S. HRG. 113–637 

PROTECTING SMALL BUSINESSES AND PROMOTING 

INNOVATION BY LIMITING PATENT TROLL ABUSE 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

TUESDAY, DECEMBER 17, 2013 

Serial No. J–113–43 

Printed for the use of the Committee on the Judiciary 

( 
PROTECTING SMALL BUSINESSES AND PROMOTING INNOVATION BY 

LIMITING PATENT TROLL ABUSE 
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94–151 PDF 2015

S. HRG. 113–637 

PROTECTING SMALL BUSINESSES AND PROMOTING 

INNOVATION BY LIMITING PATENT TROLL ABUSE 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

TUESDAY, DECEMBER 17, 2013 

Serial No. J–113–43 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

MAZIE HIRONO, Hawaii 

CHUCK GRASSLEY, Iowa, Ranking Member 

ORRIN G. HATCH, Utah 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TED CRUZ, Texas 

JEFF FLAKE, Arizona 

KRISTINE LUCIUS, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Staff Director 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Leahy, Hon. Patrick, a U.S. Senator from the State of Vermont ........................ 1 

prepared statement .......................................................................................... 55 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 3 

prepared statement .......................................................................................... 57 

prepared statement, version 2 ......................................................................... 61 

Cornyn, Hon. John, a U.S. Senator from the State of Texas, prepared statement ...................................................................................................................... 64 

WITNESSES 

Witness List ............................................................................................................. 53 

John Dwyer, President and Chief Executive Officer, New England Federal 

Credit Union, Williston, Vermont, on behalf of the National Credit Union 

Association ............................................................................................................ 4 

prepared statement .......................................................................................... 69 

Michael Makin, President and Chief Executive Officer, Printing Industries 

of America, Sewickley, Pennsylvania ................................................................. 6 

prepared statement .......................................................................................... 80 

Dana Rao, Vice President and Associate General Counsel of Intellectual Property and Litigation, Adobe Systems, Inc., San Jose, California ....................... 8 

prepared statement .......................................................................................... 98 

Philip S. Johnson, Senior Vice President and Chief Intellectual Property 

Counsel, Johnson & Johnson, Coalition for 21st Century Patent Reform, 

New Brunswick, New Jersey ............................................................................... 10 

prepared statement .......................................................................................... 111 

Steve Bossone, Ph.D., Vice President, Intellectual Property, Alnylam Pharmaceuticals, Cambridge, Massachusetts ................................................................. 40 

prepared statement .......................................................................................... 161 

Harry A. Wolin, Senior Vice President, General Counsel and Secretary, Advanced Micro Devices, Inc., Austin, Texas ......................................................... 41 

prepared statement .......................................................................................... 180 

Hon. Q. Todd Dickinson, Executive Director, American Intellectual Property 

Law Association, and Former Under Secretary for Intellectual Property 

and Director, U.S. Patent and Trademark Office, Arlington, Virginia ............ 43 

prepared statement .......................................................................................... 186 

QUESTIONS 

Questions submitted by Senator Patrick Leahy for John Dwyer ........................ 214 

Questions submitted by Senator Patrick Leahy for Michael Makin ................... 215 

Questions submitted by Senator Patrick Leahy for Dana Rao ............................ 216 

Questions submitted by Senator Patrick Leahy for Philip Johnson ................... 217 

Questions submitted by Senator Patrick Leahy for Dr. Steve Bossone .............. 216 

Questions submitted by Senator Patrick Leahy for Harry Wolin ....................... 219 

Questions submitted by Senator Patrick Leahy for Hon. Q. Todd Dickinson .... 220 

Questions submitted by Senator Sheldon Whitehouse for all witnesses ............ 221 

Questions submitted by Senator Chuck Grassley for John Dwyer ...................... 222 

Questions submitted by Senator Chuck Grassley for Michael Makin ................. 223 

Questions submitted by Senator Chuck Grassley for Dana Rao ......................... 224 

Questions submitted by Senator Chuck Grassley for Harry Wolin ..................... 226 
Page

IV 

ANSWERS 

Responses of John Dwyer to questions submitted by Senators Leahy, Grassley, and Whitehouse ............................................................................................. 228 

Responses of Michael Makin to questions submitted by Senators Leahy, 

Grassley, and Whitehouse ................................................................................... 238 

Responses of Dana Rao to questions submitted by Senators Leahy, Grassley, 

and Whitehouse .................................................................................................... 245 

Responses of Philip Johnson to questions submitted by Senators Leahy and 

Whitehouse ........................................................................................................... 258 

Responses of Dr. Steve Bossone to questions submitted by Senators Leahy 

and Whitehouse .................................................................................................... 270 

Responses of Harry Wolin to questions submitted by Senators Leahy, Grassley, and Whitehouse ............................................................................................. 273 

Responses of Hon. Q. Todd Dickinson to questions submitted by Senators 

Leahy and Whitehouse ........................................................................................ 281 

MISCELLANEOUS SUBMISSIONS FOR THE RECORD 

Letter to Hon. John Boehner, Hon. Nancy Pelosi, Hon. Harry Reid, and 

Hon. Mitch McConnell from 50 organizations in support of legislation to 

address abuses of the legal system by patent trolls, July 17, 2013 ................. 292 

New England State Banking Trade Associations, letter to Hon. Patrick Leahy, 

July 25, 2013 ........................................................................................................ 294 

Brattleboro Savings and Loan, Brattleboro, Vermont, July 29, 2013, letter ...... 296 

Tech companies in support of legislation to reform Nation’s patent system, 

October 18, 2013, letter ....................................................................................... 298 

SPAN coalition supporting Senator Leahy on demand letters, November 5, 

2013, letter ............................................................................................................ 305 

Startup Investors Nationwide Support Broad Patent Reform, Application Developers Alliance, November 6, 2013, letter ...................................................... 307 

National Restaurant Association, November 7, 2013, letter ................................ 310 

TechVoice, Elizabeth Hyman, Vice President, Public Advocacy, CompTIA, November 19, 2013, letter ........................................................................................ 313 

EFF, November 19, 2013, group letter .................................................................. 314 

Professors’ Letter in support of patent reform legislation, November 25, 2013, 

group letter ........................................................................................................... 328 

Vermont Society of Certified Public Accountants, Montpelier, Vermont, Deborah L. Riley, Executive Director and CEO, December 6, 2013, letter ............. 335 

National Association of Realtors, Washington, DC, Steve Brown, President, 

December 9, 2013, letter ...................................................................................... 336 

TPL Group, Cupertino, California, Daniel E. Leckrone, Chairman and CEO, 

December 10, 2013, letter and attachments ...................................................... 337 

Recommendations on Patent Abuse Legislation, Louis J. Foreman, Dr. Gary 

K. Michelson, M.D., and Dr. Gregory G. Raleigh, Ph.D., December 11, 

2013, letter ............................................................................................................ 391 

‘‘S.1720, The Patent Transparency and Improvements Act of 2013, Is a Better 

Approach to Patent Reform,’’ American Association for Justice, statement ... 396 

Printing Industries of America, December 16, 2013, letter ................................. 401 

Stop Patent Abuse Now (SPAN) Coalition, December 16, 2013, letter ............... 404 

Food Marketing Institute, Arlington, Virginia, December 17, 2013, letter ........ 406 

American Hotel and Lodging Association, Washington, DC, December 17, 

2013, letter ............................................................................................................ 413 

Pharmaceutical Research and Manufacturers of America (PhRMA), Chester 

Davis , Jr., Executive Vice President, Washington, DC, December 17, 2013, 

letter ...................................................................................................................... 415 

Independent Community Bankers of America, Washington, DC, December 

17, 2013, letter ..................................................................................................... 417 

American Bankers Association, Washington, DC, December 17, 2013, statement ...................................................................................................................... 419 

American Institute of Certified Public Accountants, Barry Melancon, President and CEO, Washington, DC, December 17, 2013, statement .................... 423 

EMC Corporation, Krish Gupta, Senior Vice President and Deputy General 

Counsel, Hopkinton, Massachusetts, December 17, 2013, statement .............. 427 

National Retail Federation, David French, Senior Vice President, Government 

Relations, Washington, DC, December 17, 2013, statement ............................ 431 

Starwood Hotels and Resorts Worldwide, December 23, 2013, statement ......... 439 
Page

V 

‘‘Congress should act now to stop patent trolls,’’ Michael Beckerman and 

Paul DeRoche, Providence Journal, October 28, 2013, commentary ............... 443 

‘‘Business Leaders seek relief from ‘patent trolls’, ’’ Rhonda J. Miller, PBN, 

November 25, 2013, commentary ........................................................................ 444 

‘‘Patent trolls—ugly, taxing brake on U.S., innovation,’’ Charlie Kroll and 

Kathie Shields, PBN, December 2, 2013, commentary ..................................... 448 

Alert Solutions, Inc., David Baeder, Founder and CEO, September 26, 2013, 

letter ...................................................................................................................... 450 

Betaspring, Providence, Rhode Island, Alan Tear, Founder and Managing 

Partner, September 25, 2013, letter ................................................................... 451 

Greater Providence Chamber of Commerce, Laurie White, President, September 16, 2013, letter ........................................................................................ 453 

Newport County Chamber of Commerce, Middletown, Rhode Island, Jody 

Sullivan, Executive Director, September 30, 2013, letter ................................. 454 

Rite Aid Pharmacy Legal Department, Harrisburg, Pennsylvania, Rob S. 

Chima, Senior Counsel, October 11, 2013, letter .............................................. 456 

Tech Collective, Providence, Rhode Island, Kathie Shields, Executive Director, 

October 10, 2013, letter ....................................................................................... 458 

Iowa Bankers, Johnston, Iowa, John K. Sorensen, President and CEO, December 10, 2013, letter ........................................................................................ 460 

‘‘Patent Reform,’’ Robert R. Rees, Jr., December 10, 2013, letter ........................ 462 

‘‘Current State of Patents from the Perspective of an Investor,’’ Robert R. 

Rees, Jr., December 10, 2013, letter ................................................................... 470 

BettrLife, Urbandale, Iowa, Don Schoen, CEO, December 11, 2013, letter ....... 477 

Kum & Go, West Des Moines, Iowa, Charley W. Campbell, General Counsel 

and Corporate Secretary, December 11, 2013, letter ........................................ 478 

Clickstop, Inc., Urbana, Iowa, Tim Guenther, December 12, 2013, letter .......... 479 

Kinze Manufacturing, Inc., Williamsburg, Iowa, Brad Powers, Corporate 

Counsel, December 13, 2013, letter .................................................................... 480 

Paul Morinville, Inventor and Entrepreneur, December 13, 2013, letter ........... 482 

The Internet Association, Washington, DC, Michael Beckerman, President 

and CEO, December 16, 2013, letter .................................................................. 484 

Illinois Tool Works, Inc., Glenview, Illinois, Mark W. Croll, Vice President, 

Intellectual Property, December 16, 2013, letter .............................................. 486 

American Bankers Association; American Insurance Association; The Clearing 

House; Credit Union National Association; Financial Services Roundtable; 

Independent Community Bankers of America; NACHA—The Electronic 

Payments Association; National Association of Federal Credit Unions; National Association of Mutual Insurance Companies: December 17, 2013, 

letter ...................................................................................................................... 488 

‘‘How the New Patent Abuse Reduction Act Levels the Playing Field,’’ Alan 

Schoenbaum, Cloud Industry Insights, May 23, 2013, commentary ............... 489 

Application Developers Alliance, Washington, DC, Courtney Lorrie, May 22, 

2013, statement .................................................................................................... 491 

‘‘Op-Ed: Patent trolls threaten tech companies and Austin’s vibrancy,’’ Emil 

Sayegh, Austin Business Journal, June 21, 2013, commentary ....................... 492 

Austin Technology Council, Austin, Texas, July 1, 2013, letter .......................... 494 

Computer and Communications Industry Association (CCIA), Ed Black, President and CEO, May 22, 2013, letter ................................................................... 497 

Coalition for Patent Fairness, Washington, DC, May 22, 2013, statement ........ 499 

‘‘CEA Thanks Sen. Cornyn for Taking On Patent Trolls,’’ Consumer Electronics Association, Arlington, Virginia, May 22, 2013, statement ................. 500 

‘‘The Internet Association Applauds Senator Cornyn’s Patent Abuse Reduction 

Bill,’’ The Internet Association, Washington, DC, May 23, 2013, statement .. 501 

JC Penney, Janet Dhillon, Executive Vice President and General Counsel, 

May 23, 2013, letter ............................................................................................. 502 

National Retail Federation, Washington, DC, David French, Senior Vice 

President, Government Relations, June 5, 2013, letter .................................... 503 

Software and Information Industry Association, Washington, DC, May 22, 

2013, statement .................................................................................................... 504 

Texas Association of Business (TAB), Austin, Texas, May 22, 2013, statement 506 

(1) 

PROTECTING SMALL BUSINESSES AND PROMOTING INNOVATION BY LIMITING PATENT 

TROLL ABUSE 

TUESDAY, DECEMBER 17, 2013 

U.S. SENATE, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:19 a.m., in Room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Feinstein, Schumer, Durbin, 

Whitehouse, Klobuchar, Coons, Blumenthal, Hirono, Grassley, 

Hatch, Cornyn, Lee, and Flake. 

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. 

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning, everybody. Senator Grassley 

and Senator Hatch and I have been over voting, so that is why we 

are starting a few minutes late. But I thank you all for being here. 

I also wanted to check with Mr. Dwyer about the amount of snow 

we had back home, because if we ever get out of here, my wife and 

I want to go and spoil the grandchildren on the ski slopes back in 

Vermont, which is probably what Senator Hatch wants to do on the 

ski slopes out in Utah, too. So I was glad to hear about the 10 

inches, which in Vermont is considered a heavy dusting, and in 

Washington it is considered ‘‘Snowmageddon.’’ This is the only city 

I have ever known that will close down for two or three inches. 

That snow back home, we just take a broom and sweep it off the 

walks. But, anyhow, on to more serious things. 

Last Congress, Members of this Committee and the Congress 

came together and passed common sense, bipartisan—Democrats 

and Republicans working together—reform to modernize our patent 

system. The America Invents Act has taken significant steps to improve the quality of patents that are issued by the Patent and 

Trademark Office. We have allowed outside parties to challenge the 

validity of a patent after it issues and improves the information 

available to patent examiners. This is the first real update of the 

patent laws in over 50 years. 

But having done that, there are still bad actors who are abusing 

the patent system. I have heard from an increasing number of 

businesses in Vermont and across the country that are being targeted by so-called patent trolls. Instead of asserting a patent claim 

against the manufacturer of a product, entities are targeting small 

businesses that simply use the product, figuring it is better for 

them just to pay them something to go away when they would not 
2 

dare take on the manufacturer and could actually fight their spurious claims. 

In Vermont, small businesses have received aggressive demand 

letters claiming payments of $1,000 per employee for using document scanners in their offices. Across the country, and also in 

Vermont, thousands of coffee shops, hotels, and retail stores received demand letters and were threatened with patent suits simply for using a standard, off-the-shelf WiFi router. Many of the letters are vague form letters. They have no description of how the 

recipient infringes on a relevant patent. I have also heard examples 

of patent assertion entities sending letters through dozens of differently named shell companies so that businesses that receive the 

letters cannot easily find out who sent them. 

You do not have to be a patent expert to know what is going on. 

I mean, this is as close to robbery as you can think of. These actions abuse the patent system, trying to extort settlements from 

customers and small businesses that have no real means of fighting 

back. Predatory conduct that simply takes advantage of end users 

does not promote the important goals for which our patent system 

was intended, to advance science and the useful arts. I have to 

think how my parents with their small printing business would 

have reacted to something like this. They would not have had the 

ability to fight. But that is the same with small businesses everywhere. 

Over the past eight months, I have worked with Senator Lee and 

others to develop legislation to address these abuses in the system 

and to have a bipartisan bill. Our bill targets the sending of misleading demand letters as a deceptive trade practice that can be penalized by the Federal Trade Commission. It protects customers 

who have been sued for merely using a product when the defendant 

really should be the manufacturer who made the product and is in 

a better position to argue whether their technology infringes a 

valid patent. But usually it does not, and, of course, that is why 

the trolls will not go after the manufacturer. 

Our legislation promotes transparency so that those abusing the 

system can no longer hide behind shell companies to advance their 

scheme. It improves the PTO’s outreach to business defendants and 

strengthens the post-grant review process implemented in the 

Leahy-Smith America Invents Act to improve patent quality. 

It takes significant steps to address the problem of patent trolls 

and misuse of the patent system. But, importantly, the measures 

also are balanced. They are targeted to preserve the rights of legitimate patent holders whose inventions help drive our economy. If 

they are not protected, we do not have new inventions. So as we 

discuss proposals to address the problem of patent trolls, I urge the 

Committee to stay focused on that balance. I want meaningful but 

targeted reform that can actually pass and can be signed into law 

by the President. 

To the witnesses appearing today, I thank you all for being here. 

I know it takes a lot of time out of your life, too. But it is important 

to us, and it is important to all Members of the Committee who 

want to reduce abuses in the patent system while ensuring that 

innovators and inventors continue to drive our economy. 
3 

[The prepared statement of Senator Leahy appears as a submission for the record.] 

Senator Grassley, you have worked with me a long time on these 

things. 

OPENING STATEMENT OF HON. CHUCK GRASSLEY, A U.S. 

SENATOR FROM THE STATE OF IOWA 

Senator GRASSLEY. I have a longer statement I will put in the 

record. I have some things, though, I want to say right now. 

First of all, this is a very important hearing, Mr. Chairman, so 

thank you. And since patents and our patent system are a very significant component of our American tradition of invention and innovation, we have got to make sure that it does not get harmed. 

And it is being harmed because the innovation and creativity that 

patents are supposed to protect are being threatened by purposely 

evasive and deceptive blanket demand letters and abusive litigation practices. 

There has been an increase of 62 percent of all patent lawsuits 

filed in 2012 under patent assertion entities; 92 percent of these 

lose merit judgments. The bottom line is that patent litigation 

abuse imposes high costs on American businesses, wastes precious 

resources that ought to be used for research, development, job creation, economic growth. 

The phenomenon of trolls has hit companies all over the country. 

I had a meeting on this with a lot of business interests in western 

Iowa, in Council Bluffs, where we heard stories. Then, in the meantime, I received a lot of letters. One letter, I have one long quote 

I want to refer to. 

