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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 EIGHTH CONGRESS

FIRST SESSION

JULY 24, 2003

Serial No. 38

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 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

JOHN R. CARTER, Texas 

TOM FEENEY, Florida 

MARSHA BLACKBURN, Tennessee 

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 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

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 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

MELISSA A. HART, Pennsylvania 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

JOHN R. CARTER, Texas 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

TAMMY BALDWIN, Wisconsin 

ANTHONY D. WEINER, New York

BLAINE MERRITT, Chief Counsel 

DEBRA ROSE, Counsel 

DAVID WHITNEY, Counsel 

MELISSA L. MCDONALD, Full Committee Counsel 

ALEC FRENCH, Minority Counsel 

(III)

C O N T E N T S 

JULY 24, 2003

OPENING STATEMENT 

Page 

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

WITNESSES 

Mr. Charles E. Van Horn, Partner, Finnegan, Henderson, Farabow, Garrett 

& Dunner, on behalf of the American Intellectual Property Law Association 

(AIPLA) 

Oral Testimony ..................................................................................................... 5

Prepared Statement ............................................................................................. 6

Mr. Mark Kesslen, Managing Director and Associate General Counsel, J.P. 

Morgan Chase & Company, on behalf of the Financial Services Roundtable 

and BITS 

Oral Testimony ..................................................................................................... 15

Prepared Statement ............................................................................................. 16

Mr. David M. Simon, Chief Patent Counsel, Intel Corporation 

Oral Testimony ..................................................................................................... 19

Prepared Statement ............................................................................................. 20

Mr. John R. Thomas, Professor of Law, Georgetown University 

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

Prepared Statement ............................................................................................. 25

(1)

PATENT QUALITY IMPROVEMENT 

THURSDAY, JULY 24, 2003

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON COURTS, THE INTERNET,

AND INTELLECTUAL PROPERTY, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC.

The Subcommittee met, pursuant to call, at inter a.m., in Room 

2141, Rayburn House Office Building, Hon. Lamar Smith (Chair of 

the Subcommittee) presiding. 

Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order. Good morning to you all. It is 

probably earlier to us than it is to you all. We were voting until 

2 o’clock last night. So I mention that, so you will understand why 

our attendance is not at its usual number, and maybe we will have 

some Members who will be joining us a little bit later on. 

In any case, the Subcommittee today is holding a hearing on patent quality improvement, and I will recognize myself and Mr. Berman for opening statements. Then we will proceed and hear from 

our witnesses. 

As part of last year’s authorization of the Patent and Trademark 

Office, Congress instructed the PTO to develop a 5-year strategic 

business plan aimed at enhancing patent and trademark quality 

while reducing patent and trademark pendency. 

In response to this mandate, the PTO developed a strategic plan 

that was later revised based on constructive comments offered by 

this Subcommittee and the user community. In its revised plan, the 

agency has addressed these issues and identified goals and initiatives, largely supported by the major trade associations that represent patent and trademark filers. 

The Subcommittee reviewed the initial phase of the plan, a new 

fee schedule that would generate an additional $201 million in revenue for the PTO in fiscal year 2004 at an April hearing. Legislation incorporating the new fee schedule was the subject of Subcommittee and full Subcommittee markups earlier this year. However, an infusion of additional revenue is not an exclusive cure for 

what ails the PTO. 

Other administrative, operational and policy reforms, such as 

those set forth in the revised plan, must be implemented over the 

years if the agency is to become more productive and efficient. Beyond those changes that the Director may attempt to implement 

pursuant to his current statutory and administrative authority, 

there are other policy initiatives that he, the inventor community, 

2

or other Members may wish to explore that will necessitate a legislative response from Congress. 

The purpose of the hearing is to initiate dialogue on the merits 

of six issues of interest, both to me and the Ranking Member, Howard Berman. The suggested reforms touch upon the PTO reexamination system, patent litigation practice, and the responsibilities of 

an applicant in submitting information to assist in the search and 

examination activities. 

I want to emphasize that in regard to PTO reform all roads must 

lead to enhanced and patent and trademark quality. Reducing 

pendency and backlogs are important goals in their own right, but 

must never supersede the importance of improving the integrity of 

the patents issued. 

Patents of dubious quality only invite legal challenges that divert 

money and other resources from more productive purposes, purposes such as raising venture capital, commercializing inventions 

and creating jobs. 

Today’s hearing will not end our discussion of how the Subcommittee can help PTO become more efficient and productive. I 

hope to visit other areas of the law that may contribute to patent 

quality improvement later in this term of Congress. 

The Ranking Member from California, Mr. Berman, is recognized 

for his opening statement. 

Mr. BERMAN. Thank you very much, Mr. Chairman, and I appreciate your holding this oversight hearing to explore ways to improve patent quality. The issue of patent quality is not a new one 

here for our Subcommittee, and while it is a familiar issue, it does 

remain elusive. There are many factors which potentially affect the 

quality of a patent as an application makes its way through the examination process. 

Having identified several points at which patent quality is most 

vulnerable today, we would hope to move forward and together develop appropriate solutions. As I understand it, today’s oversight 

hearing will focus on six possible initiatives, four of which are relevant during the examination of the application and have a direct 

and potentially significant effect on patent quality, two of which 

are relevant at a time after a patent has issued and a controversy 

arises regarding infringement and validity of that patent. 

These last two initiatives deal more directly with balancing the 

equities of the parties when a controversy arises. The quality of a 

patent is synonymous with the value of that patent, and patent 

quality is dependent on the extent to which an invention has been 

certified to be useful, novel and nonobvious when compared to the 

existing state of the art. 

A poor quality patent, on the other hand, is typically invalid and 

may have far-reaching and negative ramifications for the individuals involved, as well as for the economy at large. Today’s initiatives contemplate improving patent quality by increasing the responsibility of the applicant and engaging the participation of the 

public during the examination process in order to develop a more 

complete record of prior art. 

The first initiative contemplates allowing third parties to present 

to the examiner materials for consideration during the examination 

process. On the one hand, allowing third party submission will genVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
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erate more prior art to be presented to the examiner, and therefore 

will strengthen the presumption of validity. Some argue, however, 

that any limited benefit is far outweighed by the burdens incurred 

by the applicant and by the PTO. 

Additional concerns such as whether one competitor might strategically submit materials to delay another’s patent from issuing, 

and whether a third party should have the opportunity to attach 

his own commentary explaining the relevance of the submission, or 

should that be left to the examiner to deduce. 

The next initiative concerns the requirements of a patent application with regard to prior art submission. Currently an applicant 

is under no obligation to conduct a search of the pertinent literature to determine whether his invention is already within the 

public domain. However, if he conducts such a search, he is required to submit the results of that search to the office. 

It has been suggested that an applicant should be required to 

conduct a search before the application is presented in order to 

eliminate many of the obviously nonpatentable applications from 

being filed. But questions have been raised regarding how the 

scope of the search should be defined and whether this would generate a tremendous amount of litigation. 

Other concerns center around the applicant’s increased financial 

burden, and the increased vulnerability to validity attacks for narrow searches and unintentional omissions. 

The third and fourth issues we are looking at today involve the 

inter partes reexamine, which is essentially a second analysis of the 

patentability of an invention in which a third party may participate. 

One proposal is to remove the provision preventing a party from 

raising on appeal any issue that could have been raised earlier. 

That provision seems to have the effect of keeping people from 

using the reexamination process and removing that provision 

would conversely encourage people to use that process as an alternative to litigation. 

There are other—there is another proposal to include section 112 

issues among those which can be raised during this inter partes reexamination. 

The final initiatives concern the equities of the parties when judicial relief is requested for the patent infringement. Currently a 

patent holder may request injunctive relief if he alleges that his 

patent rights are being violated. A potential infringer may institute 

a declaratory action that the patent is invalid when there a reasonable apprehension of litigation. 

Further, an infringer will be responsible for three times the 

amount of plaintiff’s actual damages beginning at the time notice 

is given of the infringement. Equity dictates that the precise moment each of those events attains legal significance should be the 

same. In other words, the moment at which an alleged infringer 

has a reasonable apprehension of suit should be the same moment 

an allegation of infringement is made, which should coincide with 

a party’s receipt of notice such to incur liability for treble damages. 

Today we will explore the best and most appropriate ways to realign these interests. Taking action on those important initiatives 

is not the magic bullet that will cure the PTO of all that ails it. 

4

There are many additional areas, unity of invention, internal harmonization, and the unique concerns of industries, such as the 

biotech and financial services industries to name a few. 

And we shouldn’t forget our commitment to follow through with 

the antidiversion measure, which we, through bipartisan support, 

voted out of full Committee favorably. I encourage all people interested in that to get active in anticipation of the bill reaching the 

House floor after the recess. 

Time and again we see that innovation is key to the future 

health of our economy. Patent quality is key to continued innovation, and I think our Subcommittee remains dedicated to achieving 

this goal. 

Mr. Chairman, thank you for your willingness to schedule this 

hearing, and I should point out that Mr. Boucher, who has been instrumental in investigating, developing these concepts from the beginning, also has a high interest in figuring out ways to improve 

patent quality. 

Mr. SMITH. Thank you, Mr. Berman. 

Our first witness is Charles Van Horn, a partner at Finnegan, 

Henderson, Farabow, Garrett & Dunner. Mr. Van Horn joined the 

firm after a 31-year career in the U.S. Patent and Trademark Office. Mr. Van Horn received his B.S. From Lehigh University, his 

JD from the Washington College of Law, and his MBA from Lehigh 

University. 

Our next witness is Mark Kesslen, the Managing Director and 

Associate General Counsel at J.P. Morgan Chase and Company. He 

is a registered patent attorney who also serves as the cochair of the 

BITS Patent Issues Working Group, an organization that develops 

and evaluates patent policies for the financial services industry. 

Mr. Kesslen graduated from Tufts University with a Bachelor of 

Science Degree in electrical engineering. He received his law degree from the Case Western Reserve University School of Law. 

Our next witness is David Simon, who is Chief Patent Counsel 

at Intel Corporation. Mr. Simon manages all patent generation and 

analysis for Intel. He directly supervises 80 employees and is responsible for filing numerous patent applications on behalf of the 

corporations. 

Mr. Simon received undergraduate degrees in electrical engineering and political science from MIT, and his JD from the Georgetown University Law Center. 

Our final witness is John Thomas, Professor of Law at the 

Georgetown Law Center, where he specializes in intellectual property licensing, international intellectual property law and patents. 

Professor Thomas has served as an instructor at the U.S. PTO Patent Academy since 1997 and is a visiting scholar with the Congressional Research Service since December 1999. 

Professor Thomas holds a BS in computer engineering from Carnegie Mellon and a JD from the Michigan School of Law and an 

LLM from George Washington University. Welcome to you all. We 

have your complete statements, and without objection they will be 

made a part of the record. And just a reminder, we hope you will 

keep your statements to 5 minutes. 

And we will proceed. Mr. Van Horn, we will begin with you. 

Thank you. 

5

STATEMENT OF CHARLES E. VAN HORN, PARTNER, FINNEGAN, 

HENDERSON, FARABOW, GARRETT & DUNNER, ON BEHALF 

OF THE AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION (AIPLA) 

Mr. VAN HORN. Thank you, Mr. Chairman. I am pleased to have 

the opportunity to present the views of the American Intellectual 

Property Law Association on patent quality improvement. AIPLA 

welcomes the Subcommittee’s efforts to explore ways to improve 

patent quality. 

Today’s hearing focuses on six possible initiatives to enhance patent quality. Although we do not embrace all of the concepts presented in the draft bill, we do appreciate the Subcommittee’s efforts 

to improve the patent system and the opportunity to engage in this 

dialogue. 

First, we are sympathetic to the motivation underlying the proposal to permit any party to submit prior art during the examination process for consideration by a patent examiner. However, the 

limited benefits of permitting these pre-grant submissions of prior 

art, we believe, are far outweighed by the problems it could create 

for applicants and the burdens it would place on the PTO. In addition to the additional workload and complications that it would create for an already overloaded examining staff, it is not difficult to 

imagine strategies that would unfairly delay the grant of the patent, and possibly even unjustly extend the patent term because of 

delays in the PTO. 

Second, we do not believe that a mandatory preliminary search 

requirement would guarantee information that is appreciably better or more complete than is presently available through examiner 

searches, coupled with the requirements of rule 56. In addition to 

failing to provide any guidance regarding the scope of such a 

search that will be made in each application, a very troubling aspect of this proposal is its significant potential to increase the costs 

of enforcing a patent. 

Third, the draft legislation would amend the current law regarding inter partes reexamination procedures to remove an estoppel 

provision, and would expand the grounds upon which an assertion 

of invalidity could be made to include any requirement under section 112 of title 35. 

We believe that the current estoppel provision provides an appropriate balance between the interests of the public and the interests 

of the patentees. The proposal to expand the grounds for reexamination to include any requirement under section 112 we believe 

goes too far. We do not support including the best mode requirement of section 112, because of the analytical difficulties this issue 

presents and the relative inexperience of the PTO examining staff 

in addressing this issue. 

Finally, the remaining paragraphs of section 112 deal primarily 

with the form of the claim and claim construction principles that 

do not constitute, in our judgment, an appropriate basis for challenge in an inter partes reexamination proceeding. 

Fourth, another provision of the draft legislation would add five 

specific factors that a court should consider in determining whether 

to grant a preliminary injunction against the person marketing a 

product alleged to infringe a patent. AIPLA believes that given the 

6

well developed judicial doctrines regarding the equitable factors, a 

court should and does take into account in determining whether to 

grant a preliminary injunction, amending the current statute to include these five factors is unnecessary at best, and could be detrimental to the proper functioning of the patent system. 

