[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]
AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 2795, THE ``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
__________
SEPTEMBER 15, 2005
__________
Serial No. 109-53
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
______
U.S. GOVERNMENT PRINTING OFFICE
23-434 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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SEPTEMBER 15, 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. Emery Simon, Counsel, the Business Software Alliance (BSA)
Oral Testimony................................................. 5
Prepared Statement............................................. 6
Mr. Philip S. Johnson, Chief Patent Counsel, Johnson & Johnson,
on behalf of the Pharmaceutical Research and Manufacturers of
America (PhRMA)
Oral Testimony................................................. 9
Prepared Statement............................................. 11
Mr. Robert B. Chess, Chairman, Nektar Therapeutics, on behalf of
the Biotechnology Industry Organization (BIO)
Oral Testimony................................................. 20
Prepared Statement............................................. 23
Mr. John R. Thomas, Professor, Georgetown University Law Center
Oral Testimony................................................. 35
Prepared Statement............................................. 37
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.......................................... 59
Prepared Statement of the Honorable Bob Goodlatte, a
Representative in Congress from the State of Virginia, and
Member, Subcommittee on Courts, the Internet, and Intellectual
Property....................................................... 60
Prepared Statement of the Honorable John Conyers, Jr., a
Representative in Congress from the State of Michigan, and
Member, Subcommittee on Courts, the Internet, and Intellectual
Property....................................................... 60
Response to post-hearing questions submitted by the Honorable
Chris Cannon, a Representative in Congress from the State of
Utah, to Phil Johnson, Chief Patent Counsel, Johnson & Johnson. 62
Response to post-hearing questions submitted by the Honorable
Darrell Issa, a Representative in Congress from the State of
California, to Phil Johnson, Chief Patent Counsel, Johnson &
Johnson........................................................ 67
Letter to the Honorable Zoe Lofgren, a Representative in Congress
from the State of California, from Phil Johnson, Chief Patent
Counsel, Johnson & Johnson..................................... 69
Letter to the Honorable Lamar Smith, a Representative in Congress
from the State of Texas, and Chairman, Subcommittee on Courts,
the Internet, and Intellectual Property, and 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, and Prepared Statement
from Bob DeMatteis, Plastic Packaging Systems.................. 189
Prepared Statement of Raymond V. Damadian, President and
Chairman, Fonar Corporation, Manufacturer of Scanners.......... 193
Prepared Statement of Joy L. Bryant, Executive Director, National
Association of Patent Practitioners............................ 196
Prepared Statement of Stephen Wren, Independent Inventor and
Actuary........................................................ 203
Prepared Statement of Ronald J. Riley, President, Professional
Inventors Alliance USA......................................... 207
Letter to the Honorable Lamar Smith, a Representative in Congress
from the State of Texas, and Chairman, Subcommittee on Courts,
the Internet, and Intellectual Property, from Christine J.
Siwik, Rakoczy Molino Mazzochi Siwik LLP, on behalf of Barr
Laboratories, Inc.............................................. 218
AMENDMENT IN THE NATURE OF A SUBSTITUTE TO H.R. 2795, THE ``PATENT ACT
OF 2005''
----------
THURSDAY, SEPTEMBER 15, 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 10:30 a.m., in
Room 2141, Rayburn House Office Building, the Honorable Lamar
Smith (Chairman of the Subcommittee) presiding.
Mr. Smith. The Subcommittee on Courts, the Internet, and
Intellectual Property will come to order.
First, it's nice to look out and see a packed house today.
That is indicative of the importance of the subject matter and
of course the testimony of our witnesses, which will be
forthcoming in just a few minutes. But I appreciate the
interest.
While I am mentioning those who are in attendance, I
probably should apologize in advance to a lot of you all. Not
everyone--that for good or for bad, what you are going to be
hearing about today is a fairly arcane subject. It is not only
complex, but it is legalistic, technical, and I just appreciate
everybody's patience in trying to delve into this particular
subject. We are going to be talking about such things as July
substitutes and September redlines and apportionment and venue,
and so on and so forth. So a lot of subjects we will discuss
today, and, again, I appreciate the interest.
Let me explain also why we have been slightly delayed and
apologize to those of you all who did not get the word. There
was a last-minute Republican conference meeting called to
ratify the choice of the new Homeland Security Chairman, who is
Peter King of New York. Because of that conference at 10:00,
going from 10 roughly to 10:30, we had to postpone this
particular hearing. But we will get started immediately. I am
going to recognize myself for an opening statement, then the
Ranking Member, then we will go to our witnesses.
Today marks our fourth hearing on patent reform in the
109th Congress. The first two focused on the contents of a
Committee print and the third on H.R. 2795. Today we will
explore the merits of an amendment in the nature of a
substitute to H.R. 2795, the ``Patent Act of 2005,'' that was
developed in late July pursuant to negotiations among
Subcommittee Members, industry representatives, and
professional associations. A second document, a September
redline to the substitute reflecting further changes, also will
be discussed.
To arrive at this point is no small accomplishment, given
the scope of the bill and the eventual application to so many
lives and jobs. Notwithstanding our progress to date, the
legislation is in fact at a crossroads.
High-tech and financial service companies believe present
law encourages individuals to acquire poor quality patents.
These patent holders, sometimes called trolls, can extort
settlements from manufacturers by threatening to shut down
assembly lines in the course of infringement suits.
It shouldn't become just another lawyer's game to divert
money from purposeful endeavors like manufacturing computers
and software, but some of the changes that we have considered
may inadvertently hurt other important industries.
Biotech and brand drug companies, for example, operate
under very different business models that rely on a legal
system that vigorously affects patent rights. Their concerns
about profit margins, lawsuits and productivity are no less
sincere than those of the high-tech community.
In this regard, I hope that Members and witnesses will
remain especially creative and open-minded as we attempt to
thread the needle on two key issues, changes to patent
litigation venue and apportionment of damages.
In the seeking of compromise on the venue issue, we are
taking a different approach. Instead of focusing on the
frequency with which injunctions are issued, why not revise
another statute that allows frivolous suits to be brought in
patent friendly districts? We are now exploring the
possibilities of allowing these suits to go forward but under
more stringent terms; for example, only in districts in which
the defendant has committed acts of infringement and has a
regularly established place of business.
Consistent with this approach, the redline document would
require district court to transfer an infringement action to a
judicial district or to a division that is a more appropriate
forum; that is, to a district or division where one of the
parties has substantial evidence or witnesses.
Concerning apportionment, both the substitute and the
redline document address the matter of determining the true
value of an invention in an infringement action. In other
words, how much value may be attributable to the inventor's own
efforts versus the contributions from other sources, including
the infringers.
I am especially interested in learning what the witnesses
think of the redline draft, which replaces the venue language
of the bill with the transfer of venue provision. More than 20
companies representing a broad cross-section of industrial
interest support this provision. The redline text applies
apportionment analysis to all inventions, not just
combinations, distinguishes contributions arising from the
patent invention to those attributable to the efforts of the
infringer and clarifies that an infringed patent may not be
credited with certain improvements that an infringer has
incorporated into any infringing product.
While all issues set forth in both documents are fair game
for discussion today, I am particularly interested in these two
issues, the venue and the apportionment of damages. I am
convinced that either version, the July substitute or the
September redline, with some tweaking will help individuals and
companies obtain funds for research, commercialize their
inventions, grow their businesses, create new jobs, and offer
the American public products and services that make our country
the envy of the world. In fact, that is what the patent system
is supposed to do.
That concludes my remarks. I will now recognize the
gentleman from California, Mr. Berman, for his.
Mr. Berman. Thanks very much, Mr. Chairman. Once again,
thank you for scheduling this hearing on possible substitute
amendments to the Patent Reform Act.
I know, in addition to the amendment in the nature of a
substitute, that was circulated in July, a number of individual
companies have met together over the summer to try to produce a
consensus bill, a draft of which has been circulating as well.
In all honesty, at this point in the process I would prefer
that the Subcommittee be actually marking up a bill, but I
understand the situation.
The witnesses all agree that patents are the foundation of
American innovation, and they serve as the underpinning of the
American economy. Strong intellectual property protection helps
protect technology businesses, attract investors, provides
incentives for drug companies to develop new drugs and allows
independent inventors to make significant contributions to
society.
However, while robust property protection presents these
benefits, when protection is given to questionable quality
patents, the foundation begins to show its cracks. This leads
to an increase in litigation, a decrease in investment, and
casts doubt about the effectiveness of our patent system.
At last week's hearing regarding oversight of the PTO, we
heard consensus from all of the witnesses, including the
director of the agency responsible for administering the patent
process, that there is a problem with the quality of patents
issuing from the Patent Office.
It would be quite an accomplishment if we could reach
consensus with this panel about the solution to the quality
issue. Some of the proposed provisions of the original bill, as
well as the substitutes, begin to address the quality in the
initial stages of the examination process, such as the ability
for third parties to submit prior art to the examiner.
Over the number of years Congressman Boucher and I
introduced precursors to this bill, we always agreed that the
key to improving quality was providing examiners with the
necessary prior art resources. Access to better information
will yield better decisions by the examiners.
Other provisions will enhance the quality of patents
immediately after their issuance, such as the new post-grant
opposition procedure. With the opportunity to establish a more
comprehensive check on a patent's validity without resorting to
an expensive and lengthy court proceeding, the bill will
improve both the quality of specific patents and the patent
system as a whole.
Unfortunately, the goal of providing a true alternative to
costly litigation, the second window provision, has been
omitted from drafts of a substitute. Clearly a limited second
window would shed more light on the quality and validity of
questionable patents. With substitute options that do not
contain the injunction provision or the second window options,
I am left to ponder the fate of questionable quality patents
that have already been granted. These patents will surely be
litigated, but afforded a high presumption of validity, and
therefore in all likelihood affirmed.
What will be the effect on the economy that a questionable
quality patent; for instance, a software program, can now be
the reason for barring others from using their own truly
inventive products? Shouldn't we consider how to rectify this
problem as we discuss one of the most extensive patent reform
bills since the 1952 act?
Though there are main issues which still need further
discussions such as duty of candor provision and obviously some
of the disputed provisions in the latest coalition draft, I
will look forward to hearing from some of the industry
witnesses today and see how, if at all, their positions have
shifted since we began this process.
I hope to continue working with the group of cosponsors
that you have put together, Mr. Chairman, to try to create a
more perfect patent reform.
Mr. Smith. Thank you, Mr. Berman. Without objection other
Members' openings statements will be made a part the record.
Before we begin our testimony, I would like to invite our
witnesses to stand and be sworn in.
[Witnesses sworn.]
Mr. Smith. Thank you, please be seated.
Our first witness is Emery Simon, Counsel to the Business
Software Alliance, where he advises BSA on a broad range of
issues, including copyright law, electronic commerce, trade and
encryption.
Mr. Simon received an undergraduate degree from Queens
College, a Master's Degree from Johns Hopkins University and a
law degree from the Georgetown Law Center.
Our next witness is Philip S. Johnson, Chief Patent Counsel
for Johnson & Johnson, who will be testifying on behalf of the
Pharmaceutical Research and Manufacturers of America, or PhRMA.
He serves as the co-chair of PhRMA's Intellectual Property/
Patents Focus Group and holds other leadership post in various
IP trade associations. Mr. Johnson received his undergraduate
degree from Bucknell University and his law degree from Harvard
University.
Our next witness is Robert Chess, Chairman of Nektar
Therapeutics, who will be testifying on behalf of the
Biotechnology Industry Organization, or BIO. Mr. Chess co-
chairs BIO's Intellectual Property Committee. He also teaches
entrepreneurship and management of health care innovation at
Stanford Graduate School of Business. Mr. Chess studied
engineering as a graduate student at California Institute of
Technology and earned a Master's Degree from the Harvard
Business School.
Our final witness is John R. Thomas, Professor of Law,
Georgetown University Law Center. Professor Thomas also serves
as the Visiting Scholar in Economic Growth and Entrepreneurship
at the Congressional Research Service. He earned his Bachelor's
Degree from Carnegie Mellon University, a law degree from the
University of Michigan, and a Master of Law from George
Washington University.
Welcome to you all. We have your entire testimony, which
will also, without objection, be made a part of the record. We
look forward to your testimony today.
Mr. Simon, we will begin with you.
TESTIMONY OF EMERY SIMON, COUNSEL,
THE BUSINESS SOFTWARE ALLIANCE (BSA)
Mr. Simon. Thank you, Mr. Chairman, Mr. Smith, and Members
of the Subcommittee.
My name is Emery Simon, and I appear before you today on
behalf of the Business Software Alliance. H.R. 2795 and the
amendment in the nature of a substitute would make fundamental
important changes to the patent law.
The BSA has had an opportunity previously to make its views
known on the full exchange of these issues. Today I will limit
my comments to a few of the most important changes in the
substitute as certain proposals advanced by an ad hoc coalition
on September 1, which you referred to, Mr. Chairman, as the
redline document.
Through its recent hearings this Subcommittee has heard
that changes are needed in three areas, assuring patent
quality, curbing excessive litigation and promoting
international harmonization. BSA member companies believe in
general the substitute addresses each of these key areas in
ways that will improve and modernize our patent system.
We urge the Subcommittee to modify the substitute in
certain limited respects, and I will identify these in the
course of my testimony.
As Mr. Berman just said, the substitute would make a number
of useful reforms aimed at ensuring patent quality. These
include establishing a post-grant process to intercept bad
patents and providing a workable mechanism aimed at enabling
the PTO to receive prior art from persons other than the
applicant. We believe these changes will improve patent quality
and mitigate the need for parties to file expensive, disruptive
lawsuits.
With respect to curbing excessive patent litigation, we
support the approach in the substitute with regard to monetary
damages and to discouraging plaintiffs from engaging in
inappropriate forum shopping.
Specifically, the changes with respect to willful
infringement will lead to better, more thorough searches by
applicants and less litigation. This provision should reduce
the need for expensive notice and opinion letters by
establishing three clearly limited grounds for willfulness to
be found.
We also support the approach of the substitute in
addressing the problem of forum shopping by plaintiffs and the
changes proposed in the redline on September 1. The substitute
would create a viable means for the defendant to have the case
moved through a more appropriate venue. The practice of filing
suits in jurisdictions with a demonstrated pro-plaintiff bent
warps settlement demands and undermines confidence in the
fairness of adjudicated outcomes. We think that the changes
proposed in the redline improve upon that.
On the issue of calculations of damages for infringement,
we support the changes proposed in the substitute and oppose
the changes proposed in the redline on September 1.
The ad hoc coalition, the redline coalition proposal would
perpetuate excessive unmerited and unfair damages awards in
cases involving computers and software. Under current law,
patent damage models are not required to focus on the economic
value of the inventor's contribution. Instead damages can be
based on the semantics of a cleverly drafted claim. This
practice results in jury confusion because damage models can
include significant value attributable not only to the new
invention, but instead to already existing technology to prior
art.
The court should have the statutory authority to make a
determination about what the technological contribution with
the patentee is before a party is allowed to present royalty
damages models. The statutory language should focus this
determination away from clever claims and onto the patent. We
support the substitute because it would provide courts with a
statutory basis for requiring patentees to present damage
calculations based on the proportional value of a patent
invention alone, not on the cumulative value of all features
included within a large product, which for a computer can be
thousands and thousands of features.
There may well be ways, Mr. Chairman, to improve the
language in the substitute and we would like to work with you
and others before full Committee consideration of this bill.
We oppose, as I said, the ad hoc redline because by
changing the term ``inventive contribution'' to ``claimed
invention'' unscrupulous parties could well claim damages based
on the scope of the claims in the patent rather than the fact
specific actual use of the invention.
A provision not now part of the substitute, but which is
part of the redline, is the repeal of section 271(f). We urge
you to make this change. Under recent court holdings
interpreting 271(f), a copy of a computer program made outside
of the United States will be included in support of the United
States damages if the software is made from a master disk
developed in this country. If the software had been developed
outside of the U.S., this rule would not apply. We believe this
reading of 271(f) creates an unintended incentive to make
valuable development activity outside the U.S. and should be
removed from the law.
Finally, we note that in the course of your work the
Subcommittee has considered a number of other issues, including
second window for commencing a post-grant proceeding, limiting
abuses of continuations of pending applications and additional
reforms aimed at mitigating excessive litigation. We recognize
the Subcommittee has reviewed each of these matters carefully
and has decided not to address them at this time. These issues
remain of deep concern to BSA members and to the technology
industry as a whole. We are prepared at this point to support
the Subcommittee reporting favorably the substitute with only
the changes I have outlined.
Thank you again.
[The prepared statement of Mr. Simon follows:]
Prepared Statement of Emery Simon
Chairman Smith, Mr. Berman and members of the Subcommittee, my name
is Emery Simon, and I am counselor to the Business Software Alliance. I
want to thank you for the opportunity to testify.
Mr. Chairman, BSA commends you and the other members of this
subcommittee for your demonstrated leadership in pursuit of improving
our patent system. In our view, the amendment in the nature of a
substitute represents an important step towards that goal.
BSA members believe that the patent system is fundamentally sound
and works well for most innovators, whether they toil in their garage,
experiment in a university laboratory, or work for a large corporation
that provides goods and services to consumers. We believe that a
periodic review and recalibration of the patent law is not only a good
idea, but essential to ensuring that patents remain a vital incentive
for innovation.
BSA members approach patent reform from a pragmatic, problem-
solving perspective. Our attention is focused on those areas of law and
practice that present specific challenges for our companies' day-to-day
conduct of their businesses.