‘‘Fighting frivolous and burdensome patent lawsuits threatened 

and filed by patent trolls is an extremely expensive distraction for 

a large cross-section of Iowa businesses. Rather than focus their efforts on important economic development catalysts such as innovation, job creation, and business growth, entrepreneurs and business 

owners from all industries and sizes are more frequently finding 

themselves diverting valuable attention and limited resources to 

defending expensive and unnecessary legal threats by patent trolls. 

Indeed, businesses, everyday Iowans, and Iowa’s economy as a 

whole are adversely affected by the trolls’ seemingly endless barrage of legal threats and frivolous suits. The trolls’ misguided and 

unbridled mischief unnecessarily drives up costs that are, in part, 

passed on to Iowa’s hardworking families and consumers.’’ 

I have another quote here that I am not going to give from 

BettrLife in Urbandale; another quote from Kinze Manufacturing. 

Maybe an important part of that quote would be to say that these 

trolls’ experience has left a lasting impact . . . . ‘‘Contract negotiations with suppliers and service providers now routinely include allocation of liability in the event of patent trolling. These negotiations require additional resources and delay research, development, 

and production of new products.’’ That is a partial quote, but just 

to show you that a small convenience store—well, a big convenience store in my—I mean, they have lots of stores throughout 

Iowa, Kum & Go, they talk about problems for their business. You 

know, people would not anticipate that when you got into these 

patent issues that a convenience store would be involved. 
4 

So this is very important, Mr. Chairman, and I have still got a 

longer statement to put in the record, but this gives you an idea 

of where I am coming from. 

[The prepared statement of Senator Grassley appears as a submission for the record.] 

Chairman LEAHY. Well, I think there is a strong feeling and a 

bipartisan feeling on this question of trolls, and I am glad that 

John Dwyer, who is the president and CEO of the largest credit 

union in Vermont, the Williston-based New England Federal Credit 

Union, is with us. He joined the credit union in 1987. He has held 

a variety of positions. He has served in his current role since 2010. 

He also serves on the Association of Vermont Credit Unions’ Governmental Affairs Committee. He also served on the boards of the 

Greater Burlington YMCA, which is really a treasure in that 

area—it is something also strongly supported by my wife’s family, 

too—and the Lake Champlain Regional Chamber of Commerce. He 

received his bachelor’s degree from the University of Vermont, his 

MBA from RPI. 

Mr. Dwyer, glad to have you here. Please go ahead. We are going 

to hear from each of the witnesses. Then we will open it up to questions. 

STATEMENT OF JOHN DWYER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, NEW ENGLAND FEDERAL CREDIT UNION, 

WILLISTON, VERMONT, ON BEHALF OF THE NATIONAL 

CREDIT UNION ASSOCIATION 

Mr. DWYER. Thank you, Mr. Chairman. 

Mr. Chairman, Senator Grassley, and Members of the Committee, good morning. Thank you for inviting me to testify today. 

As the Senator said, my name is John Dwyer. I am the president 

of the New England Federal Credit Union. We are known as 

NEFCU in Vermont. I am testifying today on behalf of the Credit 

Union National Association representing nearly 90 percent of 

America’s 6,800 credit unions, State and federally chartered, and 

their 98 million members. 

My testimony today will bring light to how patent trolls are targeting small credit unions across the country with demand letters 

and provide support for reforms that will offer some measure of relief for credit unions. 

My credit union received a demand letter in June 2012 from a 

non-practicing entity whose only assets are a portfolio of highly 

questionable patents and claimed infringement without, we believe, 

having performed a proper investigation into whether NEFCU was, 

in fact, violating any of its patent claims. For the purpose of my 

testimony, I will refer to this entity as a ‘‘patent troll.’’ 

The demand letter was vague, misleading, and lacking in critical 

information. It broadly referenced patent claims that I have since 

learned have been canceled by the Federal Circuit. Moreover, the 

demand letter did not specifically identify what my credit union 

had allegedly done wrong. 

For the record, my credit union has 23 ATMs used strictly for 

traditional banking transactions. The demand letter failed to identify any specific NEFCU ATM or indicate how NEFCU infringed 
5 

any specific claim. NEFCU has no attorney on staff, so we hired 

an attorney to help us with a reply. 

The patent troll sent another demand letter a few months later, 

making all the same mistakes as were in the first letter, and not 

acknowledging our initial reply. My credit union is now in litigation with this patent troll. Therefore, there could be some questions 

this morning that I am unable to answer. 

We soon learned our experience with this patent troll was not 

unique. In fact, the same demand letter was sent to almost every 

credit union in Vermont, including one without any ATMs. While 

we believe this patent troll must be stopped, unfortunately no end 

is in sight. In fact, as recently as this past September, this patent 

troll moved on to target small banks in Ohio and Pennsylvania. 

And while the vague allegations and invalid patents in a demand 

letter remain the same, the patent troll is now demanding $2,000 

per ATM, and a couple months later, following up on that letter 

with an increased demand of $5,000 per ATM. 

Reform and relief are desperately needed. Credit unions believe 

that true reform and meaningful relief will start at the beginning— 

the demand letter. These demand letter-writing campaigns work 

because patent trolls know that for a small credit union, an early 

settlement is much cheaper than a fight. Just to pick up the phone 

to consult with a patent attorney to determine the validity of the 

demand letter’s claim and evaluate the demand costs tens of thousands of dollars. 

Chairman Leahy, we support your legislation to address the 

problem of unfair and deceptive demand letters. At a minimum, demand letters should require specific information to the end user— 

in this case, me—such as a detailed description of each patent allegedly infringed and a detailed description of which product or feature is infringed, including names, model numbers, and how the 

claim corresponds to functionality. 

We also support your bill’s role for the Federal Trade Commission as an enforcement agency and encourage the addition of rulemaking to ensure that enforcement tools can evolve as patent trolls 

continuously modify their tactics. 

Because information is key, if credit unions have any hope for 

dealing with demand letters, we also support the creation of a registry. A patent troll that sends more than 10 demand letters in a 

year should be required to enter all letters into the registry that 

would be publicly available and maintained by a federal agency. 

Chairman Leahy, we also believe that your bill’s language addressing customer stay exceptions could be very helpful in some 

circumstances. Unfortunately, most vendors have taken the position that small credit unions are on their own, disclaiming indemnification in connection with patent claims. Perhaps with stronger 

customer stay exception language, more vendors would step in to 

defend their end users against frivolous litigation. We encourage 

the addition of more end-user protections to assist those, like us, 

who do not have the resources or the market power to receive necessary assurances and indemnities from vendors. 

Other proposed reforms will help credit unions as well. For example, Senator Grassley’s bill to require heightened pleading 

standards and fee shifting will make a patent troll think twice 
6 

about harassing credit unions across the country with the same 

vague demand letter. 

In conclusion, without relief, small credit unions everywhere will 

just have to cross their fingers and hope they do not receive a demand letter like we did. Addressing demand letters will develop a 

strong foundation for meaningful reform to curb patent trolls. 

Thank you. 

[The prepared statement of Mr. Dwyer appears as a submission 

for the record.] 

Chairman LEAHY. Thank you, Mr. Dwyer. 

Michael Makin is the president and CEO of the Printing Industries of America, a position he has held since 2002. He is also familiar with my own background as a son of printers. He is originally from Montreal. He formerly served as president of the Canadian Printing Industries Association. He has a degree in journalism 

from Carlton University in Ottawa and an MBA from the University of Phoenix. 

Mr. Makin, good to see you again. Please go ahead, sir. 

STATEMENT OF MICHAEL MAKIN, PRESIDENT AND CHIEF EXECUTIVE OFFICER, PRINTING INDUSTRIES OF AMERICA, 

SEWICKLEY, PENNSYLVANIA 

Mr. MAKIN. Thank you very much, Mr. Chairman and Ranking 

Member Grassley. It is indeed a privilege to address the Members 

of the Senate Judiciary Committee on a topic that is very near and 

dear to printers all across America. It is also an honor to speak on 

behalf of the largest graphic arts trade association, along with its 

affiliates from coast to coast. 

If ever there was an industry that typified small business in the 

country, it is the printing industry. There are more than 30,000 

printing plants all across the Nation in virtually every town and 

city. Our industry is predominantly a family owned industry with 

80 percent of companies employing fewer than 20 employees. In the 

aggregate, 800,000 Americans earn their livelihood through printing. 

The roots of our industry date back hundreds of years, yet its 

modern face is high-tech and innovative. It must be in order to survive. Today’s print marketplace is all about using an innovative 

cross-media mix to drive the economy. 

Unfortunately, we are also an industry that has attracted the attention of patent assertion entities or ‘‘patent trolls.’’ We believe 

this is the case because we are, in fact, small businesses and vulnerable to predatory legal actions which threaten our very viability. 

Prior to 2013, it was unheard of for printing companies to be accused of patent infringement. This is no longer the case. Currently 

we know of at least eight patent trolls that are seeking licensing 

fees from printers or threatening costly litigation. For small printers, especially, this is often their first experience with patent law 

and civil litigation, not to mention trolling. And they are astounded 

by the thuggish actions of these enterprises and the dollar figures 

associated with their demand letters. 

One extortive letter issued to a Kansas printer with just 40 employees demanded $75,000 in licensing fees. If they did not pay 
7 

within two weeks, that would go up to $95,000. This is reprehensible. 

Needless to say, threats of litigation are intimidating and place 

undue stress on an industry already struggling with low profits 

and challenging demand. Our average printers are forced to spend 

anywhere between $10,000 to $15,000 just to hire lawyers initially 

to protect themselves. One of our members in Colorado reports that 

he literally is bogged down under a stack of patent claim charts, 

and his business has had to take the back seat. This is a very common story all across America. 

Keep in mind, Mr. Chairman, that patent trolls do not innovate, 

they do not promote economic growth, they do not contribute to the 

good of education or scientific research. Most importantly, patent 

trolls do not create jobs. Our businesses do. And yet their actions 

threaten job creation. They hinder entrepreneurship and, most 

frighteningly, intimidate hard-working Americans for standing up 

for their rights. I have heard from dozens of companies who are 

even afraid to share their experiences for fear of retribution. 

In my written statement, I have included a chart that details the 

known patent infringement actions against the printing industry. 

Some of the technologies involved include: 

Computer-to-plate work flow, which is a ubiquitous process that 

has been used in printing plants for more than 15 years; 

Web-to-print ordering and inventory systems used in our industry, and countless others; 

And quick response codes used in advertising mail, magazines, 

and other printed material. 

I cite these examples, Senators, because I can assure you, if you 

were to ask small printers in the States you represent, the vast 

majority would tell you that they consider using the above technologies as essential to their business. That they now even fear 

being competitive because of patent trolls who have no intellectual 

or innovative skin in the game is also reprehensible in our view. 

Our overriding position is that legislation should demystify the 

patent process for end users like small printing companies so that 

their burden can be minimized and their solutions less costly. A 

number of reforms are critical. Cracking down on the deceptive behavior that accompanies bad-faith demand letters is one example, 

and kudos to Senators Leahy and Lee for this provision. Reforming 

the system to include heightened pleading requirements to increase 

transparency, as promoted by Senator Cornyn. Allowing businesses 

threatened by similar suits to pool resources through an expanded 

permanent CBM review. Thank you, Senator Schumer. And adopting fee-shifting strategies, as supported by Senators Hatch, 

Cornyn, and Grassley, to deter frivolity within the patent system 

and to require trolls to put their money where their threatening 

mouths are. 

To conclude, Mr. Chairman, without a doubt, both small business 

and innovation drive the spirit of our economy and the Nation, and 

both equally deserve to be protected from abusive patent trolls. We 

believe that a common-sense, practical solution that protects all 

users of the patent system is indeed possible. But time is of the essence. The longer we wait, the longer we will expose innocent companies to the peril of trolls, which flies in the very face of entrepre-
8 

neurship and fair play. We urge the Committee to take definitive 

and bold action. 

Thank you very much. 

[The prepared statement of Mr. Makin appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much. 

I should also note we have received a number of written submissions for the record, and without objection, they will be included in 

the record. The staff will work out the appropriate place. 

[The information referred to appears as submissions for the 

record.] 

Chairman LEAHY. Dana Rao is the vice president of intellectual 

property and litigation at Adobe. He oversees all aspects of intellectual property and litigation matters. Prior to joining Adobe, he 

spent 11 years as associate general counsel of Microsoft where he 

worked on patent-related matters. He has his undergraduate degree from Villanova and his law degree from George Washington 

here in Washington, D.C. 

Please go ahead, sir. 

STATEMENT OF DANA RAO, VICE PRESIDENT AND ASSOCIATE 

GENERAL COUNSEL OF INTELLECTUAL PROPERTY AND 

LITIGATION, ADOBE SYSTEMS, INC., SAN JOSE, CALIFORNIA 

Mr. RAO. Thank you. Mr. Chairman, Ranking Member Grassley, 

and other distinguished Members of the Committee, thank you for 

inviting me to testify on this important issue. I am appearing before you on behalf of Adobe, and I oversee all aspects of our intellectual property and litigation matters. 

Adobe provides leading-edge software to consumers and career 

professionals like Photoshop and Acrobat. We are also a leading 

provider of digital marketing software, which provides software to 

retailers and Websites all throughout the world. Today Adobe employs over 12,000 people and makes over $4.4 billion of revenue. 

With over 3,000 patents and applications, Adobe is a strong believer in the importance of the patent system to drive the innovation economy. The inventions of Adobe’s scientists represent genuine breakthroughs in 21st century technologies. With our products, you can use a video of your face to animate a 3D figure. We 

can remove the blur from a photograph caused by your hand shake. 

And we can even predict the audience reaction to a blog you post 

before you post it, all through the magic of software. 

And we rely on our Nation’s patent system to protect these innovations and the investments we make and the jobs they create. 

Weakening patent protection from software would be shortsighted 

and would not help address the problem with patent trolls we are 

here to discuss today, as the House rightly decided in passing the 

Innovation Act with overwhelming bipartisan support. 

There is a problem with patent trolls and the patent system. 

Trolls are bad actors who are taking advantage of the asymmetric 

costs in patent litigation to extort settlements, and they are dramatically increasing their activities. Before 2009, Adobe only had 

faced 19 suits in the history of its company. Today, this year, we 

have had over 20 lawsuits alone. 
9 

Nationally the picture is also darkening. In 2007, trolls had targeted 834 defendants. According to the GAO report, in 2011 this 

number quadrupled to over 3,000 defendants of patent troll litigation. 

One study estimates that troll litigation is a $29 billion cost to 

our economy. And are start-up companies and entrepreneurs celebrating this trend? Not at all. Fifty-five percent of these patent 

troll litigations are targeting companies that are making less than 

$10 million. And only a fraction of these patent troll proceeds end 

up in the hands of an inventor. This activity is not benefiting the 

small guy. It is harming the small guy and the big guy alike. 

The current patent litigation system is unbalanced in favor of 

trolls. Patent law has evolved to enable lawsuits to be filed with 

little diligence by the patent troll, high costs for the defendant, and 

no adverse consequences for a meritless suit. 

We are pleased that Chairman Leahy and Senator Lee have introduced legislation to address this problem. Taken together with 

other legislation by Senators Cornyn and Grassley and Senator 

Hatch, we believe we have the tools for the comprehensive bill that 

we need to address this problem. 

Strengthening patent laws’ fee-shifting provision will be the most 

effective tool we can use to address and disrupt the trolls’ business 

model. In one recent case against our company, a patent troll wanted to settle with us before reaching the merits of the lawsuit. After 

making a series of diminishing settlement offers to us, they granted us a covenant not to sue and settled for nothing, but only after 

Adobe had spent hundreds of thousands of dollars in defense costs. 

Pursuant to the existing fee-shifting standard in Section 285, we 

asked the court to make the patent troll pay. Regretfully, the court 

denied our motion, based on the belief that Section 285’s high 

standard was not met. 

This has to change. Section 285 needs to be amended so that fees 

in patent cases are appropriately shifted to the prevailing party unless the non-prevailing party can show that they have a substantially justified position. If you bring a patent lawsuit, you should 

have a substantially justified position. If not, you are likely filing 

a meritless lawsuit. 

Fee shifting poses the only adverse consequence for the patent 

troll behavior. Without the risk of incurring shifted fees, trolls, who 

make no products and face no threat of a counterclaim, have nothing to lose. 

This business model will continue to grow and attract new investors. We need to give the courts the clarity they need to fix this 

problem. 

We also need to ensure that we can reach the real parties in interest behind these litigations. Otherwise, trolls hiding behind shell 

companies will not face any adverse consequences from these shifted fees. A discretionary bond provision, as provided in Senator 

Hatch’s legislation, would effectively address this. 

Another important measure is Chairman Leahy and Senator 

Lee’s customer stay provision. Staying suits in favor of the manufacturer’s case helps judicial economy and protects end users from 

unnecessary litigation. 
10 

Finally, we need to reform the patent litigation process. As a policy matter, we believe Congress should create heightened standards of quality throughout the patent litigation system to prevent 

abuse by trolls. Pleading reform and discovery reform are critically 

important to lower the costs of patent litigation for both plaintiffs 

and defendants. 

Troll litigation is a tax on innovation and innovators. We must 

address it by changing the economics of the system. I respectfully 

ask for this Committee’s help to end this burden on American businesses. 

Thank you. 

[The prepared statement of Mr. Rao appears as a submission for 

the record.] 

Chairman LEAHY. Thank you very much. 

Our next witness, the last one on this panel, is Philip Johnson, 

senior vice president and chief intellectual property counsel at 

Johnson & Johnson. He joined the company in 2000. Before that, 

he spent 27 years in private practice. He has extensive experience 

practicing patent law. He advised law makers serving on this Committee and others on patent issues, including serving on a committee of experts formed by the Director of the PTO to help implement the Leahy-Smith America Invents Act. He has a bachelor’s 

degree from Bucknell and a law degree from Harvard. 

Mr. Johnson, welcome. Thank you for taking the time to be here. 

