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S. HRG. 114–603 

AN EXAMINATION OF CHANGES TO THE U.S. 

PATENT SYSTEM AND IMPACTS ON AMERICA’S 

SMALL BUSINESSES 

HEARING 

BEFORE THE

COMMITTEE ON SMALL BUSINESS 

AND ENTREPRENEURSHIP 

UNITED STATES SENATE 

ONE HUNDRED FOURTEENTH CONGRESS 

SECOND SESSION 

FEBRUARY 25, 2016 

Printed for the Committee on Small Business and Entrepreneurship 

( 

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

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(II) 

COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP 

ONE HUNDRED FOURTEENTH CONGRESS 

DAVID VITTER, Louisiana, Chairman 

JEANNE SHAHEEN, New Hampshire, Ranking Member 

JAMES E. RISCH, Idaho 

MARCO RUBIO, Florida 

RAND PAUL, Kentucky 

TIM SCOTT, South Carolina 

DEB FISCHER, Nebraska 

CORY GARDNER, Colorado 

JONI ERNST, Iowa 

KELLY AYOTTE, New Hampshire 

MICHAEL B. ENZI, Wyoming 

MARIA CANTWELL, Washington 

BENJAMIN L. CARDIN, Maryland 

HEIDI HEITKAMP, North Dakota 

EDWARD J. MARKEY, Massachusetts 

CORY A. BOOKER, New Jersey 

CHRISTOPHER A. COONS, Delaware 

MAZIE K. HIRONO, Hawaii 

GARY C. PETERS, Michigan 

ZAK BAIG, Republican Staff Director 

ROBERT DIZNOFF, Democratic Staff Director 

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(III) 

C O N T E N T S 

OPENING STATEMENTS

Page 

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana ................... 1 

Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire ............................ 3 

WITNESSES

Stoll, Robert, Former Commission of Patents, U.S. Patent and Trademark 

Office, Partner and Co-chair of the Intellectual Property Practice Group, 

Drinker Biddle & Reath, Washington, DC ......................................................... 7 

O’Shaughnessy, Brian P., Chairman-elect, Licensing Executives Society (USA 

and Canada), Inc., Attorney At Law & Shareholder, RatnerPrestia, Washington, DC ............................................................................................................. 13 

Veloso, Neil, Executive Director, Technology Transfer, Johns Hopkins Technology Ventures, Baltimore, MD ........................................................................ 25 

ALPHABETICAL LISTING AND APPENDIX MATERIAL SUBMITTED

O’Shaughnessy, Brian P. 

Testimony .......................................................................................................... 13 

Prepared statement .......................................................................................... 15 

Responses to Questions Submitted by Ranking Member Shaheen and 

Senator Enzi .................................................................................................. 52 

Shaheen, Hon. Jeanne 

Testimony .......................................................................................................... 3 

Prepared statement .......................................................................................... 5 

Stoll, Robert 

Testimony .......................................................................................................... 7 

Prepared statement .......................................................................................... 10 

Responses to Questions Submitted by Ranking Member Shaheen .............. 48 

Veloso, Neil 

Testimony .......................................................................................................... 25 

Prepared statement .......................................................................................... 27 

Vitter, Hon. David 

Opening statement ........................................................................................... 1 

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(1) 

AN EXAMINATION OF CHANGES TO THE U.S. 

PATENT SYSTEM AND IMPACTS 

ON AMERICA’S SMALL BUSINESSES 

THURSDAY, FEBRUARY 25, 2016 

UNITED STATES SENATE, 

COMMITTEE ON SMALL BUSINESS

AND ENTREPRENEURSHIP, 

Washington, DC. 

The Committee met, pursuant to notice, at 10:01 a.m., in Room 

428A, Russell Senate Office Building, Hon. David Vitter, Chairman 

of the Committee, presiding. 

Present: Senators Vitter, Risch, Fischer, Gardner, Ernst, Ayotte, 

Shaheen, Cantwell, Coons, Hirono, and Peters. 

OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, 

AND A U.S. SENATOR FROM LOUISIANA 

Chairman VITTER. Good morning, everyone, and welcome, and 

thanks to our witnesses in particular for taking the time to be here 

today for this important topic. We look forward to your testimony. 

Our conversation today will focus on whether the patent litigation abuse problem demands a major rewrite of our patent laws or 

if the changes taking place are having the desired effects, specifically with regard to small businesses. The closer the issue is examined, the more it becomes apparent to me that small business, entrepreneurs, and universities are at the heart of innovation in this 

country and protecting them with a strong patent system certainly 

is important, including to this Small Business Committee. 

The U.S. patent system is really unique and it fuels our economy. 

On the whole, it is far more prosperous and successful than those 

of other countries. And small businesses provide 55 percent of all 

jobs and 66 percent of all net new jobs since the 1970s. They also 

hold 16.5 times more patents per employee than large firms. In the 

last 20 years, U.S. university licensing activity has specifically contributed $181 billion to the U.S. GDP, and so all those numbers 

speak for themselves. 

Now, unfortunately, the rise of so-called patent trolls, who acquire a patent solely for the purpose of making money through royalty demands or lawsuits, have had a detrimental effect on businesses, innovators, and universities alike. So, reform there is needed. However, before Congress jumps to overhaul the entire system, 

the extent and scope of necessary reform, I think, really needs to 

be clarified. 

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So, today, we are here to revisit the question, how do we address 

patent reform while protecting innovation and not impose negative 

consequences on small businesses and entrepreneurs. 

The first step is to examine exactly how recent changes, court decisions, and other judicial conference changes have impacted the 

situation, including our small businesses and universities. Since 

Congress has last thoroughly considered these issues and drafted 

legislation to address patent law, there have been several major judicial and administrative developments. As a result, patent lawsuit 

filings have already dropped dramatically, 40 percent, from September 2013 to 2014. But, that is still not good enough. Frivolous 

litigation is never a good thing and these patent trolls need to be 

stopped. The very threat of litigation from abusive patent trolls diverts resources away from legitimate business activity. 

The second step in addressing the faults in our current patent 

is to take a look at the potential impacts of current proposed 

changes. As Chair of this committee, I made it a priority to open 

the lines of communication with small businesses and universities 

to find out what specifically they need in terms of reform so they 

can stop worrying about potential litigation or changing rules and 

get back to innovative. 

When I first took over this committee, one of my top priorities 

was to ensure that small business voices would be heard in Congress, including on patent reform. That is why in March of last 

year, I held the first Small Business Committee hearing on patent 

reform, the first since 1961, when, actually, one of my predecessors 

in this seat from Louisiana, Senator Russell Long, held a hearing 

on a related topic on patent issues. At the hearing I called last 

year, 54 years since that previous one, we heard from advocates of 

both sides of the issues regarding specifics of legislation, and it was 

clearly established that a balanced approach is the only solution 

that would sustain and support America’s innovative culture. 

In the 11 months since that hearing, a considerable number of 

changes have gone into effect and even more have been proposed 

that would change the way small businesses engage in the patent 

system. This committee has heard from folks across the country 

who are being forced to divert critical resources to defend themselves against vague claims of patent infringement, and many of 

them go bankrupt in the process. These patent trolls are creating 

a substantial drain on the core of our economy, and this specific 

problem requires a specific solution, including one that is delicate 

enough to avoid disrupting the system as a whole. 

Now, unfortunately, when dealing with bad actors, there is rarely a one-shot solution. That is why it is not surprising to see folks 

who support a comprehensive approach attempt to inflate the perceived notion of litigation abuse by including innocent, well-intended business lawsuits with those of trolls. It is essential to remember that many legitimate owners of intellectual property do 

not manufacture anything, but nonetheless have legitimate claims 

of patent infringement against other parties. A comprehensive 

overhaul of our patent system would fail our innovators and allow 

large companies to strong-arm smaller organizations, ultimately 

leading to a less prosperous and successful system. 

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It is no secret that the ever-changing federal rule book is one of 

the greatest obstacles for business growth and innovation. Since 

the passage of the America Invents Act, several reports have come 

out saying that the onslaught of ongoing changes is making it more 

difficult for small businesses to protect their patents. We have also 

witnessed increasing abuse of new mechanisms that were aimed to 

aid in the fight against the so-called trolls. There is evidence that 

certain hedge fund managers are intentionally shorting stocks and 

then challenging a company’s patent at the Patent Trial and Appeal Board. 

