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37–760 PDF 2007

S. HRG. 110–149

PATENT REFORM: THE FUTURE OF AMERICAN

INNOVATION

HEARING

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

JUNE 6, 2007

Serial No. J–110–41

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

BENJAMIN L. CARDIN, Maryland 

SHELDON WHITEHOUSE, Rhode Island 

ARLEN SPECTER, Pennsylvania 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

MICHAEL O’NEILL, Republican Chief Counsel and Staff Director 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 4

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

prepared statement .......................................................................................... 276

Specter, Hon. Arlen, a U.S. Senator from the State of Pennsylvania ................. 3

prepared statement .......................................................................................... 283

WITNESSES

Bernstein, Bruce G., Chief Intellectual Property and Licensing Officer, InterDigital Communications Corporation, King of Prussia, Pennsylvania ............ 15

Biberstein, Kathryn L., Senior Vice President, General Counsel and Secretary, Chief Compliance Officer, Alkermes, Inc., Cambridge, Massachusetts ....................................................................................................................... 20

Doyle, Mary E., Senior Vice President and General Counsel, Palm, Inc., 

Sunnyvale, California .......................................................................................... 16

Dudas, Jon W., Under Secretary of Commerce for Intellectual Property, and 

Director, Patent and Trademark Office, Department of Commerce, Alexandria, Virginia ........................................................................................................ 5

Squires, John A., Chief Intellectual Property Counsel, Goldman, Sachs & 

Co., New York, New York .................................................................................... 18

QUESTIONS AND ANSWERS

Responses of Bruce G. Bernstein to questions submitted by Senators Grassley, Coburn, Specter and Kyl .............................................................................. 33

Responses of Kathryn L. Bilberstein to questions submitted by Senators Specter, Coburn, Kyl and Grassley ............................................................................ 66

Responses of Mary E. Doyle to questions submitted by Senators Grassley, 

Coburn, Specter and Kyl ..................................................................................... 100

Responses of Jon W. Dudas to questions submitted by Senators Coburn and 

Specter .................................................................................................................. 126

Responses of John A. Squires to questions submitted by Senators Kyl, 

Coburn, Grassley and Specter ............................................................................. 145

Responses of David Westergard to questions submitted by Senator Kyl ............ 181

SUBMISSIONS FOR THE RECORD

Agricultural members of the Biotechnology Industry Organization, Washington, D.C., joint letter ....................................................................................... 195

Bernstein, Bruce G., Chief Intellectual Property and Licensing Officer, InterDigital Communications Corporation, King of Prussia, Pennsylvania, statement ...................................................................................................................... 198

Biberstein, Kathryn L., Senior Vice President, General Counsel and Secretary, Chief Compliance Officer, Alkermes, Inc., Cambridge, Massachusetts, statement .................................................................................................... 217

Companies, associations, venture capital firms and academic institutions, 

joint letter ............................................................................................................. 230

Department of Commerce, John J. Sullivan, General Counsel, Washington, 

D.C., letter ............................................................................................................ 235

Doyle, Mary E., Senior Vice President and General Counsel, Palm, Inc., 

Sunnyvale, California, statement ....................................................................... 246

Page

IV

Dudas, Jon W., Under Secretary of Commerce for Intellectual Property, and 

Director, Patent and Trademark Office, Department of Commerce, Alexandria, Virginia, statement ..................................................................................... 264

Michel, Paul R., Chief Judge, U.S. Court of Appeals for the Federal Circuit, 

Washington, D.C.: 

letter, May 3, 2007 ........................................................................................... 277

letter, May 21, 2007 ......................................................................................... 279

letter, June 7, 2007 .......................................................................................... 280

National Association of Manufacturers, Dorothy Coleman, Vice President, 

Tax and Domestic Economic Policy, Washington, D.C., letter ......................... 282

Squires, John A., Chief Intellectual Property Counsel, Goldman, Sachs & 

Co., New York, New York, statement ................................................................. 285

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PATENT REFORM: THE FUTURE OF 

AMERICAN INNOVATION 

WEDNESDAY, JUNE 6, 2007 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Committee met, Pursuant to notice, at 10:07 a.m., in room 

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

Chairman of the Committee, presiding. 

Present: Senators Leahy, Cardin, Whitehouse, Specter, Hatch, 

and Coburn. 

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

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Good morning. We have had a little bit of a 

delay. We have been trying to get a room, an extra room for the 

overflow. Senator Specter and Senator Hatch and I always thought 

that this was a dry subject, but apparently there are some who are 

interested in it, all the pro bono lawyers in here and others. 

On April 18th, we took a momentous step toward ensuring America’s continued leadership in innovation and production: on a bipartisan, actually a bicameral basis, we introduced the Patent Reform 

Act of 2007. We left partisanship and actually any sense of one 

body over the other at the door. I want to personally thank Senator 

Hatch, with whom I have worked on patent issues for many years. 

It has been more than a decade that we have worked together on 

these issues. Our last major patent bill was the American Inventors Act, which we began in 1997 and passed in 1999. The other 

cosponsors of the bill include Senators Cornyn, Schumer, and 

Whitehouse, who are also members of this Committee. 

The issues we are discussing here rated a front-page story in the 

Wall Street Journal, which noted that the Supreme Court has ‘‘underscored the patent system’s disrepair in a series of rulings rejecting the way lower courts have been interpreting existing law. The 

Justices have declared, in effect, that the patent system, as it has 

developed through the courts, has deviated from the balance Congress set a half-century ago between promoting innovation and 

spreading the fruits of progress.’’ This is one of those cases where 

the Court is exactly right. 

Over the years, our patent laws have served our inventors and 

our economy well, but they were crafted for a different time when 

smokestacks, rather than microchips, were the emblems of industry. It is far past time to update our laws for the 21st century and 

the future of American innovation. We have spent several years 

2

working on just such legislation. Last year, Senator Hatch and I 

introduced S. 3818, which I said at the time was the first step 

down a road to real, constructive patent reform. Since that bill was 

introduced, we have spoken with all manner of interested parties 

across this country, and we have incorporated many of their suggestions into this year’s bill, S. 1145, the Patent Reform Act of 

2007. 

We are working to refine and to finish this bill. We continue our 

collective effort to select just the right words to convey our agreedupon meanings. Today, we focus on our overall effort but also on 

specific aspects of the bill on which we have asked a distinguished 

group of witnesses to share with us their views on the structure of 

post-grant review, venue, and interlocutory appeal of so-called 

Markman hearings. 

We have come a long way in each of these areas, and we have 

made important modifications from last year’s bill to address concerns that have been raised. We have worked on it straight 

through, even after the elections last year, straight through the 

winter and into this year. I am hoping that we will make further 

progress so that we are well prepared for our final drafting efforts, 

and then I have been told it will be put on the agenda in the Judiciary Committee for markup. As we move ever closer toward the 

finish line to enact legislation that will create the landscape necessary that American innovators need to flourish, we are focusing 

our debate on the specifics. These matters may seem dry, but they 

are important to getting our work done and done right in order to 

have meaningful reform. 

So I look forward to the testimony of our witnesses today, and 

I appreciate the expertise they bring to bear on these important 

issues. 

I should note that with respect to the administration witness, we 

did not receive the testimony from the Department until 4 o’clock 

yesterday, and I am not sure whether the fault lies with the Commerce Department or the White House clearance process. But, of 

course, that is not in compliance with our Committee rules, as both 

Senator Specter and I have noted. We have also been informed that 

Director Dudas would not give oral testimony on the topics for 

which he was invited, which is interesting, but would speak on a 

topic of his own choosing, namely, the PTO’s new Patent Quality 

Program. We certainly agree patent quality is of singular importance, but Senator Specter and I specifically requested assistance 

from the witness on three other issues: post-grant review, venue, 

and interlocutory appeals. 

Under our rules and practice, whether the administration witness is accorded the privilege of a statement is up to the Chairman 

in these circumstances, especially when our rules have not been followed. Since we have not had a fair opportunity to consider the administration’s written testimony, I will simply make it part of the 

record for the hearing, and I will accord, of course, the Director an 

opportunity to make an opening statement if he wishes to focus his 

comments on the topics of this hearing, not topics he might want 

for the hearing, which is post-grant review, venue, and interlocutory appeals. And then we will have questions. 

3

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

Senator Specter? 

STATEMENT OF HON. ARLEN SPECTER, A U.S. SENATOR FROM 

THE STATE OF PENNSYLVANIA 

Senator SPECTER. Well, thank you, Mr. Chairman, and I commend you and Senator Hatch, former Chairman of this Committee, 

for the outstanding work you have done on this very important 

subject for many, many years. This is a matter of vital concern to 

this country and really to the world. The protection for property 

rights goes back to the Constitution itself, which grants exclusive 

rights to inventors for the fruits of their inventions, albeit it for a 

limited period of time, 20 years as specified in the Constitution. 

And the productivity and the wealth of the United States is attributed in large measure to the protection of intellectual property to 

encourage inventors to come forward with novel ideas and to have 

the fruits. 

There are a great many complex issues which have arisen in this 

field warranting a very careful reexamination by the Congress. 

There are substantial differences of opinion with those who rely 

upon patents, very substantial differences between high-tech and 

the pharmacology industry, differences of opinion between universities and venture capitalists on one side and software and hightech companies on the other side. And it is in a sense a lawyer’s 

paradise to work through these issues, perhaps more of a paradise 

for those on an hourly rate than those of us who are on the Judiciary Committee. But I have an extraordinary team of lawyers behind me, and we have spent a lot of time delving into the interstices of these issues. 

In a Congress confronted by many, many issues, I think no subject matter has brought more inquiries and more requests for meetings than has patent reform. And we heard about the issue of rereview by the Patent and Trademark Office, the so-called second 

window. We are worried about venue. We have all that business 

going to East Texas, and we worry about apportionment of damages, and so many, many other issues and about what the Supreme 

Court has done. And since it is a matter not involving a constitutional interpretation, Congress has full authority to get into the 

matter, and we are doing so in depth and in intensity. 

We have an extraordinarily crowded calendar in the Senate, but 

it is my hope that—I know that Senator Leahy, the Chairman, and 

Senator Hatch and I and others will be giving full attention to this 

matter to try to get it to the floor and then to press for floor action. 

