[Congressional Record Volume 143, Number 45 (Wednesday, April 16, 1997)]
[House]
[Pages H1585-H1587]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
H.R. 400, THE 21ST CENTURY PATENT IMPROVEMENT ACT OF 1997
The SPEAKER pro tempore. Under a previous order of the House, the
gentleman from Virginia [Mr. Goodlatte] is recognized for 5 minutes.
Mr. GOODLATTE. Mr. Speaker, in light of the deluge of misinformation
that has been circulating recently on H.R. 400, the 21st Century Patent
Improvement Act, I would like to speak briefly on how this legislation
benefits small inventors as well as the entire Nation.
H.R. 400 benefits small inventors in four key areas. First, it allows
small inventors to acquire venture capital more quickly and easily than
they can under either the current system or H.R. 811, the submarine
substitute offered by Mr. Rohrabacher. Presently, small inventors often
have trouble attracting venture capital to transform their ideas into
marketable products. By allowing publication after 18 months from
filing, however, H.R. 400 brings venture capitalists together with
small inventors to market ideas that will benefit all of society.
Second, H.R. 400 gives inventors greater protection against would-be
thieves who want to steal their ideas than they currently receive. In
the present system, inventors have no protection against people who
steal their ideas and commercialize them before their patents are
granted. For example, third parties can currently commercialize
unpublished patents by manufacturing a product and offering it for
sale. The inventor is then powerless to stop the sales or to share in
the profits until the patent is actually granted.
Under the Rohrabacher submarine substitute, small inventors would be
left to fend for themselves in these situations. H.R. 400, however,
allows small inventors to receive fair compensation from any third
party who steals their ideas between the time a patent is published and
the time a patent is granted. This patent pending protection will give
small inventors the protection they need to stop commercial thieves
from stealing their ideas.
Third, H.R. 400 gives small inventors longer patent terms than they
receive under current law. In the old system, which the Rohrabacher
submarine substitute seeks to resurrect, inventors received patent
protection for only 17 years from the date the patent was granted. H.R.
400, on the other hand, gives good-faith patent applicants a minimum of
17 years of protection--and in most cases, more than that. Also, H.R.
400 provides extended protection for up to 10 years, and diligent
applicants who do not receive timely ruling from the patent office will
receive additional protection. Only H.R. 400 give small inventors the
protection they need to survive in the marketplace.
Finally, H.R. 400 gives small inventors a special option to avoid
publication. While most diligent inventors will want to take advantage
of the venture capital and additional protection that comes with
publication, some may have second thoughts about publishing their
protected ideas--especially in cases where the Patent Office indicates
that it might not issue a patent.
In these cases, H.R. 400 gives small inventors the option of
withdrawing their applications prior to publication. They may then
continue to refine their applications or seek protection under State
trade secrecy law. This option is only available to small inventors--
large corporations will be required to publish their patents after 18
months.
As an example of how H.R. 400 benefits small inventors, I would like
to insert in the Record a letter I recently received from a small
Virginia inventor supporting H.R. 400. Although a vocal minority has
been engaged in a campaign of deliberate misinformation against H.R.
400 in recent weeks, I believe that this letter represents the silent
majority of small inventors who fully support H.R. 400.
I would also like to insert into the Record a recent Wall Street
Journal article exposing the scam of submarine patents. While some may
argue that submarine patents do not occur very often, this article
clearly shows that submarine patents cost American consumers and
taxpayers hundreds of millions of dollars. A single submarine patent
can wipe out an entire small business--and with some submarine patents,
an entire corporation. The Rohrabacher submarine substitute, which the
House will consider tomorrow, would continue to encourage this
devastating practice.
Mr. Speaker, in closing, I would like to urge each of my colleagues
to oppose the Rohrabacher submarine substitute and to support the
unanimous product of the Judiciary Committee, H.R. 400. A vote for the
Rohrabacher submarine substitute is a vote against small inventors.
