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COMMITTEE PRINT REGARDING

PATENT QUALITY IMPROVEMENT

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

APRIL 20 AND APRIL 28, 2005

Serial No. 109–11

Printed for the use of the Committee on the Judiciary

(

Available via the World Wide Web: http://www.house.gov/judiciary 

(II)

COMMITTEE ON THE JUDICIARY 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

ADAM SMITH, Washington 

CHRIS VAN HOLLEN, Maryland

PHILIP G. KIKO, Chief of Staff-General Counsel 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

WILLIAM L. JENKINS, Tennessee 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

RIC KELLER, Florida 

DARRELL ISSA, California 

CHRIS CANNON, Utah 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

BLAINE MERRITT, Chief Counsel 

DAVID WHITNEY, Counsel 

JOE KEELEY, Counsel 

ALEC FRENCH, Minority Counsel 

(III)

C O N T E N T S 

HEARING DATES 

Page 

Wednesday, April 20, 2005

PART I .................................................................................................................... 1

Thursday, April 28, 2005

PART II .................................................................................................................. 119

OPENING STATEMENT 

APRIL 20, 2005

The Honorable Lamar Smith, a Representative in Congress from the State 

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

The Honorable Howard L. Berman, a Representative in Congress from the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 2

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

of Virginia ............................................................................................................. 3

APRIL 28, 2005

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property .................................................................................................... 119

The Honorable Howard L. Berman, a Representative in Congress from the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 120

WITNESSES 

APRIL 20, 2005

Mr. J. Jeffrey Hawley, Legal Division Vice President and Director, Patent 

Legal Staff, Eastman Kodak Company, on behalf of Intellectual Property 

Owners Association (IPO) 

Oral Testimony ..................................................................................................... 6

Prepared Statement ............................................................................................. 8

Mr. Richard J. Lutton, Jr., Chief Patent Counsel, Apple, on behalf of the 

Business Software Alliance (BSA) 

Oral Testimony ..................................................................................................... 16

Prepared Statement ............................................................................................. 17

Jeffrey P. Kushan, Esq., Sidley, Austin Brown and Wood, LLP, on behalf 

of Genentech 

Oral Testimony ..................................................................................................... 24

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

Mr. William L. LaFuze, Partner, Vinson & Elkins, LLP, and Chair, Section 

of Intellectual Property Law, American Bar Association, on behalf of the 

American Bar Association and the ABA Section of Intellectual Property 

Law 

Oral Testimony ..................................................................................................... 36

Prepared Statement ............................................................................................. 39

Page

IV

APRIL 28, 2005

The Honorable Jon W. Dudas, Under Secretary of Commerce for Intellectual 

Property, and Director of the U.S. Patent and Trademark Office 

Oral Testimony ..................................................................................................... 121

Prepared Statement ............................................................................................. 124

Mr. Richard C. Levin, President, Yale University, on behalf of the National 

Research Council 

Oral Testimony ..................................................................................................... 131

Prepared Statement ............................................................................................. 133

Mr. Nathan P. Myhrvold, Chief Executive Officer, Intellectual Ventures 

Oral Testimony ..................................................................................................... 136

Prepared Statement ............................................................................................. 138

Mr. Darin E. Bartholomew, Senior Attorney, Patent Department, John Deere 

& Company, on behalf of the Financial Services Roundtable 

Oral Testimony ..................................................................................................... 150

Prepared Statement ............................................................................................. 152

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

APRIL 20, 2005

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia ................................................................... 4

APPENDIX 

MATERIAL SUBMITTED FOR THE RECORD

APRIL 20, 2005

Prepared Statement of the Honorable Howard L. Berman, a Representative 

in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property ......................... 183

Letter to the Honorable Lamar Smith, a Representative in Congress from 

the State of Texas, and Chairman, Subcommittee on Courts, the Internet, 

and Intellectual Property, from William L. LaFuze, Partner, Vinson & 

Elkins, LLP, and Chair, Section of Intellectual Property Law, American 

Bar Association, on behalf of the American Bar Association and the ABA 

Section of Intellectual Property Law .................................................................. 185

Response to questions submitted by the Honorable Darrell Issa, a Representative in Congress from the State of California, to J. Jeffrey Hawley, Legal 

Division Vice President and Director, Patent Legal Staff, Eastman Kodak 

Company, on behalf of Intellectual Property Owners Association (IPO) ......... 186

Response to questions submitted by the Honorable Darrell Issa, a Representative in Congress from the State of California, to Richard J. Lutton, Jr., 

Chief Patent Counsel, Apple, on behalf of the Business Software Alliance 

(BSA) ..................................................................................................................... 189

Response to questions submitted by the Honorable Darrell Issa, a Representative in Congress from the State of California, to Jeffrey P. Kushan, Esq., 

Sidley Austin Brown and Wood, LLP, on behalf of Genetech .......................... 191

Response to questions submitted by the Honorable Darrell Issa, a Representative in Congress from the State of California, to William L. LaFuze, Partner, Vinson & Elkins, LLP, and Chair, Section of Intellectual Property 

Law, American Bar Association, on behalf of the American Bar Association 

and the ABA Section of Intellectual Property Law ........................................... 195

APRIL 28, 2005

Prepared Statement of the Honorable Howard L. Berman, a Representative 

in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property ......................... 198

Page

V

Memorandum to the Honorable Lamar Smith, a Representative in Congress 

from the State of Texas, and Chairman, Subcommittee on Courts, the 

Internet, and Intellectual Property and the Honorable Howard Berman, 

a Representative in Congress from the State of California, and Ranking 

Member, Subcommittee on Courts, the Internet, and Intellectual Property 

from Darin E. Bartholomew, Senior Attorney, Patent Department, John 

Deere & Company ................................................................................................ 199

Prepared Statement from Jack Haken, Vice President, Intellectual Property 

& Standards, U.S. Philips Corporation .............................................................. 200

Letter from Ryan M. Fountain, Attorney at Law, Mishawaka, Indiana to 

Blaine Merritt, Chief Counsel, Subcommittee on Courts, the Internet, and 

Intellectual Property, Committee on the Judiciary ........................................... 203

(1)

COMMITTEE PRINT REGARDING

PATENT QUALITY IMPROVEMENT

Part I 

WEDNESDAY, APRIL 20, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 4:38 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Lamar Smith 

(Chair of the Subcommittee) presiding. 

Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. 

We appreciate all the interest demonstrated by all the folks 

today. This is an important hearing. It is the first of several hearings on the subject, but I’m glad for everyone’s interest. 

Also, let me say that there is a concurrent Members-only briefing 

on Iraq that is being given by the Secretary of Defense, and I know 

we’ve lost several Members to that activity. Nevertheless, it doesn’t 

diminish from what is said nor the importance of the meeting 

itself. 

I’ll recognize myself for an opening statement and then recognize 

the Ranking Member, and then we’ll get to our witnesses as soon 

thereafter as possible. 

This hearing is the first of two that we will conduct this month 

on patent reform. More specifically, today the Subcommittee will 

explore the merits of a committee print that incorporates a number 

of changes to improve the quality of patents issued by the U.S. Patent and Trademark Office. 

The print also speaks to certain patent practices that disrupt the 

operations of manufacturers and other businesses. 

The Subcommittee will hold its second hearing on the print next 

week and a third hearing on a bill that I will introduce shortly 

after that. 

While the Subcommittee has documented a steady increase in 

application pendency and backlogs at the PTO in recent years, the 

consensus view among agency officials and the inventor community 

is that efforts to address these problems should not take precedent 

over improving patent quality. 

Patents of questionable scope or validity waste valuable resources by inviting third party challenges and ultimately discourage private sector investment. 

2

Accordingly, our Subcommittee has pursued a number of initiatives over the past decade to improve the operations of the PTO 

and the patent system. But concern over patent quality and its effect on the economy at large has not been confined to Congress and 

the PTO. 

Comprehensive studies recently issued by the Federal Trade 

Commission and the National Academies generated much discussion within inventor, industry, and Government circles about the 

present patent system and how it could be improved. 

Critics of the U.S. patent system became more vocal as their 

ranks swelled. They maintained that the gains of the previous decade were too incremental or otherwise insufficient. 

The Subcommittee responded in the last Congress by conducting 

oversight hearings on seven reform proposals. 

While we did not move an omnibus reform bill in 2004, the hearings contributed to the growing sentiment that favors enactment of 

such legislation in this Congress. 

The committee print is a first step in that process. It contains 

most of the leading recommendations developed by the PTO and a 

broad cross-section of industry and trade associations that are involved in the formulation of patent policy. 

It is expected that small businesses, independent inventors, and 

other interested parties also will participate in this dialogue and 

the eventual drafting of a bill based on the print that I expect to 

move this spring. 

I realize many competing interests are affected by our work on 

this broad topic, With so much on our plate, ours is an ambitious 

undertaking, at least by my account, but we still expect to succeed. 

With that, I’ll recognize the Ranking Member for his opening 

comments as well. 

Mr. BERMAN. Thank you, Mr. Chairman. Perhaps we can talk 

about patent protection in the new Iraq, and merge the briefing 

with the subject of this hearing. 

I want to thank you for scheduling this hearing and in the past 

my colleague from Virginia, Mr. Boucher, and I have introduced 

legislation on patent quality reforms a number of times. I think the 

general discussion of the need to look at many of these questions 

has attempted—has fostered a discussions among diverse industry 

groups, all of which now recognize the need for changes to the patent law. 

While there are many differing views about how to amend the 

law, we all share a common goal, which is improving the quality 

of the patent system. Our patent system was designed to promote 

continual innovation by providing strong protection for intellectual 

property. 

However, if we protect invalid patents, the system will have the 

opposite effect: that of hindering creative output. And the introduction of poor quality patents into the marketplace actually increases 

the amount of litigation and has a negative effect on the economy. 

The problem of low-quality patents cuts across the entire spectrum of art units that the Patent Office examines. But the chief 

culprit seems to be patents in the business methods and software 

area. 

3

The Patent Office has initiated what it calls a second set of eyes 

review in an effort to address the problem. But this is merely a 

stop gap measure. Without an assurance of sufficient funding every 

year, the PTO can’t maintain the staff it needs to administer the 

reviews or implement new quality initiatives. 

So funding for the PTO and an end to diversion I think should 

remain as top priorities in any reform effort. 

Any legislative solution to the problem of patent quality must address deficiencies both at the front end of the process—that is, the 

examination stage, which takes place in the PTO—and at the back 

end, which takes place in the courtroom. 

The quality of patents system should be addressed both from—

from both perspectives. Inventors should have confidence about the 

quality of the patents they receive before investing further in research and development, and equally secure in the knowledge they 

can properly enforce that patent. 

I have a couple of concerns in this vein relating to the committee 

print. The print primarily describes reforms to litigation and remedy provisions. While I think many of the suggestions are worthwhile and worthy of support, I’m concerned that we are merely 

treating the symptoms without enough emphasis on curbing the 

underlying—curing the underlying disease. Patent quality needs to 

remain a focus, with an objective of minimizing litigation on numerous invalidity claims. 

For example, including a provision on allowing submissions of 

additional prior art to an examiner may be helpful in addressing 

this poor quality problem. 

Furthermore, much of the print speaks to harmonization of U.S. 

patent law with patent law in the rest of the world. For example, 

shifting from a first to invent paradigm to one of first inventor to 

file. While this is a very important and necessary discussion, having experienced the opposition that can be generated on patent reform issues in certain areas in the past, in the late 1990’s, I’m concerned that opposition to those provisions at this point will affect 

the ability to achieve other essential patent reform. 

So I’m looking forward to today’s hearings—hearing from today’s 

witnesses to identify potential solutions to the problems created by 

questionable patent quality. Just to note, some of the suggestions 

for change, such as the injunction provision, may not be palatable 

to some of the witnesses. But I throw out a challenge to those witnesses: if you don’t like that provision, help us craft a resolution 

to the problem the injunction provision was designed to address, 

that of the patent’s role. While the structure of the discussion may 

be centered around the committee print, I hope that the witnesses 

here and in the future hearings will identify additional possibilities 

for resolving patent quality problems. I look forward to working 

with you, Mr. Chairman, in drafting effective patent legislation. 

Mr. SMITH. Thank you, Mr. Berman. 

The gentleman from Virginia, Mr. Goodlatte is recognized. 

Mr. GOODLATTE. Mr. Chairman, thank you for holding this important hearing to examine the committee print on improving patent quality. As we all know, article I, section 8 of our Constitution 

lays the framework for our Nation’s patent laws. It grants ConVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
4

gress the power to award inventors for limited amounts of time exclusive rights to their inventions. 

The framers had the incredible foresight to realize that this type 

of incentive was crucial to ensure that America would become the 

world’s leader in innovation and creativity. 

These incentives as just as important today as they were at the 

founding of country, if not more so. We must make sure the incentives our framers put into our Constitution remain meaningful and 

effective. The U.S. patent system must work efficiently if America 

is to remain the world leader in innovation. 

It is only right that as more and more inventions with increasing 

complexity emerge that we should examine our Nation’s patent 

laws to ensure that they still work efficiently and that they still encourage and do not discourage innovation. 

One industry sector which is beginning to showcase the potential 

problems inherent in our Nation’s patent system is the high tech 

industry. 

In today’s economy, many high tech products involve hundreds 

and even thousands of patented ideas. Technological innovators 

must work to ensure that they obtain the lawful rights to use the 

patents of others through licenses and other lawful mechanisms. 

However, it appears that a cottage industry is emerging that 

seeks to take advantage of the complexity of these products, combined with loopholes in our patent laws, to extort money from high 

tech companies, both large and small. 

To be sure, these problems are not limited to the high 

tech industry. Inventors in all industries are increasingly facing 

these types of problems. The solution to these problems involves 

both ensuring that quality patents are issued in the first place and 

ensuring that we take a hard look at patent litigation and enforcement laws to make sure that they do not create incentives for opportunists with invalid claims to exploit. 

All inventors will reap the rewards of a streamlined patent system that ensures that good quality patents are issued and that opportunists cannot take advantage of loopholes in our enforcement 

laws. 

I look forward to exploring the details of the committee print 

with the witnesses. 

Again, Mr. Chairman, I thank you for holding this important 

hearing, and I’d ask that my full opening statement be made a part 

of the record. 

Mr. SMITH. And without objection, they will be. 

[The prepared statement of Mr. Goodlatte follows:]

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN

CONGRESS FROM THE STATE OF VIRGINIA

Thank you, Mr. Chairman, for holding this important hearing to examine the 

committee print on improving patent quality. 

Article I Section 8 of our Constitution lays the framework for our nation’s patent 

laws. It grants Congress the power to award inventors, for limited amounts of time, 

exclusive rights to their inventions. The Framers had the incredible foresight to realize that this type of incentive was crucial to ensure that America would become 

the world’s leader in innovation and creativity. 

These incentives are just as important today as they were at the founding of our 

country. As we continue our journey into the digital age, we must make sure that 

the incentives our Framers put into our Constitution remain meaningful and effecVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
5

tive. The U.S. Patent system must work efficiently if America is to remain the world 

leader in innovation. 

It is only right that as more and more inventions with increasing complexity 

emerge, that we should examine our nation’s patent laws to ensure that they still 

work efficiently and that they still encourage, and not discourage, innovation. 

One industry sector which is beginning to showcase the potential problems inherent in our nation’s patent system is the high tech industry. In today’s economy, 

many high tech products involve hundreds, and even thousands, of patented ideas. 

Technological innovators must work to ensure that they obtain the lawful rights to 

use the patents of others, through licenses and other lawful mechanisms. However, 

it appears that a cottage industry is emerging that seeks to take advantage of the 

complexity of these products, combined with loopholes in our patent laws to extort 

money from high tech companies, both large and small. To be sure, these problems 

are not limited to the high-tech industry—inventors in all industries are increasingly facing these types of problems. 

The solution to these problems involves both ensuring that quality patents are 

issued in the first place, and ensuring that we take a good hard look at patent litigation and enforcement laws to make sure that they do not create incentives for opportunists with invalid claims to exploit. 

The Committee Print addresses both of these concerns. It would create a new 

post-grant opposition system in which any member of the public could request the 

USPTO to review the scope and validity of a patent within nine months from the 

date of its issuance. While this provision would help to ensure that quality patents 

are issued, the nine month limit is intended to prevent third parties from harassing 

a patent owner. In addition, the Committee Print eliminates the provision in current law that prohibits a party from raising an issue on appeal that could have been 

raised during a reexamination proceeding. This provision is meant to encourage 

more participation in the reexamination process to ensure that only quality patents 

are issued. 

The Committee Print also includes provisions to ensure that patent litigation benefits those with valid claims, but not those opportunists who seek to abuse the litigation process. Specifically, the bill creates a clear standard for ‘‘willful infringement,’’ ensures that injunctions are issued only when the patentee is likely to suffer 

irreparable harm that cannot be remedied by the payment of money damages, and 

ensures that damages awarded to a party are proportional to the value that the party’s invention contributes to the total value of the defendant’s product. 

All inventors will reap the rewards of a streamlined patent system that ensures 

that good quality patents are issued, and that opportunists cannot take advantage 

of loopholes in our enforcement laws. 

Thank you again, Mr. Chairman for holding this hearing. I look forward to hearing today from our witnesses.

Mr. SMITH. Thank you, Mr. Goodlatte. 

Before I introduce the witnesses, I’d like to invite you to stand 

and be sworn in. 

[Witnesses sworn.] 

Mr. SMITH. Thank you. Please be seated. Let’s see our first witness if Jeff Hawley, President of the Intellectual Property Owners 

Association. Mr. Hawley also serves as Legal Division Vice President and Director of the Patent Legal Staff for Eastman Kodak in 

Rochester, New York. He earned a bachelor’s degree in electrical—

excuse me—chemical engineering from the New York University 

School of Engineering, and a law degree from George Washington 

University. 

The next witness is Richard Lutton, Chief Patent Counsel for 

Apple Computer, where he oversees patent development, licensing, 

and litigation for Apple’s computer hardware and software business. He will testify on behalf of the Business Software Alliance. 

Mr. Lutton earned a bachelor’s degree in electrical engineering 

from Rice and a law degree from Columbia. 

Our next witness is Jeffrey Kushan, a Partner and Patent Attorney at Sidley, Austin Brown and Wood’s Washington, D.C. office. 

He is testifying on behalf of Genentech, a biotechnology company 

6

based in San Francisco. Mr. Kushan is a graduate of the George 

Washington University Law School. He also earned a master’s in 

chemistry from the University of North Carolina at Chapel Hill, 

and a bachelor’s in chemistry from the College of William and 

Mary. 

Our final witness is William LaFuze, a Partner in the Houston 

Office of Vinson and Elkins, where he specializes in intellectual 

property law, with an emphasis on electronics, oil field equipment 

and computer-related litigation. 

Mr. LaFuze chairs the Intellectual Property Law Section of the 

American Bar Association and will testify on their behalf. He 

earned his undergraduate degree in physics from the University of 

Texas, a master’s in applied science from Southern Methodist University, and a law degree from Texas as well. 

Welcome to you all. We have your written statements, and without objection they’ll be made a part of the record. 

Let me wish you well as you try to summarize those testimonies, 

and I read every one, in 5 minutes. But do the best you can, and 

then we’ll look forward to asking you questions about the rest of 

your testimony as well. Mr. Hawley, we’ll begin with you. 

TESTIMONY OF J. JEFFREY HAWLEY, LEGAL DIVISION VICE 

PRESIDENT AND DIRECTOR, PATENT LEGAL STAFF, EASTMAN KODAK COMPANY, ON BEHALF OF INTELLECTUAL 

PROPERTY OWNERS ASSOCIATION (IPO) 

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

Committee, and I’ll do my best to stick to the 5 minutes. 

As you noted, I’m speaking today on behalf of the Intellectual 

Property Owners Association. IPO is a trade association that represents companies and individuals in all industries and fields of 

technology who are interested in intellectual property rights. 

We would like to compliment the Subcommittee on putting together more than a dozen specific proposals for improving the patent system in the committee print, and IPO enthusiastically endorses the majority of the proposals; is concerned about one of 

them; and is studying others. 

You mentioned in your opening statement that this is indeed an 

ambitious undertaking and with so many individual provisions I 

think that’s a bit of an understatement. This is going to be a challenging time. 

We believe that the principles underlying the U.S. patent system 

are sound and that the system has served the country well for over 

200 years. 

This is confirmed by the recent in-depth studies that, Mr. Chairman, you mentioned—the FTC study, the National Academy of 

Sciences study—and also a recent publication by the economists 

Jaffey and Lerner. In spite of some popular press criticisms to the 

contrary, the patent system provides important incentives for our 

members and other innovators to create and commercialize new 

technology. 

However, as you have also noted, the U.S. Patent and Trademark 

Office is in a bit of a crisis, caused by underfunding, in turn caused 

by the diversion of user fees to non-related Government programs, 

7

to the tune of about three-quarters of a billion dollars in the last 

10 years. 

We are optimistic that the situation in the U.S. PTO is turning 

around. We recommend that the highest priorities for the patent 

system going forward, should be improving the patent quality, as 

everyone has mentioned so far, reducing the cost of patent litigation and international patenting, and also reducing the uncertainty 

over the scope of patent rights. 

Turning now to the committee print, we support establishing a 

new post-grant opposition proceeding, which will allow the public 

to request an opposition during a period of 9 months after the 

grant of a patent. 

We favor nearly all of the features of the post-grant proceeding 

that are in the committee print. We have attached to the appendix 

of our written statement a listing of the features that we recommend for a post-grant opposition system. 

We also support enthusiastically the proposed limitations on the 

award of treble damages for patent infringement. We believe these 

limitations will reduce litigation costs and discourage unwarranted 

suits. The proposal will correct the situation that some companies 

have said causes them to be wary of even reading patents of their 

competitors for fear that the company will, thereby, be on notice of 

patent infringement for the purposes of willful infringement. 

A significant improvement over current law is the very welcomed 

clarification of the notice requirements that are also found in the 

committee print, and we applaud you for that. 

We support the awarding of the patent to the first inventor to 

file. This change from first to invent procedure will provide more 

certainty for patent rights. The first inventor to file system is the 

best system for the United States and IPO believes that it should 

be done even outside the context of international harmonization. 

But its adoption is important for our participation in the international harmonization efforts. 

Recent studies by former PTO Commissioner Mossinghoff have 

shown that the benefits of the first to invent system do not justify 

its costs, and this very same conclusion was reached by the National Academy of Sciences. 

With regard to injunctions, while it may be possible to change 

the balance slightly in favor of the infringer to reduce abuses, the 

proposal in the committee print represents a radical change and 

goes too far. 

Compared to current law, this proposal shifts the burden from 

the—to the patentee from the infringer. It requires that an injunction be denied unless there is a reason to grant it; whereas, under 

current law it’s granted unless there is a reason to deny it. It imports preliminary injunction concepts into permanent injunction 

determinations and it encourages courts to give substantial weight 

to whether or not the patentee works the invention. 

Our written statement explains why we believe the injunctions 

proposal would diminish the incentive for innovation provided by 

American patent system. We believe exclusive rights should continue to be available to the same extent for patented inventions as 

they are for a copyrighted book—work, such as books, motion pictures, sound recoding, and software. 

8

We again want to thank you for the opportunity for being here 

today. I see I made it under 5 minutes comfortably and I would be 

pleased to answer any questions. 

[The prepared statement of Mr. Hawley follows:]

PREPARED STATEMENT OF J. JEFFREY HAWLEY

Mr. Chairman and Members of the Subcommittee: 

My name is J. Jeffrey Hawley. I am Legal Division Vice President and Director, 

Patent Legal Staff, for Eastman Kodak Co. in Rochester, New York. I am speaking 

today on behalf of Intellectual Property Owners Association (IPO), of which I am 

the current elected President. 

IPO is a trade association representing companies and individuals in all industries and fields of technology who own or are interested in intellectual property 

rights. IPO’s membership overlaps with the membership of many organizations, including BIO and BSA who are here today. IPO members include more than 100 

large and medium-size corporate members and a number of small business and individual inventor members. Our members file about 30 percent of the patent applications that are filed in the United States Patent and Trademark Office (PTO) by U.S. 

nationals. In addition to our legislative interests, we comment frequently and in detail on PTO rules changes and file amicus briefs in cases of interest to us. We have 

more than 850 people volunteering in 34 standing committees studying trends in 

IP law. 

We appreciate the opportunity to discuss the April 14 Committee Print, which 

contains more than a dozen significant proposals for improving the patent system. 

We compliment the Subcommittee on assembling so many promising ideas. IPO enthusiastically endorses a majority of the proposals in the Committee Print. I will 

give an overview and then summarize our reaction to each proposal. 

OVERVIEW OF PTO AND PATENT LITIGATION ISSUES

Our members almost universally believe the patent system needs improvement. 

IPO was one of the first organizations to say that the PTO was in a ‘‘crisis,’’ when 

we testified before this Subcommittee in 2001. We expressed concerns about the 

quality of patents granted by the PTO and the growing length of time required to 

grant or deny a patent. Since that time, reports from the Federal Trade Commission 

(FTC) and from the National Academy of Sciences (NAS) have recommended a number of changes to the patent system to improve its effectiveness in encouraging innovation in U.S. industry. In 2002 we endorsed the PTO’s 21st Century Strategic Plan, 

which is directed at improving PTO operations and is now being implemented. 

The diversion of more than three-quarters of a billion dollars in PTO user fees 

since 1992 has been a major factor in the PTO crisis. If the PTO had had the opportunity to spend the diverted funds, which were paid by our members and other PTO 

users for services they expected to receive, today’s picture would be very different. 

We are optimistic that the situation at the PTO can be improved. Director Jon W. 

Dudas is acting aggressively with the aid of more than $200 million annually in additional funding provided by last December’s patent fee increase to address the office’s problems. We understand that the PTO is hiring more patent examiners and 

making efforts to improve employee recruiting and training, recertify examiner 

skills, and improve patent procedures. We are cautiously optimistic that no more 

user fees will be diverted in the short term. The threat of fee diversion remains, 

however, and IPO will therefore continue to support this Subcommittee’s work to 

enact legislation to permanently end fee diversion. 

No silver bullet exists, of course, that can turn the PTO around overnight. The 

patent quality problem is complex and not amenable to any single solution. The 

time required to grant or deny a patent will continue to increase for some years despite stepped-up patent examiner hiring, because new examiners must undergo an 

extensive training program to become productive and because training large numbers of new examiners takes experienced examiners off the production line. We are 

in an environment in which confidence in the validity of patents will continue to 

be lower than desirable for the foreseeable future and the time required to grant 

or deny a patent will be far longer than the traditional goal that IPO continues to 

support—an average of 18 months after filing the initial application until patent 

grant or denial. 

The problems with patent quality and long PTO delays create uncertainty about 

legal rights in technology. Uncertainty discourages investment by patent owners 

and their competitors in research, development, and commercialization of new products needed to maintain the country’s technological and economic strength. 

9

1See generally materials from March 14, 2005 IPO conference ‘‘Patent Trolls and Patent Property Rights’’ (materials available from IPO). 2 Committee Print, pp. 36–49. 

Our members have experienced a sharp rise in patent litigation costs. Hildebrandt 

International’s 2004 Law Department Survey reported that the companies surveyed 

spent 32 percent more on outside counsel for intellectual property litigation in 2003 

than in the previous year. They spent only one percent more for outside counsel on 

non-IP litigation. Some IPO members believe a substantial portion of the rise in litigation costs can be attributed to organizations that have engaged in abusive practices including threatening frivolous lawsuits.1 A number of suggestions have been 

made by companies in the information technology industry and others for legislation 

to reform patent litigation. IPO believes some of these ideas have merit. 

Our members are also faced with high patent costs for protecting their technology 

internationally. Under the existing system U.S. applicants must file separate patent 

applications in separate countries and regions that require different application content and format. This process is costly and inefficient. In addition, patent offices 

around the world are wasting large sums by duplicating each others’ efforts in patent searching. 

A worldwide patent law harmonization treaty is needed. We also believe international patent expenses can be reduced through administrative and other changes 

by the U.S., Japanese, and European patent offices, which receive the bulk of applications from U.S. industry. Last week IPO, the American Intellectual Property Law 

Association (AIPLA), the Japanese Intellectual Property Association (JIPA), and the 

European industry association UNICE held the fourth in a series of meetings to develop recommendations to enable the same patent application to be filed, searched, 

and processed in the three largest offices without the need for amendment during 

the granting process. We hope to publish our final recommendations before the end 

of the year. Many of the changes required to harmonize the world’s patent laws will 

require legislation, and we support the harmonization-related legislative proposals 

in the Committee Print. 

POST-GRANT OPPOSITION PROCEDURES AND

INTER PARTES REEXAMINATION PROCEDURES

Section 9 of the Committee Print establishes a new post-grant opposition procedure. Establishment of a post-grant opposition feature was recommended in both 

the FTC and NAS reports. Under Section 9, post-grant opposition would enable any 

competitor of a patent owner or other member of the public to make a request not 

more than nine months after the grant of a patent for the PTO to reconsider whether the patent should be granted.2 The party requesting an opposition could raise any 

of the statutory requirements for patentability as an issue for invalidity of the patent. The PTO Director could dismiss a request lacking substantial merit and would 

be required to complete the opposition procedure within one year. Limited discovery 

would be available and appeals could be taken to the U.S. Court of Appeals for the 

Federal Circuit. 

IPO strongly endorses establishing this type of post-grant opposition proceeding. 

We believe the opportunity to request an opposition should be available only for 

nine months after the grant of the patent. The alternative view is that oppositions 

should be available at any time after the grant of the patent throughout its life or 

at least for a period of time at any time after the patent owner receives a notice 

of alleged infringement or an offer to license. Those favoring a short window of time 

after patent grant for requesting opposition, including IPO, tend to view the opposition procedure as an additional review of the patent examination process in the PTO 

and an opportunity for members of the public to submit information and present arguments that may not have been available to the Office. Those favoring making oppositions available throughout the life of the patent tend to view the procedure as 

an alternative to patent validity litigation in U.S. District Courts. This would be 

similar to the ‘‘revocation’’ process that is found in the procedure of many foreign 

countries. Although an opposition procedure should not be viewed as a substitute 

for the Office performing a thorough initial examination, the existence of an opposition procedure will reduce uncertainty and increase confidence by patent owners 

and the public in the quality of patents that have survived an opposition or have 

not been opposed. Limiting the time for oppositions will help avoid possible harassment of patent owners and avoid large numbers of opposition proceedings that 

would overtax the Office’s ability to handle the proceedings. Importantly, an indefinite period of opposition exposure would hinder the ability of startup companies to 

receive prompt funding through the venture capital system. 

10

3 Committee Print, p. 35. 

4 Committee Print, pp.29–31. 

Any opposition proceeding must be carefully balanced to protect the interests of 

patent owners and competitors and to maintain the value of patents as an encouragement for invention, research, development, and commercialization. Changing one 

feature of a proceeding may require changing other features in order to maintain 

the desired balance. IPO has studied opposition procedures and developed a list of 

16 inter-related attributes that we believe would provide a balanced proceeding and 

improve patent quality. Our list is attached to this statement as an Appendix. 

Only a few of our suggested attributes differ from those in the Committee Print. 

We recommend that: (1) the standard of proof applied during an opposition proceeding should be the clear and convincing evidence standard; (2) the requester of 

an opposition proceeding should be required to publicly disclose its identity in every 

case; and (3) an opposition proceeding requested by an accused infringer should be 

stayed if an infringement suit is filed against the accused infringer in a district 

court before the opposition is requested. 

Section 9 of the Committee Print modifies the existing ‘‘inter partes reexamination’’ proceeding that was established in 1999 by the American Inventors Protection 

Act.3 Inter partes reexamination proceedings differ from the proposed post-grant opposition proceedings in that inter partes reexaminations are available at any time 

during the life of the patent and are limited to patentability issues based on earlier 

patents or publications describing the invention at issue—documentary prior art. 

The Committee Print expands inter partes reexaminations by (1) removing the limitation that a requester is estopped from asserting at a later time patent invalidity 

on any ground that the requester ‘‘could have raised’’ during the reexamination proceeding; and (2) making inter partes reexamination available for any patent granted 

on any date. The American Inventors Protection Act limited inter partes reexamination proceedings to patents granted on applications filed after November 29, 1999. 

The two limitations on inter partes reexamination addressed by the Committee 

Print have prevented significant use of inter partes reexamination to date. Only 

about 75 inter partes patent reexaminations have been requested. IPO supports the 

changes in inter partes reexamination in the Committee Print. We believe that with 

these changes, inter partes reexamination will be used more often. It will serve as 

a useful complement to the proposed post-grant opposition proceedings by providing 

a relatively simple and inexpensive proceeding for challenging a patent at any time 

during its life on the limited grounds—documentary prior art—on which the PTO 

has the most experience. With emphasis on prompt reexamination announced by Director Dudas recently, inter partes reexamination will also be a relatively rapid proceeding for obtaining determinations of patentability. Availability of an improved 

inter partes reexamination proceeding bolsters the case for limiting post-grant opposition proceedings to a nine-month period after grant. 

WILLFUL INFRINGEMENT AS BASIS FOR TREBLE DAMAGE LIABILITY

IPO supports the amendment in Section 6 of the Committee Print that clarifies 

and limits the law on awards of treble damages for patent infringement.4 The section implements recommendations of the FTC, the NAS and others including IPO 

that treble damages should be assessed against infringers only in limited situations. 

Some companies have stated that existing judicial interpretations on treble damages 

have caused them to be wary of even permitting their employees to read competitors’ patent documents for fear the company will be found to be on notice of infringement for purposes of treble damages liability. Some feel that treble damages are too 

readily available and encourage owners of questionable patents to file law suits and 

obtain settlements in cases in which defendants have not knowingly infringed a 

valid patent. 

The Committee Print prohibits an inference of willful infringement based on the 

absence of an opinion of counsel and prohibits treble damages based merely on 

knowledge of a patent or its contents by the defendant. The Committee Print limits 

treble damages to specific situations including instances where the defendant has 

received a detailed written notice from the patent owner charging infringement and 

identifying the specific patents, claims, and allegedly infringing products or processes. A significant feature of this provision in the Committee Print is that the notice from the patentee must be sufficient to give declaratory judgment jurisdiction 

to the receiver of the notice. This prevents the current tactic used by abusers of 

placing the receiver of the notice in legal limbo—subject to the possibility of treble 

damages but with no legal remedy to resolve the situation. Other circumstances in 

which the Committee Print approves treble damages are those in which (1) the deVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00016 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
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5 Committee Print, p. 7, amending 35 U.S.C. 135. 

6Washington Legal Foundation Civil Legal Issues No. 129, April 15, 2005. 

7 Committee Print, pp.31–32. 8The U.S. Government has also been consistently critical of compulsory licensing and working 

requirements in international negotiations. 

fendant intentionally copied the patent subject matter and (2) the patent was asserted against the defendant in a previous judicial proceeding. 

We believe these reforms on willfulness and treble damages will reduce litigation 

costs and discourage unwarranted suits. These reforms together with limited postgrant opposition proceedings and improvements in inter partes reexamination proceedings would constitute significant reform of the patent litigation system. 

RIGHT OF FIRST-INVENTOR-TO-FILE

Section 3 of the Committee Print awards the patent to the first-inventor-to-file 

when two inventors file patent applications, changing the traditional U.S. first-toinvent procedure. IPO supports this change.5

Awarding the patent to the first-inventor-to-file eliminates interference proceedings in the USPTO. Fewer than one-tenth of one percent of patent applications 

become involved in interference proceedings, but proceedings are costly and the possibility of another party proving a date of invention earlier that the invention date 

of the first party to file causes uncertainty for patent rights. Data compiled recently 

by Gerald J. Mossinghoff, a former head of the PTO, indicates that small inventors 

fare no better under the first to invent system than they would under a first to file 

system and perhaps not as well.6 The Committee Print correctly uses the term ‘‘first-inventor-to-file’’ to avoid any suggestion that a person who is not an inventor 

can obtain a patent by filing an application earlier than the inventor. 

IPO supports first-inventor-to-file because it is the best system for the U.S. While 

its adoption would have a less immediate effect on the U.S. patent system than 

many of the other proposals in the Committee Print because of the small number 

of cases involved, adoption of first-inventor-to-file system would have important 

ramifications for the current talks on a possible substantive patent law harmonization treaty. The U.S. is the only country in the world with a first-to-invent system. In past harmonization talks the unwillingness of the U.S. to change its system 

has been an emotional issue with other countries. Additional visible support for a 

first-inventor-to-file system in the U.S. has come recently in the form of endorsements by the American Bar Association and the NAS report. Introduction of a bill 

in Congress would be a positive sign that the U.S. may be prepared to eliminate 

one of the obstacles to substantive patent law harmonization. 

INJUNCTIONS

Section 7 of the Committee Print makes it more difficult for patent owners to obtain injunctions to stop infringement of patents.7 Reducing the availability of injunctions was not a feature of either the FTC or the NAS report. The IPO position will 

have to be updated, but when this specific proposal was reviewed by the Board of 

Directors in 2001, exactly as worded in Section 7, most members of the board were 

unwilling to support it. I will explain the case against the proposal, which contains 

concepts that IPO has strongly rejected over the years—compulsory licensing and 

a requirement for the patent owner to use the patented invention.8

A fundamental distinguishing feature of American intellectual property rights for 

more than 200 years, embodied in Article I, Section 8, Clause 8 of the U.S. Constitution, is that patent and copyrights rights are EXCLUSIVE rights. Exclusivity comes 

from the availability of permanent injunctions. Many believe the principle of exclusivity has contributed mightily to America’s leadership in technology, in the case of 

patent rights, and to literary and artistic creativity, in the case of copyright. Exclusive rights should be available to the same extent for patented inventions and for 

copyrighted works such as books, motion pictures, sound recordings, and software. 