Through its recent hearings this Subcommittee has heard that
changes are needed in three areas: assuring patent quality, curbing
excessive litigation and promoting international harmonization. BSA
member companies believe that, in general, the Substitute addresses
each of these key areas in ways that will improve and modernize our
patent system. We would urge the Subcommittee to modify the substitute
in only limited respects, and I will identify those in the course of my
testimony.
First, the Substitute would make a number of useful reforms aimed
at assuring patent quality at a time of increasing demands on the
patent office:
It establishes an enhanced post-grant process to
provide parties a second chance to intercept bad patents. We
believe this change will mitigate the need for parties to file
expensive and disruptive lawsuits.
It will also provide a more efficient means to
challenge bad patents subject to the same evidentiary standard
used in the granting of the patent, namely a preponderance of
the evidence.
And it will provide a workable mechanism aimed at
enabling the PTO to receive prior art information from persons
other than applicant. This change will leverage private-sector
resources to provide the examiner with more information upon
which to base determinations on the fundamental issue of
patentability and will help build a contemporaneous record that
reflects the extent of the examination by the examiner.
BSA supports each of these reforms.
With respect to curbing excessive patent litigation, we support the
approach in the Substitute with regard to monetary damages and to
discouraging plaintiffs from engaging in inappropriate forum shopping.
As industry representatives have testified previously, the IT
industry, like so many others, is encountering the enormous costs of
dealing with patents of questionable quality. Today, hundreds of patent
infringement cases are pending against computer software and hardware
companies, costing the industry hundreds of millions of dollars each
year. The fact that the patent system works well for other industries
does not obviate the need to address this very real problem for the
technology industry. Our industry is particularly vulnerable to such
claims because our complex products often have hundreds of patented or
patentable features contained within them.
Left unchecked, these practices stand to disrupt the activities of
true innovators and impede their ability to deliver products and
services to consumers. We believe the changes contained in the
Substitute would constitute an improvement over the current situation.
Specifically, the changes with respect to willful infringement will
lead to better and more through searches by applicants and less
litigation. This provision should reduce the need for expensive notice
and opinion letters by establishing three clearly limited grounds for
willfulness to be found. In addition, we believe that disruptions and
uncertainty will be reduced by requiring courts to first make a
determination of whether a patent is valid and infringed before it
considers willfulness issues, including pleadings, discovery and
findings.
We support the approach of the Substitute in addressing the problem
of forum shopping by plaintiffs. The Substitute would create a viable
means for the defendant to have the case moved to a more appropriate
venue. The practice of filing suit in jurisdictions with a demonstrated
pro-plaintiff bent warps settlement demands and undermines confidence
in the fairness of adjudicated outcomes. It has proven very burdensome
for technology companies sued in jurisdictions far removed from their
principal places of business where the bulk of the evidence or
witnesses are to be found.
While we support the approach of the Substitute, we believe that
the goals of promoting litigation efficiency and fairness can be
accomplished in a clearer manner with certain changes in the wording.
In preparing for this hearing your staff has directed us to look at
proposals that have been developed by an ad hoc coalition of companies.
We support the language they have developed to improve the Substitute
on this issue of forum shopping.
We also support the changes proposed by the Substitute as
circulated by your staff with regard to the calculation of damages for
infringement. Today, when a small component of a multi-faceted system
or product is alleged to infringe a patent, the damage claim often
seeks some portion of the value of the product as a whole, or the full
scope of the claimed invention, such as a computer, rather than being
limited to only the value of the infringing feature or functionality.
In practice this means that damages can be calculated as 3 to 5 percent
of the value of a $2,000 computer rather than the value of the item
that may be just $1 or $2. This often leads to unduly inflated verdicts
or settlement demands, and is unworkable when thousands of patents can
apply to a product.
We believe the language of the Substitute as circulated by your
staff is generally correct and appropriate. The Substitute would
provide courts with a statutory basis for requiring that patentees (and
their expert witnesses) present damages calculations based on the
proportional value of a patented invention alone, rather than on the
cumulative value of all features included with a larger product. There
may well be ways to improve this language, and we would like to work
with you, Mr. Chairman, and other Members on this language before full
Committee consideration of the bill.
We understand that certain changes to this language have been
proposed by an ad hoc coalition of interests, and we must state our
opposition to their proposal. That group has erroneously characterized
that language as having the support of technology companies. That is
not the case. The ad hoc coalition draft ignores a serious issue by
which abusers of the patent system can claim damages beyond the value
of the contribution of the invention. By proposing to change the term
``inventive contribution'' to ``claimed invention'', unscrupulous
patentees could well claim damages based on the scope of the claims in
the patent rather than the fact-specific actual use of the invention in
the instant case.
For example, in a case involving a built-in modem in a computer,
the claim for damages was based on the value of the computer. Under the
Substitute's formulation damages would appropriately be measured on the
value of the modem. However, if damages were based on the claimed
invention as some have proposed--the combination of a microprocessor,
hard drive, motherboard etc., the royalty would be based on the value
of the entire computer.
BSA member companies often face plaintiffs who demand royalties
based on the cost of the entire computer or the entire software package
when their inventive contribution is limited to some minor improvement
on some piece of the product involved. For this reason, we pledge our
willingness to continue to work on this issue, but we must oppose the
change proposed by the ad hoc coalition of companies.
A provision not now part of the Substitute is the repeal of Section
271(f). We urge you to make this change. In 1984, Congress added
Section 271(f) to prevent companies from manufacturing components of an
infringing product in the United States, and exporting those parts for
assembly abroad to avoid the claim of infringement. Today, the
provision has been interpreted by the courts in ways that deter
domestic development of software. Under recent court holdings, a copy
of a computer program made outside the United States may in some cases
nonetheless be included as part of United States damages if the
software is made from a ``master disk'' developed in the United States.
If the software had been developed outside the U.S., this rule would
not apply. The same issue may exist with respect to development of
other information-based products that are made wholly outside the
United States based on information developed in the United States. We
believe this application of the law creates an unintended incentive to
move valuable development activity outside the U.S., and should be
removed from the law.
BSA also supports provisions of the Substitute aimed at harmonizing
U.S. law with that of other major jurisdictions by establishing a first
to file system and requiring publication of all applications 18 months
after filing.
While our members' businesses and those of a growing number of
American companies are global, there is no global patent system. The
costs and uncertainty posed by a multiplicity of national patent
regimes--all sharing the same basic goal, but each imposing disparate
administrative burdens on inventors--is a matter that merits action. In
this environment, it is essential that the U.S. recognize where its
system is out of step with the rest of the world. The U.S. ``first-to-
invent'' system is an often-cited example. We believe a change to
`first inventor to file' is timely.
We also endorse the proposal that all pending applications be
published at 18 months after their initial filing. Adopting full 18-
month publication will make the patent system more transparent and will
complement the goals of the proposed third party submission of relevant
prior art and post-grant opposition procedures.
Finally, we note that, in the course of your work, the Subcommittee
has considered a number of other issues including a ``second window''
for commencing a post grant proceeding, limiting abuses of
continuations of pending applications and additional reforms aimed at
mitigating excessive litigation. We recognize the Subcommittee has
reviewed each of these matters carefully and has decided not to address
them at this time. Although these issues remain of concern to BSA
members, we are prepared to support the Subcommittee reporting
favorably the Substitute with only those changes I have outlined.
Again, thank you for this opportunity to testify.
Mr. Smith. Thank you, Mr. Simon.
Mr. Johnson.
TESTIMONY OF PHILIP S. JOHNSON, CHIEF PATENT COUNSEL, JOHNSON &
JOHNSON, ON BEHALF OF THE PHARMACEUTICAL RESEARCH AND
MANUFACTURERS OF AMERICA (PhRMA)
Mr. Johnson. Thank you, Mr. Chairman. Mr. Chairman, and
other distinguished Members of the Subcommittee, I am Phil
Johnson. I am Chief Patent Counsel of Johnson & Johnson. I am
here to testify today both on behalf of PhRMA and Johnson &
Johnson.
We appreciate the opportunity to provide this testimony on
this important issue of patent law reform. Johnson & Johnson is
a family of more than 200 companies and is the world's largest
manufacturer of healthcare products.
Taken collectively, Johnson and Johnson's companies
represent the largest maker of medical devices in this country.
We represent the second largest biotechnology business and the
fourth largest pharmaceutical business.
Johnson & Johnson companies employ 55,000 people in the
United States, 7,000 of them in California alone. In reliance
on the promises of rewards from the patent system, Johnson &
Johnson companies this year expect to invest nearly $5.7
billion in research and development.
Mr. Chairman and the Subcommittee, with your introduction
of the substitute H.R. 2795, we all took a great step forward
toward meaningful patent reform. By eliminating provisions
relating to injunctions, continuations and so-called second
window post-grant opposition, while retaining many of the other
provisions of the National Academy suggestions, you have moved
our patent reform discussions much closer to consensus.
During the Congressional recess, as has been noted, work
continued to close the remaining gaps, especially those
relating to the CREATE Act and the substitute's venue and
damages provisions.
As you know, a coalition text is the result, a coalition
text which is now supported by some 33 companies, and I am now
pleased to report that as of Tuesday also by the IPO, the
broad-based Association of Intellectual Property Owners.
While there seems to be general agreement among many of the
witnesses today on the coalition text approach to venue, the
same is obviously not true of the damages apportionment
provision. At the outset, it should be noted that the National
Academy of Sciences made no recommendation to revise the matter
in which damages are assessed in patent cases. To many,
including Johnson & Johnson, such a provision is simply
unnecessary to patent reform. The current case law which
applies Georgia-Pacific factor 13, among other factors, is seen
to be working just fine.
To others, Georgia-Pacific factor 13 is not being uniformly
applied by the courts and should be codified. This latter
approach appears to have been the intent behind the damages
apportionment language in the substitute as it is in the
coalition text.
The problem with the language in the substitute is its use
of the term ``inventive contribution.'' this is a term which is
susceptible to many different interpretations where the
language of the coalition text is not. Georgia-Pacific factor
13 establishes an analytical approach for determining the
realizable profit or value that should be credited to a patent
invention in the context of a reasonable royalty determination.
In determining that value under Georgia-Pacific, the profit
or value stemming from the claimed invention is distinguished
from the realizable profit or value added to the accused
product or process by the infringer. The coalition text is true
to this approach.
Johnson & Johnson and many other companies oppose the
suggestion that in determining patent damages only partial
credit should be given to the realizable profit or value added
by the patented invention taken as a whole. Such an approach
would be unworkable and unprecedented in patent damages law.
Patent damages would be trivialized in most cases and unfairly
awarded in almost all.
A patented invention should not be dissected into its
subparts or subelements and then evaluated piecemeal in an
effort to isolate whether inventive contributions might be
present in some of these subparts and, if so, where they are.
The reason is because to do so the true value of the invention
will likely be lost.
At some level all patented inventions are combinations of
old elements. They are patentable precisely because as a whole
they are more valuable than the sum of their parts. Under the
inventive contribution analysis suggested by some, such
synergies would never be recognized. Moreover, to ignore the
value of the invention taken as a whole would undermine the
principal purpose of the patent system, which is to reward
inventors for the entirety of what their inventions have given
to society.
In conclusion, because of the Subcommittee's open and
inclusive process, meaningful patent reform, as embodied by the
coalition text, may now be within reach. Johnson & Johnson
hopes that it is.
I want to thank you for this opportunity to testify and
stand ready to answer any questions you might have.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of Philip S. Johnson
APPENDIX
Mr. Smith. Thank you, Mr. Johnson.
Mr. Chess.
TESTIMONY OF ROBERT B. CHESS, CHAIRMAN, NEKTAR THERAPEUTICS, ON
BEHALF OF THE BIOTECHNOLOGY INDUSTRY ORGANIZATION (BIO)
Mr. Chess. Chairman Smith and Members of the Subcommittee,
I am pleased to testify before you today regarding the pending
patent reform legislation, the amendment in the nature of a
substitute to H.R. 2795. I would like to thank the Subcommittee
for its continued leadership issues related to strengthening
the foundation of American innovation, intellectual property.
I am Rob Chess, Executive Chairman of Nektar Therapeutics,
and I am here representing the Biotechnology Industry
Organization. BIO is involved in the research and development
of healthcare, agricultural, industrial and environmental
biotech products. The industry is one of the most innovative
industries in the U.S. economy, filing more than 40,000
biotechnology patent applications in 2003 alone.
I base my comments today based on 14 years of experience as
executive of a top biotech company that is successful because
of the strength and predictability of the patents. I am not a
patent lawyer. Rather, I am an executive who will explain how
important patents are to biotech and what may occur if the
wrong reforms are enacted.
Perhaps no other industry is as dependent as the biotech
industry. A majority of biotech companies have no products on
the market, but they do have patented innovative discoveries
which may be translated into life-saving products over the
course of years.
To illustrate, I point to my own company, Nektar. Nektar
has been in existence since 1991. We have had 17 rounds of
financing and have several products on the market. Yet we are
still not profitable. It is our intellectual property that has
allowed us to gain the capital necessary to survive over those
many years.
One of Nektar's exciting products is Exubera, an inhaled
insulin powder developed in collaboration with Pfizer. It is
the first noninjectable form of insulin and could be a major
advance in therapy for the 18 million Americans who suffer from
diabetes. Their product, this product was recommended by an FDA
advisory committee for approval last week but a key patent
covering the product was granted in 2000.
Upon word of the issuance of the patent covering inhaled
insulin in dry powder form, Nektar's stock valuation increased
by 20 percent. I have actually brought the product here today.
Don't leave home without one. But this is it right here.
Basically, what it does, I hope you don't mind if I give
you a demo.
Mr. Smith. Show and tell is fine.
Mr. Chess. What the basic problem is there are about 5
million diabetes in the U.S. who take insulin, another 3
million who should. The key to controlling your diabetes is
taking insulin 3 to 6 times a day. The average diabetic only
takes it right now twice a day because of fear of injections.
What we have done is basically done a way so they won't have to
take meal-time injections anymore. What you do is you basically
take this blister here that has the powdered insulin in it.
Open it up just like this. Then stick it in right here just
like you would your ATM card, pump it once, fire. See that
powder there. You actually see that. That's actually--insulin
is smoke. You just breathe that in by just opening the chamber
like this, rather than taking a shot.
I think it's actually going to make a huge difference in
the lives of people and frankly solve--the biggest problem in
diabetes therapy right now is getting people to comply with
their insulin therapies.
Nektar's story is similar to the story of hundreds of U.S.
biotech companies in the United States. Investors will only
invest in ideas if they are adequately protected by strong
patents.
Turning to the amendment, we are pleased that it is a
substantial improvement over the introduced bill. We note that
provisions that would have severely weakened the ability of
innovators to obtain and enforce patent protection have been
eliminated.
Specifically the current provision does not contain harmful
and permanent injunction reforms, a dangerous second window and
post-grant and damaging limitless continuation of practice
reforms. BIO members have legitimate needs for filing
continuations. I can certainly tell you that from our country
we just filed continuations in almost every patent that we do.
Continuation practice allowed biotech inventors to obtain
adequate protection for the full scope of their inventions. The
practice is common in our industry because it can take 12 to 15
years to bring a product to market. During the patent
examination process, the inventor is likely to obtain a patent
only on one aspect of his discovery. The issued patent will
allow the inventor to seek capital investment to further the
product development while he files continuations, applications,
commensurate with the scope of the full discovery.
The amendment, however, contains a venue provision which is
cause for significant concern for BIO members because it shifts
the advantage in patent litigation in favor of the defendant.
It would only allow a lawsuit to commence in the district where
the defendant resides or is located. BIO opposes this because
resource limited biotech companies may be forced to file
lawsuits far outside of their normal jurisdiction where small
biotech companies may find it difficult to assert their patent
rights.
We urge you to eliminate this provision. That said, BIO
supports many provisions in the substitute bill, including a
first inventor to file system, allowing its signees to file for
a patent, eliminating the best mode requirement, eliminating
the inequitable contact defense, providing pre-grant
submissions of prior art, simplify the definition of prior art
and requiring publication within 18 months of filing, and
reforming willfulness standards.
I can see I am over time a little bit, probably because I
did the demo. Should I continue here or----
Mr. Smith. Without objection, please take an extra minute
because of that demo. I never had anybody use that as an excuse
before, but we will allow that today.
Mr. Chess. I just can't resist.
Mr. Smith. Maybe we ought to charge you for that little
free advertising, I don't know.
Mr. Chess. Actually, well, I hope not but some of you may
end up using our product one day.
While our members agree on many provisions of the
substitute bill, there are areas where our members are decided.
One disagreement concerns a standard of proof required to
invalidate a patent in the proposed post-grant opposition
procedure. As you know, the current substitute requires that a
patent challenger show by a preponderance that the patent is
still valid. We are basically divided on this between
preponderance of evidence and clear and convincing standards.
Let me just say a few words on the Coalition for Patent
Reform proposal. We recently became aware of the proposal and
have been apprised of their concepts. The proposal differs from
your amendment in that it includes a new transfer of venue
provision, repeals section 271(f), revises the previous
provision of apportionment of damages and clarifies the
conditions for patentability taking into account the CREATE
Act. Like the substitute, we view the proposal as a substantial
improvement over H.R. 2795.
On the apportionment damages, what I can tell you is that
we have not achieved a consensus yet, and we are still studying
the proposal.
On the transfer of venue provision in the coalition draft,
we note that the draft removed the onerous venue provisions
from the substitute amendment and replaces it with a transfer
of venue provision. However, the primary objection to the
coalition approach within our membership is the belief that
transfer of venue motions will delay and divert patent
infringement actions.
In conclusion, BIO supports and applauds the continuing
efforts of this Subcommittee to improve the patent system, yet
urges caution that the delicate balance of the system may be
maintained.
Thank you, and I appreciate you allowing a little extra
time.