Only H.R. 400 will give them the protection they need to compete in the
marketplace.
Unique Specialty Products
Arlington, VA, April 11, 1997.
Hon. Bob Goodlatte,
123 Cannon HOB,
Washington, DC.
Dear Congressman Goodlatte: The 21st Century Patent System
Improvement Act, H.R. 400, has been favorably reported from
the House Judiciary Committee and is scheduled to be
considered on the House floor next week. This letter is to
urge your support for the committee bill and to resist
crippling amendments.
The bill is the work product of a bipartisan effort over
several years to modernize the Patent and Trademark Office
and to streamline the U.S. patent system. Extensive hearings
have been held on the measure and concerted efforts have been
made to accommodate those with keen interests in the
legislation.
The bill, if enacted, would be extremely beneficial for my
company. USP is a small business engaged in the development
of medical imaging software. Currently, we are engaged in an
effort jointly with an European pharmaceutical company to
enhance the reliability of X-ray mammography. A patent
application is pending now and several others may be filed in
the next several months. We will then license the European
company to utilize our imaging technology in clinical trials.
Several provisions of H.R. 400 will significantly help us
in this regard. First, the bill authorizes and encourages the
electronic filing and processing of patent applications. This
is especially important in software development, where time
is of the essence. The hardware and software imaging
technology is evolving so rapidly, that quick response from
the Patent Office is absolutely essential to survival of a
company such as USP. Further, and more important, these
advances in technology much reach the marketplace as soon as
possible. Many lives are at stake.
Second, the bill's provisions on early publication are
quite significant. The U.S. is the only major advanced
society that does not have early publication as a key part of
its patent law. As a result, our inventors and technology
companies are at the mercy of
[[Page H1586]]
``submariners'' who file generic, all-purpose inventions,
deliberately delay consideration of the application by the
PTO through delaying and dilatory tactics for years.
Meanwhile, the state of the art of the technology advances.
Then, belatedly a patent is approved which is overly broad
and then forces others--after the fact--to pay royalties.
This uncertainty can be devastating to a company such as
mine. In licensing our software, we must warrant that there
will be no future claims on it. We could be at the mercy of
someone who had an application pending while ours was offered
in the marketplace. Early publication of the claims of a
pending patent go along way in preventing manipulators from
playing havoc with legitimate technology developers. Only the
U.S. allows this to happen. Our European clients are simply
incredulous that we still follow the old practice.
Further, the ``corporatizations'' of the PTO is important
for us ``users'' of its services. The PTO should be insulated
from bureaucratic meddling and political influence. It is a
totally ``user fee'' self-supporting organization. Our filing
fees should be utilized for improvement and modernization of
the PTO, not siphoned off to support the Legal Services Corp
or some other politically correct governmental activity that
is facing budget cuts. The workload at the PTO is already
overwhelming. Automation is expensive, both in terms of
acquisition costs and training.
In summary, I urge you to support H.R. 400.
With best regards.
Sincerely yours,
Richard W. Velde,
Manager.
____
[From the Wall Street Journal, Apr. 9, 1997]
How Patent Lawsuits make a Quiet Engineer Rich and Controversial
(By Bernard Wysocki, Jr.)
Scottsdale, Ariz.--Few people paid much attention to Jerome
H. Lemelson until he figured out a way to make $500 million.
For decades, Mr. Lemelson has been a soft-spoken, somewhat-
nerdy engineer who doesn't manufacture products and rarely
even makes prototypes but who turns out a steady stream of
blueprints and drawings and has filed huge applications at
the U.S. Patent and Trademark Office. He files and amends and
divides his applications. Eventually, sometimes 20 years
later, he usually gets a patent.
Over the years, the 73-year-old Mr. Lemelson has
accumulated nearly 500 U.S. patents, more than anybody alive
today. They cut through a wide swath of industry, from
automated warehousing to camcorder parts to robotic-vision
systems.