Since our last meeting on this issue, new reports have shown 

how the value of patents has dropped at a staggering rate in the 

past four years, with some reports showing a decrease by as much 

as 80 percent. The key, I think, is to strike a balance between combating frivolous lawsuit claims from trolls and maintaining a level 

playing field between small business inventors and large companies. 

In an effort to support a targeted approach that takes into account the ongoing changes to the patent system and patent troll 

lawsuits, I have cosponsored Senator Coons’ legislation, the Strong 

Patents Act of 2015, which also has the support of our fellow committee member Senator Hirono as well as Senators Cotton and 

Durbin. 

Patent reform is a key issue this year and I certainly look forward to continuing to fight overly broad efforts to fix the system 

and to discussing and developing effective balanced solutions. 

Thanks again for being here, and now I will turn to our Ranking 

Member, Senator Shaheen. 

OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING 

MEMBER, AND A U.S. SENATOR FROM NEW HAMPSHIRE 

Senator SHAHEEN. Well, thank you very much, Mr. Chairman, 

and thank you to all of our witnesses who are here today. 

As I think we would all agree, small businesses really are the 

drivers of economic growth, especially when it comes to technological innovation that keeps this country competitive. And small 

firms employ nearly 40 percent of America’s scientists and engineers and they produce nearly 16 times more patents than large 

businesses, which is really an astounding statistic. They also 

produce patents that are of higher quality and more than twice as 

likely to be cited in technical literature. So, I think we would all 

agree that America’s entrepreneurs have a very big stake in our 

patent system. 

Since the passage of the America Invents Act in 2011, efforts 

have been underway to reform procedures at the U.S. Patent and 

Trademark Office, and in today’s hearing, we are going to examine 

legislative efforts to further reform the patent process. This process 

is ongoing and I am hopeful that we will be able to come to some 

consensus that will address concerns that we have heard from 

small businesses as well as abuses that affect small businesses 

while they are trying to protect their innovators. 

I believe that—and I will make an editorial comment here—I believe that one of the best ways for us to support small business innovation is through reauthorizing and making permanent the SBIR 

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and STTR programs, and I very much appreciate the opportunity 

to work with Chairman Vitter on this issue and the fact that we 

have already had a hearing to look at reauthorization. 

I am going to abbreviate my remarks this morning and submit 

my full statement for the record, but I want to close again by 

thanking each of our witnesses and apologizing for the fact that I 

am going to have to leave early to attend another hearing. So, 

thank you all very much. 

[The prepared statement of Senator Shaheen follows:] 

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Chairman VITTER. Thank you, Senator. 

And now, as we normally do, we would invite any other opening 

remarks for the record so we can go directly to our witnesses, and 

we should also have plenty of time for questions and comments 

after our witnesses’ testimony. Let me introduce all of them and 

then we will hear from them in turn. 

Robert Stoll is a partner at Drinker Biddle. He serves on the 

firm’s patent team and is Co-Chair of the Intellectual Property 

Practice Group. He formerly served as the Commissioner for Patents at the U.S. Patent and Trademark Office, where he was instrumental in the passage of the America Invents Act and lauded 

for his efforts to reduce patent pendency and improve patent quality. 

Brian O’Shaughnessy is an attorney and head of the Life 

Sciences Practice Group at the multinational intellectual property 

firm RatnerPrestia, P.C. He is a registered patent attorney with 30 

years of experience in intellectual property law and represents clients in disputed matters in U.S. Federal Courts, the U.S. International Trade Commission, and in post-grant proceedings before 

the U.S. Patent and Trademark Office. 

And Neil Veloso is the Executive Director of Technology Transfer 

for Johns Hopkins Technology Ventures, the commercialization 

arm of the university. He leads a team that works closely with researchers, physicians, and other inventors to evaluate and protect 

intellectual property developed at the university. 

Welcome to you all. Thanks to you all for being here. And we will 

start with Mr. Stoll. 

STATEMENT OF ROBERT L. STOLL, PARTNER AND CO-CHAIR, 

INTELLECTUAL PROPERTY GROUP, DRINKER BIDDLE AND 

REATH, WASHINGTON, DC, AND FORMER COMMISSIONER OF 

PATENTS, U.S. PATENT AND TRADEMARK OFFICE 

Mr. STOLL. Chairman Vitter, Ranking Member Shaheen, and 

Members of the Committee on Small Business and Entrepreneurship, it is my great pleasure to testify before you today on issues 

related to our nation’s patent system, which fuels America’s innovative spirit and serves as a major driver of job creation and economic growth. 

I am currently a partner and Co-Chair of the Intellectual Property Group at Drinker Biddle and Reath, having retired from my 

position as Commissioner for Patents at the United States Patent 

and Trademark Office in December of 2011. I spent 29 years at the 

U.S. PTO, rising from a patent examiner to head the office that 

handles U.S. legislation and international intellectual property 

issues for the administration before becoming Commissioner for 

Patents. 

I share your passion for helping ensure that small and independent inventors can benefit from the fruits of their labor and 

their creative talents. Small businesses and independent inventors 

are critical to revolutionary advancement of American technology. 

They file over 20 percent of the applications at the U.S. PTO and 

their patents are more likely to encompass breakthrough inventions rather than incremental change, as they have the incentive 

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and the flexibility to take risks that might be unacceptable for larger established enterprises. 

Small businesses and independent inventors are the incubators 

of novel ideas and the source of inventive products that they develop or which they license or sell to others. Many large successful 

companies throughout our history have started from meager beginnings. Hewlett-Packard began in a garage, where its first product, 

an audio oscillator, was built. That garage was used for many years 

as a research lab and is now a private museum known as the birthplace of Silicon Valley. 

Patents are a critical tool for small businesses to elbow their way 

into the market. Anyone who has ever watched ‘‘Shark Tank’’ is 

aware that one of the first questions an investor asks is whether 

the inventor has patent protection. A well functioning patent system is of particular importance to the small businesses, which to 

succeed often need both venture capital and the means to protect 

an innovative market niche. 

Mr. Chairman, I applaud your leadership in introducing with 

Senator Baldwin the Grace Period Restoration Act of 2015, a bipartisan bill to protect American inventors and university researchers. 

By restoring a more workable grace period, S. 926 will permit 

small inventors to obtain rights in the United States if they fill 

shortly after a disclosure, and if other countries model this, it can 

become part of our international system. 

In both the Senate and the House, other work aimed at making 

the U.S. patent system fairer and more efficient for all stakeholders continues. Members of the House Judiciary Committee, led 

by Chairman Goodlatte and Ranking Member Conyers, have considered the Innovation Act and the Innovation Protection Act, a 

measure that would preserve the resources that the U.S. PTO 

needs to fulfill its mission. 

At the same time, Chairman Grassley, Ranking Member Leahy, 

and other Members of the Senate Judiciary have been working on 

the bipartisan Patent Act. And Senator Coons has proposed 

changes to the post-grant procedures at the U.S. PTO in the 

STRONG Act. 

In parallel to the legislative debate, the courts have considered 

cases raising some of the very same issues Congress is examining. 

Octane Fitness and Highmark were both handed down by the Supreme Court last year and loosened the ‘‘objectively baseless’’ 

standard to deal with harassing lawsuits to permit judges to award 

attorneys’ fees more liberally if, in their judgment, the suit was 

frivolous. The Supreme Court is also poised to hear cases contemplated by other legislative proposals on the Hill. For example, 

Cuozzo addresses the standard of claim construction at the U.S. 

PTO and the reviewability of the institution of an inter partes review procedure. This case and other patent cases have recently 

been granted cert. 

At the end of 2015, the courts instituted rules that require more 

detailed pleadings and the U.S. PTO has taken more quality initiatives to blunt the problems of having improvidently granted patents used to harass small businesses. 

Other Supreme Court decisions are further shaping the patent 

landscape. Some have argued that the Court’s decision impacting 

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subject matter eligibility in Myriad, Mayo, and Alice have presented challenges for lower courts and for patent holders. The 

Court intended these decisions to be narrowly construed, but we 

are currently seeing about 70 percent of the patent claims challenged under the subject matter eligibility statute invalidated, with 

even higher percentages invalidated in the U.S. PTO post-grant 

procedures. 

