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93–281 PDF 2015

EXAMINING RECENT SUPREME COURT CASES 

IN THE PATENT ARENA 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COURTS, INTELLECTUAL PROPERTY, 

AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED FOURTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 12, 2015 

Serial No. 114–2 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

MIMI WALTERS, California 

KEN BUCK, Colorado 

JOHN RATCLIFFE, Texas 

DAVE TROTT, Michigan 

MIKE BISHOP, Michigan 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

DARRELL E. ISSA, California, Chairman 

DOUG COLLINS, Georgia, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR S. SMITH, Texas 

STEVE CHABOT, Ohio 

J. RANDY FORBES, Virginia 

TRENT FRANKS, Arizona 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

BLAKE FARENTHOLD, Texas 

RON DeSANTIS, Florida 

MIMI WALTERS, California 

JERROLD NADLER, New York 

JUDY CHU, California 

TED DEUTCH, Florida 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

DAVID N. CICILLINE, Rhode Island 

SCOTT PETERS, California 

ZOE LOFGREN, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

JOE KEELEY, Chief Counsel 

HEATHER SAWYER, Minority Counsel 
(III) 

C O N T E N T S 

FEBRUARY 12, 2015 

Page 

OPENING STATEMENTS 

The Honorable Darrell E. Issa, a Representative in Congress from the State 

of California, and Chairman, Subcommittee on Courts, Intellectual Property, and the Internet .......................................................................................... 1 

The Honorable Jerrold Nadler, a Representative in Congress from the State 

of New York, and Ranking Member, Subcommittee on Courts, Intellectual 

Property, and the Internet .................................................................................. 3 

The Honorable Bob Goodlatte, a Representative in Congress from the State 

of Virginia, and Chairman, Committee on the Judiciary ................................. 4 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 6 

WITNESSES 

Herbert C. Wamsley, Executive Director, Intellectual Property Owners Association, Washington, DC 

Oral Testimony ..................................................................................................... 8 

Prepared Statement ............................................................................................. 10 

Krish Gupta, Senior Vice President and Deputy General Counsel, EMC Corporation, Hopkinton, MA 

Oral Testimony ..................................................................................................... 25 

Prepared Statement ............................................................................................. 27 

Andrew J. Pincus, Partner, Mayer Brown LLP, Washington, DC 

Oral Testimony ..................................................................................................... 40 

Prepared Statement ............................................................................................. 42 

Robert P. Taylor, Counsel, National Venture Capital Association, Washington, 

DC 

Oral Testimony ..................................................................................................... 52 

Prepared Statement ............................................................................................. 54 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Material submitted by the Honorable Blake Farenthold, a Representative 

in Congress from the State of Texas, and Member, Subcommittee on Courts, 

Intellectual Property, and the Internet .............................................................. 72 

Material submitted by the Honorable Darrell E. Issa, a Representative in 

Congress from the State of California, and Chairman, Subcommittee on 

Courts, Intellectual Property, and the Internet ................................................ 85 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of United Patent Reform ...................................................... 114 

Prepared Statement of Charles Duan, Director, Patent Reform Project, Public 

Knowledge ............................................................................................................. 124 

Article entitled ‘‘Patent troll targets crowdfunding startups—Innovation Act 

could stop that’’ .................................................................................................... 140 

Letter from Michael Beckerman, President & CEO, the Internet Association .. 143 

Prepared Statement of David French, Senior Vice President, Government 

Relations, the National Retail Federation (NRF) .............................................. 146 
Page

IV 

Letter from Bobby Franklin, President & CEO, the National Venture Capital 

Association ............................................................................................................ 151 

Prepared Statement of the American Bankers Association, the American Insurance Association, the Clearing House Payments Company L.L.C., The 

Credit Union National Association, the Financial Services Roundtable, the 

Independent Community Bankers of America, the National Association of 

Federal Credit Unions, and the National Association of Mutual Insurance 

Companies ............................................................................................................ 154 
(1) 

EXAMINING RECENT SUPREME COURT CASES 

IN THE PATENT ARENA 

THURSDAY, FEBRUARY 12, 2015 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

COMMITTEE ON THE JUDICIARY

Washington, DC. 

The Subcommittee met, pursuant to call, at 1:03 p.m., in room 

2141, Rayburn Office Building, the Honorable Darrell E. Issa 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Issa, Goodlatte, Collins, Smith, Chabot, 

Forbes, Franks, Poe, Marino, Farenthold, Nadler, Conyers, Chu, 

Deutch, DelBene, Jeffries, Cicilline, and Johnson. 

Staff present: (Majority) Vishal Amin, Senior Counsel; Eric 

Bagwell, Clerk; and (Minority) Jason Everett, Counsel. 

Mr. ISSA. The Committee will come to order. Today’s hearing is 

on examining recent Supreme Court cases in the patent arena. The 

Subcommittee’s work on intellectual property reform and the likely 

passage in this Congress of an internet—I am sorry. I apologize. Of 

a patent—— 

Mr. NADLER. That was this morning. 

Mr. ISSA. That was this morning. [Laughter.] 

Of a patent reform legislation package as we did in the last Congress in the House brings us to the importance of updating our 

awareness of recent Supreme Court cases in the patent arena. 

In 2011, the American Invents Act, or AIA, became the most substantial reform to U.S. patent law since the 1836 Patent Act. The 

AIA reestablished the U.S. patent system as a global standard. I 

was proud to be part of that effort, and I am proud today that we 

will continue our work to uphold the competitiveness of the American patent system. 

While the AIA rewrote the underlying patent law and procedures 

at the WTO, several items were left out of that bill as is often the 

case in any long-awaited, and large, and comprehensive reform. 

These items, coupled with the growing threat posed by what all 

will admit at times is abusive patent litigation, require us to continue our work to improve the patent system by strengthening patent quality and promoting smarter and less expensive, if possible, 

patent litigation. 
2 

Last Congress, the Innovation Act passed this Committee by a 

vote of 33 to 5. And when it passed out of the House on a highly 

bipartisan basis, the vote was 325 to 95. I am confident that H.R. 

9, the Innovation Act, will become law and will build on the work 

of the AIA to protect the American patent system. 

Increasingly, Americans find innovation obstructed with attempts to enter the markets frequently shut down by well-funded 

patent trolls that often exploit loopholes in our patent system, bullying inventors and small business into frivolous lawsuits that 

amount to litigation extortion. Reforming the patent system, including costly patent litigation, is an economic issue, not a partisan 

one. 

With billions of dollars and the state of American competitiveness at risk, reforms are not solely the responsibility of one branch 

of government. All three branches must work hard to craft and implement law that promotes our innovative economy. And we must 

recognize that the work is being done to address abusive patent 

litigation in all three branches of government. In addition to the 

court decisions, which we for the most part on a bipartisan basis 

welcome, we will examine today how they affect the judiciary, the 

PTO, and the PTO’s recently announced new patent quality initiatives, including additional staff to focus purely on patent quality. 

The PTO has issued updated guidance on patent eligibility in the 

wake of several related Supreme Court cases, and the PTO continues to operate three important post-grant proceedings, including 

AIA’s Section 18 covered business method program, which I believe 

is absolutely essential to the future of patent quality and the effort 

to make sure litigation is appropriate, meaningful, and, in fact, 

done expeditiously, because ultimately a patent holder or a defendant who believes that they will be meritorious wants their day in 

court always at the fastest reasonable time. 

As the House and Senate prepare to move forward on meaningful 

patent litigation reform to complement the PTO’s work and the 

Court’s decisions, opponents have recycled some of the same tired 

arguments used in the lead-up to the AIA. These opponents claim 

that the courts and the judiciary have completely solved the problem, and congressional attempts to end abusive litigation practices 

are wholly unnecessary. 

Today’s hearing will examine recent Supreme Court patent decisions, and we will learn about areas where progress has been made 

and areas where much more needs to be done. I am convinced that 

before we pack our bags and go home at the end of this session, 

we will, and I insist we will, have ensured the legislative branch 

of government does its part to stop litigation abuse from occurring 

in the first place. American innovation cannot afford to be held captive by frivolous litigation from weak or overly broad patents. We 

need to work together to ensure the American economy does not 

continue to suffer. 

Before I turn the microphone over to the Ranking Member, I 

must add one small personal point. When I came to this Committee 

some 14 years ago, the greatest issue we seemed to have in front 

of us was the 40 percent reversal rate of court decisions leading to 

an effectively de novo response and high number of appeals to the 

Federal circuit. The lack of confidence that existed then was a 
3 

problem. I believe we have gone a long way in most districts to get 

it right earlier at the district court level. 

There is more to be done, and our efforts on a bipartisan basis 

will be to do so, to make sure that we facilitate the judicial branch 

having the tools and the skills to decide properly. We cannot back 

up work that we should do to the courts. The courts at the district 

level cannot simply pass onto the Fed circuit, and the Fed circuit 

cannot simply end up at the Supreme Court. That is part of our 

requirement, to get decisions made at the lowest and earliest level 

that could be counted on by the inventors. 

And with that, I recognize my colleague and Ranking Member, 

Mr. Nadler. 

Mr. NADLER. Thank you, Mr. Chairman. I want to begin by congratulating you on your new position as Chairman of this Subcommittee, and I look forward to working with you on the many 

important issues we will consider in this Congress. 

We got off to a good start by joining together as original co-sponsors of the Innovation Act, which Chairman Goodlatte introduced 

last week. The Innovation Act addresses a scourge of patent trolls 

which continue to burden businesses across the country with abusive patent litigation. Patent trolls stifle innovation, damage our 

economy, and injure legitimate businesses. Rather than inventing 

new products and technologies to benefit consumers and businesses, they merely invent new methods to drive up legal costs, 

which they use as a weapon to extort settlements from innocent defendants. 

A smartphone can contain hundreds of patents on everything 

from touch screen technology, to cameras, to GPS mapping, and 

just as the saying goes, ‘‘There’s an app for that.’’ There’s also a 

patent for that, and worse, we are finding that there is a patent 

troll for that, too. As a result, our successful American businesses 

are exposed to abusive litigation on the many patents it takes to 

build the tech products of today. Whether they spend the resources 

on developing new products or on fighting off frivolous claims depends in part on whether or not we are successful in passing legislation. Therefore, our work here is critical, not just to lawyers and 

inventors, but to all of us. 

I have heard from countless businesses calling out for relief from 

patent trolls. They tell me that it can cost millions of dollars just 

to take one case through to trial. For small business, it can make 

more sense financially to settle even a totally bogus case early even 

if they would be assured of winning in the end. Unfortunately, this 

only encourages bad actors to keep filing case after case and gaining settlement after settlement. 

While it is vital to ensure that legitimate patent holders are able 

to enforce their rights, we need to rein in those who seek to abuse 

the legal system. I supported the Innovation Act when it passed 

the House in December 2013 because I thought it struck a reasonable balance in addressing the patent troll problems without imposing too great a burden on plaintiffs. Since then, the Supreme Court 

has issued a number of patent-related opinions on issues ranging 

from fee shifting to patentability. Our hearing today will help us 

examine these decisions to determine how the patent landscape has 
4 

changed since the Innovation Act passed the House, and whether 

we need to make changes to account for these decisions. 

Some critics of the bill argue that in light of these decisions, legislation is no longer needed at all. I think that overstates the case 

considerably, but I will be interested to hear from the witnesses 

today their thoughts on how the Court’s decisions should inform 

congressional action. I am most concerned with the two fee-shifting 

cases, Octane Fitness and Highmark, which significantly lowered 

the standard which must be met before a court will award fees to 

the prevailing party under Section 285 of the Patent Act. 

There is already evidence that courts in response to these decisions are awarding fees at a much higher rate, but we need to determine if this is a temporary phenomenon or evidence of a longterm trend. More to the point, have these cases curbed abusive litigation? Businesses have indicated to me that they continue to be 

threatened by patent trolls and that the problem shows no sign of 

abating. 

I should note that I also have longstanding concerns about feeshifting provisions, and the language contained in the bill is at the 

outer edge of what I can support. Keep in mind a person or a business can have a legally legitimate dispute regarding fact and law, 

and yet can still ultimately lose the case. They should not be punished for trying to protect their interests in court. Furthermore, we 

should not want to create a situation in which experienced corporate defendants with enormous resources and expert legal talent 

can bully injured plaintiffs into unfair settlements because of the 

risks, including especially the risk of being forced to bear not only 

their own legal costs, but the defendants’ legal costs as well associated with losing a potentially successful case. 

I would be interested to hear from the witnesses whether there 

are improvements that can be made to the fee-shifting provisions 

in the Innovation Act to deter patent trolls in light of the decisions 

by the Supreme Court. I will also want to hear how the Court’s 

new standards on patentability, definiteness, standard of review for 

factual matters and claim construction, and induced infringement 

may impact future litigation. 

With these important questions in mind, I look forward to the 

testimony of our witnesses, and yield back the balance of my time. 

Mr. ISSA. I thank the gentleman. It is now my pleasure to recognize the author of the bill and the Chairman of the full Committee, 

the gentleman from Virginia, Mr. Goodlatte, for his opening statement. 

Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your 

holding this hearing. Addressing abusive patent litigation, particularly the reforms set out in the Innovation Act, are critical to our 

Nation’s future economic competitiveness. Last week, I, along with 

a large bipartisan group of members, reintroduced the Innovation 

Act. This bill was the product of multiple discussion drafts and 

hearings, passing the House last Congress with more votes than 

the landmark America Invents Act of 2011. 

But patent reform, just like many other issues, has its proponents and its critics. Those opposed to reform are bringing back 

the same refrains that were used during the lead up to the AIA 

saying that in the last year the courts and the judiciary have 
5 

solved the problem, and that the Innovation Act is unnecessary. We 

have heard this before, and though I believe that the Court has 

taken several positive steps in the right direction, their decisions 

cannot take the place of a clear, updated, and modernized statute. 

In fact, many of the provisions in the Innovation Act do not necessarily lend themselves to being solved by case law, but by actual 

law, congressional legislation. Congress, the Federal courts, and 

the PTO must take the necessary steps to ensure that the patent 

system lives up to its constitutional underpinnings. And let me be 

clear about Congress’ constitutional authority in this area. The 

Constitution grants Congress the power to create the Federal 

courts, and the Supreme Court has long recognized that the prescription of court procedure falls within the legislative function. 

I welcome today’s hearing to review the recent Supreme Court 

patent cases, and as we examine those cases, we must remember 

that our patent system is a unitary one. That means that the rules 

that we lay out in statute apply to all areas of technology and all 

types of businesses, large and small, and generally to all users of 

the patent system equally. 

Thomas Jefferson could not have envisioned the innovations and 

inventions that were to unfold over the last two centuries and, in 

particular, over the last 20 years. But when he and our founding 

fathers crafted our patent system, they wrote these laws in a way 

so that they applied equally to all. 

In that spirit, as we crafted the Innovation Act, we worked to ensure that its many provisions generally applied fairly and equally 

to all stakeholders. That means that we view patent trolling as an 

adjective that can apply to either party in a case if they engage in 

unreasonable or abusive tactics. That is also why good legislative 

practice should caution us against creating excessive carve-outs to 

cabin in provisions of the bill or other parts of patent law toward 

certain types of stakeholders. And we should make sure that the 

ideas that we put forth are well supported, and not just by those 

who happen to exempt themselves from its reach. We have a unitary patent system for a reason, and our system works best when 

the rules of the road apply to all. 

The American patent system is designed to reward true invention and promote innovation. The USPTO must ensure that they 

take the task of ensuring strong patent quality seriously. On the 

patent quality front, I strongly believe that the PTO should not 

simply be in the business of granting patents and leaving the mess 

created for the courts and Congress to fix, but rather focus on 

strengthening the requirements for patent eligibility to reduce the 

overall number of weak or overly broad patents from entering the 

system. I am encouraged by the PTO’s recent announcements in 

this space. 

We must also remind ourselves that reforming our patent system 

is not a right or left issue. It is an economic issue, one that is bipartisan, one that will be bicameral, and one that will be signed 

into law. As we take these steps toward eliminating the abuses of 

our patent system, discouraging frivolous patent litigation, and 

keeping U.S. patent laws up to date, we will help fuel the engine 

of American innovation and creativity, creating new jobs and growing our economy. 
6 

Thank you, Mr. Chairman. I look forward to hearing from our 

witnesses today. 

Mr. ISSA. I thank the gentleman. It is now my pleasure to introduce the Ranking Member of the full Committee, the gentleman 

from Michigan, Mr. Conyers. 

Mr. CONYERS. Thank you, Mr. Chairman. I am glad you did not 

introduce me as the skeptical Member of the Committee, but there 

is some skepticism that still remains. But this hearing today provides an important opportunity to consider the impact of recent Supreme Court cases involving abusive patent litigation. 

While allegations of abuse of patent litigation fed a clamor for 

drastic legislative reform, patent litigation rates in 2014 have 

dropped to levels last seen 5 or more years ago. So one of the first 

issues that I hope we assess is the impact of these Supreme Court 

decisions and whether they effectively have eliminated the need for 

one-size-fits-all fee-shifting legislation. 

For example, the Court in Octane Fitness lowered the standard 

by which a court may award attorney fees under Section 285 of the 

Patent Act. And in Highmark, the Supreme Court increased the 

level of deference that an appellate court must give to a lower 

court’s decision in awarding attorney’s fees. As a result of these two 

cases, it is now much easier for prevailing parties to obtain attorney fees. In fact, courts have granted nearly half of all motions for 

attorney fees filed in patent cases since these two cases were rendered. 

Given these developments, I believe it would be unwise for Congress to push additional fee-shifting legislation as the Federal 

courts assess the ramifications of these Supreme Court decisions. 

Legislative intervention at this time could create confusion and engender more rather than less litigation. So while I am not persuaded at this point in time that Congress must alter the current 

fee-shifting statute, I do encourage our witnesses to share their 

perspectives about how these two Supreme Court cases will affect 

patent litigation. 

In addition to these two cases, there have been two other recent 

Supreme Court cases that may further decrease abuse litigation. 

The Supreme Court in Alice declared that abstract ideas could not 

be patented. And in Nautilus, the Supreme Court set a higher 

standard for certainty and specificity for patent claims. Because 

the two cases will make it easier to invalidate many vaguely worded software patents and business method patents, plaintiffs with 

such patents will have less incentive to file lawsuits. Most importantly, the Patent and Trademark Office will be less likely to grant 

such patents under the new standards. 

So taken together, these decisions largely respond to concerns 

about how poor patent quality can lead to unnecessary patent litigation. And finally, it is my hope that this Committee will conduct 

further hearings that review the changing landscape affecting patents before we take any congressional action. In particular, we 

should examine what the Patent and Trademark Office, the Federal Trade Commission and the courts are doing to address abusive 

patent litigation. 

We know, for instance, the Patent Office is working on enhancing 

patent quality, and still in the process of implementing the Amer-
7 

ican Invents Act. The Federal Trade Commission is in the midst of 

conducting a study on abusive patent litigation behavior. In addition, several Federal district courts have adopted model discovery 

orders or discovery guidelines that limit discovery in patent lawsuits. Following the recommendations of the Judicial Conference, 

the Supreme Court will in the near future likely approve eliminating Rule 84 and its Form 18, which will lead to the higher 

pleading requirements of Twombly and Iqbal. 

The Supreme Court is also expected to approve amendments to 

other rules of civil procedure that are aimed at achieving proportionality and discovery and early and active judicial case management. These revisions would apply to patent cases commenced on 

or after December 1, 2015. Cumulatively, these various efforts may 

address many of the concerns expressed during the debates last 

Congress on the need for the Innovation Act. 

I have long said that I am prepared to respond to the problem 

of abusive patent litigation, but we must not do so in a vacuum, 

but in an environment cognizant of other ongoing developments, 

and we cannot do so in a way that inhibits or discourages the creative process that has been such a critical part of our Nation’s economic success. Thank you, Mr. Chairman. 

Mr. ISSA. Thank you, Mr. Conyers. It is now my pleasure to introduce the distinguished panel for today’s hearing. For the witnesses, your written statements will be entered into the record in 

their entirety. And I would ask that you summarize any and all 

portions of that or independent remarks within roughly the 5 minutes. You will see the guideline lights in front of you. Please note 

yellow means get ready to stop, not continue well into red. If you 

do it, it will encourage those here on the dais to do the same thing 

when questioning occurs. 

Before I introduce the witnesses formally, I would appreciate if 

all four of you would rise and take the Committee required oath, 

and please raise your right hands. 

Do you solemnly swear or affirm that the testimony you are 

about to give will be the truth, the whole truth, and nothing but 

the truth? 

[A chorus of ayes.] 

Mr. ISSA. Thank you very much. Please be seated. 

Our witnesses today include Mr. Herb Wamsley, executive director of the Intellectual Property Owners Association, better known 

as IPO; Mr. Krish Gupta, senior vice president and deputy general 

counsel at EMC Corporation, and I might note, an alumni of the 

Digital Corporation, one that I started my life in electronics involved with; Mr. Andrew Pincus, partner at Mayer Brown and 

former general counsel of the Commerce Department in the Clinton 

Administration; and Mr. Robert Taylor, counsel to the National 

Venture Capital Association. Again, as you begin speaking, your 

statements in their entirety will be placed in the record. 

Mr. Wamsley? 
8 

TESTIMONY OF HERBERT C. WAMSLEY, EXECUTIVE DIRECTOR, INTELLECTUAL PROPERTY OWNERS ASSOCIATION, 

WASHINGTON, DC 

Mr. WAMSLEY. Thank you, Mr. Chairman and Members of the 

Subcommittee. I appreciate the opportunity to be here today to 

speak on behalf of the Intellectual Property Owners Association, or 

IPO, a diverse association whose members include more than 200 

companies and industries ranging from pharmaceuticals and biotechnology to electronics and information technology. 

We strongly support eliminating abusive suits and litigation misconduct by all plaintiffs and defendants in patent litigation, large 

and small companies, independent inventors, universities, and others. We believe abuses can be eliminated without making it more 

difficult for patent owners to enforce valid patents. Now, the Supreme Court has decided seven cases since the House passed the 

Innovation Act in December 2013. I will comment briefly on six of 

those. 

In Octane Fitness, which is the most significant of the cases as 

far as the Innovation Act is concerned, the Supreme Court lowered 

the standard for finding a case exceptional for purposes of awarding fees to a prevailing party. Octane also lowered the evidentiary 

burden for a party to establish entitlement to attorney’s fees. In the 

companion case of attorney fee awards, Highmark, the Court raised 

the standard of review for appeals of attorney fee awards. The net 

effect of Octane and Highmark is to make it somewhat easier for 

a prevailing party to obtain attorney fees, but IPO still supports 

legislation on attorney fees. 

The legislation should require an award of attorney fees to a prevailing party in every case unless the position and conduct of the 

non-prevailing party were objectively reasonable and substantially 

justified or exceptional circumstances make an award unjust. This 

presumptive fee shifting will be more effective than the Octane and 

Highmark decisions in deterring abusive litigation practices and 

will provide uniformity. 

The Octane standard of awarding fees in cases that stand out 

from others lowers the bar, but Octane is likely to be subject to a 

wide range of district court interpretations. Legislation can require 

judges to shift fees when they otherwise may be less inclined to do 

so. Fee shifting may be the single most effective legislative measure for discouraging frivolous lawsuits and frivolous defenses. 

In Alice Corporation, the Supreme Court revisited patent eligibility under Section 101 of the Patent Act. Unfortunately the test 

articulated by the Court in Alice is not clear. We believe it is too 

early to tell what long-term effect Alice will have on abusive behavior in patent litigation. Since the Alice decision, reports have suggested an increase in district court dismissals of suits on softwarerelated and business method inventions. 

Alice may strengthen the hand of defendants in frivolous suits. 

Defendants may be able to get suits dismissed for lack of patent 

eligibility at an early stage before costly discovery. However, unless 

clarified, Alice may have adverse effects on the incentive for innovation not only in software, but in other industries. 

Three other cases have some effect on patent litigation. Nautilus 

adopted the new reasonable certainty standard for patent claims 
9 

that will make it easier for a defendant to challenge a vague patent 

as indefinite. This will deter some frivolous charge of infringement. 

Teva Pharmaceuticals held at the Federal circuit must apply a 

clear error standard to review factual findings in support of patent 

claim construction. The Teva framework better aligns with appellate review of patent claim construction, and Supreme Court precedent in the Federal Rules probably will have no effect on abusive 

suits. Limelight Networks will foreclose some patent suits based on 

an infringement inducement theory. 

We advise the Subcommittee to continue to monitor the possible 

impact of the Supreme Court decisions as it considers the Innovation Act. As mentioned, we draw attention to the amendments to 

the Federal Rules of Civil Procedure. They are scheduled to take 

effect at the end of this year, which will heighten the pleading 

standards for patent infringement, and provide judges with some 

more discretion relating to discovery. 

I will close by noting that the Patent and Trademark Office can 

help deter litigation abuses by ensuring that patents that are 

granted are of the highest possible quality and define the scope of 

rights. We support the USPTO’s new patent quality initiative. I 

will be happy to answer any questions. 

[The prepared statement of Mr. Wamsley follows:] 
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Mr. ISSA. Thank you. 

Mr. Gupta? 

TESTIMONY OF KRISH GUPTA, SENIOR VICE PRESIDENT AND 

DEPUTY GENERAL COUNSEL, EMC CORPORATION, HOPKINTON, MA 

Mr. GUPTA. Chairman Issa, Ranking Member Nadler, and Members of the Subcommittee, I am honored to testify today on the critical need for patent litigation reform. 

EMC is a global leader in cloud computing. EMC and its affiliates hold more than 5,100 issued U.S. patents, and our portfolio is 

regularly recognized as one of the best in the information technology business. We support a strong patent system that protects 

and promotes innovation and one that cannot be exploited by abusive litigation tactics. 