I am going to have to excuse myself in a few minutes because 

I am managing with Senator Kennedy the immigration bill, and we 

have had a gauntlet laid down by the Majority Leader that if cloture is not invoked tomorrow at a 6 o’clock vote, he is going to take 

down the bill. And I think that would be disastrous. So we are up 

against a very tight time schedule. We were working late into the 

evening last night. We started again this morning at 8:30. We are 

trying to conclude many, many complex issues. And at the same 

time, we are meeting with many people who are in this room today 

on the H–1Bs and on the point system and trying to reassure peoVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
4

ple in high-tech that, where they have a particular individual in 

mind, we will retain the allowance for that person to be granted 

status to get a green card and stay here with visas to help on productivity. 

Thomas Friedman has suggested that we ought to modify the immigration laws to have a staple to a green card for every Ph.D. 

graduate. Certainly it would be economic administratively, just the 

cost of staples. And we are concerned about meeting those issues, 

and I see on my schedule, as Senator Leahy and Senator Hatch, 

a meeting with people in the industry at 11:30. I am not sure how 

we are going to juggle all those balls, but we will try to very carefully consider all of the many issues. High-tech practically has a 

Senate of its own on a day like today, with immigration and patent 

reform on the agenda. 

So thank you very much again, Mr. Chairman, and I will do my 

best to return to the hearing if I can. 

Chairman LEAHY. Thank you very much, and because of the extraordinary work he has done on this, I want to ask if Senator 

Hatch wishes to say something. 

STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 

THE STATE OF UTAH 

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

and your leadership in this area. I also appreciate— 

Senator SPECTER. Senator Hatch, would you yield for just a 

minute for a unanimous consent request for things that Senator 

Grassley has asked be included in the record? 

Chairman LEAHY. Without objection, they will be included. 

Thank you. 

Senator HATCH. I also appreciate Senator Specter and his leadership on the Committee as well. We are led by good people, good 

lawyers who know what they are doing. 

Let me just say that this is a very important piece of legislation. 

It is not everything I would like to have or that I think any of us 

would like to have, but it does have some very valuable changes 

in patent law that I think will over the long run benefit most people. 

You know, the patent system is the bedrock of innovation, especially in today’s global economy, and especially in this country. The 

sheer volume of patent applications reflects the brilliant innovative 

spirit, the vibrant spirit that has made America a worldwide leader 

in science, engineering, and technology. America’s ingenuity continues to fund our economy, and we must protect new ideas and investments in innovation and creativity. 

Patents encourage technological development and advancements 

by providing incentives to invest in and disclose new technology. 

More than ever it is important to ensure efficiency and increase 

quality in the issuance of patents. 

Senator Leahy and I in particular—and I believe the distinguished Ranking Member deserves a lot of credit, too—we have 

worked for years trying to come up with some way of reforming 

and changing our patent system to get rid of some of the things 

that we think are abhorrent. But I realize that there are a number 

of industries that are very concerned about this bill, and I am conVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00008 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
5

cerned about it as well because I would like it to be right when we 

get through. But industries like the medical technology industry, 

biotech, universities, pharma, other technology companies, a number of them are concerned about post-grant review. They are concerned about apportionment and expanding PTO rules, rulemaking 

authority. And there are a number of other issues that cut across 

and are very difficult to handle. 

What we are trying to do here is move the process forward and 

come up with the very best patent bill we can. Everybody here 

should realize that it is difficult to do because even if we could get 

a bill through the Senate, it still has to go through the House. And 

there are a number of organizations who could stop this bill even 

though across the board it probably benefits most organizations. 

So we will do what we can to keep the issue open, and I hope 

that you will all weigh in and let us see what we can do to get this 

bill even more perfect than it is and to try to keep the United 

States the No. 1 innovating Nation in the world. And I think it 

will, and I just want to personally again express my regard for Senator Leahy. He is always taking these issues seriously. He is one 

of the more learned people in this area. It is a pleasure to work 

with him, and I am looking forward, hopefully between now and 

markup, to bringing together some of the ideas that really deserve 

to be in this bill and work with Senator Leahy to see what we can 

do to get more across-the-board support for the bill. 

There is a lot of support for it, and the changes that we are making in this bill are extremely important, as far as I am concerned. 

But we will certainly be available and open for good ideas and 

other approaches. But this is where we are starting and, frankly, 

we have come a long way to get here, I would say, wouldn’t you, 

Senator Leahy? So I want to thank you again, and I look forward 

to hearing the testimony today. 

Chairman LEAHY. Thank you. 

Would you please stand and raise your right hand? Do you solemnly swear that the testimony you will give in this matter will 

be the truth, the whole truth, and nothing but the truth, so help 

you God? 

Mr. DUDAS. I do. 

Chairman LEAHY. Thank you. Go ahead. 

STATEMENT OF JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, 

U.S. PATENT AND TRADEMARK OFFICE, DEPARTMENT OF 

COMMERCE, ALEXANDRIA, VIRGINIA 

Mr. DUDAS. Thanks very much, Mr. Chairman, Senator Hatch, 

Senator Coburn. It is a pleasure to be here and have this opportunity to discuss the administration’s thoughts and recommendations on patent enhancement issues. The bill that you have before 

the Committee is intended to improve our patent system by enhancing quality, reducing patent litigation costs, and further harmonizing patent laws where it is in the interest of American 

innovators. The administration supports these goals and commends 

you, Mr. Chairman, and your colleagues in the Senate and on the 

House side for introducing this bicameral and bipartisan bill. 

6

I also want to note that I apologize that the testimony came in 

at 4 o’clock. No matter what the situation was, that responsibility 

rests with me. I can tell you we respect the Committee and the 

Committee rules. I can also tell you that the testimony very closely 

tracks the administration’s letter, the 11-page letter that we sent 

on May 18th to the Committee. So, largely, the views that you will 

find in the written testimony will be views that have been placed 

before the Committee before that. 

Chairman LEAHY. Thank you, and that will be part of the record, 

as I said. But Senator Specter and I both agreed on this when he 

was Chairman, and I follow the same thing as Chairman, that we 

have to get the testimony. 

Mr. DUDAS. Absolutely. 

Chairman LEAHY. I realize you have to go through a vetting in 

advance in the administration. 

Mr. DUDAS. Right. No question. 

Chairman LEAHY. But we do need it. Go ahead. 

Mr. DUDAS. Right. And so the views that are in that letter are 

largely the written testimony, and certainly everything I wish to 

discuss today are views that are within the bill, within the purview 

of the bill. In that written testimony and in the letter that the administration sent on May 18th, you will find at the beginning of 

the letter a vast discussion of an issue that we think is fundamental to everything. It is not currently in the bill, but it deals 

with applicant quality submissions; it deals with having applicants 

give more. I will be happy to testify later today on that in response 

to questions. 

You focused in your letter on three specific issues, and I will talk 

about those three specific issues in the written testimony, answer 

any questions on any areas in the bill, and other areas where the 

administration wants to recommend. 

The area where the PTO has the most significant expertise is in 

the post-grant review. Post-grant review is something that was proposed at the USPTO in 2002, as far back as our Strategic Plan. 

Again, almost 5 years ago that was introduced. Essentially, the 

reason the USPTO proposed a post-grant review system, it is a system that has worked in other nations. We saw that litigation is 

growing in the United States, as well as the number of patents is 

growing, but the amount of litigation per patent is not growing. 

What you see is that litigation is growing because there are more 

patents out there. So we thought that it would make sense that 

you would have an alternative to a court system, that you would 

have the expertise of the Office in a post-grant system. 

What we proposed at the United States Patent and Trademark 

Office to the Congress, last Congress and again this Congress, is 

a system that has two options: a first window where a patent can 

be disputed on nearly any grounds and under any circumstances 

with a closed window—we proposed 12 months—and also a second 

window where it would be a more limited window. For the life of 

the patent, the patent could be challenged so long as two requirements are met. According to the administration, this is what we 

thought would be the most manageable and the fairest under such 

a system. 

7

The first requirement would be that there would be a threat of 

litigation, so the second window would be limited to a 6-month period after the receipt of a notice from the patent holder alleging infringement; and, second, that there would be a threshold of significant economic harm. 

The idea was that this could serve as a meaningful alternative 

to litigation, probably less costly, certainly before experts at the 

Patent and Trademark Office. We also thought that it is very important if you are going to have a second window, if you are going 

to have a post-grant review, that you have very real estoppel, that 

you have a choice between litigation and post-grant review, that we 

should not have a situation where we set up forum shopping or giving several bites at the apple, that there should be true estoppel. 

The bill that has been introduced looks very similar to the administration’s position, but there is one significant difference, and 

that is, rather than have the threat of litigation and economic 

harm, it goes from a disjunctive test to—I am sorry, from a conjunctive test to a disjunctive test saying it is ‘‘or threat of economic 

harm.’’ 

The administration has concerns about this change for two reasons. One, administratively, that opens up a vast—a much larger 

number of possible cases that can come before the U.S. Patent and 

Trademark Office. And, quite frankly, without having the resources 

available now, we are not certain that we could handle the administration of that many cases. That, coupled with another provision 

in the bill that says the post-grant opposition would be opened up 

to all patents, both those patents that are in force today and those 

patents that are to come in the future. The administration would 

encourage the Committee to consider having a post-grant review 

system that looks prospectively only, or comes up with—we also 

have other opportunities and plans in place where we could limit 

the amount of post-grant review while the Office prepares and 

ramps up and prepares for post-grant opposition. So from an administrative perspective, we do have concerns that if it is opened 

up instantly to the more than 1.5 million patents that are in force 

today, that could overwhelm the Office. Obviously, both this Committee, the Congress, and the U.S. Patent and Trademark Office 

have an interest in making sure that any post-grant review would 

be a success. 

We are very eager to discuss with you how we can change the 

post-grant provisions, speak with the Committee both here and in 

the House about how we think we can improve post-grant review, 

again, give you the thinking that we have had since 2002. 

Two other areas that you raised in your letter: one was venue 

provisions and the other was interlocutory appeals. I can tell you, 

Mr. Chairman, that our interlocutory appeals, that is an area of expertise in which we are turning to the Department of Justice. I had 

a conversation with people from the Department of Justice the 

other day. There are some technical concerns that they have. I 

know they want to engage with the Committee on that, but quite 

honestly, we do not want to have an opinion solely from the United 

States Patent and Trademark Office because we think the Department of Justice has to be involved. 

8

I would direct your attention to something I am sure you are 

aware of, which is that Chief Judge Paul Michel, the Chief Judge 

of the Court of Appeals for the Federal Circuit, has weighed in on 

what he thinks procedurally could be problematic about interlocutory appeals, about what the workload would look like and what 

the problems might be there. 

On venue, we are also looking at the Department of Justice. I 

know they have also raised on venue technical concerns as well, 

and they want to raise with the Committee what thoughts they 

have on venue as well. 