Finally, AIPLA is concerned that the declaratory relief proposal 

could have an unsettling effect in the law in relation to patents. We 

see no justification to modify the current law regarding when declaratory action judgment actions can be brought, especially where 

the proposed modifications may make it more difficult to bring such 

actions. On the other hand, we do believe some useful changes can 

be made in the present state of the law regarding willful infringement. 

AIPLA is concerned about the disruptive effect that claims of 

willful infringement can have on the functioning of the patent system. They not only add unnecessarily to the costs of litigation, but 

provide a drag on innovation as companies are wary to improve 

upon or invent around patented inventions for fear of being subjected to claims of willful infringement and the possibility of treble 

damages. 

AIPLA is working with our sister organizations to address 

changes we believe are needed in this area, and hopes to be able 

to share our ideas with the Subcommittee in the very near future. 

This Subcommittee has made a very excellent start to enhance patent quality by proposing legislation that would fully fund the PTO, 

and we will do everything in our power to support this initiative 

and others that are likely to enhance patent quality. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Van Horn follows:]

PREPARED STATEMENT OF CHARLES E. VAN HORN

Mr. Chairman: 

I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on ‘‘Patent Quality Improvement.’’ AIPLA 

welcomes the Subcommittee’s efforts to explore ways to improve patent quality—

goal number one. 

AIPLA is a national bar association of more than 14,000 members engaged in private and corporate practice, in government service, and in the academic community. 

AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright, and unfair competition law, as well as other fields of law affecting intellectual 

property. Our members represent both owners and users of intellectual property. 

BACKGROUND

At the Oversight Hearing which the Subcommittee held on April 11, 2002 on ‘‘The 

U.S. Patent and Trademark Office: Operations and Fiscal Year 2003 Budget,’’

AIPLA testified that achieving a strong and effective Patent and Trademark Office 

would require focusing on three critical objectives: quality, timeliness and improved 

electronic filing and processing capabilities. These objectives were stated in H.R. 

2047, the ‘‘Patent and Trademark Office Authorization Act of 2002.’’ This legislation 

calls for the Director to develop a five-year strategic plan that would—

‘‘(1) enhance patent and trademark quality;

(2) reduce patent and trademark pendency; and

(3) develop and implement an effective electronic system for use by the Patent 

and Trademark Office and the public for all aspects of the patent and 

trademark processes....’’

It is not by accident that AIPLA and other user organizations list quality as the 

first objective. Quality of the patents granted by the USPTO must be at the foreVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00010 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
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front of efforts to strengthen and improve the operation of the USPTO. Granting 

patents that cannot withstand the rigors of a court challenge does not serve the interests of the USPTO user community. It is costly and wasteful of valuable resources that could be put to better use in other endeavors. Moreover, the existence 

of patents that confer unwarranted rights of exclusivity may deter lawful technical 

and marketing activity by others. On the other hand, the ability to protect investments in research through the grant of strong patent rights is equally critical. 

AIPLA believes that efforts to strengthen and improve USPTO operations should 

therefore be governed in every instance by a concern, first and foremost, for improving quality of the rights granted under patents and trademark registrations. 

In the original 21st Century Strategic Plan released by the USPTO in June 2002, 

and in the revised 21st Century Strategic Plan released in February of this year, 

there were several proposals that were aimed directly or indirectly at improving patent quality. AIPLA joined with other user groups to support these proposals in a 

letter to OMB:

1) Expanding the ‘‘second set of eyes’’ review concept, successfully used with 

business method patent applications, to other technology areas;

2) Enhancing the reviewable record by increasing the amount of information included in patent application files regarding applicant/examiner interviews;

3) Creating a competitive compensation package for Supervisory Primary Examiners to attract and retain the best employees for these jobs;

4) Developing tests to determine the suitability of candidates for the position 

of examiner;

5) Establishing ‘‘training art units’’ for new examiners in high volume hiring 

areas;

6) Developing a testing process to certify examiners for promotions;

7) Making greater use of Search Reports prepared under the Patent Cooperation Treaty and by other qualified patent offices; and,

8) Expanding patent application work product reviews, including work product 

reviews of primary examiners.

AIPLA believes there is more that can be done to improve patent quality. First 

and foremost, enactment of H.R. 1561, with the amendment added during the Subcommittee’s markup that would allow the USPTO to retain and use all of its fee 

revenue, would constitute a major step in that direction. The ability to retain and 

use all of its fee revenues would obviate the need for the USPTO to outsource patent 

searches to private search contractors to reduce patent pendency. Even if such 

outsourcing does reduce pendency, its long term impact on patent quality is unknown. If the USPTO is permitted to retain and use all of its fee revenues, it could, 

over time, hire and train the number of patent examiners needed to conduct the 

quality searches and examinations necessary to grant the quality patents sought by 

users. 

This is not a criticism of the Office. It has been forced to seek ways to improve 

its operations precisely because it has not been allowed to retain and use all of its 

fee revenues. If H.R. 1561, as amended by the Subcommittee becomes law, the 

USPTO will have the resources it has said it needs to do the job properly. 

PATENT QUALITY PROPOSALS

Today’s hearing focuses on six possible initiatives to enhance patent quality. 

AIPLA addresses these six initiatives on the basis of a draft bill shared with us by 

the Subcommittee staff which outlines the six initiatives in five sections of the draft 

bill. Some of these initiatives are similar to proposals we have reviewed in the past, 

while others are new. Although we do not embrace all of the concepts presented in 

the draft bill, we do appreciate the Subcommittee’s efforts to improve the patent 

system and the opportunity to engage in this dialogue. 

Third-Party Submission of Art During Examination 

Section 2 of the draft legislation would permit any party to submit prior art, including ‘‘evidence of knowledge or use, or public use or sale,’’ during the examination process for use by examiners in making patentability determinations under sections 102 and 103. The Office would have to consider such submissions if they are 

in writing, accompanied by a prescribed fee, set forth the ‘‘teaching and applicability’’ of such references and the basis on which they are offered, and include a 

sworn declaration as to relevance and accuracy. 

We are sympathetic to the motivation underlining this proposal. Getting the most 

relevant information regarding the patentability of each invention before examiners 

8

is essential for issuing valid patents. However, the limited benefits of allowing pregrant submissions of prior art are far outweighed by the problems it could create 

for applicants and the burdens it would place on the USPTO. Few members of the 

public would monitor published applications for the purpose of ensuring that the 

best prior art was considered by the examiner. Even the opportunity to do so will 

diminish over time as the USPTO begins to reach its goal of 18-month average 

pendency. The proposal would, however, allow any member of the public, wishing 

to prevent a competitor from receiving a patent in a timely manner, to delay the 

issuance of a patent by submitting such prior art in a piece-meal fashion. As long 

as the conditions set forth are satisfied, the Office would be required to continue 

the examination and consider the submission. Small businesses and independent inventors could be particularly harmed by their inability to promptly receive a patent 

needed to raise venture capital or to enjoin a competitor’s activity. 

Conversely, one could even conceive of circumstances under which a patent applicant might submit relevant prior art directly or through an intermediary for the 

purpose of delaying the issuance of the applicant’s patent, especially considering 

that publication at 18-months is optional and patent term is restored for pendency 

exceeding three years. 

Moreover, such submissions would increase the workload on an already overloaded examining staff. Examiners would be required to consider new categories of 

prior art. The legislation expands the prior art to be evaluated by examiners to include evidence of ‘‘knowledge,’’ ‘‘use,’’ ‘‘public use,’’ (is the former ‘‘use’’ non-public?) 

and ‘‘sale.’’ The legislation does not provide standards for the evidence other than 

requiring that it be in written form; nor does it address how an applicant might 

overcome such submissions. In addition to the extra burden on examiners, there 

would also be a considerable training challenge imposed on the USPTO to prepare 

its 3500 patent examiners to be able to evaluate and handle such submissions. 

It should be noted that Japan had a pre-grant opposition procedure for a number 

of years. The General Accounting Office reported to Congress in July of 1993 that 

45 percent of the U.S. companies responding to their survey said that at least one 

of their Japanese patent applications had been opposed in Japan within the previous five years. Of those, 71 percent had 1 to 5 opponents, 15 percent had 6 to 10 

opponents, 9 percent had 11 to 50 opponents, and 2 percent had more than 50 opponents. Delays in receiving patents, especially for important inventions, were rampant. There were examples, under this pre-grant procedure where applicants actually 

had their patents issued after their term of protection had expired. Following years 

of urging by the United States Government and industry groups, the Japanese finally agreed to end the practice in 1996. For the United States to now embrace such 

a procedure would set a most unfortunate precedent. 

Mandatory Prior Art Search by Applicants 

Section 3 of the draft legislation would require all applicants to conduct a preliminary search for prior art and include the documentation of such a search in their 

patent applications. The documentation must include an explanation of the method 

of conducting the search, the databases searched, the results of the search, a statement of the ‘‘teaching and applicability’’ of each reference, and any other documentation requested by the Office that is reasonably necessary to examine an application. 

The applicant would also be required to submit a sworn declaration attesting to the 

relevance and applicability of each reference and the accuracy of the documentation. 

Any person who intentionally fails to submit the required documentation will be 

considered to have fraudulently withheld information. 

Again, the goal of this provision is laudatory: to develop a more complete record 

of prior art so that examiners can conduct more thorough examinations to strengthen the resulting patents. While an admirable goal, we do not believe that the provision would guarantee information that is appreciably better or more complete than 

is presently available through examiners’ searches coupled with the requirements 

of § 1.56 of the Rules of Practice in Patent Cases (Rule 56). The proposed search 

would, however, impose a significant burden on applicants, add to the mountains 

of paper presently flooding the Office, and add to the workload of examiners who 

would have to review such submissions. 

By requiring each applicant to conduct a preliminary search, all applicants, even 

those whose knowledge of the prior art in his or her field is as good as, or better 

than, any data base, would nonetheless be required to conduct such a search and 

include the required documentation in his or her application. Intentional failure to 

comply would result in the applicant being considered to have committed fraud on 

the Office. Moreover, the documentation would have to include a statement of the 

teachings of each reference, not just those relevant and material to the patentability 

of the invention. These requirements would substantially increase the costs to appliVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00012 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
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cants of preparing patent applications and to the Office for reviewing applications 

with questionable benefit for patent quality. 

The provision offers no guidance regarding the scope of the search, merely requiring that ‘‘a preliminary search’’ be conducted. Examiners would be well advised to 

be chary about relying too heavily on searches whose quality is unknown. And while 

the applicant must attest to the accuracy of the documentation, that merely addresses the accuracy of the reported search results, not its comprehensiveness. 

To the extent that examiners would be required to sort through and review the 

documentation submitted, the preliminary search would impose a burden of dubious 

benefit on the PTO, an office already plagued by enormous backlogs. The likely result would be increased pendency of applications with no appreciable improvement 

in the quality of patents granted. 

These comments should not be understood as suggesting that the proposal should 

be further refined to impose even greater burdens on patent applicants. As previously noted, applicants are already required to submit relevant materials to the 

USPTO. Rule 56 currently imposes on an applicant a duty to disclose to the Office 

any information known to that applicant to be material to patentability. Information 

that is material to patentability includes any information that establishes, by itself 

or in combination with other information, a prima facie case that a claim is 

unpatentable. Importantly, information that is not material to patentability need 

not be submitted to the USPTO. In addition, where bad faith or intentional failure 

to disclose such material information to the USPTO becomes known to the USPTO 

before issue, no patent will be granted. 

Another troubling aspect of this proposal is its potential to increase the costs of 

litigation. One can imagine endless discovery of the added documentation portions 

of patents by litigants in efforts to elevate marginal information into material information or to contest the sworn statement that such information is relevant. Of 

course, some discovery and ‘‘fishing expeditions’’ of this nature occur today, but the 

increased obligations that this proposal would place on applicants would surely increase such activity as well as the costs of patent litigation. 

Inter Partes Reexamination 

Section 4 of the draft legislation would make two changes to Chapter 31, Optional 

Inter Partes Reexamination Procedures. First, it amends Section 315(c) of title 35 

to remove the estoppel effect of an order for reexamination in any later assertion 

of invalidity arising under 28 U.S.C. 1338 on any grounds a third-party requester 

‘‘could have raised’’ in the inter partes reexamination proceeding. 

The goal of the estoppel provision in section 315(c) is to prevent third-parties from 

having the proverbial ‘‘two bites of the apple;’’ being able to challenge validity during an inter partes reexamination and again during subsequent litigation on the 

same grounds. It seeks to strike an appropriate balance between the interests of the 

public and the interests of patentees. The public has an interest in being allowed 

to challenge overly-broad or invalid patents. Patentees have an interest in not being 

subjected to harassment from serial challenges to their patents on the basis of information which was available to a third-party challenger at the time that an inter 

partes reexamination request was filed. To protect the public’s interest, section 

315(c) would not estop an assertion of invalidity based on newly-discovered information unavailable to a third-party requestor at the time of the inter partes reexamination proceedings. 

AIPLA believes that the balance struck in the existing section 315(c) is appropriate and opposes the proposed amendment. We see no justification for a third 

party, who is aware of information, or who reasonably could have become aware of 

such information, not to base a reexamination request on all such information. This 

balance was struck to ensure that patentees of limited means would not be subject 

to harassment from serial challenges of a third party requestor based on information that the requestor could have submitted initially, and we believe it is a correct 

balance. 

