United States Patent and Trademark Office

Public Hearing on Use of the Patent System to Protect Software-Related
Inventions

Transcript of Proceedings

Wednesday, January 26, 1994
Thursday, January 27, 1994
9:00 a.m. to 5:00 p.m.

Before

Bruce A. Lehman
Assistant Secretary of Commerce and
Commissioner of Patents and Trademarks

Location:
San Jose Convention Center
408 Almaden Avenue
San Jose, California

Table of Participants

Before:	Bruce A. Lehman
	Assistant Secretary of Commerce and
	Commissioner of Patents and Trademarks
	United States Patent and Trademark Office

The Panel:	Ginger Lew
	General Counsel-Designate
	United States Department of Commerce

	Lawrence Goffney
	Assistant Commissioner for Patents-Designate
	United States Patent and Trademark Office

	Micheal K. Kirk
	Assistant Commissioner for External Affairs
	United States Patent and Trademark Office

	Jeffrey P. Kushan
	Attorney-Advisor
	United States Patent and Trademark Office

Recording
Technicians:	Karl Henderscheid
	Support Office Services
	52 Second Street, Third Floor
	San Francisco, CA 94104
	(415) 391-4578

Trascriber:	Milton Hare
	Rogershare Transcribers
	541 Maud Avenue
	San Leandro, CA 94577

Witnesses
January 26, 1994
Mr. Clark
VideoDiscovery
Mr. Poppa
StorageTek
Mr. Ryan
Intellectual Property Owners, Inc.
Mr. LeFaivre
Apple Computer
Computer and Business Equipment Manufacturing Association
Mr. Lopez
Interactive Multimedia Association
Mr. Heckel
Abraham Lincoln Patent Holders Association
Mr. Kohn
Borland International, Inc.
Mr. Brotz
Adobe Systems Incorporated
Mr. Troesch
Fish and Richardson
Mr. Sabath
World Intellectual Property and Trade Forum
Mr. Benman
Benman & Collins
Mr. Baker
Oracle Corporation
Mr. Silverman
Intel Corporation
Ms. Caldwell
Software Entepreneurs Forum
Mr. Chiddix
Time Warner Cable
Mr. Fernandez
Fenwick and West
Mr. Antoniak
Solar Systems Software
Prof. Hollaar
University of Utah
Mr. Henry
Wolf, Greenfield & Sacks, P.C
Boston Patent Law Association
Mr. Cassamassima
Exxon Production Research Company
Mr. May
Iconik Corporation
Mr. Brown
Mr. Irlam
League for Programming Freedom
Mr. Yoches
Finnegan, Henderson, Farabow, Garrett & Dunner
Mr. Shay
Morrison & Foerster

January 27, 1994
Mr. Fiddler
Wind River Systems
Mr. Warren
Autodesk, Inc.
Ms. O'Hare
Mr. Glenn
Intellectual Property Section of the State Bar of California
Mr. Lippe
Synopsys
Mr. Boyle
Multimedia Development Group
Mr. Laurie
Weil, Gotshal & Manges
Mr. Patch
Sun Microsystems, Inc.
Mr. Byrne
American Committee for Interoperable Systems
Mr. Gimlan
Fliesler, Dubb, Meyer & Lovejoy
Mr. Cronan
Taligent, Inc.
Mr. Neukom
Microsoft Corporation
Mr. Morgan
The Prudential Insurance Company of America
Mr. Stallman
Mr. Casey
Silicon Graphics, Inc.
Mr. Sterne
Sterne, Kessler, Goldstein and Fox
Mr. Siber
IBM Corporation
Mr. Lachuck
Poms, Smith, Lande & Rose
Mr. Aharonian
Source Translation and Optimization
Mr. Cole
Mr. Graham
International Federation of Industrial Property Attorneys
Mr. Lemon
Network Computing Devices
Mr. Schlafly
Real Software
Mr. Brand
Reasonings Systems, Inc.
Mr. Judd
Mentrix Corporation
Mr. Higgins
Cooley, Godward, Castro, Huddleson & Tatum
Mr. Grace
Tetrasoft International

__o0o__

JEFF KUSHAN: We're ready to begin the hearings today. We're very
pleased to be out here on the West Coast. What I'd like to do is
introduce the Vice_Mayor of San Jose, Blanc Alvarado, so we could
begin the program.

__o0o__

VICE_MAYOR BLANCO ALVARADO

VICE_MAYOR, CITY OF SAN JOSE, CALIFORNIA

VICE_MAYOR ALVARADO: Well, good morning to all of you. It's
wonderful to see as many of you here today. Hopefully more people
will come in during the course of the hearings, because indeed
what is happening here in our city today is very very important
not only to the software industry, but certainly to the nation
and to the country as a whole.

Commissioner LEHMAN, distinguished officials from the Patent and
Trademark Office, ladies and gentlemen, I am Blanc Alvarado,
Vice_Mayor, City of San Jose and it is my pleasure to welcome you
to our city known as the capitol of Silicon Valley for hearings
on patents for software_related inventions.

As you all know, for the past decade the computer software indus-
try has evolved into one of the nation's fastest_growing indus-
tries, and today U.S. software firms lead the world in innova-
tion and market share. Silicon Valley firms develop one_fourth of
the world's software, and to maintain leadership in this vital
industry, a commitment to innovation on the part of each and
every one of us is essential.

It is quite a privilege for San Jose to host the first landmark
public hearing on patent protection held outside of Washington,
D.C. This is the first in a series of public hearings which will
result with your input and good advice in a revamping and updat-
ing of a system that at best I would say is somewhat out of date.
We commend the Patent and Trademark Office for recognizing Sili-
con Valley's critical role in the world software industry, and I
would also like to recognize the efforts of our own Office of
Economic Development in bringing these hearings to San Jose.

The dialogue that will take place today and tomorrow and
throughout the public hearings in other parts of the country is
as you know extremely important to the software industry, to our
regional economy, and certainly to the nation's economy. We wish
each and every one of you a very very successful public hearing,
and we encourage you to speak candidly, to give us your best ad-
vice so that those that are here from the Patent Office will be
able to take your recommendations, your input in the most serious
step further up ahead, to look at how the system for patenting
inventions can be improved. We wish you success, encourage you
to stay for the two days, and also encourage you to invite other
people who are not here presently to attend as well. Thank you
very much for being here.

COMMISSIONER LEHMAN: Thank you very much.

__o0o__

COMMISSIONER BRUCE LEHMAN

COMMISSIONER OF PATENTS AND TRADEMARKS

COMMISSIONER LEHMAN: On behalf of President Clinton and Secre-
tary of Commerce Ron Brown and all of us at the Department of
Commerce and the Patent and Trademark Office, I'd like to thank
the Vice_Mayor and the City of San Jose for providing this great
spot to have these hearings and providing the technical and phy-
sical assistance that we really needed to come here from the pol-
itical and legal capitol of the United States to the technologi-
cal capitol of the United States which really is right here in
Silicon Valley. And I think it emphasizes what we would like to
think is a growing cooperation between the political capitol and
this technological capitol, and particularly the President's com-
mitment to work with California to make certain that California
can be everything that it possibly can be.

President Clinton has made the development and competitiveness of
America's high_tech industries the cornerstone of his economic
program, and he talked about that last night in his State of the
Union Address. Promoting these industries will lead to the high-
way to high_tech jobs for Americans, more high_wage, high_tech
jobs, and will insure continued competitiveness for our indus-
tries into the future.

In fact, you know, we're not far from the mountains of the Gold
Rush. In the Nineteenth Century it was the wealth in the ground
that created the wealth of California and the nation. As we move
into the 21st Century, it's the wealth of the human mind which is
going to be our most precious natural resource. That wealth
doesn't mean a whole lot if it doesn't have a conception of a
modern up_to_date legal system which defines the rights that in-
dividuals have in their creations. That system needs constant
revising and constant modification, and that's why we're here,
right here in the heart of Silicon Valley, where we see a tremen-
dous potential for pursuit of the Clinton Administration's goals.

Much recent concern has been expressed over the patent system to
protect software_related inventions. These concerns range from
claims that the patent system is incompatible with software
development to skepticism over the ability of the Patent and
Trademark Office to accurately gauge innovations in this field of
technology. However, to date, there has not been a forum in
which those having concerns could air them with the hope that
they would be heard, evaluated, and used to develop future poli-
cy. These hearings are intended to provide that forum. We're
really quite serious about having this opportunity to really hear
from people in the business about what they think about the
current state of the intellectual property system, what they
think needs to be done to improve it.

Before we begin I'd like to provide you with a little information
about the Patent and Trademark Office, our operations and our
plans for the future. The Patent and Trademark Office is an
agency of the Department of Commerce. It's a very old agency; it
was founded in 1790. It's one of the first agencies of the
Federal Government. It's a part of the team that the President
has assembled to promote technological innovation and exploita-
tion to increase our exports and to enhance the overall competi-
tiveness of U.S. industry. The Commerce Department is also
leading the Administration's initiative to accelerate the
development of our nationwide electronic superhighway. The
President also talked about that last night in his State of the
Union Address. This Information Superhighway, and of course Sil-
icon Valley and the intellectual property system is very much a
part of that, will be the basis for our information_based
high_tech economy of the 21st Century.

Our office plays an integral role in this team, and Secretary of
Commerce Ron Brown has given us the following mission:

First, we're to administer the laws relating to trademarks in
order to promote industrial and technological progress in the Un-
ited States and strengthen our national economy. Secondly, we are
to develop and advise the Secretary and the President on intel-
lectual property policy, including copyright matters, and of
course that's part of what we're here about today. And finally,
in cooperation with other trade agencies of the government, the
International Trade Administration in the Department of Commerce,
we are to advise the Secretary and other agencies of the Govern-
ment such as the United States Trade Representative on the
trade_related aspects of intellectual property, and we just fin-
ished, as you probably know, a very successful effort that cul-
minated in Geneva last month to provide a new trading regime for
the world which will very much benefit high_tech industries, par-
ticularly the computer software industry.

The new focus of the President and the Secretary of Commerce on
technology_based economic growth makes this a very exciting time
for me to be leading the Patent and Trademark Office as its com-
missioner. It also places a serious obligation on us, however, to
ensure the proper functioning of the patent system, especially in
the rapidly_developing areas of technology. We have devoted a
substantial amount of effort and resources to improving quality
of examination for our software_related inventions, though I must
say there are some inherent problems there which are very diffi-
cult to address, and just to point out what one of them is, par-
ticularly in this area of computer software_related inventions is
that a lot of what is known in this area is in the area of trade
secrecy. It's not written down anyplace. It's not even in prior
patent applications, and so we have a very difficult time some-
times making determinations __ what is the existing state of
technology? And as most of you who are here know, that's a crit-
ical requirement in order to be able to issue a patent, to know
what is in fact new, what is a new innovation that should warrant
protection.

Our Computer Systems and Applications Examining Group headed by
Gerry Goldberg, who is here with us today, has been at the center
of this effort. This group currently employs over a hundred and
sixty examiners who bring with them a wide range of expertise and
experience. We use stringent hiring standards to ensure that our
examiners come into our office with the proper background, and
then provide training from experts in the field to ensure that
they keep abreast, not only of the state_of_the_art technology,
but also of current legal standards. These examiners are respon-
sible for the examination of a steadily_increasing number of pa-
tent applications being filed by inventors in this field. In
1991 we had 6,600 applications. In 1992 we had 7,500, and last
year we had over 8,300. That's out of a total of about 190,000
patent applications in all fields of technology in our office.

We have also worked hard to remain receptive to public and indus-
try concerns, and I think this can be seen through our extensive
efforts to improve our prior art collections, conduct training
for our examiners and recently to respond to intense industry
concern over the issue of patents.

We will soon forward to Congress a legislative package. We'll
make our reexamination process more open to third_party partici-
pation. These changes will make reexamination a more attractive
option for those having reasons to question the validity of any
particular patent. We will also be changing the patent term to
run from twenty years from the date of filing rather than seven-
teen years from the date of grant. This is a change that is good
for the United States. We believe that it will prevent the dis-
ruptive effect of patents that are issued long after they have
been filed, due to administrative delays in the processing of the
patent applications, delays that are often deliberately arranged,
sometimes by patent applicants who want to extend ultimately the
reach of their patent further than it ought to go.

We recognized this benefit when we agreed to a change recently in
the GATT_TRIPS context where we agreed to an international stan-
dard of twenty years from filing as the standard that all coun-
tries would attempt to achieve. But as an extra bonus, by making
this change, we have been able to convince __ and I just back
from Tokyo last week __ we've been able to convince the govern-
ment of Japan to loosen their rules regarding filing patent ap-
plications. This will greatly assist U.S. inventors in their ef-
forts to gain patent protection in Japan. And I should add that
intellectual property protection in foreign markets like Japan is
a very vital part of our effort to encourage and promote U.S. ex-
ports, because what we have to promote is often the technology
itself, which is not going to be very valuable unless it's pro-
tected by an internationally_recognized regime of intellectual
property laws.

Finally, our hearings today, I would like to think, emphasize our
desire to remain receptive to the needs of our users and our pub-
lic. Of course we, I think, will find out in the next few hours
that sometimes those recommendations that we get from users in
the public aren't always in harmony; I'm sure that we're going to
hear differences of opinion, and we are going to have the task of
sorting through those differences and coming up with a policy
that works.

I'd like to just make an observation ab<the nature of the intel-
lectual property system before we proceed, and that is that I
don't think there's any question about it, that intellectual pro-
perty protection, patents and copyrights, have been a major part
of the economic growth of America from the very beginning. When I
walk into my office every morning, I see the patent model of Tho-
mas Edison's light bulb sitting there, greeting me as I walk in
the door, and out of that, great industries have been built. I
see mid_Nineteenth Century inventions, inventors like Eli Whit-
ney. That innovation is increasing in the United States, and
it's always been protected by the patent system and encouraged by
the patent system. The purpose of the patent system is to incent
innovation, not to disincent it. And patent law is a very deli-
cate instrument. If it doesn't work right, if the threshold of
patentability is too low, there's too much confusion in the sys-
tem, it may actually end up disincenting innovation rather than
incenting it. The best kinds of paten@stems is a patent system
that is clear, that everyone understands, that requires very lit-
tle litigation to use it, and it is our concern that we're not
quite seeing that kind of a patent system, particularly in the
software_related inventions area, that has caused us to be here
in Silicon Valley today, and we're going to do everything that we
can possibly do to try to make this the best system that we can.

Finally, before we call our first witnesses, I'd like to intro-
duce the people who are here with me at this table this morning,
and I'd like to start at my far right with Michael Kirk. Mike is
currently our Assistant Commissioner of Patents for External Af-
fairs. He has been responsible for some time for all of the poli-
cy and legislation in international matters in the office.
President Clinton has nominated him to be the Deputy Commissioner
of Patents, and as such he's going to lead an effort to deal with
these policy problems and make our intellectual property system
all that it can be.

Next I'd likeDintroduce Ginger Lew, to my immediate right. Ginger
Lew is our new General Counsel for the entire Department of Com-
merce. She works directly for Secretary of Commerce Ron Brown.
Ginger is from the Bay Area. She was a practicing lawyer out
here, has worked in this area of law herself, and I think is an
illustration of the kind of technology_oriented,
California_oriented people that we have in our administration who
I think are going to be very receptive to the concerns of people
out here.

Next I'd like to introduce Larry Goffney. Larry is our new Assis-
tant Commissioner for Patents. His responsibility will be to su-
pervise the patent examining corps. He'll have about three
thousand people working for him, including all the examiners and
support staff who examine the software_related inventions. Larry
has taught law around the United States, he has a an engineering
and a law degree, he was a patent lawyer and a partner in a very
prominent law firm before coming to our office, and we're very
excited aboHhe prospects that he brings to our office and his
understanding of these issues. And finally you have already been
introduced to Jeff Kushan who is on the staff of our Office of
Legislation and International Affairs who has been the sparkplug
who's really pulled all of this together, and I know that this
room I think seats about a thousand people, so __ I think the
Vice_Mayor was a little concerned that we didn't have a good tur-
nout, but I think that when you think of how many people the room
seats that we're having a pretty good turnout, so it indicates
that Jeff has done his job of getting the message out so that all
of you know that we're here to listen to your concerns.

The people who will be testifying over the next two days should
have received a schedule indicating the approximate time that
they have been assigned to give their remarks. A final list is
available at the entrance to the room. I imagine most of you got
it, and I would encourage all of the people who are scheduled to
testify here toLhere at least twenty minutes before your assigned
time slot. We're going to try to keep to this schedule as much
as we can, but hopefully you'll give us a little bit of leeway
either way. Each person will have eleven minutes to speak, and
the computer monitor in front of this podium here, this computer
monitor that you see sitting in front of Jeff, will display a
green screen for nine minutes, and then it will turn yellow dur-
ing your last two minutes, so that you'll know that you'll have
to start wrapping up, and then when the screen turns red the time
will be up. I would encourage everybody to try to cooperate with
us and stick to these time limits so that we can be fair to ever-
ybody. Unfortunately if one person goes over too much then that
really is at the expense of others, and we're not going to have a
very balanced hearing. I think eleven minutes ought to be pretty
good time for people to get most of their comments in, but of
course we're not limited to these oral comments, and I would en-
couragePone who has further additional written comments to give
them to us and anybody who's not here, anybody that anybody here
knows is not here who has views about this should certainly feel
free to send in their written comments and they can consult the
Federal Register notice which was published on December 20th,
1993 for more information about this. We may have copies of that
out here for those of you who don't have it, and Jeff can cer-
tainly get that for you if we don't.

The notice has been widely circulated through the Internet, and
it can be retrieved at our ftp site, which is comments.uspto.gov.
The transcripts for these hearings will be available after Febru-
ary 7th, 1994, and paper copies will be available from our office
for a charge of $30.00. I'm sorry we have to charge that, but
it's unfair to ask our patent applicants to pay that fee, so
there will be a $30.00 fee which is basically our charge of
reproducing them, and the transcripts will also be available
through our ftp site that I just gave Tou.

Once again I'd like to welcome everybody here today. It's a real
pleasure for us to be out here, and I think this is going to be a
very productive exercise, that we are going to in fact learn much
information that will help us turn those dials of law and policy
in Washington so that they're totally finally tuned, and we can
provide all of you out here we're looking to to create the wealth
of America for the next century, with the kind of intellectual
property system that you need to do your job properly.

In calling our first witness, I'd like to say even though every-
body has eleven minutes to speak you don't need to use all the
eleven minutes, don't feel that you have to do that. To the ex-
tent that you leave us a little more time, we might be able to
ask a question or two if we feel motivated to do that. So with
that explanation, I'd like to call on our first witness, who is
Joe Clark, the Chairman and CEO of VideoDiscovery, and welcome,
Mr. Clark.

JOE CLARK

CHAIRMAN AND CEO, VIDEODISCOVX MR. CLARK: Thank you very much,
Commissioner LEHMAN. My clock says 9:28, and that's what it says
on the sheet, so I congratulate you the good timing of your re-
marks, and I'll try to do the same.

I really appreciate the opportunity to come and talk to this
group. I have a publishing company in Seattle, Washington that
publishes multimedia products for science education, and we're
pretty well_known at this time throughout the country, and we're
totally frustrated by our experiences with the patent system.
And so what I would like to do during my time is kind of share
with you personal experiences that we had in order to illustrate
some of the problems that I think are inherent in the current pa-
tenting process, and then I'd like to recommend two or three dif-
ferent solutions.

Now, you've sort of preempted my remarks, and I'm really appreci-
ative of it. It's the first time that I've heard that the Patent
Office was drafting legislation that would take care of most of
these, but there's one part of it that 0 to try to deal with and
maybe ask you a question about.

On the plane on the way down I thought it was in some way almost
poetic that I was headed down to California. I was a little bit
anxious about earthquake country, you know, in fact I didn't
sleep very well last night. But I thought about the earthquake
thing as not being too dissimilar from the situation we find our-
selves in with the patent system, that is to say, in the last
year and a half we've heard some rumblings coming from the Patent
Office with patents like the Grass Valley patent and the Optical
Data patent and then the Compton patent which sort of got a 7.3
on the Richter scale as far as I could figure out, and my big
worry is that there's no end in sight, that is to say, given the
secrecy in the Patent Office, we don't know what to expect tomor-
row, next week, next month, and so on.

In my case, I experienced a situation where a patent was called
to my attention that literally could drive me out of business. I
started VideoDiscovery in`3. I worked very hard for ten years to
get it to the point it is at, with sixty people, and for somebody
to have a patent that was a club that could just close down my
operation didn't set well with me. I didn't know much about the
patent system until about a year ago when I got a letter from my
competitor that called attention to the award of two patents, and
they indicated that they thought we might be infringing on their
patents and suggested that I contact their technical person to
see about licensing the technology.

Well, they had two patents. One of them was for a method of in-
struction that we lovingly call the Socratic Method, and the oth-
er patent was for a method to customize a curriculum, using a
computer to do it, and we thought that that had been a process
that had been going on for a long, long time.

So my immediate reaction was confusion. In the first place I
couldn't believe that anybody would patent these things. If I
could have the Number 3 slide, please. I just want to describe
this dpatent for you. The patent on the Socratic Method, as I
say __ this is not the way it's described, it's described as a
method of instruction __ was composed of a trilog, and the trilog
had three components. One was a random_accessible reservoir of
information like a video disk player __ could have been a CD_ROM
or a hard disk, I guess, or maybe a textbook, a teacher was the
second component, and the students were the third component. The
way this system worked was that the teacher was given instruc-
tions where to go on the random_accessible reservoir of informa-
tion, withdrew the information, passed it on to the students, the
students responded, and then they would go back to this system.

Now, they got a patent for this. I couldn't believe it. And my
first reaction was anger, disgust, you know, disbelief, and so
on. More recently I've modified my position where I believe that
the, the Patent Office is indeed not the culprit, but the victim
in a system. Any system that operates in secrecy like that
whhthey can't confide or consult with the members of an emerging
industry, for which there's no prior art, no experience, no in-
formed judgment on the part of the examiners, is ultimately a
victim to this thing where they have to __ they, they can't dis-
tinguish obvious from unique and are almost obliged to issue the
patent.

So the point there is that I think that if we would remove the
veil of secrecy, which I hope is part of the legislation package,
and I'm not sure that is attached to, you know, ultimately or
necessarily to first_to_file process, so I'd like a clarification
about that, but that is really critical, to support change in our
industry. At one point it was the computer industry, it was the
biotechnology industry, it was the software industry, the mul-
timedia industry, what's going to happen next week, next month
and so on, but whatever the new, emerging industry is, unless
that law is changed so that there's some better process, we're
going to face the same kind of dilemma.

Let me come back to lhistory on my case. As soon as we got that
indication, as a small company I did not have many attractive al-
ternatives. One was litigation, which was very very expensive,
and I could literally not afford that, and the other one was the
reexamination process. In talking to no less than ten patent at-
torneys over the course of last year, I never got one that recom-
mended reexamination process, and so I'm very happy that the Pa-
tent Office recognizes the problem with that and is going to in-
clude more third_party involvement in that reexamination process.
But that was one of my recommendations.

As it happens, when we filed in Court in August to ask the Court
to find these patents invalid based on the obviousness of the pa-
tent and the existence of prior art, the other party had sixty
days to respond; and on the sixtieth day they decided to donate
the Socratic Method back to the public where it belongs. The
second patent, however, they asked for reexamination in the Pa-
tent Office. That puts us in a terrible pospn. We know that the
inventor has a tremendous advantage through the reexamination
process as it exists. We also have some trumps, some prior art
that we know that will knock that out, and we don't know whether
to provide it to the Patent Office or to save it for litigation
if it emerges from the Patent Office. So you can kind of see our
dilemma on that thing.

So a recommendation that I would have is to change the process so
it's published prior to award. That would solve the problem and
serve existing, you know, changes and so on (sic). Second recom-
mendation would be improve the examination process. I think that
that's being considered, and so on. But a compromise position,
and something that I would like to see for immediate relief __
I'm talking we need Federal aid now, an immediate relief to get
us out from under this anxiety, is either a hiatus on any more
patents coming out for multimedia __ that would be preferable __
if you can't do that, then I'd like to see the Commissioner em-
powered to constte a commission and do peer review of any patents
that have come up. The Commissioner would identify new emerging
industries, all right? And when they saw that, because there's
no prior art, because there's no experience with the examiners
and so on, that they work with the industry leaders in that par-
ticular industry, to develop the prior art collection, to set the
guidelines for what's patentable, to review patents as they come
out.

So I hope that you can sympathize with the position of a small
business person who has gone through the fear and the anxiety of
having something like that ripped out from under them. I feel
I've been extremely lucky to get my resources together and to be
able to operate in this system.

Thanks very much for your attention; I'd be happy to answer ques-
tions.

COMMISSIONER LEHMAN: Thank you very much, Mr. Clark. In terms of
this reexamination process that you're concerned with right now,
I think one of the problems that we have in reexamination right
now is that generally sxing we limit the prior_art references in
a reexamination to those that are submitted by the person who is
seeking reexamination, and that creates a problem for third par-
ties.

MR. CLARK: Aha!

COMMISSIONER LEHMAN: So in this situation it sounds to me like
the patentee kind of got the leg up on you by being the first to
request reexamination. Is that problem.

MR. CLARK: Yeah, I don't disagree. Yeah. I don't disagree that
I was outmaneuvered, you know, but __ yeah, you're right. You're
right.

COMMISSIONER LEHMAN: I really appreciate that. Does anybody have
any other comments? If not, thank you very much for coming down
here and sharing these thoughts with us.

MR. CLARK: Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Mr. Ryal Poppa, the
Chairman and CEO of Storage Tek.

RYAL POPPA

STORAGE TEK

MR. POPPA: Good morning, and thank you very much. I'm going to
be answering principally the Question 4 on whether the cir-
cumstance or the framework of the current patent law preserves
c|tition.

Quick background on Storage Tek, we are a twenty_five_year_old
company, start_up, much like you see here in the Valley. We do
about one and a half billion, have ten thousand employees. We
belong to many organizations, the CCIA, Computer and Communica-
tions Industry Association; ESIS and ASIS, the European and the
American Committees on Interoperable Systems; AEA, American Elec-
tronics Association; and the IEEE, the Institute of Electronic
and Electrical Engineers. All of these are very pro_competitive
in their attitudes, and that's the principal reason we belong to
them.

For the record, we have over three hundred programmers cranking
out programs all the time, we have lots of patents and we have
the same risk everybody else does. In the industry though we do
build principally data storage devices that are attached to all
the major mainframe manufacturers of the world, eighteen at this
time, and many networks. We do support patents in every sense,
as applied to the area of software, with one excon. We believe
we have to have continued decompilation rights to maintain in-
teroperability when needed. Modern APIs or mandatory APIs would
do the job __ application program interface __ but frankly most
companies do not want to do this, but that would be a solution in
addition to decompilation.

In supporting the thesis of "pro competition" I want to give
three illustrations.

One is old Ma Bell; we all know what it was like in the old days,
very bureaucratic, very successful, it was the stock of widows
and orphans, but it was a stifling, stultifying, noncompetitive
environment. The new Bell of course is growing, marvelously. It
is competitive. The competitive juices are flowing. And think
of all the new services in the last twenty years that we have be-
come accustomed to. Auto_answer, FAX, networks, fiber_optics,
cellular, ISDN, et cetera, et cetera. New companies; MCI, the
WilTel's, the Sprints, et cetera, and new related industries de-
fined by companies such as Novell with software, and NSC for
hipeed data transmission, McCaw for cellular, Hayes for modems
and the list goes on and on and on as you well know. But this
flowed out of a pro_competitive stance, a break_up of a company,
and it led ultimately to [DarvdaNet], InterNet, and the informa-
tion highway. That was the genesis of that kind of program. To-
day we've globalized that communications capability all over the
world and we continue to do so by freeing our telecommmunications
capability.

A second illustration is, in my principal industry, computers,
leader of the industry, IBM, fell upon hard times. We all are
aware of that. They are correcting that problem and will clearly
return to health. But they fell into a pattern of being in the
sixties and seventies highly competitive, and then they went into
a protect mode, where they were trying to hold onto their base,
hold onto their customers, and as a consequence, they fell
behind, they became anticompetitive, and as a consequence, they
began to lose the competitive juice, and even today of the com-
ments made by their own officers saying that we have lost the
will to compete. They're getting it back, they will return, but
it was because they lost their desire to win. Part of that was
the intense, massive fight over copyrights and patents, protect-
ing in the court, fighting in the courts rather than fighting in
the customer arena to save the customers and keeping them happy.
No new ideas were allowed in the seventies and eighties. Where
did the PC come from? or the mini? or the workstation? Not out
of the big companies. They came out of the start_ups, where they
could get the proper patent and copyright protection. But often-
times decompilation is part of that because you have to maintain
interoperability __ very fundamental issue.

I sincerely hope that Lou Gershner understands that there's a
smothering effect of too extensive use of patents and copyrights.
It destroys the design capability of the company because they
don't look to get their products to market quickly, they design
poatents and protection, and therefore it doesn't really work to
their great benefit. In the last six years, we along with many
of our colleagues, have opposed the forces in Europe that have
been seeking to use copyright and patent protection to limit com-
petition, and as you well know, the EC finally came down on the
point that decompilation is legal, desirable, when necessary for
interoperability, and that's the only thing we look for __ no
piracy, no cloning, no copying, no replacement of the program,
but interoperability. That must be preserved.

The last example is the information highway. This is not an
economic debate in the way it was between Bell and IBM, but rath-
er it is a competition of ideas, of interchange, of the exchange
of relationships over the Internet, as you __ if you follow it
and see what goes on, it is used in many, many ways.

I would add a challenge to you, because of that Internet. Looking
for data the way you are, and in your opening statement you said
you're actively looking foras from our society, put out on the
Internet a question. Should decompilation be allowed for the pur-
pose of interoperability, but clearly not for piracy, cloning or
replacement of the basic software? I think you'll get a very
strong eighty_to_ninety_percent positive response that it should
be. The reasons are you have organizations like the IEEE with two
hundred and forty thousand members who have voted and publicly
stated they support decompilation when required. The same with
ASIS, the same with CCIA. In the case of CCIA we have
sixty_seven companies __ I happen to be Chairman of that __ most
of the RBOCS, all but one, AT&T, Univac, Amdahl, Storage Tek, and
we have approximately a million employees represented, and they
would vote for decompilation and maintaining it as a, a necessary
option. Remember the alternative is a mandatory API. That could
be something that could be legislated, but if not __

COMMISSIONER LEHMAN: Could you explain that?

MR. POPPA: Applications Program Interface?

COMMONER LEHMAN: Right. Well, API, but what would be a mandatory
API?

MR. POPPA: Well, literally in law saying that a second vendor or
a third vendor would have rights of access to the base code so
that they could understand it, so that they could build their
code to interact with it and interoperate with it. Today most
companies are locking that up on an object_code_only basis, and
not allowing us to see it.

COMMISSIONER LEHMAN: To some degree this is an antitrust issue,
and my colleague, Ann Binghamen, who is the Assistant Attorney
General for Antitrust over in the Justice Department has indicat-
ed that she's going to put together a task force to start working
on these problems, and it may well be that this sort of mandatory
API idea should be explored in that context. In a sense that's
more of a, I think, an antitrust kind of a solution to this prob-
lem as opposed to an intellectual property solution.

MR. POPPA: We think that's a good alternative. We would also
hope that within the structure of the PT could get a clear dis-
tinction, as they have done in the EC, but I don't think they did
it as clearly as they should. They left it a little unclear,
such that some people are going to be able to say, Well, Gee, for
interoperability I can really replace the program. We are not in
any way supporting that position; only that we should be able to
access the program so that we can look at it and make sure that
we can make our programs talk to each other. Nothing beyond
that.

My last point, and it's really a picture worth a thousand words:
a terminal device we're all well_familiar with. It is a very
standard device, but it also comes with an information network,
with a very standard interface. It's a telephone. But when you
take patents and copyrights and you tighten them down such that
you could not in any way see the inside of the machine, what we
do is we cover up the access port, we take the network, we cut
off this end so you can't see the interface, and we say, Now, Mr.
Engineer, make them interact. that doesn't make any sense, be-
cause it isn't just a telephone, it's a computer with three mil-
lion instructions in it, and this network has on the line hun-
dreds of terminals with other millions of instructions, and
therefore decompilation and interactivity must be maintained.
Please.

Thank you very much.

COMMISSIONER LEHMAN: Thank you very much. Do any of my col-
leagues have anything they want to add? Thank you very much.
Thanks for coming over.

MR. POPPA: You bet.

COMMISSIONER LEHMAN: Next I'd like to call William Ryan who is
representing the Intellectual Property Owners Incorporated, but
is directly with AT&T.

WILLIAM RYAN

INTELLECTUAL PROPERTY OWNERS, INC.

MR. RYAN: Good morning, Commissioner LEHMAN, and members of the
Panel. My name is William Ryan, I'm a general attorney at AT&T.
I'm here, however, as you say, representing the Intellectual Pro-
perty Owners. They are a nonprofit association located in Wash-
ington whose members are companies, including AT&T, other com-
panies as w as universities and individuals who own and are in-
terested in patents, trademarks, copyrights and trade secrets.
IPO presents these remarks in support of the continued strong pa-
tent protection for computer program_related subject matter.

There can be little doubt that the computer software industry is
an important and growing economic force in this economy, in fact
for year 1992 it was estimated that just the packaged software
industry accounted for some seventeen billion dollars in revenue,
and importantly about half of that was from sales oversees. How-
ever, the amount of revenue in the software industry is not lim-
ited just to the packaged software. There is indeed a great deal
of other software that goes on that is less visible but nonethe-
less very very important. I make reference to control software
for manufacturing systems, for controlling the telephone network,
for the ubiquitous microwave ovens and the VCRs and
intelligent_talk telephones and many many other applications.

The sales and revenue$r devices or the software component of
these devices and systems by many estimates well_exceeds a hun-
dred billion dollars a year. Even one level higher in the scheme
of things, the services provided by both the equipment and many
of the underlying processes, again referring to such things as
the financial systems, the telephone network and the entertain-
ment business, are increasingly based on software infrastructure
underpinning it. Therefore, the effect on the economy of deci-
sions made relating to software have implications much beyond the
kinds of software sales that might be accomplished in local
over_the_counter sales.

We don't come by this cheaply, though. Software research and
development is very expensive. Among the hundred top packaged
software companies it's been estimated that an average of seven-
teen percent of revenues flows through to support continued R&D.
And many companies not traditionally thought of as software com-
panies __ and again only by example I'll refer to AT&T, we have
an R&D (et of approximately three billion dollars per year, and
some sixty percent of that is devoted to software efforts, and we
are not exactly thought of as a software company.

With this kind of economic importance at stake, it's clear that
the managers of our business have to seek ways in which these
large investments can be protected. One way that it's been adopt-
ed of course is the well_known copyright as it has been applied
for example to the mass_market software, and it's been done very
successfully by and large. Less publicized though is the need to
protect and the vulnerability in fact of the other software in-
vestments, some of which I referred to before, the large systems
software and the embedded software in many, many applications.

So then the question is asked, Why isn't copyright protection
sufficient to protect the software investment? Well, it should
be clear from the very words of the Act itself that the copyright
is intended to protect the expression. It does in no event pro-
tect the systems,, methods, and other aspects of functionality
within the software. Importantly too, copyright suffers from a
limitation that it is not as precisely defined as patents,
although the arcane language we practitioners use to define our
inventions in patents is sometimes criticized, nevertheless it is
precise, and with copyright protection there is no such preci-
sion. It's a very much looser judgment that business people have
to make as to where the boundary is for their protection.

Moreover, the Supreme Court has made it very clear that patents
are the preferred mode for protecting the functionality, the im-
plementations of ideas as against the expression of the ideas,
which the Copyright Law can protect. We think that computer
program_related subject matter is, and has been, protected well
in the past, by patents.

Many people think that software protection for software commenced
only perhaps in 1980 or '81 with the Diehr decision, but that is
not true. We have been filing applications in the
computer_relate0dustries for decades, going back at least until
the 1950s. And it's proved very effective. One of the questions
in the Notice of Hearing was, what experiences have we had, and
by and large the experience has been good. We've been treating
software inventions for some time in precisely the same way as we
protect and treat inventions in other areas. In fact, in many
ways it's hard to tell whether an invention is a software inven-
tion or not. I'll deal with that just a little bit later.

Why are the patents for software_related inventions particularly
important? Well, they're not particularly important for software
any more than any other inventions, for example, investors seek-
ing to sponsor a start_up organization or a new enterprise within
a larger company would like to have some certitude about what it
is that they can hope to have some protection for and where their
investment, how their investments can be protected.

Also, importantly, is the disclosure aspects of patents. One of
the functions serve4 patents is to disclose to the public. Be-
fore an allusion was mentioned to the secrecy that often attends
patents. Well, in many ways the contrary is true. Patents them-
selves of course contain disclosure, but also in an organization
like mine again, we encourage publication of technical ideas, in
fact last year we published some forty_four hundred technical ar-
ticles. Many of these would not have been published if we could
not also have concurrently filed patent applications so that the
publication of the technical papers would not compromise the
value of our inventions included in the disclosures.

Patents are important in many other ways, one of which is the __
they provide a vehicle for developing of the ubiquitous alliances
that are present in the software and hardware industries. They
provide a medium, in fact, for people to come together and ex-
change value so that they can work together to get a cooperative
result. Often this helps people and companies get into new mark-
ets and establish business8hat would not otherwise exist.

Again, some people have said that software inventions should be
treated differently. We think not. In some respects, in fact to
treat the software industry as an industry raises more questions
than it answers. As I mentioned before it's much of an enabling
technology in many domains, in telecommunications, in entertain-
ment, in finance, in manufacturing and process control, software
is often a common denominator. And the earlier_mentioned nation-
al information infrastructure, the highway likewise is largely a
software development, and it's been going on for some time.

Some people suggest that a solution is that we should have a new
statute, one especially tailored to software problems. We think
not. These sui generis proposals have arisen in the past and have
been bandied about for some time and in one case applied to a
different subject, the Chip Protection Act is an example. We
think these raise more problems than they solve as well. We
think the existing scheme is wo<le and is fair and appropriate.
If we were to adopt the sui generis scheme we'd have to live
through many of the uncertainties that we've had in both the
copyright and patent realm for these last twenty years. We may
have to live through the same issues tried from a different per-
spective. Moreover, the many other of our industrialized coun-
tries, the European countries for example and Japan, have statu-
tory schemes that are roughly equivalent to our present protec-
tion for software_related inventions. Patents are available
there to about the same extent they are here.

The recently_enacted NAFTA and GATT treaties also have dictates
in them that would suggest that we cannot get too far out of
whack. We must have a level of protection consistent with what is
currently provided by the patent statute.

The questions posed in the Notice of Hearing, in some cases have
been dealt with; in other cases they deal with details of claim
formats, which I'm not prepared to deal with now, but which we
will respond to in@ extended remarks.

In concluding then, we'd like to say that consistent with the
findings of the final report of the Advisory Commission on Patent
Law Reform, to the Secretary in 1992, the current statutory re-
gime for the protection of rights, both copyrights and patents
and other matters as well, is adequate; it is working and it is
working well, but not perfectly. If the experience of the last
ten years teaches us anything, it is that we can't predict with
any certainty what directions the information processing industry
will follow in response to new technology and new global politi-
cal and business trends. This vast changing environment requires
the U.S. patent laws and implementing procedures to be technolog-
ically neutral and flexible enough to avoid major discontinui-
ties.

Thank you.

__o0o__

COMMISSIONER LEHMAN: Thank you. I have a question, and that is
that, you mentioned that the exclusivity provided by the patent
system encourages you to publish because obviously you can make
the informationDilable and then you can be certain you'll be pro-
tected, and of course that's been a traditional trade_off in the
patent system; you disclose, and you get protection.

One of the suggestions which was made by Mr. Clark at the very
beginning of the hearing and that's floating out there is that in
this particular area where it's very hard to keep up with the
technology, where a lot of the prior art is not easily findable,
is that we have some kind of prepublication prior to the issuance
of the patent. That, if we were to do that, that obviously to
some degree abrogates that traditional deal, because certainly
you know that you might get the patent but you're not certain
that you're going to get it prior to the disclosure, and I'm
wondering if you have a reaction to that.

MR. RYAN: Well, that's a risk that the parties would have to
take, of course, knowing when they file their application that
there's a possibility they will have in effect given away the
genesis of the invention and for one reason or anotheHe not able
to get a patent. That's a risk the filing party would have to
take.

COMMISSIONER LEHMAN: Do you think that the advantages though of
prepublication would outweigh the negatives of that risk?

MR. RYAN: It would have to be evaluated on an individual basis,
but I think in many cases that's the case. We publish much more
broadly in the technical literature than we do in the patent
literature.

COMMISSIONER LEHMAN: Thank you very much.

Next I'd like to call Richard LeFaivre, the Vice_President of the
Advanced Technology Group of Apple Computer who will be
representing the Computer and Business Equipment Manufacturing
Association CBMA.

RICHARD LeFAIVRE

APPLE COMPUTER, AND,

COMPUTER AND BUSINESS EQUIPMENT MANUFACTURING ASSOCIATION

MR. LeFAIVRE: Thank you, good morning. My name is Rick LeFaivre
from Apple Computer and today I'm actually wearing four hats,
first as a computer scientist with twenty_five years' of experi-
ence in software technology as a researcher, a professor and an
Ldirector, second as Vice_President of Advanced Technology at Ap-
ple Computer. My organization is responsible for a large percen-
tage of the patents that are granted to Apple, and the protection
of the innovation that we do is very important to me. In partic-
ular over the years we've seen a marked shift in our innovation
focus from hardware to software, and so I'm very interested in
the topic of these hearings in particular.

Third, I'm the founding member of the Executive Committee of the
Software Patent Institute. As you may be aware the SPI was found-
ed to provide training in software technology and access to prior
art, to help insure that those software patents that are granted
are of high quality, and we're working very closely with Gerry
Goldberg in that task. I should point out that the Software Pa-
tent Institute has chosen to take a neutral stance on the broad
issue of the patentability of software so the views I'm about to
express do not necessarily reflect those of the SPI.

Finally and most importPy I will be testifying today on behalf of
the Computer Business and Manufacturer's Association CBMA, and
let me give you a little background of this group. CBMA is a
trade association whose members represent the leading edge of
high technology companies in the computer business equipment and
telecommunications industries in the U.S. In 1992 CBMA's
twenty_six members had a combined estimated sales of more than
two hundred seventy billion dollars, which represents about four
and a half percent of the U.S. gross national product. CBMA
member companies employed approximately a million workers in the
U.S. in this past year.

The computer industry performs about twenty percent of the total
private_sector R&D investment in the U.S. That figure is about
five times the investment of the aerospace industry, three times
the investment of the health care industry, and four times that
of the chemical industry. This investment allows our members to
rapidly advance the capabilities of their products and to get ac-
cess Tand compete successfully in, a very tough international
marketplace. It also results in significant numbers of jobs just
within R&D alone. I'm here today because patent protection for
new computer functions is absolutely crucial to all our members.
Software_related inventions fit within our present patent system
and patents issued under a sound application examination process
support the Constitutional mandate of promoting the useful arts
and sciences. CBMA members file for and obtain patents for
software_related inventions. They also enter into agreements to
utilize such patents held by others. Because our companies typi-
cally have broad product lines, they address patent issues in
many areas of technology. They see no reason to treat
software_related patents differently from patents related to oth-
er technologies.

In the first question set forth in the hearing notice, there are
a number of subparts relating to claim subject matter and claim
formats. CBMA's response to this question is simply that ifX
claim is drawn to the solution of a real_world commercial prob-
lem, and the claim functional steps or elements as a whole meet
the strict legal requirement to be new, nonobvious and useful,
then a patent should issue. The function claimed, not the for-
mat, is what is important. It shouldn't matter whether new,
nonobvious and useful process steps are claimed in the context of
a program or a disk or claimed in a hardware or method format, or
in the context of a semiconductor chip. Software_related inven-
tions are valuable to the purchaser not for what they communi-
cate, but for the functions they perform. The functions are what
are important and what should be assessed for novelty and nonob-
viousness.

Relative to Question 2, our members have integrated their
software_related patents into their overall patent portfolios and
practices so that separating out their impact is quite difficult.
However, this integration itself demonstrate that these patents
are just like all others. They are sought when the inven hiso her
employer believe that the investment in obtaining the patent will
be returned. Conversely, CBMA members often must respect the
software_related patents of others, which they do in the same
manner as further technologies.

Regarding Question 3, the standard for patent eligibility for
software_related inventions should be maintained at the same lev-
el as for all other technologies. An alteration in that standard
would negatively impact investment in our industry. If the stan-
dard were to be restricted severely it would disarm CBMA member
companies in their dealings with foreign competitors because
licenses under U.S. patents are used to negotiate access to
foreign markets and foreign technology. Obtaining patents for
software_related inventions in our principal competitor countries
is generally equivalent to that of the U.S.

Software_related technology will be one of the leading technolo-
gies of the 21st Century. Discrimination against this technology
would set a terrible example sure to be ra`y adopted by the
developing world. To now have the leading country in software
creation and patents declare that such inventions are excluded
from the statute, despite falling within the terms of statutory
subject matter, or are to be treated differently from patents in-
volving other technologies, would reverse much of the hard_fought
progress that has been made over the last decade in improving in-
tellectual property protection throughout the world.

Relative to Question 4, patents provide the relatively broad pro-
tection necessary to bring in risk capital for new and useful in-
ventive functions that are generally defined in terms of
processes or methods of operation. This protection should be af-
forded only after a detailed examination to insure that the
claimed functions are truly novel and nonobvious. This, by the
way, is one of the places where the SPI is trying to work with
the Patent Office to make that process more efficient. In con-
trast, copyright protects only the expression contained in the
compudprogram, as it does for other literary works. High_level
functional processes are expressly excluded from protection by
statute. Thirdly, trade secrets provide the necessary protection
to facilitate the disclosure of confidential software_related
designs to employees, joint venture partners and others within
the structure supporting that confidentiality.

Thus, each protects different aspects of the intellectual proper-
ty. The inventor, who may not wish to or be able to author a com-
plete software product, deserves protection. The author of a pro-
gram deserves protection from piracy and plagiarism. Those with
confidential information, willing and able to keep it confiden-
tial, should be able to protect that value against those from
which it has a fiduciary relationship.

Finally, with regard to Question 5, CBMA supports continued reli-
ance on the tested, well_developed protection of patents, copy-
rights and trade secrets. We strongly support continued improve-
ment in the patenting process for software_related hntions. But
nothing suggests the need to treat software differently. A new
and untested regime would fail to provide inventors and authors
with any certainty of protection for an extended period of time
while judicial precedent was developed to determine the scope of
the law.

Additionally, international protection for our software research
and development is critical. There is no certainty that a new
protection system could be implemented worldwide, whether through
multi_ or bilateral negotiations. The hard_fought protections in
the GATT, TRIPS and NAFTA treaties regarding literary work pro-
tection for programs and the issuance of patents without discrim-
ination based on technology were just obtained last year. It is
inconceivable that such protections would now be abrogated with
the ink hardly dry on these provisions by the adoption of a sui
generis protection.

In closing, our message to you is this: Don't cut back on patent
protection for software_related inventions because some invalid
patents mayle been issued. The current reexamination process and
the Federal Court system do provide mechanisms for the removal of
these mistakes. We believe that further training for examiners,
and access to a larger library of prior art can and will reduce
the possibility of future mistakes. Overall, the system is work-
ing and should be improved, not abandoned. If the standard for
patentability is changed for software_related inventions, or if
patent protection is dropped in favor of some new form of protec-
tion, it will severely and negatively impact CBMA members, our
industry and the country.

Thank you for letting me submit these remarks and we look forward
to continuing to work with the Patent Office on these issues.

COMMISSIONER LEHMAN: Thank you very much. I have one question if
you have a moment, and that is that, there's obviously a differ-
ence of opinion about the application of the patent system to the
software industry that is represented in the room, we've already
heard it this morning and I think we'poing to hear more testimony
about it. Apple certainly is a company, and I gather that CBMA
is a company now that very much favors patent protection for
software, and Apple's certainly a very important, successful part
of American enterprise today.

One question that I have is that obviously the purpose of patents
is to incent people to invent and to make investments. And can
you point in your own experience to an example where that has
happened? Has the patent system actually been a factor in a de-
cision to go into a new technology, the fact that it might be pa-
tentable? Has it been a factor in getting financing from capital
markets?

MR. LeFAIVRE: Yeah, that's a good question. Apple thinks a lot
about patentability of any technology, software or any other, in
looking at some of our innovations. We do feel that there has
been a lot of investment made in technologies that, to be quite
honest have been appropriated, copied, whatever, by other com-
panies, that have not helped our situation in the marketplatI
think it's fair to say, and so we certainly are interested in
trying to evaluate the patent potential of different technologies
as we develop them, so I wouldn't point to any particular issues
or topics, but yes, we certainly take that into effect when we're
looking at technology investments.

COMMISSIONER LEHMAN: So that is an important part of Apple's
decision_making process.

MR. LeFAIVRE: Yes. I think that's probably true for all com-
panies now.

COMMISSIONER LEHMAN: Thank you very much.

MR. LeFAIVRE: Okay? Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Mr. Tom Lopez who is
President of the Interactive Multimedia Association.

TOM LOPEZ

INTERACTIVE MULTIMEDIA ASSOCIATION

MR. LOPEZ: Thank you. Mr. Commissioner, my name is Tom Lopez.
I'm Chairman of Mammoth Microproductions of Seattle, Washington,
a multimedia development company. I'm also President of the In-
teractive Multimedia Association. The Association's general
counsel, Brian Cann, who also directs our Intellectual xerty Pro-
ject, is with me today to help answer any questions that you may
have.

The Interactive Multimedia Association is a 290_member trade as-
sociation headquartered in Annapolis. We are here today because
the patent system has cast a cloud over our emerging industry, an
ambitious and motivated industry which seeks to transform the way
we play, learn, work, think and communicate. We're specifically
concerned about the impact of patents on the flow of information
and fundamental principles of free expression, on the impact of
patents on enabling environments, in particular the development
of the national information infrastructure, the need for a patent
system that is publicly accountable and open to industry input
specifically through pre_grant publication and peer review,
knowledgeable and informed about its operation and its economic
and social impact, and sensitive to competing values and poli-
cies.

We bring a unique perspective, because our membership spans the
whole of the multimedia industry, from |e computer companies to
small publishers and developers. This makes it impossible for the
IMA to take positions on issues such as the merits and proper
scope of software patents where we encompass many different
views. However, we have historically been especially concerned
with needs and perspectives of developers of multimedia also
known as content_driven software. Multimedia developers provide
the creative spark that is driving multimedia into homes, schools
and businesses. Therefore, we do not address competition within
the software industry, we address the impact of patents on con-
tent, on the organization, expression and communication of infor-
mation.

Multimedia developers depend upon computers, networks and operat-
ing systems, authoring tools and other software environments.
They build on technological platforms developed by others. Like
traditional publishers, they add value through research, selec-
tion, organization and coordination, by aggregating rights, by
creating original material and by essing whatever ideas they be-
lieve will move the market, the body_politic or the soul. They
use interactivity as their grammar. It is how computers speak to
people, it is how people speak to computers. It is how people
speak to other people through computers.

Historically, copyright law has provided a level of protection to
the software developer. Unlike copyright, patents control the
private use of patented processes. Unlike copyright, independent
creation is not a defense to patent infringement. Patents there-
fore control not only original implementations, but also the
users of such original implementations. Patents even control the
use of products of the process. The extraordinary power of pa-
tents resonates across an increasingly_integrated and interdepen-
dent digital environment, putting everyone downstream of the
underlying technology at risk. Content_integrators, publishers,
distributors, even users. Indeed, typically end_users are the
direct infringers. The upstream providers are technicallly con-
tributory infringers. For example, in the recent case of the
Optical Data patent, interactive method for the effective con-
veyance of information in the form of visual images, the direct
infringers were the hundreds of thousands of teachers in
classroooms, and by extension the local school districts and all
of us as taxpayers.

The Computer and Business Equipment Manufacturers Association
described this problem sixteen years ago in arguing against pa-
tents for algorithms. Quote. The computer has become the engine
which assists in running our society and in the future will as-
sist man in numerous areas totally unrelated to the usual appli-
cation of today's computers. These applications and computer
uses should not be clouded by problems resulting from unwitting
infringement by computer users. End quote.

Looking at the list of speakers today, it is clear that users are
not represented at this hearing except for multimedia developers.
Multimedia developers are on the front lines of the user commun
because they're developing content_driven product and services.
To the extent that they are successful, they become targets for
patentees. Content_oriented developers get protection from copy-
right, not from patents. They need protection against patents.
How do they get it?

For the first time, errors and omissions insurance to cover pa-
tent infringement is available from the American International
Group for multimedia products. The cost is fifty thousand dollars
per product, with a fifty thousand dollar deductible. That's a
formidable barrier for an independent developer, a regressive tax
on interactive expression. Such insurance, costly as it is, does
not cover patents of which you are aware you may be infringing.
This unfortunately is another good reason, along with the threat
of triple damages for wilful infringement, to avoid reading pa-
tents entirely, a sad comment on a system originally intended to
spread technical knowledge.

And while we are concerned with the impact of patents on
publishi.......nd First Amendment values, we share with others a
concern for the related problem of patents on broad abstract
processes. Such patents are extremely difficult to interpret.
They often purport to preempt basic functionality so as to pre-
clude others from designing around the patent. Usually their
claims are over_broad, but can be narrowed only at great expense
to those who would challenge them.

These abstract system_level patents threaten the development of
common standards, specifications and architectures, including our
Association's own work on cross_platform compatibility. They
create information bottlenecks, or tollbooths, in the vision of a
national information infrastructure. Mindful of the history of
blocking patents in the development of the radio and the aircraft
industries, we note that the highly complex and interrelated na-
ture of the information infrastructure makes it very vulnerable.
Broad patents are especially suspect in the case of software
where functions can be implemented in a widriety of ways and
where independent creation is commonplace.

This problem, along with the threat that patents still pending
may be inadvertently incorporated in standards or infrastruction-
al systems, would be greatly alleviated by pre_grant publication.
The secrecy of the present application process is an anachronism,
and a primary cause of the present uncertainty and insecurity.
We plan to address this issue further in the February hearings on
examination processes.

We're grateful to the Commissioner for holding this public hear-
ing and dealing openly with the issues as a matter of public pol-
icy. We're also pleased to see a serious effort to develop patent
policy within the larger context of economic development and the
Administration's vision of a national information infrastructure.

We would like to close by expressing our support for a strong pa-
tent system. By that of course we do not mean a system that in
the name of incenting novelty oozes uncontrollably into every
corner of human life. We ma system that knows its limits, that
functions spectacularly within those limits and that does not de-
base the concept of intellectual property by incenting gaming and
speculation. We mean a system that works in the real world, that
acknowledges its regulatory nature and is tailored to the econom-
ic characteristics of the operating environment. We mean a sys-
tem that operates proudly in public view, that is understood and
acclaimed not only by patentees, their agents and their attor-
neys, but by the tens of millions who also contribute to our
economy and society and face tough competition unarmed by patent
monopolies.

Thank you very much.

COMMISSIONER LEHMAN: Thanks. You said that you felt that with
the exception of the Interactive Multimedia Association that we
didn't have on our witness list real representatives of users of
the system. Who are we missing? Who would you count in that
category of users?

MR. LOPEZ: For instance, teachers who use the products of mul-
timedia developers, people who are .......s in the home who I
think would be very upset to find out that they perhaps are infr-
inging on patents without knowing about it.

COMMISSIONER LEHMAN: How might they be infringing on, on __

MR. LOPEZ: If they are actually the people who are taking the
actions which would be against the patent, as teachers would be
in using the products that would violate the Optical Data patent
as an example.

COMMISSIONER LEHMAN: Thank you. I also wanted to ask, just to
clarify your position a little bit more, is your position that
you would not be in favor of such a drastic step as doing away
with patentability of software_related inventions.

MR. LOPEZ: No.

COMMISSIONER LEHMAN: So you really feel what we need to do is to
reform the system to make certain that, that we have a clearer
scope of patentability and that we have better procedures, pri-
marily pre_grant publication for making sure we capture the prior
art.

MR. LOPEZ: Exactly. I think as Mr. Clark has indicated in his
testimony, one of the greatest prob...... for multimedia develop-
ers today is the uncertainty that exists, and when this uncer-
tainty exists it inhibits the investment and the __ not only of
intellectual energy, but also of capital.

COMMISSIONER LEHMAN: My colleague, Ginger Lew, who's our General
Counsel for the Department of Commerce and on Assistant Secretary
of Commerce has a question.

GENERAL COUNSEL LEW: In Mr. Poppa's testimony he mentioned the
possibility for the need of mandatory API __ ADI, and I wanted to
know if the Association had any position on that.

MR. LOPEZ: The question is does the Association have any posi-
tion on mandatory APIs regulated by law? Brian.

UNMIKED VOICE: No.

MR. LOPEZ: No, we do not at this point.

COMMISSIONER LEHMAN: One comment I'd just like to __ maybe it's
more of a comment; we have a little more time here, and you may
have a response to it. We haven't focused very much on that, and
I don't think our questions did, but a previous witness I believe
it was indicated that they thought it was very impo t to have the
Courts to flesh out the patent system. There are elements in pa-
tent law at the moment, for example, the fact that, even assuming
we spruce up our examination process, right now you can go to the
Court of Appeals through the Federal Circuit, and basically get
de novo review of our Patent Office decisions. The Court can
second_guess the patent examiner, judges who are not even remote-
ly experts in a given technology.