But he hasn't just hung the patents on a wall, like vanity
plates. Seeking royalties, he has turned the strongest ones
into patent-infringement claims--and a fortune. In 1992
alone, he collected a total of $100 million from 12 Japanese
automotive companies, which decided to settle with him rather
than fight him in court over a portfolio of some of his
innovations: ``machine vision'' and image-processing patents.
The claims cover various factory uses ranging from welding
robots to vehicle-inspection equipment.
``This is what made him rich,'' says Frederick Michaud, an
Alexandria, Va., attorney who represented the Japan
Automobile manufacturers Association. ``But he's still
current, let me tell you.''
These days, Mr. Lemelson is casting a longer shadow than
ever. True, he makes huge donations, including funding the
annual $500,000 Lemelson-MIT Prize for innovation that will
be presented tomorrow night at a gala in Washington.
much controversy
But behind the pomp lies controversy. Critics say Mr.
Lemelson not only exploits the patent system but manipulates
it.
He is currently embroiled in a brutal legal battle with
Ford Motor Co. Unlike more than 20 other automotive
companies, Ford has refused to get a license from him on the
machine-vision and image-processing patents. In a filing in
federal court in Reno, Nev., it charged that Mr. Lemelson, in
an abuse of the system, ``manipulated'' the U.S. Patent
Office. Ford contended in its suit that Mr. Lemelson
``unreasonably and inexcusably delayed'' the processing of
his applications to make the patents more valuable and more
up-to-date. A Ford lawyer, in testimony before a
congressional committee, once compared his patents to
``submarines,'' sometimes surfacing decades after they were
filed, with claims covering new technology.
In 1995, U.S. Magistrate Judge Phyllis Atkins in Nevada
sided with Ford, stating that ``Lemelson's use of continuing
applications has been abusive and he should be barred from
enforcing his asserted patent rights.'' In her report, she
also stated that Mr. Lemelson ``designs his claims on top of
existing inventions for the purpose of creating
infringements.'' Mr. Lemelson has appealed, blaming the
Patent Office for his delays in filing claims. A federal
district judge is expected to rule soon.
edison recalled
To Mr. Lemelson and his friends, the litigation is the
price paid by genius. ``When Edison was alive, he was
involved in a lot of litigation,'' says Mr. Lemelson's lead
attorney, Gerald Hosier. ``He was also a guy that all of the
big companies said every nasty thing they could think of
about him. It's only when he died that [Edison] became
revered as a great inventor.''
Mr. Lemelson's extensive patent filings have the hallmarks
of a technical whiz. He holds three engineering degrees from
New York University, and his drawings show a draftsman's
touch. He is a man with a voracious appetite for technical
journals, trade magazines and conference proceedings. A 1993
letter to a potential licensee cited articles in 17
electronics journals.
An inveterate note-taker, Mr. Lemelson says he still churns
out ideas nearly every day. His recent notes, grist for
future patent filings, fill a folder on file at his lawyer's
office here.
Another battle on the horizon will pit Mr. Lemelson against
Ford and more than a dozen secret allies. In dispute are some
of his pending patent applications that cover ``flexible
manufacturing'' techniques. Ford is trying to prevent them
from being issued; if the patents are issued, Mr. Lemelson
plans to enforce them. Discussing the litigation--Mr.
Lemelson estimates the two sides have spent well over $10
million, with no end in sight--he says, ``It's almost, in my
opinion, madness.''
Meanwhile, Mr. Lemelson is inspiring a horde of imitators.
Firms are springing up whose main business is obtaining
patents and, like him, enforcing them by first offering a
license and then, if refused, suing. Working with them are
individual inventors who have decided that patented ideas,
legally enforced, can be more lucrative than manufacturing
and marketing.
``I'm not interested in building a company and getting into
manufacturing. I focus on new inventions, on new things,''
say Charles Freeny Jr., a 65-year-old inventor in Irving,
Texas, with a patent covering transmission of digital
information over a network. Today, enforcement of Mr.