The effects of these decisions as they are being applied by the 

lower courts are limiting the availability of patents in core technologies—areas of computer implemented programs, diagnostic 

methods, and personalized medicine—and thereby limiting the ability of innovators to provide value to customers, build their businesses, and grow. These cutting-edge fields are the very technologies in which the United States leads the world. 

The Supreme Court will have several opportunities to clarify the 

impact of their decisions as more cases having real world impacts 

work their way through the system. It is important for America 

that we get this right. 

As a result of the recent patent subject matter eligibility cases 

in the U.S., if a claim is drawn to a law of nature, a natural phenomenon, or an abstract idea, it is not patentable subject matter 

if elements of the claim do not, quote, ‘‘add substantially more.’’ In 

Europe, the claims must have a technical character. And in China, 

claims must have a technical feature distinctive from the prior 

arts. So, these countries have broader subject matter eligibilities 

than we currently do. 

As changes occur through the courts and the administration action, we can now take time to study the development of case law 

and rules and analyze how they are affecting the system. Much 

work has already gone into exploring legislative solution and the 

Members of the Senate and House are to be commended for their 

efforts. Hearings like this one provide the opportunity to collect 

more information and will lead to legislation that will further improve the patent system and lead to more job creation and economic growth. 

Thank you very much. 

[The prepared statement of Mr. Stoll follows:] 

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Chairman VITTER. Thank you very much. 

And now we will turn to Mr. O’Shaughnessy. 

STATEMENT OF BRIAN P. O’SHAUGHNESSY, ATTORNEY AT 

LAW AND SHAREHOLDER, RATNERPRESTIA, WASHINGTON, 

DC, AND CHAIRMAN-ELECT, LICENSING EXECUTIVES SOCIETY (USA AND CANADA), INC. 

Mr. O’SHAUGHNESSY. Thank you. Chairman Vitter, Ranking 

Member Shaheen, and committee Members, I am grateful for the 

opportunity to be here today and to offer these remarks. 

My name is Brian O’Shaughnessy and I am Chairman-Elect of 

the Licensing Executives Society, USA and Canada. LES is a nonprofit, nonpartisan professional society devoted to bringing the 

fruits of innovation to market. The Society recognizes the important role that effective intellectual property regimes play in growing economies and improving the human condition. We applaud the 

important work of this committee in the IP arena. 

I have been practicing intellectual property law as a registered 

patent attorney for 30 years. I am here today to discuss the profound effects of recent changes on our patent system, particularly 

on small business. 

Our patent system is the great equalizer. Properly balanced, it 

enables the nimble innovator, regardless of size or resources, to disrupt markets and bring forth new ideas and products, and we the 

public benefit both from the disclosure of those ideas and the products they produce. 

Patent rights are, first and foremost, property rights. Those who 

would deprive inventors of their property right derogate principles 

upon which this country was built. The spirit of invention is intrinsically American and is seen in how we reward it. The patent system safeguards the labor and the investment of the industrious. 

The patent right plays a vital role in specialization. By turning 

inventions into tradable assets, inventors are free to do what they 

do best. They can license their invention to others for manufacturing and distribution and they can go back to the lab and do 

more inventing. 

Today, however, innovators face many challenges. With the global economic downturn, the birthrate of U.S. start-ups is below the 

death rate for the first time in 40 years. Economic uncertainty is 

especially harmful to small businesses. But, economic cycles, admittedly, are beyond our control. So, we must address those challenges that are not. 

The America Invents Act, though well intentioned, has been catastrophic for entrepreneurial innovators. The AIA is eroding confidence in patents and reducing their commercial value. Accused infringers are turning to new procedures at the PTO which are invalidating patents at an alarming rate. These proceedings offer an 

enormous advantage for the market-dominant player. It gets the 

PTO to reopen prosecution of a patent and then it plays out the 

clock with serial proceedings, both in the PTO and then back in the 

courts, to bleed the patentee dry. The little guy does not stand a 

chance. 

With the AIA, patent enforcement is down and patent valuations 

are near 20-year lows. As a result, investment in technology-oriDeShaun on LAP51NQ082 with DISTILLER

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ented businesses, both new and old, is down. Equally of concern, 

businesses of all sizes are turning to trade secret protection. This 

deprives the public of the benefit of disclosure of inventions that 

comes with a patent and it drives innovation underground. If inventors do not file for patents, the common store of knowledge suffers. 

As the knowledge-based economy grows in importance, we should 

be striving for increased, not decreased, reliance on the patent system. This can only be achieved by sustaining patents as a durable, 

meaningful, and transparent property right. 

But now, pending legislation could strike a further blow to American innovation. Both S. 1137 and H.R. 9 purportedly address abusive practices in patent litigation. However, both impose burdens 

on patentees that do not exist for other property owners. Small 

businesses are especially dependent on their IP assets and, thus, 

are especially vulnerable to these burdens. 

These bills are untimely and unnecessary. The problems exploited in patent litigation abuse have recently been addressed. 

Patent pleading requirements are now consistent with other civil 

cases and the scope of discovery has been restricted. Moreover, the 

Supreme Court has made it easier to get attorney fees for bad faith 

patent enforcement. As expected, the incidence of fee awards has 

increased and even the most pro-patent courts are granting substantial awards for bad faith patent enforcement and abusive litigation is on the decline. 

Admittedly, even with these constructive improvements, abuses 

will remain. And, so, LES is spearheading a standards initiative, 

bringing together the IP community, licensors and licensees, as 

well as financiers, consultants, valuation experts, and any other interested parties to create an open and transparent system of standards of best practices and ethical behavior for IP transactions. 

Courts will now have an effective tool for assessing abusive behavior. LES believes that industry self-regulation is preferable to the 

blunt instrument of legislation. 

I thank you for the opportunity to be here today and I look forward to your questions. 

[The prepared statement of Mr. O’Shaughnessy follows:] 

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Chairman VITTER. Thank you very much. 

And now, we will turn to Mr. Veloso. 

STATEMENT OF NEIL VELOSO, EXECUTIVE DIRECTOR, TECHNOLOGY TRANSFER, JOHNS HOPKINS TECHNOLOGY VENTURES, BALTIMORE, MD 

Mr. VELOSO. Chairman Vitter, Ranking Member Shaheen, Members of the Senate committee, thank you for this opportunity to testify on this important topic. 

My name is Neil Veloso. I am Executive Director of Johns Hopkins Technology Ventures and we are the technology transfer, business development, and new company formation arm of the university. 

Ever since the passage of the Bayh-Dole Act in 1980, patenting 

and technology transfer has joined teaching and publication as another means by which knowledge at the university can be brought 

out to the public. Innovation, research, and discovery are the life 

blood of my institution, Johns Hopkins, and it is interwoven in the 

fabric of the university. This is manifested in the work of Johns 

Hopkins Technology Ventures. Last year, we have seen 500 invention disclosures from our faculty, students, and staff. We executed 

171 license agreements with established companies, but also with 

new companies, as well. 

As part of that, Tech Ventures started over 16 new start-up companies around Hopkins Technology, and this is in line with the effect that universities and their research have had in the formation 

of start-ups. In fiscal year 2014, there were 853 new start-up companies that were based on university technology. 

Our commitment to technology transfer involves not only a focus 

on licensing, but also on the incubation, formation, and developments of start-up companies, as well. Recently, our start-up companies have had good response from the market. Within the past five 

years, Johns Hopkins start-up companies have raised over a quarter-billion dollars in follow-on financing. 

For Johns Hopkins, its licensees and start-up companies, a well 

functioning, robust patent system is a key to our innovation ecosystem. As the university makes decisions on patenting, we need 

to balance the costs and time commitment involved in obtaining 

those patents and pursuing those applications versus spending 

those resources on new inventions that may come in. 

In that respect, a patent system that is efficient and cost effective for patent seekers like Johns Hopkins makes our group, Technology Ventures, more efficient for our inventors, as well. 

After that licensing transaction takes place, Johns Hopkins uses 

its patents to grant rights to its licensees. As I said, these can involve start-up companies. We grant them the right to make, have 

made, use, or sell products based around Hopkins technology. We 

grant them the ability to sub-license that technology to others. 

And, also, we grant them the ability to pursue infringers. 

