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33–808 PDF 2007

FULL COMMITTEE HEARING ON

THE IMPORTANCE OF PATENT

REFORM ON SMALL BUSINESS

COMMITTEE ON SMALL BUSINESS 

UNITED STATES HOUSE OF 

REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

MARCH 29, 2007

Serial Number 110-12

Printed for the use of the Committee on Small Business

(

Available via the World Wide Web: http://www.access.gpo.gov/congress/house 

HOUSE COMMITTEE ON SMALL BUSINESS 

NYDIA M. VELA ́ ZQUEZ, New York, Chairwoman 

JUANITA MILLENDER-McDONALD, 

California 

WILLIAM JEFFERSON, Louisiana 

HEATH SHULER, North Carolina 

CHARLIE GONZA ́ LEZ, Texas 

RICK LARSEN, Washington 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

MELISSA BEAN, Illinois 

HENRY CUELLAR, Texas 

DAN LIPINSKI, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

BRUCE BRALEY, Iowa 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

STEVE CHABOT, Ohio, Ranking Member 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

BILL SHUSTER, Pennsylvania 

MARILYN MUSGRAVE, Colorado 

STEVE KING, Iowa 

JEFF FORTENBERRY, Nebraska 

LYNN WESTMORELAND, Georgia 

LOUIE GOHMERT, Texas 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio 

MICHAEL DAY, Majority Staff Director 

ADAM MINEHARDT, Deputy Staff Director 

TIM SLATTERY, Chief Counsel 

KEVIN FITZPATRICK, Minority Staff Director

STANDING SUBCOMMITTEES

Subcommittee on Finance and Tax

MELISSA BEAN, Illinois, Chairwoman 

RAUL GRIJALVA, Arizona 

MICHAEL MICHAUD, Maine 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JOE SESTAK, Pennsylvania 

DEAN HELLER, Nevada, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Contracting and Technology

BRUCE BRALEY, IOWA, Chairman 

WILLIAM JEFFERSON, Louisiana 

HENRY CUELLAR, Texas 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

JOE SESTAK, Pennsylvania 

DAVID DAVIS, Tennessee, Ranking 

ROSCOE BARTLETT, Maryland 

SAM GRAVES, Missouri 

TODD AKIN, Missouri 

MARY FALLIN, Oklahoma

(II) 

Subcommittee on Regulations, Health Care and Trade

CHARLES GONZA ́ LEZ, Texas, Chairman 

WILLIAM JEFFERSON, Louisiana 

RICK LARSEN, Washington 

DAN LIPINSKI, Illinois 

MELISSA BEAN, Illinois 

GWEN MOORE, Wisconsin 

JASON ALTMIRE, Pennsylvania 

JOE SESTAK, Pennsylvania 

LYNN WESTMORELAND, Georgia, Ranking 

BILL SHUSTER, Pennsylvania 

STEVE KING, Iowa 

MARILYN MUSGRAVE, Colorado 

MARY FALLIN, Oklahoma 

VERN BUCHANAN, Florida 

JIM JORDAN, Ohio

Subcommittee on Urban and Rural Entrepreneurship

HEATH SHULER, North Carolina, Chairman 

RICK LARSEN, Washington 

MICHAEL MICHAUD, Maine 

GWEN MOORE, Wisconsin 

YVETTE CLARKE, New York 

BRAD ELLSWORTH, Indiana 

HANK JOHNSON, Georgia 

JEFF FORTENBERRY, Nebraska, Ranking 

ROSCOE BARTLETT, Maryland 

MARILYN MUSGRAVE, Colorado 

DEAN HELLER, Nevada 

DAVID DAVIS, Tennessee

Subcommittee on Investigations and Oversight

JASON ALTMIRE, PENNSYLVANIA, Chairman 

JUANITA MILLENDER-McDONALD, 

California 

CHARLIE GONZA ́ LEZ, Texas 

RAUL GRIJALVA, Arizona 

LOUIE GOHMERT, Texas, Ranking 

LYNN WESTMORELAND, Georgia

(III) 

C O N T E N T S 

OPENING STATEMENTS 

Page

Vela ́zquez, Hon. Nydia M. ....................................................................................... 1

Chabot, Hon. Steve .................................................................................................. 2

WITNESSES 

PANEL I 

Doll, Hon. John, Commissioner of Patents, U.S. Patent and Trademark Office 3

PANEL II 

Gross, Mitchell, Mobius Management Systems, Inc. ............................................ 19

Lord, Bryan P., AmberWave Systems Corporation ............................................... 21

Ward, Emily, eBay, Inc. .......................................................................................... 23

Neis, John, National Venture Capital Association ............................................... 25

Thomas, John R., Georgetown University Law Center ........................................ 27

Kirsch, Kevin, Taft, Stettinius & Hollister LLP ................................................... 29

APPENDIX 

Prepared Statements: 

Vela ́zquez, Hon. Nydia M. ....................................................................................... 41

Chabot, Hon. Steve .................................................................................................. 43

Altmire, Hon. Jason ................................................................................................. 45

Doll, Hon. John, U.S. Patent and Trademark Office ............................................ 46

Gross, Mitchell, The Information Technology Association of America (ITAA) ... 53

Lord, Bryan P., AmberWave Systems Corporation ............................................... 60

Ward, Emily, eBay, Inc. .......................................................................................... 93

Neis, John, National Venture Capital Association ............................................... 96

Thomas, John R., Georgetown University Law Center ........................................ 106

Kirsch, Kevin, Taft, Stettinius & Hollister LLP ................................................... 123

Statements for the Record: 

Computing Technology Industry Association (COMPTIA) ................................... 136

Innovation Alliance .................................................................................................. 140

(V) 

(1)

FULL COMITTEE HEARING ON 

THE IMPORTANCE OF PATENT REFORM 

ON SMALL BUSINESS 

THURSDAY, MARCH 29, 2007

U.S. HOUSE OF REPRESENTATIVES, 

COMMITTEE ON SMALL BUSINESS, 

Washington, DC. 

The Committee met, pursuant to call, at 10:00 a.m., in Room 

2360 Rayburn House Office Building, Hon. Nydia Vela ́zquez [chairwoman of the Committee] presiding. 

Present: Representatives Vela ́zquez, Jefferson, Shuler, Gonza ́lez, 

Larsen, Cuellar, Braley, Clarke, Ellsworth, Chabot, and Akin. 

OPENING STATEMENT OF CHAIRWOMAN VELA ́ ZQUEZ 

ChairwomanVELA ́ ZQUEZ. I am very pleased to call this meeting 

to order, this hearing, this morning on the potential impact of patent reform on small business. For more than 200 years, the U.S. 

patent system has served America’s investors and helped to foster 

innovation and technological advancement. 

The words ‘‘strong, enforceable patent’’—based on an effective 

patent system—provides a critical incentive to innovation. Granting investors certain exclusive rights helps spur research inventors 

and development efforts, which in turn help drive American technological leadership. In this way, patents are an important linchpin 

with respect to continuing America’s economic growth and global 

competitiveness. 

An effective patent and trademark office and sound intellectual 

property laws are particularly significant to small companies. As 

tireless innovators, small companies produce more than 13 times as 

many patents per employee than do their larger counterparts. This 

demonstrates the critical role that patents play for small firms, enabling them to attract investors, grow their companies, and compete with larger entities. 

Due to its importance to the U.S. economy and to small business, 

today’s hearing will examine the effect of potential reforms on 

small firms. We will hear testimony on ways that we can improve 

the system to enable small companies to compete in a global economy. This includes harmonizing U.S. patent laws with those of 

other industrialized countries and strengthening patent quality. 

We will also hear about potential changes to the litigation system, which many suggest has become a deterrent to innovation and 

technological progress. Reforming the U.S. patent system could 

have a very significant impact on small companies’ ability to proVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00007 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
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tect as well as enforce their rights. The current system has a significant impact on the small companies that manufacture complex 

products, license patented technologies, and defend themselves in 

alleged infringement cases. 

We will hear testimony that will discuss these issues, which will 

illustrate the important stake that small companies have in this 

debate. Small innovative companies play a significant role in the 

most productive sectors of the United States economy. These companies are often more willing to take risks than larger competitors, 

positioning themselves to seize market opportunities. 

As remarkable inventors, small companies use and rely on the 

U.S. patent system. For many, this is central to their business and 

ongoing competitiveness. Today, we will ensure that these small 

firms have a voice in the patent reform legislation. 

I look forward to the testimony on this important, if complex, 

issue. And I will now recognize Mr. Chabot for his opening statement. 

OPENING STATEMENT OF MR. CHABOT 

Mr.CHABOT. Thank you very much, Madam Chairwoman. I first 

want to apologize for being a little bit late and holding the meeting 

up. I am usually very careful about being here on time. Unfortunately, I had to speak at a meeting, and it went a little longer than 

we had anticipated. I hate keeping people waiting, so I do apologize 

for that. 

I also want to thank you, Madam Chairwoman, for holding this 

hearing this morning. I would also like to thank all of our witnesses for agreeing to share their views on this important issue. If 

I may, I would like to welcome Mr. Kevin Kirsch, who I will be introducing here shortly, who hails from the city of Cincinnati and 

also happens to be my Congressional District, the First District of 

Ohio in Cincinnati. 

Innovation is the heart and soul of this country, and we need not 

look any further than to our founding fathers and the United 

States Constitution to demonstrate the importance of patents and 

the development of our great nation. Through Title 35, Congress 

has promoted ‘‘the progress of science and useful arts by securing, 

for limited times, to authors and inventors the exclusive right to 

their respective writings and discoveries, the impact of which is immeasurable.’’

The impact of this protection and the protections that are contained in here is immeasurable. We now live in an age where what 

was once considered science fiction is now a part of everyday life. 

Advances in medicine and health technology allow us to lead longer 

lives. Wireless satellite, digital and electronic technology, have allowed us to live fuller lives, entertaining and communicating and 

traveling in ways that were never imagined in the past. 

The relationship between innovation, particularly advances in 

technology, and small businesses cannot be overstated. In 2003, the 

Small Business Administration noted, ‘‘Small firm innovators are 

extremely effective at producing technically important innovations, 

and technically important innovations are most likely to be commercially important.’’

3

In particular, the report found, among other things, small firms 

produce more highly-cited patents than large firms on average. 

Small firm patents are twice as likely as large firm patents to be 

among the most cited patents. Small patenting firms produce 13 to 

14 times more patents per employee as large patenting firms. 

Small firm innovation on average is linked to scientific research 

twice as often as large firm innovation, and so it is substantially 

more high tech or leading edge. 

Thus, there is no doubt that small businesses have made significant contributions under the current patent system. But, like many 

other statutes such as the Sherman Act, our patent laws were enacted more than half a century ago. Advances in technology, together with uncertain patents and increased litigation, raise legitimate questions as to the sufficiency of Title 35 to protect and 

incentivize innovation in the 21st century. 

For small businesses, these concerns are compounded by the 

problems faced by small businesses utilizing the patent system. In 

its same report highlighting the successes experienced by small 

businesses, the Small Business Administration found that ‘‘Small 

firms find the patent system to be problematic. The costs of obtaining and maintaining patents can be prohibitive, and small firms 

are not able to undertake expensive litigation to defend their intellectual property.’’

I believe we have a unique opportunity today to explore in greater detail how different industry sectors utilize the patent system, 

determine what works for small businesses, and what areas can be 

improved to ensure that innovation continues to flourish into the 

future. 

I would also like to take a moment to recognize all of the time 

and effort that has been invested in this issue, particularly by my 

colleagues on the Judiciary Committee. I also happen to be on that 

Committee. As all of you know, patent law is a complex area, and 

I would like to thank Ranking Member Lamar Smith, and Courts 

and Intellectual Property Subcommittee Chairman Howard Berman, in particular for their leadership on this issue on that Committee. 

And, again, I want to thank all the witnesses for being here 

today and the testimony that we will be receiving here shortly, and 

I yield back, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Our first panel, we have The Honorable John Doll, Commissioner 

of Patents. He is responsible for all aspects of the patent-granting 

process for the United States, more than 5,000 employees, and an 

annual budget of more than $970 million. Commissioner Doll 

joined the Patent & Trademark Office in 1974 as a Patent Examiner. 

Thank you for being here today. Welcome, and you will have five 

minutes to make your presentation. 

STATEMENT OF THE HONORABLE JOHN DOLL, COMMISSIONER OF PATENTS, UNITED STATES PATENT & TRADEMARK OFFICE, U.S. DEPARTMENT OF COMMERCE 

Mr.DOLL. Thank you, Madam Chairwoman, Ranking Member 

Chabot, Members of the Committee. On behalf of my 8,500 colVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
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leagues at the United States Patent & Trademark Office, thank 

you for this opportunity to discuss the PTO’s programs and initiatives for small businesses. 

We are all aware of the vital role businesses play in promoting 

our economic growth. The inventions and innovations brought to us 

by independent inventors, minority and small businesses, have improved our lives and, in fact, saved lives. As inventors turn their 

ideas into viable, marketable products, it is important that they obtain the protection they need to safeguard their inventions. 

