[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
PATENT ACT OF 2005
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION
ON
H.R. 2795
__________
JUNE 9, 2005
__________
Serial No. 109-24
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://www.house.gov/judiciary
______
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WASHINGTON : 2005
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COMMITTEE ON THE JUDICIARY
F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina HOWARD L. BERMAN, California
LAMAR SMITH, Texas RICK BOUCHER, Virginia
ELTON GALLEGLY, California JERROLD NADLER, New York
BOB GOODLATTE, Virginia ROBERT C. SCOTT, Virginia
STEVE CHABOT, Ohio MELVIN L. WATT, North Carolina
DANIEL E. LUNGREN, California ZOE LOFGREN, California
WILLIAM L. JENKINS, Tennessee SHEILA JACKSON LEE, Texas
CHRIS CANNON, Utah MAXINE WATERS, California
SPENCER BACHUS, Alabama MARTIN T. MEEHAN, Massachusetts
BOB INGLIS, South Carolina WILLIAM D. DELAHUNT, Massachusetts
JOHN N. HOSTETTLER, Indiana ROBERT WEXLER, Florida
MARK GREEN, Wisconsin ANTHONY D. WEINER, New York
RIC KELLER, Florida ADAM B. SCHIFF, California
DARRELL ISSA, California LINDA T. SANCHEZ, California
JEFF FLAKE, Arizona CHRIS VAN HOLLEN, Maryland
MIKE PENCE, Indiana DEBBIE WASSERMAN SCHULTZ, Florida
J. RANDY FORBES, Virginia
STEVE KING, Iowa
TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas
Philip G. Kiko, General Counsel-Chief of Staff
Perry H. Apelbaum, Minority Chief Counsel
------
Subcommittee on Courts, the Internet, and Intellectual Property
LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois HOWARD L. BERMAN, California
ELTON GALLEGLY, California JOHN CONYERS, Jr., Michigan
BOB GOODLATTE, Virginia RICK BOUCHER, Virginia
WILLIAM L. JENKINS, Tennessee ZOE LOFGREN, California
SPENCER BACHUS, Alabama MAXINE WATERS, California
BOB INGLIS, South Carolina MARTIN T. MEEHAN, Massachusetts
RIC KELLER, Florida ROBERT WEXLER, Florida
DARRELL ISSA, California ANTHONY D. WEINER, New York
CHRIS CANNON, Utah ADAM B. SCHIFF, California
MIKE PENCE, Indiana LINDA T. SANCHEZ, California
J. RANDY FORBES, Virginia
Blaine Merritt, Chief Counsel
David Whitney, Counsel
Joe Keeley, Counsel
Ryan Visco, Counsel
Shanna Winters, Minority Counsel
C O N T E N T S
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JUNE 9, 2005
OPENING STATEMENT
Page
The Honorable Lamar Smith, a Representative in Congress from the
State of Texas, and Chairman, Subcommittee on Courts, the
Internet, and Intellectual Property............................ 1
The Honorable Howard L. Berman, a Representative in Congress from
the State of California, and Ranking Member, Subcommittee on
Courts, the Internet, and Intellectual Property................ 3
WITNESSES
Mr. Gary L. Griswold, President and Chief Intellectual Property
Counsel, 3M Innovative Properties Company, on behalf of the
American Intellectual Property Law Association
Oral Testimony................................................. 4
Prepared Statement............................................. 6
Mr. Carl E. Gulbrandsen, Managing Director, Wisconsin Alumni
Research Foundation (WARF)
Oral Testimony................................................. 16
Prepared Statement............................................. 19
Mr. Josh Lerner, Jacob H. Schiff Professor of Investment Banking,
Harvard Business School
Oral Testimony................................................. 33
Prepared Statement............................................. 34
Mr. Daniel B. Ravicher, Executive Director, Public Patent
Foundation (PUBPAT)
Oral Testimony................................................. 36
Prepared Statement............................................. 38
APPENDIX
Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a
Representative in Congress from the State of California, and
Ranking Member, Subcommittee on Courts, the Internet, and
Intellectual Property.......................................... 63
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan.......... 63
Prepared Statement of the Honorable Zoe Lofgren, a Representative
in Congress from the State of California....................... 64
Memorandum of the Honorable Zoe Lofgren, a Representative in
Congress from the State of California.......................... 65
Letter from Michael K. Kirk, Executive Director, American
Intellectual Property Law Association (AIPLA), in response to
questions to Gary Griswold, President and Chief Intellectual
Property Counsel, 3M Innovative Properties Company, submitted
by the Honorable Zoe Lofgren, a Representative in Congress from
the State of California........................................ 67
Prepared Statement of the Computer & Communications Industry
Association.................................................... 75
PATENT ACT OF 2005
----------
THURSDAY, JUNE 9, 2005
House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 9:20 a.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chair of the Subcommittee) presiding.
Mr. Smith. Good morning. The Subcommittee on Courts, the
Internet, and Intellectual Property will come to order.
Let me say that I should have had more faith in our
witnesses and in the audience. I had no idea you all would be
here and be so prompt. When the building was closed this
morning, I thought, ``Well, we'll be lucky to start at 10:00;''
then I backed it up to 9:30. Then I get a call that three of
our witnesses have already showed up at 9:00, so I realized
that we're going forward pretty much on time as expected. So
thank you for your promptness, for your interest, and for your
diligence in coming even though there was a delay, as you all
know, getting into the building this morning.
I'm going to recognize myself for an opening statement,
then the Ranking Member, and then we'll proceed.
Today marks our third hearing on patent reform in the 109th
Congress. The first two focused on the contents of a Committee
Print. I want to take a moment to commend the Members of this
Subcommittee, all of the witnesses, and other interested
parties who have contributed so much to this project over the
past 6 months.
To arrive at this point is no small accomplishment, given
the scope of the bill and its eventual application to so many
lives and jobs. The bill in its current form is, without
question, the most comprehensive change to U.S. patent law
since Congress passed the 1952 Patent Act.
This Subcommittee has undertaken such responsibility
because the changes are necessary to bolster the U.S. economy
and improve the quality of living for all Americans. The bill
will eliminate legal gamesmanship from the current system that
rewards lawsuit abuses over creativity. It will enhance the
quality of patents and increase public confidence in their
legal integrity.
This will help individuals and companies to obtain seed
money for research, commercialize their inventions, grow their
businesses, create new jobs, and offer the American public a
dazzling array of products and services that make our country
the envy of the world. All businesses, small and large, will
benefit. All industries, directly or indirectly affected by
patents, including finance, automotive manufacturing, high-
tech, and pharmaceuticals, will profit.
The bill before us is a good first cut of what we
envisioned when this process commenced. No doubt, it will
undergo changes as we proceed to markup. In this regard, I
encourage the industry working groups to continue negotiating.
If interested parties keep talking and remain committed to a
holistic approach in which the greater good prevails, then we
can and will produce a patent bill that benefits all Americans.
That said, I will note that the bill makes the following
substantive changes from the Committee Print. First, in
response to criticism of the apportionment of damages section
of the print, the bill contains language from case law that
more clearly distinguishes between an inventive contribution
and other features.
Second, the bill replaces the print text governing
injunctive relief which does not allow a court to presume the
existence of irreparable harm. Instead, the new language
supplements the existing statute on injunctive relief by
compelling a court to consider the fairness of the remedy in
light of all the facts and the relevant interests of the
parties associated with the invention. The provision also makes
it easier for a judge to stay an injunction pending appeal.
Third, the bill addresses the issue of continuations, by
authorizing the PTO director to limit by regulation the
circumstances in which an applicant may file a continuation and
still be entitled to the priority date of the parent
application.
Fourth, the bill includes a second window for proceedings
under the post-grant opposition system. This additional review
must be initiated within 6 months from the date on which a
notice of infringement is received.
Finally, section 10 of the bill allows third-party
submission of prior art within 6 months after the date of
publication of the patent application. The third party must
articulate the relevance of each submission, and pay an
accompanying fee to defray PTO expenses and discourage
frivolous submissions.
The other provisions in the bill largely mirror those in
the print, with the exception of clarifying technical and
conforming changes.
We intend to mark up this bill by the end of the month, so
it is incumbent upon Subcommittee Members, industry
stakeholders, the PTO, and other interested parties, to work
hard and in good faith between now and June 30th.
That concludes my opening statement. But before I recognize
the Ranking Member, Mr. Berman, I do want to say in recognizing
him that this is truly a bipartisan bill. It started off as a
Smith-Berman bill. It is now a ``Smith-Berman-Goodlatte-
Boucher-Lofgren-Darrell Issa and, I hope, Bill Jenkins bill.''
We have a nice bipartisan bill going forward.
And this isn't the first Smith-Berman bill; nor will it be
the last Smith-Berman bill. There will probably not be a Smith-
Berman immigration bill, but there will be many more IP bills.
And that's one of the advantages and satisfactions of this
particular IP Subcommittee.
So in saying so, let me thank Mr. Berman again for his co-
sponsorship and for his input along the process, and will now
recognize him for his opening statement.
Mr. Berman. Well, thank you, Mr. Chairman. And I have hopes
that, with the passage of time, you will see the error of your
ways, and there will be a joint Smith-Berman bill on
immigration. [Laughter.]
Thanks for scheduling the hearing on this Patent Act of
2005. Thank you for your leadership in putting what I think is
a credible and good bipartisan package of provisions together
in this legislation, and for focusing both the Subcommittee and
the interested parties and the public on an intention to move
legislation expeditiously.
A number of groups have worked diligently to arrive at a
consensus on reforms necessary to improve existing patent laws.
There seems to be agreement that any legislation should focus
on three broad subjects: the decrease in patent quality; the
increase in litigation abuses; and the need to harmonize U.S.
patent laws with the patent laws of foreign countries.
The Chairman and I and our staffs have carefully considered
the copious comments on the Committee Print, and have carefully
crafted H.R. 2795 to respond to the concerns.
I initially became interested in patent reform primarily
because of the multitude of questionable-quality patents that
were being issued. High-quality patents are essential to a
healthy patent system. Poor-quality patents tend to spawn
litigation; which in turn creates uncertainty in markets that
depend on patent rights. As a result, investors hesitate to
invest; innovators hesitate to invent.
That is why I'm pleased that there is strong support for a
key quality provision in the bill allowing third parties to
submit prior art to examiners within a limited time frame. With
section 10, we have taken an important first step in addressing
the problem of poor patent quality, by enabling examiners to
have more information from additional sources. During the
question-and-answer portion of the hearing, I intend to explore
the merits of the additional quality measures, such as the
second window in the post-grant opposition procedure.
The bill is by no means a perfect solution, but I believe
many of my additional concerns will be addressed as the bill
goes through Committee. For example, the PTO has voiced some
concerns about its ability to administer the provision on the
duty of candor. If the agency tasked with managing the
procedure believes it will have trouble doing so, it's worth
taking a second look at the consequences of the language.
Furthermore, I think the harmonization provisions need to
be fleshed out a bit more to address the concerns of small
inventors and universities; which I hope at least one of the
witnesses will speak to today.
As we move forward in this process, I hope we'll continue
to seek a consensus on the best way to reform our patent
system. I look forward to hearing from the parties interested
in patent reform over the next few weeks, in order to rectify
any unintended consequences presented by the text of the bill.
Overall, I believe that our bill has addressed a number of
pressing issues and will certainly create a healthier, more
effective patent system. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Berman. And without objection,
other Members' opening statements will be made a part of the
record.
And I'd like to invite our witnesses to stand and be sworn
in.
[Witnesses sworn.]
Mr. Smith. Our first witness is Gary Griswold, President
and Chief Intellectual Property Counsel of 3M Innovative
Properties Company, who will be testifying on behalf of the
American Intellectual Property Law Association, or AIPLA. He
has practiced intellectual property for 27 years at 3M and
Dupont, and has served as a past president at both AIPLA and
the Intellectual Property Owners Association. Mr. Griswold
received a B.S. in chemical engineering from Iowa State
University, an M.S. in industrial administration from Purdue
University, and a J.D. from the University of Maryland.
Our next witness is Carl E. Gulbrandsen, Managing Director
of the Wisconsin Alumni Research Foundation, or WARF, which is
the patent management organization for the University of
Wisconsin at Madison. Mr. Gulbrandsen received his B.A. from
Saint Olaf College in Northfield, Minnesota. He also earned a
doctorate in physiology from the University of Wisconsin,
Madison; and a law degree from the University of Wisconsin Law
School.
Our next witness is Josh Lerner, the Jacob H. Schiff
Professor of Investment Banking at Harvard Business School,
with a joint appointment in the Finance and Entrepreneurial
Management Units. His research focuses on the structure of
venture capital organizations and their role in transforming
scientific discoveries into commercial products. He also
examines the impact of intellectual property protection,
especially patents, on the competitive strategies of firms in
high-tech industries. I have found very helpful his most recent
book, co-written with Adam Jaffe, entitled ``Innovation and Its
Discontents.''
Our final witness is Dan Ravicher, Executive Director of
the Public Patent Foundation, or PUBPAT, in New York. PUBPAT is
a not-for-profit legal services organization that was formed to
represent the public interest ``against harms caused by wrongly
issued patents and unsound patent policy.'' Mr. Ravicher
received his bachelor's degree in materials science from the
University of South Florida, and his law degree from the
University of Virginia.
Welcome to you all. We have your complete written
statements, which will be made a part of the record, without
objection. And please, as you all know, limit yourselves to 5
minutes on your opening remarks.
And Mr. Griswold, we'll begin with you.
TESTIMONY OF GARY L. GRISWOLD, PRESIDENT AND CHIEF INTELLECTUAL
PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY, ON BEHALF
OF THE AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION
Mr. Griswold. Thank you. Chairman Smith, Ranking Member
Berman, Members of the Subcommittee, I am pleased to have the
opportunity to present the views of AIPLA on H.R. 2795, the
``Patent Act of 2005.''
Like one-third of the AIPLA's active members, I come from
the corporate world where I am currently president and chief IP
counsel of 3M Innovative Properties Company, a subsidiary of
3M, a company that sells over 50,000 different products, from
pharmaceuticals to electronics to consumer products.
A special AIPLA legislative strategies committee,
established in the fall of 2003, was charged with devising a
coordinated set of reforms to enhance the quality, speed, and
efficiency of the patent system.
