INNOVATION ACT 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3309 

OCTOBER 29, 2013 

Serial No. 113–58 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
INNOVATION ACT 
U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

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85–281 PDF 2014

INNOVATION ACT 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

ON

H.R. 3309 

OCTOBER 29, 2013 

Serial No. 113–58 

Printed for the use of the Committee on the Judiciary 

( 

Available via the World Wide Web: http://judiciary.house.gov 
(II) 

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAUL LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

JASON T. SMITH, Missouri 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 
(III) 

C O N T E N T S 

OCTOBER 29, 2013 

Page 

OPENING STATEMENTS 

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

of Virginia, and Chairman, Committee on the Judiciary ................................. 2 

The Honorable John Conyers, Jr., a Representative in Congress from the 

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 3 

The Honorable Howard Coble, a Representative in Congress from the State 

of North Carolina, and Member, Committee on the Judiciary ......................... 5 

The Honorable Melvin L. Watt, a Representative in Congress from the State 

of North Carolina, and Member, Committee on the Judiciary ......................... 5 

WITNESSES 

Krish Gupta, Senior Vice President and Deputy General Counsel, EMC Corporation 

Oral Testimony ..................................................................................................... 9 

Prepared Statement ............................................................................................. 12 

Kevin T. Kramer, Vice President and Deputy General Counsel Intellectual 

Property, Yahoo! Incorporated 

Oral Testimony ..................................................................................................... 23 

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

David J. Kappos, Partner, Cravath, Swaine & Moore LLP 

Oral Testimony ..................................................................................................... 37 

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

Robert A. Armitage, IP Strategy and Policy Consultant 

Oral Testimony ..................................................................................................... 47 

Prepared Statement ............................................................................................. 49 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Member, Committee on 

the Judiciary ......................................................................................................... 7 

Material submitted by the Honorable Tom Marino, a Representative in Congress from the State of Pennsylvania, and Member, Committee on the 

Judiciary ............................................................................................................... 121 

Material submitted by the Honorable Judy Chu, a Representative in Congress 

from the State of California, and Member, Committee on the Judiciary ........ 137 

Material submitted by the Honorable Hakeem Jeffries, a Representative in 

Congress from the State of New York, and Member, Committee on the 

Judiciary ............................................................................................................... 155 

Material submitted by the Honorable Darrell E. Issa, a Representative in 

Congress from the State of California, and Member, Committee on the 

Judiciary ............................................................................................................... 159 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of Robert A. Armitage, Eli Lilly and Company .................. 170 

Material submitted by The Coaliton for 21st Century Patent Reform ............... 203 
Page

IV 

Letter from Teresa Stanek Rea, Acting Under Secretary and Acting Director, 

United States Patent and Trademark Office ..................................................... 231 

Prepared Statement of the National Retail Federation ....................................... 245 

Letter from Dr. David Martin, Chairman, M • CAM Inc. .................................... 248 

Letter from various companies ............................................................................... 253 

Prepared Statement of Judge Paul R. Michel (Ret.) ............................................. 260 

Prepared Statement of the Independent Community Bankers of America®

(ICBA) ................................................................................................................... 264 

Letter from Brad Thaler, Vice President of Legislative Affairs, the National 

Association of Federal Credit Unions (NAFCU) ................................................ 266 

Letter from the Financial Services Patent Coalition ............................................ 268 

Prepared Statement of Barry Melancon, President and CEO, American Institute of Certified Public Accountants (AICPA) ................................................... 271 

The bill, H.R. 3309, the ‘‘Innovation Act’’ .............................................................. 275 
(1) 

INNOVATION ACT 

TUESDAY, OCTOBER 29, 2013 

HOUSE OF REPRESENTATIVES

COMMITTEE ON THE JUDICIARY

Washington, DC. 

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

2141, Rayburn Office Building, the Honorable Bob Goodlatte 

(Chairman of the Committee) presiding. 

Present: Representatives Goodlatte, Sensenbrenner, Coble, 

Smith, Bachus, Issa, Forbes, King, Franks, Jordan, Poe, Chaffetz, 

Marino, Gowdy, Labrador, Farenthold, Holding, Collins, DeSantis, 

Smith, Conyers, Watt, Lofgren, Cohen, Johnson, Chu, Deutch, 

DelBene, Garcia, and Jeffries. 

Staff present: (Majority) Shelley Husband, Chief of Staff & General Counsel; Branden Ritchie, Deputy Chief of Staff & Chief Counsel; Allison Halataei, Parliamentarian & General Counsel; Vishal 

Amin, Counsel; Kelsey Deterding, Clerk; (Minority) Perry 

Apelbaum, Minority Staff Director & Chief Counsel; Danielle 

Brown, Parliamentarian; Stephanie Moore, Counsel; and Jason 

Everett, Counsel. 