The estoppel provision may not be the principal reason for the limited number of 

inter partes reexamination requests which have been filed to date. Only those patents issuing on applications filed after the effective date of the American Inventors 

Protection Act, November 29, 1999, are subject to it. Given the long and growing 

pendency of patent applications filed after that date, it is no surprise that to date 

few requests have been filed. In addition, until 35 U.S.C. 141 was amended just this 

past November 2nd, a third-party requestor could not appeal an adverse determination of patentability by the Board of Patent Appeals and Interferences to the Court 

of Appeals for the Federal Circuit. The fact that only the patentee was permitted 

to appeal an adverse decision to the Court was a powerful deterrent to using the 

inter partes reexamination procedure. Further, unlike ex parte reexamination, the 

10

real party in interest must be identified. This was again a safeguard inserted into 

the inter partes reexamination procedure to protect patentees from serial challenges 

from a single, unknown, third-party. The downside of this safeguard is that third 

parties are reluctant to file inter partes reexamination requests out of concern that, 

if they are not successful, they have identified themselves as possible infringers. 

Again, this was the result of a careful balancing of interests by Congress when it 

established inter partes reexamination. Finally, there is a reluctance to request an 

inter partes reexamination where the grounds for asserting invalidity are limited to 

patents and printed publications. If the reexamination request is unsuccessful, the 

utility of those references could be compromised in subsequent litigation where 

other grounds can be raised. 

Given these disincentives for using inter partes reexamination proceedings, it is 

not surprising that few requests have been filed. The fact that 14 requests have 

been filed in the first 6 months of this year (as compared to two in 2001 and six 

in 2002) suggests that more time is needed before the impact of the estoppel and 

other provisions can be fully evaluated. 

Section 4 of the draft legislation also expands the grounds upon which an assertion of invalidity can be made during an inter partes reexamination proceeding by 

amending section 311 of title 35 to include any requirement under section 112. As 

previously noted, requestors are currently limited to challenging the validity of 

claims on the basis of patents or printed publications. 

AIPLA has previously testified in support of allowing third parties to challenge 

patents in post-grant opposition proceedings on the basis of section 112, paragraphs 

1 (except ‘‘best mode’’) and 2. With the exception of best mode (for the reason that 

examiners have no way of investigating this anachronistic requirement), examiners 

currently scrutinize applications for the requirements of paragraphs 1 and 2 of section 112 during the initial examination as a matter of routine. Allowing challenges 

on the basis of paragraphs 1 (excluding best mode) and 2 of section 112 would be 

a constructive amendment to section 311. 

AIPLA does not believe that patents should be challenged in the USPTO in inter 

partes reexaminations on the basis that a patentee did not disclose the best mode 

contemplated by the inventor for carrying out his or her invention. This is not the 

best mode ultimately developed by an inventor for practicing the invention. This is 

the best mode contemplated by an inventor for carrying out the invention at the 

time the application was filed. This issue includes consideration of the applicant’s 

intent, which is the subject of a great deal of discovery by defendants in patent litigation, usually accomplishing little more than increasing the costs of litigation. To 

allow this ground to be raised in inter partes reexamination would immeasurably 

complicate the procedure and frustrate the goal of reexamination of providing a relatively quick and inexpensive alternative to litigation. 

We do not believe the remaining paragraphs of section 112 dealing with claim 

form (independent, dependent, and multiple dependent) and means-plus-function 

claims are appropriate grounds to be raised in an inter partes reexamination proceeding. Paragraphs 3, 4, and 5, which address claim form and how dependent and 

multiple dependent claims may be written and construed, are more procedural than 

substantive and are not appropriate grounds for challenging validity. 

Section 112, paragraph 6, allows an applicant to express an element in a claim 

for a combination as a means or step for performing a specified function without 

the recital of structure in the claim. To determine what the claim covers, one is directed to look to the disclosure in the specification to determine the corresponding 

structure, material, or acts which limit the claimed invention. Paragraph 6 thus presents an alternative form of claiming and instructions for ascertaining what such 

a claim includes and excludes. It is more directed to allowing applicants flexibility 

in claiming their inventions and to enabling the public to determine whether a given 

product or process infringes the claim than to providing a ground for challenging 

validity. Accordingly, we do not believe paragraph 6 is an appropriate basis for challenge in an inter partes reexamination proceeding. 

Injunctions 

Section 5 of the bill would amend section 283 of title 35 to add five specific factors 

that a court should consider in determining whether to grant a preliminary injunction against a person marketing a product alleged to infringe a patent. The court 

is to consider:

1) whether the party seeking the injunction is marketing a product covered by 

the patent,

2) whether the party is engaging in activities to begin marketing such a product,

11

3) whether there are alternatives to the product,

4) the adverse effects of removing the product from the market, and

5) the extent to which the party seeking the injunction will suffer harm that 

cannot be remedied by the payment of damages.

Section 283 of title 35 currently reads as follows:

‘‘§ 283. Injunction

‘‘The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of 

any right secured by patent, on such terms as the court deems reasonable.’’

To obtain a preliminary injunction, a party must establish (1) a reasonable likelihood of success on the merits; (2) irreparable harm; (3) the balance of hardships tipping in its favor; and (4) the impact of the injunction on the public interest. H.H. 

Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384, 2 USPQ2d 1926 (Fed. Cir. 

1987); Hybritech Inc. v. Abbott Lab., 849 F.2d 1446, 7 USPQ2d 1191 (Fed Cir. 

1988); Reebok International, Ltd. v. J. Baker, Inc., 32 F. 3d 1552 (Fed Cir. 1994). 

The trial court must engage in an evaluation and balancing of these factors and the 

circumstances surrounding each. Illinois Tool Works, Inc. v. Grip-Pak, Inc., 906 F. 

2d 679 (Fed. Cir. 1990); Polymer Technologies, Inc. v. Bridwell, 103 F. 3d 970 (Fed. 

Cir. 1996). 

A ‘‘clear showing’’ of patent validity and infringement will create a presumption 

of irreparable harm. Where validity and infringement have been clearly established, 

immediate irreparable harm is presumed. Smith International, Inc. v. Hughes Tool 

Company, 718 F. 2d 1573 (Fed. Cir. 1983). Some courts have even found that, where 

there is a strong showing of patent validity, an invasion of the inventor’s right to 

exclude under the patent should be sufficient irreparable harm for an injunction 

without a showing that the infringer is financially irresponsible. Smith International, Inc. v. Hughes Tool Company, 718 F. 2d 1573 (Fed. Cir. 1983); Zenith Laboratories, Inc. v. Eli Lilly and Co., 460 F. Supp. 812 (D.N.J. 1978). 

However, like any presumption, a presumption of irreparable harm may be overcome by facts in the record. Rosemount, Inc. v. United States Int’l Trade Comm’n,

910 F. 2d 819 (Fed Cir. 1990); Progressive Games v. Shuffle Master, 69 F. Supp 2d 

1276; 1999 U.S. District Lexis 20783. Even when irreparable injury is presumed and 

not rebutted, it is still necessary for a court to consider the balance of hardships 

on the parties. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384 (Fed. 

Cir. 1987); Datascope Corp. v. Kontron Inc., 786 F. 2d 398 (Fed. Cir. 1986). 

As the question of whether to grant an injunction is founded on principles of equity, a court has the discretion to weigh the relevant hardships on the parties. The 

court’s consideration could include any number of factors, including the effect on the 

patentee’s market share, business reputation and goodwill, as well as the parties’ relevant size. Bell & Howell Document Management Prods. Co. v. Altek Systems, 132 

F.3d 701 (Fed. Cir 1997); Illinois Tool Works, Inc. v. Grip-Pak, Inc., 906 F. 2d 679 

(Fed. Cir. 1990); Progressive Games v. Shuffle Master, 69 F. Supp 2d 1276; 1999 

U.S. District Lexis 20783. In determining whether the likelihood of irreparable 

harm is sufficient to warrant a grant of a preliminary injunction, courts have considered whether a party makes, or plans to make, the patented product. Roper Corp. v. Litton Systems, Inc., 757 F. 2d 1266 (Fed. Cir. 1985). 

Given these well developed judicial doctrines regarding the equitable factors a 

court should take into account when determining whether to grant a preliminary 

injunction, AIPLA believes amending the current statute to include these five specific factors in section 283 is unnecessary at best, and could be detrimental to the 

proper functioning of the patent system. Trial courts already have the power to 

evaluate these and many other equitable considerations in determining whether a 

preliminary injunction should be granted. Courts do not routinely issue a preliminary injunction to stop an alleged patent infringement. An accused infringer may 

present evidence that the various factors do not call for the grant of a preliminary 

injunction. 

The proposed amendment is heavily weighted to make the court’s determination 

of whether to grant a preliminary injunction turn on whether the patent is being 

‘‘worked,’’ that is, whether the protected invention is being commercialized. As noted 

above, the question of whether a patentee makes or plans to make a patented invention is already a factor courts may consider in weighing whether to grant a preliminary injunction, but it is one of many factors and not the predominant factor. To 

focus on whether a patent is being worked would have a number of negative consequences for America’s innovative community. 

The United States patent system is founded on Article 1, Section 8, Clause 8 of 

the Constitution that grants Congress the power ‘‘To promote the progress of . . . 

12

useful acts, by securing for limited times to inventors the (exclusive right to their 

. . . discoveries’’ (emphasis added). This Constitutional power does not limit the exclusive right only to discoveries and inventions which are worked. 

There is good reason for this. Many of the greatest inventions in our Nation’s history have been made—and continue to be made today—by the lone individual. Such 

independent inventors often do not have the financial resources to develop and bring 

to market their inventions. It took Chester Carlson, the inventor of electrostatic 

copying (which we now know as xerography) over twenty years from the date of his 

first patent application to produce a successful commercial product. Such struggling 

entrepreneurs must approach venture capitalists and established manufacturing 

firms for assistance. To adopt a provision which could limit the rewards for such 

pioneers to reasonable royalties until they are in a position to market their patented 

inventions would seriously erode the incentives of the patent system for them. Not 

only would their opportunities to seek licenses and manufacturing partners be jeopardized, but it could lead to a greater reliance on trade secrets, undercutting the 

Constitutional purpose of promoting the progress of the useful arts through the publication of patented inventions. 

Placing too heavy an emphasis on determining whether to grant a preliminary injunction on whether a patent was being marketed would also set an unfortunate 

precedent globally. For years U.S. Government representatives worked tirelessly to 

urge other countries to eliminate provisions in their laws that authorized the grant 

of compulsory licenses on the ground that a patent was not being worked in their 

territory. To suggest that the failure to work a patent in a country is an acceptable 

reason for withholding the grant of a preliminary injunction undermines years of 

effort and could have serious adverse consequences for U.S. interests abroad. 

Finally, such an explicit requirement that a patentee must be marketing or engaged in activities to market an invention as a condition for obtaining a preliminary 

injunction could raise questions of compliance with obligations under Articles 28 

and 50 of the Agreement on Trade-Related Aspects of Intellectual Property Rights 

(TRIPs). Under Article 28 of TRIPs, member nations must have patent laws that 

grant exclusive rights to make, use and sell inventions protected by patents:

Article 28

‘‘1. A patent shall confer on its owner the following exclusive rights:

‘‘(a) where the subject matter of a patent is a product, to prevent third parties not having the owner’s consent from the acts of: making, using, offering 

for sale, selling, or importing for these purposes that product;

‘‘(b) where the subject matter of a patent is a process, to prevent third parties not having the owner’s consent from the act of using the process, and 

from the acts of: using, offering for sale, selling, or importing for these purposes at least the product obtained directly by that process.’’

...

Article 28 does not condition the grant of such exclusive rights on whether the patentee is marketing his or her invention. 

Similarly, Article 50 obligates member states to ensure that courts shall have the 

authority to order prompt and effective provisional measures [preliminary injunctions]:

Article 50

‘‘1. The judicial authorities shall have the authority to order prompt and effective provisional measures:

‘‘(a) to prevent an infringement of any intellectual property right from occurring, and in particular to prevent the entry into the channels of commerce 

in their jurisdiction of goods, including imported goods immediately after 

customs clearance;

‘‘(b) to preserve relevant evidence in regard to the alleged infringement.

‘‘2. The judicial authorities shall have the authority to adopt provisional measures inaudita altera parte where appropriate, in particular where any delay 

is likely to cause irreparable harm to the right holder, or where there is a 

demonstrable risk of evidence being destroyed.’’

...

Nowhere is this obligation conditioned on a patent holder marketing his or her invention. 

For all of the foregoing reasons, AIPLA strongly opposes adding to section 283 of 

title 35 the factors contained in Section 5 of the draft legislation. 

13

Declaratory relief 

Section 6 of the draft legislation states that any communication by a patent holder that is sufficient to subject the recipient to liability for willful infringement shall 

be sufficient to confer standing on the recipient to maintain an action for declaratory relief. The section further provides that, for a notice of infringement to be sufficient to subject its recipient to liability for willful infringement, it must identify the 

specific patent, identify the allegedly infringed claims in the patent, and set forth 

the alleged infringing product, process, or service. 

Section 2201 of title 28 guides the filing of declaratory judgment actions in federal 

courts:

‘‘§ 2201. Creation of Remedy

‘‘(a) In a case of actual controversy within its jurisdiction . . . any court of the 

United States, upon filing of an appropriate pleading, may declare the rights 

and other legal relations of any interested party seeking such declaration, 

whether or not further relief is or could be sought. Any such declaration shall 

have the force and effect of a final judgment or decree and shall be reviewable 

as such.’’ ...