Many of the PTO’s programs and initiatives serve to educate and 

assist small businesses and independent inventors in obtaining and 

maintaining that protection domestically and internationally. The 

PTO would not be able to effectively do what we do without the 

support of the administration and the Congress. I would like to 

take this opportunity to thank the administration and the Congress 

for supporting our current fee structure, which includes a 50 percent reduction for small entities, and ensuring that the PTO has 

access to all of our fees. 

Full access to our fees permits us to build on our successes in enhancing quality and production. Full access also allows us to offer 

a variety of services that are particularly useful to the minority 

and small businesses, as well as independent inventors. 

Our website, USPTO.gov, is an excellent starting point for inventors. It contains a wealth of information, including searchable databases of issued patents and of published patent applications. Our 

website also offers inventors a resource page that provides information on financing, marketing, and invention promotion scams. 

Inventors can also call our inventor’s assistance center for oneon-one help in filling out forms as well as getting answers to questions on rules, procedures, fees, and patent examination policy. Our 

inventor’s assistance center receives approximately 6,000 calls a 

month. Help is also available across the country through the PTO’s 

Patent and Trademark Depository Library Program. This is a nationwide network of public, state, and academic libraries, which 

disseminate patent and trademark information. 

They also support inventors and entrepreneurs with seminars 

and training sessions. The library network consists of 85 libraries 

located in 47 states, the District of Columbia, and Puerto Rico. We 

also sponsor two-day conferences for independent inventors and 

small businesses, which feature sessions on how to conduct a patent search, what is patentable, what is not patentable, how to protect your intellectual property, and even how to write a business 

plan. 

We are also working to streamline and demystify the patent application process. We continue to promote electronic filing, processing of patent applications, to enable all applicants to file and follow up on their patent applications 24 hours a day from any location in the world. 

The U.S. PTO is considering and has a variety of innovative patent processing initiatives, including a new offering called accelerated examination. Under this program, which began in August of 

2006, the PTO offers a complete examination within 12 months as 

an option to inventors who wish a quick turnaround. The first patent issued under this new program was filed on September 29, 

5

2006, and issued as a patent less than six months after on March 

13, 2007. 

Independent inventors and small businesses are becoming involved in the global marketplace where counterfeiting and piracy 

are a serious threat. Small and minority businesses are particularly at risk here, since they often do not know the law and do not 

have the resources to effectively fight the fight. 

As part of the administration’s STOP! initiative to combat piracy 

and counterfeiting of intellectual property, the PTO manages a 

telephone hotline. The phone number is 1-866-999-HALT, where 

callers receive information from intellectual property attorneys at 

the Patent & Trademark Office on how to secure patents, trademarks, and copyrights. 

We have also established a link on our website to stopfakes.gov, 

which provides in-depth details of the STOP! initiative and has a 

section devoted solely to small business issue. An important part 

of the STOP! initiative is a nationwide public awareness campaign 

to help educate small businesses on protecting their intellectual 

property here and abroad. Our research shows that 81 percent of 

small businesses do not understand that their U.S. intellectual 

property rights stop at the United States borders. 

We look forward to working with this Committee to improve and 

expand our outreach to small businesses. Madam Chairwoman, 

thank you for this opportunity to discuss these issues with the 

Committee. 

[The prepared statement of Commissioner Doll may be found in 

the Appendix on page 46.] 

ChairwomanVELA ́ ZQUEZ. Thank you. Thank you, Mr. Doll, Commissioner Doll. In your testimony, you mentioned that patent applications received by your agency continue to increase. And I also understand that the number of highly technical applications covering 

fields such as biotechnology and computer science has also soared. 

Under these circumstances, I applaud your agency’s effort to address concerns that have been raised regarding patent quality. Do 

you believe that effective planning, adequate budgetary resources, 

and rulemakings are sufficient for your agency to address the challenge of maintaining high patent quality? 

Mr.DOLL. That is an excellent question, and you have covered 

quite a bit of information. Right now, the office is doing very well. 

We have a large number of new initiatives to address quality. 

Quality is our number one initiative. If an applicant receives a patent that isn’t of good quality, it can be much more harm and be 

much more expensive than if we spend the time to do the good 

quality examination. 

ChairwomanVELA ́ ZQUEZ. Okay. Is that a yes? 

Mr.DOLL. Okay. Yes. 

ChairwomanVELA ́ ZQUEZ. Yes. Thank you. 

Mr.DOLL. Okay. 

[Laughter.] 

ChairwomanVELA ́ ZQUEZ.The next panel of witnesses will discuss 

a number of issues associated with the rules of patent litigation, 

including venue standards and the calculation of damages in infringement cases. Do you believe that legislation is necessary to adVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
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dress the concerns that some people have raised about the rules 

governing patent litigation? 

Mr.DOLL. Is that a yes or no answer? 

ChairwomanVELA ́ ZQUEZ. Yes, sir. 

[Laughter.] 

I just want for the record to reflect whether you believe that is 

so. 

Mr.DOLL. Yes. 

ChairwomanVELA ́ ZQUEZ. Okay. So does the administration have 

positions on various key elements of pattern reform now being considered by Congress? What are the PTO and administration positions on, first, post-grant review and the need for a second window; 

and, two, potential reforms in the ways that damages are calculated in patent infringement cases? 

Mr.DOLL. With respect to the post-grant review and the second 

window, we haven’t seen exactly what is in the bills that will be 

introduced in the House and the Senate, so it is difficult to comment on those. I think post-grant opposition is an excellent opportunity to complement a program that we already have, and that is 

ex parte and inter-party reexamination. 

This is an opportunity where we may be able to expand past the 

printed publication, which is the only requirement in ex parte and 

inter-party reexamination, to actually get to questions that are 

raised with respect to Title 35 of the United States Code 101 and 

112 with respect to utility enablement and written description. 

ChairwomanVELA ́ ZQUEZ. So do you think legislation is required? 

Mr.DOLL. Post-grant is an interesting option, and I am sure 

there will be lively debate with respect to that. The system, as it 

works right now, as you said in your opening statement, has been 

working very well for 200 years. I think the reexamination procedure provides that opportunity, and a venue post-grant may well 

open up the opportunity to discuss enablement utility and written 

description. 

ChairwomanVELA ́ ZQUEZ. Okay. Let us switch gears for a moment. Could you highlight some of the efforts that the U.S. PTO 

is making in order to help small businesses protect their intellectual property against piracy, counterfeiting, and infringement? 

Mr.DOLL. Yes. The first thing that I would like to talk about 

were some of the things that we did in our testimony, or in my testimony, and that was education that we do through our independent inventor conferences—the conferences that we hold that 

are two-day conferences that teach people exactly what their patent 

is, how to get a patent, how to process a patent. 

And, as I said, 81 percent of the small businesses don’t realize 

that if you have an invention that is internationally viable or marketable that you need to protect that invention in each one of the 

countries where that invention may be useful or may be marketed 

or sold. 

We have also the inventor’s assistant, where you can call in and 

speak to supervisory primary examiners to see exactly what you 

need to protect your invention in the United States. We have an 

independent inventor’s office that we have just opened in the past 

year where we just assigned one of our experienced supervisory priVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00012 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
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mary examiners to help in the outreach effort to independent inventors and to small businesses. 

We work with the patent and trademark depository library programs, as I said, in 47 states and in Puerto Rico, which provide 

really invaluable information on exactly what information is out 

there, what patents have already issued, and to provide inventors 

and small businesses with the opportunity to learn what their 

rights are and how to protect. 

We have the STOP! initiative that I talked about where we have 

received thousands of telephone calls where people don’t understand what they need to do to protect their inventions. We have 18 

conferences planned that have been held—some have been held, 

some have been planned—across the countries where Undersecretary Dudas and Deputy Undersecretary Pinkos go across the country and talk about intellectual property and what their rights are. 

Education is the biggest thing that we can do. We have also just 

recently started posting U.S. patent office employees in foreign 

countries as intellectual property attaches. We have them, or currently will have them, in Brazil, two in China, Egypt, India, Thailand, Russia, and Geneva. What they have done is funnel a lot of 

the information back to the embassies and provided information 

that we can then funnel to the independent inventors and small 

businesses on what the challenges are in those countries. 

ChairwomanVELA ́ ZQUEZ. Commissioner, let me just say that I 

really appreciate your agency’s efforts in all of these areas. 

Let me recognize Mr. Chabot, but I will come back and ask some 

other questions. 

Mr.CHABOT. Thank you very much, Madam Chair. And I first 

would note the—if you are noticing, there is a lot of Democrats 

here, not too many Republicans here. We were actually invited 

down to the White House. Most of my Republican colleagues are 

down at the White House meeting with the President about a number of issues. I personally felt that patent reform was much more 

important than meeting with the President, so—

[Laughter.] 

—that is why I am here today where I should be, so—

[Laughter.] 

ChairwomanVELA ́ ZQUEZ. You are going to get in trouble. 

Mr.CHABOT. I will probably get in trouble, you are right. 

[Laughter.] 

Just for the record, I like the President. 

[Laughter.] 

ChairwomanVELA ́ ZQUEZ. Let the record reflect that. 

Mr.CHABOT. Of course, that could be controversial. That is probably a 30-second ad next time, too, so—

[Laughter.] 

But in any event, I also want to thank Commissioner Doll for accommodating me recently in visiting the U.S. Patent & Trademark 

facility, not too far from here. But my staff and myself were very—

it was very interesting seeing, you know, what goes on down there, 

so thank you very much for allowing us to do that. 

Just a few questions, and I think you really covered a lot in the 

chair’s questions here. How does the U.S. Patent & Trademark Office deal with over-broad claims? And is there any way to deterVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00013 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
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mine whether large or small businesses submit applications with 

overly broad claims? 

Mr.DOLL. Overly broad claims is a very important issue. It is 

something that we deal with from the first days that we start to 

train examiners. The most important thing that a patent examiner 

can do is assess the scope and the breadth of a claim. If they don’t 

have a correct assessment of that breadth and scope, they may not 

do a proper search. 

And, in fact, what we have seen in the past couple of years is 

that is the number one error that we find when an examiner 

makes a determination is that the scope and the breadth of the 

claim had been improperly analyzed. We are spending a great deal 

of time in our new patent training academy where we have just instituted a program last year where we bring people in and we put 

them through an eight-month training program. 

And we spend several days of the training talking about the 

breadth of the claims, scope of claims. And we have hands-on examples, and then we allow them to look at actual applications 

where rejections have been written, have been upheld by the 

courts, and talk about exactly what are the pros and cons of interpreting this claim. 

It is an extremely important issue. As far as understanding 

whether large or small businesses, I don’t have any statistics on 

that right now, but I would be happy to look into that. But a broad 

claim should never be allowed, so the claims that are allowed are 

the claims that have been determined by the examiner to have the 

correct scope and the correct breadth. 

Mr.CHABOT. Thank you. What do you think will be the long-term 

impact of web-based searching for patents and patent applications? 

And do you think it will reduce or increase conflict in the patent 

system? 

Mr.DOLL. I think the web has opened up new doors to the American public, to the independent inventor, to the person working in 

their garage, to the small businesses that give them the opportunity to actually come into the United States Patent Office and 

look at what patents have been issued. 

If they have a particular invention, an idea, or an innovation 

that they would like to patent, they have the opportunity to look 

through our databases to search the same databases that the examiners searched for prior art with respect to patents that have 

issued with respect to applications that are pending to give them 

an idea as to whether or not their invention has been done or not. 

I think the web has really facilitated, again, the independent inventor and the small business to give them the opportunity to determine what is patentable and what isn’t patentable. 

Mr.CHABOT. Thank you. Could you comment on what problems 

arise because the United States doesn’t use the first to file system 

for patents? And as you discuss this type of issue—and I assume 

you probably do with other countries and their representatives—

what sort of feedback do you get as far as satisfaction or dissatisfaction with the way they do it as opposed to the way we do 

it? 

Mr.DOLL. Right. I will go back to how Madam Chairwoman 

opened, with the United States patent system has been served well 

9

for over 200 years by the first to invent policy that we have. We 

are the only country in the world that has the first to invent as 

opposed to the rest of the world which has a first to file. 

The first to file takes care of a lot of complex legal questions, if 

there is a question of prior art as to who invented a particular invention. In the United States, we have a system where we determine who was the first inventor to invent. It may not have always 

been the first person to file. 

So there are pros and cons on both sides of that argument. And 

as I said, the United States Patent Office has been served for over 

200 years very well by first to invent, and I think small businesses 

and inventors and independent inventors have been served very 

well by the first to invent. 

But I am sure there will be a vigorous conversation in the Congress this year, and possibly in years to come, and the patent office 

will fully support and implement whatever program Congress feels 

is appropriate. 

Mr.CHABOT. Thank you. If you had the unilateral power to implement any changes to the patent system to help make small businesses—to make it work better for small businesses, what changes 

would you make? 

Mr.DOLL. I think a lot of the changes that we are currently trying to implement work really well for the small business, for the 

little guy, the innovator that is just trying to get started. 