[The prepared statement of Mr. Chess follows:]
Prepared Statement of Robert B. Chess
Mr. Smith. Thank you, Mr. Chess.
Mr. Thomas.
TESTIMONY OF JOHN R. THOMAS, PROFESSOR,
GEORGETOWN UNIVERSITY LAW CENTER
Mr. Thomas. Mr. Chairman and Members of the Subcommittee,
my name is Jay Thomas. I am delighted to have the opportunity
to testify at this hearing in my individual capacity as a
concerned observer of the patent system. By no means should my
remarks be construed as representing the views of Georgetown
University or the Congressional Research Service.
The Subcommittee deserves congratulations for its
perseverance in its efforts to reform the legal regime that is
widely regarded as America's engine of innovation. Your
leadership in advancing these reforms has been remarkable, and
we remain confident that you will achieve the interest of
patent owners, innovative industry, and the public.
As the legislation continues to mature, the Subcommittee
may wish to consider what has been described as its
foundations, recent studies by the National Academies, Federal
Trade Commission and most recently the National Academy of
Public Administration.
In addition, as originally presented, H.R. 2975 appeared to
build on a number of themes, including reducing trolling,
curbing practices that lead to cost and delays in patent
litigation, adopting best practices from peer patent systems,
and of course addressing perceived shortfalls in patent
quality.
The Subcommittee may wish also to consider the extent to
which subsequent versions of the bill fulfill these basic
goals. I am going to offer a few examples. New to the more
recent provisions of H.R. 2795 are provisions directed toward
venue and patent litigation. For policy reasons that remain
obscure, Congress has enacted a specialized venue statute for
patent cases and subsequent developments in the Federal Circuit
have construed them in a liberal fashion, essentially making
venue conterminous for personal jurisdiction. The result is a
great deal of flexibility for patent plaintiffs.
One of the versions of the bill would in fact define more
stringent venue standards. Another would require or allow
transfers of venue. A few observations could be made about the
competing approaches, both of which have their merits.
First, we have a Federal Circuit. We have one, the Patent
Appeals Court, that hears most, if not all, patent appeals in
this country. So forum shopping doesn't really involve the
search for more favorable alternative interpretations of the
law, but rather different judicial levels of expertise as well
as distinct docket management systems that imply a different
pace of litigation.
Finally, one of the major themes of the bill is to reduce
the cost and complexities of patent cases. The Subcommittee may
wish to consider whether the September 1 proposal, which
provides standards for transfer of venue, is in keeping with
the remainder of the bill, which generally limits resource-
intensive satellite determinations in patent cases.
Let me also turn now to continuation applications.
Predecessor versions of the bill delegated authority to the PTO
to regulate. That language has now been deleted. In the
meantime the recently issued National Academy of Public
Administration report recommended that limitations be imposed
on the number of continuations that could be filed and
developments in the courts proceeded apace.
On September 9, the Federal Circuit decided Symbol
Technologies v. Lemelson Medical, Education & Research
Foundation, affirming a judgment that a patent was invalid for
prosecution laches. Continuation practice is a long-standing
feature of U.S. patent law and to some extent may even be
required by the Paris Convention, which is a treaty the United
States signed in the 19th century. Nonetheless, considerable
concern both in the NAPA report and commentary by academics and
scholarly practitioners have voiced concerns over potential
abuses in connection with a limitless refiling of applications.
As a result, the Subcommittee may wish to persist in its
efforts to determine whether restrictions ought to be imposed
upon continuations or not.
With respect to oppositions, predecessor versions of the
bill allowed oppositions to be brought 9 months after the
patent issued or 6 months after the patentee brought a charge
of infringement. More recent versions of the bill eliminate
that latter alternative.
Setting time limits for the instigation of a proposed grant
proceeding requires a careful balancing of interests. The
current proposal is in line with the established foreign
practice which ordinarily requires an opposition to be brought,
I think, either 6 to 9 months of patent issuance. These time
limits prevent harassment or at least reduce potential for
harassment of the patentee and provide stability for the
proprietary right.
On the other hand, the current U.S. equivalent to
opposition, the reexamination proceeding, allows a request to
be brought at any time during the life of a patent. Further,
unlike foreign counterpart legislation, H.R. 2795 places strict
limits on the length of opposition proceedings, might also
reduce the opportunity to harass a patent owner.
More liberal time restrictions may better highlight the
U.S. PTO's role as a U.S. public service organization and best
ensure the quality of patents that were not immediately
believed to be of interest to affect this industry. As a
result, the Subcommittee may wish to pay careful attention to
time restrictions by use of oppositions for members of a
public.
I see that my time has just about drawn to a close. I very
much thank the Committee for allowing me to testify. To your
credit you have consistently solicited a wide range of use. I
know that I speak for a wide number of legal academics and say
we will remain available to you for technical assistance as you
continue to plumb what you have properly described as an arcane
field of law.
Thank you very much.
[The prepared statement of Mr. Thomas follows:]
Prepared Statement of John R. Thomas
Mr. Smith. Thank you very much, Professor Thomas.
Let me direct my questions first to Mr. Simon. As I
mentioned in my opening statement, I am going to focus on venue
and apportionment. Actually what we did was a breakdown and a
chart on both issues. It looks like to me that there is not any
strong opposition to the redline venue. Most folks seem to find
it acceptable. In the case of PhRMA some members are on the one
side, some members are on the other. But it looks like the
September 1 draft is not necessarily objectionable. So let me
focus on apportionment initially.
Mr. Simon, my question for you is going to really be why do
you support the July versus the September version. But I think
you answered that in your testimony.
Let me ask you this, without your volunteering to negotiate
in open court over any details, do you think that a compromise
is possible on apportionment?
Mr. Simon. I think it's fair to say, Mr. Chairman, that
technology companies and BSA have been nothing but ready to
compromise in this process.
Mr. Smith. Okay.
Mr. Simon. I think it's also fair to say that there are
certain places where we cannot go, where the support of our
industry for this legislation should not be taken for granted.
This is an extraordinarily important issue for us. Are there
different ways to formulate it? Yes. But there is a core issue
here that is really separating the parties.
For our industry to look at products as a whole implicates
an enormous exposure to damages, and that is simply not a place
where we can go.
Mr. Smith. Thank you. Mr. Johnson, in regard to
apportionment, it is my understanding that initially PhRMA
agreed to the July version and then I think must have changed.
You must have changed your mind because you now support the
September redline instead of the July substitute. Is that true
that you initially did approve the July substitute?
Mr. Johnson. Mr. Chairman, I am wearing two hats today. I
will say that I don't think that PhRMA agreed either to the
July version or to the coalition text as it is now for this
matter. However, I do think that they did not express
opposition to the coalition--rather, to the July 26th draft on
apportionment as much as on venue. I know that they reached the
second--however, in my written testimony I do point out that
even some of the people in the coalition drafters, negotiators
if you will, have the damages language that--the inventory
contribution language in some of their earlier drafts, when
they were, I believe, under the impression that the purpose of
that text was to codify Georgia-Pacific factor 13.
It only became apparent, really in the summer, in August,
to many of those involved, that the provision that was being
sought, at least the interpretation that was being sought for
the inventive contribution language was this subpart or sub-
element approach to dissect the invention down to its subparts
and to then inquire which of those subparts had, if any,
inventive contribution.
That really has become--this is not just a semantic
difference in language, this is really a fundamental difference
in that I think the coalition supporters and many others really
feel that would go to the very heart of patent damages.
Mr. Smith. Okay. We may follow up with you on that
particular subject. I appreciate that point of view.
Mr. Chess, in your testimony, you may not have so intended,
but your testimony quite frankly reminded me of just how much
has been taken out of the original bill and how much has been
compromised and how much has been jettisoned and how many
concessions have been made. Like I say, that might not have
been the intent of your testimony, but it just reminded me of
how far we have come, if you want to look at it that particular
way.
The other thing, is it a correct reading of BIO's stand
that mainly, mainly because of having 1,000 member companies,
that you really haven't taken a hard position on either venue
or apportionment? I notice that you said some member companies
support the September 1 draft in regard to that very issue.
Others support the September draft in regard to apportionment.
But because of the multitude of interest, that you represent,
you haven't taken a hard position on either venue or
apportionment. Is that a fair description?
Mr. Chess. First of all, let me respond to the first thing
you said. Actually, we have beenappreciative of the work,
working with you and the others of the Committee, and how much
progress has been made here. So we actually believe that the
work that has been done----
Mr. Smith. One person's progress is another person's
concession.
Mr. Chess. Yes, because you know, in our industry, as I
think you gathered from my testimony and discussions that you
have had, intellectual property is probably as important or
more important to our industry than any other, because it's the
very heart of what we are doing because the long development
times and the certainty of being able to protect what you have
developed 10, 15, 20 years out.
Mr. Smith. Okay.
Mr. Chess. In regards to the two specific questions you
asked on apportionment and on venue, of those two issues the
venue issue is a far more important one to us than the
apportionment issue. On the apportionment we have different
views within the industry. Some view that codifying one out of,
I guess, 13 different ways of doing apportionment, you know,
would be somewhat unusual and maybe cause the other ones to be
less important. Others view it as just codifying something that
frankly is done by judicial review anyway. So that is not a
critical issue.
On the venue, the venue is a very important issue to our
industry. The key concern there is twofold. One of them is
using provisions such as being proposed in the coalition as a
delay tactic, so delaying the time that you are able to get
injunctive relief, and also a great deal of concern,
particularly from smaller companies like my own, of the
difficulty of basically having venue chosen in some ways by the
defendants in places that are far away and difficult for you to
both work in.
That said, we are still studying the September 1 draft and
have not come to a----
Mr. Smith. I have you down as open to considering the
language, is that right?
Mr. Chess. I think we are open to considering, open to
discussion on it.
Mr. Smith. Thank you, Mr. Chess.
Professor Thomas, my time is up on questions, but I will
take the liberty of making a quick observation on your
testimony. It was unusual, it was subtle, it was understated. I
thought it was effective, mostly persuasive or persuasive in
many cases. But I appreciated your suggestions and comments.
Now, you may not like this comparison, or maybe you will,
but it reminded me a lot of what I have seen of Judge Roberts'
writings. So depending on which side you are on, you may or may
not consider that to be a compliment, but it is intended to be
as such.
The other thing regarding your testimony that I can't let
pass, and that is that anyone, as you did on page 5, who refers
to the plural of forum, which most of us would say forums, as
fora, f-o-r-a, the Latin plural, can't be all bad.
So anyway, we appreciate your testimony.
The gentleman from California, Mr. Berman, is recognized.
Mr. Berman. Well, thank you, Mr. Chairman, some can see it
as similar to Judge Roberts, others can see it as patting your
back on the one hand and picking your pocket with the other.
Mr. Smith. Oh, that is too harsh, Mr. Berman.
Mr. Berman. The reason I say that is we have a redline
version with some--we have a bill which, to my way of thinking,
has stripped out very significant reforms in the process. There
are many still in it, but it has stripped out some very
important reforms.
It has gone the way that I gather a number of your member
companies like in the way of apportionment. It has diluted the
venue provision. That happens to be a dilution that I like. But
I think it's better than the original venue provision that I
saw in the July draft. And at least based on your answer to the
Chairman, neither PhRMA nor BIO support the bill, even though
all these changes have been made at the behest of BIO and
PhRMA. What is going on?
Mr. Johnson. I suppose I will volunteer to try to answer
that. As for PhRMA, PhRMA has only more recently become
involved in this and was not one of the original movers behind
the legislation. They didn't submit text. It wasn't one of the
organizations that was doing that.
As for the redline, there simply hasn't been enough time
since September 1 for, to my knowledge, any of the
organizations that are larger professional associations and
trade organizations to sit down and go through the procedures
that are necessary for them to accept or reject as a whole. It
was coincidental that IPO had its annual meeting on this over
this past weekend and was able to do that.
However, I would note that a number of PhRMA member
companies are supporters of the coalition text. And I am not a
politician, so I don't perhaps want to prognosticate what that
would mean, but I would certainly--it shows that a number of
pharmaceutical companies are supportive, as are companies from
many other industries.
Mr. Chess. As, you know, you can tell with the work that
has been going on with the Committee, this is an area that is,
as I mentioned earlier, absolutely critical to our industry,
and we have put a lot of work as an industry into developing
positions here. I don't think we would have put that much work
in it if we don't ultimately like to see a bill move forward
and see a deal struck that is acceptable to all parties.
That said, I mean, developing a position within BIO with
our thousand members is very difficult on something where it is
so critical to so many different companies, and there's often
divergent business viewpoints on that. We have worked very hard
within BIO to come to a consensus view. We actually at our
executive committee meeting in August, patent reform in the
various proposals, were focused on it. We had a call in
September that our board members joined on, and we are still
working to sort of come up with a unified position.
Some of the latest redline areas that Chairman Smith
discussed, we are still studying and trying to come up with
viewpoints, but we are working very hard to come up with a
unified position among many different areas so we can work with
the Committee in developing a bill.
Mr. Berman. Well, all I know is Chairman Smith has convened
a number of meetings with the representatives of PhRMA and BIO
since last May. It seems like--and I know there have been
countless meetings separate from us or with our staffs. It just
seems to me that organizations as sophisticated and agile as
the ones that comprise your organization members, if there
isn't some process that allows decisions to be made over that
period of time in the context of what constitutes necessary
changes to get the organization support and what doesn't, there
is something missing.
Let me ask one last question on this time. I guess perhaps
it's to Mr. Chess.
We have taken out, I guess in the July draft, the second
window. I think it's no surprise, I think that weakened the
effectiveness of the reforms we sought. The argument was not to
allow that second bite at the apple.
At the same time, Mr. Chess, the reason I guess I am asking
this question is, you sort of very strongly and emphatically
came out for the continuations process unchanged, the right--
which apple is the second bite not appropriate at? You want to
have it--unfettered ability to file continuation, file
successive patents, but heavens forbid that someone who is
totally unaware of the existence of the patent until they were
sued or be sent a letter of infringement now wanted to utilize
the post-grant opposition that they had their chance. Whether
they knew it or not, it doesn't matter. They had their chance,
if it passes, that's it.
Do you see what I mean? There seems like there is an
inconsistency, depending on which ox is getting gored.
Mr. Chess. Well, let me explain. You know, at least in the
context of our industry, which is, first of all, on the post-
grant, and I will sort of tie the two together in the second
window, we need--and I can speak to our company--for bringing
this product to market we have needed to raise $1.2 billion.
The key to be able to do that for us is the certainty of the
intellectual property. There is no way we would have been able
to raise that kind of money if people thought our intellectual
property wouldn't hold up.
Having a second window where 8 years, 10 years, 15 years
out, somebody can come back by a lower standard than what would
have held up in a court and have a chance to basically
invalidate our intellectual property would be a huge issue for
investors, and I think that would make a major difference in
the amount of flowback coming in.
Mr. Berman. Let's just state that accurately. Someone who
comes in at a point where they have been told that they are--it
is alleged that they are infringing on a patent that they may
have had no knowledge of and only has to show by a
preponderance of the evidence that the patent never should have
been granted in the first place, that's not what I would call a
low standard.
Mr. Chess. It certainly--as you know, sir, it's a lower
standard than would be, you know, in a court. And certainly in
our industry, you know, the patents are all published, people
can read them and they have plenty of opportunity to look at
the literature, you know, before embarking on an area.
On the continuation in parts, in the biotech industry it
takes many years to perfect an invention, particularly for
smaller companies where you don't have the full resources to
develop all the aspects of that. That's why in our company and
many others you see many continuation of parts. They are not
separate patents. They are basically taking the invention and
basically fleshing it out over time so you are able to get the
full value out of it.
Mr. Smith. Thank you, Mr. Berman. The gentleman from
Florida, Mr. Keller, is recognized for Committee questions.
Mr. Keller. Thank you, Mr. Chairman.
Mr. Chess, you are the chairman of a company that's been in
business for 14 years and is still not profitable.
Mr. Simon, you are the counsel for a group that you call
the BS Alliance. With that background, why aren't you guys
running for Congress?
My first question. I am going to be directing most of my
questions to the issue of litigation reform. But before I do,
just looking at other parts of the bill, I can't help but
notice, Mr. Chairman, that section 5 of this bill is called the
duty of candor. So Congress is now telling private citizens
that they have a duty to be candid. Isn't that a bit like
Colonel Sanders telling people they have a duty to be nice to
chickens.
I think it may be subjective and a bit tough to bring some
enforcement in that section, but I remain open minded in that
section and every other one.
With respect to litigation reform, let me begin with
Mr. Simon. Do you think there should be additional reforms
in this bill aimed at reducing excessive or frivolous
litigation and, if so, what do you think they should be?
Mr. Simon. It's a tough committee, Mr. Keller, because we
have throughout this process identified a number of areas where
we would like to see reform. For a variety of reasons this
Subcommittee has decided at this time not to take up all of
those areas. But the problem of excessive litigation continues
to spiral out of control in our industry.
If I may, let me just read to you the first sentence of an
article in yesterday's ``Wall Street Journal'' by Bill Buckley.
He writes: In one of Douglas Fuey's early business ventures he
provided phony new vehicle titles for stolen cars. His partner
Larry Day is a one-time Blackjack dealer in Las Vegas.
Together, the two men have found a more active line of work
suing cell phone companies for patent infringement. Earlier
this year their company got $128 million in damages from Boston
Communications.
That's an example of what I think we are confronting that
is going to become more and more of a problem. I think this
bill will make a difference. I think that some of these issues
have to be reconsidered by you over time.
Mr. Keller. Okay. Mr. Johnson, do you think there are
additional reforms aimed at reducing excessive or frivolous
litigation that we might consider ?