AIPLA is concerned that Section 6 of the draft legislation could have an unsettling effect on the law of declaratory relief in relation to patents. Currently, an individual has standing to seek declaratory relief if there is an ‘‘actual controversy,’’ that is, if there is (1) an explicit or actual threat of a suit which creates a reasonable 

apprehension of suit, and (2) present activity which could constitute infringement 

or concrete steps taken with the intent to conduct such activity. Fina Research, S.A. v. Baroid Ltd., 141 F.3d 1479 (Fed Cir. 1998); Cargill, Inc. v. Sears Petroleum & 

Transport Corp., 2002 U.S. Dist. LEXIS 20714 (Fed Cir. 2002). Even if there is actual controversy, the court retains discretion to decline jurisdiction. EMC Corp. v. Norand Corp., 98 F.3d 807, 39 USPQ2d 1451 (Fed. Cir. 1996). By providing that 

any communication sufficient to impose liability for willful infringement is sufficient 

to confer standing to bring a declaratory judgment action, the proposed language 

could be interpreted to eliminate any communication not satisfying such stringent 

requirements for a willful infringement notice from conferring standing to bring a 

declaratory judgment action. This could eviscerate the existing standards, thereby 

severely limiting the availability of declaratory relief. 

Currently, a party may bring a declaratory judgment action to clarify his or her 

rights where that party has a reasonable apprehension of suit for patent infringement. The party can obtain a determination of whether a technology of interest or 

planned activity is covered by a patent or is in the public domain. Under the legislation, a party could have no standing to bring a declaratory judgment action unless 

the individual received a notice sufficient to create liability for willful infringement. 

A patentee could cast a cloud over an area of technology, and those subject to that 

cloud could do nothing to resolve the issue short of engaging in potentially infringing acts as long as the patentee did not send a qualifying communication. 

We see no justification to modify the law regarding when declaratory judgment 

actions can be brought, especially where the modifications might make it more difficult to bring such actions. On the other hand, we do believe some useful changes 

can be made in the present state of the law regarding willful infringement. 

A Proposal to Improve the Law Regarding Willful Infringement 

AIPLA is concerned about the current state of the law regarding willful infringement, and especially the disruptive effect that claims of willful infringement have 

on the functioning of the patent system. It not only adds unnecessarily to the cost 

of litigation, but it produces a drag on innovation as companies are wary to improve 

upon or invent around patented inventions for fear of being subjected to claims of 

willful infringement and the possibility of treble damages. More importantly, the 

current state of the law regarding willful infringement may be affecting the Constitutional scheme of exclusivity in exchange for public disclosure. 

During the 2002 Federal Trade Commission/Department of Justice Hearings on 

the patent system, the role of patents as an effective means for disseminating information efficiently was repeatedly called into question. It was clear from the statements of various witnesses, and from the give-and-take in the discussions at the 

hearings, that the frequency with which willful infringement has been alleged has 

led some companies to forbid their employees from reading patents. 

Numerous problems have arisen with the enhanced damages provision of the patent statute, particularly as that provision has been interpreted by the Federal Circuit. Under Federal Circuit precedent, a party who has knowledge of a patent is 

under a duty of care to reasonably avoid infringement of the patent. The Federal 

14

Circuit has said that this usually entails the obtaining of a competent legal opinion. 

Underwater Devices Inc. v. Morrison-Knudsen Co., 717 F. 2d 1380 (Fed Cir. 1983). 

Subsequent cases have held that the non-disclosure of the opinion during the course 

of the trial can lead to a negative inference that the opinion obtained was adverse 

to the infringer. Kloster Speedsteel AB v. Crucible, Inc., 793 F. 2d 1565 (Fed. 

Cir.1986). These cases have driven alleged infringers to obtain an opinion of counsel 

in virtually every instance of alleged infringement, and to produce such opinions 

during the course of litigation. M. Powers and S. Carlson, The Evolution and Impact 

of the Doctrine of Willful Patent Infringement, 51 Syracuse L. Rev. 53, (2001) (hereinafter ‘‘M. Powers and S. Carlson’’). 

The widely-shared perception that an alleged infringer must obtain a competent 

legal opinion in patent cases also leads to problems with attorney disqualification. 

Some states, such as the state of Virginia, do not even allow the attorney trying 

the patent infringement case to be in the same law firm as the attorney who drafted 

the opinion for purposes of willfulness. As a result, a company’s chosen counsel cannot act as both its counselor and its trial attorney. Long-term relationships between 

attorneys and clients can be lost because the law firm is not able to assume this 

dual role, and the costs of defending oneself against a charge of willful infringement 

is escalated. 

The requirement of the need for a legal opinion in every patent infringement case 

can also lead to problems in larger companies. Larger companies have numerous 

employees, many facilities, and many operational units. Knowledge of a patent by 

only a single individual in that company may be imputed to the company at large 

for purposes of willfulness. Yet, the actual decision maker, who should decide 

whether to obtain a legal opinion, may never be aware of the patent. A company 

can ‘‘know’’ of a patent for purposes of willfulness and yet not realize that it should 

obtain a legal opinion to absolve itself of willfulness allegations. 

Any exposure to or knowledge of the infringed patent may be held to be sufficient 

to meet the notice requirement for willfulness. In Great Northern Corp. v. Davis 

Core and PadCo, 782 F. 2d 159, 167 (Fed. Cir. 1986), a patentee was found to have 

notice of a patent sufficient to trigger its affirmative duty to obtain an opinion of 

counsel when the infringer’s president learned of the patent at a social gathering 

from a third party who, at the same time he mentioned the patent, also stated it 

was invalid. The Federal Circuit found that the infringer’s ‘‘failure to fulfill that 

duty is clearly an adequate basis for the district court, in its discretion, to assess 

treble damages...’’ Id at p. 167. 

The cost to alleged infringers is immense. Because of the low knowledge threshold 

that can give rise to a duty of due care to avoid willful infringement and because 

of the negative inference that attaches to the nondisclosure of an opinion of counsel, 

infringers must inevitably err on the side of caution and obtain opinions of counsel 

when there is even the smallest possibility that they may be sued for infringement 

of the patent. For companies that may receive hundreds of allegations of patent infringement annually, the total costs for such opinions can be especially costly given 

the rigid and comprehensive requirements for such opinions enunciated by the Federal Circuit. 

Apart from the costs of all of these preventative steps forced on accused infringers, claims of willful infringement are made in almost every patent infringement 

lawsuit. A great deal of discovery is taken on the willfulness issue. Many motions 

are typically filed including a motion to compel the opinion, motions to compel withheld documents under the attorney-client privilege, motions to bifurcate the trial 

and reconsiderations of these motions, etc. All of these motions add additional unnecessary costs to patent infringement litigation. 

AIPLA has undertaken the task of developing a proposal to reform the practices 

in this area that would both promote the Constitutional role of the patent system 

to efficiently disseminate knowledge, while retaining the ability to obtain enhanced 

damages from an abject copyist. We elicited input from our membership and from 

an FTC representative at a Forum at our Spring Meeting this year and learned 

much that informed the further debate. We are working with our sister organizations to launch a multi-year program to implement the changes needed and hope 

to be able to share our ideas with the Subcommittee in the very near future. 

CONCLUSION

AIPLA appreciates the efforts of the Subcommittee to examine ways in which patent quality might be enhanced. We encourage you to continue your efforts. You have 

made an excellent start by proposing legislation that would fully fund the USPTO 

and we will do everything in our power to support this initiative. We look forward 

15

to receiving the proposal of the USPTO to establish a post-grant opposition system 

and commit to work with you on this proposal.

Mr. SMITH. Thank you, Mr. Van Horn. 

Mr. Kesslen. 

STATEMENT OF MARK KESSLEN, MANAGING DIRECTOR AND 

ASSOCIATE GENERAL COUNSEL, J.P. MORGAN CHASE & 

COMPANY, ON BEHALF OF THE FINANCIAL SERVICES 

ROUNDTABLE AND BITS 

Mr. KESSLEN. Thank you, Mr. Chairman. I was pleased to accept 

your invitation to testify today on behalf of the Financial Services 

Roundtable and BITS. We are grateful for the opportunity to comment on the steps that should be taken to modernize the patent 

laws. 

Mr. Chairman, patent attorneys and financial institutions are a 

well kept secret. We work quietly behind the scenes to protect our 

companies’intellectual capital from assault. In recent years we have 

been busy fighting frivolous patent claims, often at a significant expense to our companies. And we are concerned that this is a problem that is not going away unless Congress does something about 

it. 

Pending claims of infringement against financial service companies are serious problems, but they are only the tip of the iceberg. 

Patent applications involving financial services have been filed in 

large numbers since 1997. Because it takes at least 4 years to get 

these applications processed through the Patent Office, the number 

of these patents now issued are growing, which will lead to an increase in the number of claims. 

We believe that there are steps that Congress can and should 

take to provide the safeguards without impairing the important 

protections afforded to intellectual property. We recommend four 

initial measures. 

Under the first measure, we propose modifying the prior user 

rights defense. We believe that this defense is an important protection, especially due to the recent growth in patent litigation and 

our historical reliance on copyrights and trade secrets. 

But in its current form this defense does not go far enough. It 

is too easy for a patent owner to circumvent it. The defense should 

be modified to apply equally to any product or process covered by 

a patent. We believe that the level of proof required to assert this 

defense should be reduced. 

Under the second measure we propose modifying the standard 

for injunctive relief. In many countries injunctive relief is not available for paper patents that have not been worked. That is, if the 

owner of a patent does not use it within a specified period of time, 

the owner loses the ability to obtain injunctive relief. This is appropriate because the patent law is intended to encourage and reward 

innovators by ensuring they receive the fruits of their efforts. 

We believe a better and more equitable approach is to allow 

courts to grant an injunction on a patent only if the patentee is 

likely to suffer immediate and irreparable harm that cannot be 

remedied by the payment of money damages alone. 

If an inventor can demonstrate a likelihood of irreparable harm, 

injunctive relief ought to be available, but if that is not the case, 

16

then for the good of society, they should not be allowed to stand 

in the way of the utilization of their invention. Of course, the inventor should be entitled to monetary awards and thus be rewarded for their efforts. 

Under the third measure, we seek to clarify some of the current 

damages laws. More specifically, we believe that the patent law relating to damages is subject to abuse by patent holders who go fishing for infringers. By simply sending a letter at the cost of nothing 

more than a 37-cent stamp, a patent holder can set in motion a 

very costly process for the alleged infringer. 

The recipient of that letter has to undertake an investigation, incurring substantial cost, personnel and legal time. Failure to conduct the necessary due diligence could later subject the alleged infringer to treble damages. The accusing patent holder incurs no 

risk or cost other than the cost of that stamp. 

We believe that the patent law should be modified to provide 

that enhanced damages may not be awarded unless the alleged infringer has received an objectively reasonable apprehension of suit 

by the patentee, which includes an identification of the patent, the 

patent claims at issue, and the particular product at suit. 

We have also proposed similar standards for limiting actual damages in our written testimony. 

Under the fourth measure, we recommend developing an opposition proceeding. The Patent Office has proposed a post grant review of patent claims in their 21st century plan. We strongly support this concept. 

However, to be fair, we believe these proceedings should include 

a readily available, reasonably prompt and cost effective way to determine patentability without imposing unreasonable burdens on 

the patentees. The procedure would enable companies to manage 

the risk claims against them based upon bad patents without incurring the high cost of litigation or facing the need to settle to 

avoid that cost. 

In conclusion, the Roundtable and BITS are strong believers in 

the U.S. Patent process as fundamental to a healthy U.S. Economy 

and robust free enterprise system. Given the importance of the patent process, the Patent Office should be fully funded and given adequate resources to perform its duties. Current efforts to craft legislation are to be commended. However, with increases in both the 

requests received by the Patent Office and the claims of infringement, there is a need for Congressional debate and frank discussion regarding expanded defenses and other tools for litigation risk 

management with members of the financial services industry and 

the patent community at large. 

Again, thank you for the opportunity to speak today. 

[The prepared statement of Mr. Kesslen follows:]

PREPARED STATEMENT OF MARK KESSLEN

Chairman Smith, Ranking Member Berman and members of the Subcommittee, 

my name is Mark Kesslen and I am the lead intellectual property and technology 

attorney at J.P. Morgan Chase in New York. I am pleased to testify today on behalf 

of The Financial Services Roundtable and BITS, which are affiliated financial services trade associations. 

The Financial Services Roundtable (www.fsround.org) represents 100 of the largest diversified financial services companies providing banking, insurance, and investment products and services to American businesses and consumers. Member 

17

companies participate through their chief executive officer and other senior executives nominated by the CEO. Roundtable member companies account directly million jobs. 

BITS (www.bitsinfo.org) was created in 1996 to foster the growth and development of electronic financial services and e-commerce for the benefit of financial institutions and their customers. BITS provides intellectual capital and addresses 

emerging issues where financial services, technology and commerce intersect. BITS’s 

Board of Directors is made up of the Chairmen and CEOs of twenty of the largest 

U.S. financial services companies, as well as representatives of the American Bankers Association and the Independent Community Bankers of America. 

I was pleased to accept your invitation to testify as the current chairman of the 

Roundtable Patent and Intellectual Property Working Group and the BITS Patent 

Issues Working Group (the Working Group). 

Mr. Chairman, patent attorneys in financial institutions are a well-kept secret. 

We work quietly behind the scenes to protect our companies’ individual intellectual 

capital from assault. In recent years, we have been kept busy fighting frivolous patent claims—often at significant expense to our companies—and we are concerned 

that this is a problem that is not going to go away unless Congress does something 

about it. 

For this reason, our Working Group is grateful for this hearing and the opportunity to comment on steps that should be taken to modernize the patent laws. 

Banks, broker-dealers and insurance companies, like other businesses in the 

United States, are threatened by a large and growing number of frivolous claims 

of patent infringement. Pending claims of infringement are a serious problem, but 

they are only the tip of the iceberg. Patent applications that involve financial services in some way have been filed in large numbers since 1997. Because it takes at 

least four years to get applications for patents of this type processed through the 

USPTO, the number of these patents now being issued is growing. We believe that 

this will lead to an increasing number of frivolous claims filed against financial 

firms in coming years. 

