CIP and serve at his or her pleasure.
       Title I also abolishes the Copyright Arbitration Royalty 
     Panels [CARPs] for rate-setting and distribution under some 
     of the compulsory licenses and replaces them with 
     administrative law judges.


                      Title II--Early Publication

       Title II of the bill provides for the early publication of 
     patent applications. It would require the Patent Office to 
     publish pending applications eighteen months after the 
     application was filed. An exception to this rule is made for 
     applications filed only in the United States. Those 
     applications will be published eighteen months after filing 
     or three months after the office issues its first response on 
     the application, whichever is later. Additionally, once an 
     application is published, Title II grants the applicant 
     ``provisional rights,'' that is, legal protection for his or 
     her invention.


                   Title III--Patent Term Restoration

       Title III deals with the problem of administrative delay in 
     the patent examination process by restoring to the patent 
     holder any part of the term that is lost due to undue 
     administrative delay. Title III gives clear deadlines in 
     which the Patent Office must act. Any delay beyond those 
     deadlines is considered undue delay and will be restored to 
     the patent term.


                Title IV--Prior Domestic Commercial Use

       This title provides rights to a person who has commercially 
     sold an invention more than one year before that invention 
     was patented by another person. Anyone in this situation will 
     be permitted to continue to sell his or her product without 
     being forced to pay a royalty to the patent holder.


                 Title V--Patent Re-examination Reform

       Title V provides for a greater role for third parties in 
     patent re-examination proceedings by allowing third-parties 
     to raise a challenge to an existing patent and to participate 
     in the re-examination process in a meaningful way.


                        Title VI--Miscellaneous

                  Provisional Applications for Patents

       This title amends section 115 of Title 35 of the U.S. Code 
     to clarify that if a provisional application is converted 
     into a non-provisional application within twelve months of 
     filing, that it stands as a full patent application, with the 
     date of filing of the provisional application as the date of 
     priority. If no request is made within twelve months, the 
     provisional application is considered abandoned. This 
     clarification will make certain that American provisional 
     applications are given the same weight as other countries' 
     provisional applications in other countries' courts.

                             Plant Patents

       Title VI also makes two fairly technical corrections to the 
     plant patent statute. First, the ban on tuber propagated 
     plants in removed. This depression-era ban was included for 
     fear of limiting the food supply. This is no longer a 
     concern. Second, the plant patent statute is amended to 
     include parts of plants. This closes a loophole that foreign 
     growers have used to import the fruit or flowers of patented 
     plants without paying a royalty because the entire plant was 
     not being sold.

                 Attorney's Fees for Takings of Patents

       Title VI has an additional provision that requires the 
     federal government to pay a successful plaintiff's reasonable 
     attorney's fees in a suit for the taking of a patent.

                           Electronic Filing

       Lastly, this title also allows for the filing of patent and 
     trademark documents by electronic medium.
                                 ______