Mr. Johnson. I think there are. I couldn't estimate whether
or not they would be politically acceptable. They are something
that could be accomplished. We have considered a great many of
them during our conversations. One that we have considered and
rejected as probably not possible would be to adopt the English
system of awarding attorneys fees to the prevailing party and
as a way for deterring frivolous litigation.
Mr. Keller. You considered that but didn't think ultimately
that would fly?
Mr. Johnson. Well, actually, I personally did, but I was
advised. This is part of a larger process, and others advised
me that was probably not something that could be accomplished.
Mr. Keller. What about the idea of bigger sanctions for
frivolous litigation? Did you all ever consider that?
Mr. Johnson. Well, that would fall in that same category.
Mr. Keller. Not really, because the loser pays. You can
lose and still not have a frivolous suit, you know. You just
have to pay the other side. There are some people that have
legitimate suits, you know, just bad, bad ideas.
Mr. Johnson. Yes. Well, we already have now in the patent
laws the abilities for the courts to award trebled damages in
attorneys fees but especially attorneys fees in exceptional
cases, and that apparently is not sufficient to deter as many
frivolous suits as we would like.
Mr. Keller. Okay. Mr. Chess, of course, both of you
gentlemen know I was joking about your respective backgrounds
there. But do you have any ideas of any additional reforms that
we might consider that would reduce frivolous litigation?
Mr. Chess. Yes. Actually just on the note, the average
biotech company, you might be interested, it takes about 15
years to gain profitability. That includes sort of the
successful one like Genentech and Amgen. It is a long road.
Mr. Keller. I know, I am just kidding.
Mr. Chess. I know.
Mr. Keller. Okay.
Mr. Chess. The one thing I can tell you--unlike the other
people here I am not a patent attorney, so I can't give you
probably kind of specific concepts here. The one I probably can
reinforce is the importance of being able to enforce the
patent, you know, in our industry, given the amount of, you
know, investment we make. But I will sort of leave it to the
others and perhaps if we can get back to you in writing on
specific ideas on this area.
[11:32 a.m.]
Mr. Keller. Mr. Chairman, the final--if Mr. Thomas could
also--or Professor Thomas, give us your thoughts. More
sanctions for attorney fees, prevailing party get their fees
paid, any other ideas that you think would help with reducing
frivolous litigation.
Mr. Thomas. I'm not in a specific position to advocate
reforms before the Subcommittee. However, I can report
scholarly discussion on three points. One is, of course,
adoption of the English rule for fee shifting, which may reduce
asymmetries in litigation risk profiles between troll
plaintiffs and for innovative firms.
Another possibility is that the patent system currently
uses a specialized court at the appellate level. There may be
an option for having magistrates, special masters who are more
specialized at the trial court level.
Finally, I think it's fair to say it's pretty widely
believed that arbitration in the patent field has been a quiet
failure, and the Federal circuit is currently embarking upon an
arbitration proposal. Perhaps the Subcommittee could use its
good offices to encourage arbitration as a means of reducing
transaction costs associated with dispute resolution in the
patent field.
Mr. Keller. Thank all of you, Mr. Chairman. Yield back.
Mr. Smith. Thank you, Mr. Keller.
The gentlewoman from California Ms. Lofgren.
Ms. Lofgren. Thank you, Mr. Chairman. As always, this has
been a useful and enormously interesting hearing, and I
appreciate that the witnesses would take so much time and
explain their viewpoint on it. I'm struck again by the
disagreements that are really rooted in some cases by the
different business models that are present before us. And I
think it is important and that we've had this spirit throughout
that with whatever reform we have, we make sure that we nurture
every element of our economy. It's important for all of us that
biotechnology and IT, that everything flourish for the whole
good of the American economy.
Having said that, however, I remain frustrated that we have
not yet reached an agreement where I think in some areas we
could. And I was listening, Mr. Simon, to your testimony and
your problem with the coalition print language on calculation
of damages. And I'm wondering if you could provide examples of
real situations you have encountered where a court awarded
excessive damages to a patentee unfairly based on the whole
product subject to the patent rather than simply the inventive
contribution so we can understand your point of view a little
bit better.
Mr. Simon. Thank you, Ms. Lofgren.
There have been a whole series of cases. We had a case some
years ago where General Electric was sued over its magnetic
resonance device, where a very small element of it was
infringing, and the damages were calculated based on the entire
MRI machine, which is millions of dollars, as I understand it.
We had a case just a couple of years ago where Bose was being
sued by JBL Speaker Manufacturers. What was at issue was an
input into the speaker, how the analog information comes in.
Again, the damages were based on the entire speaker rather than
the patented port. Last year we had a case in Procom v. Symbol,
which is a wireless technology which we now all use, the 80211
standard. At issue was a power-saving feature in the chip.
Again, the damages were calculated not just on the basis of the
power-saving feature, but on the transmitter, the receiver, the
entire technology.
So if you'd like, I'd be happy to submit for the record
specifics on these cases and many others.
So we have a pattern where courts--where juries are
awarding damages based upon entire products. And as you well
know, for example, a computer may have as many as 2,000 or
3,000 or 4,000 patents that read on to it. Well, if you award 1
percent damages per patent, you end up with damages potentially
swamping the entire value of the product. That's the threat
that we confront.
Ms. Lofgren. I think it would be helpful to the Committee
if you could submit details for us to study.
Mr. Simon. We'd be happy to.
Ms. Lofgren. I would appreciate that.
Mr. Thomas, I understand from your testimony that you
believe that existing law under Georgia Pacific allows courts
to--already--to apply an apportionment principle in patent
cases. What do you think of how the court apportions damages
based on facts in the cases just disclosed or mentioned by Mr.
Simon? Do you have--what's going wrong here?
Mr. Thomas. My experience at the Congressional Research
Service has taught me to see both sides of many issues. It's
fair to say that this is already a part of our law, at least
with respect to reasonable royalties. There may be a lack of
appreciation of that point. There may be disagreements as to
the factual dispute. The notion is, well, why is someone buying
this product? Are they buying it because of a particular
advantage? They're probably not buying a car because of a
patented windshield wiper, but they may be buying a speaker
because of a patented woofer. So there's simply going to be
independent factual determinations that have to be made on a
case-by-case basis, and there will also often be disagreements
about particular facts in particular cases. I can describe the
problem as really no more than that.
Ms. Lofgren. It was a number of months ago now, I submitted
a memorandum that were suggestions not that I had made, but
that had been made to me by academics, and I would never
support the English rule when it comes to ordinary tort law,
number one, because that's up to the States, not up to the
Federal Government.
And, number two, you can have injured parties that lack the
means to actually hire counsel and seek justice in courts.
Those rationales don't apply in this case because it is Federal
jurisdiction, and you have people of means for the most part
who can have the ability to protect or assert their rights.
I'm wondering, Mr. Johnson, you talked briefly, in answer
to my colleague's question, about the--adopting the copyright
standard for attorneys' fees. How much do you think would that
change the dynamic in terms of frivolous lawsuits? Actually,
I'm over, but perhaps we could get a comment from others.
And then the other suggestion made to me was to mandate
attorneys' fees for defendants who respond to demand letters
that subsequently invalidates the patent in court. I'm
wondering if anyone has a perspective of how much that might
heal the problems that face us.
Mr. Johnson. May I respond?
Mr. Smith. Yes. Mr. Johnson.
Mr. Johnson. I think that adoption of the English rule
would substantially deter the bringing of frivolous actions,
and it would allow the bringing of some actions which now are
not brought because the enormous cost of patent litigation may
in some situations overshadow the recovery that's likely. I
think if you envision what the BSA folks might refer to as
trolls bringing an action against a large software company, for
example, knowing that if they go to final judgment and lose,
that they may have to pay the attorneys' fees incurred in such
an action, that there probably would be a very different
dynamic.
Ms. Lofgren. Mr. Chairman, I know my time is up, and I
appreciate Mr. Johnson's response. Could we just ask Mr. Simon
to briefly comment, and then I'll yield back.
Mr. Smith. Why don't we have one more response, and then
you can also follow up with written questions, which I'm sure
they'll be happy to answer as well.
One more response, Mr. Thomas.
Ms. Lofgren. Actually, I was wondering if Mr. Simon and
BSA----
Mr. Smith. Sorry; Mr. Simon.
Mr. Simon. Mr. Chairman, with respect to the English rule
that has been suggested, we think it would make a difference.
The problem with frivolous litigation and attorneys' fees being
paid by a frivolous plaintiff is you have got to have a real
entity there. What we have in a lot of situations right now is
the entities are suing are operations much like the one that
Bill Buckley described in this article yesterday. So for
entities like that, having to--at the end of the day having to
pay potential legal fees, is not going to make that much of a
big difference. If the suit is between two established
entities, Johnson & Johnson and GE, there's a real disincentive
there.
So I'm not negating the fact it would have an impact, I'm
just not sure----
Ms. Lofgren. It just doesn't deal with the issue of
stopping products shipping because of the exposure.
Mr. Simon. That's one of the elements of it, too. I just
didn't want to go down the injunction path with you.
Ms. Lofgren. I understand.
Thank you, Mr. Chairman.
Mr. Smith. Thank you, Ms. Lofgren.
The gentleman from Utah Mr. Cannon is recognized for
questions.
Mr. Cannon. Thank you, Mr. Chairman. If I could just follow
up on this discussion about the English rule, which I always
have disliked. I note that the Chairman has introduced a bill
called the Litigation Abuse Reduction Act, LARA, which is in my
Subcommittee, so we're working complementarily here. The idea
behind that bill is we actually put teeth in rule 11 sanctions,
which seems to me might actually go a long ways.
Mr. Thomas in particular, or any other panelist who would
like to talk about it, does rule 11 sanctions actually--do they
work in this case, and would that improve the situation?
Mr. Thomas. Again, there are a couple sides to every issue,
but generally speaking, I think rule 11 has not historically
proven to be a tremendous success in curbing abusive litigation
practices.
Mr. Cannon. Definitely not historically, but is it
possible? Are you familiar with the bill we call LARA?
Mr. Thomas. Yes, I've reviewed it. Generally speaking,
patent litigation is very unpredictable; very difficult for
individuals to determine in a jury trial system exactly what is
going to happen. And so I think there often is a plausible
argument of infringement and validity. I suspect I'm a little
suspicious of the approach. Thank you.
Mr. Cannon. By that you mean you don't think the approach
would be effective, or you think given the vagaries of a jury
trial, that it might not produce the justice from a judge
making a decision about the frivolous nature of the case as
compared with a jury?
Mr. Thomas. For all those reasons you have described.
Mr. Cannon. Mr. Johnson, do you want to comment on that
one?
Mr. Johnson. Yes. I think that there's quite a difference
between expecting that a rule 11 sanction would be applied or
might be applied when you finally get to trial and the dynamics
that are involved in bringing suits and negotiating settlements
in advance. The English rule, as we've discussed, would
establish the certainty that the prevailing party would get its
attorneys' fees, and that will change the dynamics in the
settlement negotiations that take place.
And we have to remember that the vast majority of these
kinds of disputes are never tried. One case in thirteen or even
less than that actually gets to trial. The possibility that
rule 11 sanctions would be applied in the cases that get to
trial would be sufficiently remote, so I'm afraid it wouldn't
change the dynamics.
Mr. Cannon. I think the nice thing about LARA is it can be
applied at any stage. So if it becomes clear to a judge that a
case is frivolous--what do we need to do to LARA to make it
actually bite the guy who brings that frivolous case and then
it's paid out of court?
Mr. Johnson. If I may, the cases are sufficiently complex
that in the pretrial stage it's unlikely the judges would
develop the degree of familiarity and confidence to want to go
and sanction one party or the other prior to trial. I think
that's something courts would be reluctant to do.
Mr. Cannon. They certainly have been reluctant to do that
in the past. I think we need a change of view among our jurists
today to get in, look at a case, see if it's got substance, and
then sanction people. And that's what I hope LARA will do at
some point in time. I think that is a duty that we need to
start imbuing into the judiciary. I think LARA is a good step
in that direction. I'm relatively passionate about that. That's
why I'm asking these questions, because I want the judges to be
thinking about what their responsibility is.
Mr. Simon, let me go to you for a moment. In your testimony
you support the repeal of section 271(f). There are companies
in the U.S. that contend it is intended to protect intellectual
property from overseas infringement. If intellectual property
protection is the goal of our bill, does the repeal of 271(f)
affect that goal?
Mr. Simon. No, I don't believe so, Mr. Cannon. The
provision was added to the U.S. Law in the 1980's, 1984, I
believe, where we had a situation where folks were gaming the
system. They were assembling parts that if they had been put
together in complete product would have been infringing in the
U.S., but the parts individually were not. What they were doing
is shipping those products outside the U.S. to avoid the patent
infringement in the U.S. and 271's added the law to make sure
those folks could not get away with that.
What we have now is an aberration, which is what we have
now is if you do your full development of a computer program in
the U.S., and you ship that master disk outside, and you
actually install it in a new PC or phone or whatever outside
the U.S., it reads 271(f) onto that situation. Nobody in the
U.S. is trying to avoid patent infringement in the U.S. if that
software is infringing in the U.S., it's infringing in the U.S.
So what we have is an unfortunate incentive to do development
outside the U.S. because 271 does not reach that situation as
opposed to doing it here.
So I don't think it has any impact on domestic--in fact, it
would have a positive impact on innovation.
Mr. Cannon. Positive affect on domestic, but isn't there a
significant possibility that people in the U.S., companies in
the U.S., will take software and have it developed outside,
just like you would put a package of components together and
make a device; isn't there a temptation to send software
development outside the United States so that pieces can be
brought together and not be subject to the same kind of
infringement that there would be if it was developed in the
U.S.? Isn't it two sides of a coin here?
Mr. Simon. There are two sides to a coin, of course. I
think what we have is a situation where the current law as it
has been read by two separate court opinions acts as a
disincentive to domestic development. The fact that companies
do development both domestically and abroad has a lot more to
do with business reasons right now, and we'd like to keep it at
a business reason level rather than an aberration of the law.
Mr. Cannon. Mr. Chairman, I cannot believe how quickly that
light goes red. As I yield back, I just want to say one thing.
That is, people in Bangladesh can buy air time to make a
telephone call anywhere on Earth for a penny a minute. What
we're doing here is not just about the health of American
companies, which is very, very important, but it's about an
environment in which technology can flourish and affect the
poorest people on Earth. Never in the history of mankind has
the ability of a poor nation to leapfrog into the next
generation been so great as it is today. I think this is a time
of great moral importance to America and to the world, and I
want to thank our panel for the input on the topics today.
Thank you.
Mr. Smith. Thank you, Mr. Cannon. Mr. Cannon, thank you for
also mentioning such a great piece of legislation.
The gentleman from California Mr. Issa is recognized.
Mr. Issa. Thank you, Mr. Chairman. First, I'd like to thank
you, Mr. Chairman. I'd like to thank Mr. Boucher, certainly
Ranking Member Berman, and Mr. Goodlatte for being an
intellectual trust that has done so much of this for--don't be
smiling, Bob. The truth is that I'm humbled to come to a
Committee and work with people who have spent so many years,
worked so hard to understand issues which are complex. And I
know this is a hearing today, but the truth is that every once
in a while I have to recognize that a few people in Congress
have put inordinate time in to understand the issues better
than others.
I particularly want to follow up on what Mr. Berman said.
And I know the red light will come on for me just as quickly.
In my practical experience, and I have not studied law, so
I had to pay for it one legal bill at a time, but I paid
greatly, more than your Harvard degree actually. If we were to
have a single reexamination by a single party, and that leads
to an estoppel, one time, no second window, just to follow up
on Mr. Berman, then from a practical standpoint, if you wanted
to be Machiavellian, not that a lawyer would ever choose to
recommend that a client do that, why not choose a weak
opponent, let them file a weak re-exam, but throw in--and I use
the word reexam because I'm older, I guess--but throw in all
kinds of information, but do it poorly, compile it poorly, not
particularly in the process? Then wouldn't you have what we
already have in a reexamination process that already is
available, and under the old law you would have all of the
information there, a presumption that it was considered and
evaluated fully, even though it's just sitting in the incoming
record, and it follows the water for somebody who later is
accused of infringement, is a significant potential infringer,
believes that the art properly presented would be shown to be,
you know, prior art that would 102 or 103 the patent, why in
the world shouldn't there be an opportunity for a different
defendant to have a different opportunity to present similar
or, in some cases, the same information, but in a more--what
they believe to be a more appropriate and cohesive fashion?
Mr. Johnson, you have the biggest smile. You get it first.
Mr. Johnson. Well, I think that both texts at the moment
envision that there will be multiple opposers who will be able
to file at the same time, and that if there are multiple
oppositions, that they'll be consolidated.
I also believe that the estoppel provisions only pertain to
those who choose to participate and not to those who don't
choose to participate, so that if someone wanted to file an
opposition, and do a bad job at it at their own peril, I
suppose that's possible. But none of the proposals foreclose
the possibility of a later challenge in court, so that even
regardless of what has been said in the opposition or what the
conclusion of the opposition is, with the exception of those
who have chosen to participate, and then only limited to the
issue that is actually decided and the facts necessary for that
decision, but with what exception, that narrow exception, those
issues may be, in fact, relitigated later in litigation.
Mr. Issa. I don't think that was Mr. Berman's question. His
question really had to do with a repeat administrative action.
Mr. Johnson. If I may respond to that. The reason that
there is such opposition, broad opposition, to a repeat
procedure is simply because the opposition procedure as it's
now proposed was intended to be a fairly quick quality check
on--inexpensive quality check on the quality of patents issuing
from the Patent Office. It was not designed to be a replacement
for patent litigation. It doesn't mean that at the end of the
opposition period, though, that the public is without the
ability to challenge the validity of a patent. Reexamination--
the reexamination procedure which we have now will continue to
be in place, and, of course, later on should there become a
real dispute and there be litigation----
Mr. Berman. Would the gentleman yield?