STATEMENT OF PHILIP S. JOHNSON, SENIOR VICE PRESIDENT 

AND CHIEF INTELLECTUAL PROPERTY COUNSEL, JOHNSON 

& JOHNSON, COALITION FOR 21ST CENTURY PATENT REFORM, NEW BRUNSWICK, NEW JERSEY 

Mr. JOHNSON. Thank you, Chairman Leahy, Ranking Member 

Senator Grassley, and distinguished members of the panel. I appreciate very much the opportunity to testify today on the subject of 

protecting innovation and small businesses while deterring troll 

abuse. I am testifying here today as a representative of the 21st 

Century Coalition for Patent Reform, 21C, the Steering Committee 

of which also includes General Electric, Procter & Gamble, Caterpillar Tractor, Eli Lilly, and 3M. 

By our definition, troll abuse is the misuse of a court proceeding, 

or the threat thereof, to press specious patent claims or defenses 

for the sole purpose of coercing an opponent to settle the dispute 

to avoid otherwise inevitable litigation costs. This abuse can be perpetrated by any litigant, and while the effectiveness of the tactic 

will vary based on the party’s circumstances and means, the identification of the abuser turns not on who the party is but, rather, on 

how they behave. 

The problem of patent litigation abuse is not new to the patent 

system, nor is it new to this Committee. You devoted a great deal 

of attention to the problem while developing the Leahy-Smith 

America Invents Act, and have already gone a long way toward giving the courts and the Patent Office the tools they need to address 

the problem. 

But not everything that can be done has been done. One promising proposal in S. 1720, the Leahy-Lee bill, cosponsored by Senators Klobuchar and Whitehouse, would favor suits between pat-
11 

entees and manufacturers of the allegedly infringing products over 

suits against customers. If drafted properly to automatically stay 

patent suits against off-the-shelf retailers and end users who are 

doing no more than using purchased products in the manner as instructed, the troll business model of suing many customers, but 

never their suppliers, could become a thing of the past. 

The Leahy-Smith bill would also improve transparency of patent 

ownership, correct an error in the AIA relating to the estoppel to 

be applied in post-grant reviews, and properly direct the Patent Office to follow the same claim construction rules as applied in the 

courts and the ITC. In addition, the Leahy-Lee bill proposes to 

stem the use of bad-faith demand letters by authorizing the FTC 

to treat them as unfair and deceptive trade practices. With further 

development to address preemption, free speech, and safe harbor 

issues, we see this as a promising approach for dealing with this 

aspect of the patent abuse problem. 

Until recently, I would have added to this list of remedies the 

modified attorney fees shifting proposals advanced by Senators 

Cornyn and Grassley in S. 1013 and Senator Hatch in S. 1612, but 

because the Supreme Court has recently agreed to hear two cases 

to address patent fee shifting, Congress should consider waiting for 

the Supreme Court to act in these cases before legislating on the 

subject. But whatever the Supreme Court decides, problems will remain when plaintiffs are structured as shell corporations so they 

can bring specious suits knowing that they have insufficient assets 

to satisfy any fee awards that they might incur. Of the three approaches suggested to address this aspect of the problem—joinder, 

bonding, or legal recourse against persons with a financial interest 

in the proceeds of the suit—our coalition favors the third. Treating 

this aspect of the problem as the collection problem that it is will 

preserve free access to the courts, not disrupt good-faith patent assertions, and be the most difficult for abusers to avoid. 

Other proposals relating to heightened pleading standards, mandatory stays, and the specifics of managing discovery in patent 

cases should be referred to the Federal Judicial Conference for further development. Particularly troubling is the proposal to impose 

mandatory discovery stays pending Markman rulings, leaving very 

little discretion, if any, to the courts as to what is right for each 

particular case. Such an approach would be an open invitation to 

copyists to enter the U.S. market safe in the knowledge that the 

patent actions brought against them will come to a virtual standstill for an extra year or more while the parties wrangle over the 

meanings of patent claim terms. In the meantime, manufacturers’ 

market shares, and the jobs they support, will shrink as the infringement continues. 

Finally, especially now that the Supreme Court has agreed to 

hear an overall challenge to the patentability of computer-implemented inventions, 21C believes it would be best not to adopt Senator Schumer’s proposals in S. 866 to expand and extend the transitional program for financial sector business method patents. 

The innovation ecosystem in this country is extremely sensitive 

to changes in our patent system. With the help of this Committee, 

our country has come a long way by enacting the AIA and the pilot 

patent courts bill. Let us move forward with remedies that are 
12 

sharply focused on abusive behaviors, while exercising restraint as 

to those which may have broader ramifications on the innovation 

community and our economy as a whole. 

Thank you very much. 

[The prepared statement of Mr. Johnson appears as a submission 

for the record.] 

Chairman LEAHY. Thank you. 

I want to start with my questions. We have got a lot of people 

here, so we will try to keep on schedule. 

I would also note that Senator Cornyn, as the Deputy Republican 

Leader of the Senate, may have to be leaving here at some point 

for a leadership meeting, which I understand he has worked very, 

very hard on this subject, and we will make sure both his statement and his questions will be in the record. And to the extent 

there are questions of members of the panel, I would urge them to 

answer them as quickly as they could. 

Senator CORNYN. Thank you, Mr. Chairman. If I could just beg 

your indulgence a moment and thank the witnesses and the Chairman and the Ranking Member for taking up this important matter. 

I would also like to note Harry Wolin from AMD from Austin, 

Texas, which is my home town, is here as a witness, and I have 

had a chance to thank him for his participation. 

Thank you for your indulgence. 

Chairman LEAHY. We are delighted he is here, and I appreciate 

your helping to arrange that. 

[The prepared statement of Senator Cornyn appears as a submission to the record.] 

Chairman LEAHY. Mr. Dwyer, let me ask you about your testimony about these abusive demand letters. I am hearing about this 

issue from a number of different businesses in Vermont and, of 

course, from across the country. The legislation Senator Lee and I 

introduced targets those abuses by saying that it is a deceptive 

trade practice to send these misleading letters. But, of course, we 

also want to be able to distinguish such letters from legitimate licensing inquiries. 

Give me some examples of how demand letters that you found 

could be misleading or predatory or sent without any reasonable 

due diligence. 

Mr. DWYER. Thank you, Mr. Chairman. I think the best way to 

frame that is that a person in my position, whether they are running a credit union or any other small business, when they receive 

a demand letter, they are in the immediate position of trying to understand what the claim is. What is the basis for the claim that 

the entity is infringing? What is the patent that is associated? 

What is the terminology in the patent? A letter should put the person who is receiving it in the best possible position to understand 

where we sit and not have to spend a lot of time and resources hiring somebody, in effect, to look up patent numbers, to try to understand what the context of those patents is, what the content of 

those patents is, and really evaluate whether your organization 

would be infringing on that. We think that is reasonable. I think 

it is reasonable to expect that that information would be provided 

in a basic demand letter. 
13 

Chairman LEAHY. I have had some people tell me they get this 

demand letter, and they try to find where it comes from, and the 

best they can do is trace it back to a mailbox somewhere or a shell 

company. My measure, which would ensure that current ownership 

information for a patent be listed on file with the Patent Office, 

would that help some of these concerns? 

Mr. DWYER. It would certainly help. To understand the true—you 

know, the ownership structure behind—in most cases, the letter is 

going to come from an attorney, so who is the entity that is working with that attorney. To be able to understand that from day one 

in terms of when you receive the letter would be very helpful. 

I work in financial services, and obviously financial services is 

arguably one of the most transparent companies or industries that 

exists. 

Chairman LEAHY. If you send something out, the people have to 

know where it came from. 

Mr. DWYER. Right. We need to tell our customers, we need to tell 

our members, what the basis is for almost everything we do with 

them, and that is the way it should be. When I get a letter claiming that I am infringing and referencing a patent, it would certainly be helpful to understand the clarity around why we would 

be—or why they think we are infringing. 

Chairman LEAHY. And, Mr. Makin, I see these entities targeting 

the users of a product, not the manufacturer who made the product. My parents, as you know, as we have discussed before, had a 

small printing business, the Leahy Press, which is a venture they 

sold when they retired, but it is still operating in Montpelier, 

Vermont. But we certainly did not keep a patent attorney on staff, 

and I cannot think of many printing businesses that would, certainly not of the type you are talking about. I would think the manufacturer who made the product is in the best position to litigate. 

Have your members experienced this problem of being targeted 

for products just because they are using them? 

Mr. MAKIN. Absolutely, Mr. Chairman. It is the most frightening 

component of the patent issue because innocent companies—small 

printers, small American printers that employ, you know, 20, 30, 

40 people, are being harassed by these entities claiming that they 

have infringed something. Printers do not go to work every single 

day, ladies and gentlemen, assuming that they are going to have 

to be dealing with a patent issue. It is not even on their radar 

screen. They purchase technologies, they purchase software from 

multibillion-dollar companies assuming that the due diligence is 

undertaken by those entities. And so for them to be held hostage 

with these shell letters is very intimidating, and it is reprehensible. 

We are all about protecting innovation in America, Mr. Chairman, but that does not mean that small businesses have to be pursued in a very predatory, very threatening way, and it needs to 

change. And we are very pleased to see some of the provisions that 

you and your colleagues have introduced. 

Chairman LEAHY. Thank you. I have other questions that I will 

submit for the record for the next two witnesses because their testimony has been extremely helpful, and some of these follow-up 

things will be even more important. 
14 

[The questions of Chairman Leahy appear as submissions for the 

record.] 

Senator LEAHY. I will try to set an example with everybody here, 

and I will stop at this point and yield to the Ranking Member. 

Senator GRASSLEY. Mr. Rao, you made clear that since you have 

so many patents, defending against infringers is a top priority for 

Adobe. Now, I want to say what a lot of people say would be bad 

if we went in the direction of some of this legislation. Some patent 

holders are concerned that proposals to heighten pleading requirements restrict discovery, institute fee shifting, that would hamper 

the ability of small inventors and other legitimate patent holders 

to enforce their patent rights. 

I want to know your opinion, if you believe these concerns are 

justified. 

Mr. RAO. Thank you, Senator Grassley, for the question. The provisions you just mentioned are designed to limit the troll abuse behavior that we are seeing today and we have talked about, and so 

I will just start by saying that, you know, as I mentioned in my 

oral testimony, 55 percent of these patent troll litigations are being 

targeted against small businesses. So reducing patent troll litigation will help small businesses and entrepreneurs and small 

innovators, first of all. 

And, second, the reforms that you are talking about, the pleading 

reform and the fee-shifting reform, these will have beneficial aspects for many people who are trying to enforce patents. Fee shifting, I will note, also has—can have—a positive impact for the person trying to bring the patent. First of all, getting fees in other 

areas of law where fee shifting is allowed enables a small company 

to retain a contingency fee lawyer because the fees are very attractive. The millions of dollars in defense costs that can be won by a 

plaintiff in a fee-shifting case can be used in case the damages are 

small. So fee shifting can actually work in favor of the plaintiff. 

The other point in Senator Hatch’s fee-shifting standard—for example, he also has the conduct of the party as a factor for fee shifting. So one of the problems small inventors have when they bring 

lawsuits is that the defendants engage in dilatory tactics and they 

have discretion, and they are not going to shift the fees. All they 

have to do is look at that provision. 

The discovery aspects of the heightened pleading and the case 

management, one of the other ways the defendant can use litigation tactics to defeat a small inventor is by dragging out the case 

and making it very expensive. So these discovery provisions that 

you have mentioned in these bills, they can actually lower the overall costs of the case for both the plaintiff and the defendant. This 

allows the plaintiff to get to the merits of the case sooner. The faster they get their claim construction, the sooner we are going to understand what the patent is about, and then they can start getting 

settlements. So these provisions actually help both sides. 

Senator GRASSLEY. I am going to ask a question of Mr. Makin 

and Mr. Dwyer. I know that in general you would like to see patent 

troll abusers stopped before any litigation actually commences, because it is risky and costly to engage in that litigation. However, 

do you believe that the proposals to strengthen pleading requirements, institute fee shifting, and impose some discovery limitations 
15 

could have a beneficial impact in discouraging frivolous demand 

letters and reducing litigation, extortion, and abusive practices? 

And do you think that these reforms can make a positive difference? Mr. Makin and then Mr. Dwyer, and then that will have 

to be my last question. 

Mr. MAKIN. Thank you very much, Senator Grassley. We absolutely support the measures that you have introduced. We do believe they will curb the activity. 

Again, I stress that we need to have a balance in the system that 

preserves innovation but also does not hinder the growth of jobs in 

this country, which is the small business community. No printer is 

going to go out of their way to purposely infringe upon an issue. 

So all of the measures—heightened pleading, the fee shifting—they 

all make it more difficult for these vile creatures underneath the 

bridge to do the things that they are doing. It stops them from 

doing that. We are not against people having the ability to protect 

legitimate innovation in this country. What we are against is companies that purchase antiquated patents for the sole purpose of extorting money from small business. That is anti-American, and it 

is just wrong. 

Senator GRASSLEY. Mr. Dwyer, whatever you have to add. 

Mr. DWYER. I would be happy to add to that, Senator. I think it 

is important to state on behalf of CUNA and, arguably, all financial 

services companies that if part of the result of legislation is to add 

to the cost for the side—in this case, the plaintiff, that plaintiff 

then has to really think through the complete process, not just the 

ability to send a letter, which costs a buck, but all of the costs that 

can be the result of what happens when they go forward with litigation. So we are supportive of steps that are put in place to ensure that there is more balance. I think balance is an important 

word in this context. 

Thank you. 

Senator GRASSLEY. Thank you, Madam Chairman. 

Senator FEINSTEIN [presiding]. Thank you very much. 

Senator Coons, you are next. 

Senator COONS. Thank you, Senator Feinstein, and I want to 

thank Chairman Leahy for holding this important hearing and to 

the witnesses for sharing your experience with us today. As some 

of you know, I was in-house counsel for eight years to a materialsbased science company that relied very critically on its patent portfolio for its growth and its ongoing innovation. 

The patent system in our country offers a basic trade-off to inventors: Share with the world your greatest discoveries, and you 

get a right to exclude others from practicing that for a limited period of time. In fact, this is enshrined in our Constitution in Article 

I, Section 8. It is a very important foundational idea that has led 

to entrepreneurship and innovation in our country. And for many 

sectors of our economy, patent protections are absolutely critical to 

promoting innovation, and I think the title of today’s hearing suggests two complementary goals, as you have stated: that we want 

to limit patent troll abuse while also protecting small business and 

promoting innovation. 

From individual inventors who are just trying to solve everyday 

problems to those who are discovering new pharmaceuticals or 
16 

medical devices, certain companies and, indeed, whole industries, 

rely on our patent system to attract investors and to create jobs. 

And if intellectual property rights are to have any meaning, they 

have to be enforceable. That means giving valid patent owners sufficient access to the courts to deliver justice when they need it, 

whether through injunctions or litigation. 

But in different sectors, patents play different roles. For other 

sectors, some companies value secrecy over the right to exclude, so 

they choose trade secret protection over patents, for example. Other 

companies value speed to market, and so the long time required for 

quality patent issuance means they do not choose to pursue patents. 

Ultimately, unfortunately, as you have described in detail, our 

system has been subject to some abuse. Baseless demand letters 

and frivolous lawsuits have harmed innocent end users and added 

little value to our innovation economy. 

Our task, I think, is clear but not easy, which is to provide relief 

to small businesses and start-ups that are innocent end users without weakening the economic value of U.S. patents, and I would like 

to thank Mr. Dwyer and Mr. Makin for giving some examples from 

credit unions and from printers. 

In my view, strengthening the American patent system begins 

with ensuring that we provide full funding for the Patent and 

Trademark Office and for the federal courts to ensure, as Mr. Johnson suggested, that the judiciary is able to play its appropriate role 

in managing litigation and to ensure that the patents that are 

being enforced are sound and solid rather than the lesser-quality 

ones that were referred to by Mr. Makin. 

In my view, we are just beginning now to see the impact of the 

Leahy-Smith America Invents Act, which has a number of provisions designed to increase patent quality, not least among them 

pre-issuance submissions, post-grant reviews, inter partes reviews, 

and the transitional program for CBM, or covered business method, 

patents. Each of these programs creates new hurdles for patent applicants and patent holders, and our hope is that, in return, we will 

have higher patent quality in the market. 

So as we consider the proposals before us, I think we need to understand the impact of these changes of the law, which was really 

recently enacted and is only newly having an impact on the patent 

system. 

Let me, if I might, turn to some questions. Mr. Johnson, you of 

the panel offered an interesting definition of a patent troll, which 

I think is an important thing for us to focus on. You focused on distinguishing a troll from a valid patent owner based on their behavior, on their litigation behavior, which also implies that there are 

valid patent owners who also pursue patent litigation and that we 

are at some risk if we do not correctly distinguish between them. 

Our current patent laws protect against infringement by companies that make, use, or sell infringing products, and so our court 

challenges protecting the innocent end user without destroying that 

right. 

How do you suggest, Mr. Johnson, that we draw a line between 

innocent end users and companies that are profiting from the use 
17 

and sale of infringing products in a way that does not hurt innovation but defends the truly innocent end user? 

Mr. JOHNSON. Well, you are absolutely right. There is a fine line 

between someone who is zealously advocating a position on behalf 

of their client, believing that the patent is infringed, and one who 

crosses that line and overadvocates. But that line can be crossed 

by defendants as well as plaintiffs. Large, well-heeled companies 

faced with a small business trying to enforce a foundational patent 

against them can press defenses, take unending appeals, and also 

engage in behavior that I believe is abusive. 

So we have to look at the merits of the behavior. Unfortunately 

it is not as easy as categorizing people by who they are or what 

their business structure is. We have to look at what they are actually doing, which is why the fee-shifting approach has some strong 

advantages, because fee shifting only kicks in after the case is over 

and you know and the judge knows whether or not the case was 

frivolous or not. 

Now, I do see the problem for some of the end users and small 

businesses who say that is a very expensive trip for us to go on in 

order to end up there. But certainly it will deter frivolous assertions to some degree, I think coupled with the customer stay provisions so that these actions do not proceed against the banks and 

the printers themselves but, rather, the manufacturers of the technologies, because, after all, these end users are only using these 

products in the manner in which they were intended and as instructed by the manufacturer. The real dispute should be between 

the patent owner and whoever is manufacturing the product and 

providing it with those instructions, not against the innocent end 

users. And so the customer stay provisions, I think, and end-user 

provisions are very important so that these cases can be consolidated and fought out where they ought to be. Those two things 

alone will go a long way toward helping this problem. 

Senator COONS. Thank you, Mr. Johnson. I look forward to having another round of questions. 