Secondly, we have a number of legal doctrines, like the Doctrine
of Equivalence, which some have argued cloud the certainty in the
patent system, and I'm wondering if you have any comment about
the impact of those on your industry. Do those kinds of problems
that occur in enforcing __ understanding how the Courts will in-
terpret a patent, do they create uncertainty that creates prob-
lems for you?

MR. KAHIN: We really haven't addressed the problems, the techni-
cal problems you've described, at that level. I think the concern
in the judicial evaluation is more focused on a very
hig$esumption of validity of the patent examiner's determination,
and __ that carries over into the judicial system. So that once
that determination of nonobviousness based on the referenced pri-
or art is made, it can't be overcome except by clear and convinc-
ing evidence. So that that high presumption is a disincentive to
challenging the patent in Court.

COMMISSIONER LEHMAN: Actually I think the situation is a little
different than that. I think we have maybe a little bit the oppo-
site problem with the Court of Appeals. The Court of Appeals for
the 12th Circuit has de novo right to review the patent and I'm
not sure that they always do use that clear and convincing evi-
dence standard that you discussed.

MR. KAHIN: But it's very expensive to get that far, to get to
the Court of Appeals for the Federal Circuit. Most of our members
have enough trouble getting to a patent attorney, let alone fil-
ing suit in a District Court.

COMMISSIONER LEHMAN: Thank you very much.

MR. KAHIN: Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Mr. Paul Heckel,
Acting President of Abraham Lincoln Patent Holders Association
who is from Hyperracks, Incorporated.

PAUL HECKEL

ABRAHAM LINCOLN PATENT HOLDERS ASSOCIATION

MR. HECKEL: Thank you. If somebody can display these slides?

COMMISSIONER LEHMAN: Charlie Van Horn from our office will.

MR. HECKEL: Thank you.

COMMISSIONER LEHMAN: I think you testified at our hearings on
harmonization.

MR. HECKEL: Yes, I did. And __

COMMISSIONER LEHMAN: By the way, for those of you who don't
know, Secretary Brown issued a statement yesterday, or on Monday,
I guess this is Wednesday already, in which he indicated that we
would not at this time proceed with international negotiations
which would require the United States to change to a
first_to_file system. I think it's important to bring this out at
this point because these, this process of obtaining public input
does make a difference. There are some people who don't think it
makes a difference, but we had he,gs on the question of patent
harmonization, and we heard public testimony, Mr. Heckel testi-
fied, he had a very strong position on that, which I recall was
somewhat consistent with the position that the Secretary has tak-
en here on our recommendation, and so we have changed our policy,
and so these hearings can make a big difference.

I should add, just as a footnote on that, that that doesn't
necessarily mean that we won't at some point reconsider the ques-
tion of a change in our system, but we concluded on the basis of
those hearings that we had that we weren't really getting a good
deal, that we weren't getting harmonization, and that the disad-
vantages to the U.S. creative community were not outweighed by
the comparable advantages that we would receive as the proposed
harmonization treaty was presently constituted. So this is a
serious exercise, and thanks for joining us again, Mr. Heckel.

MR. HECKEL: Thank you, Commissioner LEHMAN, and I was there, and
I felt at the time that it was very useful to get ....0t from a
lot of different people, and I feel that it's very good that you
hold these hearings too. I think an awful lot of what has been
spoken is really not supported by the facts, and I think it's
useful for people to come there and to provide a reasonable basis
for their opinions, because I think a lot of the time it doesn't
stand.

Well, I'm Paul Heckel, and I'm here basically as Acting President
of an organization called ALPHA, which is an organization of
software patent holders. We only have about twenty members, but
fourteen of our members are patent holders. I think ten or twelve
of those actually had founded companies based on their patents.
Two of our members were on the board of directors of the Software
Publishers Association. Three of our members had their patents
attacked by the League for Programming Freedom in several of
their publications, me being one of those people. In fact, it
was those attacks that really started to bring me in, to get in-
terested in the issue, and as I suspect the4missioner may know, I
wrote two articles, one on the Communications of the ACM and one
in Computer Lawyer on the software patent issue to try to bring
out some of those facts and I'll bring out some of those facts
later.

Clearly ALPHA strongly supports software patentability in pretty
much all the forms that are there. We've also had an opportunity
to look at the statements of the American Bar Association, the
Software Entrepreneurs Forum and the Intellectual Property Sec-
tion of the California State Bar and we concur in their positions
as well.

Basically we feel we should have software patents. Inventiveness
should be judged by the content of the invention and not by the
color of the technology, as a variant on Martin Luther King's
famous quote. We believe, by the way, that the quality of the
examiner's position should be a more high_status position. We
believe that trying to increase the pay and increase the profes-
sionalism of examiners is desirable. We all want a system which
will make it clearer8 less uncertain for everybody. Nobody,
patent_holder or potential infringer alike, gets any advantage
out of infringement.

Now I want to talk a little bit about some of our members because
I know you're interested in personal experience.

For example, Mike and Susan Morgan found a company called MacIn-
Tax, developed a couple of products. Because they had patents on
them they told me that, as Susan told me, she said, with her ven-
ture capitalists, when the venture capitalists asked us how we
could protect ourselves against say Microsoft coming out with a
competitive product and stealing our market, the fact that we had
applied for patents put the problem to bed. It made the VCs feel
much more comfortable, and that's a big difference. They have
since sold out, they started another company.

Reed Hastings is another person. He founded a company here in
Silicon Valley called Purer Software. He started, he made it
profitable, he raised a couple million dollars from venture capi-
talists, the fact that he had<ents made that possible; certainly
it helped him a great deal. Currently he's facing a potential
litigation problem with one of __ somebody in his market said,
"Why don't we add his patented feature to our product?" and so
he's having to deal with those problems.

Another is Dr. Marcusson who is a patent_holder and a physician.
His __ when Oracle recently announced its product for the Infor-
mation Superhighway they used something that he had designed for
teaching medicine. It was called "Salvaging a Patient with a
Stab Wound to the Heart. It was running on a Hypercard_like en-
vironment. He's had a lot of experience with inventors. He's a
specialist in repetitive_strain injury, so he's familiar with
that controversy which is going on. But what he has said is
that, "I have seen first_hand emotional and financial damage done
to independent inventors whose inventions are ripped off by big
companies," and he said he "fears that many small inventors will
be the roadkill for the Information Superhighway," wh@is the talk
that I take, and having heard the previous talk I'm concerned
that if their position is taken that it could very well happen
that way.

Hal Nesley is actually an investor, but he's invested in four
start_ups which have software involved, one has a patent, the
other three are in the process of getting patents.

So those are some examples. In my own case, I started a company
relying on patents. It gave me more confidence to start the com-
pany since I had the patent or was going to get the patent, I
thought, and it gave my investors confidence. They told me it
was one of the reasons they decided to put money into it. We
brought products to market, as did the other people that I have
been talking about, and we then found out we were infringed by
Apple, we got in some litigation and I've described it in my book
that some people here I'm sure are aware of, and we settled and
they took out a license. Then we got involved with IBM; that si-
tuation still is not clarified.

But I guess I'd like t..D into what I really found out when I ex-
amined the patents that Mr. Stahlman attacked in some of his ar-
ticles. And I particularly refer to the ACM article. If we can
have that slide now. I went and I called. They gave an example
of nine patents, and I went and I called the patent_holders on
each of those nine patents. I found out some interesting things.
I want to refer specifically to it. That chart is in Computer
Lawyer, and this afternoon I'll have copies of Computer Lawyer
out there for people to look at so they can see the chart. But
based on that chart we have some conclusions.

One. All nine patents protected commercial products. Every one
that they brought up that they said is an example of a bad patent
and absurd patent. Two. Software stimulated new business forma-
tion. Four of those nine patents were held by companies that
were started precisely to develop the technology that was in the
patents, and a fifth company had only been in business for two
years when it filed the patent. So fivH the nine companies real-
ly were independent small start_up phase companies that were us-
ing patents. Okay? I think that that's strong evidence, based
on a sample selected by the people who are condemning patents
that software does stimulate new businesses.

Second, I would argue that they stimulate the introduction of
fundamental technology. I think three of those patents introduce
technology that was fundamental, at least in the sense that it
was widely seen throughout the industry, and I'll talk about one
of those later. By the way, I've talked to several inventors in
different technologies, and I referred to a lot of that in my
Harmonization testimony, and I found out in many ways that the
problems faced by software developers or software inventors are
very similar to the problems faced by inventors in other techno-
logies. They're made more severe by the prior art problem and
the newness of the technology, but fundamentally they're very
very similar problems, and the way the trade system treats them
Lery similar.

My last point is an interesting one. Can I see the next slide,
please? Small entities are exceptionally cost_effective in en-
couraging innovation, especially compared to Federal funding, and
I will give you the example. It might be a little hard to see
there, but if you look down the first column we have the number
of commercial products. The first item is four for large enti-
ties. Next is five for small entities, and below that we have
zero for Federally_funded. None of the nine patents cited a pro-
duct that had a Federal patent behind it, and as you know, if you
develop something under Federal law funding, you can get patents
on it, you do have rights to use those patents in the commercial
marketplace.

Now I looked at what I call the efficacy of the invention, and I
used the fact that somebody has asserted a patent as a measure of
efficacy, because a lot of patents aren't asserted, and I found
two of the large company patents were submitted, and all five of
the small_entity patents wPasserted. So I use that as a measure
of effectiveness, because we're going to look at taxpayer cost
effectiveness.

Now if you look at Federally_funded we gave one there just so you
don't have a number of zeroes, so the numbers work out in some
sense.

Now we looked at the cost, and in 1989 the Federal funding of the
Patent office was two million dollars, and so we allocated those
costs and we got thirty, fifty thousand __ I can't quite read
those numbers there, for those numbers, and then we divided to
get the efficacy. By the way, the Federal funding of computer
science in that year was four hundred and eighty_seven million
dollars. So if we look at the cost_effectiveness of it, and the
large entities had a cost_effectiveness thirty_three thousand,
the small entities had a cost_effectiveness of two hundred and
fifty thousand and Federally_funded had a cost_effectiveness of
one point o three. Which says that a dollar spent in the tax __
to help the Patent Office really brings back more innovation.
NTlearly if the Patent Office was clearly funded, the numbers
would probably knock down to something like thirty_three and two
hundred and fifty, which is still a very large number compared to
one.

Now I fully recognize that this is only nine numbers. It's a very
small sample, but remember, these numbers were picked by Mr.
Stahlman and the League for Programming Freedom to say that it's
bad for innovation, and there's a very very strong prima facie
argument that it does encourage innovation. So those were the
results of those numbers.

I want to talk now about a specific patent, which is the
spreadsheet patent that I'm sure a lot of people have heard
about. It's been described as the automatic recalculation patent,
and when first suit was filed on it in 1989 it was attacked wide-
ly in the press as obvious and it was well_known in the prior art
and stuff like that. By the way, I called the inventor, I got a
copy of the patent, and I said, Who's talked to you? Nobody in
the American press had even called X person although widely his
patent was attacked in the press, and it was clearly easy to find
him as all you had to was get a copy of the patent. So it
doesn't give me a great deal of confidence when I hear these
press stories about these horrible patents.

So since then I've learned a certain amount about the patent. In
my opinion, that patent is to the modern computer spreadsheet
what the Wright Brothers' invention was to the airplane. It
might not have had a visual display; they used a teletype termi-
nal. They started out with a concept of Basic, and instead of
executing the statements in the numbered order, they said, Why
not take the statement numbers, break them in two, use both
halves as indexes into an array, and then calculate the formulas
in the order which is natural, and use it to solve business prob-
lems. That seems quite clear from reading the patent. They
developed a product, they brought a product into the marketplace,
and they had real users; okay? But they had a problem with the
pateystem. By the way, they filed the patent in 1970,
twenty_four years ago, they have yet to see dime one for an in-
vention which is in many ways responsible for the success of Ap-
ple, because VisiCalc helps out Apple Computers, the success of
Lotus. They have yet to receive dime one.

This is what happened to them. They got a Notice of Allowance
from the Patent Office. Then the Benson decision came down, and
then the Patent Office took their patent away from them, because
of the Benson decision. They then appealed it, pro se, through
the Courts, and got a decision at the CCPA called in re parto,
which says that just because the inventiveness is in an algorithm
or in the software does not mean it's not patentable __ that's an
important decision as I'm sure everybody involved with software
patent knows, it was done pro se without an attorney by those in-
ventors. Now they are in trial, and in July I went to hear a
one_day __

COMMISSIONER LEHMAN: Yeah, I think, Mr. Heckel, I think we're
going to have to ........` MR. HECKEL: Turn me off?

COMMISSIONER LEHMAN: Yes.

MR. HECKEL: Okay, I'm sorry, can I just briefly __

COMMISSIONER LEHMAN: Is our machine on? I'm not sure if it's
working right.

VOICE: It was on but we gave you a few more minutes because we
tied up in the beginning.

MR. HECKEL: I'm sorry. I just want to say that I saw in Court
their patent attorney in my opinion perjure himself on the stand
to testify against his clients, to save himself from a malprac-
tice suit. I saw that in July. The decision hasn't come down.
I hope when the decision comes down you read it, Commissioner,
Examiner, and look at that patent lawyer and consider whether or
not this is what you want to have representing clients out there
in the field.

Thank you very much, Commissioner.

COMMISSIONER LEHMAN: Thank you very much, Mr. Heckel. You know,
we do have a procedure in the Patent Office for hearing com-
plaints against people for not carrying out their professional
responsibilities, so it's certainly available to peopld they wish
to use it.

Next I'd like to call Mr. Robert Kohn, the Vice_President and
General Counsel of Borland International.
ROBERT H. KOHN

BORLAND INTERNATIONAL, INC.

MR. KOHN: Thank you, Commissioner LEHMAN, for the opportunity to
testify today. I'm Bob Kohn, Vice_President of Corporate Affairs
of Borland International, a leading developer and marketer of
desktop and client_server computer software including D_Base,
QuattroPro, Paradox, InterBase and Borland C++. I worked in the
entertainment and computer software industries my entire career.
My experience in the software industry includes many types of ap-
plication, utility software for both mainframe and desktop com-
puters. After a brief period of private practice and as Associ-
ate Editor of the Entertainment Law Reporter, I joined the legal
department of Ashton_Tate Corporation in 1983. Until its acquisi-
tion by Borland in 1991, Ashton_Tate was one of the world's larg-
est computer software companies. In 1985 I left Ashton_Tate to
becomhsociate General Counsel to Kandell Corporation, a leading
supplier of IBM mainframe software, and in 1987 I joined Borland
as General Counsel.

I want to emphasize that I am sensitive to the need for the in-
tellectual property protection on both a professional and person-
al level. My professional career is focused on protecting the
valuable intellectual property assets of software companies. I'm
also an author myself, having recently written a reference book
on music licensing that was published by Prentice_Hall. To call
order 1_800_223_0231. So I can certainly appreciate the need to
protect intellectual property. And I hope I've made my point.
If you need the number again I'll have it available.

COMMISSIONER LEHMAN: Be careful, you know, works of the United
States Government are not copyrightable, so if you get your stuff
involved with ours you might have a problem.

MR. KOHN: I'll try not to read my __ I'll try not to read my
book into the record.

I'm testifying today in my capacity as Vice_Pres........lt and
General Counsel of Borland, a publicly_traded Silicon Valley com-
pany. On behalf of Borland I want to comment specifically on
Question 4 in the Hearing Notice, and if time permits more gen-
erally on questions regarding the scope of protection for visual
aspects of software programs.

Question 4 asks whether the present framework of patent, copy-
right, trademark and trade secret law effectively promotes inno-
vation in the field of software. Like all other software com-
panies, Borland invests heavily in both the creation and acquisi-
tion of new software products, and like other companies Borland
needs strong government enforcement of existing intellectual pro-
perty rights, especially in foreign markets, in order to protect
its investments.

But it is particularly unproductive at these hearings and at oth-
er forms for public debate on these issues to hear two extreme
views espouse. One group, generally small companies, argue for no
protection or perhaps at best very weak protection. A second
group, generalpery large companies, addresses the issue of scope
rather than enforcement, arguing that broader protection for
software is necessary, and indeed the broader the protection the
better. We believe that much of the polarization you have heard
and will hear is the result of a confusion of what is being de-
bated.

Protectionist interests in particular confuse enforcement of what
is an undisputed intellectual property right with the underlying
scope of intellectual property protection. We in the industry all
understand that software as a product is particularly susceptible
to unauthorized duplication. We therefore need strong enforcement
of existing intellectual property rights to make sure that we are
protected against the pirating of our software. But issues con-
cerning the enforcement of intellectual property rights must not
be confused with issues concerning the scope of intellectual pro-
perty protection. It is too easy to wrap oneself in the prover-
bial American flag of antipiracy and anticonterfeiting entement.
There is no dispute that strong antipiracy enforcement is re-
quired to promote the resources necessary for research and inno-
vation. But it does not follow that because strong enforcement
of intellectual property promotes innovation, a broader scope of
intellectual property protection will also.

We should understand that many of those who very responsibly ar-
gue for limitations on the scope of intellectual property protec-
tion are not trying to defend pirates. They are, rather, trying
to make a medium under which the proper scope of intellectual
property protection as established by Congress and the Courts is
respected and strongly enforced by the Administrative Branch of
government.

This distinction between the enforcement of existing rights and a
broadening of the underlying scope of protection was recently ad-
dressed at the 1993 Berkeley Roundtable on the International
Economy in which the Vice_President, the Commerce Secretary and
the Commissioner all participated.

The Report of the Roundtab......xn Maintaining Leadership in
Software states the distinction between enforcement and scope
very clearly. I'll include a block quote in my written testimony
which begins with the following sentence: "Industry representa-
tives argue that the importance of protecting intellectual pro-
perty from theft by commercial counterfeiters and unscrupulous
users must be distinguished from issues concerning the proper
scope of intellectual property protection."

Unfortunately Question 4 in the Hearing Notice, in our view,
heightens rather than diminishes the confusion and polarization.
Question 4 seems to be based on a premise that strong protection
for existing intellectual property rights necessarily implies a
greater scope of intellectual property protection, and further
that a greater scope of intellectual property implies a greater
amount of innovation.

Implicitly, Question 4 neglects the important role that competi-
tion plays in encouraging innovation. We believe that the impli-
cation inherent in Question 4 should |he subject of much greater
scrutiny and analysis. Within the industry we all, or at least
most of us, agree that greater enforcement of intellectual pro-
perty is necessary. What has fractionalized the industry is the
attempt by some to use the need for greater enforcement to at-
tempt to expand the scope of underlying intellectual property
rights, particularly within the copyright area. As the Commis-
sioner is aware, just two weeks ago the head of the Antitrust
Division of the Department of Justice, Assistant Attorney General
Ann Binghamen gave a major speech on the occasion of the sixtieth
anniversary of the founding of the Antitrust Division. The As-
sistant Attorney General recognized the polarization within the
industry that has been caused by attempts to increase the scope
of intellectual property protection.

She said, "The substantive reach of the exclusive rights granted
under the intellectual property laws also has been a matter of
particular concern and ferment in the software industry. The
Cournd the agencies have been faced with difficult decisions
about the scope of both patents and copyrights in this field, as
is clear to anyone who has paid attention to the long series of
important court decisions on computer software copyrights, in-
cluding Whelan, Altai, and the recent decisions in Lotus v. Bor-
land, now under review in the 1st Circuit. The scope of copy-
right protection for computer software has we believe important
competitive implications as well as important implications for
the incentives to innovate."

We are particularly heartened to hear Assistant Attorney General
most eloquently state her concern about attempts to increase the
underlying scope of intellectual property protection. Again,
please permit me to quote what she had to say. "Given my strong
belief in competition, I think the courts should be hesitant to
read the statutory grant provisions expansively, but should
recognize the anticompetitive potential of restrictive practices
at or beyond the borders of clearly_conveyed utory rights."

While the Assistant Attorney General was directly addressing only
the courts, we believe the same cautions should apply to the Ad-
ministrative Branch of government as well.

Many questions to be addressed at these hearings deal with the
visual aspects of computer screen displays. In evaluating the
proper scope for protection for the individual aspects of comput-
er programs, we believe that the Patent and Trademark Office
would do well to consider the analytical framework employed by
the engineers and computer scientists as opposed to the lawyers
and judges in the software industry.

As the Commissioner is aware, much of the original and seminal
work in graphical user interface analysis and design was done at
Xerox Corporation in the 1970s. The research at Xerox formed a
wealth of user interfaces far beyond just those of Xerox's pro-
ducts. Apple's MacIntosh and Lisa, Hewlett_Packard's New Wave,
Microsoft's Windows, X_Windows, IBM's Office Vision and OS/2 to
name just a few. Much of thearch at Xerox was published in scho-
larly papers for distribution both inside and outside of Xerox.
The most famous of those papers, entitled "A Methodology for User
Interface Design," was published by Xerox Palo Alto Research
Center in January of 1977. Because of the enormous importance of
this paper, I'm going to attach it to Borland's written comments
and ask that you consider it as part of these proceedings.

The Xerox research produced a methodology of interface design
that is based upon what Xerox researchers called a taxonomy or
classification for user interface analysis. This taxonomy is
designed to permit analysis and evaluation of what each aspect or
component of a user interface does. The taxonomy was created for
software analysis and not for any legal purpose, but remarkably
it dovetailed seamlessly with the overall intellectual property
scheme of patents, copyrights and trade secrets established by
Congress.

As the Xerox research concluded, every user interface has three
separable compo.s; one, the user's conceptual model; two, the
control mechanism or command invocation of the product; and
three, the visuals, or the information display. The user's con-
ceptual model is the abstraction selected by the software
developer which users can relate to the task they are trying to
perform.

For example, the spreadsheet metaphor is the conceptual model
that underlies Borland's QuattroPro line of products. Under our
intellectual property scheme, the conceptual model of a particu-
lar piece of software would not be protectable at all except of
course insofar as it may be protected by trade secret or under
the terms of a contract or confidential relationship. The command
invocation or control mechanism of the user interface is the
mechanism that extracts the functionality built into the
software. It is a set of actions and results defined in particu-
lar relationships to one another. Menu items and keystrokes are
part of the control mechanism and were clearly identified as such
by the Xerox research puhed in the mid_seventies. Indeed, the
control component was originally called the command language.

Under the intellectual property scheme established by Congress,
the control mechanism of the software product falls within the
ambit of patent law, specifically utility patents. In order to
secure utility patent protection over a control mechanism, an in-
ventor should be required to satisfy the statutory requirements
of novelty, advancement over the prior art and so forth. For ex-
ample, if the user entered a database by first clicking on the
picture of the door to simulate knocking, and then clicking on
the picture of the door_knob to simulate turning it, the sequence
of steps would be part of the control mechanism and must satisfy
the rigors of patent examination if it is to be protected. If
the command mechanism does not meet the rigors of patent protec-
tion, it should not be protected by any other form of intellectu-
al property protection such as copyright.

Finally, in Xerox's terminology, there are p....ams of visuals.
The screen displays of many sophisticated user interfaces have a
truly separable visual or expressive component. Images that can
be manipulated through animation techniques.

The Congressional scheme provides for protection of these visu-
als, and under both statute and the case law, the visual display
of the computer program may be protected by copyright law if and
only to the extent its artistic features can be identified
separately from and are capable of existing independently of the
utilitarian aspects of the software program. Note that the defin-
ition of computer program under copyright law is a set of state-
ments or instructions to be used directly in a computer in order
to bring about a certain result. The screen display is a certain
result of the set of statements or instructions that comprise the
underlying computer program and must therefore independently
qualify as a work of authorship.

Those are my two paragraphs. Thank you for the opportunity to ap-
pear here today and I would b...ppy to answer your questions.

COMMISSIONER LEHMAN: Thank you very much, Mr. Kohn. I just note
you refer to Question 4 in our Federal Register Notice which
states that __ which asks the question, Does the present frame-
work of patent, copyright and trade secret law, A, effectively
promote innovation in the field of software, and, B, provide the
appropriate level of protection for software_related inventions.
I don't read those as implying that we should raise the level of
protection; in fact I read those as an open_ended question as,
What is the appropriate level? and that may well be a lower lev-
el. It may be no level at all, and I think the questions we've
asked would suggest that we do have an open mind about that.

MR. KOHN: I'm glad to hear that the Commission has an open mind
about these issues. I think that, looking at the background sec-
tion of the hearings, I don't have it in front of me, specifical-
ly emphasizes the innovation that's promoted by protecting intel-
lectual property, and the point th made is that there is abso-
lutely no reference whatsoever to the importance of competition
in promoting innovation, and you mentioned earlier, to an earlier
witness, that __ you suggest that the competition issues might be
more appropriately addressed under Antitrust provisions, but it
is an intellectual property issue, and that's precisely what Ann
Binghamen had said in her speech. It is an intellectual property
program, we are after all talking about government_granted mono-
polies.

COMMISSIONER LEHMAN: Thank you very much. I'd like to take a
five_minute recess before we reconvene for the rest of the
morning's hearings, and our next witness, when we come back will
be, I believe, Douglas Brotz from Adobe Systems.

(Recess)

COMMISSIONER LEHMAN: Next I'd like to call Douglas K. Brotz who
is the Principal Scientist of Adobe Systems, Incorporated right
here in the Valley.

DOUGLAS BROTZ

ADOBE SYSTEMS, INC.

MR. BROTZ: Good morning, Mr. Secretary and members of the Panel.
My name is Douglas B.. . I'm Principal Scientist at Adobe Sys-
tems, Incorporated, and I am representing the views of Adobe Sys-
tems as well as my own. Adobe is a software company based in
Mountain View, California. We are most well_known for our
PostScript language and interpreter which provides foundation for
desktop and electronic publishing.

Although I am a computer scientist, I became involved in patents
when Adobe was contacted by another company regarding Adobe's
possible infringement of a patent. I'm currently Adobe's techni-
cal advisor to our patent attorneys.

Let me make my position on the patentability of software clear. I
believe that software per se should not be allowed patent protec-
tion. I take this position as the creator of software and as the
beneficiary of the rewards that innovative software can bring in
the marketplace. I do not take this position because I or my
company are eager to steal the ideas of others in our industry.
Adobe has built its business by creating new markets with new
software. W$ke this position because it is the best policy for
maintaining a healthy software industry, where innovation can
prosper.

The problems inherent in certain aspects of the patent process
for software_related inventions are well_known, the difficulties
of finding and citing prior art, the problems of obviousness, the
difficulties of adequate specifications for software are a few of
those problems. However, I argue that software should not be pa-
tented, not because it is difficult to do so, but because it is
wrong to do so.

The software marketplace requires constant innovation regardless
of whether the computer programs can be patented or not. Indeed,
the fundamental computer programs and concepts on which the en-
tire industry is based were conceived in an era when software was
considered to be unpatentable.

For example, when we at Adobe founded a company on the concept of
software to revolutionize the world of printing, we believed that
there was no possibility of patenting our work. That belief did
n(top us from creating that software, nor did it deter the savvy
venture capitalists who helped us with the early investment. We
have done very well despite our having no patents on our original
work.

On the other hand, the emergence in recent years of patents on
software has hurt Adobe and the industry. A "patent litigation
tax" is one impediment to our financial health that our industry
can ill_afford. Resources that could have been used to further
innovation have been diverted to the patent problem. Engineers
and scientists such as myself who could have been creating new
software instead are working on analyzing patents, applying for
patents and preparing defenses. Revenues are being sunk into le-
gal costs instead of into research and development. It is clear
to me that the Constitutional mandate to promote progress in the
useful arts is not served by the issuance of patents on software.

Let me illustrate this burden with some figures. The case Infor-
mation International Incorporated v. Adobe, et al........,s filed
five years ago. Last year the trial court ruled for Adobe, find-
ing no infringement. In December the Appeals Court for the
Federal Circuit unanimously affirmed that judgment. Yet, in that
time, it has cost Adobe over four and a half million dollars in
legal fees and expenses. I myself have spent over three thousand
five hundred hours of my time __ that's equivalent to almost two
years of working time __ and at least another thousand hours was
spent by others at Adobe. The Chairman of the Board spent a
month at the trial. This type of company behavior would not be
high on anyone's list of ways to promote progress.

This state of affairs might be acceptable if there were a
corresponding benefit for patents in the software industry. How-
ever, I see none. Companies that have trumpeted their fundamental
software patents are not leaders in software innovation. Confer-
ring monopoly positions in an industry that was already the most
innovative of all will promote stagnation rather than increased
innov0n. When companies turn from competing by offering the best
products to earning money by the threat of patent litigation, we
will see our best hope for job creation in this country disap-
pear. An industry that still generates tremendous job growth
through the start_ups of two guys in a garage will not continue
to grow when a room for a third person, a patent attorney, needs
to be made in that garage.

There does exist a perfectly adequate vehicle to protect
creator's rights in this industry, the Copyright Law. The nature
of software is that it is a writing, an expression of mathemati-
cal ideas. The copyright law protects this expression, and it
does so without requiring costly and time_consuming proceedings.
For people working in the fast_paced software industry, the way a
copyright is created is idea. While feverishly working to meet
deadlines, there is no need to explain what you've done to a
government agency. The very act of writing the software confers
the copyright on it.

Furthermore, the cop....4ht law confers the correct level of pro-
tection on computer software. Regardless of what current regula-
tions may say, the fact is that all computer programs express
mathematical algorithms. Every part of every computer program
manipulates numbers with logic. Any software that performs any
task does so through mathematics. It is inconsistent to hold
that mathematic algorithms are unpatentable while granting pa-
tents on systems composed of software.

If the Patent Office were truly following the law it would recog-
nize the inherent mathematical nature of software and it would
not grant patents to software_based inventions. In the last de-
cade the Patent Office has been granting patents on software and
algorithms regardless of superficial attempts to cast claims as
systems methods or processes. The Supreme Court did not say in
Diamond v. Diehr that pure software inventions are patentable.
By adopting this position in its recent practice, the Patent Of-
fice has made a dangerous step that could decimate the ve8ndustry
it wishes to protect.

Whenever the Patent Office grants a software patent, it grants a
right to the patent_holder to devastate innocent businesses. Due
to the arcane nature of this technology, our courts find it very
difficult to distinguish frivolous software patent lawsuits from
legitimate ones. As a result, a frivolous plaintiff is in a very
strong blackmailing position, where a defendant can look forward
either to an extortionate settlement or enormous legal costs. An
excellent remedy would be to change our law to allow a successful
defendant to recoup legal costs in patent cases. Until that day
arrives, at least our Patent Office can refrain from granting
these dubious patents.

We have heard today from proponents of software patents who will
claim that these patents can protect the independent inventor.
This belief is a delusion. The expensive patent process protects
large, methodical corporations that can afford to apply for
scores of patents much more than it protects the poorly_cap<ized
lone inventor, and when that inventor tries to produce his inven-
tion he may well find that those large corporations can ruin his
own business with their large software patent portfolios.

In summary, these are my main points:

The software industry thrived without patents, creating its fun-
damental base in an era of no software patents; software patents
harm the industry, with no corresponding benefit; software embo-
dies mathematical algorithms; the law, starting with the Consti-
tution, argues against patents for software_related inventions;
and last, the proper form of protection for software is copy-
right.

As a postscript to the figures on the patent lawsuit that I dis-
cussed before, the final figure is actually not in. Although
Adobe has been successful twice already, the plaintiffs are ask-
ing for reconsideration of the unanimous appeal judgment against
them. These kinds of festering sores are what our country can
ill_afford when we are trying to lead the world in creative in-
dustry.

Thank you.

CO......@SIONER LEHMAN: Thank you very much, Dr. Brotz.

You've indicated that you think that the copyright system works
very well to protect software. An earlier witness, Mr. Kohn from
Borland, indicated that he felt that there were serious problems
with the existing copyright system, and in particular he felt
that it shouldn't protect screen displays, for example.

Other witnesses have indicated that they're very concerned about,
I believe, the witness from Storage Technology indicated that he
was very concerned about the decompilation issue. He very much
believed that one should be able in effect to copy software in
the decompilation process in order to produce interoperable
works. I'm wondering, since you really believe that we should
focus on copyright, if you have views on either of those two is-
sues.

MR. BROTZ: Yes. I certainly do. I agree with Mr. Kohn that we
should not confuse strong enforcement of copyright rights with
broadened scope of copyright rights. I agree that some plain-
tiffs have tried Dtretch the scope of copyright beyond where it
ought to go. I firmly support his position, in fact, that copy-
right law should protect us against piracy and the kinds of
threats that copyright law was intended to protect us against.

In answer to your other question about decompilation and intero-
perability considerations, I believe that the evidence always
cited for the importance of interoperability is that companies
that do not provide for interoperability fall of their own
weight. I do not see that as an argument for insisting that com-
panies therefore make themselves interoperable. If strong rights
are granted to all aspects of the written computer software, then
a company could choose what level of protection it wanted and how
far to assert its rights and whether they wanted to open their
interface or not. If they make a wise decision and offer enough
interoperability, they'll do well; if they make an unwise deci-
sion, they won't, and it's up to them to decide whether they want
to succeed or not.

COM.....HIONER LEHMAN: In other words, your view is that the
licensing system deals with this problem, that if people don't
adopt intelligent licensing processes, then they will suffer the
economic consequences which will be negative and will encourage
basically licensing that creates more open systems.

MR. BROTZ: That's right. And I would oppose having a law that
straitjackets the way in which these kinds of licenses or
accesses must be made.

COMMISSIONER LEHMAN: Thank you very much. Does anybody else have
any questions? Thank you.

Next I'd like to call Hans Troesch, partner in the law firm of
Fish and Richardson.

HANS TROESCH

FISH AND RICHARDSON

MR. TROESCH: Good morning, Mr. Commissioner, distinguished
Panel. My name is Hans Troesch. I'm here speaking on my own
behalf. My partners have reminded me of that.

Many years ago I earned a Masters Degree in Computer Science at
the University of Michigan, and for close to ten years, regard-
less of my various and more fancy job titles, I consideLmyself
principally to be a computer programmer. Today I'm an attorney
and a member of the patent bar. I practice patent, copyright and
trade secrets law, as we already mentioned, with the law firm of
Fish and Richardson.

I'm here today because I would like to offer my own views on a
few of the questions that the Patent Office has invited the pub-
lic to address at these hearings. As a preliminary matter, I must
confess my own deep concerns about the present fate of software
inventions in the Patent Office. I believe that the logical, al-
most musical nature of software technology provides unique oppor-
tunities for advocacy and for confusion in a system that is based
on a more structural, may I say more sculptural view of the
world, but that is a topic for another day.

Today I will merely state my hope and belief that the Patent Of-
fice will rise to the challenge of finding and keeping qualified
examiners, securing access to the vast body of software_related
prior art that is not of record in the Patent Pce, and of
developing delimiting doctrines of novelty, obviousness and en-
ablement in ways appropriate to the peculiarly flexible genius of
software technology.

I would like to address Question 1 at this point in the Office
Notice, and to state my view that a computer program, that is to
say, a set of instructions that is executable on a computer, to
achieve a result, should be considered a machine within the mean-
ing of Section 101 of the Patent Statute, and should therefore be
eligible for patent protection, without resort to the additional
and often redundant limitations to computer processors, read_only
memories or data input_output devices.

On the issue of eligibility for patent protection, I dare say
such a change in the form of the law would not greatly expand the
scope of protection available to inventors, at least not to those
inventors who can afford the kind of legal talent testifying at
these hearings.

Those of us who know what we are doing can get computer program
machines covered. The pro.......T we have to go through may be
painful to watch, may be expensive, but we can do it. For that
reason I would promote my suggestion principally as one that will
improve the quality of the analysis of software_related ventures,
and the doctrine under which those inventions are examined.

On the issue of infringement we would have to be a bit more sub-
tle. If we allow claims to be made to computer programs per se we
must be careful not to create a risk of infringement by tradi-
tional print media and their successors in electronic publishing.
The publication for human readers, whether or not on paper, for
the patent_protected computer program, should not by itself be
any kind of infringement of the patent.

I would like to turn now to one of the specific questions raised
for today's hearing. What aspect of a mathematical algorithm im-
plemented on the general_purpose computer should or should not be
protectable through the patent system? I believe that a machine
made up of computer program instructions thatXfully transforms
data or information should be protectable under the patent laws
in all its novel and nonobvious aspects. Given the importance of
information processing to our economy, it would be perverse for
us to continue to deny direct protection to a technology that is
so important to our information processing prosperity.

This leads me unavoidably to the question of what is novel and
unobvious in a computer program. I believe that our greatest
challenge lies in these two questions, regardless of how we
answer the question previously posed.

For myself, I would not consider novel and nonobvious merely to
transpose to a computer something previously known to be done by
hand, or in one person's head, or collectively by a group of peo-
ple. But if the method for transforming information is truly new,
then the doctrines that limit or preclude protection solely be-
cause the method is a computer program seems unwarranted.

It has been suggested that allowing mathematical algorithms to be
protected would.......nature from the public domain and give an
unwarranted universal scope of protection to a patented tech-
nique. Personally I find those rationales peculiar. Taking the
computer programmer's informal definition that an algorithm is a
predetermined set of steps to perform a function, and that a
mathematical algorithm is one that operates on mathematical ob-
jects, such as numbers, triangles, continuously differentiable
functions, then granting protection for a new, previously_unknown
and nonobvious set of steps withdraws nothing from the public.
And if the patent reaches over a broad range of applications,
that would merely correspond to the broad usefulness of the new
algorithm.

In any other technology this would be grounds for praising the
inventor, not for denying protection. I would submit to you that
if someone were to object to a patent on the transistor on the
ground that it would have too many uses, you would find that ob-
jection incomprehensible.

One final point that might be kept in mi........`efore whence it
comes to an alarm about the potential breadth of claims to
mathematical algorithms; a naked mathematical algorithm claim
would seem to be the ultimate engineering claims, and therefore
particularly susceptible to being rejected or invalidated, be-
cause any prior art that shows the algorithm steps being applied
in any context would invalidate the claim. Personally I would be
surprised if any patent practitioner would ever rely solely on a
naked algorithm to protect his client's interests.

The Patent Office also poses the variant of this question, limit-
ing it to the implementation of the algorithm to a special pur-
pose rather than a general purpose computer. If the problem is
bad patents, this does not seem to be a solution. If one begins
with a computer program that should be unpatentable because it is
not new, or because it is obvious, one should not in my view be
able to achieve patentability merely by attaching to the program
the input_output devices that are conventional for the processdt
the computer performs.

In other words, one should not be able to save an old or obvious
bread_baking program merely by attaching a digital thermometer to
it. Conversely, if the program is new and not obvious, then the
conventional addition of necessary computer hardware and other
devices is redundant to the claim, at least insofar as patenta-
bility is concerned. Such additional limitations would not in
fact limit the scope of protection available to the inventor, un-
less parenthetically the claims are poorly drafted. But such a
redundant edition of apparatus to the program claim does create a
potentially substantial distraction for the patent examiner who,
in the terms of my example, in searching the art of digital ther-
mometers, may completely miss the point about bread_baking.

Finally, I would like to say a word about whether we should re-
place patents with a new form of protection for computer
software. My one_word answer is no. Patent law can deliver pred-
ictability, definiteness and uniformity. hr copyright law we
cannot protect your ideas, at least not without doing some
violence to traditional copyright principles, and we are subject
to forum shopping in thirteen circuit courts of appeal. Under
trade secrets law, we can protect our ideas, but are subject to
the law as developed in any of fifty different state courts and
their Federal counterparts. We're never quite sure what the pro-
tected ideas are and are at risk of having someone rediscover or
reverse_engineer our inventions out from under us. But under the
patent laws we can get warning about what is protected expressed
with reasonable clarity and applied with national uniformity. It
would be unfortunate if such a sound concept were to be crippled
because we were too slow in learning to apply its fundamental
principles to the challenges of software_related inventions.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Troesch. That was
very helpful.

The next person on our list is Brett Glass, but we're not sure
that Brett Gl....lis here. If you are, will you please stand up
and identify yourself and come forward? If not, we will move on
to Robert Sabath, President of the World Intellectual Property
and Trade Forum.

ROBERT SABATH

WORLD INTELLECTUAL PROPERTY AND TRADE FORUM

MR. SABATH: Mr. Commissioner, distinguished Panel. My name is
Robert Sabath. I speak today in both my capacity as President of
the World Intellectual Property and Trade Forum and as a solo
practitioner in the patent field. I'm also on the Executive Com-
mittee of the California State Bar's Intellectual Property Sec-
tion, but as you know, Mary O'Hara and Michael Glenn will testify
at these hearings on behalf of the State Bar. Additionally I
speak as Legal Issues Editor of QuickTime Forum, a multimedia
developer's publication.

The primary topic today is the use of the patent system for the
protection of software_related inventions. The central objective
of my remarks is to encourage greater flexibility within the
framework of the law in promotingp patenting of software_related
inventions as well as pure software inventions.

Patents themselves are the best prior art against subsequent ap-
plications for a patent grant. Anything that artificially limits
the development of the body of prior art relied upon by the pa-
tent and trademark office has the effect of slowing the progress
of technology in critical fields. Software is clearly a key and
strategic industry for the United States. It's no secret that
software itself in the development of the industry were not
caused by the patent incentives, but still, the patent system is
part of the incentive structure which is necessary to the contin-
ued development of many software firms.

Moreover, the efforts of the United States Government to promote
U.S. trade interests abroad and even to advocate changes in the
intellectual property laws of other countries are severely under-
mined if the U.S. intellectual property laws and regulations fail
to encourage successes of key U.S. industries at home. One such
key tstry is clearly software.

I do ask for your indulgence, Honorable Commissioner, in address-
ing a slightly broader question than the primary topic indicated
above. As a sole practitioner I've come close to the plight of
the solo inventor affected by the substantially increased PTO
fees promulgated by prior administrations. Particularly the
maintenance fees are believed to be a disincentive which may dis-
suade individuals from even initiating the process of obtaining
patent protection.

But the cost of patenting which is born today by inventors and
companies is softened by the Silicon Valley spirit of self_help
which has characterized the American spirit since the days of
George Washington and Thomas Jefferson.

An example of this self_help is the Sunnyvale Patent Information
Clearinghouse. Self_help, and necessity, have additionally
spawned in Silicon Valley a substantial venture capital community
which is selectively supportive of the efforts of individual in-
ventors. This spirit of self_help is additioxy shown by many lo-
cal firms and companies which have opened offices in Washington,
D.C., and its surrounding communities of Virginia and Maryland.

We do salute you, Mr. Commissioner, and distinguished Panel for
coming here to California. We clearly need your help, not just
with regard to improving the laws and the regulatory environment
as it relates to patents, but also with regard to the infrastruc-
ture in which patent and invention processes play themselves out
in the United States.

The U.S. Government has facilities, buildings and courthouses
throughout the nation. These facilities and buildings have many
purposes. Federal courthouses now hear patent lawsuits in San
Jose as well as in San Francisco, and in cities throughout the
country.

It is clear that our country has developed elaborate mechanisms
for facilitating and resolving disputes between litigants and pa-
tent lawsuits. However, we have done pitifully little at the
Federal level to enable the solo inventor to search for prior art
and eff|vely to limit the scope of claims to his fields or her
fields of rightful entitlement. Mr. Commissioner, accordingly
we're very happy to have you here today in this convention
center.

We believe as a minimum the West Coast deserves a branch of the
USPTO having at least search facilities to support the software,
the semiconductor and the electronics industries that have
developed the infrastructure of the American West so extensively.
Perhaps the availability of public search rooms for inventors is
not a matter for the Department of Commerce, but rather for the
Department of Education. But whether the Commissioner of Patents
and Trademarks takes the initiative or whether another Federal
agency takes the lead, it is clear that many communities in our
country need access to the technical collections and patents of
the Federal Government.

The facilities for obtaining prior art in Sunnyvale are clearly
needed. But in most communities of America, such facilities are
nonexistent. Moreover, solo inventors seldom in a position to
invest in a state_of_the_art CD_ROM system or computer search
services in view of their high cost. The Information Superhigh-
way offers a bright vision of a technological future. Will there
be facilities to provide public access to information carried in
this superhighway?

The Patent Office can provide such facilities to bring the fruits
of this superhighway of information to our inventors, to the
young in America who thirst for knowledge and progress, and to
the public at large.

The physical facilities of the Department of Commerce and the Un-
ited States Patent and Trademark Office are needed in our local
communities to implement the purposes of the intellectual proper-
ty laws of our country. America wants to build its future by edu-
cating the inventors of the future. We need public search facil-
ities for the electronic arts wherever major electronics develop-
ments are being made, in California, in Austin, Texas, in Dallas,
in Colorado, along with many other communities across Ama.

We need biotechnology search facilities in Emeryville, Califor-
nia, and in Cambridge, Massachusetts, and in other communities of
the nation, and we need software search facilities in the
nation's software development centers including but not limited
to such areas as Seattle and Silicon Valley. The German example
for one shows that search facilities and examination facilities
need not necessarily be located in the same cities.

The resources and the facilities of the PTO should be distributed
at various locations across America to provide public access to
the prior art regarding technological developments which have al-
ready become known. We salute you, Mr. Commissioner, for coming
to California to address the vital subject of patenting
software_related inventions in this public forum. The California
economy is improving, but it remains disastrously understimulat-
ed. Because of the size of California's economy it can either
drive or hamstring recovery on the national scale.

The questions raised at thiblic hearing have a direct and vital
bearing on the economic well_being of California. We thus appre-
ciate your coming to guide these hearings.

To focus more definitely on the subject of patenting
software_related inventions, it is my belief and that of many
participants in the World Intellectual Property and Trade Forum
that there is no substitute for the development of an increased
body of software art available to patent examiners. With a prop-
erly classified and complete body of prior art the searching and
the examination of new patent applications will be enhanced.

The World Intellectual Property and Trade Forum salutes the
corrective action of the Commissioner in connection with the
reexamination of Compton's multimedia patent. This reexamination
process clearly shows that even though applicable prior art was
not initially available to the examiner, there are mechanisms for
addressing questions of patentability even after grant of a pa-
tent, but certainly it would be optimal if the applicable art
heen found and addressed during actual examination.

One way to ensure an effective and complete body of prior art in
the field of software patents is to relax the policies of the PTO
with respect to the patentability of mathematical algorithms.
Considerable room for relaxation is available even within the
bounds of current case law on the subject. Many new inventions
beneficial to the developing field of software may currently not
even be the subject of patent applications because of the chil-
ling effects of the PTO's restrictive approach to the patentabil-
ity of software.

Insufficient software prior art limits the ability of the PTO to
examine effectively future software_related patent applications,
including pure software patent applications. The distinction
between hardware and software approaches to the same problems has
blurred technologically. This distinction should be blurred and
eliminated in the bureaucratic spaces of the Patent and Trademark
Office as well.

Patent examiners should rely leeavily on the Section 101 as a
basis for rejecting software_related inventions. With an increas-
ing body of prior art established by greater flexibility in al-
lowing software_related patents, examiners will be encouraged to
make substantive office actions based upon technical art rather
than merely implementing policy articulated by agency representa-
tives.

One object of the patent system is to encourage progress in the
arts by publication of inventions. The effect of patent grant is
to add to the body of detailed technical information comprised in
issued patent documents. When a Section 101 rejection is suc-
cessfully asserted by the PTO, the practical effect is to deny
future software developers of the benefit of full patent disclo-
sure. This hampers the development of new ideas in many techni-
cal fields, including multimedia software generally and even
biotechnology which is to an extent dependent on progress in the
field of data systems for its instrumentation to be effective.

We thank you again, Honorabommissioner, for coming here and con-
ducting these hearings.

COMMISSIONER LEHMAN: Thank you very much, Mr. Sabath. I just
point out that we do have patent depository libraries all over
the United States and I think there are several on this area,
probably one at Stanford and Berkeley, and they actually have
everything we have in the Patent Office there, and that is avail-
able to the public. In addition, we're automating the Patent and
Trademark Office, and in fact right now if you're in Arlington
you can go into the __ in fact, Group 2300 is fully automated al-
ready, and if you go into our patent search room in Washington,
we've got a facility there where you can actually get computer
retrieval of the patent documentation and we have plans to extend
that to the patent depository library so that you'll be able to
come out here and do the same thing. And eventually, hopefully
in a few more years, we'll actually have this service available
through the Internet. We're not quite there technologically yet,
butry engineer and computer scientist in Silicon Valley will just
be able to, in a few keystrokes, get access to our patent data-
base. We think that's not only going to help people understand
what the patent prior art is but hopefully it will give them ac-
cess to some of the technology more easily than they otherwise
would have, so we are indeed, I think, making some progress on
that problem.

Thank you very much.

MR. SABATH: Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Mr. William Benman of
Benman & Collins. And Mr. Benman is the last speaker for this
morning. We're pretty much right on target on our time. Thank
you for joining us.

WILLIAM BENMAN

BENMAN & COLLINS

MR. BENMAN: And as someone that hasn't had breakfast, I assure
you that my testimony will be brief!

Commissioner LEHMAN, thank you for hearing me on the question of
the patenting of software_related inventions. I commend you for
taking testimony on this important topic.

I'm a partner with the intellectual property firm of Benman, Col-
lins and Sawyer, with offices in Palo Alto, Los Angeles and Tuc-
son. We have prepared and prosecuted numerous applications on
software_related inventions, and we offer this testimony in the
hope that our experience in this regard maybe of some value in
connection with your effort to sample public opinion on this to-
pic.

Since the early 1980s, we in the community of patent lawyers who
are preparing and prosecuting patent applications on
software_related inventions observed two thrusts, one in the
direction of copyright protection as the primary if not sole form
of legal protection for software, and the other in the direction
of patents where patent protection was available. We notice that
those companies that were patent_conscious were most likely to
exploit the patent option. Many of the companies which did not
utilize the patent option were often new or young software com-
panies which were not patent_conscious per se. The plight of
these companies was compounded by their reliance on nsel from
lawyers that were typically not patent lawyers with experience in
the field. These lawyers held themselves out as experts in com-
puter law and high_tech law, but typically held a mistaken notion
that software was not patentable, although patents had already
been issued for software_related inventions. To this day, many
uninformed attorneys either advise their clients that patent pro-
tection is not available for software, or they criticize the pa-
tent system as too costly and cumbersome for the protection of
software. As a result these attorneys have either generally
steered their clients away from patents as an appropriate form of
protection or neglected to advise their clients to seek counsel
from an attorney having experience in the patenting of software.
Hence, for many years now, many software publishers have been
lured by the ease and low cost of copyright protection without
being properly advised of the shortcomings of same nor the avai-
lability and advantages of patent protection.

As ea$as ten years ago we began to suspect that the copyright
holders would someday become aware of the limitations of copy-
right protection when it became necessary to enforce the copy-
rights. We expected that they would seek a more substantive form
of protection such as that currently afforded by the patent sys-
tem. This has now come to pass as the software industry has be-
come aware of the shortcomings of copyright protection often as a
result of painful and costly court battles. The lawyers guiding
these firms away from patents have now essentially painted them-
selves into a corner, having failed to stretch the scope of copy-
right protection to cover substantially more than the form of the
software and not the underlying inventive aspects thereof. These
attorneys have now marshalled some software publishers behind
their effort to escape from the situation by criticizing the
current patent system as unwieldy for software, advocating in-
stead some new form of protection for software that would protect
the underly(concepts without a rigorous examination process.
They are supported in their efforts by recent admissions by the
Patent Office of a shortage of prior art in PTO files to facili-
tate the examination of software_based applications. It would
appear that many now desire the ease and low cost of the copy-
right system with the substantive protection afforded by the pa-
tent system.

It would clearly be adverse to the public interest, in our view,
to grant such monopolies without a substantive examination of the
application. Yet, in our view, any system which involved a sub-
stantive examination of such applications would be essentially
equivalent to the present system. Hence we seek to speak for
those attorneys who are registered to practice before the Patent
and Trademark Office and experienced in the protection of
software in expressing our view that the present system of exami-
nation for software_related inventions and innovations is, though
not perfect, adequate and appropriate for the protection of
software.,irst we feel compelled to mention that many of the con-
cerns in the industry would be adequately addressed by educating
the industry about the patent process by those qualified to do
so. We believe that it is unethical for any attorney to advise a
client not to seek patent protection for inventions whether
software_related or not, if the attorney giving the advice is not
skilled in the field.

The process by which attorneys are admitted to practice before
the Office is intended to protect the public interest by ensuring
that those that hold themselves out as qualified to practice be-
fore the office are indeed so_qualified. Unfortunately the
software industry has grown up on an unhealthy of poor counsel
with respect to intellectual property issues pertaining to
software. It is no wonder then that it now has a bit of indiges-
tion and needs some relief. We feel that the present system of
examination if properly administered can provide that relief, and
allow me to briefly address some of the perceived proble0ith the
present system.

One of the perceived problems is that the Patent Office will is-
sue patents on inventions already in the public domain. That's
been touched on by some of the speakers earlier this morning.
Another problem is that the patent process is costly and there-
fore available only to big companies, and a third often_heard
complaint is that the patent process is too slow.

First, with respect to the concern that the Patent Office will
issue patents on innovations that are known and used by others in
the industry, let me say that to the extent that this is a real
problem, it is no different for the software industry than for
other areas of technology. There are at least three levels of
safeguards by which this perceived problem may be addressed by
the current system. First, the Patent Office is currently in the
process, as I understand, of providing the examining corps with
the capability to search beyond PTO files to the on_line
computer_searchable databases, such as those accessed through
th4alog system. This will facilitate a more thorough examination
of the prior art including technical literature, new_product an-
nouncements and et cetera, minimizing ab initio the probability
of a patent issuing on an innovation which lacks novelty or is
obvious in view of such art.

To the extent that the innovation is known by others but is not
published and therefore inaccessible to this approach, the next
level of safeguard should be considered. However, it should be
noted again that software_related applications do not differ from
other applications in this regard. The second safeguard is af-
forded by the current reexamination process. Those who are aware
of prior art which might render a patent issued on a
software_based application invalid may initiate a reexamination
of the patent, and I commend you for your intent to improve that
process. A third safeguard results from the practical realities
of patent enforcement. The cost of patent litigation are suffi-
ciently high that one holding a patent of8stionable validity on
software would think twice before instituting a court battle when
advised of prior art which would invalidate the patent. Hence
there are clearly several current safeguards to address this
first concern.

The second concern, that the patent process is costly and there-
fore only available to big companies must be considered in light
of the fact that in other areas of technology, patent filings by
small companies and individuals are quite high. In recognition of
the value of innovations provided by small entities and individu-
als, those that qualify are entitled to pay reduced filing fees.
In addition, it will soon be appreciated that in the software in-
dustry, as in other industries, the total cost of procuring a pa-
tent, typically somewhere between five thousand fifteen thousand
dollars depending upon what part of the country you're in, is
small compared to the value of patents and certainly small com-
pared to the cost of copyright litigation. While patents are more
expensive to acqui<han copyrights, the old axiom, "You get what
you pay for," comes to mind.

Finally with respect to the concern that the patent process is
too slow, we have a suggestion. You might consider an expedited
examination on the basis of a higher filing fee for those that
would like to see their patents issued quickly or be prosecuted
quickly.

Our concerns as practitioners with the patent system relate to
the manner by which the examiners are currently applying the PTO
test, and the extent to which the current PTO test is out of con-
formity with the position of the Court of Appeals for the Federal
Circuit, and in that regard I'd simply like to complete my re-
marks by saying that we're very much encouraged by the position
taken by the Board with respect to the Veldhuis opinion, to the
extent that that is in conformity with the Arrhythmia decision of
the Court of Appeals for the Federal Circuit.

So to conclude, it's our opinion that what is needed in the sys-
tem is an adoption by the patent office of a test that'@nsistent
with the case law, a cadre of examiners that understand how to
apply this test, and in this regard I should note that I think
Mr. Goldberg has done an excellent job of training the examiners,
but __ they're coming along, but with a little more help from us
practitioners on the outside I think they'll get it right at some
point. But I would advise any company or individual with a
software_related invention to consult with a qualified attorney,
experienced in the preparation and prosecution of
software_related patent applications with respect to the advan-
tages and disadvantages of the various forms of protection.

With these elements in place, all concerned will recognize the
viability of the current system of examination with respect to
software_related inventions and innovations.

Thank you.

COMMISSIONER LEHMAN: Basically it's your position that we don't
have much of a problem, right now, as I understand it.

MR. BENMAN: That's basically my position. I favor the current
system. I think that D we get the bugs worked out, when you ac-
cess the other sources of prior art, everybody will find that the
system works pretty well.

COMMISSIONER LEHMAN: Do any of my colleagues have any questions
or concluding remarks for this morning? If not, we will recon-
vene at 2:00 o'clock, at which time we will hear from Mr. Jerry
Baker, Vice_President of the Oracle Corporation.

(Noon recess)

JANUARY 26, 1994

AFTERNOON SESSION

__o0o__

COMMISSIONER LEHMAN: Looks like we have a somewhat_dwindled
group, but still an impressive audience for this afternoon.
Thanks for sticking with us.

Our next witness, to start us off this afternoon, is going to be
Jerry Baker, Senior Vice_President of the Oracle Corporation, and
please accept our apologies, Mr. Baker, for our starting a couple
minutes late. Do you want to come forward?

__o0o__

JERRY BAKER

ORACLE CORPORATION

MR. BAKER: Good afternoon, distinguished representatives of the
United States Patent and Trademark Office, and members of the
public. I am Jerry Baker, Senior Vice_President of Oracle Corpora-
tion and head of the company's product line development organiza-
tion.