The committee recommended that the patent laws be amended
to: adopt a first-inventor-to-file system, with an objective
definition of ``prior art;'' limit or eliminate the subjective
elements in patent litigation; complete the desirable
legislative enhancements originally proposed in the American
Inventors Protection Act; and adopt a fair and balanced post-
grant opposition system that takes advantage of the elimination
of the subjective elements in patentability criteria that
accompany adoption of the first-inventor-to-file principle.
AIPLA would like to highlight, however, the most
fundamental problem in need of a solution: adequate and stable
funding for the PTO. Both the National Academies of Science and
the Federal Trade Commission, following their thorough reviews
of the patent system, agree with AIPLA on this crucial point.
The reforms in H.R. 2795 will require the PTO to play a greater
role in the patent system, a role it cannot play unless it's
adequately funded.
Most provisions of H.R. 2795 contribute to improvements in
the quality, speed, and efficiency of the patent system. These
include new section 8 that authorizes the director to regulate
the filing of continuing applications, while ensuring that
applicants can obtain adequate protection for their inventions;
and new section 10, which will provide the public with an
opportunity to submit information to the office to improve the
initial examination.
These provisions, coupled with the provisions carried over
from the Committee Print that implemented the recommendations
of our special committee, will materially improve patent
quality and simplify litigation.
Other provisions which have found their way into H.R. 2795
do not address these fundamental goals. Here, I am speaking of
modification of the fundamental exclusivity of the patent
right, and the transformation of post-grant procedure into a
patent revocation procedure. Neither of these proposals will
improve the quality, speed, and efficiency of the patent
system.
Of greatest concern to AIPLA is the proposal in section 7
to modify the existing rules of granting permanent injunction
for a valid and infringed patent. AIPLA strongly opposes this
provision. It will devalue the property right of patentees by
undercutting their traditional right to injunctive relief
against adjudged infringers.
Its impact will be especially harsh on independent
inventors, who already face great difficulty in commercializing
their patented inventions. It will be likewise equally harsh on
universities, who are precluded in many, if not most, cases
from directly commercializing their inventions and who must
therefore rely on licensing and selling them.
It will also set an extremely unfortunate precedent
internationally for the United States, by suggesting to other
nations that there need be no patent exclusivity for all
inventions; that other nations can also pick and choose the
patented inventions for which they grant exclusivity.
This Subcommittee recently held hearings on the enforcement
problems that the U.S. right-holders are experiencing in Russia
and China. One can only imagine what might be considered a
``fair remedy in light of the relevant interests of the
parties'' in those countries. The danger of this provision
seems inordinately high, in view of the other possibilities of
addressing the problems it is intended to solve. AIPLA strongly
urges that this provision be dropped.
As I noted at the outset, AIPLA is a strong proponent of an
effective and balanced post-grant procedure to allow the public
to promptly correct mistakes made in the PTO in issuing
patents. We strongly believe, however, that there should be
only one window for requesting an opposition, and that the
window should be 9 months after the patent is issued, to
encourage the public to act promptly.
After the initial 9-month period has passed and no
opposition has been filed, patentees should enjoy a ``quiet
title'' without a fear of later administrative challenges,
except for inter partes reexamination procedure, which this
bill has made more attractive.
This brings me to the second window proposed in the new
section of H.R. 2795, which would permit an individual to file
an opposition not later than 6 months after receiving notice
from the patent holder alleging infringement.
AIPLA opposes a second window for bringing an opposition
for the life of the patent. The post-grant procedure was
conceived and designed as an early check on PTO quality. This
proposed second window will remove the incentive to challenge
patents during the first window, allowing improvidently granted
patents to escape this important early quality-enhancing
function and impede competition.
A second window would increase the risks faced by patent
holders, and dampen the enthusiasm for companies and venture
capitalists to invest in the development and commercialization
of patented technologies.
Finally, a second window would, in effect, create a
``patent revocation'' system that does not fit the design of
the post-grant system. It would require a significant
restructuring of the provisions on discovery, claim amendment,
burden of proof, estoppel, etc. For all these reasons, AIPLA
strongly urges that the second window be dropped.
Thank you for the opportunity to present my views, our
views, and I'd be pleased to answer any questions.
[The prepared statement of Mr. Griswold follows:]
Prepared Statement of Gary Griswold
Mr. Chairman:
I am pleased to have the opportunity to present the views of the
American Intellectual Property Law Association (AIPLA) on H.R. 2795,
entitled the ``Patent Act of 2005.'' AIPLA congratulates you for your
efforts to identify important issues affecting the U.S. patent system
and to search for appropriate reforms to increase its effectiveness.
AIPLA is a national bar association of more than 16,000 members
engaged in private and corporate practice, in government services, and
in the academic community. The AIPLA represents a wide and diverse
spectrum of individuals involved directly or indirectly in the practice
of patent, trademark, copyright, and unfair competition law, as well as
other fields of law affecting intellectual property. Since our members
represent both patent owners as well as those against whom patents are
asserted, we have a keen interest in reforms that further an efficient,
effective, and balanced patent system.
I appear today in my capacity as a Past President of AIPLA and as
the Chair of two Special Committees appointed by then President Rick
Nydegger to review and prepare responses to two recent studies on the
patent system about which I will say more in a moment. But like one
third of AIPLA's active members, I come from the corporate world. I am
currently President and Chief IP Counsel of 3M Innovative Properties
Company, a subsidiary of 3M. 3M sells over 50,000 products, including
consumer products such as ``Post-It'' Notes and ``Scotch'' Tape,
pharmaceuticals such as Aldara for the treatment of basal skin
carcinoma; medical products such as tapes, drapes, and software;
brightness enhancement film used in laptops and cell phones; industrial
products such as abrasives, adhesives and tape; and electronic products
such as flex circuits and electrical connectors. 3M received 585 U.S.
patents in 2004, ranking 34th of worldwide and 15th of U.S. companies.
the need for reform
The U.S. patent system has, in certain respects, functioned
remarkably well. Its successes today are in significant part
attributable to a number of reforms that have been made by Congress
during the past 25 years. The creation of the Federal Circuit, the
passage of the Patent Law Amendments Act of 1984, the adoption of
reexamination, and the enactment of the American Inventors Protection
Act have made the patent system more open and much stronger as an
incentive to invest in innovation. However, there are aspects of the
U.S. patent system that are not working well today. Over the past
decade, some of these elements of the patent system have, in fact, come
to work less well.
This conclusion is shared by others. Two recent studies of the U.S.
patent system have produced lengthy reports that have largely come to
the same conclusion. The Federal Trade Commission (FTC) report,
published in October 2003, found that while most of the patent system
works well, some modifications are needed to maintain a proper balance
between competition and patent law and policy. The FTC made ten
recommendations that focused on tuning the balance between patent
owners' rights to effective exclusivity in valid patents and the
public's right to be free from the competition-limiting effects of
invalid patents.
The report of the National Academies of Sciences' Committee on
Intellectual Property Rights in the Knowledge-Based Economy was
published just one year ago, in April 2004. Like the FTC effort, it was
the culmination of a multi-year study of the patent system. The NAS
report found that the U.S. patent system played an important role in
stimulating technological innovation by providing legal protection to
inventions and by disseminating useful technical information. Moreover,
with the growing importance of technology to the nation's well-being,
it found that patents are playing an even more prominent role in the
economy. It concluded with seven principal recommendations to ensure
the vitality and improve the functioning of the U.S. patent system,
several of which overlap those made by the FTC.
AIPLA has also studied the effectiveness of the patent system.
Former AIPLA President Rick Nydegger recognized the need to review the
functioning of the patent system almost two years ago and established a
Special AIPLA Committee on Patent Legislative Strategies in an effort
to provide more concrete and coordinated ideas for needed reforms to
the patent law. The Special Committee was co-chaired by two other
former AIPLA Presidents, Don Martens and Bob Armitage, and its
membership was drawn from a diverse cross-section of AIPLA members. It
included former senior officials of the United States Patent and
Trademark Office, a retired federal district court judge, some of the
nation's leading patent litigators including Past Presidents of our
Association, and in-house IP counsel drawn from several industry
sectors. I served on this Special Committee.
In efforts paralleling that of our Special Committee on Legislative
Strategies, I had the privilege, as I mentioned earlier, of chairing
two AIPLA Special Committees that undertook an exhaustive analysis of
the recommendations in both the FTC and NAS reports and offered
replies. These parallel and sometimes intersecting efforts stimulated
us to take a closer look at a number of issues and push to further
develop and refine concrete proposals for reforms.
The Association's position on needed patent law reforms coming out
of this two-year effort consisted of four elements. First, adopt a
first-inventor-to-file principle using so-called ``best practices''
developed in the context of international patent harmonization. Second,
remove the ``subjective elements'' from patent litigation that are
responsible for much of the excessive cost of enforcing and challenging
patents. Third, complete the reforms started under the American
Inventors Protection Act, a step which is greatly facilitated given the
compelling merits for doing so as part of a first-inventor-to-file
system. Fourth, create a true post-grant opposition system available
during the first nine months after patent grant in which mistakes made
in issuing the patent could be corrected in a manner that is both
timely and that fairly balances the interests of the patentee and the
opposer.
After developing these reform proposals that were ultimately
approved following several meetings of AIPLA's Board of Directors, we
concluded that it would be highly desirable to take them to a broader
public. After discussions with the officials responsible for developing
similar recommendations in the FTC and NAS reports, we agreed with FTC
and NAS to jointly sponsor three ``Town Hall'' meetings across the
country. These were open forums to explain to all stakeholders the
proposed reforms to the patent system and to allow them to offer their
reactions and suggestions. We are holding the fourth and final meeting
today where you, Mr. Chairman, are scheduled to deliver a luncheon
address. This final meeting will allow us to distill the work of the
three previous meetings.
What is striking about the parallel efforts by these three quite
different organizations with quite distinct missions are the many
similarities in the diagnosis of what needs improving in the patent
system and, especially between AIPLA and NAS, the convergence in the
recommendations for doing so.
For any organization putting together an effort at patent law
reform, a critically important task is to make a clear separation
between what is right with our patent laws--and does not requiring
tinkering--and what is wrong with our patent laws--and, therefore,
should be the subject of focused attention. Where, for example, could
reforms have the biggest benefits for all users of the patent system?
What is actually ready for reform today--because a sufficient consensus
already exists or could be developed--and sufficient study and
scholarship has taken place? And where might more study and reflection
be needed before forging ahead with changes to the patent system? Our
assessment is that our work with the NAS and the FTC in large part
validates our four-point reform package as a possible way forward to
near-term patent reforms.
We have been especially mindful that patent law reform is never
easy because of the diversity of the constituencies with a stake in the
patent system. However, AIPLA believes that successful patent law
reform has been and always will be an effort at inclusion. This comes
naturally to us because our membership reflects the diversity of
stakeholders in the patent system--clients of our members both obtain
patents and challenge patents. Similarly, our members represent clients
for whom money is not a critical limitation on the ability to use the
patent system and clients for whom the cost of the patent system is the
chief limitation on the ability to enjoy its advantages.
Our notion of inclusion means, therefore, that reforms work to make
a better patent system not only for inventors with adequate resources--
more often than not inventors connected with so-called ``large
entities'' such as corporations--but also for the least financially
able inventors--which includes many ``independent inventors,'' not-for-
profit institutions, and small businesses.
Another equally important aspect of inclusion relates to the manner
in which the patent system works to protect the interests of those who
seek patents, those who challenge patents, and the public. The patent
system works best when standards for patentability are rigorously
applied and mistakes--that will inevitably be made when patents are
issued that should not have--can be readily corrected. While much
emphasis is understandably placed on making the patent system work
better for inventors, a fair and balanced patent system needs to work
equally well when a member of the public seeks to have a mistake made
in issuing a patent quickly and inexpensively corrected.
Against this background, AIPLA believes that the time is right for
Congress to adopt a coordinated and interrelated set of reforms to the
patent system as recommended by the NAS and which we support:
Adopt a first-inventor-to file system with an
objective definition of ``prior art''--the information used to
determine if an invention is new and non-obvious.
Limit or eliminate the subjective elements in patent
litigation, i.e., limit ``inequitable conduct'' and ``willful
infringement,'' and eliminate ``best mode.''
Complete the desirable legislative enhancements
originally proposed in what became the American Inventors
Protection Act of 1999.
Adopt a fair, balanced post-grant opposition system
that takes advantage of limiting or eliminating the subjective
elements in patentability criteria and other best practice
changes that accompany adoption of the first-inventor-to-file
principle.
funding: an essential prerequisite for patent law reform
Before discussing our legislative proposals for patent law reform,
we cannot overlook the most fundamental problem in need of a solution--
adequate and stable funding and operational flexibility for the PTO.
Any careful study of the U.S. patent system today would reach this
conclusion--indeed, both the NAS and FTC recommended providing adequate
funding for the PTO. The Office must be afforded the resources and
capabilities to deal with a workload that has grown dramatically--both
in size and complexity. As patent rights have become more important, it
has become much more important that the quality of PTO's work improve.
Important patents take too long to issue. Technologies new to patenting
require building new capabilities for examining them, sometimes almost
from scratch.
The need for a more efficient and effective PTO will require
adequate funding, but it will also require long-range planning,
oversight, and accountability. The PTO can not be expected to
successfully engage in such long-range planning without an adequate
level of funding that it can depend on year after year, with no
diversion of its fee revenues. AIPLA supported the PTO's development of
the Strategic Plan requested by Congress. For the Office to be able to
build new capabilities, improve its quality, become more efficient, and
serve all its constituencies, it must anticipate, plan for, and invest
in new capabilities. This requires on-going efforts at long-term
planning that must include long-range financial and operational
planning.
Of course, PTO planning and Congressional oversight will mean
nothing without adequate funding. Many of the reforms that AIPLA and
others are proposing, such as post-grant opposition, will require the
PTO to play a greater role in the overall patent system. AIPLA is
dedicated to working with the Congress, both this Committee and the
Appropriations Committee, to secure a financing structure that will
allow the patent law reforms which we propose to be achieved. However,
we cannot emphasize enough the importance of this goal: the most
significant patent law reforms absolutely depend on the PTO having the
financing and operational flexibility to carry them out effectively and
efficiently.
h.r. 2795
H.R. 2795 contains a number of proposals for modifying the patent
system. As explained above, AIPLA developed its recommendations for
patent system reform building on the extensive research and hearings
held by the FTC and the NAS. Other associations interested in the
patent system such as the Intellectual Property Owners Association, the
Intellectual Property Law Section of the American Bar Association, and
the Biotechnology Industry Organization were developing recommendations
along lines similar to AIPLA.