Mr. GOODLATTE. Good morning. The Judiciary Committee will 

come to order. 

And, without objection, the Chair is authorized to declare recesses of the Committee at any time. 

Before we begin, I want to take a moment and acknowledge a recent milestone for the former Chairman of the Judiciary Committee, the gentleman from Michigan, Mr. Conyers. 

During the month of September, when we were focused on other 

things that were perhaps not as important as this, we overlooked 

the fact that Mr. Conyers surpassed Sam Rayburn as the fifth longest serving Member of the U.S. House of Representatives in our 

Nation’s entire history. So we commend the gentleman from Michigan for this achievement. And thank him for the pleasure of working with him for so many years. 

Mr. CONYERS. Thank you, sir. Thank you very much. [Applause.] 

Mr. GOODLATTE. Do you want to say something? 

Mr. CONYERS. Chairman Goodlatte that—— 

Mr. GOODLATTE. Without objection, the gentleman is recognized 

to explain that. 

Mr. CONYERS. Yes. [Laughter.] 

Chairman Goodlatte, this is a surprise and a privilege of working 

here in the House. 
2 

I came here when Manny Celler was the Chairman, and it was 

the Committee that I wanted to serve on. And, I must admit, it 

was—the civil rights issues were very prominent at that time. And 

I’ve enjoyed it ever since and that includes during your chairmanship as well. And I thank you very much for your generosity. 

Thank you. 

Mr. GOODLATTE. The Chair thanks the gentleman and thanks 

him for making that wise decision. 

Today we are here to discuss H.R. 3309, the ‘‘Innovation Act.’’ 

The enactment of this bill is something I consider central to U.S. 

competitiveness, job creation and our Nation’s future economic security. This bill takes meaningful steps to address the abusive 

practices that have damaged our patent system and resulted in significant economic harm to our Nation. 

During the last Congress, we passed the America Invents Act. 

Many view the AIA as the most comprehensive overhaul to our patent system, since the 1836 Patent Act. However, the AIA was, in 

many respects, a prospective bill. 

The problems that the Innovation Act will solve are more immediate and go to the heart of current, abusive patent litigation practices. This bill builds on our efforts over the past decade. It can be 

said that this bill is the product of years of work. We have worked 

with Members of both parties in both the Senate and the House, 

with stakeholders from all areas of our economy and with the Administration and the courts. 

To ensure an open, deliberative and thoughtful process, we held 

hearings and issued two public discussion drafts, in May and September of this year, which led to the formal introduction of the Innovation Act last week. 

Abusive patent litigation is a drag on our economy. Everyone 

from independent inventors to startups to mid- and large-size businesses face this constant threat. The tens of billions of dollars 

spent on settlements and litigation expenses associated with abusive patent suits represent truly wasted capital. Wasted capital 

that could have been used to create new jobs, fund research and 

development, and create new innovations and technologies that 

promote the progress of science and youthful arts. 

Within the past couple years, we have seen an exponential increase in the use of weak or poorly-granted patents to send out 

purposely evasive blanket demand letters or file numerous patentinfringement lawsuits against American businesses with the hopes 

of securing a quick payday. Many of these abusive practices are focused not just on larger companies, but against small- and medium-sized businesses as well. These suits target a settlement just 

under what it would cost for litigation, knowing that these businesses will want to avoid costly litigation and probably pay up. 

Such abusive patent suits claim ownership over basic ideas such 

as sending a photocopy to email, aggregating news articles, offering 

free Wi-Fi in your shop, or using a shopping cart on your website. 

Something is terribly wrong here. The patent system was never intended to be a playground for litigation extortion or frivolous 

claims. 

One egregious example is of a company that has been suing 

small app developers and end users over a vaguely worded patent 
3 

that claims that any app that allows for in-app purchases violates 

their patent. This early-90’s patent apparently discusses a method 

for providing remote customer feedback using a fax machine. 

Though their patent may not be novel or nonobvious, they made 

their first obvious error just last month, when they sent Martha 

Stewart a demand letter asking for $5,000 for each of her company’s four apps. Instead of paying up, Ms. Stewart filed a declaratory judgment action in Federal court in Wisconsin. Fortunately, 

Ms. Stewart chose to fight. Unfortunately, many small businesses 

simply do not have the resources to do so and must capitulate to 

this type of patent extortion. 