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

for the record.] 

Chairman LEAHY. Thank you. The Federal Circuit has held, analyst know, that the PTO—you mentioned them. They have held 

that the PTO does not have the substantive rulemaking authority 

that other Federal agencies do. In your testimony you state that 

PTO believes that rulemaking authority is good for the patent system, but you are concerned that the authority we grant PTO in this 

bill gives you too much discretion. 

I am not quite sure I understand that. How do you believe such 

authority would be misused by the PTO if they are not further constrained? 

Mr. DUDAS. Mr. Chairman, we no longer have that concern. 

When we first saw that provision, we did have that concern in case 

it would allow for patent term extensions or other things that could 

be politicized before the Office. We do not think rulemaking authority would allow for such politicization and just think it is fundamentally a good provision. 

Chairman LEAHY. I appreciate that very much. And we have 

heard numerous complaints about the quality of patents issued by 

the PTO, as you have, and I know you are trying to get on top of 

that, and in S. 1145 we tried to address this in several ways. One 

important improvement is the creation of a system for third parties 

to submit relevant information early in the application process, and 

I understand that that is something that normally does not happen 

today. 

Can you comment on the importance of outside third-party experts providing relevant information to PTO? 

Mr. DUDAS. The administration is strongly supportive of that 

provision, and, in fact, we believe that patent quality is a shared 

responsibility. It begins with the patent application. It should give 

the patent applicant both an opportunity and a responsibility to 

give more information, but also the public at large. 

Right now, the rules under which the USPTO operates, after a 

patent application is published after 18 months, someone has an 

opportunity for 2 months to submit information, but they cannot 

comment on that. We think that bringing the public, giving the 

public the opportunity—not a requirement, but the opportunity—

to give information that they think is relevant can only enhance 

patent quality. 

When patent examiners have the right information, they make 

the right decisions. 

Chairman LEAHY. I want the press to know just how closely the 

administration and I see eye to eye. 

9

[Laughter.] 

Chairman LEAHY. There are some who think that does not always happen, but I mention that only semi-facetiously. We really 

have worked, as I said earlier, in a bipartisan—to actually make 

it nonpartisan legislation. A key component, of course, is the structure of post-grant review, which has become a matter of a lot of 

discussion around the country. Certainly we heard it—I think Senator Hatch and I heard it from just about every stakeholder in this 

thing. You support such review. 

Tell me how a second window post-grant review would provide 

a more efficient alternative for determining patent validity than 

full-blown litigation. 

Mr. DUDAS. Mr. Chairman, first off, the estimates that we see on 

what full-blown patent litigation—again, most cases settle, but fullblown patent litigation can cost upwards of $5 million or more. The 

concerns that we have heard from people are often that they are 

before a jury who are not necessarily experts, who do not understand necessarily the validity of the patent. Much like ex parte reexamination and inter partes reexamination in the USPTO, a postgrant opposition would allow experts, judges who are already at the 

PTO making decisions on patentability and on appeals and interferences, give them the opportunity, experts in the field, to make 

these decisions. 

What post-grant opposition offers that current reexaminations do 

not offer is a process that looks more like litigation, that allows 

witnesses and allows more of that type of environment. In a way, 

I think post-grant opposition with the second window is the best 

of both worlds, because it is an alternative to litigation before experts that is cheaper and will be quicker. 

Chairman LEAHY. I know as we have been preparing this, we 

have had a lot the staff working, Susan Davies especially from my 

office, and one of the things we do in this is we amend the prior 

user rights to apply to all patents being prepared commercially. I 

am told there has been a lot of comment on that. But if you have 

the certainty created by the first-to-file system in the bill, is there 

any reason that an inventor using an invention should not be able 

to defend against a suit by a person who later files a patent application for a similar invention? 

Mr. DUDAS. The concern that the administration raises and that 

some others have raised with prior user rights is that it might 

upset the balance between trade secrets and patents. In other 

words, the patent system is meant not so we make millionaires, not 

so we do—but so that we have disclosure of inventions. Ultimately, 

you disclose the invention. It is available to the public at large. In 

a certain amount of time, within 20 years, it is made freely available to everyone. Prior user rights right now exist under the law. 

If it is a year prior to filing, this might encourage people, prior user 

rights right up to the moment of filing, could encourage people to 

adopt trade secrets, which does not disclose technology. So in a 

way, what trade secrets—the patent system says if you disclose 

fully and make your information available to everyone so that everyone can use that and it will be freely available within 20 years, 

we want to encourage that. 

10

Prior user rights will encourage people to have trade secrets 

which basically says you can have this protection forever, but in exchange for that, you have to keep it secret. 

So I think the concern we have on prior user rights is twofold: 

first is that prior user rights might encourage trade secrecy more, 

which is a fine method, it is legal, but it does not encourage disclosure, which we want under the patent system. And the second 

area, which you have already alluded to, is right now we do not 

have a first-to-file system, but the bill does propose to have a firstto-file system. 

Chairman LEAHY. Thank you. 

Senator Hatch? 

Senator HATCH. Thank you, Mr. Chairman. 

I am concerned about, among other things, the inequitable conduct provision from last year’s bill because it was removed. Attorneys well know that the inequitable conduct defense has been overpleaded, and at least in my estimation, and I think the estimation 

of many others, it has become a drag on the litigation process. And 

as you, I believe that reforms to the inequitable conduct defense 

should focus on the nature of the misconduct and not permit the 

unenforceability of a perfectly valid patent on a meritorious invention. And sanctions should be commensurate with the misconduct. 

At least that is my view. 

I understand that the heart of the inequitable conduct defense 

lies with the quality of the patent application, including information disclosures. Now, in your testimony you describe that over half 

of all submitted applications either had no information disclosure 

statements or contained inordinately large information disclosure 

statements that, in effect, bury relevant information. 

Now, could you please describe for us the impact this has on patent quality, pendency, efficiency, and even the outcome in litigation? 

Mr. DUDAS. Absolutely, Mr. Senator. I appreciate the question, 

and I was hoping at the time of the opening statement to raise 

this. I have a box of materials here that I will just show you. It 

is a good example of what we get in the Patent and Trademark Office at times. 

This is one box of materials that a patent applicant might have 

submitted that someone thinks would be relevant, and the problem 

is—what I am raising right now is 2,600 pages of material that was 

submitted in one box in one patent application, and there were 27 

other boxes that had this amount of material inside the patent application. 

The problem with that is that an average examiner in this case 

would have an average of 24.5 hours. Certainly an examiner might 

take more time in that case. The problem with inequitable conduct 

is, as it has been interpreted now, we absolutely believe at the Patent and Trademark Office that there needs to be significant penalties for someone who tries to purport fraud on the Office. But we 

want to make certain that the remedies are commensurate with 

what the issue is, that inadvertent mistakes, innocent mistakes, 

are not punished more than they should be. 

So as you mentioned, 25 percent of the cases we get absolutely 

nothing. The applicant has said we have nothing that we can proVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00014 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
11

vide that we think is significant. In 25 percent of the other cases 

we get an inordinate number of disclosures, including 28 boxes that 

are this large. 

Simply put, in our office we have had an application that has 

3,000 claims and over 2,000 references. The Cray supercomputer 

was 12 claims. The microcomputer was eight claims. The MRI was 

16 claims. Our point is that the reason why we find that we should 

resolve inequitable conduct is to encourage applicants to give more 

and better information. Do not give us 28 boxes of material like 

this. Give us what is truly relevant so that you can have a higherquality patent. And we think in order to do that, we have to make 

inequitable conduct something that absolutely punishes fraud but 

absolutely promotes disclosure, and also we want to make certain 

that we take care of small inventors who might not have the resources to give us that background. 

Senator HATCH. Mr. Dudas, the USPTO consists of very skilled 

and dedicated examiners. I think they are committed to the granting of quality patents. Now, I understand, as you have just explained, the rigorous time constraints that examiners must follow 

in order to accommodate the hundreds of thousands of patent applications that they receive each year. Now, it is hard for me to envision how an examiner can meaningfully consider boxes and boxes 

of references in the short amount of time they are allotted. 

How do we get patent applicants to not shirk their disclosure responsibilities and not overwhelm the system? Would that be an extension of what you just said? 

Mr. DUDAS. It would. I think the Patent and Trademark Office 

has the authority to require more and better searches to be submitted, to have reports submitted to the office. But in order to do 

that, we want people to feel encouraged. Right now, applicants feel 

that they cannot, or at least they believe they cannot, disclose information because they say they fear that they will be found for an 

innocent mistake, and there are some cases that have shown that. 

Again, we think if we can give people the right incentives, then 

we should require them to give us more and better information. 

Our error rate is at a historic low right now. Our approval rate is 

at a historic low. There have been more quality initiatives put in 

place, but there is more that we can do. But it cannot just be the 

Patent and Trademark Office. As the Chairman noted, the public 

has a role to play, and certainly the applicant, who gains all the 

benefits from a patent application, has much to do. 

Senator HATCH. Well, this proposed legislation would institute a 

robust post-grant review process so that third parties can challenge 

suspect patents in an administrative process overseen by the 

USPTO rather than through costly litigation. Now, some argue 

that the USPTO does not have the expertise to handle a post-grant 

review process. I would just like to have your thoughts on that. 

Mr. DUDAS. I think there is probably no place better than the 

USPTO that has the expertise. We have administrative patent 

judges who handle appeals and interferences right now. 

The one issue that I would note is the post-grant, as it is right 

now, we believe we might not have the resources to ramp up the 

number of people we need to have as judges if we put all million 

and a half patents that are available now subject to post-grant reVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00015 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
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view. But as far as expertise, I do not think there is a better expertise truly anywhere in the world than among our administrative 

patent judges. 

Senator HATCH. I think you make a good point on that. 

Thank you, Mr. Chairman. I appreciate it. 

Chairman LEAHY. Thank you. 

Senator Coburn? 

Senator COBURN. Thank you. The problem of fee diversion is not 

addressed in the bill, is it, the administration’s position that they 

would like to see fee diversion ended? 

Mr. DUDAS. The administration actually for the last 4 years has 

ended diversion in the President’s budget and has essentially -the 

difference that is made under the Government Performance and 

Results Act, the Office had averaged meeting about 25 percent of 

its key goals. After that had ended in the President’s budgets and 

Congress supported that, and having an aggressive Strategic Plan, 

we have moved up 50, 70, 90 percent of our goals, up to 94 now. 