In January, we became aware of a proposal from the Business
Software Alliance to revise the patent laws. In some respects, our
concerns overlapped. For example, we agreed in concept on the need to
adopt an effective post-grant opposition system and the need to
constrain burdens placed upon industry by the current jurisprudence
involving the doctrine of willful patent infringement. In other
respects, our proposals diverged.
AIPLA has worked hard to seek common ground. AIPLA invited the four
organizations mentioned above to meet to determine whether it might be
possible to narrow the differences between our positions. We have held
a number of meetings with these organizations (March 16, March 31, and
May 9). Recognizing that there were certain issues where the
organizations were far apart, several working groups were established
to seek common ground on these issues as well as on issues where the
divide was not as large. These working groups addressed willful
infringement, damages, injunctive relief, post-grant oppositions, and
pre-grant submission of prior art. From May 31st through June 2nd, in
response to your urging Mr. Chairman, and with the able assistance of
your staff, we held additional meetings with an expanded group of
organizations (the Information Technology Industries Council, the
Pharmaceutical Research and Manufacturing Association, the National
Association of Manufacturers, and the Financial Services Roundtable
among others).
Sec. 3. Right of the First Inventor to File
AIPLA supports the principle in Section 3 of H.R. 2795 that the
first inventor to file an application for patent containing an adequate
disclosure (35 U.S.C. Sec. 112) of an invention should have the right
to patent the invention. This change in U.S. patent law would bring a
much needed simplification of the process and reduce the legal costs
imposed on U.S. inventors. It would also improve the fairness of our
patent system, and would significantly enhance the opportunity to make
real progress toward a more global, harmonized patent system.
The current system requires complex proofs of invention and is
fundamentally unfair to independent inventors and small entities due to
its costs and complexities. It frequently does not award patents to the
first to invent. It uniformly awards patents to the first-inventor-to-
file for a patent except in a very small number of cases where
sufficient, corroborated invention date proofs can be marshaled to
demonstrate that a second-to-file inventor can overcome the presumption
currently afforded under our patent law in favor of the first inventor
who filed.
Moreover, the expense and complexity of the first-to-invent system
mean that an inventor can be first to make the invention and first to
file a patent application, but still forfeit the right to a patent
because the inventor cannot sustain the cost of the ``proof of
invention'' system. According to AIPLA's 2003 Economic Survey, the
median cost to an inventor in a simple, two-party interference is
$113,000 to complete the preliminary phase (discovery) and over
$300,000 to the final resolution. Costs of this magnitude place
independent inventors, small entities and universities at a clear
disadvantage.
This disadvantage has been heightened in recent years by the new
right of foreign-based inventors to introduce invention date proofs.
While a decade ago a U.S.-based inventor might have had some advantage
because of the bar against relying on a foreign date of invention, this
provision of U.S. patent law was outlawed by TRIPs. Thus, independent
inventors, small entities and universities are now also subject to this
kind of cost disparity from attacks brought by foreign applicants and
parties.
Former PTO Commissioner Gerald J. Mossinghoff presented empirical
data at our Town Hall meetings based on his earlier research. See
Gerald J. Mossinghoff, The First-to-Invent System Has Provided No
Advantage to Small Entities, 88 J. Pat & Trademark Off. Soc'y 425
(2002). His data demonstrated conclusively that independent inventors,
whose right to patent their inventions depended on their ability to
prove that they were ``first to invent,'' managed to lose more often
than not. In an April 15, 2005 Working Paper published by the
Washington Legal Foundation, Mossinghoff's most recent data suggests
that the rate of loss by independent inventors has only accelerated
over the past several years (Gerald J. Mossinghoff, Small Entities and
the ``First to Invent'' System: An Empirical Analysis, http://
www.wlf.org/upload/MossinghoffWP.pdf ).
An analysis by Professor Mark A. Lemley and Colleen V. Chien
reaches an even more stunning conclusion. The Lemley and Chien findings
suggest that the current first-to-invent contests ``are more often used
by large entities to challenge the priority of small entities, not the
reverse. This evidence further supports Mossinghoff's conclusion that
the first to invent system is not working to the benefit of small
entities.'' See Are the U.S. Patent Priority Rules Really Necessary?,
54 Hastings Law Journal 1 (2003).
Given the cost, complexity and demonstrable unfairness imposed by
the present first-to-invent system, it is clear that a change to a
first-inventor-to-file system in our patent law is justifiable simply
on grounds that it is the ``best practice.''
With the adoption of a first-inventor-to-file rule, 35 U.S.C.
Sec. 102 can be greatly simplified. Prior art would no longer be
measured against a date of invention: if information anticipating or
making reasonably obvious the invention was reasonably and effectively
accessible before the earliest effective filing date of a patent
application, no patent issues. Similarly, the question of whether an
inventor ``abandoned'' an invention would no longer be relevant. And,
of course, proofs of conception, diligence, and reduction to practice,
all of which require difficult and costly evidence of ``what the
inventor knew/did and when the inventor knew/did it,'' become
irrelevant.
A first-inventor-to-file system will also clearly benefit large and
small businesses. It will eliminate the present delays and uncertainty
associated with resolution of interferences which complicate business
planning. In addition, it will remove the potential cloud over
important inventions that will always be present in a first-to-invent
system.
Sec. 4. Right to a patent--Filing by Assignee
As discussed above, AIPLA believes that it is paramount that the
patent statute clearly provide that the right to a patent is, in the
first instance, the right of the inventor as provided in section 4 of
the Committee Print. This fundamental right is captured in the
description of the priority system we propose: first-inventor-to-file.
This right of the inventor is well understood in the laws of other
countries--only the inventor has the right to a patent. The inventor
can transfer this right through assignment if desired, but no one can
take the invention and obtain a valid patent merely by filing the first
application.
To compliment this fundamental right, section 4 authorizes any
person to whom the inventor has assigned the invention to file an
application for patent. AIPLA supports this provision. It will greatly
facilitate the filing of patent applications by companies where their
employed inventors have assigned the title to the invention or where
they are under an obligation to assign the invention.
Sec. 4. Right to a patent--Eliminate ``Best Mode''
As noted above, NAS singled out three so-called ``subjective
elements'' in patent litigation that should be limited or eliminated.
The ``best mode'' requirement is the first of those subjective elements
addressed in the Committee Print. Section 112 of the Patent Act
requires that an application ``set forth the best mode contemplated by
the inventor of carrying out his invention.'' To enforce this
requirement, courts inquire whether the inventor, at the time of
filing, knew of a mode of practicing the invention that the inventor
believed was better than that disclosed in the application. This test
is obviously subjective, focusing on the inventor's state of mind at
the time an application was filed.
Because the defense depends on historical facts and because the
inventor's state of mind usually can be established only by
circumstantial evidence, litigation over this issue--especially
pretrial discovery--can be extensive and time-consuming. Further, the
best mode requirement provides only a marginal incentive for a patentee
to disclose more information than is required by the written
description and enablement provisions of 35 U.S.C. Sec. 112. Given the
cost and inefficiency of this defense and its limited incentive to
provide additional disclosure to the public, the NAS report recommended
its elimination and section 4 adopts that recommendation.
AIPLA endorses this change. Section 4 of H.R. 2795 does not change
the requirements that every patent application must provide the public
a full description of the invention (i.e., the so-called ``written
description'' requirement) and fully enable the practice of the
invention the inventor seeks to patent (i.e., the so-called
``enablement'' requirement). However, it removes the problematic and
subjective best mode requirement, first introduced into the patent law
in the 1952 Patent Act, that the inventor additionally include in the
patent application the mode the inventor subjectively contemplated to
be the best as of the day that the application was filed.
Sec. 5. Duty of candor
The National Academies singled out the ``inequitable conduct''
defense as another of three so-called ``subjective elements'' in patent
litigation that should be limited or eliminated. Inventors and patent
owners desperately need to have Congress address the issue of the
``inequitable conduct'' unenforceability defense. Section 5 does this.
The defense of inequitable conduct applies when the patent
applicant has made a material misstatement or omission with intent to
deceive the PTO. Examples of conduct punishable as inequitable conduct
might include the intentional failure to disclose a known prior art
reference that is material to patentability (unless cumulative of other
art already considered), or making false or misleading statements to
the PTO such as when submitting false or misleading evidence of test
data to support patentability. Despite the salutary intent of the
doctrine, it has become an overused weapon in patent litigation. As
noted in Burlington Industries v. Dayco Corp. 849 F.2d 1418 (Fed. Cir.
1988), ``[T]he habit of charging inequitable conduct in almost every
major patent case has become an absolute plague.''
AIPLA agrees with the approach in section 5 to limit the
``inequitable conduct'' defense by accused infringers in patent
litigation to clear cases of common law fraud. Under section 5, the
defense of inequitable conduct could only be pled where the court has
first invalidated a claim and the accused infringer has a reasonable
basis for alleging that, absent the fraudulent misconduct attributable
to the patent owner (``but for'' the conduct of the patent owner), a
reasonable patent examiner would not have allowed the invalidated claim
to issue as part of the patent. Where such conduct is proven, a fraud
has occurred and the patent would be unenforceable. Thus, while a
patent owner who had engaged in a fraud to secure an invalid claim
would not be able to enforce the patent--the patent owner's ``unclean
hands'' would preclude such enforcement--section 5 would return the
``inequitable conduct'' defense to its equitable roots. Importantly, it
would drastically reduce the current practice of asserting this defense
in virtually all cases, by limiting it only to cases where claims have
first been found to be invalid due to such misconduct.
However, of equal importance, section 5 would not excuse other
possible misconduct by a patent owner that does not rise to the level
of fraud--that is, misconduct that would not have resulted in an
examiner allowing a claim even if the omission or misstatement had not
occurred. Such misconduct would be referred back to the PTO by the
court. Thus section 5 would keep intact the duty of candor and good
faith on individuals associated with the filing of a patent
application. Further, it would give the PTO the authority to administer
that duty where questionable misconduct is uncovered during patent
enforcement proceedings. Like other agencies, Congress should look to
the PTO to enforce its own rules and charge it with the responsibility
for doing so. No agency of government undertaking work of crucial
importance to the nation should have rules mandating high standards of
conduct for those appearing before it and not have responsibility,
resources, and capabilities for administering and enforcing those
rules. This would allow the Office--as part of its control over the
duty of candor and good faith--to determine whether or not the
allegations merited investigation and sanction in appropriate cases
referred to it during litigation.
Giving the PTO authority over the duty of candor and good faith
means that the Office could address other related dilemmas faced by
those representing clients who--justifiably and consistently--have
opposed efforts by the Office to mandate more meaningful disclosures of
information. Such more meaningful disclosures could clearly drive the
efficiency and accuracy of the patent examination process--for example,
by specifying the contents of statements to be submitted regarding the
potential relevance of prior art. Today, if such statements are
offered, they are fodder for the ``inequitable conduct'' defenses
raised in patent litigation. Placing the PTO in control of the duty of
candor and good faith would allow the creation of ``safe harbors'' for
applicants satisfying enhanced disclosure requirements which could not
later be used as grounds for an allegation of inequitable conduct.
Giving the PTO such authority could also address an AIPLA concern
for the post-grant opposition procedure, namely, that the duty of
candor and good faith should meaningfully apply to opposers. An opposer
that raises an issue of unpatentability should be no more free to
mislead or misrepresent the facts in that proceeding than an inventor
or patent owner in a PTO proceeding. This is a hole in the duty today
with respect to reexamination that could be filled by giving the PTO
such authority.
We therefore support authorizing the PTO to investigate misconduct
by opposers and third parties who request reexamination and to impose
civil monetary sanctions on patentees and disbarment of their
attorneys. In addition, where false statements have been made, the
mechanism for sanctioning misconduct should include a mechanism for
referrals to the Criminal Division of the Department of Justice.
We believe that such proceedings by the PTO--where the Office
elects to proceed after reviewing a referral from a court--would be
relatively rare events, but nonetheless a much more effective deterrent
to misconduct than the current unenforceability defense. The current
reliance on the courts for ``enforcement'' of the duty is problematic
because it can lead to the punishment of benign deeds and the failure
to punish bad deeds. The ultimate ineffectiveness of the inequitable
conduct defense today is probably best illustrated by the fact that it
is raised and litigated in almost every important patent case, but is
rarely successful.
Sec. 6. Right of the Inventor to Obtain Damages--Determination of
Damages
Section 6 of H.R. 2795 also proposes to add a paragraph to 35
U.S.C. 284 to limit the award of damages in the situation where the
infringed patented invention is only one element of the defendant's
method or apparatus. The provision seeks to limit the damages to the
portion of the total value of the method or apparatus represented by
the value of the patented invention.
This provision addresses what is known as the ``entire market
value'' rule, which permits recovery on the market value of an entire
machine when the patented feature is the basis for customer demand for
the machine. Rite-Hite Corp. v. Kelley Co., 56 F.3d 1538, 1549, (Fed.
Cir.) (in banc), cert. denied, 116 S. Ct. 184 (1995). There are cases
where damages have been based on the value of an apparatus of which the
patented invention was only one element. This occurred in a case where
the patented invention was found to contribute substantially to the
increased demand for the entire product and the infringer acknowledged
that improved performance influenced its decision to incorporate the
invention into its product. Bose Corporation v. JBL, Inc., 274 F.3d
1354 (Fed. Cir. 2001).
A different result was reached, and appropriately so, in Riles v.
Shell Exploration & Production, 298 F.3d 1302 (Fed. Cir. 2002), where
the patent claim was directed to a ``method of offshore platform
installation.'' There the Court set aside a jury verdict because the
plaintiff's damage model did not ``follow proper reasonable royalty
criteria'' in claiming damages equal to the cost of constructing the
platform, 298 F.3d at 1311. Thus, even though the claims were to the
construction of the entire platform, the inventive character of the
claimed platform was tied to a novel an element of the platform and
damages were thus rightfully apportioned based on the value of the
inventive element added to the platform rather than on the entire
platform.