Chairman LEAHY. And I appreciate your answer because it anticipated one of the questions I was going to ask you. Thank you 

very much. 

Senator Hatch. 

Senator HATCH. Well, thank you, Mr. Chairman. 

Mr. Chairman, I ask unanimous consent that we place in the 

record from the American Bankers Association, American Insurance Association, the Clearinghouse, Credit Union National Association, Financial Services Roundtable, Independent Community 

Bankers of America, National Association of Federal Credit Unions, 

National Association of Mutual Insurance Companies, to mention 

a few, in the record at this point. 

Chairman LEAHY. Without objection. Some of them may already 

be, but we will make sure—— 

Senator HATCH. I think they may be. 

Chairman LEAHY. They will be. 

[The information referred to appears as a submission for the 

record.] 

Senator HATCH. Let me go to you, Mr. Rao. The idea of using 

mandatory fee shifting to discourage frivolous patent litigation is 
18 

not a new concept. In fact, Senator Leahy and I first introduced the 

proposal back in 2006 in that patent reform bill at that time. Our 

fee-shifting language, similar to the test used in current law, would 

require courts to award attorneys’ fees to the prevailing party in 

cases where the non-prevailing party’s legal position was not substantially justified. 

The House of Representatives recently passed its own patent bill 

by a bipartisan vote of 325–91, which includes a fee-shifting provision similar to the 2006 Hatch-Leahy or Leahy-Hatch language in 

my bill, the Patent Litigation Integrity Act. Now, you stated in your written testimony that the standard for 

fee shifting in current law is too high. In your experience, why 

would changing the legal standard in the Patent Act make fee shifting a more reasonable option in patent cases and do more to address the threat of patent trolls? 

Mr. RAO. Thank you for the question. In one recent case we just 

had, a patent troll was suing Adobe, and when we were approaching the merits, approaching claim construction, the patent troll 

said, ‘‘I do not want to have my patent examined, so I am walking 

away,’’ gave us a covenant not to sue, and it was settled for nothing. 

Unfortunately, as I mentioned earlier, we had already spent hundreds of thousands of dollars at that point defending ourselves, and 

we moved for fees. Under the current fee-shifting standard, you 

have to show that the case was exceptional, so that they had to 

have an objectively unreasonable position. 

Well, the court found that since they had not gotten to the merits 

of the case because the patent troll walked away before they got 

to the merits of the case, they could not find exceptionality, so no 

fees were shifted. 

Under your language, where the prevailing party would get the 

fees, unless the non-prevailing party could show substantial justification, in that case we were the prevailing party—right? The 

patent troll walked away from the lawsuits—we would have gotten 

the fee shifted, and the money would have moved over and the patent troll would have had to pay those fees. The patent troll could 

not contest that because they did not get to the merits, so they 

would not be able to show that they had a substantial justification 

in their position. 

So in that case, this is a perfect example of ensuring that people 

who have got meritorious patent claims are going to be protected, 

but if they do not have meritorious patent claims, they are not 

going to be protected, and the new standard that is articulated in 

these various bills would protect us in that situation. 

Senator HATCH. Well, thank you. Many patent trolls are shell 

companies with few or no assets, and any court-ordered award still 

leaves defendants holding the bag. In my view, fee shifting without 

the option to seek a bond is like writing a check on an empty account. You are purporting to convey something that is not, and to 

obtain a fee award against a judgment-proof troll, some have argued for expanding the rules on joinder instead of bonding. 

How do you compare the House and Senate joinder proposals 

with the bonding provision I am advocating for in the bill that I 

have presented? 
19 

Mr. RAO. Well, first, I would absolutely agree with you that some 

manner of reaching the real party interest is critical to give life to 

fee shifting. If you are just awarding fees, the companies we are 

being sued by were set up two days before the lawsuit. They have 

a filing cabinet who is their CEO in a closet in Texas. There is 

nothing there. There is no money there. Getting a fee award 

against them is meaningless. So you need a way to reach the real 

party, the investors who are driving this problem. 

When we talk about the right way to approach it, we really think 

the bonding approach is the correct way. The problem with joinder 

is there are due process issues with bringing people into the case 

after the judgment. So you have to join these people, whoever they 

are, at the beginning of the case, or at least give them notice, and 

that means in every single case you have to notice everybody who 

might possibly be an interested party, even if you do not know if 

you need fee shifting. And then you have to give them the opportunity to renounce their interest or engage in the process before 

you can join them. 

So you are either—you are going to have to set up a complicated 

process for the defendant to join these interested parties, which is 

going to be burdensome and expensive for the defendant, and they 

would have to do it in almost every case. 

The bonding procedure that you have outlined is much simpler. 

You have a hearing. The court has total discretion. They may order 

bond. And there are a bunch of factors the court has to look at before they decide to order bond. And the factors that are outlined 

in your proposal protect the small inventor. They protect universities, they protect people who have the ability to pay. So it is a 

hearing. Both sides would make the argument. The court decides 

if a bond is appropriate or not. And the courts are smart. They 

know what they are looking for in these situations. They know 

what a patent troll looks like. And if it is a small start-up that is 

entrepreneurial, they are not going to require a bond because they 

know it is going to burden their non-patent activities. 

But they look at that company, and they see it is Search Retrieval, Incorporated, LLC, who has only been in existence for a 

week, they are going to say, you know, in this particular case we 

probably need a bond. And so that is why we think your bond provision is much more effective. 

Senator HATCH. Well, thank you. 

Thanks, Mr. Chairman. 

Chairman LEAHY. Thank you very much. 

Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

I recognize that patent law is a very specialized area of the law, 

and it is very complicated, complex. So I want to be sure to understand the impact and potential unintended consequences of 

changes to the patent law. 

Mr. Johnson testified that the innovation ecosystem is very sensitive to changes we make to the patent law, so, you know, I want 

to understand what the impacts might be, and I certainly would 

want to hear the perspective of, for example, small universities 

that engage in this kind of research. I would like to hear from the 

entrepreneur, the small inventors, before we go forward in a big 
20 

way. And I am glad that the Chairman mentioned that what we 

are after is, of course, addressing the problem of the patent trolls. 

None of us support those kind of activities. I think, though, that— 

Mr. Chairman, I appreciate your saying that we would like to fashion a bill that is focused on the problem that we are seeking to address. 

Mr. Dwyer, you testified that you support the bill’s provisions relating to the FTC being empowered to pursue—to be engaged in 

getting after patent trolls, and also you support the disclosures and 

demand letters, et cetera. Do you think that it would be a good 

idea to also empower State Attorneys General to also be able to enforce these kinds of provisions? 

Mr. DWYER. Senator, honestly, I am not an attorney, and I do 

know that, obviously, in Vermont we have recently passed legislation to provide Vermont companies defenses in the situation of a 

patent troll sending letters to Vermont companies. So with regard 

to what State Attorneys General can do to follow up, I think the 

real risk is that if this is handled on a State-by-State basis, it 

would add to the complexity that we are very much trapped in in 

terms of the patent law. 

Patent law is federal law. It is something that is decided by Congress. So for States to try to put in place enforcement capacity or 

for a State’s Attorney General to do so, they are oftentimes working 

in situations where the case is in federal court so that it may not 

be as—there may not be as much capacity. 

With regard to the FTC and the regulatory authority, CUNA is 

supportive of that. It is fair to say that whatever—if there is legislation passed, that the tactics that are utilized by some of the people and some of the entities we are discussing will be modified, and 

they will work within the legislation that is passed. And so for FTC 

to have the authority or the rulemaking authority on a limited 

basis, very structured perhaps, but to be able to adapt to those 

changes could assist companies like mine from having to come back 

and see you again, perhaps. 

Senator HIRONO. I was going to ask you, Mr. Dwyer, this question, because you noted in your testimony that perhaps a mandatory joinder would be a way to go. But you are not an attorney, so 

perhaps Mr. Johnson might want to respond to this, because the 

State provisions that we are contemplating only come into play if 

a manufacturer actually agrees to step in, and many of them may 

not want to get involved. And I do not know how this option of a 

manufacturer stepping in, therefore resulting in a mandatory stay 

of those proceedings on the end user, how that would help small 

businesses. But maybe a mandatory joinder would work better for 

small businesses. Mr. Johnson, would you like to opine? 

Mr. JOHNSON. Sure. The biggest problem with joinder is that you 

have to have venue in order to go forward with the proceeding. So 

someone who is so inclined can structure the assertion so that joinder of other parties will not be available in the jurisdiction that 

they choose, so it is easily avoided, which is why we do not prefer 

joinder. There are other issues that have been mentioned about the 

need for notice if you are going to collect from people, but I do not 

believe you need to join them in order to get that. 
21 

Senator HIRONO. Since you are responding right now, Mr. Johnson, are you aware of efforts within the judiciary and also in the 

Patent and Trademark Office to address some of the concerns that 

are being raised in today’s hearing? 

Mr. JOHNSON. Yes, I am. The Federal Judicial Conference is in 

the process of addressing many of the issues, especially relating to 

pleading, the pleading requirements, and also discovery, the 

asymmetries in discovery and the best ways in which to efficiently 

manage discovery in patent cases and in other complex cases. And, 

in fact, there are advisory committee recommendations out that are 

currently going through the public hearing process. The comment 

period is open until February. This is the normal way that we manage the court docket and court procedures, through the Federal Judicial Conference process. 

Senator HIRONO. I am running out of time so—well, it looks as 

though my time is up. So is it your view that because of the very 

sensitive nature of the innovation ecosystem, we should ask the appropriate questions and understand what the ramifications of what 

we are contemplating would be before we go forward in a rapid 

way? I will put it that way. 

Mr. JOHNSON. Absolutely. While we are focusing on one kind of 

case, the troll type of case here, there are hundreds or thousands 

of different kinds of cases involving different technologies, different 

plaintiffs, different businesses. And it is very dangerous to try to 

enact a one-size-fits-all-type approach, especially when it comes to 

procedures and other things. And the courts, fortunately, have the 

discretion under the rules to treat each case the way that is best 

for them. 

Senator HIRONO. Thank you. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you very much. 

Senator Lee. 

Senator LEE. Thank you, Mr. Chairman, and thank you, Mr. 

Chairman, for letting me work with you on this legislation, which 

I think is very important. And I want to thank all of our witnesses 

as well for coming. This has been informative. 

Mr. Johnson, let us pick up with you sort of where you left off. 

I am curious to know why you seem to believe that the courts, 

rather than Congress, should address these issues and why we 

might want to wait for the Supreme Court, for example, to address 

the issue in the Octane Fitness case and the Highmark case this 

year before we act? I mean, after all, they are interpreting law, and 

we make the law. So to the extent there is ambiguity in the law 

that is requiring them to address it, why couldn’t we or why 

shouldn’t we just address it on our own? 

Mr. JOHNSON. Well, you certainly could. The issue here is whether the exceptional case standard has been interpreted too strictly 

by the Federal Circuit in its decisions, and the Supreme Court 

seems likely to reinterpret that in order to lower the standard for 

fee awards to hold that exceptional cases are more of the kinds of 

cases we have heard about. And if they do that, Congress may feel 

that it is not necessary to act in that way. It is not that Congress 

cannot or could not do that, but then by waiting for the Supreme 

Court to act, you will be able to decide whether the way that they 
22 

have acted is a better way to go forward than whatever legislation 

you may wish to write. 

Senator LEE. Right. But you would not disagree that we could 

also just decide that we want to clarify the issue on our own? 

Mr. JOHNSON. That is the way our government works, yes. 

Senator LEE. Mr. Rao, I wanted to address with you the argument that some have been making that perhaps we need to give 

the AIA a chance to work, that, you know, it has been just a couple 

years since it was passed, and maybe the AIA can take care of 

many of these problems that we are trying to address through this 

legislation that we are talking about at this hearing today. What 

do you say in response to that? 

Mr. RAO. Well, the AIA has been enacted and some of the provisions have been enacted over a year ago, and a lot of what we are 

talking about today in terms of litigation reform and the fee-shifting standard were actually discussed during the AIA and decided— 

we did not move forward on them. So those issues were actually 

discussed, and we did not move forward on them, and the provisions we have in the AIA were there to address part of the problem 

but not all of the problem. 

Senator LEE. A different set of problems related specifically, 

more specifically, to litigation involving patents. 

Mr. RAO. That is right. And that is the topic we are here to discuss today, is how do we rebalance the patent litigation system, 

which has really been untouched by Congress, to ensure this activity that we have all been hearing about today is no longer economical for these patent trolls. And that is the legislation today we will 

address. The AIA, which is really focused on harmonization and 

patent quality, is not going to address this patent troll industry. 

Senator LEE. And as you know, one of the litigation reform measures that Chairman Leahy and I have included in this legislation 

deals with the customer problem, when the customer is sued, and 

allows for a stay to be issued in those circumstances. Can you just 

describe for me the kind of scenarios in which this might be of help 

to a company like yours? 

Mr. RAO. Sure. So as I mentioned, we sell enterprise software to 

retailers, retailers across the country. In one case, we have had to 

grant indemnification to 10 of our customers. They ended up in six 

different courts across the country. And so we filed declaratory 

judgment in one of those courts because we wanted to defend the 

product in one court. It makes it very expensive for a manufacturer 

to have to defend their customers all across the country, and it 

makes it—frankly, some manufacturers were reluctant to step in, 

which are some of the problems we have been hearing about today. 

So the ability to get a stay granted allows us to focus the resources on one place. It is good for judicial economy. Only one judge 

has to hear. It is the same patent, same product, the same validity 

issues, same infringement issues all being decided in one place. 

And then we can take that decision, and then all the other cases 

can leverage the information from that. 

So we really think it is helpful. It certainly would help Adobe in 

its cost management. But we do actually look at it as more of a 

case management issue as opposed to actually addressing the patent troll economics that we have talked about today. 
23 

Senator LEE. And collateral estoppel would apply as to the issues 

in common. 

Mr. RAO. Correct. 

Senator LEE. Finally, what do you say to those who criticize this 

provision by saying there is a risk that defendants will collude— 

collude so as to put off the litigation, collude by agreeing to a stay 

where it might not be appropriate? 

Mr. RAO. Well, first I would say the provision is drafted very 

clearly to balance the patent holder, the manufacturer, and the 

customer’s interests. There are three parties who have interests 

here, and so in order to get the stay, the automatic stay, the customer and the manufacturer have to consent in writing. They have 

to agree to be bound by the issues. It has to be the same patent 

or product. And then the patent holder can get the stay lifted. They 

can move in the second action and say, look, this is not going to 

resolve a major issue, so the stay can be lifted. Or there is going 

to be some sort of manifest injustice or prejudice, and so the stay 

can be lifted. So there is protection built in there for the patent 

holder in case that sort of collusion occurs. 

I will say from an economic perspective, it is rare as a manufacturer I am going to step into a case, spend my own money for 

something I am not actually liable for. 

Senator LEE. Fair point. Thank you very much. 

Thank you, Chairman. 

Chairman LEAHY. Thank you very much, Senator Lee, and thank 

you—I thanked you before you came in, but I want to thank you 

personally for all your help in developing this legislation. 

Senator Feinstein. 

Senator FEINSTEIN. Thank you very much, Mr. Chairman, and 

thank you for holding this hearing. The one thing that I find there 

is agreement on with the California constituency in this area is 

please have another hearing. And as you know better than anybody 

else, this is such a difficult, complicated arena that I have got universities weighing in, and they want an opportunity to come to the 

table. And so I hope that there is another hearing. 

One of the things that I have found and that I am very concerned 

about is that the Patent Office, the Patent and Trademark Office, 

in 1990 was changed through a 69-percent user fee surcharge so 

that it became funded entirely through fees paid by its users. So 

it became independent from government largesse. So what has happened? By 1992, $886 million in fees that were 

paid for the operation of the Patent and Trademark Office had 

been diverted to other uses, and that has been a consistent thread. 

Now, the procurement of permanent office space for two new satellite offices has been put on hold because of sequestration, and 

this is for an agency that receives no taxpayer funds. They are in 

Colorado and Texas. Detroit has gone ahead. And the office in San 

Jose, California, has only gone ahead because San Jose is picking 

up the charge along with California. And San Jose, the city, is providing pro bono office space. It should not be that way. 

So it is my intention to introduce a bill that hopefully will become an amendment on one of these that will contain a provision 

that these patent fees cannot be diverted, that the Patent and 

Trademark Office should remain wholly self-supporting. And I hope 
24 

you, Mr. Chairman, will take that into consideration as you move 

your bill. 

I also wanted to go into this very convoluted process of joinder, 

which I hear a lot of different things about. A company with analytics in San Diego told my office of a case where they were sued 

for infringement, and they actually managed to obtain an award of 

costs against the plaintiff for filing an unjustified action. However, 

the plaintiff had only $600 in their account. Now, if a separate interest like a hedge fund was financially backing the litigation, the 

proposed joinder reforms would have permitted this computer to 

seek recovery of the award against the backer. 

Now, a number of start-ups and small companies have criticized 

the reform as being drafted overly broadly, encompassing shareholders and investors. Language has been proposed, as I understand it, that would keep paragraph 11 of this part of Senator 

Cornyn’s bill, including an owner, co-owner, assignee, or exclusive 

licensee of a patent, but would replace the reference in paragraph 

13 which covers ‘‘any person with a direct financial interest in the 

outcome of the action’’ with a ‘‘third party providing funds for the 

litigation in return for an investment in the financial outcome but 

that has no other involvement in the litigation.’’ 

So my question to all of you is: Would this be an acceptable compromise? Mr. Johnson, you are smiling. 

Mr. JOHNSON. Well, it is an interesting proposal, and we have always felt that, rather than joinder, recourse is what is needed, and 

that the one way that you can get recourse is to go after the people 

who have a stake in the proceeds of the litigation. 

I am not sure I followed your substitution exactly, but it sounded 

like that is what you were after as well, and provided appropriate 

notice provisions were in place so that they knew that they were 

on the hook in the event that a fee award was not going to be satisfied, I think you could overcome due process issues, which are always a concern, and go after them. And I think that the result 

would likely be that when they put together these investment vehicles, they would assure that the plaintiff was funded at least 

enough to cover a fee award or they would take that into account. 

And so I do think that the parties would be able to collect the fees 

if that language could be worked out. 

Senator FEINSTEIN. Could Mr. Rao just respond? 