Oracle is now a one and one half billion dollar company employing
over eleven thousand people worldwide. At Oracle we believe that
patents are inappropriate means for protecting software and are
concerned that the patent system is on the brink of having a de-
vastating impact on the software industry. In our opinion, copy-
right and trade secret law is satisfactory to protect the
developer's rights in software and to promote innovation in our
industry.

I commend you, Commissioner LEHMAN, for the foresightedness to
recognize this imminent threat, and to hold these hearings. This
Administration has shown tremendous strength of character by
raising such fundamental questions about its mission and objec-
tives, and I applaud you for doing so. As we proceed through
these hearings let us always keep sight of the U.S. Constitution-
al mandate for the patent system, to promote the progressLscience
and useful arts. I cannot find any evidence that patents for
software will tend to achieve this purpose. indeed, every indica-
tion is to the contrary.

I will attempt to explain Oracle's thesis within the framework of
the questions the PTO has propounded for this hearing. First, you
ask, "What aspects of software_related invention should or should
not be protectable through the patent system?" The examples
specified in the question illustrate part of the problem.
Software is fundamentally different from what the PTO is used to
seeing. In many other industries the policy rationale for patent
protection is understandable. In exchange for making their in-
ventions available to the public, patent holders are rewarded
with a seventeen_year monopoly, giving them exclusive right to
this new technology. In cases where an inventor has committed
substantial capital resources to the invention, this opportunity
to monopolize the commercial application of the invention is jus-
tified not simply as a reward Pas an incentive to motivate the
developer to dedicate time and money necessary for innovation,
design, production, marketing and distribution.

This policy, however, does not fit well with the software indus-
try. Unlike many manufacturing_intensive industries, innovation
and development of software products is very rapid. Although
there may be substantial development expenditure, there is an ab-
sence of tooling and production is accomplished almost instan-
taneously. As a result, software improvements are quickly incor-
porated into new versions, making product cycles very short. Be-
cause a patent takes two or more years from application to is-
suance, well into a product's projected life cycle, patents do
not motivate companies to invest in the development, design, pro-
duction and distribution of their products. In this environment
a seventeen_year monopoly is completely out of context with in-
dustry reality.

Software varies from manufacturing in another key aspect. The en-
gineering and mechanical inventionTr which patent protection was
devised are often characterized by large building_block inven-
tions that can revolutionize a given mechanical process.
Software seldom includes substantial leaps in technology, but
rather consists of adept combinations of several ideas. A com-
plex program may contain numerous established concepts and algo-
rithms as well as a multitude of innovative ideas. Whether a
software program is a good one does not generally depend as much
on the newness of each specific technique, but instead depends on
how well these are incorporated into the unique combination of
known algorithms and methods. Patents simply should not protect
such a technology.

The scope of what is protectable is a core issue with tremendous
impact to anyone in the software industry. Oracle's answer to
your question is that none of the cited examples should be pro-
tectable with the possible exception of Example F, which is not
truly a software innovation, but rather an otherwise_patentable
invention that just happeXo be implemented on a computer.

Next, although Oracle has not yet been a defendant in a patent
infringement suit, it is probably just a matter of time before we
are. Our engineers and patent counsel have advised me that it may
be virtually impossible to develop a complicated software product
today without infringing numerous broad existing patents. Since
the validity of many issued software patents is highly question-
able and because Oracle is a company with sizeable resources with
which to defend a lawsuit, many patent holders must be reticent
to litigate an infringement action against us. Further, as a de-
fensive strategy, Oracle has expended substantial money and ef-
fort to protect itself by selectively applying for patents which
will present the best opportunities for cross_licensing between
Oracle and other companies who may allege patent infringement.
If such a claimant is also a software developer and marketer, we
would hope to be able to use our pending patent applications to
cross_license and c0e our business unchanged.

But not all infringement plaintiffs are in the software business,
and we would be forced to either pay royalties or risk an expen-
sive lawsuit. Thus, to answer your next question, only if patent
eligibility standards were dramatically limited could we expect
to see a positive implication in the industry. And most positive
would be for no software to be patentable at all.

Your next question takes us back to the Constitutional issue. Do
software patents promote innovation in the field of software?

The U.S. software industry has evolved to a multibillion dollar
industry that leads the world in productivity and accounts for a
substantial portion of the U.S. GDP. The software industry has
advanced the efficiency of other industries through the proli-
feration of computing and computer_controlled processes. All of
these gains have come prior to the application of the patent pro-
cess to software, and consequently without patent protection for
software. Software companies succe`nly because they continue to
be innovative in bringing new and better products to the market,
and these very market forces will continue to drive the software
industry without patenting of software.

Finally, you asked whether a new form of protection for computer
programs is needed. We do not believe one is necessary. Existing
copyright law and available trade secret protections have proved
very well suited to protecting computer software and they have
done so in a manner that is not disruptive to software develop-
ment. Copyright protects software as soon as it is written,
without the expenditure of time and money on prior art searches
and registration. Since computer software is considered a work
of authorship under copyright law, the entire software program
including each portion of code as well as the derivatives thereof
are protected from copying. Developers may write software code
without fear of infringing the rights of others, so long as they
do not copy other developer's works. Copyright lawdourages inno-
vation since it allows everyone to take advantage of improvements
in technology while protecting developers from having their
specific works copied or appropriated.

At the same time, trade secret law protects developments that
have not been disclosed beyond the development team. Many com-
panies are successful in using trade secrets to establish market
prominence, while the competition hurries to catch up.

Oracle has recommended that patent protection be eliminated for
computer software and computer software algorithms because
software patents are failing to achieve the Constitutional man-
date of promoting innovation and indeed are having a chilling ef-
fect on innovative activity in our industry and because software
is fundamentally different from manufactured products and these
differences justify different treatment under the law.

Nevertheless, if patent law continues to apply to software, we
believe that fundamental changes must be made in patent policy
and procedure. Our recommendations ho way endorse the use of pa-
tents for protecting software, but the recommended changes could
serve to assuage the existing problems if patents must ultimately
affect software development.

However, we believe that making the necessary changes to the pa-
tent system will prove to be highly difficult to achieve. Patent
law must be consistent throughout the world, and if it is to be
applicable to software, it should encompass much shorter periods
of protection than exist now, unified prior art searching capa-
bilities, equal standards of novelty, the elimination of patent
rules that allow patent flooding, and identical standards for
prior_use restriction.

Because the evolution of software moves very quickly, the term of
software protection should be cut back accordingly from the
current seventeen years from grant date to three years from the
application date, that is, the application period must be dramat-
ically reduced. A balance of fifty years protection for direct
copying of code would continue to be provilby copyright law.

Also key to the success of the patent system for the software in-
dustry are the following changes. First, the prior art capabili-
ties of PTO workers must be vastly improved to conform effective-
ly the novelty and nonobviousness of the software patent that is
the subject of applications. New classifications as well as an
effort to record the current state of prior art would be neces-
sary. This is conceptually a daunting task. Most software inno-
vation is not recorded for public availability. Instead it is
held as trade secrets.

The Software Patent Institute has been formed to build a database
to assist the PTO with finding prior art, and while the SPI's in-
tentions are admirable, it is inconceivable that developers,
small and large, will be willing to give up their trade secrets
or even to devote the substantial time needed to evaluate, draft
and submit evidence of existing art to the SPI database.

Second, because the unusual speed with which software innovations
are incorporated inpducts, the PTO's patent review process must
be made more efficient. It should take no more than six months
from application to registration. In the software industry where
a patent application typically takes two or more years to pro-
cess, the patented invention is frequently either widely used or
obsolete by the time the registration is issued and the public
discovers it is protected by a patent.

Third, examiners skilled in computer science and software pro-
gramming must be trained on the nature of software inventions and
the state of existing art. Many more qualified examiners must be
employed at the PTO. Compensation rates equal to those provided
by the industry are essential to recruit qualified personnel and
to retain them at the PTO.

Fourth, the PTO in conjunction with industry must establish addi-
tional committees to clearly delineate the standards of novelty
and nonobviousness that will be required for software inventions
to receive patents.

Thank you for affording me the opportunity to speaktay. I again
commend the PTO for its willingness to face this very difficult
but extremely important issue.

COMMISSIONER LEHMAN: Thank you very much, Mr. Baker, I really
appreciate your coming to us. I would love to ask a bunch of
questions, but I think since we got a little bit of a late start
we move on, so, thank you.

Next I'd like to call Carl Silverman, Chief Counsel at Intel Cor-
poration.

CARL SILVERMAN

INTEL CORPORATION

MR. SILVERMAN: I thank you. Good afternoon. My name is Carl
Silverman, Chief Counsel, Intellectual Property for Intel Cor-
poration. We understand that the Patent and Trademark Office is
interested in obtaining public input on issues associated with
the patenting of software_related inventions, and we're pleased
that the Patent and Trademark Office invited us here today to
briefly testify.

Software technology has become an integral part of virtually all
of U.S. industry, as innovators strive to develop new and im-
proved products in today's competitive, worldwide marxlace. Now,
this technology includes pure software, and software which is
combined with hardware, so for example, Intel Corporation, like
other successful high_technology companies, invests the efforts
of its engineers and large sums of money, the shareholders' mo-
ney, to develop software_related technology. In 1993 alone, In-
tel Corporation invested nearly one billion dollars in research
and development, including a substantial amount in
software_related technology. We also, we, Intel Corporation,
also invested nearly two billion dollars in capital to build fac-
tories so that we can build these advanced products.

These advanced products include products such as our Pentium pro-
cessor. This is a microprocessor with more than three million
transistors on a single chip. This microprocessor product in-
cludes software technology in the form of microcode and other
computer programs.

Now, to protect and encourage this kind of vast U.S. investment,
and I'm referring to both the technical as well as the
financ|aspects, and, to promote the development of new and im-
proved products, we at Intel believe that software_related tech-
nology should continue to be afforded the opportunity to obtain
patent protection.

The patent system has consistently provided an incentive to ex-
pend the kind of technical and financial efforts previously tes-
tified to to develop new technology, including software_related
technology. In the United States the Patent and Trademark Office
carefully examines every patent application against prior art to
insure that only the novel and nonobvious inventions obtain pa-
tent protection. Software_related technology is no different.

We support the current statutory law concerning patents as well
as its interpretation by the courts as relating to
software_related inventions. We are currently aware of no alter-
native to the patenting of software_related inventions that will
better_serve our industry than the current patent laws.

Further, we believe it would be a mistake to treat the patenting
of sare_related inventions differently than the patenting of oth-
er utility inventions. In this regard, Patent and Trademark Of-
fice and the courts should be left free to develop the extent of
patent protection for software_related inventions and its enfor-
ceability on a case_by_case basis until such time as it is ap-
parent that the courts are not up to the task. This time is not
at hand, rather, the courts for the most part are both interested
and concerned about protecting innovative technologies such as
software_related inventions.

Now, this is not to say that the current system for patenting
software_related inventions is not without opportunity for im-
provement. For example: We understand that the Patent and Trade-
mark Office is working to improve its library of software prior
art so as to improve its ability to examine patent applications
in this area. We support this effort. We urge the Patent and
Trademark Office to increase its capability to examine
software_related patent applications by taking whatesteps neces-
sary to establish the best prior art software library and to in-
crease and_or redeploy the number of patent examiners who are
knowledgeable in this crucial area.

On behalf of Intel Corporation we thank you for providing us with
the opportunity to present our views on this subject, and we are
delighted that the Patent and Trademark Office has encouraged
this free flow of ideas so that we as a country can do the right
thing here.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Silverman.

What's your view on the idea of prepublication that has been men-
tioned several times this morning here, that that would be one
way of making certain that we wouldn't overlook some priority
that we might already have missed.

MR. SILVERMAN: I apologize, Mr. Commissioner, for not being here
this morning; I know generally the subject of publication, and
oftentimes patent applications end up being published anyway as
they're filed in non_U.S. jurisdictions, and I think that is
perhaps a vehicle whichd simplify some of the issues that are in-
volved here. So I think we're open on that one.

COMMISSIONER LEHMAN: So you don't find that inherently offensive
at Intel.

MR. SILVERMAN: No, I don't.

COMMISSIONER LEHMAN: One other question, too, and that is, you
know, I remember the last time that I was in San Jose actually
was sixteen years ago, and we were at the other end of downtown
here at the old Santa Clara County Courthouse, and we had the
first set of hearings. At that time I was Counsel of the House
Judiciary Committee, and we had our first set of hearings that
led ultimately to the legislation that became the Semiconductor
Chip Protection Act of 1984, and Intel was a primary component of
that. You were having problems with unauthorized reproduction of
your semiconductor chips way back then, and ultimately Congress
responded by creating a new form of intellectual property protec-
tion, and I'm wondering if you have any thoughts as to how that
system is working and is the existing patent, copyrighd mass
works protection regime adequate, or in your particular area do
you feel a need for either a strengthening of the mass works
legislation or some alternative to that?

MR. SILVERMAN: The Mask Works Act, I think, was very necessary
at the time in which it was created, and I think it's been suc-
cessful with regard to those who would copy other person's or
company's products. I think it's been effective there. I think
these days, however, it forms a piece of the overall intellectual
property protection available in this country. I think it made a
lot of sense to do that then. I don't think it makes any sense
to do a similar type of protection mechanism for software_related
inventions.

COMMISSIONER LEHMAN: Basically you feel that you have an exist-
ing intellectual property regime with these three forms of pro-
tections that meets your needs, and it's really a question of
tightening up on it, and I know you have strong international
concerns, but it's really a question of enforcement and tighten-
ing uhere's no really fundamental problem with it.

MR. SILVERMAN: That's correct.

COMMISSIONER LEHMAN: Okay. Thank you very much.

Next I'd like to call Kaye Caldwell, President of the Software
Entrepreneurs Forum. Maybe you can tell us a little bit about
what your forum is, too. It seems to me you were at the Bree
conferences before, weren't you?

KAYE CALDWELL

SOFTWARE ENTREPRENEURS FORUM

MS. CALDWELL: Yes. I work with a lot of different software or-
ganizations and I'm speaking for the Software Entrepreneurs Forum
today. I'm the President of that organization. I'm also the
Legislative Awareness Director. SEF, as we this Software En-
trepreneurs Forum, is a ten_year_old nonprofit organization of
over one thousand present and future software developers. Nearly
all of them are located in the Silicon Valley. We have monthly
dinner meetings which attract over two hundred people and we've
had as many as six hundred people. We also have eleven
special_interest groups that each hold monthly meetion a variety
of technical and business topics. Our members are mostly small
companies, and I think our idea of small is probably not the same
as your idea of small. By small I mean one to five people in the
company, very small.

The U.S. software industry is unique in that it includes a large
number of very small companies. We have a thousand members just
in the San Francisco Bay Area. Many of these small companies are
responsible for the most creative new software developments. In
the early days of microcomputer software development, nearly all
software was created by individuals working on their own with one
or two associates; yet these types of development environments
were responsible for early word processors, spreadsheets and ac-
counting software. In earlier generations of hardware, I'm told
that it was also the case that one_ or two_person companies were
a major factor in leading innovations. Even today much software
marketed by large software companies is initially developed by
small, indepen software developers.

SEF's mission is to help these small companies succeed. While SEF
is local to Silicon Valley, we feel that SEF members are
representative of the thousands of software entrepreneurs
throughout the United States. Our members have different opinions
on software patentability, indeed you're hearing from at least
two of our members at other points during this hearing. Some of
our members are patent holders and are strongly in favor of broad
patent software protection. Other members are against software
patents entirely. However, there are issues on which SEF members
are in general agreement. Our members feel that the patent sys-
tem favors large companies over small companies, and we feel that
it's important that the patent system both in theory and in prac-
tice should not give big companies an advantage over small ones.

Most of our concerns have to do with Patent Office practices, and
we understand that this subject is scheduled for hearing in
February. We do appreciate the opportu to speak on these issues
today.

To the degree that software is patentable, SEF members want the
patent system to produce good, clear patents, especially where
the patents are important. We want patents to be issued and in-
fringement issues resolved expeditiously.

Uncertainty as to the validity or scope of a patent hurts paten-
tee and possible infringer alike. It makes it difficult to make
decisions, to raise capital, to develop business plans and to
make business decisions. Patents of uncertain scope or validity
are much more damaging to small companies than large ones. Small
companies can rarely afford a good legal analysis on a patent's
scope and validity, and an uncertain situation can often put a
major part of the small company's net worth at risk. The current
patent system seems to encourage litigation. We feel that it's
important to improve the patent system so that it becomes more
self_enforcing.

While we realize that much progress has been made recently in the
ability of the Patent Office eal with software patents, initial
progress needs to be made. In proposing the following recommenda-
tions for consideration we're less concerned with the specific
suggestions than we are in highlighting what we see as problems
and in stimulating the Patent Office to solve them.

Our first recommendation would be that the Patent Office should
continue to improve its prior art database by adding to it text-
books, scholarly articles, user manuals of commercial products
and nonpatent prior art cited in existing and pending
software_related patents. This would be particularly effective if
such art could be added to the PTO's computerized database, but
also be useful to review the trade publications for the last ten
years to identify significant software products or product
enhancements so that their manuals could be included in the data-
base.

Our second recommendation is that we realize that patent exa-
miners must have both technical ability and a knowledge of how to
apply legal principles to determine patentab$y. We encourage the
Patent Office's recruiting of examiners with computer science
knowledge. We encourage the Patent Office to continue to improve
the quality and expertise of its patent examiners and software.
We particularly suggest increasing the pay and professional sta-
ture of examiners so that more examiners see it as a professional
career rather than just a stepping stone to private practice; I
think you've heard those suggestions earlier also.

We also suggest putting a high priority on identifying and exped-
itiously examining patents which are likely to be asserted. We
feel that it's important to identify crucial patents and to focus
patent office resources on them as the place that will have the
most real_world effect. The accelerated patent examination ap-
pears to be a mechanism for achieving this, but in practice the
accelerated examination does not seem to be having the desired
effect. We believe the criteria for making the accelerated exam-
ination also serve to select those patents which are(ely to be
asserted, those patents being reexamined, reissued, or where the
patent holder says there's a suspected infringer.

The performance criteria for the Patent Office should give more
weight to the examining of high_priority cases rather than simply
counting numbers of patents examined. We suggest that expediters
be responsible for getting accelerated patents through the system
so they don't get stuck on individual desks. This and other prob-
lems could be reduced by tracking patents based on the length of
time they've been in the Patent Office rather than their length
of time on a particular desk. In brief we believe it's good pub-
lic policy to identify those patents that are likely to be as-
serted and examine them promptly and thoroughly so as to reduce
the uncertainty of the scope of those patents. This way the pa-
tent can take a place in the free_enterprise system as a negoti-
able commodity of reasonably_certain scope.

We understand that the Patent Office is trying out a preexamina-
tion interview. A, understand the way it works, prior to the ex-
amination the examiner, the patentee's lawyer and possibly the
patentee have an interview where they attempt to convey what the
invention is and to identify where relevant nonpatent prior art
might be found. We commend this idea, which we think has poten-
tial to both speed the examination process and create a
better_quality patent. We also commend the Patent Office for
trying out new ideas on an experimental basis to try to improve
the patent process.

We understand that the level of skill and the art needed to
determine obviousness should be supported by printed publica-
tions. We also understand that the determination of obviousness
is a legal question. However, we encourage the patent office to
try to use software professionals and academics to help locate
relevant printed publications which would document the level of
skill in the art.

We also encourage the Patent Office to provide further education
for patent applicants, which includes actual case exa0s illus-
trating how applicants can pursue the question of nonobviousness.
Particularly important would be actual examples outlining the
examiner's reasoning in determining nonobviousness.

We feel that there's a need for better education of the public on
patents in general and software patents in particular. The reex-
amination process should be highlighted as a normal part of the
process. The role of prior art in the reexamination process
should be made known to the public and to the press in order to
reduce the concerns of possible infringers.

The Commissioner has ordered a reexamination of the Compton's
Multimedia patent. We applaud this action as it shows a respect
for the legitimate concerns of possible infringers, especially
small ones. We propose that the Commissioner, as a standard pol-
icy, order reexaminations of patents at no cost on request by
small entities which both present evidence that they've been
given notice on the patent and produce prior art or other evi-
dence of invalidity.

In the in4sts of reducing the time and expense it takes to deter-
mine the validity and scope of patents, we propose that the law
be changed in the following ways. A, have Federal judges remand
all validity issues to the Patent Office for reconsideration.
The courts should still be able to review such actions. B, re-
quire that anyone representing a possible infringer who has prior
art on a patent send that prior art to the patent office for sub-
mission into the patent's file wrapper. The penalty for not doing
so would be that the possible infringer could not use such prior
art to challenge the validity of the patent. C, limit the number
of reexaminations on any one patent to two except under extremely
unusual cases, in order to bring forth prior art at an early
point; require rather than allow that the Patent Office consider
all previously_unconsidered art in a file wrapper at any reexami-
nation, provided such prior art is filed at some time prior to
three months after the reexamination notice is published.

Finall8e would encourage the Patent Office to take full advantage
of public participation in the patent process by making their
internal prior art database available on electronic form via the
Internet as well as placing notices of reexamination on the In-
ternet. You spoke about this earlier today, and mentioned that
this was a goal to be achieved several years down the road. Here
in California there was a law passed last year that went into ef-
fect January 1st to put all pending legislation on the Internet.
Last Friday that system went on_line. It took them three weeks.
You might want to speak a little bit to Jim Warren who's testify-
ing tomorrow morning. He was very much involved in getting this
legislation passed and in getting this system implemented. So I
think he could probably tell you something about that process.

We expect that the effects of these suggestions would be to force
out prior art early on so as to more quickly determine the scope
and validity of the patents.

Commissioner LEHMAN, I'd li<o thank you for holding these hear-
ings here in Silicon Valley and for giving us the opportunity to
speak. Thank you.

COMMISSIONER LEHMAN: Thank you very much. I want to commend you
for a very interesting catalogue of suggestions, and I think it's
very gratifying how a group of individual inventors like yours,
not a big corporation, can really give so much thought to some-
thing like this and come up with so many very intriguing recom-
mendations that we're going to be looking at, and on that ques-
tion of the __ putting our system on the Internet, I would just
make an observation that the quantity of data in our files is a
little bit larger than the legislation currently pending before
the California Legislature, and there are a few more technical
problems, but one of the things maybe if I can put in an adver-
tisement, we have openings for two positions now in the Patent
and Trademark Office, basically the two top people who ran our
information systems program for the last seven years have re-
tired. So we're @uiting for new people to take this over.

Obviously I think one of the problems we have now, there was a
suggestion earlier that maybe we ought to move the Patent Office
out here, and maybe we should move at least Group 2300 out here.
I don't know. I see Gerry Goldberg is saying that wouldn't be
such a bad idea, after all we went through in Washington last
week. But this certainly is where the talent is, so I think
we'll be publishing these openings pretty soon, and I think we'll
do some aggressive recruiting out in this part of the world; and
maybe you can help us to get ourselves up to snuff technological-
ly. Maybe it won't be three weeks, but maybe it won't have to be
the years that it's taken us thus far to make these improvements.

Anyway, I wanted to thank you very much for your excellent
suggestions that are really appreciated. Thanks.

Next I'd like to ask Mr. James Chiddix to come forward, who is
Senior Vice_President for Engineering and Technology of
Time_Warner Cable.

JAMES CHID

TIME WARNER CABLE

MR. CHIDDIX: Good afternoon. My name is Jim Chiddix. I'm Senior
Vice_President for Engineering and Technology at Time Warner Ca-
ble. Time Warner Cable is the second_largest cable operator in
the United States.

COMMISSIONER LEHMAN: Can I ask, are you headquartered in New
York or here?

MR. CHIDDIX: Actually in Stamford, Connecticut.

COMMISSIONER LEHMAN: Oh, really.

MR. CHIDDIX: We serve more than seven million subscribers in
thirty_six states. Our parent company, Time_Warner, is the larg-
est owner and distributor of copyrighted material in the world,
and intellectual property rights are something for which we have
great respect.

Two years ago we built the first one hundred and fifty_channel
cable system in Queens, New York, and that remains the most ad-
vanced cable system in the world today. Currently we're building
the country's first electronic superhighway, which we call the
full_service network, in Orlando, Florida, and there we'll offer
a host of high_speed two_way interHve services including video on
demand, interactive shopping, and distance learning. Time Warner
Cable plans to spend more than five billion dollars over the next
five years to deploy full_service networks in the majority of our
service areas across the country.

The Administration and members of Congress have indicated that
building such networks is a national priority. In our experience,
however, the current patent system is working against the
development of an advanced communications infrastructure. Ever
since we announced our full_service network plans, we and our
suppliers have received a number of inquiries from individuals
and companies who purport to have patent rights that cover basic
but to us obvious elements of the information superhighway as
well as traditional cable systems.

I'd like to describe for you two of these patents. The point is
not whether these patents are valid or invalid, or whether any
particular use is infringing or not infringing, although we firm-
ly believe that nothing weL doing infringes on any valid patent.
They do serve to illustrate the current patent system is out of
balance and that rather than promoting the progress of science
and useful arts, that system is stifling such progress.

My first example involves the Cutler patent. The Cutler patent
purports to cover many uses of optical fiber to transmit televi-
sion signals to receivers in the home. This patent was granted
in 1979 and will expire in 1996. The use of fiber, of course, is
basic to the electronic superhighway and has also been used for
many years in traditional cable systems. Indeed, Time Warner Ca-
ble has been a pioneer in the deployment of broad_band optical
fiber in cable systems. The inventor of the Cutler patent did
not invent optical fiber.

Rather he merely filed a patent for using fiber to transport
video signals to the home. The patent statute says that patents
are not to be granted if the subject matter as a whole would have
been obvious at the time the invention was made to a person hav-
ing oPary skill in the art to which subject matter pertains. I'm
not a lawyer, but it seems to me that the idea of using optical
fiber to transport video signals to television sets is not only
obvious, but also inherent in the fiber optic medium itself,
which was conceived as an information conduit. If such a patent
were valid, I would think it would also have been possible to ob-
tain patents after the invention of television for using the
medium to transmit drama, sports or news programming. These,
however, are merely self_evident uses that are inherent in the
medium of television, just like video transport is inherent in
the medium of optical fiber.

My second example involves the Starside patents which purport to
cover a wide variety of features used in connection with elec-
tronic program guides. Electronic program guides are on_screen
guides that provide program listings for channels that are broad-
cast or provided by a cable system. Starside is a number of pa-
tents, but the features I discuss here are puTtedly covered by a
patent granted in 1987 and another that is currently pending be-
fore the Patent Office.

Pursuant to this patented application, Starside apparently claims
and seeks protection for the following electronic program guide
features. First, the ability to move a cursor of
automatically_varying size about on an onscreen program guide, to
highlight a particular program on the schedule and then press a
button on a remote control to tune the channel on which that pro-
gram is being transmitted. Second, the ability to combine two or
more criteria, such as sports and football, to obtain a listing
of the times and channels on which programmings filling those
criteria will be telecast.

Again, to me these features seem obvious and inherent in the
technology that provides them. Daily newspapers have long provid-
ed channel listings, often using a grid format that shows what
programs are on what channel at what time. In addition, indivi-
dual broadcast channels and cable systems have long_telecast
on_sXn programming schedules. When a television viewer uses such
a schedule he finds a program of interest, identifies the chan-
nel, and punches the number into the remote. The Starside system
merely does this tuning process automatically through a straight-
forward transfer of the process to a computer. Similarly, when I
want to watch football games on television, I simply scan the
program schedule for such programs. It would be a simple but
somewhat time_consuming task to write out a list of such pro-
grams, but again, preparing lists from data based on multiple
criteria is a simple, straightforward and obvious computer appli-
cation.

Under existing law, patents for what I've just described may be
valid or invalid. As I said at the beginning of my remarks, how-
ever, in either case, such patents present impediments to pro-
gress. If such patents are found to be valid, surely the patent
system has gone too far in providing protection for what would
seem obvious to a layperson, let alone to a person have ordinary
ski the art. The result of awarding such patents at best results
in added costs for no added value, if a license is obtained, and
at worst prevents consumers from fully realizing the benefits of
technology if a license cannot be obtained at a reasonable price.

If such patents would ultimately be found to be invalid, however,
the patent system would still not be working properly. Some of
the Starside patents are currently being challenged in court.
Business, however, cannot come to a halt in the meantime. Also,
litigation is costly, slow, and never free from risk.

Rather than expend time and money on litigation, many prudent
business people will choose to avoid the problem. Indeed, one of
our suppliers of set_top boxes has informed us that rather than
challenge the Starside patents, they will instead defeature the
boxes they are making for one of our cable systems, removing
ability of those boxes to provide some of the features that Star-
side claims are covered by its patents. This is not an uncommon
o`rational decision. This supplier will be spending many mil-
lions of dollars to manufacture these new boxes. Even though they
believe that Starside patents are not valid, it is simply not
worth the risk and the cost of fighting them in court. Of course
our supplier can always attempt to obtain a license for these
features, but again this would result in added cost for what in
our view provides no real added value.

So in our view, the present system of patent protections is not
optimally promoting innovation in the field of software_related
inventions. Rather, the current system is in some important in-
stances stifling innovation, increasing costs and leading to de-
featuring rather than fostering the development of new and better
products and services. However, it is not the framework of the
system that is the problem. The statutory tests of obviousness,
and the person of ordinary skills standard, in themselves strike
the proper balance.

What is needed then is not a new framework for patent protectiond
software_related inventions, but a more rigorous application of
the present standards. For one thing, obviousness should include
routine applications of a given technology regardless of whether
there is prior art showing that particular application. For
another, any invention that merely transfers a series of routine
tasks to a computer should also be viewed as obvious.

As your Notice for these hearings states, the computer software
industry has evolved into a critical component of the U.S. econo-
my. Indeed, the importance of this component is growing greatly
every day as the computer, cable and telephone industries contin-
ue to converge. If the United States is going to continue to be
a the forefront of these crucial industries, it is imperative
that the patent system be restored to its proper balance so that
it can properly foster rather than frustrate innovation.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Chiddix.
Time_Warner's certainly a company, unlike some of the other peo-
ple whhve testified, who is well_able to use every legal tech-
nique at its disposal to protect its rights, and does so if it
has difficulties. I'm, I __ it's interesting to me that you
haven't __ you have never apparently used the reexamination sys-
tem to attack some of these patents that you disagree with. Is
that because you did not feel the problem was in the prior art
that was examined, that it was more the legal standard that was
applied by the patent examiner, or is there some other reason why
you failed to use the existing examination system?

MR. CHIDDIX: These are both very current cases, and I'm not sure
that all avenues have been explored. The obviousness argument is
one though that even reexamination may not be fully armed to deal
with.

COMMISSIONER LEHMAN: I take it you don't share the view of some
of the witnesses that we should completely eliminate software pa-
tents, rather, we should tighten up on the legal standard of pa-
tentability for software patents.

MR. CHIDDIX: Yes. That's correct.

ClSSIONER LEHMAN: Thank you very much. Are there any other ques-
tions? If not, thank you very much.

Next I'd like to ask Wallace Judd, the President of Mentrix Cor-
poration to come forward if he would please.

Is he not here? In that case I think we'll move on to Robert
May, Ikonic Corporation. Is he here?

Okay, well, then we're __ this is why we ask people to be here at
least twenty minutes ahead of time, the scheduled time, because
we can see what happens.

The next person on my list is Pete Antoniak of Solar Systems
Software. He's not here? Mr. Antoniak is not here? Is Professor
Hollaar here? Good. Since you had to come all the way from
Utah, you're __

MR. HOLLAAR: Early.

COMMISSIONER LEHMAN: You're early. So you'd help us out and
maybe some of these other people will arrive. Thank you very
much, Professor, for joining us.

DENNIS FERNANDEZ

FENWICK AND WEST

MR. FERNANDEZ: Good afternoon, ladies and gentlemen, my name is
Dennis Fernandez. I am a registered patent attorney at the Sili-
con Valley_based technology law firm of Fenwick and West. I am
speaking today on my behalf.

Before practicing law I was an electrical engineer and a techni-
cal manager for several years at various comps in the computer
and electronics industry including NCR, AT&T, Digital Equipment
Corporation, Raytheon, RayCal Limited, where I did semiconductor
chip design and processing as well as managed marketing and dis-
tribution of semiconductor chip products. Currently I specialize
in patent prosecution and litigation in the semiconductor chip
industry.

As you know, in this highly competitive electronics industry, in-
tellectual property protection has become a very important part
of doing business. This afternoon, I wish respectfully to share
with you a few brief comments based on my practical experience in
the semiconductor industry. As an electronics engineer and also
as a legal counsel I believe I can provide many comments on how
software patents have already or might in the future impact the
business interests of semiconductor and software companies in the
Valley, and because of the limited time which has been allotted
for speaking I direct my comments only to a few points which are
relevant to chip design ware.

I believe these comments may reflect the interest of companies
who do business in the area known as electronic design automa-
tion, or, EDA. EDA products refer generally to sophisticated
software written for automating the highly complex process for
designing and testing semiconductor chips and related system
boards.

In this EDA context, I offer comments on the following three
areas, number one, special technical need for software patent
protection; number two, practical timing problems in U.S. pa-
tents, and number three, apparent effect of software patents on
innovation.

First point, which is special technical need for software patent
protection. Because of the highly functional nature of technical
innovations that are developed for EDA software products, patent-
ing seems to be an appropriate way for legal protection. For ex-
ample, EDA software typically includes software programs for syn-
thesizing logic circuits, generating test program vectors or
simulating digital and analog system components$hese software
functions involve fairly abstract ideas, which would not be pro-
tectable ordinarily under copyright law, but would be protectable
under patent method or apparatus claims if sufficiently inven-
tive. Thus, due to the largely functional nature of innovations
in EDA software, I believe that patent protection is appropriate.

Second point. There are practical timing problems in U.S. pa-
tents. There appear to be two practical problems which may apply
to EDA companies with respect to timing related to U.S. patent
applications. First, the seventeen_year patent duration may be
too long. In the context of the EDA industry, where software
products typically have product lives that are less than half
this duration, it might be more appropriate to provide a shorter
period of exclusivity. Second, the current two_ to three_year
backlog in the United States Patent and Trademark Office, espe-
cially in the electronic and software arts, may pose some prob-
lems to companies in the EDA industry, both for those (anies who
wish to enforce their patents during the market window available
for their software products, and also for those companies who
wish to learn about the existence of relevant patents and thereby
avoid them.

Third and last point, the apparent effect of software patents on
innovation. In the highly competitive EDA business, particularly
in the Silicon Valley, it has been my experience in a number of
recent cases that the presence of relevant software patents do
not necessarily serve to impede or deter competitive product
development. Typically, clients in this business tend to be
fairly sophisticated in our understanding of patent enforcement
matters. Furthermore, these individuals are aggressive en-
trepreneurs who are doing pioneering technical work in product
development and are typically backed financially by venture capi-
talist institutions. These individuals often find ways to design
around even what appear initially to be fairly broad patent
claims. Also, it has been my experience that such, clients are
often able to obtain reasonable licensing terms or raise reason-
able arguments for invalidity based on relevant prior art, there-
by providing themselves with opportunities to make, sell or use
their EDA products, possibly without legal liability. It does
not seem to me, therefore, that software patents have necessarily
stifled competition, at least in the electronic design automation
industry at this time.

This concludes my prepared comments. I thank you very much for
your consideration.

COMMISSIONER LEHMAN: Thank you very much, Mr. Fernandez. So ba-
sically the bottom line is that you really don't think we need
fundamental changes in the system, but you think we might want to
deal with certain issues regarding the EDA industry like the ap-
propriateness of length of terms.

MR. FERNANDEZ: Term limits. Yes.

COMMISSIONER LEHMAN: Yes. Thank you very much.

Next I believe that Pete Antoniak has arrived now from Solar Sys-
tems Software, so we can put him back on the agenda. Come for-
ward, ple0

PETE ANTONIAK

SOLAR SYSTEMS SOFTWARE

MR. ANTONIAK: My name is Pete Antoniak and I'm a professional
engineer. I'm looking at the agenda today and see a lot of CEOs,
chairmans of boards, and lawyers, patent agents, et cetera. I
see very few engineers and software developers.

COMMISSIONER LEHMAN: You can probably help us a little bit if
you just make sure that that mike you're talking into __

MR. ANTONIAK: Can you hear me now? Everybody? Good. You see
very few engineers, software developers. I develop educational
game software. I also teach, consult and program for others in
order to supply this software habit of mine. For the past ten
years I've been making about a third as much of money as I was
making as an executive for GTE Sprint, and I do this because I'm
looking for the big payoff, developing the great American
software.

Approximately six years ago I started development of an educa-
tional game concept that I thought was quite unique and I was to-
tally aware that nobody else had4e anything like I was doing. I
attended a seminar up in San Francisco, I believe by
Prentice_Hall, in which I believe somebody from this panel or
somebody from the Patent Office gave a talk and encouraged people
like me to go ahead and get patents on our software. I was sent
some brochures and literature and it seemed like a fairly friend-
ly environment, I said, By golly, I'll do it. I'm the type of
guy that repairs my own car and so I went to it.

When I developed my program, and I can understand from people out
there that, you know, I'm a little naive in this, I wanted a pro-
gram that could make an educational game out of any type of ma-
terial, any subject, any grade level and any language. Particu-
larly I wanted a game that did not require the need of a key-
board, no typing required. And I came up with a very interesting
concept. My game used objects on the computer screen that
represent abstract ideas and concepts. The player moves the ob-
jects around on the screen to represent their relationships.
Th8ncept I developed is simple, compelling and fun, and not only
was there no prior art, but even to this day, and this is six
years after development there still is nobody even doing anything
like I'm doing. I have essentially no infringers.

I purchased and read the book called Patent It Yourself by David
Pressman, which is kind of a bible in this industry of people who
are inventors like me. I also learned that David was a
fellow_member of Mensa, lived in San Francisco and for a fee of
seventy_five dollars a review, now one hundred, would review my
application. I spent six months developing an application, writ-
ing and rewriting it. He had about three or four times to review
it and I sent it in as a patent application.

My first office action came about six months later when all my
claims were rejected on the basis of prior art. Now anybody in
this business understands that this is very common. I was upset
at the time, extremely upset, but have since come to understand
that this is normal. I can't com<n about this as I was told by
somebody in the Patent Office, this is the way the game was
played.

However, what I can complain about is the fact that none of the
prior art had anything to do with computers. I was confronted
with such things as jigsaw puzzles, board games, card games, and
classroom wall charts. One of the prior art patents was a few
months short of one hundred years old. I spent a great deal of
time writing responses, and it was very frustrating. It was un-
believable to me that anyone could even connect my program with
the prior art that was being used. I felt that there was some
kind of a logic gap between me and the examiner. In the end the
examiner maintained that my arguments were not persuasive enough
and I got a final rejection.

I phoned the examiner, and during the interview it came out that
she was a mechanical engineer, did not have a computer and didn't
know much about computers in general. She told me that her exper-
tise was in games. I presented a logical set of arguments@get
her to admit over the phone that the prior art she was using was
absolutely not applicable to my claims.

She then stated that she was sure that there was something out
there, perhaps in child development books or something that du-
plicated my computer game on a table, with three_by_five cards, a
pencil and perhaps a teacher to look over as a referee or a
judge. If she had the time she would find it. I said that a table
was different from a computer in that a table could not know
where those three_by_five cards were, whereas the computer screen
did and could do instant evaluation well beyond the capabilities
of a teacher. She said that I should explain that if I was to
reapply. Well, essentially what I was doing defending an inven-
tion that didn't exist but only in her mind and which she didn't
really tell me about.

She finally requested a different examiner. David Pressman also
advised me to request a different examiner. He even made a few
derogatory comments about my examiner being young and expDnced.
This was the luck of the draw and I just had to live with it.

I resubmitted, respectfully requesting a different examiner,
waited six months, and the first Office action came back, and you
guessed it, I had the same examiner. I went through another frus-
trating round going back and forth. I felt sometimes like I was
arguing with a brick wall and there was some sort of a hidden
agenda that no matter what I said that I wasn't going to get a
patent.

After the final rejection the second time, I traveled to Crystal
City, had an interview with the examiner and her supervisor. I
arranged to use a computer store across the street from the Pa-
tent Office and demonstrated my software. I quickly became
aware, to my dismay, from the examiner's reaction to the program,
that she really didn't even understand what it was that I had
submitted, and more importantly how it worked. This was moot,
however, because just prior to the demonstration her supervisor
had promised that if I were to resubmit again that I Hd get a
different examiner.

I resubmitted a third time, and again was rejected in the initial
office action. However, the tone of the rejection is different.
It was obvious that the new examiner had read the application and
understood it. He pointed out discrepancies in grammar between
the original application and the claims. He pointed out some
tactical errors in the claims and he recommended ways to correct
things. The prior art he introduced seemed more pertinent to the
claim and the invention. I almost cried, not that I had been re-
jected a third time, but because at least I had someone whose at-
titude was not, "How do we get this guy out of here," but, "How
do we get this application in proper order to be patentable."

In the next two weeks I will submit a file wrapper continuation
and start Round 4. The last thing my new examiner told me, howev-
er, when I called him up, was that he is now under pressure be-
cause of the Compton's fiasco, whatever you want to call it, and
that he'd probably be thLng a lot more prior art at me. I'd
rather take a stoic attitude about my experience with my Patent
Office. I'd like to say that an easy patent that has not been
exposed to a lot of prior art is not a patent that would stand up
to a challenge; this has often been said, that if you get a pa-
tent too easy you may have a problem with it later on. However, I
believe that the type of prior art used in my case was so nonap-
plicable as we go to the background, the experience of the exa-
miner, that for all intents and purposes I am starting over, hav-
ing wasted four years, many thousands of dollars in fees, approx-
imately eight man months of my time that I could have been using
in development, in marketing a product.

My claims are not earth_shaking. They're not controversial. They
only protect my program. I will note that even though, and I'd
mentioned before, I haven't shown it to a lot of people, I'm al-
ways aware of what's going out there, I've yet to find anybody
that would be considered an infringer of my prodP I'm a little
guy; I'm the inventor. I'm the software_equivalent of the inven-
tor, and my bottom line in all this is that if the Patent Office
is doing a good job __ I'm not recommending a lot of changes to
the Patent Office __ it's just if they're doing a good job, you
know, I would __ I would probably have a patent right now, or at
least I would know I couldn't get a patent right now. Right now
I've spent a lot of time on absolutely, you know, nonsensible
things. And I kind of consider, like when I took Latin in high
school, you know, it's one of those things to give you some dis-
cipline. I can certainly write a claim. Jeez, you know, I can
do very well. Matter of fact, as a member of the Software En-
trepreneurs Forum I even had a conference about a year and a half
ago in which we had the whole afternoon devoted to doing patents.
I brought in a patent agent and we discussed these things. I'm
pretty much up on it. However, I'd rather have a patent, rather
have the, you know, the rights thereto, thaTmay attain to.

Anyway, that's it, and that's my bottom line, and if I have any
time left, I can entertain any questions.

COMMISSIONER LEHMAN: Thank you very much, Mr. Antoniak. I would
just say that the patent system is not set up to be a pro se sys-
tem, and we have a lot of problems in that and we're here to help
solve those. But part of being a good patent lawyer is to under-
stand the art of lawyering, and oftentimes that involves making
certain that your claims are drawn in such a way that you get to
the right patent_examining group __ doesn't sound like your pa-
tent originally went to Group 2300 __ and that it get to the
right examiner, and I'm very sympathetic with your difficulties
that you had, but I think that when one attempts to bootstrap
their case and you try to do brain surgery self_taught that
you're inevitably going to run into some difficulties, that are
hard for us to try to address in the system.

MR. ANTONIAK: Let me add that all along the way I was using a
patent agent to review eXthing I set in. First it was Pressman
and then it was a registered patent agent here in the Valley who
has done software for the last twenty years. I looked to the Pa-
tent Office like a pro se inventor. In reality, though, every-
thing was checked and rechecked and gone over by a patent agent
who gave sound advice. All along the line they were saying,
"Yes. This is definitely patentable. Matter of fact, what's
somewhat ironic is that when I submitted my thing to Dave Press-
man the first time around, he said somebody else had also submit-
ted something that he said was absolutely not patentable, and
what he was surprised was he sent it in and got a patent right
off the bat with very little problems. I've run into that indi-
vidual because it turned out I know him anyway, and Dave was
surprised that mine had such a hard time getting a patent. Again,
the wording was right, everything was pretty much right, my logic
was right.

I think that the term pro se inventor, you know, have said,
"Okay, here's a catego240 this guy the, you know, the profession-
alism that you'd give perhaps a patent attorney who can call us
on it." Now that's my, that's my personal judgment on this, and
I could well be wrong, but this is an experience; a lot of emo-
tions and a lot of energy's gone into this, and __ you know, what
can I say? I've been __ I've been to Vietnam and I've learned a
lot from that, too. So.

COMMISSIONER LEHMAN: Well, I'm sorry you had that difficulty and
I'm hopeful as a result of these hearings we'll get the problem
fixed. Thank you very much.

MR. ANTONIAK: Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Mr. Robert May from
Ikonix Interactive, I believe.

LEE HOLLAAR

UNIVERSITY OF UTAH

MR. HOLLAAR: My name is Lee Hollaar, I'm a Professor of Computer
Science at the University of Utah where I teach the Seniopftware
Development Laboratory and also teach computer intellectual pro-
perty law within the Department of Computer Science. I also con-
duct research into information retrieval systems. I've been in-
volved with computers for almost three decades and received my
Ph.D. in Computer Science in 1975 from the University at Illi-
nois. I'm also a registered patent agent working with the Salt
Lake law firm of Van Cott Bagley Cornwall and McCarthy primarily
with computer_related inventions. I hold one United States pa-
tent and I have another patent pending. The views I'll be ex-
pressing are my own and not necessarily those of the University
of Utah or any other organization.

First I'd like to thank the Commissioner's staff for the oppor-
tunity to testify regarding these important matters and to com-
mend them on holding these hearings. I'd also like to congratu-
late the office for making their decision to accept comments
electronically and to make the comments and transcripts of these
hearings available on the Internet. today what I'd like to do is
cover a few points from my dual perspective as a computer scien-
tist and also a patent practitioner. I'll be following up this
testimony with written comments.

One of the things I would like to mention is that there are a
number of assumptions that seem to be taken for granted about the
differences of software and its patentability that may not actu-
ally be true, and should be examined. One is that there's the as-
sumption that computer software is a fast_moving technology and
that therefore a lesser patent term __ I've heard three years
suggested __ may be appropriate. Interestingly enough, about two
weeks ago Butler Lamson gave an address at the University of
Utah, he's one of the inventors of the Alto Computer and a number
of other innovations from Xerox Park, and he indicated that from
at least his point of view much of the innovation going on in
computers is not the result of computer software, but the comput-
er hardware now available at much faster speeds with more
memories,xbling techniques that were known in the laboratories
many years ago to be possible now and to be available to the
masses. In fact he made the statement which many people
disagreed with, but it certainly caught people's attention, that
from his point of view with the exception of spreadsheets there's
been no surprises in computer science since 1975. It's interest-
ing to note that anything which you filed an application on in
1975 and a patent would have issued, the patent would have been
expiring about this time. It's also interesting to note that the
fundamental books on computer algorithms, written by Donald Knuth
came out when I was a graduate student approximately two decades
ago. Again, if everything in those books was patented, the pa-
tents would be expired by this time.

Much of computer science I see, my students and so forth, con-
sists of reinventing wheels. A large amount of that is because
people don't check prior art and a large amount of that is be-
cause there's no good prior art collections t|eck, and I think __
and I will comment on this __ that this is one of the problems
that has been caused by the two decades of the Patent Office hav-
ing at best ambivalent attitudes toward the patentability of com-
puter software and not using the patent system to draw the trade
secrets and the other art into the printed publications of U.S.
patents. I was involved with developing a computer system in
1969 which is still running. If I had patented every technique
in that computer system, and it still represents the basis for a
state_of_the_art system, those patents would have expired five or
six years ago on it.

Comment has been made that patents can restrict developers, and
that's certainly the case, but that's true on every patent in
every area of art. It's not particularly true for computer sci-
ence in any respect. The comments have been made about bad pa-
tents, patents which have prior art problems, poor examination,
again these exist in every art unit. Perhaps it may be worse in
the computer art arecause there was this period of time when the
Patent Office was denying computer patents and therefore not
building their prior art collection, not encouraging the submis-
sion of patent applications which would mature to patents and go
into the prior art collection on it.

In my recent practice I've found the inexperience that people
have talked about with the examiners to be diminishing and I've
found that the examiner's doing quite a good job given the con-
straints of trying to examine very complex art in a wide variety
of areas. I think also that the patent office has received bad
press due to both people who should know better and also the peo-
ple providing the information not knowing enough about the patent
system. Too often comments are based on the title or at best the
abstract of the patent, and not the claims, which indicate what
the true invention is. Often this is compounded by press
releases from patentees trying to make their patents seem more
important than it really may be.

There have be number of problems caused by the past PTO position
on patents. One, as I mentioned, is the poor prior art collec-
tion, which has been difficult, because in many cases computer
inventions aren't as self_revealing as mechanical invention.
When you sit down and sue a spreadsheet or another computer,
you're aware that you're using a spreadsheet, but you may not be
aware of the order that cells are being recalculated or the par-
ticular algorithm that is being used for justifying the text.
The patent system would have eliminated this problem by forcing
inventors, in trade for the patent monopoly, to reveal their
trade secrets, to reveal how this would work, thereby giving a
prior art collection for people who want to develop follow_on
systems, and because of the distinctive claiming of patents as
opposed to copyright, providing an indication of what an inventor
can do to avoid the patent and yet produce an improved product on
it.

Computer scientists suffer from a poor tradition of publishing
their algorithms,ecially those involved in industry, and also in
looking at prior art. I often think that many of my students
wouldn't know where the library is on campus if you ask them, and
when they start out on a project the idea of going to the library
is not the first thing that crosses their mind, and certainly the
idea of doing a patent search to see what's in the prior art and
see how to accomplish things is far from their mind.

I think that while the Software Patent Institute should be
congratulated for what they're doing, their idea of collecting
prior art is doomed to failure because especially for old inven-
tions, it is very hard to determine what is prior art or what are
the novel things. In the typeset system I wrote many years ago
there were probably hundreds of things which may be novel or may
at least be prior art for future inventions, and it would be hard
to enumerate them.

Other problems caused by the past PTO position is both in the
disclosure and in particular in the claims' obtuse language,
unclclaims, as attempts to avoid a perceived perception of the
PTO position on Section 101, claiming things which are clearly
software programs as computer building blocks. I think of one pa-
tent issued to Thompson where not only is the source code listed,
but they tell you how to build it out of computer modules from
Digital Equipment, out of flipflops for this searching technique.
No one believes that that's how they intended to implement the
invention. More importantly, the Section 101 babble often takes
the steam out of the examiners. After fighting the 101 fight
there may be very little fight left in them for the proper 102
and 103 questions. I recently reviewed the file wrappers of two
patents for a client who wanted to know their scope, and was
shocked by how little prosecution history there was after the 101
arguments had been resolved, even though one patent had a con-
tinuation application filed and had been pending for a number of
years on it, virtually no 102, 103 arguments after the initial
101. think the patent system has produced distortions in copy-
right laws, courts have held it necessary to provide protection
beyond literal copying so that we have decisions like Whelan or
the current Lotus against Borland decision, trying to extend
copyright perhaps too far from its intended purpose, and as I
said we have the loss of past disclosures because the Patent Of-
fice wasn't accepting patent applications, which has caused much
reinventing of past techniques.

The solutions? I think one is to eliminate much of the current
101 confusion, and in fact go back to the basic principles of in-
ventorship, that patents are, if there is something useful being
produced, should probably meet the 101 test, and the real battle
of whether the patents should be issued should be tried on 102
and 103 issues.

The comments have been made about laying open files during
prosecution, and I strongly support that. I think it's the one
hope we have for getting the prior art. Both laying it open at
some fixed period of time sas eighteen months has been suggested
to eliminate the so_called submarine patents, and also laying it
open sometime after initial examination by the Patent Office. I
would make sure that the file isn't laid open before the first
office action such that the applicant has a chance to withdraw
the application based on the position of the Patent Office and
the prior art that's been found, and make an intelligent decision
of whether to keep it as trade secret.

I would recommend that there be a period after the office deter-
mines that a patent is allowable that people can submit prior art
for consideration by the examiner. This could be done by using
technology to widely distribute the notice that this patent is
about to issue and a representative claim and has some method for
retrieving of the application, perhaps tied in with the project
ongoing for the electronic filing of applications. This
shouldn't be an advisory procedure, but a way of having the prior
art brought to the attention of the examiner. I k in my case of
the old system that I have, I certainly could see if there was an
application and claims whether I had prior art on that and submit
that to the attention of the Office much easier than I could go
through a very complex system and identify every piece of prior
art such that it could be searchable by the Patent Office.

That concludes my remark, thank you.

COMMISSIONER LEHMAN: Thank you very much, Professor, that was
some really very helpful testimony. Appreciate you coming over
here to California to talk with us. Thank you.

Next I'd like to ask Dennis Fernandez. Is he here? For Fenwick
and West? Okay.

Welcome.

STEVEN HENRY

WOLF, GREENFIELD & SACKS, P.C.

MR. HENRY: Thank you, Mr. Commissioner and distinguished panel
members. I'd like to begin my comments just by stating who I am.
I'm a patent attorney in a large intellectual property firm, ap-
proximately forty_five professionals, about half of whom deal
with the computer industry, hardware and software. We have con-
siderable experience ur client's experiences on all sides of
these matters.

To back into my remarks, I am a strong advocate of the patent
system and I have seen it work time and again in the software in-
dustry as well as other industries. I have seen no fundamental
differences in the software industry other than tentativeness in
applying the existing rules, and the problems that other speakers
have addressed with respect to the ability of examiners to get at
the prior art, which is indeed a serious problem. I don't be-
lieve the software industry operates under substantially dif-
ferent economic principals than any other industry, or that the
people in that industry are driven by a different human nature.

Professor Hollaar addressed many of the points, made many of the
recommendations that I would like to make to this body, and I
certainly endorse what he said. I'd like to, before proceeding,
go one step further and address a topic or two that he did not
address, and specifically the issue of reexamination as a cure
for defve examination in the first place. If one looks at the
statistical studies that have been done of reexamination, and one
takes into account the kind of anecdotal experiences that we have
had, reexamination is tilted in favor of supporting the conclu-
sions originally reached by the Patent and Trademark Office, not
through any intentional bias, but that's what the statistics in-
dicate; and number two, it is severely limited and was intention-
ally limited when it was fashioned, limited to consideration of
patents and printed publications. The problems of examiners not
understanding what they're looking at not addressed, the oppor-
tunities for testimony are not provided. If one has an
initially_weak examination and it is then reinforced by a faulted
reexamination system, we've compounded the problem; we haven't
addressed the problem. Though it takes money principally to free
up manpower to hold hearings and to broaden proceedings, I be-
lieve that there is no cure for the problem other than the money,
the time ahe increased training.

In written remarks we will address the overall legal and theoret-
ical issues raised in your Notice. I'd like to take a few minutes
to talk about some practical, anecdotal experience.

COMMISSIONER LEHMAN: Can I ask a question? You know, you're
talking about the money that would be involved and the change of
procedure that would permit us and maybe encourage us to take
oral testimony and to get at nonwritten prior art, but to some
degree __ life is not, you know, totally fair, but to some de-
gree, and I assume that would partly be on the motion of the par-
ties seeking reexamination if you wanted to have reexamination
just on the basis if you couldn't afford, for example, to support
coming to Washington, getting witnesses there and so on and so
forth, you could still go forward with the written record. I mean
it's not automatically implying a greater burden, financial bur-
den for everybody.

MR. HENRY: Certainly the requester could go on a written record
if the requester so desired.may well be that the Commissioner
should consider some way of developing a fund wherein if the exa-
mining group thought it would be appropriate to have a hearing of
some sort, and the requester is not able to bear that expense,
that there may be other resources brought to bear to be able to
fly appropriate witnesses in. Because I think faith in the sys-
tem is something that's extremely important and right now that's
what's lacking. It's lacking in part because of media attention
on a few glaring mishaps in the system, they're not the rule,
they are the exception, but it so happens that the exception gets
the attention.

To turn to some of the times we've seen the system work, I'll try
to give a synopsis of a few experiences, hopefully without iden-
tifying the companies. In our first case I have a client that's a
small software company on the West Coasts, initially financed
through the founder's own resources. This is a utility type of
software, improving hardware performance and reliability. They
filedatent application; a hardware company that they were working
with decided to flex its muscles a bit and threatened to design
their own product, notwithstanding the patent application. How-
ever, once we had an indication of reasonable allowable claims we
were able to negotiate them back into the fold.

A few months later, despite the success of the product, as we all
know, it's extremely expensive to get software into the market-
place and marketing expenses were just eating up the company's
cash.

The company went to look for investors. Every single investor re-
fused to get actively involved until knowing that there would be
strong patent protection, because the one thing that makes
software unique is how easy it is to copy. And I'm not using
copy necessarily in the copyright sense, but analyzing it and
taking what's there.

This was a situation where fortunately the system and some public
servants in the patent and trademark office, very sensitive to
issues such as this, responded and dealt expeditiouslth the
response we had filed to an outstanding action, and indeed al-
lowed very broad claims, and our client is at this point closing
the financing which was the difference between life and death for
the company.