There are steps that Congress can and should take to provide financial firms and 

other businesses additional safeguards against these frivolous claims, without impairing the important protections afforded to intellectual property under the patent 

law. We recommend four initial measures, which are discussed below:

• Improve the prior user rights defense;

• Modify the standard for injunctive relief;

• Clarify the damages rules; and

• Create an opposition proceeding.

I would like to provide you some additional detail regarding each of these measures. 

IMPROVE THE PRIOR USER RIGHTS DEFENSE

We believe that the prior user rights defense under 35 U.S.C. 273 is an important 

protection for financial institutions especially due to the recent growth in patent litigation. But in its current form, the prior user rights defense does not go far enough. 

It is too easy for a patent owner to circumvent the defense by claiming their invention is different from a pre-existing business method because it is, instead, a system 

or apparatus. The prior user rights defense should be modified to apply equally to 

any products or services covered by a patent. We also believe the level of proof required to successfully assert the prior user rights defense should be reduced from 

the ‘‘clear and convincing’’ standard to a ‘‘preponderance of the evidence’’ standard. 

MODIFY THE STANDARD FOR INJUNCTIVE RELIEF

In many countries, including Canada and most European countries, injunctive relief is not available for paper patents that have not been worked. That is, if the 

owner of a patent does not use the patent within a specified period of time, the 

owner loses the ability to obtain injunctive relief. This is appropriate because the 

patent law is intended to encourage and reward inventors and innovators by ensuring they receive the fruits of their efforts. It is not intended to enable them to prevent the use of new ideas by anyone at all. 

We believe a better and more equitable approach is to allow courts to grant an 

injunction on a patent only if the patentee is likely to suffer immediate and irreparable harm that cannot be remedied by the payment of money damages alone. If 

an inventor can demonstrate a likelihood of irreparable harm, injunctive relief ought 

to be available. But if that isn’t the case, then for the good of society, they should 

18

not be allowed to stand in the way of utilization of their invention. Of course, the 

inventor should be entitled to license fees and thus be rewarded for their efforts. 

The result will be the payment of reasonable royalties, rather than disproportionately costly settlements in the face of threatened injunctive relief. 

CLARIFY THE DAMAGES RULES

We believe that the patent law is subject to abuse by patent holders who go fishing for infringers. This is sometimes referred to as the ‘‘37-cent notice’’ issue. By 

simply sending a letter, at the cost of nothing more than a 37-cent stamp, a patent 

holder can set in motion a very costly process for the alleged infringer. The recipient 

of the letter has to undertake an investigation, incurring the cost of personnel time 

and legal counsel, both of which can be substantial. Failure to conduct the necessary 

due diligence could later subject the alleged infringer to treble damages. The accusing patent holder incurs no risk or cost, other than the cost of a stamp. 

We believe that the patent law should be modified to provide that enhanced patent infringement damages may not be awarded: (1) on the basis of the mere knowledge of a patent or its contents by the defendant prior to suit, or (2) for any infringement occurring prior to the defendant’s receipt of written notice from the plaintiff 

of a charge of infringement, which identifies the specific patent, claims, and alleged 

infringing products or services at issue and which is sufficient to give the defendant 

an objectively reasonable apprehension of suit on the patent. Notwithstanding those 

limits, we believe that a patent infringer should be subject to payment of enhanced 

damages if: (a) the infringer deliberately copied the patented subject matter; or (b) 

the patent was asserted against the infringer in a previous U.S. judicial proceeding, 

and the subsequent infringement is not more than colorably different from the conduct asserted to be infringing in the previous proceeding. 

We also believe that the current marking statute inappropriately measures damages that can be awarded to holders of paper patents under which no articles are 

manufactured or patents possessing only method claims. The holders of these patents whether or not the infringer knew of the existence of the patent may sue an 

alleged infringer and collect the full base amount of monetary damages. By contrast, 

the holder of a product patent may be denied monetary damages for infringement 

occurring prior to the lawsuit, if the product had not been marked. It would be fair 

and appropriate to treat holders of patents covering intangibles in a similar manner 

by starting the clock for actual damages for paper and process patents based upon 

the same standard as enhanced damages set forth above. 

CREATE AN OPPOSITION PROCEEDING

The USPTO has proposed a post-grant review of patent claims in their 21st Century Strategic Plan that was released in 2002. We strongly support this concept. The 

procedure, as proposed, would allow the public to petition the USPTO to cancel one 

or more claims in a patent within one year of issuance, and would allow anyone who 

is threatened with a patent infringement action to petition the USPTO for review 

within four months. Under this proposed procedure, the patentability of issued 

claims would be reviewed by Administrative Patent Judges of the Board of Appeals 

of the USPTO. To be fair, we believe these proceedings should include a readily 

available, reasonably prompt and cost effective way to determine patentability without imposing unreasonable burdens on patentees. This procedure would enable companies to manage the risk of claims against them based on bad patents, without incurring the high cost of litigation or facing the need to settle to avoid that cost. 

CONCLUSION

BITS and The Financial Services Roundtable are strong believers in the US patent process as fundamental to a healthy US economy and robust free enterprise system. With increases in both patent requests and claims of infringement, there is a 

need for Congressional debate and frank discussion with members of the financial 

services industry and the patent community at large. Given the importance of the 

patent process, the USPTO should be fully funded and given adequate resources to 

perform its duties. Current efforts to craft legislation are to be commended, especially where the focus is on improvements to the patent process. Concepts such as 

opposition proceedings and reexamination improvements are constructive. Because 

of increases in frivolous claims of patent infringement, consideration should also be 

given to appropriate defenses and other tools for litigation risk management. Among 

those we recommend for consideration and implementation are: modifying the prior 

user rights defense; modifying the standard for injunctive relief; and addressing the 

notice issue. Numerous other improvements of the patent process can be imagined 

19

and the financial services industry will continue to make suggestions along with 

other businesses that are more traditional participants in the patent process.

Mr. SMITH. Thank you, Mr. Kesslen. 

Mr. Simon. 

STATEMENT OF DAVID M. SIMON, CHIEF PATENT COUNSEL, 

INTEL CORPORATION 

Mr. SIMON. Thank you, Mr. Chairman. I would like to extend my 

thanks for being asked to testify here. We would particularly like 

to recognize the efforts of this Committee on behalf of improving 

patent quality and also initiate the Patent Office under Judge 

Rogan’s leadership to improve patent quality through procedural 

implementations and providing better resources and support for 

patent examiners, who we feel are badly overworked. 

There are a number of issues that arise that lead to patent quality, and patent quality is very important to the semiconductor and 

IT industry. We are both some of the largest customers of the Patent Office in terms of filings, and also it is important for us that 

not only we have strong patent protection, but we not be harassed 

by poorly examined and invalid patents. 

There are a number of documented issues and various studies in 

my written testimony that I refer to, explaining some of the procedural issues and lack of resources and how that impacts the Patent 

Office. 

But the issue that I would most like to focus on here today is 

on the injunction issue and the permanent injunction issue in 

terms of patent litigation. If you look at the comparative allowance 

rates between the United States Patent Office and European and 

Japanese patent offices, who are generally considered among the 

leading patent offices, studies show that on average the United 

States Patent Office approves over 90 percent of all applications 

eventually for allowance. 

Compare that with the European and Japanese patent offices 

that do it at about 65 percent. If one assumes, not necessarily this 

is right, but if one assumes that this 25 percent differential means 

that 25 percent of the patents filed and issued by the United States 

Patent Office should not have been issued, that would end up leading us, based on last year’s issuances from the U.S. Patent Office 

about 40,000 patents that should not have been granted. And even 

if this is high by an order of magnitude, that still leaves 4,000 patents that should not have been granted. 

This is a severe problem, and it is being doubled by the recession, because what we have found is there is a growing market for 

the punching of patents from distressed or bankrupt companies. 

We at Intel are aware of a number of bankruptcy sales where we 

have observed law firms actually marching in on their own to buy 

patents and offering millions of dollars to buy patents. Their sole 

purpose, obviously, is to sue on their own real behalf on those patents and make money. 

Similarly, there are some financial investors who have also gotten into this business, and we are finding that is constantly deluging us with claims and lawsuits. We believe this is a very serious 

problem that needs to be addressed. 

20

1See, e.g., Robert B. Merges, As Many as Six Impossible Patents Before Breakfast, 14 Berkeley Technology Law Journal 577 (1999). 

For example, a few years ago we found ourselves faced with a company who had bought a patent for $50,000, sued us on that patent asking for $8 billion, that is B with a billion, of damages plus 

the permanent injunction. The permanent injunction would have 

done them absolutely no good. They weren’t in the semiconductor 

business. They had nobody in their company who was a semiconductor engineer or computer designer. They were in this purely for 

the money, and they were using the threat of that injunction as a 

way to harass us. 

Their business model, suing people on patents that they bought 

from distressed companies, is enhanced from a number of aspects. 

First of all, there is a huge amount of uncertainty in patent litigation. Recent studies, as provided for in my written testimony, show 

that over 50 percent of all patent decisions in the courts that are 

appealed are reversed, at least in part. Claim interpretation remains a huge area of doubt, notwithstanding the Markman hearing 

process that has been implemented. And then, if you lose the case, 

you are faced with the issue of permanent injunction being against 

you. And even if you want to go up on appeal, if it is a big product, 

you can’t. You can’t afford to have your plants sit there idly, par- ticularly in our industry where our plants frequently cost 2 to $3 

billion for each new plant, to sit there idly while you are waiting 

for the court of appeals and you are enjoined. 

So it is simply a matter of this issue really needs to be fundamentally addressed. In addition, I would like to point out that 

rather than repeat what my colleague, Mr. Kesslen, has said, we 

strongly agree with the comments that he made. 

And one other issue on broadening reexamination, I disagree 

with Mr. Van Horn and the AIPLA. We think that reexamination 

should be strengthened, and we do agree that the res judicata effect that got imported into section 315(c) should be removed. 

Thank you, Mr. Chairman. 

[The prepared statement of Mr. Simon follows:]

PREPARED STATEMENT OF DAVID M. SIMON

Mr. Chairman, Congressman Berman and the Members of the Subcommittee: 

Thank you for the opportunity to appear before you today. My name is David 

Simon and I am Chief Patent Counsel for Intel Corporation. I am pleased to testify 

today on behalf of Intel. 

Let me thank the Subcommittee for holding these hearings. Patents are important 

to high technology for protecting intellectual property—the key to the United States’ growth over the last twenty years. For the IT and semiconductor industries, strong 

protection of patents is essential in fostering continued innovation and investment; 

U.S. companies are investing billions in research and development to develop cutting-edge products—these products help the U.S. remain the most competitive country in the world. 

Intel commends Chairman Smith and Ranking Minority Member Berman along 

with the rest of the committee members for their support of a vital patent system. 

Intel also applauds the on-going initiatives from the United States Patent & Trademark Office under Judge Rogan’s leadership to improve patent quality. 

In addition to the on-going work to improve the Patent Office, Intel believes that 

important legislative work remains to be done with regards to patent quality. Improvidently granted patents result from well documented deficiencies in the U.S. 

Patent & Trademark Office including low pay for patent examiners, inadequate resources for the examiners and the test required by the Federal Circuit to determine 

if an application is patentable.1 One commentator concluded that roughly half of all 

21

2 John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 

26 AIPLA Q.J. 185 (1998). 3 Cecil D. Quillen, Jr. & Ogden H. Webster, Continuing Patent Applications and the Performance of the U.S. Patent Office 11Federal Bar Journal (No. 1) 1, 3 (2000). 4Top Ten Defense Cases of 2000: In the shadow of the Valley, San Francisco Daily Journal 

April 18, 2001 http://www.weil.com/WGM/quotables.nsf/e49ad7e458c039f78525691a0071b053/

6098de882426067085256a33005879eb?OpenDocument 5 Cecil D. Quillen, The U.S. Patent System: Is it Broke? And Who Can Fix It? http://

www.ftc.gov/os/comments/intelpropertycomments/quillenattachments/isitbrokewhocanfixit.pdf 

at pg. 6. 

6 Ray K. Harris & Sandra Etherton, Software Protection: Patents http://www.lawhost.com/

lawjournal/99winter/patents5.html 

issued, litigated patents are invalid.2 While that estimate may appear high initially, 

statistical analysis shows that over 90% of all U.S. patent applications are ultimately approved and result in a patent. Contrast the U.S.’s shockingly high approval rate with the European and Japanese patent offices’ approval rates of about 

65%.3 Surely, applicants for American patents are not that much more discriminating than their counterparts for foreign patents in selecting ideas that merit a 

patent application. This differential in the approval rates between the U.S. and foreign Patent Offices leads one to the conclusion that perhaps 40,000 improvidently 

granted patents issue each year. 

Our key concern is that these improvidently granted patents become powerful 

tools for abuse. This abuse seriously undermines the continued vitality of the high 

tech industry as legitimate companies are threatened with a permanent injunction 

on improvidently granted patents. 

Lawyers and their financial backers have been buying these improvidently granted patents from distressed companies for the sole purpose of suing legitimate businesses. Patents can be sold like any other form of property and an active market 

has formed in recent years where patents can be bought or sold—frequently for less 

than the prosecution costs of the original patent. Intel often finds law firms and financial backers of litigation bidding against each other to buy these patents so that 

they can then form businesses solely for the purpose of suing legitimate companies. 

These lawsuits, in which the plaintiff invariably seeks a permanent injunction, stymie competition and clog the courts with useless cases brought solely to enrich these 

lawyers and their financial backers. These patent system bottom feeders have now 

become so common that Intel has coined a term to describe them: ‘‘patent trolls.’’