Since 2005, EMC has been sued by patent entities more than 35 

times and has never been found to have infringed. Yet, defending 

those suits has been extremely expensive, costing $10 million in 

2014 alone. And this does not include the substantial disruption to 

our business resulting from these frivolous lawsuits. 

EMC is not alone in this regard. In 2014, more than 5,000 new 

patent lawsuits were filed. That is nearly twice as many as were 

filed only 4 years earlier when Congress passed the AIA. Most impartial observers agree abusive patent litigation harms innovation 

in all industries. 

Some have suggested that recent decisions by the Supreme Court 

either reduce or negate the need for Congress to act. As a practitioner who spends most of his time on patent litigation matters, I 

disagree. Only Congress can comprehensively restore balance in 

the patent system. Let me walk through the Court’s decisions that 

are most relevant to the issue of patent litigation reform, although 

I do not believe they offer an adequate solution. 

In Highmark and Octane, the Court addressed the award of attorney’s fees under Section 285 of the Patent Act, which currently 

limits the assessment of fees to exceptional cases. They loosened 

the standard by which courts evaluate what qualifies as an exceptional case while granting greater discretion to district courts to 

make this determination. 

Highmark and Octane have had no meaningful impact. In the 9 

months since these decisions, motions for fees have been granted 

in whole or in part only 4 percent more often than they were in 

the 2 years before these cases. Thus, fee shifting is still the exception rather than the rule. The Innovation Act would level the playing field by requiring that fees be awarded to the prevailing party 

unless the losing party’s position is substantially justified or special 

circumstances make an award unjust. This provision will discourage the filing of frivolous suits and the use and abusive litigation 

tactics by imposing financial accountability in the patent system. 

Next, I would like to turn to the Supreme Court’s decisions in 

Iqbal and Twombly. In these cases, the Court addressed the level 

of specificity required in a complaint to include enough facts to 

plausibly suggest that the plaintiff is entitled to relief. With the Judicial Conference recently recommending the elimination of Form 
26 

18 for patent pleadings, it is expected that the Iqbal and Twombly 

standards will apply to all patent pleadings as well. 

However, these cases do not set forth bright line rules necessary 

for patent cases and are bound to lead to variable outcomes. Many 

courts will undoubtedly continue to permit vague pleadings. The 

Innovation Act recognizes the need to provide uniform and clear 

pleading standards. This imposes no new burden on good faith 

plaintiffs who will have already conducted proper due diligence, but 

it will deter bad faith plaintiffs and will reduce costs for defendants 

by requiring the allegations to be made clear at the outset. 

On discovery, there have been no Supreme Court developments 

regarding abusive tactics. We support provisions included in the Innovation Act that limit discovery before the Court issues its claim 

construction ruling. This would ensure that discovery is focused on 

claim construction issues that actually matter. By requiring the requesting party to cover the cost of unnecessary discovery, the Innovation Act will limit the extent to which discovery costs can be 

used as a bargaining chip to extort a settlement. 

These three areas—fee shifting, pleading specificity, and discovery—require legislative intervention. The courts cannot bring 

about the comprehensive and prompt solution that Congress can 

structure while promoting consistency and predictability. The 

rampant proliferation of abusive patent litigation is a problem 

causing billions of dollars of costs that cry out for a legislative solution. We urge you to swiftly pass this legislation, and we stand prepared to help you in any way we can to bring a bill to the President’s desk in short order. 

Thank you, and I look forward to your questions. 

[The prepared statement of Mr. Gupta follows:] 
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Mr. ISSA. Thank you. Mr. Pincus? 

I would advise all of you that we will get through your statements, and once the vote is called at approximately 2:00, we will 

operate for 10 additional minutes and then anticipate a break for 

roughly two votes. So you will all be getting about a 30-minute 

break in about 30 minutes. 

Mr. Pincus? 

TESTIMONY OF ANDREW J. PINCUS, PARTNER, 

MAYER BROWN LLP, WASHINGTON, DC 

Mr. PINCUS. Thank you, Mr. Chairman, Ranking Member Nadler, and Members of the Subcommittee. It is an honor to appear before you to discuss the Supreme Court’s recent patent decisions, 

and, in particular, the impact of those decisions on the very serious 

problem of abusive patent litigation that this Committee in the 

House sought to address in the last Congress through passage of 

the Innovation Act. 

The Supreme Court, of course, does not have free-floating policy 

authority to address concerns about patent litigation. Its responsibility is to interpret the statutory text when an issue is brought before it. So some of the Court’s recent decisions have overturned 

Federal court rulings that promoted abusive litigation, but other of 

the Court’s recent decisions are likely to have the opposite effect 

and actually increase the cost and complexity of patent cases. And 

as to some decisions, we actually do not yet know what the outcome will be. 

For example, the Court’s decision last year in the Nautilus case 

rejected a Federal circuit rule that had all but eliminated the patent max definiteness requirement, and the Supreme Court instead 

made clear that a claim is invalid if it fails to inform with reasonable certainty those skilled in the art about the scope of the invention. Reaffirming the definiteness requirement will help weed out 

some unjustified patents. 

But in the Teva Pharmaceutical case, the Court’s decision is likely to increase patent litigation costs and complexity. As the Committee knows, the key initial first step in patent litigation is construing the patent claim, and in doing that the Court can consider 

the language of the claims, the specifications, the prosecution 

record, as well as extrinsic evidence, including expert testimony. 

Claim construction is a task for the judge, and it takes place following a so-called Markman hearing at which the parties present 

all of the relevant evidence. 

The Federal circuit had held that it reviewed all aspects of claim 

construction de novo, including the district court’s determinations 

regarding extrinsic evidence, such as expert testimony. In Teva, the 

Supreme Court reversed and said that those factual determinations 

are subject to a clearly erroneous standard of review. Previously, 

introduction of expert testimony in the course of a Markman hearing while it occurred was rare, but Teva may be viewed by some 

district courts and some parties as an implicit endorsement of reliance upon expert testimony and other extrinsic evidence. And district courts may want to ground their decisions on those bases in 

order to limit the possibilities of reversal on appeal. So that may 

mean much more discovery and expert testimony at the beginning 
41 

of the case, which, of course, is going to make these cases even 

more complicated and even more costly than they already are. 

The Alice case, as Mr. Wamsley said, involves the question of 

patentable subject matter. The Court had before it a patent claim 

that was troubling that basically said take this fundamental economic principle, do it on a computer, that is patentable. And the 

Court said, no, something significantly more is required, and the 

lower courts are now trying to flesh out what that ‘‘significantly 

more’’ is. Obviously there is a concern that that test not swallow 

up legitimate patent claims and not swallow up the other tests in 

the Patent Act that limit patentable. And we are going to have to 

see how that all plays out. 

Most troubling, I think, from the perspective of reducing litigation abuse were the Court’s decisions in the two attorney’s fees 

cases, Octane and Highmark. They together give district courts 

more discretion, but the Supreme Court reaffirmed that the exceptional test, which is the language used in the current version of 

Section 285, which means that fee shifting is an option in only a 

small minority of cases because the case has to be exceptional, 

which by definition is going to be a very small group of cases. 

So a defendant deciding whether to settle or fight a claim that 

the defendant views as abusive cannot count on the availability of 

fee shifting to offset the plaintiff’s ability to inflict significant litigation costs through the litigation of the case. So the critical question 

I think is, how does that rational defendant view the ability to recovery attorney’s fees if it decides to fight? And where the test is 

exceptional, that rational defendant has to say my ability to recover attorney’s fees is going to be quite low. That is why a change 

along the lines of the Innovation Act really is essential. 

So that ruling confirms the reality that the text of the Patent Act 

does not authorize the Supreme Court to address the principle factor producing abusive lawsuits, which is the ability of plaintiffs to 

inflict these huge asymmetric litigation costs on defendants while 

paying little themselves. That is what allows the coercion of unjustified settlements, and that is what congressional action is needed to address. 

Thank you. I look forward to answering your questions. 

[The prepared statement of Mr. Pincus follows:] 
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Mr. ISSA. Thank you. 

Mr. Taylor? I think we cannot quite hear you yet. 

TESTIMONY OF ROBERT P. TAYLOR, COUNSEL, NATIONAL 

VENTURE CAPITAL ASSOCIATION, WASHINGTON, DC 

Mr. TAYLOR. I am Robert Taylor appearing for the National Venture Capital Association. NVCA represents approximately 400 venture capital firms that collectively account for the vast bulk of all 

venture capital invested in this country. 

Let me stress three basic points. First, strong protection of intellectual property allows entrepreneurs and investors to assume the 

risks necessary to commercialize breakthrough technologies. Despite the fact that a few companies may not rely on patent protection, for the great majority of startups, patents are essential to 

their existence and survival. 

Second, although people are justifiably offended by abuses of the 

legal system, it is important to ensure that efforts to correct that 

problem do not cause more damage to innovation than does the 

problem itself. NVCA strongly urges Congress to direct its efforts 

at improper behavior, not at the patent system. Innovation requires 

a healthy patent system, including the ability of innovators to enforce their patents without undue risk and expense. 

Third, recent activity at the Supreme Court, the Federal Trade 

Commission, the Judicial Conference, and the Patent Office pursuant to the AIA has changed the patent landscape in important 

ways that already address most of the problems to which H.R. 9 

is directed. As a result of these changes, new patent case filings 

dropped 18 percent between 2013 and 2014, and the full effect of 

those developments has yet to be felt. 

Let me expand a little. For decades innovative new companies 

have been the most important source of job growth in this country. 

Creating a new company requires entrepreneurs willing to forego 

job security to pursue a vision for a better future. It requires investors willing to share that vision and to dedicate time and money 

to make it a reality. The process is fraught with considerable risk. 

Several years ago I represented a small company that pioneered 

a revolutionary advance in minimally invasive surgery, surely the 

type of innovation we should encourage. As soon as that company 

showed its products to surgeons, however, large companies that 

sold surgical equipment began to copy the design, modify their own 

tools, and bundle their sales in ways that foreclosed my client from 

the market. The company spent nearly 5 years in scorched earth 

patent litigation with corporate giants to enforce its patents and 

stay in business, but ultimately it prevailed. 

For the vast majority of innovative startups like that client, patents are the only way to ensure a return on investments sufficient 

to justify the risks involved. This group includes companies developing digital technologies that employ innovative hardware and 

software, energy companies, communication technologies, new polymers and metallurgical products, information technologies, medical 

devices, biologics, and pharmaceuticals. 

My second point. H.R. 9 will make patent litigation more cumbersome, more expensive, and more risky for litigants on both 

sides. Importantly, this will impact smaller companies much more 
53 

than their larger and better-funded competitors, irrespective of 

which side each is on. And for innovators, the ability to enforce patents at reasonable cost and risk is an essential part of the patent 

right. Patents that companies cannot afford to enforce become 

nothing but wall decorations, and when incumbents perceive that 

a new entrant is unable to or unwilling to enforce its patents, the 

temptation to copy becomes irresistible. For venture capital firms 

themselves, the transparency and joinder provisions of H.R. 9 

present serious problems. 

My third point. My written testimony describes a number of actions by courts and Federal agencies that are creating a sea change 

in patent law that is already responding to much of what H.R. 9 

targets. A series of Supreme Court decisions alone has made it 

much easier for companies to defend against meritless patent 

cases, including the ones that others have already referred to. 

Other changes are equally significant. The abolition of Form 18 is 

going to bring patent pleading in line with other Federal litigation. 

The FTC has taken on the challenge of abusive demand letters, 

and the AIA is having a major impact. 

My closing point. The entrepreneurial drive to pursue new visions has been a bedrock feature of American culture for decades 

and has largely been responsible for our remarkable success as a 

Nation. The patent system is essential to protect the innovative 

spirit that pervades our national character. It would be tragic if 

this Congress, in the misguided belief that H.R. 9 will promote innovation, made it more risky and expensive for our most promising 

companies to protect themselves and their technology. 

Thank you. 

[The prepared statement of Mr. Taylor follows:] 
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Mr. ISSA. Thank you. I will now recognize myself for a 5-minute 

round of questioning. Mr. Taylor, what was the name of the company that spent 5 years trying to defend its right, ultimately prevailed? 

Mr. TAYLOR. I was not involved for the full 5 years. The company 

was Applied Medical Systems. 

Mr. ISSA. They have my sympathies because, in fact, the clod 

slow difficult system to enforce your patents is exactly what this 

bill is intending to fix. 

Mr. Gupta, in the case of a major part of this legislation, the 

heightened pleading was followed by the early Markman in order 

to discover what the patent is and provide both sides a good faith 

understanding of what the patent really means and how it might 

apply to the product in question. Does that, in your opinion, and 

I will go to each of you, get you to many resolutions, some 

unclogging of the system, and ultimately an opportunity for people 

who in good faith want to end up with an ultimate outcome, to get 

there at lower cost? 

Mr. GUPTA. Thank you, Mr. Chairman. Yes, I agree—— 

Mr. ISSA. I love it when someone says ‘‘yes’’ first. Please. 