Under current law, courts can flexibly assess each case on its
merits and reach a fair determination on a royalty rate that will be
adequate to compensate for the infringement. In determining a
reasonable royalty, the courts look to the 15 Georgia Pacific factors
and seem to manage quite nicely. Georgia-Pacific Corp. v. United States
Plywood Corp., 318 F. Supp. 1116, 1119-1120 (S.D.N.Y. 1970). Therefore,
we do not believe that a case has been made for codifying the many
considerations in the case law on the proper calculation of damages.
Having noted our reservation, however, we believe that the new
formulation of a rule on the calculation of damages is very much
improved over the version that appeared in the Committee Print, and it
is one which we believe is more balanced and thus will be more
acceptable to a wider constituency. It captures the essence of the
guidance contained in the Georgia-Pacific case for apportioning damages
in the case of infringement damages based on claimed combinations where
patentability of the combination is essentially tied to the inventive
character of a component of the combination rather than the combination
itself.
Sec. 6. Right of the inventor to obtain damages--willful infringement
The third of the three so-called ``subjective elements'' in patent
litigation that NAS recommended for limitation or elimination is the
doctrine of willful infringement. In its Report, NAS recommended that
the doctrine of willful infringement be eliminated from patent
litigation. It observed that the question of willful infringement
involves an issue of intent that produces a significant discovery
burden, introduces an element of substantial uncertainty, and
complicates much patent infringement litigation. AIPLA does not
recommend its elimination, but agrees with the limitation on willful
infringement that is set forth in section 6 of the H.R. 2795.
In practice, exposure to a claim of willfulness is not limited to
cases of knowing, intentional infringement. Knowledge of a patent,
coupled with a decision to engage in or continue conduct later found to
be infringing, may be enough to result in treble damages. During the
hearings conducted by the FTC, testimony revealed that some companies
forbid their engineers from reading patents for fear that such acts
might be used by a patentee to allege that, because the company had
``knowledge'' of the patent, the company willfully infringed the
patent. As reported by the FTC, ``the failure to read a competitor's
patents can jeopardize plans for a noninfringing business or research
strategy, encourage wasteful duplication of effort, [and] delay follow-
on innovation . . .'' (To Promote Innovation: The Proper Balance of
Competition and Patent Law and Policy, Report by the Federal Trade
Commission, Chapter 6, page 29 (October 2003)). This fear forcefully
demonstrates the chilling effect that the law on willfulness has on
what would otherwise be an appropriate use of patents, and how
consequently the current law on willfulness effectively undermines the
Constitutional purpose of the patent system, i.e., to promote the
progress of the useful arts.
Moreover, willfulness is asserted in most cases. Professor Kimberly
A. Moore, George Mason University School of Law, conducted an empirical
study of willfulness, looking at patent infringement cases that
terminated during litigation from 1999-2000. Professor Moore found that
willful infringement was alleged in over 92% of the cases, observing
that her ``results suggest that willfulness claims are plaguing patent
law. It seems unlikely that in 92% of the cases, the patentee had
sufficient factual basis at the time the complaint was filed to allege
that the defendant's infringement was willful.'' See Empirical
Statistics on Willful Patent Infringement, 15 Fed. Cir. B.J. 227
(2004).
Additional problems arise from the Federal Circuit's opinion in
Underwater Devices, Inc. v. Morrison-Knudsen Co., 717 F2d 1380 (Fed.
Cir. 1983). The decision speaks of an accused infringer having an
affirmative duty to exercise due care to determine whether he or she is
infringing once given notice of another's patent, including the duty to
seek and obtain competent legal advice from counsel. This permits
patent owners to ``game'' the system and create an unequal bargaining
position by simply ``notifying'' those in affected industries of the
patent, and then demanding large settlements or else face the risk of
``willfulness'' allegations at trial. This in turn leads to hundreds of
thousands of dollars spent by company after company on opinions of
counsel as insurance against a finding of willful infringement. This
perceived obligation also leads to problems with attorney
disqualification since the attorney giving the opinion will be called
as a witness during the litigation. As a result, a company's chosen
counsel cannot act as both its counselor and its trial attorney. Some
states, such as the state of Virginia, do not even allow the attorney
trying the patent infringement case to be in the same law firm as the
attorney who drafted the infringement opinion. Complicated issues
involving waiver of attorney-client privilege further exacerbate the
matter.
These difficulties were not obviated by the en banc reconsideration
of Knorr-Bremse Systeme Fuer Nutzfahrzeuge GmbH v. Dana Corp. 383 F3d
1337 (Fed. Cir. 2004). While the Court did rule that it is
inappropriate for the trier of fact to draw an adverse inference with
respect to willful infringement when a defendant has not obtained legal
advice or invokes the attorney-client privilege, the decision leaves
untouched the duty of due care and the circumstances which give rise to
such duty.
While section 6 retains the concept of willful infringement, it
carefully limits the circumstances where a determination of willful
infringement can be made to those in which an infringer is truly a bad
actor. Of course, every successful patentee will still receive damages
adequate to compensate for the infringement, together with interest and
costs as fixed by the court. In general, however, absent deliberate
copying of a patented invention with knowledge that it was patented, we
believe there should be no finding of willful infringement unless the
patent owner has provided to the infringer a written notification that
details which claims of the patent are infringed and the particular
acts that are alleged to infringe, rather than merely sending notice of
the patent.
Moreover, we agree with the further limitation in section 6 that
there should be no finding of willful infringement if an infringer can
establish that, once it had received notice, (1) it obtained competent
advice of counsel that there was no infringement on the grounds of
invalidity, unenforceability or non-infringement, and (2) it reasonably
relied upon such advice. In the case of the intentional copying of an
invention knowing it to be patented, the informed good faith belief of
the alleged infringer must exist prior to the time the alleged
infringing activity begins. This preserves an importance balance,
requiring ethical and prudent behavior by those in an affected
industry.
Finally, we also agree that the absence of an opinion of counsel
should not create an inference that the infringement was willful and
that mere knowledge of a patent should not be the basis for enhanced
damages. Again, these are important limits on willfulness that prevent
excessive use of the doctrine.
Accordingly, we support the provisions in section 6 limiting the
circumstances in which a finding of willful infringement can be found.
Sec. 7. Injunctions
Section 7 of H.R. 2795 would make two amendments to section 283.
One of these proposed amendments to section 283 would significantly
undercut the exclusive rights conferred under a valid patent to obtain
final injunctive relief following a final, non-appealable holding that
the patent is valid and infringed. It would provide that final
injunctive relief might not be granted since ``In determining equity
the court shall consider the fairness of the remedy in light of all the
facts and the relevant interest of the parties associated with the
invention.'' This would reduce, to some unknown degree, the possibility
of patentees obtaining permanent injunctions to prevent the continued
infringement of their patents following a final, unappealable judgment
that their patents are valid and have been infringed.
AIPLA strongly opposes this provision. It would devalue the
property right of patentees by undercutting their traditional right to
injunctive relief against adjudged infringers. The impact would appear
to be especially harsh on independent inventors who already face great
difficulty in commercializing their patented inventions. It would
likewise be equally harsh on universities which are precluded in many,
if not most, cases from directly commercializing their inventions and
which must therefore rely on licensing or selling their inventions. It
would also set an extremely unfortunate precedent internationally for
the United States by suggesting to other nations that there need be no
patent exclusivity for all inventions--that other nations can also pick
and choose the patented inventions for which they wish to grant
exclusivity. AIPLA strongly urges that this amendment not be made.
The other proposed amendment would provide guidance to trial courts
regarding the circumstances in which a preliminary injunction should be
stayed, pending an appeal, following a ruling that a patent was valid
and infringed. It would instruct courts to stay an injunction pending
an appeal upon an affirmative showing that the stay would not result in
irreparable harm to the owner of the patent and that the balance of
hardships from the stay does not favor the owner of the patent. AIPLA
had suggested this proposal to the Chairman and to the interested
groups involved in the discussions regarding the content of a patent
reform bill as the maximum limitation that should be imposed to meet
the concerns of those who advocate limiting the grant of injunctions in
patent infringement suits. We believe this proposal is balanced and
appropriate and fully addresses the concerns of the proponents for
change. Not only would it give an infringer the opportunity in
appropriate cases to obtain a stay of any injunctive relief while it
tests the correctness of the trial court's ruling, but it also allows
the infringer additional time to negotiate a license or develop a non-
infringing alternative. Unfortunately, it was not accepted by others in
the discussions we have been having, so perhaps it should be deleted
from the bill.
Sec. 8 Continuation Applications
In testimony before this Subcommittee last month, Under Secretary
Dudas noted the increased workload for the PTO due to the large number
of continuing applications filed in the Office. In addition, there is a
concern that a few applicants have abused the use of continuing
applications by using them to ``track'' the commercial development of a
technology and then springing a patent on a mature industry. On the
other hand, the predominant uses of continuing applications are totally
appropriate. They are necessary where an application faces a
restriction requirement or where an inventor makes an improvement in
his or her invention or where an applicant and an examiner simply have
not had an adequate exchange regarding the issues surrounding an
application.
To address these concerns in a balanced and fair way, AIPLA
believes it appropriate to give the Director the authority to
promulgate a regulation specifying the circumstances under which a
continuation application may be filed. The PTO clearly is in the best
situation to understand the difficulties that applicants face as well
as the problems that the Office faces, including the impact on fee
revenues that any limitations on continuations might impose.
Regulations can also be adjusted to fine tune any needed limitations.
Most importantly, the PTO could ensure that no such regulation would
deny applicants an adequate opportunity to obtain protection for their
inventions.
Sec. 9. Post-grant Procedures
Taking advantage of the proposal to adopt a first-inventor-to-file
system and to simplify the definition of prior art, section 9 proposes
a post-grant opposition procedure. AIPLA believes that such a system
can provide the public with an effective mechanism to promptly correct
mistakes made by the PTO in issuing patents. We strongly believe,
however, that there should be only one window for requesting an
opposition and that the window should be nine months after a patent has
issued to encourage the public to act promptly. These procedures should
allow the public to correct improvidently granted patents--patents with
claims that are too broad or patents that the PTO should not have
granted at all. After the initial period of nine months has passed and
no opposition has been filed, patentees should enjoy a ``quiet title''
without the fear of later administrative challenges, except for the
inter partes reexamination procedure which this bill would make more
attractive.
Consistent with this approach, AIPLA agrees that, for an opposition
brought within this nine month window from grant, an opposer should
have the burden of proving the invalidity of a claim by a preponderance
of the evidence. This is the same standard used during examination, and
encourages use of the pre-grant procedure since the burden of proof is
lower than that applied during litigation. Thus, consistent with this
approach, we would retain the standard of ``clear and convincing
evidence'' that applies in a patent infringement lawsuit or a
declaratory judgment action seeking to invalidate a patent claim. In
this way, the procedure strikes a balance--encourage the public to
promptly eliminate questionable patents without unduly undercutting the
patentee's right to benefit from the invention.
This brings us to the second window proposed in the opposition
procedure by section 9 of H.R. 2795 that would permit an individual to
file an opposition not ``later than 6 months after receiving notice
from the patent holder alleging infringement.'' AIPLA opposes having a
second window for bringing an opposition for the life of a patent. The
proposed second window, where the burden of proof is a ``preponderance
of the evidence'' instead of ``clear and convincing evidence,'' will
increase the risks faced by patent holders and dampen their enthusiasm
for investing in the development and commercialization of their
patented technologies. It will also increase litigation in the courts
since patent holders, to ensure that their patents will not be tested
by the lower presumption of validity, will file suit instead of
approaching suspected infringers about possible license arrangements or
avoiding any infringement. Finally, creating this kind of second window
in effect creates a ``patent revocation'' system that will greatly tax
the existing human and financial resources of the Office to find and
train the needed personnel to administer such proceedings and will work
undue hardships and prevent patent owners who can least afford it (non-
profit entities and individual inventors) from enjoying ``quiet title''
to their inventions. For all these reasons, AIPLA opposes the addition
of the second window in H.R. 2795.
21Sec. 10. Pre-grant Submissions of Prior Art By Third Parties
AIPLA supports the proposed amendment to section 122 to allow a
member of the public to submit information to the PTO for consideration
following the publication of patent applications. We believe that this
proposal will complement the post-grant opposition proposal and assist
applicants to obtain stronger, more reliable patent protection by
ensuring that the best prior art is before the PTO. The section is
balanced and ensures that applicants will not be harassed by multiple
submissions. Thus, it is especially significant that the amendment
leaves untouched the proscription in current subsection 122(c), and
thereby prevents such submissions from becoming a type of pre-grant
opposition. This will ensure that such submissions cannot be used to
harass applicants. In addition, the provision is crafted in a manner
that gives the public maximum opportunity to submit such information
while at the same time protecting against the disruption of the PTO's
examination process.
Completing the Reforms Begun In the American Inventors Protection Act
There are other important parts of the patent law that are
addressed in H.R. 2795 which we support. Moving to a first-inventor-to-
file system suggests that changes should be made to the prior user
defense to patent infringement. We also endorse the proposal that the
PTO publish all pending applications for patent at 18-months after
their initial filing. This will make the patent system more transparent
and allow the public to make earlier determinations of whether an
invention is novel and non-obvious on the basis of all prior art. It
also allows the public to prepare any evidence that may be available
for submission in the 9 month opposition period after the patent
issues.
conclusion
The U.S. patent system continues to be an essential driver of our
nation's economic and technological success, but there is a growing
consensus that it is in need of adjustment. The NAS and FTC have
reached this conclusion and AIPLA agrees. While we strongly oppose any
weakening of the traditional injunctive remedy of the patent law and
the addition of a second window in opposition proceedings, we believe
that there are many desirable reforms in H.R. 2795 that do have the
widespread support of all stakeholders. We now have an opportunity--
indeed, an obligation--to not only address the challenges of today, but
also to prepare the U.S. patent system for the future.
We commend you, Mr. Chairman, and the Ranking Member for your
continuing leadership in striving to improve our intellectual property
system. The AIPLA looks forward to working with you, the other Members
of the Subcommittee, and your able staffs to support you in any way we
can.
Mr. Smith. Thank you, Mr. Griswold.
Mr. Gulbrandsen.