Now, in that light, the work of this committee as it examines 

changes to the patent system will have effects not only to the university, but to its start-up companies, as well. 

From the viewpoint of a start-up company with a fixed budget, 

with a strict mandate, and with a very daunting task of taking 

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early stage technology out to the market, having an efficient patent 

system, something that can protect their rights and allow them to 

stay within their goals and within their budget, going and make 

them more successful. 

In closing, I would say that an approach improving targeted legislation developed in the context of the changing landscape created 

by judicial and administrative actions can most effectively combat 

abusive patent practices and maintain the capacity of our vigorous 

patent system. 

Thank you very much. 

[The prepared statement of Mr. Veloso follows:] 

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Chairman VITTER. Great. Thank you all very, very much for 

being here, for your testimony. 

Now, we will open it up for questions. I will start and we will 

proceed to our other Members here. 

Mr. Stoll, you mentioned near the beginning of your testimony 

the great classic American success story of Hewlett-Packard starting in a garage, which was obviously decades ago. Do you think 

that sort of birth of enormous technology and not only a company, 

but eventually a whole new sector of our economy, is harder or 

easier to happen today as compared to when it happened decades 

ago? 

Mr. STOLL. I believe it is probably a little harder today than it 

was then, but I still think it is very possible. I think that you cannot bat down the entrepreneurial personality of the inventor. I 

think they will continue to invent. They will continue to try. I do 

think that it is harder for them to enforce their patents and to 

elbow their way into an already existing area. So, I think it is 

harder, but I still think it is something that we must advocate for, 

because it is the driver of job creation and economic growth in the 

United States. It is the next Facebook, the next Microsoft, the cure 

for cancer. 

Chairman VITTER. Right. 

Mr. STOLL. So, we must support them. 

Chairman VITTER. Right. Well, I certainly agree with that, and 

I certainly agree with your confidence in the spirit of the inventor 

and the entrepreneur. Unfortunately, given a lot of factors, I think 

it is much harder these days, not just a little bit. 

Do the other two witnesses have any gut reaction to that question? 

Mr. O’SHAUGHNESSY. Yes, if I may. I tend to agree with you, 

Chairman. I think that the problems that exist today are multivariant. There are many different angles that are creating problems, not the least of which is global competition and, of course, the 

global economic downturn. So, as I commented, I think that we 

need to provide every opportunity that we can to the small developer, small innovator who needs every chance to get ahead. The 

system right now really is tilted toward the well entrenched. I 

think we need to reverse that. We need to give the small entrepreneur an opportunity to get ahead, and we can do that effectively 

with the right patent policy. But that is going to require some adjustment. 

I think that the trade secrets protection bill is a very good bill. 

I think it is a good step in the right direction. It is an important 

part of any IP portfolio. But, it will not do everything that is needed. 

Chairman VITTER. Okay. Mr. Veloso. 

Mr. VELOSO. Yes. For the inventor at a university, doing work in 

a lab, who creates these discoveries for a university technology 

transfer office for a licensee at a start-up company, you know, patent litigation, patent enforcement is maybe down on the list in 

terms of their goals. Really, it is really prefaced on the idea of getting that technology out there from the lab to the marketplace. So, 

having an efficient system, removing roadblocks, these hurdles, I 

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think, can make it more efficient for that transfer of discovery to 

take place. 

Chairman VITTER. And again, over time, now compared to decades ago, the Hewlett-Packard story, do you think it is easier or 

harder or the same to do that? 

Mr. VELOSO. I think with things like IPRs, the rise of these patent trolls, it has become more difficult. However, given the increasing prominence, staffing, professionalism of university tech transfer 

offices, you know, awareness of this type of transaction, there are 

more mechanisms in place to ease that transfer of technology. But, 

definitely, the issues that are being raised here can stop that momentum. 

Chairman VITTER. I guess what I am getting at is my perception 

of the long-term trend is a trend in favor over several decades of 

the big guys, a trend against the small start-up innovator, entrepreneur. Do you agree that that is the long-term trend we have 

seen in the last several decades or not? 

Mr. O’SHAUGHNESSY. I would invite your attention to the Founding Fathers and their approach. When the U.S. patent system was 

first envisioned, it was unlike any other patent system in the 

world. It was deliberately structured to give the exclusive right to 

inventors, not to corporations, not to members at court. It was different from the British system. It was dedicated specifically to promoting the progress of the useful arts. The initial fee structure was 

very deliberately set at a very, very low rate, because the Founding 

Fathers understood that it was important for innovation to take 

hold and for America to become an important player on the world 

industrial stage. And they recognized that this could only be done 

by promoting the progress of the useful arts by promoting innovation. 

And I think we have gotten away from that. The system as it exists today really does favor the well entrenched, the people who already have a market advantage. What we need to be doing is giving a market advantage to the young, nimble innovator who is just 

starting up, trying to get into the marketplace, trying to deal with 

situations where the economy is very tight, the investment opportunities are very limited. But if you do not have investment opportunities in today’s world, you are just not going to succeed. You are 

not going to manage to get over the valley of death, as it is referred 

to. 

And, so, the patent system is the only resource that they have 

to produce something that can be seen as a tradable asset, something that they can show to investors and say, I have something. 

And even if my company fails, I have got something that can be 

sold later on down the pike to somebody else. So, this asset will endure, even though my company fails. That has tremendous value 

to investors. 

Chairman VITTER. Let me ask one more related question, then 

I will go to my colleagues. Considering this long-term trend, do 

each of you think passing something broad, very comprehensive, 

quote-unquote, ‘‘broad based,’’ like the Patent Act, would reverse 

that trend or continue or accelerate it? 

Mr. STOLL. I think it is just necessary in the climate that it be 

a large package, and that is because, first of all, we have got conDeShaun on LAP51NQ082 with DISTILLER

33 

stituency groups supporting different pieces of it and each of them 

wants something included in this package. I think we need to recognize that. And I also think that the provisions relate to each 

other. What we are trying to do is to create an operable system 

with less problems for the small and medium-sized inventor, so 

that we need to take a look at different aspects of the system and 

make sure they work harmoniously together to advocate for just 

those types of people. 

For those two reasons, I do think a package is necessary, but I 

also think we need to look very carefully and very finely at the provisions to make sure we are not harming people that we are intending to hurt by unintended consequences. 

Chairman VITTER. Well, let me be clear. I am not talking about 

any package. I am talking about the general model of patent—— 

Mr. STOLL. And I am talking the same, yeah, a large package. 

Chairman VITTER. Mr. O’Shaughnessy and Mr. Veloso. 

Mr. O’SHAUGHNESSY. I must respectfully disagree. I think that 

the STRONG Patents Act, for example, is the proper approach at 

this time. The changes that we have seen through the AIA have 

been enormous. We are still very much in the dark as to what the 

AIA is going to do to our patent system. We probably will not know 

that really well for at least five to ten years. To now implement an 

even further and equally broad approach of legislative change, I 

think, would be an enormous mistake. 

What we should be doing right now is very, very carefully focused, tailored legislation that perturbs the system to only the 

most modest levels at this point in time, because investment requires certainty, requires predictability. And right now, we have, 

bless us, very little predictability in the patent system. 

Chairman VITTER. Mr. Veloso. 

Mr. VELOSO. I agree. Targeted legislation really done after close 

examination would be the best way to go. Speaking from the aperture of a university patent holder licensor, or from a small company or start-up licensee, a broad overhaul would have these unintended consequences that could adversely affect their ability to 

carry out their mission and do their business. 

Chairman VITTER. Okay. Thank you. 

Senator Hirono. 

Senator HIRONO. Thank you very much, Mr. Chairman, and I 

thank the panelists for your testimony. 

I was a member of the U.S. House when we were debating AIA 

and I had serious concerns then about the impact of AIA, particularly on small inventors, and I was one of the handful of House 

Members who voted against that bill. 

I have continuing concerns about the changes that we are contemplating to patent law because I do think that, as Mr. Stoll has 

said, we have to get this right, and this is a very specialized area 

of the law. This is why we have lawyers who totally specialize on 

patent law. I do not happen to be one of them, but I certainly listen 

to the concerns that have been expressed, not only by the three of 

you as to what we are doing with patent legislation, but with many 

others. So, I share your concerns about getting this right. 