Mr. GUPTA. The Innovation Act, in my mind, has balanced provisions that are designed to make the litigation process much more 

efficient than it is today. We are in court today in a Markman 

hearing. The plaintiff asserted eight patents against us, accusing 

two major product lines. The complaint did not identify any of the 

hundreds of claims involved in the patents, did not identify any 

model numbers. 3 months later, they added three additional patents to bring it up 11 patents, another product, no model numbers. 

8 months into the litigation, they gave us some claim charts and 

some claims. 12 months into the litigation, they attempted to add 

even more claims that were not announced previously and new 

products, and the Markman was about a month after. They attempted to add new claims again. 

So it is an extremely cumbersome process for defendants when 

plaintiffs do not identify exactly what product, what claims, and 

how the infringement is being argued. And, more importantly, the 

imbalances in discovery are so severe that defendants often are left 

with two choices: one, either get extorted or settle, or take it all the 

way to the end, spend millions, and still not really win because 

they are out of pocket several hundred million dollars. 

Mr. ISSA. And I appreciate that, and I want to go to Mr. 

Wamsley, too. But in a nutshell, having practiced as a patent holder and a defendant as a manufacturer, the one thing I know that 

I hope I get a yes from all of you on is, in a perfect world the pleadings tell what the infringement is if it is available to be defined. 

And if it is not available to be defined, at least sufficient for why 

you believe in good faith that there is a patent infringement, and 

an early Markman with discovery related to that. 

Is that not the goal of everyone who has a valid patent that they 

truly believe has been infringed, or a defendant who truly believes 

they do not fall within the proper meaning of the patent? Is there 

anyone that disagrees with that? 

Mr. TAYLOR. May I just address that, Mr. Chairman? 
65 

Mr. ISSA. As long as you are brief because I did describe your 

opening statement in my opening statement. 

Mr. TAYLOR. Okay. Yes, I think in an ideal world you would like 

the pleadings to disclose as much as possible. It is often the case, 

however, and this is not just true of patent litigation, it is true of 

virtually all litigation. The plaintiff at the outset of a trial or outside of a case does not know all the facts it needs to put together 

a full trial brief. 

Mr. ISSA. Okay. Well, let me follow up on that because I think 

that is extremely important having been the plaintiff. If you do not 

know there is patent infringement, then where do you get the right 

to go on a fishing expedition to see if you can find one? 

Mr. TAYLOR. No lawyer today in light of—— 

Mr. ISSA. That was a question that requires an answer related 

to if, and I will go to Mr. Pincus because I have not gone to him 

yet. If you do not know there is patent infringement, what in any 

part of the law allows you to begin having Mr. Gupta’s company 

spend money because you want to go on a fishing expedition because your patent on a swimming pool might apply to an array of 

disk drives? 

Mr. TAYLOR. I do not think—oh, I am sorry. 

Mr. PINCUS. I think that is exactly right, Mr. Chairman. I think 

you certainly should know which claims of your patents are infringed and what the infringing articles are, and I think that is the 

critical issue. 

Mr. ISSA. And should you not know your accuser’s true identity, 

particularly if you are being sued by a shell corporation? That is 

my closing question because I know Mr. Taylor objected to that. 

Mr. PINCUS. I think you should know that as well, and I think 

that is why regardless of Iqbal and Twombly, the Innovation Act’s 

specific requirements are so appropriate because if I were a patent 

plaintiff, I would not want to wait for 5 years for Iqbal and 

Twombly’s application to patent infringement cases to be—— 

Mr. ISSA. Thank you. Mr. Wamsley, very quickly because my 

time has expired, if you have something to add. 

Mr. WAMSLEY. Well, Mr. Chairman, I agree with your description 

of how it should work in a perfect world, and we support heightened pleading standards in principle. When we looked at this in 

the last Congress, we did it through a recommendation to amend 

Form 18 to specifically require identification of one or more claims, 

and explain how the latest infringing instrumentality infringed 

those claims. Now the Judicial Conference has gone to the 

Twombly/Iqbal standard, that may produce the same result, but we 

do not know yet. 

Mr. ISSA. I look forward to finding out. Mr. Nadler is recognized 

for his questions. 

Mr. NADLER. Thank you. I would like to ask Mr. Taylor to comment on the question that you did not get a chance to answer from 

the Chairman. I never liked the Iqbal or Twombly decisions, and 

I, in fact, introduced legislation to overturn them, which unfortunately has never passed because if you have a good reason to believe it is a general tort, the defendant is more likely to have the 

specific knowledge of the evidence. 
66 

But, Mr. Taylor, in patent, is that applicable? Should you not 

know if your patent is being infringed or how it is being infringed? 

Should you not be able to describe the provision of patent that is 

being infringed? 

Mr. TAYLOR. Congressman, at least in the courts I have been 

practicing in for most of the last 35 years, lawyers before they will 

file a complaint are subject to Rule 11, which requires that you 

have a reasonable basis for believing that the factual allegations in 

the complaint are true. And I do not know any responsible lawyer 

that will file a case simply hoping that they can prove infringement. We go to great lengths sometimes—— 

Mr. NADLER. So then Iqbal is okay. 

Mr. TAYLOR. I did not hear you. 

Mr. NADLER. So then Iqbal is correct. 

Mr. TAYLOR. Iqbal, it does not authorize people to make factual 

assertions in complaints for which the lawyers don’t have some factual or some reasonable basis for believing them to be true. That 

is Rule 11 of the Federal Rules, and it is a seriously applied rule. 

Mr. NADLER. But in a patent, is it not generally the case that if 

you are filing a patent infringement claim, you should have probably more specific knowledge in some tort case or whatever about 

what in your patent is being infringed allegedly? 

Mr. TAYLOR. That is generally the case, and most responsible 

plaintiffs will take an accused’s product and they will have it reversed engineered or they will analyze it. They will make every effort to determine whether the elements of a claim in the patent are 

all present, and in the process it is a little more difficult sometimes 

to find out. 

Mr. NADLER. Thank you. Mr. Wamsley, in light of Octane Fitness 

and Highmark, do you believe we still need legislation on these 

subjects? And if so, why? 

Mr. WAMSLEY. Yes, Mr. Nadler, we believe that legislation is still 

needed—— 

Mr. NADLER. Because? 

Mr. WAMSLEY [continuing]. While Octane and Highmark are a 

step forward, the tests set forth by the Supreme Court in Octane 

that attorney’s fees could be awarded in cases that stand out, it is 

broadly worded language. 

Mr. NADLER. Too vague? 

Mr. WAMSLEY. And we believe there is a spectrum of interpretations of that by the district court, and it is better to nail a brighter 

line in legislation. 

Mr. NADLER. Thank you. Mr. Taylor, could you comment on the 

same question? 

Mr. TAYLOR. I think that what we ought to do is wait for a while 

to see how the lower courts are going to apply the Highmark and 

Octane cases. I am not sure I agree that it is better to have a presumptive shifting of fees and for the following reason. At least from 

the perspective of the venture capital world, a small company that 

has been sued by a larger competitor is looking at two kinds of liability, liability for the infringement, and if you tack on attorney’s 

fees as a presumption, that simply increases the ante. It raises the 

bogey, and that works distinctly to the advantage of larger companies to the detriment of smaller companies. 
67 

Mr. NADLER. And, Mr. Taylor, you say that the lower courts appear to be reading Alice to hold that subject matter eligibility can 

be decided in early stage of litigation without the need for costly 

discovery or claim correction. Mr. Taylor said that. 

Mr. TAYLOR. Yes, sir. 

Mr. NADLER. And that would seem to imply that we do not need 

legislation on that point. 

Mr. TAYLOR. I certainly would suggest that we wait to see what 

the implications of Alice—— Mr. NADLER. And who would disagree with that on that point 

and why, of the other witnesses? Mr. Wamsley? 

Mr. WAMSLEY. Well, Mr. Nadler, I would say that we may need 

legislation on Alice. Mr. NADLER. We do not know yet. 

Mr. WAMSLEY. But on clarifying Alice, the U.S. Patent and 

Trademark Office is now going through a public procedure to clarify. 

Mr. NADLER. Thank you. Last question because my time is running out. Mr. Taylor, you said in your testimony that legislation 

should focus on specific behavior, not on the procedural aspects of 

enforcing patents. How would you accomplish this? What would 

you do? 

Mr. TAYLOR. Well, the specific behavior, what we are trying to 

deal with here is what people consider to be abusive behavior by 

litigants. The courts already have a vast amount of power to deal 

with abusive behavior. And currently, I think the National Venture 

Capital Association would say that little is needed in connection 

with this, although, as noted in our statement, we do support the 

TROL Act, enactment of the act that would increase the power of 

the Federal Trade Commission to deal with abusive and deceptive 

demand letters. 

Mr. NADLER. Thank you. My time has expired. 

Mr. ISSA. I thank the gentleman. We now go to the Chairman of 

the full Committee, the author of the bill, the gentleman from Virginia, Mr. Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Taylor, on that 

last point, that is exactly what we are doing. I mean, we are providing for fee shifting, but in very precise circumstances, only when 

there is no reasonable basis in law or fact for asserting the claim, 

whether it is by a plaintiff or a defendant. When you translate that 

to the small startups that your companies invest in, they already 

are facing that right now. And when they get that claim, they are 

facing a multimillion dollar bill to defend their claim right now, or 

to assert it if they feel that some company, a bigger one, is going 

to do that, with no prospect—no prospect whatsoever—for recovery 

of that large loss. 

So many of them choose to simply not fight it, and that is a reason why they are less successful in getting off the ground. So this 

predatory environment that they operate in is made, I think, worse 

by the fact that they have no prospect of anybody determining 

whether predatory actions took place in the first place, so I do not 

follow your reasoning there at all. I think this will be a big help, 

and many startups have told me just that, that it will be a big help 

to stop these kinds of predatory actions taking place against them. 
68 

Mr. TAYLOR. Some of the lawyers who represent non-practicing 

entity plaintiffs have told me that fee shifting is not going to affect 

their behavior at all. 

Mr. GOODLATTE. Well, that does not explain why they are working very hard against this bill, I can tell you that. 

Mr. TAYLOR. In my view, having been on both sides of lots of patent cases, I see the presumptive shifting of fees as an argument 

that allows the plaintiff to say to the defendant you owe me 

$100,000—— 

Mr. GOODLATTE. It is not presumptive shifting of fees. There is 

no presumptive shifting of fees in this law. It is only a shifting of 

fees when the Court finds that there was no reasonable basis in 

law or in fact for that to take place. So this constant assertion that 

there is going to be rampant fee shifting in patent cases after the 

passage of this law is incorrect. 

What will happen, though, is there will be much greater certainty about when that fee shifting would take place. So you and 

your clients will be able to determine whether or not they have a 

good patent defense or a good claim to assert against somebody else 

and know much more likely than they do now what is going to happen because of the discovery process, the requirements when you 

file the case. And I think also importantly to know under what circumstances they should assert a defense and when they should not, 

because if they are not being reasonable, then darn right, they 

should not assert the defense. But if they are, this creates greater 

certainty than this morass of lawsuits. 

So let me just say, and the elephant in the room here is that it 

is generally very rare for the Supreme Court to take up patent 

cases. But with all the recent Supreme Court decisions, it really 

looks like the Court has taken the Federal circuit to task. No judge 

wants to be reversed on appeal, especially not an appeal court 

judge that sits on a court with exclusive jurisdiction. 

I will start with you, Mr. Wamsley. Do you think that the Federal circuit is getting the message, or do you foresee that the Supreme Court is having to just keep taking up more cases? Is this 

the new normal for the patent world, and is it good for the patent 

world to rely upon and wait on the next Supreme Court decision 

rather than to have some statutory certainty that is carefully negotiated, and takes into account all of these cases that have come 

down the line, but does not wait on that next decision around the 

corner, says here based upon experience and based upon what we 

have seen is some certainty in the law? 

Mr. WAMSLEY. Well, Mr. Goodlatte, I would say the Federal circuits are certainly reading the Supreme Court decisions, and I believe recent decisions in some of the cases following Alice, for example, show that although there is still some inconsistency. And Alice 

is a case where the Supreme Court may have to come back to it 

again. 

On fee shifting, I think the Federal circuit will follow. There was 

a case argued last week, according to the IP press, at the Federal 

circuit where, according to press accounts anyway, it sounded like 

the Federal circuit was inclined toward fee shifting. 

Mr. GOODLATTE. Mr. Gupta? 
69 

Mr. GUPTA. Thank you, Mr. Chairman. In certain areas, the Supreme Court cannot provide the sort of consistent balanced solution 

that Congress can. And as I pointed out, for example, in the area 

of abusive discovery, there is no Court guidance and there are no 

Court decisions to help us. And in the area of pleading specificity, 

which is really important, you know, reliance on Iqbal and 

Twombly is not going to solve the problem because Iqbal and 

Twombly do not provide the kind of bright lines that we need in 

a specialized area like patent litigation. 

Mr. GOODLATTE. Mr. Pincus? 