Chairman LEAHY. Sure. Mr. Rao. 

Senator FEINSTEIN. Mr. Rao, would you respond? I would like to 

have your—I am not sure of it myself. That is why—— 

Mr. RAO. So as I understood the language, I think it said that 

instead of having a direct financial interest, third parties would 

be—could be joined to have no other interest in the litigation but 

were funding the litigation, I think is—— 

Senator FEINSTEIN. That is correct. 

Mr. RAO. So I would worry a little bit about this idea that they 

have no other interest in the company. It seems fairly easy, then, 

for the patent troll backer to have some other—if this is the law, 

to say, oh, I have some other interest now, so I cannot be joined 

because I am really not this ‘‘no other interest’’ party. 

Senator FEINSTEIN. Which I do not want to have happen. 
25 

Mr. RAO. Right, exactly. So that would be my concern with that 

approach. 

Again, I would say, if your start-ups and small companies are 

worried about being dragged unnecessarily, that Senator Hatch’s 

bonding provision actually explicitly removed them from somebody 

who might get a bond, and so we do not have a joinder issue, they 

would not be someone the court would attach a bond to because 

they have other activities unrelated to patent licensing or patent 

litigation, and then the bond might avoid all of this complication. 

Senator FEINSTEIN. Thank you. 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. 

Senator Flake. 

Senator FLAKE. Thank you, Mr. Chairman. 

Mr. Johnson, it seems that the root of the problem is vague and 

broad patents, some of which are close to expiration. The America 

Invents Act was designed to correct some of that and to improve the 

quality of these patents. 

How has that helped? Mr. Rao seemed to suggest that the America Invents Act still will not get at some of these litigation issues? 

Do you share that view? Or has it been given time to work? And 

what can be done besides that? 

Mr. JOHNSON. Well, first of all, I do not know whether I agree 

with him, but I can say the America Invents Act established three 

new post-grant proceedings which are available to people, including 

people in litigation, if they start them in a timely manner, so they 

can take the patent back and challenge the patent in the Patent 

Office in an administrative proceeding. So the idea was indeed that 

you provide a lower-cost forum to bring some of these issues to 

bear, and perhaps that will result in the cancellation of any overly 

broad or invalid claims so that that will be cheaper and quicker 

than what would happen in court. 

That is especially true where there are issues of prior art involved, which there always are. But I do think that that is one way 

the America Invents Act will help. 

Of course, the real force of the America Invents Act is going to 

a first-inventor-to-file system with objective patentability requirements and getting rid of secret prior art so that the Patent Office 

will be able to do a complete examination and do a better job at 

getting patents out that are truly enforceable. 

Senator FLAKE. Thank you. 

Chairman LEAHY. Thank you very much. 

Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much, Mr. Chairman. I am 

proud to cosponsor your bill and know that this is a really important issue in my State. We have many, many companies that are 

innovative, and it is one of the reasons our unemployment rate is 

down to 4.8 percent, the fact that we have invented things and 

make stuff and export to the world. In fact, at 3M, we actually 

have more patents than there are employees, so we like to say that 

we have a patent for each employee. 

I just met recently with about 30 patent lawyers—it was a lot 

of fun—back in my home State for over an hour, and we talked 

about this problem. And I thought one of the most startling statis-
26 

tics was that last year 62 percent of all patent lawsuits were filed 

by patent trolls compared to 19 percent in 2006. So if that statistic 

does not hit home, I do not know what will. 

One of the most amazing stories I heard was a case that Smith’s 

Medical, which is a Minnesota medical device company, has 

brought against them for infusion pumps that they make to save 

the lives of patients, including premature babies. They were sued 

by a patent troll who is asserting a patent for a fuel delivery nozzle, and the cover page of the patent has a diagram of a tractortrailer on it. They have been forced to divert millions of dollars and 

R&D resources away from innovative new solutions and instead 

are defending against this lawsuit. So I love that example because 

it just shows how out of bounds this is. 

The American Intellectual Property Law Association estimates that the median litigation cost of a patent case is now $2.6 million, 

an amount that has increased by more than 70 percent since 2001. 

So that is why I am so glad that we are moving forward with these 

issues. 

Now, my first question would be of you, Mr. Johnson, that example I used. As a medical device manufacturer, how do you respond 

to these? How do you settle them? And I am especially interested— 

and this goes into the small-company issue about the stay that I 

know both the big and small companies are interested in, because 

the customer stay, I think, would help to do a better, more unified 

defense against these atrocious suits. Mr. Johnson? 

Mr. JOHNSON. Thank you. If you do not mind, I will not comment 

on the tractor-trailer patent because my company is a defendant—— 

Senator KLOBUCHAR. Oh, really? 

Mr. JOHNSON [continuing]. Because we also provide drugs that 

are infused into the human body, which is alleged to be a ‘‘container,’’ according to the plaintiff. So I will not comment on that. 

But I will say that the considerations involving suits brought by 

non-practicing entities against a company are quite different than 

when you are a manufacturing entity and you have built a market 

and you have products out there and then someone enters that 

market who infringes. When they enter the market, especially for 

a medical device type of product, you usually cannot get a preliminary injunction because the public interest is to keep medical products on the market, at least until it is proven that they are infringing. And so you are after, in that kind of case, as quick a resolution 

as you can, not only to stop the bleeding if they are taking your 

market share, but to collect lost profits and hopefully to get a permanent injunction. 

Now, the provision that you mentioned, the discovery stay, is 

really very hard on manufacturers because it will add 12 to 18 

months to the length of a case. The case will come to a virtual 

standstill while people wrangle over the meaning of patent claim 

terms, and all the while the infringement will continue, the market 

share will be lost, the jobs will be threatened, and with no real advantage, because once—they come to a decision on what the claims 

mean, then you start your case. And so that is very bad for manufacturing patentees, and there was a provision—there is a provision 

in the Innovation Act which starts to address the problem, but 
27 

stops by saying it is only in cases where there are preliminary injunctions. And that is not enough. We need to protect all patentees 

who are selling products, who have competitive entries, infringing 

products entering their markets where they are enforcing their patents. 

Senator KLOBUCHAR. Anyone else who wants to comment on 

this? 

[No response.] 

Senator KLOBUCHAR. Okay. I think one last question I have is 

that I think we need to be mindful of the importance of these intellectual property rights and the correspondence, the demand letters 

that take place each and every day among patent owners and 

innovators to assert their patent rights in good faith. And how can 

we better ensure that patent licenses are based on the true value 

of the inventions claimed in the patents rather than on the holdup value as measured by what a defendant is willing to pay in 

order to avoid the cost of litigation? Do you want to tackle that, Mr. 

Johnson? It is this balance of asserting rights but trying to take 

on the patent troll issue at the same time. 

Mr. JOHNSON. Sure. That is the trick, isn’t it? For one thing, we 

know that certain things are required in order to run a patent troll 

business model. You have to assert your patents against hundreds 

or thousands of people, not just a few license offers but very large 

numbers of license offers, and you have to make it clear that you 

are offering—that the reason they should settle is to avoid the costs 

of litigation, not because of the merits of the patent. 

So when we look at this, when we start seeing these mass demand letters, the widespread blanketing of industries as we have 

heard about today, that is an immediate tipoff—and with very low 

license demands, it is an immediate tipoff that that is what you are 

looking at. And then we can look at the behaviors themselves. We 

have heard it detailed today. The lack of information, the misrepresentations, the deceptions are all part of that business model. So 

we focus on that bad behavior and address that bad behavior. We 

can leave the rest of American business to operate pretty much as 

it does now. We offer licenses. We receive offers of licenses. We 

freely communicate with our competitors to advise them and be advised of patents. We negotiate hundreds of licenses. We pay royalties. None of the problems we have heard about affect legitimate 

business. And so as long as we target this at the troll behavior, the 

rest of business should be okay. 

Chairman LEAHY. Thank you. 

Senator Hatch, you said you had another follow-up question. Go 

ahead, please. 

Senator HATCH. This has been a very good panel, as far as I am 

concerned. I think you all have acquitted yourselves very, very 

well. 

I have been asked to ask this question on behalf of Senator 

Cornyn. Mr. Rao, in your view, are the reforms in Senator Leahy’s 

bill adequate to address the threat from patent trolls that you confront? And if not, why not? 

Mr. RAO. Thanks for the question. So I actually do not think they 

are adequate to solve the entire patent troll issue, even with Senator Klobuchar’s examples that sort of remind us why. So in order 
28 

to disrupt the patent troll problem that we have today, we have to 

look at the economics, and the economics are they face no risk from 

bringing these lawsuits. And when their hedge fund investors are 

choosing to invest in patent litigation as an asset class, as we have 

heard, they are doing it because there is no risk to them. They 

know that if they can invest in the patent troll industry, a public 

company that just asserts patents, there is no downside. It is all 

upside. They either walk away from the case, or they collect nuisance settlements, or they get the occasional big judgment. But 

there is no penalty for their activity. 

So unless we introduce some economic consequence into this behavior, it is not going to stop. So we absolutely need a fee-shifting 

provision. Obviously we have talked about the bonding provision is 

important to actually reach back to the real parties of interest. And 

then even the heightened pleading issue is really important. As Mr. 

Johnson just said, part of the patent troll activity is sending out 

hundreds of demand letters. Well, they can do that right now because there is no requirement under the current law that they 

state with any particularity what their claim is, what the product 

is at issue, you know, even—they may accuse Adobe. They say, ‘‘It 

is all of your products.’’ Well, it is not all 200 of our products. It 

is one product that might infringe, but they are not required to say. 

If they were required to say that in the law, it would be very hard 

for them to send out 200 letters with that kind of level of detail, 

and that would also help disrupt this model. 

Senator HATCH. Thank you. 

Chairman LEAHY. Thank you. I thank this panel very much, and 

we will keep the record open for questions. I thank all the Senators 

who came here. We will take a three- or four-minute break while 

we bring the other panel up. And I am going to ask Senator 

Coons—I have to be at another event for a little bit—if he could 

take over as Chair. 

I would ask the panel to stay. I have just been advised that Senator Schumer asked this panel to stay. Mr. Rao and Mr. Johnson, 

if you could stay. Apparently—— 

Senator COONS. I will offer another question, if I might, Mr. 

Chairman, since we are asking the panel to stay. 

Chairman LEAHY. You are going to be chairing, so why don’t you 

move up here? And Senator Schumer and Senator Durbin are coming back to ask questions. 

Senator COONS [presiding]. If I might continue with this panel 

simply by asking one question. Mr. Johnson, at the very conclusion 

of your response to questions, I think posed by Senator Hirono, you 

closed with a very intriguing question. You stated, and I think I 

am roughly paraphrasing, that it is very dangerous to enact a onesize-fits-all solution, and it has a potential for a negative impact on 

the whole ecosystem of patenting and innovation. 

Could you expand on that a little bit as we wait for my senior 

Senators? 

Mr. JOHNSON. Certainly. You mentioned how important it is for 

innovators to get patents that they know that they can enforce, and 

many of the provisions that we have talked about today—heightened pleading standards, stays of discovery, core discovery limitations, and the like—while they may be appropriate for certain 
29 

cases—and the troll cases are what people have had in mind—they 

may be completely inappropriate in other cases, such as the case 

we talked about with Senator Klobuchar, where you have someone 

who is suffering competitive harm, where you have extreme needs 

to move forward with the case rapidly in order to get the competitive relief that you need. 

And there are many other different kinds of cases. I mean, we 

have talked about the need, for example, to move the cases expeditiously. Many cases do not turn at all on claim construction issues. 

Yes, it is part of what has to be done. But many cases involve 

whether the party is already licensed. Or perhaps there is not really a dispute over liability; the dispute is really over damages. And 

the parties, if they move quickly to the damages issue, might be 

able to resolve the case. But instead, if you have a one-size-fits-all 

approach to patent cases, you end up going down a road you do not 

need to go down in order to resolve them. 

Senator COONS. Mr. Johnson, I have heard concern, as has Senator Hirono and Senator Feinstein, from the university in my home 

State, from a number of small inventors, and from some very large 

players in medical devices and pharmaceuticals who express concern that some of these provisions, while they might be very effective in ending truly meritless patent troll litigation, which have the 

unintended negative consequence of preventing a truly valid patent 

holder from protecting their patent rights. 

How would you narrow the provisions here in a way that deals 

with the behavior that you described in your opening as patent 

trolling without preventing those who need the financing to continue to invest, to continue to innovate, who are genuinely contributing to the innovation economy without harming them and their 

interests? 

Mr. JOHNSON. Well, the obvious way to do this is to narrowly 

focus the provisions so that they are not going to affect people who 

are true innovators, who have meritorious or good-faith claims. 

And we have talked about having fee shifting decided at the end 

of the case, when you know whether or not it was a frivolous case, 

as one approach to that. Other approaches are to look at the kinds 

of behavior and recognize who is truly innocent, such as the innocent end users. That is not going to affect basic innovation. 

But as to some of the other provisions that start to impinge on 

the ability of the patent system to work for innovators, I think we 

should be restrained when we look at those. It is important to everyone in this room and everyone in the country that universities 

be able to continue to innovate and rely on the patent system. 

Companies, down-the-stream people who take the insights from 

universities and invest into turning them into useful medical devices or pharmaceuticals, are the future of health care in this country. It is what is going to lower the cost of health care and keep 

us healthy. We cannot do anything to upset the ecosystem and to 

cut off the flow of innovation from the small companies, the startups, the universities, and independent inventors. We have to be 

very protective of them. 

Senator COONS. Well, thank you, Mr. Johnson. I share that concern that we both meet the very real concerns and threats facing 

completely innocent end-user small businesses without causing 
30 

needless harm to what is a very vital and, I think, somewhat fragile ecoystem that is unique and vital to our economy. 

I believe next is Senator Blumenthal. 

Senator BLUMENTHAL. Thank you, Mr. Chairman. 

I think we all approach this subject with a lot of humility because we know how important it is to American invention, job creation, and economic growth, but any of us who have been in litigation for a while also know that frivolous is often in the eye of the 

beholder. And one of the extraordinary, distinguishing features of 

American democracy is our court system, which gives to everyone 

an equal right to be heard and essentially leaves a level playing 

field so that everyone has that right to assert the claims that the 

law gives to that company or individual without undue burdens. 

And so I guess I am wary of overkill. I am wary of unintended 

consequences and of limiting rights without knowing what the end 

results are going to be. And as each of you knows, because each 

of you has been both, I think, the beneficiary and perhaps the defendant in cases where rights are asserted, we have a very important obligation here to assure that we do no harm. First of all, do 

no harm. 

So let me ask you, Mr. Rao, do you see any unintended consequences, any overbreadth here in the legislation either that has 

been passed by the House or now before this Committee? 

Mr. RAO. Thank you for the question. We agree that the patent 

system is complicated, and we do not want to take measures that 

go too far, and Adobe certainly believes that the judiciary has an 

important role to play in case management. But we do believe it 

is also Congress’ responsibility to act when there is a problem, and 

I think there is very clear evidence on the record that there is a 

problem and something needs to be done. 

When we talk about fee shifting, which is one of the places where 

people talk about barriers to access, again, I will note that fee 

shifting is present in other areas of the law besides patent law. 

There is already fee shifting in the patent law. And patent law is, 

frankly, unique in how high the burden is to get fees with the word 

‘‘exceptional.’’ 

So restoring patent law to mimic some of the other areas of the 

law having that fee-shifting standard be similar, I think we can 

take some comfort that there are other areas of the law where consumers are regularly being able to file lawsuits. Under the Fair 

Debt Collection Practices Act, for example, there is fee shifting. But 

they can file it, and they are not concerned about the fee shifting. 

And, frankly, they are getting their cases heard because there is 

fee shifting, because the damages are low. A contingency fee lawyer 

is going to look at the shifting fees and say, ‘‘I now have an opportunity to make some money off of this case.’’ 

So we can take some comfort from other areas of the law and say 

fee shifting has not suddenly barred the access to justice from 

these plaintiffs, and there is already fee shifting in the patent law. 

So I think we do need to act. I think there is a current and real 

present problem, and I think fee shifting is a fairly safe way to address it. And it certainly goes right to the heart of the economic 

problem we have. 

Mr. MAKIN. Senator, if I might. 
31 

Senator BLUMENTHAL. Yes. 

Mr. MAKIN. The notion of everyone having access to the courts 

is great and it is part of the American system, but unfortunately 

you have to have money to do that. And small businesses are not 

equipped to utilize the current court system in this situation. And 

it is really—as we continue to debate the merits of whether we are 

going to disenfranchise this community or disenfrachise that community, we are going to continue to see innocent players hurt—innocent players so hurt that they could actually go out of business 

because—— 

Senator BLUMENTHAL. I understand that innocent players are 

hurt by the costs of having to defend what are regarded as frivolous lawsuits, and I think we have a responsibility to impose responsibility so as to alleviate those costs where they are truly frivolous. But I think that our system also has trusted in the discretion 

of courts to dismiss cases. That is part of this democracy as well, 

that we accord a great deal of discretion to courts to look to the 

merits and see whether, in fact, claims, valid claims are stated 

under the law. That is the standard. 

And so I think that, you know, I am just looking for a limited 

solution to the problem that you have very well outlined here. 

Mr. Johnson, do you have any additional comments? 

Mr. JOHNSON. I do agree with Mr. Rao that fee shifting encourages plaintiffs with meritorious cases to bring their actions and discourages plaintiffs who see their actions as frivolous to withhold 

bringing action. And in that sense, I do think it is a good balance, 

it is a good shift. 

But I would point out that the proposals that have been made 

so far are far from the English rule of automatic fee shifting. There 

is some question, given the limitations relating to whether the defense—or the claim was substantially justified or whether there 

was undue hardship as to how often fees actually will be shifted. 

Senator BLUMENTHAL. Thank you. My time has expired, but I 

want to thank each of you, and I would personally join a number 

of my colleagues in seeking some additional perspectives. And I 

think your thoughts and observations have been very illuminating. 

I think that the Committee would benefit by hearing perhaps some 

additional views as well, and thank you, Mr. Chairman. 

Senator COONS. Thank you, Senator Blumenthal. I share your 

concerns about the need for some additional voices. 

Senator Durbin. 

Senator DURBIN. Thank you, Mr. Chairman. I thank the panel 

for your patience. I stepped out for a moment, but I was here for 

some earlier testimony. 