The Innovation Act contains needed reforms to address the 

issues that businesses of all sizes and industries face from patenttroll-type behavior, while keeping in mind several key principles including targeting abusive behavior rather than specific entities, 

preserving valid patent enforcement tools, preserving patent property rights, promoting invention by independents and small businesses, and strengthening the overall patent system. Congress, the 

Federal courts and the PTO must take the necessary steps to ensure that the patent system lives up to its constitutional 

underpinnings. 

And let me be clear about Congress’ constitutional authority in 

this area. The Constitution grants Congress the power to create the 

Federal courts, and the Supreme Court has long recognized that 

the prescription of court procedures falls within the legislative 

function. To that end, the Innovation Act includes heightened 

pleading standards and transparency provisions requiring parties 

to do a bit of due diligence upfront before filing an infringement 

suit is just plain common sense. 

It not only reduces litigation expenses, but saves the courts time 

and resources. Greater transparency and information makes our 

patent system stronger. 

The Innovation Act also provides for more clarity surrounding 

initial discovery, case management, joinder, and the common law 

doctrine of customer stays. The bill’s provisions are designed to 

work hand-in-hand with the procedures and practices of the Judicial Conference including the Rules Enabling Act and the courts, 

providing them with clear policy guidance while ensuring that we 

are not predetermining outcomes. And that the final rules in the 

legislations’ implementation in the courts will be both deliberative 

and effective. 

We can take steps toward eliminating the abuses of our patent 

system, discouraging frivolous patent litigation and keeping U.S. 

patent laws up-to-date. Doing so will help fuel the engine of American innovation and creativity, creating new jobs and growing our 

economy. 

I look forward to hearing from all of our witnesses on the Innovation Act and the issue of abusive patent litigation. 

And it’s now my pleasure to recognize the Ranking Member, the 

gentleman from Michigan, Mr. Conyers, for his opening statement. 

Mr. CONYERS. Thank you, Chairman Goodlatte. 

Members of the Committee, there are few economic issues our 

Committee will face that are more important than whether and 

how to reform our patent laws. 
4 

Intellectual property, principally patents, are responsible for 

nearly one-third of all the jobs in U.S. economy. Our patent system, 

while not perfect, is the envy of the world and perhaps the most 

significant driver of growth in our economy. 

I believe that issues of non-practicing entities, or the so-called 

patent trolls, present unique problems that are worthy of congressional attention. There is a disconnect when shell corporations with 

little or no assets can threaten thousands of small end users with 

ill-conceived patent litigation over ordinary business practices. If 

we don’t know who these shell companies are, if the shell companies have no operating businesses or assets and if they are given 

free license to engage in endless and costly discovery we have a 

problem that requires our attention and legislation. 

But, at the same time, we need to be careful in addressing these 

problems. Our first rule should be to make sure we do no harm to 

our patent system or take any actions which unintentionally discourage innovation or increase litigation. As the former director of 

Patent and Trademark Office, David Kappos, reminds us: we are 

not just tinkering with any system here. We’re reworking the 

greatest innovation engine the world has ever known almost instantly after it has been significantly overhauled. 

If there were ever a case where caution is called for, this is it. 

And, in this regard, I don’t see any reason why we should be considering amending the fee-shifting statute, when the Supreme 

Court has just agreed to take up the very issue. Similarly, I see 

no rush to expand the use of business-method patents when the 

PTO and the courts are just now beginning to review cases brought 

under the law we just passed. Any changes we make must be carefully balanced and consistent with our principles and constitutional 

imperatives. 

For 80 years we’ve asked our Federal judges, the experts on litigation, to develop rules for their own court rooms. That system has 

worked well and I see no reason to abrogate the principle of separation of powers now. And, if we’re going to consider crafting new 

rules on discovery, stays and joinder, we should insist that the 

rules work the same for all parties, plaintiffs and defendants. 

Nor should we be crafting a series of special carve-outs from the 

legislation for the pharmaceutical industry. The last thing we need 

to do is to create two systems of patent laws, one for the pharmaceuticals and one for everybody else. 

We cannot lose sight of the single most important problem, to 

me, that’s facing our patent system today: the continuing diversion 

of patent fees. The most effective step we can take in responding 

to abusive patent litigation is making sure poor-quality patents are 

not issued to begin with. To do that, we need to give our examiners 

the resources they need to review and analyze the hundreds of 

thousands of complex and interrelated patent applications they receive every year. 

And that’s why yesterday, along with my colleagues, Representatives Watt and Issa and Collins, we’ve introduced bipartisan legislation, the Innovation Protection Act, which does exactly that on a 

permanent and statutory basis. This will apply regardless of the sequester or any future shutdowns. And I stand ready, able and willing to work with Members on both sides of the aisle in tackling 
5 

these problems. But I would urge my friend the Chairman to move 

cautiously, carefully and deliberately. 