Mr. Veloso, representing the university research community, one 

of the suggestions made as we were dealing with the patent bill 

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when I used to serve on the Judiciary Committee was, well, why 

do we not just carve out the university research community from 

having to live with some of the contemplated changes. Would you 

support the legislation if the university research community was 

left alone? 

Mr. VELOSO. Senator, I am unfamiliar with that particular carveout for universities. Certainly, as Johns Hopkins is one of the largest—— 

Senator HIRONO. Well, it was contemplated. You know, as we try 

to garner support for various pieces of legislation, people who come 

forward and express concerns about the provisions of the legislation, sometimes it will be suggested, well, we will just take care of 

you folks by leaving you alone, and it was certainly discussed that 

we should hold harmless, basically, the university community, and 

whether or not that actually made it as a change to the legislation. 

But, a contemplated process or a strategy of that sort, would you 

support, in light of our concerns about supporting innovation in our 

country? 

Mr. VELOSO. I think holding university patent holders on the 

same level as any other patent holder, be it the individual inventor 

or a large corporation, is a fair thing to do. You know, should any 

changes be proposed, particularly as it would affect a university, I 

think it is worth further examination. 

Senator HIRONO. Does anybody else want to comment about various carve-outs? 

Mr. STOLL. I am against carve-outs because I do not think they 

are good for the system. I think what we need to do is to look at 

provisions and make sure they are good for everyone. I think that 

is a very strong concern. 

I am—I have even got questions with respect to focusing on 

trolls. I do not know who a troll is anymore. Is it an operating company that does not use a series of patents and does not—developing 

them? Is it, you know, is it a university, as it is sometimes called? 

So, I think what we need to do is to look to get rid of parts of the 

system that are problematic, but problematic for anyone. I do not— 

I think we need to look at it in a comprehensive manner. 

Senator HIRONO. Do you wish to comment, Mr. O’Shaughnessy? 

Mr. O’SHAUGHNESSY. I absolutely agree. LES has a great many 

university members and I think most of them would agree with me 

that no man is an island and no member of the IP community is 

an island. We cannot divorce one sector of that community from the 

other. And, I certainly agree with Mr. Stoll that the system has to 

work for everybody equally. The moment we indulge in carve-outs, 

then we get into a great deal of difficulty and gamesmanship involving definitions and what constitutes a university or an institute 

of higher education or a troll or what have you. I just do not think 

that is a healthy way to go. 

Senator HIRONO. So, I recognize that other countries have patent 

laws, China, there were other countries cited. So, do they look at 

what we are doing with our patent laws, and does it have—if we 

make certain changes to our patent laws that could disadvantage 

innovation in our country, is that something that countries such as 

China and Japan or any other countries, is that what they—do 

they look at what we are doing and does it—do we also have to pay 

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attention to what the effect of changes we make to our patent laws 

would have on an international global marketplace? 

Mr. Stoll. 

Mr. STOLL. Absolutely, they look to what we do, and we need to 

be very careful what we do, because they will do it in a manner 

that advantages their own domestic folks and harm American industry. So, whenever we take action, they do not necessarily take 

the exact same action, but they are looking very closely at what we 

are doing and they are looking at how they could still meet their 

treaty obligations under TRIPS, but try to do it in a manner that 

advantages the domestic industry over United States industries. 

Senator HIRONO. And the other two. You do not have to. I am 

already finished with my time, but would you agree with that concern, the two of you? 

Mr. O’SHAUGHNESSY. Yes, absolutely. 

Senator HIRONO. Thank you. 

Mr. VELOSO. I agree, as well. 

Senator HIRONO. Thank you, Mr. Chairman. 

Chairman VITTER. Thank you. 

Senator Gardner. 

Senator GARDNER. Thank you, Mr. Chairman, for holding this 

hearing today, and thank you to the witnesses for joining us, as 

well, and sharing your expertise. 

Colorado, since the recession, just ended 71 percent growth in 

employment in Colorado. Our growth rate has been—excuse me, 

unemployment and our growth rate since the recession. About 25 

percent of Coloradans who are employed own their own business in 

Colorado, and if you look at the number of start-ups in the last 

three years or so, about 17 percent of employees in Colorado are 

in a start-up business that has only been around for three years 

or less. So, it is a very innovative state and we are excited about 

the new Patent Office that has opened up in Denver. Obviously, 

with the great research universities that we have, start-up culture 

that we have in Colorado, it is an ideal place to have a conversation about what we can be doing even better in terms of patent, 

patent protections, and the innovative economy that we want to 

drive to in the next incoming decade. 

But, I want to start with Mr. O’Shaughnessy talking a little bit 

about some of the challenges we see in current patent issues, talking specifically a little bit about venue when it comes to patents. 

I would just love to get your advice and your take on this. 

Five dozen Colorado businesses have been sued in the Eastern 

District of Texas, a single district that is now home to 44 percent 

of all patent lawsuits in this country. And, so, my question is, why 

are small businesses in Colorado and across the country being sued 

in Texas over these patent issues? 

Mr. O’SHAUGHNESSY. Well, unfortunately, I think, it is the nature of our system that district courts have a certain amount of 

latitude in terms of how cases are decided, and as it turns out, the 

Eastern District of Texas seems to be a particularly pro-patent 

court that those who are engaging in patent abuse find to be a favorable venue. The venue provisions of our federal law and our patent law, in particular, give a fair bit of discretion to the patentee. 

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There has been some proposals to change that, as well, and I think 

that might be a targeted approach that might be worthwhile. 

But, you know, I think that the changes that are taking place in 

precedent, in particular, and by that I am referring to the changes 

in the ability to get attorney fee awards, has changed the attitude 

even in the Eastern District of Texas. Judge Gilstrap has just recently made an enormous award and with a single swipe of his pen 

dispensed with 160 patent cases. And, obviously, that was an abusive litigation situation. Judge Gilstrap, I think, did the right 

thing. He identified abusive behavior. He assessed the individuals 

in front of him, the parties, assessed the merits of the case, and 

he awarded attorneys’ fees. I think that that is the track that we 

are on. We are moving in the right direction. 

Senator GARDNER. In 2015, we saw, and perhaps you discussed 

this earlier, the greatest number of patent disputes in history. 

Nearly two-thirds of patent litigation last year came from non-practicing entities more commonly referred to as trolls. According to research, over half of the victims of frivolous lawsuits made less than 

$10 million in annual revenue. What can or should we do to protect 

small businesses in Colorado and elsewhere from unnecessary costly lawsuits? 

Mr. O’SHAUGHNESSY. Well, I think that we should let the precedent take hold. We should let judges do what judges do best, and 

that is assess the behavior of the people in front of them. Now, the 

numbers that you are citing, I think, are largely attributable to the 

changes of the AIA, which require patent assertion entities, or 

trolls, or whatever you choose to call them, to bring lawsuits only 

against a single party. What used to be a single lawsuit which 

might have involved 10 or 15 or 20 defendants, now they have to 

bring 10 or 15 or 20 different lawsuits. So, that has increased the 

number of lawsuits dramatically. 

So, I think that there is a little bit of misperception when we cite 

mere numbers of lawsuits. What I think we really need to look at 

is what is going on with innovation and whether or not our patent 

system is actually furthering innovation and meaningful patents 

are getting to the courthouse and getting decided. 

Senator GARDNER. Mr. Stoll, Mr. Veloso, on either of those questions, would you like to comment? 

Mr. STOLL. Yes. I believe that the Patent and Trademark Office 

does a great job, but I think they need full access to their funds 

and more training and more time for the examiners to do a better 

job on the applications coming out the door. If the quality of the 

patent is improved and if there are well-bounded and clear claims, 

then there is a legitimate case when you are bringing it against 

someone else. So, I think that improving and providing for the Patent and Trademark Office, which is trying to do a great job, will 

reduce the number of frivolous cases. 

And I agree with Mr. O’Shaughnessy that frivolous cases should 

be penalized and attorneys fees, and I think there are many other 

little pieces that can be added to the system that improve the life 

of the small inventor. 

Senator GARDNER. Mr. Veloso, I have run out of time, so, Mr. 

Chairman, is it okay if he—— 

Chairman VITTER. Sure. Go ahead. 

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Mr. VELOSO. I agree. Frivolous lawsuits really take away from 

the mission of these small start-up companies with very fixed budgets and a strict goal. 