We expect that because of the way it is written, this particular proposal would come 

under constitutional attack. 

We understand the proposal to be directed to permanent injunctions. It is sometimes said permanent injunctions issue at as a matter of course at the conclusion 

of patent or copyright litigation. Professor William C. Robinson of Yale University 

explained the distinction between preliminary and permanent injunctions in his 

classic 1890 treatise The Law of Patents:

A preliminary injunction is not, like a perpetual injunction, a matter of course, 

nor can its issue be governed by any formulated and established rules. . . . A 

permanent injunction issues as a matter of course, at the conclusion of a suit 

12

9 Robinson, The Law of Patents (1890), §§ 1170 and 1220.

in equity, whenever the plaintiff has sustained the allegations of his bill, provided the patent has not then expired.9

This is not precisely today’s law, however, and permanent injunctions do not issue 

as a matter of course. A permanent injunction is not issued if a case is exceptional—

i.e., if a sufficient reason exists for denying it. Permanent injunctions have been denied, for example, because the defendant agreed to eliminate the infringement within a period of time, or because of laches or estoppel, or, in rare cases, because of 

‘‘public interest.’’

By introducing a standard that, ‘‘A court shall not grant an injunction . . . unless 

. . . the patentee is likely to suffer irreparable harm that cannot be remedied by 

payment of money damages, the proposed language in the Committee Print would 

make a drastic change in existing law. A permanent injunction would be denied unless there was a reason to grant it—the opposite of the law today, where it is granted 

unless there is a reason to deny it. Also, a major new hurdle would be introduced 

with the requirement for irreparable harm, which is a preliminary injunction concept. The likely effect of these two changes would be to make patent rights in the 

U.S., in many cases, subject to compulsory licensing, a common feature of patent 

systems abroad. In addition, the Committee Print as presently worded would make 

injunctions more difficult to obtain if a patent owner is not using the invention. By 

encouraging courts to consider the patent owner’s use, this would essentially establish a requirement similar to ‘‘working requirements’’ found in patent laws abroad 

that provide weaker incentives for innovation. IPO has consistently been opposed 

to working requirements. 

By removing the prospect of obtaining a permanent injunction in many cases, Section 7 would remove an injunction as the patent owner’s leverage to encourage infringers to settle disputes by taking licenses. With reduced prospect of an injunction, 

voluntary license agreements would become more difficult to obtain and royalty 

rates would be more often determined by courts and less often by market forces. 

Supporters of this particular injunction proposal cite with approval the fact that 

it would reduce the bargaining power of patent holders and make it less likely that 

companies would be forced to shut down product lines. The supporters feel they are 

being threatened with too many patents of questionable validity or scope. We understand the frustrations with the current patent litigation environment, but other approaches exist for reducing patent litigation and for avoiding becoming subject to 

a permanent injunction. 

Permanent injunctions often are not issued because the parties can negotiate a 

settlement or else the accused infringer can redesign its product during the several 

years usually required to complete patent litigation. If a product cannot be redesigned to avoid a patent, it may be an indication the patent is for a fundamental 

invention and the infringer should be prepared to withdraw the product and expect 

to pay large compensation. Manufacturers can help themselves avoid patent infringement by monitoring and analyzing patents and patent applications as they are 

published by the PTO and by conducting product clearance patent searches before 

new products are put on the market. These practices are followed routinely in many 

industries. 

The encouragement for courts to consider whether the patent owner produces the 

invention itself, in the second part of Section 7 of the Committee Print, is tantamount to a working requirement. This is inconsistent with the concept of patents 

as intellectual property rights. A working requirement would greatly diminish the 

value of patents and the incentives for innovation they provide, particularly for universities, which are not manufacturers, and for small businesses and inventors who 

may lack resources to have a patented product or service on the market before litigation. 

We believe the proposed changes in the law on availability of injunctions, as worded in Section 7, would be a major blow to incentives for innovation provided by the 

American patent system and would result in a huge decline in the value of patents 

now in force. The role of the patent system in maintaining America’s technological 

leadership would be diminished. 

Before deciding whether to adopt this specific proposal on injunctions, we recommend that the Subcommittee obtain more information than we have been able 

to collect in advance of this hearing on the large number of cases in which patent 

injunctions have been granted and denied, and the effects on various industries of 

making injunctions more difficult to obtain. 

13

10 Committee Print, pp. 3–6, amending 35 U.S.C. 102. 11 Committee Print, p.9. 12 Committee Print, p.10. 13 ‘‘A Patent System for the 21st Century,’’ National Research Council of the National Academies (2004) at 99. 14 Committee Print, pp.10–29. 15 Committee Print, p.31. 16 Committee Print, p.32. 

OTHER PROPOSALS IN COMMITTEE PRINT

Definition of Prior Art 

Section 3 of the Committee Print revises the definition of ‘‘prior art.’’ 10 These 

changes accommodate the first-inventor-to-file system. Certain changes are required 

in the definition of prior art for a first-to-file system. The Committee Print makes 

additional changes in the definition of prior art that are not necessary for a firstto-file system but which are designed to clarify and improve the law. IPO supports 

these changes as part of the switch to a first-to-file system. 

Filing of Patent Applications by Assignees 

Section 4 of the Committee Print permits a party to whom the inventor has assigned or is under an obligation to assign the invention (i.e., the real party in interest) to file the patent application on behalf of the inventor.11 The Committee Print 

provides that if a patent is granted to the real party at interest, the inventor will 

be given such notice as the USPTO Director considers to be sufficient. IPO supports 

assignee filing as a useful simplification in the procedure for filing applications. 

Elimination of Best Mode Requirement 

Section 4 of the Committee Print amends the patent code to eliminate the requirement that an inventor must set forth the best mode contemplated of carrying out 

the invention.12 The 2004 National Academy of Sciences report identified this 

change in law as one of three changes that might be made to eliminate subjective 

elements in patent litigation and thereby reduce the cost of litigation and increase 

the predictability of litigation outcomes.13 IPO supports the change. 

Duty of Candor 

Section 5 of the Committee Print codifies a duty of candor owed to the PTO by 

patent applicants and other parties.14 IPO is still studying the need for legislation 

on this subject. The NAS report recommended duty of candor legislation as a way 

to limit the subjective elements of patent litigation. The duty of candor today is defined by PTO rules and court decisions It is important to have a strong duty of candor that requires patent applicants to submit relevant prior art they know about 

to the PTO. Prior art submissions are essential to help insure the quality of granted 

patents. We would not favor any legislation that would cause fewer relevant prior 

art references to be submitted. If legislation would clarify the duty of candor and 

make patent applicants more comfortable in volunteering explanations and opinions 

about submitted prior art that applicants are reluctant to express today because of 

fear of being charged with fraud, legislation could be useful. 

Damages When Invention Incorporated Into Larger Product or Method 

Section 6 of the Committee Print provides that when an invention is incorporated 

into a known method or apparatus any award of damages will be based only on such 

portion of the total value of the method or apparatus as is attributable to the invention.15 The proposal appears to be directed at the so-called ‘‘entire market value’’ rule that has been applied by courts in cases where the patented feature is the entire basis for customer demand for the apparatus or method. Although the proposal 

states a principle that produces the fairest result when less than the total value of 

the method or apparatus is attributable to the invention, the proposal as drafted 

could produce unfair results or would not apply in some situations. In some cases 

the patented feature is the entire basis for customer demand for the apparatus or 

method. Some inventions involve eliminating a component from an apparatus or 

method. Some inventions combine two known inventions with the combination producing a new result. 

Continuation Applications 

Section 8 of the Committee Print prohibits presentation of a patent claim that is 

broader than claims presented at a specified earlier time in the patent application 

or a predecessor application.16 IPO agrees with the 2003 Federal Trade Commission 

Report stating that legitimate uses exist for amending claims in continuing applications, thus any proposal to address opportunistic broadening of claims should proVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00019 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
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17 Committee Print, p.33. A few applications are not published because of their importance to 

national security, and those application would continue to be withheld from publication. 18 Committee Print, p.34 19 Committee Print, p.49

tect such legitimate uses. IPO members have expressed some support for placing 

limits on enlarging claims in continuation applications, because continuation applications have been used to manipulate the patent system in certain cases. Applicants 

have kept so-called ‘‘submarine’’ patent applications alive in the PTO for many years 

and reshaped the claims as products or processes of others in an industry evolved. 

Concerns about submarine patent applications have subsided as a result of (1) the 

change of the patent term in 1995, so that it expires 20 years after the filing of the 

first application, (2) court decisions on ‘‘prosecution laches,’’ and (3) publication of 

most patent applications 18 months after filing starting in 2000. Some concerns 

about submarine applications still exist. The issues with the proposal in the Committee Print seem to be whether it would be effective, because it might be circumvented by presenting unreasonably broad claims at the outset in every case, and 

whether the time periods for enlarging claims are too short, given that applicants 

have legitimate needs to amend and enlarge their claims in some circumstances. 

Publication of All Patent Applications After 18 Months 

Section 9 of the Committee Print requires publication of all patent applications 

18 months after filing.17 The American Inventors Protection Act exempted applications from publication if the applicant requested an exemption because a corresponding application was not being filed in another country. Most countries publish all applications. We understand that about ten percent of applications filed in 

the USPTO are not being published. IPO supports publication of all applications in 

order to provide more information to the public at an earlier date and increase certainty about the scope of patent rights being sought. 

Prior User Rights 

Section 9 of the Committee Print also amends the section on prior user rights in 

the American Inventors Protection Act by (1) deleting limitation to ‘‘methods of 

doing or conducting businesses,’’ (2) deleting requirement for reduction to practice 

‘‘at least one year before the effective filing date,’’ and (3) extending rights to ‘‘substantial preparation for commercial use.’’ 18 IPO supports these changes to provide 

prior user rights for innovators in all fields of technology and to make prior user 

rights more effective. Prior user rights strike a balance between the interests of the 

first-inventor-to-file a patent application and another party who provided a benefit 

to the public by commercializing the invention early but chose to rely on trade secrets, which may be more effective for protecting inventions that can be used in secret, such as manufacturing processes. 

Combinations of Components Outside U.S. 

Section 10 of the Committee Print amends Section 271(f) to provide that an item 

supplied from the U.S. is not a ‘‘component’’ for purposes of patent infringement 

under that section unless it is a tangible item that is itself combined physically with 

other components to create a patented combination.19 Several IPO members have 

suggested that the recent Eolas and AT&T cases involving Section 271(f) may have 

been wrongly decided. IPO is studying the issue and has not yet taken a position. 

If the cases were wrongly decided, other options may exist in addition to the proposal in the Committee Print. IPO traditionally has not favored legislation that 

would create different rules for different categories of inventions, such as products 

and processes. We suggest studying the option of outright repeal of Section 271(f), 

which was enacted in 1984 in response to a single Supreme Court decision and may 

not be important in today’s global economy. Also, if the cases were wrongly decided, 

organizations in the patent community can be expected to file amicus briefs to seek 

clarification of the scope of existing Section 271(f). We cannot take a position on this 

proposal without further study. 

Thank you again for the opportunity to discuss the Committee Print. We believe 

the Subcommittee has a good start toward a comprehensive patent law reform bill 

that would improve patent quality, increase certainty as to the scope of legal rights, 

and reduce litigation burdens. 

We look forward to working with the Subcommittee as it develops formal legislation on patent law reform. 

15

APPENDIX

IPO Resolution on Establishing a Post-Grant Opposition System

As revised at the 11/09/2004 Board Meeting and

approved by the IPO Board of Directors

RESOLVED, that the Intellectual Property Owners Association supports amendment of the patent laws to establish post-grant opposition proceedings in which patentability of issued claims can be reviewed by Administrative Patent Judges of the 

Board of Patent Appeals and Interferences of the United States Patent and Trademark Office, provided such proceedings include the following attributes:

1. [Time for Filing]—Any request for a post-grant opposition must be made no 

later than 9 months after the date of the patent grant;

2. [Grounds]—Any ground of patentability, with the exception of ‘‘best mode’’ (35 

U.S.C. § 112, 1) and derivation (35 U.S.C. § 102(f)), may be raised in the request, 

but no issues of priority of invention (35 U.S.C. § 102(g)) nor enforceability shall 

be considered;

3. [Threshold Showing]—Any party requesting initiation of an opposition proceeding shall be required to make a threshold showing of unpatentability of at 

least one claim of the patent before the patent owner is required to respond to 

the opposition;

4. [Discovery]—Discovery from a party to an opposition shall be limited to crossexamination of declarants;

5. [Additional Evidence]—Following initiation of a post-grant opposition proceeding, the party requesting the proceeding shall not be permitted to advance 

a new ground of unpatentability in the opposition proceeding;

6. [Claim Amendments]—The patent owner shall have the right to amend its 

claims in its response to the initial request and after any new prior art is presented by an opponent after filing its initial request;

7. [Other USPTO Proceedings]—No party to the opposition proceeding shall be 

prevented by the opposition proceeding from filing other concurrent or subsequent proceedings in the United States Patent and Trademark Office;

8. [Standard of Proof]—The standard of proof to be applied for determining 

unpatentability of a claim during a post-grant opposition proceeding shall be the 

clear and convincing evidence standard;

9. [Estoppel]—A judgment in favor of patentability of any claim in the opposition 

proceeding shall estop the opposer from challenging validity of that claim in 

other proceedings on the basis of evidence and prior art presented during the 

opposition proceeding;

10. [Duty of Disclosure]—The patent owner’s duty of disclosure during the opposition shall be no greater than that applicable to a party in litigation before a 

Federal court;

11. [Length]—The opposition proceeding shall conclude within 12 months of the expiration of the 9-month post-grant request period and any patent claim surviving the opposition proceeding unamended shall be subject to day-for-day patent term adjustment for any period of pendency of the proceeding beyond the 

12 months, excluding delays caused by the patent owner;

12. [Identity of Opposer]—Any party requesting initiation of a post-grant opposition 

proceeding must disclose its identity to the patent owner in the opposition proceeding;

13. [Infringement Suit]—In the event an infringement action is brought against an 

accused infringer prior to the filing of a post grant opposition request by the 

accused infringer, then any opposition proceedings involving the patent shall be 

stayed until the infringement action is finally resolved;

14. [Appeal]—Judicial review of a post-grant opposition proceeding shall be exclusively by way of appeal to the Court of Appeals for the Federal Circuit;

15. [Consolidation]—Multiple oppositions against a single patent shall be consolidated into a single opposition action following the expiration of the nine-month 

filing period; and,

16. [Right to Hearing]—Parties to an opposition shall have the right to a hearing 

before the decision of USPTO on the opposition is reached.

Mr. SMITH. Thank you, Mr. Hawley. 

16

Mr. Lutton. 

TESTIMONY OF RICHARD J. LUTTON, JR., CHIEF PATENT 

COUNSEL, APPLE, ON BEHALF OF THE BUSINESS SOFTWARE 

ALLIANCE 

Mr. LUTTON. Thank you. Mr. Chairman and Members of the Subcommittee, I’m Richard Lutton, Chief Patent Counsel for Apple. I’m 

pleased to have the opportunity to present BSA’s views on patent 

quality and improvement. 

We commend you for holding these hearings and for your continued commitment to improving our patent system. 

We believe the committee print correctly identifies the most important areas where reform is timely, and we commend you for it. 

The IT industry, like so many others, is encountering the enormous costs of dealing with poor quality patents. We are also faced 

with a growing cottage industry of patent assertions, orchestrated 

by entities with no business other than acquiring and asserting 

patents. 

Increasingly, they use the uncertainties of the civil litigation system as their primary bargaining chip. The result is that bad patents can cause a substantial litigation risks and costs. Defendants 

in these suits now must spend an average of $5 million defending 

themselves and in some courts, the average is more like $8 million. 

So what can we do? 

Some witnesses will tell you that patent reform is sufficient or 

that harmonization should be your goal. While my written testimony details our support for these goals, we believe more is required. 

BSA believes the issues of the patent system cannot be addressed 

by changes at the PTO alone. We’re extremely grateful to see the 

committee print recognizes the disruptive effects that unwarranted 

litigation can have on the patent system as a whole, and we support the approach the committee print has taken with regard to 

monetary and injunctive remedies. 

I’d like to address three specific provisions. 

First, the law of triple damages for willful infringement. We believe these punitive triple damages should be reserved for cases of 

reprehensible conduct, such as copying a patent. 

The current gamesmanship of artfully drafted notice letters and 

opinion writing has little to do with ferreting out cases of truly reprehensible conduct. Instead, it creates hardships, including forcing 

a defendant to chose between defending against triple damages 

and, on the other hand, preserving the attorney-client privilege. 

These hardships are used increasingly as a leverage point by 

plaintiffs seeking only to maximize settlement value of a case. 

Thus, we suggest that that prong of the willfulness test should be 

deleted from the draft provision. 

Second, BSA strongly supports the committee print’s proposals to 

add certainty to the measure of damages on complex products. 

Today, when a small feature of a multifaceted product is alleged to 

infringe a patent, the patentee is often—often claims damages on 

some percentage of the value of the entire product rather than only 

the infringing feature. 

17

We believe reform is needed to rein in these damages claims. The 

provision included in the committee print accomplishes this goal. 

Third, BSA strongly supports the approach taken by the committee print to injunctions. That provision directs courts to do what 

the law already says: balance equities before issuing an injunction. 

Today, the courts are interpreting this statutory requirement 

very narrowly. Essentially the only reason for not granting an injunction is national health emergency. This interpretation of the 

public interest risks turning equity into a needles eye that no case 

in our industry can thread. 

We are mindful of the concerns of some groups that these solutions to litigation issues not disrupt monetary injunctive relief for 

appropriate cases. 

We agree with this concern. Any solution must address the problem narrowly without creating unintended disruptions in other 

areas, and, of course, any solution must be consistent with international norms and obligations. 

Before I close, because I have a little bit of time left, I’d like to 

address comments on—quickly on three provisions related to PTO 

processes or harmonization. 

First, with respect to post-grant opposition, we support the proposed procedure, but we believe the issue of timing is critical. The 

current committee print includes a single 9-month window after 

issuance for initiating an opposition. 

We do not believe this is sufficient to identify patents requiring 

challenge. 

We suggest instead two windows, with the second window opening if and when a patentee has provided notice to a specific infringer. 

Only a noticed party could use this second window. 

Second, with respect to the wholesale redefinition of what constitutes prior art, much of this change is not required for harmonization with a worldwide first to file system. This new definition 

also injects uncertainty and diminishes the scope of what’s considered prior art. We believe that could have unintended negative impact on patent quality. 

Finally, the committee print includes a provision significantly reducing the effect of a patent applicant’s violating her duty of candor before the PTO. We question whether this provision is appropriate, especially in an era of increased emphasis on candor and 

full disclosure in dealing with governmental agencies and public institutions. 

Thank you for the opportunity to provide input on this critical 

topic. We pledge our continued support and assistance. 

[The prepared statement of Mr. Lutton follows:]

PREPARED STATEMENT OF RICHARD J. LUTTON, JR. 

Mr. Chairman and members of the Subcommittee, my name is Richard Lutton 

and I am the chief patent counsel for Apple. I appear today representing the Business Software Alliance (BSA). BSA welcomes the opportunity to appear before you 

today on this important topic. We commend you for holding these hearings and for 

your commitment to improving our patent system. 

The Committee print made available last week correctly addresses the two major 

areas where BSA thinks patent reform is now timely: improving the quality of patents issued by the Patent and Trademark Office and alleviating the disruptive effects that excessive patent litigation now poses. Overall, BSA supports the approach 

18

1 BSA members include Adobe, Apple, Autodesk, Avid, Bentley Systems, Borland, Cadence Design Systems, Cisco Systems, CNC Software/Mastercam, Dell, Entrust, HP, IBM, Intel, Internet 

Security Systems, Macromedia, McAfee, Microsoft, PTC, RSA Security, SAP, SolidWorks, 

Sybase, Symantec, UGS and VERITAS Software. 

and the issues identified in the Committee print and we look forward to working 

with as you proceed with your efforts. As I will describe in greater detail in a moment, there are areas where further clarification or changes to the language would 

be positive, and there are some issues that are not in the print which we believe 

merit consideration. 

The software and computer industry is a creative engine that powers innovation 

and growth. The industry’s products and services give individuals and organizations 

the tools they need to operate intelligently, efficiently and productively. Indeed, over 

the past thirty years, software and computers have become critical to economic success, business competitiveness and personal quality of life. People worldwide rely on 

the software and computer industry’s tools to communicate, to connect to the world, 

to get things done more efficiently in the workplace, and to more fully enjoy the 

arts, hobbies and leisure activities. 

The members of the Business Software Alliance 1 have a significant stake in this 

Subcommittee’s work regarding patent quality and improvement. BSA represents 

more than twenty-five software and computer companies with annual revenues well 

in excess of $300 billion. Together, we hold about 100,000 United States patents. 

Our members are both plaintiffs and defendants in patent suits. Many of our members have established licensing programs to encourage the licensed use of technology 

covered by our own patents and to respect the patent rights of others. Simply put, 

patents play an essential role in how information technology companies do research 

and how they develop and commercialize products and services. 

BSA members believe that the patent system is fundamentally sound and works 

well for most innovators, whether they toil in their garage, experiment in a university laboratory, or work for a large corporation that provides goods and services to 

consumers. That said, we believe that a periodic review and recalibration of the patent law is not only a good idea, but also essential to ensuring that patents remain 

a vital part of technological process. The current patent system has given rise to 

too many low quality patents being issued, and a growing pattern of assertions of 

weak patents that threaten to damage productive companies and stifle innovation. 

BSA members approach patent reform from a pragmatic, problem-solving perspective. Our attention is focused on those areas of the law and practice that present 

specific challenges for our companies’ day-to-day businesses. Thus, we believe that 

reform must address both the administrative system responsible for the issuance of 

patents and the litigation system responsible for enforcing patents. 

1. PATENTS IN THE SOFTWARE AND COMPUTER INDUSTRY

As we enter the 21st Century, intellectual property is an ever more critical source 

of economic value to society, individuals, companies and governments. While copyrights have been and will remain a principal way that technology companies protect 

their intellectual property, I will limit my comments today to patents. 

The increased importance of patents to technology companies has resulted from 

a mix of legal and marketplace developments. 

The 1981 Supreme Court decision, Diamond v. Diehr, marked a turning point in 

the patentability of computer-implemented inventions. In that case, the Supreme 

Court held that a machine that transforms materials physically under the control 

of a computer program was patentable. The Court’s decision clarified earlier rulings 

that had been interpreted to suggest that software programs would rarely qualify 

for patentability. Subsequent decisions from lower courts have further clarified the 

law in this area. As a result, U.S. patent applications from inventors in the software 

sector have steadily increased. 

Equally important are marketplace trends. For example, in today’s diverse technology marketplace, heterogeneity has become an important element of technology 

and network effectiveness. Unlike the early days of computing when consumers 

tended to purchase all their hardware and software from only a single firm, consumers now often build systems to meet their specific needs based on products 

sourced from different suppliers. The ability of these different systems to work together is essential. In this context, patents enable technology companies to integrate 

systems and meet consumer’s needs while ensuring a return for their inventions. 

Finally, changes made by Congress, especially the creation of the Court of Appeals 

for the Federal Circuit in the early 1980’s, have brought generally greater imporVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00024 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
19

2See To Promote Innovation: The Proper Balance Of Competition and Patent Law Policy, Report by the Federal Trade Commission, section II.B., available at http://www.ftc.gov/reports/

index.htm. 

tance to patents and more consistent respect for the property right granted by a patent. 

Today, patents are a key part of virtually every technology company’s intellectual 

property portfolio. The reasons are simple:

• Patents provide critical protection for distinctive technologies that may have 

been difficult to innovate but could easily be replicated without the protections of a patent.

• Patents ensure that technology companies have the opportunity to be compensated for their contributions to advances in their field of technology.

• At the same time, and reflecting the way in which our industry often operates, patent protection enables technology developers to license or otherwise 

share key technologies with customers, partners and even competitors, while 

still preventing third parties from ‘‘free-riding’’ on their innovation.

• Patents can encourage cross-fertilization of technology through cross-licensing.

• Collectively, patents provide a repository of accumulated knowledge that allows new generations of innovators to learn from the state of the art and, in 

some cases, design new solutions that further advance that body of knowledge. 

2. REFORM IS TIMELY

While patents are critical tools for the technology industry, there are aspects of 

the patent system that present on-going challenges for our industry. 

First, prior art (which is the totality of previously known technologies against 

which a new invention is measured to ensure that it merits a patent) is not as well 

documented for the computing field as it is in some other areas. In part this is because, for many years, patents were not readily available for software. It is also attributable to the nature of large-scale commercial software and computing—millions 

of lines of software code or billions of transistors or other components that may require significant effort to identify or understand. This makes the task of the patent 

examiner difficult: she must determine the patentability of software inventions 

without always having a complete understanding of what is already known in the 

art. The result can be poor quality patents. 

Second, the software and computer industry, like many high technology industries, is a field with an extremely high concentration of patents. For example, there 

may be as many as 200 patents that are relevant to a single multifunction computer 

program; for example, the Federal Trade Commission recently received testimony 

stating that there are more than 90,000 patents that relate generally to microprocessors.2 This concentration of patents within a technologic field presents specific 

challenges not only for the software industry, but also for biotechnology and other 

sectors. 

Finally, software and computers are examples of ‘‘system’’ products—they comprise thousands, even hundreds of thousands, of individually functioning components and features all assembled in a package for a customer. Because many of 

these features could be the subjects of a patent, it is often the case that thousands 

of patents may be relevant to a particular computer or software product. This phenomenon—sometimes referred to as ‘‘co-location of patents’’—means that any single 

patent covering a computer or piece of software accounts for only a small fraction 

of the intellectual property value of the entire system. Yet, too often, patent holders 

seek to recover large percentages of the revenue generated by these complex systems in exchange for only a single or small group of patents. 

In combination, these issues make our industry susceptible to the problems of 

poor quality patents and the uncertainties of litigation. We approach reform from 

this perspective. 

3. QUALITY PATENTS

BSA strongly supports the Committee for making improving patent quality one 

of its key focal points. The Committee print clearly shows that you understand this 

problem, and the legislative changes set out in the print would go a long way towards making this situation better. Poor quality patents, as detailed in recent studies by the National Academy of Sciences and the Federal Trade Commission, hamVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
20

3See generally Mark A. Lemley and Kimberly A. Moore, Ending Abuse of Patent Continuations, 84 Boston University Law Review 63 (2004), available at http://papers.ssrn.com/sol3/papers.cfm?abstract—id=462404

per competition and harm innovation. A questionable patent may lead competitors 

to forego research and development in a particular area, fearful of the risks that 

may be involved. Poor quality patents may also require innovators to license unnecessarily thousands of patents. 

BSA believes Congress should focus on four key areas that will facilitate the 

issuance of higher quality patents:

(1) enhanced post-issuance processes to provide a second chance to intercept 

bad patents;

(2) curtailment of abusive continuation practices that lead to endless chains of 

patents with ever-broader claims;

(3) better support for receiving prior art, and better processes for building a 

contemporaneous record that reflects the extent of the examination by the 

patent examiner; and

(4) adequate PTO training and funding. 

Post-Issuance Processes 

BSA commends the Subcommittee for including within its Committee print specific and meaningful ways to improve the post issuance process. 

Currently, the primary way to challenge the validity of an issued patent is 

through litigation, a costly and difficult approach. BSA supports the proposal in the 

Committee print to create a meaningful and balanced opposition procedure enabling 

third parties to challenge issued patents. Such a process would permit the Patent 

and Trademark Office to take a careful look at any challenged patent in the context 

of an adversarial proceeding likely to bring out the strongest arguments in favor of, 

and against, continued existence of the patent. This process augments a patent’s initial examination and provides a second, more granular filter through which a patent 

may pass if it is to be used against an alleged infringer. 

BSA recommends a number of areas where the language in the Committee print 

can be improved. Most importantly, the timeframe for initiating an opposition 

should be sufficiently long to permit the relevant public to identify and assess the 

patent at issue. The single, nine month window proposed in the Committee print 

is too short. In many industries, a single window will not permit accurate assessment of the validity and impact of a newly issued patent on products. We recommend instead two windows. The first window should be two years from issuance. 

The second window should be open for a period of one year after a patent owner 

sends notice of infringement. This second window is essential to allow companies 

to challenge a patent when, and if, it is asserted even if a prior search would never 

have revealed a threat from that patent. 

In addition, under current law, the inter partes reexamination process is so restricted as to severely limit its usefulness. In fact, since the inception of this process, the Patent and Trademark Office has received fewer than one hundred requests 

for inter partes reexamination. BSA supports the Committee print provision relaxing 

the current law’s estoppel provisions and expanding its scope to include patents filed 

before 1999, as well as those filed later. 

Abuses of Continuation Practice 

BSA supports the changes in the Committee print aimed at ending abuses of continuation practices. Currently, a patent applicant may file follow-on patent applications with broader and broader claims long after the publication or issuance of its 

original patent application. Through these mechanisms, some applicants keep their 

applications pending for extended periods while monitoring the developments in the 

relevant market. By modifying their claims to cover other companies’ products, often 

after those other companies have invested significant funds in their products, such 

applicants can abuse the system.3 In some cases, the patentees seek to obtain patent protection for ideas that never occurred to the applicant before seeing them in 

the marketplace. While this practice is currently permitted and even sanctioned by 

the courts, a reform curtailing the ability to broaden claims beyond the scope of the 

broadest claim previously published or issued would roll back significantly the invitation to abuse created by the current system. 

Availability and Consideration of Prior Art 

An important step toward better patent quality would be to improve the availability of prior art in the examination process. This issue is not now addressed in 

21

the Committee print, and we urge you to consider its addition as you proceed with 

your work. 

Under current law, members of the public with relevant prior art information 

have limited options to submit that information to the examiner. The prior art may 

be submitted, but without comment on the relevance of what may be hundreds of 

pages of carefully developed disclosure. The result is that patents are often granted 

on the basis of incomplete prior art information as an examiner has only 17 hours, 

on average, to examine a patent. To address this issue, BSA believes Congress 

should establish a mechanism for the public to submit prior art and other information relevant to patentability, together with commentary on that art and information. 

Adequate Training and Funding. 

Underlying any attempt to improve the quality of patent examination must be a 

commitment to adequate funding for the Patent and Trademark Office. The Committee print does not address directly this persistent issue, but we are aware of and 

appreciate the Subcommittee’s commitment on this matter. Adequate funding is inextricably tied in with permanently ending the practice of diverting patent fees to 

programs outside the scope of the core PTO mission. Allowing the Patent and Trademark Office to retain the fees that it generates would help ensure that the PTO is 

able to provide high-quality examinations and to fund further improvements. 

4. REDUCE THE DISRUPTIONS CAUSED BY LITIGATION

BSA is extremely grateful to see that the Committee print recognizes the disruptive effects that bad litigation practices can have on the patent system as a whole. 

BSA supports the approach you have taken in the print with respect to monetary 

and injunctive remedies. This is an area of utmost concern to all technology companies. 

The reform provisions identified in the Committee print focus on abuses of the 

current patent system that cannot be fixed by only quality-enhancing changes. Congress must act directly to address the most onerous sources of uncertainty in the 

civil litigation system. 

Today, hundreds of patent infringement cases are pending against hardware and 

software companies, and these companies spend hundreds of millions of dollars each 

year defending themselves in these cases. This is not to say that all of these cases 

are without merit, but that is too often the case. 

BSA commends you and strongly supports the Committee print for its approach 

to these issues. BSA believes there are five key areas where changes are needed:

(1) making clear that a patentee is entitled to claim damages only on the proportion of the allegedly infringing product attributable to the patent, and 

not including all the other features and elements that may be also contained 

within a multi-faceted product or system;

(2) recalibrating the standard for an award of punitive damages for willful infringement to focus on truly reprehensible conduct;

(3) clarifying and reiterating the current black letter statutory requirement 

that the issuance of an injunction is permissive and should be based on 

‘‘principles of equity;’’

(4) reducing the burden of proving a patent invalid to a ‘‘preponderance of the 

evidence’’ in cases where the Patent and Trademark Office did not consider 

the allegedly invalidating prior art; and

(5) clarifying section 271(f) of the existing patent statute to avoid discouraging 

research and development work done inside the United States. 

Apportionment of Patent Value in a Complex System or Product 

BSA strongly supports the Committee print’s proposals to ensure damages reflect 

the actual harm. Today, when a small component of a multi-faceted system or product is alleged to infringe a patent, the damage claim often seeks some portion of 

the value of the product as a whole rather than being limited to only the value of 

the infringing feature or functionality. This often leads to unduly inflated verdicts 

or settlement demands. 

BSA supports the Committee print’s approach to provide courts with a statutory 

basis for requiring that patentees (and their expert witnesses) present damages calculations based on the proportional value of a patented invention alone, rather than 

on the cumulative value of all features included with a larger product. The provision 

included in the Committee print accomplishes this goal. 

22

4See Knorr-Bremse Systeme Fuer Nutzfahrzeuge Gmbh v. Dana et al., 383 F.3d 1337 (Fed Cir. 

2004) (Dyk, Circuit Judge, concurring-in-part, dissenting-in-part). 5See generally Mark A. Lemley and Ragesh K. Tangri, Ending Patent’s Willfulness Game, 18 

Berkeley Technology Law Journal 1085 (2003), available at http://papers.ssrn.com/sol3/papers.cfm?abstract—id=472901 6MercExchange v. eBay, Inc. et al, 401 F.3d 1323, 2005 U.S. App. LEXIS 4308, *41 (Fed. Cir. 

March 16, 2005). 

Punitive Damages for Willful Infringement 

BSA supports the approach taken in the Committee print to address the issue of 

willful infringement, and suggest that further changes be made in the language to 

avoid perpetuating the need to have dueling opinions from counsel. 

The current law allows the courts to impose punitive increased damages (up to 

three times actual damages) in cases involving willful infringement. However, the 

standard on which they may be awarded under current jurisprudence is far less 

than what is required for punitive damages in other areas of law.4 In fact, merely 

knowing that the patent exists is often the basis for an allegation of ‘‘willfulness’’ and a claim for triple damages, shifting to the defendant the burden of showing the 

exercise of due care. 

Trying to satisfy this duty of care, patent defendants will often seek the opinion 

of counsel. But reliance on that opinion in defense of a charge of willfulness requires 

pre-trial disclosure of that opinion to the other side, waiver of the attorney-client 

privilege and often waiver of privileged materials relating to the subject matter of 

the opinion generally. In some cases, this threatens even the integrity of trial preparations. Thus, the existence of an opinion presents defendants with a dilemma of 

whether to waive privilege in order to defend against the charge of willfulness or, 

alternatively, preserve the privilege.5 This choice can be especially unfair when 

plaintiffs are allowed to use discovery obtained pursuant to the waiver to help establish or color underlying liability for patent infringement. 

The uncertainty about willfulness has also led to the undermining of one of the 

fundamental points of the patent system: that is, disclosing to the public the invention. To avoid ‘‘knowledge’’ and charges of willfulness, too many companies now instruct their employees to avoid reading patents. This too can lead to reduced patent 

quality. 

BSA believes that Congress should change the statute to make clear that punitive 

increased damages should be imposed only when there is evidence of reprehensible 

conduct, such as copying the patent or violating a prior court order. The provision 

included in the Committee print includes these concepts, and we support these 

changes. But it also includes countervailing provisions that we fear would perpetuate the current inefficient and costly practice. We fear the draft provision would 

perpetuate the current gamesmanship by permitting a well-drafted notice letter 

from the patentee to give rise to a charge of willfulness. It would also continue the 

practice of having to obtain counsel’s opinions by making an ‘‘informed good faith 

belief’’ the touchstone of liability. We fear, based on experience, that this standard 

may be manipulated and does not reflect the sort of reprehensible conduct by the 

infringer that should warrant punitive damages. 

Principles of Equity in Granting Injunctive Relief 

BSA strongly supports the approach taken by the Committee print directing 

courts to do what the law says: balance equities before issuing an injunction. Section 

283 of the current patent statute provides that the courts ‘‘may grant injunctions 

in accordance with the principles of equity to prevent the violation of any right secured by patent.’’

The Federal Circuit has in recent times interpreted very narrowly the ability of 

a district court to consider equitable factors (largely limited to health emergencies) 

when deciding whether or not to grant an injunction. Only weeks ago, the Court 

overturned a district court’s judgment, based on the specific facts of the case, that 

a permanent injunction was not warranted because of the patentee’s demonstrated 

willingness to license the patent.6 Only in cases of public health emergencies or 

well-being has the Court readily considered non-issuance of an injunction. Thus, the 

courts seldom engage in a balance of the equities, and the granting of an injunction 

has become nearly automatic. Moreover, there is no automatic stay of an injunction 

pending appeal. 