Senator COBURN. The post-grant opposition process, is it not true 

that the Japanese presently are thinking about doing away with 

theirs because of the negativity that they have seen in terms of innovation in Japan? 

Mr. DUDAS. I am not aware that they have done away with their 

post— 

Senator COBURN. No. They have not done away. Are they not 

considering it? 

Mr. DUDAS. I am not aware that they are considering—I am not 

aware that they are, but I could understand. They have a very big 

concern in Japan about what they consider filing of junk patents, 

and they have a big concern about what is coming. 

I will tell you Japan did change at one point. They had a system 

where they had a first window and a second window type of—and 

they have changed it to a second window the entire time. And I 

think that is where the source of their concern is, that you have 

an unlimited ability to challenge the patent throughout the life. 

Senator COBURN. If you applied the European rate, what you see 

in the EU, 5.3 percent of all patents go through a challenge in the 

second opportunity, and you apply that to a U.S. patent, if you assume the same, that is 8,600 cases that you are going to add per 

year in a post-grant review. Are you capable of handling that? 

Mr. DUDAS. I do not believe right now we are capable of handling 

8,600 cases, and we have reason to— 

Senator COBURN. But that is 8,600 cases based on what you approve, correct? 

Mr. DUDAS. That is 8,600—yes, if it is 5.3 percent of—we approve 

about 180,000 a year. 

Senator COBURN. Yes, so you are talking about 8,600 on what 

you approve, and then if we open it up to all in the past— 

Mr. DUDAS. Right, right. That is the source of our concern. We 

actually think the European system—because of the way the European system works where you have to challenge validity country by 

country, we probably should not get 5 percent. But there is no 

question that we have a great concern that if we saw those kinds 

of numbers, we would not be in a position today and we probably 

will not be in a position in the next few years to be able to handle 

13

that kind of influx on post-grant opposition. It would be because of 

the lack of resources or ability to ramp up. 

Senator COBURN. So let me understand. You would dispute that 

we would have 5.3 percent? 

Mr. DUDAS. We think that we would not have 5.3 percent. That 

is correct. 

Senator COBURN. And why would you assume that? 

Mr. DUDAS. We think in the United States—because a lot of the 

times in the European Union we believe much of what is driven in 

their post-grant opposition system is the fact that if you can take 

down the patent in post-grant opposition, it will be gone for good. 

Also, in the European Union you would have to challenge validity 

on a country-by-country basis. In the United States, of course, if 

you go to the courts and you win in the courts, that is good 

throughout the United States. So we think more people would still 

opt for litigation. 

Senator COBURN. The average length of procedure in a post-grant 

opposition in Europe is about 31 months. So if the pendency time 

in the U.S. is about 31 months and if post-grant opposition is about 

31 months, you are talking about taking 5 years of life out of a patent. Is that good for innovation in this country? 

Mr. DUDAS. Certainly lengthy pendency in terms is not good for 

innovation in— 

Senator COBURN. Well, lengthy pendency and lengthy post-grant 

opposition. 

Mr. DUDAS. And lengthy post-grant opposition is not as well, absolutely. We believe that we could get the job done likely within 12 

months under an appropriate post-grant opposition procedure that 

ramps up at the right rate. 

Senator COBURN. I would have trouble believing that, and I think 

most people would who have been through the litigation and dealing with Government agencies in this country. Twelve months I 

think is a pretty forward-looking number. 

Let me ask you one other question. Would people not really have 

about three bites at the apple under a post-grant—a second window opportunity, take one segment of their claim and maybe lose 

it in the post-grant and then still be able to go into the courts on 

another claim, even though they might have lost the initial claim? 

So what you could actually do is take 31 months of pendency, 31 

months of post-grant review, and then 3 to 5 years in the court, 

so essentially you could get a patent of half of its life? 

Mr. DUDAS. There is no question there are several options that 

people have under existing law and that they could have under the 

post-grant opposition system. 

I will say that the third element, the third bit there, if the administration’s position is adopted, would not exist because the estoppel needs to be quite strong that says on the second window any 

issue that you raised or could have raised— 

Senator COBURN. Or could have raised. 

Mr. DUDAS.—you can bring up no place else. That second window, from the administration’s position, is intended to allow nothing—a complete alternative to litigation. 

Senator COBURN. All right. And I would like your comment on 

venue shopping. The bill as it is currently written, the infringer acVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00017 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
14

tually has venue-shopping capability, but the patent holder does 

not. Do you see a problem with that? 

Mr. DUDAS. I do think that you have to consider everyone involved in terms of venue. Again, the Department of Justice will 

weigh in on this, but I will say that the venue provision is important to balance both the alleged infringer, or the defendant, and 

also the plaintiff, or the patent holder, particularly since a patent 

holder might be a small innovator, might be an independent inventor or a small business. So that is something that should be considered, and I think on balance needs to be considered. 

Senator COBURN. Do not patent holders want a venue so that 

they can limit their costs of litigation so they can get it seen and 

heard and handled quickly rather than favorably? Because— 

Mr. DUDAS. I am sorry. Could you repeat that question? I apologize. 

Senator COBURN. For example, there are certain places where 

you can go and get some—for example, in Virginia, you see a great 

response, a quick time. What that relates to is less cost. We have 

small innovative companies in this country who have limited resources, and if you limit their ability to go to a place where they 

have expertise, where they are very knowledgeable, they do this a 

lot, their dockets are not crowded with criminal cases, do you not 

see the cost of litigation as a factor in limiting patentability and 

maintaining the viability of a patent? 

Mr. DUDAS. Certainly, people are often looking at making certain 

they go to a jurisdiction where they think they can get a decision 

quickly, where they think they can get the expertise. When the 

Eastern District of Virginia adopted the rocket docket, it became 

the place where patent cases went and people became concerned 

about— 

Senator COBURN. But if you are an infringer, maybe you would 

want to go someplace where it takes 5 to 7 years. 

Mr. DUDAS. Certainly. I think that would be— 

Senator COBURN. Thank you. I do not have any additional questions. Thank you. 

Chairman LEAHY. Thank you very much. 

Mr. Dudas, thank you very much, and when you review the transcript, and if you are also reviewing anything that is said by any 

of the witnesses, if there is anything you wish to add, please feel 

free, and I will leave the record open, with no objection, for a few 

days so that others can ask questions. 

Mr. DUDAS. Thanks, Mr. Chairman. 

Chairman LEAHY. Thank you very much. We will take a 3-

minute recess while we set up for the next panel. 

I have also been advised we are going to have votes around 

11:30, 11:35, and the reason I mention that is to suggest that everybody try to keep within their time limits. I do not mean to be 

a pain in the neck on this, but you are going to have to so that 

we can get to the votes. The whole testimony of all four of the panelists will be placed in the record as though read. I would hope that 

you would be able to summarize so we can go to questions. 

The first witness will be Bruce Bernstein, InterDigital’s Chief Intellectual Property and Licensing Officer. He manages the company’s intellectual property assets and the patent licensing busiVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00018 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
15

ness. I will also put his full and impressive background—and I 

mean that seriously -in the record. 

I will break from my normal procedures to swear all witnesses. 

Because of the nature of this, I will not. 

Go ahead, Mr. Bernstein. 

STATEMENT OF BRUCE G. BERNSTEIN, CHIEF INTELLECTUAL 

PROPERTY AND LICENSING OFFICER, INTERDIGITAL COMMUNICATIONS CORPORATION, KING OF PRUSSIA, PENNSYLVANIA 

Mr. BERNSTEIN. Thank you. Chairman Leahy, Senators Hatch 

and Coburn, my name, again, is Bruce Bernstein, and I am Chief 

Intellectual Property and Licensing Officer of InterDigital Communications. InterDigital is headquartered in Pennsylvania, and we 

have a fairly large facility in New York. I great appreciate this opportunity to discuss the importance of strong patent rights to InterDigital, a founding member of the Innovation Alliance. 

InterDigital is a small company, yet we have enormous inventive 

capacity. For over 30 years, we have been at the forefront of research and development in advanced wireless technologies, and 

today virtually every digital cellular telephone has our technology 

inside of it. 

As the owner and licensor of hundreds of U.S. patents, InterDigital believes deeply in the promise and constitutional precepts of 

our patent laws, namely, that a strong and balanced patent system 

is absolutely vital to America’s economic and innovative leadership. 

Incremental and narrowly targeted reforms we believe are important to the continued health of our patent system, but we are concerned that sweeping changes may be unwarranted and harmful 

and will have unintended adverse consequences. 

Let me start off by saying that InterDigital actually supports 

several portions of the bill, including expanded third-party submissions of prior art and universal publication of applications, and we 

fully support the objectives. 

However, we are very concerned that certain of the proposed 

measures would undermine enforceability, predictability, and the 

value of all patent rights and would actually encourage litigation 

and abuse of the system. In particular, mandatory apportionment 

of damages and post-grant opposition we believe would fundamentally weaken the patent system by making it far less expensive to 

infringe patent rights, yet at the same time more expensive to actually enforce and defend them. And for licensing-based companies 

such as InterDigital, the collective effect of these measures would 

be severe; and, simply put, infringers would have little incentive to 

take a license without first being sued and every incentive to game 

the system and risk litigation. 

In the wake of eBay and other recent Supreme Court decisions 

that we have heard about today, the balance of power between patent owners and infringers has already radically shifted, particularly to the detriment of smaller firms that are in the business of 

licensing their innovations. We believe that the proposed mandatory apportionment and post-grant opposition provisions would, for 

many such innovators, drive the final nail in the coffin. 

16

InterDigital’s patented technologies are respected and highly valued, and our licensing history is extensive and well established. 

Even still, we have every reason to believe that large users of our 

technologies—and these include some of our existing licensees—

would exploit the proposed post-grant opposition and expanded reexamination procedures to essentially tie up our patents through 

endless administrative and judicial challenges. In fact, I have been 

told as much by several of these companies over the past year. 

While most of these companies say they respect intellectual property rights, in reality their sole objective is either to avoid, significantly reduce, or at a minimum severely delay making any licensing payments whatsoever, regardless of the validity or strength of 

the patent. 

America’s leadership in this knowledge-based economy is highly 

dependent upon our most valuable natural resources and exports, 

namely, our ideas and our innovations. If the U.S. weakens our 

patent rights and remedies at home, our ability to press foreign 

countries to respect American intellectual property and, frankly, to 

adequately enforce their own intellectual property laws will be 

greatly diminished. A patent is intended to be an incentive and reward for innovation, and companies that develop innovative technologies but choose to license those technologies rather than manufacture—and I want to stress the point that sometimes that is not 

by choice—are a critical and fast-growing element of America’s 

economy. We believe that Congress should avoid enacting legislation that prefers any given business model or swings the pendulum 

toward any specific stakeholder, no matter how well organized or 

vocal they may be. 