Mr. Issa. I certainly would, Mr. Berman.
Mr. Berman. How would you feel if no second window and all
that, but the district court judge had the ability to say, we
refer this matter back to the Patent Office for a determination
on whether its obviousness or novelty or any other elements of
having a valid patent--the district court would have the
discretion to make that referral.
Mr. Johnson. In the reexamination context, district court
judges don't have the authority at the moment to refer, but, in
fact, it happens quite frequently. That is----
Mr. Berman. You're talking to a postgrant kind of procedure
where there's discovery and more of a process.
Mr. Johnson. Yes. If you look today without the law at what
happens in litigation, quite frequently after there is some
considerable discovery in litigation, one party or the other
may elect to go back into reexamination, and it happens
actually fairly frequently. And at that time motions are
brought frequently by the party going back into reexamination
to stay the case pending the outcome of the reexamination. The
judges weigh that and, generally speaking, grant those motions
for stay unless they're brought on the eve of trial or--or
there are other circumstances and then wait for the outcome of
the reexamination in order to restart the case.
Mr. Smith. Mr. Johnson, I'd like to move on if we can. The
gentleman's time has expired. I'd like to give Mr. Goodlatte
from Virginia the opportunity to ask a couple of questions.
Mr. Goodlatte. Mr. Chairman, thank you for holding this
hearing, and thank you for your fortitude in pursuing this
issue. We've been down a long and arduous road, but making
progress on this issue, and I thank you for that.
I thank the gentleman from California for his kind words as
well. I don't know that they're merited or not, but they are
certainly well taken.
I'd like to ask Mr. Chess and Mr. Johnson and Mr. Simon, as
this legislative process moves forward, are you open to hearing
and working on additional ways to tackle the injunction
language and other litigation reform proposals, some of which
we've talked about a little bit here, in a way that helps the
technology community while not harming other traditional patent
holders?
Start with you, Mr. Chess.
Mr. Chess. Obviously it's hard to answer a general question
like that without understanding the specifics of what you have
in mind. And clearly from the point of view of our industry,
the current system from the biotechnical industry actually on
injunctions actually works quite well. And so----
Mr. Goodlatte. You understand, though, it doesn't work well
for other people.
Mr. Chess. I understand the technology situation, and
actually I used to be in the technology industry. I started my
career at Intel a long time ago. So I understand and am
sensitive to some of the issues. So obviously we'd have to
understand specifically what we have in mind, providing we can
protect what we have that's important to Biotech.
Mr. Goodlatte. Let Mr. Johnson answer that.
Mr. Johnson. We're always willing to talk to anyone about
anything that might lead to better results. But the fact of the
matter is that we have spent a huge amount of time, and
injunctions are fundamental to the patent right. When we're
talking about injunctions, we're not talking about frivolous
plaintiffs, we're talking about people who have won the
lawsuits. We're talking in the permanent injunction context
normally about someone who's not only won at the district court
level, but also won on appeal.
I think the idea that someone who has established their
right under the patent so that it's been tested through the
court system and found to be valid and infringed is entitled to
an injunction. That's a fundamental basis of the property right
we offer to patentees.
Mr. Goodlatte. Mr. Simon. I'm going to follow up with their
comments in just a second. I know your answer, so be brief so I
can follow up.
Mr. Simon. Sure. We're always willing to talk about it.
I'll just put one other thing before you. There is a petition
now before the Supreme Court to hear the MercExchange-eBay
case, and this is exactly the issue that the Supreme Court has
been asked to decide. So whether this Subcommittee, this
Committee, or this Congress ultimately get to this important
issue, there's a possibility that we can get a Supreme Court
ruling on it.
We'll talk more.
Mr. Goodlatte. Let me ask the three of you this question
that does get to a little more precision. Doesn't the plain
meaning of the current injunction statute require that a judge
weigh the equities when deciding whether to grant an
injunction? And if you agree with that comment, how can anyone
object to language in a bill that would ensure that the courts
are carrying out the plain meaning of the current law?
Start with you, Mr. Chess.
Mr. Chess. As you're--I'm the nonpatent attorney in this
group. You're probably getting into kind of technical
specifics.
Mr. Goodlatte. You asked me to get into the specifics.
Mr. Chess. So I'd like the opportunity to confer with the
bio folks and have the chance to respond back.
Mr. Goodlatte. We'll try Mr. Johnson.
Mr. Johnson. I believe courts do consider principles of
equity in deciding whether to grant permanent injunctions.
Mr. Goodlatte. Should we require them to lay them out step
by step so it's clear to the parties in the case that the judge
has indeed done that, as opposed to just hoping that they've
done that when they issue an injunction?
Mr. Johnson. Normally what happens is that when an
injunction is sought, briefing is received by the court, and
the court will hold a hearing. I know especially in the areas
that we work, we don't, even if we win, always receive
permanent injunctions, or they may be limited in scope in one
way or another. And I know that the same is true on the other
side. We have had situations where we've had cases where we
have been allowed to continue to sell our products when it was
deemed to be in the public interest to do so. So I believe it
does work and that the courts do consider the public interest.
Mr. Goodlatte. Mr. Simon.
Mr. Simon. I found surprising in Biotech Industries'
testimony a line on this specific issue, Mr. Goodlatte. On page
6 at the very bottom, the written testimony says: If you
allowed courts to weigh equities and balance hardships, our
patent system would be weakened, and research and development
would suffer.
I didn't make that up, that's in their testimony. I think
courts do weigh them. I don't think they give enough weight to
them right now.
Mr. Goodlatte. Thank you.
Mr. Chairman, I know our time has expired here. I do have a
statement that I would ask be made part of the record.
Mr. Smith. Without objection, the opening statements will
be made a part of the record.
The gentleman from California Mr. Issa would like to direct
a question that he would like responded to in writing. Mr.
Issa.
Mr. Issa. Thank you, Mr. Chairman. I'll be very brief. It
will take some time and some thought to get the answers, but
based on what I've heard here today, I'd really appreciate it.
When we discussed 271(f), I believe I heard very clearly
that it was an outcome that would occur, and it had occurred,
that we tried to correct with the 271(f) in the '80's. We're
now looking at stripping it away because we don't like the
outcome, we want a different outcome.
As fair and long-reaching as each of you can be in your
positions, can you tell me, should we adopt in Congress a
policy of calculating what the outcome would be, how it would
affect business, and then put our law in effect in order to
achieve that? Not just in 271, but obviously if we do it here,
do we begin saying, let's change this? For example, should we
arbitrarily reduce the length of a patent or type of patent
because it would encourage business, or extend it because it
would help one industry? Should I look at Biotech as getting a
different length patent than other industries? Should I start
doing that based on what amount of business occurs in the
United States?
And if you would give me that further discussion that will
take a few paragraphs, I would appreciate it, because that's my
question on 271 is do I do it because of the business outcome.
Mr. Smith. Good question. Thank you, Mr. Issa.
We have only 5 minutes left to vote, so we're going to need
to adjourn. And on the way there, thank you all again for your
testimony. It's been very helpful. And we will continue our
discussions about the legislation. Thank you.
[Whereupon, at 12 noon, the Subcommittee was adjourned.]
A P P E N D I X
----------
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
Mr. Chairman,
Thank you for scheduling this hearing on possible substitute
amendments to the Patent Reform Act. In addition to the amendment in
the nature of a substitute from July, I know a number of individual
companies have met together over the summer to try and produce a
consensus bill--a draft of which has been circulating as well. However,
in all honesty, by this point in the process I would have preferred
that this subcommittee actually be marking up the bill.
The witnesses all agree that patents are the foundation of American
innovation and therefore serve as the underpinning of the American
economy. Strong intellectual property protection helps technology
businesses attract investors, provides incentives for drug companies to
develop new drugs, and allows independent inventors to make significant
contributions to society. However, while robust intellectual property
protection presents these benefits, when protection is given to
questionable quality patents, the foundation begins to show its cracks.
This leads to an increase in litigation, a decrease in investment, and
casts doubt about the effectiveness of our patent system.
At last week's hearing regarding Oversight of the PTO, we heard
consensus from all of the witnesses, including the Director of the
agency responsible for administering the patent process, that there is
a problem with the quality of patents issuing from the Patent Office.
It would be quite an accomplishment if we could reach consensus with
this panel about the solution to the quality issue.
Some of the proposed provisions of the original bill, as well as
the substitutes, begin to address quality in the initial stages of the
examination process, such as the ability for third-parties to submit
prior art to the examiner. Over the past number of years, as
Congressman Boucher and I introduced the precursors to this bill, we
always agreed that the key to improving quality was providing examiners
with the necessary prior art resources. Access to better information
will yield better decisions by the examiners.
Other provisions will enhance the quality of patents immediately
after their issuance, such as the new post-grant opposition procedure.
With the opportunity to establish a more comprehensive check on a
patent's validity, without resorting to an expensive and lengthy court
proceeding, the bill will improve both the quality of specific patents
and the patent system as a whole.
Unfortunately, the goal of providing a true alternative to costly
litigation--``the second window provision'' has been omitted from
drafts of a substitute. Clearly, a limited second window would shed
more light on the quality and validity of questionable patents. With
substitute options that do not contain the injunction provision or the
second window options, I am left to ponder the fate of questionable
quality patents that have already been granted. These patents will
surely be litigated, but afforded a high presumption of validity and
therefore, in all likelihood, affirmed. What will be the effect on the
economy that a questionable quality patent (a software program) can now
be the reason for barring others from using their own truly inventive
products?
Shouldn't we consider how to rectify this problem as we discuss one
of the most extensive patent reform bills since the '52 Act?
There remain issues which still need further discussion such as the
duty of candor provision and obviously some of the disputed provisions
in the latest coalition draft.
I look forward to hearing from some of the industry witnesses today
and see how, if at all, their positions have shifted since we began
this process. I hope to continue working with the group of co-sponsors
for this bill to try and create a more perfect patent reform.
__________
Prepared Statement of the Honorable Bob Goodlatte, a Representative in
Congress from the State of Virginia, and Member, Subcommittee on
Courts, the Internet, and Intellectual Property
Thank you, Mr. Chairman, for holding this important hearing to
examine the amendment in the nature of a substitute to H.R. 2795.
Article I Section 8 of our Constitution lays the framework for our
nation's patent laws. It grants Congress the power to award inventors,
for limited amounts of time, exclusive rights to their inventions. The
Framers had the incredible foresight to realize that this type of
incentive was crucial to ensure that America would become the world's
leader in innovation and creativity.
These incentives are just as important today as they were at the
founding of our country. As we continue our journey into the digital
age, we must make sure that the incentives our Framers put into our
Constitution remain meaningful and effective. The U.S. Patent system
must work efficiently if America is to remain the world leader in
innovation.
It is only right that as more and more inventions with increasing
complexity emerge, we should examine our nation's patent laws to ensure
that they still work efficiently and that they still encourage, and not
discourage, innovation.
One industry sector which is beginning to showcase the potential
problems inherent in our nation's patent system is the high tech
industry. In today's economy, many high tech products involve hundreds,
and even thousands, of patented ideas. Technological innovators must
work to ensure that they obtain the lawful rights to use the patents of
others, through licenses and other lawful mechanisms. However, it
appears that a cottage industry is emerging that seeks to take
advantage of the complexity of these products and loopholes in our
patent laws to extort money from high tech companies, both large and
small. To be sure, these problems are not limited to the high-tech
industry--inventors in all industries are increasingly facing these
types of problems.
The solution to these problems involves both ensuring that quality
patents are issued in the first place, and ensuring that we take a good
hard look at patent litigation and enforcement laws to make sure that
they do not create incentives for opportunists with invalid claims to
exploit.
The substitute would create a new post-grant opposition system in
which any member of the public could request the USPTO to review the
scope and validity of a patent within nine months from the date of its
issuance. In addition, the substitute allows submission of prior art
within six months after the date of publication of the patent
application. These provisions will help ensure that interested parties
have the incentive to challenge questionable patents at the beginning
of the process and thus help ensure that only quality patents are
issued.
The substitute also contains many important litigation reform
measures to help ensure that patent litigation benefits those with
valid claims, but not those opportunists who seek to abuse the
litigation process. Specifically, the bill creates a clear standard for
``willful infringement,'' helps ensure that damage awards are fair, and
contains new venue provisions to discourage opportunistic forum
shopping. I look forward to working with Subcommittee to ensure that
the damages language is structured to reward legitimate damages claims
while discouraging frivolous and inflated damage claims.
All inventors will reap the rewards of a streamlined patent system
that ensures that good quality patents are issued, and that
opportunists cannot take advantage of loopholes in our enforcement
laws.
Thank you again, Mr. Chairman for holding this hearing. I look
forward to hearing today from our witnesses.
__________
Prepared Statement of the Honorable John Conyers, Jr., a Representative
in Congress from the State of Michigan, and Member, Subcommittee on
Courts, the Internet, and Intellectual Property
I am happy to see that the private negotiations on patent reform
have led to progress. While I also am pleased that some of the
troubling provisions in the introduced bill have been discarded, I am
concerned that new issues have been raised that would harm small patent
owners and set a dangerous precedent for plaintiffs' rights.
Let me say that I was an original cosponsor of the underlying
legislation because I believe we need to make major changes to the
patent system. 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.
At the same time, however, I did have concerns with several of the
provisions in the bill. One specific provision made it more difficult
for legitimate patent owners to enforce their rights. I believe that
proposal would have undermined the purpose of our intellectual property
laws, which is to encourage investment into innovation.
While this new draft does not include that proposal, it does
contain new language that limits where patent owners may bring lawsuits
against those who steal their inventions. Specifically, the bill says
owners may bring lawsuits only in the defendant's principal or regular
place of business. This is a significant departure from existing law,
which permits suits anywhere the infringing product is sold.
This idea would harm the rights of small businesses and independent
patent owners, who may not have the resources to track down the
defendant's place of business and to initiate litigation far from home.
It also sets a dangerous precedent. I am concerned that other
industries may come forward to limit where lawsuits against them could
be brought. This would be a blow to plaintiffs' rights in the areas of
gender discrimination, labor rights, and civil rights, just to name a
few.
Response to post-hearing questions submitted by the Honorable Chris
Cannon, a Representative in Congress from the State of Utah, to Phil
Johnson, Chief Patent Counsel, Johnson & Johnson
Response to post-hearing questions submitted by the Honorable Darrell
Issa, a Representative in Congress from the State of California, to
Phil Johnson, Chief Patent Counsel, Johnson & Johnson
Letter to the Honorable Zoe Lofgren, a Representative in Congress from
the State of California, from Phil Johnson, Chief Patent Counsel,
Johnson & Johnson
ATTACHMENT 1
ATTACHMENT 2
ATTACHMENT 3
ATTACHMENT 4
Letter to the Honorable Lamar Smith, a Representative in Congress from
the State of Texas, and Chairman, Subcommittee on Courts, the Internet,
and Intellectual Property, and 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, and Prepared Statement from Bob DeMatteis, Plastic Packaging
Systems
Prepared Statement of Raymond V. Damadian, President and Chairman,
Fonar Corporation, Manufacturer of Scanners
Please accept my testimony regarding H.R. 2795, the Patent
Elimination Act of 2005.
In 1972 I filed the first patent on MR scanning that originated the
technology that is today called MRI. I think it is true that the
original scientific discovery that I made while I was a university
professor, and the patent it gave rise to, has proven its value as a
betterment for mankind, a result for which I am truly grateful. For
whatever appreciation the public may have for the invention I believe
most of that appreciation is owed the U.S. Patent System. Unique in the
world, the U.S. Patent System crafted by the Founding Fathers, achieved
for the first time in all history that unique collaboration of the law
and technology that enabled the individual of ordinary circumstance to
dream great dreams, and be provided the means to protect his product
and get it to the marketplace.
I think in this vein it is important to appreciate that the MRI
machine was not the product of either a Multi-National Corporation or a
Japanese conglomerate with great amassed reserves of disposable
capital. Instead it was the product, after the initial discovery, of an
individual scientist and his graduate students, toiling underfunded in
a university laboratory with only the hope of the U.S. Patent to rescue
them if the insurmountable mountain of technological obstacles that
stood in the way of such a scanner could ever be overcome. Indeed if
H.R. 2795 existed in its present form when we were developing the MRI,
MRI would never have come to pass.
Our story is not unique. It is but one more of the many spectacular
triumphs of that most extraordinary entity of human history and human
law which we call the U.S. Patent System. We cherish it for what it has
enabled us to accomplish. We cherish it for the protection it gave us,
the ``little guy'', when mammoth multi-nationals sought to take our
invention from us when it was finally complete after ten years. Thus
when the U.S. Patent System that protected us and our MRI invention
comes under attack by legislation like H.R. 2795 I quite naturally rise
to protect the Patent System that protected us. In so doing we believe
fervently we are protecting America. Hopefully you will forgive us when
our passion for the U.S. Patent causes us to construe lawmakers who
seek its destruction by legislation like H.R. 2795 as adversaries that
have mounted an attack on America's very heart and soul. Perhaps our
view comes from having fully engaged the U.S. Patent System, from
having personally exercised all aspects of this majestic doctrine, and
from having personally experienced its numerous ingenious attributes.