Combined, these factors mean that an accused infringer must go into a patent infringement trial prepared for the possibility of an immediate injunction at the end 

of trial. This leverage point is recognized and exploited by patentees who do not actually desire injunctive relief, but use its threat to extract disproportionately high 

payments from defendants. This problem is especially burdensome for vendors of 

23

‘‘system products’’ that, as explained above, may have thousands of patented or patentable features contained within them. A trial on any of those patents threatens 

to shut down the entire product. 

BSA applauds the Subcommittee’s inclusion of a provision reestablishing an incrementally broader consideration of equitable principles than is currently being practiced by the courts. We believe this provision, while certainly not applicable in most 

cases, will be meaningful in a small, but economically significant, set of the most 

abusive patent assertions. 

Burden of Proving Invalidity 

An area not included in the Committee print, but which BSA thinks requires attention, is the burden of proving invalidity. Under current law, an issued patent is 

presumed valid and any party challenging validity must overcome this presumption 

with ‘‘clear and convincing evidence.’’ This is true even when it is clear that the patent examiner did not have an opportunity to consider all of the prior art that forms 

the basis for a later validity challenge. To address this issue, we recommend that 

the evidentiary burden for challenging the validity of a patent based in whole or 

in part on information or references not considered during examination should be 

lowered to ‘‘preponderance of the evidence,’’ to reflect the fact that the validity of 

the patent was not in fact fully vetted relative to those prior art references. 

Disincentives to Domestic R&D 

The Committee print correctly recognizes that Section 271(f), as interpreted by 

the Courts, presents potentially serious problems for developers of software, and indeed for developers of any information-based products. BSA supports the changes 

proposed in the Committee print on this issue. Given marketplace developments 

since the enactment of section 271(f), the Committee may want to consider repealing 

this provision. 

In 1984, Congress added Section 271(f) to prevent companies from manufacturing 

components of an infringing product in the United States, and exporting those parts 

for assembly abroad to avoid the claim of infringement. Today, the provision has 

been interpreted by the courts in ways that deter domestic development of software. 

Under recent court holdings, a copy of a computer program made outside the United 

States may in some cases nonetheless be included as part of United States damages 

if the software is made from a ‘‘master disk’’ developed in the United States. If the 

software had been developed outside the US, this rule would not apply. The same 

issue may exist with respect to development of other information-based products 

that are made wholly outside the United States based on information developed in 

the United States. We believe this application of the law creates an unintended incentive to move valuable development activity outside the US, and should be clarified or removed from the law. 

Harmonization 

The Committee print includes a number of provisions harmonizing United States 

patent law with a worldwide first-to-file patent system. BSA fully supports this goal: 

BSA member companies derive a substantial portion of their revenues from overseas 

and hold numerous patents in all major jurisdictions. 

We fear, however, that the provisions in the Committee print could have unintended consequences by making changes that go beyond what is needed to normalize 

our laws with those of other countries. Specifically, by reformulating the current law 

on the conditions for patentability, these changes would call in to question decades 

of established case law on prior art. This change could spur unnecessary litigation 

to reformulate standards of prior art. 

Specifically, by shifting away from the current categories of prior art—especially 

subject matter that was used or offered for sale—the provision included in the print 

risks the possibility that subject matter already being used and commercialized 

within the United States will nonetheless be patentable by a third party. The injection of an inquiry whether subject matter was ‘‘readily and effectively accessible’’

contemplates that subject matter that is harder to access, even if widely deployed, 

will be unavailable as prior art. This could result in an unintended new gamesmanship of patenting concepts already in deployment commercially and may significantly increase the number of patent filings for all manner of inventions. We question whether this is a step that should be taken. 

Instead, BSA encourages Congress to take an approach towards harmonization 

that brings the United States into alignment with other countries’ laws without unnecessarily also diminishing the scope of prior art by excluding materials that may 

have been difficult to access, but were nonetheless publicly available. 

24

Duty of Candor 

The Committee print includes a provision significantly reducing the effect of a 

patent applicant’s violating her duty of candor in front of the Patent and Trademark 

Office. We question whether this provision is appropriate, particularly in this era 

of increased emphasis on candor and full disclosure in dealing with governmental 

agencies and public institutions. 

The purpose of the duty of candor is to compel a patent applicant to provide the 

Patent and Trademark Office with as much information known to the applicant as 

may be helpful to the examiner. The related litigation defense of inequitable conduct 

asks whether the patentee effectively commit fraud on the Patent and Trademark 

Office by intentionally withholding such key information that the PTO’s ability to 

examine the patent was compromised. This current structure provides a powerful 

incentive for applicants to act with utmost candor in front of the Patent and Trademark Office. 

The changes included in the Committee print risk undermining this incentive in 

a number of ways. First, by moving to a ‘‘but for’’ test for inequitable conduct, the 

proposed law would lower the incentive for an applicant to err on the side of overinclusion in disclosure, thus potentially depriving the patent examiner of information that could be material to examination. In addition, the changes to existing law 

on who can be held liable for inequitable conduct seem to create the risk that parties could participate in a fraud on the Patent and Trademark Office, but avoid any 

adverse consequences of such behavior by transferring the patent to a third party. 

Finally, by removing the issue of breach of duty of candor from the court and placing it with the Patent and Trademark Office, the proposal risks further overloading 

the PTO. 

We do believe, however, that it could be efficient and useful to bifurcate the issue 

of inequitable conduct in litigation and present that issue solely to a court after liability has been adjudicated. 

CONCLUSION

Thank you again for the opportunity to provide input on the critical topic of patent quality and improvement. BSA strongly supports your efforts and commends 

you for the excellent Committee print. We look forward to working with you in your 

efforts to improve the United States patent system and ensure that it continues to 

serve this country’s great interest in promoting innovation and providing the public 

with the benefit of that innovation.

Mr. SMITH. Mr. Kushan? 

TESTIMONY OF JEFFREY P. KUSHAN, SIDLEY, AUSTIN BROWN 

AND WOOD, LLP, ON BEHALF OF GENENTECH 

Mr. KUSHAN. Thank you, Mr. Chairman. I’m appearing today on 

behalf of Genentech, a biotech company based in south San Francisco, California. 

Genentech appreciates the opportunity to provide its views to you 

on the issue of patent law reform. 

We commend you, Mr. Chairman, along with Mr. Berman and 

Ms. Lofgren, and Mr. Boucher and your colleagues for starting this 

important legislative discussion. We also want to thank the Committee leadership, in particular Representatives Sensenbrenner 

and Conyers for their significant efforts to curb the diversion of 

patent fees. 

Patent reform is a timely and important issue. Like many other 

companies, the health of the patent system is a critically important 

issue for Genentech. 

To appreciate Genentech’s perspective on the patent system, you 

have to understand the challenges of developing a new biotech 

drug. 

Biotech drug development is an extremely risky, expensive, and 

long process. Genentech scientists must not only discover a new 

25

viable drug candidate, but must spend many years testing the drug 

to prove it’s safe and effective. 

It must also figure out how to produce the drug in large volumes, 

while preserving the safety and effectiveness of that drug. The time 

it takes from discovery to market entry routinely exceeds a decade 

or more. 

A good recent example is Genentech’s Avastin product. This 

product was—the product development effort for this product started in 1989. Avastin was approved in 2004. That’s 15 years of effort 

and hundreds of millions of dollars of cost to getting this product 

to market. And it wasn’t until the FDA approved this product was 

it clear that this product would be a commercial success. 

The length of and the unpredictable nature of the drug development process raises important patent implications for Genentech. 

First, the effective patent life for a biotech drug is, as a consequence of this long development process, very short. 

Second, it is very challenging to ensure that the patents filed in 

year one of the drug development process are going to protect the 

drug product when it finally reaches the market 10 or 15 years 

later. 

The patent system plays a critically important role for the American public as well. Patients are the direct beneficiaries of the patent system. It is the patent system that makes it commercially feasible for companies like Genentech to discover, develop, and bring 

to market new drugs to treat unmet medical needs. It should not 

be surprising that Genentech is a frequent user of the patent system. They file hundreds of applications every year, and have been 

granted nearly a thousand U.S. patents. 

Genentech also has its fair share of patent litigation, both offensive and defensive. Genentech, thus, has a perspective of a company that has to protect its innovations and a company that must 

frequently resolve conflicts over patents owned by others. 

In general terms, Genentech sees three significant challenges to 

the health of the patent system. 

First, the overall health of the patent system depends on the 

PTO issuing valid patents in a timely fashion. If a mistake is made 

by the PTO, it cost a company accused of an infringement millions 

of dollars to fix that mistake. 

Second invalid patents are not the only problem. Delays in patents issuing is a significant problem, and is very disruptive in the 

market. And it’s disruptive to the process of planning for development. 

The PTO’s ability to improve its examination process is hindered 

by the ongoing problem of fee diversion. It’s also hindered by the 

structure of the current fee schedule and by certain PTO practices, 

such as the restriction. 

In the absence of an effective—the second major problem we see 

challenging the health of the patent system is the absence of an effective administrative procedure to review the validity of a patent. 

The only practical option today for challenging the validity of a 

patent is litigation in the Federal courts. That, as I said, can cost 

several million dollars. The other members of the panel have also 

observed this. 

26

An effective administrative procedure for reviewing patent validity is long overdue. Genentech believes the system proposed in the 

committee print is a good start. However, several changes are 

needed to make this a more balanced and effective procedure, and 

we invite the Subcommittee to review our written testimony which 

sets out a number of the improvements we think are appropriate. 

I’ll just briefly note two significant ones. 

First, the way that post-grant oppositions would be started and 

conducted as set forth in the committee print must be changed. 

The proposed system would permit an opposer to start a proceeding simply by paying a fee. The patent owner would then have 

to convince the Patent Office to not to conduct the proceeding because it’s meritless. This approach will induce far too many unjustified opposition proceedings. It also unfairly puts the burden on 

the patent owner to stop the proceeding instead of putting the burden on the opposer to justify starting the proceeding. 

The second concern concerns the authority the PTO should have 

to regulate the conduct of parties in the proceeding. 

We believe the PTO should regulate the conduct of parties using 

the same authority that courts use to regulate the conduct of parties in litigation. Events that occurred during the opposition proceeding should not be capable of rendering a patent unenforceable, 

but if warranted should be addressed by conventional sanctions. 

The third factor adversely affecting the health of the patent system is the inefficient and unpredictable process of resolving patent 

disputes through litigation in the Federal courts. We acknowledge 

that the Federal Circuit has improved much in the area of patent 

standards and clarity, but there’s a lot left to be done. 

As a result, it’s very difficult to predict if a patent will be held 

valid, infringed, or enforceable. It’s also impossible to predict what 

the damage liability would be when you are found to infringe a patent. 

The uncertainty in today’s litigation environment unfortunately 

is being exploited by many to distort the value of patents. In this 

respect, we’d strongly support reforms to three areas. Willful infringement. We strongly support reforms to that topic. We believe 

more must be done to regulate how that type of pleading can be 

raised in litigation, because there are litigation abuses possible. 

Second, we think that reforms are need to the inequitable conduct doctrine to adopt a much more objective standard. 

The last point I’d like to make if you would give me 15 to 20 seconds is to address the issue of injunctive relief. And I apologize for 

my inefficiencies compared to the first two sectors. 

Mr. SMITH. That’s okay. We’ll grant you that extra 30 seconds. 

Mr. KUSHAN. Thank you. The specific issue raised in the committee print is who bears the burden of justifying the grant of an 

injunction when a patent has been proven valid and infringed. 

Genentech sees no reason why the burden should not be placed on 

the shoulders of a proven infringer of a valid U.S. patent to prove 

why an injunction should not issue. That change that’s being proposed would undo more than a century of precedent and a very 

sound public policy reason, which puts the burden on the infringer 

to justify why there is not going to be an injunction. We’re talking, 

as has been mentioned before, about permanent injunctions. We 

27

are not insensitive to the concerns about litigation problems, and 

we’re willing to work with the Committee to explore options to address the abuse that is possible through that litigation environment that exists today. 

And finally, I’ll just indicate we do support moving to a first invent system, and we’re willing to work with the Committee to improve the language to do that in the committee print. Thank you. 

[The prepared statement of Mr. Kushan follows:]

PREPARED STATEMENT OF JEFFREY P. KUSHAN

Mr. Chairman and distinguished Members of the Subcommittee, 

My name is Jeff Kushan. I am a partner in the Washington office of the law firm 

of Sidley Austin Brown and Wood, LLP. I am also a registered patent attorney, and 

specialize in the areas of biotechnology, pharmaceuticals and software-related inventions. 

Today, I have the privilege of offering testimony on behalf of Genentech, Inc. 

Genentech was the first biotechnology company, founded in 1976, in South San 

Francisco, California. Genentech’s mission is to be the leading biotechnology company, using human genetic information to discover, develop, manufacture and commercialize biotherapeutics that address significant unmet medical needs. Genentech 

presently markets 13 products, with more than 30 more in development. 

Genentech very much appreciates the opportunity to provide testimony to the 

Subcommittee today on the topic of patent law reform. We commend you, Mr. Chairman, for your initiative in opening this legislative dialogue on the topic of patent 

law reform. We also want to recognize the past efforts of your colleagues on this 

topic, including Mr. Berman and Ms. Lofgren. 

Genentech is a company that was founded on innovation. It should come as no 

surprise that patent protection and the health of the patent system are thus crucially important to Genentech. The availability of patent protection for its inventions 

is an important consideration to Genentech in its research and product development 

activities. Assured patent exclusivity encourages the investment of hundreds of millions of dollars each year on efforts to research and develop new biotherapeutics. 

Genentech also recognizes that the patent system faces several serious challenges. 

First, the Patent and Trademark Office (PTO) faces serious challenges in performing its statutory function of issuing valid patents in a timely fashion. The primary cause of this problem is the ongoing problem of fee diversion. The unpredictable nature of patent fee diversion has made it difficult for the PTO to engage in 

the long-term restructuring of its operations that is necessary to make the patent 

examination process more reliable and efficient. We cannot stress more emphatically 

that the most important legislative deliverable for Congress in the effort to improve 

the patent system is to ensure predictable and adequate funding for PTO operations. 

Second, the current model used by the PTO in conducting examination of patent 

applications needs to be seriously reevaluated. Presently, every application that is 

filed today is placed into the queue for examination. This requires the PTO to budget for and engage in an unnecessary examination of many thousands of patent applications. The United States is unique in the world in this respect—every other 

major office conducts examination of applications only upon request and payment 

of a fee. Exacerbating this problem is the approach the PTO employs in ‘‘restricting’’

patent applications. The PTO requires applicants to file additional patent applications when it believes a first application has claimed more than one patentably distinct invention. The PTO examiners, however, use an exceedingly narrow and strict 

standard for restriction, which has led to a multiplicity of unnecessary filings in the 

biotechnology area. These extra applications make coherent and efficient examination of inventions very difficult, and contribute to an artificial backlog of 

unexamined applications. Restructuring the patent examination process to address 

these two problems would result in examiners having more time to examine each 

invention, and would thus significantly improve patent quality. We encourage Congress to pursue such legislation in conjunction with the current legislative effort. 

Finally, the process of resolving disputes over patents through litigation in the 

Federal Courts produces a high degree of uncertainty for businesses such as 

Genentech. Although the Court of Appeals for the Federal Circuit has done much 

over the years to clarify the requirements and standards for patentable inventions, 

there still remains a significant amount of uncertainty in how those requirements 

and standards will be applied to biotechnology inventions by trial courts and juries. 

28

As a result, it remains difficult to predict if a patent will be held valid, if it will 

be infringed or if it will be held unenforceable. Similarly, it is often impossible to 

predict what damages a company will face if it is found to infringe a patent. The 

uncertainty in today’s patent litigation environment, unfortunately, is being exploited by certain patent owners to distort the value of their patent rights and to 

undermine the legitimate use of patents. Reforms to the patent system—both as to 

the standards governing patent validity and as to outcomes and consequences in litigation—are necessary and timely. 

Your hearing today provides a timely opportunity to engage on the issue of legislative reform to our patent system. We welcome your initiative in starting this discussion, and believe it will yield fruitful results. 

The draft committee print proposes reforms across a broad spectrum of elements 

of the patent system. Our comments today will focus on those areas of greatest importance to Genentech; namely, proposed reforms to the rights and remedies provided with the grant of a patent, standards governing patentability, reforms to the 

inequitable conduct doctrine, and post-grant opposition procedures. 

In general, Genentech supports reforms in many of the areas addressed in the 

Committee Print. However, certain proposals, particularly those that could operate 

to deprive the owner of a valid U.S. patent of its ability to prevent the unauthorized 

use of a patented invention, would seriously alter the nature of the patent right. 

Genentech opposes reforms of this nature, as they would undermine the foundation 

upon which many of this company’s business decisions have been based; namely, the 

guarantee of exclusivity. 

PROPOSED REFORMS TO THE STANDARDS GOVERNING INJUNCTIVE RELIEF

Section seven of the Committee Print would fundamentally alter the nature of a 

United States patent by altering the standards governing entitlement to permanent 

injunctive relief under section 283. While Genentech is sympathetic to the problems 

associated with the unpredictability of patent litigation, it cannot support legislation 

that would call into question the basic premise under current law that infringement 

of a valid patent can be enjoined. 

Section 7 begins by incorporating into section 283 in express terms the standard 

governing entitlement of any litigant to injunctive relief. However, section seven 

then would prohibit a court from presuming that there will be irreparable harm to 

the patent owner as a consequence of a finding of infringement of the patent. The 

proposed legislation also directs courts to consider evidence that would support or 

negate any of the equitable factors governing the award of injunctive relief, including whether or not the patent owner makes use of the invention. 

Section seven of the Committee Print thus would overrule the well-established 

and long-standing precedent that the owner of a patent is presumed to be irreparably harmed by an infringement of a valid United States patent. The existing presumption is based on sound public policy reasons, and we see no justification for 

altering this existing precedent. The reason is simple—the value of a patent derives 

from its status as a property right. There is nothing more essential to the character 

of the patent as a property right than its capacity to prevent unauthorized use of 

the patented invention. 

More than a century ago, our courts recognized that the capacity of a patent to 

prevent the unauthorized use of the patented invention was the fundamental attribute that gives the patent its economic value. This premise has been repeatedly 

affirmed by courts since that time. See, for example, Polymer Technologies, Inc v. 

Bridwell, 103 F.3d 970 (Fed. Cir. 1996) (‘‘The right to exclude others from a specific 

market, no matter how large or small that market, is an essential element of the 

patent right’’). The recognition that the right to exclude is the essential attribute 

of the patent right gave rise to the legal presumption that is a foundation of the 

U.S. patent system; namely, that the owner of a valid United States patent is irreparably harmed by an infringement of that valid patent, in the absence of any further evidence. There is no sound reason for not continuing to rely on this premise. 

Genentech also sees no reason why the burden should not be placed on the shoulders of the infringer of a valid United States patent to show why that infringer 

should not be enjoined from its continued infringement of the patent. 

The specific issue implicated by the proposed modifications to section 283 is who 

bears the burden of putting forward evidence to establish that an injunction is appropriate once the patent has been fully adjudicated and found to be valid and infringed. The standard thus speaks to valid patents, not to patents that are of questionable validity. It also concerns the question of permanent injunctive relief, not 

preliminary injunctions that may be awarded pending resolution of the litigation 

over whether the patent is valid or infringed. As a standard governing the burdens 

29

that are to be applied with respect to valid and infringed patents, it is appropriate 

to maintain the standard in the form it exists today. Genentech believes the law 

appropriately places the burden on the shoulders of the infringer to establish why 

an injunction should not be granted. Whether that infringer is able to do so or not 

will turn on the facts and circumstances of each case. 

Genentech is not insensitive to the concerns expressed by many over the disruption of ongoing business activities as a consequence of the grant of a permanent injunction. Genentech certainly has its fair share of defensive patent litigation. The 

question of permanent injunctive relief, however, is one that is best left to the courts 

upon the body of precedent that exists today. Genentech remains open, of course, 

to measures that remove some of the uncertainty of patent litigation, or which address the truly unique situations faced by those who advocate for change of the law. 

In this respect, Genentech encourages the Congress to focus on the specific and 

unique concerns being expressed that have led to this proposal. For example, one 

scenario that has been identified is the potential grant of a permanent injunction 

in favor of a patent owner that has taken no steps to bring a competing product 

to market, or who has extensively licensed the patent on a non-exclusive basis to 

other parties, and who can be fully compensated through money damages. 

Genentech believes courts presently do consider such factors in determining whether 

to award a permanent injunction. Similarly, some concerns arise from the situation 

of a company facing the requirement to immediately comply with an injunction 

issued by a District court. In many instances, courts will stay the effect of the injunction pending appeal of the judgment on validity or infringement, which provides 

the infringer the time needed to alter its product or take other steps. 

The most significant concern, however, appears to be the use by a party that is 

not in the market of the accused infringer of the threat of an injunction solely for 

the purpose of increasing the risk of liability to a manufacturer, and to increase the 

amount of a potential settlement. In that setting, significant questions of validity 

or enforceability of the patent often exist. These problems have led to more refined 

jurisprudence addressing issues such as prosecution laches, enhanced obligations for 

written description and the like. Certainly, if a patent owner elects to seek injunctive relief against an accused infringer, and causes harm by such an assertion, that 

party should face some consequences if the patent is shown to be invalid, unenforceable or not infringed. One approach may be to simply alter the amount of discretion 

given to courts to award fees and costs incurred in defending against such a claim, 

and to ensure that such liability extends to all parties that stand to gain economically from the infringement action. Congress also may wish to consider legislative 

solutions that specifically address the unique circumstances faced by specific industries, but which will leave intact the well-established body of law that ensures that 

a patent owner can rely on the presumption of irreparable harm stemming from 

proven infringement of a valid U.S. patent to establish entitlement to permanent 

injunctive relief. Genentech believes such approaches may prove to be a more fruitful avenue in deliberations for reform than the approach taken in section seven of 

the Committee Print. 

PROPOSED REFORMS TO THE STANDARD FOR WILLFUL INFRINGEMENT

In contrast to its views on proposals that would alter the standard for injunctive 

relief, Genentech does support reforms to the law governing the doctrine of willful 

infringement. The Committee Print proposes to alter the standard by identifying 

three specific types of actions as being indicative of situations of ‘‘willful’’ infringement of a patent that are sufficient to justify the award of enhanced damages. 

Genentech believes that the articulation of the three scenarios found in the legislation is a sound basis for proceeding. Genentech, however, believes that these scenarios should be the only situations that warrant a finding of ‘‘willful’’ infringement. 

Part of the problem with the existing standard is that it is difficult to ascertain 

what will constitute willful infringement under present law. Making a more specific 

and explicit definition of those acts that will constitute willful infringement will help 

address part of the problem. Genentech also supports the approach in proposed legislation that precludes a court from drawing an inference of willful infringement 

from the absence of opinion of counsel, and that willful infringement may not be 

established solely upon proof of knowledge of the patent by the defendant prior to 

suit. 

The changes proposed by section six of the Committee Print, however, do not go 

far enough. A significant problem with the existing willful infringement doctrine is 

that parties often claim willful infringement simply as a litigation tactic. The claim 

then manifests itself in demands for production of opinions of counsel as to the validity or infringement of the patent, and efforts to place into evidence information 

30

that is unnecessary and irrelevant to the question of infringement. Genentech believes that in addition to establishing more objectively defined standards for willful 

infringement, three additional measures are needed. 

First, the law should preclude a court from addressing the question of willful infringement until after a party had been found to have infringed the patent. Taking 

up the question of willfulness only after a party has been found in a final 

unappealable judgment to have infringed the patent will go far in helping to curb 

some of the abuses that exist in today’s modern litigation environment. Second, the 

question of willfulness should be addressed only by the court, and not by a jury. 

Finally, the law should preclude a party from attempting to obtain discovery of opinions of counsel incidental to a claim of willful infringement until after the court has 

first determined that infringement was established. With these additional changes, 

Genentech can support the reforms to willful infringement being proposed in section 

6 of the Committee Print. 

REFORMS TO PRECLUDE LATE CLAIMING OF INVENTIONS

Section 8 of the Committee Print would treat as unpatentable certain types of 

claims that are presented at a certain point in time. The legislation appears to be 

focused on the problem of parties that present broad claims long after an initial application has been filed, with the intent of capturing the intervening market entry 

by a competitor who believed that there would not be a patent obstacle. While 

Genentech is sympathetic to some of the concerns raised with respect to late-presented claims, it does not believe the proposed legislation will provide a practical 

solution, and instead will create significant problems for legitimate patent applicants. 

Genentech notes that under existing PTO practices, biotechnology patent applicants are often subjected to extensive restriction requirements. This means that for 

each invention that is pursued in a first application, Genentech often must file dozens of additional applications to obtain meaningful and sufficient claim coverage. 

Under existing law (35 U.S.C. 121), Genentech has the right to defer the filing of 

these additional applications. If the law required the immediate filing of dozens of 

voluntary divisional applications, as proposed in the Committee Print as a solution 

to the late-claiming problem, it would place unjustified additional expenses on biotechnology applicants such as Genentech. More significantly, in many cases, new 

questions of law or practice arise during the examination of an application. These 

new standards not only cause applications to undergo a protracted examination 

process, they also clarify what types of claims a patent applicant may pursue. 

The proposed solution also suffers from the practical problem of determining when 

a claim is ‘‘broader’’ than a claim that was published, issued or presented in a priority application. In most instances, claims will be both broader and narrower than 

previously presented claims. Forcing the patent examiner, and then the courts, to 

determine if sets of claims are broader or narrower than earlier filed claims will 

present immense challenges. Moreover, while many other provisions in the legislation would go far in eliminating uncertainty in the standards governing patentability, this measure would have precisely the opposite effect. 

For these reasons, Genentech generally opposes the approach reflected in section 

8 of the Committee Print, and encourages the Committee to explore other ways of 

curbing the problem of late claiming. Genentech also notes that courts are taking 

steps to address late-claiming situations. See, e.g., Symbol Technologies v. Lemelson,

277 F.3d 1361, 161 Ed. Law Rep. 57, 61 U.S.P.Q.2d 1515 (Fed. Cir. 2002). 

REFORMS TO THE STANDARDS GOVERNING ENFORCEABILITY OF PATENTS

Section five of the Committee Print proposes to reform the doctrine governing inequitable conduct. Genentech strongly supports legislative reforms in this area. 

Section 282 provides that a party accused of infringement may raise a defense 

that the patent is unenforceable. Unenforceability is a defense distinct from invalidity of the patent or from non-infringement. It operates to preclude the patent 

owner from enforcing a patent that is otherwise meritorious—meaning that the invention claimed in the patent is novel, not obvious, useful, and adequately described. It has evolved over the years from several equitable doctrines, the most 

dominant of which is the assertion by a defendant that the patent is unenforceable 

because the patent owner committed a fraud on the PTO in the process of obtaining 

the patent. From this legitimate foundation, the doctrine of ‘‘inequitable conduct’’

has arisen and flourished to an inappropriate degree. 

As several courts have observed, claims of inequitable conduct have become what 

is justifiably labeled as a ‘‘plague’’ on modern patent litigation. Inequitable conduct 

is routinely raised in patent cases, and often is based on the flimsiest of assertions. 

31

The reason is simple—by pursuing this defense, a patent on an invention that is 

otherwise meritorious can be nullified by making it impossible to enforce. 

The inequitable conduct doctrine, however, has created significant problems for 

patent applicants and for the PTO during the examination of applications. The most 

significant is that communications between the patent applicant and the patent examiner are now a contorted and restricted dialogue, primarily because of the risk 

that these communications made honestly and in good faith will be turned into a 

story of inequitable conduct when the patents are put into litigation in the future. 

Concerns about creating a foundation for a claim of inequitable conduct may cause 

applicants to be overly inclusive in citing information to the PTO. This often results 

in situations where the patent examiner is given an immense amount of information 

solely for the purpose of foreclosing a claim that the applicant was concealing information from the examiner, thereby imposing unnecessary burdens on the patent examination process. Moreover, applicants can be put into a ‘‘Catch 22’’ situation in 

that they can later be accused of ‘‘burying’’ a reference if they cite many references 

to the PTO to satisfy their Rule 56 obligation as defined by the courts. 

Plainly, reforms to this doctrine are necessary. In general terms, Genentech would 

support reforms that provide that a party could not raise an assertion of inequitable 

conduct in respect of a patent unless at least one claim of the patent were shown 

to be invalid on the basis of the disputed prior art or information. Such a change 

would establish a more objective threshold finding of significance for the disputed 

subject matter and would supplant the existing ‘‘materiality’’ standard. Genentech 

would also support retaining the requirement in present law that there be a distinct 

finding of a specific intent of the applicant to mislead the PTO. Such reforms would 

change how parties could raise inequitable conduct assertions in litigation, and 

would reduce the opportunistic uses of such pleadings in litigation. 

Genentech also would support enactment of measures to ensure that patent applicants are forthcoming during the original examination of patent applications. For 

example, Genentech would support measures that provide the PTO or the courts 

with some authority to sanction parties which it had determined had engaged in 

misleading or inappropriate conduct before the PTO. The sanction of unenforceability of the patent is not the only type of sanction that can be employed to ensure 

that parties act with good faith and candor in the PTO. The approach taken in the 

Committee Print reflects the type of authority that may prove useful in this regard, 

although Genentech believes the present language of section 6 can be substantially 

improved. 

Genentech also believes that a more transparent examination process can also be 

pursued in conjunction with these reforms. Genentech notes that the United States 

patent system is structured to deliver reliable results in a cost-effective and timely 

manner. Examination is conducted on an ‘‘ex parte’’ basis—meaning that the PTO 

and the patent applicant are the only participants in the examination process. The 

advent of publication of patent applications prior to grant from the 1999 American 

Inventors Protection Act (AIPA) has shed some light onto ongoing examinations, 

but, fundamentally, the patent examination process remains closed to substantive 

participation by parties other than the patent applicant. 

Practical considerations mandate that this model continue. The PTO, given its resource constraints, simply cannot administer a system that permits third parties to 

intervene in the examination of pending applications. Experiences in other countries 

that do permit substantive intervention in the examination of applications are uniformly negative. These experiences show that in many instances, third parties intervene to simply delay the issuance of a patent, which disrupts business expectations 

of patent applicants and consumes limited patent office resources. Allowing that 

type of public intervention in the examination of pending U.S. applications would 

create immense practical problems, given the volume of applications now pending 

before the PTO, and the limited amount of examination resources that are available. 

However, there is no good basis for not publishing all applications 18 months after 

they have been filed. Publication provides access to the public of the contents of the 

application during the examination process. Genentech thus would support amendments that would mandate 18-month publication of all applications, and which enable third parties to submit information, accompanied with a brief explanation of 

the relevance of the information, on issues implicated during the examination of the 

application. Of course, that right to submit information must not entitle the third 

party to disrupt the examination process, or to formally oppose the grant of the patent. Genentech believes that such safeguards as 18-month publication of all applications and limited third-party submissions during ex parte examination, combined 

with the opportunity of more third-party involvement during post-grant opposition 

proceedings, warrant revisions to the inequitable conduct standards that give rise 

to so many baseless claims today. Such reforms also would place the U.S. more on 

32

par with the practices of other major countries including those that are members 

of the European Patent Convention and Japan. 

REFORMS TO THE STANDARDS OF PATENTABILITY

Sections 2 to 4 of the Committee Print would make substantial changes to portions of title 35 that govern patent eligibility. In principle, Genentech supports the 

approach taken in these sections, with certain exceptions. 

Genentech supports reforms that would implement a ‘‘first inventor to file’’ standard in the U.S. patent system. Such a standard would address what many improperly perceive to be an assured right of a first inventor to obtain a patent. For reasons articulated well by the National Academies of Science in their 2004 report on 

the patent system, the existing ‘‘first to invent’’ standard creates immense challenges for patent applicants and the public, in part, because it requires the incorporation of many subjective criteria for patentability into the patent system. It also 

necessitates inventorship contests, known as interference proceedings, which are expensive, complex and usually result in award of the patent to the first inventor to 

file an application. Given the low frequency of these types of conflicts, the expenses 

associated with them, and the immense record keeping requirements they implicate, 

there is no sound reason for not shifting to a first inventor to file standard. 

The reforms being proposed would retain a requirement that any applicant for a 

United States patent be filed by or on behalf of an inventor of the subject matter 

being claimed. This approach will ensure that the interests of inventors will be effectively protected. Genentech supports these types of safeguards in the patent system. With such a standard, however, conflicts may still arise over entitlement to a 

patent. Section two of the Committee Print would propose to address these conflicts 

through an interference proceeding. Such proceedings, as proposed under a modified 

section 135(a), would be based on ‘‘disputes’’ over who is an inventor. Genentech believes a more precise and specific standard, with specifically articulated outcomes 

of such a proceeding, is needed, rather than what has been proposed for section 

135(a). In particular, a dispute over entitlement of a true inventor to a patent 

should be based on a proof of derivation of the invention by the first party to file 

from the inventor. The proceedings should result either in an entitlement to joint 

and several ownership of the patent in dispute, or in the award of a patent to the 

second inventor that files an application. Genentech is prepared to work with the 

Committee to devise an appropriately focused and limited procedure for resolving 

such disputes. 

The conversion to a first-inventor-to-file patent system necessitates reforms to sections 102 and 103 of the patent statute, among other provisions. The approach 

taken in section two of the Committee Print is a good start toward these reforms. 

A number of specific issues, however, are not satisfactorily addressed in the proposed legislation.

• The revised law should confirm that subject matter in a published patent application or in a patent shall have prior art effect as from the actual or effective filing date of the patent or published application only if that subject matter has been described in a manner that complies with section 112, first paragraph. This will maintain the existing law that provides that the ‘‘secret’’

prior art effect of a patent or published patent application (i.e., for the period 

before the contents of the patent application are publicly known) is to be limited to that subject matter that has been described in a manner sufficient to 

justify the grant of a patent on that subject matter. Revisions to proposed section 102(d) of title 35 are required to give effect to this change.

• The standard for public accessibility of information to qualify that information as prior art should be specifically exemplified using more objectively defined criteria. In particular, Genentech would support revision of proposed 

section 102(c) to incorporate more precise and objective language for the concepts of ‘‘reasonable and effective accessibility’’ of prior art. Genentech also 

believes it will be important to exemplify these concepts in the legislative history of the proposed legislation.

• Genentech supports elimination of the ‘‘best mode’’ requirement of section 

112, first paragraph. This measure has proven unnecessary and unhelpful in 

the patent system, particularly in view of the enhanced obligations on disclosure imposed by modern judicial interpretation of the requirements for written description and enablement under section 112. Genentech encourages the 

Congress to affirm the independent and distinct nature of these two remaining elements of section 112, first paragraph, as part of the legislative history 

explaining the reform that would be made to this provision of title 35.

33

Certain changes being proposed, however, are unnecessary to implement a firstinventor-to-file system. For example, Genentech would oppose amendments to section 101 of title 35, which are unnecessary to give effect to a first-inventor-to-file 

system. Genentech also encourages the Subcommittee to further evaluate all of the 

changes being proposed to ensure that the most efficient path is taken to implementing these reforms. Changes that are not necessary to give effect to the new 

standard should be avoided, particularly when they may disrupt long-established 

concepts and definitions. 

POST-GRANT OPPOSITION PROCEDURES

As we have previously testified before this Subcommittee, Genentech strongly 

supports legislation that would create a cost-effective, vigorous and fair procedure 

to review the validity of issued patents. Our experiences teach us that claims of infringement of invalid patents are increasing, and have the potential for causing significant, unwarranted business disruptions. A cost-effective procedure that allows 

for robust participation by third parties yet is appropriately limited to avoid prejudice and the problems of litigation before a Federal court, would provide immense 

value for patent owners and the public alike. Genentech thus supports the effort of 

the Subcommittee to establish an effective and efficient post-grant opposition procedure, and to revise the inter partes reexamination authority to make that system 

viable. 

As Congress begins its deliberations on section 9 of the Committee Print, it should 

keep certain fundamental principles in mind. First, there is no right of a member 

of the public to retain and enforce an invalid patent. It also is not appropriate to 

permit entities to use the high cost and complexity of patent litigation to forestall 

discovery of the invalidity of a patent. Invalid patents impose an immense and unjustified cost on American businesses, including companies in the biotechnology industry. 

Second, we believe a properly designed system must incorporate safeguards to ensure that it will not be abused by third parties. As noted in our prior testimony, 

the devil is in the details. The challenge is for Congress to create a procedure that 

provides a rigorous and balanced inquiry into the validity of a patent, and to make 

that procedure feasible for the PTO to administer. A system that permits a third 

party to paralyze a patent by initiating an open-ended administrative proceeding 

would seriously undermine the incentives and purpose of our patent system. Likewise, a proceeding that becomes comparable in complexity, burden and cost to litigation in the Federal courts would yield no benefits. 

Finally, a patent review system administered by the PTO must remain focused 

on those issues that the PTO has special expertise in evaluating, and work within 

the practical constraints of an administrative proceeding that is designed to be efficient but thorough. In particular, the system should avoid having the PTO evaluate 

questions of compliance with the ‘‘best mode’’ requirement of 35 U.S.C. § 112, or 

compliance with the duty of disclosure under 37 CFR § 1.56. The system should also 

build on the recognition that the PTO can bring a special technical expertise to independently evaluate scientific and technical questions that bear on patentability. At 

the same time, the PTO is not well-equipped to manage contentious proceedings 

that will turn on critical evidentiary questions. As such, we encourage the Congress 

to incorporate safeguards that take account of these limitations, and to not create 

a system that the PTO is incapable of effectively managing, or which leads to unjustified costs. 