[The prepared statement of Mr. Bernstein appears as a submission for the record.] 

Chairman LEAHY. Thank you. 

Ms. Doyle? And I should also note that Ms. Doyle is the Senior 

Vice President and General Counsel of Palm, Inc. She manages delivery of legal services to the company’s worldwide operations. Her 

legal career spans more than two decades beginning with her first 

job in business litigation at Manett Phelps. She joined Teledyne in 

1984 where she worked for 12 years in increasingly higher roles. 

She returned to Silicon Valley in 1996 to join General Magic, Inc., 

as its general counsel and secretary, joined Palm in April 2003. I 

would note that she received her law degree from the Boalt Hall 

School of Law at the University of California, where she was president of the law school student body of her graduating class. I never 

got to do that. 

I will put the rest in the record. Go ahead, Ms. Doyle. Please try 

to summarize, especially for the points that you most want us to 

remember. 

STATEMENT OF MARY E. DOYLE, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, PALM, INC., SUNNYVALE, CALIFORNIA 

Ms. DOYLE. Thank you very much, Chairman Leahy, 

Chairman Leahy, Senator Hatch, Senator Coburn, and members 

of the Committee, my name is Mary Doyle, and as you said, Chairman Leahy, I am Senior Vice President and General Counsel of 

17

Palm, Inc. I thank the Committee for the opportunity to testify on 

behalf of Palm and as a member of the Coalition for Patent Fairness in support of the Patent Reform Act of 2007. We believe this 

legislation will greatly enhance the ability of Palm and other companies like ours to innovate and to compete globally. 

Palm and many others believe it is time to take stock of the U.S. 

patent system once again and to ensure that it is working in a fair 

and balanced way for American innovators across all industries. In 

our view, the provisions of this bill, S. 1145, accomplish that goal. 

We commend Chairman Leahy, Senator Hatch, and the other sponsoring members of this Committee for developing legislation over 

the past two Congresses that seeks to reconcile the interests of all 

stakeholders in the U.S. patent system to reach a fair and balanced 

result. 

In my limited time now, I will focus on the issues you requested 

me to focus on, but during the question-and-answer period, I would 

like to discuss our support for your proposed changes regarding the 

apportionment of damages and the establishment of a more rigorous standard for imposition of triple damages upon finding of 

willful infringement. 

We support reform of the patent system to permit interlocutory 

appeals to the Federal Circuit for Markman rulings and to discourage forum shopping. We also believe the proposed post-grant review procedures are a fair and reasoned response to unresolved 

patent quality issues and historical underinvestment in the work 

of the PTO. Before delving into these issues in greater detail, I 

thought I would provide an example of Palm’s everyday experience 

with the patent system. 

The company recently prevailed in a case in which the patent 

holder sought a claim interpretation that would include a Palm device, such as this Treo smartphone, within the meaning of the word 

‘‘card.’’ The district court construed the claim favorably to Palm 

and then granted Palm’s subsequent motion for summary judgment. On the patent holder’s appeal to the Federal Circuit, the district court’s claim construction was reversed. On remand, the trial 

court conducted a second Markman hearing, once again construing 

the word ‘‘card,’’ this time in conformity with the decision of the 

Federal Circuit, but again to Palm’s advantage, not surprisingly. 

Summary judgment was granted to Palm a second time and was 

sustained on the second appeal to the Federal Circuit. There is now 

no question that devices such as these are not ‘‘cards.’’ The cost of 

this litigation, however, and two trips to the Federal Circuit was 

$3.5 million, and this for a case that never reached trial. 

Palm also routinely receives patent assertions delivered in the 

guise of invitations to license. Vaguely worded and generally unsubstantiated by claim charts or otherwise, these letters by themselves may expose and often do expose the recipient to triple damages for willful patent infringement. Invitations to license may in 

some cases be coupled with what I call the ‘‘thwack factor,’’ named 

for the sound a large stack of patents makes when it hits the negotiations table. The thwack factor is credited with discouraging the 

recipient of a letter from undertaking the not insubstantial cost of 

doing an initial infringement and invalidity analysis to determine 

whether any of the patents in the pile are valid and infringed. And 

18

I must say that most often many, and sometimes all, are invalid 

and not infringed. The goal of the asserter is obviously to move the 

focus of the discussion from whether a royalty is due to how much 

it will be. 

The risk of triple damages, the thwack factor, and uncertainty as 

to the measure of damages that a court will apply often convinces 

many a recipient to achieve the best settlement it can under the 

circumstances and avoid the cost and aggravation of litigation. 

While we and many others successfully navigate these waters 

daily, there is no question that the license fees paid to patent owners, big and small, powerful and emerging, with products or without, is unjustifiably inflated to reward not the inventor but the litigator who takes maximum advantage of the current inequities in 

our patent system. 

[The prepared statement of Ms. Doyle appears as a submission 

for the record.] 

Chairman LEAHY. Thank you very much, and I would note that 

you what you spoke about, the cost of litigation going twice to the 

Federal Circuit, as I am sure you know, that is not an unusual experience. And although I have never quite heard, in our words of 

art, the thwack idea, I know it will probably become a word of art 

in this Committee. 

Ms. DOYLE. Thank you, Mr. Chairman. 

Chairman LEAHY. John Squires is the Chief Intellectual Property 

Counsel for Goldman Sachs and has global responsibility for all 

legal matters pertaining to intellectual property, including patents, 

trademarks, and copyrights. He has built the firm’s intellectual 

property practice with focus on the capture, deployment, and monetization of firm-generated intellectual property. 

I will put the full background in the record. I think, though, Mr. 

Squires, in my 32 years here, you are the first lawyer who has testified who also played as a linebacker for a Division I-AA team. 

That could be interesting in close negotiations. 

[Laughter.] 

Chairman LEAHY. I will leave it at that. Mr. Squires, go ahead, 

please. 

STATEMENT OF JOHN A. SQUIRES, CHIEF INTELLECTUAL 

PROPERTY COUNSEL, GOLDMAN, SACHS & CO., NEW YORK, 

NEW YORK, ON BEHALF OF AMERICAN BANKERS ASSOCIATION, FINANCIAL SERVICES ROUNDTABLE, AND SECURITIES 

INDUSTRY AND FINANCIAL MARKETS ASSOCIATION 

Mr. SQUIRES. Thank you, Mr. Chairman. That is a different 

thwack factor. Chairman Leahy, Senator Hatch, Senator Coburn, I 

am John Squires of Goldman Sachs, and I appreciate the opportunity to testify today. 

I appear before you today as chairman of the Intellectual Property Subcommittee of the Securities Industry and Financial Markets Association and also represent the American Bankers Association and The Financial Services Roundtable. 

Our respective industry organizations support S. 1145 because 

we believe these are precisely the issues that must be addressed 

to bring a system out of balance back into balance. We are grateful 

19

for the substantial and thoughtful nonpartisan, bicameral work 

that is already underway. 

Patents are still generally new to our industry. While financial 

service patents are generally attributed to the State Street Bank 

decision stemming from 1998, the truth of the matter is that modern banking and technology needs and the advent of the Internet 

flattened our world almost overnight. Since then, we have had to 

rethink and reengineer almost every aspect of our businesses to 

stay competitive in a global marketplace. Be it technology push or 

innovation pull, we would be here either way. 

While patents in our industry do provide substantial benefits and 

incentives, particularly where open innovation or transparency are 

desired, the more common experience unfortunately has been that 

of a system in need of substantial reform. 

Patent examination quality issues, predatory patent assertions, 

and litigation abuse have precluded continued progress and efficiencies in bettering the U.S. financial system. A recent Harvard 

Business School study concluded that financial patents are 27 

times more likely to be asserted in a lawsuit than non-financial 

patents. And because patent suits carry the risk of injunction, the 

delivery of financial services in the U.S. economy is all too easily 

put at risk. We fear this is only the tip of the iceberg. 

To be clear, our industry organizations do not see themselves as 

opponents of other views on the bill. Clearly, our member organizations finance drug companies and biotech companies of all shapes 

and sizes and seed venture capital firms and startups to help bring 

their visions to light. We believe and invest in their business models. 

To convey to you our experience, I analogize to an investment 

portfolio. We view the current patent system as underperforming 

because it is overweight with an World War II era view of the 

world and underweight in terms of the robust and complex value 

drivers of the knowledge economy. To finish my analogy, it is time 

for Congress to enable patent law to generate the substantial returns for the U.S. economy and American competitiveness that it 

should. 

With respect to the issues I have been asked to address, first, 

venue, we support the bill’s venue provisions as an effective means 

to forestall blatant forum shopping and litigation abuse. Just because a server which processes a check or clears a security can be 

located anywhere should not mean that defendants can be found 

everywhere. 

Second, interlocutory appeal. The availability of appeal will allow 

the original principals of Markman uniformity, clarity, and expeditious case resolution to be effectuated. 

Finally, post-grant review. For industries with complex value 

chains such as ours, especially in the services area, a second window may be the only opportunity to challenge validity and get prior 

art in front of the agency expert at deciding it. 

We thank again the Committee for the opportunity to testify and 

for the work that has already been done. We look forward to answering questions. 

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

for the record.] 

20

Chairman LEAHY. Thank you very much, Mr. Squires. 

Kathryn Biberstein—am I pronouncing that correctly? 

Ms. BIBERSTEIN. It is ‘‘Biberstine.’’ 

Chairman LEAHY. I am sorry. She serves as Alkermes—how 

badly did I do that one? 

Ms. BIBERSTEIN. Alkermes. 

Chairman LEAHY. Alkermes. I am not going to read the rest of 

this. I am afraid— 

[Laughter.] 

Senator HATCH. You are 0 for 2, Mr. Chairman. 

Chairman LEAHY. Yes, I know. She has also held positions at 

Crowell & Moring and the World Economic Forum. Senator Hatch 

and I have been at Davos often on that. B.S. from General Motors 

Institute, J.D. from the University of Michigan Law School. 

Your full statement is part of the record. Please go ahead. 