We represent university clients also. Universities will generally
not be able to license their technology unless they have chances
of protecting it. They are not known to be litigious; it is out
of respect for the patent system and access to future technology
generally that a licensee signs up. We've seen a number of in-
stances where software developed at universities was licensed by
the very developers who knew the potential, went out, formed
their own companies, and that was a revenue stream that was
formed back to universities; and that revenue stream is very im-
portant.

We have investors come to us, any number of times, thinking of
investing in software_related companies, and their question again
is, "Is this protectable? If I'm going to put in my millions and
millions of dollars and all ofeffort, will someone else be able
to come along and walk off with it?"

In those situations where our own investigations of prior art or
the Patent Office investigations of prior art make it question-
able that strong protection is available, generally an investment
is not made. Where, however, it appears that protection is avail-
able, an investment often is made. We don't want investors to
start getting gun_shy about investing because subsequently we
find out that the examination __ search process in particular __
is defective. The best thing we can do at this point is every-
thing reasonably possible to beef up that process.

That will have carryover effect, as Professor Hollaar mentioned,
with respect to the copyright system. The copyright system is
drawing a great deal of fire because of the look and feel and its
progeny and uncertainty. Investors and business people look for
certainty, and it's our job to move the system in the direction
where they feel a lot more comfortable with it.

Thank you.

CO SIONER LEHMAN: Thank you very much.

Basically it's been your testimony, and it's very strong, that in
your experience representing clients you've seen a number of very
specific examples where investment in innovation would not have
occurred had it not been for the patent incentive.

MR. HENRY: Absolutely.

COMMISSIONER LEHMAN: Thank you very much.

Next I'd like to call Sal Cassamassima, General Counsel of the
Exxon Production Research Company.

SAL CASSAMASSIMA

EXXON PRODUCTION RESEARCH COMPANY

MR. CASSAMASSIMA: Thank you, Commissioner LEHMAN, and thank you
particularly for pronouncing my name correctly. I know it's a
struggle to get that one right the first time. My name is Sal
Cassamassima, and I'm the General Counsel of Exxon Production
Research located in Houston, Texas. I'm here to present tes-
timony on behalf of Exxon Production Research, which for the sake
of brevity I'll refer to as EPR.

I'm going to address the subject of patent protection for
software_related inventions and $ particularly on the patentabil-
ity of inventions containing mathematical algorithms. This is a
very important subject to EPR, and we appreciate this opportunity
to present our comments on the subject. We will also submit more
detailed comments, written comments for the record by the March
15th deadline.

Our comments will focus on the subject of inventions containing
mathematical algorithms, and we will recommend that the Patent
and Trademark Office clarify and liberalize its guidance on the
subject to better align with the views of the Federal Circuit.

Let me tell you first a little bit about EPR and why the subjects
addressed here today are important to us. We are a wholly_owned
affiliate of Exxon Corporation and we're engaged in basic and ap-
plied research related to oil and gas exploration and production
technology.

Our company and many other companies in the oil and gas industry
are among the most intensive users of advanced computer technolo-
gies and applications. For example, in exploring for o(nd gas,
there is an increasing need for highly accurate representations
of subsurface formations, particularly in geologically_complex
areas. Meeting that need in recent years has been an enormous
challenge for industry, particularly with oil hovering around
fifteen dollars a barrel.

That challenge is being met by rapid advances in the application
of leading edge computer technology and the processing of geophy-
sical data which you probably know is obtained from seismic sur-
veys. For example, so_called three_dimensional or 3_D seismic
provides much more accurate depictions of complex geologic forma-
tions than was ever possible with more conventional
two_dimensional, 2_D seismic. Advanced computer applications are
also being used on the production side of our business to predict
oil and gas reservoir drainage and to model enhanced oil recovery
techniques by computer simulations.

In pushing the frontiers of this new technology, EPR is constant-
ly challenged in several areas that are computer_related.

F, is the hardware itself. Seismic surveying and the ensuing data
processing require enormously powerful computers such as super-
computers and massively parallel computers. To obtain these
various depictions of 3_D seismic you really have to have an
enormous amount of number_crunching capability. In fact, we
think our industry is second only to the Defense Department in
the use of MPPs and supercomputers.

Secondly, the industry must develop the software to both process
the data and convert it into readily_analyzable forms; and this
is where we come in. Closely related to hardware and software
development is the ongoing challenge to develop sophisticated
mathematical algorithms which are the key to enhancing analysis
of seismic or reservoir data. The algorithms we develop do many
critical things in analyzing seismic and reservoir data.

For example, the algorithms enable the computer to process data
more efficiently. They compress data or rearrange data to make it
more readily processible, and they en0 the processing of
poorly_conditioned data by removing noise or other irrelevant
signals.

Development of these algorithms and their integration into the
hardware and software usually involves very major investments in
both time and money. The synergistic combination of more powerful
computers and software enhanced by mathematical algorithms has
resulted in a quantum leap in oil and gas exploration capabili-
ties. Many companies are now reexploring mature producing areas
such as the Gulf of Mexico because the new technology enables the
discovery of reservoirs that were heretofore unknown because of
their complex subsurface geology.

The type of inventions we seek to protect generally relate to
methods for analyzing seismic or reservoir data using mathemati-
cal algorithms which yield a desired output, such as an accurate
3_D depiction of the subsurface. For example, these methods may
accurately identify salt domes, highly faulted formations, and
other complex subsurface anomalies which reveal oil and gas
d4its. Patent applications claiming methods for analyzing seism-
ic data using mathematical algorithms have always been among the
most perplexing cases for the Patent and Trademark Office to re-
view. In some cases, the Office in applying the so_called Free-
dom Walter Abel test, two_part test, has held such claims to be
patentable subject matter under Section 101. In other cases,
very similar cases, the Patent and Trademark Office has found the
test not to be satisfied.

It was thought by many in the industry that some clear guidance
would be forthcoming from the Patent Office when the Federal Cir-
cuit issued its opinion in the Arrythmia Research v. Corazonix
case which some other speakers mentioned today. However, we have
been disappointed that the Patent and Trademark Office often does
not appear to follow the reasoning of Arrythmia, thereby creating
a great deal of uncertainty in this important area of the law,
and I realize that consistency is the hobgoblin of little minds,
but in the area of Section 1018e threshold of patentability, con-
sistency is very important.

COMMISSIONER LEHMAN: I think that consistency in the Patent Of-
fice is an extremely important part of customer service, so I
don't think that cliche is applicable to us at all, and I think
this is a very good point that you're making.

MR. CASSAMASSIMA: The types of inventions that are the subject
of this controversy all have one thing in common. They deal with
algorithms which yield a useful result. For example, in many of
our inventions seismic signals are analyzed to accurately depict
subsurface geology. In the arrythmia case, electrocardiograph
signals were analyzed to detect the susceptibility to excessively
rapid heartbeat, which is known as tachycardia, a very
life_threatening illness. In other cases, we might see tech-
niques for mathematically analyzing molecular structure to screen
for chemotherapy agents. But let me give you a hypothetical ex-
ample that may be more meaningful, given recent events. I'll
describe this hypothetical i<tion: A method of analyzing seismic
data to predict earthquakes, said method comprising combining se-
ismic signals using Formula X, mapping said combined said com-
bined seismic signals using Formula Y, comparing said map seismic
signals using Formula Z with a database of historically_mapped
signals to determine the probability of an earthquake.

Now of course I have no idea what X, Y and Z formulas might con-
stitute, but needless to say, that would be a rather dramatic in-
vention.

Question: Is the method I just described patentable subject
matter? And I would say that under current Patent and Trademark
Office policy, the answer is hard to concern. Should it be? In
my opinion, absolutely yes. The method that I just described,
claimed, is not an abstract idea of a law of nature. It is a pro-
cess for analyzing real physical data to yield a highly_useful
life_saving result, the prediction of earthquakes. The earthquake
claim does not seek to protect a generic technique for analyzing
data. It does not claim@urely mathematical method of identifying
a data anomaly by comparing sample data to generic databases.
What it seeks to protect is a process for determining the proba-
bility of an earthquake by comparing in a quantifiable manner ac-
tual seismic data with reference databases. By grounding the
claim in seismic signal analysis the claim comes to life as a pa-
tentable process, and it's protected by the Patent Act. It does
not matter whether there is a discernable physical component to
the claim itself.

Inventions, such as the ones I have described, our type of inven-
tions, the Arrythmia case or the hypothetical, all have the re-
quisites of patentable subject matter. They are new and useful,
and granting patent protection to them would foster innovation
and technology development, the very purpose of the patent law.
Absent patent protection, the time and the resources to develop
such new and needed technology might not be forthcoming.

We therefore recommend that the Patent and Trademark Office
dispense with Dtwo_part Freeman_Walter_Abel test and issue new
guidance that embraces a statutory basis for determining patent-
able subject matter under Section 101. The guidance should be
simple and as broad as the statute and judicial precedent permit.
We recommend that the word "process" be given its literal meaning
and let the guidance dispense with the notion that a method claim
containing a mathematical algorithm cite some physical step.
Only algorithms which solve abstract or generic math problems
should be deemed nonstatutory. The guidance should also direct
that the algorithm be viewed in the context of the specification
as a whole, in the claims preamble. With that approach, method
claims of the type contained in arrythmia and the ones I've
described would be statutory subject matter.

Finally, the guidance should make clear that in the absence of
legislative limits by Congress, the Patent and Trademark Office
will not impose nonstatutory or policy constraints on what
processes are worthy of patent protectioHuch guidance would elim-
inate the present uncertainty and would provide a boost to the
type of technology that will come to dominate the Information Age
in the years ahead.

Thank you very much.

COMMISSIONER LEHMAN: Thanks very much, Mr. Cassamassima, I real-
ly appreciate all your very specific recommendations. We'll exam-
ine those.

Next I'd like to call Christopher Palermo, another Fish and
Richardson attorney. Is he here? I guess not. In that case
we'll move on to Neil Brown. Mr. Brown? We're ahead of schedule
now.

MR. BROWN: Sorry about that. I was expecting twenty minutes, but
__

COMMISSIONER LEHMAN: I know; we're a little further ahead in the
schedule than we thought, mainly because the preceding witness
wasn't here.

__o0o__

ROBERT MAY

IKONIC INTERACTIVE

MR. MAY: I want to thank you very much for coming out to Silicon
Valley and also for slipping me in unannounced. I'd expected to
be out of town today and at the last moment my travel plans
changed.

I want to give a quick perspective on the lay of the land from
Ikonic Interactive. We're a soft` developer located in San Fran-
cisco. We're a multimedia developer with about nine years of ex-
perience in this business. Current clients include Time Warner
for whom we're designing the user interface and software for the
full_service network in Orlando, Florida; Dow Jones for whom we
just recently completed the redesign of the Wall Street Journal
for PDAs; a variety of other projects. So we're intimately ac-
quainted with some of these issues and I'd like to just give you
a snapshot of some of our perspective.

I spent my morning on the phone with one of our clients negotiat-
ing contracts, and I should say, number one, I am not an attor-
ney, and it's only through the tutelage of Kate Spellman up at
Steinhart and Falconer, our IP attorney, and David Hayes down
here at Fenwick and West that I know just enough to be dangerous,
but notwithstanding that, I often rush in where angels fear to
tread, and I wanted to discuss two key issues that we face every
day, and just to give you some data with which to make
sodecisions.

I should also say in the spirit of full disclosure, we do have a
software patent application under way, another one that we're
considering, and I come here as a supporter of the notion of
software patents, and more specifically, interface patents. Not-
withstanding that, a single biggest problem I'd say from a busi-
ness exposure standpoint is that we are often asked by our
clients to indemnify them, that we have not incorporated prior
art or other patents in our work. Given the way that the prior
art search has to be conducted at this point it's very very dif-
ficult for us to indemnify our clients to that, and I would
respectfully suggest two possible solutions to that.

And the first would be that in my midnight reading of patents and
patent law, which I've been doing the last year or so, I've
learned that things like the Compton's patent have many many many
claims attached to them, and it's very very difficult to under-
stand, let alone plan for the implications of those claims. Ori-
ginally as I uhstand it, patent law was designed to address in-
ventions that were reduced to practice, and it seems to me that
it might be a useful distinction to separate claims very specifi-
cally to those that are actually reduced to practice and are
shown to be reduced to practice and those that are speculative
and looking for future technologies. And as a nonattorney I've
got a very difficult time when I'm faced with trying to judge
that and then promise in a contract that I will in fact not __
not infringe on those claims.

Number two, recently the FCC decided to free up 10(k)s and other
public filing information and make that available on the Inter-
net; previously it was available on Meade and I believe maybe
Lexis and Nexis. Currently I'm not aware of a way to research pa-
tent information by public, without signing onto Lexis, undergo-
ing quite an expensive search process, and insofar as it is pub-
lic information I'd like to urge you to make that information
available on the Internet and make it available publicly. lond
issue that we're confronted with very frequently, and this wraps
around both patent issues and copyrights and others __

COMMISSIONER LEHMAN: Can I ask you a question. What kind of in-
formation for somebody like you would be useful? You know,
there's everything from the full text of prior_issue patents and
all of the company technical drawings to, you know, abstracts of
the patent. What kind of __ when you're talking about making
things available on the Internet, what kind of information of
that type would be useful to you?

MR. MAY: Yes, sir. Given the example that I just gave, from a
business person's perspective, I'd like to see the whole thing,
because I'm being asked to indemnify my client against all
claims. A helpful start would be the abstract, but lamentably,
I've got to be familiar with the art to the extent that I can be.
It would help me very much if there were to be drawings, et al.
Does that answer your question?

COMMISSIONER LEHMAN: Yes. Yes, it does.

MR. MAY: Okay. The secoprea that we experience in day_to_day is
again as I said, broadly a problem across both patent law, copy-
right law, and I'd like to just raise it in the context of patent
law here today, and that is the difficulty between what current
practice is and what we'd like to see practice moved to, and that
is the concept of work made for hire wherein typically a small
company like ours is doing work for a larger client, who attempts
to get us to engage in that work under work made for hire, which
means that, as you know, they own all patent rights and copy-
rights and trade drafts, et cetera. Very difficult to conduct
business in this way and to grow a business in this way.

So we've been successful ourselves and I urge other folks out
there in our business to move to a license strategy where in fact
we retain the rights to underlying key concepts and intellectual
property that we develop and license that in perpetuity on a
royalty_free basis to our client.

One of the key problems with that approach is the ambigutin copy-
right law between what's called look and what's called feel, and
I would urge you and the folks you work with to turn your atten-
tion to that ambiguity and try to address that, and the specific
case in point is that when we're faced with producing a project
for say Time News On Demand for Time Warner, it's one thing to
grant them the rights to look at that program and morally and
ethically and by all other business means, I'm absolutely commit-
ted not to producing work for another client that copies and
looks the same as the work that I do for my initial client. At
the same time, in the pursuit of my business, we often enjoy the
discovery of elements that help us do the job better for the next
person, and the current ambiguity in copyright law makes it very
difficult to parse out, to separate out what is look from what is
feel, and feel, as you know, in the Apple Microsoft Case has been
pulled out to mean basically menu command structures, things like
that.

So that's the underlying structure that wxed to have in what we
call our multimedia toolbox in order to ply our trade, and to the
extent that we are forced by circumstance or by the size of our
business in the marketplace to give up those rights in a
work_made_for_hire scenario, it's very difficult for us to ply
our trade in the future. Like the carpenter being told that they
can't use a particular jig that makes them drill holes faster, it
cuts down on our efficiency and our ability to carry on our busi-
ness.

So I wanted to bring these two points to mind just to give you a
snapshot of what it's like out here on the frontier of the Infor-
mation Superhighway, but these are key issues for us and I'd wel-
come your attention to those.

COMMISSIONER LEHMAN: Part of that problem that you have, and I
don't mean in any sense to suggest there isn't merit to your sub-
stantive ideas about scope of copyright protection, but is part
of the problem there that in your situation when you mentioned
Time Warner, they're a client, you're a small company, a small
entr|neur, that you just don't have the marketing power basically
to avoid being, you know, strong_armed into signing
work_made_for_hire agreements that would mean that you have to
give away more than you'd like to give away. I mean is that one
of the reasons this becomes really acute? You just __ Ideally,
you know, you don't have to __ you work under conditions that you
want to work under and you can say, Well, I'm sorry, I'm not go-
ing to give away some of my techniques that I would otherwise
give away, but you just can't do that because you don't have the
market clout. Is that a problem?

MR. MAY: Well, I think it's tempting to paint the big company as
the bad guy and the little company as the Don Quixote. I would
suggest from personal experience that large companies in point of
fact, once this distinction, this difficulty is raised, they're
willing to look at solutions that work for both sides. There is a
reflexive tendency to turn to work made for hire as something
that quote has been done in the past, it's always been good
enough. Happily we've been able to negotiate positions with our
clients that enables us to move forward, but yes, I think in some
instances you're correct, if you're a smaller company, if you
haven't been able to build your multimedia tool kit and you come
in with just a hammer and saw sometimes it's easy to be
bulldozed, to mix my metaphors.

COMMISSIONER LEHMAN: Thank you very much.

MR. MAY: Thank you. Appreciate it.

COMMISSIONER LEHMAN: Next I'd like to, back on our regular
schedule here, and I'd like to ask Mr. Steven Henry from Wolf,
Greenfield & Sacks, came all the way from Boston.

NEIL BROWN

INDEPENDENT SOFTWARE ENGINEER

MR. BROWN: Well, I have a lot to say. First of all, I'd like to
thank you all for being here. I have a lot to say and I appreci-
ate the opportunity to say it to you directly. It's been a long
time since I've been on stL sorry. My name is Neil Brown. I'm
an independent software engineer. I work as a contractor for
software development companies and I do development of my own. I
did programming for fifteen years and I've been getting paid for
it only in the last six.

Although I can't speak for all of us, I can speak for some of us,
and I can certainly speak for all the friends I've talked to who
feel very similar to the way I do. I represent the ultimate
source of all revenue for every person who profits from the
software industry, however indirectly, the developers; if some-
body wasn't writing the software, there wouldn't be a single
software patent lawyer that could possibly make a penny. This is
why I __ what I, what the League for Programming Freedom and what
the Free Software Foundation, neither of which I'm a member, have
to say is important. We power this industry; we're the dynamo
which causes it to exist, and in order to keep our jobs, in order
to continue marketing software, we must make clear what we
needPore its too late.

I'd like to address the questions that you've asked, as I indi-
cated from not listing affiliations, I'm not speaking on behalf
of anyone other than myself and those in the software industry
whom I have found to agree with me.

On the question, Topic A, Question 1, Example A, "What part of
mathematical algorithm implemented on a general purpose computer
can be patented?" My response: None whatsoever.

The technique of long division where one writes the number to be
divided down, puts a little bar under it, and writes the number
to divide into it, next to it, writes notations and partial
answers, gradually arriving at a more complete answer, can clear-
ly be described in a fashion executable by a computer. It's not
at all hard for most developers to write a graphical front end
for long division, so this is a useful, I mean the question of
whether or not division is useful is, is not worth debating. It's
a useful tool to accomplish a useful goal, and real money is made
from using it, but wTwould happen to your education? How would
you have learned division if the school that was trying to teach
you that suddenly found itself being attacked by another school
who claimed to own that very method?

A mathematical algorithm performed on a special_purpose computer;
can you patent a calculator? I do seem to remember that the be-
ginning of the digital revolution was really noticed when pocket
calculators starting causing slide rules to disappear. If only
one company had been able to produce calculators, would the price
have dropped from four hundred dollars to fifteen in only a cou-
ple of years? If only one company could own the legal right to
build a machine to perform mathematical calculations, where would
the software industry have gotten its start?

Topic A, Question 1, Example B, sorry, Example C and C_2. "Can
you patent the disk on which a computer program is stored?"
Again, with the calculator, if it were possible to patent the
concept of a calculator, if it were possible to patent the
cXlator that has the ability to execute more than one program,
where would the software industry be today? How do you define
what a program is? Do you define it as being able to push the
sine key and get the sine of the number? Do you define a
separate program as one in which you can press the cosine key and
get the cosine of that number?

Question 2. "What impact, negative or positive, have you or your
organization experienced from patent issues on software_related
inventions? On several occasions I have found myself being un-
sure of whether or not I was able to use a particular algorithm,
specifically the compression algorithm embedded in the program
known as Compress, within software. There have been many ques-
tions raised and lots of time spent chasing after whether or not
the company could somehow use this and escape any royalty obliga-
tions.

"What implications, positive or negative, can you foresee in
maintaining or altering the standards for patent eligibility?"
This is Question 3. Well, I seet, because every one of the hun-
dreds of ideas that the developer goes through while writing an
application, every one of the little techniques that he goes to
use or goes to put together with another, he has to go and call
up Legal to find out if that's been patented or if it might be
covered by a patent. The software industry is not going to pro-
gress very rapidly if people like me spend all their time on the
phone to Legal asking if we can do this.

"Does the framework of patent, copyright or trade secret law,"
Question 4, "effectively promote innovation in the field of
software?" Yes. "Does it provide the appropriate level of pro-
tection?" A qualified yes. The qualification is that it pro-
vides too much protection, potentially.

Question 5. "Do you believe a new form of protection for computer
programs is needed?" My answer is no. The water is muddy
enough.

On Topic B. I agree with all concerns that access to prior a`s
difficult, or is outmoded. The difficulty of determining whether
or not two programs are equivalent or similar is extremely diffi-
cult. I deem it intractable. There are so many languages out
there, there are so many sophisticated ways of expressing algo-
rithms that it's hard enough just to understand one, but compar-
ing two? Doing this for every program out there that seems to
possibly be related to an application can take forever. The very
concept of, is there anything out there at all that does what
this does, is extremely difficult to solve, and I deem it to be
intractable for software in general.

Topic B, Question 1. No, I don't think that the patents and
printed publications provide examiners with sufficient collection
of prior art, and as I said before, it can't. The work on
software interface patents, if you allow patenting of the idea of
having a hammer on a desk and deem it a different invention if
the hammer is the drawer of the desk, how is somebody using that
desk going to be able to gdheir job done? How is somebody going
to be able to design __ How is anyone going to be able to get
the job done if their job is to design a new desk and they have
to go and find everyone that has similar functionality available
at the top of their desk? The patent which has control informa-
tion such as page numbering and position on the page and document
being edited available on the screen, the very idea of having
many pieces of information available for manipulation of the in-
formation is the whole idea of an interface. You want to be able
to provide as much ability for the user to manipulate the raw ma-
terial they're working with as apparently is possible. You want
all of these tools to be easy to get to and easy to work with,
and if someone comes with a formalism for making all of these
things available, then if any means of providing that same func-
tionality is deemed equivalent, then how can progress possibly
happen?

I do have lots more to say, as I said, but __

COMMISSIONER LEHMAN: Well, mayh can help you to wrap up in just
asking you, I have a little confusion in your statement to us; in
the answer to Question 4 you basically seem to say that the
present framework is okay, but I have the impression that you ba-
sically don't think that __ that you think there are a lot of
problems with the patentability of software just generally. Is it
your position that software should not be patentable?

MR. BROWN: Software patents are a blight. They're a problem.
They get worse.

COMMISSIONER LEHMAN: So basically you think that copyright pro-
tection is __

MR. BROWN: Copyrights and trade secrets.

COMMISSIONER LEHMAN: __ is okay, and trade secrets, but that ba-
sically the difficulties from trying to work with the patent sys-
tem applied to this industry are so great that it virtually makes
it impossible to use it as an effective technique for protection
that developers like yourself can really work with.

MR. BROWN: Yes. How many houses would you build if every time a
carpenter went to build a houselery time a carpenter went to take
up a tool he had to pay a point one percent royalty on the gross
profit on that house, or the gross revenue on that house?

COMMISSIONER LEHMAN: We appreciate your coming and sharing these
comments. Thank you.

MR. BROWN: Thank you very much.

COMMISSIONER LEHMAN: Next I'd like to ask, if he's here, Gordon
Irlam, representing the League for Programming Freedom, which our
previous witness referred to in his statement.

GORDON IRLAM

LEAGUE FOR PROGRAMMING FREEDOM

MR. IRLAM: Good day. The League for Programming Freedom's an or-
ganization of roughly six hundred people within the software in-
dustry. It's a combination of software developers employed by
various companies and small people who own their own business
which typically are anywhere between like one or two people up to
fifty or a hundred people, and they also have a number of members
that are either academics, researchers or students. The League
for Programming Freedom has two main policy areas it's cprned
with. It has a belief in doing software development on the basis
of competition and between different implementations of what
could be the same technology, and we believe by doing that that
such software is going to be in a sense like economically more
efficient impact, if you can get multiple products that will
represent the same technology; and prices __ and efficiencies are
going to be driven up by the competitive ventures involved.

So to do that we believe in what you might term a traditional
literal aspects doctrine of copyright. That's very useful for
software developers. It basically means if you copy code, you
know, you can't do that, but if you wrote the code yourself,
that's all you need to know. You can then go out and sell it,
and you're safe in the knowledge that you can, and you won't be
sued later on. You know you owned it.

So based on this belief the League has two positions. We're op-
posed to the look and feel copyright, and extensions that seem to
have been happening over ttast few years, and we're also opposed
to software patents. And we take various actions to try and raise
these issues and submit these to courts and so on.

Fundamentally I think this whole question of software patents is
being approached in what might be the wrong direction. In fact I
think the whole issue has to be looked at as one of economics,
and not either based on, you know, the direct, uh, interests of
any party or, uh, you know, you've got to stand back a bit and
take a big picture view of, you know, what effect do software pa-
tents have on competition and market structure. So therefore I'm
rather disappointed, but as far as I know, there hasn't been any-
body with any economic background that's been speaking on these
matters. And you know, I think it would be really important if
the Commission or whatever could like seek out people with an
economic background that can provide the input on these matters.
And so I think, you know, if you start analyzing patents and in
particular software patents frox economic standpoint, then you'll
get a lot of benefit. But I think it should be obvious that
every industry has different economic characteristics. This is
both like market size, market structure, with availability of
market information, extent of competition, and there's just a
huge range of economic parameters that differentiate, for in-
stance, the pharmaceutical industry from the software industry,
and you know, because of this, the application of patents to one
industry might be sound public policy, but the application of the
same rules to another industry will have an adverse effect on the
overall public welfare.

So for instance, one of the big things about computer software is
it's protected by copyright in a way that pharmaceuticals, for
instance, aren't. And that provides a good basis for allowing
different people to develop different products and compete, so
you know, the important thing is if you look at it from an
economic standpoint, every industry's different, and so the im-
pact of patent|ll be different on every industry; and I contend
that in the software industry, patents are harmful.

And I believe it's because, based on my experience, the software
industry appears to be a highly competitive industry, and I feel
software patents have potential to stifle this competition in
terms of they can take away profits from, you know, some of the
firms, perhaps significant value to the industry, and they'll be
transferred to firms that don't add a lot of economic value.

I think the important thing about software is it's not so much
new ideas that are important; it's building real products that
solve customer problems, and I'm a software engineer in my regu-
lar employment, and my job doesn't consist of trying to come up
with new ideas all the time. There's just hundreds of ideas. It's
trying to implement those ideas, build real products that solve
real customer problems and, you know, if they solve them well,
that both they integrate well with other products and are __ and
easily usable. I thinkyou look at the last ten or twenty years
with like the microcomputer revolution, that's what it's really
all been about, you know, the firms that have been successful are
the firms that have been able to take ideas and turn them into
something that's useful for end_users, and add value that way.
So you know, the successful firms are companies like Microsoft,
Novell, Borland, Adobe, and you know, the list goes on, all these
new companies that have, you know, typically been started some
time in the last ten to fifteen years.

And so when you start looking at software patents you'll find
that it's quite disturbing because if these are the companies you
want to attract, if you actually start to count which companies
have how many software patents, you'll find things that are quite
alarming in terms of the companies that you'd imagine should be
being rewarded by the patent system for developing real economic
value hardly hold any patents. And indeed, many of them don't
even hold any patents at all. And evenhe large company such as
Microsoft count very few patents. And on the other hand, if you
look at companies like Hitachi and IBM and AT&T which people
within the software industry will tell you have been more or less
totally inept at bringing their software ideas to market, they
can come up with ideas but they just can't implement them suc-
cessfully in a way that fulfills real customer needs.

And so I think if the software patent system continues, then it's
going to have a very adverse effect in terms of resources from
the economy are going to be diverted away from the firms that are
adding real value and put towards these very large conglomerates
which are like multifactored concerns that have large patent
hierarchies.

And so because of this I think, you know, the patent system's got
to be analyzed from an economic point of view and, you know, in
the case of software I believe that that's __ the patents are
harmful to the software industry and I think the best solution
will be to make software nonpatent.

You know, I'd like to just mention briefly on the issue of
economics, there seems to be very little real research into like
the fundamental functioning of the patent system in terms of I
know there was a study way back in I think 1958 by Fritz Matlock
(phonetic) that, you know, did an economic evaluation for the
Senate, and raised an awful lot of questions about the patent
system, which I think was good, but then they tended to be just
left off, and I feel, you know, if someone had taken those ques-
tions and started evaluating them and gathering real data, we'd
be in a much better position today to actually know what the
state of the patent system is, exactly how it works on deciding
important public policy issues such as this.

All right. In the remaining time I'd like to just read, if I may,
one or two things by some of our members who haven't been able to
attend today, have sent. Okay.

So this is from James Hellman (phonetic) who's a member of the
League for Programming Freedom, and he says, "Aple of years ago I
was involved in a start_up that was shut down by a bogus software
patent. We were well on our way to having several hundred
thousand dollars of private_placement venture capital. Out of the
blue another company was awarded an extremely broad software sys-
tems patent for an obvious concept through substantial existing
prior art. We received a cease and desist letter and our funding
evaporated. The sad thing is that the company that received the
patent were so incompetent that they went out of business shortly
afterwards. Business success should be determined by who has the
best ideas, best implementations and best marketing.

Okay. Have you got any questions?

COMMISSIONER LEHMAN: No, other than to say that I think you make
a very good point about lack of really effective economic
analysis about how the patent system works. It is something that
is lacking. I know we've attempted to survey the literature on
that subject, and there really isn't any. It's interesting that
certainly thearing was made available to everybody; we're within
a few miles of one of the great research institutions in this
area of the country. Nobody, no professor, no great economist
saw this subject as worthy of advising us on and it's a problem
we have, frankly, it's a problem, and unless we go out and com-
mission the work to be done I'm not sure that we're going to get
that kind of information, but it does put us at some kind of
disadvantage so we have to do the next best thing and that is get
the kind of anecdotal information that we're getting here today
from people like you and other witnesses. The difficulty with
that is that we're hearing exactly the opposite thing from
several different witnesses. We heard people earlier who testi-
fied that it's an absolute fact that there would not have been
investments made in innovation, companies would not have been
formed if they had not had the patent incentive. You've given us
in your letter that you just read to us an assertion of an exact
opposite situation. we'll have to sort through all of this.

MR. IRLAM: I believe there will be value if, you know, longer
term, the Patent Office was to maybe develop some of its own
skills at doing like economic analysis for its like policy sec-
tion or whatever that may exist.

COMMISSIONER LEHMAN: Well, we may well have to do that. Thank
you very much.

Next I'd like to ask Mr. Robert Yoches to step forward, who has,
I assume, come all the way out there from Washington, Finnegan,
Henderson, Farabow, Garrett & Dunner.

ROBERT YOCHES

FINNEGAN, HENDERSON, FARABOW, GARRETT & DUNNER

MR. YOCHES: Thank you, Commissioner LEHMAN, it is indeed a
pleasure not to be in Washington, D.C. today because of the
weather, and also a pleasure to be before this distinguished
Panel. For the record my name is Bob Yoches and I am a partner of
Finnegan, Henderson, Farabow, Garrett & Dunner, although I speak
today not as a representative of that firm, not as a representa-
tive of my partners, and not as a representative of any of
thients of the firm. Instead I offer my own views based upon
having practiced in the area of intellectual property for patents
for fourteen years, and in that capacity I've been before the Pa-
tent Office in prosecution, I've litigated patents in the
software and computer area, I've licensed patents in those areas,
licensed in and out technology, I've been involved in copyright
registrations, copyright licensing and litigation, and I've been
involved in trade secret litigation. I've represented both large
companies that have been well_established, small companies and
start_up companies. I've also represented domestic companies and
foreign companies, and I've represented those that had intellec-
tual copyrights and those that were concerned with other parties'
intellectual property rights. And based upon that experience I'd
like to offer some observations about the applicability of the
patents and the patent law to the software_related inventions.
I'm going to restrict my remarks to perhaps unique aspects
oftware that make patents appropriate or inappropriate, as op-
posed to addressing any of the general attacks on the patent sys-
tem itself. I'm not under the impression that there's any
large_scale movement to rid ourselves of the patent system, so
let me address myself to the specific aspects of software and the
specific aspects of how the patent system impacts software.

I note that in the discussions today and the testimony given
there are three characteristics of software that I think are im-
portant, especially from the aspect of how best to implement the
Constitutional directive. One is that software is pervasive in
our technology. It pervades our lives, it pervades our jobs, it
pervades all other types of technology that hithertofore we've
considered different. We've heard somebody from the petroleum
industry talk. We've heard about a case involving software and
the medical industry. There is software in the banks, software
in stock exchanges, there's software in your automobiles. Not
only does sof e now pervade our lives, it will do so more in the
future.

A second observation is, you cannot extricate the software and
treat it separately, in other words, I question whether we can
talk intelligently about software_related inventions, software's
such an integral part of our lives. And lastly, the last observa-
tion generally on software is that although software has some
unique aspects, so does every other type of technology; certainly
biotechnology has unique aspects. Certainly chemistry and pharma-
ceuticals have unique aspects, but I think there are some things
about software that it has in common with other innovations and
with other technologies that are particularly important to how
patents will affect that.

One of those characteristics is software is extremely useful; it
is, as I indicated before, pervasive, but it has the potential,
and has already actualized much of that potential for dramatic
impacts on our life.

Second, the more we know about software, and I think there is
some testimon$ this point also, the more that is known about
software, the greater will be the development in order to avoid
ploughing ground that's been ploughed, and the faster will be the
rate of that improvement.

Given those observations then, what role do patents play and can
they play? And I think patents have already played, and will
continue to play, a role in three major aspects. The one general-
ly starting from what I just talked about is in publication. We
heard a speaker this morning testify that indeed one large com-
pany allowed publication of ideas because they were protected by
way of patents. In addition to that, however, and I think a much
stronger point, is the fact that the patents themselves are pub-
lications of the ideas, and publications in a very important way
that really hasn't existed. They are publications of information
in a structured format by way of the Patent Office's own classif-
ication system. As the Commissioner spoke this morning, the fact
of the matter is that because we have reli(o long on trade
secrets there is perhaps a lack of this structured database. The
way to solve that is not to avoid the patent system, but rather
to embrace it, and to look at and perhaps adopt many of the
recommendations that have been made here on how to improve the
accessibility to prior art.

The second issue, and this has been a key issue here, is that of
investment, and rather than repeat what's been said, it has been
my experience that not only do investors, and by investors I not
only include venture capitalists, but also large concerns that
are interested in some sort of partnering agreement, but these
type of investors care more about patents than they do about
trade secrets, if in all honesty copyrights are kind of a wash.
They're there anyhow, it doesn't make much difference.

But given that, there's often a choice between whether to keep
processes secret or obtain a patent on it, I find investors like
patents much better, for two reasons. One is, they don't like
dealing with trade secrets b,se they have to sign a confidential-
ity agreement and a lot of investors won't do that. The second
reason is, and I think even more compelling, is that the inves-
tors are afraid that the trade secrets will have a short life-
time. They can easily be lost. They can be lost in an instant
by an inadvertent publication. They much prefer patents.

The third area that I think that patents play in software is that
of innovation. There's been I guess some dispute here on whether
software is fast_developing or slow_developing, but I think there
is one observation we can make, and that is, it's generally easy
to change software. It's more flexible to change software than
hardware, indeed that's why so many of our developments have
software in it. Well, of course one of the options that the pa-
tent system offers, and one of the opportunities it offers, is
that if there's a patent out there, and you don't feel like pay-
ing the license fee for it, you are encouraged to design around
the patent, and indeed the Federal 0uit has indicated that a key
aspect of the patent laws is the designing_around.

Software, by its nature, by the ease and quickness by which you
can modify your procedures and modify your algorithms, is partic-
ularly adapted to designing around other patents, and particular-
ly adapted to then promoting new developments. It has been my ex-
perience, in summary, that the patents have served the software
type of developments very well, and I believe in general that the
Patent Office, especially in Group 2300 with which I've had the
most experience, has also done a good job of serving the system
well, but I notice, I think, two problems currently, with the Pa-
tent and Trademark Office in the area of patent protection of
software_related inventions. The one is, I believe in the Sec-
tion 101 area as I think other witnesses have indicated, that
there is a reluctance, and almost stubborness by the Patent Of-
fice to taking the most contrary position that they can on wheth-
er subject matter is patentable, and indeed in 4form paragraphs
which the patent and trademark office uses as a bases for its re-
jections, it had been able to pick and choose among different
cases, especially cases from the 1970s, to support their posi-
tions.

I think that's contrary to the trend of the law. I think it's
contrary to two major Supreme Court cases, the most recent cases
in this area. Because in the Jacobardi case, as the Notice indi-
cates, the patent laws are supposed to extend to anything under
the sun made by man, and in the Diehr case, there was a direction
that we're supposed to look at the claim as a whole and not
dissect it into its old elements, meaning its mathematical algo-
rithms, and its new elements. And I do not believe currently
that the Patent and Trademark Office is following that, and I
think that the result has been, at least in my experience, two
things. One is frustration by some applicants because they have
abandoned their application rather than pursue this to the Board,
and for those people that have pursued to the8rd, at least in our
firm, they've been very successful, and all it's resulted in is
an additional expense to those applicants.

The other issue, and I think the Patent Office I understand the
last week made I think a major change, is the Patent Office I
understand now allows or will allow Group 2300 to hire computer
scientists as examiners. I think that's a very good step. Howev-
er, it's my understanding though that if you're a computer scien-
tist out practicing in the world you may not currently sit for
the Patent Bar. The belief is that you don't have sufficient
technical training. I think that should change, and certainly if
you're qualified enough to examine patents, you ought to be qual-
ified enough to prosecute those patents in front of the Office.

Thank you very much.

COMMISSIONER LEHMAN: Thank you very much, Mr. Yoches, for coming
all this way to share those thoughts with us.

Next I'd like to call our final witness of the afternoon, Jim
Shay of the firm of Morrison and Foerster.

JIM SHAY

MORRISON & FOERSTER

MR. SHAY: I find myself in the very difficult position of play-
ing clean_up and of trying to say something new, because many
good things have already been said and many of my remarks I think
only serve to reinforce those things, but perhaps that's useful
as well. My name is Jim Shay, I am with the law firm of Morrison
& Foerster in San Francisco. We represent the Multimedia
Development Group, a trade association based on San Francisco, as
well as other clients in the software and multimedia industry.
My comments today are my own, however. They do not necessarily
represent the views of the firm or its clients.

I am a patent attorney. I spent three years as a patent examiner
before entering private practice. I've also served as inhouse
counsel for a medical technology company, and I've worked in a
variety of technologies in a variety of ways, prosecution, liti-
gation, licensing, representing individual inventors, large com-
panies and investors.

I believe in the value of pate@rotection as a tool for spurring
innovation and for helping inventors, whether corporate or indi-
vidual, obtain the benefit of their contributions. In my opinion
this principle applies as much to software_related inventions as
to any tangible mechanical, chemical or electrical invention.

Specifically, the software industry as a whole and software com-
panies and developers individually benefit from the patent sys-
tem. The software industry I'm referring to is not just the com-
panies whose primary products reside on floppy disks or CD_ROMs.
In my view the term software industry includes any suppliers of
products incorporating programmable microprocessors, products
such as medical monitors, animated toys, automobile electronic
ignitions, audio products, just to name a few. Advances in mi-
croprocessor technology have made software ubiquitous and protec-
tion of patentable inventions embodying that software is there-
fore of concern not only to companies writing and selling
software per se, but also to all manner of D, medium and low_tech
companies serving a variety of markets.

As the PTO has acknowledge in conducting these hearings, there
appear to be a particularly high amount of concern over the vali-
dity of software patents. A good example is the public reaction
to the Compton's new media patent, a patent I came to know very
well in my position as counsel to the Multimedia Development
Group. I participated in question and answer sessions about the
Compton's patents with members of the MDG's Executive Committee
and with individual members of the MDG. Many expressed many
strong, negative opinions about the conduct of the Compton's pa-
tent applicants before the PTO and about the ability of the PTO
to examine and issue valid patents in the subject area.

My review of the file history of that patent, however, showed no
evidence of any particular lapse or failure on either part.
Nonetheless, the consensus of nearly all to whom I spoke was that
the broadest claims of the Compton's patent could not possibly be
valid, aHhat anyone associated with the multimedia industry would
agree. The eventual disposition of the Compton's patent remains
to be seen. The discussion surrounding that patent, however, has
pointed to some possible deficiencies in the current patent sys-
tem, especially as applied to software_related inventions.

First, as other people have noted, patent examiners do not have
easy access to the best prior art for software_related inven-
tions. The best prior art consists of actual software, operators
manuals, research papers and the like. These references are not
generally accessible to patent examiners.

Second, the PTO's relative lack of experience in software_related
inventions because of the relative newness of the patentability
of software makes it difficult for an examiner to determine how
one of ordinary skill in the art would have approached the prob-
lem that patent claims address. Often it is the feeling that an
invention would have been obvious that leads an examiner to find
the most pertinent priorL references, to make the most compelling
argument regarding the unpatentability of the claims. This
disconnect between the gut feelings of the patent examiners and
the gut feelings of skilled artisans in the software industry un-
dermines the industry's faith in the PTO.

I would now like to make some recommendations based on these ob-
servations. These are not new, these will merely reinforce other
recommendations made earlier today.

First, operating within the current statutory framework, I be-
lieve that the PTO and the software industry could benefit great-
ly from a more formal interaction. Specifically, the software in-
dustry operating through industry groups such as the Multimedia
Development Group, could provide the PTO with kinds of prior art
references that the PTO currently lacks. I have spoken to many
members of these groups who at least now are expressing a wil-
lingness to work with the Patent and Trademark Office if the PTO
will work with them in compiling these prior art references.
Such a progrPould require the industry groups to dig up and send,
and the Patent Office to accept and classify, prior art refer-
ences related to the past and present software inventions.

In addition, the PTO and industry groups should cooperate to
train examiners working with software inventions. I'm aware, for
example, of training programs offered by the Software Patent In-
stitute. I also believe that the PTO should undertake the task of
teaching the software industry about the patent process so that
the industry can use the existing process more effectively. One
of the most surprising things I learned in the Compton's process
was how little people actually knew about the patent system.

To the extent that the PTO is willing to support statutory
changes and as I learned this morning, you are, I believe that a
system of pre_grant publication and opposition proceedings would
help improve the quality of software patents. This one aspect of
change is the one thing mentioned more often by more people in
discussing theTrent patent situation. A less radical statutory
change would seem to be opening the reexamination process to pro-
vide for full participation by interested parties in addition to
the patent owner. I advocate the use of oral testimony. Experts
in the field can be the best source of prior art, and this would
be useful in the reexamination process. This change could en-
courage the submission of all relevant prior art instead of the
current practice of withholding the best prior art for use in
license negotiations and in District Court infringement proceed-
ings.

In conclusion, while the emphasis of our remarks has been on the
deficiencies I perceive in the patent system, I should state that
I believe that there is much right with the current system. Our
proposals will only be minor changes to a system that has served
us well in promoting the useful arts.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Shay, I appreciate
those very specific recommendations.

I'd like to thank everybody in the auXce for having the interest
in what others had to say, to stay all day and be with us, and
we'll reconvene tomorrow morning at 9:00 o'clock, and our first
witness at that time will be Jerry Fiddler, CEO and Chairman of
Wind River Systems. Thank you very much.

UNITED STATES PATENT AND TRADEMARK OFFICE

PUBLIC HEARING

ON USE OF THE PATENT SYSTEM

TO PROTECT SOFTWARE_RELATED INVENTIONS

January 27, 1994

COMMISSIONER LEHMAN: Good morning. Welcome to our second day of
hearings on the use of the patent system to protect
software_related inventions.

Yesterday we had an excellent series of speakers. I think we all
learned a lot here, those of us who came from the Commerce
Department in Washington. You all gave us a wide variety of
opinions and I know that today is going to be just as good and
we're going to be armed with all the information we need to im-
prove our patent system when we get back to Washington.

I'd like to just, for those of you who might not have been here
today, briefly introd216ere on this panel.

I am Bruce Lehman. My official title is Assistant Secretary of
Commerce and Commissioner of Patents and Trademarks.

And to my immediate right is Ginger Lew, Assistant Secretary of
Commerce and General Counsel of the Department of Commerce Desig-
nate, and Ginger Lew was a practicing lawyer until a few months
ago up here in the Bay Area and knows this area very well and
knows a lot of the industries and businesses that are involved
very well.

And then to my far right is Michael Kirk. Mike Kirk is the
current Assistant Commissioner of Patents and Trademarks for
External Affairs and the President has nominated him to be the
Deputy Commissioner of Patents and Trademarks.

And to my left, immediate left, is Lawrence Goffney, and Larry
Goffney the President has nominated him to be our new Assistant
Commissioner for Patents. He will be running the entire patent
operation, with over 3,OOO employees at our Patent Office in
Washington, and will play a very critical role in the dev`ment of
these policies.

And then finally Jeff Kushan is a Staff Member of our Office of
Legislation and International Affairs and he is the person who
did a lot of the leg work in setting this up and his name is
listed, as you know, on the Federal Register Notice.

I'd also like to __ I don't know if Gerry Goldberg is here yet
this morning __ but I want to observe the presence of Gerry Gold-
berg, who is the Director of Group 23O, or 23OO, which is the
Software Examining Group.

Is Gerry __? I don't see him around here yet. Okay, well, he'll
be here later. I think many of you know him and I'm certain he
will be available to you if you have private comments to make to
him.

Finally, I'd like to introduce the young lady in the blue suit
who just came in is Ruth Ford, who's our Director of Media Rela-
tions, and I know we have a number of media and press people
who've been here and if you have any needs that need to be dealt
with, Ruth will be happy to assist you with that.

So I'd just like to basically revdagain the ground rules that
we're going to be operating with this morning.

The people who will be testifying today should have received a
schedule indicating their approximate time that they've been as-
signed to give their remarks and I think we even have that on a
table up front. The list is available there.

And I'd encourage all of the people who are going to be talking
with us today to be here at least 2O minutes before your time,
your assigned time slot. And sometimes we get going a little bit
__ we get speeded up, maybe somebody didn't show up and so then
we end up having our schedule advanced beyond what we thought it
would be.

Each person will have 11 minutes for their presentation and the
computer monitor in front of us here will display a green screen
for 9 minutes and then it will turn yellow and when the screen
turns red that means that the 11 minutes is up. And I encourage
everybody to be cooperative with us if at all possible and try to
stick to those limits. Otherwise we'll sort of havh politely ask
you to wrap up.

To the extent that you can finish before 11 minutes, it's not
such a bad idea because it gives us a little more freedom to have
a dialogue and ask questions and get really a better sense of
where you're coming from and understand your testimony better.

In addition to, of course, these oral comments, we're open to ad-
ditional written comments from everybody, and additional written
comments from all those who are going to be testifying today,
maybe something is said by one of the other people that you feel
you have to follow up on, and those can be submitted to us in our
office and I think the address for all of that has been indicated
in the Federal Register Notice that has been circulated through
the Internet and was in the Federal Register Notice itself.

That Notice can be retrieved from our FTP site, which is: Com-
ments, period, USPT O, period, GOB.

The transcripts of the hearings will be available after February
7th and paper copies will be available for a charge of $3Olhe
transcripts will also be available through our FTP site.

Once again, I want to welcome everybody here, and it's wonderful
to see that we have this kind of interest for a second day in how
we can improve the legal basis for high technology in the United
States.

I'd like to call on our first speaker, who will be Jerry Fiddler,
CEO and Chairman of Wind River Systems. Welcome, Mr. Fiddler.

JERRY FIDDLER

CEO/CHAIRMAN

WIND RIVER SYSTEMS

MR. FIDDLER: Thank you.

I just dashed in the door. Traffic was terrible.

I stand before you not as an expert in intellectual property law.
I'm not a lawyer. Most people in this room know far more about
intellectual property law than I ever will. Rather, I wish to
speak to you as an expert software engineer and the founder and
CEO of a successful software company, Wind River Systems.

Wind River Systems is a 3O million dollar public company, with 4O
percent of our revenue from overseas. We create software for em-
bedded systems, the microprocessors found ipe our cars, fax
machines, telephones, robots, factories, consumer electronics.
According to Software Magazine, last year we were the 92nd larg-
est software company in the US.

My perspective on software patents is simple: stop issuing
software patents. Software patents should not exist. I say this
for a number of reasons.

First and foremost, I look at the reasons patents exist, which is
for the benefit of society. Certainly there are fields where pa-
tents are essential because of the large investment involved for
creation of technology and the ease of copying that technology.
In such situations, patents incent the major investments neces-
sary for those inventions which benefit society.

This doesn't apply to software. Availability of patent protec-
tion is not necessary to incent creation of software. Copyright
and trade secret protection are entirely adequate and more ap-
propriate. Yes, major investments are necessary to create
software, but that investment is primarily involved in quality
implementatitnd support of the software, not development of the
algorithms and ideas that might be patentable. Therefore, unlike
a drug, for instance, it's not substantially cheaper or quicker
to copy a program's functionality than it is to develop the ori-
ginal.

The deal society makes with the inventor, "Tell us about your
invention and you can have a monopoly for 17 years," is not a
fair deal today when it comes to software. In a field changing
as fast as software is today, 17 years might as well be a millen-
nium. The deal might as well be phrased, "Tell us about your in-
vention and you can monopolize it forever," so the fact that we,
society, know about it is meaningless.

In fact, patenting of software is actively harmful to society.
People don't need software monopolies. They need software that's
open, compatible, and that adheres to their expectations and
standards. They need the software equivalent of expectations
like "accelerator on the right, brake on the left". Patenting of
software could only impede tx goals.

Furthermore, patenting of software will not accelerate its crea-
tion or advancement. Rather, it will impede that advancement,
which is far better driven by the free market than by monopoly.

Imagine where we would be today if patents had been granted on
technology or concepts critical to word processors or
spreadsheets. Rather than the sophisticated and elegant tools we
now have available thanks to competition, we would still be using
something very much like the primitive first versions of those
tools. Worse still, we must remember that word processors and
spreadsheets have been largely responsible for spawning an indus-
try and making the personal computer a part of most of our lives.
The quality and advancement in those tools have created opportun-
ities for computer manufacturers and for other software vendors
who can sell to users who have computers primarily to run those
primary tools.

It's not too strong to say that if there had been strong patent
protection for the first word processors a|preadsheets, the per-
sonal computer industry today might be five to ten years behind
where it is. As another example, if aspects of TCP/IP, the net-
work protocol, had received patent protection, today the Internet
might very well not exist.

Creation of software will also be impeded by the difficulty of
writing software that doesn't inadvertently trip across a patent
somewhere. This is true in other fields where patenting is less
controversial, but it's far worse in software. It's not unusual
for a program to be a million lines long and consist of many
thousands of subroutines and functions. Algorithms and ideas are
embodied in each of those components and in combinations of them.
Some of these algorithms may be studied in school or found in
books, but many are developed "on the fly" as the program is
created. Many of these subroutines and functions might be far
afield from the purpose of the program as a whole.

An operating system, for instance, might contain routines for
sorting and searching, handliueues, parsing text, controlling
hardware, testing memory, et cetera. It will be impossible to
know which of these routines, algorithms and ideas violate a pa-
tent, because every programmer would need to understand every
software patent __ every software patent that's active. Software
is simply too complex, composed of too many pieces which are too
easy to create, to lend itself to being broken down into
patent_sized chunks.

I can easily envision a world in which progress in software is
totally blocked by a web of patents owned by a very few very
large companies; not the best or the most creative companies but
rather those with the most lawyers. In a world like that it
would be completely impossible to start and build a company like
mine __ and this nightmare could come to pass very quickly.

To date there has been little litigation regarding
software_related patents. God help us all when that litigation
does begin. Judges and juries will be asked to rule on whether a
large complicated program, potenly millions of lines long, writ-
ten in an obscure computer language, violates an arcane patent.
The claimed violation will be built into the very fiber of the
program, hidden within the program's structure and data in com-
plex and subtle ways. One expert will say one thing, another ex-
pert will say the opposite, neither judge nor jury will be com-
petent to understand the nature or veracity of the patent, much
less which expert is closer to the truth. The patent will have
been issued by an examiner who is not expert in the specific
software field and might not understand the concepts essential to
operating systems, fuzzy logic, or whatever the specific field
is, much less the prior art. The chances of a fair and informed
decision will be vanishingly small.

Software is, perhaps, more analogous to literature and music than
it is to mechanical invention. It would be silly to think about
patenting the first_person novel or the sonata form, yet there
are software patents already that to a software engineer arst as
absurd.

As a software company CEO, I am perfectly content to compete
based on the quality of the software we create and the support we
provide for it. I am fully satisfied with copyright, contract
and trade_secret protection for the software we write. We have
begun to work on some patent applications because I think we may
need them for defensive purposes, but I would far rather we
didn't need to do so.

If software patents become prevalent, it will seriously interfere
with our ability to continue improving our products and our abil-
ity to continue developing new ones. It will also interfere with
our ability to provide openness and compatibility to our custo-
mers __ a key part of the value we provide to them.

The best possible result of these hearings for us, for our custo-
mers and for society would be for software patents to simply go
away.

COMMISSIONER LEHMAN: Thank you very much, Mr. Fiddler. I would
just make an observation and ask a question.

You indicate where would we be if we had had pat on the
spreadsheets, and so on and so forth, and I think that suggests
that I think it's one of the reasons why we may not have patents
on spreadsheets and the idea of a word processing program, and so
on, is because those particular items were not patentable, they
didn't meet the test of patentability.

And I think herein lies a lot of the problem when you say
software shouldn't be patentable. Well, it well may be that
there's a lot of confusion as to where that threshold is drawn,
and that indeed some software_related inventions could and, you
know, are very appropriately patentable, but there seems to be a
lot of confusion about where the test, where the threshold, what
kind of innovation meets the test of novelty and unobviousness,
where that's drawn.

And how would you feel about a more vigorous examination of where
that line of nonobviousness is drawn?

MR. FIDDLER: You know, obviously, to the extent patents exist,
I'd like them to be as narrow and as well_defined as possible.
Clearly, that's inrybody's benefit.

But I think that, yes, it's true that probably the concept of a
word processor is not a patentable concept, but there certainly
are key components of those that very well may have passed patent
law, particularly as patents seem to be being issued, you know,
very recently.

There are, I think, that even if the Patent Office is perfect,
even if it issues only patents that are entirely appropriate, are
entirely correct, are novel and nonobviousness, and so forth,
which is I think a very unlikely place to get to, but even if we
can assume that the PTO is perfect in those respects, I still
think that it will have __ it makes it far more difficult to
create software.

If I sit here, I mean you can set for me a problem and say please
write a program that does something, and, depending on the prob-
lem, in somewhere between five minutes and a couple hours I may
be able to do that. Is what I have done patentable? Maybe.
Maybe there's an idea in there that is, maybe there isn't.

To find out if t is, it will take me far longer to find that out,
and there's no way in the world I can be familiar with it and it
will be very difficult for me to find it. It may be in a field
far away from the one in which I'm working. It will multiply my
work not by 1O or 2O or 5O percent, but potentially by thousands
of percent.

COMMISSIONER LEHMAN: How is that any different, really, from an
engineer that's working in electronic components of aircraft in
__

MR. FIDDLER: I think it's different __

COMMISSIONER LEHMAN: __ in Seattle where there's obviously a lot
of innovation and they're constantly asked to design all kinds of
gizmos and do things and yet that's an area clearly where there's
been patentability for a long period of time and they aren't, you
know, suggesting that somehow or other engineers can't make a
move and put pen to paper or turn on their workstation without
consulting the legal department?

MR. FIDDLER: I think it's different in a couple ways. For one
thing, copyright doesn't work for them it works fine for us. For
another thing, it's far easier to create software ideas and to
make them work.

When I start and write a program, I may write however many lines
of code it is, I may start with a design and do that, and I may
actually have it debugged within a very few minutes. I can make
changes to it by saying, "Change this line of code." I can make
it work in a very few minutes. That's very different than a
hardware concept or building something in hardware, where the
turnaround time is much longer, the number of concepts probably
embodied __ certainly the number of novel concepts embodied in
any specific project are probably much smaller.

As I said, a very small number of programmers, two or three or
five programmers, can certainly write a million_line program with
many thousands of ideas that may potentially be patentable. Have
they been patented? Have they not been? Is there prior art?
Isn't there? It's almost a question of luck and almost impossi-
ble to find out and it will make xtremely difficult to work to
create these kinds of programs.

COMMISSIONER LEHMAN: Thank you very much.

MR. FIDDLER: Thank you.

COMMISSIONER LEHMAN: Gerry? I wanted to have Gerry Goldberg
stand up, the Director of Group 23O. He's an important person
for all of you to know. He'll probably be back here, I would
guess, following up on some of the aspects that will come out of
these hearings to try to improve our procedures.

So Gerry is our point man on software. I hope you all get to
know him, if you don't already.

Next I'd like to ask Jim Warren of Autodesk to step forward.

Oh, I think we think you're the person who got the Internet
legislation for the California legislation passed __

MR. WARREN: That's correct.