Thus, when our first prototype MRI scanner was completed in 1977
and performed the first scan of the live human body, and when we left
the university to form the first MRI company, we needed to find
investors who would invest in our fledgling enterprise to create the
first commercial MRI product and bring it to market. Needless to say,
the first question from investors was what will secure our investment
in your start-up MRI enterprise called Fonar? The only answer we had to
give was that we held the original patent. It was the only answer but
it was sufficient. We received the investor capital we needed, Fonar
was born, and three years later we introduced the first commercial MRI
scanner to the medical world.
Within a few years we were joined in the marketplace by a host of
Japanese companies and Multi-National Corporations with scanners of
their own, who ignored our patent, even while they themselves had made
no technical contribution during the ten years of labor it took us to
get from the first test tube experiments to the first commercial
magnet. We resorted to the U.S. Patent. It rescued us!
Our American judiciary gave no quarter to the size of the mammoth
Multi-National Companies that had appropriated little Fonar's
technology. They adjudicated with the same even hand for which American
jurisprudence is famous and meted out fairly the dictates of our patent
laws to the infringers of Fonar's patents. When the day was done all
infringers admitted that Fonar had not been treated fairly and while
none could say they were pleased to have to pay little Fonar, none
argued that Fonar's contribution had not been major and none contended
that Fonar in its 35 years of labor to bring MRI to reality and improve
it, was not eminently deserving of the justice it was now receiving.
Fonar had earned its place in the world. U.S. Patent Law saw to it
that the holder of one of America's patents was protected from usurpers
of its technology irrespective of their size. Fonar was helpless
without that protection. U.S. Patent Law rescued America's MRI. Little
Fonar, as a result, can continue to create the many life-saving
benefits that lie ahead in the field of MRI.
From this 35 year right of passage involving intimate experience
with our patent laws, in action, we feel that we can come before your
committee, usefully Mr. Merritt, with our experience, and comment
firsthand regarding our impressions of H.R. 2795.
In general it must be obvious to even the most casual reader, that
H.R. 2795 is the unqualified enemy of small business and the small
business inventor. It seeks to void most of the protections upon which
small start-up technology businesses like Fonar have relied on for two
centuries. It is not fair for the proponents of this bill to argue, as
they have, that this bill is good for the inventor. If H.R. 2795 is so
good for the small business inventor as its supporters have repeatedly
represented, why then am I filing my testimony opposing it? Surely the
distinguished gentlemen who are sponsoring it do not mean to suggest
that I as a scientist am unable to determine for myself what is good
for me and what is not. Regarding the Patent Elimination Act of 2005,
H.R. 2795.
I think it critical to remind reviewers of this bill that the US
Patent is the heart and soul of the American Economy. Absent the
patent; the telephone, the electric light, the computer, the internal
combustion engine, the airplane, the radio and the vast array of other
technologies the US Patent brought to life, American Industry and the
American Economy that rests on it would not exist. Consequently
America's inventors and the patents they depend on are America's
lifeblood. To dismember the system that birthed them as the Management
Amendment of H.R. 2795 intends, is to initiate a frontal assault on the
U.S. economy itself. While it will be tempting to some to characterize
this generalization as an overstatement it is not. Dismembering the
U.S. Patent, as H.R. 2795 does, constitutes dismembering the very soul
of U.S. economy. Its consequences cannot be overstated. Arguments that
H.R. 2795 does not darken the soul of the U.S. economy will inevitably
originate from corporate employees whose sole intent is to broaden the
powers of infringement on behalf of their corporate employers, which
corporate employees have never themselves crafted an invention and
tried to start a company from scratch with the U.S. Patent as their
only asset, as Thomas Edison, Alexander Bell, the Wright Brothers,
Morse and the other legends of American Economic history did.
While many of the provisions of the Manager's Amendment to H.R.
2795, especially after they have been mischaracterized as ``reforms''
when they are eliminations, may be abstract to Congressmen and staff
who are distant from the processing of defending one's patent in a
courtroom, they are, in fact, virile in their intent and intentionally
so.
Speaking generally, as an inventor who has been through the entire
courtroom process of getting a patent upheld against a conglomeration
of multi-national enterprises intent on infringement the inventor needs
not only EVERY provision the ``aspiring infringers'' are seeking to
remove, he needs more.
Indeed, except by firsthand experience of direct courtroom
infringer assault, it is difficult to discern, given the legalistic
lexicon in which the provisions H.R. 2795 are encoded, to comprehend
the full measure of their malignancy. Thus granting the requested
Limitations of Injunctive Relief when decoded into plain English is the
literal enactment of a ``license to steal''. It is a blunt elimination
of the patentee's right to say ``No'' (injunction) to the thief, ``You
can't copy my invention and sell it as your own.'' It is self-evident
that a patent without the right to say ``No, you can't make my
invention and sell it'' is no patent at all. The First to File
provision, another noxious initiative, plainly stated is another
``license to steal'' for an amply financed corporate giant, like a
Japanese conglomerate. It fully enables, for example, the well
practiced craft by Japanese corporate employees of visiting university
laboratories and other research facilities with their cameras and
interrogating naive researchers on their discoveries and leaving the
premises to immediately file patents on the inventor's new discoveries
before the inventor himself. First to File eliminates the inventor's
proof by laboratory notes and records that he is the true inventor and
thus voids his right to his inventions. The Third Party Pre-grant
review is a further provision for potential infringers or their
designees to inspect a patentee's invention, prior to its allowance as
a patent, which provision possesses the obvious deficiency that the
invention can now be copied by the inspecting party before it issues as
a patent, thereby avoiding literal infringement. Pre-grant Review
further enables the inspecting party to intrude in the patent approval
process itself and seek impedance of the application or even total
blockage of it. Third Party Reexamination of Post-Grant Review means
that an infringer, if this provision is granted by H.R. 2795, will be
able to postpone his request for a reexamination of the inventor's
patent by the Patent Office until after trial. By so doing he grants
himself the power to challenge validity of the inventor's patent twice,
once in the courtroom and once again, after court if the inventor is
upheld and he loses.
More importantly it enables the infringer to duck courtroom
scrutiny of his invalidity argument and avoid full adversarial argument
by opposing attorneys on the merits of his invalidity case in front of
the Court and trial judge. Thus the infringer, by his Post-Grant
Reexamination procedure, can avoid the risk of subjecting his
invalidity argument to the full scrutiny of a detailed courtroom
proceeding and save it for a second bite of the apple beyond the
scrutiny of the court and trial judge once the patentee has won his
case. Furthermore, since the Post-Grant opposition provision removes
key protections for the inventor, his patent under the new provision
can be challenged in Post-Grant oppositions by a limitless number of
potential infringers up to the very date of its expiration 17 years
after it's issuance. The patentee then, under this new provision will
never unequivocally own a patent. He will thus be unable to secure
finances from investors to initiate a commercial enterprise. The Best
Mode requirement which H.R. 2795 seeks to scrap, is fundamental to the
very rationale for a patent authorized by government. As Jefferson and
Washington envisioned it, the patent was a limited exclusivity that
could be awarded and enforced by government in exchange for full
disclosure. Full disclosure would give the public access to the
invention so others could improve on it and advance the state of the
art of the technology. The Best Mode Disclosure requirement ensures and
requires full disclosure of the patentee's invention in exchange for
exclusivity. Compromising Best Mode Disclosure, by deleting the
requirement that the best specific embodiment of the invention be
disclosed, cheats the public of its right to that full disclosure in
exchange for the public exclusivity to the inventor. Without full
disclosure it becomes unduplicatable by ``one skilled in the art'' and
the public is cheated of the use of that art. It further fails to force
the inventor to specify his invention and therefore specify what will
become the prior art for future inventions. The absence of a fully
disclosed and fully specified prior art enables inventors to claim
innovations at a later date in later patents, thereby falsely extending
their patent's lifetime with innovations that were genuinely part of
the original invention but left undisclosed (and unspecified) by the
elimination of the Best Mode requirement. The remaining provisions,
Prior Rights, Assignee Filing, Eradication, Limiting Damages, Removing
the Inequitable Conduct Decision from Courtroom Adjudication, Limiting
Damages and Limiting the User Scope of Applications, all possess
onerous terms for the prospects of the inventor getting his patents
upheld and his new business protected.
These provisions and H.R. 2795 must not be enacted. Despite their
characterization to the contrary there is not a single provision for
the benefit of the inventor. All are designed to benefit the infringer.
Prepared Statement of Joy L. Bryant, Executive Director, National
Association of Patent Practitioners
Prepared Statement of Stephen Wren, Independent Inventor and Actuary
Mr. Chairman, Ranking Member Berman and other distinguished Members
of the House Judiciary Subcommittee on Intellectual Property,
Thank you for holding this September 15, 2005 hearing on proposed
changes to the U.S. patent system--the best and strongest in the world.
I am submitting my testimony in writing with the hope that it will
become part of the public record by way of this hearing because it is
apparent that the voice of the independent inventor concerning this
legislation has been heard little if at all to date.
There are many witnesses who have testified before this committee
this year that have claimed to speak on behalf of independent
inventors, small businesses and others entities who clearly will be
harmed by the Amendment in the Nature of a Substitute to H.R. 2795, the
Patent Act of 2005. To my knowledge, there has been little testimony on
this legislation before this committee from actual inventors who have
substantial first-hand experience with the U.S. patent system and the
inner workings of the U.S. Patent and Trademark Office.
I am an inventor with such experience as relates to the issues
before the subcommittee. Quite frankly, my patience with the system has
run its course. Unless real and positive changes are made within the
U.S. Patent and Trademark Office, my present invention will be my last.
Getting a patent in today's patent system is just too hard, too time
consuming, too frustrating, too expensive, and too risky.
REFORM THE PATENT OFFICE BEFORE CHANGING THE UNDERLYING LAW
In my view the problems inventors currently face are within the
USPTO and not in our underlying patent laws. This differs radically
from nearly all of the testimony previously presented. How many of
those previously testifying have had personal experience?
The USPTO is in a crisis. The problem for inventors and small
companies is that application pendency--the time it takes to get a
patent allowed and issued--is far too long. I, for example, have patent
applications with a pendency of over 13 years. Mr. Chairman, inventors,
universities, and small companies simply cannot and will not continue
to innovate with such long pendencies. It places a terrible burden on
us to fund research and development and greatly increases our patent
related expenses. Such pendencies make the patent system a sport of
kings and eliminates independent inventors and small firms from
participating. Moreover, legal changes in the 1990s such as changing
patent term to 20 years from ``date of filing,'' only further erode the
value of a patent. By the time it issues with these lengthy pendencies
there can be hardly any patent term left. There may be none. With these
pendencies alone, by the time your patent issues your technology is
most often outdated and worthless.
PATENT QUALITY IS NOT THE TRUE AIM OF THE MANAGER'S AMENDMENT
Many supporters of this legislation speak of problems with patent
quality. However, based on litigation results over the past few years
decisions have been pretty well split 50/50 between patentee and
infringer. That result suggests there is no great problem with patent
quality in terms of the USPTO issuing invalid patents. Proponents who
use this argument are simply not supported by the facts.
Rather, the problem from my experience is that the USPTO is too
hesitant to issue patents, not that they are issuing them too hastily.
That theory would in part explain why pendencies have increased so
substantially. If the committee would survey practitioners and
applicants anonymously, I believe you will find they too feel long
pendency is a significant problem. Many have told me so confidentially.
It is difficult to believe, but the USPTO has to my knowledge and with
all whom I have spoken, failed to survey applicants and their attorneys
for feedback on many important matters. How can they faithfully serve
their customers and the public if they do not know what customers want
and need?
Therefore, contrary to what proponents claim regarding quality of
patents issued being the problem, it is those patents that are not
issued where the true problems lie. The changes therefore being
proposed by the Intellectual Property Owners Association (IPO), AIPLA,
the Business Software Alliance and others--mainly large corporations or
alliances of them--are at best unnecessary and at worst dangerous as
many provisions would only further erode the patent system and act as a
disincentive to invent for independent inventors and small companies.
This is a very important segment of our intellectual property society--
the part most often responsible for breakthrough technologies which
open new fields.
My belief is this false issue of patent quality is being promoted
before this subcommittee by large, multi-national companies to push for
changes in U.S. patent law which will not strengthen it and therefore
encourage innovation, but rather weaken it and thereby discourage
innovation. As I review the Manager's Amendment I feel there are
several portions that will have a substantial negative impact on the
capabilities of small entities to benefit from the patent system.
Further, I understand that with the Manager's Amendment revenues that
have been diverted from the USPTO, fees that all entities--large and
small--pay, will hereafter completely go to the agency instead of to
other non-patent/trademark related issues. It will then be a true user
fee instead of a hidden tax on inventors. With this funding change
about to be instituted, why would Congress even consider changing the
strongest and best patent system in the world before first seeing how
the funding change will affect the system? The funding change alone may
significantly reduce the need for if not eliminate any further
legitimate need for changes in patent law.
MANY WHO CLAIM TO SPEAK ON BEHALF OF INVENTORS AND SMALL BUSINESS DO
NOT
Testimony from this year and from years past has caused me to try
and help educate anyone connected to the U.S. patent system. As I
indicated earlier, many organizations that have testified before this
committee and before the Senate have stated they represent ``small
business and individual inventor members.'' Specifically, the
Intellectual Property Owners Association claim they represent small
businesses and independent inventors. They do not.
In viewing the composition of the IPO's committees, only large
firms are represented (Microsoft, Xerox, Intel, . . .), as well as the
large law firms (Kenyon & Kenyon, Howrey Simon, Drinker Biddle, . . .)
who represent them. IPO, therefore, is merely a trade organization of
large companies. It does not represent small companies and individual
inventors to any meaningful degree. Consequently, organizations such as
IPO that claim to speak on the ``little guy's'' behalf are misleading
the committee at best.
WHAT PATENTS MEAN TO THE INDEPENDENT INVENTOR
Some proponents speak of patents ``being used to suppress
competition.'' They are correct. That's the point of patents in the
first place. The idea was always to grant to an inventor for a limited
time exclusive use of their invention--e.g. a monopoly--as a reward for
the advantages society receives from the invention.
Out of thousands of patents issued by the Patent Office each year,
some will unavoidably be bad. However, if patents are of poor quality--
bad--they likely will lose in court, or far more likely never make it
to court and therefore be of no consequence. On the other hand, if
patents are valid they will suppress infringers to the benefit of both
the inventor and society, which was the purpose of the patent system.
If a patent really is ``junk'' it is highly unlikely anyone will
attempt to enforce it. Contingent attorneys, for example, will quickly
see these facts and not waste their time on a lost cause. Contingent
attorneys who cannot tell the difference between good and bad patents
will not be in practice for long.
I am sincerely curious whether those who support these so-called
reforms and make such broad statements have ever personally tried to
enforce a patent? Do they speak from experience or do they just wail
away at what they don't understand like bloggers? Ignorance is bliss.
More disturbingly, other proponents have their own agenda, and it is
not to encourage innovation. These shadowy figures lurking, not always
in the background, if left unchecked will cripple America's
technological edge and thereby its long-term economic outlook.
Likewise, many supporters of the bill rally around the concept that
people are concerned about suspect and overly broad patents. As above,
if a patent is overly broad or issued in error it will seldom be
enforced or hold up. Patent owners think long and hard before asserting
a patent because of the cost. Keep in mind it costs the patent holder
about the same in court as it costs the accused infringer. That's why
few patent cases ever make it to court (roughly 97% of patent suits
filed are settled out of court). No one wants a nuclear war. Therefore,
all this hand wringing over bad patents is merely pretense to
anesthetize and paralyze the patent system. It is but a red herring.
The real issue with these proponents is that big companies don't
like it when small companies, universities, or independent inventors
assert patents against them. The only patents big companies tolerate
are their own. Even then their interest is merely as a tool to defend,
not to truly innovate. Also and oddly enough, they by far own the
largest number of patents. But of course from their view, only theirs
are valid. I find this hypocritical. It is also disconcerting given the
likely outcome of their assault on our patent system and to our
nation's future innovation and economy that is directly dependent upon
the innovation the patent system encourages.
BILL IS ADDRESSED TO HURT SPECIFIC ENTITIES TO THE BENEFIT OF OTHERS
As I stated earlier, the patent system is becoming a sport of
kings. This bill will only worsen the situation. It prices small
concerns out of the market and in so doing only further ensconces big
companies in their markets, further cementing their stranglehold. The
pending bill will only further widen the gap between the haves and the
have-nots and the public will pay the price in the end with higher
prices and inferior goods due to reduced competition.
Certain witnesses and companies have complained about so-called
``patent trolls.'' This label is most always used by large companies to
describe small entities that have the audacity to assert patents
against them. They have lost in court and so now they dissemble aiming
to corrupt the patent system, even if it permanently damages the
country. IPO itself has used this nonsensical term. It is interesting
to think that though IPO claims to represent ``small business and
individual inventor members,'' they speak like a big company. The IPO
is not a sheep. It is a wolf. ``Patent troll'' is then a farce used by
these large and unscrupulous parties in an attempt to defame inventors
and small companies, and mislead Congress about what is really going on
within our nation's intellectual property system. It is another red
herring, attempting to obscure Congress from the truth.
Proponents of this legislation use the argument that there is
something implicitly wrong with a party who owns patents in only
selling or licensing them and not actually building or using the
patented technologies themselves. However, for over a century
independent inventors have done just that. Edison himself was prolific
in selling his ideas to other parties. Bell left the business end to
others. Many inventors feel uncomfortable from past experience in
commercializing their own inventions and prefer to leave that to those
with more business acumen. Others simply prefer to invent and are happy
to leave the business end to others. Clearly then, there is nothing
wrong with an inventor leaving the business side of the invention to
others such as through licensing of the technologies patented or an
outright sale. Whoever coined the phrase ``patent troll'' was either
ignorant of the invention field or a sly dissembler.