STATEMENT OF KATHRYN L. BIBERSTEIN, SENIOR VICE 

PRESIDENT, GENERAL COUNSEL AND SECRETARY, CHIEF 

COMPLIANCE OFFICER, ALKERMES, INC., CAMBRIDGE, MASSACHUSETTS, ON BEHALF OF BIOTECHNOLOGY INDUSTRY 

ORGANIZATION (BIO) 

Ms. BIBERSTEIN. Thank you. Chairman Leahy, Senator Hatch, 

Senator Coburn, thank you for letting me testify today regarding 

patent reform. This issue is of critical importance to the more than 

1,100 members of the Biotech Industry Organization, or BIO, 

whom I represent today. 

As you consider changes to the patent laws, I ask you to focus 

on one key point: The patent system today is working to foster the 

innovation and investment necessary to bring new drugs to treat 

critical diseases to market in the United States. As we work together to strengthen the patent laws, I would ask that you safeguard this very important societal benefit. 

My name is Kathy Biberstein, and I am the Senior Vice President and General Counsel of Alkermes. Alkermes is exactly the 

sort of success story that the U.S. patent system has fostered in 

this country. Founded 20 years ago on the basis of a proprietary 

patent estate, last year Alkermes became one of only a handful of 

profitable biotechnology companies. We reached this milestone by 

developing innovative medicines—Risperdal Consta, a long-acting 

atypical anti-psychotic for schizophrenia; and Vivitrol, a oncemonthly injectable treatment for alcohol dependence—based on a 

patent estate we invested in over decades. 

Like us, the hundreds of other BIO members companies, mostly 

small, emerging companies with little revenue and no products on 

the market, leveraged their patent estates to attain the public and 

private capital and partnerships with pharma partners to develop 

nascent technologies into the drug products you see on the market 

today. And you all know these products. They are the ones you 

search for on the Internet when a loved one develops a cancer or 

a neurological disorder or HIV/AIDS. These are our industry’s success stories. 

Biotechnology product development is high risk. It can take a 

decade and hundreds of millions of dollars, and most products 

never reach the market. Investors invest in such products only if 

21

they believe there can be a return on their investment. Patents 

provide this assurance. 

While we believe the patent system is working, there is always 

room for improvement. BIO welcomes many of the positive reforms 

contained in the Patent Reform Act of 2007. However, the bill includes three provisions that lack any degree of consensus: a broad 

second window for administrative post-grant challenges, a dramatic 

expansion of the law on apportionment of damages, and a sweeping 

delegation of substantive rulemaking authority to the PTO. 

Both a patent challenge, easily brought at any time during a patent’s term under a low standard of proof, and a calculation of damages in which courts must subtract all elements that existed in the 

prior art, with the effect of making patent infringement cheaper, 

will diminish patent value and, therefore, discourage investment. 

There is broad consensus against these controversial changes. 

Senator Hatch spoke about the problems with the inequitable 

conduct doctrine, and I think you said it perfectly. The best mode 

requirement in patent law has similar problems, and BIO encourages its repeal. 

You have also asked BIO’s views on venue reform and interlocutory appeals of Markman rulings, and I have included that in my 

testimony. 

So I urge the Committee to focus on the areas in which there is 

a broad consensus on the need for reform and to ensure that any 

new legislation strengthens the system that serves as the engine 

of this country’s innovation. 

Thank you. 

[The prepared statement of Ms. Biberstein appears as a submission for the record.] 

Chairman LEAHY. Thank you very much. 

Starting on my left, your right, Mr. Bernstein, on the question—

I mean, most of the people testifying have been large industries, 

but you have the small inventors, and I think that we have to be 

concerned about them. Senator Coburn and others raised that 

issue. They do not have the money to challenge patents before it 

becomes painfully obvious it may affect them. Are we suggesting 

they are on their own? 

Mr. BERNSTEIN. If you are asking about smaller companies that 

are on the infringer side of things—was that your question? 

Chairman LEAHY. No. Well, small companies that may want to 

challenge patents. 

Mr. BERNSTEIN. Right. What do they do, yes. Our view is that 

there is an existing procedure in place, and we are all aware of it. 

It is called— 

Chairman LEAHY. I am thinking of, you know, the post-grant 

process where you can harass competitors. We have tried to build 

safeguards into that, but are small inventors protected enough? 

Mr. BERNSTEIN. In terms of the post-grant, the current proposed 

language, you know, our view is we are all for cheaper mechanisms 

to either weed out bad patents, invalidate, you know, bad patents, 

or to more appropriately tailor the scope of issued patents in view 

of new prior art that has come to people’s attention. Our concern 

is that there is no balance to that procedure as currently in place 

and that it can be subject to widespread abuse. 

22

Chairman LEAHY. As I read your testimony, you oppose granting 

substantive rulemaking authority to the PTO. Is that correct? 

Mr. BERNSTEIN. We oppose that. Our view is that that is better 

left for Congress so that it can be subject— 

Chairman LEAHY. But virtually every other agency of the U.S. 

Government has that, and I have found the people over at PTO to 

be honest, hard-working civil servants. Why should they be different than other Federal agencies? 

Mr. BERNSTEIN. Unfortunately, I cannot comment on the other 

agencies and the rulemaking authority. I am not that familiar with 

it. But in terms of the PTO, our view is that it is such a critical 

issue for the U.S. economy that it is something that should be subject to debate within the Congress and a hearing such as this. 

Chairman LEAHY. I have gotten a lot of letters about Georgia Pacific, the rules and damages, treating it almost like gospel. But 18 

months ago, to go back to my mail, I got the same recitation on 

automatic injunction, saying that if we change the rule, then Heaven and Earth are going to collapse. But the Supreme Court rejected 

that unanimously in eBay, of course. I did not believe that disaster 

was going to follow, anyway. Dire consequences have not followed. 

Why do we have to worry if you have assertions of impending disaster on the apportionment issue? I mean, they seem like almost 

the same arguments we heard on automatic injunctions. 

Mr. BERNSTEIN. Yes. Two things. One, in terms of the eBay decision, I frankly think it is too early for anyone to say what the effects are. I mean, there has been a handful of cases, district court 

cases, were injunctive relief has been denied. You know, I have 

looked at those cases, and my guess is the judges in those cases—

and Judge Michel from the Federal Circuit raised this issue. What 

is the practical way of implementing, you know, the post-eBay 

judgments? So when there is no injunctive relief, basically you have 

the court setting royalty rates for the life of the patent. 

So I think the jury is still out on the effects of eBay, and, you 

know, I think this is something we are encouraging Congress to 

wait and see what happens. And I think it will take some time to 

see the true effects of the eBay case. 

In terms of apportionment of damages, you know, I have been 

told this by companies. I do a lot of licensing. Day in and day out, 

I am traveling. I am on the road dealing with companies trying to 

secure license agreements. And the combination of lack of injunctive relief for patent holders and the possibility of significantly 

under-market damages have had—I have had people come back to 

me and say, You know what? Just sue us, because at the end of 

the day, you know, maybe 5, 6 years out, we may lose the case, but 

you are not going to get an injunction, so we are going to continue 

to infringe. And we will owe you something less, if not—you know, 

equal to or less than what you are asking for now. 

Chairman LEAHY. Ms. Biberstein, you say also oppose, am I correct, granting substantive rulemaking authority to the PTO? 

Ms. BIBERSTEIN. Correct. 

Chairman LEAHY. And you object to the post-grant provisions of 

the bill because it contains a significant economic harm trigger for 

second window, but you endorse the PTO letter to us, which takes 

23

issue only with the same language. Do I understand you correctly 

that if we refine the harm test, your concerns would be addressed? 

Ms. BIBERSTEIN. The second window you are talking about? 

Chairman LEAHY. Yes. 

Ms. BIBERSTEIN. Yes, the second window is our concern. You 

know, it is not—this is not a normal experience for me to be up 

here with all you people. Normally I sit in my office in Central 

Square, and we worry about just keeping the company going from 

1 day to the other, and— 

Chairman LEAHY. But that is not where you are today. 

Ms. BIBERSTEIN. That is not where I am today. 

Chairman LEAHY. So I wonder if you could back to the question. 

Ms. BIBERSTEIN. These issues, the second window, apportionment 

of damages likewise, are issues that, frankly, make us feel threatened for our existence. The second window, we are not opposed to 

a post-grant opposition proceeding, one that, you know, encourages 

prior art to come out early on so that we have good patents granted 

on which people can invest hundreds of millions of dollars in terms 

of clinical trial and regulatory approvals. The problem for us is we 

start investing that money, and we invest a lot of it, and if you 

have an open-ended second grant period, there is a risk that investment money will not come in and will not be made available because you have got a lower standard of review. 

Chairman LEAHY. Your industry is unique in this regard? 

Ms. BIBERSTEIN. I do not know if my industry is unique in this 

regard. I believe that there are a lot of people who have to invest 

in ideas for a long time, and I believe that we all want high-quality 

patents as soon as we can get them. So waiting, encouraging people 

to wait until later on to bring information that may improve the 

quality of a patent is, frankly, I think, not what we are trying to 

do here. 

Chairman LEAHY. Thank you. 

Senator Hatch? 

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

Ms. Doyle, your comments about the post-grant review procedures were interesting. Would you explain, if you will, how the 

post-grant review process can lead to reduced litigation costs? And 

do you think the proposed ‘‘second window,’’ as currently written, 

you know, is adequate to accomplish this? 

Ms. DOYLE. Senator Hatch, Palm is a small company. About 

180,000 patents are issued every year. It would be very difficult for 

us to review every one of those that may implicate our industry or 

to anticipate that one that says the word ‘‘card’’ in it might ultimately be attached to us. So, in our view, a second window is very 

important because we would not be able to catch every patent that 

ultimately is stretched to apply to us during the initial post-grant 

proceeding. 

I believe it will reduce litigation costs because at least historically, if we refer to the European system, it is much cheaper to proceed through a very short—what turns out to be a very short process there. And it in most cases avoids litigation altogether. 

The advantages of kind of getting to the point of a matter, to understanding whether a patent is valid or not, has much to do with 

whether or not someone in the position of Palm believes it is imporVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
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tant to take a license. And as many of us do, we respect others’ intellectual property as we hope others will respect ours. 

Senator HATCH. Let me ask you this: Do you believe that providing attorneys’ fees and costs to a prevailing party would further 

reduce the costs of litigation and alleviate the burdens on the 

present court system? 

Ms. DOYLE. In my view, it would simply increase the cost of settling a matter because, as you know, the settlement calculus, when 

you are trying to avoid, for example, a frivolous claim, involves the 

amount of—you know, the litigation avoidance. And if I have to add 

Palm’s legal fees together with the opposing party’s legal fees, I 

think in most cases I will be faced with a situation where the cost 

of settlement will go up. 