It strikes me when we try to take the high-altitude long view of 

this, we are talking about access to our government, in this case 

access to the court system—a concern that we share at the legislative level when people argue that, ‘‘Unless I can hire a lobbyist, I 

do not have access to Congress. How do I petition for redress of 

grievances? ’’ The same question could be raised, of course, on the 

executive branch. 

And so I start with some skepticism when the premise is to reduce the access to the judicial system. And in this case, Mr. Johnson, I want to make certain that you and I are on the same page 
32 

here, or at least understand the terms similarly. We are shifting 

the presumption, are we not, when it comes to this question of fee 

shifting? Currently, as I understand it—you are a practitioner and 

I am an observer for the most part here. Currently, if I want to 

prove up attorneys’ fees, I have got to come up with this exceptional test, which, as you mentioned, is going to be brought before 

the Supreme Court. As I understand the Goodlatte, Cornyn, and 

Hatch provisions, the presumption shifts and says that I have to 

prove as the party who is being asked to pay, losing party paying, 

I have to prove, as you mentioned here, reasonable justification 

under law or fact and special circumstances that make the award 

unjust. There is a shift of presumption, is there not? 

Mr. JOHNSON. You understand it absolutely correctly. That is 

what is happening. 

Senator DURBIN. So since the trolls are not represented on this 

panel, perhaps on a later panel, but I want to try to raise the point 

that I have been told by people in Illinois, that when you think of 

the mendacious, meddlesome lawsuits that cost money and take 

time and are unfair and so forth, the complaints that I have received about this loser-pays fee shifting have not come from categories that I consider to be adequately described that way. 

For example, I received a letter yesterday from Northwestern 

University, the University of Chicago, and the University of Illinois 

saying that fee-shifting provisions in the Goodlatte bill would ‘‘create a powerful disincentive for universities to enforce their patent 

rights.’’ The argument, I believe, is that you need pretty deep pockets to live under this new system, fee-shifting system, because you 

may end up, if it does not turn out your way, holding a pretty big 

bag of obligations. Is that true? 

Mr. JOHNSON. Well, I am surprised they feel quite as strongly 

about it because they have many litigations, and generally if you 

see yourself as bringing meritorious cases, you are going to come 

out above instead of below the line in the end. But I would think 

in terms of access to the courts they would be much more concerned about the possibility of having to post bonds under some of 

the proposals because bonding is extremely expensive and in some 

of the proposals would be required in every case without any showing at all that there was anything wrong with the claim that was 

being brought. And if you take a small business or a university, the 

cost of a bond can be the full amount of the bond plus additional 

charges on top, which will have to either be posted or assets will 

have to be frozen in order to satisfy the bond. So that to me is a 

much bigger issue in terms of access to the courts than the feeshifting issue. 

Senator DURBIN. Understood. This is clearly high-stakes legal 

poker when we are talking about this. But in addition to the universities, many small start-ups and independent investors have 

come in with the same worry about fee shifting. 

I would like to address the change in discovery that has been 

proposed in the House bill and Senator Cornyn’s bill, because the 

argument comes from Illinois Tool Works—and you may be familiar with the company—a large manufacturing employer in my 

State. They are concerned about this provision and urge that it not 

be included in the Senate bill. The letter that they sent me said 
33 

this provision would unnecessarily increase the cost of litigation 

when you limit the discovery to meet the Markman ruling, 

Markman test, between competitors where the issues can be easily 

defined or where the defendant can prove through discovery that 

no infringement occurred. 

Mr. Johnson and anyone else on the panel, do you agree with 

this company’s conclusion that this stay of discovery provision 

could have the effect of prolonging litigation and making it even 

more expensive? 

Mr. JOHNSON. Yes, it will in every case. 

Senator DURBIN. Is there anyone who disagrees? 

Mr. RAO. We do. We actually think that Markman is something 

that is part of every case, and so everybody has to reach this point. 

And we also have found—and I think it is fairly common—that 

once the parties agree what the patent is about, then there are a 

lot of cases that end at that point because now we know what the 

patent holder thinks, what the court thinks the patent is, and now 

the patent—either the plaintiff or the defendant is in a better position and cases go away. We had a case recently where we had 

Markman, we had a good ruling in our favor, so the plaintiff stipulated non-infringement. The case was over. They appealed it. And 

the case just ended right there. 

So we actually think in a lot of cases it will actually shorten 

time, because you get to the merits of what is the patent about. 

And then once you know what the patent is about, it also reduces 

the cost of discovery because now discovery can be focused on the 

particular infringement theory that fits this claim construction. 

Senator DURBIN. So I am just going to close by recalling some 

words from law school. I believe the goal is to create a chilling effect on trolls who are misusing and abusing the system. It seems 

to me that it goes too far and it reaches into possibly meritorious 

cases that would be discouraged if not stopped by these rules that 

are really put in place to try to deal with the exceptions rather 

than the rule. 

Thank you, Mr. Chairman. 

Senator COONS. Thank you very much for your questions, Senator Durbin. 

I believe next in the first round of questions is Senator Schumer. 

Senator SCHUMER. Thank you. And first let me thank you, Mr. 

Chairman, and the previous Chairman in this hearing for holding 

the panel for me, and that it benefited both Senators Blumenthal 

and Durbin, who came in as well. So thanks. And I want to thank 

Chairman Leahy for his hard work on these issues and convening 

the hearing, and our witnesses for being here today. 

I have been very concerned about the problem of patent trolls for 

years, and I think it comes down to two problems: one, there are 

poor-quality patents out there being abused, and most businesses, 

especially small businesses, cannot afford to lay out the legal costs 

to see if they can win. 

Another way to put it is this: Getting hit with a patent lawsuit 

is like being forced onto a highway that has only two exits, both 

of which exact a high toll. You can pay the plaintiff either as a settlement or in licensing fees, or you pay your lawyers to litigate the 

case and hopefully win. And we all know that patent litigation 
34 

costs a fortune. It is often marginally cheaper and certainly less 

risky for a defendant to pay up front and make the case go away. 

So it is no surprise that the patent trolls take advantage of this, 

and there is a cottage industry of patent trolls now. 

This is particularly galling when patents that are being used to 

sue are of poor quality to begin with. A recent 

PricewaterhouseCoopers study noted that patent trolls lose 85 percent of the time when they assert business method or software patents. But we never see that most of the time because small businesses cannot afford to call the trolls on their bluff because of the 

high cost of litigation. Eighty-five percent are not good patents. 

That is outrageous. 

My concern over this issue is why I fought to have Section 18, 

the Schumer-Kyl Covered Business Method Patent Program, included in the America Invents Act, and the CBM has worked. Everyone agrees it has worked. It has provided a cost-effective administrative review for the types of poor-quality patents that cover intangible methods of doing business. The existing review program 

under Section 18 has only been operational for about a year. It is 

working well and as intended. Nearly 100 requests for review have 

been made with the PTO, and the cases are proceeding smoothly. 

So the CBM provides a cost-effective off-ramp from the patent 

litigation highway. That is why I introduced the Patent Quality Improvement Act earlier this year to expand it and make it available 

to all poor-quality business method patents, not simply those that 

read on financial products or services. We need to make it permanent. 

The expansion of Section 18 is especially important for small 

businesses who cannot afford to engage in lengthy litigation in 

hopes of prevailing. 

For any business that actually has been sued, it provides a 

cheaper exit strategy. More broadly, the very existence of this offramp discourages patent trolls from suing using invalid patents. If 

a troll knows he can no longer trap a defendant in expensive litigation, his interest in the suit will diminish. 

At the end of the day, if we do not address the fundamental problem of patent quality, trolls continue to abuse poor-quality patents, 

and we will be right back having the same debate. A patent reform 

bill that does not address patent quality is like treating the symptoms instead of the disease. 

I understand my proposal is not without detractors, but if anyone 

thinks they have valid patents, they should not be afraid of a preliminary proceeding. The only people who are afraid of this know 

their patents are invalid. And it is really a shame that those who 

believe in valid patents are so strongly defending the invalid patents as well. I find that appalling, frankly. 

So let me ask a few questions of our witnesses. I do not have too 

much time left. 

Mr. Makin, I was pleased to see an endorsement of the CBM expansion in your testimony. I would like you to explain why it is 

helpful for businesses like those—like your members to have it. 

And, Mr. Dwyer, credit unions are exactly the type of small businesses the CBM program is intended to help. Do you agree that 

making it more widely accessible would be a useful tool in your 
35 

fights against patent trolls? Mr. Dwyer first, then Mr. Makin, and 

that is my final question. 

Mr. DWYER. Senator, first of all, thank you for your efforts in 

providing both credit unions and banks the Section 18 tool that you 

described. It is very effective in providing financial institutions a 

way of, as you said, addressing the validity of the patents early on, 

and it is a tool that we all appreciate. We do not take a position, 

as I speak for CUNA, in the expansion of it. It is really not a position that we are involved in. 

Senator SCHUMER. Mr. Makin. 

Mr. MAKIN. Thank you, Senator Schumer. Obviously we applaud 

your fortitude on this issue. It is not a politically popular position, 

but we think it is the right position. You are exactly right that 

small businesses in America are being held hostage by the patent 

trolls who count on leveraging fear and the fear of the litigation 

system to their benefit. They want people to settle. They want the 

low-hanging fruit. They want to intimidate people. 

Senator, Tony Soprano has nothing on these patent trolls. They 

are thugs and reprehensible entities. And for us to just debate the 

merits of very esoteric patent legislation when real people in this 

country are hurting through no legitimate fault of their own, it is 

un-American and it is wrong. 

And so we do need to have off-ramps, to use your eloquent words, 

to be able to get out of that system. We want to avoid litigation 

at all costs. Small companies, printers, you name it, they are not 

interested in going into litigation. They are afraid. So all these 

measures after the fact of fees, et cetera, are too late. We have already seen the problem. 

Senator SCHUMER. We have seen in New York many high-tech 

businesses put out of business by illegitimate patent trolls, new 

start-up businesses. We have also seen companies that will not 

even start up because they know they will be pounced upon by 

these patent trolls, and a new business that is just starting up cannot afford to hire the lawyers. And I have to say, a lot of companies 

I work with in New York, they are protecting their own patents. 

But it is really wrong for them to say, ‘‘I want my protection to be 

so complete and so great that I am going to allow the patent trolls 

to continue.’’ I find it disgraceful. Disgraceful. Because this is hurting start-up businesses, high-tech businesses, the future of America. It is the little people who cannot afford the suits. 

Mr. MAKIN. Right. 

Senator SCHUMER. The future of America. So your words were 

very strong, Mr. Makin. 

Mr. MAKIN. Thank you. 

Senator SCHUMER. I tend to think they were appropriate in this 

particular case, and I would urge those larger companies, those 

large universities that have the ability and have counsel on their 

staff to look at this carefully for the good of the country. It does 

not hurt you to go to court. It hurts the small businesses that are 

represented here. And, again, in New York, when you ask our hightech businesses, our booming high-tech businesses, what is their 

number one problem, it is probably getting good people. That is 

why we need an immigration bill. Their number two problem is the 

patent trolls. Seriously. 
36 

Thank you, Mr. Chairman. Sorry I went on. I feel really strongly 

about this issue. 

Senator COONS. Senator Lee has got a second question. 

Senator LEE. Thank you very much, Mr. Chairman. 

First of all, I would like to ask Mr. Rao and Mr. Johnson if they 

would like to respond to the argument that we need to expand 

CBM and also, secondarily, whether that impacts, whether that 

lessens the need for patent litigation reform like fee shifting or 

anything else. 

Mr. RAO. I will go first. So I do think that CBM, the Covered 

Business Method Patent Program, was sort of referred to as an offramp, but it is still expensive. You still have to hire a lawyer to 

prepare the petition. You still have to spend hundreds of thousands 

of dollars to go through the process. So it is not a free process. It 

is not a solution for small businesses to say, ‘‘I can avoid a patent 

troll litigation without spending any money.’’ And typically people 

are only going to file this while they are in litigation. No one is 

going to incur this cost, especially not small businesses, just because they got a letter. They are going to incur this cost if they 

have been sued. So they are already in the mix once this has happened, and that is why we think the other provisions are much 

more important because they are a disincentive and a disruption 

to the business model. Fee shifting is a disruption to the business 

model, and without that disruption, these acts are going to continue. 

And I think Senator Klobuchar’s example of the medical device 

patent troll is another example of you may take away a particular 

field from the patent troll, but if you do not disrupt the business 

model, they are just going to move to another place that is not covered and then flourish there. 

So we really need to address the economics as opposed to just 

this one particular issue. 

Senator LEE. Mr. Johnson, do you concur with that? 

Mr. JOHNSON. The covered business method patent provision is 

a transitional program that was put into the America Invents Act 

because of a very small class of patents that was perceived to have 

quality problems, having been issued after the State Street Bank 

decision and before In re Bilski cabined down the number—the 

type of patents. And therefore, it’s titled a transition program, it 

was designed to sunset, and it was designed to address a very narrow slice of financial services business method patents, and the legislative history on that is very clear. 

The rest of the AIA puts in overarching post-grant proceedings, 

the post-grant reviews and the inter partes reviews that are available for all patents, in the case of inter partes reviews for the life 

of the patents. 

Senator LEE. And do any of those reforms obviate the need for 

any of the reforms we are discussing today? 

Mr. JOHNSON. No. The reforms that we have recommended assume that those programs will stay in place and that they will be 

part of the solution going forward, but that more is needed. 

Senator LEE. Thank you. And, Mr. Rao, how do you respond to 

the argument that access to justice will be limited? You know, 

whether it is Brigham Young University or some other university 
37 

or some other entity or individual who wants to sue, do they still 

have access to justice? And how do you respond to this point that 

their access to justice will be unfairly, unjustly limited by fee shifting? 

Mr. RAO. I think we have discussed the issues around how fee 

shifting can actually help plaintiffs have access to justice because 

with the ability to get fees from the defendant, they are going to 

be able to retain contingency fee lawyers who are going to be able 

to take the fees in case the damages are low. So I think the point 

we have not, maybe, discussed as much—Mr. Johnson did touch on 

it—is why the fee-shifting standard is not a burden for the universities. And, again, the fee-shifting statutes that we have been discussing all have this provision that says if you have got a substantially justified position, the fees are not going to shift. The court 

has discretion to not shift the fees. And if your university—Adobe 

collaborates with a lot of universities. A lot of the technologies that 

enter into our products like Photoshop are the result of university 

collaborations. We license patents from universities. These are 

high-quality patents. I do not really feel that they should be the 

ones who are worrying about meeting this bar. This bar is fairly 

low. And it seems to us that the universities are going to be able 

to meet it. 

Senator LEE. With regard to some of the pleading requirements 

and the filing requirements that we have talked about, aren’t we 

really talking about infringement here? In a real property context, 

if somebody infringed your property, you would want to identify the 

metes and bounds of the property alleged to have been infringed. 

Isn’t that all we are doing here? And wouldn’t it be unwise for us 

not to require that kind of metes and bounds description? 

Mr. RAO. Absolutely. We do believe that the heightened pleading 

requirement that we have been discussing is merely setting forth 

the basic information that we think they should know anyway, any 

patent holder has to know anyway, in order to satisfy the federal 

rules. They need to know this information. Unfortunately they are 

not required to disclose this information today, and so this heightened pleading requirement will force them to say what the patent 

is, who they are, is there a real party of interest. They have to say 

what product is being accused, and, amazingly, today they do not 

have to say what product is being accused. And they have to allege 

a theory of infringement, which is very helpful for the defendant 

to understand why they think the product is being infringed. 

So these are the basic requirements that we think should be part 

of every patent case, and very similar to the real property concerns 

that you mentioned. 

Senator LEE. Thank you. I see my time has expired. Thank you, 

Chairman. 

Senator COONS. Thank you, Senator Lee. 

Senator Whitehouse. 

Senator WHITEHOUSE. Thank you, Chairman. 

Rhode Island is facing this same problem. Darrell Ross is the 

CEO of Ross-Simons, which is a big retailer of jewelry. He writes 

that ‘‘At Ross-Simons, we have been the target of a number of 

these frivolous patent troll threat letters and lawsuits, faced with 

years of expensive litigation versus paying a license fee. We often 
38 

settle even though we believe the underlying patent is of highly dubious quality. This is extremely frustrating and diverts capital that 

could otherwise be used to invest in our business, to create jobs, 

refurbish stores, and better serve our customers.’’ 

We have a start-up accelerator named Betaspring, and Allan 

Tear, who is its founder, states ‘‘Small businesses, like the tech 

start-ups we work with, are forced to settle these challenges out of 

court as they lack the financial resources necessary to fight back 

against patent troll’s frivolous infringement claims. That is billions 

of dollars every year that could go toward developing innovative 

new products and services that is instead going to patent trolls.’’ 

David Baeder is the founder and CEO of a Cranston-based messaging technology and communications company called Alert Solutions. He says, ‘‘Alert Solutions has received a number of threat letters from patent trolls claiming infringements related to things as 

basic as sending emails and faxes.’’ 

And I could go on. We have industry leaders like Charlie Kroll 

and Kathy Shields who have written about this in the Providence 

Business News. We have a good Providence Journal commentary on 

this by Rhode Island business advocates Michael Beckerman and 

Paul DeRoche. And I would ask unanimous consent that letters of 

support from the Greater Providence and Newport County Chambers of Commerce be added to the record. 

Senator COONS. Without objection. 

[The letters appear as submissions for the record.] 

Senator WHITEHOUSE. I raise all that to say that, you know, I 

think Rhode Island is very much with you and attentive to these 

concerns. But I would humbly suggest some advice to you, and that 

is that, first off, you have a pearl beyond price. You have a bill that 

the House has passed. The House has not been very effective at 

passing legislation recently, unless it is the 42nd repeal of 

Obamacare, as you may have noticed. So being able to get a bill 

through the House is very significant. 

You now need to get a bill through the Senate, and it will then 

go to conference with the House bill, and that conference will be 

a very important conference. You do not want to vindicate your ire 

at the deplorable conduct of these patent trolls at the expense of 

getting a bill through the Senate, because you do not get to conference if you do not get that. So be as flexible as you can be to 

get a bill through the Senate that can then get you into conference 

with the House. 

And do bear in mind, as you face these choices, that there are 

very strong interests here in Washington that have very strong ulterior motives to try to knock down and diminish the civil justice 

system as much as they can because, frankly, big corporations do 

not like being sued. They like coming to the branches of government where they have greased them with campaign contributions 

and lots of lobbyists and super PAC threats and all that good stuff. 