Several problems contribute to making this ‘‘patent troll’’ business model a simple 

and effective source of illegitimate profit irrespective of the quality of the patent. 

For example, if the troll can claim that the patent covers $5 billion in annual revenue, that troll will ask for a royalty fee of a few percentage points of revenue; e.g., 

$150 million per year. While that may seem to be an absurd amount to pay to someone who bought a patent out of bankruptcy for less than one hundred thousand dollars, the troll will threaten the legitimate business with a permanent injunction at 

the end of the patent case, threatening the halt of the sale of a critical product or 

closing down a production facility. Even if the chance of the troll winning is low, 

the troll’s costs are modest, normally a few million dollars at most. In contrast, the 

legitimate business the troll targeted faces potential financial ruin if it can no 

longer sell a key product. Intel recently faced such a troll who wanted $8 billion 

and a permanent injunction after purchasing the patent for $50,000.4

The uncertainties in patent litigation also facilitate the patent troll’s inappropriate business model. These patent trolls have the presumption of validity on their 

side. It is difficult to convince a jury of patent invalidity in light of the heightened 

evidentiary standard for invalidity of clear and convincing evidence. Adding to the 

troll’s weapons are the uncertainties regarding how the patent claims will be interpreted by the court. One recent study showed that over one half of all appealed patent decisions by the district courts are reversed at least in part.5 Other studies show 

that district court interpretations of the claims are found to be in error about onehalf of the time.6

This unpredictable legal environment has encouraged legitimate companies 

threatened by patent trolls to pay large settlements as trial nears rather than risking that their entire businesses will be shut down by a permanent injunction. Legitimate businesses cannot wait for the appeal process to rectify the wrong decision because it may be two years before the appeals court reverses the district court’s decision. Waiting two years without product being sold and factories lying idle pending 

the outcome of the appeal is simply not acceptable to any business. 

A recent case involving the Blackberry PDA highlights our concerns. The lawyer 

for the patent troll NTP had the temerity to be quoted as saying:

22

7http://www.forbes.com/2002/11/21/cz-vm—1121rim—print.html 8 Rite Hite Corp. v. Kelley Co., 56 F.3d 1538, 1547 (Fed. Cir. 1995) (finding that patentees failure to market the patented invention is not sufficient to support the denial of a permanent injunction). 9See, e.g., Schneider (Europe) AG v. Scimed Life Sys., 852 F. Supp. 813 (D. Minn. 1994); Pall

v. Micron Separations, Inc., 792 F. Supp. 1298 (D. Mass 1992); Moxness Prods. v. Xomed, Inc., 

7 U.S.P.Q.2d 1877 (M.D. Fla. 1986); Shiley Inc. v. Bentley Labs, Inc., 601 F. Supp. 964 (C.D. 

Cal. 1985). 

NTP is in the business of licensing patents. We would pursue an injunction that 

would prevent the [defendant] from continuing to sell Blackberrys. That’s RIM’s 

[the defendant’s] nightmare.7

Now, if NTP is in the business of licensing, it wants money. An injunction really 

does NTP no good because NTP is not going to make money by RIM not selling 

Blackberry PDA’s and not running its network. Rather, NTP was using the threat 

of the injunction to maximize the settlement. Is this the result that caused the 

founding fathers to provide for patents in the Constitution? Intel believes this result 

would have baffled the founding fathers. 

Unfortunately, there is little hope of change with the current situation without 

legislative intervention. Until now, courts have almost always sided with the patent 

trolls in granting permanent injunctions. The Federal Circuit has stated that the 

denials of permanent injunctions are ‘‘rare.’’ 8 Virtually all of the recent reported 

cases where a district court failed to issue an immediate permanent injunction at 

the conclusion of a patent case involved medical products. Even in these circumstances, the courts often imposed the injunction six to twelve months after the 

end of the trial.9 Intel believes it is a gross distortion of the patent system to permit 

trolls to use the threat of injunctions to try to maximize their monetary claim, particularly as many of these claims are based upon improvidently granted patents 

bought in bankruptcy. 

Therefore, Intel strongly urges this Subcommittee to give legitimate companies 

the tools to fight back against patent trolls by modifying section 283 of Title 35 on 

Patents to require that courts will fully consider the equities when deciding whether 

to grant a permanent injunction at the conclusion of the patent case. The Semiconductor Industry Association’s proposal, which Intel wholeheartedly supports, is to 

add the following language to section 283:

A court shall not grant an injunction under this section unless it finds that the 

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

of money damages. In making or rejecting such a finding, the court shall not 

presume the existence of irreparable harm, but rather the court shall consider 

and weigh evidence, if any, tending to establish or negate any equitable factor 

relevant to a determination of the existence of irreparable harm.

In addition to making this amendment to reduce the odds that litigation concerning improvidently granted patents clog the courts, Intel understands that the 

Subcommittee is exploring third party and applicant submission of prior art, estoppel and inter partes reexamination, the application of section 112 during reexamination and declaratory relief and offers to license. 

Intel believes that the proposal to permit third parties to submit prior art in opposition to published patent applications is laudable. Getting better prior art before 

the Patent Office would improve patent quality and it is in the effected parties’ best 

interest to ensure that the Patent Office does a good job. Third party prior art submissions that were only submitted for the purpose of delay should prove apparent 

to examiners and a reasonable fee to submit the art would remove most frivolous 

submissions. We believe with minor rewriting of the rules regarding patent protests 

that this can be affected. 

Intel understands that requiring a prior art search by patent applicants has also 

been proposed; however, Intel believes this is a superfluous and a needless expense 

that will prove counterproductive. I estimate that this would add at least $500 to 

the applicants’ costs for filing, and in Intel’s case, this would add over $1 million 

to our costs each year. Further, applicants would merely submit all of the results 

of their search to avoid any question of inequitable conduct. As a result, the Patent 

and Trademark Office would be burdened with irrelevant prior art and it would be 

harder for the examiners to separate the wheat from the chaff. In addition, the Patent Office could not rely on the applicant’s search anyway and would redo it. Intel 

firmly believes that giving the examiners the resources to do their job and compensating them adequately as proposed in Judge Rogan’s Strategic Plan is a far better 

way to improve the quality of the prior art cited against patent applications. 

23

10See, e.g., Kewanee Oil. Co. v. Bicron Corp., 416 U.S. 470, 481 (1974). 11See Kurt M. Saunders, Patent Non-use and the Role of the Public Interest as a Deterrent 

to Technology Suppression, 15 Harvard Journal of Law & Technology 1, 62 (1998). 12 Id. 

Intel also believes that strengthening inter partes reexamination is highly appropriate. First, Intel believes that expanding the authority of the Patent and Trademark Office to address the enabling disclosure, written description and other requirements in 35 U.S.C. § 112 would be appropriate. Such technical issues are often 

best resolved before patent examiners who have technical expertise rather than before district court judges and juries. 

Nonetheless, inter partes patent reexamination before the Patent Office has a 

major drawback: the res judicata effect of the reexamination for ‘‘issues that could 

have been raised before the Patent Office’’ as provided currently in section 315(c) 

of Title 35 is too broad. This language, which largely tracks the language in the Restatement Second of Judgments, has enormous breadth. It leaves anyone submitting 

an inter partes request at the mercy of a subsequent decision that newly uncovered 

prior art could have been found earlier and therefore should have been submitted 

in the reexamination. Intel does not believe that the breadth of res judicata in case 

law should be imported into reexamination. The impact and burdens of litigation 

that led to the doctrine of res judicata are far greater than those arising from patent 

reexamination procedure. Therefore Intel requests that this language be deleted 

from section 315(c). Otherwise, few companies will be willing to use inter partes reexamination. 

Intel also believes that addressing willful infringement would be helpful and reverse a fundamental flaw in current U.S. law. The original, constitutional premise 

and social contract behind patents is inventors will disclose their inventions to the 

public in return for the public getting the benefit of their patent’s teaching.10 In exchange, the inventor gets her patent.11 The idea is that scientists would be able to 

study patents to create future inventions. 

However, the case law on willful infringement prevents such studying. An award 

of enhanced damages following a finding of willful infringement can result from a 

single engineer in a company simply reviewing another company’s patents. This 

studying of patents that even the Supreme Court has lauded 12 should not trigger 

the enhanced damages that can be awarded for willful infringement. Indeed, many 

companies forbid their engineers from studying third party patents to avoid the 

charge of willful infringement. If a patentee wants to recover enhanced damages as 

permitted by a finding of willful infringement, the patentee should be required to 

provide the potential defendant with a detailed notice of the patent infringement. 

That notice should be at least sufficiently detailed to enable the defendant to bring 

a declaratory relief action. This is the position of the Intellectual Property Owners 

Association. 

However, Intel believes that Congress should take a further step and also require 

the patent owner to set forth which claims it believes are infringed by which product 

and why. Many corporate patent counsel receive at least weekly letters from third 

parties regarding patents. That letter may be enough notice to trigger a willful infringement charge. Paying $40,000 per patent for an opinion of counsel to be used 

to rebut the charge of willful infringement is not cost effective given the volume of 

such notices. Nor is filing declaratory infringement actions an appropriate remedy 

since these ‘‘notices letters’’ are far too commonplace. Imposing on the patentee the 

minor burden of adding a few paragraphs to a letter explaining why the patentee 

believes infringement exists puts the burden in the appropriate place if the patentee 

wants it damages multiplied by two or three due to a finding of willful infringement. 

These paragraphs should specify which claims are infringed by which products and 

why. This would avoid the added burden of enhanced damages being awarded for 

improvidently granted patents. 

In conclusion, Intel believes that the initiatives that I have outlined along with 

implementing Judge Rogan’s Strategic Plan would greatly enhance patent quality. 

I would like to thank the Subcommittee for this opportunity to testify.

Mr. SMITH. Thank you, Mr. Simon. 

Professor Thomas. 

24

STATEMENT OF JOHN R. THOMAS, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY 

Mr. THOMAS. Thank you, Mr. Chairman. I am pleased to have 

the opportunity to testify today. I appear here in my personal capacity as a concerned observer of the patent system. 

The Subcommittee has wisely identified the most pressing issue 

in contemporary patent administration. Persistent accounts suggest 

that patent quality stands at levels that are not socially optimal. 

The PTO has proposed a number of reforms to patent acquisition 

procedures to address the issue. But given the PTO’s limited rulemaking authority, legislative reforms may be the best option. 

As we approach the issue of patent quality, it is important to remember that patents are more important by any conceivable measure today than they were a generation ago. 

Also, the PTO finds itself in an extremely difficult working environment. In this milieu, the imposition of modest increases in the 

responsibilities of patent applicants strikes many observers as a 

sound policy choice. Many of the proposals the Subcommittee considers today would do just that, and I believe they are worthy of 

extended consideration. 

One of the proposals would ask applicants to perform a prior art 

search, and also to explain in some level of detail the references 

that they submit. I think this is a good idea, because it is a desirable reform in an era of diminishing PTO resources, and it comports with existing patent policies. 

When I teach patent law, one of the messages to the students is 

libraries, not laboratories. We want technologists to look to existing 

proprietary technologies and the prior art, rather than engage in 

duplicative R&D that is more expensive. Having applicants perform a mandatory prior art search comports with this goal, because 

they should know what is out there. 

Patent applicants already have to include such a statement when 

they submit foreign language references for which no translation is 

available. So this measure is really more of an extension of existing 

duties than a full fledged radical reform. Individuals have to perform due diligence when they file lawsuits, when they file SEC 

statements, when they ask the Government for other privileges. 

Why should the duty for patent applicants be any different? 

Statements of relevance might also discourage the current counterproductive strategy of some patent applicants, in which they 

submit hundreds of references to the examiner, and leave the Patent Office to figure them out. I also believe that the increased receptivity of third party submissions will allow the U.S. PTO to take 

advantage of the increased knowledge of the public. 

Also, there is wide agreement that inter partes reexamination 

has not successfully shifted patent challenges from the courts to 

the U.S. PTO. As originally enacted, its appeal provisions were too 

limited, its substantive scope too narrow, and its estoppel provisions excessive. Previous legislation has solved the problem of the 

appeal provision. Many commentators believe it is time to enhance 

the substantive scope of reexam, and also to limit the estoppel effects. 

This proposal would do those things. I would encourage the Subcommittee to expand the substantive basis for ex parte reexaminaVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
25

tion to mirror that of inter parte reexamination. I am aware of 

such concerns about strategic behavior that some commentators believe would apply if this provision was enacted, but I would observe 

that many foreign patent offices have had similar provisions in 

place for years and these concerns have not been realized. 

Now, the current proposal also states that any communication by 

a patent owner sufficient to create liability for a willful infringement would also create declaratory judgment jurisdiction. The apparent policy goal of this proposal was quite sound. Patent proprietors should not be able to cause concern over enhanced damages, 

without allowing the patent to be immediately challenged in court. 

However, declaratory judgment jurisdiction rests upon a constitutional basis, the requirement of a case or controversy. That is 

something this Subcommittee can legislate around very easily. 

So if you want to pursue the policy goal, I would encourage taking the opposite tack, stating that unless the patentee makes a 

charge of infringement sufficient to invoke declaratory judgment jurisdiction, that then there can be no liability for willful infringement. I somewhat believe this is a second best solution, with the 

optimal solution being getting rid of any enhanced damages in the 

patent law. 

I encourage the Subcommittee to continue thinking creatively 

about solutions to the patent quality problem. I believe that the extent of current patent quality problems as well as the increasingly 

difficult circumstances that the U.S. PTO finds itself today merit 

the establishment of an Office of Patent Quality Review. This office 

could develop measures of patent quality, both in terms of the process, the examination process, and the product, issue patents. I believe that such an office should not exist within the U.S. PTO, or 

even within the Department of Commerce but rather the Federal 

Trade Commission, an agency with experience and expertise in 

competition law and consumer affairs. 