It is appropriate for this Congress to take up the task of devising and implementing an effective post-grant opposition system. Options that exist today—socalled ex parte and inter partes reexamination—do not present a viable alternative 

to litigation in the Federal courts, primarily because these procedures do not provide 

third parties with a fair and balanced degree of participation relative to patent owners. The fact that only a handful of patents have been the subject of inter partes

reexamination proceedings, despite the existence of thousands of eligible patents, is 

a telling indication of the problems with the current system. The absence of a fair 

and efficient administrative procedure to review patent validity makes it possible 

for owners of invalid patents to use the often enormous expense of patent litigation 

to effectively shield invalid patents from challenge. An improperly granted patent 

that cannot be reviewed in a cost-effective manner creates unjustified burdens and 

risks for American companies, including those in the biotechnology industry. 

Genentech believes that the availability of an appropriately structured post-grant 

review system will enhance public confidence in the patent system, and provide the 

public with a much needed administrative alternative for resolving questions of patent validity. The recent reports from the Federal Trade Commission (FTC) and the 

34

National Academies of Science (NAS) reinforce this conclusion. Each organization 

recognizes that the PTO has a special expertise in evaluating certain patentability 

issues, such as anticipation, nonobviousness, enablement, written description and 

utility and that an administrative patent validity review proceeding can be conducted more rapidly than litigation in a Federal court. They correctly find that the 

public would significantly benefit from the availability of a procedure that does not 

present the burden, duration and associated expenses of patent litigation. These organizations also appreciate that any new system should not permit third parties to 

harass patent owners, or initiate groundless attacks on patents. 

Past Congressional efforts to establish a procedure by which the PTO can review 

the validity of an issued patent have been well-intentioned, but have not produced 

a procedure that is viable. The first such system adopted by Congress was the ‘‘ex parte’’ reexamination system, enacted in 1982. In the ex parte reexamination system, 

any person, including the patent owner, may commence a reexamination of any 

issued patent on the basis of a patent or a printed publication that raises a substantial new question of patentability. See, 35 U.S.C. § 302. The ex parte reexamination 

procedure, like original examination, is a closed procedure—only the patent owner 

and the PTO participate substantively in the proceeding. As a result, most third 

parties avoid use of this procedure for commercially significant patents, since it does 

not afford those third parties a meaningful opportunity to participate in the proceeding. 

In 1999, Congress created an enhanced version of reexamination, termed ‘‘inter 

partes’’ reexamination. The inter partes reexamination procedure does provide more 

of an opportunity for third parties to participate in the proceeding. However, due 

to the limitations built into the system, this ‘‘enhanced’’ version of reexamination 

has fallen short of expectations. The limited number of inter partes reexamination 

requests that have been commenced—despite the fact that hundreds of thousands 

of otherwise eligible patents have issued since enactment of the legislation—suggests that the design of this procedure will continue to limit its use by the members 

of the public. The most significant deficiencies of the inter partes reexamination system can be summarized as follows.

• It is not possible to use the procedure to review patentability issues that are 

most commonly encountered in biotechnology patents and applications; namely, compliance with 35 U.S.C. δ§ 101, and 112, first paragraph. It has been 

our experience that issues of compliance with the written description and 

enablement provisions of 35 U.S.C. § 112, first paragraph, and the utility requirement of § 101, frequently are significant inquiries affecting the validity 

of many biotechnology patents and patent applications. Not permitting these 

grounds to be raised in a post-grant review procedure renders the system far 

inferior as an alternative to litigation in a Federal court.

• The law imposes two distinct ‘‘statutory estoppels’’ that in combination make 

the procedure unattractive as an alternative to litigation in a Federal court. 

The first, found in 35 U.S.C. § 315(c), prohibits a requestor from raising in 

a Federal court any issues of validity that ‘‘could have been raised’’ at the 

time of the request for reexamination in view of art known to the requestor. 

This broad estoppel attaches by the mere filing of a request for inter partes

reexamination. The second ‘‘estoppel’’ is found in an uncodified section of the 

AIPA (§ 4607 of the Intellectual Property and Communications Omnibus Reform Act of 1999, as enacted by § 1000(a)(9) of Public Law 106–113), and is 

designed to prohibit a third party who participates in a reexamination proceeding from later contesting the legitimacy of any ‘‘facts’’ determined in the 

proceeding. These statutory estoppel provisions impose an unacceptable price 

on use of the inter partes reexamination procedure in almost all situations.

• The inter partes reexamination system does not permit third parties to use 

certain evidentiary procedures that would ensure that the procedure is sufficiently rigorous. For example, it is not possible to cross-examine expert witnesses used in the proceeding or direct questions to the opposing party.

• Finally, the system cannot be used to review issues of validity involving patents issued on applications filed before November 29, 1999. We note that this 

limitation, in particular, has rendered the system of marginal value to many 

companies in the biotechnology industry, in part because there still remain 

a significant number of biotechnology patent applications pending before the 

PTO that were filed before this date.

These limitations in the inter partes reexamination system have made the procedure 

of marginal value to the public. It simply is not an effective alternative to expensive, 

unpredictable and protracted litigation in the Federal courts. 

35

Genentech thus encourages the Congress to pass legislation now to create a viable, cost-effective, and fairly balanced post-grant administrative patent review procedure. The approach set forth in section nine of the Committee is a good starting 

point, but several important variables need to be revised to make that system acceptable.

• Threshold Showing to Initiate Procedure—Genentech believes that an opposition system should require any party wishing to commence a proceeding to 

provide a cogent and well-supported showing that at least one claim in the 

patent is invalid, and require the PTO to make an independent determination 

that the showing meets a threshold level of question as to the validity of one 

or more claims in the patent. If the initial showing is not sufficient, the Office 

should not commence the proceeding. Genentech is flexible as to the specific 

standard employed to make this assessment. One possible standard is that 

the claim is ‘‘prima facie’’ invalid—meaning that, assuming the cited evidence 

is accepted as true, the claim would be invalid. Other standards could be employed as an alternative to the prima facie standard. The approach taken in 

the legislation, however, is not viable. It would permit an opposer to commence an opposition upon any showing. The burden would then fall to the 

patent owner to prove that the opposition proceeding is groundless. 

Genentech believes this ‘‘initial proof’’ requirement is an important part of 

any post-grant review procedure that could result in invalidation of one or 

more claims of a patent. Without this initial determination, patent owners 

could be subjected to groundless challenges to their patents.

• Estoppel. Participation in a post-grant review system must not create any 

barrier for the participants to litigate patent validity on issues that were not 

actually raised and addressed in the post-grant review proceeding before the 

PTO. While Genentech believes Congress should not include express estoppel 

provisions in the post-grant review legislation, if included, those provisions 

should not be comparable to the codified and uncodified estoppel provisions 

applicable to inter partes reexamination proceedings. Instead, they should 

apply only to those issues actually addressed in the opposition proceeding, 

and which were necessary to the final determination of the Office.

• Time Limits to Initiate and Conclude Proceeding. A third party should be allowed to initiate a post-grant review proceeding provided it has made an appropriate preliminary showing only within a fixed period following issuance 

of the patent. In our view, the optimal period is nine months. Genentech believes a limited authority to commence an opposition proceeding if the patent 

owner consents may also merit consideration, if sufficient safeguards against 

‘‘coerced’’ consent can be devised. To be viable, the post-grant proceeding must 

be concluded within a reasonable period, namely, 12 to 18 months. The legislation should confirm that this deadline will be respected by the PTO.

• Applicable to Any Patent that Can Be Enforced. The system should permit review of any patent that is capable of being enforced, subject to the threshold 

showings and limitations noted above.

• Limited Additional Evidentiary Procedures. Genentech believes a viable postgrant review procedure should permit use of evidentiary procedures that will 

provide a more rigorous review of issues pertinent to the validity of a patent 

than are permitted under the current inter partes reexamination authority. 

At the same time, we recognize that if all the evidentiary procedures available in litigation before a Federal Court were allowed to be used in a postgrant review procedure, no benefits would be realized from using the PTObased procedure. As a result, Genentech believes it would be appropriate to 

make available only certain limited additional procedures in a post-grant review procedure; namely, the right to cross-examine a witness who offers testimony in the proceeding, and, if the presiding authority finds it appropriate, 

limited requests for admissions and an opportunity for an oral hearing. Other 

measures, however, should be expressly prohibited in the law. In particular, 

parties to a post-grant proceeding should not be subject to document production, or forced to produce fact witnesses for depositions. Such restrictions are 

appropriate and will not undermine the effectiveness of the procedure. Proposed section 328 should thus be amended to foreclose discovery other than 

those types enumerated above.

• Prohibit inequitable conduct challenges based on actions of parties during 

post-grant proceedings. The inequitable conduct doctrine operates to ensure 

that patent applicants during ex parte examination of their applications are 

held to a higher standard of dealing with the PTO. A party that does not 

36

meet his or her duty of disclosure to the Office can cause that party’s patent 

to be held unenforceable. The reason for this enhanced duty of disclosure is 

that the ex parte examination procedure is closed and the public cannot participate. Unlike ex parte examination, however, post-grant review procedures 

being proposed in section 9 of the Committee Print would be public and would 

include the active participation of one or more parties opposed to the patent 

owner. These factors eliminate the need for any enhanced disclosure standards comparable those imposed during original examination. Moreover, there 

is no comparable sanction that can be imposed on third parties in such a proceeding (i.e., those parties will be free to litigate infringement, enforcement 

and invalidity in the future largely unfettered by their participation in the 

proceeding). In view of this, Genentech believes the legislation should impose 

identical obligations and responsibilities on parties to an opposition proceeding. This means, in part, that the legislation should include a provision 

which holds that a patent may not be held unenforceable due to those events 

that arise during the opposition proceeding. Such a provision should also confirm that if the PTO finds that one party has made a misrepresentation, it 

should have the authority to take actions to sanction that party appropriately. 

Where such misrepresentations are discovered after the patent emerges from 

the proceeding, courts may give due consideration to the actions of the party, 

but should not be allowed to hold the patent unenforceable.

Genentech stands ready to work with the Committee to improve section 9 of the 

Committee Print to create a well-structured and effective post-grant opposition procedure. 

CONCLUSION

Genentech thanks the subcommittee for the opportunity to present its views on 

the topic of patent reform. As a significant user of the patent system, Genentech 

believes it is desirable to pursue legislative reform to improve this critically important system. We encourage Congress to work with all sectors of the patent community to ensure that the best package of reforms can be pursued and enacted into 

law.

Mr. SMITH. Thank you, Mr. Kushan. 

Mr. LaFuze. 

TESTIMONY OF WILLIAM L. LaFUZE, PARTNER, VINSON & ELKINS, LLP, AND CHAIR, SECTION OF INTELLECTUAL PROPERTY LAW, AMERICAN BAR ASSOCIATION, ON BEHALF OF 

THE AMERICAN BAR ASSOCIATION AND THE ABA SECTION 

OF INTELLECTUAL PROPERTY LAW 

Mr. LAFUZE. Thank you, Chairman Smith and Members of the 

Subcommittee, and thank you for this opportunity to testify on behalf of the American Bar Association and that Association’s Section 

of Intellectual Property Law. 

I currently serve as the chair of the ABA Section of Intellectual 

Property Law. The views that I’m going to express here today on 

awarding a patent to the first inventor to file have been adopted 

as ABA policy, and, therefore, represent the views of the entire 

400,000 member Association. 

Views expressed on other issues have not been approved by the 

ABA and are, therefore, those of the Section of Intellectual Property standing alone. 

At the outset, it’s important that you note that our members represent a diverse cross section of interests. Our members are attorneys who represent universities, individual inventors, small businesses, and large businesses. Our members are hired to assert patents against infringers. Our members are hired to defend infringers 

against such claims. 

37

Our members are typically on both sides of any patent license 

negotiation, patent dispute, or patent litigation. Given that our 

members represent virtually everyone impacted by the patent system, I offer my testimony today as representing really the best interests of the United States patent system, and given the importance to our Nation, the best interests of this country. 

I would like to comment briefly on two distinct areas of particular importance to the continued success of the U.S. patent system. 

One area relates to the capabilities of the United States Patent 

and Trademark Office; the second relates to substantive patent 

law. 

As to the first topic, the U.S. PTO must have the financial and 

human resources needed for it to undertake its crucial role effectively and efficiently. The ABA IPL Section appears here today to 

endorse major reforms to the patent system. These reforms will impact the operation of the U.S. PTO. These reforms, if enacted, will 

require the U.S. PTO to perform expanded duties and responsibilities in a timely way. It will need to do so with a high level of accuracy. Unless its resources are sustained at adequate levels, many 

proposed reforms, even though well designed could be frustrated. 

While the committee print does not address U.S. PTO capabilities, its proposed reforms will underscore the urgent need to address this topic. 

Let me now turn to the second topic, substantive patent law. 

In February of this year, the ABA took the position that the 

United States should now move from its current patent law, the 

first to invent system, which is based on proofs of dates of invention, to a first inventor to file principle. 

The position of the ABA is two-pronged on the subject of first inventor to file reforms, with the first prong calling for adoption of 

the principles as domestic law and the second advocating its incorporation into international harmonization agreements. Let me 

briefly outline why the Association took this important step. 

The existing patent law, which is best described as a proof of invention date system, is unacceptably expensive, complicated, and 

unpredictable. The U.S. patent law today requires that rival inventors fight for the right to patent an invention in a so-called patent 

interference. An interference fight proceeds at enormous expense 

with prolonged uncertainty and little predictability as to the outcome. 

Recent commentators have confirmed the adverse impact of patent interferences. 

Over the last 20 years, independent inventors have lost more of 

the interferences than they have won. As a group independent inventors, despite having invested multi millions of dollars in the 

patent interference system at a cost of about $300,000 per interference have fared worse than they would have achieved under a 

first inventor to file system. 

We believe that moving U.S. patent law to a first inventor to file 

system should be the centerpiece of any patent reform effort. Indeed, as we outline in our statement, it will facilitate and make 

more effective other important reforms. 

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On issues other than first to file, the section offers the following 

proposals that appear in the committee print. 

First, limit the enforceability defense based on inequitable conduct to a but for standard and do not allow this defense to affect 

otherwise valid patent claims. In this respect, we differ from the 

others on the panel. 

Establish a more prompt and cost effective means for correcting 

defects and issued patents through a meaningful post-grant opposition proceeding that addresses most issues of patent validity implicated by such defects. 

And third publish all applications at 18 months. The publication 

of all applications would enhance certainty for the inventors and 

the public as to the identity of prior art. 

Four, limited allegations of willful infringement. Pleading willfulness in virtually patent litigation complicates discovery and raises 

issues of scope of waiver of attorney-client privilege that could be 

avoided if appropriate reforms are enacted. 

The section would like the opportunity to work with you to develop these reforms, and our specific proposal with regard to willful 

infringement is to try the willfulness and discover the willfulness 

separately from the trial on the liability otherwise. 

Fifth, we think that the elimination of best mode is appropriate, 

particularly in an international context of patent harmonization. 

Our position is that elimination of best mode requirement represents a best practice in the patent harmonization context, a view 

that the section shares with virtually every major other NGO organization that has addressed the issue. 

I’m again grateful for the opportunity to present the views of the 

ABA IPL Section on these important issues related to patent law 

reforms. We look forward to a constructive dialogue that will expand the areas on consensus for pursuing such reforms and we 

hope that our comments today will serve as a constructive part of 

the dialogue that an effort of this magnitude requires. Thank you. 

[The prepared statement of Mr. LaFuze follows:]

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PREPARED STATEMENT OF WILLIAM L. LAFUZE


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Mr. SMITH. Thank you all for your encouraging comments as well 

as your constructive suggestions. 

I’m pleased in looking at everybody’s testimony that there seems 

to be so much agreement. Needless to say, that’s not surprising 

that there’s going to be some disagreement, and maybe we can talk 

about two or three of those issues a little bit more extensively. 

Let me go through the print and let me know if you disagree 

with some of my conclusions. 

This is section by section. Section 3, the first inventor to file, the 

first to file, it’s my understanding that everyone supports that, although, Mr. LaFuze, I realize you feel that harmonization only goes 

so far, and I agree with some of the points that you have made 

there. But just in general I’m talking about here. 

On Section 4, the right to a patent, I think generally everyone 

supports that or doesn’t have a position. Same with duty of candor. 

Section 6, the right of the inventor to obtain damages. Paragraph 

6 I think most support, though there are some changes and some 

details to be worked out. 

Injunctions is an area—let me come back to that in a minute because I know there is some disagreement. 

The same thing on continuation applications. On section 9, postgrant proceedings, expansion of 18-month publication, everyone 

seemed to support. 

Let’s see on—let’s see. Let me jump over to the other part of 

post-grant opposition. General support with changes, and does anyone disagree with Mr. Lutton’s suggestion for the two windows or 

are you familiar with that. Does anyone have any strong opposition 

to that? Just a little bit of a variation of a theme? 

I don’t want to get bogged down on this, but, Mr. Hawley, yes. 

Mr. HAWLEY. Thank you, Mr. Chairman., IPO is actively considering a number of different alternatives. Currently, the Board of 

Directors’ position is that the 9-month window is correct for the 

procedure as it’s defined. If you go to a longer period or a procedure 

that’s more like a revocation, then some of the other features may 

need to be changed, such as the standard of proof, and it becomes—

begins to become quite interrelated. 

Quite concerned about long periods of indefinitiveness, particularly for those of our members who need to take advantage of the 

venture capital system and having their patent at risk for long periods of time for small companies, start-up companies is generally 

not a good thing for them. 

So we are actively considering other alternatives, but at the 

present time, we support just the 9-month window. 

Mr. SMITH. Okay. Mr. Kushan. 

Mr. KUSHAN. Genentech is generally in favor of a fixed period 

after the grant of the patent as the window of opportunity for postgrant opposition proceedings. The main reason for that is on balance as the patent life continues on, we are in a situation where 

we’re about to reach the market with our drug product, and it’s extremely difficult to have the scenario of a patent challenge go back 

to the PTO once we’re that close to the market. 

There are many concerns about how you balance that. We certainly can appreciate the need for an efficient administrative proceVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00108 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
103

dure being available when patent challenges arise, but we have to 

balance that. 

Mr. SMITH. Okay. When it comes right down to it, we’re just talking about a few months to differentiate you all, and I don’t think 

in the end that’s going to be one of the real areas of disagreement. 

We’ll I suspect be able to work that out. 

But another subject that’s a little bit more—it’s equally if not 

more critical are injunctions and there is some disagreement there. 

Mr. Lutton, I think you feel that the current system is not working. 

Do you want to explain why? Whereas let’s see Mr. Kushan opposes the reform as well. If you’ll give your reasons for what’ wrong 

with the status quo as well as whether you see any areas where 

we can talk more about middle ground? 

Mr. LUTTON. Okay. Let me try to do that quickly. The—to summarize the statute currently says that injunctions are available 

based on principles of equity. What we believe is the courts are not 

really following that or at least they’re not giving it any breadth 

beyond the cases of national health emergencies. An illustrative 

case is this Merck Exchange against eBay case that was just decided recently. It was an appeal from the district court in Virginia, 

where the court balanced equities and believed that an injunction 

was not appropriate and the Federal Circuit reversed—this was 

only a month ago—and essentially rejected a number of possible 

bases for the denial of the injunction and effectively limited it to 

only national health emergencies. 

Our core focus is we’d like to see a little more breadth in the 

word equity than national health emergencies, so we’re looking for 

any principles of equity, any ability of the Congress to inject back 

into that standard or reinstruct the courts that this is not just 

about health. It’s about doing equity for this injunctive relief. 

Mr. SMITH. Okay. Thank you, Mr. Lutton. The Gentleman from 

California, Ms. Berman, is recognized for his questions. 

Mr. BERMAN. Thank you, Mr. Chairman, and I’d like to express 

the hope there might be a second round if we still got to stick 

around here anyway, just because there’s so many issues raised by 

this excellent panel. 

Just—my—just taking the area the Chairman was asking about, 

all four of you agree with a post-grant opposition process; is that 

correct? 

That makes me—let the record show they nodded their heads 

yes. 

Mr. SMITH. Well, with a few changes I think most do support it 

as a matter of fact. 

Mr. BERMAN. Yeah. Well, I think they all support a—we’re getting into how long it should be available and other issues, but they 

all support it. 

If—my assumption is you support it because you think it’s a 

more efficient and quicker way of resolving issues of questionable 

patents than litigation, very expensive litigation. 

If that’s the case, why doesn’t it make sense to open up when a 

notice of infringement, a letter of infringement has gone out, open 

up this process at that point for a short window so that this more 

efficient process can perhaps avoid the need for what now really 

looks like it might be a subject to litigation, and I guess I’m asking 

104

that to the people who are resisting that, which seems to be everyone except Mr. Lutton. 

Mr. LUTTON. Unfortunately so. 

Mr. HAWLEY. Yes, I’ll address that just very briefly because again 

our—my mandate from the board is limited to our past resolutions, 

but I can——

Mr. BERMAN. No, let’s just talk among ourselves——

Mr. HAWLEY. Talk among ourselves and we’ll be—give you some 

of the perspectives that, as a result of some of the discussions that 

we’ve had. And I think it was best put actually by a good friend 

in the ABA, who talked about designing a post-grant opposition 

system which, as you can see from the committee print, has a very 

large number of features to it. It’s one thing to say that it would 

be wonderful to have a post-grant opposition system and then it’s 

another thing altogether to agree on all of the details that might 

be incorporated in such a system. 

And the point that’s typically made is that if you are designing 

a post-grant opposition system for the purpose of providing some 

kind of final review for patents that are just issuing from the Patent Office, you design your system in terms of the burdens of proof 

and the processes and everything else in one way, and if you are 

really saying that a post-grant opposition procedure is much more 

than that and akin to what we find in most foreign jurisdictions, 

which is a revocation proceeding, then you would design it in another way in terms of the rules of evidence that would be——

Mr. BERMAN. But bring that down apart from—I didn’t want to 

address the total post-grant opposition. I understand it’s complicated. Just the issue of opening it up after the notice of infringement has gone out. That’s what I was asking about. 

If one of you could sort of just try to address that aspect of it. 

Mr. LAFUZE. If we’re not requested to give views of our groups, 

I would be happy to respond——

Mr. BERMAN. Yeah. 

Mr. LAFUZE.—to that. The systems that we have discussed and 

the systems that are proposed are streamlined procedures. Primary 

evidence coming in by affidavit or declaration——

Mr. BERMAN. Right. Right. 

Mr. LAFUZE. And only a right of cross examination, which is a 

limited discovery. It’s designed intentionally to hold down costs, yet 

try to get to the meat of the problem. 

For patents that are really of great value, there is some concern 

that if you move all the review process from the litigation from the 

courts to the Patent Office that there may not be a full opportunity 

to really explore all the issues that exist. And so I think the theory 

at least of some of us is that if we try this opposition proceeding 

to correct mistakes that are made in a relatively short time after 

a patent issues and let’s see how that works first, we can adjust 

the time as may be needed. 

If all the litigation from the courts were moved to the U.S. PTO, 

I think the U.S. PTO would be so overwhelmed. They don’t have 

the staff. 

Mr. BERMAN. Right. 

Mr. LAFUZE. They don’t have the money. They don’t have the——

105

Mr. BERMAN. Right. Just because of the—my time—it’s still 

flashing. Does that mean I can get another question in. 

Mr. SMITH. The Gentleman is recognized for another minute. 

Yes. 

Mr. BERMAN. All right. I mean you can’t have patents of great 

value that are challenged in a short post-grant opposition so I’m 

not quite sure why the value of the patent is the key here. 

But let me just turn to the injunction for a second. I guess this 

is to Mr. Kushan. You don’t want to change the provision on injunction. You want it to—I mean you talk a presumption, but it’s 

pretty automatic—finding of infringement injunction issues. Is that 

an unfair conclusion? 

Mr. KUSHAN. No. 

Mr. BERMAN. Okay. Then would you be willing to go with an 

automatic stay of an injunction pending appeal? 

Mr. KUSHAN. That’s an option. I think a lot courts do that now, 

where a district court has found infringement; that the patent is 

valid and is infringed, and an injunction is appropriate; and then 

there is a disruption that’s possible to the market or to the other 

party. 

Mr. BERMAN. The judges weigh the equity. 

Mr. KUSHAN. They can weigh the equity as they do it now. There 

are many cases recently—— Mr. BERMAN. Why is—if it’s good for that, why isn’t it good for 

the injunction? 

Mr. KUSHAN. Well, the proposal in the committee print is not 

bad. What you have in the committee print is a shift in the philosophy of entitlement to an injunction. It’s going from an entitlement 

that the patent owner, with a—this is a valid patent that has been 

infringed. With that perspective, the property right that is the patent gets its value by being able to—— Mr. BERMAN. What if you took it out of the burden argument, 

and you just gave the injunction as a tool for a judge to utilize 

where the judge concluded based on the evidence presented at remedy that this was an equitable way to handle it? You just sort of 

took it out the presumption that’s issued versus presumption that’s 

not issued—just left it as a tool for the judge? 

Mr. KUSHAN. Well, a lot of business decisions, particularly in the 

biotechnology sector, are premised on the patent being able to exclude use that’s not authorized under the patent. That premise is 

very tangibly felt in the biotech sector because it’s a fundamental 

part of the business equation of developing a biotech drug. 

Mr. BERMAN. But we know that money can assuage. 

Mr. KUSHAN. But in this setting, you know, it’s not necessarily 

a bad thing to force biotech companies to develop different drugs. 

I mean there is a benefit overall to a system where exclusivity is 

respected. My—I can only provide a perspective of Genentech. Certainly, we have a reliance on the exclusivity of the patent, and in 

the absence of evidence that suggests that it should not be granted—an injunction should not be granted—that the equity should 

tilt in favor of the patent owner. 

And again, I’ll reiterate. We’re dealing with valid patents, not invalid patents. These are valid patents that are infringed. So it’s not 

one of these issues of we don’t know whether the patent is of quesVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00111 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
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tionable validity. This is a legitimately issued patent. When you 

have that setting, you should have the right to exclude, and let the 

burden fall on the shoulders of the other party to show why an injunction should not be issued. 

But again, I don’t want to be entirely negative about this topic. 

The issue seems to be the use of that threat in an inappropriate 

way to affect litigation and to increase risks and induce settlements 

that are not appropriate. There are lot of misuses of that threat. 

I think the Committee can spend some time looking at reforms to 

the litigation equation that mitigate that risk. 

Mr. BERMAN. But there are a lot of misuses of this—— Mr. SMITH. And the Gentleman’s time has expired. The Gentleman from Virginia, Mr. Goodlatte, is recognized for his questions. 

Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Hawley, as I 

mentioned in my opening statement, software and other high tech 

companies face a serious problem. Many of their inventions and 

products involve hundreds of patents which must be lawfully 

cleared for use. In this environment, do you see how the threat of 

a permanent injunction by one nefarious party could impede the 

development of innovative products and encourage disproportionate 

settlements from high tech companies? And if so, what can be done 

to solve this problem without rolling back permanent injunction, 

since I understand that’s one provision of this legislation you’re not 

happy about? 

Mr. HAWLEY. I apologize that I don’t fully understand your question, but let me say a few things in response. 

The software industry and the microelectronic industry is not 

unique in having products that are covered by large numbers of 

patents. We are in the electro photographic copying business, and 

I think you would be quite amazed at the stack of patents that covers any particular electro photographic machine. There could be 

thousands. 

Mr. GOODLATTE. I understand. One of those many hundreds of 

patents is challenged and an injunction is issued. What do you do 

about it if you can’t have a——

Mr. HAWLEY. I think—— Mr. GOODLATTE.—different way of handling injunctions than is 

handled under current law? 

Mr. HAWLEY. When you are faced with a patent infringement 

suit on a portion of a large machine, maybe a small portion, you 

have a fairly long period of time in which you can evaluate the design around alternatives. Litigation lasts for a very long time. 

You’re usually well aware of the patent before it issues. 

Mr. GOODLATTE. But can’t the treble damages penalties that are 

hanging over your head ensue from the date that it’s been brought 

to your attention that the patent might be infringed upon and 

therefore if you loose that process all during the time that you’re 

doing exactly what you’re talking about, you’re subject to quite a 

heavy threat of losses if you do not settle up with this party that 

may be trying to hold you up from every other aspect of moving forward with your product? 

Mr. HAWLEY. Okay. You’re getting into the area of treble damages and with respect to treble damages in any serious disputes 

107

you will have ameliorated your risk by obtaining—but exercising 

your duty of due care and obtaining opinion of counsel, and if the 

opinion of counsel is that you don’t have any other alternative, you 

design around the patent and go about your business. Otherwise, 

you’re not being—you’re not subjecting yourself to treble damages. 

So the treble damages hanging over your head is that the committee print addresses itself to is really—the provision in the committee print is really an anti-troll provision in the sense that we 

are now getting on a fairly regular basis non-specific accusations 

of infringement that are essentially form letters that are sent to 

hundreds—I’ve heard as many as thousands—of companies. 

All of those place those hundreds or thousands of companies into 

a legal limbo. 

Mr. GOODLATTE. I’ve got other questions to ask. 

Mr. HAWLEY. I’m sorry. 

Mr. GOODLATTE. I’m going to have to cut you short. But let me 

turn to Mr. Lutton and ask him based upon Mr. Hawley’s testimony that permanent injunction is the primary remedy by which 

patent owners can enforce their exclusive rights, do you believe the 

injunction provision in the committee print could inhibit legitimate 

patent owners from getting an injunction in cases in which there 

are only one or very few patent claims involved in litigation? And 

if so, do you have some suggestions on how to prevent that problem? 

Mr. LUTTON. The answer is no. I don’t think it could because the 

provision in the committee print is simply instructing a court to do 

equity. It’s providing another factor that the court should consider 

or amplifying a factor that the court should consider in administering equity. 

That being said, I would echo again the comments I made earlier 

that I do believe that what—the core of what we’re looking for is 

a reinjection of principles of equity into the injunctive issue, reempowering courts to decide whether in a particular case an injunction is needed or not. If it is needed, it should be granted. If 

it’s not, it shouldn’t. 

Mr. GOODLATTE. Let me get in one more question if the Chairman will allow me and just ask all the witnesses if they can tell 

me why small businesses or independent inventors should support 

any of the provisions of this print? What’s in it for them? Start 

with Mr. LaFuze. 

Mr. LAFUZE. First of all, it’s a less costly system. Second of all, 

it’s a more predictable system. In a perfect environment, you ought 

to be able to go to the Patent Office, take a look at the file wrapper, 

take a look at what’s publicly available and tell what the scope of 

the patent is and whether the patent is valid or not. The system 

that we have now is predicated on many different kinds of secrets 

that are not publicly available. You can’t tell easily whether something has been offered for sale what constitutes the bar. You can’t 

tell when somebody may have conceived, reduced practice, used 

diligence in terms of advancing an invention. There are so many 

unknowns with the system that we have today that you can’t tell 

really what rights you have very easily. And it’s very expensive to 

litigate them, as we all know. And we need a system that gives a 

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simpler, fairer, more cost effective, more predictable outcome to the 

question of what valid rights do you have as a patent owner. 

Mr. GOODLATTE. Mr. Kushan? 

Mr. KUSHAN. Thank you. Two reforms are going to enhance the 

ability of the independent inventor and small business to use our 

patent system. 

First, I think it’s going to be a very good thing to dispel the myth 

that the first to invent system has benefits for the independent inventor. As a company that spends millions of dollars in interference 

proceedings, it’s certainly not a cheap proceeding and if—considering as the statistics have shown, that 13 or so people who got— were worse off because of the system over the last decade, it’s not 

benefiting them. A fairer system is one where a true inventor who 

files an application first gets the patent and there’s no fight. 

There’s no cost. It’s just over. That’s more predictable, more certain, and it will cost a lot less. 

The reforms that Mr. LaFuze has walked through also make it 

clear to understand what you’re going to get. 

Post-grant opposition proceedings are also valuable to any patent 

owner, including the independent inventor. The big question that 

companies face when they see a patent or license offer is whether 

that patent is valid. If you have an opposition proceeding and your 

patent has gotten through that proceeding, that’s going to be a very 

solid, definite and certain legal right. And that’s going to induce 

very healthy negotiating processes between the patent owner and 

the company, and I think everybody who values their patent right 

is going to want to have that kind of an assurance of patent quality 

behind it. 

Mr. GOODLATTE. Mr. Chairman, do I have your lead to allow the 

other two witnesses to answer that question or——

Mr. SMITH. The Gentleman is recognized for an additional 

minute for the other two witnesses to answer. 

Mr. GOODLATTE. You each get 30 seconds. 

Mr. LUTTON. I think this bill is tremendously beneficial to small 

business. They benefit from quality of patents. They benefit from 

predictability in the system, but most of all they benefit from control around damages and injunction abuses. The small business 

that goes out of business—if they have to spend 5 or 10 million dollars defending themselves, and there’s so much of that burden that 

they’re bearing now that this bill will be tremendously beneficial 

for them. 

Mr. GOODLATTE. Thank you. Mr. Hawley. 

Mr. HAWLEY. You asked about what the benefits are. All of the 

benefits that I could think of have already been stolen by my other 

panelists here, so I would point you to the—again—the injunction 

provision and the specific reference to encouraging the court to consider in an injunction context whether or not the patentee is actually themselves using the invention. Many small business, small 

start ups, individual inventors have not yet found the resources to 

do that. And this would limit their ability to—and their opportunity to negotiate good agreements because of not being users 

themselves, they are at a disadvantage. 

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

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Mr. SMITH. Thank you, Mr. Goodlatte. The Gentlewoman from 

California, Ms. Lofgren is recognized. 

Ms. LOFGREN. Thank you, Mr. Chairman, and thanks for this 

hearing. 

I have been talking with and listening to my constituents now 

for some time and advancing the suggestion that this ought to be 

the Congress that really spends a lot more time on issues of patent 

law, and I think it’s—this testimony today makes clear why that’s 

important. And certainly the draft before us is recognition of the 

importance of this subject matter. 

Having said that, it’s not a surprise that we’re going to have to 

work through some of these issues yet and the good news is that 

we have a great track record of people in the patent community 

working together to come up with solutions that we can all work 

with and feel good about. 

I note that some of the recommendations in the draft bill we had 

in H.R. 400 some years ago that was derailed for reasons that I 

never felt very compelling and hopefully we’ll have a better chance 

this time in keeping valid measures intact in the bill. 

But I do want to go into the issue of the injunction. Listening to 

Mr. Kushan and Mr. Lutton, it occurs to me that your differing 

viewpoints really are a product of your differing industries, and the 

things that you’re saying are valid. But the differences of opinion 

relate to the different ways that biotech works as compared to 

other technology companies. And it seems to me understanding— and I’m sure you would—the point of view of the other guy because 

of the nature of their business. There’s got to be some way to come 

up with a resolution that works both for biotech and for the computer industry. I’m just convinced that there would be. So I’m hoping and after we leave the witness table, there will be some discussions and brainstorming on how we—and some suggestions that we 

might look at to kind of solve and reach that kind of accommodation that historically we always have done, and I know we have 

fine organizations that can facilitate those discussions if necessary. 

I wanted to ask a question on the treble damages section—I 

guess to you, Mr. Lutton—the change that it—if a defendant has 

received a detailed written notice from the patent owner charging 

infringement and identifying the specific claims in patent and alleging infringing product. That limitation is that a suitable one 

from your point of view or would you go with the rest of them? 

Mr. LUTTON. I would like to—we would like to see that provision, 

that part of the bill, removed, and I’ll tell you why. The current law 

is that mere knowledge of a patent can give rise to a charge of willfulness. I do believe the provision that you’ve got in here today will 

help take care of that issue. But we believe that all it gives rise 

to is a more artful form of letter writing. That allows a patentee 

to write a nicely worded letter, put a defendant on notice of a patent, expose them to triple damage, and we don’t believe that’s the 

kind of egregious conduct that should accord—exposure for punitive 

damages. 

We’d like to see instead that portion removed so that instead the 

law focuses on only cases like copying or violating a court order 

where there’s truly some conduct warranting punishment by triple 

damages. 

110

The rest of the behavior that we want to incentivize is perfectly 

adequately incentivized by the threat of a lawsuit alleging infringement and awarding actual damages. So we don’t think that this is 

an area where we need that tripling of damages. 

Ms. LOFGREN. Do the other witnesses agree or disagree? 

Mr. HAWLEY. Congressman, if I may. The provision that is in the 

committee print is simply one that you were talking about here, 

and that is the notice requirement. It’s simply one that establishes 

when the accused infringer has a duty of due care. And it doesn’t 

automatically mean that if they eventually lose, they are going to 

have to pay treble damages because in most circumstances like 

that, they will ameliorate their liability by doing a duty of due care 

thorough investigation. And we think it’s appropriate. Our members think it’s appropriate. I’m sorry. 