Mr. WAMSLEY. Mr. Chairman, could I just—— 

Mr. GOODLATTE. I am already 30 seconds over. It is going to be 

up to that Chairman. 

Mr. WAMSLEY. Could I just complete my last response? 

Mr. ISSA. If the Chairman would like to let you have time, I 

would ask additional time. 

Mr. GOODLATTE. We will hear from Mr. Pincus and then we can 

go back. 

Mr. WAMSLEY. I would just like to say that no matter how strong 

the Federal circuit supports fee shifting, we think legislation is still 

needed because the way the statute is worded right now, only Congress can strike the balance that you want. 

Mr. GOODLATTE. Thank you. Mr. Pincus? 

Mr. PINCUS. Well, the Federal circuit had a bad year. There were 

six cases, and it did not get a single vote, so it was sort of 0 and 

54 and a bad year for the Federal circuit, and I think that was a 

message that the Supreme Court was trying to send. But I think 

the problem is that the Supreme Court cannot rewrite the fee-shifting law to make the standard less mushy and clearer along the 

lines of what you were saying in terms of people’s ability to anticipate how it will be applied and take that into account into their 

decisions. And that is something that only Congress can do. 

The same with pleadings. Iqbal and Twombly can apply, and 

maybe in 10 years we will know how it applies to patent infringement actions. But there are some pretty clear rules that Congress 

could specify right now that would be great for both plaintiffs and 

defendants so they would know what is needed to get into court, 

and that would be that. 

Mr. ISSA. Thank you. We now recognize the Ranking Member for 

up to 7 minutes depending upon how fast he wants to run to the 

vote. I would advise all Members this will be the last question before we recess for the vote. 

Mr. CONYERS. Thank you so much. Let me ask, Mr. Taylor, with 

your background, counsel in venture capital firms who invest in 

patent owning businesses, how would the pending legislation impact the decisions venture capitalists make in investing? 

Mr. TAYLOR. One of the provisions that we are most concerned 

about is the so-called joinder provisions, which are not clearly written, and read as if a venture capital firm that owns a majority 

share in a patent plaintiff would be on the hook for attorney’s fees 

in the event a court were deciding to award that. Most venture capital investments are made, and that is the end of the money until 

they decide to make a new one, and to impose on the investors a 

responsibility for the actions of some of their companies. Piercing 
70 

the corporate veil, as it were, is something that is going to have 

a serious deterrent effect on venture capital investment. 

Mr. CONYERS. How would this impact small investments and 

startups? 

Mr. TAYLOR. Well, almost all venture capital investment is in entrepreneurial companies, innovative companies that are in either 

startup mode or not very far along from that. 

Mr. CONYERS. All right. And my last question is to Mr. Wamsley. 

How has fee diversion impacted on USPTO’s effort to ensure high 

quality patent examination? 

Mr. WAMSLEY. There has been a serious adverse effect from fee 

diversion over the years. Going back over a period of years, more 

than $1 billion has been diverted to unrelated government programs or sequestered, and studies have shown that this is a principle reason for the backlog of cases to be examined. And we believe that more resources are also needed to improve quality, and 

so we would urge Congress when it has an opportunity to revisit 

the issue of guaranteeing secure funding for the PTO. 

Mr. CONYERS. Do the other three witnesses generally agree with 

that response? 

Mr. PINCUS. That diversion is a bad thing, absolutely. 

Mr. GUPTA. Yes. 

Mr. CONYERS. Thank you, Mr. Chairman. 

Mr. ISSA. Thank you. I would advise all Members of the Subcommittee that we will return immediately after this series of two 

votes. So the first two Members back will begin the process. We 

stand in recess. 

[Recess.] 

Mr. ISSA. Could I ask you all to please take your seats? We are 

going to start again in a moment. The Committee will come to 

order. Is the gentleman from Texas prepared? 

Mr. FARENTHOLD. I am always prepared. 

Mr. ISSA. The gentleman is recognized. 

Mr. FARENTHOLD. Thank you very much, Mr. Chairman. Mr. 

Gupta, I would like to touch briefly on a related issue, namely the 

rise of patent litigation before the ITC. I think it is important we 

do something about the rising tide of litigation in the Federal judiciary and the fact that we are moving over into concurrent tracks 

with litigation in the ITC. We have got to keep in mind that any 

reforms we do with respect to what happens in the judiciary may 

also roll over into the ITC. 

My fear is that the trolls will use the ITC to pressure litigants 

to settle rather than face the cost of defending in that venue. We 

have already seen patent assertion entities starting to play the 

same game in the ITC that we are seeing in the Court, bringing 

suit against the customers or technology companies. To that end, 

I would like to ask you, is it your understanding that PAEs have 

additional leverage at the ITC and are actually in a better position 

to make settlements than in Federal courts? 

Mr. GUPTA. Thank you, Congressman, for that question. It is concerning to us that the ITC is being used by patent assertion entities to essentially have dual litigation at times. The ITC is best 

able to deal with foreign knockoffs that come into our country, but 

to have an American entity litigate against another American com-
71 

pany, particularly when the accusation is probably directed to some 

small component that might have in the supply chain originated 

outside the country appears to be not the most efficient use of the 

ITC. And I agree, and I share your concern. 

Mr. FARENTHOLD. Thank you very much. Let us kind of shift to 

a different topic. In your written testimony you talk about the Teva 

Pharmaceuticals case and the potential of providing unscrupulous 

patentees with an incentive to pick the district court most favorable to them. Knowing their claim interpretation will be insulated 

from de novo review in the Federal circuit. I am wondering what 

you think about the impact of striking the broadest reasonable interpretation standard will be on current litigation environments in 

light of that decision. 

I am especially interested given the decision in, what is it, the 

Cuozzo Speed Technologies this week holding that applying the 

broadest reasonable interpretation standard reduces the possibility 

that after a patent is granted, claims may be interpreted as giving 

broader coverage than justified. 

Mr. GUPTA. We believe that the BRI standard is appropriate for 

IPRs and reviews post-grant. We have had several patents of ours 

challenged through the IPR proceedings, and we have challenged 

others as well. And we think that the Patent Office should be allowed to use the broadest reasonable interpretation standard when 

it looks at those patent claims. 

Mr. FARENTHOLD. All right, thank you. Mr. Taylor, I believe in 

response to Mr. Nadler’s question, I think you referred to ‘‘good 

plaintiffs,’’ and I think that is not what we are after in this. I think 

our concerns are the bad actors who are using the expensive litigation to force settlements in questionable claims and the like. So I 

have no problem with, I guess, the term ‘‘good plaintiffs’’ with good 

cases coming, and I think we are drafting that such that we are 

going to preserve that. It is the bad actors we are going to get 

after. 

But I am also a little interested, you know, based on your testimony, it kind of seems like it may be a little bit in conflict with 

NVCA’s membership. There is a survey I think that said by and 

large they are harmed by patent trolls and supportive of reform. 

Why are you generally opposed to this litigation if some of your 

members or the majority of your members are having a problem? 

Mr. TAYLOR. The only study I have seen is one that sampled a 

very small section of venture capital firms, and certainly does not 

represent the center of gravity of the NVCA. I have been working 

with the NVCA board now for almost a year on this issue, and trying to help people understand what the statute would say and how 

it would affect their businesses. And the positions that I am setting 

forth here today are the positions of the National Venture Capital 

Association. 

Mr. FARENTHOLD. Thank you very much. And with the Chairman’s permission and the consent of the Committee, I have a letter 

from Engine Advocacy titled, ‘‘Startup Investors Nationwide Support Broad Patent Reform,’’ that I would like entered into the 

record. 

Mr. ISSA. Without objection, so ordered. 

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Mr. FARENTHOLD. And I timed that almost perfectly. I will yield 

back—— 

Mr. ISSA. Would the gentleman yield? 

Mr. FARENTHOLD. I will. 

Mr. ISSA. Mr. Taylor, would you provide transparency as to your 

members’ statuses because it really is now a question of, you said 

you have been trying to convince your board to support opposition 

to the legislation. Do we have transparency for the 400 companies 

that are involved in yours to figure out how many of them support 

your position in light of the fact that it does appear as though 

there may be some doubt as to whether there is a formal process 

on a board and transparency? 

Mr. TAYLOR. It is a large organization, and I am not certain how 

much of it is public. I have been dealing basically with the staff 

and with the board of directors, so I am not sure I can answer the 

question. 

Mr. ISSA. Okay. I will take that as a no. [Laughter.] 

With that, we go to the gentlelady from California, Ms. Chu. 

Ms. CHU. Mr. Gupta, we have been talking quite a bit about the 

fee-shifting cases of the Octane and Highmark cases. You argue 

that these cases did not go far enough in deterring the filing of frivolous patent cases that companies both large and small have faced. 

You provide some statistics that can be helpful to us in evaluating 

how we should legislate in this area. 

Why do you think that the rate of fully-granted motions increased shortly after the first 3 months of the Court decisions and 

then slowed in the last 3 months? Do you think this trend will continue? 

Mr. GUPTA. Thank you, Congresswoman. You know, we have 

only had 9 months of data since Highmark and Octane, so it is 

hard to really speculate as to why it has been trending down. But 

the point I want to make is that Highmark and Octane, based on 

the data that we have right now, have not really had a meaningful 

impact. And I really believe that to get abusive litigation to slow 

down the abusive tactics, the plan or the proposal that is in the Innovation Act is a thoughtful bipartisan approach that I think will 

make a serious, you know, or have a serious impact on bad actors 

in court. 

Ms. CHU. And can you tell us about the type of cases in which 

the defendant is being awarded fees since Octane and Highmark? 

Do they appear to be troll type suits, or is there no real pattern? 

Mr. GUPTA. I do not know that I can generalize. We have a couple of motions pending ourselves where we have asked the court to 

grant us our fees, and we are waiting to see how the court will act, 

but I do not have a general sense. I think based on the data we 

have seen that the numbers generally seem to be evenly split between defendants and plaintiffs in terms of fee recovery, but not 

necessarily whether it is a NPE litigation or not. 

Ms. CHU. And also in the Nautilus decision, the Supreme Court 

addressed how definite or clear a patent must be. The Court established a new test which requires that the patent provide reasonable 

certainty of what it covers. You have stated that it would be easier 

for a defendant to challenge the validity of a vague patent given 

the decision. Could you explain why it would be easier for the de-
76 

fendant and what long-term effects do you think the decision will 

have on abusive patent litigation? 

Mr. GUPTA. Certainly. We often find that patentees will attempt 

to really stretch the meaning or the meets and bounds of a patent 

in litigation downstream. Sometimes a patent 10, 12 years old, covering technology that was dated, they will attempt to stretch it to 

cover new developments in technology. And we think that this decision in Nautilus will allow us as defendants to be able to argue 

that Section 112 requirements were not met by the patentee, particularly in light of claim construction orders. 

If the judge grants a claim construction order that is really broad 

and the plaintiff pushes for that broad construction, I think it will 

be easier for defendants downstream to then show that that claim 

construction is simply not supported by what is in the specification, 

but it is too early to tell. We also have one motion pending before 

a district court arguing that certain claims are invalid in light of 

Nautilus, but we do not have a ruling yet. 

Ms. CHU. Okay. Mr. Pincus, what do these Supreme Court cases 

not address? And by that I mean what are the provisions in the 

Innovation Act that are still necessary despite the court decisions? 

Mr. PINCUS. Well, they obviously do not address at all pleadings. 

The patent specific decisions. Obviously the changes that will be 

made in the Federal Rules striking Rule 84 and the forms will have 

some effect on pleading, but the Supreme Court has not addressed 

it. And as I said earlier, I think the Congress has an opportunity 

to put specified clear rules of the road for pleading rather than 

leave it to the courts to flesh out what Iqbal and Twombly mean 

in the pleading context, which will take a few years and could leave 

people uncertain about what the rules are. So pleading is one area. 

Discovery is another area not addressed at all. The asymmetrical 

discovery costs which really are one of the critical drivers of the 

litigation, nothing done there. And with respect to the attorney’s 

fees, although Highmark and Octane do address the issue, the 

problem is that because the current language of the statute is what 

it is, the Court could not interpret that language to provide the 

kind of guidance that is really necessary so that somebody making 

the decision, do I fight this case because I have a reasonable 

chance to get my fees back, or should I settle because I cannot be 

sure, and so fighting it will end up costing me more. The current 

statute does not do that. 

The other problem with the current statute and the Court’s decision in Highmark with respect to deference is at least when we are 

concerned about abuse by plaintiffs, plaintiffs pick the forum. And 

if a district judge indicates or members of a district court indicate 

that they are going to be tough on fees under a murky standard, 

it is pretty easy for the plaintiff to say, well, I am going to go somewhere else where this murky standard is getting a better interpretation. If Congress makes the rules of the road clearer, that kind 

of disparity is much less likely to develop. 

Ms. CHU. Thank you. I yield back. 

Mr. ISSA. I thank the gentlelady. We will now go to the gentleman from Georgia’s 9th District, Mr. Collins. 