TESTIMONY OF CARL E. GULBRANDSEN, MANAGING DIRECTOR, WISCONSIN
ALUMNI RESEARCH FOUNDATION
Mr. Gulbrandsen. Mr. Chairman, thank you for the
opportunity to testify on the important topic of patent law
reform. My name is Carl Gulbrandsen. I'm the Managing Director
of the Wisconsin Alumni Research Foundation, known as WARF, on
whose behalf I appear. The University of California also has
expressed the concerns that I'll talk about this morning and
that are expressed in my written statement.
WARF was founded in 1925, and was one of the first
organizations to engage in university technology transfer. In
March of this year, WARF received the National Medal of
Technology, the highest award that can be conferred by the
President of the United States to individuals and organizations
making lasting contributions to the country's wellbeing through
innovation and technology. This award recognized the importance
to the United States economy of university technology transfer.
This Subcommittee played an important role in drafting the
Bayh-Dole Act and its cardinal principal that the American
public benefits from a policy that permits universities and
small businesses to elect ownership in innovations created with
Federal funds.
The Bayh-Dole Act was predicated on a patent system that
provides predictable and strong protection for discoveries
generated at U.S. universities. For the Bayh-Dole Act to
continue to be successful in stimulating further innovations,
patents must provide significant disincentives to would-be
infringers.
If patent law is strong, then technology transfer can
flourish; resulting in a profound and positive impact on the
health, safety, and welfare of the people in this country and
worldwide. If patent law is weakened, the technology transfer
falters, as do American universities and companies that depend
on university research, and the public.
In 1980, when the Bayh-Dole Act was passed, approximately
25 U.S. universities had technology transfer offices. No
uniform Federal policy existed, and federally-funded
discoveries were rarely patented and commercialized. Today,
more than 230 universities have technology transfer offices,
and universities are now the owners of tens of thousands of
U.S. patents.
Today's list of university inventions is also impressive.
The list includes a lithography system, to enable the
manufacturing of nano-devices, from the University of Texas,
Austin; and an effective aneurysm treatment coming out of the
University of California, Los Angeles.
In the past two decades, intellectual property assets have
become vital to the performance of the U.S. economy. Because of
financial and administrative stresses in the United States
Patent and Trademark Office, lapses in the quality of patents
occasionally occur. It is my belief that low-quality patents
issued from the PTO are the exception, rather than the rule.
But even the exception should not be tolerated.
As a member of the Patent Public Advisory Council, I know
that the PTO is working hard to assure that all patents that
are issued are of high quality. But as you know, the first line
of defense against poor quality patents and slow decision-
making is to provide the PTO with the resources that it needs
to hire and train skilled examiners and to implement effective
electronic processing.
H.R. 2795 contains a number of provisions that WARF
supports. WARF supports a provision relating to a limited post-
grant opposition procedure, but not the second window, with the
addition of appropriate curative amendments that are listed in
my written statement. WARF also supports expanding the 18-month
publication rule.
I am also grateful to you, Mr. Chairman and Mr. Ranking
Member, for your leadership and selflessness on enactment of
the CREATE Act. I know that this important legislation would
not have become law without your commitment to research and
technology. And I would ask that you ensure that the CREATE Act
be preserved, with the same effective date and legislative
history as presently exist.
The legislation before you also contains a number of
provisions that will retard the success of university
technology transfer and the creation of vibrant new university
spin-out companies. WARF has great concerns with respect to
four provisions.
First, WARF objects to any change with respect to
injunctive relief. H.R. 2795 tilts the playing field in favor
of infringers. Currently, a presumption in favor of injunctive
relief is built into the patent system, and this is for good
reason. Injunctions respect the constitutional right of a
patent owner to exclude others from using his or her patented
technology.
Second, WARF is concerned about limiting continuation
practice, and believes that a change in the law would
negatively impact universities if not tailored carefully to
address only those overt abusive practices.
Third, WARF opposes the expansion of prior user rights.
Expanded prior user rights would encourage innovations to be
kept as trade secrets, a practice which is contrary to the
fundamental premise of the U.S. patent system which rewards and
encourages disclosure.
And fourth, the adoption of a first-inventor-to-file
system, that is intended to bring us closer to the first-to-
file system used in Europe and the rest of the world,
disadvantages universities and independent inventors. The first
inventor to file a proposal would be a hardship for a vast
majority of universities. And WARF would prefer that the first-
to-invent system be maintained.
But if we must harmonize and move toward a first-to-file
system, I would encourage the Committee to insert the proposed
amendments suggested in my written statement, which are there
to protect the rights of individuals and universities.
Mr. Chairman, thank you again for your leadership, time,
and attention. And if there are any questions, I'd be pleased
to answer them.
[The prepared statement of Mr. Gulbrandsen follows:]
Prepared Statement of Carl E. Gulbrandsen
Mr. Smith. Thank you, Mr. Gulbrandsen.
Professor Lerner.
TESTIMONY OF JOSH LERNER, JACOB H. SCHIFF PROFESSOR OF
INVESTMENT BANKING, HARVARD BUSINESS SCHOOL
Mr. Lerner. Mr. Chairman, thank you for the opportunity to
testify here. More generally, I think the Committee ought to be
congratulated for undertaking this series of thoughtful and
very important process of patent system reform.
In our recent book, ``Innovation and Its Discontents,''
Adam Jaffe, of Brandeis University, and I argued that the
problem with the patent system today is systematic and
fundamental. In the past two decades, the U.S. has strengthened
patent rights, while weakening the standards for granting
patents.
While unpremeditated, these two policy changes have created
a perfect storm, a complex and intensifying combination of
factors that increasingly makes the patent system a hindrance
rather than a spur to innovation.
The incentives that the existing system provides induce all
participants, whether inventors, competitors, or potential
litigators, to invest in abusing the system, rather than
innovating, and to hide and husband information for strategic
and litigious purposes, rather than bringing it forward to
facilitate the determination of who really invented what.
Adam Jaffe and I argue that we really must start with a
recognition that much of the information to decide whether a
given application should be approved is in the hands of
competitors of the applicant, rather than in the hands of the
PTO.
A review process with multiple potential review levels
efficiently balances the need to bring in information from the
outside with the reality that most patents are unimportant.
Multi-level review, with barriers to invoking review and the
thoroughness of that review increasing at higher levels, would
naturally focus attention on the most potentially important
applications.
Most patents would never receive anything other than the
most basic examinations. But for those applications that really
mattered, parties would have an incentive and opportunities to
bring forward information in their possession before the PTO,
and the PTO would have more resources to help it make the right
decision in the cases that really matter.
Breaking the vicious cycle of bad examination and bad
applications is the key to reform of the patent issuance
process. But there are always going to be mistakes, and so it's
important that the court system operate efficiently to rectify
those mistakes, while protecting the holders of valid patents.
Today, the legal playing field is significantly tilted in
favor of patentees. Many observers highlight the right to a
jury trial as a crucial problem. The evidence in a patent case
can be highly technical, and the average juror has little
competence to evaluate it. Having decisions made by people who
can't really understand the evidence increases the uncertainty
surrounding the outcome.
The combination of this uncertainty with the legal
presumption of validity--the rule that patents must be presumed
legitimate unless proven otherwise--is a big reason why accused
infringers often settle rather than fight, even when they think
that they are right.
The right to a jury of one's peers is a venerated concept
in Anglo-American law, but there is ample scope to encourage
judges to use pre-trial rulings and reports of special masters
commissioned by the court to resolve more of the mostly
technical issues that determine the outcome of patent
litigation.
While litigation will always be uncertain, it has been
structured so that complex technical issues are addressed in a
way to--it should be structured in a way that complex technical
issues are addressed in a way to elucidate rather than obscure
them.
Thus, I very much applaud the Committee for its work. The
Patent Reform Act of 2005 contains many good ideas, such as the
long-overdue shift to a first-to-file system, a reduction in
the reliance on the arcane institution of patent interferences,
a raising of the bar for injunctive relief, the expansion of
prior user rights, universal publication of patent awards, and
an improvement in the ability of other firms to challenge
patents after grant.
At the same time, I would urge, as the above remarks
suggest, consideration of further steps to facilitate pre-grant
challenges to patent applications and steps to reduce the
reliance on juries in patent cases.
Thank you very much.
[The prepared statement of Mr. Lerner follows:]
Prepared Statement of Josh Lerner
This Committee is to be congratulated for initiating a series of
thoughtful discussions of patent system reform. The importance of this
discussion to the American inventors, corporations, and our society as
a whole cannot be overemphasized.
To be sure, the past decade has seen periodic uproars over patents.
Amazon's ``one click'' patent for online shopping, RiceTec's patent on
the basamati rice grown for centuries in Asia, PriceLine's reverse
auction patents, and Acadia Research' s patents on digital transmission
of audio and video are examples of patents that have triggered
controversy and litigation.
But while these troubling patents have been well publicized, the
wrong lessons have all too often been drawn from these controversies.
Commentators have tended to focus on the incompetence of the patent
office in allowing ``bad patents.'' Other observers have concluded that
the patent system is not working with respect to a particular area of
technology. Concerns about software awards led, for instance, Jeff
Bezos of Amazon to propose a new patent type for software in 2000 and
demonstrators to take to the streets of Brussels earlier this year.
In our recent book, Innovation and Its Discontents, Adam Jaffe of
Brandeis University and I argue instead that the problem is systemic
and fundamental. In the past two decades, the United States has
strengthened patent rights while weakening the standards for granting
patents. While unpremeditated, these two policy changes have created a
``perfect storm'': a complex and intensifying combination of factors
that increasingly makes the patent system a hindrance rather than a
spur to innovation.
Congress set us on this road in 1982 when it created a centralized
appellate court for patent cases called the Court of Appeals for the
Federal Circuit. The court--which advocates argued would simply ensure
judicial consistency--has expanded the realm of what can be patented,
lowered the standards for receiving awards, made it more likely that a
challenged patent will stand up to legal scrutiny, and given
patentholders more potent legal remedies.
A decade later, Congress turned the Patent and Trademark Office
(PTO) into a ``profit center''. The office has been pushed to return
``excess'' revenue to the Federal treasury. This shift led to pressures
to grant more patents, difficulties in attracting and retaining skilled
examiners, and a torrent of low quality awards. These have ranged from
the profoundly troubling cases above to absurdities such as awards for
wristwatches (pawwatches?) for dogs, a method of swinging on a swing
(``invented'' by a five year old), and peanut butter and jelly
sandwiches.
But railing against the incompetence or absurdity of the PTO misses
the basic point, which is that the incentives of the existing system
induce all participants--inventors, competitors and potential
litigators--to invest in abusing the system rather than innovating, and
to hide and husband information for strategic and litigious purposes
rather than bringing it forward to facilitate determination of who
really invented what. Reform of the system must change these incentives
by:
Creating workable opportunities for knowledgeable
competitors to challenge the novelty of inventions before a
patent is granted;
Providing graduated application reviews, so important
patents are scrutinized carefully but time is not wasted on
applications that don't matter; and
Leveling the playing field between litigants so that
frivolous patent holders cannot intimidate true innovators into
paying protection money in the form of patent royalties.
Our proposed reforms starts with the recognition that much of the
information needed to decide if a given application should be approved
is in the hands of competitors of the applicant, rather than the PTO. A
review process with multiple potential review levels efficiently
balances the need to bring in outside information with the reality that
most patents are unimportant. Multilevel review, with the barriers to
invoking review and the thoroughness of that review both increasing at
higher levels, would naturally focus attention on the most potentially
important applications. Most patents would never receive anything other
than the most basic examinations. But for those applications that
really mattered, parties would have an incentive and opportunities to
bring information in their possession before the PTO, and the PTO would
have more resources to help it make the right decision in the cases
that really matter.
If bad patents with important consequences were weeded out by the
PTO, the incentive to file frivolous applications in the first place
would be reduced. This would break the current vicious cycle in which
inventors are induced to make marginal applications by their likelihood
of success, and the resulting flood of applications overwhelms the
patent office and makes it harder to separate the wheat from the chaff.
Breaking the vicious cycle of bad examination and bad applications
is the key to reform of the patent process. But there are always going
to be mistakes, and so it is important that the court system operate
efficiently to rectify those mistakes, while protecting holders of
valid patents. Today, the legal playing field is significantly tilted
in favor of patentees.
Many observers highlight the right to a jury trial as a critical
problem. The evidence in a patent case can be highly technical, and the
average juror has little competence to evaluate it. Having decisions
made by people who can't really understand the evidence increases the
uncertainty surrounding the outcome. The combination of this
uncertainty with the legal presumption of validity--the rule that
patents must be presumed legitimate unless proven otherwise--is a big
reason why accused infringers often settle rather than fight even when
they think they are right.
The right to a jury of one's peers is a venerated concept in Anglo-
American law. But there is ample scope for judges to use pretrial
rulings and reports of special ``Masters'' commissioned by the Court to
resolve more of the most technical issues that determine the outcome of
patent litigation. While litigation will always be uncertain, it has to
be structured so that complex technical issues are addressed in a way
designed to elucidate rather than obscure them.
Thus, we applaud the committee for its work. The Patent Reform Act
of 2005 contains many good ideas, such as a long-overdue shift to a
``first-to-file'' system, a reduction in the reliance on the arcane
institution of patent interferences, a raising of the bar for
injunctive relief, nearly universal publication of patent awards, and
improvements of the ability of other firms to challenge patents after
grant. At the same time, we would urge consideration of steps to allow
pre-grant oppositions, and to reduce the reliance on juries in patent
cases, two issues not considered by the bill.
The protection for true innovators created by a workable patent
system is vital to technological change and economic growth. The
problems in the existing U.S. patent system are structural, and the
solutions need to be fundamental. As much as the Patent Office needs to
do a better job, it can only do so if the system is modified so that
all parties have incentives to help the PTO do its job, and the Court
system provides a balanced, reliable backstop when mistakes are made.
Mr. Smith. Thank you, Professor Lerner.
Mr. Ravicher.
TESTIMONY OF DANIEL B. RAVICHER, EXECUTIVE DIRECTOR, PUBLIC
PATENT FOUNDATION
Mr. Ravicher. Chairman Smith, Ranking Member Berman, and
Members of the Subcommittee, patent reform is not about
weakening the patent system. It's about strengthening the
patent system so that it rewards innovation, not manipulation.
I am Executive Director of the Public Patent Foundation, a
not-for-profit legal services organization founded in 2003 to
represent the public's interests in the patent system; and most
particularly, the public's interests against the harms caused
by wrongly issued patents and unsound patent policy.