Senator HATCH. OK. Ms. Biberstein, I share your concern about 

reform of the inequitable conduct doctrine. You mentioned in your 

testimony the regulation of applicant conduct should be committed 

to the expert agency, and that is USPTO. Now, could you please 

elaborate on what sort of agency actions, you know, you envision 

would remedy the current problem of ineffective or incomplete communications between patent applicants and patent examiners? 

Ms. BIBERSTEIN. Inequitable conduct, although it is alleged a lot 

today, is rarely found. The Patent Office has means today to require, you know, swearing-in or inventors to swear under oath regarding inventorship, to make these statements. They all exist 

today. And there are also penalties that exist today for people who 

lie, you know, when they swear an oath before the Patent Office. 

So I think that the Patent Office has those tools already, and 

they may have additional ones that I cannot speak to that could 

help encourage, you know, full disclosure. But I do not believe that 

inequitable conduct is an issue in patent prosecution today because 

it is rarely found to exist. It is just a huge cost in terms of litigation because it is always alleged. 

Senator HATCH. OK. Mr. Squires, I understand the need for an 

interlocutory appeal of Markman rulings, 

especially considering how technical and scientifically complex 

most claim construction analysis can be. Yet, as you mention, some 

argue that this process could result in providing litigants, I think 

if I recall it correctly, ‘‘two bites at the apple.’’ 

Now, I am interested in hearing your ideas on how to prevent 

this from happening. 

Mr. SQUIRES. Thank you, Senator Hatch. The interlocutory appeal for a Markman hearing is so important because the original 

principle is laid down in Markman, and that is for national uniformity in interpreting patent claims. So you have district courts 

currently that are reversed at a rate of 35 percent from their 

Markman decisions in the Federal Circuit, and that leads to two 

trials, typically, because as Ms. Doyle testified to, another hearing 

goes on, the claim construction was considered to be wrong when 

given below and has to be done again. 

So the Markman opinion itself stresses the importance not only 

of uniformity but the Federal Circuit’s role as having exclusive jurisdiction to provide that uniformity. The issue is often case dispositive and, therefore, the quicker you can get to a true meaning 

of the claims, which is in dispute, which drives the infringement 

25

analysis, the better chance you have overall in the long run of reducing the volume of cases and having them resolve either on summary judgment motion or settlement of the parties. 

Senator HATCH. Well, thank you. 

Mr. Chairman, I know my time is up and I have to leave, but 

could I ask one more question? 

Senator CARDIN. [Presiding.] The Senator may proceed. 

Senator HATCH. Mr. Bernstein, I want to thank you for your testimony. Your comments on the post-grant review process provided 

me some additional insights on the concerns about the second window. Now, you stated that the second window could be triggered by 

virtually any challenger at any time. It seems to me the parties 

seeking to have a cancellation petition granted have certain hurdles to overcome, such as establishing significant economic harm. 

In other words, it is not a slam-dunk that every petition filed will 

be granted. 

Now, why do you believe that the proposed criteria are inadequate, especially one cannot simply initiate a second window review as a matter of right? 

Mr. BERNSTEIN. I believe the other was the threat of being sued. 

Senator HATCH. Right. 

Mr. BERNSTEIN. You know, my view is that is not even a hurdle 

in terms of the threat of being sued, I mean, simply putting someone on notice. Ms. Doyle suggested that there are situations where 

patent holders will simply say, ‘‘Here is an invitation to license,’’ 

without even specifying why they are infringing. I think that kind 

of threshold would promote companies to continue to do that because once you have laid out your infringement case, you would 

have this threat. 

So from my perspective, those hurdles are de minimis, would be 

easily met in almost all situations, and I am talking from a purely 

practical standpoint because, again, I live the licensing business 

day in and day out. And at some point in time, you do put someone 

on full notice and you show claim charts on why they infringe. So 

I could see that, at least that hurdle being met each time. 

Our view is on post-grant opposition, you know, we are not opposed to a cheaper way of getting bad patents out of the system 

or a cheaper way of having patents reexamined. What we want to 

make sure is that, in fact, is a less expensive way and it does not 

end up costing as much as litigation. I mean, people have talked 

about the opposition process in Europe being cheaper. It is not. We 

have spent half a million dollars on opposition proceedings, and 

they have taken 5, 6-plus years. And that does not do people any 

good, patent holders any good. 

So we are looking for a quick method and a method that is fair 

to both parties. 

Senator HATCH. Well, thank you very much. 

Thanks, Mr. Chairman. 

Senator CARDIN. Senator Coburn? 

Senator COBURN. Thank you. 

In last year’s bill, we had a ‘‘loses pay’’ provision. What are each 

of your comments on whether or not that would slow down some 

of the overly aggressive both claims for licensing and also the ability to defend your patents? Any comments? 

26

Ms. DOYLE. Senator Coburn, I shared my comments with Senator 

Hatch, which I believe is to the effect that ‘‘loser pays’’ will end up 

just increasing the average value of settlements. 

Senator COBURN. Why is that? 

Ms. DOYLE. Because when you decide whether or not to settle a 

case, the standard settlement calculus is you add how much your 

defense costs will be and how much you believe you would likely 

pay if the worst happened, and then you discount it by the likelihood of a negative result—or positive result in that case—to decide 

how much you are going to pay. And if you add another certainty 

or another element of damages effectively, you just increase the 

calculus by the amount of the other side’s fees. 

Senator COBURN. So you think there is no inhibitory effect for 

people making claims that are not valid if they have to—and you 

can prove the fact that you have a valid patent and they are going 

to pay your costs for litigation, you think there is no inhibition in 

that at all? 

Ms. DOYLE. I would not say, Senator, that I think there is no inhibition at all. I know there are differing views on the subject. But 

in my view, from my daily life, as a defendant typically, it will simply increase the cost of— 

Senator COBURN. So when you pick up that Palm, that Treo 

there, that has supposedly a card, which you have defended twice, 

and then that gets known that all those—the $3.5 million costs go 

against the individual, you do not think that will have an inhibitory effect in the future on people coming to challenge your patent? 

Ms. DOYLE. In this case, I think it may have because the person 

involved was a relatively small holder. But most of the holders who 

are asserting are very capable and they just— 

Senator COBURN. Law firms. 

Ms. DOYLE. Well, they are either taking it on contingency, in 

which case there isn’t anybody’s cost, at least as far as the plaintiff 

is concerned, No. 1. And, No. 2, licensing practices are often very 

big. The best known licensing groups are companies that hold tens 

of thousands of patents and will simply include the cost of, you 

know, their attorney fees in their general business model. 

Senator COBURN. Mr. Bernstein, what are your comments on 

that? 

Mr. BERNSTEIN. I strongly disagree, respectfully disagree with 

Ms. Doyle. But, you know, the companies, for example, the small 

patent holder you are talking about, I mean, somebody pays to sue 

Palm. It is not free, and it may not be the inventor. It may be the 

law firm doing it on full contingency. But it is coming out of, you 

know, some partners’ pockets. It may be an investor group, a VC, 

an investment banker, or some wealthy individual that is funding 

it. 

So it is coming out of somebody’s pocket. As far as I know, most 

of the people I deal with do not like to throw money out the window. And if there is a serious concern about your case, I cannot believe that prudent investors—and I think most of these people, including contingency firms, are prudent investors—are not going to 

want to throw their money away on a bad case. And it is not insignificant in terms of attorneys’ fees. If you are telling me— 

Senator COBURN. So it would eliminate some of this bad acting. 

27

Mr. BERNSTEIN. I think so. It sets a higher threshold for—rather 

than the Rule 11 legal threshold, it sets a financial threshold, 

which, frankly, hits people I think a lot harder than the legal— 

Senator COBURN. Ms. Biberstein, any thoughts on that? 

Ms. BIBERSTEIN. I would agree with Mr. Bernstein. To the extent 

that these are people making economic decisions or economic investments in patents versus R&D investments, then they have to 

be making decisions on an economic basis, versus someone who is 

making on R&D investment in a patent might view it differently, 

so yes. 

Senator COBURN. OK. Mr. Squires? 

Mr. SQUIRES. I would agree with that. I think it would tend to 

reduce the speculative litigation, since there would be a new calculus into the equation, and I think it would have an effect somewhat like the eBay decision where you allow courts to do equity 

and took the automatic injunction away so that when money—monetary damage can compensate for the harm, that can be the reason 

not to get an injunction. The effect that had was really sort of reduce the thwack factor, the dollars attached to the thwack factor, 

similarly for a good calculus. 

Senator COBURN. Thank you. And then for both Ms. Biberstein 

and Mr. Bernstein, if we had the apportionment rules contained in 

1145 in effect when your companies started, just what is your opinion you think that would have had on the progress and success of 

your individual companies? 

Mr. BERNSTEIN. To some extent, you know, Goldman Sachs is actually one of our larger institutional investors. I could ask Mr. 

Squires that question. But, you know, that is actually a very good 

question. From our perspective, it would potentially change the entire economics of our business. You know, we rely almost entirely 

on our licensing revenues in terms of income. We do not have products, actual widgets that we sell to fall back upon. And, frankly, 

you know, we have got over 300 or close to 300 engineers innovating day in and day out. We need to see—or the market and our 

investors, like Goldman Sachs, needs to see an appropriate investment. And with the current language, that investment would artificially drop, we believe, below market rates. 

Senator COBURN. Therefore, there would not have been this extension and this growth and then the multiplicity of continued innovation? 

Mr. BERNSTEIN. I think it would put a serious question to that, 

and, frankly, I am personally more concerned about, you know, the 

InterDigitals that have not even been started yet for the health of, 

you know, the American economy. 

Ms. BIBERSTEIN. I am actually still concerned about the health 

of my company, because this is the device we are working on developing right now, this is an inhaled insulin device. And part of the 

path leading me here today was when I read this draft legislation, 

and I said, Oh, this is not a codification of a provision of Georgia 

Pacific. This is a brand-new provision. It is prior art subtraction. 

I went to my CEO and I said, Well, look, insulin exists and a 

hand-held inhaler exists, but, you know, what does that mean for 

us in getting the investment necessary to bring the ability to inhale 

insulin, replacing multiple daily injections to the market? I do not 

28

think there is anyone here who does not think that is a good thing 

for society. 

I mean, I have on of these, too, but if I had to pick I personally 

I pick this. And so, you know, I continue to worry today about what 

this apportionment language will do to my company. 

Senator COBURN. OK. Let me just followup with kind of a statement and then get a reaction from you, and I will finish, Mr. Chairman. 