Mr. COLLINS. Thank you, Mr. Chairman, and I am pleased to be 

starting back here. I am pleased to be on this Committee with you 
77 

and also the Chairman as Vice-Chair of this Committee because 

this is very important to me. It is something I worked hard in my 

first term, and look forward to working even more so in our second 

term. As we look forward to working with this Committee on intellectual property, obviously patents are a vital part of the system. 

So I want to thank the Chairman Goodlatte for holding this hearing and reintroducing the Innovation Act. 

It is important for Congress to look for ways to eliminate frivolous and abusive litigation. We need to unclog the system to ensure 

that true innovators are given fair opportunity to enforce their patent rights, a right that our founders explicitly provided for in the 

Constitution. Last year, I had some serious concerns with the direction of some patent reform proposals, especially those that attempted to expand and extend the CBM program. 

These types of proposals are unsettling because they discriminate 

against a particular type of technology rather than focus on the 

real problem, the bad behavior that occurs all too often during patent litigation. So I am grateful to the Chairman that the CBM 

issue is not a part of the Innovation Act. Having it in would certainly undermine my ability to support the bill in Committee and 

on the House floor. Now we can focus on moving forward legislation 

that eliminates and stops bad actors and improves our patent system. 

But also before we start, this is my question. It was on something, Mr. Taylor, that you brought up, and I believe if we have 

it. Okay, if you would look at the screen. In your testimony, after 

your testimony I took your testimony and I went to your website, 

which is now on the screen. And on the first page under ‘‘research’’ 

tab, there was a study listed by Robin Feldman, and I am going 

to read just a few lines before turning to my questions. In the 

paper it said, ‘‘A study conducted on the topic of patent demands 

against venture back startups. The study was conducted through 

the members of the National Venture Capital Association.’’ 

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It said, and quoting from this report, it says, ‘‘74 percent of venture capitalists and 58 percent of startup companies report that 

patent demand had a significant impact on a company.’’ The next 

one it said, ‘‘According to the vast majority of both venture capitalists and startup companies, the cost of preparing for and defending 

against patent demands exceeded $50,000 per company with a 

number of companies reporting costs in the millions of dollars.’’ 

When asked whether they see patent assertion as a positive for 

startups in the startup community, 72 percent of venture capitalists disagree. We might have an insight into why you are having 

trouble getting people to disagree with this bill. 

Mr. Gupta, thank you. I appreciated listening to your testimony. 

I have heard from some groups that the Innovation Act will actually devalue property rights by diminishing the ability for parties 

to license their patents and defend them in court. How would you 

respond to that claim? 

Mr. GUPTA. I completely disagree with that characterization. The 

Patent Act was designed to promote innovation and to promote art 

and sciences, and the true value of a patent really goes to the 

claims and the invention that those claims describe. I think a reformed system makes patents stronger. It provides companies like 

us, who rely on our R&D investment to protect our innovations, to 

know that we can actually enforce our patents in a meaningful way 

and protect the investments we have made. 

The suggestion or the logic that somehow a patent is devalued 

if a patent holder cannot plead imprecisely and bury the other side 

with discovery requests, and do so with impunity knowing that at 

the end of the day they have no downside and they can walk away 

if they are not able to extort settlements from people, is just 

flawed. 

Mr. COLLINS. And I think the thing that I have mentioned so 

many times in this Committee, and I think proposing this whole 

issue of patent, copyright, and others, that really strong protections, they actually increase and encourage innovation, and do not 

detract from it, whether it be venture capital or anything else. You 

want to invest in something that you know that you are at least 

protected to the extent you can be in a free market from an abusive 

system like we have now. 

Mr. Pincus, I really like your expertise in this intellectual property area, and I think it is not only important we improve our patent system, but we also improve other aspects of the country’s intellectual property policy. I am particularly interested to make sure 

that America still contains the highest standards really in the 

world. All too often we see our trade secrets stolen out of our factories here in the United States and then end up on a plane to a 

foreign competitor. I also want to improve the system to protect 

America’s inventors, which is why I supported the Committee’s 

trade secret legislation last year. 

Can you talk about the intersection of patents and trade secrets? 

I am also interested in your perspective on any current improvements that we could make to our current trade secrets policy. 

Mr. PINCUS. Yes, thank you, Congressman. As you know, sometimes for various reasons companies have very important, and significant, and valuable intellectual property that they either do not 
80 

want to patent or cannot patent, but is valuable and is confidential 

to them. And the question is how does the law protect that? Trade 

secret law has traditionally been the means of doing that, and as 

you know, trade secret law has traditionally been the domain of the 

States. But I think increasingly we have realized that in the global 

environment in which we find ourselves now, that there are holes 

in that protection, and something at the Federal level that puts 

forth clear rules of the road is really essential to ensuring that 

American companies can protect those trade secrets effectively. 

Mr. COLLINS. I appreciate it. You will be hearing more from me 

on that in the weeks coming. Mr. Chairman, I yield back and appreciate that time. 

Mr. ISSA. We now go to the gentlelady from Washington One, 

someone who is familiar with intellectual property, Ms. DelBene. 

Ms. DELBENE. Thank you, Mr. Chairman, and thanks to all of 

our witnesses for taking the time to be with us today. 

I know there has been a lot of close attention paid to the Supreme Court cases on Section 101, and, Mr. Wamsley, in your testimony, you stated that the lack of clarity in the Alice case makes 

it more difficult for innovators to determine when it is appropriate 

to invest in patent protection and cast a shadow of uncertainty on 

all patents, even good ones. And so, I wondered if you would elaborate a little bit more on that statement and what your concerns are 

with respect to the Alice case. 

Mr. WAMSLEY. Thank you for the question, Congresswoman. Yes, 

we feel there is a great uncertainty caused by Alice currently, and 

the Alice case concerned a computer-related invention. But recently 

the Federal circuit extended the abstract idea test in a case involving the University of Utah even to a biosciences invention. 

So I think right now with the level of uncertainty we have, people who are making R&D decisions in companies, at least computer 

implemented inventions, pharmaceuticals, cases that involve processes of all kinds, are wondering whether they are in the patent 

eligible area, even if they have what they think is a practical application for what might involve abstract process. So we think there 

is an urgent need to clarify this. Now, there was an earlier question about whether we need legislation. I would not urge legislation 

tomorrow, but if the courts are unsuccessful in clarifying this, I 

think that ultimately Congress needs to look at the adverse effect 

on the incentives for R&D. 

Ms. DELBENE. Thank you. 

Mr. TAYLOR. Could I offer just a footnote to that? It is important 

to remember that one of the purposes of the patent system is to 

encourage disclosure of inventions. And to the extent people conduct research and develop technology that they are not confident 

they can patent, or in the case of what we have been talking about 

this afternoon, not confident that they can reasonably enforce their 

patents, the tendency will be to protect it by trade secrets. And it 

is my strong sense right now, given some of these cases from the 

Supreme Court and given the pendency of this legislation, that 

companies are making that decision and opting to go the trade secret route for more of their technology that they used to try patenting. 
81 

Ms. DELBENE. Thank you. Many supporters of the Innovation 

Act have complained that they are being sued by shell companies 

with few assets to pay attorney’s fees even if they are awarded. 

And according to the American Intellectual Property Law Association, the average cost of defending a patent suit with a million to 

$25 million, at risk is about $2.5 million, and the cost of defending 

patent suits with more than $25 million, at risk is over $5 million. 

And we know that there has been targeting obviously of startups 

that are particularly vulnerable. 

So I guess I will ask you, Mr. Gupta, what do you see as the best 

way to deal with abusive litigation by shell companies in particular 

when they have a lot to gain and not a lot to lose under the current 

system? And do you think the Innovation Act will address that 

issue? 

Mr. GUPTA. Thank you for the question, Congresswoman. I think 

the Innovation Act has a provision that requires people who have 

a financial interest in the litigation be joined. I think it is an important requirement. We are often sued by shell companies who are 

very thinly capitalized, and so even if you get an award, they are 

judgment proof essentially. 

And by the way, my company, EMC, is a member of the National 

Venture Capital Association. We have a venture arm. We invest 

several hundred million dollars in venture funding. We are not concerned that as a VC that one of the companies we are investing is 

somehow going to be joined in a patent suit because we do not invest in companies whose primary business is to sue people with 

their patents. 

And in the past 15 years, we have acquired 96 companies and spent $18-plus billion in acquisitions, primarily of venture-backed 

companies. And I can assure you that when I talk to the CEOs and 

the entrepreneurs who started these companies, they are very concerned about abusive patent litigation, and they are very concerned 

about how much of their funding they are having to spend on defending these demands versus hiring an engineer developing the 

technology that they want to perfect. 

And so, I really think, you know, requiring joinder of folks who 

are funding the abusive practices is a very important step, and I 

believe that this bill has the right types of provisions for that. 

Ms. DELBENE. Thank you. Thanks. I yield back, Mr. Chairman. 

Mr. ISSA. Thank you. Anecdotally, Mr. Gupta, I would assume 

that you are not in support of your association’s position here 

today. 

Mr. GUPTA. Absolutely not. 

Mr. ISSA. Just checking. The gentleman from Virginia, Mr. 

Forbes. 

Mr. FORBES. Thank you, Mr. Chairman, and, gentlemen, thank 

you so much for taking the time to share your expertise with us 

today. I apologize that some of us have had to be in and out for 

votes. So it is not my desire to reopen a line of questioning that 

perhaps has been asked and answered, but I do want to make sure 

I am getting clarity. 

And, Mr. Taylor, in response to what I heard the Chairman ask 

you, as I read your written statement and heard your oral presentation today, you accentuated the fact that you had 400 members, 
82 

I believe, in your association. But it would not be fair to conclude 

that your position today represents the position of those 400 members. Would that be fair to say? 

Mr. TAYLOR. I think it is fair to say that the position we have 

tried to develop represents the center of gravity of that organization. I cannot tell you that all—— 

Mr. FORBES. Let’s look at the center of gravity then, is Cisco one 

of your members? 

Mr. TAYLOR. Say again? 

Mr. FORBES. Is Cisco one of your members? 

Mr. TAYLOR. Of the National Venture Capital Association? I do 

not know. 

Mr. FORBES. They are I think. And do know their position on 

this? 

Mr. TAYLOR. I do. 

Mr. FORBES. And they are for the Innovation Act, are they not? 

Mr. TAYLOR. They are. 

Mr. FORBES. How about Google? Are they one of your members? 

Mr. TAYLOR. I do not know the answer to that. 

Mr. FORBES. Do you know their position on this act? 

Mr. TAYLOR. I do. 

Mr. FORBES. And they are for the act, are they not? 

Mr. TAYLOR. Correct. 

Mr. FORBES. Dell, do you know whether they are one of your 

members? 

Mr. TAYLOR. I do not know. 

Mr. FORBES. And do you know their position on the act? 

Mr. TAYLOR. I am not sure I do. 

Mr. FORBES. EMC, you look down the panel. You know their position. Are they one of your members? 

Mr. TAYLOR. Yes. 

Mr. FORBES. Are they one of your members? 

Mr. TAYLOR. According to Mr. Gupta they are, and I have nothing to refute that. 

Mr. FORBES. Okay. Intel, are they one of your members? 

Mr. TAYLOR. I do not know, but I think they are. 

Mr. FORBES. Do you know their position? 

Mr. TAYLOR. I assume they are in favor of this bill. 

Mr. FORBES. Micron, are they one of your members? 

Mr. TAYLOR. I do not know. 

Mr. FORBES. Do you know their position? 

Mr. TAYLOR. No. 

Mr. FORBES. Motorola, are they one of your members? 

Mr. TAYLOR. The piece that is owned by Google. I do not know 

the—— 

Mr. FORBES. Do you know their position? 

Mr. TAYLOR. I do not. 

Mr. FORBES. How about Salesforce, are they one of your members? 

Mr. TAYLOR. I do not know. 

Mr. FORBES. Verizon? 

Mr. TAYLOR. I do not know the answer to that either. 
83 

Mr. FORBES. So then basically you are not sure which of your 

members are for the Innovation Act or against the Innovation Act 

as you testified today. Fair assumption? 

Mr. TAYLOR. That is fair except that I would say that all of the 

companies you identified are very large corporations. And the concern I have expressed is that for small innovative companies, and 

they were once small innovative companies I might add. 

Mr. FORBES. And I think that would be fair, but I think it would 

be also fair to say that there is a large segment of your members 

that would be against your position today. Is that fair to say? 

Mr. TAYLOR. Let me say this a different way. The members of 

NVCA that I have talked to have often not known enough about 

this legislation—— 

Mr. FORBES. So all these large companies you either have not 

talked to them or you feel that they just are not well-informed 

enough to have an informed opinion on whether they support the 

Innovation Act or not. 

Mr. TAYLOR. I have had no reason to talk to the large companies. 

Their position has been clear since before I took this—— 

Mr. FORBES. Thank you. Mr. Gupta, can you help me with this? 

We have heard from stakeholders that the discovery proposals 

would actually make litigation longer and more expensive. As a litigator and practitioner who spends much of your time in court, do 

you agree with this statement? And if so, why or why not? 