COMMISSIONER LEHMAN: __ passed in three weeks?

MR. WARREN: It's been online.

COMMISSIONER LEHMAN: We've got a couple of job openings at the
Patent and Trademark Office, so I mentioned that yesterday, maybe
we ought to __

(Laughter)

MR. WARREN: We're going after the campaign d osure information
now.

JIM WARREN

AUTODESK, INC.

MR. WARREN: Mr. Chairman and other distinguished representatives
of the Department of Commerce:

My name is Jim Warren.

First, I am a Member of the Board of Directors of Autodesk, a
multi_national software company specializing in computer_aided
design. As a 4OO million dollar company, we have been recently
identified as the sixth largest PC software publisher in the
world. I am presenting its recommendations.

Secondly, I have been a computer professional since 1968, have
founded multi_million dollar companies in Silicon Valley, and
have held numerous leadership roles in personal computing essen-
tially since its inception in the 197Os, in the mid 197Os.

I was founding President of the Microcomputer Industry Trade As-
sociation, received the Electronic Frontier Foundation's first
Pioneer Award, hold graduate Degrees in Computer Engineering,
Medical Information Science, Mathematics and Statistics.

I was founding Editor of microcomputing's first$tware periodical,
was founder of the first, first free newspaper and the first sub-
scription newspaper, InfoWorld, and founding host of television's
oldest Computer Weekly, as well as founding the world's largest
public microcomputer conventions and chairing them in the first
decade of the industry.

My remarks are excerpted from three parts of my prepared state-
ment; namely, principles, pragmatics and some specific recommen-
dations. I am not speaking as an intellectual_property attorney.
I am speaking as a technological innovator with proven experience
and as a long_time observer of this industry. I've written ap-
proximately 6O to 7O articles about the future of this industry
that have received wide circulation, in excess of 22O,OOO copies
per issue.

We all know that software is somehow different from all tradi-
tional inventions. The difference __ but how does it differ from
the devices that are surely what the framers of the Constitution
envisioned when they mandated patent protection? The difference
is(t all traditional inventions enhance our physical capabili-
ties, whereas software mimics the mind and enhances our intellec-
tual capabilities. This is what makes software different from
all patentable devices and this is what justifies sui generis.

Let me define what software is for the purpose of our discussion,
based on its functionality, its utility, the useful character of
its art: software is what occurs between stimulus and response,
with no physical incarnation other than as representations of
binary logic.

The fundamental question is: Do we want to permit the monopoly
possession of everything that works like logical intellectual
processes? I hope not.

The mind has always been sacrosanct. The claim that intellectual
processes of logical procedures that do not primarily manipulate
devices, as in Diamond vs. Diehr, can be possessed and monopol-
ized, simply extends greed and avarice much too far.

What frightens and infuriates so many of us about software pa-
tents is that they seek to monopolize o,ntellectual processes
when their representation and performance is aided by machine.

I respectfully object to the title of these hearings,
"Software_Related Inventions". The title illustrates an inap-
propriate and seriously_misleading bias. In fact, in more than a
quarter century as a computer professional and observer and writ-
er in this industry, I don't recall ever hearing or reading such
a phrase __ except in the context of legalistic claims for mono-
poly where the claimants were trying to twist the tradition of
patented devices in order to monopolize the execution of intel-
lectual processes.

To pragmatics.

There is absolutely no evidence whatsoever, not a single iota,
that software patents have promoted or will promote progress.
And I provide examples in my paper.

Of the thousands of programmers I have known in the last quarter
century, I have never heard a single one say they didn't develop
a program because they could not monopolize its functionality.

Of the thousands of programs I have known a0 as a multi_decade
industry observer, I don't know of a single one that was innova-
tive enough to promote progress, much less perhaps qualify for a
patent as a useful art, that couldn't find funding.

The system was not broken when there were no software patents.

Now, however, there is growing evidence that software patents
have begun to harm and deter progress. And I provide a number of
examples, including the company for which I am speaking, Auto-
desk, holds some number of software patents and has applied for
others, which, of course, remain secret under current US law.
However, all are defensive and an infuriating waste of our techn-
ical talent and financial resources made necessary only by the
lawyers' invention of software patents.

Autodesk has faced at least 17 baseless patent claims made
against it in recent years and has spent over a million dollars
defending itself, with millions more certain to pour down the
bottomless patent pit. Fortunately, we have the financial and
technical resources to r4f such claims. We rebutted all but one
of the claims even before the patent holders could file frivolous
lawsuits and will litigate the remaining claim to conclusion.

Your Office has issued at least 16 patents that we have success-
fully rebutted and we never paid a penny in these attempted ex-
tortions that your Office assisted, but it is an enormous waste
of resources that could better be invested in useful innovation.

COMMISSIONER LEHMAN: Could I ask a question about that?

MR. WARREN: Out of your time or my time?

COMMISSIONER LEHMAN: It can be out of your time __ out of my
time.

MR. WARREN: That's what I was __ oh, okay, thank you.

COMMISSIONER LEHMAN: We have a procedure for re_examination of
patents. It sounds to me like what happened here __

MR. WARREN: I was about to recommend that.

COMMISSIONER LEHMAN: Well, we have that now, you know. In other
words, were those 16 __

It sounds to me like what happened here is that people basically
threatened you with lawsuits and, you know, you got 8 lawyers all
geared up and basically scared them away before you went to
court, but left it there. Whereas, one of the things that you
could have done, under our existing procedures, is that you could
have come into the Patent and Trademark Office and petitioned for
re_examination of those patents and have them held invalid.

Did you consider doing that, and, if you didn't, why?

MR. WARREN: I am certain that we did the least expensive thing
that we could do.

And I have no specifics. You'll have to talk to our legal eagles
on that, or have to ask our legal folks on that. But this is an
enormous __

Incidentally we not only invested our financial resources, we in-
vested our technical talent. Instead of them creating something,
they had to go research prior art to fight off these frivolous
claims. That ain't right.

Back to my prepared remarks.

That does not reward innovation nor promote progress. Further-
more, software patents can probably deter progress, and I provide
a number of examples.

Finally, <e is an intense danger that software patents pose to
our industry's global competitiveness, and I detail how.

To specific recommendations. Okay, this is the goodies.

Let us agree that those who hold software patents probably prefer
patent protection __ IBM, I think, is the largest holder and Mi-
croSoft is the second largest __ and those who spend their time
and resources creating technical innovation and national progress
rather than creating patent applications and litigation probably
prefer unfettered freedom to innovate.

Let us also agree that the Constitutional intent __ very impor-
tant __ is to "promote progress". So let us disregard who wants
what for self_benefit and act on principle. We propose as a
principle that those processes that are exclusively intellectual
and exclusively algorithmic, even when mimicked by machine, must
not be monopolized.

We offer two recommendations, the second having 12 parts, so to
speak, the 12 Apostles of redress of the current problems.

The first recommendation@ssue a finding that software, as I have
defined it, implements intellectual processes that have no sub-
stantive physical incarnation, processes that are exclusively
analytical, intellectual, logical and algorithmic in nature; plus
the clearly stated Constitutional intent to declare that __ and
use those findings to declare that the Patent Office acted in er-
ror when it granted software patents; declare that software pa-
tents monopolize intellectual and algorithmic processes and also
fail to fulfill the Constitutional mandate to promote progress;
declare that software as a mimic of the mind cannot be patented.

Second, until and only until software patents are definitively
prohibited, reject or freeze all such applications pending con-
clusive action on the following 12 points:

(1) Redress serious errors of previous administrations.

Issue a finding that there have been extensive and serious errors
of judgment in a large percentage of software patents granted in
the past and immediately recall all software patD for re_review
and possible revocation.

Encourage industry assistance. And I offer some comments about
how and some legislation that's needed.

Make the information available via the Internet and solicit max-
imum public input.

(2) Mandate disclosure upon filing.

Issue a finding that it unconstitutionally suppresses progress to
hide software threats in secret filings for one to five years.
Note that most of the other high_tech nations with which we com-
pete require disclosure upon filing or very soon thereafter.

Require disclosure upon filing or at least within, say, 9O days
of filing. This will give software developers essential early
warning of possible danger. It will also allow them to provide
badly needed prior art, perhaps years before the patent might be
granted and become a threat.

Let it be the responsibility of those seeking lengthy monopolies
to defend the truly novel and truly non_obvious character of
their innovations in a public patent_application review process.
Do not continue to fH that responsibility onto all other practi-
tioners after the fact.

(3) Recommendation 3. Require disclosure of complete source
code and documentation upon filing.

That will slow this stuff down.

Reiterate that the __ (Laughter).

That was not in my prepared remarks.

Reiterate that the major function of the patent system is to as-
sure complete public disclosure of innovation in order that all
may benefit and progress be promoted.

Issue a finding that software patents require full disclosure of
complete original source code and complete internal documenta-
tion. Then require its disclosure, preferably upon filing or
perhaps 9O days later, but at least upon the granting of the
software patent. Note that this implements the "best mode" re-
quirement.

Software patent disclosures in the past have often failed to ful-
fill this minimum requirement; therefore, require such disclo-
sures from all present software patent holders. Those who de-
cline to so disclose in a timely manner must have their patents
invalidatLs being improperly granted.

(4) Prohibit filings after any public exposure.

Issue a finding that most of the nation's high_tech competitors
prohibit patent filings after any public exposure of their pro-
posed innovation.

Further, find that patentable innovation in software is unclear,
vaporware is rampant, early disclosure is common, sharing of dis-
closed innovation is almost universal, and possibly infringing
development using such disclosures is almost inescapable. Use
that finding to prohibit any filing after the date of any public
exposure.

Recommendation (5) Reduce requirements for challenging software
patents.

Find that the evaluation of what constitutes new, novel and
un_obvious innovation in software is highly subjective and essen-
tially impossible for the Patent Office to judge, since the Of-
fice does not have the 5O years of prior art that exists.

Change the standard for invalidating software patents from a re-
quirement for "clear and convincing evidence" to no presumption
of validity at allPwhich is usually the case if the experience of
well_funded defendants who can do the adequate research, such as
Autodesk, is any measure.

(6) Reduce the protection period.

Issue a finding that 17_year software protection patents are
clearly unreasonable where, in an industry where significant in-
novation can often be created in months, most innovation has
minimal costs relative to traditional inventions, manufacturing
and distribution is trivial, products can be shipped within weeks
of being finalized, great profits can be attained in less than a
year, the life of a product typically is only a few years, and
all of the growth of the industry, from inception to Diamond vs.
Diehr in 1981, was barely three times the 17_year monopoly
period.

Shorten the one_time protection period to no more than, say, two
years. Sui generis is justified.

(7) Replace __ wow, I'm still in the green __ or no I'm not __
or have I run out of time?

COMMISSIONER LEHMAN: I was giving you your maximum.

MR. WARREN: Oh, sorry Tt that. May I finish the other remarks
very quickly?

(7) Replace first_to_invent with first_to_ file.

Issue a finding that this nation is almost alone in granting
monopolies on the basis of first_to_invent. If the patent system
is justified and public disclosure has merit, then encourage it
by awarding monopolies only on the basis of
first_to_file_and_disclose, but, of course, retain the principle
that prior art always invalidates a patent.

(8) Declare that useful intellectual communications cannot be
monopolized.

This is the look and feel issue. We don't want to protect it
under patent any more than we want to protect it under copyright,
when they are not primarily aesthetic and not primarily artistic
and not primarily for controlling equipment. And I address that
more properly.

(9) To promote continuing progress, mandate cross licensing.

If you are going to grant monopolies over our algorithmic
processes, then at least mandate that we can use them under
license from the monopolists. And I sXst how.

In particular, we suggest mandatory licensing rates not exceed-
ing, say, 5 percent of a licensee's profits prorated across all
cross licensers for a given product.

(1O) Provide a nationally accessible prior_art collection.

I'm sure you heard that from 5O other people. If you don't have
the resources to do it __ and make it available across the Inter-
net __ if you don't have the resources to do it, then inform
Congress that you are unable to perform your assigned functions
without endangering national progress.

(11) Exercise much greater due diligence with regard to software
patents.

You must stop leaving it up to endless threats, defenses, court
battles among those who can afford them to ascertain which few
patents might be valid, which is too often determined only by the
relative wealth of the combatants.

(12) And finally, create a large public advisory body, a commis-
sion of volunteers who are technologists, those who produce the
nation's progress in this area, not just
intellectual_propettorneys.

Seek them from a broad spectrum of software publishers, great and
small producers, including individuals.

These recommendations require Congressional action, and this in-
dustry has been politically asleep, but continuing software pa-
tent debacles are beginning to awaken it, most especially its in-
novators, and we certainly have the financial resources, the com-
munication tools and the tenacity to seek effective redress as we
finally organize and choose to act.

However, the needed Congressional action can be greatly facili-
tated by supportive recommendations from your Office. Please
draft them soon. But not cloistered inside the Washington Belt-
way, rather with extensive Internet circulation of all drafts and
discussion.

Let us stand on each others' shoulders rather than on each oth-
ers' toes.

Thank you.

COMMISSIONER LEHMAN: Thanks very much, Mr. Warren. We gave you
a few extra minutes there __

MR. WARREN: I appreciate that.

COMMISSIONER LEHMAN: __ because of my intervention.

I want to tha`ou for coming out here. I think we'll look at your
recommendations very carefully and I think with regard to this
idea of, first of all, I hope you will appreciate the fact that
we're not inside the Beltway right now __

MR. WARREN: Every two days outside we appreciate.

COMMISSIONER LEHMAN: __ we have a little capacity to innovate,
even Washington lawyers can come up with a few good ideas every
once in awhile.

And secondly, I think that we do need to have closer, a better
means for communicating directly with the innovative community
and not just for patent lawyers, and so we need to do a little
innovative work to figure out the mechanisms for doing that our-
selves and I really appreciate your comments. Thanks.

MR. WARREN: Ask us for help __ I mean all of the industry __ and
we will help.

Thank you.

COMMISSIONER LEHMAN: Next I'd like to ask Mr. Michael Glenn,
from the Intellectual Property Section of the State Bar of Cali-
fornia, to step forward. Maybe he can defend the lawyers.

MARY O'HARE

CHAIR, EXECUTIVE COMMITTEE

INTELLECTUAL PROPERTY SECTION, STATE BAR OF CALIFORNIA

MS. O'HARE: I am not Michael Glenn. He felt as though he needed
some company up here.

Assistant Secretary and Commissioner Lehman, my name is Mary
O'Hare. I am the Chair and am speaking on behalf of the Execu-
tive Committee of the Intellectual Property Section of the State
Bar of California.

The Section is voluntary, comprised of more than 37OO attorneys
practicing in the various intellectual property fields of copy-
rights, trademarks, trade secrets and patents. Our members
represent, for the context of this hearing, individuals,
non_profit organizations, small and large businesses.

We are proud that our organization was one of the first to have
Commissioner Lehman as its keynote speaker and we thank you for
holding these hearings in California.

All too often in the past, as Commissioner Lehman has noted, Cal-
ifornia, and sometimes the needs of its attorneys and clients,
more than 26OO miles away from the Patent Ofh, have been felt to
be out of sight and out of mind. Nonetheless, California has
been the center of the United States cultural and technical
renaissance of the late 2Oth century. California's two largest
industries, entertainment and technology, are also the United
States' two largest export engines.

We in the Section hope that these hearings will signal the
Office's willingness to have easy, open access to the Patent Of-
fice for Californians, a privilege until recently primarily en-
joyed by the Washington, DC, patent bar.

While I am Chair of this Section, my intellectual property exper-
tise has been gained in the context of a motion picture enter-
tainment practice. Commissioner Lehman, we know you have a sense
of humor, we know you know that we've been through an earthquake
recently, but the tragic earthquake in Southern California may
have rattled our homes, our offices and our psyche, but let me
assure you that Californians are tough, we are not so rattled as
to ignore the importance of your presence l and that's why we are
here or to presume to have a motion picture attorney address you
on matters at the Patent Office.

Therefore, I am privileged to present Michael Glenn, an officer
of our Section, who is a patent attorney in the Silicon Valley
who has represented both individual inventors and large corpora-
tions before the Patent Office for the past 14 years.

His qualifications are set forth in our written statement and he
will present the statement of the Section.

Thank you.

COMMISSIONER LEHMAN: Thank you.

__o0o__

MICHAEL GLENN, ESQ.

MR. GLENN: Commissioner Lehman, today's hearings have been con-
vened to receive comments from the public on patent protection
for software inventions. Rather than respond to the specific
questions raised in the Notice of these hearings, we will address
the important, broader issues that form the context in which the
issue of patent protection for software inventions arises.

These issues include: (1) the expertise and ability of the Exa-
mining Corps, especially wpregard to the difficult task of apply-
ing complex legal principles to emerging and sophisticated tech-
nologies; (2) the availability of task appropriate tools and
resources to the Examining Corps; (3) the need to make Patent Of-
fice services and resources readily available to the public; and
(4) the understanding that the US Constitution, in providing the
Congress with "the power to promote the progress of science and
useful arts by securing for a limited time to authors and inven-
tors the exclusive right to their respective writings and
discoveries", did not limit the types of discoveries for which a
grant of exclusive rights would be secured.

Preliminarily, it must be observed that patent myths abound and
the Patent Office should use its best efforts to dispel these
myths. These hearings are one excellent way to raise the general
level of public understanding of the US patent system. However,
the primary job of the Patent Office is to examine patent appli-
cations. A quality examination and precise applictn of the pa-
tent laws by the Patent Office are necessary to assure that the
interests of both the public and the inventor are properly
served.

First, while recent efforts to improve the quality of the Patent
Office services, especially the quality of the Examining Corps
and as a result the quality of patent examination and patents is-
sued by the Patent Office have not gone unnoticed, more needs to
be done.

Because the process of examining a patent application necessarily
demands both a high level of technical expertise and a thorough
understanding of the legal standards that are applied during the
examination, the Patent Office must continue to attract and re-
tain Examiners who not only have the technical knowledge neces-
sary to understand the invention, but who also understand the le-
gal framework within which the Patent Office functions. To this
end, ability and merit should be the most important standards by
which Examiners are hired, promoted and retained.

Secondly, we encourage the Patent Office to doxe with regard to
improving the quality of the patent examination process.

For example, in many technical areas a search of issued US pa-
tents alone cannot reveal the most relevant prior art. In rapid-
ly developing technology, such as computer software and biotech-
nology, where the enforceability and availability of intellectual
property rights in the past have been uncertain, the most
relevant art may be found in industry journals and in proceedings
of professional societies and institutes.

The Examining Corps should be encouraged to search all relevant
information sources. Intensive training in using these informa-
tion sources should be provided the Examining Corps such that the
most relevant priority is applied by the Examiners to every pa-
tent application filed with the Patent Office.

Thirdly, since the Patent Office is also a tremendous depository
of knowledge, we encourage the Patent Office to explore the pos-
sibility of giving the public throughout the United States free
or inexpensive access to the |nt Office database through an on-
line source such as the Internet.

At present the few public patent depositories scattered across
the US are underfunded, understaffed and resource_constrained.
For example, online searching is not available at the Sunnyvale
patent depository here in Silicon Valley and those wishing to
perform a computerized search of the now available CD_ROM data-
base there are limited to only 2O minutes of use.

The Patent Office search room in Washington, DC, is not accessi-
ble for the public at large, attorneys and inventors who live,
work and invent in California. Ready public access to such
publicly_owned information would allow inventors to make informed
decisions about whether or not they should pursue patent protec-
tion, would allow those seeking to enter a new market to review
the patent literature before entering upon a course of action
that could lead to a wasteful, potentially disastrous patent in-
fringement lawsuit, and would allow those seeking to license
technology to have accto the marketplace of ideas contained in
the Patent Office database and be better able to establish a fair
value for such technology. As important, the public would become
more familiar with and better educated concerning the patent sys-
tem.

Fourth, from time to time an issue may arise when a
recently_issued patent is publicized as part of a marketing cam-
paign by a successful patent applicant or as part of an ideologi-
cal debate concerning the applicability of patent laws to the
technology protected or the breadth of coverage afforded the in-
vention by the patent's claims. As a result a discussion ensues
concerning the wisdom of extending patent protection to new and
emerging technologies. We caution the Patent Office not to allow
the mere existence of a public debate alone to provide a ra-
tionale for establishing separate rules for such technologies.

This discussion is not new. In the days of the Wright brothers
there was the fear that the future development of aviation would
be seriously impeded if Wi and Orville should be allowed a basic
patent on their invention. As we all know, this was not the
case. As Wilbur Wright put it: "When a couple of flying machine
inventors fish, metaphorically speaking, in waters where hundreds
had previously fished, and spending years of time and thousands
of dollars finally succeed in making a catch, there are people
who think it a pity that the courts should give orders that the
rights of the inventors shall be respected and that those who
wish to enjoy the feast shall contribute something to pay the
fishers."

With regard to enforceability of patent rights for new and emerg-
ing technologies, the Patent Office must show leadership. The
Statutory mandate of the Patent Office is clear: novel and unob-
vious inventions that comprise patentable subject matter must be
granted a patent. As a general principle, patentable subject
matter cannot be limited to known technologies, but, as stated by
the Supreme Court in the Chakrabarty case, must also encompass
"anything under sun that is made by man." Otherwise, only old
technologies will be found to comprise patentable subject matter,
at which point the patent system will lose all meaning.

It is the ownership of invention that spurs innovation, not just
the promise of exclusivity afforded by patent grant, but more
significantly, in the incentive to avoid a patent by inventing
around the patented invention.

Finally, while the patentability of software inventions has long
been an interesting topic of discussion, first in the courts and
the Patent Office and now in the press, much of the discussion
may be caused by misunderstanding and confusion. We suggest that
some of the misunderstanding stems from the confidential nature
of the examination process. In many areas it is not possible to
perform an infringement search to clear a new product because the
most relevant patents are still pending in the Patent Office and
not available to the public.

The Patent Office could explore opportunities for involving the
public in the enation process to avoid any surprise attendant
with the grant of broad_reaching patents. For example, the Pa-
tent Office may want to consider the pre_grant publication of pa-
tent applications and/or pre_grant public opposition hearings.

We applaud the Patent Office decision to re_examine a recently
issued patent on its own initiative in light of new art
discovered after issuance of the patent. As an organization we
have no opinion regarding the outcome of the re_examination, we
only applaud this bold and welcome policy on the part of the Pa-
tent Office to pursue excellence. The ultimate outcome of such
actions will be to improve the stature and regard with which a
United States patent is held. This in turn will provide more
certainty concerning the validity of an issued patent. Reducing
the likelihood of a successful attack on the validity of a patent
should encourage early settlements of patent disputes and
strengthen American industry by strengthening the incentive to
innovate rather than to litigate.

In closing, the Patent Office must continue to serve the needs of
a broad range of applicants, from independent inventors to
multi_national corporations, while taking into account the ef-
fects of a fast_changing global economy.

Patents not only protect inventions, they also protect employment
and national wealth. The United States is a technology leader
because of the incentives it provides to those persons who take
the effort and risk involved in bringing new inventions to the
marketplace. Of all the nations in the world, the United States
has the only significant software industry, the only significant
biotech industry, and the only significant microprocessor indus-
try, to name a few. These industries form a mighty technology
river that has human creative energy as its source. The American
experience shows us that such creative energy requires incentive.
The role of the Patent Office is paramount because the Patent Of-
fice is charged by law with providing incentives for this
creative energy by protecting patentable inventions.

We pledge that if you involve California's inventors and practi-
tioners in the ongoing discussion of Patent Office procedure and
policy, your job will be easier and we can together ensure that
the patent system and the Patent Office fulfills the Constitu-
tional proviso of promoting the progress of science and the use-
ful arts, all to the economic benefit of the citizens of Califor-
nia and the rest of the United States.

Thank you.

COMMISSIONER LEHMAN: Thank you very much.

Next I'd like to call Mr. Lippe of Synopsys.

PAUL LIPPE

GENERAL COUNSEL

SYNOPSIS

MR. LIPPE: Thank you, Mr. Chairman.

By way of introducing myself to the Panel, let me say that I've
sat where you're sitting. I used to be Chairman of a thing
called the Colorado Air Quality Control Commission and having sat
through two days of stupifyingly dull testimony about aromatic
emissions of oxygenated fuels, I respect your stamina and your
willingness to sit through this stuff.

COMMISSIONER LEHMAN: Well, thera big difference. That may have
been stupifyingly dull, but this isn't. It's intensely interest-
ing. It really is.

MR. LIPPE: So I'm going to try not to echo the comments that
you've heard before, but I do want to stand in strong ratifica-
tion of some of the critiques that Mr. Fiddler from Wind River
made about the software patent system.

The problem is, from my perspective, the legal system __

COMMISSIONER LEHMAN: Can you tell us just a little bit about
Synopsys?

MR. LIPPE: Yeah, I will.

The broad problem is that the legal culture and the legal domain
is so different from the technical innovation world that when you
try to bring them together, at least from the technical people's
side, it doesn't work very well.

I'm General Counsel of Synopsys. Synopsys is an electronic
design automation software company. I'm also the head of a lit-
tle thing called "The Public Affairs Committee of EDAC". EDAC is
our industry trade association. It stands for EDA Companies.
There are about 4O companies in EDAC,ging from very raw startups
to some half a billion dollar companies. EDA is probably one of
the two or three principal domains within what your Notice refers
to as "computer integrated design".

It is a strategically critical_technology area for the United
States, and Synopsys is, in the new parlance, clearly a national
technology champion. We make software which is used in the
design of complex electronics parts and our customers are in the
semiconductor computer systems and telecommunications industries.
People such as Sun, Hitachi, IBM, Intel, Siemens.

Synopsys itself was founded about seven years ago, and, in the
term of art, industry analysts expect that we'll do around 2OO
million dollars of revenue this year. We are probably the second
fastest growing company in the computer_aided integrated design
sector, the fastest growing company in EDA, and we are considered
to be one of the hot companies in our field.

The reason I'm speaking today is I want to challenge what I think
has been the animati dea behind the move towards enhanced intel-
lectual property protection and patent protection and that is
that enhanced intellectual property protection is per se benefi-
cial for US companies.

And my challenge comes not as an intellectual property lawyer,
although I am a lawyer, and not as a technologist, because I'm
not a technologist, but as somebody with some deep experience in
the political sector who's given some thought to what mix of pol-
icies makes the most sense to advance America's industrial in-
terests.

And as somebody taking a political approach, I think it's impor-
tant, when you examine these policies, to think of __ to focus on
the outcomes and who wins and who loses and not so much on the
product, as well as what the ideas are that are advanced by the
various speakers.

The concern that I've got, and I think the gentleman from Wind
River and other people have, is that the startup process and the
innovation process is inherently fragile, and, as the domain be-
comes increasingly littered with pate$ to have the ability to
kill companies at each stage of the process. There are various
what you might call choke points, at the financing stage, at the
various financing stages, and at the stage of trying to begin to
sell to customers, and it's all too easy for innovative companies
to be blocked from bringing their products to market. And I want
to talk about that a little more.

The fundamental assumption that enhanced protection for patents
is favorable to US industry is an idea that I think gained
currency in the late '7Os and early '8Os and it was based on the
notion, the basic idea __ and I hope I don't offend anyone by
saying this __ that Americans invent and Japanese copy, and the
way to make America stronger is to help to enhance intellectual
property protection. My fear is that we've gone too far, that
we've moved towards more aggressive patent enforcement, at the
same time we've moved towards less aggressive anti_trust enforce-
ment, and that the remedy, the inherent remedy for patent of
monopol(otection and the nature of patents being issued is not __
we've gone too far.

And the other thing to focus on in terms of the software industry
is that software, as the gentleman from Microsoft used to say but
won't say today, is a natural monopoly. Being first to market
confers an enormous advantage in terms of the ability to set the
standard, there are high barriers to entry, high fixed costs and
low variable costs, so you've already got a huge head start if
you're first to market.

It's not clear to me that there's, as some of the earlier speak-
ers have said and I agree with, that you're really furthering the
goal to encourage people to innovate by conferring additional
monopoly.

And there tends not to be a lot of success in the software indus-
try for copiers, clones, and followers. I think you'd be __
there are very few examples of people who followed, who have exe-
cuted a following strategy copying other people's technology,
that have been successful in software.

Some of the ideas that underlie incr,d protection for patents, I
think, are misconceptions, at least in the domain where we live.

First, the key idea that I think is wrong is the notion that in-
vention per se is what's important. If you go to a venture capi-
talist in Silicon Valley and you say "I've invented something",
they've got zero interest in that because they recognize that the
whole Silicon Valley paradigm is based on the notion that what
matters is customer_delivered innovation, which is very different
from the level of invention that you need to get a patent, and
that's why today the perception of the people in this room who
are on the anti_patent side is that most patents are going to big
companies who don't sell the products, they get the patents out
of their industrial labs and then this group of people that you
might call the lone inventors.

But what really creates value for the United States and for the
customers is when you deliver the technology to customers in a
way they can be used and that, that has not been the focus of0
patent law, for good and sufficient reasons, in the past.

The second thing that I think, at least in our domain, that is a
misconception is that people actually read patents and use them
to advance the wrong technology. No engineer I've ever known has
been willing to read other people's patents, and most people
feel, at least in our field, that patents don't describe things
with enough particularity to know how to copy them anyway.

The third problem is the patents, as you've heard over and over
again, I won't belabor the point, have been very incremental,
they haven't been significant, and so there's so much overlap
space between the existing patents.

And the fourth misconception and I think the most important one
is that the patent system protects small companies. As I said
earlier, the patent process is fundamental in the legal process,
a lot of lawyer bashing goes on, some of it justified, much of it
not, but in any case recognize that the process of delivering in-
novation to the customer is a tota4different culture, it's a to-
tally different process, than that required to obtain and enforce
a patent.

That doesn't mean that obtaining and enforcing patents is a bad
thing, but it's always going to be a diversion of energy and
resources, as Mr. Warren said, from that process of delivering
innovation to customers, and the litigation process is almost al-
ways going to favor the bigger guy because he's got the resources
and he's acculturated to going through that kind of drill. Small
companies hate it. Engineers, most engineers I've ever known
hate it, and they're very uncomfortable and they're very vulner-
able to this kind of process.

The other point is that the legal system doesn't really
comprehend the technology. We happen to be the leaders in our
field, we're glad of that, but the consequence of that is that,
of the ten people in the world who understand what we do, eight
of them work for us, none of them work for the Patent Office, and
it's very unlikely that anybody who's got that kind of leading8e
expertise would want to work for the Patent Office, no disrespect
to the folks in the Patent Office, but they would like to be
building the products and, you know, doing the things that people
around here do.

So there's an enormous amount of randomness in the system because
the legal system cannot adequately __ and cannot be expected to
__ adequately comprehend the technology at the level that our
folks do. That randomness, then, introduces enormous transfer
costs and friction costs because it doesn't really afford, the
current system, doesn't really afford us a lot of inexpensive
ways to resolve the issue.

There's an article in "Electronic Engineering Times" which talks
about patents in the EDA industry. The EDA industry is probably
the most, maybe along with desktop software publishing,
American_dominated industry, 99 percent of worldwide revenues
from American companies, and it is absolutely a strategic tech-
nology industry, central to everything happening in electronics
today, but the people who<d the patents by and large are Japanese
companies, with the exception of IBM which is the largest patent-
holder. Well, these Japanese companies happen to be our custo-
mers, they're not our competitors because they don't sell any
products, but it is a little worrisome that Hitachi's got 49 pa-
tents in this area and they don't sell anything and we've got
zero patents in this area. So if we were an earlier_stage com-
pany, it would be even more worrisome because the ability of the
large company to block the small company creates a lot of uncer-
tainty.

And I was always taught and always believed that in the law pred-
ictability has got to be one of the principal goals of any
well_conceived legal system and right now people feel like
there's very little predictability in the system, instead there's
a lot of randomness.

The other thing that's happening in terms of where the world is
going in our domain, and I don't know how to deal with this one,
to tell you the truth, there's what I call "hardware/software
converg@". We're able to represent in software things that were
formerly only represented in hardware and so we now have sort of
a confluence of the most patent_oriented domain, which is elec-
tronic parts, and the least patent_oriented domain, which is
software, and it's very confusing.

We've also got the reality that the traditional US patent hold-
ers, in particular IBM and AT&T, are no longer as constrained as
they have been historically about their anti_trust worries and
have been aggressively going after people.

So, you know, one of the anomalies is that there's a very signi-
ficant technology called RISC, Reduce Instructions Set Computing,
it was invented by IBM in 1975 in Fishkill, and that's great but
they didn't do anything with it, they left it in the closet for
eight years, until Sun brought RISC to market and made a very
significant technology shift and delivered a lot of value to cus-
tomers through RISC. Well, IBM went after Sun and they were able
to get Sun to pay them royalties on the technology, butD really
important event that occurred was, not the conceptualization and
creation of RISC in the lab, it was Sun creating the market and
delivering the value to customers around RISC.

In terms of suggestions, you know we've all got sort of overlap-
ping suggestions so I won't belabor the point, I think some of
the suggestions that were made were really good, but I think we
ought to be thinking, and I would ask you to consider, I don't
know how you get there, that some kind of sales is a requirement,
that there be some kind of __ I think first_to_file is not going
to solve any of the problems, but some notion of
first_to_deliver_value as opposed to just having an invention in
the lab. Especially where we've got this three_year black hole,
where somebody can file a patent and everybody else is shipping
products and then three years later people find out that they've
got a problem with the products, and obviously Compton's
Multi_Media Patent is an example of that.

So my focus point is that intellectual propeHprotection per se is
not necessarily a good thing for America. It's good for some com-
panies, it's not good for others.

I think on the whole the thing that we are best at, which is the
smaller_company innovation, it is a very worrisome trend and a
lot of companies are very concerned about it. I think it poses a
significant threat to hurt the job creation and innovation and
company creation machines that we've got going, and I'd like you
to look for ways to rein back where we are.

COMMISSIONER LEHMAN: Thank you very much.

Next I'd like to call Tim Boyle, Executive Director of Multimedia
Development Group.

TIM BOYLE

EXECUTIVE DIRECTOR

MULTIMEDIA DEVELOPMENT GROUP

MR. BOYLE: Good morning.

My name is Tim Boyle and I represent the Multimedia Development
Group. I'm the acting Executive Director of that Group.

The Multimedia Development Group is a market_ development orient-
ed trade association. It's located in San Francisco. Our
members are primarily interested in the software side of
thisLustry.

We represent about 4OO companies that build the software for mul-
timedia titles. These include about 2OO multimedia developers
and publishers, 5O technology companies, about 15O service pro-
viders, including accountants, public relations firms, marketing
research firms, and over 25 law firms. We also represent 2O to 25
educational, nonprofit and governmental organizations.

Our mission is to help the emerging multimedia software companies
become commercially viable by facilitating the communication
between the parties who develop, fund, service, sell and, in your
case, regulate these titles.

I would like to thank you for the forum and we appreciate the
fact that you are soliciting our opinions.

I'd like to address three points today.

The first is the need to stimulate the creative processes in this
industry and the commercial structures that support them through
an equitable code of intellectual property.

Secondly, the need for this code to meet the digital challenge by
distinguishing between wPis a patentable invention and a copy-
rightable creation.

And finally, some suggestions for your consideration, such as the
possibility of incorporating some of the precepts of academic
science into the work of the Patent Office, in particular the
concept of peer review.

I'd like to start by saying that we support patent protection for
inventions that integrate software with other elements. I would
also like to let you know that the furor over the Compton's New
Media patent claim comes in part from our community. While we
note with pride that Compton's New Media is a member of our or-
ganization and we wish to see their creations appropriately pro-
tected, the majority of our members believe that the ideas at is-
sue in that claim are better protected by copyright rather than
patent.

Compton's Multimedia Encyclopedia is a very clever and extremely
innovative use of the new vocabulary of digital communications.
As such, it represents a unique and creative arrangement of fun-
damental elements that constitute tTnew vocabulary of the artist
and the author in the digital age.

Graphical screen elements, windows, buttons and such, search and
navigation methodologies, multiple views of databases, are part
and parcel of this new vocabulary. It is their use in the ex-
pression and representation of ideas that creates value, and this
value, our membership believes, must be protected. We look to
the Patent Office to identify, understand and protect the funda-
mental concepts of this new media. These concepts properly be-
long in the public domain because they are the alphabet, the
building blocks of our new media.

The multimedia developer community has a vested interest in pro-
tecting their intellectual property from unfair copying or in-
fringement and to ensure that the concepts on which they are
based can be freely exchanged. We believe that one can only
properly assess the patentability of a work after reviewing that
work in the context of all the work which has gone before it.

There was a much simpler task in the induXal age and this is now
much more difficult in the information age that we're moving
into.

How would theatre have developed if the concept of plot were
owned by someone? I mean William Shakespeare never could have
afforded a license. It is the innovator and society who will
suffer if we fail to protect the novel ideas or fail to recognize
the obvious in this new media.

I'd like to close with a few suggestions that we have for the Of-
fice. The first is opening up the patent application process.
The current process has been characterized as "secretive". We
would like to see that characterization changed.

We would also suggest peer review. In academic science a
discovery is accorded recognition only when it has passed the
test of peer review. If you'll remember "cold fission". That
was taken care of by the scientists.

We recognize that there is a problem that open review presents
for inventions with great commercial potential, but there are
other members of our industry who have put forward a
numbe proposals in that regard. Our organization endorses the
general concept of peer review as an important element in the
evaluation of software patent applications.

And the third and final suggestion is building a definitive li-
brary of prior art. The Multimedia Development Group has pub-
lished a call for prior art and we would like to offer your Of-
fice access to any an all materials that we received. We would
like to establish an ongoing relationship to ensure that your Of-
fice has access to any prior art it requires.

The Multimedia Development Group's purpose is to represent the
interests of the multimedia community and to grow this industry.
We would like to extend our hand to assist you in gaining access
to and understanding the needs of that community. We would like
to have as strong a relationship with our Patent Office as the
one enjoyed by the metal fabricating inventors of the industrial
age. That Patent Office created the basis for the most explosive
economic growth that the world had ever see`nd this Patent Office
has the opportunity to dwarf that achievement by creating the
basis for a global information economy.

Thank you for your time.

COMMISSIONER LEHMAN: Thank you very much.

By "peer review" do you mean that we would have like a panel of
multimedia __ say we had a multimedia patent application __ we
would have a panel of multimedia developers who were actual
developers out there who we would convene somehow or other or we
would send around the patent application to them the way in an
academic setting they might send around a paper?

If you were a biochemist, you know, and you were about to publish
a paper in science, the editor sends it around to three other
scientists to look at it and to make comments and corrections.
Usually the author of the original paper doesn't even know it,
who the people are. Is that the kind of thing that you're talk-
ing about?

MR. BOYLE: That is one way to go about it and I would want that
reality factor in there.

The other method is a scholastic reviewdt not in the traditional,
old school sense. We have a school, San Francisco State Univer-
sity, that is providing 5O courses and training over 9OO students
a semester in multimedia. They have a group of people, many of
them our members, who understand this. That school or an insti-
tute of that type, and there are many around the country, would
be very happy to act as the agent to tell you what had happened
in the past.

COMMISSIONER LEHMAN: Well, I think part of what you're talking
about there is better communication, better education of our Exa-
mining Corps, and more fluid and constant communication between
the Examining Corps and the people in it with people who under-
stand these industries.

MR. BOYLE: Right.

COMMISSIONER LEHMAN: Now, for example, we could send some people
from the Examining Corps out to attend this course that you just
described.

I think one of the things __ and I don't want to open up, you
know, an unmanageable floodgate here __ but I think these hear-
ings are a very formalized kinh procedure, but I like to think of
them as sort of the beginning of the process since it's so clear
that we need to have better communication with our customers.
That will solve some of our problems right there, if we just kind
of have better communication with them, and that's why I think
that we're going to have to.

I mentioned Mr. Goldberg was here and I think on an informal
basis, we're not like a court, you know, you can only hear us in
a hearing room, we can have informal contacts with industries and
people and I encourage those of you who are in the room to get to
know some of the Patent Office people who are here and sort of
start to develop where you bring us into your peer group a little
and we'll try to cooperate with that.

Obviously, we have to be doing our job, we can't be running
around the country on junkets all the time, but we __ but it's
important for us to develop better means of communication. Of
course, electronic communication, Internet style of communica-
tion, too, is an importantlt of that. Anyway, I appreciate your
comments and I have a little better understanding what you mean
by "peer review".

MR. BOYLE: And I also would suggest that opening up the Patent
Office electronically as widely as possible is going to give you
access to that community. And you have many trade associations
and professional development societies that would be happy, that
are looking forward to working with you.

And I think everybody understands that we're on __ that this is
the beginning of something new. My favorite is that the theme
song of multimedia is "Something's happening here, what it is
ain't exactly clear", and that is the state we're in.

Thank you.

COMMISSIONER LEHMAN: Thank you.

Next I'd like to ask Mr. Ronald Laurie, Attorney at Weil, Gotshal
& Manges, a prominent member of the intellectual property bar, to
step forward.

RONALD S. LAURIE, ESQ.

WEIL, GOTSHAL & MANGES

MR. LAURIE: Thank you, Mr. Secretary.

I'd like to address the issue of patent protection for
software_rped inventions generally rather than the specific ques-
tions raised in the Notice.

The views expressed are personal, they're my own, and they don't
necessarily represent the position of either my law firm or any
particular client.

By way of introduction, I worked in Silicon Valley for 33 years,
initially as a programmer and software designer and later as a
patent lawyer focusing on computer technology. I currently teach
a course at Stanford Law School entitled "Intellectual Property
Protection for Information Technologies".

I have previously served on advisory panels to the National
Research Council and the National Academy of Science in connec-
tion with software protection, and I was the only patent lawyer
on the Advisory Panel to the Office of Technology Assessment in
its recent study "Intellectual Property Protection for Software".

When one listens carefully to the impassioned arguments against
quote "patenting software" unquote, it becomes apparent that the
arguments and the basic intellectual propetpolicy positions which
underlie them can classified into three categories:

First position: patents are bad. Second position: software pa-
tents are bad. Third position: bad software patents are bad.

The first position is most often heard in the halls of academia
and raises fundamental social and economic issues which go far
beyond the scope of the present inquiry.

The second position is often advanced by some, though not by any
measure all, of the software companies that emerged and flour-
ished during the early and mid '8Os as a direct result of the
commercial introduction of the microprocessor at a time when the
industry generally and incorrectly believed that software_based
inventions were unpatentable as a class.

The third position is the one most widely held today and for ob-
vious reasons the easiest to defend.

In the heat of the debate over software patents, the boundaries
between the second and third positions tend to blur, but I submit
it is critically important to address them separately.

I xectfully submit that the second position is legally unsound
and that the third while correct does not represent an insoluble
problem. In support of my thesis, I offer the following:

Premise one: U.S. patent law does not protect software. Rather,
it protects processes and machines that are quote "within the
technological arts" unquote. In one of the first cases to con-
sider the question of whether inventions involving computer pro-
grams constituted patentable subject matter, Judge Giles Rich,
who was one of the principal architects of the current patent
statute, introduced the phrase, "technological arts" as the
modern equivalent of the constitutional term "useful arts," and
is therefore defining the outer boundaries of patentable subject
matter, both under the Constitution and under Section 101 of the
Patent Act. That case was, In re Musgrave, decided in 1970.

Over the more that two decades since Musgrave, Judge Rich's for-
mulation has remained unchallenged by any subsequent decision,
although unfor|tely it has been ignored by many. Thus any process
that is not sufficiently applied the physical environment in
which it operates to qualify as being quote "within the techno-
logical arts" unquote, constitutes unpatentable subject matter.

The critical distinction then is between applied technology and
abstract ideas. Examples of the latter include; laws of nature,
scientific principles, methods of doing business, printed matter
and unapplied mathematical relationships.

Premise two: Computer implemented solutions to technological
problems in the form of processes and/or machines typically exist
along a design spectrum, ranging from pure hardware, that is ran-
dom logic, to pure software, that is an externally_loaded comput-
er program running on a general purpose digital computer.

Intermediate points along the spectrum involve designs which may
be described as special purpose computers and which combine ele-
ments of hardware and software in varying proportions, using ran-
dom logic, array logic, such as PLAs PALs, microcode and
firmware, firmware being fixed programs stored in internal
read_only memory.

The particular point along the design spectrum that represents
the optimum solution to a given problem is determined by a
variety of factors, such as cost, speed, size, flexibility and so
on. Moreover, the optimum design point moves over time as com-
peting implementation technologies evolve at different rates. For
example, in the mid '70s, complex video game functionality was
implemented entirely in random logic. After the arrival of the
microprocessor, the very same functionality was realized using
firmware.

Finally, technologies such as logic synthesis are becoming avail-
able, by which a software solution can be quote "translated," un-
quote into an equivalent hardware solution, and vice versa. It
should be self evident that as a matter of legal policy, the law
should not promote artificial distinctions that the technology
does not recognize.

And I should point out that Mr. Lippe's company is in the businef
making a product which in effect translates software into
hardware. Another example which I think illustrates the point is
the technology of neural nets, which was originally created as a
pure hardware solution and has evolved now into a software tech-
nology.

Premise three: The fact that a particular solution can be ex-
pressed mathematically or is a series of logical operations
should be irrelevant to the patentability of the solution.

In 1972, based on what many commentators believe to be an errone-
ous interpretation of its prior decisions involving laws of na-
ture and scientific principles, the U.S. Supreme Court announced,
in Benson v. Gottschalk that a patent claim describing a process
which, quote, wholly preempts a mathematical algorithm is nonsta-
tutory; that is, does not define patentable subject matter under
Section 101 of the Patent Act.

The result of this formulation has been over two decades of con-
fusion and inconsistency in the case law involving the patenta-
bility of software_implemented prses. The fact is that mathemat-
ics is a language, albeit a very precise one, and like other
languages can be used to describe concepts and relationships that
are technologically applied as well as those of a more abstract
nature that are not so applied.

As noted by Professor Chisholm in an article called The Patenta-
bility of Algorithms, the real issue is probably not one of sub-
ject matter under Section 101, but rather one of indefinite
claiming of the invention under Section 112. Under the constitu-
tional standard within the technological arts, it is the subject
matter of the invention and not the language chosen to describe
it that should determine the presence or absence of patentable
subject matter.

Premise Four: Even if a particular software equipment and solu-
tion represents patentable subject matter, in order to justify
the exclusionary benefits conferred by a patent, it must also
pass the test of novelty and nonobviousness over the prior arts.

And Commissioner, you have pointed this out to severf the speak-
ers, that there is significant difference between the patentabil-
ity of software as a class and the patentability of any particu-
lar software invention.

This is the key factor that interrelates the second and third po-
sitions, i.e., software patents are bad versus bad software pa-
tents are bad; that is, even if a software implemented solution
is sufficiently technologically applied to pass muster under the
statutory subject matter test, in order to quality for patent
protection, the solution must also be novel and nonobvious to a
person of ordinary skill in the art.

It is submitted that given the objective to be accomplished and
accepted principles of software design, the great majority of the
software written today would not pass the nonobviousness test.
Thus, the effectiveness of a patent system in a particular area
of technology is directly related to the degree to which the exa-
mining authority __ in this case the Patent & Trademark Office __
has access to the most relevant prior art. To theent that there
are or can be created mechanisms through which the Patent &
Trademark Office can access the widest body of software_related
prior art, the system will work.

A number of such mechanisms have been discussed during these
hearings, and they include PTO access to the growing number of
commercial and public databases of software technology, private
sector assistance in supplementing the PTO internal database,
early publication of patent applications coupled with third party
submission of prior art.

The important point is that the problem of bad software patents
is mechanical and not inherent. That is, over time it can be en-
gineered away or at least reduced to a commercially tolerable er-
ror rate.

Finally, Premise Five: A very heavy burden of persuasion should
be placed on anyone who advocates that a particular kind of tech-
nology should be exempted from the normal operation of the patent
system.

In 1980, in the Chakrabarty case, the U.S. Supreme Court inter-
preted the patent copyright clause of the U.S. Constitution to
require that the scope of patentable subject matter should be as
broad as possible __ anything under the sun that is made by man.

Those who maintain that software based invention should be ex-
cluded as a class from patent protection argue that software is
different. It's different, they argue, in terms of its essential
character __ it's logical. It's different in terms of the
creative process by which it comes into being __ it's authored
rather than engineered. Or it's different in terms of the under-
lying economic model governing its production, distribution and
life cycle.

These differences have been discussed and debated at gatherings
of distinguished software developers, computer scientists,
economists and legal scholars and practitioners under the spon-
sorship of a number of governmental agencies, including the Na-
tional Research Council, the National Academy of Science, the Of-
fice of Technology Assessment, the U.S. Congress and the U.S. Pa-
tent & Trademark Office.

Despite thet that the positions on both sides have been eloquent-
ly expressed, the results are inconclusive. The primary reason
is that there is no hard data available to support the
anti_software patent position, and the evidence is anecdotal at
best. Clearly, software is different, but is it different enough
from all other technologies to justify a special exemption from
the normal operation of the patent laws.

Given the unavailability for reliable data on the societal costs
and benefits of patenting software_implemented technology, we are
presented with a situation where important policy decisions must
be based on fundamental legal principles. In such a setting, we
must conclude that those who would withhold patent protection
from technologically_applied processes and machines, that happen
to be implemented partially or wholly in software, have failed to
satisfy the burden that the Constitution, the Supreme Court, and
sound legal policy have placed upon it.

Thank you.

COMMISSIONER LEHMAN: Thank you very much an excellent statement,
Mr. Laurie.

There was something I was going to ask, and I may have to follow
up now on it because it slipped my mind. But I think that was a
good description of __ you parsed out the problem very well.

MR. LAURIE: If I could address a point that came up yesterday,
relating to the role of competition in intellectual property law,
and where the competition is more appropriately addressed under
the anti_trust laws or under the intellectual property laws, I'd
like to say that I think that there is, there are many places in
intellectual property law where competition plays a role, and the
patent law of misuse is an example, and as shown by the Seiko v.
(Accolade) case in the Ninth Circuit, in the copyright law under
fair use, competition plays a very important role.

Thank you.

COMMISSIONER LEHMAN: Thank you.

Next I'd like to ask Lee Patch, the Deputy General Counsel of Sun
Microsystems to come forward.
LEE PATCH

SUN MICROSYSTEMS

MR. PATCH: Mr. Commissioner and colleagues, my name is Lee Patch. I speak
today on behalf of Sun Microsystems, a 12_year_old $4 billion Silicon
Valley_based manufacturer of computer workstations and related software
products.

Sun invests approximately one_half of its substantial R&D budget in software
development, particularly UNIX_based operating systems, development tools
and application programs.

I serve as Deputy General Counsel and Chief Intellectual Property Counsel at
Sun. I have the responsibility there for the patent activities.

You've heard and will no doubt continue to hear today widely diverging
opinions concerning the virtues, or on the other hand, great evils of
software patents, and you will note no lack of emotion and commitment to the
speakers on either side of the issue. It's quite remarkable, I believe,
that the normally quiet, calm environment of the patent practice and of the
software development community has been so disrupted in recent years by loud
and impassioned philosophical debate on subject matter that historically and
traditionally had been only of interest to esoteric patent practitioners.

We've seen luminaries such as Mr. Warren take time out of his busy schedule
to speak to you very passionately about evils of software. What I'd like
you to take with you from these hearings, if nothing else, is that from the
perspective of a company like Sun Microsystems, the system is indeed broken
and needs addressing. The current operation of the system is creating an
unacceptable amount of uncertainty within the software and computer
industries, and as I'm sure you will appreciate, business executives who
routinely or daily make million dollar, multimillion dollar gambles on
issues of technology or on issues of the marketplace, hate the need to take
gambles and to make bets upon the outcome of a legal system.

In the face of this problem with the system, you have heard radically
different proposals for solution, ranging from abolition of software patents
outright to rather modest suggestions of improvement in the searching
capabilities that exist within the Patent & Trademark Office.

I would like to summarize if I could what I believe to be the three
fundamental problems that have been the subject of much testimony before you
this week. The first problem that I believe has been identified and
addressed significantly relates to the quality problem within the Patent &
Trademark Office. The second problem that I would like to address, which
has been discussed previously, relates to the surprise problem, that is of
considerable concern to the software industry. And finally, I'd like to
address briefly the subject of the tied_hands problem, which is another
aspect of the frustration you may be hearing this week.

To the subject of the quality problem, I would say in my experience that it
is indeed the case that low quality software patents are routinely being
issued __ I should also mention that none of those are being issued to my
company __ but they are indeed being issued. Largely it appears, due to the
fact that prior art is not available or being overlooked or being
misunderstood, and secondly, because it's a widely_held view that the
nonobviousness standard that is being applied is simply too low a threshold.

COMMISSIONER LEHMAN: I hate to interrupt your train of thought, but what is
the __ I should probably ask some other people this, but __ what is the
relationship of the Court of Appeals or the Federal Circuit to that? Do you
think they're not giving us the right kind of guidance that they should give
us on the obviousness standard here? Or is this our problem more?

MR. PATCH: I believe it's a merged problem. I believe that the Court of
Appeals for the Federal Circuit has lowered that standard, and unduly so,
and I also believe that the standard is by no means uniformly being applied
within the Patent & Trademark Office.

In my role as corporate patent counsel, in_house counsel, I spend
considerable time defending against infringement charges, and I have had
personal opportunity to confront most of the famous bad software patents
that you will and have here heard about, including such as the exclusive or
patent, and the Soderblom patents and AT&T Pike patents, and other like the
Mark Williams byte order patent. There's a list of them which have been
widely disseminated as problem patents. I have personal experience in
having rebutted and defended against charges of infringement with relation
to many of those. From that experience, I would like to offer a few
observations for your benefit:

First, there is indeed a quality problem that exists, and it is costing the
industry a great deal in terms of lost cycle time, a lot of expensive effort
being undertaken that would ideally not be necessary.

That having been said, I'd also like comment that no, it is not the case
that in the software industry the sky is falling. We have not reached a
stage where these types of problems are bringing to a screeching halt
progress in the industry. Our confrontations with this group of
questionable patents were fortunately all resolved prior to litigation, and
where there was some payment, they were relatively inconsequential amounts.

A third observation I'd like to mention is that to address these kinds of
infringement charges, which are perceived to have little merit, it's often
quite necessary in my position to do some mining in the memories of a series
of old and experienced practitioners of this art, who I happen to have at my
disposal inside the corporate environment.

There is not a great deal of public documentation, patent or otherwise, that
serves as a ready vehicle or mechanism for solving these problems when they
arise. A lot of dusty basements have to be explored and old computers that
haven't been powered up for many years have to be discovered and reactivated
in order to deal with these problems as they exist today.

The last observation I wanted to make is that the quality problem that I
believe to exist is not unique to the software industry. In my business
questionable patents are being enforced not just with respect to software
inventions but in the hardware arena and the semiconductor arena, there is a
considerable amount of that going on, driven not so much by the nature of
the technology but by the nature of the economic interests and an
opportunity being presented to people to realize some very significant money
to the bottom line.

The second issue I wanted to mention briefly was, as I said, the surprise
problem. And that's a very real source of frustration as you've heard at
length this week. The industry feels as though it's being kept in the dark
for long periods of time, and then surprised by some unanticipated patent
jeopardies. This is clearly the result of delayed publication on the one
hand, coupled with the ability in the Patent Office for an applicant to
prolong the prosecution for an inordinate period of time, with no penalty,
without loss of legal rights. This creates an environment where surprises
become the rule rather than the exception to the industry.

Finally, the third issue of the tied_hands problem has also been mentioned,
and I'd like to simply summarize my experience as an in_house counsel as it
relates to that. When a low_quality patent is perceived to have issued in
the software industry, most feel powerless to do anything about it. There
exists today no quick, cost_effective mechanism to remedy this situation.
The court system is typically unavailable unless you've already been accused
and would be able to initiate a declaratory judgment action. And even if it
was available, it's viewed as slow, expensive and lacking expertise.

The current Patent Office re_examination procedure, which has been
discussed, is frankly considered in the industry as a trap to the unwary,
and it is consciously avoided in most cases of the type that I mentioned.
It's viewed as biased in favor of the patent applicant, and it's also viewed
as dangerous, as a spoiler of otherwise powerful prior art. Frankly, the
best prior art that you know about you would never offer up into the current
patent re_examination procedure. You hold that back quite consciously.

COMMISSIONER LEHMAN: Why is that? Because you don't want to disclose it
because it's trade __

MR. PATCH: No. If you have a good reference, your very best reference, you
don't wish to throw it over the fence to the Patent & Trademark Office and__

COMMISSIONER LEHMAN: You want to save that for litigation.

MR. PATCH: You wish to have an opportunity to advocate aggressively the
significance of that reference, and the Patent & Trademark Office
re_examination proceeding simply does not provide that, and as a result of
that lacking, good references are spoiled and no longer of significant use
to you later in litigation.

COMMISSIONER LEHMAN: And is that why a lot of people just choose to forego
the re_examination process and go into litigation then directly?

MR. PATCH: Absolutely, absolutely.

A couple suggestions as to how you might address some of these problems:
The quality problem unfortunately is the most difficult of the three. It's
not one that can be solved overnight, it's not one that can be solved with
the wave of the legislative wand. It requires, like in operating a
business, daily, consistent execution. And that is your challenge, Mr.
Commissioner, in implementing a solution to the quality problem that exists
today.

The notice problem is one which I think creates a great deal of the emotion
that you're seeing displayed today, and one which can be directly addressed
and resolved. Since it's fundamentally due to the delay in the publication,
plus the process in the Patent & Trademark Office which allows one to
prolong extensively the prosecution history, the solution should be quite
clear. Publish patent applications early and secondly, discourage prolonged
prosecution by measuring the life of the patent from its filing date. If
somebody wishes to prolong their prosecution for eight or ten years after
that, it's at their own jeopardy.