This is a big fight about winners and losers. You know, we are 

not children here. We know there are high stakes here. The question is: How do we strike the balance that protects intellectual 

property in the right amount and does not dumb down our ability 

to create innovation because we have protected it in a balanced 

way? How do we strike that balance? I have some trouble with this 

bill. You can obviously tell by the questions I am asking because 

I do not think we have struck that balance. I would like your comments, very honest and open comments. We have got to find that 

balance for the best of our country and to appease, try to appease 

everybody so that everybody has a square shot. Where is that? How 

do we do that? Any comments? 

Ms. DOYLE. Senator Coburn, I would love to address that and in 

doing so try and address some of the concerns and fears that have 

been— 

Senator CARDIN. Can I interrupt you just for one moment? I 

know that Mr. Bernstein needed to leave. If you want to make a 

comment first, we will give you that opportunity. 

Mr. BERNSTEIN. Yes, sure. Thank you. 

First of all, you know, we sympathize, Ms. Doyle and Mr. 

Squires, we sympathize with your position. You know, we acknowledge at InterDigital that there are abusers of the current legal system. I mean, there are abusers of every system, you know, in this 

country and outside this country. But the current provisions of this 

bill are severely going to impact legitimate research, development, 

and innovative businesses in the United States. And, you know, we 

have had some fairly robust decisions coming out of the Supreme 

Court. I do not, frankly, think it has been long enough to really tell 

the outcome and how it is going to affect various industries. And 

I would just caution Congress and others about having sweeping 

reforms at this point in time, and not just—maybe doing it piecemeal and stepping back at some point in time. 

Senator COBURN. Ms. Doyle? 

Ms. DOYLE. Thank you, Senator. I would like to also indicate 

that we sympathize and empathize with others in business in this 

country and have no intention of undercutting the efficacy of drugs 

or the likelihood that they will come to market or anything of the 

sort. However, every day we receive what are called patent assertions over the threshold, and the first thing that the people that 

we talk to, the asserters we talk to, ask for is a percentage of this 

entire device, which is priced at between $400 and $500 to our enduser customer, the carrier customer. 

The most expensive piece of componentry in this device other than the licensing is $30, and I believe the market, the free market, determines the value of that component and what it delivers 

to this device. And it is my belief that if a patent reads on that 

29

component, then the reasonable royalty should be charged against 

that component, say $30, and that all of the factors in Georgia Pacific could be used to sort out exactly what percentage of that $30 

is due to the inventor that did something innovative about, say, the 

screen. But it is the screen that one has to look to, not the entire 

device. That would avoid situations like, in our case, someone with 

a chip patent coming to us indicating that they will not speak to 

our supplier on the subject, even though we have an indemnity relationship with our supplier. They will speak only to us, and there 

is only one reason: because they are looking for a percentage 

against this, the entire device. 

So I have to say that there are abuses. They are severe. They 

happen all the time. 

Senator COBURN. There is a balance, though, we have to— 

Ms. DOYLE. And there is a balance that needs to be struck. 

Senator COBURN. Mr. Squires? 

Mr. SQUIRES. Thank you, Senator. I would submit that mature 

industries with patents have procedural tools that exist that are 

just not available for industries that are new to patents, such as 

technology, software, financial services, and some of the new drivers of the economy. Therefore, I think Congress can strike that balance by some of the procedures in the bill. Particularly right now 

there is an ‘‘open forever’’ window, if you will. It is called ‘‘reexamination.’’ But to thread the eye of the needle on reexamination, you 

have to have a printed publication or an issued patent. That kind 

of prior art does not exist in the other industries to any great extent. Therefore, an opposition window and having a second window 

which is triggered on notice would be a meaningful way to get prior 

art into the system and also engage the expert agency who can decide that matter. 

As far as apportionment of damages goes, the Patent Office 

makes determinations as to where the scope of rights should be 

granted based upon the prior art, and what is obvious, in its determinations. There is no reason that the same cannot be done in 

terms of the economic commercial value of that. And the courts 

should engage, and they can start to hear and fulfill their Daubert 

principles, economic theories to help get at that. In fact, I just saw 

in the Wall Street Journal the other day that there is an exchangetraded fund that aggregates patents and lets an investor have exposure to that based upon valuations. 

And, finally, because issues of claim construction are the most 

important and most confusing often in the lower court and there 

is de novo review, interlocutory appeal might be the right calibration to get those issues decided early and resolved. 

Senator COBURN. Thank you. 

Ms. Biberstein? 

Ms. BIBERSTEIN. I do not personally believe this is—sometimes 

this is described as a battle between, you know, the drug companies and the IT companies. I do not believe that is true at all. I 

think we all have a common goal, and that is to improve the quality of patents, to discourage bad patents from being asserted, to put 

processes in place to make this system hum, to make it work really 

well for everybody. I think a lot of the things we have talked about 

and agree about will do that. I think that, you know, repealing inVerDate 0ct 09 2002 11:15 Oct 03, 2007 Jkt 037760 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\37760.TXT SJUD1 PsN: CMORC
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equitable conduct to encourage prior art coming in early, post-grant 

opposition process early on, it may not get everyone everything 

they want, but we are combining these factors, we are building 

here. And so by building, we are creating, you know, a better system, and we cannot always, you know, get everything that will address our immediate concern. But if we put things like, you know, 

pay if you lose in place, then, again, all these factors are going to 

be additive and help us without discouraging innovation, across the 

industries. I mean, Palm benefits from the smaller companies innovating as well as the rest of us do. So I think we are there, I do, 

While safe-guarding these key issues on which there is not consensus. 

Senator COBURN. You know, there is a theory in medicine: First, 

do no harm. 

Thank you all. 

Senator CARDIN. Let me thank the witnesses. Last year, I was 

looking at the patent issues from a little bit different perspective. 

I was on the Ways and Means Committee in the House and the 

ranking Democrat on Trade, and I remember trying to talk to some 

of our trading partners and some of our countries in which we were 

disappointed with their enforcement of patent laws and heard rather consistently about the differences that the U.S. patent laws 

internationally with other countries. 

So I would just like to get your perspective, if you have one, as 

to how important it is for us to look at what is happening internationally in the patent laws. Our patent laws are not consistent 

with a lot of other countries, and whether that is an important factor that this Committee should be considering in trying to bring 

some degree of uniformity as to patent laws, particularly with our 

major trading partners. 

Ms. DOYLE. Senator Cardin, I am not an expert in this area, but 

in the first paragraph of my remarks this morning, I did indicate 

that I believe that we are currently at a competitive disadvantage 

to our competitors elsewhere in the world because our system imposes effectively a larger tax on doing business than others do. So, 

for example, in China, while it is now possible to get patents, it is 

not possible to enforce them. So if a Chinese company, for example, 

has U.S. patents, which they can enforce here, they have an advantage over a U.S. company that may have Chinese patents but cannot enforce them abroad. That is probably the one example that I 

am most familiar with that causes us quite a bit of concern. 

Senator CARDIN. Of course, that does not really deal with the 

uniformity of the laws, more so than the enforcement, effective enforcement in China, which is certainly -I have heard lots of complaints about that. It joins the list of concerns we have about China 

as far as enforcing trading provisions. 

Ms. DOYLE. Right. I think uniformity of laws in general is probably a good goal. But without knowing more than I do about international patent regulation, I do not think I am in a position to— 

Senator CARDIN. I have heard Goldman Sachs does do a little bit 

of international business here, so maybe I can get a view from— 

Mr. SQUIRES. On occasion, Senator, yes. There is much, much 

good in existing patent laws that promote innovation and economic 

expansion in every area of the U.S. economy, and the provisions in 

31

the bill we think can make it better. One area that is clearly different than European systems and U.S. systems is U.S.-style litigation. A lot of that is as a result that is speculative. People have 

procedures that they come in armed with, including presumption of 

validity, which is warranted, but in cases where there are developing industries or lack of prior art that gets applied in the Patent 

Office, questionable as to whether they are overarmed coming into 

litigation. 

But at the end of the day, U.S.-style litigation drains resources 

from really where they should be going, and that is back into R&D 

work that is being done that then could be patented. So it is a way 

that if there is appropriate calibrations put on it—and I think the 

bill contains those—litigation costs can be more manageable, risks 

can be identified, and those dollars can go back into innovation 

where they belong and patents on innovation that help American 

competitiveness. 

One other difference I would point out is that the European—

where I think our system is clearly better and should continue on 

that track is Europe requires a technical effect of some nondescript 

manner in order to confer jurisdiction on patentability. It has 

turned into a ‘‘they know it when they see it’’ type of regime. Here 

the doors to the Patent Office are much more wide open, taking innovations in all stripes and awarding patents on any process—new 

and useful—any method, system of manufacture, machine, or composition of matter, and that I think has fueled U.S. economic 

growth. And I have seen articles where people worry about Europe’s competitiveness versus the U.S. because of these type of 

strictures. 

Senator CARDIN. Is there a particular country that has a model 

on enforcement and law that we should be looking at? 

Mr. SQUIRES. I think our model is fine. I think there is just some 

fine-tuning that needs to happen. For example, engage the patent 

agency, who is expert at making claim determinations based upon 

prior art, in a process where it can be available to more people, 

such as opposition. Right now it is all or nothing in court. A patent 

is granted. You have a presumption of validity. It either falls or is 

enforced. 

In an opposition practice, and including reexamination practice, 

there is a third way, and that is that the claims can survive, they 

can be gerrymandered around prior art, and the patents still issue 

but in a scope that is more reasonable to what has been out there 

in the prior art. 

So that type of calibration I think can go a long way and provide 

better patents at the end of the day, which the public gets a right 

to after the expiration, and they have a clear definition of what 

that is. 

Senator CARDIN. Thank you. 

Ms. BIBERSTEIN. I might just add that I started my career in patents in Europe, so I learned inventive step before I learned nonobvious. And this was in the early 1990’s, and what I can remark 

on perhaps is what I think has been remarkable progress of cooperation between the United States and other countries in Europe 

and around the world in the patent area that really did not exist 

a decade and a half ago. 

32

So I think that we have seen remarkable progress and will probably continue to see more. I think changing to a first-to-file standard in the United States will also be helpful in that respect. 

Senator CARDIN. Thank you. Well, once again, let me thank all 

of you for your appearance here today. This is a subject that, of 

course, this Committee has had under consideration for many 

years. It is one in which I am sure we are going to be receiving 

a lot more attention during this Congress, and today’s hearing certainly enhanced our ability to deal with this very important subject 

for this country. 

The hearing will stand adjourned. 

[Whereupon, at 11:55 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.]

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Æ


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