One of those is the peer to patent review. When somebody comes 

through the patent office, we do a great job. I think the examiners 

do a phenomenal job in the amount of time that they have to do 

an examination and to make a patentability determination. What 

we are trying to do with the peer to patent review pilot that we 

are getting ready to implement in early June is to give the public 

an opportunity also to comment on these applications. 

The worst thing that we can do for a small or an independent 

inventor is to give them a patent where someone else could legally 

or actually viably challenge that patent in court. So allowing other 

people to comment on this application while it is pending in the 

patent office, whether that be during a peer to pilot review during 

the examination, or whether that be during a post-grant opposition 

period, I think gives the small inventor and the independent inventor an opportunity to have a patent that they feel is extremely 

strong, that they feel confident will withstand a legal challenge in 

court. 

Mr.CHABOT. Thank you. And one final question, would some type 

of formal or informal arbitration system be effective in your view 

in contesting the validity of patents? Would that be more effective 

than the current interference proceeding or post-grant review? 

Mr.DOLL. Post-grant is an interesting option where we are looking for a low-cost option, to try to be fair, to try to balance the system, to make sure that the little guy, the small inventor, the small 

business, has the same opportunity in a reasonably cost-effective 

manner to challenge a patent and to look at that. 

We also have the reexamination proceeding that I think also does that. For $2,520, somebody can challenge a current patent and ask 

for reexamination, where they actually have a team of three examiners look at a patent one more time and make a determination 

10

whether or not there was prior art that raised a substantial new 

question of patentability. 

We have actually just created a new central reexam unit, and in 

that reexam unit these are people that are highly skilled, dedicated 

to the reexamination process, which look at these applications and, 

again, go through the complete examination process with respect to 

the new prior art that was submitted by either the patentee or a 

third party requester, and then any additional new art that they 

might uncover or discover during their searches to make a complete determination, again, as to the validity of those patents, and 

possibly amend the claims, cancel claims, or possibly cancel the entire patent. 

Mr.CHABOT. Thank you. 

Madam Chairman, I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Larsen, you are recognized for five minutes. 

Mr.LARSEN. Thank you, Madam Chairwoman. I just have one 

question, but it has got a little bit of a follow-up—or sort of a leadin to it. Since ’90, when the U.S. Patent & Trademark Office became self-reliant, until ’05 when fee collections exceeded appropriations, and during those years there was about $750 million diverted right from PTO, U.S. PTO. 

The U.S. PTO received in excess of 440,000 patent applications 

in ’06, is that right, a record number? 

Mr.DOLL. Yes. 

Mr.LARSEN. Yes. To help meet that demand, the agency hired 

over 1,200 patent examiners, exceeding your goal by 200 people. 

And they are going to continue to hire over 1,000 patent examiners 

over each year for the next five years. 

Recently, in testimony to the House Judiciary Committee, the 

head of U.S. PTO testified that PTO’s ’06 budget appropriation was 

sufficient to meet agency demands. But there is still this concern 

about a precedent of fee diversion, and what that might mean for 

available dollars. It is my understanding as well that the decision 

to grant PTO a robust budget appropriation has been a year-toyear determination as well. 

So given that as a lead-in, it is also my understanding that the 

recent reports by National Academy of Science and the FTC conclude the PTO does not have sufficient resources to ensure that it 

can meet its mission. So given the conclusion of those reports, and 

the testimony from the head of the PTO, which seemed to be at 

conflict, can you—do you agree with the conclusions of those reports? Or can you help enlighten us about why there might be a 

difference of opinion between the testimony given and the conclusions of these reports? 

Mr.DOLL. Well, I fully support the President’s budget. I fully support the appropriations that have been given by the Congress to 

the U.S. PTO. And as I said in my testimony, we really appreciate 

the full funding. Full access to our fees gives us the opportunity to 

institute programs, to carry out programs, and we have a list of 

new initiatives that I would love to talk about, but I am afraid I 

don’t have time to talk about, that wouldn’t be possible without full 

funding. 

11

The full funding has allowed us to actually recreate the independent inventor’s office that I talked about, where we have just 

recently reinstituted it, reinvigorated it, and made it much more 

robust than it has been in the past, to reach out to small businesses. 

As far as the funding issue, what has happened in the past—and 

I certainly don’t disagree with where the money was diverted to. 

They were very good projects and very worthwhile. But what happened to the U.S. PTO is that we were unable to hire at the levels 

that we felt we needed to hire to meet the growing demand of the 

applications filed. And we currently have a backlog of 735,000 

unexamined applications. 

What we did last year was examine 320,000 new applications. So 

if you do the math very quickly, we added over 100,000 brand-new 

unexamined applications to the backlog last year. This year, we 

will add over 100,000 additional new applications to the backlog 

and end the year with over 800,000 new applications in the backlog. 

We have initiatives to try to address that. We are trying to do 

a limitation on the number of continuations that an applicant can 

file. We are trying to focus the examination by limiting the number 

of claims that an application can contain, without providing additional support. 

We have no per se rules on strictly limiting the number of applications or the number of claims, but we have set limits where within those limits there is no additional help required from applicant. 

But if you feel that you need more claims, you are more than welcome to file them, but we are going to ask you to file an examiner’s 

support document to aid the examiner, to help the examiner do a 

more focused examination. 

Mr.LARSEN. So, if I may, it sounds like you appreciate the full 

appropriation. 

Mr.DOLL. Yes, sir. 

Mr.LARSEN. But with regards to the National Academy of Science 

report and FTC report, you haven’t directly answered that question 

whether or not you agree with the conclusion of those reports. It 

sounds from your answer is that they—NAS and FTC have made 

a very good case that there is a lot of work to be done that isn’t 

getting done. 

Mr.DOLL. You are absolutely correct, and I certainly don’t mean 

to avoid the question. But I do want to make sure that I support 

the budgets that we have been given and appreciate the full funding. 

However, there is always more that we can do. We have a lot of 

initiatives that we would like to put in place. We have new programs that we would like to institute. It would be great if we could 

reach out to small businesses more, actually spend more time in 

the field working with them, provide better search systems, provide 

more up-to-date search systems. 

More money would always be appreciated, so if you are able to 

do that the patent office would find very good ways to utilize that 

money to help small and independent inventors. 

[Laughter.] 

Mr.LARSEN. That is an unusual request. 

12

[Laughter.] 

Thank you. 

Thank you, Madam Chairman. 

ChairwomanVELA ́ ZQUEZ. Mr. Jefferson. 

Mr.JEFFERSON. Thank you, Madam Chair. 

Mr. Chabot asked the question one way, which was, if you had 

the power to enact to some provisions, which would they be? I want 

to ask it a different way. Which of the proposals that you are 

aware of that are under the so-called label of reform of the patent 

system would be most advantageous to small businesses if they 

were adopted? 

Mr.DOLL. I don’t have a good answer, because the proposals that 

I have seen have been proposals that are a long way from final 

rules or law. And I would hope that the office would have the opportunity to work with Congress and to work with the Committee 

to make sure that there is always a fair and balanced equity between the large entity, the people with the deep pockets that can 

run to the office often, and that small independent inventor that 

is trying to get his invention off of the ground or trying to get a 

corporation started. 

And so I am not sure which ones would be most disadvantageous, 

because I see pros and cons on both sides, but overall from the programs that I have seen and the bills that I have seen from the last 

Congress it looked like we could make all of them work fairly and 

equitably for. 

Mr.JEFFERSON. The issue of access to the federal courts, in your 

opinion, would that—just ask on this one, would that be more or 

less disadvantageous to small or larger concerns? 

Mr.DOLL. I am not sure I understand the question. 

Mr.JEFFERSON. Well, the cases now in court, there is some talk 

about arbitration, some talk about other ways to get after disputes. 

Do you think if we—right now the court actions that are brought 

to deal with patent infringement questions—and so my question, I 

am trying to get specific on one issue, I couldn’t get the broad ones, 

just ask about this. Do you think that would disadvantage small 

business folks or not? 

Mr.DOLL. I think the court system has fair access for both large 

and small entities. There is always a question of cost as to whether 

or not the small entities have the resources to fully fight the fight. 

We do have programs in the office, such as the reexamination unit, 

where for what I think is a very reasonable cost they have the opportunity to challenge the validity of a patent. 

Mr.JEFFERSON. Let me ask you another question and get out of 

this area, then. On harmonization, there are differences pointed 

out in the information I have gotten here about how different regimes deal with patent issues. I would guess you would say that 

the U.S. parent regime, if I can call it that, is superior to the rest 

of the world’s patent protection regime, would you not? 

Mr.DOLL. Oh, absolutely. 

Mr.JEFFERSON. So, consequently, we don’t want to harmonize too 

much, do we, with the rest of the world, if ours is better than 

theirs, do we? 

Mr.DOLL. I was hoping harmonization would lean towards the 

U.S. system. 

13

Mr.JEFFERSON. Oh, I would hope so, too. But all of the material 

I am reading about the reform seems to suggest that we ought to 

join league with others in the world, because our system is different. I suppose it is different because in your opinion mine is better. 

Mr.DOLL. I think our system is better. I think our quality is better. It is certainly less expensive. It is less expensive to obtain a 

patent and maintain a patent in the United States than it is anywhere else in the world, especially with respect to Japan or the 

EPO. When it comes to our quality, I believe our quality is better 

than the quality in either the European patent office or in the Japanese patent office. 

Mr.JEFFERSON. So you would warn against harmonization that 

takes us to the other patent regimes as opposed to our own. 

Mr.DOLL. I agree with you, Congressman. The United States system is the best system, and harmonization should lead towards the 

United States, as compared to leaning towards either the Japanese 

or the European system. 

Mr.JEFFERSON. Thank you, Madam Chair. 

ChairwomanVELA ́ ZQUEZ. Mr. Gonza ́lez? 

Mr.GONZA ́LEZ. Thank you very much, Madam Chairwoman. And 

welcome, Commissioner. 

Mr.DOLL. Thank you. 

Mr.GONZA ́LEZ. These are huge issues, and we try to remain focused on the implications and consequences of small businesses. 

Obviously, things are going on in other committees, things are 

going on in the Senate, but our charge really is about small business, and sometimes they just kind of get lost in the one size fits 

all, because many times the size is just too big and it doesn’t fit 

small businesses, and that is going to be my fear. 

And how do we define or characterize some of the smaller players? Now, I am going to be reading from a recent article. ‘‘Computer companies say they are often the targets of suits filed by 

technological buffs.’’—now, I would imagine technological buffs are 

probably small business—‘‘who obtain patents they do not intend 

to use to provide a product or service.’’

And I am going to read on, ‘‘Microsoft, the world’s largest software company, is a defendant in more than 35 patent infringement 

cases. The vast majority of those cases were filed by individuals 

and small companies whose main business is licensing patents,’’ 

said David Capers, Microsoft’s General Manager of Intellectual 

Properly Licensing. 

‘‘There is such uncertainly about patent quality and about patent 

litigation that it really rewards those willing to play the patent lottery. Microsoft says the current system gives patent owners of any 

size—small, for instance—excessive powers to demand royalties.’’ 

And it goes on to discuss that. 

And I understand the perspective from Microsoft, and I understand Pfizer, and I understand Amgen, I understand what is going 

on out there. The difference, though, is that I think they can articulate and promote their view of the world much better than 

small businesses, and that is my biggest concern. 

And I am not saying every small business litigant is right, and 

the big issue then, is, are we going to wait for the courts for the 

14

litigate this, or are we going to legislate something? Where courts 

used to defer to the legislature pursuant to the Constitution of the 

United States and are now maybe deviating from that. So we do 

have a charge, and we are going to be acting. 

What I am going to ask you to do, and I am going to basically 

follow pretty much what my colleague, Congressman Jefferson, was 

pointing out, but I am going to ask you to present your testimony 

in this light. Worst case scenario for the small business, when we 

talk about harmonization, what would be the things that we need 

to guard against as we promote the best interests of small businesses in the United States? 

For instance, if we do have some harmonization, are we only extending the problems from, let us say, a domestic model to an 

international model for small businesses? 

Secondly, patent quality—I am reading in our memo. ‘‘Leading 

technology companies have raised concerns that modifications to 

U.S. patent law should be made to help ensure that patents issued 

by the PTO continue to be quality patents,’’ whatever that really 

does mean. Again, worst case scenario for small businesses, if we 

attempted to do something, where should we not be going? 

And, last, patent litigation, basically, you know, loser pays, and 

so on. And we can have that debate over and over again, but I will 

tell you now it is a tremendously chilling effect when someone asserts a legal right and doesn’t have the resources and takes a great 

risk, and then they lose because sometimes I am just telling you 

they are truly outdone. And I have witnessed this firsthand, and 

they will lose. 

And then, of course, then they are going to be saddled with the 

cost of the litigation that was brought in good faith, but for whatever reason that jury or that judge just didn’t see it that day. And 

many times it is just the legal talent, in quantity and quality in 

that courtroom. So I just want to know, what would be the worst 

case scenario for businesses as we attempt to reform patents? 