Freeny's rights is in the hands of E-data Corp., a tiny
Secaucus, N.J., company with three employees. Its main
business is to try to extract royalty payments from alleged
infringers.
A new breed of intellectual-property lawyer has emerged,
too. Many seem to be inspired by Mr. Hosier, who pioneered
the use of contingency fees in patent cases and whose work
for Mr. Lemelson alone has brought him more than $150 million
in fees. The lawyer's success--he lives in a 15,000-square-
foot house near Aspen, Colo.--has made the field ``a very hot
area. It's going crazy,'' says Joseph Potenza, a patent
attorney in Washington. Between 1991 and 1996, the American
Bar Association says, the number of intellectual-property
lawyers soared to 14,000 from 9,400.
One Houston company, Litigation Risk Management Inc., is
even helping finance inventors' intellectual-property efforts
by bringing in Lloyd's of London to finance 80% of the cost
of the litigation. Joby Hughes, Litigation Risk's president,
says that if the licensing or litigation effort succeeds, the
London insurance exchange will get a 25% profit on the money
it puts up. Mr. Hughes's company gets a fee for arranging the
deal.
A Booming Field
Companies long active in intellectual-property enforcement
say business is strong. One is Refac Technology Development
Corp. The New York company buys the rights to patents and
licenses them to manufacturers, which pay royalties to both
Refac and the inventors. Last year, Refac's net income more
than doubled to $4.7 million on revenue of $9.2 million.
The purpose of the U.S. patent system comes into question,
however. A patent doesn't require the inventor to go into
manufacturing; technically, a patent is a right to exclude
somebody else from using your ideas in commercial products,
for 20 years from the date of filing. (Before June 1995,
patents were valid for 17 years from date of issue. These and
other patent revisions remain a hot topic in Congress.)
U.S. Commissioner of Patents and Trademarks Bruce Lehman
says he is outraged by ``these people who file patent
applications and never, ever, ever go to market with an
invention, based on their application. I thought what the
patent system was all about was coming here and getting a
patent and going to some banker or venture capitalist or
something and get money, and then you go out and start a
company and put products out on the marketplace. And you go
sue the people that infringe on you.''
But to the new intellectual-property players, it is the
patent itself that has the economic value. And that has long
been Mr. Lemelson's notion.
A native New Yorker, Mr. Lemelson worked for big companies
and tried his hand at toy manufacturing. By his own
testimony, that venture didn't succeed. Over time, he turned
to crafting patents and then to seeking licenses. He often
got involved in legal battles. His biggest one in toyland was
a 15-year fight with Mattel Inc. over the flexible track in
its Hot Wheels toys. In 1989, he won a $71 million patent-
infringement judgment, but it was overturned on appeal.
big deal with ibm
In electronics, Mr. Lemelson's big break came in 1980, when
International Business Machines Corp. agreed to take a
license on a portfolio of his computer patents. ``After the
IBM deal, I became a multimillionaire,'' he says. ``It didn't
put me on easy street because I had so many balls in the air
at one time. But it certainly helped a lot.''
An even bigger break came in the mid-1980s, when Mr.
Lemelson met Mr. Hosier. In 1989, the already successful
patent lawyer put together the ``machine vision'' licensing
campaign. Mr. Hosier focused his negotiations on 12 Japanese
automotive companies,
[[Page H1587]]
and the talks dragged on through mid-1992. That July, Mr.
Lemelson sued four of the companies, Toyota Motor Corp.,
Nissan Motor Co., Mazda Motor Corp. and Honda Motor Co.
Within a month, the Japanese agreed to settle; the 12
companies paid him the $100 million.
At a post-settlement celebration of sorts, in the Brown
Palace Hotel in Denver, the Japanese insisted on taking
photographs, which show eight grim-looking Japanese
surrounding a beaming Mr. Lemelson. He contends that it was a
heroic victory, a patriotic act. ``My federal government has
made [in taxes] probably over a quarter of a billion dollars
on my patents over the years,'' he says. ``A good part of it
has been foreign money.''