Mr. GUPTA. Thank you for the question, Congressman. I do not 

agree with that. I think if we streamline discovery to focus discovery early on to claim construction and Markman issues, and expedite Markman hearings and defer non-Markman related discovery to later, we will end up streamlining and speeding up the 

process immensely. We will de-clutter our courts to give them more 

time to handle substantive motions. 

We will end up saving a lot of time, and mindless discovery, and 

expert reports for both plaintiffs and defendants, and bring a lot 

more focus to the litigation process, and make it a whole lot more 

efficient. 

Mr. FORBES. And just a follow-up question, Mr. Gupta. We have 

heard claims that the number of cases are on the decline with estimates as much as a 40 percent drop, negating the need for Congress to act. Can you just respond to those numbers? 

Mr. GUPTA. The fact of the matter is we still had over 5,000 patent cases filed, and I believe that is twice as many since the AIA 

was enacted, on an annual basis, and that is a lot of patent litigation. 

Mr. FORBES. Thank you all so much for being here. Mr. Chairman, I yield back. 

Mr. ISSA. Would the gentleman yield his remaining time? 

Mr. FORBES. I would be glad to yield to the Chairman. 

Mr. ISSA. So if can characterize, Mr. Taylor, what I think your 

testimony is, small companies within your group that you are not 

naming here today oppose the act based on your explaining it to 

them, and large companies, some of which have been named and 

more will be placed in the record, support the act, but because they 

are large, they do not count. You are still speaking on behalf of the 
84 

venture capital firm that you head. Is that correct? Or venture capital association you head? 

Mr. TAYLOR. I have not heard any dissent from members of the 

National Venture Capital Association with respect to the positions, 

and they have been widely publicized within the organization. 

Mr. ISSA. Okay. Then I ask unanimous consent that the members 

of the NVCA from the website be placed in the record, a partial list 

including Seagate, IBM, Johnson and Johnson, KPG, Morgan Stanley, Nike, DuPont, General Motors, Google, SoftBank, the owners 

of Sprint, EMC, of course, Delphi, Dell Corporation, USAA, the 

large fraternal association of former military personnel, Tyco, 

Verizon, et cetera. 

Without objection, so ordered. 

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Mr. ISSA. Who is next? Mr. Cicilline, thank you for coming back. 

You are now recognized. 

Mr. CICILLINE. Thank you, Mr. Chairman. Thank you to the witnesses for this very useful hearing. And, you know, I think it 

strikes me that it matters a lot how you look at the implications 

of both these Supreme Court decisions you have discussed and the 

proposed legislation depending on whether you are a plaintiff or defendant, whether you are defending a patent or being a defendant 

in a patent litigation action. 

So I think the goal here, at least from my perspective, is to have 

reforms which ensure that we have a strong patent system, but 

also ensure that we make the ability to resolve disagreements costefficient, fair, quick, and that we preserve the ability of small entrepreneurs, particularly who have maybe economic imbalance of 

power in the system to be able to protect their inventions and their 

discoveries. 

So what I am wondering first is, should our focus be, you know, 

if the idea is how do we come to the quickest resolution or the 

quickest determination as to the validity of a claim. Shouldn’t we 

direct our attention to the pleading and discovery phases where we 

can make improvements to help arrive at that determination in a 

fairer, faster, more transparent way? And I know the Supreme 

Court decisions do not focus on those, but does the panel think that 

is an area we should focus on where there is the greatest opportunity to eliminate the abuse that we are intending to eliminate? 

Mr. TAYLOR. Who did you want to answer that? Well, let me take 

a first stab at it. 

Mr. CICILLINE. Yes, Mr. Taylor. 

Mr. TAYLOR. It is always the case when a lawsuit is filed that 

the defendant will sit down with the patent and ask its lawyers to 

locate whatever prior art they can. Often the defendant will have 

the better prior art and to assess the strength of the claims, and 

if the claims are really genuinely not valid. I have had a number 

of situations in bringing prior art to the attention of the plaintiff 

and the case went away. It is one of those issues that you should 

be able to resolve early if you can. 

One of the reasons for the AIA proceeding was to allow the litigants to get the validity issues out on the table. An AIA proceeding 

costs substantially less than trying to do it through a district judge 

and combative adversarial lawyers. And so, that is a partial answer 

to your question. I am not sure it is complete. 

Mr. PINCUS. I think certainly those are two critical elements. I 

would not say they are the only ones, but I do think they are critical. I think at the pleading stage, I think everybody has agreed 

today that anybody filing a lawsuit should be able to identify the 

particular claims that they think are being infringed and the particular articles that are infringing. That seems pretty basic, and 

that is basically what the Innovation Act pleading provision requires. 

And I think with respect to discovery, the critical question is 

staging the discovery to fit the part of the proceeding. Everybody 

should want to have the discovery, if there is any relating to the 

Markman proceeding, before the Markman proceeding. That then 

puts pressure on the judge to have to decide the Markman issue 
104 

right then, and then move to the next phase of the proceeding. You 

know what the patent means. Now, let’s look at validity and infringement and get the relevant discovery with respect to that. So 

staging things in that way is quite sensible. 

I think the other critical ingredient is something that levels the 

economic playing field because it still will be the case even if you 

make those changes that the costs of litigation are going to be 

asymmetric as it moves forward. And so, the question then is how 

do you incentivize a defendant to not settle a claim that he knows 

is pretty much abusive at the beginning when the settlement offer 

that is being made is less than—— 

Mr. CICILLINE. Okay, I take it back. I just have a few minutes 

left, 1 minute left. I just want to ask Mr. Wamsley, you said we 

should not act on Alice, legislate right away. And I am wondering 

whether or not it might make sense for us to see Highmark and 

Octane, how they play out, whether or not the Court may have actually solved at least that piece of the problem. Does it make some 

sense to give these decisions some time to be absorbed the Court? 

And then secondly, I would just ask Mr. Taylor or any of the 

other panelists, what can we do to protect small investors who 

might be disadvantaged by some part of the Innovation Act? We 

want to deal with this issue of patent trolls in a serious way, but 

are there any suggestions you can make of things we should be 

looking at that will protect the small investors? 

Mr. TAYLOR. Small investors? 

Mr. CICILLINE. Small entrepreneurs? 

Mr. TAYLOR. I think that protecting investors, it is terribly important to get rid of the joinder provisions that allows a prevailing 

defendant to turn to the owners of a company, pierce the corporate 

veil, and make the owners stand liable for attorney’s fees. And the 

statute is capable of being read that way, although I think it is 

somewhat ambiguous. The concern we have is that it will be read 

that way. I think that provision is just anathema to encouraging 

venture capital investment. 

Mr. CICILLINE. Thank you. I yield back, Mr. Chairman. 

Mr. ISSA. Thank you. We now go to the gentleman from Pennsylvania, Mr. Marino. 

Mr. MARINO. Thank you, Chairman. Mr. Taylor, let us talk a little bit about the venture capitalists. How widespread is the market 

in venture capitalism with regard to patent litigation? 

Mr. TAYLOR. I do not think that for most venture-backed companies patent litigation to date has been a significant problem. The 

ones that I am aware of and the ones that I have actually personally dealt with have almost all been venture-backed companies 

being sued by larger competitors because they have got an innovative technology that the larger competitor sees an advantage to 

taking out. 

Mr. MARINO. Would you agree with me that in most situations, 

those individuals investing in venture capitalists concerning patent 

litigation or any other investment pretty much know what is going 

on, what they are investing in? 

Mr. TAYLOR. I think as a general proposition, yes. 

Mr. MARINO. Okay. And you talk about piercing the corporate 

veil, which is an interesting point. But would you agree with me 
105 

that in order to pierce the corporate veil, the investors would have 

to know or should have known that there was unethical or even 

criminal activity taking place with the investors, with the principals who are running the investment? 

Mr. TAYLOR. State laws differ with respect to the requirement for 

piercing the corporate veil, and there are a number of situations in 

which courts have done that. But in general, I can tell you that 

most investors assume if you are just buying stock in a company, 

you are not assuming any responsibility for a company’s liabilities. 

Mr. MARINO. I know you are right. It is something that could 

rear its ugly head, but not on a regular basis or highly unlikely. 

You have to show intent on the part of the investor that they were 

condoning, or allowing, or turning a blind eye to what was taking 

place with whom they gave money to invest. 

Mr. TAYLOR. The way I read this legislation is that if someone 

has a financial interest, the owner of patent, and given the joinder 

rules, they are susceptible to being joined. That is one of the fundamental problems that surfaced when I first read it. 

Mr. MARINO. Have you seen situations where that has occurred 

where investors were held liable because of activity on the part of 

the principles? 

Mr. TAYLOR. Not to date. 

Mr. MARINO. Okay. Let us talk a little bit also about courts. I 

clerked a long time ago for a Federal judge at least in my last year 

in law school and then as a prosecutor, U.S. attorney. I am very 

familiar with the Federal court system both in the criminal and the 

civil side. U.S. attorneys have responsibilities on the civil side to 

resolve cases as well. 

And I found over the years and years of my experience that 

courts are just reluctant to award attorney’s fees, to fee shift, even 

for egregious activity. I have been in court numerous times and 

showed clearly evidence that was purposely withheld or false statements were made, and the courts would not sanction or award fees. 

So what other way could this be handled other than re-legislating, 

among other things, that issue of awarding fees? 

Mr. TAYLOR. Well, the mechanisms are in place for truly abusive 

and frivolous litigation already. 

Mr. MARINO. I understand that, sir. They are there. You studied 

the Federal rules. I know the State rules at least in a couple of 

States. But the courts are just not doing it. 

Mr. TAYLOR. I think Congress—— 

Mr. MARINO. Can you give an example of why they are not doing 

it? 

Mr. TAYLOR. Since the Octane case was decided last summer, 

there have been 49 cases in which the prevailing party sought fees, 

and in 21 of those cases the court has awarded it, which I think 

is a different equation today than existed at the beginning of last 

year. There is a quotation from Justice Sotomayor from a copyright 

case, and she lists the kind of activities that should give rise to a 

fee award, and they include asserting frivolous positions. 

Mr. PINCUS. Congressman, can I—— 

Mr. MARINO. Go ahead. Yes. 

Mr. PINCUS. So here is the problem. In the real world, there is 

Rule 11, but the problem is very few people ever seek fees because 
106 

what they do in these cases is they decide it is cheaper to settle 

than fight. So the fee application never happens because the case 

is settled. 

What you want people to do is stand up and say I am going to 

fight this because I think this fee standard gives me some reasonable belief that if I fight, I am not going to end up a net economic 

loser. And that is the critical change that has to be made is to get 

people willing to invest the time to fight, which will change all of 

the incentives in the action. I wonder if I could just—— 

Mr. MARINO. Well, that is going to be up to the Chairman because my time is well over. 

Mr. ISSA. If on the subject of the question you want to complete 

your answer you may, but only that, please. 

Mr. PINCUS. I will be very quick, Mr. Chairman. I know Mr. Taylor is very worried about this interested party provision. But I 

would just urge people to read the text of the Innovation Act, which 

is quite restrictive and specifically says that just having an economic interest in the company is not enough to make you an interested party. 

Mr. MARINO. I would agree with that. 

Mr. ISSA. Thank you. The gentleman from Florida, a fellow 

Michigan graduate, although I was down the street. I was at Siena 

where you at the big school, University of Michigan, Ann Arbor. 

Mr. DEUTCH. I think we saw you in the stadium some Saturday 

afternoon. 

Mr. ISSA. Well, that is because we did not have a football team. 

We had women’s field hockey. The gentleman is recognized. 

[Laughter.] 

Mr. DEUTCH. Thank you, Chairman Issa and Ranking Member 

Nadler, for holding this important hearing today. There is no question that we have got to address the real problem of patent trolls 

and truly fix the broken patent system. Any legislation that moves 

forward from this Committee has to strongly promote, not stymie, 

American innovation and ingenuity. 

We have got to take into account the rights of inventors and 

small businesses, make it harder for patent trolls to take advantage of this system at the expense of legitimate practitioners and 

third parties. And if we fail to balance these goals, then we are 

going to hurt American businesses, weaken inventors, harm our 

universities, and seriously damage our economy. 

I am personally committed—personally committed—to improving 

our patent system. That is why I introduced the End Anonymous 

Patents Act that would help end the secret system of patent ownership. I strongly support many provisions in this bill, including the 

new transparency rules and many others. But I genuinely worry 

that the legislation as currently drafted contains language that 

could actually weaken a patent holder’s willingness and ability to 

protect their valid patent rights. 

I am also concerned that the legislation fails to take into account 

the new and significant shift in the law that was the result of Supreme Court cases. That change in law and the change in the 

courthouses, Mr. Pincus, I would suggest is also the real world. 

These cases give district court judges significant and expansive discretion to award fees to a prevailing party, and they have more 
107 

than ever. I trust judges that know the facts intimately to properly 

exercise such good discretion rather than rigid rules set by Congress that cannot separate the innovative inventor from the patent 

troll. 