Ms. LOFGREN. I don’t want to interrupt, but we only have a limited amount of time, and it seems to me—I mean there are some 

academics that are making the assertion that the creation of the 

appellate system actually had a result that eliminated the balancing of equities. I don’t know if that’s true or not, but I think 

we’ve all learned that what intend and what actually happens isn’t 

always the same. And the concern I think that’s been expressed is 

not what you’ve said because there’s nothing wrong with what you 

said, but that it really wouldn’t work out in the way that you’ve 

outlined. And I don’t know the answer, but we are going to have 

a second round, are we not, Mr. Chairman? No? All right. Then I 

will—my time has expired, but I would like if I could—and it could 

be later—Mr. Kushan, you did mention a concern about the definition or prior art in the draft, and I would like to know more about 

your concerns in that area and we don’t have time here. But if you 

could elucidate that at a later date, I’m very interested in it. 

Mr. SMITH. Okay. Thank you, Ms. Lofgren. The Gentleman from 

California, Mr. Issa, is recognized for his questions. 

Mr. ISSA. Thank you, Mr. Chairman. Boy, every question leads 

to another question. 

From a practical matter, if we look at the treble damages question—and I’ll take almost anyone’s answer on this—but isn’t there 

essentially a problem today that to get treble damages and more 

importantly to get your legal fees, which is the first step. You 

know, often they do not use a multiplier, but they at least—you’re 

able to recover legal expenses, which is also part of this willfulness. 

Isn’t there really conceptually a problem that it’s a high burden, 

and seldom accomplished, and you don’t know if you’re going to get 

it ’til the end of the trial. So—and this is for better or worse from 

my experience with 37 patents and way too much time both before 

the PTO and in legal proceedings. Don’t we really have the question of notice, which obviously everyone runs to some attorney, 

who, for a price, delivers you an non-infringement opinion, and 

that sort of—that takes care of you as a practical matter until some 

future point. 

At the present time, that future point is the end of the trial often 

or very late. As a practical notice if we instructed the courts to 

move their markman hearings up, to bifurcate and make those first 

instead of last, even it was a preliminary, if that became the point 

at which constructive notice is the point at which you could be eliVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00116 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\042005\20709.000 HJUD1 PsN: 20709
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gible to pay legal fees, the markman ruling is the point at which 

you’re on notice as to what the patent means. And as an inventor, 

I have to tell you: I’ve sent out those letters and I’ve received those 

letters over the years, and nobody ever tells you what you’re really 

infringing, because nobody wants to limit their claim, so no one 

gets specific, and you’re right, though. If we pass the law as it is 

here, you’ll simply have more clever letter writing. 

So as we’re trying to finalize this document, are those thresholds 

that you believe we should be working toward to try to get to an 

effective definition of when damages are more than ordinary and 

then before I let anyone answer on this, ’cause I know we’re going 

to run out of time, as a matter of injunctive relief, my own experience, the judges don’t grant it. What they do is they tell you they’ll 

give you effectively the indubitable equivalent—and I can never 

pronounce that—I apologize, and then what they do is they don’t 

have a bond. 

So isn’t a major part of the injunctive problem the fact that 

bonds are seldom ordered as a pre-judgment and injunctions are 

seldom ordered because you really got to do well on that preliminary injunction. You really have to have five guys you already 

stopped and went through the whole trial process or you don’t get 

it. And so as a practical matter for inventors, they don’t get equity 

unless the guy has money at the end of the road, because they 

don’t get the injunction, because that’s a tough standard, and we’re 

not likely to change it enough, but they also don’t get a bond until 

they have basically until it’s going up on appeal. Then 60 days 

after the judgement is made final, they finally get a bond or a 

bankruptcy. 

Is that an area that we should be working in, and I’d like your 

comments on it because those are two of the 20 things I’ve gotten 

written here that I think we haven’t yet refined in our bill. 

I guess—since you’ve been the—Mr. Punitive and Treble Damages. 

Mr. HAWLEY. I don’t know where to start. 

First of all, with respect—there was a comment that you made 

that I think is illustrative of the problem that we see with the injunctive provision is that you almost automatically thought of the 

preliminary injunction standards of—and that was what clicked on 

when you——

Mr. ISSA. Well, because if you don’t win at preliminary injunction, you normally don’t get an injunction from the judge until the 

end of the trial. 

Mr. HAWLEY. That’s true. You don’t get an injunction until the 

end of the trial, but you do get damages up to the point of an injunction. 

Mr. ISSA. By the way, just for you edification, I am a little 

skewed. I worked for 20 years in consumer electronics. Only once 

did I ever have a lawsuit against somebody that at the end of the 

day really had to pay. You know, the fact is that in that industry 

most often you’re infringers have a strong tendency to be people 

with very shallow pockets. 

Mr. HAWLEY. Agreed. But to get to your point on willful infringement. The real issue that the committee print addresses is, in my 

view, and the view of many of my colleagues, is really, as I said 

112

earlier an anti-troll provision. It really eliminates the growing practice of sending out form letters; and, thereby putting hundreds of 

people on ‘‘willful infringement notice.’’ Our members are not upset 

about having a duty of due care in appropriate circumstances. We 

think that that’s—that willful—that infringers should not be willful, and if they’re properly put on notice with the patent number 

and the product that’s involved, we think that’s fair. 

The problem we have with the form letter is that there is no 

product. You could take Kodak out of the letter, put Motorola in, 

and the letter wouldn’t change at all. So we are then faced with 

the prospect of having to go figure out whether—what products 

they’re talking about and that’s not always a trivial exercise. 

So it’s really an anti-troll provision because it’s going to cut out 

a lot of the extraneous legal work that is a result of people protecting themselves from the prospect of treble damages when they 

get these form letters. 

The provision in the committee print also addresses the issue 

that we’ve heard in the National Academy of Sciences report and 

elsewhere where people are intentionally telling their employees 

not to read patents because they’re afraid that the mere fact of 

reading them will result in a finding of wilful infringement. Under 

the committee print, you have to have actual notice. You have to 

copy or you have to have in order for willfulness to kick in. So people should no longer be concerned about reading patents. 

Mr. ISSA. Anyone else? With the Chairman’s indulgence? 

Mr. SMITH. Mr. Lutton. Go ahead. 

Mr. LUTTON. Okay. I think we agree with your suggestion that 

both in the area of triple damage and in the area of injunction, 

there’s a difference between what the law says and what actually 

happens. And that’s one of the reasons why we view both of these 

provisions as really going to managing risk. And for us, for every 

lawsuit we’re involved in that goes to final judgement, which, leaving my company aside, but for every lawsuit that goes to final judgment, there is 25 more that don’t go to final judgment; that get adjudicated or settled ahead of time, and for every one of those, 

there’s 25 letters that were written that never made it to a lawsuit 

at all. 

And so we’re really seeing a huge stacking of his risk and everyone of those carries with it the potential threat of an injunction; 

the potential threat of triple damages, which are not decided until 

the very end of the road. And so these provisions by bringing some 

certainty back into how those laws are supposed to be applied and 

the conditions in which they’re going to apply will help eliminate 

the current conundrum that we’re in of all the decisions are decided at the very end and they’re all very draconian, and you can’t 

really make any reasonable judgments about which cases should be 

settled and which ones should go forward because they’re all 

threatening a terrible dramatic remedy. So that’s our issue. 

Mr. ISSA. Mr. Chairman, recognizing we’re out of time and 

there’s no second round, I would only ask that we be able to submit 

additional questions to the panel and receive back answers in writing. 

Mr. SMITH. Okay. And without objection, all Members have that 

right. 

113

Mr. Issa, thank you for your questions, and it occurs to me you 

may be the only actual inventor who is a Member of his Subcommittee. 

Mr. ISSA. Well, actually only Roscoe Bartlett and myself are inventors, patented inventors in the whole Congress. 

Mr. SMITH. Is that right? 

Mr. ISSA. And I can’t figure out why in the world he’s not on this 

Committee. 

Mr. SMITH. And you’re glad you are. 

Mr. ISSA. It’s a conspiracy. Yes, we do have inventors of conspiracy. 

Mr. SMITH. The Gentleman from Virginia, Mr. Boucher, is recognized for his questions. 

Mr. BOUCHER. Well, thank you very much, Mr. Chairman. I want 

to apologize first for being tardy at this hearing today. We have the 

Energy Bill on the floor, and I’ve been tied up with that for the better part of the afternoon. 

But my absence here doesn’t reflect a lack of interest in this subject. I happen to think that patent reform is perhaps the.single 

most important thing that we accomplish in the course of this entire Congress. And I want to commend the various externally interested parties that have come forward and strongly urged the Congress to move forward aggressively on patent reform. 

Mr. Berman and I have been discussing this matter for the better part of the last 4 years. We have now structured two separate 

bills recommending various aspect of steps that could be taken to 

improve patent quality, and we think generally beneficiate the patent system overall, to the advantage of all parties concerned. 

And I want to commend today Chairman Smith for the staff 

draft or his draft that—I don’t want to say it’s just the staff—it’s 

Mr. Smith’s draft that he has put together. It’s a very thoughtful 

document, and I think it reflects well the debate and the general 

discussions we’ve had ongoing for the past some time. 

I’m going to take just a few minutes to ask you to comment on 

several matters. 

I have the general sense that the current system insulates the 

patent examiner; it makes it very difficult for him to acquire information about prior art. It discourages the submission of that information by third parties. It contains a post-grant opposition proceeding which is essentially meaningless. It’s a proceeding on the 

record, decided on briefs. There’s no opportunity for the 

summonsing of witnesses, the cross examination of those witnesses. 

No live argument before someone who can decide whether the patent was properly awarded or not. 

And then at the end of that relatively meaningless and nonparticipatory process, estoppel applies. And so if you have elected 

to take part in it, you’re sort of bound by that judgement. You’re 

precluded from raising the issues in court that could have been 

raised in the course of that post-grant opposition that you’ve participated in. 

So little wonder that it’s not used today. People who have real 

objections don’t see this as a meaningful process. 

The injunction that issues when there’s a preliminary finding of 

patent infringement that basically stops the business activity for 

114

whoever the defendant is in that case is also extraordinarily problematic and really interrupts legitimate business activity at the 

present time. 

And I’m wondering in addition to questioning you on the adequacy of the staff bill with regard to these two matters, whether 

there is anything in your opinion that the bill does not contain that 

should be a part of it in this overall effort to enhance patent quality. 

So my question for those who would care to answer: Do you find 

the post-grant opposition proceeding that is in the bill to be helpful? Are there aspects of it that you would like to see us improve 

beyond the provisions you see in the bill? It does, as I understand 

it, allow for witnesses, allow for argument, and it turns into a real 

adjudicatory proceeding within the Patent Office the post-grant 

that today is basically meaningless and the injunction provisions 

would require an actual showing of irreparable harm, so it would 

tend to mimic what we are familiar with in terms of injunctions 

apart from the patent process. That strikes me as helpful. And I 

would be interested in your reaction to those key provisions and 

your suggestion for anything else that ought to be in the bill. Who 

wants to go first? 

Mr. HAWLEY. I’m never shy. I’ll go first. 

Mr. BOUCHER. Good. Thank you. 

Mr. HAWLEY. I think what you’re referring to is the reexamination provisions that came in with the AIPA bill, and this committee 

print address two of the issues with that that I think will be helpful. 

The first is to eliminate the estoppel effect of the process in the 

Patent Office and the second is to open it up to more patents. 

There was a rather severe limitation on the issue date for patents 

that could be reexamined. There have only been 75 reexaminations, 

and most people that I’ve talked to the estoppel provisions are the 

ones—is the reason that is most often given, and this bill I think 

takes care of that. 

Mr. BOUCHER. Let me just ask if you think the process that is 

outlined in the bill for that reexamination, what I’m referring to as 

post-grant opposition, is adequate or do we need to amplify that 

process, that post-grant process? 

Mr. HAWLEY. No. Our position is that the post-grant opposition 

that is proposed for the first time in this committee print, in conjunction with the improvements to the reexamination provisions, 

are a good collection of tools for the patentee to use. 

We believe that the post-grant opposition procedure that is in the 

bill, as I’ve said in my written submission, we agree with virtually 

every provision that is in there. We think it will be a good system. 

It will certainly not be a silver bullet. It will not solve all the problems of the world, but it will be a process that we believe people 

will use and that it will—it is well balanced. To amplify a little bit 

on Bill LaFuze’s comments, it’s a streamlined system. It’s designed 

to be finished in a year. It’s designed so that that can be accomplished. So it’s not a revocation proceedings, which he addressed. 

So we do think it’s a good provision and we support it. 

Mr. BOUCHER. And the injunction provision in the bill? 

115

Mr. HAWLEY. The injunction provision in the bill we have more 

difficulty with because it’s not simply a minor—in our view, it’s not 

simply a minor tweaking of the current process. It’s a real change. 

It places the burden on the patentee to establish the need for an 

injunction, whereas under most circumstances now the injunction 

is almost a matter of right and the defendant needs to say why it 

cannot. So that’s a major change. 

It also begins to import preliminary injunction concepts that—

and where the preliminary injunction law is going to be borrowed 

I’m sure of it and the barrier is very high. 

It also encourages the court to determine whether or not the patentee is working the invention themselves, which we feel is akin 

to a working requirement and will not be seen with favor by small 

companies and small—and individual inventors. 

Mr. BOUCHER. I think I know what you think about the injunction. Mr. Lutton? 

Mr. LUTTON. Very quickly. We do support the post-grant. We 

view it as a second chance to get it right on the patents that matter. We think that second window which I referred to earlier is a 

critical piece in order to allow us to focus on the patents that really 

matter. 

We’re strong supporters of the injunctive provision that’s in 

there, but also believe that there are other ways to get at that 

same issue, but we like that issue. 

I have two other suggestions for you in terms of things that are 

not in the bill that might be worth thinking about. 

One is the submission of prior art by a third party from the outside during the pendency of a patent application with comment so 

that the interested public can provide the PTO with the benefit of 

its thoughts on additional prior art. 

The second idea is some consideration of whether the burden of 

proof for invalidating a patent, which is clear and convincing evidence, ought to be lowered in those instances where the patent examiner has not had the opportunity to examine the prior art that 

is at issue in the challenge later. So clear and convincing may be 

a appropriate if the patent examiner looked at this art. The patent 

examiner didn’t have that art. It’s totally a new challenge. Maybe 

it’s preponderance of evidence. 

Mr. BOUCHER. That’s a very interesting proposal. 

So you’re saying keep the clear and convincing evidence standard 

general but apply a preponderance of the evidence standard where 

the examiner has not had an opportunity to have benefit of evidence of prior art that whoever wants to challenge the award of the 

patent happens to have? 

Mr. LUTTON. That’s right. And I think the rationale would be 

that the presumption of validity and the clear and convincing evidence standard are premised on an examination of the Patent and 

Trademark Office. If there was no examination relative to that 

prior art, why the presumption? 

Mr. BOUCHER. Does the availability of a strong and accessible 

post-grant opposition proceeding where witnesses can be brought 

in, argument can be held—you get an adjudication before the patent actually leaves the Patent Office—ameliorate to some extent 

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the burden that this clear and convincing evidence standard general imposes with regard to court proceedings? 

Mr. LUTTON. To some extent, but not totally. You have to look 

at post-grant opposition as a second coarser look at the—or more 

granular—let me say it that way—more granular filter through 

which a patent must pass. But it is not—it does not have all of the 

flexibility and other opportunities over litigation. There are cases 

that are going to be litigated even after post-grant opposition. But 

I think it provides another—you can really look at the first examination, which is on average 17 hours, as the first filter. Post-grant 

for those cases where it’s brought a second filter. And then for the 

cases that are not dealt with that way litigation. 

Mr. BOUCHER. Okay. Yes, Mr. Kushan. 

Mr. KUSHAN. I just want to briefly emphasize one point about, 

and it’s a cross-cutting point, whether you’re talking about postgrant opposition or other issues, focused on PTO activities, one 

thing that we are concerned about is making sure that we plan for 

the infrastructure to be sound and fully funded and designed in a 

way which will be better than the proceedings we have now. In the 

biotech sector, there are a lot of interference proceedings. If we 

have that set of rules and practices used to run opposition proceedings, it won’t be a very good system and we think you need to 

consider some structural changes at the PTO to make sure that 

you have a very well designed group of people running the opposition proceedings. This might be done just by setting up a separate 

division at the Patent Office to run those proceedings. 

The funding issue is also critical, and I think given the constraints we have with assured funding, you need to envision a scenario where we have to prioritize the work of the PTO to make 

sure that opposition proceedings don’t turn into multi-year proceedings because of funding problems. So with that, I’ll stop and 

encourage you to think about how these things will run at the Patent Office as well. 

Mr. BOUCHER. LaFuze? 

Mr. SMITH. Thank you, Mr. Boucher. Your time has expired. 

Without objection, Mr. LaFuze, will you respond very briefly? 

Mr. LAFUZE. I will. First of all, the intellectual property law section supports the post-grant opposition system that’s in place in the 

bill. And secondly, with respect to injunctions, we don’t have a position, so I will only offer my own personal comments on that. I think 

the injunction issue needs to be broken down into two parts. What 

happens after a trial is over and a judgment is entered and a judgment and an injunction is being considered pending appeal. And 

then I think the other one, which is an entirely different circumstance, is what do you do with an injunction when the court 

of appeals says the patent is valid, the patent is infringed, and the 

remedies under title V include the possibility of in injunction. I 

think we need to break those up. There are things we can do with 

the bond pending appeal. There are things that we can do with attorneys fees if somebody gets an injunction and it turns out they 

lose on appeal, and the defendant actually has been injured that 

can be measured somehow monetarily, and I think if we break 

those two issues apart, separate them, analyze them differently, it 

will be easier to handle. 

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Mr. SMITH. Mr. Boucher, thank you for your earlier comments as 

well as your questions. I might have guessed with all witnesses 

being lawyers we were going to have a little bit of a problem with 

time constraints. But we had a lot to discuss today as well. 

Let me just make the observation that I think it’s evident to anyone who is here that not only is this an important piece of legislation, but we’re going to go forward in a bipartisan way and I appreciate the supportive comments on both sides of the podium up here. 

We’re also serious about going forward in an expeditious way. We 

have a tentative mark up scheduled for the end of May. That gives 

us I think a reasonable amount of time to continue our discussions. 

And we still do have work to do on injunctions and post-grant opposition and a couple of other continuation applications being another 

area that we need to explore, too. 

But we’ve made a lot of progress, and I appreciate all the agreement and the time that you all have committed to the task. 

This is the first, as you know, of a couple of hearings, and we 

do expect to get to the end with your good help. 

Mr. BERMAN. Would the Chairman yield? 

Mr. SMITH. Thank you, again. The Gentleman from California is 

recognized. 

Mr. BOUCHER. I just want to make about 20 seconds of comment. 

Mr. SMITH. Okay. The Gentleman is recognized. 

Mr. BOUCHER. To repeat in my opening statement the congratulation on what you’re doing on all this and how you’re going about 

it. And secondly, see if the witnesses other than one of you spoke 

to the prior—third-party prior art issue—if, in writing you could 

just give us your position on allowing the Patent Examiner to get 

third-party prior art between publication and grant. I think that’s 

an issue the committee print doesn’t address, which having all your 

positions would be helpful. 

Mr. SMITH. Thank you. Thank you, Mr. Berman, and again 

thank you, all. We stand adjourned. 

[Whereupon, at 6:09 p.m, the Subcommittee adjourned.] 

(119)

COMMITTEE PRINT REGARDING

PATENT QUALITY IMPROVEMENT

Part II 

THURSDAY, APRIL 28, 2005

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 12:12 p.m., in 

Room 2141, Rayburn House Office Building, the Honorable Lamar 

Smith (Chair of the Committee) presiding. 

Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. 

First of all, let me express my appreciation to the great interest 

we have in this hearing today. We probably have the best attendance we have had all year on any hearing. We, of course, had a 

hearing on the same subject last week, so maybe the interest has 

been building as well. We expect to have interest by Members and 

appreciate the three other Members who are here today. This is not 

the best time necessarily to be conducting a hearing—at noon—but 

we hope there will be other Members who will stop by before we 

have a final vote and leave town today. 

I am going to recognize myself for an opening statement, and 

then yield to the gentleman from California, the minority Ranking 

Member, for his opening statement as well. 

Today the Subcommittee on Courts, the Internet, and Intellectual Property will conduct its second hearing on a Committee Print 

to improve patent quality. The print is based on the leading recommendations developed by the PTO and a broad cross-section of 

industry and trade associations that are involved in the formulation of patent policy. 

There is no shortage of volunteers nationwide who want to testify 

before this Subcommittee. I assure these individuals and groups 

that their concerns will be heard and given due process. 

Following this hearing, I will work with the Subcommittee Members, the Patent and Trademark Office, and others to develop a bill 

based on the print, that I expect to move this spring. So I urge all 

interested parties to work toward areas of compromise and concordance, knowing that no entity or individual will be entirely satisfied 

with the finished product. 

Still, there are areas of agreement and the trajectory is encouraging. Creation of a post-grant opposition system, tweaks to inter 

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partes reexamination, more expansive use of 18-month publication, 

a doctrine of a first-to-file construct, elimination of the best-mode 

requirement, reformation of the inequitable conduct defense, and 

an overhaul of the willful damages prevention have generated 

much support. Hopefully, reasoned discussions and good-faith negotiations will generation support for other issues as well. I also want 

to emphasize that subject matter not contained in the print could 

still be included in the bill. 

Last week’s panel featured representatives of larger mainstream 

industry groups. Today we welcome witnesses from Government, 

small business, the Academy, and the financial world. It is healthy 

and necessary to consider as many different perspectives as possible. Such diversity will only lead to a better work product. 

I look forward to hearing from the witnesses shortly, and now 

recognize the gentleman from California, Mr. Berman. 

Mr. BERMAN. Well, thanks, Mr. Chairman. 

Last hearing, we heard differing opinions about which sections of 

patent law should be reformed, how those reforms should be accomplished. Some of the witnesses stressed changes in litigation rules 

for patent cases; others focused on the need to harmonize U.S. patent laws with the foreign patent law. But all the witnesses seemed 

to agree that bolstering the level of patent quality is integral to a 

workable patent system. 

The whole foundation of the patent system is the idea that the 

Patent and Trademark Office grants high-quality patents. However, in recent years, and particularly since the State Street decision, a large number of questionable patents have been issued, 

leading to increased litigation and uncertainty in markets that are 

heavily dependent on patent rights. There are many possible reasons for the questionable quality—lack of funding resulting from 

fee diversion; lack of appropriate resources or training materials; 

an increase in the backlog of patent applications, which I gather—

we will probably hear from Mr. Dudas—has become stunning; or 

even exposure to a new patentable subject matter, such as business 

method patents. 

While the PTO has made great strides in addressing this problem, more needs to be done to restore confidence in the patent system. The Committee Print has provided a useful set of guidelines 

that identify some of the key areas in need of reform. Some of the 

provisions are almost identical to the ones Mr. Boucher and I proposed last year. However, an issue we addressed with our thirdparty prior art submission provision, and which deserves greater 

attention in the Committee Print or any future legislation, is how 

to address quality on the front end of the examination process. 

I anticipate a spirited discussion today on the merits of some of 

the proposals in the Committee Print. And I guess I submit a challenge to those critical of certain provisions. If you have a problem 

with the proposal, help us craft a better solution, because we are 

planning to introduce a patent bill, as the Chairman mentioned, in 

the near future. I hope that the many interested groups—and here 

I guess I want to echo the Chairman—can work together to help 

us formulate some answers to the problems facing the patent system today. 

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I look forward to working with you, Mr. Chairman, in drafting 

this legislation, and yield back. 

Mr. SMITH. Thank you, Mr. Berman. And without objection, the 

opening statements of other Members will be made a part of the 

record. 

Before I introduce the witnesses, I would like to invite you to 

stand and be sworn in, if you will. 

[Witnesses sworn.] 

Mr. SMITH. Thank you. Please be seated. 

Our first witness is John Dudas, Under Secretary of Commerce 

for Intellectual Property and Director of the U.S. Patent and Trademark Office. In a previous life, Director Dudas worked for this Subcommittee, so we welcome him back. He earned a bachelor’s degree 

in finance, summa cum laude, from the University of Illinois and 

a law degree with honors from the University of Chicago. 

Our next witness is Richard Levin, a special friend and president 

of my alma mater, Yale University. He co-chaired the National Research Council that published a major study of the patent system 

last year. President Levin studied history at Stanford University 

and politics at Merton College, Oxford University. He also holds a 

doctorate in economics from Yale University. 

The next witness is Nathan Myhrvold, founder and CEO of Intellectual Ventures, an invention company in Belleview, Washington. 

He owns 14 patents and has several others pending. Dr. Myhrvold 

received an undergraduate degree in mathematics and a master’s 

in geophysics and space physics from UCLA. He later earned another master’s in mathematical economics and a doctorate in theoretical mathematics and physics from Princeton University. 

Our final witness is Darin Bartholomew, senior patent attorney 

for John Deere & Company. Mr. Bartholomew has practiced intellectual property law for more than 10 years. He earned an electrical engineering degree from Northwestern University, a J.D. 

from John Marshall Law School, and a Master of Laws from 

Georgetown University. 

Welcome to you all. We have your complete written statements, 

and without objection they will be made a part of the record. We 

do ask that you keep your oral testimony, though, to 5 minutes. 

And Director Dudas, we will begin with you. 

TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, 

AND DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thank you very much, Chairman Smith, Ranking 

Member Berman, and Members of the Subcommittee. I appreciate 

your inviting me to testify today and I commend you for holding 

these hearings on your multi-title Committee Print, which proposes 

comprehensive changes to our patent system. 

The benefits of our patent system have always been obvious to 

Americans. You’re all familiar with article I, section 8, clause 8 of 

the U.S. Constitution granting Congress the power to promote the 

progress of science and the useful arts by securing for the limited 

times to authors and inventors the exclusive right to their respective writings and discoveries. That clause was adopted into the 

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Constitution without a dissenting vote and without even a recorded 

debate. History has repeatedly affirmed the wisdom of our Nation’s 

founders in establishing these principles. 

The tremendous ingenuity of American inventors, coupled with 

an intellectual property system that encourages and rewards innovation, has propelled the growth of our Nation from a small agrarian society to the world’s preeminent technological and economic 

superpower. And all of our patented technology finds its way into 

the public domain within 20 years, freely available to any and all. 

The success of our system has also been the basis for economic development in nations around the world. 

Unfortunately, a growing chorus of critics now questions whether 

the fundamental patent system will enhance or hinder development 

in other nations. However, many of the nations questioning the efficacy of that system have become hotbeds for the manufacture and 

export of counterfeit goods, with more than 90 percent of goods, in 

some cases in some industries, being counterfeited or pirated. 

Therefore we must actively educate the world that respect for intellectual property benefits everyone. 

Having and promoting the fundamentally right system, however, 

is not enough. Even the best system in the world can and should 

improve, and, as you know, at the USPTO our 21st Century Strategic Plan began as directives from the President and Congress 

that we improve. Recently we’ve announced three internal reforms 

to improve our Agency’s quality and efficiency. We’re increasing 

transparency, we’re internally improving our ex parte reexamination, and we’re saving applicants tens of millions of dollars by revamping our process of applicants submitting appeal briefs. We’re 

implementing a multitude of improvements and we plan to do 

more. 

We’re also hearing legislative proposals in three general categories, as you mentioned—operational, litigation reform, and the 

convergence of international laws and best practices. In my view, 

each of these must center on how the patent system encourages innovation and, more importantly, serves the public at large. We 

must look at these issues from every angle. We must look at them 

from the perspective of the independent inventor who may be the 

next Thomas Edison to the perspective of a large company that believes its innovations are being frivolously tied up in unnecessary 

legal knots. 

As you reflect upon all of the proposals you hear, I urge that you 

not focus exclusively on litigation nor exclusively on the administrative process. Patent quality begins with the application and it 

begins with the applicant. And I can tell you that the number one 

challenge I hear from examiners today is one of application quality. 

So I’m comforted by Ranking Member Berman, your statement 

about the beginning of the process both at the USPTO, but we’ll 

take it one step even further back, which is the quality of the application and the quality of the process as it comes into the Office, as 

well as what happens within the Office. I think all of these issues 

need to be considered, but one component shouldn’t be considered 

to the expense of others. 

We’re committed at the USPTO to make sure that our practices 

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nologies. While we implement operational reform, we realize that 

measures within your domain will make valuable contributions to 

the system. The USPTO and the Administration are enthusiastic 

to continue working with you closely and be a part of this hearing 

as you develop reform legislation to ensure that the U.S. patent 

system remains the world’s leader. 

Thank you. 

[The prepared statement of Mr. Dudas follows:]

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PREPARED STATEMENT OF THE HONORABLE JON W. DUDAS


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Mr. SMITH. Thank you, Director Dudas. 

President Levin. 

TESTIMONY OF RICHARD C. LEVIN, PRESIDENT, YALE UNIVERSITY, ON BEHALF OF THE NATIONAL RESEARCH COUNCIL 

Mr. LEVIN. Chairman Smith, Congressman Berman, Members of 

the Subcommittee, thank you for offering me the opportunity to 

discuss the National Research Council’s recommendations for improving the patent system in the United States. Patents play a crucial role in promoting technological innovation, which is the most 

important underpinning of economic growth. I’m delighted that the 

Subcommittee on Intellectual Property is developing legislation to 

ensure that the patent system continues to serve the Nation well. 

The project undertaken by the National Research Council, which 

I co-chaired with Mark Myers, a retired vice president of the Xerox 

Corporation, was the most comprehensive review of the patent system in decades. Our committee was perhaps the first to bring together practicing patent lawyers, academic lawyers and economists, 

business leaders, technologists, and inventors. We started with 

highly divergent views, but over the course of our deliberations our 

views converged and we reached consensus on several important 

recommendations that are reflected in the Committee Print. 

We concluded that, on the whole, the patent system is working 

well and does not need fundamental revision. Yet we did note some 

causes for concern. The sheer volume of patent applications, especially those involving new areas of technology—the Ranking Member referred to business methods as an example—overwhelm— these new areas overwhelm the patent examination corps in ways 

that affect the quality and timeliness of decisions. In addition, it’s 

become more expensive to acquire patents, to obtain licenses to patented technologies, and especially to enforce and challenge patents 

through litigation. 

Our recommendations are set forth in greater detail in an accompanying written statement, but here I’d like to emphasize three 

main themes. 

First, Congress and the PTO should take steps to ensure the 

quality of patents issued. The single most important step would be 

the establishment of a simple administrative procedure for opposing a patent after it has been granted. The process should be timely and efficient so that uncertainty can be resolved quickly without 

either inhibiting socially productive investment by competitors in 

situations where the patent proves to be invalid or by encouraging 

wasteful investment when the patent proves to be valid. 

A new opposition process is needed because the existing inter 

partes reexamination procedure only permits challenges to be 

lodged on narrow grounds. It’s rarely used and has not proven to 

be effective. The only way to challenge a patent through the courts 

is to infringe it and draw either an infringement suit or a demand 

to take a license. This is an unnecessarily expensive way to resolve 

doubts about a patent’s validity, and disputes take many years to 

resolve while technology, as we know, changes rapidly. 

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tion about the state of the art in emerging areas of technology, relying on outside experts when patent examiners lack expertise. The 

committee commended the PTO for the development of guidelines 

in emerging technology areas, such as genomics and business 

methods. It’s important to offer such guidance promptly as new 

technologies emerge. The committee also recommended that Congress provide more resources for the PTO to hire needed examiners, to improve its information systems, and to fund a post-grant 

opposition procedure. Fortunately, the PTO will receive additional 

funding through the fee increase that was approved by Congress 

last year. 

A second theme, beyond validity, is the harmonization of the 

United States patent system with the European and Japanese patent systems. Differences among the world’s major patent regimes 

entail wasteful duplication of effort by both inventors and by governments. The committee believes that gains in efficiency from harmonizations would be considerable. The United States is the only 

country that gives priority to the first person to reduce an invention to practice. Elsewhere, the first inventor to file is given priority. The latter test is objective; the former requires years of discovery, reams of depositions, and hours of trial testimony. Moreover, the U.S. is the only country in the world that requires a patent holder to hold that he has disclosed the best mode of practicing 

a patent. This, too, is costly and time-consuming to prove. Harmonization with global practice makes sense. 

Finally, the committee recommended that Congress mitigate 

other subjective elements of law that contribute to the extraordinary expense of patent litigation. For example, Congress would 

be well advised to eliminate or modify the standards governing inequitable conduct. The bill addresses that. There should be penalties for misconduct by patent applicants, but misconduct should 

not automatically invalidate the patent. Similarly, the doctrine of 

willful infringement should be modified, because willfulness is subjective and costly to prove, and the doctrine creates the perverse 

incentive for inventors to avoid the study of prior art lest they fail 

to cite a patent that turns out to be relevant. 

I’m pleased that the legislation developed by the Subcommittee 

is consistent with the recommendations of our NRC committee. I 

would suggest, however, that the Subcommittee reconsider the provision allowing the settlement of invalidity claims during the postgrant review process. Settlement would undermine a major objective of instituting a post-grant review, and that is to clarify the 

grounds on which patents should be granted in emerging areas of 

technologies. The parties settled may resolve their disputes with 

one another, but it wont’ clarify the law or the practice of the Patent Office for future innovations. 

Our committee also recommended that Federal judges faced with 

resolving validity disputes in infringement cases should have the 

option of referring the issues concerning validity to the PTO administrative judges, who have expertise in post-grant review. 

I would be pleased to answer your questions. 

[The prepared statement of Mr. Levin follows:]

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PREPARED STATEMENT OF RICHARD C. LEVIN, PH.D. 

Good afternoon, Mr. Chairman, Congressman Berman, and members of the subcommittee. I am Richard Levin, President of Yale University and co-chair of the 

Committee on Intellectual Property Rights in the Knowledge-Based Economy of the 

National Research Council. The Research Council is the operating arm of the National Academy of Sciences, National Academy of Engineering, and the Institute of 

Medicine of the National Academies, chartered by Congress in 1863 to advise the 

government on matters of science and technology. 

Although most Academy studies are conducted in response to an agency’s or a congressional request, the study we will describe was initiated by the Council’s Board on Science, Technology, and Economic Policy (STEP) because it recognized 

that the breakneck pace of technological change across many industries was creating stresses in the patent system that needed to be examined to ensure that it 

continues to be a stimulus to innovation and does not become an impediment to it. 

Since 1980 a series of judicial, legislative, and administrative actions have extended patenting to new technologies (biotechnology) and to technologies previously 

without or subject to other forms of intellectual property protection (software and 

business methods), encouraged the emergence of new players (universities), 

strengthened the position of patent holders vis-a`-vis infringers domestically and 

internationally, relaxed other restraints on the use of patents (antitrust enforcement), and extended their reach upstream from commercial products to scientific research tools and materials. 

As a result, patents are being more zealously sought, vigorously asserted, and aggressively enforced than ever before. There are many indications that firms in a variety of industries, as well as universities and public institutions, are attaching 

greater importance to patents and are willing to pay higher costs to acquire, exercise, and defend them. The workload of the U.S. Patent and Trademark Office has 

increased several-fold in the last few decades, to the point that it is issuing nearly 

100 patents every working hour. Meanwhile, the costs of acquiring patents, promoting or securing licenses to patented technology, and prosecuting and defending 

against infringement allegations in the increasing number of patent suits are rising 

rapidly. 

In spite of these changes and the obvious importance of patents to the economy, 

there had not been a broad-based study of the patent system’s performance since 

the Depression. Accordingly, the National Research Council (NRC) assembled a committee that includes three corporate R&D managers, a university administrator, 

three patent holders, and experts in biotechnology, bioengineering, chemicals, telecommunications, microelectronics, and software, as well as economists, legal scholars, and practicing attorneys. This diversity of experience and expertise distinguishes our panel from nearly all previous commissions on the subject, as does our 

study process. We held conferences and public hearings and we commissioned our 

own empirical research. The committee’s report, A Patent System for the 21st Century, released a year ago, provides a thoroughly researched, timely perspective on 

how well the system is working. 

High rates of technological innovation, especially in the 1990s but continuing to 

this day, suggest that the patent system is working well and does not require fundamental changes. Nevertheless, the committee was able to identify five issues that 

should and can be addressed now. 

First, maintaining consistent patent quality is difficult but increasingly important 

in fast-moving fields. Over the past decade, the quality of issued patents has come 

under frequent sharp attack, as it sometimes has in the past. One can always find 

patents that appear dubious and some that are even laughable—the patent for cutting and styling hair using scissors or combs in both hands. Some errors are unavoidable in a system that issues more than 187,000 patents annually, and many 

of those errors will have no economic consequence because the patents will not be 

enforced. Still, some critics have suggested that the standards of patentability have 

been lowered by court decisions. Other observers fault the USPTO’s performance in 

examining patent applications, variously attributing the alleged deterioration to inadequate time for examiners to do their work, lack of access to prior art information, perverse incentives to grant rather than reject patents, and inadequate examiners’ qualifications. 