Mr.DOLL. I am at a loss as to what the worst case scenario would 

be. What I would like to address, if you allow me, is to talk about 

the quality, because I think that is the thing that the U.S. PTO can 

do, has control over, and it gives the small businessman or the 

independent inventor the most leverage, whether it be in court or 

whether it be in litigation, or before the patent office. 

Our quality numbers are the best they have been in over 25 

years. What we are doing in the office is we have a large number 

of quality initiatives. We have a targeted review. We are using a 

second pair of eyes. We have a quality review program that looks 

at a statistically significant sample of allowed applications—applications where the examiner has finished their work. And we also 

have an in-process review, where we look at the work as the examiners are doing it. 

We have experts in each one of the technology centers to address 

whether or not these inventions, whether or not these applications 

are ripe for appeal. Before an application goes to the Board of Appeals to make a determination as to whether or not the examiner 

has made a correct determination, we have a pre-appeal brief conference where the examiner sits down with a supervisory primary 

examiner and an appeal specialist and goes over the arguments 

15

made by applicant and made by the examiner, to make sure that 

the inventor, to make sure the applicant isn’t spending money to 

write an appeal brief to go to the Board of Appeals to get a decision 

whether or not the examiner was right. 

After the pre-appeal brief conference, we then have another appeal brief conference, that once the applicant has spent the money 

to write the appeal brief, and to file that formal appeal, that the 

case is still ripe, that it should go to the Board of Appeals. Our affirmance rate at the Board of Appeals has been rising over the last 

couple of years, meaning that the examiners are doing a better job 

of picking cases that really are ripe for appeal, where the examiner 

has made the correct determination during the prosecution. 

Quality I think is the key. Regardless of how we harmonize, I 

think if the applicant, whether it be a small or a large entity, if 

they walk out of the patent office with a quality patent, a patent 

that they are sure they can walk into court and defend, that they 

have confidence in that they are going to win, no matter how much 

it costs them to finance that litigation, I think that is the best 

thing that we can do for all of our applications. 

We have another program that we are working on this summer. 

We are actually working with our PPAC, our Patent Public Advisory Committee, which is a Congressionally-mandated advisory 

committee to the patent office. We are working with them to do 

townhall meetings this summer across America. And what we are 

doing is we are looking to—

ChairwomanVELA ́ ZQUEZ. Time expired, so if you want to finish 

your sentence right there. 

Mr.DOLL. What we would like to do is get opinions from stakeholders as to what we can do to the office to make it work better 

for every one of our stakeholders, whether it be a large or a small 

entity. 

Mr.GONZA ́LEZ. Madam Chair, will you indulge me for 10 seconds? 

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.GONZA ́LEZ. Thank you. 

Commissioner, what I was trying to elicit from you was basically 

where not to go, and that is the lesson that we all learned when 

we have had Alan Greenspan before us. He would never tell you 

where to go, but he definitely told us where not to go. And that is 

what I really wanted. And I know it is a difficult one for any administrator or chairman or commissioner to tell us, but sometimes 

a little bit of guidance does help Congress, and I thank you for your 

service. 

I yield back. 

ChairwomanVELA ́ ZQUEZ. Okay. Mr. Shuler? 

Mr.SHULER. Madam Chair, thank you. 

Mr. Doll, thank you for your testimony here today. I want to talk 

about third party requesters. You know, how effective is a third 

party requester? Is that where you are seeing some of the fraud 

and abuse on patents? How does help small businesses? 

And I looked through some of the statements, and it looks like 

you have, you know, 5,000 employees who are actually working 

with the patent office in order to conduct the files and the processes. And it looks like they have to obtain about one and a half 

patents under review per week. 

16

Mr.SHULER. Well, is it more effective for your office to be able to 

have a third party such as an attorney or some of the court—you 

can read the line item ads in the classified sections, or even sometimes you can actually see it on the TV, ‘‘If you have a patent, 

please inquire at our office.’’ How effective, and what is the abuse 

side of that? 

Mr.DOLL. That is a great question, and I think that is an opportunity for the patent system to take a quantum step forward and 

to increase quality immeasurably. What we are doing is the statistic that you reported is absolutely correct. The average examiner 

has 20.4 hours to do an application. That is the average examiner. 

That is the average application last year. 

In that time, the examiner does a search, reads the claims, analyzes those things, and then makes a patentability determination 

and informs the applicant as to what is patentable and what isn’t 

patentable. What we are doing with the peer to patent review that 

you spoke about, or third party submissions, is to allow other people to opine on the patentability of this application. 

Now, we have heard from some small entities that they see this 

possibly as the big guy ganging up on the little guy. I don’t see it 

that way at all, because, again, what I would like to do is talk 

about quality, because the more opinion that you get, the more 

prior art that is before the examiner, the better opportunity that 

examiner has to make that right determination and to grant a patent properly. 

When you look at the litigation history, and you look at the court 

statistics, when the examiner has the best prior art in front of 

them, they make the right decision the vast majority of times. So 

the peer to patent review actually gives the examiner a better opportunity to actually make that determination. 

We are starting a pilot in probably early June this year, maybe 

July, where we are actually going to work in one of our technology 

centers, one of our high-tech technology centers, where we do software and all of our hardware computer applications. And we are 

going to run the pilot for a year where we are working with Beth 

Novak from New York University, and we are actually going to 

have an external body review applications that are voluntarily submitted to this program and then published, and then allow this 

body, this third party submission, of prior art with explanation to 

the patent office as to why these claims are patentable or why they 

are not patentable over the prior art that they turned up. 

I think that gives applicant a much stronger feeling about the 

patent that they get, and would give them the confidence to say, 

‘‘My patent has gone through not only review by the patent office, 

it has gone through a peer review by an objective third party who 

would really like to opine and be experts in this area.’’

Mr.GONZA ́LEZ. Would it increase the costs from the applicant? 

Mr.DOLL. No. No, it would not increase the cost at all, because 

the third party review is purely voluntary on their part. They 

would make a submission to the office, and then the examine 

would review that submission and then make the same determination. So there would be no cost at all, but I think a much higher 

quality. 

17

Mr.SHULER. And from your budget standpoint, will we see a reduction in the budget, or would it be an increase in the budget because of that third party? 

Mr.DOLL. The budget would stay the same. The examiner would 

view this as actually additional prior art, and would view that as 

a help in making the determination. 

Mr.SHULER. Expediting the process much faster? 

Mr.DOLL. I don’t think it would expedite it, because we would not 

relieve the examiner from doing their search or making their own 

determination. This would just be one more submission that they 

would consider. 

Mr.SHULER. All right. Great. Thank you, Mr. Doll. 

I yield back. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Ms. Clarke? 

Ms.CLARKE. Thank you very much, Madam Chair. 

Good morning, Commissioner. I wanted to ask about the inventor’s assistance center. Is it physically located in one place? Can 

you tell us a little bit more about it? 

Mr.DOLL. Right. The inventor’s assistance center really is—it is 

one of our flagships for independent inventors. It is staffed by retired supervisory primary examiners. They have one administrative 

patent judge who retired and came back and is working as an inventor assistance center person. 

We have a great deal of expertise there on everything from how 

to fill out the forms to actual examination questions and how to 

deal with an examiner. It is one on one. It is physically located in 

the Patent & Trademark Office. But because we have an 800 phone 

number, anybody can call in from anywhere where they would like 

and get that assistance. 

Ms.CLARKE. Commissioner, have you considered perhaps 

partnering with SBA or one of the other entities that serves small 

businesses, so that we can sort of decentralize that operation and 

get perhaps an individual who does the outreach into other communities and then channel them into the 1-800 number? 

I raise that simply because when you re talking about, you know, 

isolated communities, perhaps immigrant communities, perhaps African-American communities of color, navigating the system tends 

to be the challenge. Even though we have stuff online, we may 

mention 1-800 numbers, when they are able to actually physically 

see someone, especially because they are holding on to their inventions so tightly. They want to see someone face to face, because 

they don’t want someone to steal their information. Have you considered that? 

Mr.DOLL. That is a great suggestion, and it is an idea that I will 

take back to the office. We have partnered with various organizations, inventor organizations, small business agencies. When we go 

to particular cities for our independent inventor conferences, and 

we have had them come in and actually talk to the independent inventors and the small businesses, it is—as far as decentralizing, 

that is a wonderful idea, because you are absolutely right. 

When you see the inventors walk in to our independent inventor 

conferences, they are holding their notebooks, and they are holding—

18

Ms.CLARKE. With sunglasses on, right? 

[Laughter.] 

Mr.DOLL. And they are holding them very closely, because they 

don’t know who to trust, and they don’t know who to disclose their 

inventions to. As I said, we have an inventor’s scam listing on our 

website—

Ms.CLARKE. Exactly. 

Mr.DOLL. —to show maybe who you shouldn’t be dealing with or 

who you actually do have a good relationship with. We do outreach 

with other agencies, as you said. But incorporating them into our 

inventor’s assistance centers is a very good idea, and thank you for 

that. 

Ms.CLARKE. No problem, Commissioner. And then, just finally, 

can you tell this Committee, what is the culture of diversity within 

the Patent & Trademark Office? The American business environment consists of a multiplicity of diverse ethnic groups. Therefore, 

diversity in staff and attorneys is important and should be a reflection of the environment that you serve. 

Has your office organization done any training or studies to identify how the Department can be more sensitive to this changing environment? And what is the dynamics as it relates to women in 

senior-level positions? 

Mr.DOLL. Again, that is a great question. And I would be pleased 

to have you visit the United States Patent & Trademark Office, because when you walk around our campus it is almost like the 

United Nations. We are 54 percent diverse. Almost 50 percent of 

all our patent examiners are women. It is a truly diverse organization. 

Ms.CLARKE. Well, thank you very much, Commissioner. 

Mr.DOLL. Thank you. 

Ms.CLARKE. Thank you, Madam Chair. I yield back the rest of 

the time. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Commissioner, a large number of engineers and Ph.D.s are employed by small companies, and they undertake extensive research 

and development efforts. My question to you is: does PTO gather 

any specific information about small business patent applicants? 

Mr.DOLL. Well, we do have some data on the number. When it 

comes to small businesses, small entities comprise about 30 percent 

of the applications that are filed. They comprise over 25 percent of 

all the patents that we issue. 

ChairwomanVELA ́ ZQUEZ. Okay. Thank you. Let me thank you 

again. 

We are going to take a recess. We have a vote on the House floor. 

Commissioner, I will ask you, do you have any staff with you? 

Mr.DOLL. Yes, I do. 

ChairwomanVELA ́ ZQUEZ. And they will stay here to listen to the 

second panel? 

Mr.DOLL. Oh, yes, absolutely. 

ChairwomanVELA ́ ZQUEZ. It is going to be a very interesting 

panel, and I think it is worth having your staff here. 

Mr.DOLL. Absolutely. 

ChairwomanVELA ́ ZQUEZ. We will recess. 

[Recess.] 

19

ChairwomanVELA ́ ZQUEZ. I want to welcome all of the witnesses 

and thank them for agreeing to be here today to shed some light 

into this important issue. 

Our first witness is Mr. Mitchell Gross. He is a Chairman and 

CEO of Mobius Management Systems, a company that he helped 

found in 1984. Mobius is the leading provider of comprehensive 

software solutions for enterprise archives and records management. 

Mobius has over 400 employees and is headquartered in Rye, New 

York. Mr. Gross is testifying on behalf of the Information Technology Association of America. Welcome. 

STATEMENT OF MITCHELL GROSS, PRESIDENT & CEO, 

MOBIUS MANAGEMENT SYSTEMS, INC., ON BEHALF OF INFORMATION TECHNOLOGY ASSOCIATION OF AMERICA 

Mr.GROSS. Thank you, Chairman Vela ́zquez and Ranking Member Chabot, members of the Committee. I very much appreciate the 

opportunity to appear before you today and discuss the importance 

of patent reform to small business. 

The United States patent system is something I work with almost every day in my business, and I believe very strongly that 

there are some problems with the system that demand our attention as a nation and an economy. 

First let me tell you a little bit about my company, Mobius Management Systems. Mobius, as you stated, is a leading provider of 

comprehensive software solutions, archiving, and records management. 

Twenty-five years Mobius has defined and led the market, software that stores, index, distributes diverse documents, reports, images, in any format from any source. Our solutions have achieved 

industry-wide recognition for the ability to support high-volume, 

high-performance simultaneous access requirements in distributed 

environments that range from the desktop to the mainframe. 

Commentators have said that more than 85 percent, if not more, 

of all the information we create today in the United States, in both 

government and private sector, is created in electronic form, documents to banking transactions, product logistics, e-mail, data analysis, graphs, charts, and all the rest. Much of that only exists in 

electronic form and is never put on paper. 

We at Mobius play a key part in designing and implementing 

software systems to match. We create our own software, license 

software products from other companies to implement the solutions. Mobius has over 400 employees, headquartered in Rye, New 

York. We still do the overwhelming majority of our development in 

the United States. 

I am also testifying on behalf of the Information Technology Association of America, which counts many small businesses among 

its 325 members. ITAA represents companies of all size. About half 

of the ITAA members are small businesses. I am privileged to serve 

on the Board of Directors of the ITAA Information Technology 

Service. 