This may sound in some regards like a call for harmonization, but I don't
wish it to be misunderstood as such, because I'm a strong advocate of
harmonization only when there's a specific identifiable problem being
resolved by such harmonization.

I'd also suggest that the software industry would probably be a supporter of
the idea of implementing a very short time period prior for publications
after filing, perhaps shorter than even the current European and Japanese
model of 18 months.

Concerning the tied_hands problem, the proposal or suggestion that I have is
really in two parts __ a minimal approach and then a more comprehensive
approach. The minimal approach would involved converting the existing
re_examination procedure into an inter partes procedure, where opportunity
for equal advocacy and appeal would be available. I would also strongly
recommend that you permit a much broader range of prior art to be introduced
into the proceeding. Even when a challenged company would like to take
advantage of the re_examination procedure in our industry, it's very
commonly the case that the form of the prior art that we have available to
us is not acceptable in the re_examination procedure, and I would recommend
you open it up much more widely, allow oral testimony, allow physical
demonstration and make it a true inter partes procedure. Address all issues
relating to validity and reference to prior art.

Finally, I would remove any appearance of a bias in favor of the patent
applicant. I would do so by changing the trier of fact in the
re_examination procedure, and I would strongly recommend you upgrade it and
so the credibility of the Patent & Trademark Office is enhanced and
prolonged.

The more aggressive approach that I would recommend would be a full_fledged
opposition approach. Time for challenge to a patent should be set for a
reasonable period after its issuance. I would recommend a
speak_now_or_forever_hold_your_peace approach to that opposition procedure.
Companies can come forward during the time allotted, challenge with their
best shot, and thereafter the issue has been resolved before the Patent &
Trademark Office, no longer subject to repetitive review by every court that
might have the patent presented before it. This will have the benefit of
unburdening the courts from dealing with frankly issues they are not
well_positioned to deal with, and it would streamline subsequent court
proceedings to deal with issues relating principally to infringement.

COMMISSIONER LEHMAN: I think we're running a little over, so maybe we can
wrap up.

MR. PATCH: I only have one more comment, and I will excuse myself. Sorry.
The term of the patent in an opposition such as I've recommended should be
extended for the period in which the opposition goes forward to avoid abuses
of well_funded challengers keeping an opposition going for a long period of
time.

Thank you.

COMMISSIONER LEHMAN: Thank you very much. Those were interesting ideas.
If you were here yesterday, you know, we announced actually that we have
already taken one of your suggestions, and that is that we are going to be
submitting legislation to Congress to deal with the so_called submarine
patent problem in part by moving to a system 20 years from filing will be
our new patent term, and that will at least in part address that difficulty.
And then it turned out to be kind of a win_win situation because we were
able to get the Japanese to make some concessions to us in return for our
agreeing to do that.

And I'd like to also just use this as a forum to make a point about
harmonization process. We announced earlier this week that we were going to
suspend the patent harmonization exercise that we had been engaged in with
the World Intellectual Property Organization which would have required us to
change to a first_to_file system in the United States. That's not because
this administration or I am opposed to harmonization. In fact, quite the
opposite. Clearly the best patent system for Americans would be one in
which you could file a patent in our Patent Office and then with great
certainty and trustworthiness get very, very rapid protection everywhere
else in the world that would be sound and that you could trust and so on.

That was not the deal that we had cut in the last administration, that
wasn't the harmonization exercise that we were engaged in. And so we're
basically going back and we're not going to abandon the principles of the
system that many Americans feel favor them until we really have a system in
which we receive very, very tangible results in other patent systems. And
indeed this illustration of where we move to __ or we agree to do something
that is also in our benefit in this case, I think the 20_year term from
filing, we have received the tangible benefit from the Japanese.

I am very optimistic that we will, in fact, achieve true harmonization at
some point in the not too distant future, but it won't happen if we just
simply make all the changes unilaterally. So since you raised that point, I
just wanted to explain where the Patent Office was on that. Thanks.

Yeah, I guess Christopher Byrne, Senior Intellectual Property Counsel for
StorageTek, who is representing the American Committee for Interoperable
Systems, ACIS.

CHRISTOPHER BYRNE

STORAGETEK __ ACIS

MR. BYRNE: Good morning. I'm Chris Byrne, Senior Intellectual Property
Counsel for Storage Technology Corporation, or StorageTek. I am testifying
today on behalf of the American Committee for Interoperable Systems, or
ACIS, to which StorageTek belongs. ACIS sincerely appreciates this
opportunity to provide testimony.

By way of introduction, I am an electrical engineer and a lawyer, and a
registered patent attorney before joining StorageTek as patent counsel in
1991. I spent six years on the Intellectual Property Staff of the
Hewlett_Packard Company.

I will address Topic A, Questions 4(a) and 5: Does the present framework of
patent, copyright and trade secret law effectively promote innovation in the
field of software? Do you believe a new form of protection for computer
programs is needed?

Because these questions are two sides of the same coin, I will respond to
them together. ACIS members include numerous innovative high technology
companies such as Sun Microsystems, NCR and Broderbund Software. My own
company, StorageTek, is headquartered in Louisville, Colorado, which is
about five miles east of Boulder. We employ thousands of people worldwide,
and we had 1993 revenues of approximately $1.4 billion. StorageTek designs
and manufactures high performance data storage and retrieval systems for
mainframe, mid_range and networked desktop computer systems.

Our customers include many Fortune 200 communication, transportation and
financial companies. In fact, if you recently made a phone call, bought an
airline ticket or bought or sold securities, chances are that records of
your activity is stored on one of our products, awaiting ready access and
retrieval when necessary. Our competitors include IBM, Hitachi and Fujitsu.

Like other ACIS members, we rely heavily on our nation's intellectual
property system to protect our most valuable assets: the innovations of our
engineers, particularly our software engineers. Without adequate
intellectual property protection, we could not protect and recover our
substantial investment in research and development. For instance, at
StorageTek last year, we invested approximately 10% of our revenues in R&D
__ that's over 140 million dollars. Without that R&D investment, we simply
cannot stay competitive and in business. Indeed, last November Vice
President Gore himself toured our substantial R&D facilities and personally
previewed key technology which we believe will facilitate his grand vision
of the information superhighway.

While all ACIS companies believe in strong intellectual property protection,
we also believe in balance. We believe that overprotection is as
threatening to innovation as underprotection. The need for this
sophisticated balance is particularly important with respect to software,
which is so pervasive in our economy and critical to its growth in our
national leadership and high technology.

ACIS believes that it would be a dangerous act of underprotection to deny
patent protection to software subject matter per se. But it is an equally
dangerous example of overprotection to fail to expeditiously implement
needed corrections in the way we currently do software patents, if not all
our patents. Those needed corrections are well known, and ACIS has gone on
record in support of them. They include:

Improving the software prior art database so that it is accurate, timely and
includes both patent and nonpatent prior art. The quality of the software
patent database will be directly related to the quality of the software
patentability examination by the PTO.

Working to raise the skill level of PTO examiners who are charged with the
vital and difficult task of examining software patent applications. One way
to accomplish this is with site visits by examiners. For instance, last
year two groups of examiners, one from Art Unit 2308 led by Michael Fleming
and another group from Art Unit 2507 led by Bruce Arnold, visited
StorageTek. They spent valuable time with our engineers and our patent
committee learning how we do R&D and how we make our decisions about which
inventions to seek to patent. We were very favorably impressed with the
legal and technical expertise of the examiners, who too often are merely
names at the end of an office action.

To our mutual benefit, the examiners learned about the challenges we face in
innovative R&D and we received a much better understanding of the difficult
nature of the examiners' work. Educational visits by examiners is one way
to raise those skills.

Implementing key procedural reforms to prevent applicants from secretly and
indefinitely submerging their applications in the PTO until they are ready
to ambush the public __ and I think your 20_year limit is going to go a long
way toward solving that problem. Otherwise we need to speed the examination
process and include accompanying public notice of possible patents. Many
such procedural reforms are considered as a function of possible
harmonization of patent law, but such reform in this country should proceed
with or without harmonization.

And just a footnote here: I think one of the very positive fallouts of this
meeting has been the offline interaction among participants. And just as an
example, yesterday I spent some time brainstorming with my counterpart at
Silicon Graphics, Tim Casey, and Rob Stern, an attorney in private practice
from DC, and just over lunch we were talking about the problems that we have
with the Patent Office and we were brainstorming possible solutions, and a
number of those were things like regionalizing the Patent Office,
industry_sponsored technical colleges for examiners, expedited application
procedures, possibly limiting patents to one independent claim, and the
automation requirements of the modern patent system. And one of the
conclusions that we came to was that we definitely believe that the water
glass at the PTO is half full as opposed to half empty, and we think that
hearings like this are going to be an important first step towards filling
the glass.

But all the good work that we undertake to improve software patents will be
simply undermined if we do not address another balancing issue, and that is
the proper balance between patent versus copyright protection of software.
This is because copyright, if misapplied, can achieve patent_like protection
for software functionality. This misapplication is particularly dangerous
when we consider that there is no examination for copyright as there is for
patents; a copyright registration does not specify the boundary line of
protected expression in a work, whereas a patent is explicitly bounded by
the terms of its claims; and copyright protection outlasts patent protection
by at least a factor of four.

This de facto patent protection under copyright is particularly pernicious
with respect to interface specifications. Unlike novels and plays, which
stand alone and do not need to interact with other works, computer programs
never stand by themselves; they function only by interacting with a computer
environment. If the developer of an environment can use copyright to
prevent other developers from conforming to the system of rules governing
interaction within the environment __ to its interface specifications __ the
first developer can gain a patentlike monopoly without ever subjecting his
system of rules to a patent examination. In the absence of competition, the
first developer would have little incentive to develop more innovative and
less costly products. Moreover, this result is particularly dangerous to a
company such as mine.

StorageTek designs and manufactures data storage peripherals which interface
with the computers made by the dominant American, European and Japanese
computer vendors. With de facto patentlike copyright control of their
operating systems, these vendors have the potential to therefore control
functional access to that interface and therefore exert market control over
subject matter, i.e., the peripheral device, which is completely beyond the
scope of the copyright itself. This is dangerous overprotection of software
via copyright.

StorageTek joined ACIS because of our concern that the courts and the U.S.
government were losing sight of the importance of maintaining a balance
between incentives and competition in the area of intellectual property
protection of software, particularly copyright protection.

From the outset, it was our believe that the proper application of
traditional copyright principles such as the idea/expression dichotomy,
merger, scenes a faire, and the fair use doctrine would yield the
appropriate scope of protection for software. Recent court decisions have
validated this.

The Second, Ninth and Federal Circuits have all found that copyright does
not protect functional interface specifications. Further, the Ninth and
Federal Circuits have found the reverse engineering technique known as
disassembly to be a fair use and proper means to achieve functional
interoperability. In our view, the Altai, Sega, and Atari decisions are not
radical departures from traditional principles; rather, they return
copyright to its proper course. We expect that the First Circuit will soon
be consistent and overturn Judge Keeton's decision in Lotus.

Despite this positive trend in the case law, however, we fear that the U.S.
government has allowed its laudable goal to improve the balance of trade to
inadvertently divert its attention from the ultimate goal of our patent and
copyright system: promoting the progress of science and the useful arts, as
explicitly provided for in Article I, Section 8, Clause 8, of the U.S.
Constitution.

We applaud the manner and spirit of these hearings, therefore, as solid
indication that the U.S. government clearly appreciates that more protection
is not necessarily better. We are also encouraged that Assistant Attorney
General Bingaman has established a task force to review and reformulate the
Antitrust Division's policies on intellectual property and antitrust. We
applaud her observation that the scope of copyright protection for computer
software has important competitive implications.

In summary, we see no need for a sui generis software protection law. Until
recently, courts applied copyright in a manner that overprotected software,
but the Altai, Atari, and Sega decisions corrected that aberration. Bad
software patents also dangerously risk overprotecting software, but let's
not throw out the baby with the bath water; let's move quickly to implement
needed improvements in the way we do our software patents.

Thank you for this opportunity to present this testimony for your kind
attention. I would be glad to answer any questions.

COMMISSIONER LEHMAN: Thank you very much. Appreciate your sharing that
with us today.

Next I'd like to ask Gideon Gimlan from Fliesler, Dubb, Meyer & Lovejoy.

GIDEON GIMLAN

FLIESLER, DUBB, MEYER & LOVEJOY

MR. GIMLAN: Honorable Commissioner, distinguished members of the panel, may
name is Gideon Gimlan, and I do not come here to represent any particular
organization. It's true that one of the labels I wear, if you want to
define where I am coming from, is that I am a patent attorney with the law
firm of Fliesler, Dubb, Meyer & Lovejoy of San Francisco and Sunnyvale. This
particular firm represents numerous high technology companies located in
Silicon Valley and elsewhere. The work of the firm and my own work includes
the preparation and prosecution of software_related patent applications in a
variety of areas, including networked computer systems, graphic imaging
systems and mainframe computers.

I have to add the immediate legal proviso that these comments are my own
personal views based on general experience, and not those of any member of
the law firm or of any clients represented by the firm.

I come before you wearing an additional label __ this is part of my general
experiences __ that prior to becoming an attorney, prior to so_called
defecting into law school, I was also an engineer who worked in the field
for over seven years. I would characterize the nature of the work that I
did as being a hardware/software engineer. And the reason I use that
characterization is that a lot of the work assignments that I followed
through with included the step of choosing whether to implement particular
functionalities in software or hardware.

Insofar as the experience I've had from that background, I'll have to repeat
what Ron Laurie so eloquently phrased, is that there is a spectrum,
continuous spectrum, in terms of what we define as hardware and software,
and it's almost impossible to cut that spectrum in half and define some line
that separates something from being hardware or software.

Also, while I'm on that topic, it brings back to mind while I was working as
a hardware/software engineer, Mr. Fiddler, who was here before, mentioned
something about word processing being a old and obvious technique that
shouldn't be patentable. I unfortunately go back to the days when people
were doing affordable word processing with hard_wired machines back in the
early '70s. The original versions of affordable word processing came in the
form of the IBM magnetic card, and there were a lot of companies who came
out during that time and started to produce hard_wired word processing that
eventually led to software types of devices. Generalized computer has taken
it over, but the origins of it really lie in hardware in terms of having
affordable word processing capabilities.

The question that I really wanted to focus on here today was Question No. 3
in your requests for comments: What are the implications of maintaining or
altering the current standards for patent eligibility for software_related
inventions?

And I'd like to retitle that as "What is the current PTO practice? And
where is it leading us to in the software arts?"

My own personal experience is that, insofar as anticipation and obviousness
are concerned, the examining corps treats software_related inventions no
differently than other kinds of inventions. The legal tests for 102/103
determination are fairly well_established and most examiners treat
software_based cases with the same uniform fairness as hardware_based cases.

The issues of finding good prior art in software area is no different than
that in any other art. As an aside, in terms of quality, I find that the
European patent office tends to find closer prior art for particular
inventions than does the United States Patent Office, but again, that
applies to general subject matter and is not specific to software_related
cases.

Insofar as Patent Office inquiries into 35 USC 101, what constitutes
statutory subject matter, I fail to see any across_the_office uniform
consensus on what is or is not statutory, the OG guidelines notwithstanding.

The treatment of statutory subject matter question appears to vary greatly
from examiner to examiner. Some examiners are lenient in what they consider
to be statutory, while others seem to be on a witch_hunt for a 101 basis of
rejection. This injects a considerable degree of uncertainty into the
application process. You cannot predict the outcome of a 101 issue with any
degree of confidence. It very much depends on which examiner you draw for
your case.

Perhaps "software_related" isn't the proper term for what I am trying to
address here. The problem more properly fits under the broader rubric of
algorithm_related inventions and should the PTO be expending so much time
and energy trying to weed out claims that arguably extend or encroach into
nonstatutory areas.

I suggest that the answer is no. The Patent Bar and Examining Corps are
wasting client money and taxpayer money arguing over metaphysical
abstractions. That to technologists in the field sounds like we are
debating over how many angels dance on the head of a pin. The case of In
re: Iwahashi serves as a good example. It was not strictly speaking a
software_related case because the claim preamble started off with, "An
autocorrelation unit, dot dot dot, comprising."

But if one wished to take some license and rewrite the preamble to start
with, "A computer comprising," and I note that that was done in Example B of
the PTO request for comments, then in my mind this should not materially
alter the gist of the invention.

Any digital signal processor, including the one in Iwahashi, can be viewed
as a computing machine, or quote "computer" if you choose, one could then go
out on a limb to call each invention that uses a digital signal processor as
being software_related because its operations can be described in
algorithmic terms.

Notice that I didn't say controlled by a computer program or controlled by
quote "software". There are those skilled in the art who will argue even
today that a computer program can be used as a description of the operations
to be carried out by the machine, and the description does not necessarily
have to form part of the machine that actually performs the described
operations. The machine's control lines could just as easily be driven by
combinatorial logic as from a memory source.

In the end, it should make little difference that an invention is
implemented in hardware, software, or in_between_ware. In the eyes of the
electronic circuits that carry out a given invention, there really isn't any
functional difference. A set of electrical signals are first supplied to
the DSP machine. Perhaps the input signals originate from a memory device
like a ROM or a floppy disk, perhaps they come from an x_ray machine.
Irrespective of origin, the signals are somehow transformed by the machine.
Then they are output, perhaps for return to memory, perhaps for routing to
some other immediate use, such as creating a real_time high_definition video
image.

One inventor recently looked at me with bewildered eyes when I tried to
explain some of the 101 concerns related to his particular case, and he
said, "I don't understand, data is data, what does it matter whether it
comes from an x_ray machine or from memory? What is government up to?"

And in that quote I've taken some literary license to replace what the
actual source of the question was, but okay.

I think the problem and the answer lie in how we as human beings come to
appreciate the subtle implications of a given invention. We need to step
back and ask, Has the inventor come up with a faster or cheaper way of doing
things even if the improvement is found in software? Has the inventor
compressed the physical size of an apparatus so that something smaller can
now do the job of something that previously had to be much larger? Has the
inventor obtained a higher level of resolution than was previously feasible?

We see in hindsight that these kinds of improvements __ faster, smaller,
cheaper, better resolution __ have brought us the miracle of affordable
palm_top computers, ones that have pen_based graphical user interfaces, and
ones that, arguably, give even the technical neophyte access to the powers
of the digital revolution because of their intuitive nature.

I think we can all agree in hindsight that these are the kinds of
innovations that our patent system is supposed to protect and foster. But
when we turn away from past glories and look to the next invention, we are
somehow daunted by the enigma of this thing we call software. We are all,
in a sense, blind men beating at a pachydermial beast, each finding
something different based on the angle from which we approach it. Some say
this software stuff is more like the punched paper in a player piano, or
like the music recorded on a vinyl record. Others say it's more like the
mathematical proofs of their college calculus classes. Yet others say it's
something that is still in its infancy, that will grow and evolve into
something we still do not fully understand.

Of course, in the meantime, software applications keep pouring into the
Patent Office. So what should we do? Should we tell those who craft new
software to go away? You are not welcome at the Patent Office? Should we
direct every algorithm_smith over to the line at the Board of Appeals?
Every examiner has his or her own personal angle on how to deal with this
problem.

This leads to a haphazard system which gives inventors __ particularly those
that have had the misfortune of being assigned to an "anti_algorithm" or
"anti_software" examiner __ the impression that they are not receiving
uniform, fair treatment. It is absurd in the mind of many technology gurus
that an invention is okay if implemented in hardware but suddenly becomes
unaccepted because it is implemented in software.

The pat answer, of course, for inventors who face such examiners, is that
they can always go to the Board of Appeals, and if not satisfied with the
results there, they can go higher to the Federal Circuit. But that doesn't
happen with regularity. What really happens is that many patent_worthy cases
fall by the wayside, not because the applicants agree with the examiner's
101 position __ and as a side comment, I sometimes wonder if even the
examiners themselves agree with their official position __ but because of
monetary considerations, it's just too expensive to go forward any further
and appeal.

One could argue that this problem could be taken care of by well_to_do
corporations, that they should lead the charge into the courthouse and help
us create better law, but that doesn't always work. Some corporations are
afraid to get on the bad side of a key examiner. Even those that are brazen
think twice about pouring more time and money into an application that is
already twice rejected by an examiner. Most inventors, and corporate
executives for that matter, do not have the experience or patience to
grapple with the kind of metaphysical questions that are posed when a
Section 101 rejection is raised. For example __

COMMISSIONER LEHMAN: Mr. Gimlan, we're running out of time.

MR. GIMLAN: Oh, I am, okay. Then let me skip to my proposal then. I think
that the ongoing witch_hunt at the patent office for nonstatutory subject
matter is in essence driving technology gurus away from the system. They
simply don't understand it and will bypass the system.

My proposal is that unless particular claim in an application is clearly
limited to the practice of a mathematical algorithm, the Patent Office
should allow the applicant to disclaim within the body of the claim that
portion of the claimed system or process that falls outside the scope of

35 USC 101, and then allow the case to go to issue as is, assuming there are
no other bases for rejection.

After the patent issues, we should let experience and the advice of
technical gurus help us to decide whether an accused device falls within the
scope of a claim as interpreted under 101, or whether that accused device is
protected because in order to enforce the claim, you would have to transmute
its meaning such that it becomes a claim to a mathematical algorithm.

COMMISSIONER LEHMAN: We can certainly take everything and read it over very
carefully with the specific suggestions.

MR. GIMLAN: Okay, thank you, Commissioner.

COMMISSIONER LEHMAN: We really thank you for sharing this with us today.

This idea that we have created a sort of artificial determination for patent
__ an artificial subject matter, in a sense, for patent lawyers to avoid
the, in order to deal with these 101 determination problems is clearly
something that we've heard from other witnesses here. This is worthy of
looking into.

Next I'd like to call Tom Cronan, Secretary and General Counsel of Taligent,
Incorporated.
TOM CRONAN

TALIGENT, INC.

MR. CRONAN: Good morning, Mr. Commissioner. My name is Tom Cronan, and I'm
the General Counsel and Secretary of Taligent, and I'm testifying today on
behalf of Taligent.

I must say after listening to yesterday's session during the morning, it is
with some trepidation that I approach the stand this morning. As a lowly
high_tech copyright lawyer, I guess it's malpractice per se to be even
testifying here today.

What we're going to talk about is the patent system and how the patent
system is critical to stimulating investment in the software products and
technologies areas.

We will recommend some refinement to that system. We want to have a system
that is designed to support high technology, this industry which gives us
high_tech, high_wage jobs. We want to continue to be the world technology
leader in software. I will talk about both start_ups and large companies
and how the patent system benefits both.

We want to stimulate investment, that's what we're all about. There's lots
of various interpretations of whether the patent system will help or hurt
venture capitalists and others make decisions on whether to invest in
software. We certainly have an opinion on that that we'd like to share with
you today.

So I'm going to discuss three things: Why software is important to new
ventures, why software patent protection and related inventions is important
to new ventures, why the patent system attracts investment, and the
refinements that we discuss to the current system.

Taligent, as an example, is a new, founded in 1992, small, starting with 170
employees __ we now have 350 employees and by the end of this year will have
450 employees __ innovative, high_tech, high_risk venture. We're going into
an extremely competitive marketplace, we're going to have an object_oriented
operating environment that will compete with Microsoft's offerings, clearly
the dominant player in a lot of competition in the area.

We are going to compete on the basis of innovation. We are going to try and
establish a foundation technology for the industry, a new type of technology
that will be an operating environment that's open and extensible at all
levels, based on a brand_new technology.

As I was sitting here this morning listening to our first speaker talk about
the fact that two of his programmers could program a million lines of code,
I was thinking about our own efforts. We have been developing this
technology before the company began __ it's been now six years in
development. And by the time we're done, we will have a very elegant
program with 750,000 lines of code. I would think that some of our
developments may be a little obvious than those this morning, which were the
million lines of code.

This architecture is being developed from the ground up __ a clean sheet of
paper. That's why it's going to be innovative, that's why it's foundation
technology. We're not unique. There's going to be lots of other foundation
technologies that will have to be established for the information
superhighway, and they will not be done by garage shops. They will be done
by larger ventures, by people in the industry who understand the technology,
who understand the risks. We could have never attracted venture capitalists
to our venture, we are too risky. We're funded by the industry, like now
three separate large companies in the industry who will be funding us.

So as we look at our architecture, as we look at our developments, we see
ourselves very much like the beginning processor developers. We're looking
at an architecture that's extensible, we're looking at functions and
features that are new, and we think that software should be protected in the
same way as hardware.

We don't think there's any material difference and we think that the
policies of the patent system are in favor of protecting software the same
way as hardware.

Next I'd like to talk about why that patent system attracts investment.

The software industry is different than some other industries. It has a
very front_end loaded investment. You have to invest all of your risk
capital before you know whether or not your product is going to be
competitive, before you know whether or not anyone will buy your product.
So you have a lot of risk and you have a lot of uncertainty.

If you add on that additional risk and uncertainty associated with not
knowing whether or not you'll be able to protect your new and innovative
product from a major competitor, you may not have any investment at all.
The market risks are very high, and if competitors can take a utilitarian
function which you spent a lot of time and effort designing, as we
mentioned, and use those against you without having the same R&D expenses,
you would not be able to support these investments.

The other reason, policy reason, is as we look at this technology, copyright
law will not be adequate to protect the types of object_oriented programming
that we're developing. We have designed our system so that in object code
developers using our development environment can go in and modify almost
every portion of our system. The entire architecture is open. We cannot
protect it by trade secret. There will be those, I'm sure, who will argue
that the entire system is an interface. That raises some copyright issues __
as us lowly copyright lawyers know.

We think that the patent law encourages disclosure. In the absence of
patent protection for this technology, I would certainly advise my client to
make sure that we keep as many of the interfaces closed and not open as
possible, make sure that most of the important functions aren't disclosed in
documentation.

With the patent system, we're able to disclose those not only in the patent
applications but we also will want to make sure that for those important
utilitarian aspects that we can't afford to patent, that we'll publish and
establish the prior art in those areas.

We want to make sure that the United States continues to be the world
leader. As you probably have read, there is now more R&D dollars going into
software ventures and software technology in Silicon Valley than hardware.
That wasn't true two years ago; it's true now and it increases every year,
and this investment is dependent on having a system that protects that
technology.

One other point I would make on this is, an earlier speaker said that there
was presumption that the first to market would win. I would challenge that
presumption. If you look at Excel, if you look at Word, I do not believe
that they were the first spreadsheet or the first word processor on the
market, but they have substantial market share.

Next I'd like to go back and talk about some refinements that can be made to
the current system. There's been lots of suggestions that have been offered
today, and I would like to just offer a few additional suggestions, and also
some endorsements of some of the suggestions that have been made.

We applaud the Patent Office's initiatives on education. We have been very
active with Gerry Goldberg in trying to educate the Patent Office. We spent
time, money and effort sending Mike Patel, our VP of Advanced Technology,
back to the Patent Office. He educated a large number of people for half a
day. His talk was not about Taligent; it was about object_oriented
programming from its inception. And he was a professor for eight years
before he came to Taligent, so he had a very good background.

It was so well_received that the Patent Office invested in sending 17 senior
supervisors out to Taligent and to other companies in the Valley. They
spent a day and a half at Taligent understanding our technology in great
detail. And most of the responses we got from them were extremely positive.

And I was there for the wrap_up of that session, and I heard one of the
senior supervisors saying, "You know, this is great, we learned a lot, we
now have new innovative ways to deny your claims."

One of the other things that I think would really help the Office __ and I
know that you have begun this and we think you should continue it and with
even greater speed __ hire more computer science graduates who don't have
engineering degrees. These are the type of people who understand this
technology, the type of people that should be evaluating these types of
inventions.

I think that some of the other problems of obviousness, there are lots of
issues with obviousness, but one of the things, consistency and having
people that understand the technology better would certainly help the
nonobvious issue.

In addition, I have one other proposal that's a little different than some
of the proposals. To deal with this problem of having all of the prior art
not found anywhere or searchable by advanced technology __ and I know that
you're trying to put together databases in advanced technology __ we would
propose a human database.

There are people, there are consultants, there are people who can be hired
who have lots of expertise and lots of industry experience in the relevant
areas that a lot of the software patents will be filed on. These people,
because of Internet and because of advanced technology, don't even have to
be located with the Patent Office; they can be reached through advanced
electronic communication, so that people in California who have a general
reluctance to move back to Washington, D.C., especially after the snow
storms of this winter __ except of course the people in Los Angeles __ can
be reached by Internet.

Finally, on publication, we would be in favor of publication prior to
issuance. I think that one of the issues that hasn't really been addressed
is that there needs to be some certainty in this publication scheme, a
publication scheme that would be tied to when the patent issued and
publication prior to that would have a great deal of uncertainty because of
the great deal of uncertainty in when the patent is processed through the
Patent Office and when it gets issued.

It would be important to understand whether or not your product is out in
the marketplace before the patent issues, and before the publication. So I
think having a set time period, like 18 months, or some other time period
that's appropriate for the industry, is the best way to proceed.

So let me just conclude. We think that protecting software_related
inventions is critical to investment and for ensuring certainty on return in
those investments. We propose some refinements to the current system; we
think with those refinements we should be able to enhance competitiveness of
the software industry in the United States, particularly the high risk, high
level of investment foundation technologies, such as our company, which will
be needed for the information highway.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Cronan, for sharing those
ideas with us.

Next I'd like to ask William Neukom, Vice President of Law and Corporate
Affairs for Microsoft Corporation to come forward.
WILLIAM NEUKOM

MICROSOFT CORPORATION

MR. NEUKOM: Good morning. My name is Bill Neukom, I'm Vice President of
Law and Corporate Affairs at Microsoft Corporation.

I appreciate having the opportunity to be here to present the current best
thinking of our company on the subject of this hearing. If I'm making
points that are not clear or deserve some comment or questions, please don't
hesitate to interrupt. I think I'm scheduled to go most of my allotted time
with my prepared remarks, but I want to communicate while I'm here this
morning as best I can.

Microsoft is a developer and marketer and supporter of a very wide range of
systems and applications software products for personal computers. By
having helped to make it easier for users to work with their personal
computers for an increasing number of purposes, the company's products have
been able to contribute to what's sometimes referred to as the "PC
revolution," which has occurred in the past 12 to 15 years. The growth of
the company has paralleled an even more important statistic, which is the
increase in the number of people who use personal computers in this country.
About a million people were using personal computers in 1980; by today we
estimate that probably 90 million or more people are using personal
computers.

The software industry is a major contributor to the economy of this country.
In the last five years, virtually every study of the key technologies of
America's present and future have identified the vital role of computer
software industry. Software is characterized by both its very rapid
technological innovation and by the widespread use of that technology in
downstream markets. Computer software improves the competitiveness of other
industries in this country and around the world because it helps to make __
our products help to make those enterprises more efficient and more
innovative, and it's the continuous evolution and enhancement and
improvement of software products that permeates much of the economy of this
country.

The US software industry has experienced quite remarkable growth. Measured
over the past ten years, it is the fastest growing industry in this country
by any rational measurement; it is now larger than all but four or five
industries in this country's economy. The growth has been fueled by strong
export performance by US companies; 75% of the world's sales of pre_packaged
software come from US software companies; and the 100 largest American
software companies earn more than 50% of their revenues from offshore sales.

The key to much of this is strong intellectual property protection, which we
and our colleagues and competitors in the industry view as essential for US
software industry to continue to compete globally and continue to play a
leadership role in this nation's economy.

On this morning's subject of patent protection for computer software, we
believe that the existing laws in the form of the statute and the
regulations and the case law provide both an adequate and an appropriate
framework in which to assess the patentability of software_related
inventions. This is not to say however that the existing system cannot be
improved, and we commend the patent office for its willingness to take a
constructive view of that challenge.

We appreciate the Patent Office's commitment to the improvement of the
examination process by increasing the number of examiners and the expertise
of the examiners in software technology and providing better technical
training for the examining corps.

We also agree that or support the Patent Office's decision to pursue some
reform of the re_examination process. I read in the Commissioner's opening
remarks from yesterday that there is some legislation forthcoming and we
look forward to reviewing that and supporting it in a constructive manner,
assuming it does things which we think are beneficial to the process. The
advantage of reforms to the re_examination process are measured both in
terms of a more efficient determination of patentability, but have the very
handsome byproduct of reducing the threat of expensive and protracted
litigation.

We believe the software industry would benefit from greater availability of
prior art; this is not a novel subject to you experts or to the audience,
but patent applicants need to know more about prior art, the office needs to
know more about it, and parties to infringement actions or threatened
infringement actions could benefit from better, earlier information about
prior art. We are a participant in the Software Patent Institute's efforts
to gather that prior art, and we are trying to exhort our colleagues and
competitors to step up and make more technical information available, so
that it can become part of a richer and more relevant database of prior art.

And finally, we think that the industry would benefit from a reduction in
the average pendency of applications before the Patent Office. We don't
presume to think that that's an easy matter to accomplish, but we think it's
important; the more prompt issuance of patents will provide industry
participants with a better return on their substantial investments in
technology and in the patent process itself. That is particularly material
for an industry like ours, which is so fast_moving and where today's
invention is next year's afterthought.

With a commitment from both the industry and from the Patent Office to
implement these kinds of changes and perhaps others that have been suggested
or will be thought of, we believe that the existing system can mature in a
fashion that effectively achieves the constitutional goals of stimulating
and protecting innovation in a competitive context.

Let me try to respond to each of the questions that have been published for
these hearings. Question one asks, What aspects or specific examples of
software_related inventions should be protectable via the patent system?

Without addressing each example individually, Microsoft notes that this
inquiry appears to subsume two basic issues. First of all, should patent
protection be available in some form for inventions embodied in software;
and secondly, if so, how should protection be characterized? As to the
first issue, we do not believe that patent protection should be withheld
from an invention that otherwise meets the statutory requirements for
patentability, simply on the basis that the invention is or may be embodied
in software. I think that point is reasonably well resolved by the courts
and by the Patent Office at this stage.

With regard to the second question: The characterization of the protection,
we favor claims structures that clearly recite those aspects of computer
software_related inventions that are novel and unobvious, and allow an
accused infringer to readily identify the activity or activities that may be
proscribed under the claim. The success of a particular claim in meeting
these objectives may depend, however, less on the form and more on the
substance of the claim and the supporting specification.

As to question number two, the impact of software_related patents on the
industry, Microsoft has never initiated an action for patent infringement.
We have, however, unfortunately been the defendant in several lawsuits
involving software_related patents. The defense of those suits has consumed
considerable of our resources, resources we'd prefer to use in positive and
constructive research and development efforts. Even so, we are committed to
the existing patent system as a reasonable and responsible vehicle for
protecting software innovation, particularly when that process is viewed in
light of the ongoing effort being made by the Patent Office and the courts
and more and more, I'm pleased to say, by the industry to improve the
systems application to our technology.

The dichotomy illustrated by our position reflects the equity that we think
can be achieved by the existing system in balancing the competing interests
of protecting innovation on the one hand and preserving competitive freedom
on the other hand.

One potential way of lessening the negative impact of software_related
patents on the industry would be to consider again this subject of reform of
the re_examination process. The threat of litigation involving a patent of
questionable validity can be particularly damaging to a smaller company,
which may not have the financial or the human resources to effectively
challenge the patent's validity in the federal court process. Although the
existing re_examination process affords a potential defendant an alternative
venue in which to contest a patent's validity, the utility of the current
re_examination process is limited by its ex parte nature and the limited
scope of prior art that can be considered.

The Patent Office, the Patent Bar and industry participants should carefully
consider whether these and other limitations on the existing re_examination
process should be overcome.

Question number three addresses the implications of maintaining or altering
the standards for patentability of software_related inventions. Microsoft
believes there are several advantages to the maintenance of the existing
standards. We're not suggesting they should be frozen, but we believe that
they are fundamentally sound and there are reasons to continue to rely on
them in the main.

Workability. Although the expression and application of the existing
standards may not yet have fully matured, the standards have evolved slowly
over a number of years and do provide a stable framework in which to assess
the patentability of computer software_related inventions. Improvements
have already been made. The Patent Office has already taken steps to
improve the quality of examinations, as we've noted, and the software
industry is working to enhance the effectiveness of the Patent Office's
application of existing standards through, among other means, the work of
the Software Patent Institute.

Thirdly, this is a way to avoid greater near_term uncertainty. Both the
industry and government have made considerable strides in understanding and
applying the existing system, particularly in the last few years. The
introduction of some new statutory or regulatory standards would almost
certainly present a new set of uncertainties or ambiguities, making a major
revision perhaps more unsettling to the industry, at least in the short and
perhaps the midterm.

And finally, there are investments that have been made under the current
standards by industry members, and significant changes to the patent
standards might compromise the value of those substantial investments.

Question four asks whether the existing framework of patent copyright, trade
secret protection effectively protects and promotes innovation in the
software field. Microsoft response to that would be, yes, it does. The
importance in the growth of the software industry described earlier in my
remarks has not occurred in a legal vacuum, as I'm sure you are all aware.
As noted in the Patent Office's discussion of Topic A, the Supreme Court
held in 1981 that the mere presence of a software_implemented mathematical
algorithm in an invention does not automatically preclude the invention from
being eligible to receive patent protection. Similarly, the copyright
statute has expressly addressed the subject of computer programs since 1980.
The maturation of the industry under the existing legal framework suggests
that the framework is appropriate and that it is reasonably effective.

While copyright has been and is an important and effective tool for the
software industry, that does not mean that there is no role for patent
protection. Indeed, there is a large and growingly important role for
patent protection.

Microsoft believes that the software patent law will continue to mature and
we would trust rapidly enough to effectively support growing industry
awareness and use of software patents.

The final question asks whether a new form of protection is required for
computer programs. Microsoft does not believe that a new form of protection
is required; the existing patent system has a long history which reflects an
appropriate balance in protecting inventive technology. The system has
served American industry well. We are aware of no compelling reasons at
this time why it should not be continued to be applied and approved as it is
applied to the field of computer software.

Thank you for this opportunity to share Microsoft's current thinking on this
very important subject.

COMMISSIONER LEHMAN: I've a question to ask if you'd just hang on for a
moment.

Yesterday we had a witness from the League for Programming Freedom, who
displayed a chart indicating, showing who had applied for patents and who
hadn't, and not surprisingly, the chart showed, for example, that IBM had
the most number of patents, AT&T had the next number, and then it went down
to some of the companies that we associate more with the mass market
software industry, like Microsoft and Lotus and Novell, Borland, Next,
Oracle, etc. And he noted that Microsoft only had thirteen patents, Lotus
only has seven, Novell has one, WordPerfect has none, for example.

And the implication of that was that basically the patent system has played
virtually no role in the stimulation of this fabulous industry that you've
talked about, and of course that's part of the Article 1, Section A, mandate
is to stimulate progress in the arts, and that, in fact, this particular
witness, a computer programmer, felt that it was having a counter
stimulative influence because programmers didn't want to even touch their
keyboard before they consulted the legal department.

Microsoft obviously did develop to where it is now without significant
patent protection. Do you see something, is there something that's changing
in the industry that is causing you now to take a look at patents? What is
different about now, today, than the early 1980s when you first came out
with your first products?

MR. NEUKOM: I think what's different, in terms of patents is that our
industry and certainly my company has become much more aware of the value of
patenting software_related inventions. I think as a whole the industry
relied extensively on trade secret and copyright protections. It's
important to remember, particularly in terms of the mass market kind of
software that you describe, that this is a very, very young industry. We
tend to think of this as an industry which has always been about the size
and had about the reach that it currently has in the mid 1990s, but when you
realize that graphical computing, for example, personal computing, has
really only come of age in the past four or five years, and portable
computing has really only come of age in about the same timespan, you
realize that this is an industry which has grown so fast and diversified so
quickly that to think about the early '80s is to think about generations_old
forms of the current industry.

And there were questions, as I know the Commissioner knows full well about
the copyrightability of software, there were some questions among lawyers
about the patentability if software. As those questions have been resolved
by the courts, the companies have had to pay attention to that. I think
that the companies at the top of that list, the IBMs and the AT&Ts tend to
be companies which are hardware companies as well, who have a culture of
patents and the companies toward the bottom of the list are more purely
software companies who didn't come into the industry with that sort of
culture and awareness of the values of the trade_offs of patents, and so
we're essentially as an industry, I think, catching up with the patent
process, and I think that there has been a very material increase in
attention paid by the legal staffs to the prospect of patenting software.

We will soon have six patent lawyers in my department, and that's grown from
a group which had none in it two and half years ago. We've always relied on
outside counsel and will continue for purposes of applications and
prosecutions because of the nature of the work involved in writing those
claims, but it's certainly much more center_of_screen for law departments
and I think that companies are making informed decisions about where they
want to spend their scarce legal resources in terms of protecting their
intellectual property rights.

I think that there will be __ the hardware companies went through this, I
think, in a somewhat transferable piece of history where they were filing an
increasing number of patent applications and as they were issued, there came
a time when some of those companies had to reach cross_licensing kinds of
accommodations with each other. But we, at Microsoft, take the view that to
the extent that there is important technology, that seems to us to be
patentable, we do want to raise the level of awareness among our technical
people to be in touch with the law department, for us to decide whether to
pursue an application. I think that's generally happening around the
industry. The number of patents issued, of course, is only a sense of how
many are in the process, and I think the industry itself is putting more
resources in the effort.

COMMISSIONER LEHMAN: Microsoft obviously as a big company takes it a little
bit on the chin because, the big guy, everybody is concerned about
Microsoft's market power and size. That's come up in the discussion of
issues, such as decompilation, for example, in the copyright side, where one
of the things that we've heard very strongly is that we've had a lot of the
testimony that oftentimes __ by the way, testimony from people who feel that
there should be no patent coverage for software, but sometimes from people
who think there should be patent coverage, too. We've had a lot of
suggestions that the copyright law should be construed very narrowly also,
so that only literal code is covered.

And then we've also heard some testimony about the decompilation issue too,
that there ought to be access to products through that process, and I wonder
if you have a comment on that.

MR. NEUKOM: Generally speaking, our view is that software ought to be
treated by the copyright law and process the way any other original creative
expression is treated, and not distinguished by the nature of its
technology. And I think that the courts have been sensible about developing
and reinforcing that notion, in terms of broadening an exception for reverse
engineering or decompiling.

We are very concerned about that, not just in the law of this country but in
the law of other countries, and as the panel knows, that matter is currently
the subject of some serious consideration in Japan, and we are very much
concerned, for example, in that context that an already none_too_strong
copyright law may be further weakened by a too_broad exception for
decompiling, which would essentially expose US __ this is not a Microsoft
issue, this is a US software publishers' industrywide issue __ would lay
open our technology to a shortcut by Japanese and other software companies
who could bring to market products which would compete with a very unfair
advantage, an advantage of not having had to spend the research and
development resources to create and invent the expression and the ideas that
go into that product.

COMMISSIONER LEHMAN: Thank you very much.

MR. NEUKOM: I hope that's responsive.

COMMISSIONER LEHMAN: Finally, next I'd like to ask Charley Morgan to step
forward, Vice President of OPEB Funding for The Prudential Insurance Company
of America.

I think, Mr. Morgan, you're one of a kind. You're our only insurance
person.

CHARLES MORGAN

THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

MR. MORGAN: Good morning, I'm Charles Morgan, I am Vice President, OPEB
Funding. OPEB Funding is a business unit of the Prudential Asset Management
Company. We fondly know of it as PAMCO. PAMCO is a wholly_owned subsidiary
of The Prudential Insurance Company of America, the largest insurance
company in the United States. PAMCO offers investment management and
related administrative services to US employee benefit plans, foundations,
endowments and other domestic and foreign institutional clients.

I have to say I've done a lot of flip_flops this morning and yesterday,
listening to the other people talk as to whether I'm really relevant here.
I think I'm going to be asking you to make a fairly significant shift in
context as I give you my remarks. I'm really here to give you an anecdote
__ sort of a horror story.

We are an old industry. The insurance industry in this country has been
around for hundreds plus years, Prudential has been around since 1875. We
have old products that have been expressed on paper, copyrightable, that are
now finding, in manual systems to implement those old products, they are now
finding new expression in electronic form, implemented through new systems
that also use software and computers. And here I am, a former tax lawyer,
who now finds himself running a small business with The Prudential.
Prudential has 100,000 employees; my little business has eleven employees.
So I listened to the conversations about big organizations against the
little guy, the innovator, and wonder where I fit because I am both. I am
not a patent lawyer, and I am not a software expert. All I know about
software is that I use it every day.

As I mentioned, I work in OPEB Funding, O_P_E_B stands for Other Post
Employment Benefits. OPEB Funding offers institutional investors financing
solutions for their retiree healthcare liabilities. If you read the paper
today, Clinton and his agenda includes healthcare reform, it's a big part of
my life.

My work is different from traditional pension benefits, this is post
retirement healthcare benefits that I work with. Our primary product is a
flexible premium group life insurance contract. The contract offers the
employer participating life insurance, but also a broad array of investment
accounts similar to pension accounts. Typically it is purchased by a trust,
and the employer uses that trust to finance the cost of those benefits.

Now, our product development work for this product that we're selling began
in 1987. We're highly regulated. We had to file with state insurance
departments for approval of our forms, their content are dictated in large
part by the states. Our first state approval occurred in 1989, in April.
Our first product installation occurred in August of 1989. Our system
development work paralleled that timeframe, and built on existing Prudential
systems already used for very similar products.

Now, I should note that our product took a very old idea; that is, a life
insurance contract and a trust to fund employee benefits, and updated it by
employing a group insurance wrapper rather than an individual policy
wrapper. And that was a significant innovation only because legal
impediments in our industry were perceived to say it was not possible to do
it. We did it.

I then turned to our lawyers and I said, "How do I protect this innovation?"
They said, "You cannot, you cannot patent a life insurance contract. You
can copyright it, but you can't patent it".

Much to our surprise, you issued a patent, we call it the (Premit Patent) in
1992, covering a system employing a VEBA trust, V_E_B_A, which in turn
purchases variable life insurance contracts to fund retiree healthcare
benefits. An employer contributes money to the VEBA and obtains a tax
deduction. The money is invested in the insurance contracts, eventually
it's distributed in the form of healthcare benefits through a health claim
system.

The patent owner has approached our clients and prospective clients,
advising them that we would owe him royalties as a percentage of the
investments in our group variable life insurance product, and that we would
try to pass the cost back to them, which we would.

The inventor __ or the invention, that is, covered by the patent is
comprised of numerous elements, including a VEBA trust, a variable life
insurance contract, a couple of healthcare liability calculation systems for
financial accounting and tax accounting purposes, a death claim collection
system and a health claim payment system among other elements.
Significantly, the patent owner has focused on collecting royalties solely
from Prudential and exclusively with respect to our group variable life
insurance contract; that is, the life insurance contract segment of this
invention.

Now, why would we, Prudential, owe the patent owner royalties on this? All
we're doing is selling a variable life insurance contract. We do not
perform most of the functions comprised of the segments in the invention.
While it is true that we do have death claim systems, those systems are
inherently connected with the business of selling and administering life
insurance contracts. We also have healthcare systems connected with our
group health insurance businesses. But it would be merely coincidental if
we happened to administer a health claim system for a client who purchases
our variable life insurance product.

The focus of his royalty claims on the insurance contract segment of this,
quote "invention" unquote, suggests that he merely wanted to patent a
variable life insurance contract, something that we thought was not
possible. To accomplish his objective, he merely surrounded the contract
with sufficient quote "system trappings" unquote, to justify issuance of the
patent on his invention and persuaded you to issue it. Now, he has not
implemented any of those systems, he has merely patented the concept.

The patent fails on three conditions of patentability. The invention is not
new. It is perfectly obvious to a person in the field, and it is merely a
method of doing business. The Prudential has been in the business of
selling life insurance since 1875. We've been in the employee benefit
business since the 1920s. We have worked with pension liabilities for more
than half a century. We have worked with healthcare liabilities for
decades. Individual life insurance products have been used to fund pension
liabilities since at least the 1940s. The Internal Revenue Service even
issued a ruling, what we call PS No. 58, in the 1940s, to cope with pension
funding with pension trusts investing in life insurance contracts.

Now VEBAs, an important part of this supposed invention, came into unique
prominence for funding retiree healthcare liabilities in the late 1980s,
only because Congress enacted ERISA in 1974 and DEFRA in 1984, thereby
curtailing the other tax_motivated devices employed previously. Originally
called "Retired Lives Reserves", several IRS rulings in the 1960s and early
'70s established the foundations of the tax deductions that ultimately were
codified by DEFRA in 1984. Life insurance policies and VEBAs were favored
funding instruments for Retired Lives Reserves even before Congress codified
the rules. The essential role to be played by VEBAs prospectively was
obvious to anyone in the insurance industry, the benefits consulting
community, anyone who had worked with pension plans, trusts, life insurance
and Retired Lives Reserves. VEBAs are not new, they're not unusual. A VEBA
is just name that Congress put on a 501C9 trust in the Internal Revenue
Code. You go read it, and that's the label in the section.

The primary purpose of the trust is to secure the asset from the employer's
creditors so employees like you and me will get the promised benefits.
Section 501 of the Internal Revenue Code has been there ever since 1954 and
has antecedents going back to the '39 code.

The Prudential has been a leader in the development and use of record
keeping and other systems required to support life, health and annuity and
pension products. We employed the earliest computers doing the 1940s for
statistical purposes, during the '50s we installed the earliest machines
from IBM. Our computer systems became a substantial part of our business in
the '60s with the automation of our policy and group pension administration.

Prudential developed the first medical and dental claims systems in the
United States in the '70s. One of our major life insurance systems contains
tens of millions of lines of code, that require 750 people simply to
maintain in.

In our group insurance and PAMCO operations alone, we have more than a
hundred major applications in development or under maintenance. Our annual
budget for systems applications runs into the many hundreds of millions of
dollars. If I'd had time to research it, I'd daresay we're upwards of a
billion annual.

Notwithstanding that big investment, we have not pursued patents within
Prudential, we haven't stockpiled them. And I asked our patent lawyer how
many he was aware of, he knew of none.

I was interested in the picture painted yesterday, the big guy against the
little guy, as I said, we have not been using these as a tactic, and we may
well have to turn to that.

In my little business, when confronted with this patent I have only a few
very unpleasant options. I can shut myself down, I can spend a lot of money
on lawyers, pursue royalty litigation or litigation to get rid of the patent
or I can pay a royalty which is what I see as nothing more than a ransom,
extortion.

THE PTO re_examination process was not available to me for the reasons that
Lee Patch mentioned this morning.

Now, I only have two more brief paragraphs with my suggestions, but they're
echoes of what you have heard already today. You need to introduce rigor
into your research of prior art. People like us are available to you, you
ought to seek us out and learn a little bit from the community that is
affected by the patent application. I agree with those comments
wholeheartedly. I am not a patent lawyer. It was obvious to me that that's
something you need to do, and I applaud these hearings as a first step in
hearing about that sort of thing.

I don't see the software patenting issue as the real issue, I see the real
issue is research into obviousness and newness.

That really about sums up my comments except to say that in the financial
services community, we have a very broad spectrum of products which at one
extreme or the other have significant differences. At any point in between
those two extremes, the line drawing exercise for you and me is incredibly
difficult. And applying new expressions to age_old products like this needs
to proceed with care.

COMMISSIONER LEHMAN: Thank you very much.

MR. MORGAN: Okay. Thank you.

COMMISSIONER LEHMAN: Next up and finally, our final witness for the morning
is Les Earnest.

LES EARNEST

MR. EARNEST: Les Earnest, speaking for myself.

Based on my 40 years of experience in the computer system development, much
of it before software patents were introduced, I believe that the alleged
connection between such patents and the stimulation of innovation is tenuous
at best and probably negative. Let me confess that even though I oppose the
continuation of software patents, as a defensive measure I've applied for
some that have been granted.

When I entered the field as a programmer in 1954 there were only about a
hundred of us in the whole world, and each of us was turning out thousands
of inventions each year, or maybe it was hundreds depending on your
standards, but a lot. Software was given the same kinds of protection as
other documentation, namely copyright and trade secret.

It was certainly a good thing that there were no software patents because my
colleagues and I could have papered over the field and retired for 17 years
or so to collect royalties. Since patents didn't exist, we kept working and
had quite a good time doing it, sharing ideas and standing on each other's
shoulders to see how high we could reach.

In 1956 I went to MIT to help design the Sage Air Defense System, it was a
technological marvel full of inventions, both hardware and software. It was
the first real_time computer system and depended on the large software
system that was cooperatively written by many people. That was the first
such system.

This project helped transfer a lot of technology from MIT to IBM, but almost
nothing was patented. Dozens of Sage systems were eventually deployed
around the country, each with a vacuum tube computer that covered a floor
area about the size of a football field and an air conditioning system to
match.

It is fortunate that this power, that the Soviet Union, never attacked the
U.S. in that era, because the marvelous technology in Sage had several
Achilles' heels that would have caused it to fail catastrophically under
attack. However, those short comings were kept well hidden from Congress
and the public, and as a result the so_called command control communications
technology became a major growth industry for the military industrial
complex. The most recent example of that line of development being the
grossly defective Star Wars system, but that's another story.

Beginning in 1959 I developed the first pen_based computer system that
reliably recognized cursive writing. I believe that it was more reliable
than the 1993 version of Apple's Newton. But the idea of getting a patent
on such a thing never occurred to me or my colleagues. It wouldn't have
done much good anyway because the computer on which it ran filled a rather
large room, and the 17_year life of the patent would have expired before
small portable computers became available.

In order to cope with a personal shortcoming, I developed the first spelling
checker in 1966.

(laughter)

I didn't think that was much of an invention and was rather surprised when
many other organizations took copies. And, of course, nobody patented
things like that.

When John McCarthy and I organized the Stanford Artificial Intelligence
laboratory, and I served as its executive officer for 15 years, there was a
great deal of innovation that came out of there, including the first
interactive computer_aided design system for computers and other electronic
devices, early robotics and speech recognition systems, the software
invention that became the heart of the Yamaha music synthesizer, document
compilation and printing technologies that later came to be called desktop
publishing. The Sun workstation was invented there. And the guy who
invented public key cryptography was in our lab.

Few of these inventions were patented in the early period, but we later
began to file for such coverage. The pace of innovation I note has
necessarily slowed over time as the technology matures, but concurrently, of
course, the amount of patent protection has increased. I suspect that these
changes are connected.

Yesterday in this forum, my friend Paul Heckle said that software patents
stimulate new businesses. I'm afraid that Paul has that backwards. In
fact, new businesses stimulate software patents. Venture capitalists want
the comfort of patents on products that are being brought into the market
even though know_how is far more important in most cases.

In 1980 I co_founded Imagen Corporation, which developed and manufactured
the first commercial desktop publishing systems based on laser printers. We
filed for software patents to try to appease the venture capitalists, even
though it was not actually important to our business, I believe. Of course,
they didn't understand and the lawyers were happy to take our money.

Based on my experiences, I also joined the League for Programming Freedom to
help resist the patent conspiracy and I later served for a time on its board
of directors.

In summary, for many years there has been a great deal of innovation, there
was a great deal of innovation in the computer software field with no
patents, under the quote, stimulation of software patents the pace now seems
to have slowed. I believe that there may be a connection, not only because
of the time that must be devoted to covering and deciding what to cover and
filing a patent application, but also because patents are owned by other
organizations, many of them in fact based on prior art, and constitute a
mine field that must be carefully navigated. I recommend a return to the
good old days when success depended on moving faster than the other guys
rather than trying to catch them in a trap.

Thank you.

COMMISSIONER LEHMAN: Thank you very much, Mr. Earnest.

That will conclude our morning session, and we'll reconvene at 2 o'clock, at
which time our first witness will be Richard Stallman.

(Luncheon recess taken)

COMMISSIONER LEHMAN: We can get underway. It seems to be a usual human
tendency of somehow or other always running a couple of minutes late. So
perhaps we can start right out again by calling Richard Stallman forward,
please.

I assume you're __ you're just listed as Richard Stallman, but I assume you
still have the affiliation with the Free Software Foundation?

RICHARD STALLMAN

FREE SOFTWARE FOUNDATION

MR. STALLMAN: I guess I'm just speaking for myself because, yes, I am
involved in software development with the foundation, and I guess this is
probably the opinion of the foundation too since I'm its president.

(laughter)

COMMISSIONER LEHMAN: Great. Well, welcome, and why don't you proceed.

MR. STALLMAN: Okay. Each year the government creates new bureaucratic
programs. Each is created for a purpose. That doesn't mean it serves that
purpose or that it is worth the cost.

It's hard the close down unnecessary bureaucracies because people presume
they must do some good. It's easy to admit a government program has
drawbacks, but many won't seriously consider whether it does its job at all.

Thus we see, in the announcement of these hearings, the supposition that
software patents are helpful. We are asked whether they protect software
developers enough. Patent lawyers chose the word "protection" to imply that
patents are beneficial.

I'm not a lawyer. I'm a programmer, considered a good one. I am here to
explain why software patents impede software development and retard software
progress. Software is like other fields of engineering in many ways, but
there is a fundamental difference: Computer programs are built out of ideal
mathematical objects. A program always does exactly what it says. You can
build a castle in the air supported by a line of zero mathematical
thickness, and it will stay up.

Physical machinery isn't so predictable, because physical objects are
quirky. If a program says to count the numbers from one to a thousand, you
can be sure it will do that. If you build a counter out of machinery, a belt
might slip and count the number 58 twice, or a truck might go by outside and
you'll skip 572. These problems make designing reliable physical machinery
very hard.