They do not like getting in front of a civil jury, for instance, where 

if you try to tamper with them, it is a crime and where they have 

to stand equal before the law with ordinary mortals. 

So beware of pushing or being pushed too far into that fight. 

That is not a fight you need to have. You need to get a bill through 

the Senate that gets you into conference with the House. And then 
39 

the conferees, I think, can work on sensible legislation that will 

help get after these patent trolls while protecting the innocent garage inventor who is still, I think, at the heart of all of your concerns. It is not any of your desire, as I understand it, to roll over 

the garage inventor who has a legitimate claim but no resources, 

really, to defend it with. So for what it is worth, Mr. Chairman, 

those are my hopes for progress going forward. 

Senator COONS. Thank you very much, Senator Whitehouse, and 

thank you very much to the four members of our first panel. This 

has been a broad and rich and informative conversation, and I look 

forward to our second panel, which also includes a wide range of 

practitioners. I think a number of us have expressed concerns that 

we still want to hear from, at some future hearing, representatives 

of universities and small inventors, but I look forward to the second panel and we will thank the first panel. 

Senator COONS. Ladies and gentlemen, I would like to continue 

this hearing and proceed to the second panel, if we might. Folks, 

if we could have order in the room, please, so we could proceed 

with the second panel of this hearing. 

Let me briefly introduce our next three witnesses and then ask 

you to proceed in series to your opening statements. 

First, Dr. Steve Bossone is the vice president for intellectual 

property at the biotech company Alnylam in Cambridge, Massachusetts, and you will correct my pronunciation if that was wrong, Dr. 

Bossone. Dr. Bossone has unique experience on this panel as he 

has worked both as a lawyer and a scientist in the field of biotechnology. He joined Alnylam in 2010 and previously was senior 

patent attorney at Shire. He began his career at Millennium Biotherapeutics, where he worked as a scientist in oncology. Dr. 

Bossone received his doctorate from SUNY Stony Brook and law 

degree from Suffolk. Thank you for joining us today. 

Mr. Harry Wolin is senior VP and general counsel for AMD, Advanced Micro Devices. He joined AMD in 2000 and served as VP 

for intellectual property before he became general counsel in 2003. 

Prior to joining AMD, he spent 12 years at Motorola. Mr. Wolin 

also serves on the Board of Governors of LifeWorks, one of the largest nonprofit organizations in the Austin, Texas, area. He received 

his undergraduate degree from the University of Arizona and his 

law degree from Arizona State. Thank you for joining us, Mr. 

Wolin. 

And Mr. Dickinson, the Honorable Q. Todd Dickinson, is the executive director of the AIPLA. Mr. Dickinson also has extensive experience in the intellectual property field, having served as Under 

Secretary of Commerce and Director of the Patent and Trademark 

Office. Mr. Dickinson has served as vice chair of the Intellectual 

Property Law Section of the American Bar Association and on the 

executive committee of the Intellectual Property Owners Association. He received his bachelor’s degree from Allegheny and law degree from the University of Pittsburgh. 

Gentlemen, thank you so much for joining us. If I might invite 

you to make your opening statements first, Dr. Bossone. 
40 

STATEMENT OF STEVE BOSSONE, PH.D., VICE PRESIDENT, INTELLECTUAL PROPERTY, ALNYLAM PHARMACEUTICALS, 

CAMBRIDGE, MASSACHUSETTS 

Mr. BOSSONE. Senator Coons, Members of the Judiciary Committee, thank you for inviting me today to testify on the subject of 

protecting small businesses and promoting innovation through further patent reform. 

By way of personal introduction, I am vice president of intellectual property at Alnylam Pharmaceuticals in Cambridge. I am a 

registered patent attorney and have a Ph.D. in experimental biology and over 18 years’ experience in the biotech field, both as a 

bench scientist and as a lawyer. While I speak today on behalf of 

Alnylam, my views are informed by the shared corporate experience of many of my colleagues in the biotech industry from companies both large and small. 

Alnylam is an innovator company. We actively practice our intellectual property to develop cutting-edge medicines for patients suffering from diseases such as liver cancer, heart disease, and many 

other serious conditions. 

My emphasis today is going to be on the collateral impact of 

pending legislation on investment-intensive innovation, especially 

in the life sciences sector. And to start, I would like to share with 

you three things my experience has taught me relevant to today’s 

hearing. 

First, the interplay or, as some have termed it, the ‘‘innovative 

ecosystem’’ of university research, technology transfer to the private sector, venture capital funding, and industry collaborations, 

all contributing to drug development, is a lengthy, expensive, and 

high-risk enterprise. 

Second, changes that create uncertainty about the strength and 

enforceability of patents threaten to perturb this interplay and the 

jobs created by hundreds, if not thousands, of companies such as 

ours. 

And, third, this perturbation has real health care consequences, 

namely, patients, caregivers, and families who are affected by lifethreatening and debilitating illnesses and are counting on these 

partnerships to produce the next wave of cures and therapies for 

so many currently unmet medical needs. Let us not ignore them in 

this debate over patent litigation reform. 

So I am here today not to defend or attack the abusive patent 

enforcement practices of the so-called patent trolls. I am here today 

because I am concerned that many of the proponents of patent litigation reform, in their well-intentioned efforts to curb objectionable 

patent enforcement practices, are clamoring to remake the patent 

litigation system in fundamental and untested ways while insufficient consideration is given to the impact of these changes on the 

vast majority of those companies like Alnylam who engage in legitimate and good-faith patent licensing and enforcement. 

I am also concerned that several of the pending bills threaten to 

selectively strip the courts in patent cases of the discretion to allow 

legitimate cases to proceed unencumbered by needless and sometimes senseless procedural obstacles. These concerns are especially 

acute for fields such as biotech, which is largely made up of small 

investment-intensive businesses like Alnylam that are at the cut-
41 

ting edge of innovation in America. We are particularly concerned 

with several of the pending litigation provisions such as routine 

delays of discovery until claim construction hearings have taken 

place, excessive pleading requirements, and the byzantine, overly 

broad joinder and fee-shifting provisions. These and other proposals routinely and indiscriminately increase cost, risk, and delay 

for all the patent owners and licensees who must protect and enforce their patents, and cause serious harm, especially to the life 

sciences innovators. 

We do believe, on the other hand, that willing manufacturers 

should be better enabled to step in and relief infringement litigation pressure on their small business customers and end users. But 

the scope of such a provision needs to be carefully tailored to avoid 

allowing such manufacturers to deflect their own liability to their 

parts suppliers, for example. 

As the Committee assesses the impact of such proposals on the 

life sciences sector, I ask that you consider the views submitted by 

our research partners in academia as well as the views of the venture capital community, without whom many inventions would 

never be developed into life-saving products. 

We are all united in supporting targeted reforms that will protect 

all of us from unscrupulous patent assertion activities. But we also 

firmly believe that if we do not go about such reforms in the right 

way, the long-term costs to the entire innovation sector and overall 

American job creation will be far greater than any short-term benefits that might accrue primarily to large companies in one or two 

sectors of our economy. 

I commend Chairman Leahy for holding this hearing with a variety of stakeholder perspectives. I urge the Committee and the full 

Senate to proceed thoughtfully in this complex area and to focus 

on those reforms that would clearly target abusive behavior without undermining the ability of small investment-intensive businesses to rely on the enforceability of their key business assets— 

their patents. 

I appreciate your attention to our concerns and am happy to take 

any questions. And I also would like to ask that a letter from the 

Biotechnology Industry Organization dated December 3, 2012, be 

made part of the hearing record. 

Thank you very much. 

[The prepared statement of Mr. Bossone appears as a submission 

for the record.] 

Senator COONS. Thank you, Dr. Bossone. The letter will be made 

a part of the record, without objection. 

Mr. BOSSONE. Thank you. 

Senator COONS. Mr. Wolin. 

STATEMENT OF HARRY A. WOLIN, SENIOR VICE PRESIDENT, 

GENERAL COUNSEL AND SECRETARY, ADVANCED MICRO 

DEVICES, INC., AUSTIN, TEXAS 

Mr. WOLIN. Thank you, Mr. Chairman. 

Mr. Chairman and Members of the Committee, thank you for the 

opportunity to share information about abuses plaguing the U.S. 

patent system and the significant harm they are causing to U.S. 

companies and the U.S. economy. I am the senior vice president, 
42 

general counsel, and secretary of AMD. I am also a registered patent attorney and spent the last 25 years working for technology 

companies on IP protection, licensing, and enforcement. AMD has 

been both a plaintiff and a defendant in patent litigation matters, 

and I share that perspective in my testimony today. 

AMD is a semiconductor company headquartered in Silicon Valley. We design technology that powers personal computers, some of 

the U.S. Government’s most powerful supercomputers, and game 

consoles like the new Microsoft Xbox One and Sony Playstation 4. 

AMD invests approximately 20 percent of our annual revenues 

on research and development activities, and we have built a large 

patent portfolio that represents an investment of many billions of 

dollars. AMD’s business depends on our ability to vigorously protect our IP. 

Each year, AMD is forced to spend millions of dollars to defend 

against patent infringement allegations that are often completely 

unfounded. Every dollar we spend to defend against a frivolous 

claim reduces the number of jobs we can create or we can retain. 

In my written testimony, I have provided two examples of lawsuits 

faced by AMD that demonstrate the cost, harm, and disruption 

that patent litigation abuses impose. These cases demonstrate that 

defending against frivolous patent cases is very expensive and that 

discovery is often used as a weapon to drive up costs in approaching an often meritless settlement. 

The courts do not have the tools needed to address these problems, and without legislative reform, the current abuses will continue. We are encouraged by the legislation introduced by Senators 

Leahy and Lee which will increase transparency by shedding light 

on the patent marketplace and curb the abusive practice of mass 

mailing frivolous demand letters in the hope of securing settlements from unsuspecting victims. 

These provisions alone, however, are insufficient to address widespread abuses plaguing our patent system. We urge the Committee 

to include the heightened pleading, discovery reform, and fee-shifting provisions, such as those found in the bill cosponsored by Senators Cornyn and Grassley. We note that these provisions are included in the Innovation Act, which was overwhelmingly passed by 

the House earlier this month. This was an encouraging show of bipartisan support, and the bill also has the support of the White 

House. 

First, heightened pleading requirements will require a plaintiff 

to allege patent infringement with specificity, identifying the particular products at issue and the plaintiff’s reason for believing that 

these products infringe. This provision will require the plaintiffs to 

do their homework before subjecting a defendant to millions of dollars in attorneys’ fees and expenses, reducing the number of frivolous lawsuits clogging our courts, and without placing an unreasonable burden on legitimate plaintiffs of any size. 

Second, discovery reforms will reduce the cost and the efficiency 

of discovery in patent cases—I am sorry—and improve the efficiency. Discovery cost shifting will dramatically reduce a litigant’s 

ability to use discovery as a tool to increase an opponent’s cost. The 

discovery staging proposals are even more important to reduce cost 

and inefficiency because a claim construction order will often sim-
43 

plify the disputed issues. This makes it clear what discovery is necessary. 

Third, attorney fee shifting will provide a particularly strong deterrent to frivolous patent suits. Today many patent assertion entities have little risk in litigating meritless claims. A defendant, 

however, is almost always assured of high litigation costs. The riskreward imbalance results in uneven bargaining power, which is 

often used to unfairly extract settlements. This imbalance can be 

corrected by enacting legislation that awards attorneys’ fees and 

expenses to the prevailing party when the losing party does not 

have a justified position. This provision will have no effect on legitimate plaintiffs who justifiably pursue their claims. 

Finally, I urge the Committee to act quickly. Unwarranted patent litigation acts to the detriment of U.S. companies of all sizes 

as well as to consumers and the U.S. economy. 

[The prepared statement of Mr. Wolin appears as a submission 

for the record.] 

Senator COONS. Thank you, Mr. Wolin. 

Mr. Dickinson. 

STATEMENT OF THE HONORABLE Q. TODD DICKINSON, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY 

LAW ASSOCIATION, AND FORMER UNDER SECRETARY FOR 

INTELLECTUAL PROPERTY AND DIRECTOR, U.S. PATENT 

AND TRADEMARK OFFICE, ARLINGTON, VIRGINIA 

Mr. DICKINSON. Senator Coons and distinguished Members of the 

Judiciary Committee, on behalf of the American IP Law Association, I would like to thank you for the opportunity to present our 

views today. 

Founded 116 years ago as the American Patent Law Association, 

and with 15,000 members, we believe that AIPLA brings a unique 

perspective to the questions before this Committee. We are lawyers, we are judges, we are law professors and patent examiners, 

and our members represent a diverse spectrum of policy and p kc 

issues. 

Accordingly, when we as an organization develop our positions, 

we try to achieve a necessary consensus, and to do that we must 

strive to find not what is right for this entity or that technology, 

but hopefully what will achieve the best outcome for the intellectual property system as a whole. 

Also, as you noted in your introduction, prior to becoming the executive director, I was also the Under Secretary of Commerce for 

IP and the Director of the USPTO, and so I come here today to address these issues with the benefit of those perspectives. 

We once again find ourselves discussing the issue of the behavior 

of certain patent owners, and as far back as 2005, we came before 

you to testify on this same broad question. Someone who owns a 

patent was using the procedures of patent litigation in an infringement dispute with another party, often in a high-tech field. The 

specific litigation issues then were different. Injunctive relief and 

damages were on the table then, but the charge was the same: that 

the state of these legal issues at the time gave too much power to 

the patent owner in settlement discussions. 
44 

You will recall that we spent almost six years together debating, 

tinkering with language, trying to find good compromises. You did 

that. We did that together. We found collectively broad support, 

and the Senate passed the Leahy-Smith America Invents Act, which we at AIPLA were proud to support. 

So what brings us back here today only two years later? Well, 

a key aspect of that business has changed. It has been addressed 

many times today. Before, it was primarily large aggregators going 

after large businesses. Now you have this phenomenon of widespread distribution of demand letters to small end users with little 

experience with the system and less resources. Vaguely worded, 

overthreatening, and very persistent are the folks who send these 

letters. 

We believe that this is a significant and corrosive problem, not 

only for those on the receiving end but one that undermines the 

American public’s confidence in the patent system as a whole. We 

also believe, however, that it is a focus problem that we should deal 

with in a focused way. Fortunately many of the provisions of S. 

1720 hone in on this problem in just that way. 

So in that light, let me turn to our broader recommendations 

today. 

First, I was very pleased to hear Senator Feinstein address the— 

and I would be very remiss as a past Director of the USPTO if I 

did not address the question of funding for the PTO, sustainable 

funding. No issue is more important to the quality of patents overall and to solving the issues that come before us today than solving 

that problem. You all, we all thought that that problem was solved 

in the AIA. We thought we put it to bed. And less than two years 

later, the problem came back again, this time in sequestration. We 

have to solve this problem. The stakeholders need it and the system needs it. 

But, first, to other issues, we find that we feel it is important to 

let the reforms of the AIA have a chance to do their work. As we 

said, one of the major reforms to deal with the troll issue was the 

expansion of the post-grant processes in the PTO. These were intended to create alternative means to improve the quality or challenge the validity of patents in lower-cost, expedited proceedings. 

Now, these various post-grant processes have only recently come 

online. There has only been one CBM case proceeding to completion, and the first PGR case was just filed. Early indications are 

that these procedures are working as they were intended, and as 

a former Director of the USPTO, I urge you to let the PTO processes play forward before we consider changing them or instituting 

other options. We do not know where this is all going to lead. It 

is too soon to start experimenting again. 

Second, the courts continue to understand and deal with the 

problems of reform as they did during the debates on the AIA. 

Back then, on litigation after litigation issue, whether it was injunctions or damages or willfulness or venue or obviousness, they 

reformed surgically and deliberately. And this continues, as has 

been pointed out. Just this term, the Supreme Court will take up 

the issue of fee shifting. AIPLA has filed amicus briefs in both 

those cases, and we have advocated a more aggressive approach in 

the awarding of such fees. 
45 

On the procedural side, the Judicial Conference, the body 

charged by statute with promulgating procedural rules, has gotten 

the message, and they have begun to draft rules which will govern 

patent trials more uniformly. 

Third, more reliable data is needed to understand the nature and 

scope of the problem. For example, a lot of early studies came out 

that suggested big increases in patent litigation were due to patent 

assertion entities. Recently, however, more empirically based studies suggest that any increase is due to other causes, in particular 

the unintended consequences of the joinder provisions of the AIA. 

Finally, and most importantly, we need to remember that some 

of these proposals apply to all patent holders, not just the bad actors, and we need to assure that attempted solutions are not so 

broad that they have unintended consequences. 

I was going to turn to some of the provisions of 1720, but I see 

the time is running out, and so I will let my written statement 

speak for itself. But let me address specifically, however, the one 

issue that I touched on, and that is, bad-faith demand letters. 

We believe this is primarily a consumer fraud issue and it is best 

dealt with by those traditionally tasked with combating it, such as 

the FTC and the State Attorneys General. And we urge you to consider the fact that those entities have dealt with these as consumer 

fraud and are to be charged with doing it again. However, care is 

needed, however, to make sure that the proposals do not impede 

legitimate licensing activities. 

Excuse me, Mr. Chairman. 

As a Time Magazine poll recently noted, our patent system is the 

envy of the world and the gold standard of protection. Forty percent of respondents, more than four times the next closest nation, 

viewed the U.S. as the country that does ‘‘the best job of protecting 

ideas.’’ We need to remember that the stewards of that system, 

when considering changes to it, need to take a sober, careful, and 

empirical view of the concerns at hand and deliver a measured and 

appropriate response. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Dickinson appears as a submission for the record.] 

Senator COONS. Thank you very much, Mr. Dickinson. And I take 

to heart, given the breadth and the character of the organization 

you represent and its unique role in America’s intellectual property 

system, the charge for us to take a measured and thoughtful review here and to focus in our potential solutions. 

You have suggested that it is too early for us to start experimenting again, that we took six years to craft the Leahy-Smith 

America Invents Act, and that it is just a few years past that, and 

that we do not have enough empirical evidence to really draw concise conclusions about what is the scope of the patent troll phenomenon. And you urged us to find a focused solution to that problem. 

