**OPENING STATEMENT OF REP. HOWARD BERMAN**

**MARKUP OF THE PATENT REFORM BILL OF 2007**

**WEDNESDAY, JULY 18, 2007**

This is a controversial and complex bill that makes substantial changes
to the US patent system. Many commentators have described these changes
the most significant since the 1952 patent act. Naturally, the magnitude
of changes contemplated by this act has given pause to most users of the
patent system -- as it should. But fear of change is no reason not to
fix what obviously are serious problems in the patent system.

A litany of economists, attorneys, businesses, government agencies, and
of course the Supreme Court, has all identified the problem of poor
quality patents and abusive litigation practices which impact the health
of our patent system. Over the past 5 years the Subcommittee has
provided much process and held numerous hearings on the varying
provisions in the patent legislation. The sum of these efforts has led
me to the conclusion that we must act soon to restore balance in the
patent system and maintain the incentive to innovate.

Today's substitute amendment responds to concerns raised by Members and
many interested parties representing most major sectors, including the
University community and independent inventors. This manager's amendment
constitutes the beginnings of a fair compromise that tries to balance
the many divergent interests. This package contains significant changes
to almost every issue originally addressed in HR 1908. While it does
achieve a "middle ground" on many provisions, this is still an on-going
process. I will not pretend that every issue is resolved -- but my
intention is to continue to work through the remaining issues between --
Full committee and Floor and all the way up to the conference. If this
bill made everyone happy, I am quite sure it would not be effective. Our
objective though must remain to reform the patent system so that patents
continue to encourage innovation -- and to that end I look forward to
hearing constructive suggestions for ways to continue to improve the
bill.

Before I describe the amendment, I would like to thank my co-sponsors --

-   Chairman Conyers -- who has consistently strived to reach a fair,
    middle ground position.

-   The Ranking Member on the Committee Lamar Smith -- who set the stage
    for this bill and provided much focus and process on this issue last
    Congress.

-   The Ranking Member on the Subcommittee Mr. Coble -- who has already
    endured one patent battle almost 10 years ago and has the courage to
    face another one.

-   In addition I would like to thank Mr. Boucher -- who has been my
    partner on patent reform from the start - over 5 years ago.

I'd especially like to thank Mr. Issa, whose constructive suggestions to
improve the bill have largely been incorporated into this amendment.

(you asked for staff to thank- Karl Manheim on sabbatical and Eric
Garduno, counsel on the subcommittee and George Elliott -- the PTO
detailee)

Now, I will highlight some of the changes by the order of the bill-

(maybe a joke to begin like... we haven't changed the short title)

**[Section 3: - First to File]{.underline}**

In Section 3 which deals with the first-inventor-to-file change, we have
made changes that respond to two major concerns:

-   First, the Universities expressed unease about the grace period in
    the bill.

-   Therefore, we worked with the Universities to develop language that
    broadens the grace period to take into account the "publish or
    perish" imperative in the academic community.

-   Second, the Administration expressed concern that unilaterally
    implementing a first-inventor-to-file regime would hamper their
    ability to negotiate for an effective grace period with major
    intellectual property partners.

-   Therefore we have worked with the USPTO to develop a trigger before
    enactment of the first-inventor-to-file switch. This language
    provides flexibility for the US to negotiate with other countries to
    ensure adoption of a robust grace period throughout the world.

**[Section 4:- Oath]{.underline}**

-   Regarding Section 4 which deals with the inventor's oath,
    universities expressed a concern that there was an easy opportunity
    for the unscrupulous to take advantage of the new substitute
    statements provision.

-   Therefore we adopted language that they suggested which makes clear
    that substitute statements are also subject to penalties of perjury.

**[Section 5: - Damages]{.underline}**

-   Probably the most complex issue in the bill and in the amendment is
    the damages language of Section 5. Several groups have expressed
    anxiety about the language concerning apportionment of damages. It
    has been suggested that there is ambiguity about whether
    apportionment is required in a lost profits analysis, whether prior
    art subtraction prevents a proper valuation for a combination patent
    like the "post-it note," and whether the entire market value
    language includes convoyed sales.