PUBPAT provides the general public and specific persons or
entities otherwise deprived of access to the patent system with
representation, advocacy, and education. Our work is funded by
grants from the Rockefeller Foundation, the Echoing Green
Foundation, the Rudolph Steiner Foundation, and the Open
Society Institute, and by private donations from the public.
Before commenting on the Patent Act of 2005, a very
important point about the process by which patent policy is
formed should be made. Despite what many people believe, the
patent system has extremely far-reaching effects on all
Americans. Although the public does indeed benefit from a
properly functioning patent system, since patents are
Government-sanctioned, absolute restraints on freedom and
competition, the public can also be severely harmed by errors
within the patent system.
Unfortunately, it is too often the case that not all of the
interests affected by the patent system are adequately
represented in patent policy discussions. Specifically, the
interests of the non-patent-holding public are almost always
absent from any meaningful participation in decision-making
about the patent system, despite the fact that they bear the
brunt of its burdens.
Patent policy should be made with consideration of all the
public's interests, not just the specific interests of the PTO,
patent holders, patent practitioners, and large commercial
actors. As such, I am pleased to have been invited to represent
those interests today, and I strongly urge you to continue to
ensure that all affected interests are always adequately
represented in patent policy discussions in the future.
There are several ways to strengthen the patent system so
that it benefits all Americans, and the Patent Act of 2005
addresses many of them. Two of the most important issues
addressed by the bill are injunctions and post-grant
opposition.
When discussing injunctions, we should keep in mind that
the patent system's ultimate purpose is to deliver advances in
technology to the American people; not simply line the pockets
of patent holders. Although these ends are typically aligned,
there does come a point at which over-rewarding patent holders
can in fact retard technological development. This is why the
patent right is limited, such as by a finite term.
Similarly, if a patent holder is not making its invention
available to the American public, courts should not issue an
injunction against another party that desires to do so, if they
can compensate the patent holder fairly for the advance that
has been made.
For example, but a few years ago, this House was deeply
concerned about a patent that was being used in an attempt to
enjoin an electronic communications device of importance to
Representatives, the Blackberry. The concern was justified,
because patents that are used to deny the American people
access to technology cause unnecessary and unwarranted harm.
The Committee Print's injunction provision guaranteed
patentees an award of fair compensation by the courts, and
accomplished the patent system's goal of bringing technological
advance to the American people as quickly as possible. I urge
you--I strongly urge you--to reinsert that provision into the
Patent Act of 2005.
With respect to post-grant opposition, the public should be
empowered to oppose any patent at any time that it is harming
them. The mere existence of a wrongly-issued patent can cause
substantial public harm, by making things more expensive, if
not completely unavailable; by preventing scientists from
advancing technology; by restraining civil liberties and
individual freedoms; and by diminishing the value of valid
patents held by legitimate inventors.
Thus, all patents should be eligible for post-grant review
during their full term, just like they can be subject to
reexamination at any time during their term. Unfortunately, the
Patent Act of 2005 severely limits the timing of post-grant
oppositions.
The second window for filing oppositions triggered by the
patent owner making an allegation of infringement is fair,
because patentees cannot be heard to complain about being
denied so-called ``quiet title,'' if they are the ones making
the noise. Thus, although patents should be eligible for post-
grant opposition throughout their full term, I am pleased to at
least see that oppositions can be filed against any patent that
has been asserted by its owner.
However, the bill limits such eligibility to only the party
against whom the patent is asserted. To be meaningfully
effective, post-grant opposition should be open to any member
of the public, just like reexamination is, because a wrongly-
issued patent asserted against anyone harms everyone. And there
will often be other parties more capable and more willing to
defend the public from an aggressive patentee. To bar them from
doing so would forsake the enormous potential post-grant
opposition has to be an effective patent quality improvement
tool.
Thank you once again for inviting me to make these remarks
about the Patent Act of 2005.
[The prepared statement of Mr. Ravicher follows:]
Prepared Statement of Daniel B. Ravicher
Mr. Smith. Thank you, Mr. Ravicher.
It's my understanding that Mr. Berman has a commitment at
10 that cannot be postponed, so I'm going to initially yield
time to him for his questions.
Mr. Berman. Well, thank you very much, Mr. Chairman. I
appreciate it very much.
I think initially--I think it's fair to state it's
certainly my intent--and I think it's the Chair's and the
Subcommittee's intent--on the issue of the CREATE Act, not to
do damage to that law, and to the extent that we're
inadvertently--it was chopped up in the Committee Print,
hopefully, it's been rectified to some extent with the bill
that's been introduced. And we're certainly interested in any
other suggested changes to ensure that what we passed last year
stays as law.
Mr. Gulbrandsen. Thank you, Mr. Ranking Member.
Mr. Berman. But, while I have you, your written testimony
states that, ``Unless a strong and compelling showing is made
that change is necessary, maintain the patent law as it is
presently enacted. Elements of the Patent Act of 2005 represent
the interests of a narrow group of companies from one or two
industry sectors, and undermine the important policies upon
which the Bayh-Dole Act is predicated. We should continue to
search for consensus, rather than special-interest solutions.''
That comment gets under my skin.
After hearing just some anecdotal stories from
practitioners in this area about the problem of poor patent
quality, the Federal Trade Commission came out with a report
calling for major reform. The National Academy of Science
called for making major reform in the patent law. We have an
economist here and a spokesman for a public interest group,
calling for the kind of substantial reforms, or even larger
reforms than we're proposing in this bill. And the notion that
one particular organization, which has its own interests,
assumes they speak for the public interest, and anyone who
disagrees with them is representing narrow special interests, I
find somewhat troublesome. And it seems to me we can talk about
the merits of specific provisions without throwing out charges
which on their face are preposterous.
Mr. Griswold, when you talked about the inequitable conduct
defense in your testimony, you mentioned that you would like to
return the defense to its equitable roots: the injunction.
Currently, section 283 reads that, ``Several courts having
jurisdiction of cases under this title may grant injunctions,
in accordance with the principles of equity, to prevent the
violation of any right secured by a patent, on such terms as
the court deems reasonable.''
Yet the courts have automatically--not presumed, but
essentially automatically--granted permanent injunctions upon a
finding of infringement. And this practice is the general rule,
with very narrow exceptions for significant public health
consequences.
Our objective is only to end the practice of the automatic
injunction; not the entitlement to an injunction, the
likelihood of an injunction. It's only to, up-front, change
what the courts have turned into an essentially automatic rule.
Why is there any additional uncertainty created, when section
283, as it reads now, on its face allows for equitable
considerations?
Mr. Griswold. Well, as you mentioned, Mr. Berman, the
courts have, in our view, basically followed what we believe
the constitutional direction was; and that's grant exclusive
rights to people who engage in inventive activity. So we
support the idea that's continued basically over a couple
hundred years, of providing those exclusive rights to
inventors.
Now, I understand the language you're talking about. But I
can tell you, if the sentence that we have in H.R. 2795 goes
into law, there'll be a whole new world of consideration of
whether or not there should or should not be an injunction.
And if you look at the language itself, it says that, ``In
determining equity, the court shall consider the fairness of
the remedy in light of all of the facts and the relevant
interests of the parties associated with the invention.'' Is
that all that we consider? What about the public and other
folks?
But what our view is, is that there is no need to change
the injunction language. In fact, in our view, the thing to do
is to take care of some of the main problems in patents----
Mr. Berman. One final question.
Mr. Griswold. Yes.
Mr. Berman. As I understand it, a company called ``In
Focus'' has sued 3M, for whom you are general counsel of one of
their subsidiaries, for patent infringement.
Mr. Griswold. Yes.
Mr. Berman. Alleging that 3M copied an In Focus patented
invention that is a safety feature that presents users from
getting an electric shock when they changed a burned-out light
bulb in projectors. As far as we can tell, this suit is still
active.
If 3M were to be found guilty of infringing In Focus'
patent, should the court presume irreparable harm and
permanently enjoin 3M from selling any products that have
patent safety feature, without weighing or considering any of
the equitable factors?
Mr. Griswold. Our view is that--yes, that we think that if
we are found--judged to be an infringer, that we should be
enjoined. That's our view.
Mr. Berman. Okay.
Mr. Griswold. We don't go both--we don't see it different
ways. It's one way.
Mr. Berman. Okay.
Mr. Smith. The gentleman's time has expired----
Mr. Berman. Thank you very much, Mr. Chairman.
Mr. Smith.--and his commitment looms.
Mr. Berman. Yes.
Mr. Smith. Okay. Mr. Griswold, Mr. Gulbrandsen, let me
address my first question to you all. And this is to follow up
a little bit differently on the question you were just asked.
One of the subjects on which there continues to be much
discussion is the subject of injunctions. And we all know the
situation that troubles some companies today, which is to say
injunctions have become almost automatic, granted in almost
every case.
Both of you all oppose the changes that we've made in the
injunction language. My question for each of you, therefore,
is, given the undisputed concerns--I think, legitimate--that
many companies have, what is your solution for trying to
dissuade patent trolls from filing specious patents or
lawsuits? What do we do to try to stop the--if they're not
frivolous, then they're sort of shake-down lawsuits that are
filed?
And Mr. Gulbrandsen, why don't we start with you, and then
go to Mr. Griswold.
Mr. Gulbrandsen. Well, I think that much of the complaint
with respect to what you refer to as ``patent trolls'' is not
something that I'm really that familiar with.
Mr. Smith. Okay.
Mr. Gulbrandsen. The complaints with respect to abuses in
litigation really pertain to some suggestions with respect to
Mr. Lerner's book, of more special masters and so forth for the
courts so that the courts are more educated in this. I'm all in
favor of having a more educated judiciary and better educated
juries in litigating cases.
But I do think, at the end of the day, you need to be--if
you do win the case, if your patent is found valid and
infringed, you need to have the right to exclude the infringer
from using it, unless you're willing to license them.
Mr. Smith. Right. Okay. Mr. Griswold?
Mr. Griswold. Yes. My solution, or our solution, is to
start with the major problem. The problem is patents of low
quality. Because if people have patents that are of a high
quality, and they've been to the Patent Office and have been
examined over the best prior art, then as far as we're
concerned, injunction should be granted, and it should be
basically automatic.
But what's nice about this particular bill is it deals with
many of the patent quality issues. And if you look at a whole
array of them, one of them it doesn't deal with specifically,
but your Committee has dealt with, is PTO funding. And that's a
key issue.
Pre-grant submissions; inequitable conduct that allows the
patent applicant to have more--be more relaxed in dealing with
the Patent Office and not be concerned about what they say;
post-grant review; expanded re-exam; even the work on the
continuations. All these pieces help, relative to the patent
validity.
Mr. Smith. So you would suggest that we could get to the
same goal--that is, reducing the number of shake-down
lawsuits--by other means?
Mr. Griswold. By other means; by improving the quality of
patents. That's the key issue, is getting the quality of the
patents right.
And my experience is, don't change too many variables when
you're trying to fix a problem. Fix that problem, and you will
fix the rest of the problems. It's going to take a while to get
that fixed, but that's the thing to take care of.
Mr. Smith. Okay. Thank you, Mr. Griswold.
Professor Lerner, you made two suggestions that I'd
actually like the other witnesses to respond to, and then I'll
give you the last word. You urged consideration of steps to
allow pre-grant oppositions, and to reduce the reliance on
juries in patent cases. These are two issues that we did not
consider in the bill, that you've suggested.
Let me just go down the line, if I might. Mr. Griswold, do
you want to respond to those two suggestions?
Mr. Griswold. Give me those suggestions again?
Mr. Smith. The two suggestions were to allow pre-grant
opposition, and to reduce the reliance on juries in patent
cases.
Mr. Griswold. Yes. Relative to pre-grant oppositions, we
have been opposed to those forever, for the reason that it
allows others to get into the process with the examination
during the early phases, and manipulate it, and to the
detriment of the patent applicant. So we have been opposed to
that; in fact, opposed pre-hearing oppositions in Japan, and
they removed those. So that is a key piece.
Relative to juries in patent cases, that's a debate, and I
think we've tried to move as much as we could over the
decisions by the court. But many people believe that jurors
make very good decisions in patent cases.
Mr. Smith. Thank you. Mr. Gulbrandsen, can you be brief?
Mr. Gulbrandsen. Yes. I would agree with Mr. Griswold, and
just add additionally that, to the extent that we put more
burdens on the Patent Office, we are actually going to
exacerbate the problems of low-quality patents. We need to make
sure funding is there, and that if you do post-grant
opposition, which we favor, that in fact adequate resources are
given to the Patent Office.
Mr. Smith. Okay. Professor Lerner?
Mr. Lerner. I would simply note that it seems that the
process of evaluating patents which are in process is very
challenging for an examiner. And I think even in the best of
all possible worlds, where the resources are increased
significantly, the amount of resources that--and the amount of
time for examining any given patent is going to be quite
modest.
So I think that, you know, given the complexity of today's
world, having the opportunity for outside input is extremely
important.
Mr. Smith. Okay. Thank you, Professor Lerner.
The gentleman from Virginia, Mr. Goodlatte, is recognized
for his questions.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Gulbrandsen, according to Mr. Griswold's testimony, the
average interference action costs an inventor over $300,000. Do
universities and independent inventors have the resources to
fight these interference actions?
Mr. Gulbrandsen. Interference actions certainly are
expensive. But I've been at WARF for 8 years. We file about two
to three hundred patents a year. We have about 2,000 pending
applications. And during my 8 years, we have only had one
interference.
So the interference practice in the Patent Office is 1/10th
of 1 percent of all U.S. patents filed. It is not a major
problem with either the Patent Office or with universities, as
far as I'm concerned.
Mr. Goodlatte. Do you think that a change to a first-
inventor-to-file system would help reduce even further these
interference actions?
Mr. Gulbrandsen. Well, certainly, if the present proposal
becomes law, interference practice would go away. But
interference practice, again, as far as our experience is
concerned, has not been a particularly burdensome issue.
Mr. Goodlatte. Thank you. This is a question for all of the
witnesses. We'll start with you, Mr. Ravicher. Since it was not
previously in the Committee Print, could each of you briefly
comment on whether you believe that allowing third-party
submissions of prior art with comments during the examination
period is a good idea?