Let me support Senator Feinstein’s call for more PTO funding 

dealing with the quality of patents and patent issuance by providing the PTO the resources it so badly needs and richly deserves, 

in part by ending diversion, I think should be one of our first priorities. 
46 

But I would be interested if you would speak to the patent quality improvement programs embedded in the AIA. You briefly referenced that post-grant review, inter partes review, the CBM transitional program were all just beginning to work. Given the claims 

made in the first panel that this is a widespread terrible problem 

that is really affecting small businesses across the country, how 

long would you ask them to wait for the AIA to work? Or as you 

suggested, do you think there are other consumer fraud-based 

mechanisms or the specific provisions that have to do with engaging the FTC in the Leahy-Lee bill that could appropriately deal 

with this without causing needless harm? 

Mr. DICKINSON. Thank you, Mr. Chairman. To go to your first 

point, I absolutely believe that the USPTO was given the charter 

by the AIA to take up this broad question of improving the quality 

of patents, and that is, for example, as the GAO study indicated, 

at the heart, at the root in many ways of the troll problem that we 

are discussing today. 

And so the principal recommendation that came out of the National Academy study that started the whole thing back at the turn 

of the last century was to have very vibrant, robust post-grant 

processes, a post-grant system, which we did not really have. 

It comes in two types, and it was the product of a very careful, 

very long-discussed negotiation. There is a first part called the 

post-grant review, called the first window sometimes. It is a fairly 

wide-open process. Almost any grounds can be used during that 

process. It comes right after the patent issues, and it allows third 

parties to come in and to make the case that the PTO overlooked 

something, there was some art they were not aware of, there was 

an argument not made, and that office is charged within nine 

months of taking care of that. 

We urge that most people—we hope that most people will use 

that process, and we think there are things built in that would 

incent that process. We also, by the way, support the clarification 

and a correction of the estoppel provision in that, which we believe 

would do the same thing, to try to get people to use that process 

early before investments are made, before jobs are created, before 

people have relied on those patents down the road. 

The second phase is a rework of the traditional re-examination 

process, now called inter partes review. It is a somewhat higher 

threshold. It relies on traditional factors like the use of patents and 

publications, and it is available throughout the life of the patent 

as that patent progresses through the system. 

The CBM we have significant difficulties with. We think the better approach, by far, since that was intended to attack a very, very 

narrow slice of patents for a short period of time, the kinds of 

things, for example, which Senator Schumer was addressing, can 

be best addressed in the IPR system. 

Senator COONS. Thank you, Mr. Dickinson. 

Dr. Bossone, before my time runs out, if I might, I was interested 

in Alnylam and its specific sort of example. This is a company that 

is investing a huge amount of money in developing new intellectual 

property in inventions that could have a significant impact on 

human health and the quality of life. But you have to get investors 

to buy into and support your commercialization efforts. 
47 

How would the loser-pay rule or the other provisions, the procedural obstacles that I think you suggested were excessive, if adopted, how would they impact the balance of power between a startup innovator and a larger company if it is infringing your patents? 

How would it impact your ability to attract investors and to get the 

capital formation that you need to continue to invent and innovate? 

Mr. BOSSONE. Senator Coons, you are actually correct. We would 

be impacted in a negative way if all of these provisions in these 

bills were put in in the aggregate. For instance, in fee shifting, if 

we were to enforce our patents and there was the threat that, you 

know, considering the vagaries of litigation that we could lose, we 

may have to make a hard choice of whether actually to file that 

litigation in the first place. I am the one that actually has to go 

before the board and justify filing this litigation, knowing that the 

cost associated with filing the litigation has to come from someplace else. So maybe it is a clinical study that we would not be able 

to complete. 

Now you add the added burden of shifting fees in a case where 

I cannot predict whether I am going to win or lose. I think I have 

a good case, but the standard that has been proposed, you know, 

is the same standard that has been adopted from the Equal Access 

to Justice Act where, you know, veterans who have lost benefits 

will sue the government and then they will try to get, you know, 

the government to pay. And I think in about 30 percent of the 

cases the government cannot meet that burden. 

So I would have to then say maybe there is a 30-percent chance 

that we are going to have to pay if we lose. So that may make a 

difference with my being able to assert these patents. If I cannot 

assert these patents, what value do they have to a large company? 

So if the company knows that I am not going to be able to assert 

these patents, what is the incentive for them to actually license 

these patents from us? 

We have had a great deal of success in offering these patents for 

license. We have taken that money, put it into our R&D. We have 

accelerated development to a point where our technology was discovered in 1998 in the worm, and a mere six years later, because 

of this, you know, intellectual property that we held, using it to attract investors, taking that money, putting it into our business, six 

years later we actually had clinical trials in humans. So this would 

negatively impact our ability to get this capital that we need. 

Senator COONS. Dr. Bossone, just in closing, to summarize, if we 

were to adopt all the provisions that are in the House bill—fee 

shifting, discovery limitations, customer stays—in your view, for 

your company, the ability to the raise the capital to continue with 

innovation would be significantly harmed and your ability to assert 

your patent rights would be significantly harmed, and those would 

be of some significance or consequence, and thus those proposals 

might be overreach if that is the way we are trying to stop a class 

of baseless demand letters that are really problematic for commercial businesses, retailers, but that are not involved in innovation. 

Is that your testimony today? 

Mr. BOSSONE. That is exactly correct. 

Senator COONS. Thank you, Dr. Bossone. 

I will turn to Senator Lee. 
48 

Senator LEE. Thank you very much, Mr. Chairman. 

Mr. Wolin, I would like to ask you a couple of questions. First 

of all, we have heard today some examples of how patent litigation 

abuse can negatively impact businesses. But, of course, before we 

enact legislation, we need to make sure that there is empirical evidence behind the data to back up the claim that this is a sufficiently significant problem that it warrants action by Congress. 

Would you agree with the assertion that there is adequate evidence? And what would you point to as evidence that action by 

Congress is warranted here? 

Mr. WOLIN. I do believe that action by Congress is warranted, 

and I do believe that there is empirical evidence to point that out. 

I think if you look at some of the various studies that have been 

done, if you look at the one that was mentioned earlier today with 

62 percent of all patent litigation cases being brought by patent assertion entities and upwards of 85 percent of those cases that go 

to trial end up being losers, I think that is pretty good empirical 

evidence that this is a pretty significant toll that is being taken on 

U.S. industry and patent defendants as a whole. 

From my own personal experience, I see a number of issues. Significantly more than 62 percent of the patent litigation that we face 

is brought on by patent assertion entities. But what I am proposing 

in fixing this problem is something that I would be willing to take 

on not only as a defendant but also as a patent plaintiff, as a company that asserts, you know, its patent’s rights—I will not say a 

lot of the time, but it is not rare that we do that. 

And so I think the three things that I outlined in my remarks— 

the attorney fee shifting, the heightened pleadings, and the discovery reforms—are something that would increase the efficiency of 

our patent litigation system and put us in a position to streamline 

that patent litigation and get us to a point where it would be much 

more manageable with getting rid of some of the spurious cases 

that we see today than what we currently have. 

Senator LEE. And as someone representing a business that has 

a significant patent portfolio, I am assuming that you have got 

pretty strong views regarding the importance of intellectual property and the need to safeguard it, you know, within the debate that 

we are having about patent litigation abuse. I think it is important 

for us to keep our focus on bad behaviors within patent litigation 

rather than focusing on anything that would tend to minimize or 

undermine the rights of property owners of intellectual property interests. 

Do you agree that we ought to focus on these bad behaviors in 

this debate? And do you think that the legislation we are talking 

about today maintains adequately a focus on those bad behaviors? 

Mr. WOLIN. I think that it does, because if you looked at the 

three things that I mentioned in my last answer and that I proposed in both my opening testimony and in my written testimony, 

those are things that are specifically aimed at the bad behaviors 

that we are seeing in patent litigation today. So, for example, when 

you are in a position when an entity can assert a patent against 

you for a nominal fee and put you in a position where it costs millions of dollars to defend against that often spurious assertion, that 
49 

is, you know, taken well by both the attorney fee shifting as well 

as the heightened pleading requirement. 

When somebody can assert a patent against you by just saying, 

‘‘Your microprocessor infringes,’’ well, that is equivalent to somebody telling Ford that their car infringes. They do not say which 

car. They do not say what part of the car. They do not say whether 

it is the wheels or the steering wheel or the trunk. And you are 

left to spend a lot of money to find that out and have to bring to 

bear what their case might be and often educate them in doing it. 

That is what discovery is for when you get down the line, but it 

is not what it is for at the very beginning of the case. When a patent asserts—when an owner of a patent asserts that, they should 

have some definiteness of what they are asserting and what their 

reason for believing there is infringement is. 

Senator LEE. Thank you very much. 

Thank you, Mr. Chairman. 

Senator COONS. Thank you, Senator Lee. 

Senator Hirono. 

Senator HIRONO. Thank you, Mr. Chairman. 

In my remarks before I began questioning to the first panel, I did 

note that we need to be very careful in proceeding in an area as 

complex as patent law, and I mentioned that I would like to hear 

from universities and from inventors. And a group that I neglected 

to mention that I would like to hear from are the venture capitalists, because these are the folks who are providing the early stage 

funding for inventors. 

Mr. Dickinson, I found it very interesting when you talked about 

the focus of this hearing, which is on the bad practices of patent 

trolls, and my understanding of what you were saying is that many 

of these kinds of behaviors really rise to consumer fraud kinds of 

activities that are dealt with both at the federal level and at the 

State level, and there are certain State Attorneys General who 

have become very aggressive in pursuing these kinds of folks. 

So I take it that you would support the FTC authorization language that is in the Leahy bill? 

Mr. DICKINSON. Thank you, Senator. You are correct in focusing 

on that piece of my testimony which we believe is a major issue 

and maybe ought to be the focus of a lot of this, which is indeed 

the big widespread demand letters that get sent out, oftentimes, 

oddly enough, even without filing litigation. The Vermont Attorney 

General’s complaint, for example, notes that one of the most egregious sent something like 10,000 letters and never filed a single 

lawsuit. And so that literally rises to consumer fraud. 

This was similar to about 10, 15 years ago, we had a problem 

with invention promotion firms, when people would go after small 

inventors and say, ‘‘We will give you a patent and promote your 

patent,’’ and that was fraudulent. And the FTC and the State Attorneys General went after those folks. We think they can do that 

again. 

The question of whether or not the FTC needs additional authority or not, I think, is one that is open to debate. The FTC has got 

a study they have just initiated now, and I think that study will 

shed a lot more light on that question. And so I think at the mo-
50 

ment it is something of an open question, but it is certainly one 

worth considering. 

Senator HIRONO. Well, we have certainly heard evidence of abuse 

by patent trolls, and, yes, there is a question as to how extensive 

this kind of abuse is. And there have been references by a number 

of our testifiers regarding, I think, references to the GAO study 

that was done, which, in fact, indicated that those who make products brought most of the lawsuits, and that the non-practicing entities who brought lawsuits represented about 20 percent. So I would 

just like to set the record straight on who is doing what in this 

arena. 

Mr. DICKINSON. Senator, could I—— 

Senator HIRONO. That is not to say that we do not have a problem. 

Mr. DICKINSON. I agree. Can I have two seconds? Because part 

of the challenge here is definitional, to be real honest about it. It 

has always been definitional as to how we define ‘‘troll,’’ how we 

define ‘‘patent assertion entities.’’ 

One figure that gets tossed around a lot is the study that showed 

that, allegedly, $29 billion in direct costs are associated with this. 

But the definition there is so broad, for example, all universities 

get swept in. I dare say that the Members of the Committee’s State 

universities, when they assert patent, do not really feel they are 

being a troll, but some of this definitional question is one that rides 

over top of all this data, and it is an example of why we need to 

make sure we look behind it. 

Senator HIRONO. Mr. Bossone, one of the proposals—this is Senator Cornyn’s proposal—would require heightened pleadings, very 

specific as to what the assertions are. Can you share your thoughts 

on how such a heightened pleading proposal would impact a typical 

patent dispute? Would it lead to fewer of these cases being brought 

even in the legitimate infringement type of cases? Would it result 

in delays? You know, can you share with us your thoughts? 

Mr. BOSSONE. Yes, thank you. I think that it would—could yield 

delays. You have this incredible amount of detail that a lot of it is 

not really known until you get into the discovery process. Perhaps 

if you are accusing someone who has a machine out in the public, 

the earlier examples of an ATM machine, you may understand how 

that works, and you know if you have a patent that covers a particular piece of equipment, it may be easy to identify exactly the 

claim that it covers. But if you have, for instance, in our field a 

pharmaceutical product or if you have a manufacturing process 

and, you know, companies have—a lot of their manufacturing processes are secret, and, you know, we may see that—or may think 

that because there is a particular product that it had to have been 

made by a manufacturing process that would infringe, for instance, 

a patent that we held, if we wanted to assert that, we would not 

be able to rise to this level of this incredible amount of detail. 

Should we not be able to assert that patent that we actually, you 

know, got, we paid a lot of money, we put a lot of effort into getting 

it? 

I think that could then lead to, for instance, litigation, a lot of 

early motion practice on sufficiency of our pleading. And so there 
51 

I think it would actually delay the case and create, you know, 

issues for a small company like ourselves. 

Senator HIRONO. Thank you, Mr. Chairman. 

Senator COONS. Thank you, Senator Hirono. 

I would like to thank our second panel, Dr. Bossone, Mr. Wolin, 

and Mr. Dickinson. Thank you for the perspectives you have 

brought and for the breadth this has added to this hearing. Like 

a number of the other Senators, I look forward to further briefings, 

sessions, and hearings on this topic. If we could dedicate six years 

to getting the AIA right, I think we could dedicate a few more 

months to making sure that we get this topic right and that we 

find a narrowly tailored solution to address what I think is a real 

challenge with patent trolls without risking unintended consequences for the whole ecosystem of innovation. 

I would like to thank Chairman Leahy for convening this, and 

I would like to thank our panel. We will leave the record open for 

a week for those Members of the Committee who had further questions or who were unable to attend. 

Thank you. 

[Whereupon, at 1:06 p.m., the Committee was adjourned.] 

(53) 

A P P E N D I X 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
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PREPARED STATEMENT OF HON. PATRICK LEAHY
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PREPARED STATEMENT OF HON. CHUCK GRASSLEY
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ADDITIONAL PREPARED STATEMENT OF HON. CHUCK GRASSLEY
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PREPARED STATEMENT OF HON. JOHN CORNYN
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PREPARED STATEMENT OF JOHN DWYER, PRESIDENT AND CHIEF EXECUTIVE OFFICER, 

NEW ENGLAND FEDERAL CREDIT UNION, WILLISTON, VERMONT, ON BEHALF OF THE

NATIONAL CREDIT UNION ASSOCIATION
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PREPARED STATEMENT OF MICHAEL MAKIN, PRESIDENT AND CHIEF EXECUTIVE

OFFICER, PRINTING INDUSTRIES OF AMERICA, SEWICKLEY, PENNSYLVANIA
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PREPARED STATEMENT OF DANA RAO, VICE PRESIDENT AND ASSOCIATE GENERAL

COUNSEL OF INTELLECTUAL PROPERTY AND LITIGATION, ADOBE SYSTEMS, INC., SAN

JOSE, CALIFORNIA
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PREPARED STATEMENT OF PHILIP S. JOHNSON, SENIOR VICE PRESIDENT AND CHIEF

INTELLECTUAL PROPERTY COUNSEL, JOHNSON & JOHNSON, COALITION FOR 21ST

CENTURY PATENT REFORM, NEW BRUNSWICK, NEW JERSEY
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PREPARED STATEMENT OF STEVE BOSSONE, PH.D., VICE PRESIDENT, INTELLECTUAL

PROPERTY, ALNYLAM PHARMACEUTICALS, CAMBRIDGE, MASSACHUSETTS
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PREPARED STATEMENT OF HARRY A. WOLIN, SENIOR VICE PRESIDENT, GENERAL

COUNSEL AND SECRETARY, ADVANCED MICRO DEVICES, INC., AUSTIN, TEXAS
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PREPARED STATEMENT OF HON. Q. TODD DICKINSON, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION, AND FORMER UNDER SECRETARY

FOR INTELLECTUAL PROPERTY AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE, ARLINGTON, VIRGINIA
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR JOHN DWYER
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR MICHAEL MAKIN
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR DANA RAO
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR PHILIP JOHNSON
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR DR. STEVE BOSSONE
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR HARRY WOLIN
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QUESTIONS SUBMITTED BY SENATOR PATRICK LEAHY FOR HON. Q. TODD DICKINSON
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QUESTIONS SUBMITTED BY SENATOR SHELDON WHITEHOUSE FOR ALL WITNESSES
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QUESTIONS SUBMITTED BY SENATOR CHUCK GRASSLEY FOR JOHN DWYER
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QUESTIONS SUBMITTED BY SENATOR CHUCK GRASSLEY FOR MICHAEL MAKIN
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QUESTIONS SUBMITTED BY SENATOR CHUCK GRASSLEY FOR DANA RAO
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QUESTIONS SUBMITTED BY SENATOR CHUCK GRASSLEY FOR HARRY WOLIN
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ANSWERS

RESPONSES OF JOHN DWYER TO QUESTIONS SUBMITTED BY SENATORS LEAHY, 

GRASSLEY, AND WHITEHOUSE
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RESPONSES OF MICHAEL MAKIN TO QUESTIONS SUBMITTED BY SENATORS LEAHY, 

GRASSLEY, AND WHITEHOUSE
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RESPONSES OF DANA RAO TO QUESTIONS SUBMITTED BY SENATORS LEAHY, GRASSLEY, 

AND WHITEHOUSE
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RESPONSES OF PHILIP JOHNSON TO QUESTIONS SUBMITTED BY SENATORS LEAHY AND

WHITEHOUSE
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RESPONSES OF STEVE BOSSONE TO QUESTIONS SUBMITTED BY SENATORS LEAHY AND

WHITEHOUSE
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RESPONSES OF HARRY WOLIN TO QUESTIONS SUBMITTED BY SENATORS LEAHY, 

GRASSLEY, AND WHITEHOUSE
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RESPONSES OF HON. Q. TODD DICKINSON TO QUESTIONS SUBMITTED BY SENATORS

LEAHY AND WHITEHOUSE
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MISCELLANEOUS SUBMISSIONS FOR THE RECORD
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Æ