The result is that software is far easier to design per component than
hardware. This is why designers today use software rather than hardware
whenever they can. This is also why teams of a few people often develop
computer programs of tremendous complexity.

People naively say to me, "If your program is innovative, then won't you get
the patent?" This question assumes that one product goes with one patent.

In some fields, such as pharmaceuticals, patents often work that way.
Software is at the opposite extreme: A typical patent covers many dissimilar
programs and even an innovative program is likely to infringe many patents.
That's because a substantial program must combine a large number of
different techniques and implement many features. Even if a few are new
inventions, that still leaves plenty that are not. Each technique or
feature less than two decades old is likely to be patented already by
somebody else. Whether it is actually patented is a matter of luck.

The only way a programmer can avoid this mess is by sticking to things that
are obsolete. You may not recall the state of the computer field 17 years
ago since most people didn't pay attention back then, there were no personal
computers. If you were a hobbyist you might get a computer with a few
thousand bytes of memory. If you were lucky it might run basic.

This shows another way that software is different, it progresses very
quickly. A program three years old is becoming obsolete, and one that's six
years old looks Stone Age. A 20_year monopoly for anything in computers is
absurd.

In other fields a new technique may require development, building one device
after another until you understand how to make the technique work. If a
steel part functions badly and you think copper might be better, you can't
type "replace steel with copper" and try the new device a minute later. The
need to recoup the cost of this development is part of the usual argument
for patents.

In software, an individual technique usually doesn't need much development.
What we do develop are products that combine a new technique with dozens of
other techniques. When a second programmer decides to use the same
technique, he will have to do just as much development as the first
programmer. Firstly, because he's probably using a different combination of
techniques with that new one, and secondly, because the first programmer
probably kept the results of development a trade secret.

The patent system is supposed to help by discouraging trade secrecy. In
software, patents don't do this. Today, just as in 1980, most developers
publish general ideas and keep the source code secret. Here is a copy of a
compiler that I wrote with a few friends. It's printed four pages per sheet
to make it manageable. This program is mainly the work of four people,
another dozen helped substantially, and others occasionally. The two
principal developers were not working on this full_time.

This compiler and its output are probably being used on more than a million
computers today. Major companies such as Intel and Motorola have adopted it
and now add to it. The U.S. Air Force is funding extensions to it. Many
widely used systems are compiled with it. Just a few lines of code can be
enough to infringe a patent. This compiler has 10,000 pages __ how many
patents does it infringe? I don't know, nobody does.

Perhaps you can read the code and tell me?

(laughter)

I know of one patent it infringes, I found it along with some near misses in
a list I saw by luck. I believe I have prior art for that patent, but I
can't be sure what a court would say. I don't dare tell you the patent
number, because if I were sued, I couldn't pay for the defense. I would
lose by default.

An invalid patent is a dangerous weapon. Defending a patent suit typically
costs a million dollars and the outcome depends mostly on legal
technicalities.

I've had at least one patentable idea in my career, I know this because
someone else patented it years later. It's a feature for using
abbreviations in a word processor. A couple of years ago, the users of the
word processor XyWrite received a downgrade in the mail. XyWrite had an
abbreviation feature, the developer removed it when threatened by the patent
holder.

They knew about my earlier published work; why didn't they fight the patent?
Sometimes a business can't afford to have a lawsuit that will drag on for
years. At those times, even if the patent is invalid, you lose.

These patents are invalid because of luck. It was pure luck that these
ideas were published by one person before they were patented by another.
And it was luck that the ones who published didn't patent instead.

This is an important point: What is patented and what is not is mainly a
matter of luck. When you develop a large system and you need to combine a
large number of techniques and features, whether or not you can use each
given one is a matter of luck.

The carelessness of the Patent Office in dealing with software is well
known. So some people assume that if the PTO only did a better job,
everything would be okay. They say we that we should wait while the invalid
patents spew out, and eventually the PTO will understand software and do the
job right.

There are two flaws in that suggestion: The PTO will not do a better job,
and that would not solve the problem if they did.

Some years ago a professor I know patented Kirchoff's current law, which
says that the electric currents flowing into a junction equal the currents
flowing out. He did this to confirm, privately, his suspicion that the PTO
could not handle the field of electronics. He never tried to enforce the
patent which has since expired. I will disclose his name if you give
assurances that he and his lawyer will not get in trouble for this.

Kirchoff's laws were formulated in 1845. If the PTO couldn't understand
electricity after a century, how can we expect it to understand software in
another decade or two.

(applause)

Computer scientists look at many software patents and say, "This is absurdly
obvious". Defenders of a patent system reject our opinion. "You're using
hindsight," they say. "You're more skilled than a typical practitioner."
What we consider obvious patents are not errors, they reflect a different
definition of "obvious". It's not going to change.

What if the PTO stopped making mistakes and issued no more invalid patents?
That would not solve the problem because all new techniques and features,
those not known today, would be patented just the same.

Suppose the PTO were perfect, suppose that it is the year 2010 and you're a
software developer. You want to write a program combining 200 patentable
techniques. Suppose 15 of them are new, you might patent those. Suppose
120 of them were known before 1990, those would not be patented any longer.
That leaves 65 techniques probably patented by others, more than enough to
make the project infeasible. This is the gridlock we are headed for.

Today's PTO mistakes are bringing us to gridlock sooner, but the ultimate
result is gridlock even with a perfect PTO.

I have explained how patents impede progress; do they also encourage it?
Patents may encourage a few people to look for new ideas to patent. This
isn't a big help, because we had plenty of innovation without patents. Look
at the journals and the advertisements of 1980 and you'll see. New ideas
are not the limiting factor for progress in our field. The hard job in
software is developing large systems.

People developing systems have new ideas from time to time, naturally they
use these ideas. Before patents they published the ideas too for kudos. As
long as we have a lot of software development, we will have a steady flow of
new published ideas.

The patent system impedes development. It makes us ask for each design
decision, "Will we get sued?" And the answer is a matter of luck. This
leads to more expensive development and less of it. With less development,
programmers will have fewer ideas along the way. Thus, patents can actually
reduce the number of patentable ideas that are published.

A decade ago the field of software functioned without patents, it produced
innovations such as windows, virtual reality, spreadsheets and networks.
And because of the absence of patents, programmers could develop software
using these innovations.

We did not ask for the change that was imposed on us. There is no doubt that
software patents tie us in knots. If there's no clear and vital public need
to tie us up in bureaucracy, untie us and let us get back to work.

I'm finished. I hope I didn't exceed my time.

COMMISSIONER LEHMAN: No, you didn't. Thank you very much.

Does anybody else have any questions of Mr. Stallman?

Thank you very much.

(applause)

COMMISSIONER LEHMAN: Did you write this entire 10,000 pages worth of code?

MR. STALLMAN: No. As I said, about four people did most of the work. In
what's here, I and one other person did most of the bulk of the work. And
then there were like two or three others who did substantial pieces, and a
dozen who did significant pieces.

By the way, with this goes another stack __ this tall __ of machine
descriptions for particular target machines, but I didn't include them
because they have a lot more different contributors.

COMMISSIONER LEHMAN: And what do you do with this? How do you make this
available to the public?

MR. STALLMAN: It's on the Internet. You can FTP it and run it. Many
organizations distribute it. We also supply it on compact disks.

COMMISSIONER LEHMAN: So that's how you make most of your work which is
dedicated to public domain as I understand it, pretty much.

MR. STALLMAN: It's not public domain, but that's getting into a digression,
it's free software.

UNMIKED VOICE: Can you go back to the microphone?

COMMISSIONER LEHMAN: I apologize, I should have asked that.

MR. STALLMAN: I don't want to get into free software because it's a
digression I think for the most part, and it leads into an area where I have
views that are definitely a small minority's views. What I've said I think
most programmers would agree with. I've stayed away from my controversial
beliefs.

But, yes, I distribute free software, and because of that I generally can't
licence even one patent. Other software developers can muddle through if
they have to license a few patents, gets to be enough and they get crushed.

But I can't __ I get stopped dead by even one.

COMMISSIONER LEHMAN: Have you been sued yet?

MR. STALLMAN: No, but I've had to stop distributing software because I've
seen other people being threatened for the same patents. I didn't wait till
I got sued. People often wouldn't actually sue a charity. After all, I am
the president of a charity, and they might feel it would look bad to be
suing us, so instead they would just sue our users. Right? And how would I
feel if I were trying to help the public, giving them something that's a
trap, a trap for getting sued.

COMMISSIONER LEHMAN: Have any of your users been sued, of your work?

MR. STALLMAN: They haven't been sued for the programs that we write, but
for other free software we use they have been threatened. They received
letters from AT&T, everyone using XWindows got threatened by AT&T and by
Cadtrack. So even though we didn't write that software, it's an essential
part of the system we're trying to build.

COMMISSIONER LEHMAN: Thank you very much.

Our next witness is Timothy Casey, Senior Patent Counsel with Silicon
Graphics.

MR. STALLMAN: Would you like to keep this? It's an exhibit, we'll offer it
to you, but we'll throw it away if you don't want it.

COMMISSIONER LEHMAN: It seems like a shame to throw it away, but I think
that it's going to be hard for us to take it back to Washington.

MR. CASEY: I'd be happy to recycle it for you.

(laughter)

COMMISSIONER LEHMAN: But we can put it in a museum here in San Jose. Well,
since it's available actually on the Internet, we can just call it up there,
if we need it.

Please go ahead.

TIMOTHY CASEY

Senior Patent Counsel

SILICON GRAPHICS

MR. CASEY: Hello, I am Timothy Casey, Senior Patent Counsel with Silicon
Graphics, and representing their views.

Silicon Graphics is the world's leading supplier of visual computing systems
targeted for technical, scientific and corporate marketplace. The company
pioneered the development of color three_dimensional computing, transforming
it into practical and affordable mainstream solutions that improve the
productivity and increase operational efficiencies across a broad array of
industries, even though as of late, we seem to have gained our greatest
notoriety from our involvements in films like Jurassic Park and Terminator
2.

I would also like to point out that the company was originally founded on an
exclusive grant of a patent from Stanford University that's since run out,
but we did have our basis around the patent.

Although Silicon Graphics designs and manufactures personal computers,
workstations, servers and supercomputers based on our own designs for RISC
processing technology, a large part of our overall development effort is now
focussed on software, including, display, communication, development tools,
operating systems, applications and user interface technologies.

Naturally, Silicon Graphics files a large number of patent applications
related to both our hardware_ and software_based inventions, and has a
vested interest in maintaining such protections. But rather than use my
time to further expand on the horrors or virtues of software patents, I
would rather state that we are spending too much of our time in these
hearings I believe, discussing the ill patient and not enough time
discussing the disease. And shooting the patient I don't think is an
adequate solution.

Software as incorporated into the patent system is not the great villain
that many people would like us to see, but rather a misunderstood giant. As
I mentioned earlier, most computer system manufacturers today invest a
majority of their research and development efforts on software technologies
in order to further distinguish their hardware products from their
competition. I truly hate to think what would happen to this industry and
this nation's economy, if less than half of this development effort was
subject to patent protection.

It is also important to consider that in practical terms, software is not
really different from hardware. It's just that the Patent Office
understands hardware and is better prepared to adequately examine
hardware_related cases in most situations. Patents have been granted on
transistors, resistors, capacitors, clock circuits, filters, and the like,
all necessary building blocks of many electronic designs. But has that
seriously impeded the electronics industry? Why is software so different?

Are not most software products composed of basic elemental blocks of code
arranged in new ways to perform new tasks, much like the hardware elements
of any modern electronic product? The reason software patents have
developed into such a controversial topic is primarily because a number of
overly_broad software patents have been allowed to issue. And why is that?

Well, we can argue that the prior art is inadequate, and that is true. And
we can argue that the statutory subject matter tests are inadequate, and
that is also true. But I would argue that one of the biggest causes is the
fact that the Patent Office has not had the most important tool it needs to
adequately examine software patents; and that is examiners who have the same
fundamental understanding of basic software elements as they have of basic
hardware elements.

I find it absolutely amazing that the Patent Office has issued so few
overly_broad software patents given the level of training of many of the
examiners and the complexity of the application subject matter. While I
understand that the Patent Office has already undertaken steps to hire
computer science majors in the future to help solve this problem __ which I
loudly applaud __ there are many additional measures that can be taken to
improve the services of the Patent Office, both with respect to already
issued software patents, and any applications that might be examined in the
future.

Some of these measures include revamping the re_examination process, so that
re_examinations can be used to achieve the goals for which they originally
intended. One step would be to make re_examinations an inter partes
proceeding. Another would be to make them less expensive, both in terms of
fees and the formal requirements of a re_examination request that presently
force potential applicants to seek exceedingly expensive professional
assistance in order to comply with the regulations.

It may also be in the country's best interest if an amnesty period is
implemented over the next year or so during which applicants could institute
a re_examination of any software patent, based on new art, meeting the
requirements __ which may indeed need some revamping __ by simply filling
out a one_page application form and filing a minimal fee, say of $500
instead of the present fees which is well over 2,000, I believe.

Second, instituting some form of prepublication of applications for the
purpose of eliciting industry comment, such as publish issue patents on a
tentative basis pending the discovery of new art during the comment period.

Third, establish routine industry_supported education programs to provide
continuing education for examiners, even up to and including advance degree
study for examiners who commit to an extended tenure with the Patent Office.

Silicon Graphics has participated in both bringing people to the Patent
Office to do presentations on graphics technologies for the examiners. And
we have also hosted a number of examiner groups at our office in Mountain
View to attempt to give them additional education on our industry and our
technologies. And I applaud the Patent Office's efforts in that area.

Four, employing technical specialists with broad industry knowledge and
allowing them to roam between examining groups so they can provide expert
assistance when needed to less highly trained examiners.

Five, allowing examiners more exposure to a variety of technologies instead
of pigeon_holing some of them in narrowly constructed examination areas.

Six, providing the examiners with better technical tools, such as network
computer systems that allow examiners to do key element searching of both
text and graphics on a single screen at the same desktop system that they
use for word processing, video teleconferencing, and Internet
communications.

Seven, introducing legislation to turn the Patent Office into a government
corporation, so that the Patent Office can attract and maintain examiners at
competitive pay scales to the industry without being constrained by the
Civil Service pay guidelines, and allowing the Patent Office to actually
keep and utilize all the money it raises from user fees.

Eight, instituting new limitations on the maximum number of claims permitted
in an issued patent, such as three independent claims and no more that 30
total claims, in order to simplify the examination process and reduce the
burden of accused infringers who are often forced to prepare opinions on
patents with hundreds of primarily duplicative claims.

Nine, instituting per_page surcharges for patent applications with more than
35 pages of text and 10 drawing figures to force applicants to be more
succinctly_descriptive of their inventions.

As long as I am on the subject of steps that the Patent Office can undertake
to improve its services to its clients, I will introduce two additional
measures that should be considered: namely, instituting a new type of
expedited patent application, and regionalizing the Patent Office.

Silicon Graphics recently obtained a patent on some technology that was
critical to the protection of one part of our systems, and that we knew has
already been duplicated by after_market suppliers of such parts. Despite
filing a Petition To Make Special with our application and being extremely
diligent in our efforts to shepherd the application through the Patent
Office as soon as possible, it still took eight months from the filing of
the application for it to finally issue as an enforceable patent.

Now, you may think, "Eight months, that's pretty fast". But it would have
been done in two or three months had it not been for the fact that it took
three months to get from the mail room to the examiner and another four
months to get from the examiner to the final print. The examiner completed
the entire examination of the patent in less than one month.

In a similar case, we have a patent application on a fairly simplistic
mechanical assembly sitting in the Patent Office since July of '91, despite
the filing of a Petition To Make Special. During the pendency of this
application, that mechanical assembly was copied by a number of other
companies. Although this only resulted in a small amount of competition for
us in a relatively narrow market for this part, it was a greater concern for
us because the knock_off products are not always of adequate quality, it
could cause damage to our customers' systems when used, for which we would
ultimately be responsible for correcting in order to maintain our customer
loyalty. This would not have been the case had this application been
allowed to issue.

The reason the one application took eight months and this other application
has taken over two and a half years is because the Petition To Make Special
Process only applies to the examination and not the remainder of the Patent
Office process. What is needed therefore, is a new type of application that
not only gets expedited when in front of the examiner, but throughout the
entire process. I would be more than happy to pay a higher fee, such as a
1,000 to $1,500 in filing fees for such an application in these types of
situations, because I would surely make that up in outside counsel fees when
the attorneys have to relearn the technology two or three years later after
we get a final office action.

My last suggestion is that the Patent Office seriously consider working to
regionalize the Patent Office. No one in Washington can truly appreciate
the difficulties in communicating with the Patent Office from the West
Coast. Because of the time differences between the two parts of the
country, and the new flexible hour programs instituted by the Patent Office,
which I do think is a good idea, there's only a one_hour period each day,
typically between 1:30 to 2:30 Pacific Standard Time, during which a
practitioner on the West Coast or an applicant can expect to get ahold of an
examiner on the telephone. Because of this, it has sometimes taken over a
month to arrange a telephone interview with an examiner.

My colleagues on the East Coast however, can call at much more convenient
hours, or even walk over to the Patent Office for an in_person visit,
something which would cost me well over a thousand dollars to attempt.
Given these restrictions, I hate to imagine what the independent inventor or
startup organization on the West Coast thinks of our patent system.

Some other benefits of a regionalized Patent Office would include: An
ability to draw from a larger pool of potential examiners; new economic
growth in the parts of the country selected for the new Patent Office sites;
and greater public accessibility to the Patent Office records and examiners,
as well as greater exposure for the examiners to the relevant industries.
It would certainly cut down on your costs of sending examiners across the
country.

I hope these suggestions prove to be useful guides to the Patent Office and
as an invitation to the Patent Office to consult with West Coast companies
and practitioners and applicants for addition solutions that could be
implemented by the Patent Office to resolve our present difficulties, but
also to raise the Patent Office to new heights of service.

Thank you for this opportunity.

COMMISSIONER LEHMAN: Thank you.

Do you think it would be a good idea, for example, to have Group 2300
located here in this area?

MR. CASEY: I would imagine that a majority of their clients are in this
area so it would probably be a good idea, or at least some portion of them.

COMMISSIONER LEHMAN: There were some reactions I had to certain things that
you said, but I don't want to take away from some of the other __ we are
already I think making changes along the lines of some of the things you've
recommended, and certainly part of it has to do with our automation system
and other reforms that we are making. But thanks very much for your help.

MR. CASEY: Thank you.

COMMISSIONER LEHMAN: Next I'd like to call Robert Sterne of Sterne,
Kessler, Goldstein and Fox.

ROBERT GREEN STERNE, ESQ.

STERNE, KESSLER, GOLDSTEIN & FOX

MR. STERN: Good afternoon. I am Robert Greene Sterne.

And my testimony represents my own views as an attorney in private practice
with over 15 years of experience representing almost exclusively U.S.
companies in high technology electronic and computer technology. Based on
my experience in the trenches, I believe that U.S. companies of all sizes,
particularly startups and those creating leading edge technologies are
served best by an intellectual property system that provides a broad scope
of protection and strong enforcement remedies.

Having heard much of the testimony in these hearings, I would like to state
that I agree with those speakers who have stated that technological
innovation is fostered by a broad scope of intellectual property protection
and by strong enforcement of such exclusive rights. I don't want to replow
this ground today. Rather I would like to focus on a few points which I
believe need further discussion so as to round out the record of these
hearings.

First, from a purely selfish professional viewpoint, and I say this purely
__ patent attorneys benefit financially from the uncertainty that exists
concerning patent eligibility for emerging electronic technology, and from
the complexity that the present patent rules create. So I ask you all to
please make the system more precise and simpler for everyone.

Second, the panel seems to find war stories helpful. Let me give you one
that I am involved in concerning a startup that is in the process of raising
100 million dollars. Patent applications are being written and product
clearance studies are being done which are absolutely critical to this
financing. The venture capital people would not feel comfortable in
investing their money if they did not believe that they were free of
infringement and had an excellent chance of obtaining broad patent
protection for their innovation.

Now, this is not an isolated event. More and more, the financial community
is requiring that the intellectual property portfolio of a startup
electronic company be sufficient to provide a proprietary position and be
free of infringement problems in order for necessary capital to be raised.
As you know, startups and companies in emerging areas of electronic
technology, Mr. Commissioner, create a disproportionate number of new jobs
in this economy. We need to protect this process through a strong
intellectual property system which will encourage investment and the
creation of real wealth.

My experience is that without strong intellectual property, the business
community will invest in less risky ventures outside of high technology
electronics.

Third, the case law and the Patent Office position concerning so called
"mathematical algorithms" which, if found, create nonstatutory subject
matter status for otherwise inventive electronic technology, frankly, is
illogical and pernicious. No one, and I repeat no one, in my opinion,
either inside or outside the Patent Office can draw the bright lines that
the rest of the public believes should be capable of being drawn concerning
patent eligibility as it relates to mathematical algorithms. This
uncertainty is unnecessary and totally unsatisfactory.

For example, when I debated your solicitor on this subject before the
Maryland Patent Law Association last October, he stated that the law of
mathematical algorithms was so complex that even he had to review the cases
each time he had to deal with the issue.

This uncertainty hurts innovation in this country.

On a substantive level, the alleged distinction between patentable algorithm
inventions and unpatentable mathematical algorithm inventions makes no sense
in reality, Every physical system, I repeat, every physical system and
process can be represented mathematically. In fact, that is how physical
systems and processes are modeled today in all industries using
computer_aided design and manufacturing tools. To say that a product or
process made by man is not statutory merely because the label "mathematical
algorithm" is stuck to it, begs the question completely. Furthermore, all
one has to do is pick up any two technical dictionaries and one will find
that there is no agreement as to what the term "algorithm" and what the term
"mathematical algorithm" each means.

So in addition to not reflecting what happens in the technical world, there
is the added problem that there is no definitional certainty concerning
algorithm and mathematical algorithm.

The Patent Office has a duty to discharge its constitutional mandate of
promoting progress in the useful arts by making sure that the definition for
statutory subject matter for electronic technology encompass anything and
everything under the sun made by man in this technical area. Otherwise,
critical emerging areas of technology, such as digital signal processing,
voice recognition, computer graphics, compilers, multimedia, virtual
reality, handwriting analysis, encrypted communications, and information
retrieval, just to name a few, will be denied patent protection despite
their innovation, because a patent examiner or an infringer will be able to
stick the label "mathematical algorithm" on the otherwise patentable
invention.

You, Mr. Commissioner, must be make sure that the people reporting to you
seek broad interpretation of patentable subject matter in this electronics
area like that being given in the biotechnology and other emerging areas of
technology.

Fourth, I often say that electronics is applied functionality in the
electronic domain. Implementation of this functionality is merely a design
choice in most cases in terms of hardware or software. The choice of how to
implement this inventive functionality depends on many factors, but it is
the functionality that is the invention, and one should never forget that.

We should stop the endless debate of saying that hardware inventions should
be treated differently by the Patent Office than software inventions. The
alleged inventive distinction between hardware and software is ludicrous to
those in the electronics industry.

Furthermore, we have the same definitional problem that we had with
algorithm and mathematical algorithm. No one can agree upon the definition
of what is hardware and what is software. The reason for this is simple.
As the technology evolves, the blurred boundary between hardware and
software implementation changes and shifts.

Fifth, opponents of so called "software patents" argue that the patent of
software operates to remove well_known software inventions from the public
domain because the Patent Office does not have an adequate database to
properly examine them.

The PTO needs to continue to enhance its database in this area of technology
as well as in all emerging areas of technology such as biotechnology, but
denying patent protection for software inventions due solely to the database
inadequacies is akin to throwing the baby out with the bath water. The
examination process needs to be improved rather than restricting statutory
subject matter for computer_related inventions.

Now, I would like to offer you a ready_made solution which is Rule 56.
Under Rule 56, applicants must provide the Patent Office with the best art
of which they are aware. Often, this art submitted under Rule 56 includes
nonpatent literature. This nonpatent literature in most cases is better than
the patents contained in the Patent database, because patents by definition
are several years behind the technical literature. Thus, the Patent Office
can significantly enhance its search database by feeding in the technical
literature obtained under Rule 56.

Six, you inquired in Part A about claim formats, and I will address this in
detail in my written submissions.

Let me make just two high level comments: First, claiming should be
flexible. The goal should be to define the invention so as to fully protect
the inventor while providing the precision that the public so critically
needs in determining whether or not they are infringing. The present
rigidity often exhibited by the Patent Office in terms of specialized claim
formats in emerging electronic areas prevents one or both of these goals
from being met. Let's stop putting form over substance, and let's start
putting effective claim drafting back into the picture.

Let me give you just one example: The so_called computer program product
claim is critically needed so as to allow the patentee to charge the
infringer with direct infringement where only software is being sold on
media or being transmitted electronically over networks such as the
electronic superhighway.

The Patent Office should be seeking ways to have these types of claims made
permissible, rather than engaging in a bureaucratic exercise that is
tantamount to a war of delay and attrition in denying these types of claims.

Seventh, your twenty_year term proposal is excellent. But it must be
accompanied with a rock_solid commitment from the Patent Office to
significantly lower the pendency period of patent applications. Leading
edge electronic companies in this valley and elsewhere now operate on
product development cycles at 6 to 9 months. That is the time it takes from
coming up with an idea to releasing a product into the marketplace.

Our firm routinely prepares over 200 U.S. patent applications on complex
electronics each year. And we know from experience that it takes two to
three years to typically get these applications through the Patent Office.

Mr. Commissioner, that's too long. I predict that if we cannot get pendency
period down, the electronics industry will pull away from the patent system
because it will take too long for them to get protection.

Finally, the patent system is of enormous benefit to the electronics
industry in encouraging and protecting innovation. I think that the system
needs to be worked on and improved, but I think overall everything is
working out well. It's just that we need to make the system in terms of
eligibility more precise.

Thank you very much.

COMMISSIONER LEHMAN: Thank you very much.

Next I'd like to call forward Victor Siber, Counsel to the IBM Corporation.

VICTOR SIBER

SENIOR CORPORATE COUNSEL

IBM CORPORATION

MR. SIBER: Good afternoon, and thank you for the opportunity of allowing me
to deliver my comments this afternoon.

I am Victor Siber, Senior Corporate Counsel for the International Business
Machines Corporation. My comments do represent the views of IBM.

The IBM Corporation spent 6.5 billion dollars on research and development in
1962. In that same year, over 22,000 software programmers were employed by
the company, and we sold approximately 18.5 billion dollars of software
products and services. So obviously, we are intensely interested in the
subject matter of these hearings.

We protect the detailed expression in every one of our software products by
copyright. And approximately 3 to 5 percent of these programs contain new
and unobvious functions that are protected by patent. Patent coverage on
these inventive functions protects our investment, gives us important
business leverage, as well as access into foreign markets.

I understand that this hearing was scheduled, in part, to address questions
raised by some broad software patents that have recently issued. These
patents are alleged to cover old processes. The response by some is to call
for changes in the law to prevent the issuance of patents in this
technology.

In the short term that would hurt the U.S. computer industry. And in the
long term all industries that use computers to gain competitive advantage
will suffer.

The argument over these controversial patents is not that they cover
unpatentable abstractions. These patents cover quite useful functions,
which others in the industry want to use. The issue, and the key to the
controversy is something quite different: whether these patents cover truly
new and nonobvious functions and thereby add something to the useful arts.
In the final analysis that is the job expected from the U.S. Patent and
Trademark Office. And it is a job that is doable.

The United States was the first and continues to be the global leader in
computer hardware and software technology. This technology is important not
only in itself, but as a driver of innovation in other fields. And today,
it is facing stronger and broader global competition. As the industry
matures and competition from overseas increases, patents will be the key to
protecting the most valuable US_originated innovations.

You have posed a number of questions at the today. Beginning with Question 3
relating to altering the standards for patent eligibility for
software_related inventions, I want to make it clear that we completely
oppose such a proposal.

Going into the next century, the key inventions will be in information
processing. Altering the standards for patent eligibility for
software_related inventions will shift investment away from this area.

The purpose of research and development in any technology is to gain an
advantage over your competitor. But if your competitor can legitimately
copy the fruits from your R&D and can create a product that can compete
head_on with your product while you are still trying to build a market for
the product, then you've lost.

The long term value of R&D in the marketplace is in the new functions
implemented by software. If such new functions are protected, investment
flows to the industry. If not, investment will dry up.

There are several other points I want to make on this issue. We can't
divorce computer program_related inventions from computer hardware and other
microprocessor inventions. The overlap between the two is so great that
cutting back on one automatically cuts back on the other.

An alteration in the standards for patent eligibility will also put the
courts and your office in a quandary. That is because computer
program_related inventions can be implemented in either hardware or
software. Applicants will simply cast their patent claims in terms of
electrical circuitry. And if you limit claim coverage over computer program
implementations of circuit inventions, you will turn electrical patents into
nullities, because the circuit functions can be implemented by a programed
computer.

Furthermore, if process patents cannot reach computer implementations of the
process steps, there will be a negative impact on every industry that uses
computer_controlled industrial processing or uses microprocessors in their
products.

From an international standpoint, a cut_back on patent eligibility for
computer program_related inventions sets a truly unfortunate precedent for
the developing world. It would violate GATT and NAFTA provisions that
prohibit discrimination of patent eligibility based on technology. The
biotechnology area provides a graphic example of what happens when countries
limit protection for a technology. Leading European companies working in
this area of technology simply moved their biotech R&D operations to the
United States.

Concerning the issue of sui generis protection, replacing patent protection
for new and unobvious program and process functions, and replacing copyright
protection for the original expression contained in computer programs with
some form of sui generis right would be devastating to the industry.

In a single act, U.S. industry would unilaterally be disarmed relative to
our competitors in Japan and Europe. We would lose patent priority rights
in the 114 countries of the Paris Convention, and we would lose the
copyright protection automatically afforded American program works in 102
countries as required by the Berne Copyright Convention.

As you know, the Trilateral Work Studies conducted jointly by the U.S. PTO
and the Japanese Patent Office and the European Patent Office, concluded
that the standards for patentability in the area of software_related
inventions are generally the same except at the far margins.

The Japanese Patent Office has published for opposition in the last six
years approximately (45) patent applications on software_related inventions,
while the European patent office has issued approximately 2700 patents since
1980 which have resulted in multiple European member country patents.

The majority of these software_related patents in the European Patent Office
and the great majority in Japan are issuing to non_U.S. companies. Without
U.S. patents of a reasonable scope to bargain with, U.S. companies will
potentially lose access to those markets.

With the introduction of a sui generis system, there would be __

COMMISSIONER LEHMAN: Can I ask a question? Why do you think that is, that
the majority of those patents __ we issued 8,600 patent this last year in
the United States, so clearly we've got 8,600 people, and I think I cited
those statistics before, two years ago it 6,500 or something like that.
Clearly, we have the inventions, but people aren't seeking, American's
aren't seeking patent protection in those foreign markets, why that is?

MR. SIBER: I think there's a questions of maturity of the industry, many
smaller companies are not familiar with the process of filing overseas,
possibly may not be able to afford it or feel they can't afford it.

Secondly, it is natural, particularly in Japan to have a large number of
Japanese patent holders where the filings of large Japanese companies is
very high.

COMMISSIONER LEHMAN: So, but IBM, I assume does file in those.

MR. SIBER: Yes, we do.

COMMISSIONER LEHMAN: And pretty extensive. I would assume when you file a
patent application here, you file there too, since you're a worldwide
company.

MR. SIBER: Correct.

COMMISSIONER LEHMAN: Is that generally true? Are there situations where
you don't file there and you would file here?

MR. SIBER: We do not file a counterpart patent in Europe and Japan for
every patent that we file in the United States. It is selective, it is a
selective process. We too have budget limitations, even though we just
turned a substantial profit last quarter.

(laughter)

COMMISSIONER LEHMAN: Sorry, to interrupt.

MR. SIBER: With the introduction of a sui generis system there would be an
extended period of uncertainty, the bane of businessmen and investors, as
the body of case law were developed interpreting the new sui generis law and
determining its scope.

Additionally, there would be a complete absence of effective international
protection for the new right. The internationalization of a sui generis law
would require a sui generis treaty. Such a treaty would be negotiated
without any of the international consensus on what sort of protection regime
would be appropriate. As you know, the primary multilateral treaty to date
for a sui generis right, The Treaty on International Property in Respect of
Integrated Circuits, known as the Washington Treaty, was strongly influenced
by developing countries that were hostile to IP protection generally. The
result was a treaty so flawed that not one single major chip_producing
nation supported it.

The only remaining way to internationalize that sui generis chip_protection
right was through reciprocity. But reciprocity has it rewards and its
vices. The European community now points to the reciprocity provisions in
the U.S. Semiconductor Chip Law to justify its discrimination against
America's authors through the reciprocity provisions in the E.C. Directive
on Copyright Term Extension, and for denying U.S. authors the benefit of
unfair extraction right in the draft E.C. Directive on Database Protection,
and in refusing to grant movie and music producers and authors their fair
share of the blank tape and movie levies.

Finally, regarding the series of claim format examples in Question 1, we
believe that the format of the claim should be viewed from the perspective
of patentable subject matter. If the claim as a whole is directed to a
machine, article of manufacture, or a machine_operated process, then subject
matter eligibility should not be an issue. The focus of the examiner should
be on the normal statutory tests of novelty, nonobviousness, and utility of
the claim as a whole. And to insure compliance with the formality
requirements of 35 USC 112.

Specifically, a claim directed to an article of manufacture comprising
computer_usable medium and a plurality of computer_readable program code
means for causing a computer to effect a plurality of specific and
interrelated functions should be eligible for patenting under the statute.
Such an article of manufacture constitutes a machine part that is
commercialized separately. And it should be protected separate, like other
machines parts, if it meets the statutory test of novelty and
nonobviousness.

In summary, the patent system is designed to instigate the invention of new
nonobvious and useful functions that add to the arts. The key to seeing
whether the system is working is to see if there is strong competition in
the marketplace; to see if new products are introduced in the market on a
regular basis; to see if employers and investors vote for the system with
their pocketbooks by funding new development work.

As for my company, we rely heavily on the patent system to protect our
investment in new products. And we are negatively impacted probably more
than most by poorly_examined patent applications. Thus, we want the
issuance of poorly_examined patents curtailed. And that is clearly doable
if the PTO would invest in hiring and training the best possible examiners,
as well as in the creation of an adequate database for software prior art.

Thank you for the opportunity. I would be delighted to answer any
questions.

COMMISSIONER LEHMAN: Thank you very much, Mr. Siber. Is there anybody else
that wants to ask something?

Thank you very much for joining us today.

Next, I would like to call on Mr. Ewald Detjens, CEO of Exemplar Logic,
Incorporated.

MICHAEL LACHUCK

POMS, SMITH, LANDE & ROSE

MR. LACHUCK: Pick four, right.

Good afternoon, Mr. Commissioner and distinguished panel.

I am a partner in the intellectual property law firm of Poms, Smith, Lande
and Rose. And I will be speaking today solely on my own behalf based on my
own experience and those of some of my partners.

I would like to depart at least a little bit from some of the comments that
you've heard from so many other patent lawyers that have had an opportunity
to speak at these hearings. Virtually, every one of those attorneys has said
to you that they've been able to obtain patents for software_related
inventions, and frankly, my experience has been no different.

I would like to point out that what this means is that irrespective of what
the Patent Office decides to do, clever patent drafters will always a way to
disguise a mathematical algorithm or some other form of software_related
invention either as a piece of hardware, or as some form of methodology
having significant post solution activity necessary to get a patent.

The problem is one that simply isn't going to go away, it can to a certain
extent be curtailed. What I would like to do is make some suggestions on
how the Patent Office might be able to change its practices to alleviate
this problem.

There are two issues I would like to address: One, is specifically how the
Patent Office might change its practice, and the second is how the Patent
Office might propose legislation to effect remedies available in patent
litigation.

Speaking to the first issue of patent practices: at the office, several
people have come up here and suggested that applications might be laid open
during the pendency of the application and before a patent issues.

I would like to argue against this practice for three specific reasons: the
first reason is that this practice would shift the fundamental contract
between the patentee and the U.S. government concerning the grant of a
patent in the first place. Currently, the application is obliged, or rather
the patentee is obliged to provide a specification having an enabling
disclosure, one that teaches the public or those reasonably skilled in the
relevant arts how to make and use the invention. In exchange for this, he's
awarded certain rights and remedies under the patent laws. Now, if the
application is simply laid open, the same standard or obligation of teaching
merely avails the application of a possibility of obtaining a patent at some
later date based on the presence of prior art that they, themselves, may or
may not be aware of.

Secondly, I would like to most strenuously point out that if the practice of
laying open an application for public comment were to follow current
practices of re_examination procedure, it simply wouldn't work. The problem
is that right now the public has only one bite at the apple. They can
submit prior art of a certain form, prior patents and printed publications,
and they are allowed to comment exactly once on the relevancy of this art to
the application.

Thereafter, the process again becomes an ex parte process where the
applicant's advocate, some skilled patent attorney is able to argue with the
examiner over whether or not that art is in fact relevant or does make the
invention obvious. The ant_like persistence of patent attorneys is
legendary, as even the well known jurist Learned Hand once noted. This
process of allowing the ex parte communication between the patent
applicant's advocate and the examiner, is a decidedly risky proposition.

What I would like to propose instead is that the re_examination process be
modified to allow representatives of the public or interested members of the
public to participate in that further communication that takes place between
the applicant's advocate and the Patent Office examiner, more or less in the
manner that litigation motions currently proceed; that is, the public would
be afforded an opportunity to submit prior art and comment on its
appropriateness or applicability to the application. Thereafter, the
applicant's advocate would be afforded an opportunity to comment and then
the public or their representatives would be afforded an opportunity to
respond to the applicant's comments.

I am concerned that if this isn't done in some fashion or other, then the
suggestions that have been made concerning the submission of prior art to
the Patent Office, particularly in this area where there appears to be a
dearth of prior art, isn't going to change very much.

Under current circumstances, the district court judges typically afford
great weight to the decisions of the Patent Office examiner. Unfortunately,
the public representatives are never provided an opportunity to debate or
address the subsequent arguments that are made by an applicant's
representative. The result is that very few litigators suggest filing a
re_examination application. The best prior art is lost, and the patent is
simply strengthened.

Turning to the subject of patent remedies. I would like to suggest a
drastic reduction or elimination of injunctive relief in patent enforcement
litigation. The threat or promise of injunctive relief drastically distorts
the economic value of a patent and the attendant costs of litigation. It's
been my personal experience, and the experience of every patent attorney I
have ever talked to that the cost of litigation is directly related to the
potential liability exposure of the defendant.

Patent infringement litigation, because of the threat of injunctive relief
typically becomes a venture company_type lawsuit. The client does insist on
a most vigorous defense proportional to the risk that they face. If
potential liability exposure for patent infringement litigation were reduced
to a few thousand dollars, the cost of litigation would drop to some small
fraction of that value.

The basis for award of injunctive relief is based solely on tradition,
dating back to old English law, which now, in the hands of a patent owner
who frequently does not market any product, is ludicrous. The effect of
patent infringement litigation with the threat of injunctive relief is to
waste a tremendous amount of American wealth and resources. It is time to
bring this practice to heel.

(applause)

Thank you for the opportunity to speak to you today, and I thank you also
for your taking the time to personally come out here and hear from so many
representatives of the industry.

COMMISSIONER LEHMAN: Thank you very much. I should add that I've been
waiting for somebody to make the point that you did. And I am somewhat
surprised that it has not been made before, and that is that there is a deal
in the patent system, and that is that one does not really give up their
trade secrecy rights until they are certain that they've got the patent.
And certainly to go to a prepublication system would create a hiatus in
which that bargain in effect would be jeopardized.

But I do find it interesting that thus far, you're the only person who's
raised that. That by and large the wave of testimony has been, I gather,
that it's worth taking that risk in order to improve the availability of the
prior art to the patent examiner.

Anyway, thank you very much.

MR. LACHUCK: I would like to address that one comment. I suggest that if
the statutes were amended to provide that any patent infringement litigation
were automatically stayed pending re_examination, then the need to have post
issuance examination or comment by the public, the need to have the
application laid open would be alleviated.

The current reasoning I think that exists for people wanting to have an
application laid open during the pendency of the application is to avoid the
situation where the trial court judge decides to continue with the
litigation while the re_examination takes place. And as things currently
stand, there's also the threat of preliminary injunctive relief, so if you
get rid of that threat, it would probably be a more practical alternative to
allow the same public comment through re_examination.

Thank you for your time.

COMMISSIONER LEHMAN: Thank you.

Next, I'd like to call on Gregory Aharonian, from Source Translation and
Optimization.

GREGORY AHARONIAN

SOURCE TRANSLATION AND OPTIMIZATION

MR. AHARONIAN: I run a consulting service up in the Boston area, dealing
with software re_use technology transfer, and more recently software prior
art and software patenting.

And to summarize how I feel with what's been said today, I am for software
patents, for better prior art, open re_examination, and I'm against
prepublication.

No, I am not a patent lawyer, or have any software patents on file.

The chief asset of my consulting business is what I consider to be the
largest software prior art database in the country. I have information on
over 15,000 government, corporate, and university research programs, 5,000
patents, and over 100,000 journal, article, technical reports and books and
other such things in which software technology might be described. I
monthly monitor the output of about 150 corporate academic and government
research labs and about 250 journals.

The problem of software prior art is very, very nontrivial, and I think
that's why so many other government agencies have had problems over the
years dealing with the similar issue of how do you track all this country's
software technology.

I have many more comments on the art of software prior art, and I'd like to
speak about them in February hearings in which it's more appropriate. What
I would like to speak about now is kind of observations on having examined
so much software over the years on a few of the issues that have been
brought up today.

One, is I think it's going to be very difficult to change the rules to deal
with software patents. There's already a current set of statutory
guidelines that are pretty well_reasoned, pretty consistent, certainly
comprehensive, if you read all the court cases. But I don't feel that
they're working well, for the following reasons: I've examined over 5,000
software patents as part of my technology transfer business, and I've seen a
lot of very trivial software concepts actually getting a patent. I've seen
many software patents with very broad claims, I've seen things that are as
close to a pure math algorithm as possible with maybe one claim in there for
a piece of hardware, and I see more and more business practices being
awarded software patents. And in some cases, I see pure source code being
patented. In 1992, the Air Force got the patent for the difference in
source code between two versions of a public domain program at Ames. And I
consider that to be fairly trivial.

If you try to come up with more rules to guide the process of awarding
software patents, I think you're just going to come up with more ways for
patent lawyers to get around the rules. It's tough to treat software any
differently than any other technology, and I think you have a lot of
problems.

So in general, based on just examining a ton of software in the past 10
years, I'm not sure there's much anyone can do in terms of trying to come up
with more rules, it's very difficult.

And on the practical side of the patents I've examined to date, I could
probably successfully challenge 25 percent of them on software prior art and
a few related issues. There's a lot getting through that should not be
awarded.

Of course, my phone is not off the hook, asking for my services to challenge
software patents, so I still don't think to date it's a big problem. I
think it's being exaggerated because of stunts like the Compton incident,
which is great for PR, but not much more.

The second issue I would like to address is that of what one of the earlier
speakers, Robert Sterne, testified that there's really no difference any
more between hardware and software, and that if you try to change the
software patent rules in isolation without treating the hardware patent
rules, you're not going to do anything. You're going to leave a big
loophole for people to get around the hardware rules by just doing things
over on the __ or getting around the software rules by doing things over in
the hardware world. It's even happening today.

Existing technology now in the market where I can take a circuit schematic,
which anyone would consider a piece of hardware for the most part,
automatically convert it into a computer representation language and then
convert it once more into an algorithm which I think most people consider to
be software.

Similarly, there's other technology out there that let's me take an
algorithm written to a traditional language like Pascal or C, covert it into
another intermediate language and feed that into a hardware design tool, and
get out an integrated circuit. So here I'm starting out in the software
world and ending up in a hardware world. To me, it becomes impossible to
find what software or hardware is.

And quite recently, in fact, last week a company in Germany announced a tool
that integrates __ and that's the overhead I have up there __ computer_aided
software engineering tools which is the domain of the software world with
hardware design tools, so that within one tool set I can type algorithms,
draw circuits and go back and forth and not really care at all, the computer
will take it all and account for me.

And with such a tool I can design a new device, and with a cleverly_drafted
set of claims, where I have a broad independent claim that talks about
systems and methods and things of that nature, dependent claims somewhere
that actually mention hardware and software, I can protect infringements in
both worlds with one patent. So to make these distinctions between hardware
and software, I think is a mistake.

And in fact, there are a few of these design tools in which it should be
possible within a year or two to not only allow the user of the tool to
generate either an integrated circuit or a computer program, but at the same
time a patent application. And if you want to have a million software
engineers and electronics designers having an automated patent generation
tool on their hands, it's going to become a possibility quite soon. And I'd
hate to think of the headaches you're going to have then.

One other thing, the equivalence of hardware and software also complicates
the issue of software prior art, because if these mappings are true and you
can go back and forth between the two domains of hardware and software, and
conceivable someone's circuit schematic somewhere could serve as software
prior art in another case.

And I track both software and hardware, so it's no big difference to me, but
if the Patent Office intends to seriously treat the problem of prior art, it
will not be able to do software prior art separate from hardware prior art.
It is all one field of computing devices.

Now, one thing I would like to suggest is currently I publish over the
Internet a news service dealing with patent information. Each week I mail
out to about a thousand sites on the Internet the titles and numbers of the
latest patents coming out of the Patent Office. In Boston there is an APS
terminal that I can use for free, which is very nice. And just once a week
I go down there, and dump off a couple files worth of data, broadcast it out
over the Internet. It's a very well_received service, I offer it for free
since it doesn't take too much of my time. And the main demand is for
people who are trying to find out more information on software patents.

At best, if someone actually cared to make an effort to find out what was
being patented in the software world, you would go to a local patent
repository and use one of the CD ROMs, (Casus Bib) or something, and those
tend to be five or six months out of date at the typical repository. And
people tend to want more recent information.

So the various calls to get the APS system on the Internet will be very
well_received in the Internet world, and there are many out there glad to
help out with the process.

So In general, I don't think there's much you can do to change the rules of
dealing with software in isolation. The current rules are a good set of
rules. I'm not a patent lawyer, but rules are rules. I don't think you're
going to be able to do too much better. You can change some of the
procedures, and many people are calling for that. But dealing solely with
statutory type things, I don't think it's going to have much of an effect.

And certainly, if you had seen a lot of the software patents I've examined
over the past four or five years, it's hard not to conclude that they just
don't work. I think the open re_examination process will help, but I think
you're grossly underestimating the amount of paperwork and headaches that
that's going to entail.

If everyone in Internet, at the request of someone, decides to forward their
pet document to the Patent Office, I mean, you'll get a million people
sending in something that pertains to one particular patent. You could fill
up this hall many times over for each case.

That's all that I have to say.

COMMISSIONER LEHMAN: Thank you.

One thing actually I had meant to ask one of the other witnesses, but since
you indicate that you see a lot of patents issued that you're quite
convinced would not meet the nonobviousness test __ our decision to
reexamine the Compton case was a very unusual one, but the Commissioner does
have the power to order re_examination himself. What would you think of as
one method of attempting to clean the files of allegedly nonpatentable
incorrectly issued patents if we had some kind of a program where maybe we
work with people like you and attempted to identify some of these patents
that we issued, we ordered our own re_examination?

(applause)

MR. AHARONIAN: Well, I think it's a great idea, and certainly would love to
bid on a contract to do that. There are two practical problems I see with
that.

The first is, I'm actually an inventor in the world of electric power
equipment. That's how I got into a lot of this patenting stuff. I don't
think the problems of prior art in the software world are any worse off than
in some of the other fields.

For example, many of the high temperature superconducting patents for
devices being issued today would be invalidated by low temperature
superconducting device patent applications dating back to the '30s and '40s.
Most of those patents no one knows about anymore. You really can't get at
them through APS or any of the CD ROMS or anything else. They're literally
lost unless you go look for them. But they couldn't validate many of the
new high temperature superconductor device applications. So I could argue
that if you're going to consider doing that in the world of software, you
could do it in all the fields because they all have that same problem. And
most information dating back before the early '60s or so in any field is
literally off the abstracting services of anyone, and it's a big problem.

The second problem is, while I've been out here I've been kind of working
the venture capital circuit to see if I could actually raise some funding to
actually start a business for providing software prior art and services.
I'm going around looking for $10 million, it's a very expensive process to
keep track of everything. And I happen to be good at it, I mean if anyone
else was going to do it, I would say it would cost 20 million or more. I've
been doing it for 10 years, I have 10 years of leg_work out of the way.
It's a very expensive thing.

I know the Defense Department spends $10 million a year just trying to track
all of its software, and they haven't had much luck. The DOE, NASA, all the
agencies have not had much luck. It's a very difficult process of tracking
it all.

And I'll give you a case that will explain why it will be difficult when the
re_examination process opens up: In the signal processing world there's a
technique called a "Fast (40 A) Transform, it is used all over the place.
In my life I've seen 200 different implementations of this one algorithm,
and as an algorithm it's not very complex to begin with, three or four
indented loops where some math goes on. When I do my service, I have to
look at these 200 algorithms and figure out which four or five I'm going to
include in my database. To make those type of decisions in all the
different aspects of software is very complicated. You need the type of
person who's not trained anywhere. I mean, I didn't go to school to learn
this, I had to look at the stuff over the years. So the types of decisions
that have to be made in these re_examination processes are very complex,
require tons of data, and I'm not sure it even can be done, but I think
you're going to try your best anyway.

COMMISSIONER LEHMAN: Thank you very much.Next, I'd like to call George
Cole.

GEORGE COLE, ESQ.

MR. COLE: Good afternoon. The first problem area I would like to address
is the paucity of adequately_educated patent examiners. I realize, and I
presume that we are familiar enough with the problem, I don't have to detail
it. A hundred and sixty examiners are simply not enough to examine
thousands of patents every year, to keep up with the literature and
expanding number of technical fields to remain abreast of continually
changing and adapting common law, and in addition, to eat, sleep, get lunch
and a few things like that.

The problem is particularly acute in the area of software_related invention,
which is why we're here today. It's so bad there's a serious possibility
that the current approach will be abandoned perhaps in favor of alternatives
such as privatizing the process. We could try giving it to all the people
in Ann Arbor where their database is to give them a trade secrets database
of computer inventions, which would then serve as the basis for seeing
whether or not a right to sue existed.

Frankly, I'm in favor of improving the review process not weakening or
abandoning it. It costs society far less to have a determination made
during an impartial review process than through adversarial patent
litigation. What the PTO needs, what we need the PTO to have is more people
with the knowledge needed in the patent review process. We need the process
to continue to keep the current legal and technical standards, to improve on
them, particularly the technical standard, particularly in fast_advancing
fields such as computer software.

Yet, we face an inherent problem in the current system that will keep us
from solving it by just adding more examiners. That's because to become a
patent examiner you need a scientific degree, a Bachelor's degree, and the
legal education. Virtually all who have such dual qualifications pick them
up in that order __ science first, then the law. Very few do it in the
opposite order which is what I did, law first and then a science. In my case
a Master's in computer science at Stanford in '87, six years after I had a
law degree from Michigan. The order most prospective examiners gain their
dual backgrounds matter, and I'll get back to it in a moment.

The old approach would have been simply adding more examiners, this is
necessary, and I would suggest that with some creativity on the part of
government and business, we can find the money to do it. I mean, suppose
every patent issues gave the government a four percent royalty. But this is
not going to be an effective solution overall. It doesn't use the advances
in communications that we have, it doesn't react to societal trends.

For one thing, there are often far more rewarding opportunities available to
people who have dual training. For example, if you want to practice in
Washington, D.C., you're giving up the weather that you've got outside today
in favor of an East Coast Winter.

COMMISSIONER LEHMAN: I should note; you know, we don't require them to be a
lawyer to be a patent examiner. Maybe we should, but we don't. All you
have to have is the technical background, so you don't really have to have
the dual training.

MR. COLE: Don't need the dual training. And then when the review process
comes in and the examination goes through.

The other problem is __ I'm sorry, let me continue with this line for a
moment. Another approach would have been to abandon, as people suggest,
giving patents in computer software. If the U.S. was the only country where
that was going to have an effect, it would be something that makes sense.
But since it is not the only country where software patents can issue, and
only larger companies can realistically and consistently press for patents
abroad, and then by international treaty enforce them in the United States,
this is going to put us at a severe disadvantage.

Our most valuable resource in software is in intellectual creativity, and
it's going to end up possibly completely stifled by this. As the companies
go outside, enforce the patents there, get them there and then come in and
squelch it here.

One prior speaker announced how that happened in a slightly different field,
where they came away from the area where they do not afford protection to
the U.S. I would rather not see that happen the other way around.

Another approach would be, we get rid of the legal and technical evaluation
that goes on. Now, patent examiners may not have to have a legal
background, but you're going to have to pay some attention to what the
courts are doing along the way, or in a challenge there is going to some
review of what the current state of the law regarding software algorithms
is. The courts aren't going to come up with a solution in the near future,
I suspect.

A real problem in a way is that the background that the patent examiners
have is a Bachelor's and this just isn't enough nowadays. It used to be
enough, it used to be just like a basic college degree was enough to be on
the leading edge of our society, but by the time the science makes its way
from the lab to the educators into the curriculum and into the students,
it's dated. It's going to be maybe five years behind the times, and the
undergraduates aren't going to be able to keep up with the leading edge
because they're still too busy picking up the fundamental basis so they can
understand the leading edge.

So we have that delay built in, and it's just going to get worse if you sit
there and ask the patent examiners to pick up a graduate degree. They're
going to add more years to the time, but that's also going to add the
pressure for them to go elsewhere. So how do we provide the benefits of
this process that gives both the evaluation, but copes also with an inherent
limitation on the number of people that you've got?

What I'd like to suggest; the Patent Office consider finding means to
leverage its personnel, just as the federal judiciary can call on special
masters, or judges pro tem to extend the effectiveness of the cadre of
full_time judges. The Patent Office should look for ways to use the
thousands of individuals who have technical advanced education in our
society, not as full_time patent examiners working solely for the
government, but additional personnel called in and paid for as needed. When
you need more computer science people, you get more computer science people.
When you need more biomechanical people, you get more biomechanical people.
But you don't have to commit to a full_time government career service job.
And perhaps you could get the specialist fees paid for by the people who are
applying, or as one person suggested, if they're going for a special
process, if they want the technical specialty, if they want speed, let them
pay for it, but call it in from outside.

The patent examiners job then changes from doing all the work on every
application, him or herself that he gets, to managing the process, to
getting the patent applications, coordinating and consulting with the
technicians, consulting with legal scholars if a complex legal issue seems
to appear and then coordinating the results. Is there a concern over
maintaining traditional secrecy of the patent process?

I point out that researchers have lab assistants or graduate students, law
partners have associates. I suggest, since they've already faced and solved
this type of problem in dealing with confidentiality and tracing of
information, the Patent Office could find a solution to this.

There a lot of individuals throughout this country who could be called on to
assist. Fees could be paid to them, maybe you arrange a tax waiver instead
if they'd like that. You've got professors at universities, you've got
legal scholars at law schools, researchers in governmental labs, graduate
students in science or law who might work on an in internship basis.

With the modern technology available facsimile transmission could allow the
PTO to coordinate such efforts throughout the country. The Patent Office
then becomes the coordinator rather than the sole worker of the information
process and allows them to master the information and the rapid changes that
are coming through, not to be overwhelmed.

The second area that I would like to address is some of the problems in the
current regulations which attempt to provide protection against inadequately
trained individuals serving as patent attorneys. And frankly, this is an
area that's probably worse seen in the software area than in many other
area.

Section 10.7(a)2(ii) requires an individual who seeks to be registered to
practice before the Patent and Trademark Office to establish to the director
satisfaction that he or she possesses the legal, scientific and technical
qualifications necessary to enable him or her to render applicants for
patents valuable service. There is no requirement in the statute or
regulations that this competency be maintained. The examination of a
would_be patent attorney is only an initial hurdle; once passed, it acts as
a lifetime assurance the attorney possesses the necessary qualifications.
This may have been enough when science did not advance rapidly, it is not
adequate anymore.

Furthermore, the PTO presumes that a patent attorney is competent in the
field of science underlying a patent the attorney is prosecuting before the
Patent and Trademark Office. It can be left to the client to discover his
patent attorney lacked the scientific competency to adequately evaluate or
prosecute that patent.

The PTO, though it initially requires the attorney to show the scientific
field, does not maintain that information, does not retain it, and does not
check it against the application. That protection for the public is
abandoned after the first hurdle.

Nationally, the Patent Bar is a uniform bar, you've got to have it that way.
But you run into a problem for attorneys who want to keep up a scientific
background, who want to study in the field and have to keep up an education
for current legal standings. Continuing legal education in most states just
does not allow, the course work simply is not there that focuses on a
technical side. It's a rare exception to come across it. I was lucky,
there have been some in California.

This places an additional burden on attorneys who are trying to keep up the
legal and technical background. I am submitting, and it's in the written
comment, a proposed amendment to the regulation currently existing that
addresses these problems. I urge your attention to it. It tries to balance
__ I'm not saying it's a perfect solution __ but it tries to balance the
needs that I've addressed.

Do you have any questions at this time?

COMMISSIONER LEHMAN: No. Thank you very much. I'll just point out that we
do have a substantial number of people with advanced degrees in our
Examining Corps. We have at least 38 people with Master's degrees and at
least 5 Ph.D.s, maybe more. And obviously they're there to help guide those
who don't have that. And we're recruiting for people all the time with more
education.