Similar infringement suits followed, against Mitsubishi
Electric Corp., against Motorola Inc., against the Big Three
Detroit auto makers. Initially, both Mitsubishi and Motorola
decided to fight; later, they settled. The suits against
General Motors Corp. and Chrysler Corp. were ``dismissed
without prejudice.'' In effect, any further action against GM
or Chrysler is in abeyance until the Ford outcome is known.
why they settled
By all accounts, the strategy was well-planned and well-
executed. Mr. Hosier says the Japanese were more inclined to
settle than the Americans. Commissioner Lehman says the
Japanese are ``particularly freaked by litigation. And so you
start out with them. . . . And, of course, they all pay up,
and that establishes a precedent.'' After the Japanese
settlement, several European auto makers also agreed to take
licenses on Mr. Lemelson's patents.
Some who settled say they concluded that Mr. Lemelson had a
good case. Others call it an uphill battle to try to persuade
a judge or jury that the government had repeatedly made
mistakes in issuing him all those patents. With a legal
presumption that patents are valid, his opponents say they
had the burden of proving the Patent Office had goofed 11
times in a row.
In any event, by 1994, Mr. Lemelson had amassed about $500
million in royalties from his patents. But Ford has held out.
Even as the lawyers haggled over the law, many of the facts
in the case were undisputed. In 1954 and 1956, both sides
agree, Mr. Lemelson made massive patent filings, which
included, for example, many drawings and descriptions of an
electronic scanning device. As an object moved down a
conveyor belt, a camera would snap a picture of it. Then that
image could be compared with a previously stored one. If they
matched, a computer controlling the assembly line would let
the object pass. If the two images didn't match up, it might
be tossed on a reject pile.
But because Mr. Lemelson's filings were so extensive and
complex, the Patent Office divided up his claims into
multiple inventions and initially dealt with only some of
them. Thus, for whatever reason, his applications kept
dividing and subdividing, amended from time to time with new
claims and with new patents.
It was as if the 1954 and 1956 filings were the roots of a
vast tree. One branch ``surfaced'' in 1963, another in 1969,
and more in the late 1970s, the mid-1980s and the early
1990s. All direct descendants of the mid-1950s filings, they
have up-to-date claims covering more recent technology, such
as that for bar-coding scanning.
The lineage was presented to the court in a color-coded
chart produced by Ford. It shows how the mid-1950s
applications spawned further applications all through the
1970s and 1980s. One result: a group of four bar-code patents
issued in 1990 and 1992, with a total of 182 patent claims,
all new and forming the basis of 14 infringement claims
against Ford. But because of their 1950s roots, these patents
claim the ancient heritage of Mr. Lemelson's old applications
and establish precedence over any inventor with a later date.
The entire battle has become numbingly complex, a battle
over whether the long stretch between the mid-1950s and the
new claims in the 1990s constituted undue delay. Ford says
yes. Mr. Lemelson says no. The magistrate judge found for
Ford.
Another question is whether Mr. Lemelson's original
filings--his scanner and camera and picture of images on a
conveyer belt--should be considered the concepts of bar-code
scanning, and thus Ford's use of bar coding in its factories
make it an infringer of his patents. Mr. Lemelson says yes.
Ford says no, arguing Mr. Lemelson depicted a fixed scanner
(bar-code scanners can be hand-held).
``As we said in our lawsuit, if you walk into the Grand
Union and show up for work with a `Lemelson' bar-code
scanner, it won't work,'' quips Jesse Jenner, a lawyer for
Ford.
It's impossible to say which side will ultimately prevail.
Or whether there will be a settlement. But the clear winners
so far are the lawyers. Mr. Lemelson alone employs a small
army of them. And Mr. Hosier pretty much thanks himself for
that, noting an old joke: ``One lawyer in town, you're broke.
Two lawyers in town, you're rich.''
____________________