Mr. Ravicher. It's a good idea, but I doubt it'll be very
effective, because the problem is a credibility issue with the
PTO; not that they're incapable to adequately review patents,
but that they're created--they are given incentives which
decrease their ability to perform a quality review. They're
encouraged, both at the agency level and at the examiner level,
to just issue patents, ``Get them out of the office as quickly
as possible, get it off my desk as quickly as possible.''
So simply giving them more information may not do too much
to actually help them, if you don't give them the time and
enable the examiner to do the job that they are capable of
doing.
Mr. Goodlatte. Thank you. Professor Lerner?
Mr. Lerner. I think it is a good idea. The one thing that I
would add as a caveat is that it's important that submissions
not basically limit people's ability to bring up the same prior
art if it gets litigated subsequently. In other words, people's
willingness to participate in essentially submitting stuff pre-
grant will probably be much reduced if it's the case that they
are essentially going to be limited in terms of using that
prior art if the patent examiner doesn't understand its
importance. So I think it's important to make a provision in
that regard.
Mr. Goodlatte. Thank you. Mr. Gulbrandsen?
Mr. Gulbrandsen. As a member of the Patent Public Advisory
Council, I can tell you that the Patent Office strategic plan
is directed in great part to increasing the quality of patents.
We have a tremendous pendency of applications in the Patent
Office. And if you exacerbate that pendency, that is going to
damage the economy of this country more than the perceived help
that additional third-party interaction during prosecution
would help.
Mr. Goodlatte. Thank you. Mr. Griswold?
Mr. Griswold. Yes, we support the idea of third-party
submissions. The key is having the Patent Office have the right
information to make the decision. And as you heard me earlier
talking about patent quality, we think it's a good feature.
Mr. Goodlatte. Thank you. And Mr. Griswold, this question
for you and Mr. Gulbrandsen. I understand that the current
statute regarding injunctions was enacted over a hundred years
ago. The statute calls on the courts to balance the equities
when deciding whether to grant an injunction. However, I've
heard reports that recent court decisions have resulted in
almost automatic application of injunctions when infringement
is found.
Do you believe that the changes in the last hundred years
in business methodologies and in the nature of certain products
today, that can involve hundreds or even thousands of patents,
are the very kinds of reasons why the statute was written to
allow for some flexibility? Didn't the statute build
flexibility into the law that perhaps is not being used today?
Start with you, Mr. Griswold.
Mr. Griswold. I believe that the grant of an injunction as
being almost automatic is appropriate, as you heard me answer
earlier. I think it goes both ways. If we are found to be an
infringer, we should be enjoined; and I feel the same way if we
go after somebody else.
So I think the key is, as we bring in new technologies and
different kinds of subject matter into the patent system, that
those--the people practicing those subject matters act like
others that do this every day. We understand what the prior art
is; we do clearance opinions; we avoid patents of others; we do
validity studies.
That's the way it works. I think that's a good system, and
I think that eventually, as I mentioned, patent quality and
people practicing in that system will solve the problems that
we're concerned about here.
Mr. Goodlatte. If I might, Mr. Chairman, let Mr.
Gulbrandsen answer the same question.
Mr. Smith. Okay.
Mr. Gulbrandsen. I would agree with Mr. Griswold. I think
that the ability to get an injunction if your patent is found
valid and infringed is one of the hallmarks of our successful
patent system.
Mr. Goodlatte. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Goodlatte.
The gentlewoman from California, Ms. Lofgren, is recognized
for her questions.
Ms. Lofgren. Thank you, Mr. Chairman. And thanks for
scheduling this hearing. I think this has been a very helpful
process.
As Mr. Berman mentioned in his statement, we were informed
by the National Academy of Science, the Federal Trade
Commission. We've had a number of hearings that have been
enormously helpful. We've had a lot of input from academic
groups and from non-profits, as well as associations and
interested parties. So I think we've ended up with a bill which
I think all of us have co-sponsored. We recognize this is not
necessarily the final product, but it's a good starting point
to move from. And I'm happy to be a part of the process.
Along those lines, and as part of the process, I sent
yesterday to each of the witnesses and to the co-sponsors of
the bill some suggestions that are not proposals on my part,
but suggestions that have been made to me primarily by
academics and not-for-profit organizations, that would not be
instead of the bill that has been sent to us, but in addition
to the bill that has been sent.
And they really go not to the procedural issues primarily
that the bill focuses on, but the obviousness standards that
are in law, that Mr. Ravicher really touched on in his written
testimony and, Professor Lerner, that you touch on in your
book--which, by the way, I enjoyed a great deal.
I'd like first to ask unanimous consent that my memo be
made a part of the record.
Mr. Smith. Without objection.
Ms. Lofgren. And I'm wondering if the witnesses have--I
gave them to you beforehand so that I wouldn't surprise you and
you might have an opportunity to give me your thoughts. And
don't feel shy if you think they're bad ideas, because they're
not my own. [Laughter.]
And if we could start with Professor Lerner.
Mr. Lerner. Well, I just wanted to highlight one set of
ideas that I think really is a very important set of issues;
which is the issues that were raised regarding the standard
setting process. In many senses, when we think about the nature
of innovation in the United States, we don't have these, you
know, sort of giant corporate monoliths doing innovation by
themselves. Instead, we have systems, where large companies and
small companies work together.
And standard-setting bodies play a very important role in
terms of coordinating that process. But over the last 10 years,
they've been increasingly basically subject to strategic
behavior. The case of Rambus has gotten a lot of attention, but
there's been a number of other quite disturbing cases.
And I think that, at least as an item for future
consideration, this is an area that the Subcommittee should
think about very seriously, in terms of trying to address some
of these abuses.
Mr. Ravicher. The reduction in the obviousness bar to
patentability is accurately identified as a substantial issue
affecting patent quality. The problem is not with the statutory
language. The problem is that the Federal circuit has taken the
statutory language and added in its own requirements that have
no basis in law.
Specifically, they've added in a requirement that the prior
art have a teaching suggestion or motivation to combine two
references before you can use two references to make an
obviousness rejection. This effectively eliminates what the
statute requires a court to consider; namely, the knowledge of
one having ordinary skill in the art.
So the statute isn't flawed. The Federal circuit's
application and addition to the statute is what's flawed.
Ms. Lofgren. Well, if I may, I identify that as an issue.
And the question is, what can the Congress do about it? And
obviously, the court is the other branch, and they have their
job to play. But it seems to me, a remedy that we do have is to
clarify the statute so that they might be better informed as to
what the law should be.
Mr. Ravicher. Right. The so-called ``secondary
considerations of obviousness,'' which don't exist in the
statute, were created by the Supreme Court as a gut-check,
last-second look to make sure that the original determination
of obviousness isn't flawed.
The Federal circuit has taken those secondary
considerations and plugged them in front of the statute. So
communicating to the Federal circuit that that was incorrect
application of law would be very worthwhile.
Ms. Lofgren. Mr. Griswold?
Mr. Griswold. Yes, I'll comment on a couple of these. The
first one was the eliminate the suggestion to combine test. We
commented on that, and took a look at it in the response to
FTC-3, Recommendation 3 of the Federal Trade Commission.
We looked at this issue, and believe that, indeed--that
this is appropriate to find some suggestion to combine
references; rather than rely on some hypothetical person's
skill in the art. And how are we going to figure that out? I
think this may be a case where more of a bright-line test
provides more certainty and is better than having a very fuzzy
standard. So we support this and you'll find that in the FTC-3
response.
Ms. Lofgren. Thank you. And could Mr. Gulbrandsen answer?
Mr. Smith. Yes.
Mr. Gulbrandsen. I would be very reticent to change the
obviousness--non-obviousness standard to an inventive steps
standard. I think, again, many of these issues that are
addressed can be addressed through increases in the support of
the Patent Office, so that we are certain that we issue high-
quality patents and that they're examined appropriately the
first time around.
Ms. Lofgren. If I--my time has expired, but if any of the
witnesses would----
Mr. Smith. Does the gentlewoman want to be recognized for
another minute?
Ms. Lofgren. I would appreciate that.
Mr. Smith. Okay. Without objection, she is.
Ms. Lofgren. I won't use the whole minute. I would just
welcome any written comments that any of the witnesses has on
any of these questions. And I thank the Chairman.
Mr. Smith. All right. Thank you, Ms. Lofgren.
The gentleman from California, the holder of 37 patents,
Mr. Issa is recognized for his questions.
Mr. Issa. Thank you, Mr. Chairman. And I'll try to limit
how much my experience as both a plaintiff and a defendant
color my questions--but I'll fail.
I'm a co-sponsor of this bill, very happily, because I
believe that each of the areas that it addresses must be
addressed. I want to echo the Chairman's statement when he said
this was a first cut. But I want to limit it--both for the
witnesses here, and perhaps for those who will see our
statements--it's a first cut that has to be taken seriously. It
cannot be assumed that we're going to throw out any of the
aspects; that we're not going to address any of these areas.
Because I think the Chairman rightfully has hit each of the
areas in which there are failures to get the outcome that we
think should be arrived at.
And if anything, I would be the person adding more to this
bill, to include professionalizing the district court, or its
equivalent, since I think the Supreme Court--Judge Breyer, when
he was over in the Senate, was brilliant in realizing that it
was time to have a professionalized court for patents.
I think he erred, and that the fed circuit was in fact the
wrong place to put it. And rather than professionalizing the
second look at something after the damage has been done, after
an injunction has been issued, after people have posted appeal
bonds--after, after, after--that, in fact, we should seriously
look at professionalizing the district court.
My experience has been--as many of you would empathize
with, my experience has been that the junior, poor former
magistrate that gets elevated is the guy that's going to get
your patent case, if anyone can unload it. And with rare
exceptions, judges who are experts in the area, the thing they
know is not to take the case.
Having said that, I'd like to concentrate on a couple of
areas. First of all--and this would probably work for all of
you--if we are to allow expanded reach into the patent
application process, either pre- or post-, then would it be
fair to say that we should include as a guidance to this court
that I've already said is flawed still a de novo approach to
looking at patent claims?
In other words, are they allowed to fully discount for
errors based on an equal standard that may have been made by
the examiner? Or will they continue to be held to the
assumption that the examiner looked at it, the examiner
reviewed it, and therefore there is a high burden to undo that
same material if it was seen by the examiner, even if it was
just in a stack this thick that came in in the applicant's
packet?
And I think each of you, I'd appreciate an answer.
Mr. Griswold. Well, we think that we certainly support the
presumption of validity, and believe that the applicant has
come forward, placed their invention into the process, and
attempted to get a patent. And we believe that that should come
with something; which is the presumption of validity, in our
view.
We also support, however, the post-grant review that's in
this bill that has as a standard a preponderance of the
evidence. And we think that that, as a continuation of the
examination process, is a very effective way to address some of
these concerns. But it should in our opinion be done in the
first--within 9 months--that's when they should bring the
opposition--after the patent grant. And that should be when it
occurs; not later. No second window.
Mr. Gulbrandsen. I think, at the end of the day, when the
patent is issued, and if you do adopt a post-grant opposition
proceeding that is limited in time, we need to have certainty
with respect to the validity and the strength of that patent.
Otherwise, in starting small companies, you are not going to
attract investors to place their money at risk, if there is
continued uncertainty as to whether those patents are going to
be able to be enforced.
Mr. Lerner. I would agree with the two speakers on the left
that the right approach is not to get rid of the presumption of
validity, but rather to make sure that that really means
something or that the presumption is well grounded, by
essentially having a higher quality system.
I will point out, though, that I think there are a number
of quite disturbing cases where it seems that, if anything, the
district judge has taken a patent issuance which was actually
carefully constructed and actually quite dramatically broadened
it out. The Research in Motion case, which was alluded to
earlier, was one example, I think. The Eolas case versus
Microsoft would be another example, where it seems that, if
anything, the judge was going beyond the scope of rather
careful review that the Patent Office had conducted.
Mr. Issa. Time passes quickly. One more answer.
Mr. Ravicher. Yes. The presumption of validity is
statutory. There's some empirical evidence that calls into
question whether it's justified. But the problem with the
presumption of validity is that the Federal circuit again has
taken it and ratcheted it up way too far in favor of patentees
by requiring that challengers of patents come in with clear and
convincing evidence; which is almost as high as ``beyond a
reasonable doubt''--much, much higher than just ``preponderance
of the evidence.'' That's nowhere supported by the statute.
The presumption of validity is fine, but the evidence that
a defendant should have to come forward with is only a
presumption of evidence that the patent's invalid; not clear
and convincing evidence. That makes it too tough on them.
Mr. Issa. So you would formally--just a last follow-up. You
would formally say that shifting the burden not away from
presumption, but to the fact that it's overcomeable by the
defendant by, as you say, a preponderance of the evidence,
should be the overall standard for all aspects, including the
initial granting?
Mr. Ravicher. Right, because that is the burden that the
Patent Office uses during all of its proceedings. It's the same
burden that's applied; especially with respect to art that no
one's ever looked at before. If it's brand-new art, the first
time anyone's seen it is in litigation, why should that have to
be clear and convincing? It just doesn't make sense.
Mr. Issa. Thank you, Mr. Chairman.
Mr. Smith. The gentleman's time has expired.
The gentleman from California, Mr. Schiff, is recognized
for his questions.
Mr. Schiff. Thank you, Mr. Chairman. There are really two
areas that I wanted to inquire about. And I support a lot of
the work in the bill, and am proud to support the bill.
There are some issues that have been raised of concern that
I want to get your thoughts on, in particular about the impact
on universities; two of which are very strongly out in my neck
of the woods, Cal-Tech and the University of California.
Both of the witnesses before the Committee from the
academic community and from the universities themselves, I've
gotten conflicting views, even within the same university, even
within people doing the same work in the same university. But
the two primary concerns--although there are several that have
been raised with me in the university setting--have been over
the first-to-file issue and a preliminary injunction issue.
And if I could start with Professor Lerner and Mr.
Gulbrandsen, who seem to come from the same academic
environment but take two different views on this, if you'd
share a little bit of your thoughts on those two issues in the
current print.
And maybe if you can go beyond it, assuming that there are
going to be changes made, are there any things that can be done
to ameliorate the concerns that the universities have with the
change that's being proposed?
Mr. Lerner. Okay. Well, I guess I should start by just
simply saying I'm speaking on behalf of myself, rather than on
behalf of Harvard University.
Mr. Schiff. Oh, before you do----
Mr. Lerner. Yes.