Thank you. 

[The prepared statement of Mr. Thomas follows:]

PREPARED STATEMENT OF JOHN R. THOMAS

I am honored to have this opportunity to appear before the Subcommittee. I testify today on my own behalf as a concerned observer of the patent system. 

The Subcommittee has appropriately identified patent quality as a crucial issue 

of contemporary patent administration. Government, industry, academia and the 

patent bar alike have long insisted that the USPTO approve only those patent applications that describe and claim a patentable advance. Quality patents are, in short, 

valid patents. Such patents may be reliably enforced in court, consistently expected 

to surmount validity challenges, and dependably employed as a technology transfer 

tool. Quality patents fortify private rights by making their proprietary uses, and 

therefore their value, more predictable. They also clarify the extent to which others 

may approach the protected invention without infringing. These traits in turn 

strengthen the incentives of private actors to engage in value-maximizing activities 

such as innovation or commercial transactions. 

In contrast, poor patent quality is said to hold deleterious consequences. Large 

numbers of improvidently granted patents may create in terrorem effects on entrepreneurship, ranging from holdup licensing to patent thickets. They also create duplicative, deal-killing transaction costs, as potential contracting parties must revisit 

the work of the USPTO in order to assess the validity of issued patents. Poor patent 

quality may also encourage activity that is not socially productive. Attracted by 

large damages awards and a porous USPTO, rent-seeking entrepreneurs may be attracted to form speculative patent acquisition and enforcement ventures. Industry 

participants may also be forced to expend considerable sums on patent acquisition 

26

1 37 C.F.R. § 1.98(a)(3)(iii). 

and enforcement. The net results appear to be reduced rates of innovation, decreased patent-based transactions, and higher prices for goods and services. 

Unfortunately, despite extraordinary efforts by the USPTO to improve patent 

quality, the problem remains. Persistent accounts suggest that patent quality remains at less than optimal levels. Many of the causes of this state of affairs are 

beyond the control of the USPTO. Strict Federal Circuit standards for rejecting applications, soaring application rates, lean fiscal policies and an increasingly ambitious range of patentable subject matter are among the difficulties faced by the 

USPTO in achieving a rigorous level of review. Legislative reforms may to a long 

way towards increasing the stringency of USPTO review, to the ultimate benefit of 

industry and consumer alike. 

In my view, the two most profitable mechanisms for improving patent quality involve: (1) a modest expansion of the responsibilities of patent applicants; and (2) increased engagement of members of the public. First, as the grant of a patent provides innovators with a powerful commercial tool, many of us believe that applicants 

should bear commensurate responsibilities. Second, the USPTO should be better 

able to employ ‘‘private patent examiners’’ to assist in examination tasks. Because 

the reforms considered today work towards these goals, I favor their serious consideration. 

Promotion of Third Party Submissions and Inter Partes Reexamination. I 

believe that increased receptivity to third party submissions will allow the USPTO 

to take advantage of the knowledge of interested members of the public, and therefore support this proposal wholeheartedly. As well, there is widespread agreement 

that inter partes reexamination has not successfully shifted patent challenges from 

the courts to the USPTO. As originally enacted, its appeal provisions were too limited, its substantive scope too narrow, and its estoppel provisions excessive. Previous 

legislation has solved the problem of its appeal provisions; I agree that it is time 

both to include § 112 as a basis for provoking an inter partes reexamination, as well 

as to limit the potential estoppel effects of invoking this proceeding. I would also 

encourage the Subcommittee to consider expanding the substantive basis for ex 

parte reexamination to mirror that of inter partes reexamination. 

Mandatory Prior Art Searches. A compelled applicant prior art search is not 

only a desirable reform in an era of diminishing USPTO resources, but one that 

comports with existing patent policies. The patent system aspires to send technologists to ‘‘libraries, not laboratories:’’ firms are encouraged to consult the prior 

art and patent literature before completing expensive R&D in order to see whether 

a desired technology already exists. A mandatory prior art search fully comports 

with this goal. Patent applicants already include such statements when submitting 

foreign language references for which a complete translation is unavailable,1 so this 

proposal is not so much a sweeping reform but an expansion of existing duties. 

Statements of relevance must also discourage the current, counterproductive strategy of some patent applicants, in which they submit hundreds of references and 

leave the USPTO examiner to sort them out. 

Preliminary Injunctions. I encourage clarification of this proposal. The four traditional preliminary injunction standards are:

(1) whether the plaintiff will probably succeed on the merits;

(2) whether irreparable harm to the plaintiff would result if the injunction is 

not granted;

(3) the balance of harms between the plaintiff and defendant if the injunction 

is allowed; and

(4) whether the injunction will have an impact on the public interest.

The current proposal would compel consideration of five additional factors, which 

currently are probably subsumed within the second, ‘‘irreparable harm’’ factor, and 

the fourth, ‘‘public interest’’ factors. It is not entirely clear whether this legislation 

would create a nine-factor test or simply flesh out the second and fourth factors. 

Although lists of factors in the law tend not to specify the exact relationship between the different factors—they are more a list of ingredients than a recipe—the 

fact that these factors are stated separately suggests that they are of equal dignity 

and worthy of equal consideration. 

Declaratory Relief and Offers to License. The current proposal states that 

any communication by a patent owner sufficient to create liability for willful infringement would also create declaratory judgment jurisdiction. The apparent policy 

goal of this proposal is quite sound: patent proprietors should not be able to cause 

concern over enhanced damages without allowing the patent to be immediately chalVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00030 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
27

lenged in court. However, declaratory judgment jurisdiction rests upon the constitutional requirement of an actual case or controversy, a standard that Congress cannot readily legislate around. I would encourage the Subcommittee to achieve the 

same policy goal by pursuing the opposite tack: unless the patentee makes a charge 

of infringement sufficient to invoke declaratory judgment jurisdiction, then there 

can be no liability for willful infringement. 

Additional Reforms. I encourage the Subcommittee to continue thinking creatively about solutions to our patent quality problem. I believe that the extent of 

current patent quality problems, as well as the increasingly difficult circumstances 

the USPTO appears likely to find itself in the future, merit the establishment of 

an Office of Patent Quality Review. This office could develop measures of patent 

quality, both in terms of the examination process and issued patents. I believe that 

such an office should not exist within the USPTO or the Department of Commerce, 

but rather the Federal Trade Commission, an agency with experience and expertise 

in competition law and consumer affairs. 

Thank you for the opportunity to testify today.

Mr. SMITH. Thank you, Professor Thomas. Thank you all for your 

comments today, as well as for your compliment of the Committee’s 

work. 

Let me address my first question to you all and ask you to really 

set priorities for us, because we are trying to decide which of these 

items to translate into legislation and we need some help with setting those kinds of priorities. 

So what is the single most important action that the Subcommittee could take to improve patent quality, or maybe it is 

avoiding some action. But I am hoping it is affirmative and you all 

have recommendations as to which of these ideas that we have discussed today would be the most important to you. 

And Mr. Van Horn, I would like to start with you. 

Mr. VAN HORN. Thank you, Mr. Chairman. Well, I think the Subcommittee has taken the first and essential step toward solving 

this problem; that is, by enacting or hopefully enacting legislation 

that would prohibit fee diversion. This has many important ramifications for the PTO, primarily in their ability to hire, train, and 

effectively supervise patent examiners in their examination task. 

To the extent they have to take shortcuts because of a lack of 

budget in these critical areas is ultimately going to lead to a decrease in the patent quality and the effectiveness of the job done 

by the patent examiner. 

I think, secondly, that particular lack of resources also has an 

impact on the tools available for patent examination, and I refer 

primarily to the ability to automate the system and provide some 

relief to the significant administrative burdens that the office now 

has and applicants now have of chasing around missing papers and 

missing files. This is a significant detraction from the essential 

tasks of patent examination. 

Mr. SMITH. Thank you. By the way, we all on the Committee feel 

strongly about the issue of fee diversion. We have yet to convince 

some of our friends on the Appropriations Committee that that is 

the right way to go, but we are working on it. 

Mr. Kesslen. 

Mr. KESSLEN. As I said before, I am here today on behalf of the 

Financial Services Roundtable, and I think if you polled the CEOs 

of the various financial service companies, they would like the fifth 

and sixth approach in your proposed bill, dealing with injunctive 

relief and frivolous claims. 

28

The threat, the gun that is put to our head to settle or else, the 

threat that the wheels of commerce can come to a halt. There is 

a current litigation within our firm today that if we ultimately lose 

could really hurt the economy, and this is a company that doesn’t 

make or sell anything competitive. It merely has a paper patent. 

So to be able to look at the irreparable harm, not only at the preliminary injunction state, but really at the permanent injunction 

state, which is really where we are focused at, and looking at some 

of the claims that came in—just yesterday and last Thursday, two 

more of those 37-cent type letters came into our organization, 

which starts the churning of our money for a claim that may or 

may not have any merit. So that is our focus. 

Mr. SMITH. Mr. Kesslen, you anticipated my second question, 

which I will get to in a minute. But thank you. Mr. Simon. 

Mr. SIMON. Thank you, Mr. Chairman. Obviously for us the most 

important issue is reforming the law and injunction. And after 

that, I would say the willful infringement issue followed by 

strengthening reexamination. We believe those are the three areas 

that there should be focus. 

We strongly by the way, disagree that requiring applicants to do 

a search will yield anything. People are just going to submit the 

results of their search. There will be stacks of paper this high coming into the Patent Office, because nobody under rule 56 is going 

to take the chance of having withheld the wrong document. 

Mr. SMITH. Thank you. Professor Thomas. 

Mr. THOMAS. I believe that ultimately the best hope is going to 

be to recruit members of the public to act as private patent examiners, assisting the office in the examination duties. Competitors 

often have the knowledge that they can bring to bear to either invalidate a patent or narrow its claims, and they often have the incentives. One concern this Committee may have is those incentives. 

The trouble with challenging a patent is that it has a lot of spillover effects. If one of us in this room owns a patent and we are 

all acting in the same industry, which one of us is going to be 

incented to challenge that patent? If I challenge the patent to defeat your patent, everyone else gets the benefit. 

So incenting, or providing some sort of a reward for patent challenges behind the benefit to the entire industry may be a productive approach. 

Mr. SMITH. Thank you, Professor Thomas. We have asked you all 

to address six ideas. The fifth and sixth ideas both directly or indirectly involve the shakedown sites, Mr. Kesslen, that you referred 

to, and what we have done is we have actually broken down how 

all stand individually on all six ideas. On the fifth idea, preliminary injunctions and patent challenges, Mr. Van Horn, you oppose 

that. Professor Thomas wanted clarification. 

On the sixth, declaratory relief and offers to license, that was opposed by Mr. Van Horn and Professor Thomas as well, I think. 

What I really wanted to ask you all who oppose these two ideas 

is, if you oppose them, what other actions would you recommend 

to discourage the use or the threat of the shakedown suits? 

And, Mr. Van—my time is up. If you can give me a brief answer. 

Mr. Van Horn. 

29

Mr. VAN HORN. Well, at least in my experience, which is very 

small in terms of patent litigation, it is—one person’s frivolous suit 

is another person’s constitutional right to protection of his or her 

property. 

We have not yet developed an alternative solution if this is a 

problem. But we do think that the proposals relative to a preliminary injunction could have a very damaging effect on small businesses, and independent inventors. It would set an unfortunate 

precedent for the global protection of intellectual property, and we 

believe at least raises an issue about compliance with our obligations under international agreements such as GATT-TRIPS. 

Mr. SMITH. Thank you. Professor Thomas, what would you recommend to reduce shakedown suits or frivolous lawsuits? 

Mr. THOMAS. The requirement for a preliminary injunction, prior 

to the creation of the Federal Circuit, was generally that the patent 

had to be previously enforced and held not invalid by a prior tribunal. So returning to that state of affairs is at least some possibility. Another is to require some sort of Patent Office review to 

make sure that the patent is valid before it is enforced. 

I believe that those are possible mechanisms to achieve that goal. 

Mr. SMITH. Thank you, Professor Thomas. The gentleman from 

California, Mr. Berman, is recognized for his questions. 

Mr. BERMAN. Thank you, Mr. Chairman, and we thank all of the 

panelists for sharing their thoughts about this. 

Professor Thomas I have had the benefit of meeting with, and my 

staff meeting with to hear a number of his very interesting views 

on how to make this system better. 

In this particular round, rather—I would like to just ask a broader question. Many of the patent quality issues came up in the context of this recent trend toward patenting business methods. And 

while these, of different alternatives here, don’t distinguish between business methods and other patents, I am curious about how 

all of you react to this trend. There was a New Yorker magazine 

piece recently that talks about the sort of the birth of modern 

newspapers, a publisher named Benjamin Day. 

He decided instead of trying to get the subscribers and the purchasers of the newspapers to pay the costs, they would sell advertising and reduce the price of the paper from 5 cents to 1 cent in 

1833. He didn’t patent that idea. He also decided to change the 

method of distribution, and he sold them to newsboys in lots of 

hundreds to hawk on the street. 

Pretty soon, this newspaper, the New York Sun, was just sweeping the field with the—none of these new methods of publishing 

and selling newspapers were patented. Other papers mimicked 

them. Pretty soon there was competition. This paper got the advantages of being the originator of the idea and did very well for a very 

long time, then other papers imitated and they had more competition, and that was sort of how American business worked in new 

methods. No one patented the moving assembly line or the mail 

order catalog or the decentralized corporation or the frequent flier 

mile. 