Because the claim that quality has deteriorated in a broad and systematic way 

has not been empirically tested, conclusions must remain tentative. But there are 

several reasons to suspect that more issued patents are substandard, particularly 

in technologies newly subject to patenting. One reason to believe that quality has 

suffered, even before taking examiner qualifications and experience into account, is 

that in recent years the number of patent examiners has not kept pace with the 

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increase in workload represented by the escalating number and growing complexity 

of applications. Second, USPTO patent approval rates are higher than in some other 

major nations’ patent offices. Third, changes in the treatment of genomic and business method applications, introduced as a result of criticisms of the quality of patents being issued, reduced or at least slowed down the number of patent grants in 

those fields. And fourth, there does appear to have been some dilution of the application of the nonobviousness standard in biotechnology and some limitations on its 

proper application to business methods patent applications. Although quality appears to be more problematic in rapidly moving areas of technology newly subject 

to patenting and perhaps is corrected over time, the cost of waiting for an evolutionary process to run its course may be too high when new technologies attract the 

level of investment exhibited by the Internet, biotechnology, and now 

nanotechnology. 

What are the costs of uncertainty surrounding patent validity in areas of emerging technology? First, uncertainty may induce a considerable volume of costly litigation. Second, in the absence of litigation, the holders of dubious patents may be unjustly enriched, and the entry of competitive products and services that would enhance consumer welfare may be deterred. Third, uncertainty about what is patentable in an emerging technology may discourage investment in innovation and product development until the courts clarify the law, or inventors may choose to incur 

the cost of product development only to abandon the market years later when their 

technology is deemed to infringe. In sum, greater certainty about patent validity 

would benefit innovators, technological followers, and consumers alike. 

Second, differences among national patent systems continue to result in avoidable 

costs and delays. In spite of progress in harmonizing the U.S., European, and Japanese patent examination systems, important differences in standards and procedures remain, ensuring search and examination redundancy that imposes high costs 

on users and hampers market integration. It is estimated to cost as much $750,000 

to $1 million to obtain comprehensive worldwide patent protection for an important 

invention, and that figure is increasing at a rate of 10 percent a year. Important 

differences include the following: Only the United States gives preference to the 

‘‘first to invent’’ rather than the ‘‘first to file.’’ Only the United States requires that 

a patent application disclose the ‘‘best mode’’ of implementing an invention. U.S. law 

allows a grace period of one year, during which an applicant can disclose or commercialize an invention before filing for a patent, whereas Japan offers a more limited 

grace period and Europe provides none. 

Third, some U.S. practices seem to be slowing the dissemination of information.

In the United States there are many channels of scientific interaction and technical 

communication, and the patent system contributes more to the flow of information 

than does the alternative of maintaining technical advances as trade secrets. There 

are nonetheless features peculiar to the U.S. patent system that inhibit information 

dissemination. One is the exclusion of a nontrivial number of U.S. patent applications from publication after 18 months, an international norm since 1994. A second 

U.S. idiosyncrasy is the legal doctrine of willful infringement, which can require an 

infringer to pay up to triple damages if it can be demonstrated that the infringer 

was aware of the violated patent before the violation. Some observers believe that 

this deters an inventor from looking at the patents of possible competitors, because 

knowledge of the patent could later subject the inventor to enhanced damages if 

there is an infringement case. This undermines one of the principal purposes of the 

patent system: to make others aware of innovations that could help stimulate further innovation. 

Fourth, litigation costs are escalating rapidly and proceedings are protracted. Surveys conducted periodically by the American Intellectual Property Law Association 

indicate that litigation costs, millions of dollars for each party in a case where the 

stakes are substantial, are increasing at double digit rates. At the same time the 

number of lawsuits in District Courts is increasing 

Fifth, access to patented technologies is important in research and in the development of cumulative technologies, where one advance builds on one or several previous 

advances. Faced with anecdotes and conjectures about restrictions on research scientists, particularly in biotechnology, we conducted a modest survey of diverse participants in the field to determine whether patent thickets are emerging or access 

to foundational discoveries is restricted. We found very few cases although some evidence of increased research costs and delays and much evidence that research scientists are largely unaware of whether they are using patented technology. During 

our study, the Court of Appeals for the Federal Circuit ruled that university researchers are not shielded by the common law research exception against infringement liability. This combination of circumstances—ignorance of intellectual property 

on the one hand and full legal liability on the other—represents an exposure that 

135

universities are not equipped to eliminate by the kinds of due diligence performed 

by companies and investors. 

TOWARD A BETTER PATENT SYSTEM

Our committee proposed seven steps to ensure the vitality and improve the functioning of the patent system: 

1) Preserve an open-ended, unitary, flexible patent system. The system should remain open to new technologies, and the features that allow somewhat different 

treatment of different technologies should be preserved without formalizing different 

standards, for example, in statutes that would be exceedingly difficult to draft appropriately and equally difficult to change if found to be inappropriate. Among the 

tailoring mechanisms that should be exploited is the USPTO’s development of examination guidelines for new or newly patented technologies. In developing such guidelines, the office should seek advice from a wide variety of sources and maintain a 

public record of the submissions. The results should then be part of the record of 

any appeal to a court, so that they can inform judicial decisions. 

This information could be of particular value to the Court of Appeals for the Federal Circuit, which is in most instances the final arbiter of patent law. To keep this 

court well informed about relevant legal and economic scholarship, it should encourage the submission of amicus briefs and arrange for temporary exchanges of members with other courts. Appointments to the Federal Circuit should include people 

familiar with innovation from a variety of perspectives, including management, finance, and economic history, as well as nonpatent areas of law that bear on innovation. 

2) Reinvigorate the nonobviousness standard. The requirement that to qualify for 

a patent an invention cannot be obvious to a person of ordinary skill in the art 

should be assiduously observed. In an area such as business methods, where the 

common general knowledge of practitioners is not fully described in published literature likely to be consulted by patent examiners, another method of determining 

the state of knowledge needs to be employed. Given that patent applications are examined ex parte between the applicant and the examiner, it would be difficult to 

bring in other expert opinion at that stage. Nevertheless, the open review procedure 

I will describe next provides a means of obtaining expert participation if a patent 

is challenged. 

Gene sequence patents present a particular problem because of a Federal Circuit 

ruling making it difficult to apply the obviousness test in this field. This is unwise 

in its own right and is also inconsistent with patent practice in other countries. 

3) Institute an ‘‘Open Review’’ procedure. Congress should pass legislation creating 

a procedure for third parties to challenge patents after their issuance in a proceeding before administrative patent judges of the USPTO. The grounds for a challenge could be any of the statutory standards—novelty, utility, nonobviousness, disclosure, or enablement—or the case law proscription on patenting abstract ideas and 

natural phenomena. The time, cost, and other characteristics of this proceeding 

should make it an attractive alternative to litigation to resolve questions of patent 

validity. For example, federal district courts could more productively focus their attention on patent infringement issues if they were able to refer validity questions 

to an Open Review proceeding. The result should be much earlier, less expensive, 

and less protracted resolution of validity issues than we have with litigation and 

of a greater variety of validity issues than we have with re-examination even if it 

were used. 

4) Strengthen USPTO resources. To improve its performance, the USPTO needs 

additional resources to hire and train additional examiners and implement a robust 

electronic processing capability. Further, the USPTO should create a strong multidisciplinary analytical capability to assess management practices and proposed 

changes, provide an early warning of new technologies being proposed for patenting, 

and conduct reliable, consistent, reputable quality reviews that address office-wide 

as well as individual examiner performance. The current USPTO budget is not adequate to accomplish these objectives, let alone to finance an efficient Open Review 

system. 

5) Modify or remove the subjective elements of litigation. Among the factors that 

increase the cost and reduce the predictability of patent infringement litigation are 

issues unique to U.S. patent jurisprudence that depend on the assessment of a party’s state of mind at the time of the alleged infringement or the time of patent application. These include whether someone ‘‘willfully’’ infringed a patent, whether a patent application included the ‘‘best mode’’ for implementing an invention, and whether a patent attorney engaged in ‘‘inequitable conduct’’ by intentionally failing to disclose all prior art when applying for a patent. Investigating these questions requires 

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time-consuming, expensive, and ultimately subjective pretrial discovery. The committee believes that significantly modifying or eliminating these rules would increase the predictability of patent dispute outcomes without substantially affecting 

the principles that these aspects of the enforcement system were meant to promote. 

6) Harmonize the U.S., European, and Japanese patent examination systems. The 

United States, Europe, and Japan should further harmonize patent examination 

procedures and standards to reduce redundancy in search and examination and 

eventually achieve mutual recognition of applications granted or denied. The committee recommends that the United States should conform to practice elsewhere by 

adopting the first inventor to file system, dropping the ‘‘best mode’’ requirement, 

and eliminating the current exception to the rule of publication of an application 

after 18 months. The committee also recommends that the United States seek to 

have other jurisdictions adopt the practice of a grace period for filing an application. 

These objectives should be pursued on a trilateral or even bilateral basis if multilateral negotiations do not progress. 

7) Consider enacting a narrowly drawn exception from infringement liability for 

some research activities. Here we do not propose specific legislative language, but 

we do suggest some principles for Congress to consider in drafting a narrow research exception that would preserve the intent of the patent system and avoid 

some disruptions to fundamental research. 

In making these recommendations, our committee was mindful that although the 

patent law is designed to be uniform across all applications, its practical effects vary 

across technologies, industries, and classes of inventors. There is a tendency in discourse on the patent system to identify problems and solutions to them from the 

perspective of one field, sector, or class. Although the committee did not attempt to 

deal with the specifics of every affected field, the diversity of the membership enabled us to consider each of the proposed changes from the perspective of very different sectors. Similarly, we examined very closely the claims made to us that one 

class of inventors—usually individuals and very small businesses—would be disadvantaged by some change in the patent system. Some of the committee’s recommendations—universal publication of applications, Open Review, and shifting to 

a first-inventor-to-file system—have in the past been opposed on those grounds. The 

committee reviewed very carefully, for example, how small entities currently fare in 

interference proceedings, examination, and re-examination. We also studied how European opposition proceedings affect small businesses. We concluded they enjoy little protection and in fact are often at a disadvantage in the procedures we propose 

to change. In short, we believe that our recommendations, on balance, would be as 

beneficial to small businesses and individual inventors as to the economy as a 

whole. 

I appreciate the opportunity afforded by the committee to testify on our conclusions and would be happy to answer any questions.

Mr. SMITH. Thank you, President Levin. 

Dr. Myhrvold. 

TESTIMONY OF NATHAN P. MYHRVOLD, CHIEF EXECUTIVE 

OFFICER, INTELLECTUAL VENTURES 

Mr. MYHRVOLD. Thank you, Mr. Chairman, Members of the Committee, both thank you for having me here and for turning your attention to a very important topic of patent reform. 

My perspectives today are going to be based a little bit on who 

I am. I started off as an academic physicist. I started my own company and became a start-up entrepreneur in California in 1983. 

Microsoft acquired my company and so I became a corporate executive, Microsoft’s chief technology officer, for 14 years. Five years 

ago, I left Microsoft and started Intellectual Ventures, dedicated to 

the idea of invention and helping inventors. Finally, I’m an inventor myself, so I understand the Patent Office from that perspective. 

Now, invention is critical to America; I don’t need to remind you 

of that. One point I think is very important, though, is that the 

small inventor is critical to America. Forty-five percent of America’s patent holders are classified as small entities by the Patent 

Office. That means they’re individuals, they’re universities, or 

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they’re small businesses. This cuts across every field of technology 

no matter how exotic, no matter how cutting-edge. In fact, look at 

semiconductors, look at nanotech, look at computers. You’ll find in 

those areas that individuals and universities together often have 

more patents than the biggest companies in the world. It’s a diffuse 

group; it’s also a vulnerable group, because they depend on patent 

law very critically, much more so than the big guys do. So as we 

approach patent reform, it’s very important that we keep them in 

mind. An unintended consequence of shifting in one area can make 

the playing field not level for the little guy. 

I’ve studied the Committee Print. There’s a lot that I would commend the Committee on and I would agree with. Actually, Chairman Smith summed up a whole series of things. I won’t repeat 

them all. I also want to echo my colleagues’ remarks that when you 

add something like post-grant opposition—I think it’s a good 

move—you’ve got to make sure that it’s funded and resourced. We 

can’t heap more new things on the Patent Office while they still 

have such a backlog of the work they’re supposed to ordinarily be 

doing. 

I’ve also studied the Committee Print in other ways and, to be 

frank, there are some things I don’t agree with that I think would 

be harmful. Most important of those, I think, are the rule changes 

regarding injunctions. Now, patents are designed to give ownership 

of inventions to inventors, and that ownership isn’t conditional on 

whether they make it or not. That’s what our system is. It’s perfectly honorable to be an inventor in a university or a small entity 

that doesn’t actually manufacture, in fact licenses to others. 

Now, the injunction change, I feel, would really disadvantage the 

small inventor. It would significantly erode some of their rights. 

Ironically, it’s been proposed as a trial—or as reform to reduce litigation. I’m afraid it would have exactly the opposite effect, increasing the number of litigations and the size and complexity of each 

litigation. My written testimony explains why. 

So we have to be very careful that while we try to reform litigation we don’t accidentally create the Trial Lawyers Full Employment Act. If you look around the world, you compare our system 

to others, you find America has the strongest rights for inventors 

of any place in the world. There’s a bunch of other countries that 

are very, right up on a par with us. I agree about international 

harmonization; that’s an important thing. So the first rank of countries are very high. If you look at this injunction provision, you can 

also find countries that have that kind of law, and those typically 

aren’t first-world nations. Those are countries like the Philippines, 

Peru, or Rwanda. Having strong rights for inventors is a very important thing. We’ve got to make sure that, going into the 21st century, we have the best possible incentive for all of America’s inventors. 

One other brief—I’ve got too many things, actually, to list here. 

My written testimony covers them. There is, to me, a very surprising loophole for software- or Internet-related things, nontangible items in the Committee Print which would dramatically reduce any royalties due legitimate patent holders for any of these 

nontangible items. I think the 21st century isn’t a time when we 

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should take an act like that. Clearly the Internet and software and 

other very intangible things are important to us. 

Going forward, the committee has a challenging and interesting 

task to balance all of these different factors. I will make myself 

available both during the questions now and at any point in the future to help out in that important process. 

Thank you. 

[The prepared statement of Mr. Myhrvold follows:]

PREPARED STATEMENT OF NATHAN P. MYHRVOLD

Mr. Chairman and members of the Subcommittee, my name is Nathan Myhrvold. 

I am very pleased to have been asked to share my views as a scientist and inventor 

on the patent system with the Subcommittee. My personal history is very relevant 

to my remarks today, so permit me to introduce myself. 

BACKGROUND

As long as I can remember I have been fascinated with science and technology. 

I pursued science in school, earning a bachelor’s degree in mathematics, and master’s degree in geophysics and space physics, both from UCLA. I continued exploring 

other disciplines, getting another master’s degree in mathematical economics and a 

PhD in mathematical physics from Princeton University. I would have finished 

school much earlier if I had focused on one topic, but to be honest I never met a 

kind of science I didn’t like. This obsession with schooling might have consumed half 

my life, but for the fact that I started early, entering college at 14, and completing 

my PhD by age 23. 

After Princeton I was hired by Cambridge University in England, working directly 

for Professor Stephen Hawking. My research area was quantum field theory in 

curved space time, perhaps one of the most obscure and esoteric scientific disciplines. At that point in my life I would have told you that I’d be an academic researcher. But life has a way of throwing us curve balls. I took a three month leave 

of absence from working with Hawking to go to the San Francisco Bay Area to help 

some friends from graduate school on a software project. Before I knew it I was 

caught up in entrepreneurial fever. 

The year was 1984, and the software industry was still tiny. I became the CEO 

of Dynamical Systems, a software start up with less than a dozen full time employees. After two years of struggling to keep our heads above water, we were acquired 

by Microsoft. I spent the next 14 years as a Microsoft employee, reporting directly 

to Bill Gates as Microsoft’s first Chief Technology Officer. I could scarcely believe 

that I went from esoteric theories in physics to what would become the largest software company in the world. 

At Microsoft I championed the development of new technology. Microsoft had zero 

patents and just two patent applications at the time I joined the company. I advocated increases in R&D spending, and patent filing, greatly increasing each of these. 

In 1991 I convinced the Microsoft board of directors to start Microsoft Research, the 

first major industrial research lab to be started in more than a generation. Laboratories like Bell Laboratories, GE Research Labs, Xerox PARC, and IBM Research, 

have made a tremendous contribution to America’s preeminence in science and technology. Unfortunately, these institutions were founded 30 to 100 years ago, and 

there aren’t many recent examples. Very few of the new giants of technology have 

bothered to invest in research and create similar research organizations. Microsoft 

Research now employs over 700 researchers in seven laboratories, and is ranked as 

one of the leading research institutions in the world. 

I retired from Microsoft in 2000, and founded Intellectual Ventures, a company 

dedicated to investing in innovation and creativity in the form of invention. The 

venture capital community exists to help entrepreneurs start and finance new companies—at Intellectual Ventures we help and finance inventors to invent. This includes both full time employees, as well as working with inventors who are university professors, academic researchers, small businesses that cannot afford to patent 

without help, as well as independent inventors. I meet frequently with inventors 

from all ranks, and have attached a recent speech on invention given at Princeton 

University. Our company provides both business expertise and financing to these inventors, and provides inventors with a healthy share of the profits in their inventions. 

My business career as a corporate executive has focused on managing innovation 

and using patents as a business asset. However, I am also an inventor with 17 

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issued US patents. I’m working on increasing that number; for the last couple years 

I have filed over a dozen patent applications a year which are still pending in the 

Patent Office. So, in addition to using patents in business, I am also a customer 

of the Patent Office and have seen the details of the patent process up close. 

Given my varied career, I have seen the patent system from the perspectives of 

pure academic research, a giant technology company, and finally that of a small 

business. Each perspective offers different views on the patent system. The Subcommittee will hear from people in many of these directly through the process of 

these hearings. What I can offer is the views of someone who has experienced all 

of them. 

PATENTS: PROTECTING INVENTIONS

The patent system is a fundamental foundation of America’s innovation based 

economy. Like any other part of the free enterprise system, the patent system offers 

economic incentive by allowing private ownership. In a way, this is no different than 

real estate, or other private assets. Private ownership of valuable assets is the basis 

for the American economy. 

The process of invention requires large amounts of the inventor’s time, energy and 

money. In order to create incentive for that expenditure, the inventor gets ownership in the invention for a limited time, after which it passes into the public domain. This system has been a primary driver behind the tide of innovation that has 

kept America number one in the world for at least the last century. The system that 

encouraged and sustained great inventors like Thomas Edison, Alexander Graham 

Bell and the Wright brothers is a critical component of America’s 21st Century goals 

to lead the world in computing, biotechnology, nanotechnology and dozens of other 

exciting fields. 

SMALL INVENTORS: AMERICA’S ECONOMIC ENGINE

The leading component of America’s invention output is driven by individual inventors, academic institutions, and small and medium businesses. The Subcommittee has heard testimony from large technology companies, and their trade 

associations. These firms are important inventors, and they frequently lead the list 

in terms of sheer number of patents. However what is much less well known is the 

substantial role that the little guy plays. 

According to US Patent Office records, 45% of American patent holders are classified as ‘‘small entities’’ which includes small businesses, universities and individuals. 

This pattern is repeated if you look in particular technology areas. I have done 

empirical research to understand the nature of the invention process, and found 

some remarkable results. It is not surprising that the entities that hold the most 

patents on computer processors include corporations like Intel and IBM. However, 

if you add them up, universities, individuals and small businesses in aggregate have 

substantially more processor patents than Intel or IBM—indeed more than the two 

combined. The same pattern is found in every technology field where I have looked. 

Small inventors have more operating system patents than Microsoft, more networking patents than Cisco and more wireless patents than Qualcomm. 

The typical pattern in a technology field is that the top company (or even the sum 

of the top five or ten companies) has only a small fraction of the patents in that 

field—often no more than 10% of the patents. Most invention is not done by the 

largest companies in the field. Invention occurs across the whole spectrum of the 

economy—from technology giants all the way down to the lone inventor in the garage. Those lone inventors aren’t just working on low-tech areas—no matter how 

technical a field, a huge number of patents are held by private individuals. Critics 

of the patent system sometimes talk derisively about the ‘‘myth of the small inventor’’, ignoring their contribution. Well, I am here to tell you that small inventors are 

not only alive and well, but they actually contribute more inventions than the biggest corporations do. 

I think that it is very important for the Subcommittee to appreciate the role that 

small inventors play when considering reforms to the patent system. This is because 

small inventors depend on the patent system far more than big companies do. The 

patent system is the only means for the small inventor to get a fair shake, and any 

semblance of a level playing field. 

A large company has financial resources that a small inventor can only dream of. 

They also have the ability to extract value from their patents a variety of ways. Indeed many large companies use their patents only on a defensive basis—that is a 

polite way to say that they use their patents to maintain their dominant market 

positions, rather than actively use them as revenue generators in their own right. 

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PROTECTING THE SMALL INVENTOR’S RIGHTS

A small inventor, on the other hand, depends almost totally on the patent system 

to secure his ownership rights in the invention. A small change to patent law can, 

as an unintended consequence, have catastrophic effects on a small inventor who 

depends totally on his or her patent rights to survive. A small inventor does not 

have huge market share and other business assets to fall back on. Worse yet, the 

small inventor almost invariably winds up competing with large, well funded companies that have every possible advantage. Only the patent system stands tall as the 

protector of the basic rights of small inventors. 

Changes to patent law must be scrutinized carefully to make sure that they do 

not tilt the playing field in a way that further disadvantages small inventors. They 

do the bulk of America’s inventing and they deserve our support. 

PROPOSED PATENT REFORM

I applaud the Subcommittee for its interest in patent reform and I have studied 

the Committee Print. There are a number of needed reforms that I agree with. In 

the interests of being concise I will focus here on the most important areas where 

I think your efforts can be improved, at least from my perspective. 

First, I have to be frank and say I am disappointed that there isn’t more focus 

on what I think is the most important aspect of patent quality—namely improving 

the quality of the patent examination process. Most of the committee print covers 

rules about patent disputes, and does not address the issues with getting patents 

examined in the first place. Patent quality starts in the Patent Office itself. 

Anybody who is a big customer of the Patent Office, as I am, can tell you that 

they need some help. The backlog of patents has grown larger, and the waiting time 

to get a patent has grown with the backlog. Longer waiting is not a recipe for success in a world where the pace of technology is going faster, not slower. Looking 

ahead, the Patent Office must continue to hire and train new examiners, and keep 

up with the pace at which invention occurs. This job isn’t getting any easier. Many 

of the proposals in the committee print are likely to increase the burden on the Patent Office. For example, the post-issuance oppositions with discovery will add process and personnel demands. 

Simply put, the Patent Office needs adequate resources to do its job. Until the 

Patent Office is funded adequately to meet the demand for patents, America’s inventors are going to be poorly served. I know that funding is a major occupation of Congress, which cuts across many issues including this one. However, without adequate 

resources, the Patent Office will be stuck in a situation where patent fees continue 

to rise, as they did last year, without the service improving. This amounts to a hidden tax on innovation. Is that really what serves America best as we enter the 21st 

Century? 

In fairness, I can’t complain about the resources without adding that I think the 

Patent Office does a good job within the constraints it has. Some critics of the patent system like to point to silly sounding patents, like a recent case mentioned in 

the press of a patent on a peanut butter and jelly sandwich. Or, critics will claim 

that the patent system is ‘‘out of control’’ and argue that there are many bad patents. These claims are misleading. 

Though some bad patents are inevitable, the vast majority of all patents are 

sound and valid. No serious observer of the patent system has reached any other 

conclusion. As one example, when patents are re-examined by the Patent Office, the 

majority of the patents survive all or in part. This is also true in litigation results—

there is no data on patents being found invalid en masse in the courts. 

It is true that there are also some pretty frivolous sounding patents—indeed there 

are web sites that feature them, like www.patentlysilly.com. Looking at such a site 

it becomes obvious that the creativity of American inventors covers the full range 

from the sublime to the ridiculous, but that can leave the wrong impression. Most 

patents are both serious and valid. 

Another area where misconceptions are bandied about is the topic of patent litigation. In a perfect world, property rights would always be respected, but here on 

Earth disputes are an inevitable reality. Many critics of the patent system wax hyperbolically about an ‘‘explosion’’ or ‘‘epidemic’’ in patent litigation. While it is true 

patent litigation has risen in recent years, these critics aren’t telling the whole 

story. For example, the number of patent lawsuits each year is actually lower than 

the number of trademark lawsuits. Historically, copyright lawsuits used to outnumber patent suits, but in the late 1990s patent suits pulled ahead. However, in 

the last five years, copyright lawsuits have grown over twice as fast as patent suits 

and are set to overtake patent lawsuits, probably this year. Patent lawsuits are neiVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00146 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\042005\20709.001 HJUD1 PsN: 20709
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ther more common, nor are they growing faster, than any other form of intellectual 

property litigation. 

A more telling point is that the number of patents has also grown. It makes sense 

that with more patents, and more patent holders, there is more opportunity for 

them to get into disputes. If you divide the growth in patent lawsuits by the growth 

in patents you find that on a per patent basis there were fewer lawsuits in 2004 

than there were in 1985. This is hardly the makings of an epidemic. Instead the 

growth of patent lawsuits reflects the growth of the use of patents, and the growth 

of technologically innovative companies that rely on patents. 

Let me be clear that I agree it is a worthy goal to reduce patent litigation. Litigation saps resources that small inventors could put toward more productive pursuits, 

like new inventions. Reducing the likelihood of litigation, with the attendant cost, 

complexity and uncertainty is a worthy goal. 

INJUNCTIVE RELIEF FOR PATENT INFRINGEMENT SHOULD NOT BE REDUCED

As a result, I cannot agree with one of the most extreme features of the Committee Print, regarding changes in permanent injunctions. This feature will greatly 

increase the volume, cost and complexity of patent litigation. It will also harm the 

small inventor. 

The Committee Print changes the way permanent injunctions are granted, reversing principles, practices and legal precedents that date back to the very origin of 

the Patent Office. Patents are designed to give ownership of inventions to the inventor for a limited period of time. They are property rights. When a court finds that 

those rights are infringed, and another party is determined to trespass upon those 

rights, the court may decide to issue an injunction. 

The Committee Print weakens and threatens to eliminate the injunctive relief due 

to the patent holder. It introduces an untested and potentially volatile new condition 

of ‘‘irreparable harm’’ into the injunction process. To put this in perspective, the 

Committee Print says, in effect, that it is okay to take the property of the patent 

holder as long as it won’t irreparably harm them. This is tantamount to saying it 

is okay for a squatter to camp on your lawn as long as the harm to you isn’t ‘‘irreparable’’. This flies in the face of the most concepts of property. Furthermore, the test 

of harm includes the extent to which the patentee makes use of the invention. 

The latter point is quite telling. This feature of the Committee Print amounts to 

tilting the playing field toward large product companies and away from the small 

business, university and independent inventor. 

It is important to note that this proposal to curtail overall injunctive relief for patent owners is not confined to preliminary injunctions, which are an altogether different body of law. It makes sense to consider issues like irreparable harm when 

considering whether to take the extraordinary step of issuing an injunction before 

trial. This is already common practice in many aspects of the law, including patent 

law. No change needs to be made here. 

The permanent injunctions remedies for patent owners that the Committee Print 

threatens to minimize—and, in large part, eliminate—are an entirely different animal than a preliminary injunction. Permanent injunctions occur only after a court 

has fully tried the case. In practice, this usually includes multiple rounds of appeal 

which occur over many years, so it is not an emergency rush to judgment. Before 

a permanent injunction is granted, the court will have carefully and definitively answered the question of infringement. In addition, current law and surrounding case 

law already give the court leeway to decide whether an injunction is appropriate. 

Given the protracted legal maneuvering that precedes them, it’s not like these injunctions sneak up on you. A defendant typically has many years notice. That time 

can be used to design around the patent in question. This is commonly done in the 

technology industry. A design-around renders an injunction moot, because the products no longer infringe. Innovative product companies frequently have the option to 

avoid injunctions through engineering rather than legal proceedings. 

Injunctions come down to an issue of property. The infringer will, by definition, 

be found to have trespassed on the patent’s holder’s property, and the injunction is 

the eviction notice. No other part of property law holds that a lawful property owner 

must show that he or she is ‘‘irreparably harmed’’ before they can evict a squatter 

or trespasser. 

What motivates this unprecedented taking of private property rights? Proponents 

of this approach make several arguments, none of which hold water on closer examination. 

The first argument is based on a misconception that the patent system exists to 

cut a special break for companies that manufacture products. The fact is that the 

patent system exists to protect and encourage inventions, not products. 

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Products are protected by ordinary commercial law, and the economic incentive 

to create and sell products is immediate and obvious—the profits that flow from 

product sales. In sharp contrast, there is no economic incentive for an inventor if 

others can take and use his invention without justice. The patent system exists to 

address this by acknowledging the constitutionally guaranteed exclusive rights that 

inventors have in their inventions. This ‘‘exclusive right’’ is meaningless if in most 

circumstances inventors cannot have ownership in their inventions, including the 

right to exclude others. 

The public good served by the Patent Office is to stimulate inventors to come up 

with new technology that can change our world, and see it enter the public domain 

after a period of time. This point is so important it bears repeating—the patent system exists to protect and stimulate inventions, not products. 

Discriminating against patent holders on the basis of whether or not they produce 

a product disenfranchises some of America’s most creative and prolific inventors. 

This broad group includes: university professors and research scientists, who often 

make great breakthroughs without having the facilities or resources to manufacture 

the products commercially; individual inventors who are in the same situation; and, 

finally small businesses who may commercialize some of their inventions but frequently invent more than they are able to productize simultaneously. 

There is nothing dishonorable in an inventor licensing his or her inventions to 

companies that are in a better position to commercialize the technology. This time 

honored practice has been around as long as the patent system has. Thomas Edison, 

Nicola Tesla and other great 19th Century inventors all licensed their inventions 

out to companies to build them. 

The tradition continues to this day. If you use a digital cellular phone, the 

chances are high that Qualcomm licensed its CDMA technology to the cell phone’s 

manufacturer. DVD players rely on video compression patent technology licensed 

from a consortium of inventors ranging from Sony to Columbia University, while licenses to patents on inventions from Ray Dolby and his company increase our enjoyment of music. Within the technology industry companies like IBM, Lucent, Texas 

Instruments, Sony, Philips, Thomson and many others derive significant revenues 

from patent licensing activities. 

THE COMMITTEE PRINT INCREASES THE NUMBER, COMPLEXITY AND

EXPENSE OF LAWSUITS

A primary justification advanced for the injunction proposal is that successful and 

innovative companies need this legislation to beat back a rising tide of nuisance 

lawsuits originating from greedy trial lawyers and unscrupulous patent holders. I 

can sympathize with this because when I was Microsoft, I frequently had to deal 

with patent lawsuits in my role as Chief Technology Officer. Microsoft has the dubious distinction of having been named as a defendant in patent lawsuits 52 times 

in the last five years, making it the second most ‘‘popular’’ defendant in the country. 

So, while I can understand the frustration that my colleagues in large technology 

companies have, the reality is that the impact of these lawsuits is exaggerated. 

Some horror stories exist, but they are rare. The magnitude of the supposed problem 

is not borne out by the statistics. 

I was curious, so I did a study counting the total number of lawsuits filed against 

technology companies by entities that do not produce products. The total of all these 

lawsuits over the last five years was just over 2% of all patent lawsuits. Furthermore, fully half of those lawsuits are from one very litigious company. Those horror 

stories aren’t about an epidemic, or a situation that is out of control—it is actually 

a very minor phenomenon. I also counted the number of patent lawsuits in which 

a large technology company was the plaintiff—the result is 1.6%. Large technology 

companies generate nearly as many lawsuits as the entities that have no products. 

These numbers put some perspective on the problem. On one hand, we have the 

potential to harm tens of thousands of small inventors. On the other hand we have 

the supposed benefit—to reduce the total number of lawsuits by perhaps one percent. It seems clear that the cure is far worse than the disease. 

This is particularly true because the proposal in the Committee Print won’t decrease litigation at all. In fact, it will dramatically increase the number of patent 

lawsuits, as well as their complexity and cost. Ironically, this proposal, which is 

often described as being yet another much needed and important reform against the 

excesses of trial lawyers, is in fact the trial lawyers’ full employment act. 

First there is the volume of the lawsuits. Today, about 97% of the patent lawsuits 

that are filed settle prior to a trial. The entire viability of the court system depends 

on this high settlement rate. Even a small change would overwhelm the courts with 

vastly more trials. Yet under the proposal, large companies will have no reason to 

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settle. Their principal motive in settling a patent suit before trial is to avoid the 

possibility of an injunction should the company be found to be infringing, and to 

avoid enhanced damages should their unauthorized use of property be found to be 

willful. Without these threats, companies being sued will adopt the best strategy for 

their shareholders: refuse to settle and use the advantage of their deep pockets to 

drag lawsuits out to the bitter end, secure in the knowledge that no injunction can 

get in their way. 

The complexity of the litigation also increases substantially, because now several 

new issues have been added to the already complex decision making process of the 

courts. In addition to determining infringement, the courts must also try an entirely 

different set of facts. The Committee Print directs that the court ‘‘shall consider and 

weigh evidence that establishes or negates any equitable factor relevant to a determination of the existence of irreparable harm, including the extent to which the patentee makes use of the invention’’. 

In simple terms, this is a second lawsuit tacked onto the original lawsuit, complicating the already difficult patent litigation with an entirely new set of issues. Provisions like ‘‘consider and weigh evidence’’ mean a whole new area for motions, discovery and argument in court. As it stands, patent lawsuits can take five to seven 

years, and in some cases even longer. This new process will add substantially to this 

timetable. 

This isn’t the only new complexity thrown at the courts. By reducing or eliminating the right to an injunction, the courts are for the first time put in the position 

of determining the terms and conditions under which technology is licensed on a 

broad scale. Instead of the marketplace, courts will now be the primary determinant 

of licensing terms. 

This also greatly adds to the complexity of the litigation. Under current patent 

law, the court may determine damages for past usage, but the court explicitly does 

not interfere in the market for future use of the patents. Instead, the court determines whether the property of the patent holder is being used—if it is, then the 

court issues an injunction and the two parties must work out for themselves what 

to do. In many cases there is no future use, because the infringer will use the many 

years that it took for the case to wind its way through the courts to redesign their 

product. In other cases the infringer and patent holder decide to settle based on 

their unfettered negotiations, which take into account the full panoply of market 

factors and competitive alternatives available in the modern economy. 

Instead, under the proposal in the Committee Print, the court would have to set 

future licensing terms. Economists have a name for this scheme—it is called compulsory licensing. Numerous studies have shown that it is a poor way to run a patent system. It is also out of keeping with the key principles of the American economy and Constitution of the United States. 

The decision-making process inherent in this huge new responsibility will weigh 

heavily on the courts. Current courts already expend a lot of time and energy determining past damages. Adding the future, which might stretch for a decade or more 

depending on the life of the patents, greatly raises the stakes. Higher stakes generally means more arguing on yet another issue—what should the future damages 

be? One thing seems certain: this proposal would be a boon for expert witnesses and 

the trial lawyers who deploy them. 

Some critics of the patent system ask ‘‘why aren’t monetary damages enough? 

Why are injunctions needed?’’ There are several answers. Corporations fear injunctions, and that’s what brings them to the settlement table, yielding a 97% settlement rate. Determining commercial use and setting license fees will greatly complicate the litigation process. But perhaps the most important reason is that this 

compulsory licensing proposal will inject court mandated control over future licensing rather than allowing the parties to work out a market-oriented solution. 

THE PROPOSED CHANGES WOULD GUT PROTECTION FOR

COMPUTER-RELATED INVENTIONS

The injunction proposal is the topic in the Committee Print that I feel most 

strongly about. However, there are several other areas that deserve some comment. 

The Committee Print has an innocuous-seeming amendment to Section 271(f) of title 

35 in the patent code. Unfortunately, this amendment would dramatically strip the 

rights of patent holders and would deal a serious blow to small inventors working 

in what is otherwise one of the most exciting and dynamic areas of the American 

economy. 

Section 271(f) is in plain terms a law designed to prevent patent holders from 

being cheated by unscrupulous exporters. Patent law holds that export of a patented 

invention outside the United States is a use of the invention, just as much as sale 

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inside the country would be. Both export and domestic sale are on the same basis. 

Section 271(f) was intended to close a loophole and prevent a company from exporting components rather than an entire invention. It has worked well in that purpose 

and substantial case law has developed around it. 

Incredibly, the amendment proposed in the Committee Print creates a gaping 

loophole for software, or any invention that includes software. It requires that any 

‘‘component’’ under 271(f) be a tangible item—thus exempting software altogether. 

It additionally requires that the tangible item ‘‘is itself combined physically with 

other components to create the combination that is alleged to infringe’’. Translating this to plain English, it means that a software company could exploit 

the loophole created by this provision to export software without it counting as an 

export. Software would not qualify as a ‘‘tangible item’’, particularly if it was exported by transmission over the Internet or another computer network which these 

days is the dominant way software is shipped and sold. Software composed of multiple software components—as virtually all software is these days—would also not 

count. Most software companies have the majority of their revenue come from outside the US, so this provision would at a single stroke cut the licensing revenues 

due a valid software patent holder by a factor of two or more. 

Software is not the only beneficiary of the loophole created by this provision. Any 

invention that combines software and hardware could also be able to use the loophole by simply exporting the hardware physically, then downloading software to it. 