Chairwoman Vela ́zquez, as the head of a small business in the 

information technology sector, I am aware and I am here to stress 

the fact that the United States patent system is broken and needs 

to be fixed. Let me make it clear from the outset, however, that I 

20

am a strong supporter of patent protection and the role it plays in 

fostering innovation. And I, too, am the holder of a patent. 

Constitutional power of Congress to promote the progress of 

science and useful arts by granting exclusive patent right for limited periods of time has been and continues to be one of the cornerstones of successful American economy. The United States patent 

system does have a profound effect on innovation, new business development, job creation, and everything else, creating wealth of 

that nature. 

Today, however, the U.S. patent system has developed a number 

of flaws that need to be addressed by legislation. The problem is 

important because the systems impact is so important. The system 

as skewed as it is now has a profound effect, retarding business development and wealth production. 

Where I sit as a small business man, the issues with the patent 

system stretch from the process of patent application and grant at 

the PTO on through the process of enforcement, licensing, and litigation. The issuing process is too expensive, takes too long, and 

poses too much risk that an over-broad patent of questionable validity will issue at the end. 

The enforcement side, the system is so tilted to the plaintiff patentee’s advantage; that is, the cost of losing litigation can be so 

high with multiple worldwide damages based on excessive estimates of the value of the infringement, that defendants are forced 

to settle, regardless of merits of their defense or the weakness of 

the patent underlying the plaintiff’s claim. 

Legislation was introduced in the last Congress. And I understand it will be soon introduced again. I applaud the effort to move 

from generalities about the need for reform, epic proposals that 

change the structure of how the PTO has business and how patent 

infringement litigation is conducted. 

If I had to try to characterize the problem in just a few words, 

I might say too much risk of losing a fight when a bad patent 

stands up against information. What is a bad patent? It is one that 

is overly broad in its coverage, often one that covers a process, usually one that does not seem very novel to somebody like me who 

has been in the business for over 25 years that I have been involved with at Mobius. I think the problem may be particularly 

acute in the software and IT services industry. 

The United States needs to do a lot more to improve patent quality at the outset. Everyone knows that not every patent is issued 

by the U.S. Patent Office. A lot can be done to improve the PTO’s 

access to and knowledge of prior art, the key to determining whether an application really presents a novel and non-obvious innovation. 

It remains important to have a viable low-cost administrative 

process for reviewing patents that already have been issued if the 

claims of the validity hold up unchallenged. Of course, it is not the 

fact of over-broad patents that matters. It is the consequence of infringement that weighs most heavily in the equation. And right 

now the risk of very high damages are exorbitant settlement requests in my mind very real. 

Basically, Chairman Vela ́zquez, the current system in my view 

leaves small business in a position where we are afraid to innovate. 

21

I don’t have confidence that undisclosed patent applications are 

truly novel. My company does not have the resources to do extensive patent searches every time we should in the modern environment, featuring many more patents than has been the case in the 

past. 

If we make a mistake and step into a field of technology covered 

by undisclosed applications, we run very high risks of serious consequences in the face of a system that favors all patentees. 

While the discussion of what to do about the problem—

ChairwomanVELA ́ ZQUEZ. Mr. Gross, time has expired. Would you 

like ten seconds to summarize whatever important point you want 

to make? 

Mr.GROSS. Okay. Without reform, a system that is intended to 

serve innovation is having the opposite effect. Whenever my company engages in development of products and services, we have to 

ask ourselves what is it. 

Chairwoman Vela ́zquez, that concludes my prepared remarks. I 

would be happy to answer questions. 

[The prepared statement of Mr. Gross may be found in the Appendix on page 53.] 

ChairwomanVELA ́ ZQUEZ. Thank you very much. 

Let me remind the witnesses that you will have five minutes to 

make your presentation. 

Our next witness is Mr. Bryan Lord. He is the Vice President for 

Finance and Licensing and General Counsel of AmberWave Systems Corporation. Founded in 1999, AmberWave is a small technology firm focused on research and development of advance materials. And the company is a pioneer in the field of strained silicon 

technology. AmberWave has been a symbol, a portfolio of 180 patents, employs 23, and is based in Salem, New Hampshire. 

Welcome, sir. 

STATEMENT OF BRYAN P. LORD, VICE PRESIDENT, FINANCE & 

LICENSING, GENERAL COUNSEL, AmberWAVE SYSTEMS CORPORATION 

Mr.LORD. Thank you. Madam Chairwoman, thank you very much 

for that kind introduction. You have saved me a couple of minutes 

of my testimony. Representative Chabot, members of the Committee, thank you as well for the opportunity to be here with you 

today. 

I want to echo Representative Chabot’s comments about the special effort that the Judiciary Committee has been making on this 

issue. We appreciate that and equally appreciate the Small Business Committee taking an effort to take a special look at this from 

the small firm’s perspective. I would also note that uniquely this 

has been what appears to be a bipartisan effort as well. And we 

appreciate the two of you sitting side by side and taking a look at 

this from our perspective. 

As you mentioned, Madam Chairwoman, AmberWave Systems is 

a small company, 23 employees. We like to think of ourselves as 

a bit of a special company as well. And that is because we are one 

of 5,000 spinouts of university technologies that have occurred over 

the course of the last 25 years. 

22

This is largely due to the successful buy-dual litigation that was 

passed years ago and has really been the catalyst for a special network of firms that combine entrepreneurship, invention, and investment into what some business school professors have called a 

value network. 

These value networks are really the secret behind why economies 

like Silicon Valley; New England’s Boston Route 128; Research Triangle Park; the Austin, Texas region all have a very special and 

robust economy associated with them. 

I will try to be brief. I want to make just three points. One is 

America does have the world’s most innovative economy. And that 

is, in large part, because of a very properly and well-functioning 

patent system. 

I will, respectfully, disagree with Mr. Gross and say that our patent system is not broken. We think that our patent system, in fact, 

is the gold standard in the world. And changing the patent system 

in a manner that would call for wholesale change would be inconsistent with I think its proper role in creating our world’s most innovative economy. 

Second, I think that patent reform still is necessary and an appropriate topic for us to be talking about. AmberWave is one of the 

founding members of a group called the Innovation Alliance, a coalition of firms, small, medium, and large, that all believe that the 

most appropriate place for us to be focusing our attention is on improving patient quality in very much the same way that Commissioner Doll talked about from the PTO’s perspective, and that, really, as the PTO is working hard on their efforts, as the Supreme 

Court has also taken cases under consideration, really, through 

patent quality, we can really address most of the ills and help 

those that are working within the system and still discourage those 

that are abusing the system. 

Let me point out that if the changes that were proposed in the 

109th Congress were reintroduced, just hypothetically but, as some 

have said and speculated that would be the case, these changes 

would have a severe negative impact on small firms like 

AmberWave and this innovation ecosystem that I talk about Let 

me highlight just three ways quickly. 

One is the so-called first to file method and revision. As Commissioner Doll talked about, inventors clutch their notebooks to their 

chest. And it’s really through the first to invent process and standard that’s unique in the world that inventors get credit for their 

invention that is properly documented in their notebook. 

To suggest that we should harmonize with the rest of the world 

and go to a first to file standard suggests that what we really do 

is have a race to the courthouse and reward a patent lawyer who 

first pays a fee, as opposed to an inventor who properly documents 

their invention in their notebook. 

Second, so-called post-grant review. We have talked about that. 

I think the most troubling problem with post-grant is the incessant 

uncertainty and unreliability that would be added into the system 

for a patent in a post-grant regime. 

We think the pre-grant focus, as the commissioner talked about, 

is the appropriate place to talk about it, but to throw into the sysVerDate 0ct 09 2002 17:57 Dec 19, 2007 Jkt 033615 PO 00000 Frm 00028 Fmt 6633 Sfmt 6633 G:\CLERK SB\HEARINGS\TRANSCRIPTS\33808.TXT LEANN
23

tem an uncertainty and unreliability into patents would make it 

very difficult to found new businesses. 

Finally, the so-called apportionment provision is very difficult 

and problematic for small firms. What it suggests is that a quantitative standard would be directed towards juries to assess and 

award damages after an infringement was found. That would prohibit the jury from taking into account a disproportionate and significant impact that a small firm may bring to an overall product. 

And that would be harmful on small businesses. 

So far this debate has been largely between big tech and big 

pharma, as we saw in the last Congress. And we appreciate the opportunity here in the 110th for you to be expanding the interests 

and hearing from voices like small firms, like AmberWave, and the 

innovation economy that we participate in. 

Thank you. 

[The prepared statement of Mr. Lord may be found in the Appendix on page 60.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Lord. 

Our next witness is Ms. Emily Ward. She is the Associate General Counsel for patents at eBay Inc. eBay is a global online marketplace enabling trade on a local, national, and international 

basis. With a diverse and passionate community of individuals and 

small businesses, eBay offers an online platform where millions of 

items are traded each day. eBay was founded in 1995 and is based 

in San Jose, California. 

Welcome, Ms. Ward. You will have five minutes. 

STATEMENT OF EMILY WARD, ASSOCIATE GENERAL COUNSEL, 

PATENTS, eBAY INC. 

Ms.WARD. Thank you, Chairwoman Vela ́zquez, for that gracious 

introduction. Chairwoman Vela ́zquez, Ranking Member Chabot, 

and members of this Committee, we would like to thank you for 

giving us this opportunity to testify about the importance of patent 

reform to small businesses. 

Patent litigation reform is not just about patent holders or the 

technology industries that are developing cutting-edge technologies, 

products, and services that improve our everyday lives. 

The patent litigation reform debate should not just be a legalistic 

discussion of arcane patent law technicalities. No. Patent litigation 

reform is about making it easier for hardworking small business 

people and entrepreneurs across America to use technology tools to 

succeed in their chosen field of business. 

I believe that the most important message here today is that 

while Twenty-First Century digital technology is important for big 

global businesses to operate successfully, it is even more important 

for American small businesses. 

Technology tools help level the playing field. They enable small 

businesses to succeed in our highly competitive global economy. 

The unfortunate reality today is that patent litigation abuses are 

imposing significant legal costs on major technology companies 

across the board. These costs are passed along to technology users 

in the form of higher prices. 

Higher prices hit small businesses with their narrow margins 

particularly hard. Take a look at the technologies that have been 

24

targets of abusive patient litigation: computer hardware, software, 

cell phones, BlackBerries, printers, and online services and Web 

sites. 

As consumers, many of us would like to have the largest cell 

phone, the newest laptop, or cutting-edge digital entertainment 

systems. These are fun gadgets, but we don’t really need them. 

This is not the same for small business people. It is hard to find 

a small business person who is not using a host of digital technology equipment and tools every single day to do business. 

In short, small business must have and needs affordable effective 

technology. They are not fun gadgets. They are the tools that enable small business people to operate independently and with unprecedented efficiency. 

Just take the Internet and eBay marketplace as an example. Millions of small business people across the globe use Internet technology to compete against the retail giants and sell their products 

to consumers. Hundreds of thousands of American small businesses 

that use the eBay marketplace to connect with customers across 

the nation and increasingly to export to consumers in other parts 

of the world, this is a massive success story of how technology 

tools, hardware, software, communications, and the Internet are 

helping small businesses to survive and thrive. 

These same technologies have been targeted by patent licensing 

businesses that do not make any commercial products. They pursue 

a new business model. And this business model is to write patent 

applications or purchase patents, with the aim being to exhort exorbitant licensing fees and patent lawsuits. The weight of these licensing costs and risks of more huge judgments and settlements, 

like the one in the BlackBerry case last year, which I am sure people are familiar with, which settled for $612 million, drive up the 

costs of these technologies in ways that hurt small businesses’ bottom lines. 

Furthermore, small businesses often produce goods and services 

as partners with larger businesses. When these larger businesses 

pay hundreds of millions of dollars due to frivolous licensing demands or patent lawsuits, that cost is borne, either directly or indirectly, by the small business partners or customers. 

Finally, small business entities have suffered by being directly 

targeted by patent licensing companies as well. For example, a patent licensing entity called Pan IP sued about 50 small businesses, 

including a New York ski shop, 2 electronics stores, a pie company 

that was literally called The Little Pie Company, an Oregon fabric 

store, a New Jersey plumbing store, an Indiana chocolate shop, 

among many other defendants for alleged patent infringement. 

The patent licensing fees that the plaintiff was seeking were 

large enough, about 25 to 50 thousand dollars apiece, to be financially crippling to a small company. But, however, the average cost 

for a small business to defend patent lawsuits and to hire attorneys 

is even more staggering and can easily run into the hundreds of 

thousands to millions of dollars. 

As I said in my opening, I believe that the patent litigation debate should get beyond the legal technicalities and focus on the 

real world impact of abusive litigation. That said, eBay believes 

that modest reforms in the current system to address inequities are 

25

very important and would benefit the overwhelming majority of 

small businesses. They include addressing the unpredictability and 

potential unfairness of damages calculations and informed shopping and addressing willfulness claims. These moderate reforms 

would prove of major benefit to the millions of small businesses 

who rely on technology to compete. 