-   Based on discussions with several industry groups in a meeting
    convened by Chairman Conyers, we have developed language in the
    Manager's Amendment that clarifies the ambiguities identified above.
    We have set out that 1) apportionment is not required in lost
    profits cases, 2) the evaluation of the value of combination patents
    will go beyond a mere prior art subtraction analysis in order to
    preserve the "magic of the combination", 3) the use of the entire
    market value rule will also allow for convoyed sales to be
    considered, and 4) courts will be required to identify the factors
    they considered in the course of deciding how to calculate damages.

**[Section 6:-Post Grant]{.underline}**

-   Regarding post grant oppositions in Section 6, we have elected to
    eliminate the controversial second window and replaced it with an
    improved *inter partes* reexamination. These changes to inter partes
    constitute a negotiated compromise reached through the consensus of
    many key parties, and provides for an effective validity challenge
    within the confines of a more limited procedure. \[do you want to
    refer to the letters here?\]

-   In addition to eliminating the second window, other changes in the
    Manager's Amendment for the new post-grant review procedure include
    setting a threshold for the Director to institute a post-grant
    review, making the Director's decision whether to institute a
    post-grant review unappealable, and barring the institution of a
    post-grant review after a final district court decision on the
    validity of the patent claims.

**[Section 10: Venue and Interlocutory Appeals]{.underline}**

In Section 10, the venue and jurisdiction section, the Manager's
Amendment makes two changes.

-   Regarding Venue, concerns were raised about the inequity in the
    venue section because it excluded actions for declaratory judgment
    --

-   the Manager's Amendment deletes that exception.

-   Regarding interlocutory appeals, there was great concern voiced by
    the Federal Circuit and industry groups that an automatic right to
    appeal the Markman ruling would greatly lengthen each trial.

-   As a compromise, we gave the District Courts discretion to decide
    whether the appeal would be helpful or necessary. With the reversal
    rate of almost 40 percent in claim construction decisions, the
    District Court should be able to certify whether it believes an
    immediate appeal would yield a more just result.

**[Section 12: - Regulatory Authority]{.underline}**

-   Many expressed concern about the broad regulatory authority given to
    the PTO in HR 1908

-   In the manager's amendment we have curtailed that authority to
    clarify the limited circumstances in which the PTO has and should
    have that regulatory authority -- when it comes to regulations
    dealing with the timeliness and quality of applications and
    examination.

Finally, we have added two sections to the underlying bill --

**[Sec. 14 -- Special Masters Study]{.underline}**

One of these sections deals with the commission of a study to determine
the usefulness of special masters in patent cases. It has been suggested
by Mr. Cannon that special masters may be a useful tool in cutting
litigation time and costs and improving district court decisions. This
study will develop empirical evidence that will help us determine
whether expanding and facilitating the use of special masters should be
a policy option we consider.

**[Section 11 -- Inequitable Conduct]{.underline}**

The second new section deals with the inequitable conduct defense.

-   This section was added as a response to concerns primarily raised by
    the biotechnology and pharmaceutical industries. The argument for
    change is that inequitable conduct is an extremely subjective
    defense that is almost always pled and raises discovery costs
    substantially, usually for naught since inequitable conduct is
    rarely found. On the other hand, to eliminate inequitable conduct
    altogether would take away a major incentive for patent
    practitioners and businesses to interact with the agency in an
    honest way.

-   Therefore our changes bring needed clarity and limitations to the
    defense, without completely eliminating it.

-   Inequitable conduct will now have to be pled with particularity --
    this creates a threshold which reduces the ability for parties to
    ALWAYS plead the defense

-   A single standard for materiality is codified -- since courts
    routinely reference different standards for materiality, this change
    will bring much needed certainty in applying the defense.

-   Intent may no longer be inferred solely from a showing of
    materiality -- according to testimony the biggest problem with
    inequitable conduct is that courts often times infer intent from
    just a showing of materiality.

In exchange for codifying and tightening the standards for inequitable
conduct, the manager's amendment allows the Director to promulgate rules
that require patent applicants to provide more information concerning
prior art and the patentability of their claimed inventions during the
examination process. This will promote greater quality patents
generally. Micro entities are defined as a class and excused from these
greater applicant obligations. Additionally, we require the courts to
refer attorneys who have committed inequitable conduct to the USPTO for
disciplinary procedures.

There are numerous other changes which are contained in the manager's
amendment -- I truly believe that all the changes trend in the "right"
direction -- and address many of the concerns that have been raised. I
pledge to continue to work with Members to address any additional
concerns --

I yield back.