LARGE COMPANIES DON'T INVENT
Still, it is the breakthroughs that lay the foundation for new
fields. Before one can refine they must first establish. I am of the
opinion that large companies will never seek to create markets for new
technologies. They would rather wait until someone else does it then
swoop in to use their large capital reserves to scoop up a large share
of the developing market. Without a strong patent system independent
inventors and small companies are at their mercy. Without a strong
patent system there will be no independent inventors or small companies
who risk all to create new markets for innovative technologies. That is
why these large multi-national entities--with few exceptions--are
begging Congress to make changes to U.S. patent law.
BAD PROVISIONS IN THE MANAGER'S AMENDMENT
My firm belief is that many of the provisions included in the
Amendment in the Nature of a Substitute will irreparably harm small
entities dependent on strong intellectual property laws here in the
U.S. Without independent inventors and small companies to take the dare
there will be a dearth of leadership into new promising technological
fields--only a never-ending stream of minute cosmetic changes to a worn
and musty product line. Without independent inventors and small
businesses, our nation's economy will suffer. Many of these proposed
changes will tip the scales of justice in favor of those with the
deepest pockets and will thereby prove the undoing of small entities
and independent inventors.
In part, I have strong concerns about the following provisions:
First-to-File, Prior User Rights, 18-month publication for domestic
applications, and Third Party Re-examination. Each of these provisions
benefit large, deep pocketed organizations and corrupt companies to the
detriment of inventors and small business owners, many who will face
unaffordable expenses and terrible consequences as a result of this
proposed legislation.
With Prior User Rights, small entities could face the near
impossible task of competing against a well-funded corporation. This
possibility will only add to the difficulty for those who seek funding
from third parties such as venture capitalists. The risk will be that
they may invest in a startup who at some later date in spite of having
invented the product or technology may have to compete with a far
larger competitor. This prior user provision then places in doubt the
exclusivity right of a patent which was a fundamental principle as
espoused in the U.S. Constitution. Funding sources will understandably
be tentative.
The publication at 18 months from filing an application is another
provision of this legislation that would place small entities and
inventors at a disadvantage. What is now accomplished in complete
secrecy will at 18 months be throw open for the world to see.
Currently, anyone who doesn't file overseas has the option of NOT
having their intellectual property known before protections are
guaranteed. This will eliminate that option. Once published, the
inventor will have to maintain his lead in an invention that may yet
need refinement against an army of far better funded adversaries. Often
times, such as in the case of the television, perfecting an invention
to make it ready for the marketplace can take years. Such was the case
with Bell and his telephone, Philo Farnsworth and the television, Morse
on the telegraph, and the Wright Brothers on the airplane. It took
Chester Carlson years to develop xerography to a practical state.
Often, this is the case. This provision will place small entities
therefore at a critical disadvantage. It would force them into a
situation where they will have to compete with a far better funded firm
before they are ready. As above, this further erosion of the patent
system will discourage inventors and investors and thereby innovation.
Such then is the problem with both First to File and 18 month
publication.
How is an inventor protected after the 18-month publication should
it be determined later that the ``invention'' was not patentable? Trade
secrecy is the current option and that effectively will be taken away
via publication. The danger of course is that inventors will begin more
widely using trade secret protection where possible. But to encourage
disclosure was another reason the patent system was established in the
first place. The inventor discloses the invention and in return
receives exclusive use of their invention for a limited time. It seems
to me this provision will undermine an important reason the patent
system was created.
I have similar concerns about the First To File provision. Clearly,
the advantage would be to well funded organizations who can much more
readily prepare a patent application--specially having been tipped off
by an inventor. That would present an impossible uphill climb for the
inventor and encourage invention theft. I recall the confusion
physicist Gordon Gould who invented the laser had when he delayed
filing for about a year. In the interim another did. Fortunately, our
First to Invent provision gave the patent to the true inventor.
Similarly, Alexander Graham Bell came very close to being beaten to the
Patent Office by Elisha Gray. Had he been 1 day later and had the
proposed First to File provision been in effect, the Americana catch
phrase would have become ``Ma Gray.''
Another related concern is that the change to First to File will
only further swamp the patent office. Large companies who are already
inundating the PTO with applications will only increase the amount of
applications they are now filing in an attempt to beat small entities
to the punch rather than first perfecting an invention. The result will
be a further overwhelmed examining body struggling to keep up with a
weighty load. Clearly, large firms are far better able to use this
shotgun approach with applications. This may be an important reason for
the current backlog on unexamined applications causing these dangerous
pendencies. This use of greater resources and funding will further
place small entities at a disadvantage. The result is similar to the
advantage large entities have over smaller adversaries now in the
courts. Large companies will be able to use their size alone to gain a
competitive advantage, just as they now do in the market place.
Historically the patent system has had a leveling affect making smaller
entities more competitive which in turn forced larger entities to stay
current in technologies rather than just rely on their superior size to
maintain market dominance. I am extremely concerned that nearly all of
the proposed changes will have a considerable detrimental affect on
competition.
CORPORATIONS VS. SMALL ENTITIES
Patent law affects different business sectors differently. So it is
imperative to understand that simply because large companies in one
sector of the economy consider there to be problems with the law, their
proposed changes (such as in the Manager's Amendment) are apt to create
undue harm and burdens to others in their field and, quite likely, some
or all parties in other fields. That is why there is such a strong
presence on Capitol Hill of lobbyists who represent the Business
Software Alliance, Pharma and BIO--three ``players'' who were invited
to personally appear before the committee to testify.
Consider what history has shown: independent inventors and small
companies are most often responsible for technological breakthroughs.
Witness Edison's light bulb, Bell's telephone, the Wright brother's
airplane, Gould's laser, Fulton's steamboat, etc. The list goes on.
Large firms rarely, if ever, have excelled at breakthrough innovations.
Corporations have the wrong culture for it. Theirs is a culture of
refinement of existing technologies, not on trail blazing new fields.
There is too much risk for them in getting too far afield from their
existing product line. As a case in point, when Alexander Graham Bell
offered the telephone to Western Union, William Orton the then
President of the giant telegraph firm rejected his offer and replied
``what would I do with such a toy?''
CONCLUSIONS
Patent law in the U.S. is critical to our economy. Patents are the
lifeblood to all but the largest players in industry. Large
corporations can readily compete and even dominate without patents. I
suspect if you could hear what they say behind closed doors you would
find their preference would be no patent system at all. That would
provide far less risk to their market dominance. Without genuine
intellectual property, there is little chance for all the rest. It is
our intellectual property laws that have enabled competition in our
country and placed us where we are currently in the world--Number One.
We need to think carefully and study thoroughly before we make changes
to them.
Before considering any further changes to the current U.S. patent
code, let reforms at the USPTO take place first. Do not put the
proverbial cart of changes to our underlying patent protections before
the horse of adequate funding to the USPTO. Also, please remember that
changes take time, so don't act in haste because large multi-national
corporations are making these requests. I for one do not believe that
they are acting with the best interest of our country at heart, but
rather their short-term bottom lines.
There is much more at stake here than saving a handful of large
multi-national companies litigation costs. My hope is that Congress
will take the time and put in the needed effort to understand the
consequences before proceeding with this legislation.
__________
Prepared Statement of Ronald J. Riley, President,
Professional Inventors Alliance USA
Mr. Chairman, Ranking Member Berman, and other distinguished
Members of the Intellectual Property Subcommittee.
My name is Ronald J. Riley, and I am an inventor. I founded the
Professional Inventors Alliance USA to bring a voice to Washington,
D.C. since, generally speaking, anytime Congress approaches reforms to
the U.S. Patent and Trademark Office and to the underlying patent laws
of the United States, inventors are for the most part left out of the
debate. In general, Congress hears from patent counsels who represent
large corporations, such as the multinational organizations that
support H.R. 2795, or any of its variations that have come to pass
since its introduction in June. A most interesting thing to point out
is that there is a so-called red-line version of the bill now referred
to as the ``consensus'' draft. It turns out that 33 companies got
together and decided that this is what they want from Congress.
Thirty-three companies may make a consensus in the eyes of a few,
but to those of use who use and depend on the current and strong patent
system, we question the wisdom of accepting such a draft without full
and comprehensive hearings that everyone can understand. This issue,
while arcane, is one of the most important issues that will ever come
before the U.S. Congress. It goes right to the heart of why our country
is a world leader on so many fronts.
Promoting the General Welfare of the Constitution does not, in my
opinion, mean writing laws that seemingly benefit one sector of the
nation to the detriment of the general public. Quite frankly, the
public interest will not be served by the passage of H.R. 2795, or any
of the variations that I have read to date. Moreover, the Constitution
discusses specifically the exclusive rights conferred to authors and
inventors to their respective writings and innovations. The legislation
challenges the constitutional framework of exclusive rights for
intellectual property owners in many ways.
Additionally, proponents of this legislation suggest that these
proposed changes will lead to more quality patents, less litigation,
harmonization, and, somehow, more innovation. Those of us in the
Professional Inventors Alliance could not disagree more with that
assessment and we believe that the very large entities promoting this
legislation are not being entirely accurate with their descriptions of
the legislation to Members of this subcommittee, nor are they
presenting the big picture of how this legislation could negatively
impact our economy.
I also would like to address something that I find very
interesting. Proponents of patent reform tend to use questionable and
sometime insulting terms in order to paint opponents of patent reform
in a certain way. In the 1990s, the so-called submarine patent was the
base issue that was showcased to obtain changes to the patent system.
This year, it seems to be the term ``patent trolls.'' This term refers
insultingly to those companies and/or individuals who trade in patents
which they have obtained one way or another--legally--from inventors.
In the United States, which was founded on the concepts of free
enterprise and ownership of property, trying to stop such legal
activities is questionable at best. If an inventor can do better by
placing his invention in the hands of a professional patent marketer,
this should not be thwarted. This is no different, in reality, than
using a real estate agent for selling a house or commercial space.
Q. Todd Dickenson, the former director of the U.S. Patent and
Trademark Office and now a counsel to General Electric, testified on
July 26 of this year before the Senate Judiciary Subcommittee on
Intellectual Property that General Electric was a patent troll. In
fact, he stated that almost every large company with patents is in some
fashion a patent troll. So I hope this discussion of the so-called
patent troll can be deleted from the debate.
Intellectual property rights are as important as real property
rights. As you all well know, the United States Supreme Court recently
held in the Kelo decision that local governments may force property
owners to sell out and make way for private economic development when
officials decide it would benefit the public, even if the property is
not blighted and the new project's success is not guaranteed. It is
apparent that Congress understands how controversial the Kelo decision
is. Real property and the laws regarding takings are easier to
comprehend as Congress has stepped right up to address the Kelo
decision in several ways.
With all due respect to the Members of this Subcommittee, the
Professional Inventors Alliance views all versions of H.R. 2795--
including the Manager's Amendment and the so-called Redline version--
the way real estate property owners view the Kelo decision. Many
provisions of the legislation that the supporters claim will improve
the system will, in fact, take intellectual property right out of the
hands of the actual inventor without just compensation, or any at all
for that matter.
Private property is a foundation principal that has set our country
apart from the rest. Fundamentally, many provisions found in the many
versions of H.R. 2795 are to intellectual private property rights as
the Kelo decision is the real private property rights. Therefore, it is
with great hope and encouragement that the distinguished Members of
this subcommittee and the rest of Congress, should the legislation
progress forward, take a very, very close look at why the Professional
Inventors Alliance believes strongly that provisions found in the many
versions of this legislation will have disastrous effects on
independent inventors, small- and medium-sized businesses throughout
the country, and the economy as a whole.
First to File
Every version of this legislation of which I am aware includes a
provision known as First to File. Supporters of this system say that
this change from the current and stronger ``first to invent'' system
will stop the time-consuming ``interference'' legal arrangement
necessary in determining who actually is the first to invent where such
a question arises; therefore, there will be less litigation. This is
false in that the numbers of patents that go through interference are
minute. According to the U.S. Census Bureau and U.S. Patent and
Trademark Office, in 2003 there were only ninety (90) inter partes
interferences declared out of 367,000 patent application filings; there
were 2721 ex parte interferences. This comes to .0076 of a percentage
point. The bottom line is that there are not a lot of these cases
brought through the system.
The reality of a first-to-file system is that patents will be of
less quality; prior art will not be researched thoroughly, if at all.
In the race to file a patent, companies likely will file as many
patents as quickly as possible thus jamming up the patent examination
process with unnecessary proceedings. Such a system will encourage
incomplete and poorly drafted concepts. These facts will make the
system more--not less--litigious than the first to invent system. In
fact, it could open the patent attorneys up to malpractice suits IF
they didn't beat someone to the patent office to file the application.
A significant side effect of first to file is that the large number
of published patent applications which do not proceed to become issued
patents become pseudo prior art which then is used to interfere with
subsequent inventors getting the patents they are due. In other words,
the ``new'' prior art is actually very poor and will lead to less
quality in future patents. This runs contrary to what those who are
promoting this legislation say with respect to this legislation.
As we all know, harmonization is one of the ``reasons'' Congress is
working to alter our patent system. Well, Japan has the first-to-file
system and firms tend to file applications as soon as possible to
prevent their rivals from using the invention before them. The point of
this statement is that it shows that companies will game the system.
Proponents of changing the U.S. system to one that is not as strong
point to several scenarios as examples for why changes in the system
are needed. Congress should be aware that there are calls for changes
to the Japanese system, itself, because their system facilitates
wholesale theft of their inventions.
Finally, under a first to file system, far too many questions exist
to determine how it will impact our tried and true system. For many
patents--especially extraordinarily innovative ones--it takes years
before a patent issues. There is a long pending timeframe now that is
getting longer. The question then becomes: When does a first-to-file
patent become a ``real'' patent? Also, when do subsequent filings that
also may be ``real'' patents--get their chance at being issued and not
stopped by failed first-to-file filings? In other words, is the first
to file filing really the invention? This is a clear case of unintended
consequences that will clog up the examination system and further clog
up the courts with litigation that currently is non-existent under the
first-to-invent system.
18-Month Publication of all domestically filed applications
It is with great interest that I hear all of these corporations
discuss harmonization with other countries' patent systems. We always
hear specifically about Japan's patent system, and apparently the
promoters of this legislation think highly of that system.
Just this past July, an article from a Japanese media outlet
written by Yomiuri Shimbun was published. I have included the article
at the end of this written testimony and ask that it be made part of
the official record.
The central theme to the article was that Japan's intellectual
property competitiveness is in decline. Interesting points were made
about what Japan is giving away in terms of economic resources. The
director of Japan's External Trade Organization's Intellectual Property
Rights Beijing Office last year visited the head office of the Haier
Group, China's largest consumer electronics maker. A Haier Group
official ``proudly'' told the Japanese IP official that they use dozens
of computers to search for patent applications submitted to the patent
office in Japan, the United States and European countries to obtain
useful information to develop ``their'' products. The Chinese company's
official noted that it was for that reason alone that their company
spends only small amounts of money on research.
Rightfully stunned by the information, the Japanese IP director of
External Trade discussed his experience with the head of a private
patent office in Tokyo, who then turned around and asked his colleagues
to figure out how often patent applications were being reviewed on the
Japanese patent office's website from people in China and South Korea.
Each day, from these countries respectively, Japan's patent office
website was hit 17,000 and 55,000 times.
This is astounding information that I hope the subcommittee
understands. This Congress is on record as being very concerned about
piracy by unscrupulous overseas firms. Foreign competitors, many whom
we know already are stealing such information, can move forward
untouched while harming the true creators and innovators of new
discoveries and ideas. Japan's system is leaking and Congress is
embarking on changing our laws to be in line with their poor ones.
Legislation attempting to harmonize with Japan and the E.U. must be
reconsidered closely and thoroughly. Perhaps Japan and the E.U. need to
adopt some of our intellectual property protections.
The article discusses that the IP competitiveness is a foundation
of Japan's national strength. PIA argues that our current patent
system, which has served this country well for over 215 years, is the
foundation for our country's economic and innovative strength. There is
a reason why the U.S. is a leader in the world although we are one of
the youngest countries on the globe. The U.S. respects personal
property, both intellectual and real property. In other countries, this
is just not the case. That is why the Professional Inventors Alliance
finds it alarming that Congress is actually looking to weaken our
system of intellectual property rights protections that currently
exists and are the strongest in the world.
The pre-patent world publication after 18 months devalues the
application process and actually makes it an adversarial opportunity
for unscrupulous entities seeking to steal ideas from those
legitimately going through the system. Therefore, the newly
knowledgeable firms--both international and domestic--with an ability
to review such published applications can begin to advance a not yet
patented innovation. With the U.S. Patent Office's internet site,
people around the world can see the details and begin to pirate and
market ideas that are currently held in secret. This devalues the both
the application and patent to the point where going through the system
will prove more harmful to an inventor/small business trying to secure
exclusive rights guaranteed by the Constitution. This cannot seriously
be the intent of this Subcommittee, but it is the reality.
Pre-grant publication is ill-conceived. Cutting-edge technologies
take many years to go through the patent system. Right now, if an
inventor files overseas they know that the application will be
published after 18 months. This proposed legislation takes away even
this modest protection--the current domestic filing with no
publication--from the actual inventor. Moreover, for domestically filed
applications, publication at 18 months worldwide of the application
details that which historically in the U.S. has been held in confidence
(secret) will harm the actual inventor.
Secrecy ALWAYS has been a key ingredient of the U.S. Patent System.
In fact, the Patent Office always has kept the details secret until a
final decision was made regarding patentability. Under the current
system, if the domestic-only filed application is not granted a patent,
all of the information surrounding the application are returned to the
inventor sealed thereby allowing the actual inventor to rework the
application OR go the way of trade secrets. This provision, which is in
all of the proposals, will take away this opportunity for inventors and
small businesses to take their ideas and move forward and prosper even
without patent protection but through what is known as trade secrets.