Senator GARDNER. Thank you, Mr. Chairman. 

Chairman VITTER. Thank you. 

Senator Coons. 

Senator COONS. Thank you, Chairman Vitter, for convening yet 

another vital and important hearing of this Small Business Committee, as you said in your introduction, the first in decades to— 

the one you convened last year was the first in a half-century to 

tackle this important issue of the impact of intellectual property 

and, in particular, patents on small business. I thought it was the 

best, and, sadly, also the only balanced hearing on the question of 

patents, patent reform, and small business that we had last year, 

and I am grateful that you continue your energy and engagement. 

We have a fantastic panel today, so forgive me for a moment if I 

comment on the range of things you have already touched on. 

Mr. O’Shaughnessy, you commented on how the patent system is 

the great equalizer, but it only remains the great equalizer if it is 

strong, if it is possible for this constitutionally created property 

right to be asserted successfully by those who are legitimate inventors and entrepreneurs. And, as I think we all know, patents strike 

a delicate balance between incentivizing innovation and promoting 

collaboration. Several of you spoke about the transition to trade secrets away from patents because of some of the, I think, very disturbing trends in PTR IPR. 

Some in Congress have come to the conclusion that a particular 

aspect of our current patent system, abusive demand letters, that 

does need curbing, demands a fundamental overhaul of the entire 

system, and I think, as you know, through the Strong Patents Act, 

which Chairman Vitter and I have cosponsored and which I am 

very grateful for the persistent support and advocacy of Senator 

Hirono, proposes a different path forward, one that is more balanced. 

It ensures that we streamline pleading requirements, which is a 

progress that has already been made, that empowers the FTC to 

go after those who send deceptive demand letters and tackle some 

of the abuses of the post-grant system at the PTO. As was commented before by Mr. Stoll, when a hedge fund can erase millions 

of dollars in investor capital by simply filing a post-grant challenge 

solely for the purpose of profiting from shorting the stock, it is time 

for Congress to act. 

My bill would also end fee diversion from the Patent and Trademark Office, something I have passionately advocated for for many 

years. 

My home State of Delaware has a long history of paving the way 

for inventors to transform ideas into patents and then into practice, 

and from garage tinkerers to major multi-national companies, we 

have to have a system that is just the sort of great equalizer about 

which you have spoken. 

So, I look forward to continuing to work with my colleagues on 

a bipartisan basis to enact meaningful and targeted reforms to our 

patent system that will retain its strength and greatness without 

destroying some of its most fundamental provisions. 

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So, let me just ask three questions, if I might. Mr. Stoll, in your 

testimony, you note the strikingly high percentage of claims that 

are now being invalidated in front of the PTO in post-grant procedures. Can you explain to the committee why this is particularly 

problematic to small businesses. 

And then, second, I am going to ask Mr. O’Shaughnessy, if you 

might, to also comment on how the dangers of overly broad patent 

reform affect start-ups and small businesses at a higher rate and 

how these post-grant review processes at the PTAB, at the Patent 

Trial and Appeal Board, also really are posing a significant threat 

to small and start-up businesses? 

Mr. Stoll. 

Mr. STOLL. Yes. I do believe that there needs to be some sort of 

reform, whether that be legislative or initiated at the Patent and 

Trademark Office, because a disproportionate number of patents 

coming out of the Patent Office are being invalidated at the PTAB. 

So, I think that there are some significant problems for patent 

holders and it does seem to be tilted against them. And maybe we 

need to rightsize this ship a little bit. 

The PTO has the capability of allowing for more liberal amendment of the patent when it is before them again to be able to avoid 

some problems that were unforseen at that time. I think that is 

something that the PTO can do right now and should be doing 

right now. 

I think there are many other provisions that need to be looked 

at very carefully to make sure that the impact is such that we level 

the playing field again. It seems to—I mean, there have been 

judges—Judge Rader called it the killing fields of patents at the 

PTAB. I think it is getting better. I think they are looking at their 

procedure. I think they were very concerned with the statutory obligation to conclude the system within one year, with an unusual 

extension of six months in unusual cases. But I think they are now 

looking at the different pieces of it and trying to be fairer and I 

think things are moving in the right direction. 

Senator COONS. I have limited time. If I could just ask Mr. 

O’Shaughnessy and Mr. Veloso to focus on the question of the potential danger to universities and tech transfer, to small businesses 

and start-ups, of over-broad patent reform as proposed by litigation 

that is currently in front—excuse me, legislation that is currently 

in front of the Senate and House. 

Mr. O’SHAUGHNESSY. Well, I would certainly agree with Mr. 

Stoll. I think the Patent Office does a very good job. I think the 

IPR process is being implemented in a way that is counterproductive for small companies now. One of their principal assets 

is their intellectual property portfolio. Even though it is duly issued 

by the Patent Office, it has that stamp of approval, the Patent Office is presumed to have done its job, now a third party can come 

along, throw that patent back into an IPR proceeding. It goes back 

to the same standard of review that it got before it was even issued 

and the patent owner now has to fight that battle and then go back 

to court, if necessary, and it bleeds the patentee. 

Senator COONS. Can I focus you on the risks to small businesses 

of over-broad patent reform legislation? 

Mr. Veloso. 

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Mr. VELOSO. Sure. You know, for universities and even start-up 

companies, especially start-up companies, you simply do not have 

the resources, extensive litigation budgets, expertise, personnel to 

combat these effects of over-broad patent reform. Things like fee 

shifting, joinder, you know, that would be just areas of which, at 

least from the universities’ perspective, we are not equipped to 

handle. 

Senator COONS. Mr. Chairman, I see I am over time, but if you 

will just allow me one quick comment. 

Chairman VITTER. Sure. 

Senator COONS. This was an amazing panel. There are many 

Senators who are quite busy with other hearings, as you saw me 

run out and run back. Your testimony about how changes are occurring at the Supreme Court, in filing standards, in the practice 

at PTO, in the management of cases by lower courts, all suggest, 

you unanimously testified, that we should not rush forward with 

over-broad patent reform. I think that is a very important point. 

I appreciate your making that before this committee today. 

Thank you, Mr. Chairman. 

Chairman VITTER. Thank you. 

And next is Senator Ayotte. 

Senator AYOTTE. Thank you, Chairman. 

I wanted to follow up on the questions that Senator Coons had 

asked. In New Hampshire, we are very proud to be home of a great 

inventor, Dean Kamen, who not only invented the Segway, but the 

infusion pump and many other products that he is working on that 

are incredible, life saving, and transformative. And, you know, he 

and I have had a lot of discussions about the pending legislation 

around here, and what I worry about, when you talk about the implications of over-broad patent reform, one of the things that distinguishes us from other countries is really our strong patent system. 

This is why this is the place for innovators and inventors like Dean 

Kamen. 

And, so, not only the cost, as you think about the cost on a university, I mean, the university is actually a larger institution. 

Johns Hopkins is a larger institution that can defend against litigation. You have said, well, we cannot defend against it because we 

do not have all these resources if you cannot—if your patent is 

challenged and it is an over-broad ability to challenge it. 

So, how about somebody like Dean, because, you know, Dean is 

obviously quite an individual now who started first robotics and— 

but when he started out, he was just like so many brilliant people 

in our country with a great idea that, obviously, was able to seek 

a patent for it and then many other patents after that. So, what 

happens to that brilliant American idea if we think about that and 

they are not a part of a big entity? Help us understand the implications of over-broad patent reform to that and to the innovators of 

the world and to the innovators in America. 

Mr. VELOSO. Yes, definitely. You know, to the extent that a university faces these challenges and a small start-up would be effective, as well, definitely, the individual inventor, the Dean Kamens 

or even those, you know, tinkering in their garage right now, you 

know, simply would not have the resources, expertise, capability to 

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face that. To the extent that these challenges could discourage further innovation, that would be a very bad thing. 

Senator AYOTTE. And also, as you think about it, does it not advantage the bigger entities? So, could it not force people like Dean 

to have to go to a bigger entity, who actually may not have the 

same interest for some competitive reason to develop new products 

or life saving products? So, in some ways, do we not end up with 

more of a sort of benefiting the big entities versus the little guys 

in all of this if we are over-broad in what we do? Does anyone want 

to comment on that? 