Thank you. 

[The prepared statement of Ms. Ward may be found in the Appendix on page 93.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Ms. Ward. 

Our next witness is Mr. Neis, Mr. John Neis. He is the Managing 

Director of Venture Investors, an early-stage venture capital firm 

with offices in Madison, Wisconsin and Ann Arbor, Michigan. Mr. 

Neis is testifying on behalf of the National Venture Capital Association, which represents approximately 480 venture capital and 

private equity firms. 

Welcome, Mr. Neis. 

STATEMENT OF JOHN NEIS, ON BEHALF OF NATIONAL 

VENTURE CAPITAL ASSOCIATION 

Mr.NEIS. Thank you, Chairwoman Vela ́zquez, Ranking Member 

Chabot, and members of the Committee. My name is John Neis. 

And I am Managing Director at Venture Investors, an early-stage 

venture capital firm based in Madison, Wisconsin. It is my privilege to have the opportunity to share the views of the venture capital community on proposals for patent reform. 

Venture capitalists invest in small emerging growth companies 

that strive to commercialize innovation. Companies that received 

their start with venture capital dollars include Genentech, Amgen, 

Intel, Cisco, Google, Medtronic, Microsoft, and eBay. At one time, 

all of these market leaders were small companies with big ideas. 

The complexity of balancing the legitimate interests of numerous 

parties as Congress examines patent reform does not elude us. 

While we all agree there are abuses of the patent system and improvements could and should be made, we believe it’s absolutely 

critical that any reform proposals are thoroughly vetted by legislators who are fully apprised of the consequences associated with 

each change to the system. 

At the center of our concerns is the reality that the cost of defending against infringement is disproportionately burdensome for 

the small venture-backed company while the benefit of infringing 

relative cost is disproportionately attractive to the large company. 

Our young, emerging companies are disadvantaged relative to 

the larger Goliaths in so many ways that often the only competitive 

advantage they possess is the sustainability of their intellectual 

property. Yet, some proposals, while well-intentioned, erode the 

ability of small companies to defend their patents at a cost that 

doesn’t threaten their viability. Allow me to provide some examples. 

The goal of post-grant opposition invalidating flawed patents is 

one we share. However, an open-ended second process weakens the 

presumption of validity. A company that has a legitimate patent 

may not be able to get venture funding if that patent is going to 

be challenged again and again. 

26

The post-grant review clearly favors large companies with deep 

pockets, who could use these proceedings to delay patent issuances 

to a venture-backed company. If a post-grant opposition procedure 

is to be adopted, it should allow only a single window with a short 

predictable duration of approximately six months. Petitioners for 

cancellation should be required to identify themselves and should 

be required to file all issues regarding patentability. 

If a party elects to challenge a patent issuance through this process, they should not be permitted to again raise these issues in any 

subsequent proceeding, which would protect the patentee from having to repeatedly defend the patent based upon the same arguments. 

One area that we do not feel needs reforming is the calculation 

of damages. The current system in which the full impact of a patented feature on a product is considered is an appropriate one. Patentees have never been systematically overcompensated, nor are 

they currently. 

The apportionment of damages proposal, which limits damages to 

only the patented feature, does not recognize that the sale of the 

whole product is often dependent on the presence of a patented improvement. Arbitrarily denying the courts the ability to base computations on the entire market value of a product will lead to 

equally arbitrary results as judges go for the hypothetical price of 

an unsold feature. This is an area of reform that is best left alone. 

In my written testimony, I have described similar unintended 

consequences with many of the other proposed reforms regarding 

willful infringement, injunctive relief, prior use rights, and venue 

shopping, each of which alone could add cost, delay, and uncertainty that favors a deep-pocketed Goliaths in a battle against a 

small company that is solely reliant on successfully commercializing a single innovation. 

Many of the companies supported by my firm have fewer than 

20 employees. Lawyers charge as much as $600 an hour for their 

expertise. A freshly minted Ph.D., the one who is actually turning 

the innovation into a commercial reality, makes the equivalent of 

$60 an hour or less. While I have nothing against lawyers, only the 

investment in the latter is going to help advance innovation. 

We share the objective of reducing unnecessary litigation. Money 

spent by Google or Roche in frivolous patent litigation is not only 

a drag on the U.S. economy. It’s money that could be better spent 

acquiring young companies that are moving technology in new directions. However, reforms that add new processes, delays, and uncertainty force my young companies to spend their scarce dollars 

on J.D.’s, rather than Ph.D.’s. And that stifles innovation. 

The best reforms will be those that focus on the front end, ensuring that patents are issued, the ones that are issued, are of high 

quality. Part of the problem in getting quality patents out of the 

system has been the lack of information available to patent examiners. 

Reported plans to use the power of the Internet to access technical experts is a radical idea that can improve access for patent 

examiners. While this is only a pilot project, we feel that it is the 

type of innovation that offers tremendous promise. 

27

In conclusion, the U.S. must continue to be the leader in promoting and insisting on sound, strong, and consistent intellectual 

property protections for those who need it most. Improving the 

quality of the patent system is critical to our nation’s innovation 

leadership. However, so is protecting the smallest of companies 

that have contributed so substantially to that leadership in our nation. 

Thank you. 

[The prepared statement of Mr. Neis may be found in the Appendix on page 96.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Neis. 

Our next witness is Mr. John Thomas. He is professor of law at 

Georgetown University in Washington, D.C. Professor Thomas 

teaches courses in patent law and food and drug law. And his publications include both a textbook and a case book on patent law. 

Professor Thomas was recently awarded a grant from the MacArthur Foundation in order to continue his work as a visiting 

scholar at the Congressional Research Service. 

Welcome. 

STATEMENT OF JOHN R. THOMAS, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER 

Mr.THOMAS. Thank you, Madam Chairwoman, Ranking Member 

Chabot, and members of the Committee. Thank you again for the 

opportunity to testify here today before you. I very much respect 

the work of the Committee to take on a field of law that sometimes 

deserves its reputation as being rather daunting and impenetrable. 

But small businesses and their owners are increasingly feeling the 

impact of the patent system upon competition, upon sustainable development, and upon social justice. So the issues that are before 

you impact your constituents very much. 

Legislation before the 109th Congress would have dealt with two 

controversial features that I want to discuss: oppositions and market-based damages, the latter sometimes sailing under the heading 

of apportionment. Let me talk about oppositions first. 

The legislation would have created a post-grant administrative 

revocation proceeding before the Patent Office with the intended 

goal of, first, having a low-cost litigation substitute to allow members of the public to test patent validity and also taking advantage 

of the expertise of the Patent Office, two features that would seem 

to favor the interest of small firms. 

Now, concerns have been expressed that these opposition proceedings would inject uncertainty into the proprietary rights granted by patients. And those are important concerns. But when weighing them, I hope the Congress would consider that, in fact, there 

are a number of existing post-grant proceedings that have already 

been discussed before you. 

One of them is a reissue, a proceeding that is just about as old 

as the patent system in this country. And that procedure allows 

any patent owner to return to the Patent Office with her patent 

and effectively tune it up, change claims, amend claims, omit 

claims. And that can be done, again, at any time during the life 

of the patent. 

28

Similarly, we have two flavors of reexamination proceedings that 

allow, again, the patent owner, third parties, the Commissioner of 

Patents to challenge an issued patent, again at any time during the 

life of the patent. 

In view of these established post-grant proceedings, savvy patent 

decision-makers have long accounted for the role of the Patent Office once a patent issues. And, again, that intervention can be at 

any time. 

So I think Congress may wish to consider carefully whether opposition procedures really are going to amount to a sea change, established patent practice, and also whether time limits on bringing 

an opposition are appropriate, both in view of our long tradition of 

respecting public views and public inputs into the patent system, 

and also the sense that many products are not valuable or their 

value is not realized early in their life span. In fact, they only impact—for some pharmaceuticals, they can’t be marketed early in 

their life span. So the worth of that patent does not accrue until 

later on. 

Let me also talk about the damages proposal, the apportionment 

proposal. The fundamental premise of the patent system is that the 

market values inventions best. That is why the patent system has 

been such a success over its alternatives, such as a prize system, 

where an entity like this would dole out money to different firms 

based on what they thought of the merits of the invention. 

Now, filling that premise is the concept that patent damages 

should be based on the value of that invention. As evidenced, for 

example, by the recent $1.52 billion verdict reached against Microsoft, there is some mounting evidence that judicial determinations 

of patent damages have become overly generous. 

In the general sense, that is due to the increasing complexity of 

technology or even everyday consumer products we buy are not just 

one invention but dozens or hundreds or even thousands of them 

and also the sense that there are just a lot more patents out. The 

number of issued patents today is an order of magnitude more than 

a generation before. 

So the combination means that there are a lot of patents and 

there are fairly heavy damages. So within this milieu, high tech 

firms increasingly have to obtain not just one patent license or two 

patent licenses. They have to pay dozens of them. 

How are the cases stacking up on that? Recent empirical evidence suggests that the average royalty award awarded by courts 

is 13 percent. Now, if someone entering into the world of academia 

did some patent license negotiations, that’s a pretty high number, 

particularly if a product is covered by hundreds or dozens of patents. 

I have also listed a number of judicial opinions in my statement. 

It also suggests that there are some problems afoot. Damages 

awards that are super competitive, that are above the marketplace 

rate lead to emphasis on litigation. They promote patent speculation. They cause the patent scope to effectively cover other products 

and technologies that are not within that patent. And ultimately 

they may impede the process of technological innovation dissemination that the patent system is meant to foster. 

29

So I believe that the apportionment concerns are very significant 

ones. And I encourage the Committee to consider them further. 

Thank you very much. 

[The prepared statement of Mr. Thomas may be found in the Appendix on page 106.] 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Thomas. 

And now I will recognize Ranking Chabot for the introduction of 

his witness. 

Mr.CHABOT. Thank you, Madam Chair. 

And I am proud to introduce our final witness here today, not 

only because of the expertise that he brings to these hearings but 

because he is, as I mentioned before, a constituent of mine from the 

first district of Ohio, Cincinnati. 

Mr. Kirsch has an impressive background in commercial and intellectual property litigation matters. He is currently a partner 

with the Cincinnati law firm of Taft, Stettinius and Hollister in 

their Litigation Department. Prior to joining Taft, Mr. Kirsch was 

intimately involved with intellectual property issues, including 

leading the Legal Services Department for Luxottica retail, the 

world’s leading designer, manufacturer, and distributor of prescription frames and sunglasses. 

He was also formerly a partner with Oppenheimer, Wolff and 

Donnelly, focusing on complex commercial patent, trademark, copyright, misappropriation of trade secrets, and domain name disputes. 

Mr. Kirsch was of counsel with Stradling, Yocca, Carlson and 

Rauth, a leading high technology law firm in Newport Beach, California. He is admitted to practice before the state courts of California, U.S. District Courts of California, U.S. Courts of Appeals for 

the Ninth Circuit and the Federal Circuit. And so he has a considerable amount of wealth. I think he will have something to add to 

this panel. 

We welcome your testimony, Mr. Kirsch. 

STATEMENT OF KEVIN KIRSCH, PARTNER, TAFT, STETTINIUS 

& HOLLISTER, LLP 

Mr.KIRSCH. Thank you very much, Ranking Member Chabot, 

Madam Chairwoman Vela ́zquez, and the rest of the members of the 

Committee. I appreciate very much the opportunity to speak here 

today on issues concerning patent reform. 

Before I begin with my prepared comments, I would like to just 

quickly address a comment made by Committee Member Gonza ́lez 

and also by Committee Member Jefferson. Based on my experience 

in litigation, patents are swords. They are not shields. They are 

only as good as the desire and the ability to enforce brought by the 

person who holds the patent. 

In litigation, leverage is key. And so two initiatives that have 

been sort of promulgated by various factors of removing the ability 

to get injunctive relief and removing the ability to get willfulness 

damages or curbing those abilities would severely impact small 

business’ ability to retain contingency fee lawyers to work on their 

cases because typically small businesses can’t afford the $2 million 

it costs on average for a small patent case and the $4 it costs on 

average for a $25 million-plus patent case. So to remove those two 

30

components I think would potentially cause great harm to small 

businesses and their ability to effectively enforce their portfolios. 

So let me dive into my prepared statement. From a patent litigator’s perspective, the largest issue confronting the current system 

is the pervasive uncertainty created by a systemic flow in the system of patent procurement that allows patents to issue with undefined and ambiguous terms and a system of jurisprudence illequipped to adequately treat patent cases. 

Although the patent statute requires patent applicants to claim 

their inventions with specificity, patent applicants are not required 

during the application process to define the terms in the patent 

claims in such a manner so as to educate the public as to the intended meaning of such claim terms. 

For example, when a claim term recites the signal A as multiplexed together with signal B, did the applicant intend that signals 

A and B are multiplexed together with each other on the same signal line or signals A and B are multiplexed together at the same 

time? As such, many patents are inherently ambiguous at their 

point of issuance. 