Mr. Schiff.--I just want to say, as the Jacob Schiff chair,
that Jacob Schiff was my great-grandfather. However, it was
Jacob Schiff, the kosher butcher; regrettably, not the wealthy
financier who has endowed your chair. But nonetheless, you have
a special place in my heart. [Laughter.]
Mr. Lerner. Well, thank you. I think that in some sense--I
think the point was just raised earlier, that the use of
interference is extremely rare. I mean, I think in some sense,
I regard that as sort of prima facie evidence that this is
something which really ought to be gotten rid of.
This is something which essentially is--only a tiny
fraction of patents get into interferences. There is
nonetheless a lot of resources spent worrying about these
procedures. And certainly, it's fair to say that there's a well
compensated interference bar in this city which has done well
within themselves dealing with these cases.
I think that, given that this is an element which is quite
an outlier and is sort of so rarely used, I would very much see
this as being a sort of very low-cost step that could be done
toward the harmonization of the U.S. system with the rest of
the world, and I just--particularly today, in the era where
there's, you know, provisional filings which can be done on a
very quick basis and are routinely done by university
technology transfer offices, I don't see this as a major
problem.
Mr. Schiff. So you feel the universities can adapt?
Mr. Lerner. Absolutely--in effect, they--I mean, given
that, you know, pretty much every important patent today is not
just filed in the United States, but filed in Europe and
elsewhere, where essentially it is a first-to-file world,
people are indeed, you know, sort of filing as soon as they
can, using provisional applications.
I think, with the injunctive issues it's a harder issue.
But I will point out that, you know, sort of when we look at
the history of the use of injunctive relief, you know, yes,
it's been in the statute for a long time; but certainly, when
you look at the history for the first, you know, several
decades, there are a number of decades in which it was used. It
was something that was used on occasion, but was not seen as,
by any means, an automatic procedure.
And I think that that kind of balances one that would be
one that would be harmful. After all, universities,
particularly after Madey v. Duke, have real worries about not
only being initiators of litigation, but also being on the
receiving end. And I think as a result, they have a lot to gain
from having a well-working patent system. Thanks.
Mr. Gulbrandsen. For private universities and for a
university like the University of Wisconsin, Madison, that has
a WARF with a large endowment, we could live with the system
that you're talking about, provided the additional protection
that I address in my written statement exists; namely, the
requirement that the inventor, or who is filing on behalf of
the inventor, sign an oath.
For most of the public universities, however, they don't
have a patent budget, and they need to rely on the good graces
of a licensee to pay for the patent filing. For them, a race to
the Patent Office just doesn't work. And for them, it would be
a true hardship.
In our case, more often than not, the technology comes to
us after somebody has published their discovery. And so we can
still race to the Patent Office, because we have the resources
to do it and we are able to speculate on technology; we don't
need to wait for a licensee in the wings. But for the great
majority of public universities, this is going to be a real
change of culture, and I think, at least initially, it will be
a hardship.
Mr. Schiff. May I just follow up for 30 seconds, Mr.
Chairman?
Mr. Smith. The gentleman is recognized for an additional
minute.
Mr. Schiff. Thank you. Professor Lerner, can you respond? I
know you're a private university. How do you think the publics
are going to be impacted?
Mr. Lerner. Well, I think that it is fair to say that the
sort of sophistication and skill of the operations, in terms of
technology transfer, vary a lot; that there are some
universities, including private ones like my own, as well as
public ones like the University of California, which have very
sophisticated operations, and many both private and public
which are less well organized in that process and, as a result,
are--probably, this is a real issue.
But I think that this really argues for essentially making
the investment on the part of the universities to essentially
try to get the information about potential innovators earlier,
and do that rather than trying to create some special exception
for them.
Mr. Schiff. Mr. Gulbrandsen?
Mr. Gulbrandsen. I would just state additionally that
universities are open environments. For the universities to
change their culture and say, ``We've got to get to the Patent
Office before we publish this discovery, or before we talk to
anybody about it,'' is really a change for universities, even a
change for Wisconsin. We encourage publication. That's what
we're about. We're an open environment. And that's how
technology works in this country.
If I could just read to you what PROTON, which is the pan-
European network of knowledge transfer offices, says about the
European patent system; its quote is, ``The European patent
system, with its complexity and cost, is much less appropriate
to university-based inventions than the U.S. system, and acts
as a barrier to innovation for public research. It lacks a
grace period, a provisional patent system, a continuation in
parts system, and is several times more expensive. PROTON
Europe is convinced that these changes account in large part
for the much lower number of patented inventions coming out of
public research in Europe.''
Mr. Schiff. Thank you very much. Thank you, Mr. Chairman.
Mr. Smith. Thank you, Mr. Schiff.
The gentleman from Utah, Mr. Cannon, is recognized for his
questions.
Mr. Cannon. Thank you, Mr. Chairman. I appreciate this
hearing. It's been very informative. And I'd like to just ask
the panel, in series, if there are any things they would like
to add to what has been said, if there's anything else that we
ought to cover other than what's happened already. Thank you.
Mr. Ravicher. There is one issue I address in my written
testimony that I think is very important. Unlike trademark and
copyright law, where there are defenses based on the exercise
of constitutional rights, there is no such defense to patent
infringement. And patents today, because life is more dependent
on technology, it impacts all of our most critical freedoms. It
impacts speech; it impacts privacy; it impacts assembly; it
even impacts voting and religion. There are patents on
everything you can imagine. It impacts all areas of life.
Fortunately, we haven't had any horror scenarios where some
such--a patentee has been trying to use it to foreclose someone
from exercising their constitutional right. But I would prefer
us to have an expressed provision that says, when
constitutional rights are being threatened by patents, the
patent shall yield to the constitutional right.
Mr. Cannon. Thank you. If you just want to go down the line
of the panel, that would be great.
Mr. Lerner. I think this has been a very thoughtful
discussion, and one which has brought out a range of important
issues. And I think, you know, no doubt, the bill which gets
ultimately marked up and delivered will address some of these
issues; others perhaps will be left on the plate for future
consideration.
But certainly, I would just highlight, you know, some of
the consideration around the issue that was raised earlier
about the idea of whether the specialized court is at the right
level; and particularly, whether some of the issues around
addressing the quality of the first trials, of the district-
level trials, is a issue that perhaps the Committee might want
to consider down the road. Thank you.
Mr. Gulbrandsen. I again would like to thank the Committee.
And I mean, this is very important work, and it is the most
drastic change to the patent laws in 50 years.
But I would like to also say that the United States remains
the technological leader in the world, and we have been the
technological leader for almost a hundred years. I firmly
believe that one of the reasons why this country is such a
strong leader in innovation is because of our strong patent
system.
So, we have to maintain a strong patent system. We have to
encourage people to want to invest in start-up companies.
That's where the innovation comes from. And, please, please,
don't do anything that is going to diminish the strength of
patents. And please encourage the continued innovation country
is great for. Thanks.
Mr. Griswold. Yes. I certainly would support the comment of
not diminishing the value of patents. They are essential.
They've been essential to 3M's business from 1907--1902,
actually.
But I would say this. I think the bill overall, with the
two exceptions which I mentioned, is a good bill and will not
negatively impact the patent system. But there are two pieces
that I mentioned: the second window; and any language on
injunctions is an issue.
I would also say this; that relative to the burden of proof
in the response to FTC-2, Recommendation 2, we went into great
length in describing what the true burden of proof standard is
and why it's appropriate. And I would refer the Committee to
that for that discussion.
Mr. Cannon. Thank you. I'd like to thank the panel members.
I think it's been a very enlightening discussion. And yield
back, Mr. Chairman.
Mr. Smith. I thank you, Mr. Cannon. I, too, would like to
thank the Members for their presence, the witnesses for their
statements and their responses. This has been particularly
enlightening. And also, for everyone in the room, this is a
higher than usual turnout, and it indicates an interest in an
important subject.
Let me also add that, if we do our job--and I am confident
that we will--and continue to massage this bill between now and
the markup scheduled on June 30th, we will have a product that
in fact will help businesses across the country; that will
create jobs; that will spur the economy; that will stimulate
innovation and creativity; and that will help many, many
Americans. And that is our aim, and I believe that we will
achieve that.
And thank you again for your help along the way. We stand
adjourned.
[Whereupon, at 10:35 a.m., the Subcommittee was adjourned.]
A P P E N D I X
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Material Submitted for the Hearing Record
Prepared Statement of the Honorable Howard L. Berman, a Representative
in Congress from the State of California
Thank you for scheduling a hearing on the Patent Act of 2005.
Several groups have worked diligently to arrive at a consensus on
reforms necessary to improve existing patent laws. There seems to be
agreement that any legislation should focus on three broad subjects: 1)
the decrease in patent quality, 2) the increase in litigation abuses,
and 3) the need to harmonize U.S. patent laws with the patent laws of
foreign countries. The Chairman and I and our staffs, have carefully
considered the copious comments on the committee print and have
carefully crafted H.R. 2795 to respond to the concerns.
I initially became interested in patent reform, primarily because
of the multitude of questionable quality patents that were being
issued. High-quality patents are essential to a healthy patent system.
Poor quality patents tend to spawn litigation, which in turn creates
uncertainty in markets that depend on patent rights. As a result,
investors hesitate to invest and innovators hesitate to invent. That is
why I am pleased that there is strong support for a key quality
provision in the bill--allowing third parties to submit prior art to
examiners within a limited time frame. With Section 10, we have taken
an important first step in addressing the problem of poor patent
quality by enabling examiners to have more information from additional
sources. During the question and answer portion of this hearing, I
intend to explore the merits of additional quality measures such as the
``second window'' in the post-grant opposition procedure.
This bill is by no means a perfect solution, but I believe many of
my additional concerns will be addressed as the bill goes through
committee. For example, the PTO has voiced some concerns about its
ability to administer the provision on the duty of candor. If the
agency tasked with managing the procedure believes it will have trouble
doing so, it is worth taking a second look at the consequences of the
language. Furthermore, I think the harmonization provisions need to be
fleshed out a bit more to address the concerns of small-inventors and
universities, which I hope at least one of the witnesses will speak
today. As we move forward in this process, I hope that we will continue
to seek a consensus on the best way to reform our patent system.
I look forward to hearing from parties interested in patent reform
over the next few weeks in order to rectify any unintended consequences
presented by the text of the bill. Overall, I believe that our bill has
addressed a number of pressing issues and will certainly create a
healthier more effective patent system.
__________
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan
I am an original cosponsor of this legislation because I believe we
need to make major changes to the patent system. At the same time,
however, I do have concerns with several of the provisions in the bill.
At the outset, it is important for our economy to harmonize our
patent system with those of other countries. To this end, we should
establish a system that awards the patent to the first-inventor-to-
file. We also should make it easier for third parties to challenge
patents after they have issued as long as the process has some finality
to it.
Other sections, however, will require continuing discussions. I
have not heard anyone deny that there are too many `bad' patents out
there, patents that are overbroad or that the Patent and Trademark
Office should have been denied as being obvious. Owners of such patents
file infringement suits and receive either damages or injunctions for
patents that never should have been issued. This drives up costs not
only for businesses but also for consumers. To address this, we are
faced with two options.
Because of problems in a few industries, there are proposals that
we make it more difficult to enforce patents. I fear, however, that
this could disproportionately affect smaller patent owners, who would
have a more difficult time in establishing harm from infringement if
damages but not an injunction were awarded.
In terms of scope, this approach may be too broad. It would affect
owners of not just overbroad patents but also those that are entirely
legitimate. It also would affect not just the industry in question but
every industry that is vital to our economy, from biotechnology to
software to high-tech. Finally, it could discourage investment and
research into new drugs and technologies, as investors would not know
whether any resulting patents would ultimately be enforceable.
The second option, which I believe deserves greater consideration,
is to prohibit such patents from issuing in the first place. Such an
approach would help avoid infringement and related litigation costs
altogether. It also would ensure against the issuance of injunctions
for patents that should not have been granted without affecting the
rights of legitimate patent owners.
One proposal to accomplish this is to allow patent examiners to
review more than just officially published documents. Patent examiners
must be able to consult information that tells whether an application
describes something that is not really new, even if that information
was not a patent or a journal article. I would hope we can all agree
that the PTO should be able to consider a wider variety of such prior
art than it is currently permitted.
We also need to revisit the standard that is used to determine
whether an application describes something that would be obvious to
people in the field. Even if an invention was not clearly explained
somewhere, the concept of it may be too obvious to merit patent
protection, and we should make that clear to the PTO and to the Federal
Circuit. These two ideas, among others, could drastically cut the
number of bad patents being issued and drive down costs for all of us
without harming valid patent owners, large and small.
__________
Prepared Statement of the Honorable Zoe Lofgren, a Representative in
Congress from the State of California
Today we are here to discuss the merits of the ``Patent Act of
2005.'' But first I want to thank Chairman Smith and his staff for all
their hard work on this bill and their willingness to work across the
aisle on it. I also want to thank Ranking Member Berman and his staff,
as well as the academic and industry groups who have tried to find
creative solutions to some of the more vexing parts of this
legislation.
I know we have a lot of work left to do. I think our country needs
patent reform and for that reason I am a cosponsor of this bill. But
this is just the beginning of the process. The bill we are considering
today includes many needed reforms that I think everyone can support.
Obviously, there are aspects that will need further work and change.
Patents are a critical source of this country's economic vitality.
The strength of our patent system has spurred innovation and led to the
creation of entire industries. But to ensure the continued success of
our patent system, it is clear that changes need to be made. This
legislation is a needed first step to move this process forward.
As we continue to seek the right balance, I hope that we also
consider other ways to improve patent quality. Over the last several
weeks, I have received numerous suggestions including, among other
things, suggested improvements to the non-obviousness standard found in
section 103(a). While it is too early for me to endorse any of these
suggestions, I hope that we can give them serious consideration.
Again, thank you Mr. Chairman, I look forward to working with you
and the other Members of the Subcommittee on this legislation in the
weeks to come.
Memorandum Submitted by the Honorable Zoe Lofgren, a Representative in
Congress from the State of California
Letter from Michael K. Kirk, Executive Director, American Intellectual
Property Law Association (AIPLA), in response to questions to Gary
Griswold, President and Chief Intellectual Property Counsel, 3M
Innovative Properties Company, submitted by the Honorable Zoe Lofgren,
a Representative in Congress from the State of California
Prepared Statement of the Computer & Communications
Industry Association