[Congressional Record (Bound Edition), Volume 145 (1999), Part 21]
[Senate]
[Pages 30634-30635]
[From the U.S. Government Publishing Office, www.gpo.gov]



  INTELLECTUAL PROPERTY AND COMMUNICATIONS OMNIBUS REFORM ACT OF 1999

  Mr. SCHUMER. Mr. President, I rise today in support of the revised 
``Intellectual Property and Communications Omnibus Reform Act of 1999'' 
(H.R. 1554). As a Member of the Judiciary Committee, I am particularly 
pleased that this legislation includes as Title IV, the ``American 
Inventors Protection Act of 1999.'' This important patent reform 
measure includes a series of initiatives intended to protect the rights 
of inventors, enhance patent protections and reduce patent litigation.
  Perhaps most importantly, subtitle C of title IV contains the so-
called ``First Inventor Defense.'' This defense provides a first 
inventor (or ``prior user'') with a defense in patent infringement 
lawsuits, whenever an inventor of a business method (i.e., a practice 
process or system) uses the invention but does not patent it. 
Currently, patent law does not provide original inventors with any 
protections when a subsequent user, who patents the method at a later 
date, files a lawsuit for infringement against the real creator of the 
invention.
  The first inventor defense will provide the financial services 
industry with important, needed protections in the face of the 
uncertainty presented by the Federal Circuit's decision in the State 
Street case. State Street Bank and Trust Company v. Signature Financial 
Group, Inc. 149 F.3d 1368 (Fed. Cir., 1998). In State Street, the Court 
did away with the so-called ``business methods'' exception to statutory 
patentable subject matter. Consequently, this decision has raised 
questions about what types of business methods may now be eligible for 
patent protection. In the financial services sector, this has prompted 
serious legal and practical concerns. It has created doubt regarding 
whether or not particular business methods used by the industry--
including processes, practices, and systems--might now suddenly become 
subject to new claims under the patent law. In terms of everyday 
business practice, these types of activities were considered to be 
protected as trade secrets and were not viewed as patentable material.
  The first inventor defense strikes a fair balance between patent and 
trade secret law. Specifically, this provision creates a defense for 
inventors who (1) acting in good faith have reduced the subject matter 
to practice in the United States at least one year prior to the patent 
filing date (``effective filing date'') of another (typically later) 
inventor; and (2) commercially used the subject matter in the United 
States before the filing date of the patent. Commercial use does not 
require that the particular invention be made known to the public or be 
used in the public marketplace--it includes wholly internal commercial 
uses as well.
  As used in this legislation, the term ``method'' is intended to be 
construed broadly. The term ``method'' is defined as meaning ``a method 
of doing or conducting business.'' Thus, ``method'' includes any 
internal method of doing business, a method used in the course of doing 
or conducting business, or a method for conducting business in the 
public marketplace. It includes a practice, process, activity, or 
system that is used in the design, formulation, testing, or manufacture 
of any product or service. The defense will be applicable against 
method claims, as well as the claims involving machines or articles the 
manufacturer used to practice such methods (i.e., apparatus claims). 
New technologies are being developed every day, which include 
technology that employs both methods of doing business and physical 
apparatus designed to carry out a method of doing business. The first 
inventor defense is intended to protect both method claims and 
apparatus claims.
  When viewed specifically from the standpoint of the financial 
services industry, the term ``method'' includes financial instruments, 
financial products, financial transactions, the ordering of financial 
information, and any system or process that transmits or transforms 
information with respect to investments or other types of financial 
transactions. In this context, it is important to point out the 
beneficial effects that such methods have brought to our society. These 
include the encouragement of home ownership, the broadened availability 
of capital for small businesses, and the development of a variety of 
pension and investment opportunities for millions of Americans.
  As the joint explanatory statement of the Conference Committee on 
H.R. 1554 notes, the provision ``focuses on methods for doing and 
conducting business, including methods used in connection with internal 
commercial operations as well as those used in connection with the sale 
or transfer of useful end results--whether in the form of physical 
products, or in the form of services, or in the form of some other 
useful results; for example, results produced to the manipulation of 
data or other imports to produce a useful result.'' H. Rept. 106-  , p. 
31.
  The language of the provision states that the defense is not 
available if the person has actually abandoned commercial use of the 
subject matter. As used in the legislation, abandonment refers to the 
cessation of use with no intent to resume. Intervals of non-use between 
such periodic or cyclical activities such as seasonable factors or 
reasonable intervals between contracts, however, should not be 
considered to be abandonment.
  As noted earlier, in the wake of State Street, thousands of methods 
and processes that have been and are used internally are now subject to 
the possibility of being claimed as patented inventions. Previously, 
the businesses that developed and used such methods and processes 
thought that secrecy was the only protection available. As the 
conference report on H.R. 1554 states: ``(U)nder established law, any 
of these inventions which have been in commercial use--public or 
secret--for more than one year cannot now be the subject of a valid 
U.S. patent.'' H. Rept. 106-  , p. 31.
  Mr. President, patent law should encourage innovation, not create 
barriers to the development of innovative financial products, credit 
vehicles, and e-commerce generally. The patent law was never intended 
to prevent people from doing what they are already doing. While I am 
very pleased that the first inventors defense is included in H.R. 1554, 
it should be viewed as just the first step in defining the appropriate 
limits and boundaries of the

[[Page 30635]]

State Street decision. This legal defense will provide important 
protections for companies against unfair and unjustified patent 
infringement actions. But, at the same time, I believe that it is time 
for Congress to take a closer look at the potentially broad and, 
perhaps, adverse consequences of the State Street decision. I hope that 
beginning early next year the Judiciary Committee will hold hearings on 
the State Street issue, so Senators can carefully evaluate its economic 
and competitive consequences.
  Mr. TORRICELLI. My colleague is correct. The State Street decision 
may have unintended consequences for the financial services community. 
By explicitly holding that business methods are patentable, financial 
service companies are finding that the techniques and ideas, that were 
in wide use, are being patented by others.
  The Prior Inventor Defense of H.R. 1554 is an important step towards 
protecting the financial services industry. By protecting early 
developers and users of a business method, the defense allows U.S. 
companies to commit resources to the commercialization of their 
inventions with confidence that a subsequent patent holder will prevail 
in a patent infringement suit. Without this defense, financial services 
companies face unfair patent-infringement suits over the use of 
techniques and ideas (methods) they developed and have used for years.
  While I support the Prior Inventor Defense, as a member of the 
Judiciary Committee, I hope we will revisit this issue next year. More 
must be done to address the boundaries of the State Street decision 
with the realities of the constantly changing and developing financial 
services industry.
  I look forward to working with Senator Schumer and my colleagues on 
the committee on this important issue.

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