But a recent court decision, and all of a sudden everything is 

changed. Now people are running around and getting patents on all 

kinds of business methods and ways of doing business. And the last 

30

paragraph of the article: Americans have traditionally been cheery 

about intellectual property rights, and quotes Thomas Jefferson on 

the balance here. We have managed to strike a balance between 

the need to encourage innovation and the need to foster competition, as Benjamin Day, that publisher I mentioned, and Henry 

Ford, Sam Walton might attest, American corporations have 

thrived on innovative ideas and new business methods without 

owning them for two centuries. 

Now this balance has been upset. The scope of patents have been 

extended. Copyrights have been extended. Trademarks have been 

subjected to bizarre interpretations. Celebrities are even claiming 

exclusive ownership of their first names, Spike Lee and Viacom’s 

cable channel. 

I am curious about the panelists’ reactions to all of this, and are 

we going too far in allowing people to claim ownership of new ways 

of doing business, as opposed to the kinds of inventions that historically have been subject to patents? 

I am curious if any of you have any reactions to that. 

Mr. KESSLEN. Yes, I do, concerning the State Street case which 

came out of the financial services industry. Obviously we have been 

very focused on this issue. 

I think as an organization we thought long and hard about business method patents, and our fundamental challenge with it, as 

much as we would like to get rid of them, because it would get rid 

of a class of patents that would impact us as an industry, I am not 

sure from a practical perspective it is really possible. 

I think the problems that business method patents are facing are 

no different than the Patent Office faced when some of the genetic 

engineering happened, and then you went to software. I think they 

are getting up to speed in getting the kind of prior art they need. 

They are not there yet. They don’t have to staff to deal with it, 

which I think is their biggest challenge. But I think when you will 

look at the types of claims that are hitting our organization, a 

smart patent attorney can couch any one of these methods of doing 

business as software. There is always a piece of hardware or a 

piece of software connected. So from a definitional perspective, I 

think it is going to be quite a challenge, and that is why I would 

prefer to focus more on the quality issues and some of the other 

things we have talked about today. 

And I think on top of that, I believe that—I forget which situation of TRIPPS, but I think you would violate the TRIPPS with regard to treating different technologies or different patents differently. So I think that is another problem. 

Mr. BERMAN. Any other thoughts here? 

Mr. SIMON. Yes, Congressman Berman. If you look at how the 

courts struggled with the definition of what in computers and software should or should not be patentable and eventually basically 

said it should be treated like anything else, you run into a real 

definitional problem. It is real hard to define things in a manner 

that an attorney won’t be able to get around and make it patentable anyway. 

I think the real focus has to be on what can we do to improve 

the quality of those patents as opposed to trying to somehow legislatively by some definition change it. The courts struggled with this 

31

issue for about 15 or 20 years, were never able to solve it. I have 

written numerous academic articles where people are trying to 

come up with proposals on solving it, and every single one of them 

I think we can get around. 

Mr. BERMAN. So both of you essentially are saying don’t try to 

make that distinction in the law, instead deal with some of these 

discrete issues involving quality and process and make the system 

better? 

Mr. KESSLEN. That is correct. 

Mr. SMITH. Thank you, Mr. Berman. The gentleman from Florida, Mr. Keller, is recognized for his questions. 

Mr. KELLER. Thank you, Mr. Chairman. Let me begin with Mr. 

Simon and Mr. Kesslen. The gist of what I have learned from listening to you guys is you are concerned about frivolous patent infringement claims against your employer, and I have tried a lot of 

cases over the years before I came here, but not complex intellectual property law cases, so I am hoping you can walk me through 

this. Give me an example, Mr. Simon, if you were explaining this 

say to a sixth grade class. What would be a classic example of a 

frivolous claim that would force you to incur a lot of defenses in 

defending it? 

Mr. SIMON. I will give you a real one—Techsearch case. In that 

case, somebody had gone into court, bought a patent in bankruptcy 

for $50,000, turned around and sued us. It had a few words that 

were somewhat similar to the words that we used to describe our 

processors. They therefore claimed, as you will find in any industry, people tend to use the same words. But they then claimed 

therefore that all of our processors infringed. 

I had looked at this. We had an opportunity to actually take a 

license to this patent earlier on. We took it, looked at it, said, well, 

if you hold the patent upside down, read it backwards maybe you 

can make an argument, that is about it. But we will win on summary judgment. 

Mr. KELLER. Right. 

Mr. SIMON. It turned out I was right. We did win on summary 

judgment. It cost me $3 million to win on summary judgment. I 

could have gotten the license for several hundred thousand. 

Mr. KELLER. Three million. That is not even the trial or anything, just summary judgment, just the discovery? 

Mr. SIMON. Yes. To give you an idea, our typical patent case, we 

are spending between 10- and $15 million in the years before trial. 

Trial, it goes up from there. 

Mr. KELLER. The guys who try these cases for you and do the 

discovery, are those people that specialize in patent law who pass 

that special bar, or these are just regular litigators you are paying? 

Mr. SIMON. These are regular litigators who have a proven track 

record in high technology cases. It is very unique. 

Mr. KELLER. Kind of a subspecialty. What would a typical partner in a law firm specializing in this go for? Is that a $400 kind 

of a lawyer? 

Mr. SIMON. I wish. $400 is getting to be associate rates. In large firms we are talking 6-, 7-, $800, sometimes even a thousand dollars an hour. 

Mr. KELLER. In what city? 

32

Mr. SIMON. Santa Clara, California. 

Mr. KELLER. Those are California rates. 

Mr. SIMON. No. We use lawyers all around the country. Texas, 

New York, Chicago, West Coast, wherever we can find somebody 

who is going to be good at litigating a technology case. 

Mr. KELLER. Let’s say you have a case like the one you just mentioned, and you pay all of this money, you thought it was frivolous, 

and sure enough the judge ultimately ruled there are no factual 

issues here, it is crystal clear here you guys are going to win. Do 

you ever have any success with rule 11, or do you find that the 

judges are reluctant to grant those type of sanctions? 

Mr. SIMON. You have to have a particularly egregious case under 

rule 11 where it was—where it would be apparent to the judge just 

looking at the patent. Since very few of our judges have technical 

qualifications, that is very rare. 

Mr. KELLER. I found that too. I haven’t done those kind of cases, 

but I have seen cases in the employment area where someone, you 

know, sued for racial discrimination and yet we hired someone of 

the same race, or they sued for age discrimination, and we hired 

someone who was older, and even then you don’t get rule 11 sanctions. 

So, Mr. Kesslen, what is your analysis of these same issues? Is 

rule 11 tough? Do you see a lot of frivolous suits? 

Mr. KESSLEN. Well, the answer is yes and yes. I think—rule 11, 

no. I think one of the issues with patent litigation is it is notice 

pleading. It is basically we have a patent, you have a product, 

therefore you infringe, the case starts. And so you really don’t have 

that many opportunities. 

With frivolous claims, yes, we see them, and I think the fundamental reason is pre-State Street financial firms historically relied 

on trade secrets and copyrights to protect their innovations. So 

what happened was, when people starting filing patents during the 

Internet boom, let’s say on-line banking, okay, they don’t know 

what banks had been doing for decades. So they filed a patent application in the Patent Office. The Patent Office wasn’t aware what 

the industry had been doing for a number of years. The patent 

comes out of the Patent Office issued, on line banking product. I 

am using hypotheticals here, comes back and sues us. What we 

now have to do is establish that we need to go back 10 years in 

time to demonstrate to the court that what this patent covers we 

have been doing for generations. And so it is—that is why these 

types of cases are so expensive. 

Mr. KELLER. Let me stop you there. If we were focused on this 

sole issue of preventing frivolous suits in this arena, do you have 

any further suggestions of some additional step we should take beyond this draft legislation? 

Mr. Simon. 

Mr. SIMON. Yes. I think one thing would be to consider taking 

the rules from the Northern District of California on patent litigation which require that the claims be interpreted first, and maybe 

even considering have a special judicial panel to do that, given the 

high reversal rate of the district courts. Most patent infringement 

cases really hinge on getting the claim interpretation right, and 

that should be done early rather than late, as many judges tend 

33

to do, in my review. And it should be done by people who really 

understand how to do it. Lots of judges get it wrong, unfortunately. 

Mr. KELLER. Mr. Chairman, can I just have a second and have 

Mr. Kesslen answer that same question? 

Mr. SMITH. Without objection, the gentleman is recognized for an 

additional minute. 

Mr. KELLER. Mr. Kesslen, would you answer that? Do you have 

any suggestions of something we could do further to prevent frivolous claims? 

Mr. KESSLEN. In my written testimony, in addition to dealing 

with the permanent junction issue, the treble damages issue, I 

think the declaratory issue, I think what we need is the attorneys 

very often who are representing these plaintiffs are contingency fee 

attorneys, and they are very aggressive and they play games. So 

the more that we can do to make them realize that we can bring 

an action against them because the mere letter doesn’t do it, that 

we could bring a DJ action that the industry could go after them 

is helpful. I think limiting treble damages, cutting off actual damages under—for certain paper patents would be helpful. To make 

sure that the inventor can be rewarded, but the pot of gold isn’t 

quite as big as they think it is going in, will be helpful. 

Mr. KELLER. Thank you. 

Mr. Chairman, I yield back. 

Mr. SMITH. Thank you, Mr. Keller. 

And the gentleman from California, Mr. Berman. 

Mr. BERMAN. Yes. Mr. Van Horn, by and large, the association 

you speak for here, like the inter partes reexamination process, do 

you think it’s useful? 

Mr. VAN HORN. Well, as you know, this is a fairly recent player 

in this particular field. It was introduced only for patents that were 

issued on applications filed after November 1999. So we are in the 

very early stages of the implementation of this practice. It clearly 

gives a third party some advantages that they do not have in ex 

parte reexamination. And I don’t think we have given the system 

a fair opportunity, particularly since the law was amended in November 2002, to provide an opportunity for third parties, for example, to appeal a favorable decision to the Federal circuit. So I don’t 

think the law has had an adequate opportunity to actually be implemented at this point in time. 

Mr. BERMAN. So are you saying you are not ready yet to make 

any suggested alternatives to the one that is proposed here for encouraging the use of this procedure? 

Mr. VAN HORN. I think we do support the addition of the section 

112, first paragraph, except for best mode and second paragraph 

issues to reexamination. 

Mr. BERMAN. Expanding the scope of what can be looked at in 

the reexamination? 

Mr. VAN HORN. Correct. We do not support the removal of this 

estoppel provision, primarily because there is a balance that must 

be weighed between the rights of the patent owner and the rights 

of third parties and the public. And the concern in putting in that 

particular provision was that particularly well-to-do third parties 

would use this as a basis to harass patent owners by invoking reexVerDate 0ct 09 2002 15:52 Sep 03, 2003 Jkt 000000 PO 00000 Frm 00037 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\072403\88545.000 HJUD1 PsN: 88545
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amination and sometimes tying up this procedure in the Patent 

and Trademark Office for many, many years. 

I was personally involved on behalf of a patent owner who had 

filed suit in a district court, I believe in Texas, in 1995 on 4 patents. In 2003 the reexamination certificates in 13 separate reexaminations on these 4 patents were finally concluded. And so it certainly can be used to delay a final decision by the PTO in these 

matters. 

Mr. BERMAN. The flip side of that, however, of course is, with the 

estoppel provisions, you are going to have lots of challengers not 

using reexamination and going to the far more costly litigation 

route. And does that bother you? 

Mr. VAN HORN. I think if they have that option, certainly small 

businesses, simply complex litigation or even a simple litigation is 

simply out of the question financially. So they need some type of 

system where they have the opportunity to present this issue to 

someone to make a decision on this reexamination. So it is a balancing between the rights of these two interests, no question. 

Mr. BERMAN. On the prior art search, concerns have been raised 

about the extent to which, if you put that obligation on the applicant, will that become the basis of litigation later on? They didn’t 

do it adequately. So I guess, the notion of throw in everything to 

try and minimize that. Do you think there are some ways we could 

define the parameters and scope of the search so that an applicant 

could feel confident that he could engage at a reasonable expense 

in a search that would be thorough enough to not make him vulnerable to litigation for his efforts? 

Mr. VAN HORN. Personally, I think it would be very difficult to 

define that particular scope. And I believe, personally, that it 

would create many more problems than the possible benefits from 

such a requirement. 

Mr. BERMAN. Do you have any thoughts on this, Professor Thomas? 

Mr. THOMAS. Well, with respect to my colleague at the bar, I believe some of these concerns are overstated. 

Mr. BERMAN. Because—and I guess you cited the foreign model. 

Mr. THOMAS. Yes, that is correct. Well, that had to do with oppositions. But in general, I think it is fair to require patent applicants to perform due diligence. You recall that when an applicant 

files an application with the PTO, she is presumptively entitled to 

receive the grant. The PTO has to affirmatively reject the application for her not to. Once the patent is granted, that patent is presumed valid not by preponderance of the evidence, which is the 

PTO standard, but by the higher civil standard of clear and convincing. The system somewhat favors the patent applicant and 

eventually the patentee. 

I think again it is fair, given the powerful commercial tool that 

a patentee is awarded, that she should have to do due diligence to 

be entitled to that grant. It may prevent some applications from 

being filed because art will be discovered that would cause the 

claim to be narrowed or discourage that filing at all. And I believe 

it would help the examiner. 

Mr. BERMAN. Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Mr. Berman. 

35

If there are no further questions, let me thank the witnesses for 

their contributions today. It has all been very helpful. And we probably will take some of these ideas to legislation, and look forward 

to your support and input in the future as well. Thank you all. And 

the Subcommittee stands adjourned. 

[Whereupon, at 11:02 a.m., the Subcommittee was adjourned.]

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