When litigated, these patents are then put forward for interpretation to a District Court judge with typically no relevant technical 

background and no training in patent law. The judge is charged 

with the daunting responsibility of construing the meaning of each 

of the asserted claims, which could far more easily have been defined by the patentee during the procurement process. 

The construed claims are then presented to a jury at trial 

charged with the responsibility of rendering a verdict, whether a 

particular product or process, method of doing business, software 

program, etcetera, infringes one or more of the construed claims of 

the asserted patent and charged with rendering a verdict on a host 

of possible defenses asserted by the alleged infringer. 

Is there any greater evidence of the need for definition of each 

of the claim terms by the patentee during the procurement process 

than the hundreds of millions of dollars and countless jurist hours 

spent related to claim construction hearings each year? 

Short of trial, the claim construction hearing is the most significant event in patent litigation. During a claim construction hearing, attorneys spend hours, if not days, presenting arguments and 

evidence to a District Court judge regarding the meaning of typically 5 to 10 claim terms. The judge then spends hours, if not days, 

writing lengthy opinions regarding what 5 to 10 claim terms mean. 

Despite brilliant jurists, quality attorneys, and excellent law 

clerks assisting the judges in crafting the opinions, the reversal 

rate at the Federal Circuit on claim construction approaches 40 

percent. Further, the Federal Circuit basically repeats the entire 

claim construction process as it treats appellate review of claim 

construction de novo. 

In addition to the extraordinary and economic opportunity costs 

lost by the claim construction process, the inherent uncertainty 

caused by the ambiguity in the meaning of terms subverts one of 

the primary purposes of the patent system. With an almost 40 percent reversal rate, how can alleged infringers receive actual notice 

of what is disclosed and claimed in a patent until after the Federal 

Circuit rules on the meaning of the claims? 

31

What if we could cure the single most problematic aspect of patent cases, removing the confusion associated with claim terms, and 

set District Court judges free from the daunting task of interpreting the languages of patents? 

One possible solution to the confusing and ambiguous nature of 

some claim language would be to require applicants for patents to 

define terms in the claims of the patents at the time of the filing 

of the application or at a very early stage of the patent application 

process, require the examiner to review and reject the proposed 

definitions until such time as they are written in plain English and 

allowed, and hold the patent to the allowed definitions during litigation. The process may also involve the patent examiner identifying claim terms for definition by the application in an early stage 

of the examination process. 

While not having a retroactive effect and while not completely 

eliminating disputes as to the meaning of patent claims, as the 

parties may then revert to arguing as to what the definitions mean, 

this process may lead to fewer patent disputes since the public will 

have a much better understanding of exactly what is covered by 

the patent claims and may also lead to more streamlined and efficient patent litigations. 

One other issue that I would like to address briefly that is ripe 

for reform concerns the way patents are litigated. With rare exception, District Court judges do not wish to preside over patent cases. 

District Court judges are uncomfortable dealing with the technology; do not fully understand patent law; and, understandably, 

do not appreciate the high rate of reversal associated with patent 

cases. 

A system of District Court judges, preferably patent attorneys, 

positioned throughout the country dedicated primarily to patent 

cases with the support of special clerks with technology backgrounds, preferably patent attorneys, would appear to present a far 

better alternative to the current system. 

In addition, patent cases should be tried on the bench, rather 

than a jury. Is it really fair to ask a juror to decide whether patent 

A on a subtle nuance of semiconductor MOSFET capacitor technology when viewed in light of patent B on another subtle nuance 

of semiconductor MOSFET capacitor technology renders obvious 

patent C, which is being asserted against a semiconductor chip 

manufacturer? 

The jurors just don’t understand this. I have been in mock jury 

panels. I have watched them work. They don’t get the technology. 

They don’t get the patent law. They don’t understand the issues. 

And they come out on such a—they basically decide this issue on 

the most bizarre reasons that have nothing to do with the merits 

of the case. 

Finally, one other benefit to actually having special District 

Court judges with the technical background would potentially allow 

us to open the door to give deference to the claim construction rulings of those courts. 

The Federal Circuit does not give any deference whatsoever to 

what the District Court judges are doing currently. If you put in 

special judges who actually understood the issues and were trained 

32

in patent law, it is more probable that we would receive that type 

of deference for them. 

So thank you very much. 

[The prepared statement of Mr. Kirsch may be found in the Appendix on page 123.] 

ChairwomanVELA ́ ZQUEZ. Thank you. 

This has been an incredible, incredible panel. What it shows is 

the complexity of this issue and the ramifications of what patent 

reform could have on both ends of those who are opposing it and 

those who are in favor of it. 

Let me just say that, as we heard from the different witnesses, 

this could have significant impact on small businesses. Given the 

fact that our Committee has been given expanded jurisdiction, we 

have a responsibility to try to understand this issue and to see how 

it is going to impact on small businesses. 

So with that, let me thank all of the witnesses. And I would like 

to address my first question to the two patenting experts, Mr. 

Thomas and Mr. Kirsch. 

From my perspective, there are legitimate small business concerns, both in favor of and opposed to patent reform legislation. 

There are small companies being sued under spurious claims and 

others that must compete with companies employing questionable 

patents. These companies support patent reform. There are also 

small businesses that develop and license technologies, and they 

are concerned about changes in patent law that might make their 

patent rights less certain. These companies do not support patent 

reform. 

Would you agree with this assessment? 

Mr.THOMAS. Yes. 

[Laughter.] 

ChairwomanVELA ́ ZQUEZ. Mr. Kirsch? 

Mr.KIRSCH. Yes. 

ChairwomanVELA ́ ZQUEZ. Okay. Thank you. 

My next question is addressed to Ms. Ward. One of the more difficult facets of the debate about patent reform is how best to qualify or quantify the impact the spurious patent litigation has on innovation. 

When Mr. Lord testifies that potential patent reform legislation 

could mean that his company will have a difficult time attracting 

future venture capital investments, I understand his concern. For 

many companies, no investors mean no research and development. 

Less clear to me is how patent litigation impacts ongoing innovation. Ms. Ward, can you tell me how the patent infringement cases, 

like the ones your company has faced, impact innovation, particularly for small companies? 

Ms.WARD. Yes. I would be happy to. That is an excellent question. Reformation of patent litigation abuses will actually help and 

improve innovation. I think a number of the witnesses testified 

that, frankly, there is so much money being spent on lawyers, there 

is so much money being spent on settlements and judgments right 

now in patent litigation. 

That is because abuses are so common under the current system. 

Tamping down and making, if you will, minor adjustments or 

minor corrections in the current litigation system to really tamp 

33

down abuses will actually help free up more money and take it 

away from defending or paying spurious licensing fees and more 

money into innovation, more money into R&D, more money into engineers. 

One quick note is that when we were facing the Merc Exchange/

eBay case about a year ago, where there were a lot of opponents 

to sort of the automatic injunction rule that had been in place before the Supreme Court decided Merc Exchange, those opponents 

would say, ‘‘Look, if you grant eBay’s request in the Merc Exchange 

case, gosh, the patent system will end. The whole thing will fold. 

This will be a complete disaster.’’

If you sort of see, what has happened is the Supreme Court 

unanimously agreed and put in place the four-factor test that is 

sort of traditional in looking at injunctions, applied it as well to 

patents, and what you will see is that since that time, actually, the 

system has worked much better. 

ChairwomanVELA ́ ZQUEZ. Anyone else who would like to comment 

on that? 

Mr.LORD. Yes. Madam Chairwoman,—

ChairwomanVELA ́ ZQUEZ. Yes, Mr. Lord? 

Mr.LORD. —I would like to jump in. Thank you—

ChairwomanVELA ́ ZQUEZ. Sure. 

Mr.LORD. —for the comments. 

You know, I think that what we really have here is an appeal 

from large technology companies to change and reduce the burden 

on large companies’ legal budgets. 

And, quite frankly, I don’t buy the argument that a reduction in 

a large company’s overall litigation budget will result in increased 

investment in research and development. 

Large companies should already have an incentive to invest in 

research and development because of their very place in the marketplace. That ought to be encouraged. But I don’t think that it’s 

fair to say that there is a one-to-one correlation that a dollar reduced from a large company’s litigation department will shift into 

a dollar in early-stage research and development. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Lord. 

Mr. Gross and Ms. Ward, why is apportionment of damages so 

important to the proponents of patent reform? 

Mr.GROSS. I mean, I was somewhat surprised and actually 

wasn’t aware about the average size of the settlements of patent 

disputes. Just for frame of reference, my peer group of public companies, where there is available information, the maximum license 

royalty fee that we pay for embedded products is ten percent. 

My particular company is two percent. And if we were faced with 

a 13 percent average royalty rate, we would shut our doors very 

quickly. We couldn’t afford to do that. We couldn’t afford to pass 

that cost along to our customers. 

The risk of a patent settlement that makes your commercialization efforts not worth it are what keeps a lot of small businesses 

from proceeding along the process of creating innovation and commercializing it. 

Ms.WARD. If I could just answer your question regarding damages apportionment? The proposal that has been enunciated in previous bills, the House and the Senate, is just that damages should 

34

be in a sense related to the inventive contribution or the inventive 

value of the patented invention and should not necessarily include 

the value that others in a sense contribute. 

If I could give you sort of a real world, you know, just an example? If somebody is an engineer in a company and they are working 

in a group of 200 engineers and every engineer is making a contribution to the final product, that engineer should be accorded in 

a sense his salary. He or she should not necessarily be accorded a 

percentage of every other person’s salary because every other person has made a contribution to that final product. And those contributions in a sense should be recognized separately. 

All we’re talking about is sort of common sense adjustment, that 

the damages that a patentee should get should actually be related 

back to the value of his invention that he contributes. 

ChairwomanVELA ́ ZQUEZ. Mr. Kirsch? 

Mr.KIRSCH. If I may, this apportionment of damages issues is actually addressed by the Georgia Pacific standard, which is that 

there is about—I can’t remember the number of terms but about 

15 different factors that you weigh when you’re looking at Georgia 

Pacific specifically related to royalty that factors deal with damages. 

But you are supposed to look at the actual contribution of the invention to the overall product that you are analyzing for your damages analysis? So it should actually be done by the standard that 

is being followed by most of the courts anyway. I think the apportionment issue is more of a statutory sort of codification of existing 

case law. 

Mr.NEIS. If you would, may I jump in, please, Madam? 

Mr.LORD. Go ahead. I have already spoken. 

Mr.NEIS. Yes. I would like to add there. You know, I have got 

a portfolio company that has developed revolutionary new treatments for cancer. These devices sell for about $3 million. It’s an 

enormous piece of equipment. It’s having a huge impact on cancer 

treatment. Some of their patents are covering relatively minor aspects of the total system, but those minor aspects are what impact 

their ability to get market share. 

And if you went to an apportionment of damages approach where 

you were just looking at the value of that component that might 

be—you know, a court could arrive at a $50,000 value. That is not 

going to compensate them for loss of half of their marketplace that 

people started trying to infringe the patents. So this is an area that 

really makes it ripe for abuse by large companies. 

ChairwomanVELA ́ ZQUEZ. Thank you. Now I will recognize Mr. 

Chabot. 

Mr.CHABOT. Thank you very much, Madam Chair. 

I will start with you, Mr. Kirsch, if I can. In your testimony, it 

makes you wonder whether the judicial system is really equipped 

to handle patent disputes. And you mentioned about how kind of 

incomprehensible this stuff might be to juries or really to anybody 

probably up here on this panel if we were sitting on one of those 

juries as well. What do you think? I mean, what should be done 

about that? What is, say, a bench trial versus jury trial? What do 

you think we ought to do? 

35

Mr.KIRSCH. As I suggested, I think that we ought to develop a 

system of judges throughout the country who are specialists in this 

area who get patent attorneys to actually become District Court 

judges, especially in the areas where you have just a heavy amount 

of patent litigation. In the alternative, Darrell Issa’s idea of opting 

in, so you have a judge, such as in the Northern District of Ohio, 

Judge O’Malley, has indicated that she actually enjoys doing patent 

cases. And that is very rare because you go to the Southern District 

of Ohio and start asking all of those judges. And uniformly they 

hate doing patent cases. 

But if we could basically have a way of either funneling patent 

cases to judges that are interested in this subject matter and that 

become trained in it or actually setting up a system where we have 

specially trained judges with backgrounds with stats, with technical backgrounds that can handle these types of cases, we would 

be far better off. 

I mean, I do think on the bench trial issue—and my statement 

was a little broad in that there are certain issues you could put to 

a jury. For example, you could ask a jury who was the first to invent. And that’s kind of a more specific fact issue. But to ask a 

juror to try to analyze whether two prior references actually read 

on a patent’s being asserted against another product in the semiconductor arena or in pharmaceutical arena, they’re just not going 

to understand it. And we would be better served having a judge 

with special training with special staffs actually dealing with these 

issues. 

So I think that some type of program that would allow for that 

greater specialty would be very beneficial to the system. 

Mr.CHABOT. Thank you. 

Mr. Thomas, what would you say is the most important change 

or modification or reform that could be made essentially in the patents? If you had to pick one, what do you think would be the most 

significant that would be doable? 

Mr.THOMAS. Thank you. 