And as much as I like H.R. 9, I am concerned that the loser pays 

attorney’s fees provision in the bill may, in fact, deter patent holders from pursuing even meritorious patent infringement claims. I 

am worried that small businesses and independent inventors will 

be affected. Mr. Taylor, those are perhaps companies that you 

know best. 

So I would ask after Octane Fitness—Mr. Taylor you just spoke 

about this. Now, you pointed out that judges have awarded fees in 

patent cases far more than they have before, so here is the real 

question I have. In light of all of the steps that have been taken 

by the PTO, by Congress, and now by the Supreme Court, Mr. Taylor, help me understand why it is necessary to place additional burdens on the individual who is seeking to defend his or her property 

right. 

Mr. TAYLOR. I do not think you should be placing additional burdens on the person trying to defend his or her property, nor do I 

think we should be placing additional burdens on litigants who 

have been sued by larger competitors. Those are serious concerns. 

And I think the way you stated it, I would certainly subscribe to. 

Mr. DEUTCH. Do the Supreme Court decisions make it harder for 

patent owners to file frivolous lawsuits? Does it make them think 

more in light of the decisions that have come down in what we 

have seen in Federal court? 

Mr. TAYLOR. I think that the reason you have seen a drop off is 

patent owners are going back to the drawing board with their lawyers and seriously examining whether or not they are inviting a fee 

award at the end of a losing case rather than a settlement. But 

bear in mind, the bulk of these cases will continue to settle, and 

the fee award, by raising the risk to both sides, gives the plaintiff 

a very good argument to the defendant for why you ought to settle 

the case without taking it to trial. 

Mr. DEUTCH. Now, you had said in your testimony, Mr. Taylor, 

that if the Innovation Act as written were to pass, it would have 

a chilling effect on investment and patent-intensive companies. 

Can you just expand on that? And I apologize if you have already, 

but I had two other hearings. 

Mr. TAYLOR. Well, I think for all the reasons we have been talking about, I think the fee-shifting proposal is going to make it more 

difficult and certainly make it riskier. I believe the fee-shifting proposal is going to raise the expense. I think that the pleading requirements are going to raise the expense because what will happen as a practical matter is I file a complaint, and you are the defendant, and you come in and say, hey, look, Congress has listed 

20 things here that you have to comply with in order to file a valid 

complaint. 

And I am going to say to the Judge, well, I think I have done 

them all, Your Honor. And then there is going to be a motion filed 

as to a number of those points that is going to be $30,000 or 

$40,000 per side just to resolve whether the complaint is any good. 
108 

Mr. DEUTCH. I only have a few seconds left. Can you describe 

some of the types of companies that might be affected in that way? 

Mr. TAYLOR. Companies in the energy business who depend terribly on their patents, biotechnology companies, pharmaceutical 

companies, medical device companies. The medical device companies are particularly vulnerable because a medical device takes a 

lot of development time. It is so easily copied. And unlike pharmaceuticals, the FDA process for clearance of a medical device if you 

have got another device on the market is quite simple. 

And so, for medical device developers, unless they can protect 

their patents, they are dead in the water, and the larger companies 

are watching the marketplace. They spot the new technology, new 

trends. And it is not uncommon for medical devices quickly to be 

copied by their larger competitors. 

Mr. DEUTCH. Thank you, Mr. Chairman. Yield back. 

Mr. ISSA. You are most welcome from one Michigan kid to another. Sort of Michigan. 

We now go to a man who understands State court law, Judge 

Poe. 

Mr. POE. Thank the Chairman. Thank you all for being here. 

Yes, it is true. I did serve as a district judge in Texas for 22 years, 

but it is a fact universally that most cases settle. Civil cases, criminal cases, big cases, little cases, traffic cases, most of them settle. 

Is that not a truism in our court system, State and Federal? Anyone disagree with that? 

[Nonverbal response.] 

Mr. POE. Most cases do not go to trial. They settle somewhere 

early on. They settle on the steps of the courthouse. They settle 

when they see who the judge is. They settle eventually. It is a universal issue about litigation and the cost of litigation when someone decides to sue another one. How much is it going to cost and 

who is going to pay for that? This a discussion that has been going 

on since before any of us probably were lawyers. 

It seems to me that public policy, we want people to be able to 

go to court if they can if they have what they believe to be a legitimate case of some kind. And if they win, great. If they lose, there 

is always the theory or threat, well, I have lost, now I have got to 

pay, and I do not have the money to pay. 

Let us talk about this issue of patent trolls, use the definition, 

whatever you prefer. Would not what would happen is, and let us 

take the new legislation. Mandatory to the judges, you got to impose these fees. Patent trolls are not going to be paying those fees, 

are they? The judge finds it is a frivolous lawsuit. These patent 

troll companies, they just go out of business and start another business. Is that not what is going to happen? It is a question. If any 

of you want to answer it, it is fine. 

Mr. TAYLOR. I do not know exactly how that is going to play out. 

What I do think, though is that the courts have today the mechanisms to put in place assurances that that will not happen. The 

courts had, for example, what we may see is the attorney’s fee 

issue does not have to wait until the end of the case. And indeed 

what I am told by some of my friends who are representing people 

actively today in litigation is there is already posturing going on 

among the lawyers to set up the fee issue at the end of a case. 
109 

And if you are dealing with a genuinely impecunious plaintiff 

and it has no real party interest, and there are mechanisms already in the Federal rules for finding out who the party-in-interest 

is. And it is not very many real parties-in-interests that are completely impecunious. The judge is in a position to make rules that 

either make them streamline the case to the point that it can be 

afforded, or make some kind of a presentation or representation—— 

Mr. POE. That was not my question. Is that going to be the end 

game, they are just going to re-incorporate under another name? 

Anybody else want to weigh in on this? I have one other question, 

too. Go ahead. 

Mr. GUPTA. If I may, Congressman. I think the Reform Act’s provision dealing with ensuring that people who are funding the enterprise and funding the entities who are acquiring patents just to sue 

people is a thoughtful solution to that issue. If you peel behind sort 

of the actors who are funding a lot of this, there are a lot of common players. I think I have seen research that said more than 60 

percent of troll actions are really initiated, are funded by a very 

small group of companies. 

And so, I think the reason that patent lawsuits settle as much 

as they do is because patent litigation is very expensive, and small 

companies in particular. And I have data that I have cited from 

MIT and Harvard, very recent studies, saying that they are really 

impacted negatively when they have to deal with patent suits rather than spending their resources in creating technology. 

Mr. POE. I understand. That is what some of them say, and I do 

not necessarily disagree with them. My other question is, having 

been a judge, of course, I think the trier of fact or the person who 

gets to hear the whole case is in a pretty good position to make 

some decisions about attorney’s fees, if you will. I agree with that 

philosophy. Except for the statistics mentioned by Mr. Taylor, why 

have Federal judges been reluctant to order fees since they can already do it? They have the discretion. Why do they not do it? 

Mr. TAYLOR. Prior to the decisions of the Supreme Court in Octane and Highmark, there had been in place for at least a decade 

Federal circuit decisional law that made it essentially impossible 

for the prevailing party, a prevailing defendant particularly, to recover attorney’s fees. And the message one gets from the two decisions written by Justice Sotomayor is that we, the Supreme Court, 

reject that approach. We think the district judge, as you just stated, is in a way better position than the Court of Appeals to decide 

whether or not there is a reason to shift fees. And we are going 

to entrust that issue to the discretion of the judge. The Federal circuit may no longer review it de novo. The Federal circuit is required to review it. 

Mr. POE. Let me interrupt because I am out of time. 

Mr. ISSA. Yes, you are. 

Mr. POE. If the Chairman would let me ask the question? 

Mr. ISSA. Without objection. 

Mr. POE. Look, the district judge who hears the whole case but 

early reversed the decision of the district judge if there is an abuse 

of discretion as it is under some other types of law. 

Mr. TAYLOR. Correct. 
110 

Mr. POE. Would that be a fair analysis—— 

Mr. TAYLOR. Yes. 

Mr. POE [continuing]. Of something that maybe we should consider? 

Mr. TAYLOR. That is what the decision in Highmark and Octane 

specifically state. 

Mr. POE. I understand. I yield back. 

Mr. ISSA. I thank the gentleman for yielding back. I would remind all the witnesses that we do allow significant revise and extend in order to comment further on some of the specifics where 

a question could not be fully answered. So it is not full amicus, but 

we certainly would look forward to your further comments. 

We now go to the gentleman from Brooklyn, Mr. Jeffries. 

Mr. JEFFRIES. Thank you, Mr. Chair, and I thank Ranking Member Nadler as well, and thank the witnesses for your presence and 

your testimony here today. 

I want to explore this issue of trying to help through the Innovation Act startup companies, tech entrepreneurs, young inventors, 

and others, the small inventor, which is of particular importance 

to me. The Chairman noted that I am from Brooklyn. We have a 

growing technology and innovation economy filled with tech entrepreneur startup companies, new inventors. 

And, you know, Mr. Taylor, you seem to indicate in your testimony that in your view, the Innovation Act would hurt these entities. But in speaking to some tech entrepreneurs and some small 

startup companies, who have had experiences with patent trolls, 

one of the concerns that they face is that because there is such an 

imbalance right now, and abusive litigation is not being decided on 

the merits, which it should be, but is being decided on the basis 

of the expensive cost of litigating to the very end. 

Even if you believe that the case being brought is invalid, would 

not the Innovation Act in its effort to restore this litigation balance 

so that people can make decisions based on the merits of the claim, 

actually help the tech entrepreneur, the startup company, and the 

young inventor? 

Mr. TAYLOR. I do not believe that that would be the case, and 

the reason is that the way in which the bill is structured, the enhanced pleading requirement is going to raise the cost of getting 

the court even to have the initial pleadings in place. The fee-shifting provision is going to become an amount of money that the defendant has to take into account as what it is facing by way of risk 

at the end of the case. And it is going to create more pressure on 

the defendant to settle than exists today. 

I agree with you. Today the cost of litigation is prohibitive, and 

it is particularly prohibitive for small companies. But I do not 

think this bill gets rid of that. 

Mr. JEFFRIES. Now, in terms of the enhanced pleading, I would 

note that when the Private Securities Litigation Reform action or 

Act was passed, I think, in the late 1990’s, which put in enhanced 

pleading as it relates to securities litigation, there was a view 

amongst many that this would hurt the ability of the small individual investor, the individual plaintiff, the type of person that I 

am concerned with—I was not in Congress at the time—to actually 

bring actions holding big companies responsible for financial impro-
111 

priety. But that, in fact, has not been the case, notwithstanding the 

enhanced pleading. And that is in a much broader context, the securities litigation, than the specialized area of patent litigation. 

So on the fee-shifting point, however, I am very interested in because I am sensitive to the concern as it relates to separation of 

powers, one that I think the Judiciary Committee should take seriously, that the House of Representatives should take seriously, in 

terms of us being a co-equal branch of government. And at the end 

of the day, you know, the Supreme Court and the courts at the circuit level and the district court level should be separate and coequal and have a capacity to determine how matters should proceed through the judiciary, though Congress has the authority to 

do it. 

That said, in the post-Octane environment, you made mention of 

the fact that courts now appear more willing to shift fees. Is that 

correct? So what I am trying to understand is since the Court said 

the previous standard, which I believe was objectively unreasonable and asserted in bad faith, was not the standard that should 

be applied in determining whether this was an exceptional circumstance. And that we have now got a standard where we have 

shifted the burden to say that the court shall award fees unless the 

case was reasonably justified in law and fact. 

It is not clear to me that there is a lot of space between the enhanced Supreme Court directive and the attorney’s fees provision 

that is in this bill. And I would be interested in, you know, your 

observation, Mr. Pincus, and the observation of Mr. Taylor if time 

permits. 

Mr. PINCUS. I think the difference is the Supreme Court’s standard is basically sort of a Gestalt standard, right? They say it is exceptional and the district court can consider all relevant factors in 

deciding whether or not it is exceptional. And so, I think the problem is in terms of both getting some uniformity across district 

courts and also in terms of having a standard that people can anticipate how it might be applied in a particular case, that is not 

really a very helpful test. 

And I think the testimony that is in the Innovation Act focuses 

the district judge on some key factors. One is, as you say, reasonable in law and fact, and then the countervailing consideration 

about whether special circumstances, and it specifically says such 

a severe economic hardship to an inventor. So specifically saying if 

this is going to hurt a small inventor, do not do it, I think focus 

the district judge on the key factors in a way that the current law 

does not because it sort of says look at everything and make this 

decision. 

Mr. JEFFRIES. Thank you. 

Mr. ISSA. Okay. Seeing no further questions for our witnesses, I 

want to thank you for your testimony here today. I want to thank 

you for your candor. And, again, to the extent that you want to give 

us additional information either to be placed in the record, that 

would have to be within 5 legislative days. So without objection, all 

Members and our witnesses shall have 5 legislative days in which 

to submit additional written questions for the witnesses or additional materials for the record. Anything coming in after that will 

still be disseminated to all the Members of the Committee. 
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We stand adjourned. 

[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.] 
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