Mr. O’SHAUGHNESSY. Yes, absolutely. I think, once again, we are 

talking of a property right. Property rights often endure over generations. If property rights are not predictable, reliable, and durable, then investors will not invest and the little guys have a very 

difficult time weaving their way through a minefield that is constantly changing. And, so, I think predictability is the key here, 

and when we change the system and then a couple of years later 

change the system again, we are making it very, very difficult for 

the small entrepreneur to figure out how to get ahead. 

Mr. STOLL. I do not necessarily think that this is a big entity 

versus small entity type of thing. I really believe that the larger 

companies recognize that the independent inventors are more flexible and more willing to take risks and can develop really breakthrough technology. And I think that they want them to continue 

to do that so that they can either license or buy it or—so, I think 

that everyone is interested in making sure that we do not have 

overly broad patent protection, I mean, patent problems. And, I 

think, Dean himself is pretty large at this point with his many different—— 

Senator AYOTTE. Well, he has gotten large—— 

Mr. STOLL. Yes, he has. 

Senator AYOTTE [continuing]. But had he not had the opportunity 

to start out with who he was, I mean, he is the American dream, 

right? 

Mr. STOLL. Yes. 

Senator AYOTTE. He is the guy who starts out in his garage and 

now he is big, for sure. But, you know, he feels very passionate 

about making sure that the next and current generation of Dean 

Kamens and those who are the dreamers and the inventors have 

their property rights protected so that they can have opportunity 

to thrive. 

As I think about this, though, as we look at some of the things 

that are being floated around here, is there not a much more narrow way to get at these issues, you know, the bogus litigation 

issues that actually impact all, that concern all of us, you know, 

patent trolls, and it seems to me—do you all think that there is a 

much narrower way for us to get at that than some of the proposals 

that are out there right now? 

Mr. O’SHAUGHNESSY. Well, yes. I think, as I said, the STRONG 

Patents Act, I think, is a very good start. If we are going to go anywhere with legislation right now, that is the place to go. It has got 

very narrow provisions that are focused at the actual problems that 

are being exploited by those who abuse the patent litigation system. And it has been, as far as I understand it, has been compiled 

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and drafted with input from the user community, and I think it is 

a good, prudent, narrow, tailored way to go. But, the broad overreaching approach at this time, where there is so much uncertainty 

in the patent world, is not a prudent way to proceed. 

Senator AYOTTE. Well, I want to thank all of you for being here. 

I appreciate it, and I thank the Chairman for having this hearing. 

Chairman VITTER. Thank you. 

And next is Senator Cantwell. 

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

for having this important hearing, and thank you to our witnesses. 

I think somebody might have touched on this earlier, about resources, but I just want to clarify. We still take money out of the 

Patent Offices, right, for other aspects of the budget? 

Mr. STOLL. It is looking that way. The money is appropriated 

back to the Patent and Trademark Office. All the funds do come 

from user fees. 

Senator CANTWELL. But they are not all used by the Patent Office—— 

Mr. STOLL. I am very—well, there is a revolving fund at the moment, but I am very concerned that the PTO have access to all of 

its fees all of the time. And, you know, there are no assurances in 

the future—— 

Senator CANTWELL. Yes. 

Mr. STOLL [continuing]. That they will be getting all of their fees. 

Senator CANTWELL. Hear, hear. Hear, hear. We live in an information age. This is about the age of creativity. This is about how 

fast we can move. And if we cannot move because we do not have 

the legal side down, then we are going to constrain ourselves. So, 

it is time to make sure the Patent Office keeps its fees. Okay. 

Second, the America Invests Act. I was not a supporter for a couple of different reasons. I am not a first to file person. I am—first 

of all, I want the money to stay in the Patent Office. I want people 

who are the inventors of patents to have good legal frameworks behind it. I do not want big corporations coming in and having a 

more predominant foot approach to stepping on the small inventors. What problems have we seen or challenges have we seen since 

the implementation of the America Invests Act? 

Mr. O’SHAUGHNESSY. Well, not to be glib, but one of the things 

I observe about the America Invents Act is that in an attempt to 

harmonize with the rest of the world, which is the first to file system, whereas we were the first to invent system, we went to a system that nobody else in the world has ever used in history, and 

much of the uncertainty that derives of the AIA is the attempt to 

make that system work, both in terms of harmony with other systems and with the legacy of our old system. 

And, so, now we are struggling with implementing the AIA, with 

new standards, new principles, new philosophies of intellectual 

property law that never existed anywhere else. It is going to take 

a long time. So, let us not perturb the system further. 

Senator CANTWELL. Well, could we do something to alleviate 

that? I mean, I applaud the Chairman for having this hearing, because much of this discussion has taken place, say, for example, in 

the Judiciary Committee, which I think has been a little more captured by the larger business interests than the small business inDeShaun on LAP51NQ082 with DISTILLER

42 

ventor side of the equation. So, are there things that we could do 

to help in streamlining this particularly? 

Mr. STOLL. I would agree with Mr. O’Shaughnessy. We are not 

currently a first to file system. It is basically a first to file or disclose system. So, I think what we need—and then there is a question, is, how close the disclosure has to be to the end patent claim 

that you have not even written at the time you are disclosing. 

So, I think what we need to do is take a look at those provisions 

and see if we cannot find a mechanism to make the university folks 

happy with collaborating again and disclosing again, and I think 

that is something that they would greatly appreciate. 

Senator CANTWELL. Yes, Mr. Veloso. 

Mr. VELOSO. We definitely see that from the university perspective. It is at this juncture where the need to publish for the university comes in contact with this desire to file patents. To the extent 

that the two begin to become in conflict with one another, I think 

that is where this sort of reconciliation from first to file and first 

to invent needs to be addressed. 

Senator CANTWELL. And how would you do that? 

Mr. VELOSO. I do not know right at this time. 

Senator CANTWELL. Mr. O’Shaughnessy, do you have any 

thoughts on that? 

Mr. O’SHAUGHNESSY. Well, unfortunately, I think the die is cast. 

Senator CANTWELL. I do not—I do not know that it is. I think 

this panel is illuminating, just in the question—as I said, the Chair 

had this hearing, which I think is very important. I think the side 

of the story that did not get told is the side of the small inventor, 

and I think a lot of my colleagues rushed to assume that when you 

are talking about technology, that if it is an Oracle or someone else 

that—and I mean the company—says, you know, or an IBM or 

something, that that is the understanding of technology on Capitol 

Hill. It is not. Technology is not owned by them, and, in fact, oftentimes they are the very people who want to hold down or take advantage of the small inventor because they think it is annoying to 

pay them a royalty. 

Well, we had a very delicate balance and we have upset that balance, and we have done so at the precipice of this information age, 

where we want a thousand flowers to bloom. So, I just hope that 

we will not think of it as the die is cast, but, like, be vigilant, as 

the Chairman is, about this issue of small business impact on patents so that we can get it right, because we do not want to discourage innovation. We want to encourage it. We want people to have 

access to capital. We want their patents protected. We want this 

to move forward. And we want you to have the money to run the 

Patent Office. 

Thank you, Mr. Chairman. 

Chairman VITTER. Thank you. 

We have some time, so I am going to have another round, at 

least for myself, with a question and comment, and then I will invite any others who would like to participate. 

One of the most frightening statistics and facts I have seen in 

all this discussion is the significant decline in the value of patents, 

and that has got to mean something, and that has got to mean 

something bad that is related to what we are talking about. There 

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43 

is some dispute about what that decline is. How significant is that 

decline, number one? Number two, what is going on? 

Mr. STOLL. Well, at least one of the issues relates to the narrowing—the recent narrowing by the Supreme Court on patent 

subject matter eligibility, which would affect personalized methods, 

diagnostics, and software, the ability to patent and protect computer implemented programs. So, what we are seeing, many of 

these inventions are developed by small and independent inventors, but there is no certainty with respect to whether or not they 

are going to be able to protect those claims and they are having 

trouble attracting entrepreneurial investors to develop the product 

because those investors are not certain that they are going to—that 

those inventors are going to have valid patents. So, it is really 

causing a significant problem in these, particularly the emerging 

technology areas, where we, as the United States, are really doing 

phenomenal things. 

So, I think that something—hopefully, the courts, the Supreme 

Court has a couple of opportunities coming up, one with Ariosa v. 