In general I would favor those reforms that lower transaction 

costs and increase certainty. That would enable small business to 

navigate the sometimes treacherous patent terrain the best and I 

think the reforms that serve those purposes are best suited for 

small entities. That is why I like oppositions, which tend to allow 

patent validity be tested in a relatively low-cost forum by an expert 

tribunal before patents can be enforced and more costly litigation. 

Mr.CHABOT. Thank you. 

Mr. Neis, as an investor, what problems do you perceive with the 

quality of patents issued by the U.S. Patent and Trademark Office? 

And how does this affect your investment decisions? 

Mr.NEIS. Well, clearly we are making—I mean, we are typically 

backing a couple of guys with the great idea at the formative 

stages of a company in that intellectual property is what is really 

driving the attraction of venture capital dollars into the company 

in the first place. 

So quality up front is important. We think the greatest room for 

improvement is an improvement of quality, giving the PTO the resources and better access to information so that not overly broad 

patents are issued. 

36

But we would rather see the improvements up front early in the 

process, where it’s much lower cost, rather than wholesale changes 

after issuance that really add a whole layer of delay and burden 

and uncertainty for these small companies because at the end of 

the day, you know, our companies can only win in these litigation 

fights one way. They can win in the courts. The big company can 

win two ways. They will win either in the courts or simply by attrition. They will just spend the little company into bankruptcy. 

Mr.CHABOT. Madam Chair, I had a couple of more questions. But 

I think in the interest of time, I would be happy to yield back to 

you if you had something you wanted to ask. 

ChairwomanVELA ́ ZQUEZ. No. Go ahead. 

Mr.CHABOT. Okay. Thank you. 

Ms. Ward, what recommendations do you have with regard to 

making damage calculations more predictable under the current 

patent system? 

Ms.WARD. I think that the provision that was proposed in the 

Senator Hatch and Leahy bill is excellent. It actually goes back and 

says, ‘‘What is the value of the inventive contribution?’’ and that 

is the measure for the damages base. And you should actually consider sort of the comparison between the inventive contribution and 

then also the comparison of other improvements that may have 

been added by the company or others and sort of kind of take those 

against each other in terms of looking at the damages. 

Mr.CHABOT. Thank you. 

Mr.LORD. Representative Chabot? 

Mr.CHABOT. Yes? 

Mr.LORD. May I jump in there, please? 

Mr.CHABOT. Yes, absolutely 

Mr.LORD. I think something has been misstated that I would like 

to correct on the apportionment issue. And that is that the proposal 

that has been put forth is actually codification of one of the 15 factors in the Georgia Pacific test. Codification of Georgia Pacific that 

says that all of the 15 factors, which Ms. Ward should be referring 

to would be I think a good solution for our patent system. The 

problem is that the proponents of apportionment want to take one 

of the prongs out of the Georgia Pacific test and make that single 

prong the law of the land. 

Her hypothetical actually identifies exactly the problem. Not all 

engineers are created equal. And Mr. Neis talked about this. Some 

technologies, like some engineers, are Nobel Laureate technologies. 

And those are the types of technologies that ought to be rewarded 

in the marketplace. 

So simply doing a head count doesn’t work. And that is why 

Georgia Pacific has 15 factors. And that is what we ought to be 

codifying. 

Mr.CHABOT. Thank you. 

Mr. Gross, I will conclude with you. You had said very clearly the 

patent system in your view is broken, it has considerable flaws, it 

is too expensive, defendants are forced to settle, and folks are 

afraid to innovate. What one or two doable things would you do if 

you had the power to do so to change it? 

Mr.GROSS. One thing I might recommend is a program similar to 

what is available for trademarks. And that is kind of a use it or 

37

lose it process where you develop and get a patent if you don’t commercialize it within some period of time, you lose the rights or 

there is some way that there is a just way to provide for a royalty 

treatment of it. 

The other thing that is particularly a problem to small business 

is that the patent litigation process tends to be one where small 

patent holders or even large patent holders will go sue the deep 

pockets that are using the technology. The end result has been it 

is quite surprising that the deep pockets turn to the little pockets 

that have the technology. 

And we in almost 5,000 license agreements are forced to indemnify our users of our technology, which makes us extremely cautious and extremely careful and extremely fearful of coming up 

with new products that may step on a patent that we can’t adequately research, so somehow finding a way that the risk of the 

patent can be properly associated and somehow finding a way that 

patents and technology can, in fact, become commercialized and 

provide some benefit both to the commercializer and the general 

population. 

Mr.CHABOT. Thank you. 

Madam Chair, let me commend the panel for really very excellent testimony here this morning. I want to commend you for putting the panel together and for holding this hearing and exercising 

our Committee’s jurisdiction in this area. There are other committees clearly that are relevant as well, but I think it is important 

that we look at the impact that the whole patent system has on 

small businesses. And so I want to commend you on your leadership on that. Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you, Mr. Chabot. 

I have two or three more questions. My first question I would 

like to address to Professor Thomas. We heard this morning concerns being raised about the so-called second window. It sounds to 

me that companies, small companies in particular, fear that a second window for filing an opposition to an issued patent will make 

less valuable their patent rights. 

I understand you have studied the post-grant opposition issue. 

Thus, will the availability of a second window fundamentally weakens patent rights? 

Mr.THOMAS. Well, in my opinion, no. If I may expand for this answer? 

ChairwomanVELA ́ ZQUEZ. Yes. 

Mr.THOMAS. Again, the patent system represents a bargain between the public and the inventor. The inventor obtains exclusive 

rights, but it’s over the public interest. And, as a result, it seems 

suitable that the public may be able to comment upon that grant, 

if not for the entire term of the patent, at least to such time as the 

value of that invention is realized. 

Please recall that certainly for pharmaceuticals, many of these 

products are simply not going to be approved by the FDA for many 

years after the patent is obtained. So if we have a very short initial 

period and no further chance for an opposition, you are essentially 

exempting the pharmaceutical industry and all the public health 

concerns that the patent system embraces from the opposition system. That sounds to me to be an unwise design choice. 

38

Thank you. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Anyone else who would like to comment on this? 

Mr.KIRSCH. You know, actually, I would like to make one comment with respect to it. I think we need to be careful with any procedure that we put into place for the post-opposition process. 

In reviewing H.R. 2795, there were a few things within that proposal that raised concern that had a lower standard of proof where 

there was a preponderance of the evidence versus clear and convincing and District Court levels. It allowed for discovery. So any 

affiant during the course who submitted a declaration would be 

susceptible to a deposition. 

These types of procures, that could be a large cost to a small 

company. So if a small company got a patent and then put it 

through this post-opposition procedure with no actual opportunity 

to go collect damages at the end of the day because all they’re 

doing is defending against the actual validity of the patent and 

paying for all this discovery over a period of time that’s supposed 

to go up to a year, I mean, it could be a pretty onerous burden for 

small businesses. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Professor Thomas, can you explain how passage of legislation 

that includes provisions on willful infringement and apportionment 

of damages will have had an impact on the $1.52 billion judgment 

that a jury rendered in the recent Microsoft v. Alcatel? 

Mr.THOMAS. Thank you. 

Well, Microsoft is well-capable of representing itself, and I 

haven’t studied the case carefully because of the lack of published 

opinion. But it’s my understanding that the jury awarded .5 percent of the entire price, not just of the operating system but the 

entire computer, the hardware, based on two patents relating to 

MP3 files. And while I enjoy listening to music from my computer 

very much, I rather doubt it’s worth that much percentage given 

all the other technology that has gone into a computer. 

So certainly the apportionment standard would allow or perhaps 

place a renewed emphasis on something we already have in our 

law, which is a fairly nuanced law that looks for some cases where 

the technology, that kind of technology, drives the sale and, therefore, it is appropriate to base damages on the entire product—

that’s the entire market value rule—and other cases where apportionment is more appropriate. You can see how courts went fairly 

quickly to fault apportionment because it’s easier to do, quite 

frankly. And it’s easier for jurors to do. I think legislation might 

nudge our law in the right direction. 

A willful infringement reform would also make sure that there 

is, in fact, a finding of infringement before we go through the nettlesome issues of what did the inventor, what did the accused infringer know, when did she know it, and do we think she is a bad 

person, and ten elements that really don’t have much to do with 

the issue at trial. 

Thank you. 

Mr.LORD. Madam Chairwoman? 

ChairwomanVELA ́ ZQUEZ. Yes, Mr. Lord? 

39

Mr.LORD. The one-half percent, I might point out, is much more 

in line with the types of royalty rates that we see over on the tech 

side of things. I want to also make a note that the 13 percent that 

has been talked about I’m quite confident that 13 percent includes 

as part of its calculus biotechnology licensing rates, which, as you 

probably know, are far more excessive because of the business models that are present much more sharing, much more of a joint development effort in the biotech space, which obviously then has the 

net effect of driving up that average 13 percent. The half percent, 

regardless of how we might deal with apportionment, is much more 

in line with the type of royalty rates that we see in the big tech, 

in the high tech side of things. 

ChairwomanVELA ́ ZQUEZ. Thank you. 

Mr. Gross, am I correct that concerns about the patent system 

in its current state have caused your company to change its behavior or its direction? And if so, could I ask you to highlight a couple 

of companies how your company has changed its behavior? 

Mr.GROSS. Yes. Thank you. 

Many years ago we came up with an innovation that we actually spent close to $10 million developing. And in our initial search as 

a company, we found no direct patents that we would infringe 

upon. And after we went to commercialization, we found that there 

are other people that propose to go after our technology. And faced 

with the cost of that, we abandoned that technology. And for a 

small company of our size, that is a lot of money to spend. 

ChairwomanVELA ́ ZQUEZ. But let me ask you, how would reform 

of the patent law have eased your concerns; and, second, the actions your company will be able to take after the patent system is 

reformed? 

Mr.GROSS. A couple of things. One, the ability of us to more 

openly, clearly, and less expensively challenge patents that just 

touched on pieces of what we were doing and, therefore, posed a 

problem to us would have made it a lot easier. 

The other thing that I think was important is what we found 

with a lot of the things that we ran up against. They were 

warehoused patents. In other words, several of them were owned 

by very, very large companies with floors full of lawyers that just 

take out patents with no intent to use those patents but intent to 

exercise those patents if somebody else did commercialize the technology or to use it, frankly, as a blocking technology, so some review process that could prevent that. 

The other thing is the indemnification issue that I mentioned 

earlier. The requirement of our customers to indemnify us is a big 

factor in our decision of where to go with technology. And something that deals with that indemnification process would help us 

greatly. 

ChairwomanVELA ́ ZQUEZ. If anyone else would like to add? Yes, 

Ms. Ward? 

Ms.WARD. May I add something? Going to Mr. Gross’ example, 

which I definitely sympathize because I have heard it quite a lot, 

there are two aspects of the reform that would actually specifically 

help Mr. Gross. The first is in post-grant opposition having that 

second window so that the companies like Mr. Gross, the ones that 

are actually faced with the threat, can then go back and look and 

40

see, ‘‘Is there prior art? Are there issues about the patent that 

make the patent flawed and faulty?’’ and bring those before the 

Patent and Trademark Office, which is a less expensive venue than 

bringing it before court. That reform would actually help companies 

like Mr. Gross. 

The other reform that would actually help companies like Mr. 

Gross is reform on the willfulness issues, which I am sure you 

know Mr. Gross has probably suffered as well as other small companies in that, even though he did actually very good faith and 

very detailed searches, that alone may not be a sufficient defense 

to willfulness. 

Usually, the defense is, after you do those good faith searches, 

you have to go out and hire an outside counsel opinion, which are 

20 to 50 to 100 thousand dollars to get, and have an outside counsel issue a written report saying, ‘‘Well, your technology doesn’t infringe’’ or ‘‘The patent is invalid.’’ And it’s a big expense, and it’s 

a huge burden on small companies. 

So those two changes would actually help companies like Mr. 

Gross’. 

ChairwomanVELA ́ ZQUEZ. Yes, Mr. Neis? 

Mr.NEIS. I would just like to add. I mean, you know, the issue 

with post-grant opposition, as Mr. Kirsch pointed out, is that it 

does add a layer of costs for these small companies. 

I mean, these companies are often starting out with only a couple 

of million dollars of funding that they are using to advance their 

technology. And if they have to consume that, use that money for 

attorneys, it is preventing them from spending that money on technology development. 

It is not just the cost in terms of the dollars. It is the enormous 

distraction for the management team in the formative stages that 

really is going to stifle innovation. So if there is to be any kind of 

post-grant opposition, it really needs to be short and allow these 

companies to get to certainty very, very quickly. 

ChairwomanVELA ́ ZQUEZ. With that, I want to commend all of the 

witnesses for participating in this hearing today. It has been quite 

an important hearing to help us understand the importance of this 

issue. 

And let me just say that we will continue this Committee to monitor what will happen regarding patent reform. And I believe that 

a case has been made this morning regarding the impact that it 

could have on small businesses. 

So, with that, the Committee adjourns. 

[Whereupon, at 12:30 p.m., the foregoing matter was concluded.]

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