Literally millions of inventions, ranging from aircraft navigation systems to 

videogames and toys would suddenly have their exports made immune from justice. 

What justification can there be to strip America’s inventors of the revenue from 

these exports? It is hard for me to imagine how, at the onset of the 21st Century, 

anyone could pretend that only ‘‘tangible items’’ have value when the Internet has 

become a ubiquitous channel for commerce, and software is a multi-hundred billion 

dollar market. 

THE PROPOSED CHANGES WOULD REWARD WILLFUL PATENT INFRINGERS

The topic of willful infringement is clearly an area of patent law where reform 

is needed. The current willfulness standard should be clearly reviewed. However, I 

cannot support the Committee Print which goes too far in reducing the conditions 

under which a company can be found liable for willfulness. 

Note that willfulness goes hand in hand with the injunction issue. If large corporations know that they don’t have to worry either about an injunction or about 

an increased financial penalty due to a finding of willfulness, then they can infringe 

at will. At worst, a court will make them pay a license fee, but even that is not 

certain because the court might not make such a finding. Even if a court eventually 

rules against them, the infringer can delay for many years. The best strategy for 

a large company is simply to infringe widely, and refuse any negotiation with the 

patent holder. 

This creates an incentive for exactly the kind of behavior the patent system is 

supposed to oppose. This is another example of a reform that, as an unintended consequence, would increase the volume of patent litigation by motivating companies 

to infringe. Small inventors would be adversely affected because their only means 

to bring such deliberate infringers to heel is to resort to expensive litigation they 

can ill afford. 

POST-GRANT OPPOSITION PROCEDURE WILL REQUIRE GREATER

PATENT OFFICE RESOURCES

Post-grant opposition to a patent is a concept that has been proposed in various 

forms for many years. The value of post-grant opposition is that it gives the marketplace the opportunity to be heard and to help the Patent Office. However, this is 

appropriate only if done for a limited time after issuance, with a strict time limit 

on the opposition proceedings, and with conditions that would prevent it from being 

used to manipulate the system. Otherwise this would become yet another protracted 

and expensive dispute mechanism which would disadvantage small inventors. It 

could also be yet another full employment act for lawyers. The Committee Print proposes a nine month limit from time of patent issuance. This is a reasonable compromise. 

However, I would caution the Subcommittee that any post-grant opposition of this 

sort will greatly increase the workload for the Patent Office, and will therefore require additional resources. It does not seem reasonable to ask the Patent Office to 

take on additional duties knowing that they lack the necessary financial resources 

to do so. Frankly, the Patent Office backlog is too long as it is, and if post-grant 

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ative for the patent system. Indeed, improving the patent examination process by 

giving the Patent Office adequate resources would do more for patent quality than 

post-grant oppositions would, and would reduce the need for them. 

THE PROPOSED RESTRICTIONS ON CONTINUATION APPLICATIONS

SHOULD BE RECONSIDERED

The filing of continuations to a patent application is a longstanding and valuable 

mechanism which has great merit in the patent system. Small inventors (and many 

large inventors) often use continuations because they cannot afford to put all of 

their ideas into their first patent on an invention. So, they describe the invention 

via the patent specification, and make their initial set of claims. Later, they can file 

a continuation which draws new claims, but only within the boundaries of the original specification. This is a well-established practice that has developed a clear body 

of case law around it, and has the important feature that small inventors can devote 

their scarce resources to protecting specific inventions first (e.g., the core invention 

of a start-up company) while pursuing protection for the broader concepts in a continuation application. It therefore rewards both early innovation and ongoing creative invention 

The Committee Print seeks to place new conditions on the filing of continuations. 

However, the terminology used in the Committee Print removes an important inventor’s right by requiring that patent claims in continuations cannot be ‘‘broader in 

scope than the broadest claim’’ in the original case the continuation stems from. 

Limiting continuation applications in this manner would unfairly bias the patent 

system against the small inventor, and would result in many legitimate inventions 

going unprotected by the patent laws, resulting in decreased innovation due to removal of this protection. 

Moreover, this odd provision seems intended to solve a problem that no longer exists, namely the former situation where a U.S. patent expired 17 years after its 

issue date, which encouraged certain irresponsible patentees to drag the patent procedure out for decades, obtaining a new 17-year term for each issuing patent. This 

scheme has been eliminated by the adoption in the U.S. of a patent term of 20 years 

from the filing date, which is the international standard. 

In addition, the practice of reissue applications already incorporates a requirement that no broadening claims can be pursued more than two years after a patent 

issues. The Committee Print would create a conflict in the law by preventing a patent applicant from pursuing broader claims in a continuation application, even 

though he or she would be allowed to pursue a broader claim in a reissue of the 

parent patent, even at a later date. 

This provision is thus both unnecessary and in conflict with other portions of the 

patent law, and would cause many properly patentable inventions to go unprotected, 

stifling innovation by encouraging companies to copy rather than invent. 

PATENT QUALITY: IN EVERYONE’S BEST INTEREST

Lest it seem that I am unduly negative on the Committee Print, I hasten to add 

that there are many features that I think are positive moves which will strengthen 

the patent system. This includes reform to the concept of ‘‘best mode’’ implementation. I appreciate the Committee Print proposal to limit rampant assertions of inequitable conduct, the growth of which has been referred to recently as a ‘‘virtual 

plague.’’ Of course, I would encourage the Subcommittee to consider carefully the 

actual implementation to insure that it cannot be manipulated for delay or leverage. 

Another benefit is increased transparency through the publication of all patent 

applications is another important reform. These are important contributions which 

will strengthen the patent system for all participants. 

An area of particular importance is the harmonization of U.S. patent law with 

international patent law. This is critical for promoting American exports, and aids 

small inventors who lack the resources to cope with inconsistent international requirements on their own. 

CONCLUSION

Since the 19th Century America has been the guiding beacon of invention for the 

world. Thomas Edison’s light bulb was a tangible symbol of that beacon, and since 

his day, millions of other American inventions have followed in his path. Patents 

are the legal construct that breathe economic life into those inventions by giving their 

inventors a property interest in them. The resulting economic incentive helps inventors spend their time, energy and money in the difficult task of wresting secrets 

from nature and harnessing them into new technology. America, with its patent sysVerDate 0ct 09 2002 08:32 Jun 24, 2005 Jkt 000000 PO 00000 Frm 00151 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\042005\20709.001 HJUD1 PsN: 20709
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tem, has been unchallenged as the invention capital of the world, and we have benefited enormously from this legacy. 

As we enter the 21st Century, our traditional economy is beset by many challenges. International competitors such as China have already learned how to manufacture goods at low cost, and are becoming more technologically sophisticated with 

each passing day. As it stands, it is becoming ever rarer for an American company 

that ‘‘makes’’ products to actually do the manufacturing. Instead they design products that are built by others, often outsourced overseas. What is the difference between that, and an inventor who licenses his patents? It seems to me to be very 

poor timing to disadvantage small inventors in favor of large product companies, 

right at the stage when the real product building is moving overseas. The future 

of America is more strongly tied to invention than at any time in our past. We must 

support our inventors, including those that are in universities and small businesses, 

and plucky individuals working on their own. 

The barriers to entry around the world are collapsing. Tom Friedman, a columnist 

for the New York Times, and a close observer of globalization likes to say that the 

world is becoming flat. If America wants to remain competitive, we must play to 

our strengths and remain the world’s leading innovators and inventors. The patent 

system is the bedrock on which this is founded. I want to thank the Subcommittee 

for their work to keep the patent system, and by extension America, competitive in 

this vital area.

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Mr. SMITH. Thank you, Dr. Myhrvold. 

Mr. Bartholomew. 

TESTIMONY OF DARIN BARTHOLOMEW, SENIOR ATTORNEY, 

PATENT DEPARTMENT, JOHN DEERE & COMPANY, ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE 

Mr. BARTHOLOMEW. Thank you, Chairman Smith, Ranking Member Berman, and Members of the Subcommittee. My name is Darin 

Bartholomew. I am senior counsel for Deere & Company, where I 

focus on intellectual property and technology matters. I am pleased 

to testify today on behalf of John Deere Credit, the Financial Services Roundtable, and BITS. 

The Financial Services Roundtable and BITS are financial services trade associations that represent some of the largest financial 

institutions in the country, including banks, broker-dealers, and 

other financial institutions. John Deere Credit is one of the largest 

equipment finance companies in the United States and is proud to 

be a member of the Financial Services Roundtable. We agree with 

many of the concepts which you include in the Committee Print 

and we appreciate the opportunity to provide you and other Members of the Committee with comments. 

Today, over 800,000 applications are pending in the PTO and examiners are unable to spend enough time to provide a meaningful 

examination on complex applications. This is particularly true in 

the area of business method and financial services patents. After 

the landmark decision in State Street Bank & Trust Company in 

1998, the number of pending patent applications that involve financial services and business methods have surged greatly. Because it 

typically takes more than 3 years to get allowance of these applications, we are faced with an avalanche of increased litigation risks 

for the financial services industry. 

There are steps that Congress can take to provide protection 

against frivolous claims without impairing the important protections afforded by intellectual property rights. The main areas are 

creating an opposition proceeding, modifying the standard for injunctive relief, improving the prior-user rights defense, clarifying 

the damage rules, and promoting collaborative research. 

The Committee Print on opposition proceedings does not include 

a window for initiation of an opposition proceeding upon the threat 

of patent infringement. However, we believe that this is essential 

to improve the quality of patents issued in the U.S. Organizations 

will not likely expend the resources necessary to monitor patents 

in a 9-month post-grant window. There is no tangible economic return for challenging patents unless there is a threatened infringement or requirement to license the application. 

We believe that the 4-month window for launching an opposition 

after a threat of patent infringement would foster a more detailed 

scrutiny of patents than ordinarily occurs during a typical examination in which an examiner expends about 25 hours or less. This 

would create an efficient two-level examination regime within the 

U.S. for patents that are asserted. Patents that are asserted represent less than 2 percent of issued patents, approximately 2,500 

patents a year. That would be a low administrative burden on the 

PTO to conduct an opposition proceeding for patents prior to their 

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assertion. In the Committee Print, secrecy of the opposer was one 

of the topics that is necessary to prevent retaliatory oppositions or 

opposition wars between competitors. We felt that the preponderance of the evidence standard proposed would provide an incentive 

to use opposition proceedings instead of filing a lawsuit initially. 

Turning to the area of injunctive relief, in the U.K. injunctive relief is permitted anytime after expiration of 3 years from the date 

of the grant of the patent. This would provide a strong incentive 

for actually using inventive ideas instead of letting them sit on the 

shelf, and inventors would be allowed to license to others to achieve 

and satisfy the working requirements, which would meet the requirements of small entities. 

With respect to business method patents, business method patents have proved difficult to define in practice and are not defined 

anywhere in the Patent Act. That’s why we favor the Committee 

Print that would expand the prior-right user defense to all methods 

and to apparatus and systems. In addition, we feel that the defense 

should be extended to cover other matters so that we can achieve 

a standard in which the preponderance of evidence is used to invalidate business method patents. 

In clarifying the damage rules, we agree with the Committee 

Print, but we have some modifications to refine language. These 

modifications involve clarifying the level of knowledge that it takes 

to prevent increased damage awards. We are in agreement with 

the codification of this decision, in that the absence of an opinion 

of counsel does not create an inference of willful infringement, in 

concurrence with the recent Knorr-Bremse decision. 

With respect to the promotion of collaborative research, the current novelty provision in the law includes a public use provision as 

a novelty-barring event, and the U.K. and Europe both include language that prior art must be publicly available in their statutory 

provisions. Accordingly, we think that it is appropriate to include 

a reference to ‘‘public’’ or ‘‘publicly available’’ in the current statute. 

The presence of the word ‘‘public’’ supports the use of confidentiality agreements to conduct collaborative research between organizations, and the absence of ‘‘publicly available’’ would potentially 

lead to the creation of a class of secret prior art that is disfavored 

by the Federal Circuit and Congress. 

We look forward to providing additional detail and working with 

the Subcommittee to refine these concepts. 

Thank you. 

[The prepared statement of Mr. Bartholomew follows:]

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PREPARED STATEMENT OF DARIN BARTHOLOMEW


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Mr. SMITH. Thank you, Mr. Bartholomew. 

Director Dudas, in Dr. Myhrvold’s written testimony, he said his 

number one concern was patent quality, specifically the PTO. And 

President Levin in his written testimony mentioned a couple of 

things, that the number of patent examiners was not keeping pace 

with the workload, that the U.S. seemed to be approving patents 

at a higher percentage than other countries, and he was concerned 

about the increasing dilution of the nonobvious standard—all of 

which might be taken to point to weaknesses in the Patent and 

Trademark Office. 

In your statement a few minutes ago, you mentioned all the reforms that you were undertaking or planned to undertake. Do you 

really think you have the resources you need to accomplish the 

goals, and if not, how do you propose getting those resources? 

Mr. DUDAS. Thank you for that question. We also believe that 

patent quality is by far the number one most important goal. We 

also recognize that our office has broken records in the number of 

applications we’ve received at the USPTO for each of the last 20 

years. We’ve recognized that the number of examiners we’ve hired 

has not kept pace with that number of applications. 

One of the most important things we can do is, under the strategic plan we put together 37 initiatives, and we basically looked 

at our processes in a brand-new way. We looked at quality from 

top-to-bottom. We used to measure quality in terms of the very end 

of the process: should this patent have issued or shouldn’t this patent have issued. We now look at the process in a broken-down 

manner. We have better ability to train, we have better ability to 

find out specifically, down to the art unit, down to the examiner, 

down to the director level what issues we have with quality. 

The issue—the question you have about resources, we have a 

short-term solution in that the fees that passed will help us hire 

a good number of examiners over the next number of years. We’ll 

always need—I can say that in the near future we will always, always need examiners to examine patent applications. But we need 

to find something more than just hiring additional people because 

we have found that through the 1990’s there are times when you 

simply cannot keep up with the demand. You can’t find the number 

of people. I don’t think we’re at that place right now, but I do think 

we have to find other ways. 

One of the things that we had proposed is looking at potential 

ways of competitively sourcing tasks. Other ways go directly to the 

heart of what I mentioned earlier about application quality. Our 

system prides itself on giving vast flexibilities. We should continue 

to give flexibilities, but at a time when we need to consider resources, we might have to consider which flexibilities are necessary 

and which are simply beneficial or desirable. 

Mr. SMITH. Okay. Let us know how we can help. 

Mr. DUDAS. Absolutely. 

Mr. SMITH. President Levin, I was going to go back to the nonobvious standard. How can we ensure that courts, if they are, don’t 

continue to dilute the nonobvious standard; and is one solution perhaps changing the language in section 103 of the Patent Act, or is 

there a way to achieve the goal without changing the language? Or 

what would you recommend? 

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Mr. LEVIN. Our committee debated this question of changing 103 

quite extensively, and the majority concluded that we need not do 

that. And we did not recommend it. There was a minority of the 

committee, however, who felt that some toughening of the statutory 

language would be useful, something like introducing explicit language about an inventive step, such as they have in Europe. 

However, we really did converge on the idea that a post-grant review process would in many respects do the work of a stronger 

standard. Many of the weak patents that are out there are ultimately overturned by the courts applying the nonobviousness 

standard. But so many of them get through, particularly in these 

new areas of technology—genomics when it first came in, and business methods when they first started to get patented. And you 

have a period of years where the presumption is to grant the patent and there’s not enough check. It takes years for the courts to 

check on the validity, but if you had a post-grant review process 

it would get checked much more quickly and the standards governing the PTO examiners would be clarified. That would be the 

most important way to improve patent quality. 

Mr. SMITH. That would have the impact that you desire. 

Mr. LEVIN. I think the desired impact. And I think Mr.—agrees 

with that. 

Mr. SMITH. Okay, thanks. One more question, President Levin. 

I’ve read that the willful violation is charged in more than 90 percent of all patent suits. What changes do you think need to be 

made to reduce the number or make it harder to prove willful infringement? 

Mr. LEVIN. It’s just the standard practice, you know. The plaintiff 

charges willful infringement and the defendant counterclaims, you 

know, inequitable conduct. It happens in most cases. That’s why we 

think both these documents need to be modified or abolished. The 

Committee’s codification of making it unnecessary to rely on exculpatory opinions is helpful, but frankly, I think a majority of our 

committee believed that simply eliminating treble damages for willful infringement would be the right answer, which effectively eliminates the doctrine. 

It’s a subjective determination, ultimately, what is willfulness. 

And your—the draft bill actually introduces another area of subjectivity, I think inadvertently, by talking about this, you know, way 

out of a charge of willful infringement by saying that a defendant 

might have an informed good-faith belief that a court would hold 

a patent invalid. Well, how are you going to determine that? That’s 

just ripe for asking for lots of discovery and lots of opinion and trying to determine what somebody thought at some prior time. This 

is just the sort of thing we’re trying to avoid in eliminating best 

mode, in eliminating first to invent, in eliminating inequitable conduct. 

Mr. SMITH. Okay, thank you. And without objection, I’m going to 

yield myself an additional minute, realizing I’m setting a precedent 

for other Members here as well. 

Dr. Myhrvold, you do not want us to change the way injunctions 

are granted. In that case, what do we do about the shakedown lawsuits that seem to terrorize some people? 

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Mr. MYHRVOLD. Well, it’s a very difficult issue. And of course it’s 

always easier to criticize a concrete thing than to come up with 

something new, and that’s why the committee has a hard task 

here. When I was at Microsoft, the nuisance patent lawsuits would 

come to the chief technology officer. So I handled plenty of those. 

I think we’re one of the most popular, if that’s the right term, defendants for that reason. So I have great sympathy with reducing 

nuisance lawsuits. I don’t have a single magic formula, however, 

that says this is exactly how to do it, and I wish I did. 

Mr. SMITH. Okay. Does anyone else have a solution for this type 

lawsuits that we’re talking about? 

[No response.] 

Mr. SMITH. Good. Maybe it’s up to us to decide. I don’t know. 

Okay. 

Yes, Mr. Bartholomew, do you have a——

Mr. BARTHOLOMEW. Yes. I think one of the things that we could 

do to accommodate the small entities in this case is to define the 

working, if you will, that occurs under that injunctive relief standard to allow small entities to license to others who make, sell, or 

use the inventions, and that it might also be possible to agree on 

some other type of exemption for small entities in the case of this 

requirement. The problem with giving an exemption to small entities is that some LLC and other small companies are set up expressly for the purpose of asserting patents against larger companies, and that would prove to be a difficult exception to get buyoff on. 

Mr. SMITH. Okay, thank you, Mr. Bartholomew. 

Mr. DUDAS. I’m sorry, I—— Mr. SMITH. Director Dudas, if you will briefly give us a comment. 

Mr. DUDAS. Very briefly. I’m probably testifying more as a former 

staffer of this Subcommittee and Committee. But I would commend 

your attention to, if litigation is the problem, to look at litigation 

systems management reforms, et cetera—loser-pays rules types of 

things. 

Mr. SMITH. Okay, that might be helpful. Thank you. 

The gentleman from California, Mr. Berman, is recognized for his 

questions. 

Mr. BERMAN. And litigation reform in an area that is Federal law 

would be very unique for the Judiciary Committee in the House. 

We like to just do litigation reform on the things that are in State 

courts. [Laughter.] 

The injunction issue is very interesting. Dr. Myhrvold, I had a 

chance to sit through a withering attack by one of your employees 

on this portion of the bill. And perhaps—I have actually now read 

these two, the existing law and our provision, as opposed to just 

sort of dealing with this very conceptually, and it seems to me 

there is a middle ground here somewhere. There are two classic 

sort of positions. One is, a guy has the patent, no one else should 

be able to do anything with it unless it is with his permission. The 

other side of the coin is you hear stories of some little portion of 

a very expensive product for which there was a huge amount invested and a tremendous amount of expense, and it is a very small 

part of the final product. And apparently the way the law is interpreted, and I can see why given the way the existing law reads, 

168

it is only about preventing violations of a right secured by a patent. 

Yes, the courts have discretion now, but the only factor they really 

look at is whether the injunction should issue to prevent the violation of any right secured by a patent—the exclusivity issue. It tilts 

on that side. 

I look at the language of the Committee Print and it seems to 

tilt against really getting injunctions. You have to show irreparable 

injury and—isn’t there some way to deal with this problem of essentially giving the holder of a patent a level of leverage that really 

isn’t equitable or sensible or in the public interest and at the same 

time maintain some concept of exclusivity for the patent holder in 

normal situations? I mean, isn’t there some way to bridge existing 

law and the Committee Print on this that can create a dynamic 

where this doesn’t become an issue that bogs this bill down? 

Mr. MYHRVOLD. You know, the tricky thing here is you’re balancing two sets of rights, you know, the rights of the patent holder 

and the rights of everybody else, someone who’s claimed to be an 

infringer. One of the ways our court system works is by balancing 

those rights. Today one form of this is that 97 percent of all patent 

lawsuits settle before trial. And they settle before trial because——

Mr. BERMAN. Because of a fear of an injunction. 

Mr. MYHRVOLD. And so, in fact, the tricky thing is if you reduce 

the likelihood of injunctions, what you wind up doing potentially is 

doubling or tripling the number of patent lawsuits. 

Mr. BERMAN. That is one way to look at it. Another way to look 

at it is you enhance the value that the settlement has some relationship to the damage, as opposed to the—I will be careful not to 

get too literal here—but to the extraordinary power that the guy 

who is likely to get the injunction has in negotiating a settlement. 

Mr. MYHRVOLD. One comment I’d make, then, is that a lot of 

these issues are about war stories. You know, you’ve got the littleinventor war story—little guy is disadvantaged by the big company—and you have the big-company war story about the nuisance 

lawsuits. It would be very interesting to have a real statistical 

study and say, well, how often do these things come up? How often 

is it that a tiny part of a big product, as you said, does actually 

go all the way to trial and doesn’t settle? 

Mr. BERMAN. And it could be—but—well, but in the end, the language I see in section 283 on injunctions certainly doesn’t take that 

situation into account. Which is why I think there is an interesting—including the summary—a vision of this in the Committee 

Print. 

Anyway, I don’t know, President Levin, if you have——

Mr. LEVIN. Well, our committee didn’t look at this, but I think 

you’re conceptually right. There would be a middle ground that referenced a balancing of the rights of both sides. This only talks 

about balance—it talks about balance, but it talks about—or principles of equity to prevent the violation of a right secured by a patent. If you want to go in between, you could talk about balancing 

the rights of the patent holder and the accused infringer. 

Mr. BERMAN. Right. Let me try and get my additional minute. 

Mr. SMITH. Without objection, the gentleman is recognized for an 

additional 2 minutes. 

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Mr. BERMAN. Oh. Great. Yes. Does this expand geometrically or 

mathematically? [Laughter.] 

Mr. SMITH. It is not going to escalate more. 

Mr. BERMAN. Let me turn to another issue. The publication—I 

am thinking now in terms of our Committee Print. I like the idea 

of publication after 18 months. I particularly like it because I 

would like to see, I think, some ability for third parties to provide 

prior art going in and obviously publication is essential to providing prior art. But that causes some problems. We have had that 

drill before. 

The other issue, though, is first-to-file versus first-to-invent. I 

understand changing it to first-to-file in terms of harmonization, 

and there is a certain conceptual attractiveness in saying, hey, if 

you are going to invent and you want to be protected, go file it. But 

aren’t you, when we do that, creating a huge advantage for the big 

guy who can quickly hire the lawyer and has him on staff and get 

the thing, and the small inventor is trying to raise the money with 

his new invention to put together the patent application and get it 

in? We are going to get opposition on both of these from certain 

folks. I am just wondering, isn’t 18 months the more important 

principle to establish here? And both of them are harmonization 

issues, I guess, but—and aren’t there some meritorious arguments 

against going to first-to-file? 

Mr. LEVIN. Let me take the 18 months first. I think we know 

that the sky won’t fall if we impose an 18-month requirement because we’ve already imposed it on anyone who wants to take a patent in another national jurisdiction. So all this bill would do and 

what our committee recommends is extend that to people who, by 

current law, can exempt themselves from that requirement by 

promising only to file in the United States. There’s no logic behind 

that. And we know that it’s workable to have publication at 18 

months and for the very reasons you say—it gets the information 

out into the public domain and allows challenges for prior art and 

also informs the people working in related areas of technology as 

to what patent claims are ahead of it in the queue. So it’s a good 

thing to change the 18-month requirement. It’s not a full substitute 

for switching to a first-to-file regime. 

Mr. BERMAN. No. 

Mr. LEVIN. The advantages of a first-to-file regime, in addition 

to just the principle of harmonization, are the fact that you avoid 

all the costly determination when there are disputes about who 

was first. In one case, it’s purely objective who got to the Office 

first; in the other, first-to-invent, what was in the mind of the inventor at what time—it takes a lot of discovery and a lot of sorting 

through the evidence. And here’s the crux of it. There have been 

careful statistical studies of this phenomenon. And what we find is 

small inventors are not disadvantaged by the first-to-file. That is 

to say, in the case of disputes that are—where there are priority 

disputes, the first to file, according to Gerry Mossinghoff’s work, 

wins something like 93 or 97 percent of the time. The exact number is in my testimony. And in fact, if anything, the conclusions of 

Former Commissioner Mossinghoff and of Mark Lemley, a lawyer 

at the University of California, Berkeley, are that the evidence suggests that the current situation actually slightly disadvantages 

170

small inventors who don’t have the capacity or resources to fight 

out the arguments about, you know, who was first in the expensive 

way that it has to be fought out today. 

So first-to-file, in our view, would not favor the big guys. It would 

just be a simpler, more efficient way to resolve disputes about priority. 

Mr. BERMAN. I agree. 

Mr. SMITH. Thank you, Mr. Berman. The gentleman from Virginia, Mr. Goodlatte, is recognized for his questions. 

Mr. GOODLATTE. Well, thank you, Mr. Chairman, and thank you 

for these continuing hearings on this legislation, which I think everybody here on the Committee that is here today is very, very interested in and we applaud you for your leadership on it. And I 

want to welcome all these panel members, particularly Secretary 

Dudas. 

Mr. Secretary, I wonder if you could comment on whether or not 

a post-grant opposition proceeding would help ensure the quality of 

patents. 

Mr. DUDAS. I think a post-grant opposition proceeding would go 

a great length to ensure quality of patent applications. What you 

hear today is people find that reexamination is too limited. It is too 

limited. Litigation is considered too costly, too lengthy, too uncertain. Post-grant opposition allows you to go before the Office. You 

have the expertise there. It’s something that’s been in our Strategic 

Plan for almost 3 years now and has been widely accepted in the 

studies that have been done and the private-sector industry groups 

as well. I think post-grant opposition is probably the most important element for increasing quality for the system as a whole. 

Mr. GOODLATTE. Mr. Myhrvold mentions in his testimony the 

problems that patent backlogs cost for inventors. I am wondering 

if, again, you would comment on this. How would this post-grant 

opposition proposal impact patent pendency? How could Congress 

help minimize the effect that proceeding might have on patent 

pendency, if you are going to tell me that it could slow it down? 

Mr. DUDAS. It wouldn’t naturally slow it down. It could possibly 

slow down production because of the resources we put into that. 

The most important thing at that point, as we’ve said in our Strategic Plan all along, is for any new initiatives that we have in 

place, we will need to be able to have appropriate funding to go 

along with that. But there’s not a natural policy reason why it 

would slow down pendency within the Office. 

Mr. GOODLATTE. So you wouldn’t predict that simply implementing that policy would have a resultant drag on the productivity of your Agency? 

Mr. DUDAS. Not if it came with resources to fund it, that’s correct. 

Mr. LEVIN. May I add an observation? 

Mr. GOODLATTE. Sure. 

Mr. LEVIN. It might actually speed up pendency, because by 

clarifying standards in emerging areas of technology might make 

the examination process more efficient for patents behind in the 

queue. 

Mr. GOODLATTE. Very good. 

171

Dr. Myhrvold, you mentioned some criticisms of the bill in your 

testimony. How would the Committee Print help small businesses? 

Mr. MYHRVOLD. Well, it—you know, there’s a variety of things in 

the Committee Print that I think are helpful to any patent holder. 

I’m hard-pressed to think of any that help small business particularly, but that’s okay. 

Mr. GOODLATTE. No, if they are helped along with everybody 

else, that is fine, but how—which ideas in this Committee Print 

would you identify as helpful to small business? 

Mr. MYHRVOLD. It’s a little easier for me to identify the ones that 

would be hurtful, sir. 

Mr. GOODLATTE. I know. That is why I want you to tell us what 

would be helpful. 

Mr. MYHRVOLD. Well, you know, I’ve seen the studies that my 

colleague here referred to about first to file and so forth. It generates lots of heat and passion in people, but I think is actually 

probably better for folks to have it the way the Committee Print 

does. I think this inequitable conduct thing definitely needs to be 

reformed, and that’s helpful to everyone. Best mode is another 

thing, where—all of these subjective areas, as this NRC committee 

found, only make it harmful for everybody. So I think all of those 

are potentially very, very good for every patent holder. I don’t know 

of anything in the bill that specifically something that advantages 

small patent holders over anyone else. But patent quality does help 

everyone. 

Mr. GOODLATTE. Anybody else want to address that? 

[No response.] 

Mr. GOODLATTE. Okay, I have another one for you, Dr. Myhrvold. 

How would the proposals in the Committee Print, or would the proposals in the Committee Print increase or decrease abuses in patent litigation? 

Mr. MYHRVOLD. Well, I think the overall volume of litigation 

would go up if this injunction feature were implemented. And I’ll 

explain briefly why. The first, as I previously said, 97 percent of 

the cases settle. They settle because the parties have a motive to 

settle. If in fact there’s no injunction at the end, then at least for 

that fraction of cases where it seems unlikely, a large corporate litigant has every interest in the world to keep the litigation going. 

So if 97 percent goes to 94 percent, that doubles the number of 

suits. So it doesn’t have to happen very often to have a big impact. 

In addition, there’s two big additional responsibilities heaped on 

the court here. The first is the determination of is it irreparable 

harm, is it not; who’s commercializing, who isn’t commercializing? 

The bill says, you know, ‘‘shall duly consider all evidence.’’ Well, 

that means motions and discovery and testimony, and it’s a lawsuit 

tacked onto a lawsuit. 

The third area is actually the most concern to me because, if 

there is no injunction, that means the court must determine the license terms and business model for all future use. Today the court 

doesn’t do that. That’s another that’s going to have an enormous 

amount of testimony, litigation, and expert witnesses associated 

with it. 

Mr. GOODLATTE. Anybody else want to address that point? Mr. 

Bartholomew? 

172

Mr. SMITH. The gentleman is recognized for an additional 

minute. 

Mr. GOODLATTE. I thank the Chairman. 

Mr. BARTHOLOMEW. The injunctive requirement as it was proposed in the Committee Print does not abolish the right to injunctive relief. And as we interpret it, it primarily applies to a permanent injunction rather than a preliminary injunction. First of all, 

the injunctive relief is definitely available where working occurs, 

that is, where the patentee makes use of his invention. And we 

would favor extending that to allowing the patentee, such as a 

small entity, to be able to—or any entity, for that matter, to be 

able to work the invention through licensing to others that may 

have manufacturing capacity or other expertise that the small entity does not have. 

Further, in looking at the language of the Committee Print, it 

looks like that a totality of the circumstances test may apply to 

considering the working requirement. That is, the working requirement might be one factor in the overall determination on whether 

to grant or deny injunctive relief, but that other factors that relate 

to determining whether there is harm would also apply. 

Thank you. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Mr. Goodlatte. 

The gentlewoman from California, Ms. Lofgren, is recognized for 

her questions. 

Ms. LOFGREN. Thank you, Mr. Chairman. And thanks to all the 

panelists for your thoughtful testimony and also the more expansive written testimony. 

This is, for me, a great process because we are hearing a series 

of knowledgeable people. And I think the Chairman has made 

clear, we have a working draft. It doesn’t have anyone’s name on 

it yet because we want to invite suggestions and end up with the 

best product that really supports innovation and is fair. So that is 

the spirit that I am going into this inquiry, and your comments 

help a great deal. 

Dr. Levin, your comment regarding the reasonable belief issue, 

all of a sudden I realized I think you are right on that. That is just 

going to invite a lot more litigation. I personally think that is a 

very helpful observation. 

Dr. Myhrvold, your comments and testimony, because it is somewhat at odds with the rest of the panelists, does draw attention. 

In your written testimony, on page 11, you talk and draw our attention to what you describe as a gaping loophole for software on 

271(f). Can you expound on what your concern is there? 

Mr. MYHRVOLD. Okay. Section 271(f) of the law covers what—basically; I’m going to simplify it because both I’m not a lawyer and 

we want to treat this at a high level. It covers infringement on exports. If you have a patent, you’re owed a royalty, it’s considered 

an infringement, you’re owed a royalty on both sales in the U.S. 

and exports. 271(f) covers what happens—a definition of this export 

thing, broadly. And the Committee Print introduces a very short 

amendment. It says a component, under this term, shall be a tangible item, and it shall be combined with other components. Now, 

what that means is that any intangible thing is now not considered 

173

an infringement for export under 271(f). Practically speaking, what 

this means is all export of all software products would not be covered. 

So that means if you’re a valid patent holder, you have a royalty 

agreement with a software company, you wouldn’t get paid for all 

their exports, which for most software companies in the United 

States is more than half their income. Not just software. Actually, 

because it says ‘‘tangible item,’’ anything involving Internet protocols or any other sort of tangible purely electronic commerce, or an 

invention that has as a piece of it—you know, an airplane navigation system, including the airplane, but if the software was 

downloaded across the Internet, then it wouldn’t apply. 

And so my issue here is we can’t define the only valuable items 

as tangible. 

Ms. LOFGREN. President Levin or other panelists, do you concur 

or do you disagree with that? 

Mr. LEVIN. I really hadn’t focused on this provision and it wasn’t 

something we covered in our report, so I would leave it to others 

to determine. 

Mr. DUDAS. This is something that we were looking at. I can’t 

give you a firm position. I can tell you it’s also something that’s 

being reviewed in the courts and that’s one of the things we’re looking at. 

Ms. LOFGREN. I wonder if it would be fair to ask each of you to 

take a look at it and share whatever thoughts you might have subsequent to this hearing. I don’t know what I think about it. I just 

was interested by the testimony and wanted to pursue it. 

On the whole issue of the permanent injunctions, Dr. Myhrvold, 

obviously you are talking about the small inventor, but a lot of the 

disputes aren’t between the small guy and the big guy, they are between the big guy and the big guy. And some of what, in terms of— there is no way to really do a survey of what is happening in the 

97 percent of litigation that has been settled, because it has been 

settled and oftentimes it is a confidential settlement. So it is very 

difficult. Ultimately, we are relying on anecdotes, which is not a 

good practice, but it is the only thing we can do because it is all 

we have. 

So just as a matter of law and principle, how do you—if you were 

designing this, how would you allow a court to establish the equities where you have, for example, a product that has perhaps a 

multiplicity of patented materials owned by or licensed by a variety 

of individuals and corporations, challenged by someone who has a 

small component, who has the ability, really, to extort a huge 

amount of money for what is really a small part, versus all the 

other owners of intellectual property there. I mean, I am not saying 

there shouldn’t be a remedy, but if—how would you—what tools 

would you give a court to draw—if you were God? [Laughter.] 

Mr. SMITH. Without objection, the gentlewoman is recognized for 

an additional minute. Perhaps more. 

Mr. MYHRVOLD. So I can be God, but only for an additional 

minute. 

Ms. LOFGREN. Only for 60 seconds. So don’t waste it. 

Mr. MYHRVOLD. You know, it’s a great question. I’m going to 

have to get back to you in detail. I think, you know, to—I think 

174

actually statistical studies could be done, particularly because really what’s important here aren’t the cases that settle, it’s the cases 

that actually go and injunctions are filed—how often does this actually occur. I think that data could be forthcoming. I don’t personally have it. 

It’s a difficult issue. Today courts do have discretion and courts 

will often exercise it. And so the whole question here is do we know 

that the judiciary is abusing or not properly on those things or not. 

Ms. LOFGREN. Well, it is not a matter of abuse but it is how you 

set the standard both in statute but also in the law as applied and 

interpreted by the judicial branch. 

Mr. MYHRVOLD. You know, for example, I’d be really interested 

to find out how often does this case occur. You’re absolutely right. 

A lot of patent disputes are one big company suing another big 

company and all their suppliers. So maybe this is a much smaller 

case, or much larger case, than we’re talking about. 

Ms. LOFGREN. Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Ms. Lofgren. 

The gentleman from Virginia, Mr. Boucher, is recognized for his 

questions. 

Mr. BOUCHER. Well, thank you very much, Mr. Chairman, and 

I want to commend you at the outset for calling the Committee’s 

attention to a very clear need, and that is to improve patent quality through the passage of legislation. And I want to commend you 

for putting before the Committee a very constructive draft of a new 

law, which contains many features that I find to be attractive. And 

I am glad to hear our panelists today point to some of those very 

constructive features. 