Third-Party pre-grant review
Publication and third-party pre-grant review go hand-in-hand. This
also is an attempt to harmonize the U.S. Patent System with that of the
Japanese. This pre-patent/pre-publication review allows rival
companies--both foreign and domestic--to learn the details of the
innovation and challenge the examiner during what is now done in total
secrecy. To reiterate, secrecy is very important so that the true
inventor is protected and he/she can be assured the exclusive right to
it and receives royalties.
Aside from allowing others to learn all of the details of the
applications before they are protected, adding this procedure for third
party review will add delays to a patent. It also provides competitors
time to research and learn more about the innovation in order to make
their best objections against claims allowed by the patent examiner.
This provision will add extra hurdles to the patent process to the
detriment of the applicant (i.e., actual inventor). This will lengthen
the time toward granting a patent, not lessen the time as proponents of
the legislation claim. Moreover, this adds yet another place for
unscrupulous competitors to learn about the innovation, put it into use
and therefore claim prior use. This provision adds an additional
measure to lessen the quality of the patent.
The third-party participation in pre-grant reviews provision
devalues the patent by allowing entities to learn and challenge what is
currently being done in secrecy, which is very important so that the
true inventor is protected and can be assured the exclusive rights to
receive royalties. This participation also will delay the patent and
further burdens to the examiners, which--according to Under Secretary
Jon Dudas--are already over encumbered with work.
Third-Party Reexamination
It is with great hope that every member of this subcommittee
understands exactly it is that is being proposed in this legislation.
The current Inter partes examination proceedings differ from the
proposed post-grant opposition proceedings in that inter partes
reexaminations already are available under the current process at any
time during the life of the patent and are limited to patentability
issues based on earlier patents or publications describing the
invention at issue. This legislation expands inter partes
reexaminations by removing the limitation that any requester is
estopped from asserting at a later time patent invalidity on any ground
that the requester ``could have raised'' during the reexamination
proceeding. This allows continual post-grant oppositions by an infinite
number of entities that obviously will harm those with limited funding
(i.e., small businesses and independent inventors).
Of course, the original limitation was intended to balance the
equities involved in inter partes reexamination, and comported with
fundamental notions of fairness. This is no different than what occurs
if an infringer is sued in court and, having argued invalidity and
losing, that same infringer cannot later bring a second lawsuit seeking
to invalidate the same patent.
PIA's position is that this is but another provision that will harm
the small business and independent inventor by devaluing the exclusive
right to a patent. It also will severely add to the costs of obtaining
a patent and weaken the current system.
Prior User Rights
Patent law favors the patent holder who applies the Founders'
desire for placing patents in the public domain. H.R. 2795, the July
Manager's Amendment, and the new September 1st red-line version of the
bill bring ``prior user rights'' into U.S. law to harmonize with Japan
and European patent law--expanding on the first-to-file patent right.
Well, I've already discussed how the first-to-file proposal will harm
independent inventors and small businesses. So, let's go over in detail
how this provision will harm the U.S. patent system to the detriment of
not only small business people and inventors but the interest of the
general public.
Prior user rights neutralize and devalue the exclusive rights to a
patent. The concept is to allow anyone using technology that is covered
by claims made in a patent to pay no royalties to the patent owner if
it can be proven that the prior user actually utilized the innovation
before the patent was issued. Prior user rights provide an open
invitation to commit fraud in an attempt to avoid paying for the rights
to use the patent. Moreover, these proposed rights create a never-
ending cause for more, rather than less, litigation.
First, the inventor or small business must discover the use by the
prior user party then file suit in order to get them to stop using the
innovation (current process). Enactment of this legislation provides a
prior user right that would give anyone--deep pocketed corporations,
both foreign and domestic, for example--a new defense to use the
patented innovation at will. This essentially diminishes to zero the
value of the patent if the inventor is a small business / independent
inventor and the ``prior user'' is a large corporation with a lot of
money. The new prior user rights defense coupled with third-party pre-
grant review and 18-month publication fly in the face of the
constitutional provisions rewarding those who disclose and patent their
innovations.
The question raised with allowing prior user rights is: What is the
motivation for an independent inventor or small business to go through
the costly patent process when that patent can be taken by another
claiming prior use? Moreover, IF the idea of the legislation is to
limit law suits, imagine if the owner of the patent has as much funding
as the ``prior user''--this could then result in more--not less--timely
and costly litigation. Again, this runs contrary to the authors' intent
on limiting litigation.
Assignee Filing
This provision has to be viewed from the eye of the beholder. This
legislation allows employers, a.k.a. assignees, to have the absolute
power to file an application without the signature of the actual
inventor, or even the knowledge of the inventor! This proposal renders
powerless the inventor against their employer with respect to patent
ownership and control. It is always beneficial for there to be a record
of the actual inventor.
With a Congress that is so determined to show how strong they are
with respect to property rights after the Kelo decision, this provision
should be of major concern to a great many people.
Best Mode
Eliminating ``Best Mode'' essentially would alter the definition of
``prior art;'' simply put, this is any existing knowledge of a similar
innovation via ways accessible by the Public. Current law requires
inventors to disclose to the public the best use of the invention at
the time the patent application is filed. Without this requirement, the
inventor and not the public would know the full use of the patent. It
also would allow for an unscrupulous inventor to increase the term of
the patent protection by filing `improvements,' about which they were
already aware, later. While the bill's authors claim that they want to
improve the quality of patents, it seemingly would do the opposite.
The ``best mode'' requirement makes it necessary to disclose a
specific embodiment. Patent applications and patents without specific
embodiments are respectively filed and issued in Japan and that is why
a Japanese patent is often not a good piece of prior art. For a detail
in a specific embodiment may be the very thing that can be put into a
claim to make it allowable over the prior art.
The purpose for which our Founding Fathers created the U.S. Patent
System is to promulgate knowledge and technology. The ``deal'' with the
federal government is that if an inventor provides enough details of
the innovation so that someone skilled in the art could duplicate it,
the government would provide the inventor an exclusive right (property
right) for a limited time and keep others from using the invention.
Therefore, there is no reason to hide the innovation and by virtue of
knowing the ``best mode,'' others will learn how to utilize and improve
upon it; thereby building knowledge for the public, as a whole. So
anything but ``best mode'' is in effect gaming the system and cheating
the intent of the patent system itself.
Please understand about this term ``specific embodiment;'' It is
necessary when making claims (i.e., value points) for the patent.
Eliminating the `best mode' requirement may make it difficult for
people to fully know and understand how the patent is supposed to work.
The specific embodiment is the best mode of operation of the patented
innovation. Not requiring best mode is yet another open invitation to
game the proposed system by later filing the `true' best mode which had
been withheld to gain longer effective patent terms.
Duty of Candor and Limitation of Inequitable Conduct
While the legislation would codify a duty of candor (specific
embodiment) owed by the patent applicants, it seeks to limit
substantially the defense of inequitable conduct--intentional acts and
omissions of a patent applicant or representative of a patent applicant
during the course of obtaining a patent from the USPTO--by allowing it
only to be pled where the court has first invalidated a claim and the
accused infringer has a reasonable basis for alleging that (``but for''
conduct of the inventor) a reasonable patent examiner would not have
allowed the invalidated claim to issue as part of the patent.
Under the current system, the party alleging inequitable conduct
must prove the threshold elements of materiality of the misstatement or
omission and intent to deceive the patent office by clear and
convincing evidence. The determination of inequitable conduct is
committed to the district court's discretion. Inequitable conduct is
highly factual, often turning on credibility of witnesses. Courts have
long been viewed as best able to resolve highly factual questions such
as intent to deceive. Moreover, the defense is not available, under the
current language, until after there is a finding of invalidity. In
essence, the defense is not available to a defendant until it has
already won the case. Under the legislative proposals, however, the
matter would then be referred to the USPTO and leave sole determination
in the office with no right to appeal.
The American Intellectual Property Law Association interestingly
states that ``the current reliance on the courts for `enforcement' of
the duty (of candor) 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.''
[emphasis added]. If it is rarely successful, it appears that the
courts indeed are doing their jobs appropriately.
Determination of Damages
This provision seeks to limit the damages to the portion of the
total value of the method or apparatus in question by the value of the
overall invention (entire market value rule). It seems that the courts
are the best place for this to continue to transpire because a broad-
based law might have an adverse effect. For example, while attempting
to hinder willful patent infringers, this provision would reward them.
It also can be viewed as sort of compulsory licensing.
If infringers are not worried about getting hit with the full
market value of the overall invention, then they can simply view the
infringement as a ``cost of doing business.'' Large corporations could
hammer small businesses and inventors because the curtailing effect of
damages due to the inventor would be lowered substantially.
Let's take a look at an example to determine damages by the
``portion'' of the ``total value''--Think in electronic terms of a
wheelbarrow. If the invention in question were the wheel, and the
entire wheelbarrow sells for $100, what is the contribution of the
wheel? Though the wheel may be considered only 10 percent of the cost,
its contribution to the whole is infinite. It is the causal component
and without it, the wheelbarrow is worthless.
Let's now consider that there is a wheel on the original product,
but the new invention provides the equivalent of a ball or roller or
other bearings which make the wheel work much better. What then is the
value of the new invention? Would it be simply the cost of the
bearings?
With invention, one must consider what makes the invention enabled.
Without the wheel or the bearing, it is not a wheelbarrow. Though other
inventions may be more subtle, the value of the whole invention may
rest upon the inventive content. This is because an improvement to the
product may be the reason the newly combined devices can be sold at a
premium (or even sold at all). That can be referred to as a
``competitive edge,'' and without the new invention, it is just another
of the same.
This is the purpose of invention, since all but the seminal
inventions are improvements on other previous inventions. The first or
seminal invention might be a reduction or means of implementing a
discovery that has not before been implemented. From that time,
inventions based on that invention are improvements that may make the
previous improvement(s) un-saleable or primitive. In short, the value
of the invention is often not the ``part'' or ``portion'' of the
overall value but it is the gestalt of the system because without it
there would be no reason to use or by the ``invention'' over the same
or similar product that does not include it.
Limitation of the Doctrine of Willful Infringement
This section proposes limitations on treble damages to specific
case where the defendant (willful infringer) has received a detailed
written notice from the patent owner specifying all of the charges.
Contrary to limiting lawsuits as the authors claim as one of their
objectives in this legislation, this one would create more problems and
litigation. For instance, patent infringers wouldn't be motivated to
abide by the patent protections of the inventor in that they would pay
less in damages related only to specific cases in combination with the
market value changes. This would dampen efforts to thwart the stealing
of intellectual property.
Without the ability to sue for and collect damages because of
``willful infringement,'' there is little if any reason for larger and
well-heeled companies to stop infringing. A perfect example of such a
company was RCA under the leadership of David Sarnoff. He spent years
and millions of dollars fighting valid patents of Philo Farnsworth of
Utah, the actual and seminal inventor of the systems of electronic
television we use today. As a side note, his statue, not Sarnoff's, is
in the U.S. Capitol to presumably celebrate his innovations in
television.
Here is one of the best examples of the hard road for the
individual inventor--even one who invented one of the greatest
breakthrough products in the world. Farnsworth, like many inventors,
had to crawl along to market, fighting the entrenched large companies
(RCA) and new technology. In this case, Farnsworth was a 14-year-old
Mormon farm boy who realized, while plowing his potato field, that one
could draw a picture on a phosphorescent tube, one line at a time. This
is a brilliant insight that took him years to perfect. And when he did
the large companies--RCA, front and center--did their best to destroy
him. This is but another example how the Professional Inventors
Alliance believes the various versions of H.R. 2795 will tip the scales
in favor of the deep pocketed infringers to the detriment of the actual
inventor.
Because of the initial bill, references to proponents of the H.R.
2795 bill as introduced, and comments made by members of Congress
concerning the following provisions, we want to go on record to discuss
both injunctive relief and limiting the scope of continuations.
Limiting Injunctive Relief
While eliminating injunctive relief was part of the base bill, it
is highly likely that proponents of the original version will continue
to push for this provision. So I want to pay attention to it briefly
because we understand that there will be efforts to ``put it back in
the bill once it passes out of committee,'' as was stated by a
distinguished member who sits on this panel, while he was addressing
supporters of the legislation.
In short, this is compulsory licensing under another name, which
can also be classified as a regulatory taking. This provision
unconstitutionally undercuts the ``exclusive rights of authors and
inventors'' granted under valid patents by allowing the courts to
determine ``equity'' in considering ``fairness of the remedy in light
of all the facts and the relevant interest of the parties associated
with the invention.'' Simply put, infringement is infringement and
patent holders, under this section, cannot be guaranteed exclusivity of
their invention. Moreover, this essentially is compulsory licensing
under another name. In effect it is a regulatory taking of private
property. This would be an enormous blow to universities, the
independent inventor and small business owner, especially those who are
attempting to obtain venture capital for the commercialization of their
invention(s).
In the case above (Philo Farnsworth vis-a-vis RCA) it took
countless trials that in each one RCA lost. But they had power and
money to try and return and retry ad nauseam until the Courts finally
put their collective foot down. Few innovators and/or inventors could
have survived this.
Limiting the Scope of Applications
Proponents of limiting the scope of continuing applications would
keep the inventor from broadening the scope of his/her claim after the
initial filing of the patent application. Adding this provision could
have very damaging side effects. The proponents of the legislation
claim they want to do away with subjectivity in the examination
process. In our opinion, this may have the very opposite effect.
During the hearings on patent reform, Under Secretary Jon Dudas
claimed that the increased mass of continuation applications has
burdened the workforce. Also, that there are a ``few'' people who have
used the continuation applications procedures to ``track'' the
commercial development of a specific technology only to ``spring it
upon'' an industry. So why not provide more money for more examiners to
the USPTO instead of changing the entire patent system that will
benefit only a select few?
Thwarting the creativity of inventors by limiting claims to those
in the initial application will severely hurt the patent system and
unnecessarily deny applicants the right and opportunity to obtain
protections for their entire inventions. Quite often applications for
newly discovered ideas take a long time to go through the system.
During that period, further ideas arise after the initial application
is processed that had only the initial claims. By not allowing the
inventor to make claims for his or her invention would lead to
legitimate inventions going unprotected by the proposals before the
subcommittee. At the same time it brings into question the
constitutionality of the provision because the inventor is not provided
such guarantees to exclusive rights.
CONCLUSIONS
The Manager's Amendment, as well as the other variations of the
legislation, if passed as currently written, would be an enormous blow
to universities, the independent inventor and small business owner,
especially those who are attempting to obtain venture capital for the
commercialization of their invention(s). As I indicated I my opening
statement, the Supreme Court's recent decision on Kelo is to private
real property as many provisions of this proposed legislation is to
private intellectual property.
Taken in total, this would be the most comprehensive change to the
patent system in history. At the same time, it would weaken the best
patent system in the world to that of Europe and Japan. It would open
our innovations to worldwide piracy through the many provisions in the
bill--first to file, worldwide publication, third party input both pre-
and post-grant, limitations on damages for infringement and prior user
rights. Taken as a whole, patents as we know them today will be hugely
devalued.
There is nothing in any treaty to which the U.S. is a part that
requires us to re-write our laws. While there are minimum requirements,
the U.S. can maintain its strong patent system and still be compliant
with all treaties. On the other hand, other countries are free to
strengthen their patent systems to allow innovation and advancement to
occur in their countries. Even with current protections set forth in
our Trade Related Intellectual Property System that supposedly were
written to protect U.S. intellectual property holders, dozens of
nations that signed onto the agreement have not honored their
commitments. Likewise, the U.S. has not enforced them since 2000.
It needs to be pointed out that the USPTO takes in more than
adequate financial resources through fees (inventor taxes or innovation
taxes), which since the early 1990s have been diverted from use by the
Patent Office by Congress and used for general obligations elsewhere in
the federal budget. Recent temporary medications in our laws have
changed this process thereby providing the USPTO with vastly more
resources. Perhaps it would be better to allow the USPTO to hire more
examiners to address the ``burdened'' workforce before altering (and
severely weakening) the U.S. Patent System.
It is clear that intellectual property experts from the
international community also are calling for new patent procedures that
will lessen unnecessary patent application filings. Even Japan's
``experts'' are concerned with how unscrupulous companies in South
Korea and China are utilizing the ``open applications system'' Congress
is currently considering implementing in the U.S. To do so is
frightening, not only from an independent inventor's point of view, but
also for national security considerations. Members of the Professional
Inventors Alliance are clearly concerned with the proposals pushed by
multinational corporations that, if enacted into law, will have a
devastating impact on our country's economy and innovative sprit and
output! Please do your due diligence and listen not only to those
promoting these provisions that will line their large and deep pockets.
More importantly, please consider what the impact of changing the best
system in the world and unilaterally dragging it down to mediocrity and
how it will affect our country as a whole.
On behalf of the Professional Inventors Alliance we respectfully
request that Congress tread very, very carefully in this policy arena
and not move forward with any of these controversial proposals that
will benefit only a portion of those who benefit from the current
patent system. After all, it has served this country well for over 200
years.
Thank you for the opportunity to present the views of the
Professional Inventors Alliance. We have many ideas about how to
improve the system and when called upon to provide those, we will be
happy to do so. Please feel free to contact me if anyone has any
questions concerning this testimony.
Letter to the Honorable Lamar Smith, a Representative in Congress from
the State of Texas, and Chairman, Subcommittee on Courts, the Internet,
and Intellectual Property, from Christine J. Siwik, Rakoczy Molino
Mazzochi Siwik LLP, on behalf of Barr Laboratories, Inc.