My sense is that our problem __ there's been a lot of discussion, a lot of
suggestion that we need to have more attractive compensation structure et
cetera, therefore we don't want to be a part of the government. I am not
sure that's true. I think our capacity to hire people at up to about $90,000
a year as a patent examiner.

Now, in order to do that they have to have a variety of qualifications, they
have to have an advanced degree, they have to be in an area that's been
designated hard to get, which generally I think this area is, a variety of
things. And then even that includes I think a bonus payment that we give
them as well. But my impression is that __ and we're never going to
compete, nor should we take from Silicon Valley the folks who can go out
there and make __ start companies that will make millions of dollars and
create thousands of jobs, we don't want them examining patents.

My sense is that to get a competent technologist who can understand the art
here, that probably we ought to be able to get people in that range that I
just described. But that's not our most critical problem. Though, it has
occurred to me from time to time that maybe one of the, sort of a drastic
solution about reinventing government would be that we should be moving the
Patent Office to Silicon Valley, would be that we could contract out patent
examiners. You know, we could hire law firms to do it, or consulting firms
and in various areas.

I have a feeling that we wouldn't automatically improve our quality in doing
that, but we certainly have an open mind to all kinds of solutions whatever
they may be. But we are steadily working on this problem, and I appreciate
the suggestions of people like you. So thanks very much for coming here
today.

And let me say, when it comes to drastic solutions like that, you know part
of my job is I also am a policy maker, but I'm also in effect the CEO and
head of an institution with 5,000 people, and their lives and their families
are involved in this, and we're not going to take steps that are going to
disrupt these people's lives. You know, I think we have an obligation to __
we have problems with our workforce to do that in a way that's fair to the
people who work there.

Next I'd like to call Barry Graham, who is an attorney with the
International Federation of Industrial Property Attorneys, or an attorney
who I assume is representing the International Federation of Industrial
Property Attorneys.

MR. GRAHAM: That's correct.

BARRY GRAHAM, ESQ.

INTERNATIONAL FEDERATION OF

INDUSTRIAL PROPERTY ATTORNEYS

MR. GRAHAM: Good afternoon. As the 22nd witness today and the 47th witness
overall, I thank you, Commissioner Lehman, and the members of the panel for
your patience and continued interest in all the speakers that went yesterday
and have gone forward today.

Should the United States continue to provide patent protection for
software_related inventions?

The answer should be clear; yes, the United States should continue to
provide such patent protection. Patent's own software_related inventions
are beneficial. The ongoing evolution of patent jurisprudence with regard
to software_related inventions is sound and should be allowed to continue.

The United States section of the Federation International De Consul and
Propriete Industrial, that is FICPI. And in English it is International
Federation of Industrial Property Attorneys, appreciated the opportunity to
express its views on the subject of patenting software_related inventions.

FICPI was created on September 1, 1906, as an association of industrial
property attorneys in private practice. It's principal aims are: One, to
enhance international cooperation within the profession of industrial
property attorneys in private practice, promote the exchange of information,
and harmonize and facilitate relations between members.

Two, to maintain the dignity of its members and the standards of the
profession of industrial property attorneys in private practice on an
international scale.

And three, to express opinion with regard to newly proposed international
and national legislation insofar as it is of general concern to the
profession. The members of the Federation deal generally with all matters
in the field of industrial property in the countries in which they practice
and in other countries through associates. And especially to the extent
permitted by their national laws with A) filing and prosecution of
applications for patents and utility models where applicable, trademarks and
designs, and the maintenance of such industrial property rights. And B)
advising in matters relating to industrial property rights, and those
concerning unfair competition, licensing, no_how, and transfers of
technology.

FICPI has as its members, the leading representatives of the private
practice bar in all major countries of the world. The United States section
of the Federation, known as FICPI/US, consists of over 100 U.S. attorneys in
private practice who specialize in intellectual property law. The member of
FICPI/US, such as myself, come from both small and large law firms.

With respect to software_related invention matters, the members of FICPI/US
in their private practices represent small startup companies as well as
small, medium and large established companies. Representation includes:
obtaining patent protection on software_related inventions, asserting
patents on software_related inventions, and defending against the assertion
of such patents, as well as general counseling on software_related
inventions with respect to U.S. intellectual property law.

For the record, I am Barry Graham, and am a partner in the law firm of
Finnegan, Henderson, Farabow and Dunner, in the firm's Washington, D.C.
office. My partner Bob Yoches spoke here yesterday.

The following represent the view of FICPI/US, and not necessarily the views
of the World Federation, my law firm or myself. The World Federation
however, has spoken actively in support of protection for software_related
inventions by use of the patent laws.

The views address briefly question No. 4 of the public notice focussing on
the patent system; FICPI/US believes, based upon actual experiences various
members have encountered in representation of clients in the U.S., that the
present framework of the patent system as it has and continues to evolve has
and will continue to effectively provide innovation in the field of software
by providing adequate protection to software_related inventions.

The patent system promotes innovation by assisting startup companies and
establishing themselves by obtaining needed capital to operate and grow,
based in part at least on company assets in the form of patents on
software_related inventions developed by the companies. These startup
companies can then continue their research and development on new
software_related inventions, using the startup monies obtained.

For example, and inventor developed a neural network system for forecasting
stock price movement, the system uses a math program. After learning that
patent protection was possible on software_related inventions and was
beneficial, the inventor filed for patent protection. Based on the filing,
the patent applicant's business went forward successfully generating income.

The patent system also promotes innovation by helping startup companies and
established companies protect their commercial products and thereby promote
the development in bringing to the market new commercial products. For
example, a small company developed a TV rating system, the company sought
patent protection on its new system which included software. The company
has now been able to go into the market and compete against established
systems such as the well known A.C. Nielsen Company system.

Another example involves a well established company. The company developed a
software_based BUS protocol for its line of computer systems, and obtained
patent protection on the protocol. The company licenced the protected
technology, and has used monies generated from its licensing to fund further
activities.

Those undertakings coupled with the efforts of the federal courts in
providing guidance in the evolution of patent jurisprudence have and will
continue to provide a sound patent system for software_related inventions.
These efforts will in turn help foster innovation in the ever burgeoning
field of software, all to the benefit of the United States. The evolution
should be allowed to continue without artificial or quick_fixes to an
already adequate patent system.

Furthermore, it should be noted that the United States has with success
encouraged countries within the international community to adopt laws which
allow patent protection for software_related inventions. If the United
States were now to dismantle its own laws on patent protection for such
inventions, our country would lose much credibility within the international
community.

On behalf of FICPI/US, I thank you, Commissioner Lehman, the panel members
and all of those at the PTO responsible for these hearings, for setting up
the hearings and for the time allowed for my comments presented today for
the Unites States section OF FICPI.

COMMISSIONER LEHMAN: Thank you very much for your compliment, and thank you
for coming.

Next I'd like to call Edward Y.W. Lemon, III. He's a software engineer with
Network Computing Devices.

EDWARD Y.W. LEMON, III,

SOFTWARE ENGINEER

NETWORK COMPUTING DEVICES

MR. LEMON: Howdy. I would like to thank you for providing me an
opportunity to give my comments. My name __ normally, people call me Ted
Lemon.

COMMISSIONER LEHMAN: I assume that's the way you wanted me to announce you,
Edward Y.W. Lemon, III, no?

MR. LEMON: No. It just says that on my passport and voting record.

COMMISSIONER LEHMAN: Just Ted, okay.

MR. LEMON: So anyway, I am software engineer at Network Computing Devices,
speaking just on my own behalf, not on the behalf of Network Computing
Devices.

And I'm basically here to give you a message that I think is very important.
I know quite a few software engineers, I know very few that argue in favor
of software patents. I believe that we do not need patents on software.
Most of us don't want patents on software, and I believe that patents will
actually hurt us very badly.

For example, the IBM guy just mentioned that in 1965 __ that was the year I
was born, by the way __ they sold 18 billion dollars a year in software.
1965 was 15 years before Diamond vs. Diehr, the first software patent that's
widely acknowledged.

COMMISSIONER LEHMAN: I think he might have gotten that date wrong. I think
he meant __ he said 1962, I think he meant 1992 because I don't think in
1962 __ they said they had a 6 billion dollar research budget, I don't think
in 1962 IBM sold 15 billion dollars worth of stuff, or if they did it was
just about that. So I think he was __ I think it was probably 1992. I
should have probably clarified that point.

MR. LEMON: In any case, I actually have to say that I found that number
quite astounding too, because I didn't think that the entire market was that
big in 1962, but I was willing to take it.

However, the software market has grown dramatically over the course of the
last two decades, and I don't think that that growth can be attributed to
software patents in any way.

Let me see if I can come up with a couple of other examples here. As
another person mentioned a few minutes ago, the difficulty in developing
software is not in coming up with interesting new innovations. The
difficulty in developing software is taking innovations, putting them
together and producing a complex system that does what you want. That's a
very difficult thing to do, but I don't know of any way that you can really
patent it.

And certainly, I would like to see great rewards being given to people for
doing that thing, but again, the patent system is not the way to provide
those rewards.

Now, on the subject of how patents will hurt us, I can give you a couple of
examples from my personal experience. I've worked at four companies in my
life, starting with a company back East called New Media Graphics
Corporation, and of those four companies three of them have been sued by a
company known Cadtrak.

Actually, I am not sure that this actually proceeded to a lawsuit, they may
have settled before a lawsuit was made, but I know for a fact that all three
of those companies have been approached by Cadtrak, have been told that they
were violating or infringing on the Cadtrak patent and have paid substantial
sums of money to Cadtrak for the privilege of not being sued essentially.

The Cadtrak patent is widely acknowledged by most people, I've never heard
of anybody saying that the Cadtrak patent is an example of a patent that
should have been issued. It's a very old patent.

COMMISSIONER LEHMAN: Does that mean you think that that Cadtrak patent was
an invalid patent?

MR. LEMON: Yeah, I think that it fails the test __

UNMIKED VOICE: We have prior art on it.

MR. LEMON: And in addition to the prior art which this person has
mentioned, it clearly fails the test of obviousness. It's based on a simple
mathematical principle and there is no other way to do the thing which the
Cadtrak patent claims to do. And not only is there no other way to do that,
but the thing that you want to do is very obvious, drawing a cursor on the
screen.

COMMISSIONER LEHMAN: So but the essence of the problem here then is that
there's been a statement here that there was a patent issued that didn't
meet the test of patentability.

MR. LEMON: Right.

COMMISSIONER LEHMAN: And now, in effect it's being used to extort money out
of people, and they just, you know, buy into the extortion scheme and then
they pay up rather than solve it.

It reminds me a little bit of the old thrillers that you used to see on
television when I was a kid about the Mafia holding up the candy store, and
people would let that happen, you know, getting protection money out of
them. And every once in a while the vigorous prosecutor would come along
and the uncorruptible police officer and stop the business. Maybe that's my
role to do that __

(laughter __ applause)

MR. LEMON: Well, that would certainly be appreciated.

COMMISSIONER LEHMAN: __ but it doesn't necessarily mean that the answer in
those days would have been to do away with the law.

MR. LEMON: That's absolutely true.

COMMISSIONER LEHMAN: And so as I mentioned, we do have a capacity to take
some look at these things ourselves, and maybe we should start doing that
more. Anyway, please go ahead.

MR. LEMON: Well, a further example on that subject is another patent which
I'm sure you've heard bandied about here before which is the Natural Order
Recalc Patent. I don't know that the Natural Order Recalc Patent is
obvious, and I think there may exist prior art, but nonetheless, the Patent
Office wasn't aware of the prior art. And if there hadn't existed prior
art, one might argue that the Natural Order Recalc Patent would be valid.

However, the Natural Order Recalc Patent, is a technique which I personally
independently invented, and I'm not saying this to blow up my own ego, I'm
just saying that I personally invented it and thought nothing of it, when I
had been working in the industry for a year.

It's a very simple concept, and I can't think of any other way that you
could solve the problem which is intended to be solved. However, it's
complicated enough that I could easily see where it could be granted a
patent. And if this is not an example of something like that, then
certainly there are other patents which would be valid under the current
scheme of things.

Now, the problem with that is that, as I was saying before, software is
built of large complicated systems, and these systems require small building
blocks like the Natural Order Recalc Patent. The Natural Order Recalc
Patent is a trivial part of most of these software systems.

The difficult part of creating software systems is having a user interface
that people can use, making sure that it doesn't break when you give it the
wrong input, designing a whole system of processes. Many of which one could
easily imagine patenting, designing this whole system of processes to
produce a final end product.

Now, there are of course parallels in other industries, but the difference
is that in the software industry, these processes are not only __ these
simple processes that we use to build the systems are processes that one
would come up very easily simply in the process of designing the whole
system. They're not something where you would have to go out and learn about
someone's new technology and incorporate that technology.

To be honest with you, I very rarely do any research at all personally. I
never look up prior art in the field. I mean, I read journals to some
extent, but in general the journals speak about these systems that I'm
telling you about, they do not speak about the small simple techniques.

And so when I create a program, that program is made up of things which have
been __ I mean, I have examples here __ which have been patented, and which
one could easily argue are patentable. And unfortunately that means that in
the process of building this valuable thing, I am subject to being sued by
people who have created small tiny things which are of no value.

And that means that in theory at least when I write a program, I have to go
research all the little nuts and bolts that I use to build the program. I
have to go learn about all these things. I don't have time to do that. And
frankly, I don't think that most people that are working in the software
industry in startup companies have either the time or the money to do that.

The result being that there is a __ if software patents become as widely
used as patents on things like systems within automobiles or something like
that, then essentially the entrepreneurial spirit of the industry will die.

I have this dream that someday I will be able to start my own company and
sell software. I happen to be a believer in free software, so the mechanism
for that may be a little bit difficult.

(laughter)

But I believe that the way the industry has been in the past, I should be
able to form that company and I should be able to make a good living at it.
However, if software patents become as prevalent as patents in cars and
hardware for that matter, I won't be able to form that company, and I won't
be able to make a living. And that is why I do not want to see software
patents continue as they appear to be.

And one other thing, I wanted to address a point that somebody else brought
up earlier. Just because something is done in software does not mean that
the hardware patent is equivalent, or rather just because something can be
done in software does not mean that the patent on the equivalent hardware is
equivalent. Because the hardware implementation is generally much more
useful, and if it isn't, the software will outsell it.

So if you have a patent on something which can be done better in hardware,
then by all means do it in hardware. And if you don't have a patent on
something that can be done better in hardware, then the fact that it can be
done in software will mean that your hardware won't sell. So I don't see
any reason why we should be concerned about the fact that hardware and
software can do the same things. It's really not relevant.

I think that really concludes what I need to say here. So if you have any
questions, I would be happy to answer them.

COMMISSIONER LEHMAN: Thank you very much. I appreciate your taking the
time to share your concerns with us.

You know, I would like to make a point, __ a number of witnesses ago, made a
point that we have, you know, it seems like half the people are lawyers who
are here testifying, I'd like to point out that in no sense was our witness
list rigged. We put out an announcement, we put it out on this Internet, we
tried to make it available to everybody.

So basically what you see in terms of the people who are here are people who
have an interest and took it upon themselves to come and share their time
with us, and their thoughts with us. And by the way, I really appreciate
that. I'm getting paid for sitting here, some of you aren't __ some of you
are, some of you aren't. And we appreciate the fact that some of you did
take out of your own time and your own busy lives to come here and talk with
us.

The world is imperfect, I wish we could sort of drag out all the people that
probably had other things to do who might be able to enlighten us, but
that's just the way it goes. But I do think we're getting a pretty good
picture, a pretty good cross section of views on this. Even though there
are awful lot of lawyers here, we're hearing from a lot of non_lawyers too.

So our next witness is Roger Schlafly of Real Software. You have the real
software that really should be patented then I guess.

MR. SCHLAFLY: Yeah, right.

COMMISSIONER LEHMAN: The original software.

ROGER SCHLAFLY

REAL SOFTWARE

MR. SCHLAFLY: My name is Roger Schlafly, I am self_employed and a software
developer and nobody is paying me to be here.

I have a Ph.D. in mathematics and I have worked for both small and large
companies. I have one issued patent, and I have been sued for patent
infringement. I have a couple of patents pending, and I have some pending
patent litigation.

Most of the discussion so far has come from software companies who've argued
about whether software patents are good for the industry, and from patent
lawyers who favor patenting everything. There have also been a number of
good suggestions for improving the system, but most of these apply equally
to nonsoftware patents. Instead, I want to focus on some legal and
technical issues related to the scope of software patents.

First of all, I want to say that software patents are not as new as everyone
seems to act that they are. The first Patent Act explicitly made processes
eligible for patents, and the government's been getting process patents for
200 years. Processes are indistinguishable from algorithms, many process
patents are enforced.

For example, the Polymerase Chain Reaction, PCR invention which won the
Nobel prize in chemistry last year was a process patent. It was upheld in
court and was sold for $300 million. It is a recipe for cooking DNA, but
legally it is indistinguishable from an algorithm path.

For an older example, Samuel Morse's patent on the telegraph was upheld by
the U.S. Supreme Court in 1853. Morse specifically claimed the system of
dots and dashes we now know as Morse code. This was a software patent.

My next point is that many software patents are not algorithm patents, and
much of the discussion of the legality of software patents focuses on the
patentability of algorithms, but actually many if not most, claim a system
or an apparatus or a machine. Even if we could reinstate the anti_algorithm
bias of the Benson Decision, it would not eliminate software patents.

Many of these software patents, especially the nonalgorithm patents are
legally indistinguishable from traditional nonsoftware patents. Many
special purpose electronic circuits and chips are designed using software
techniques, and they often have microcoded programs etched onto chips.
Nobody is seriously suggesting that patent protection should not be
available for electronic gadgets.

I don't see how you could justify protection for a special_purpose circuit
and deny protection for software on general_purpose computer that performs
the same function.

My next point is that the law does not have to change with new technology.
Many people here have argued that software is different from other
technology and therefore requires a sui generis protection scheme. I think
this is a big mistake.

For 200 years copyrights and patents have served to protect intellectual
property without any fundamental change in the law. I only know of two
cases where sui generis protection scheme was created as a result of
industry pleading that some new technology required it.

One, is plant patents. As you know, it was eventually decided that ordinary
patents suffice for animal inventions, so the notion that special patents
were needed for plants turned out to be unnecessary.

The other case is The Semiconductor Chip Protection Act, eventually though,
it turned out that ordinary copyright law was sufficient to protect
complicated chip designs, and this special law turned out to be unnecessary
also.

Thus, I think you should reject the notion that the law must change to keep
up with changing technology unless there is clear and compelling evidence to
the contrary.

One advocate here of the sui generis system was Oracle, and to tell you
where they're coming from, I want to quote from their policy on software
patents. They say, "New developments influential to the software industry
frequently emanate from individuals and small companies that lack
substantial resources".

So from this I suggest that here they are one billion dollar company, what
they want to do is get their innovation for free and not pay for it.

Okay. My next point is that mathematical algorithms are not distinguishable
from other algorithms. The Benson decision tried to make this distinction,
most everyone including the Court of Appeals for the Federal Circuit and the
recent Arrhythmia decision, agreed that this was nonsense. All computer
algorithms are essentially mathematical in character.

I see we have up in the podium the Knuth bible on computer algorithms, and
it's impossible to say that some of these are mathematical and some of them
aren't. There's just no distinction there. Fortunately, all these are in
the public domain.

My next point is that many software patents should have failed the novelty
or nonobviousness test. For example, the Benson patent, which was rejected
by the Supreme Court in 1972 for being unstatutory subject matter, was for
an algorithm for multiplying by 10. It consists of noticing that the
decimal number 10 is equal to one_zero one_zero in binary notations. So
that on a binary computer multiplication by 10 can be accomplished by two
shifts and an add. This trick is obvious to any skilled programer. If
anyone had tried to publish the trick as a research result, he would be
laughed at.

A lot of patents seem to merely consist of taking some well known method and
putting it on a computer. These are not novel. Any method can be put on a
computer, that is inherent in the nature of computers, and people shouldn't
get patents just for the idea of computerizing something.

Now, I want to talk about some of the specific claims that were in the
Notice of Announcement for this hearing. The last one, Invention G seems to
be in this category of just computerizing something. It claims an
accounting system implemented on a computer. It is obvious that any
accounting system can be implemented on a computer. Accounting systems are
normally not patentable and it shouldn't make any difference that it is
implemented on a computer. So I don't think that claim should be
patentable.

Inventions A and B are for mathematical algorithms. Patents for these were
thrown out by the Benson decision and reinstated by later decisions.
Current practice is to look unfavorably towards these, but to allow them as
long as the claim mentioned some hardware. The hardware mentioned might be
merely some memory chips. Many older patents have drawn elaborate diagrams
of flip_flops and other electronics hardware, but the Patent Office seems to
be getting more lenient about this all the time.

It seems to me that the hardware requirement is not serving any useful
purpose anymore, it is not required by the law, and does not serve to limit
the claims in any meaningful way. It might as well be abolished.

Invention claim C_1 and D_1, directly claim a computer listing. I think
this is a mistake and should not be allowed because it confuses patent and
copyright protection. Copyright law protects program listings. If someone
else sells a similar program, such a claim will not provide any useful
guidance as to what constitutes an infringement.

On the other hand, copyright law provides a framework for deciding what
plagiarism is. Software patent claims should distinctly claim the invention
as with other patent claims.

The alternate version of the claims for that invention, Claims C_2 and D_2
more reasonably describe the software invention. I don't see that it makes
any difference whether such a claim directly refers to a computer program,
or something more tangible such as a disk. The legal scope of the claim
will be the same. The traditional Patent Office tangibility requirement is
not accomplishing anything useful here, it should be dropped.

Invention E is a computer data structure, I think the arguments for and
against this are the same as for mathematical algorithms. Much as people
may not like it, I don't see any basis under current law for rejecting these
claims.

Invention F is a computational diagnostic method performed on a computer.
If it is a genuinely novel invention, it shouldn't be rejected just because
it uses a computer. An MRI device might be in this category. Computer
calculations perform a necessary part of MRI scans, but most of the novelty
lies elsewhere.

A great many electronic devices use microprocessors with software. But the
claim in Invention F is very similar to the claims in the Meyer and Weissman
patent which was rejected by the Court of Customs and Patent Appeals in 1982
for unstatutory subject matter. That invention was not really a diagnostic
device, but a computer program for inputting medical test results comparing
them to a list of known (ontcomps) and applying a simple criterion for
determining whether the patient has a problem.

It might be acceptable to grant a patent for some very clever novel way of
implementing such a criterion, but the Patent Office should not give a broad
patent for something like this. It is completely obvious that there are many
criteria to chose from, and that any criterion can be computerized.

In sum, whether anyone likes it or not, it's my opinion that
software_related patents will continue to be issued because that's the law.
The best we can do, is improve the system by trying to give patents only for
truly novel and nonobvious inventions.

COMMISSIONER LEHMAN: Thank you very much.

Next I would like to ask Wallace Judd of Mentrix Corporation to come
forward.

RUSSELL BRAND

REASONINGS SYSTEMS, INC.

MR. BRAND: Mr. Commissioner, members of the panel, my name is Russell
Brand, I'm a Senior Computer Scientist and Product Manager at Reasonings
Systems in Palo Alto. I've been a programmer for more than 15 years. I
speak only for myself and not for my company.

I'm here today to speak against software patents, as most programmers seem
to, and am here primarily to talk a little bit about part of the history
that seem to have been lost. Before I start with my prepared remarks, there
are enough issues that have been raised in the few hours that I've been in
the room that I think are worthy of attention, that I had not considered
carefully before coming here, did not realize they were issues.

The system that my company sells is a hundred times larger than the stack of
paper you see there on the side. The system that I write reads source code
so the people who own the source code can figure out what it does. Often
the source code that we read is a factor of twenty larger than that, written
by a team of a hundred people over ten years. If we could in any manner
figure out what it did easily, if someone could do that, we'd be out of
business. It's hard, even with all the help of the people there, to know
everything it does. It would be impractical to find out what patents it
infringes. If you could give me a good machine description of every
software patent, I don't think, even with my tools, and my tools are the
best in the world by perhaps twenty years, I could go through the software
in an automated fashion, and find out what patents are being violated.

There have been questions as to whether there are distinctions between
numerical and non_numerical algorithms. I think the late Admiral Grace
Hopper would turn over in her grave to think that there is no difference and
that we couldn't understand the difference. She brought the industry
forward perhaps thirty years by the realization that computers could work
with characters and could do things that were not fundamentally thought of
as mathematical. I learned while sitting in the office that a tool that I
wrote in an afternoon about two years ago to help me deal with dyslexia, to
fix some of the spelling as I type it, probably violates two patents. There
is nothing nonobvious in it. There was a problem; I spent an hour to solve
it. Should I stop using it now? Should I rely on the patent having been
invalid?

There's been talk about changing the rules to narrow the edges a little bit.
You're dealing with programmers as one of the groups best suited to find
ways around rules. Working around social rules, working around machine
restrictions, that's part of what makes us programmers. You're also dealing
with lawyers, who are probably the second best group at working their way
around rules, and I imagine that microtuning and managing the procedures is
not going to help much. It will buy you six months or nine months, and
someone will find the new bugs, and there are more of them who will be
looking for ways around it than there can possibly be of you trying to fix
up the rules.

In addition to being a full_time programmer, six to ten hours a day, five to
seven days a week, I'm also a law student three nights a week. I bring a
laptop with me to class; when class gets dull, I work on programming. I
have an open lawbook next to my terminal while waiting for compiles. I have
determined that it's going to take me only probably five years part_time to
learn enough about law to speak intelligently on this, and I imagine to
understand what's going on with algorithms would take someone without
scientific training ten or fifteen years. All of my free time now goes into
understanding legal issues, primarily issues of information privacy,
constitutional issues, but also in the patent issues.

There's been questions about how do we find the prior art. If in my field I
could get via Internet all the new patents nominally in my field, and could
send back by Internet mail, here are the things that we have done ten years
ago, here are the articles, check it against my databases online that I use
so I know who to cite when I write articles. It would take me a little
effort; I could do that, I wouldn't need to charge anyone to do it because
it's a small increment over what I'm normally doing, and it's keeping me
aware of the current research, and I imagine specialists in a hundred other
fields could do the same thing.

Part of what the users of my system do when they are studying software to
find out what's good and what's bad, is they introduce defects and see how
many of them are found. We send our system for testing, we put in ten
defects; if the testers only find eight of those ten defects and they find a
hundred other defects, we can bet there are twenty other defects that
weren't found.

At this point there is at least a wide belief that many of the software
patents should not have been granted. My statistical study, grabbing
patents at random and reading them, is more pessimistic that anyone else's
prediction in the room. Nineteen out of every twenty I've read are voidable
on at least three grounds.

Perhaps it's time that we start introducing ridiculous patents, like the
(Letvin Kirchoff) current law patent into the system and see how many get
through. And if more than one percent of them get through, then we should
address it as a quality control problem, as we would address a quality
control problem in any other industry.

To move on to the history, which is the basis of prepared remarks that I'd
like to make, I'm on a number of committees that run conferences, annual
conferences large and small for professional organizations. I had a very
hard time getting speakers for one of my conferences this year, a state of
the art technical conference. More than half of the speakers that I
approached said they couldn't speak this year because of patent_related
restrictions placed upon them by their company's corporate counsel. In
previous years, ten years ago when this series started, no one had any
problems. People talked about what they did. This year I lost half of my
best speakers. It's going to be another two or three years to find out what
they are doing, and so everyone working in that same field isn't going to be
able to build on that research as quickly.

One of the speakers, in order to give a talk, managed to hack his internal
legal system and get a publication out, such that they started their
one_year clock from that date running, and he was able to talk publicly. He
had to hack his internal legal system in order to make the information
publicly available and allow us to build on his knowledge in the field.

Five groups of my colleagues doing work in cryptographic technique have
moved or are in the process of moving their work outside the United States.
They say the patent restrictions and the export restrictions in combination
here prevent them from doing development, prevent them from doing marketing,
prevent them from starting a company. They'll move it to Europe. By the
time they finish building it, most of the patents they care about will have
expired; they'll bring it back and start selling it.

Two months from now I'll be giving a half_day tutorial at the Computer
Freedom and Privacy Conference sponsored by the ACM. The tutorial will be
on election fraud. In it we'll talk about some of the techniques that could
be used to prevent election fraud. Many of them are cryptographic, and I
believe at this point all of them have restrictions based on patents that
would prevent them from being used, and all of them could be constructed
from information that was in the literature before any thought of patenting
those things came out.

Last year I gave a tutorial at the Computer Freedom and Privacy Conference
on privacy of data about individuals, and we talked about what could be done
cryptographically to better protect the data. And again, the best
techniques are protected by patents and you can't license these patents to
use in good and strong ways. The licensing restrictions are not just, we
want so much money, but we want to control the way you use the patents. So
that level of privacy, a level of a fair voting system, a level that will
allow people to speak in an anonymous, safe way, and to prove who they are
is held hostage to a patent system that will keep us from entering the next
level of participatory democracy, hold it up at least another three years,
perhaps another ten.

Lastly, I'd like to talk about what I see as the coming age of defensive
patent portfolios. At this point companies get defensive patent portfolios
so that they can force other people to cross_license to them. Individual
programmers like myself, I don't have such a portfolio. I'll need to join
someone who has it so that I can cross_license everything I need so that I
can publish. If I have an individual patent, it won't do me any good
because I can't build anything without that cross_licensing. So the patent
will afford me as an individual developer no protection, but afford the
large companies, the companies IBM, AT&T, HP, with giant defensive
portfolios the ability to control the new technologies that come out,
whether they've invented it or not.

In perhaps a related issue, people in my area tend to think of patents and
the software look/feel copyrights at the same time. We look at the history
of the look/feel copyright. It was validated by the court to protect video
games, a video game named "Scramble," that I enjoyed playing when it first
came out. And it's been extended and extended. If we look in the same
manner, the first software patent that was granted, Diamond vs. Diehr, it
was a computer system, part of process control. The idea was that a
statutory bar on numerical algorithms would not prevent it from being part
of a combination patent. We have gone from computers stopping you from
getting patents, to the computer part being okay, to now anything once you
put a computer in it, it's a form. Well, you couldn't copyright a form,
it's on a screen; now I can get a look/feel copyright. It's an equation;
you can't patent an equation, it's part of a computer program with no
physical relation to the world. The rules say you can't patent it, but 1400
such patents were granted. The rules, as they were written, would provide a
valuable service; the rules, as they are executed, especially with the giant
defensive patent portfolios, do a disservice to developers and to the
American public as a whole.

Thank you.

COMMISSIONER LEHMAN: Thank you very much for sharing that with us, Mr.
Brand.

Next, Willis Higgins, with the law firm of Cooley, Godward, Castro,
Huddleson & Tatum.

WALLACE JUDD

MENTRIX CORPORATION

MR. JUDD: Thank you. My name is Wallace Judd, I am president of Mentrix
Corporation. I am the holder of a patent that's not for software. I am
also a programmer. And even though our software company in Nevada City,
California, is very small, the testing and training that we provide impacts
over 800,000 people annually in the United States. So even small software
companies have a fairly large impact.

I would like to ascertain, are all of you up there lawyers?

Yeah. It's been interesting to me the dichotomy __

COMMISSIONER LEHMAN: Sorry, we run the world, it's just __ I think about 90
percent of the presidents are, you know.

MR. JUDD: Well, you know, but this is interesting. It's curious to me
because all the programmers __

COMMISSIONER LEHMAN: Julius Caesar was a lawyer, you know. The pharaoh was
a lawyer, you can't get away from that.

MR. JUDD: Well, all the programmers seem to be opposed to patent for
software, and all the lawyers have testified in favor of it. And I think
that bodes somewhat inauspicious for my plea to request that you not protect
__

COMMISSIONER LEHMAN: I think we just heard from one that was in favor of
patent protection.

MR. JUDD: Beg your pardon?

COMMISSIONER LEHMAN: I think __

MR. JUDD: Mr. Schlafly was in favor it, he was the only one.

COMMISSIONER LEHMAN: There were a few others.

MR. JUDD: He's in firmware.

Today, I am going to outline __

COMMISSIONER LEHMAN: You make a point, though. There is no question about
it that the lawyers seem to very much in favor of patent protection.
Companies tend to be somewhat split, and programmers who've testified,
though not all, a majority of them have testified against it.

We have noticed that fact.

MR. JUDD: Today I am going to continue to outline some procedural questions
with regard to software patents that I believe are essentially unanswerable.
Then I am going to show some instances over the past several years in which
software patents simply did not work. And finally, I will try to discuss
the disastrous impact of allowing software patents on software development.

The first, the issuance of a patent revolves around several salient points:
establishing the time of invention, documenting the invention, and
establishing the nonobviousness of the invention to a practitioner in the
field.

In the world of software we shall see that all of these I believe are
essentially unanswerable. With the physical objects the time of invention
is the achievement of the working model, or the creation of a drawing of a
working model. In software the time of invention is unknowable. If it is
the writing of code exhibiting the claims, what if the code has bugs? Has
the invention been discovered? How many bugs are allowable? How major can
the bugs be to disallow establishment of the claim? Does the code have to be
free of bugs? If so, then DOS 6 wouldn't qualify, and certainly most of my
Windows software wouldn't qualify.

In essence, you've got an unanswerable question here; when has the claim
been established in software?

Suppose you develop a stark prototype, just the skeleton of a program that
demonstrates the claims, how robust must this prototype be? Must it
demonstrate all features, the salient features? I can see people rushing
down to your offices with two_page executing code sketches making exorbitant
claims for their little hack.

Documenting the invention is another issue. What language would programs
have to be submitted in? Does the Patent and Trademark Office have to
compile the code to execute it? How can an examiner test the claims of the
patented code? What if the code doesn't do what it claims to do?

To mount an acceptable challenge do I have to execute the patented code and
show it doesn't work?

What if I don't happen to have the compiler for that code? What if the
language is unique? What if the code exists only on a virtual machine? How
can I then demonstrate that the code does or doesn't work?

Should the Patent and Trademark Office define acceptable languages in which
submissions should be made? If so, that will guarantee that most
discoveries are years behind the times since many leading edge applications
are programmed in languages designed for a special purpose that don't have a
wide following.

What's obvious to a practitioner in the field, if I obtain a patent for a
software training program which monitors the user's every action, is it
obvious that simply by adding a scoring algorithm I have a test? It's
obvious if you think about it and yet, patents have awarded independently
for testing and training programs.

What level of expertise is exhibited by a practitioner in the field? The
degrees of modification to make the one I just suggested are obvious to a
computer 101 programmer, and yet the questions is would they be obvious to
an examiner?

The Commissioner this morning pointed out to Jerry Fiddler that there are no
patents on spreadsheets or word processing programs, and I think that was an
appropriate thing to point out. However, in my field there are patents
being awarded for training programs, for testing programs, and for help
systems all of which are obvious and have been in practice for a number of
years.

In fact, apparently this field is getting patent protection where word
processors and spreadsheets did not get it. So there's a real problem,
there's a real issue here in my particular area.

COMMISSIONER LEHMAN: I'd like to make a point about this, and I don't mean
this is critical of you, but we're obviously supplying this forum and we're
obviously getting the message from various people about frustrations they
have and unhappiness they have with the system. But one thing I hope that
people will leave here with, those who are still in the room, is the notion
that we're not on Mars or someplace. If people are unhappy with the system,
you know, we're never more than a letter away, and now even with Internet
we're an Internet message, an electronic mail message away.

So I think that if people in the business start to see things that they
don't like, like the issuance of patents in this area, even without having
to use the re_examination procedure, I'd like to think that people can write
a letter to the Commissioner of Patents. And you can be certain that if
start getting lots of letters and we get complaints we'll start to look into
these things. That as it is, you know, it seems like we sort of have to
read about things in the newspaper, or they have to really get disastrous
before we know about the problem.

So I just hope that one of the sort of teaching points that can come out of
this is that dialogue is a two_way street. We're going to try to have a more
open ear, but we encourage people to communicate with us too, when they
perceive that things are not going the way they'd like them to go.

I'm sorry to interrupt you, you can have the rest of your time back.

MR. JUDD: That's all right.

Robert Greene Sterne earlier testified that it is the functionality that is
the invention when testifying with regard to the distinction between
software and hardware, and the fact that there was no essential distinction
between the two. And yet, I would like to make an argument for the opposite
case.

In fact, if you invented a unique way of trapping mice, you get revenues for
17 years, but you can't protect the notion of trapping mice. If somebody
comes along with a better mousetrap, you can't prevent them from trapping
mice and licensing their trap if it doesn't violate your method. Copyright
protection for software and for circuit designs is adequate. You just don't
want somebody to steal your code or your circuit design. Stealing the goal,
the objective, the function of the patent is as old as patent itself.

You trap a mouse with a string, I'm going to drown those little suckers,
voila, I've got a patent. Okay? You cannot patent the notion of trapping a
mouse. And I think the same thing is true here. We don't have a problem
with the distinction between hardware and software. That in fact, if you
copyright a circuit design, that is effective protection for that particular
idea.

Since I have only read reviews of the Compton's patent, please understand
that my next remarks are based on hearsay not close analysis of the patent
itself. Nonetheless, I believe the issues I raise are germane, whether or
not the details of the patent as I present them.

The problem with the Compton's patent is that there claims are so broad as
to virtually disallow any other method of index access to a CD ROM.
Essentially, they want to patent the idea of trapping mice, not their
particular mousetrap.

But as any basic database programer knows, there are dozens of ways to
create indexed access to data, whether the data is on a CD ROM, a hard disk,
in random access memory or stored in magnetic donuts, the principles are
identical.

The fact that the Patent Office would grant a patent on access to a CD Rom
simply shows that the examiner doesn't understand the generality of random
access storage devices.

Another famous or infamous patent software case is the Apple Microsoft
litigation with regard to Windows and the Macintosh Look and Feel. The case
I felt was truly ridiculous since the Look and Feel of the Macintosh were
established at Xerox Park years before the Macintosh was invented. Yet the
litigation sucked up millions of dollars, tens of millions of dollars worth
of legal fees per year for a number of years. All you had to do was drive
up Pagemill Road, run the old Park examples and you would see a Macintosh
system. And yet, apparently nobody did that.

Now, how do I know this? The answer is, I worked at Xerox Park in 1979 and
'80, then was hired by Apple to work on the Lisa system, which was the
precursor to the Macintosh. At Park, I worked on teaching the Star
interface to users, so I am particularly qualified to comment on that
particular issue.

At Apple our implicit charter was to emulate the Xerox system. Any
programmer with two eyes and an index finger, would have looked at the Star
System in the Macintosh and thrown the case out of court, yet it consumed
millions of dollars in litigation.

UNMIKED VOICE: Here, here.

MR. JUDD: Although, over a hundred million dollars were spent or will be
spent on these cases, our society is no better off as a result of this
litigation.

Increased cost, if patent law is the standard form of protection awarded
software there will be clearly a dramatic increase in defending a software
product from infringement claims. Today at lunch, as a matter of fact, I
was privy to find out that we are infringing a patent issued in 1992 for a
help system. Now, this is a computer_assisted learning support system filed
in Tokyo, Japan __ of course, the system that we're infringing it with was
invented in 1985, and incidentally had the examiners been familiar with the
prior art back to 1981, the help system for Lotus 1_2_3, version 1.0, was a
perfect example of this very patent and the series of claims contained
therein. So in essence, what's going to happen is a small software company
such as I is going to have to hopefully be able to notify the Commissioner,
or at the worst case, spend $2,000 having this claim re_examined.

The sheer number of potentially patentable aspects of a computer program
would make it prohibitively expensive to research them all. While a
computer chip or a tire or a drug may have several different arenas of
patent law to research, the number of arenas impacting software are
exponentially more. Assuring that your software is free of infringements
would require research into database maintenance, disk access, user
interface, memory managers, interrupt handling, queueing theory, and
literally dozens of other programming issues. Writing a few lines of code
would require days of research to see whose code you might have infringed.

Another impact will be in marketing delays caused by a year of uncertainty
until everyone comes out of the woodwork who might have invented something
remotely related to your program. Suppose software is patentable. What's
the optimal low finance strategy for a person such as myself? Obviously
it's to sandbag it. File patents 360 days after I've documented a program;
then if my claims are allowed, I can sue all the folks who have big
marketing bucks in similar programs. It's not an enhancement for society.
If you manage to establish priority, you've got their marketing investment
already engaged behind your license program.

To summarize, I've shown elements critical for establishing a patent are
indeterminate. I've illustrated the problem with patent enforcement, using
the Compton's and Apple vs. Microsoft cases, and I've shown several
disastrous impacts that can be predicted from widespread use of software
patents. As a software developer, I beg you, keep patent law out of
software. Don't let legal entanglements destroy the software industry as
they did the private airplane industry. Clarify that the protection
available to software developers is copyright, not patent.

COMMISSIONER LEHMAN: Our next witness __ we're getting near the end of the
day here __ is Russell Brand, Senior Computer Scientist & Product with
Reasonings Systems, Incorporated.

Mr. Brand, if you'll bear with me a little bit, I'm going to leave the room
for about three minutes and I'll be right back, and if there is any chairing
work that needs to be done, hopefully my colleague, Commissioner Goffney,
will take that over. So I'll be right back and I hope you'll forgive me for
missing your opening part of your remarks. Thanks.

Why don't you proceed.

WILLIS HIGGINS, ESQ.

COOLEY GODWARD LAW FIRM, PALO ALTO, CALIFORNIA

MR. HIGGINS: Thank you very much, Commissioner Lehman, ladies and
gentlemen. I should state first that I'm a partner at the Cooley Godward
firm and I've headed the firm's electronics and software patent prosecution
practice, but will add the views that I express in my written statement and
here at this oral testimony are personal and do not represent the views of
the firm or any of its clients.

In general I'm going to follow the order of my prepared statement, but I'm
not going to read it into the record. At this point I think you've heard
enough discussion on this issue that if I were to read this into the record,
that would probably put you all to sleep.

I think that a fundamental issue that merits some discussion is the
distinction between the way the copyright system works administratively and
the way the patent system works administratively, because I think that
difference has very significant policy implications. Of course, the
copyright system, being a registration system, there is essentially no
administrative record that a court can rely on to decide the cases of
nonliteral copyright infringement, the so_called look and feel cases. What
that means is that a Federal District Court judge or, even worse, a Federal
District Court jury is put in the position, to a certain extent, of the
patent examiner and has to take a look at the copyrighted work, other
similar earlier copyrighted or noncopyrighted works, the prior art, if you
will, and then attempt to distill what's the contribution of the copyrighted
work in question, and all of this with nothing in the record as an aid to
determining what is the proper scope of this copyrighted work and has that
been infringed in the nonliteral similarities between the copyrighted work
and the alleged infringing work.

On the other hand, in the patent system at least the courts start with a
headstart. There is an administrative record, there is a testing of the
alleged inventive subject matter against some prior art and an attempt to
define in the patent claims what the scope of that work is. And for that
reason, I think any attempt to eliminate patents for software is going to
cause a lot of problems by throwing these difficult questions back into the
copyright arena, and the courts have struggled for years to devise tests
that will make the determination of the scope of these copyrights easy, and
they simply haven't been able to do it, and the nature of the intense in
fact inquiries required to make those judgments I think means that they're
just not going to be able to come up with easy tests in that area, so that
the inherent nature of the patent system and the copyright system say that
it's absolutely essential for the patent system to play a significant role
in the protection of American intellectual property.

I think, and I've developed that theme further in two publications that are
attached to my prepared statement. But the second area I'd like to talk
about, I haven't developed in those publications, it's developed to some
degree in the statement, and that concerns the implications to be derived
form the institutional practices in the Patent Office and what conclusions
should be drawn from those institutional practices with respect to how the
examination of software_related patents are handled. Of course, we all know
that the time that examiners can devote to each patent application is
limited. The examiners, of course, are on a form of a quota system in which
their performance is measured by disposals. Now what the means is that, if
examiners are handicapped with respect to other examiners by extra
procedures that don't apply in other art areas, it gets very difficult to
provide a good objective measurement standard for their performance.

Fundamentally what I'm talking about here is the whole issue of statutory
subject matter and the very complex set of rules that have been developed
with respect to that, and, of course, anyone who reads the guidelines, reads
the case law, sees that extremely fine distinctions are drawn in the case
law and it's very difficult to conclude is this claim on the right side of
those guidelines or on the wrong side of the guidelines.

Based on my practical experience, I find that too often in the examination
process, most of the effort is directed to testing on the 101 issues and on
claim language, and very little attention is devoted in many cases to
measuring the contribution against the prior art to determine whether that
contribution is new and unobvious. And, of course, given the limited time
that examiners have available for each application, if they're in effect
forced to deal with these extra issues of statutory subject matter, that
means that they're going to have less time available to deal with the truly
significant issues of is it new and is it useful and has the new and useful
contribution properly been defined in the claims that are before the office.

So the suggestion that I would make is in terms of statutory subject matter
is follow the lead suggested by the Supreme Court that essentially the
patent system should cover anything under the sun developed by man, and move
on to the really significant questions of judging against the prior art. And
I think most of the comments, most of the comments that I've heard, and no
doubt most of the comments that you've heard earlier are not that the Patent
Office is calling it wrong in the statutory subject matter area, but calling
it wrong in some cases with respect to prior art that either wasn't
available or that wasn't properly evaluated. So that I think is the sum and
substance of the second area I wanted to discuss.

The third area I want to talk a little bit about is the form and content of
patent applications, although as set forth in the notice of these hearings,
that's really going to be more primarily the subject of your next hearing,
but I think there are some policy issues here as well.

Again, in determine what kind of form, what kind of format should be used in
patent applications and deposits of source code if they're going to be used,
what's important, I think, is to make a judgment call on whether a
particular form, format or procedure adds value to the process. Does it do
something to give us stronger patents. So, for example, requiring
applicants to deposit source code in a very rigidly defined microfiche
format probably doesn't add a whole lot of value to the process. Why not
allow the applicant to deposit the source code, if it's going to be
deposited, on disk in machinery to perform so that it can be more easily
accommodated in online databases and other machine searchable tools. So
again, as an example here, look to the question of what value is being added
by the procedures, and I would say that requiring one form over another as
opposed to what's the content of what you're submitting doesn't add value
any more than the debate over the fine lines in statutory subject matter
adding value.

So in summary, what I would say is that in order to strengthen our patent
system, we should cut to the chase, get to the questions of novelty and
unobviousness over the prior art, and I think as an interim measure, what we
as patent attorneys have to do is assume a proactive stance. We've got our
Rule 56 obligations that say that we should call the attention to the Patent
Office of prior art that we know about. If we want to obtain good, strong,
valid patents for our clients, we've got to do more than that. We've got to
go out and look for the prior art and get it in the record so that it's
considered and overcome. And if we do that, coupled with increased efforts
on your part to develop your own prior art databases, then I think the end
result will be a much stronger patent system.

Thank you very much.

COMMISSIONER LEHMAN: Thank you very much, Mr. Higgins, for taking the time
to think through all of this and give us your comments.

Finally, our last witness of the day and of the entire two days of hearings
is Mr. Joseph Grace of Tetrasoft.

JOSEPH GRACE

TETRASOFT

MR. GRACE: Thank you, Commissioner Lehman, for this opportunity to get some
thoughts out on software patenting. I feel like after hearing these
comments that __ well, first I should say, I don't have a vested interest in
software patents; I have a future vested interest in the sense that I'm
starting a company.

I find the system daunting and counterproductive from my perspective, and it
keeps me up late at night because it's hard enough starting a company with
natural disasters, but when somebody can hold a man_made disaster over your
head, i.e., you write some software and somebody says 16 years down the road
on their patent that you owe them money __ they're not just flushing your
dream down the drain, they're flushing your employees down the drain,
they're flushing your customers down the drain and they're flushing your
suppliers down the drain. To me, that just doesn't make sense. And even if
you do succumb to that, and you don't go the way of spending a fortune on
lawyers __ I'll try to mention this only once __ I don't believe that the
software industry should subsidize the legal services industry. So, if you
don't go down that path, which you won't because it will cost you more money
to go down that path even if you're in the right, than it would just to
knuckle under to some patent challenge, you still end up spending money you
shouldn't have to spend. And that money may be going to a competitor who
hasn't even earned it, okay? And this is for a system that basically
doesn't work.

If I wrote the software to represent this system, it would be riddled with
race conditions, okay? That's a bozo no_no in software design, and it would
have deadlocks; that means you're going to court. If you want to know an
example of a race condition, you could have two companies __

By the way, I don't think these comments are limited strictly to software.
I think you're going to see this problem crop up in other industries as they
start using computers as intellectual development tools, because the
computers are going to accelerate their development. The reason we're
seeing it in software is because software is already accelerated by using
computers.

For example, one of the worst race conditions that you have two companies
developing something and spend $10 million on it, seven years of people's
lives, whatever. Somebody gets the patent first. The patent system says
they deserve the reward for that innovation. I disagree. I think the
market deserves the reward of both innovations, and both companies deserve
the chance to try to build on their opportunity.

Anyhow that's my background, that's why I'm here today because this stuff
keeps me up late at night. I don't think it's such an incredibly
complicated issue. From here on out I'm going to try not to give you my
perspective, though this will definitely be a slanted presentation. I'm
going to try and give you some information that I have, that I think could
help you understand why there are so many conflicting attitudes and
opinions, and how all these people can be basically telling the honest
truth. And this is a little slanted, but with the sole exception possibly
of the lawyers, since of all people they have the most incredible vested
interest in maintaining a system which subsidizes their industry, even at
the expense of the software industry.

The title is "Software Patents and Why They Should Be Abolished." The
reason is they are unconstitutional. The Constitution says in Article 1,
Section 8, Clause 8, The Congress shall have power to promote __ to promote
__ the progress of science and useful arts by securing for limited times to
authors and inventors the exclusive right __ and I would put that in quotes
because that's a sort of nebulous idea __ to their respective writings and
discoveries.

The key word in that is "promote." If the system stops promoting growth,
the system is unconstitutional. Now, the lawyers may say, "Well, it's
grandfathered in because the Congress already established the patent law."
Well, that may be true, but that's a legal perspective and not a practical
perspective.

Let me define patents further. The basic idea of patent, as I see it, which
I think is pretty accurate, is promoting innovation, which is a factor in
business and an important one, over free competition, which is a principle
of business, and you don't sacrifice that principle lightly, okay? Whoever
came up with the patent idea decided that it was worthwhile to promote
innovation, even at the expense of free competition, my basic claim is that
was a wise idea and it has served its purpose. But it's now outgrown and
outlived its purpose and it's time to move on to productivity without
patents, because now they're becoming counterproductive and slowing people
down. And the reason basically is because it used to be that patents were
few and far between __ I call that sparce, okay? Now our industries have
matured enough that the patents, the ideas and the technologies and the
innovations are coming very rapidly __ that's dense. You're having people
trip all over themselves.

As soon as you get into that situation, there are interdependencies between
these patents, so when you add a patent, you're not adding N goes to N+1
complexity, you're going from N to N times N+1 complexity. That's a fact in
computer science; that's called factorial growth. And that's heinous, okay?
We're not talking linear growth add one, we're talking factorial growth. If
you've got thousands of patents and you multiply those by another thousand
in complexity, which is what all the inter_relationships between the patents
are, you've got a problem. And that's why you can't keep up with the
patents, and that's also why you're not going to be able to, ever.

Well, I'm going to drift through this, because I bet I burn more time than I
expect.

I call this the Medusa effect. You've heard plenty of views on those
conflicting accounts. Each of these views is like an eye of the Medusa.
And Medusa is the Medusa of unfair competition, okay. We're sacrificing
free competition for the Medusa of unfair competition. The nature of the
system is that its outgrown and outlived its usefulness. It's degenerated
into a win_lose industrial paralyzing influence. Basically that's the
nature of our patent system. I call this degenerate influence the Medusa
effect. It's all the same system but the view is different and conflicting
from each eye. Each of our presenters is a different eye. The head is
overcrowded with eye stalks, and worst of all, every seeing person in the
vicinity of Medusa has genuinely high blood pressure __ that's the
entrepreneurs who don't have portfolios of patents, okay?

Living near Medusa makes for a scary, unhealthy and unproductive situation,
i.e., unconstitutional. The software industry already suffers from the
Medusa effect today, due to the interference of the software patent system.
That's like interference between patents except the system is doing it to an
entire industry.

I would like to see this situation rectified and simplified, i.e., the
elimination of patents from software.

Two challenges: To rectify this situation entails two challenges. The
first challenge, of course, is to see the forest for the trees. Or in the
case of Medusa and software patent, to see the whole Medusa instead of just
some eye stalks. I shall try to solve the problem for you in the first part
of my presentation shortly.

The second challenge is to fix the system. To fix the system is left to
you; if I had the authority, I'd take care of it myself. This talk,
unfortunately, is the limit of my contribution so far, but I have a feeling
this will be around for ten years and I'll be back.

Fortunately, by applying __ the principle I'd like you to apply is the
"kiss" principle, which is "Keep it simple, silly," and that means get rid
of the system. The first challenge is eyeing the Medusa of unfair
competition; that's being able to see it. I'd like to read a fragment of a
New York Times article by John Markoff. He says:

Critics now say that the system is creating a public policy contradiction.
On one hand the Clinton administration is eager to foster competition in
telecommunications. On the other, the agency continued to grant 17_year
monopolies just as it did when technologies involved at century_long
intervals.

That's the crux of the problem. Mr. Markoff identifies the basic dilemma
for the patent system: Times change. The tradeoff in sacrifice of free and
fair competition to promote innovation may no longer be a prudent tradeoff.
Times change and the patent system has done its job to build an innovative,
industrious, technological base. Now the patent system needs to step aside
and let commerce generate the rest of its momentum instead of gumming up the
works with unnecessary and counterproductive litigation.

I'd like to mention four books __ I think this stuff was covered very well
in the Markoff article for an overview. In habit four of the Seven Habits
of Highly Effective People, which is "think win_win." Right now we've
degenerated into lose_lose_lose. The patent holder loses because the
society doesn't grow; its competitors lose because they can't even get into
the market; and the customers lose because nobody is delivering service as
rapidly as they could have.

The next book is the One_Minute Manager Builds High_Performing Teams. This
is by Ken Blanchard. I would like to see some situational management
understanding applied to this. He goes by stages as well. In the early
stages you need directive, coercive management, and in the most latter
stages, you need hands_off management.

And the third book that I think applies is Crossing the Chasm, by Jeffrey A.
Moore. He uses a multistage system as well. I think we've left the early
adoptive cycle of his technology life adoption cycle, which is where patents
are beneficial, and we have entered the early majority part of the cycle,
where they start to gum up the works because the industry can maintain its
own momentum. That's the basic gist.

I think you should take a look at this: Where we started, where we are
today, and where we need to go. And I think you need to look at it in terms
of stages, and I think if you do, you'll begin to understand why there are
so many conflicting remarks. People are coming at this from different
stages, and the software engineers are coming at it from the most current
stage. And I think that holds value.

How do you kill the Medusa? You use this understanding as a mirror to look
at her, and you slay her. And the weapon I would use to slay her is Akim's
razor. That goes by the name of the kiss principle as well, and it's also
known in legal circles as necessary and sufficient, and only necessary. And
what we have now in the patent system is no longer necessary. Besides
which, it's also insufficient.

Thank you very much for this opportunity to talk.

COMMISSIONER LEHMAN: Thank you very much, Mr. Grace.

I'd like to thank everybody who has testified over the last two days, even
those who aren't here, all those who have come to watch the process. I'd
like to think it's a process of open government; I'd like to think it's a
process of customer service. I hope you'll help us at the Patent &
Trademark Office to improve our customer service by taking the advantage of
keeping in touch with us over the weeks and months to come.

I can tell you this: I'm not sure that I'm going to propose next week to
abolish the Patent Office, but I can assure you there are going to be some
real and substantive changes that are going to come out of this process, and
you will see those in the coming months. Some of them will be
administrative changes that we can make; some them we can make right away,
just simple policy changes. Others require work.

For example, the full potential of the Internet and electronic
communications, even if we change our policies with regard to what we can
hear from, who we can hear from and what we can get from them require
technological improvements at the Patent & Trademark Office that will
require an expenditure of capital, it will require money. So some things
will be phased in, some things will happen very quickly.

The next category of changes that you're going to see is that we are
certainly going to be coming up with some legislative proposals to change
the statutory system. For example, were we to decide not to have software
patents or to eliminate the Patent Office, I think those would have to be
legislative changes and we'll have to get Congress' approval. I'm not
suggesting we're going to necessarily propose either of those two
alternatives, but we are going to be proposing to Congress some changes
which will make the system work better.

So those are two examples of the things we're going to do. The final one is
we're going to definitely be more aggressive in the Patent & Trademark
Office in not only developing our own legal policies, but in working with
the various courts, and the Court of Appeals for the Federal Circuit in
particular, in trying to help them develop clearer legal standards and do
their part in resolving some of these problems.

So in the next months and certainly during the remainder of this Clinton
presidency, you can look forward to a series of changes in the areas that
I've just outlined, and you'll be able to have many opportunities as these
changes unfold, as the decision_making process unfolds, to give us feedback,
to let us know what you think. I am a little scared to say that in this
group, because I have a feeling the probably the Internet system and the
computer system is going to break down at the Patent & Trademark Office with
all of the feedback that we get, but let's try and see how it works.

Thank you very much for coming, and I look forward to continuing to work
with you all for the next three years. Thanks.

(Public hearing concluded)