Mr. Berman and I have been for the last 4 years having discussions about approaches that we could take in order to improve patent quality. Four years ago, we drafted a bill, introduced it. It contains a number of the concepts that are now reflected in the bill 

introduced by Chairman Smith, or the bill circulated by Chairman 

Smith. There are a number of things that we looked at at that time 

that, however, are not reflected in this draft. Let me just point to 

one of those in particular and get your opinion about whether we 

are right about this, whether Mr. Berman and I were right in proposing this. 

The overall goal here is to improve patent quality. That inevitably means we need to bring more pertinent information to the attention of the patent examiner and to the post-grant proceeding, to 

the Patent Office generally, so that mistakes can be corrected before the patent leaves the Office. One of the things that I think 

would really help to improve the quality of the initial patent exam 

would be a clear opportunity, with well-defined parameters, for 

third parties to make submissions of prior art that they happen to 

have within their possession. And Mr. Berman and I had recommended that. 

Now, that clear procedure is not contained within the draft we 

are currently considering. So the first question I have is what is 

your opinion of having a clearly defined procedure that would encourage submissions of prior art by third parties? And if you have 

suggestions for the parameters of such a process, please share that 

with us also. Mr. Dudas? 

175

Mr. DUDAS. Thank you. We do allow now at the Patent and 

Trademark Office up to 2 months after publication the submission 

of prior art, but with no relevancy statement. The distinction made 

is you can submit prior art, that’s accepted. If you comment on the 

prior art, that’s sent back or destroyed. There is a statutory prohibition currently in place that says we cannot have a pre-grant opposition procedure, so the question is, in order to avoid harassment 

or delay of the patent application, how do we get relevant art from 

the outside along those lines? 

We are open to the suggestion of how we can improve that. We 

certainly believe that there should be a uniformity of any type of 

submission that there is there. We are currently looking at 2 

months after 18 months—I’m sorry, it’s published at 18 months, 

then there’s 2 months to submit prior art—moving that time frame 

to bring in prior art. And then the question of what’s the right balance of whether or not there can be any comment on that at all. 

That becomes more problematic, and we’ve traditionally opposed 

pre-grant both in the U.S. and elsewhere, where it looks like it can 

be—harass the applicant. 

But a way of getting more prior art is something that we have 

now that we’d like to expand, and we also do it in more general 

ways through partnerships with the private sector. 

Mr. BOUCHER. Well, I very much welcome your willingness to 

have a conversation about ways we might amplify that process to 

some extent. 

Other comments on the submission of prior art? President Levin. 

Mr. LEVIN. It seems to me a bit of a confession of failure if you 

don’t allow the submission of prior art until publication and don’t 

require publication until 18 months, and then are thinking about 

what would happen after that 2-month window. It’s like saying 

there’s no hope for ever getting pendency below 2 years. That’s not 

the way the system should be working. That shouldn’t be our aspiration. Wouldn’t it be a lot better to speed up pendency, to actually 

beat the publication deadline and actually have the publication of 

the patent come when the patent issues, after 9 months or 6 

months, and then let people intervene with their prior art in an opposition procedure? 

So why think in a mindset that assumes there’s a 3-year pendency? That’s not the best system. 

Mr. BOUCHER. But you do favor a clear provision that allows for 

the submission of prior art, perhaps amplifying the administrative 

process currently in practice at the Patent Office? 

Mr. LEVIN. Well, I think it’s more important to speed up pendency and introduce a post-grant review system, where of course——

Mr. BOUCHER. Well, we can do both, though. I mean, it is not a 

mutually exclusive arrangement. 

Dr. Myhrvold, do you want to comment? 

Mr. MYHRVOLD. Well, I very much support both what Commissioner Dudas and Dr. Levin said. I would love to have six- or 9-

month pendencies. That would be fantastic for inventors. Maybe a 

little bit too much to hope for in the near term. I think that the 

current administrative——

Mr. SMITH. Without objection, the gentleman is recognized for an 

additional 2 minutes. 

176

Mr. BOUCHER. Thank you. 

Mr. MYHRVOLD. You know, I think that the existing procedures 

that the Patent Office has are good. By the way, I support publication of all applications. I think transparency in the process is very 

good, and this plays to that. And then, as Director Dudas said, it’s 

a matter of balancing, you know, what the relevant time frames 

are. Obviously, if you have a 2-year time to submit prior art, that 

pushes pendency back out again. 

Mr. BOUCHER. Okay. I understand your point. Thank you. 

Let me tell you what my practical concern is about the automatic 

injunctions that follow today the finding of patent infringement, 

and that is that it simply enhances dramatically the leverage of the 

patent holder in order to negotiate what may be an extraordinarily 

favorable settlement from his perspective. Let me give you an example. Research In Motion, the maker of BlackBerries, which we 

all carry now, originally was confronted with a patent claim for $50 

million. Once a finding of infringement was entered, settlements 

commenced, and the settlement turned out to be $450 million. And 

the incentive that Research In Motion had to pay that king’s ransom, that shakedown, as Chairman Smith so well described the 

general circumstance, is that automatic injunction would have terminated the company’s business. They would have had to stop selling BlackBerries in the United States. 

And I just think that leverage is unjustified. I think it is too 

much. Now, the patent holder is going to get his damages no matter what. There is going to be a trial or a settlement on the question of damages. But why give the patent holder that extraordinary 

amount of leverage and a shakedown opportunity? 

Comments? President Levin. 

Mr. LEVIN. I think that there’s a certain logic in that and perhaps—it’s not something I’ve given a lot of thought to previously, 

but some more balanced phrasing, rather than going from presumptively there’ll be an injunction to presumptively there won’t 

be, finding some kind of balancing test as a way of changing the 

law would be a solution. 

Mr. BOUCHER. But you agree the current structure is a little bit 

unbalanced in having that automatic——

Mr. LEVIN. I agree with the factual assertion you made, that it 

does give a lot of leverage to the patent holder. 

Mr. BOUCHER. You are a careful witness, President Levin. 

Mr. Dudas, do you want to comment? 

Mr. DUDAS. I’d be happy to comment. I think it goes back a bit 

to what Congressman Berman had said earlier on the question of 

how are you viewing this. One of the challenges as intellectual 

property policymakers is convincing others that intellectual property is property. And the question is, ‘‘Is this property?’’ If you take 

a real property example, which we often do when we’re in other 

countries, the person who has the beachfront property, who holds 

out when the shopping center wants to come in. Do we say the 

shopping center’s got a great shopping center plan, we really think 

that they’re going to go ahead and build and they’ll pay you money 

damages? I think it’s a question of, if that patent is intellectual 

property, is this really reducing property rights; and a question of 

177

whether we’re shifting market decisions to judges, is I think what 

some have said. 

Mr. BOUCHER. I hear what you are saying. It is a kind of theoretical response to a practical problem, and I find it less than compelling. But I appreciate what you said anyway. 

Mr. Dudas, with the Chairman’s indulgence, I want to ask you 

one question on a subject that has not been raised today. Mr. Berman and I several years ago were quite concerned about the award 

of business method patents and the fact that we saw that as something of a runaway train. And there were some notable examples 

that I think most people, most observers really thought were inappropriate for patent awards. I mean, what comes to mind is 

DoubleClick’s patent on the reverse auction. That wasn’t exactly 

new. Reverse auctions have been known since about 5,000 years 

ago. I mean, it was not exactly novel. What was novel was that 

DoubleClick carried this out on the Internet for the first time. 

So we inserted a provision which, frankly, I still find appealing, 

that says that if you are carrying out through a computer implementation something that is well-known in the physical world and 

is a commonly known practice, it is not novel, it is obvious, it is 

not patentable. 

What do you think about that? Is that something we should do? 

It is not something that is in the draft we are now considering, but 

we think it is still an important principle. 

Mr. DUDAS. I think it is something that we are considering and 

should consider. I think the biggest problem that we have with 

business methods patents or with new technologies is that it’s new 

and that it’s something that the Office will deal with. I’m one that 

hesitates to compare rejection rates with a signal of quality, but 

when you have new technology, you often have that come in. Business methods patents allowance rate is now 16 percent. I think in 

that area in particular, finding the new technology, finding the new 

art has largely addressed it. I think this is something that we 

should be considering. 

Mr. BOUCHER. Well, this comes right to the point, though. Simply——

Mr. SMITH. Mr. Boucher, would you like another minute or would 

you like to submit written questions to Director Dudas? 

Mr. BOUCHER. Well, Mr. Chairman, may I ask unanimous consent for one additional minute? 

Mr. SMITH. Without objection, the gentleman is recognized for 

another minute. 

Mr. BOUCHER. Thank you, Mr. Chairman. 

Simply improving the quality of the information that comes to 

the patent examiner doesn’t solve a problem when the standard, no 

matter what the quality of the information, permits the award of 

the patent. So very simply, do you have a standard now at the Patent Office that says that something carried out for the first time 

by computer implementation—in common parlance, carried out on 

the Internet—is not patentable if this is a known practice in the 

physical world? 

Mr. DUDAS. I don’t believe we have a standard that goes along 

those lines. I think——

178

Mr. BOUCHER. And so my question is shouldn’t we have one. Just 

that simple. 

Mr. DUDAS. And I—the answer—it’s a simple question, I think 

the answer is probably more complex. If you carry something out 

in the private world and you manage to do it through software, 

software patents are—— Mr. SMITH. I see I still have about 30 seconds for Mr. Myhrvold. 

[Laughter.] 

Mr. MYHRVOLD. The devil’s in the details here. If you had a car 

that could drive itself, that’s something that we can do in the real 

physical world, no software can do today. The day they do that, 

that’s a breakthrough. 

Mr. SMITH. Thank you, Mr. Boucher. 

The gentleman from California, Mr. Schiff, is recognized for his 

questions. 

Mr. SCHIFF. Thank you, Mr. Chairman. 

President Levin, I wanted to follow up on one of the questions 

that my colleague Howard Berman asked you earlier, and preface 

it by saying that, you know, I am very proud as a Californian that 

the UC has led in patents for several years now. And Cal Tech, located in my district, is a proud Number Two. There has been some 

concern raised, I think, at the UC about the change, or proposed 

change, in going to the first-to-file from a first-to-invent and what 

impact that would have on universities that maybe don’t have such 

a well-developed effort to race to the Patent Office, and have a different practice, by and large. 

What impact do you think such a change would have on the universities? Is that a concern to you, given your background? How do 

you think it would change the behavior of universities? Should 

there be some kind of a carve-out for universities and their publications? What do you think the impact would be? 

Mr. LEVIN. I would firmly oppose a carve-out for universities on 

these grounds. I think the impact would be of changing to first-tofile, is that we’d get a little more efficient in our own internal processing of patents. I mean, it’s hardly an excuse that universities operate more slowly than the private sector. We shouldn’t rely on 

that. And I know there are some colleagues within the university 

community who are advancing the view that you suggest, but I 

think for the most part they are the people who run our technology 

transfer offices. And we had a recent meeting of the presidents of 

the Association of American Universities, on the Committee on Intellectual Property, that was unanimous in supporting the NRC 

recommendations, including first-to-file. I think it’s—you know, if 

we’re inefficient at processing patents, we shouldn’t be rewarded by 

the law. We ought to get better. 

Mr. SCHIFF. Well, isn’t that inefficiency due somewhat to the different nature of a university from a private firm that is in the business of——

Mr. LEVIN. We already have what is a very, I think, appropriate 

but also generous provision of the law which allows universities to 

file patents for inventions that were financed by Federal grants. 

That’s worked extremely well. The reason that the University of 

California has done so well is because of the passage of the BayhDole Act, and it’s had, I think, massive salutary effects on our 

179

economy to get technology out into the public domain. There’s no 

reason—I mean, organizations like the University of California or 

Yale or MIT are well enough organized today that we ought to be 

able to turn patents around just as fast as private sector. I don’t 

see any reason for a special exception. 

Mr. SCHIFF. Anybody on that narrow issue have any different 

view? 

Mr. Chairman, thank you. I yield back the balance of my time. 

Mr. SMITH. Thank you, Mr. Schiff. Why don’t you yield the balance of your time to Mr. Berman, who has another question? 

Mr. SCHIFF. Yes, I would be happy to yield my time. 

Mr. BERMAN. I am just wondering if the president of Yale, who 

has spoken against carve-outs, what they think of the University 

of California’s desire to carve out immunity from liability in copyright and patent cases. One test of your cautiousness that Mr. Boucher observed. [Laughter.] 

Mr. LEVIN. I’m not an expert on the doctrine of sovereign immunity, but I think that it’s an unfortunate consequence of that doctrine that some universities are claiming exemption from infringement, whereas private universities are liable for infringement. 

Mr. BERMAN. And those same universities want to enforce their 

patent rights—— Mr. LEVIN. That’s right. Yeah. 

Mr. BERMAN. —against others. 

Mr. LEVIN. Yeah. I—— Mr. BERMAN. That makes it particularly strange, doesn’t it? 

Mr. LEVIN. We’re prepared to play by the fair rules of the game. 

We can enforce our patents and copyrights, other people can enforce them against us. I think that’s best for the American economy. If there’s a way to make that true for all universities that 

doesn’t violate important constitutional principles, I would be in 

favor of it. 

Mr. BERMAN. Now we’ll need a hearing on that subject. 

Mr. SMITH. Thank you, Mr. Berman. 

The other gentleman from California, Mr. Issa, is recognized for 

his questions. 

Mr. ISSA. It is interesting that my years of watching Star Trek 

have come in handy. As you were explaining the problem, I immediate thought of the problem of firing while cloaked. Didn’t everyone want to have that ability to fire without being fired back. And 

obviously, in that fiction it wasn’t possible, but in this reality it is 

possible. 

As I ask my questions, I want you to understand that I am not 

an attorney, I am not a patent attorney; I am a bit of a bonehead 

engineer. But I always talk like I have experience, because I do 

have 37 patents and plenty of time paying a lot of lawyers, an 

awful lot of lawyers, and even a few judges, it seems—— [Laughter.] 

I knew that would get that reaction. 

Mr. SMITH. You may want to rephrase that. Refer to the Ethics 

Committee. 

Mr. ISSA. I cannot tell you how much I have spent over the years 

with judges that were doing their first Markman ruling. And I actually gave the money to the lawyer, but I knew that I was paying 

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for a judge to learn. If that clarifies it—yes, that is what I meant, 

Mr. Chairman. 

As somebody who has a lot of patents, and my company has even 

more, I am concerned about a lot of things related to this bill. First 

of all, I am an advocate of eliminating the ability of people to swear 

behind, infinitely, their invention and reduction to practice, because I have seen that abused. There is no question, though, that 

a strict first-to-file is an extreme move in the other way. And I 

would hope that as this goes on—and I would like your comments 

on it—that there is middle ground, that there is the ability to recognize that if you run to the Patent Office with a half-baked, halfcocked idea—which, by the way, those who can write those up the 

quickest win—versus those who want to not only reduce to practice, but they also want to reduce to a form, a patent application, 

need to have some reasonable middle-ground time. 

That would be my first question, is what about that middle 

ground? 

Mr. LEVIN. I think it’s unnecessary. And the reason I would cite 

that it’s unnecessary is we’ve got thousands of American corporations today that file for patents in Europe, in specific jurisdictions 

in Europe as well as the EPO, and in Japan and elsewhere around 

the globe who are filing on a first-to-file basis and nobody’s complaining about it. I don’t see a problem. 

Mr. BERMAN. Would the gentleman yield just on this point? 

Mr. ISSA. Certainly. 

Mr. BERMAN. It isn’t first to file—— Mr. LEVIN. It’s first inventor to file. 

Mr. BERMAN. First inventor to file. But your argument in favor 

of the change was you won’t have to have litigation about who invented, but going to first inventor to file still leaves that issue open 

to litigation. 

Mr. LEVIN. It does. But it doesn’t—it removes a big piece of it 

because a big piece of it is who was first to invent. Now all you 

have to do is establish that you are an inventor. 

Mr. ISSA. Reclaiming my time, I think the one thing that we 

have to recognize is yes, those American corporations do it. I was 

one of those American corporations. I have a number of patents 

abroad. But of course I always worried about my home market, and 

my home market gave me the ability to reduce it, to have it ready, 

and then I always filed in the U.S. first—what a surprise. And 

then, oh, by the way, you file during your quiet period or during 

your secret period, if you will, and within that 1 year. So I am not 

sure that under the current law, with two standards, that you can 

use no objections overseas as the panacea. 

As to the question of elimination—and this particularly goes to 

Mr. Dudas—the current law allows you do file and, even if you are 

filing against a competitor and both of you are selling in the market, get all the way to the end and not know what dollars you are 

going to receive, whether you are going to be Panduit or what 

standard of is the infringement going to be analyzed as market 

share, is the infringement going to be analyzed as if you were exclusive and there were no non-infringing. All those issues are postgetting a decision, and then you go into that whole other phase. As 

a result, if you eliminate the ability to get treble damages, what 

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you have done is taken—and you put two levels of uncertainty into 

the argument. You have put the level of uncertainty of even whether you are going to get legal fees, and you have put the uncertainty 

as to where you can get to the end of the day and end up getting 

that famous 2 cents because they look and say, well, there were so 

many other noncompeting uses that we are not going to give you 

any of these tests that give you a reasonable loss of profits. 

If you do away with one, aren’t you in fact going to have to fix—

and that is my question—fix the other so that there would at least 

be better certainty as to your award if you prevail, if you are going 

to take away the high end of treble? And I just as for leave for 

them to answer. 

Mr. SMITH. Oh, okay. And without objection, the gentleman has 

another 2 minutes as well. 

Mr. DUDAS. Can you premise your question again? I’m sorry, I 

lost you at the very beginning. 

Mr. ISSA. Right now you start off and you file a lawsuit against 

a competitor—you are in the market, he is in the market, you believe that there is no non-infringing use, you know of none—but 

you go through the entire multi-year process. And even if he develops one during the period, he can diminish your claim to where you 

start off saying I am entitled to lost profits, he is doing $100 million worth of these, and that is $100 million times my profit, that 

is 33 EBITDA, I am entitled to this. 

So you start off with this, hey, look, he is infringing $33 million 

a year of damages. You get to the end, and somebody might give 

you a reasonable royalty, based on some judge or jury—well, judge, 

basically, most of the time. He is going to give you a reasonable 

royalty of 2 cents, based on your invention and not lost profits, because during the time somebody developed a non-infringing, or 

they believe there is a non-infringing use. So you have a skew. You 

have from 2 cents a unit that ends up being one-tenth of your legal 

fees, to $33 million a year. That is very often, at least in my experience, the window you are dealing with. 

When you say treble damages, at least the judge looks and says 

hell, this isn’t enough of an award no matter how—and he says but 

it was willful, and he has the ability to triple it and provide you 

reimbursement for your legal fees. 

It sounds like this legislation anticipates, and some of you are 

saying, let’s take that away. And my question is, assume for a moment we are taking it away. Don’t you have to give back something, or what you end up with is all of the downside, none of the 

upside. And patent infringement is about protecting real property. 

And so I would like your comments on that. 

Mr. DUDAS. I’m sorry. I agree that—and actually I’ll take it back 

one step. I think that there is a reason for willful damages. I think 

there’s a reason for treble damages. I think the issue that has come 

up is the question of how it’s being applied and what it’s doing. 

Our patent system is about disclosure. If it’s being applied in such 

a way that it’s causing people not to get more information, not to 

become more informed, that that becomes a problem. So I would 

argue that although we should look at how it’s being applied, that 

there is a basis for treble damages and willful infringement, and 

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if that is gone, there should be something to be looked at along 

those lines. But I think that it shouldn’t be gone. 

Mr. ISSA. Mr. Levin, you wanted to answer? 

Mr. LEVIN. Well, this is more—you know, right now the area of 

damages is left pretty much at the discretion of the courts. And 

there are a variety of standards for awarding damages. And, you 

know, it’s perfectly possible to make, you know, strong and credible 

cases that lost profits ought to be the basis for—and in many cases 

they are the basis for an award. Are you really objecting to the uncertainty, as opposed to the amounts? 

Mr. ISSA. I’ll be very brief. If you don’t know whether you are 

going to get lost profits, and reasonable royalties can be very small, 

you have—without treble damages you lose the ability for a judge 

to say, look, this was willful infringement and unless I can give 

him his legal fees and triple this 2 cents reasonable royalty, I can’t 

bring any justice to this arrangement because we have gone on for 

2 years and $2 million apiece, the guy has built his market on 

cheating on this guy, and I am going to provide an injunctive relief 

today, but unfortunately I am stuck with a standard of the industry royalty which I don’t intend on giving you, but—and essentially 

you are getting a royalty charge as though I wanted to give you 

one, in many cases, at the end of a court trial. 

Mr. LEVIN. Yeah, but I’ve seen many cases in which the argument for reasonable royalties is rejected in favor of lost profits. 

Mr. ISSA. No, no, we are saying that if you don’t bring the certainty in, then the fact is, by eliminating the 3-times, the judge has 

no ability to even balance what would seem to him to be an unreasonable reward, but one in which he cannot use lost profits. Remember, the lost profits are only good if there is a non-infringing 

alternative—if there isn’t a non-infringing alternative. Once there 

is a non-infringing alternative, you are dropping down this list and 

the dollars drop way off. And like every other thing we have talked 

about here, there is always a claim and there is always an expert 

who says there is a non-infringing alternative. And no matter how 

crummy it is, they have to consider it as though the expert is telling the truth. 

Mr. LEVIN. I see your point. 

Mr. SMITH. Thank you, Mr. Issa. 

Let me thank the witnesses for their testimony today. It has 

been most helpful, most informative. As you all know, we hope toward the end of May to have a piece of legislation that will be more 

final in its nature, and your testimony today has helped us move 

the ball along and get closer to that goal. 

I would also like to thank everyone in the audience for their interest in the subject at hand. Really, this is the first effort, I think, 

at comprehensive patent reform in a number of years, as you heard 

several Members mention today. And we appreciate your participation and interest and listening as well. 

With that, we stand adjourned. 

[Whereupon, at 1:43 p.m., the Subcommittee was adjourned.] 

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A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUB- COMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

Mr. Chairman, 

Thank you for scheduling this hearing on patent reform. In the past 4 years, my 

colleague from Virginia and I have introduced legislation on patent quality reforms 

multiple times. Most recently, in October, we introduced HR 5299, The Patent Quality Assistance Act, which attempted to address many of the problems that continue 

to exist in our patent system. The bill helped foster discussions among diverse industry groups, all of which now recognize the need for changes to the patent law. 

While there are many different views about how to amend the law, we all share 

a common goal—improving the quality of the patent system. 

Our patent system was designed to promote continual innovation by providing 

strong protection for intellectual property. However, if we protect invalid patents, 

the system will have the opposite effect, that of hindering creative output. Furthermore, the introduction of poor quality patents into the marketplace actually increases the amount of litigation and has a negative effect on the economy. 

The problem of low quality patents cuts across the entire spectrum of art units 

that the Patent Office examines, but the chief culprits are patents in the business 

methods and software area. The famed one click patent and the patent for a method 

allowing automobile purchasers to select options for cars over the internet, represent only a drop in a very large bucket of questionable quality patents. 

The Patent Office has initiated what it calls a ‘‘second set of eyes review’’ in an 

effort to address the problem, but that is merely a stop gap measure. Without an 

assurance of sufficient funding every year, the PTO cannot maintain the staff it 

needs to administer the reviews or implement new quality initiatives. Therefore, 

funding for the PTO and an end to diversion of collected fees need to remain top 

priorities in any reform effort. 

Furthermore, any legislative solution to the problem of patent quality must address deficiencies both at the front end of the process, the examination stage which 

takes place in the PTO, and at the back end, which takes place in the courtroom. 

Inventors should have confidence about the quality of the patents they receive before investing further in research and development, and equally secure in the 

knowledge that they can properly enforce that patent. 

In this vein, I have a couple of concerns relating to the committee print. The print 

primarily describes reforms to litigation and remedy provisions. While many of the 

suggestions are worthwhile, I am concerned that we are merely treating the symptoms without enough emphasis on curing the underlying disease. Patent quality 

needs to remain a focus with an objective of minimizing litigation on numerous invalidity claims. For example, including a provision on allowing submissions of additional prior art to an examiner may be helpful in addressing this poor quality problem. 

Furthermore, much of the print speaks to harmonization of U.S. patent law with 

patent law in the rest of the world, for example, shifting from a first to invent paradigm to one of first inventor to file. While this is a very important and necessary 

discussion, I am concerned that opposition to these provisions at this point will affect the ability to achieve other essential patent reform. 

I am looking forward to hearing from today’s witnesses to identify potential solutions to the problems created by questionable patent quality. Some of the suggestions for change, such as the injunction provision, may not be palatable to some of 

the witnesses. However, I throw out a challenge to those witnesses, help us craft 

a resolution to the problem the injunction provision was designed to address, that 

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of the patent troll. While the structure of the discussion may be centered around 

the committee print, I hope that the witnesses here and at future hearings will 

identify additional possibilities for resolving patent quality problems. I look forward 

to working with the Chairman in drafting effective patent legislation. 

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LETTER TO THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN CONGRESS FROM

THE STATE OF TEXAS, AND CHAIRMAN, SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY, FROM WILLIAM L. LAFUZE, PARTNER, VINSON & 

ELKINS, LLP, AND CHAIR, SECTION OF INTELLECTUAL PROPERTY LAW, AMERICAN

BAR ASSOCIATION, ON BEHALF OF THE AMERICAN BAR ASSOCIATION AND THE ABA 

SECTION OF INTELLECTUAL PROPERTY LAW


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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO J. JEFFREY

HAWLEY, LEGAL DIVISION VICE PRESIDENT AND DIRECTOR, PATENT LEGAL STAFF, 

EASTMAN KODAK COMPANY, ON BEHALF OF INTELLECTUAL PROPERTY OWNERS ASSOCIATION (IPO)


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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO RICHARD J. 

LUTTON, JR., CHIEF PATENT COUNSEL, APPLE, ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE (BSA)


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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO JEFFREY P. 

KUSHAN, ESQ., SIDLEY AUSTIN BROWN AND WOOD, LLP, ON BEHALF OF GENETECH


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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO WILLIAM L. 

LAFUZE, PARTNER, VINSON & ELKINS, LLP, AND CHAIR, SECTION OF INTELLECTUAL

PROPERTY LAW, AMERICAN BAR ASSOCIATION, ON BEHALF OF THE AMERICAN BAR

ASSOCIATION AND THE ABA SECTION OF INTELLECTUAL PROPERTY LAW


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PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

Thank you for scheduling this hearing to continue our discussion on patent reform. Last week we heard differing opinions about which sections of the patent law 

should be reformed, and how those reforms should be accomplished. Some of the 

witnesses stressed changes in litigation rules for patent cases, while others focused 

on the need to harmonize. U.S. patent laws with foreign patent law. However, all 

of the witnesses seemed to agree that bolstering the level of patent quality is integral to a workable patent system. 

The foundation of the patent system is the idea that the Patent and Trademark 

Office grants high quality patents. However, over the past few years, a larger number of questionable patents have been issued, leading to increased litigation and uncertainty in markets that are heavily dependent on patent rights. There are many 

possible reasons for the questionable quality—lack of funding resulting from fee diversion, lack of appropriate resources or training materials, an increase in the backlog of patent applications, or even exposure to new patentable subject matter, such 

as business method patents. While the PTO has made great strides in addressing 

this problem, more needs to be done to restore confidence in the patent system. Congress has an important role to play in helping bring about that change. 

The Committee print has provided a useful set of guidelines that identify some 

of the key areas in need of reform. In fact, many of the provisions are almost identical to the ones Mr. Boucher and I proposed last year. However, an issue we addressed with our third party prior art submission provision, and which deserves 

greater attention in the committee print or any future legislation, is how to address 

quality on the front end of the examination process. 

I anticipate a spirited discussion today on the merits of some of the proposals in 

the Committee Print. As I did last week, I submit a challenge to those critical of 

certain provisions—if you have a problem with a proposal, help us craft a better solution. Because we are planning to introduce a patent bill in the near future, I hope 

the many interested groups can work together to help us formulate some answers 

to the problems facing the patent system today. I continue to look forward to working with the Chairman to draft effective patent legislation.

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MEMORANDUM TO THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN CONGRESS

FROM THE STATE OF TEXAS, AND CHAIRMAN, SUBCOMMITTEE ON COURTS, THE

INTERNET, AND INTELLECTUAL PROPERTY AND THE HONORABLE HOWARD BERMAN, 

A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING

MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROP- ERTY FROM DARIN E. BARTHOLOMEW, SENIOR ATTORNEY, PATENT DEPARTMENT, 

JOHN DEERE & COMPANY


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1The proposed text for Section 271(f)(3) is confusing inasmuch as it is unclear whether the 

phrase ‘‘under this section’’ is intended to only apply to subsection 271(f) or to all of section 271 

(e.g. Whether the carve-out for intangible components will also change the scope of domestic contributory infringement under section 271(c)). For purposes of this testimony, we assume that 

the changes are intended to affect only to subsection 271(f). If the proposal is carried-over into 

later drafts, we suggest that the ambiguity be clarified. 

PREPARED STATEMENT OF JACK HAKEN, VICE PRESIDENT, INTELLECTUAL PROPERTY

& STANDARDS, U.S. PHILIPS CORPORATION

Mr. Chairman and members of the subcommittee, I’m Jack Haken, Vice President 

for Intellectual Property and Standards of U.S. Philips Corporation. I appreciate 

this opportunity to express our views on a topic of vital interest to Philips, namely 

preserving the current patent protection against infringing exports that is provided 

by Section 271(f) in Title 35 of the United States Code.1 As I will explain in my 

testimony, we are opposed to the amendment proposed in Section 10 of the Committee Print. 

Philips is a manufacturer of electronic and electrical products and is one of the 

largest users of the patent systems in the United States and other industrialized 

countries. Last year we filed U.S. patent applications for about three thousand new 

inventions. Scientists and engineers at our U.S. laboratories have made pioneering 

advances that revolutionized and revitalized the electronics industry with innovations that led to high definition television, optical CD and DVD recording, digital 

cellular telephones, medical imaging and digital rights management. In 2004 Philips 

reported income from licensing our patented inventions that was well in excess of 

five hundred million dollars. 

Section 271(f) is particularly important to our industry because it allows us to protect our intellectual property rights when American based companies export specialized components and parts kits for assembly in countries that do not have useful 

patent enforcement systems: in particular China, Taiwan, Korea and India. 

As background, I would like to speak briefly about two major changes that have 

affected the electronics hardware industry during the past decade and which make 

Section 271(f) so important to us. 

The first change is a well-recognized shift of high volume electronics manufacturing from the United Sates to overseas contract facilities. America is no longer 

a competitive site for manufacturing this equipment, but we remain a primary 

source of new ideas, technology and essential components that we export to the 

manufacturers. Royalties on exports of patented technology are a significant reason 

that our domestic research establishment remains vital. 

The second change is, perhaps, not as visible as the first; in 1990 almost all consumer electronic devices were implemented in separate specialized sets as combinations of hardware circuit elements. For example, televisions, VCR’s and telephone 

answering machines were produced and marketed in separate boxes and often via 

different selling channels. Today those same product functions are usually implemented in software and we are moving toward a small number of common multiuse 

hardware platforms. Software programs on personal computers and PDA’s now provide audio and video recorder functionality. Cameras and music players are furnished as software features in cellular telephones and television players will soon 

follow. In this context, the boundary between hardware and software becomes fuzzy. 

Software and firmware code effectively reconfigures the hardware circuits to perform particular player or display functions that were formerly achieved in fixed circuitry. 

The interchangeability of electronic hardware and software has also softened the 

boundaries between our traditional marketing and sales channels. Today we find 

that the traditional electronics manufacturers, major software houses and PC integrators are direct competitors for the same consumer electronics product space. 

Section 271(f) was enacted by Congress to plug a 1972 judicially-created loophole 

that had allowed American companies to avoid liability for patent infringement by 

unassembled kits of parts or essential components of patented combinations which 

they exported for assembly overseas. 

In March 2005 the United States Court of Appeals for the Federal Circuit confirmed that software code that Microsoft had exported to overseas manufacturers for 

incorporation onto the disk memories of computer systems was a ‘‘component’’ within the meaning of section 271(f). Judge Rader found that Microsoft’s software ‘‘morphed’’ into hardware in the computer systems and that there was no indication 

of Congressional intent that the statute would distinguish between hardware and 

software or tangible and intangible components. Judge Rader also found that any 

attempt to single-out the software industry as exempt from Section 271(f) would run 

afoul of the United States’ treaty obligations under the TRIPS Agreement. 

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Let me cite some examples of Philips’ patent licensing programs that would have 

been negatively affected if proposed section 271(f)(3) had been law when we obtained our relevant patents:

1) Optical Recording—Philips invented the technology that enabled development of the CD and DVD industries. We have patents in our portfolio that 

cover apparatus and methods that format and index data on these discs. 

When we started licensing these patents, the patented technology was implemented as hardware circuits in disc drives and recorder sets. Today the same 

technology is being implemented as PC software that is internationally marketed and distributed over the Internet and as firmware that is stored in 

semiconductor memory chips. We have great concern that any requirement 

that limited export patent protection to ‘‘tangible’’ items that are ‘‘combined 

physically’’ would impact our ability to bring infringement actions against 

exporters who utilize the Internet to distribute original and upgrade software to manufacturers and users in developing countries where local intellectual property law enforcement is of little worth.

2) Speech and Image Coding—Philips invented important methods and apparatus for speech and image coding which we license to manufacturers of cellular telephone, digital cameras and set-top boxes. Large scale production of 

these products has quickly moved from the United States to other countries 

that have immature intellectual property enforcement systems like Taiwan, 

Mainland China and Korea, but American companies are, and are likely to 

remain, the developers and providers of the application and operating system 

software that controls the hardware and implements the coding methods. 

The software is often exported to manufacturers either as source code, master object code copies or as firmware on semiconductor memory chips. Upgrade software is regularly distributed over the Internet and over cable television networks. Again we have great concern that any requirement that 

limited export patent protection to ‘‘tangible’’ items that are ‘‘combined physically’’ would impact our ability to bring infringement actions against exporters who distribute this original and upgrade software.

3) Medical Imaging—Philips is one of the world’s largest manufacturers of 

medical imaging equipment. Almost ten thousand of our United States employees work on medical products. Much of this equipment is computerbased; the processes that enable our CT, MRI and ultrasound scanners and 

our patient monitoring systems are executed and controlled by software. 

New examination techniques and upgrades are distributed and installed 

using data formats which arguably intangible and would arguably be excluded from export patent protection if Section 271(f) were amended as proposed in Section 10 of the Committee Print.

4) Digital Personal Video Recorders (PVR’s)—Philips manufactured the first 

Tivo brand personal video recorders and the technology has already changed 

the television viewing habits of the American public. Philips’ patented video 

compression technology enables these machines to pack recorded video signals onto hard disk drives. Today the same functionality and methods are 

implemented in PC software that is bundled with operating systems and distributed over the Internet.

5) Digital Rights Management—Philips holds a significant minority interest in 

InterTrust Technologies Corp. InterTrust owns and licenses a large portfolio 

of patents for digital rights management technology that enables the owners 

of copyrighted music, video works, books and other proprietary data to regulate and collect royalties when their properties are distributed on electronic 

media and/or over the Internet. In 2004 Philips reported a gain of over one 

hundred million dollars from the patent licensing activities of InterTrust. 

Components of many of these patented DRM systems are necessarily distributed at the same time and over the same media or channel with the creative 

materials that they manage and protect. However we have great concerns 

that future inventions in this area will not meet the ‘‘tangible’’ and ‘‘combined physically’’ limitations of proposed section 271(f)(3) and would thus not 

receive adequate export patent protection.

6) Travel Route Planning—Scientists at our Briarcliff Manor, New York laboratories invented and developed patented systems that are used to plan travel 

routes in car navigation systems and on Internet mapping web sites. The 

same methods have application to robotic movement and to managing escapes from disaster areas. Here again, we see infringing products and upgrades being distributed and exported on electronic media and over the 

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Internet and again fear the loss of our enforcement rights if section 271(f) 

protection is reduced.

Some of the other witnesses at this hearing may tell you that the carve-out in 

proposed Section 271(f)(3) is directed at business method patents and is necessary 

to prevent their abuse, but the language in Section 10 of the Committee Print is 

much broader than necessary for that purpose and will create a loophole that will 

allow software and firmware houses to avoid liability for patent infringement of U.S. 

patents by exporting their wares as ‘‘intangible’’ e-mail signals and files on master 

disks with full knowledge that they will be converted to tangible, physical form 

when received by their overseas customers. At best, the language of Section 271(f)(3) 

constitutes discrimination which favors the software industry over traditional hardware manufacturers, at worst it will tend to drive the remainder of U.S. electronic 

hardware manufacturing overseas to countries that do not offer strong IP protection. 

The software industry could achieve cost savings by moving its development and 

production facilities overseas, but it has chosen to remain in the United States and 

has flourished here, in no small part because the copyright, trade secret and judicial 

processes in the United States provides strong and effective protection for the intellectual property content of software products. There is no justification for letting 

them enjoy the benefit of our strong IP system for their own products while, at the 

same time, they are allowed to avoid exposure to other companies’ patents when 

those same products are exported. 

Thank you.

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LETTER FROM RYAN M. FOUNTAIN, ATTORNEY AT LAW, MISHAWAKA, INDIANA TO

BLAINE MERRITT, CHIEF COUNSEL, SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY


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