Sequenom and another with Planet Blue, to revisit some of these 

standards, and hopefully, they will recognize the impact on our inventors and do something that is more rationalized so that we are 

no longer the narrowest subject matter eligibility country in the 

world. 

Chairman VITTER. Anyone else? 

Mr. Veloso. 

Mr. VELOSO. Yes. We have seen this devaluation of patents, particularly on the diagnostic side, just given the recent decisions that 

Mr. Stoll mentioned. You know, for universities, academic medical 

centers, being able to license diagnostic technologies to companies 

is a very key part of our technology transfer function. Now, we 

have seen a shift away from diagnostic licensing into other areas. 

Chairman VITTER. Okay. 

Mr. O’Shaughnessy. 

Mr. O’SHAUGHNESSY. Yes. I think the—thank you, Mr. Chairman. The valuation problem is driven primarily by two things, in 

my view, and one is, as Mr. Stoll mentioned, the eligibility requirements. We have dramatically reduced our patent eligibility standards and the rest of the world is enlarging theirs. At the same 

time, durability and the sustainability, the reliability, and the enforceability of patents has gone down, and the ability to drag a patent out of the realm of issued and valid patents and bring it back 

into the Patent Office has called into question their durability and 

their enforceability. So, if we had broad legislation that made it 

much more difficult to enforce our patents, that would drive patent 

valuation down even further. 

Chairman VITTER. Okay. Let me end with a, I guess, an editorial 

comment. I am really concerned about the long-term trends we are 

seeing, and the last thing I want to do is add to or accelerate that. 

I think we need to be reversing that. 

And to me, it is part of an even broader trend in American society in favor of bigger and bigger and bigger—big government, big 

business, mega-banks, mega-entities, and against the smaller outsider innovator. To me, that is a very un-American trend. I think 

the Founders would be—and maybe are—rolling in their graves. 

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And one way they actually expressed that very specifically is what 

we are talking about, patents. That is in the Constitution. I mean, 

that is a pretty—when you think about it, that is a very real world 

term and set of issues that was put in a very elevated document, 

and it is because it is, as Mr. O’Shaughnessy pointed out, a fundamental property right and very central to their notion of innovation 

and opportunity, which is ultimately freedom, concepts about freedom. 

So, I really hope all of us, including all of the Congress, does get 

this right and acts in a targeted way through measures like Senator Coons’ measure, which I am a cosponsor of, to reverse this 

long-term trend, certainly not to continue or accelerate it. 

With that, I would be happy—Senator Hirono, if you would like 

a second round. 

Senator HIRONO. Yes, I would, very briefly. 

Thank you very much for mentioning that. We are actually narrowing the subject matter eligibility for awarding of patents and at 

the same time contemplating legislation that would make it much 

harder to defend the patents that are issued. So, a lot of the eligibility, subject matter eligibility narrowing is happening in the 

courts and in the Patent Office itself, correct? 

Mr. O’SHAUGHNESSY. That is right. 

Senator HIRONO. Is there something that we can be looking at 

legislatively to express our concerns about this particular trend? 

Mr. STOLL. I think by holding hearings, just like this, to question 

the issues. I am sure that the Justices notice that there is an interest in the Senate and in the House on these issues. So, I think that 

that helps draw attention to it. 

I believe there are cases that are coming up through the court 

system right now that are getting ripe for the Supreme Court to 

look at this again and maybe have more of a bent towards the importance to our economy and job creation that their decisions in 

this particular area are affecting. And, maybe if they do not, at 

that point, we may need to be discussing actual legislation relating 

to 35 U.S.C. 101 to make it clear that it is the intent of the Congress that we not so narrow the subject matter eligibility issues. 

But, I think you are seeing stuff starting to happen in the courts. 

The Patent and Trademark Office is doing several iterations of 

their guidelines on these decisions. They are in and of themselves, 

and actually stated in the decisions, to be narrowly construed. The 

problem is that some of the lower courts are applying them in manners that are causing a lot of very important inventions not to have 

patent protection. 

Senator HIRONO. Does anyone else want to comment briefly? 

Mr. O’SHAUGHNESSY. It is difficult for me in the context of this 

hearing to assess whether or not legislation could solve the problem. I do believe that the Patent Office, for example, is over-interpreting the Supreme Court precedent. Justice Thomas in the Myriad decision bent over backwards, it seems to me, to say, do not 

over-interpret this decision. This is defined and limited to human 

DNA and whether or not unperturbed human DNA should be patentable. Consequently, however, I think the Patent Office has gone 

way beyond that with their guidelines. 

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I am not sure that legislation is the way to approach it, but I 

agree with Mr. Stoll that hearings and communications with the 

PTO are a very effective and important way to proceed. 

Mr. VELOSO. I agree, giving voice to the effects of that. You 

know, as I mentioned, particularly on the diagnostic side, we are 

seeing companies who are being affected because their core intellectual property has been devalued. We are seeing small—we are seeing less small start-ups in the diagnostic realm because of this uncertainty around the patent position. And, my fear would be that 

this would trickle down to the individual inventor, to the researcher, who would decide not to pursue an area because they just 

see this uncertainty ahead. 

Senator HIRONO. One more question for Mr. O’Shaughnessy. You 

said that you have an LES standards initiative to bring together 

the various parties and interests. What is the time frame for your 

initiative—— 

Mr. O’SHAUGHNESSY. Well—— 

Senator HIRONO [continuing]. To come up with some suggestions? 

Sorry for interrupting. 

Mr. O’SHAUGHNESSY. Thank you, Senator. The LES standards 

initiative really is still a bit in its early stages. We are recruiting 

members. We are being very diligent about trying to get all voices 

from all quarters of the IP community, as I said, including financiers, valuation experts, even entities that might be considered 

pure patent assertion entities. We feel that this has to be an open 

and inclusive procedure. But, we want to create a body of standards that are not just guidelines, are not just codes of conduct. 

These will be standards that organizations will agree to abide by, 

just as they do with the ISO standards that are commonly used in 

manufacturing today. 

The time line, I cannot say that we have a firm time line. Our 

objective is to start moving and drafting meaningful standards certainly by the end of this year. 

Senator HIRONO. Thank you. Thank you, Mr. Chairman. 

Chairman VITTER. Okay. Senator Cantwell. 

Senator CANTWELL. Just one question as it relates to the inter 

partes review process and biotech. Do you think we need to make 

changes there? We have had, like, 70 percent of these patent cases 

overturned, and is there something that you would suggest would 

be a better review of biotech patents? 

Mr. O’SHAUGHNESSY. Yes. I certainly think that we need to 

change that standard to make it equivalent to what is used in the 

district courts. These are issued patents that we are talking about. 

They are entitled to a presumption of validity. We should assume 

the Patent Office has done its job. And once the patent issues, it 

is entitled to a statutory presumption of validity. We open up the 

door for somebody to drag it back into the Patent Office and reopen 

prosection. This is enormously unfair to every patent owner, not 

just the small entity, not just biotech. It is everybody. And, unfortunately, I think, because of their vulnerabilities, small businesses 

are especially susceptible to these proceedings. But, I think it casts 

a pall upon the entire system. 

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Senator CANTWELL. Why is this happening? I mean, obviously, 

because we have this inter partes review process and we need to 

change it, correct? Is that—— 

Mr. O’SHAUGHNESSY. That is right. 

Senator CANTWELL. Thank you. 

Mr. O’SHAUGHNESSY. It is an artifact of the AIA. 

Senator CANTWELL. Thank you. Thank you, Mr. Chairman. 

Chairman VITTER. Okay. Thank you. 

Thanks to all of you very much. I think this conversation was 

really, really productive and important. Like Senator Coons and 

some others, I have been frustrated with the broader discussion, 

and we are both on the Judiciary Committee. I think the discussion 

over there has been very imbalanced, quite frankly, and I have 

been frustrated by that. I think we have had a very balanced discussion, including today, in Small Business, and we do need to get 

this right. This is really important. It is—again, I point to it being 

in the Constitution in terms of its significance and the significance 

even the Founders understood, and it is important for our economy 

and for our future. So, thank you all for being an important part 

of this discussion. 

With that, the hearing is adjourned. 

[Whereupon, at 11:20 a.m., the committee was adjourned.] 

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