And I thank you for the opportunity to deliver my statement. 

Mr. GOODLATTE. Well, thank you, Mr. Conyers. 

And we’ll now turn to the Chairman of the Subcommittee on 

Courts, Intellectual Property, and the Internet, Mr. Coble of North 

Carolina, for his opening statement. 

Mr. COBLE. I thank the Chairman. Good morning. 

Good morning to our panelist and those in the audience. 

Mr. Chairman, today we are here to build on our work to ensure 

that the U.S. patent system operates fairly for all parties in the 

context of litigation and in our courts. 

Abusive patent litigation is a scourge. It is the product of those 

taking advantage of loopholes in the current system to engage in 

what amounts to litigation extortion. H.R. 3309: the Innovation 

Act, builds on the work of the Leahy-Smith America Invents Act, 

the AIA, from 2011 and previous Congresses. 

The AIA was the most substantial reform to U.S. patent law 

since the 1836 Patent Act. While the AIA rewrote the underlying 

patent law and procedure at the PTO, the dramatic rise in abusive 

patent litigation over the last several years necessitates our work 

to address patent-litigation reform measures. 

I call all of my fellow Members and stakeholders, Mr. Chairman, 

to continue working with us in a thoughtful and deliberative manner as we address abusive patent litigation. The rules that we put 

into place address some of the most abusive patent practices, but 

will apply to all patents. And so, it is important that we work collaboratively with the Administration and the Senate to ensure 

that, similarly to the AIA, we are enacting meaningful reforms that 

set patent litigation on the right track for decades to come. 

American innovation cannot be held hostage to frivolous litigation from weak or overbroad patents. Companies are shutting down 

and folks are losing jobs. To ensure that the American economy 

does not suffer, due to legal gamesmanship that is currently taking 

place, enacting the Innovation Act, in my opinion, will be vital. 

I hope to hear more today from our witnesses on the steps that 

need to be taken to promote America’s innovation economy and create jobs. 

Again, Mr. Chairman, thank you for calling the hearing and I 

yield back. 

Mr. GOODLATTE. The Chair thanks the gentleman. 

And is now pleased to recognize the Ranking Member of the Subcommittee, the gentleman from North Carolina, Mr. Watt for his 

opening statement. 

Mr. WATT. Thank you, Chairman Goodlatte. 

And let me join with you in congratulating our colleague Mr. 

Conyers on his historic accomplishment today. 

I appreciate the opportunity to thank and welcome all the witnesses and especially to welcome back the former Undersecretary 

of Commerce and director of the United States Patent and Trademark Office, David Kappos. He’s been a tremendously valuable resource to me, my staff and other Members of the Intellectual Property Subcommittee and this full Committee. And I want to thank 

him for his continued generosity of time and expertise. 
6 

I supported the America Invents Act and actively participated in 

its development through bipartisan Member meetings as well as 

joint meetings with stakeholders and Administration officials. The 

reforms enacted in the America Invents Act were designed to equip 

the PTO to deliver better quality and more efficient services to the 

innovative Americans who rely upon the office to evaluate and 

process their patent claims fairly. 

The USPTO is ground zero in our efforts to maintain a worldclass patent system. But, in order to protect our innovators from 

false reliance on bad patents, costly litigation in the Federal courts, 

services that are not commensurate with the fees they pay, and a 

full range of other negative things, we must find the political courage to fully fund the PTO. That is why I was happy to join with 

Mr. Conyers and my republican colleagues, Mr. Collins and Mr. 

Issa, in introducing the Innovation Protection Act. Guaranteeing 

that our inventors—whether large or small, whether individuals, 

businesses, or universities—get the services they pay for is not a 

complicated proposition. 

Congress has studied and acknowledged the adverse effects of depriving the PTO of needed resources, for years. It’s good policy with 

virtually universal support. And the time to deliver is overdue. And 

I hope that all Members of this Committee will join as cosponsors 

of our bill and that this Committee will act on our legislation 

promptly. 

The problem we confront with the so-called patent trolls, while 

real, is not, in my opinion, not nearly as enormous as it has been 

portrayed, nor as urgent. The GAO dutifully fulfilled its mandate 

to assess the consequences of patent litigation by non-practicing entities. 

The takeaway from that study was that operating companies 

fight more among themselves and brought the bulk of the patent 

lawsuits examined over a period of years. And that the non-practicing entities brought only a fraction of cases, but engage in litigation tactics that pose some unique challenges. These unique challenges will undoubtedly require equally unique solutions, not solutions that could have an adverse impact on all litigants. 

While the Chairman’s bill proposes a number of creative solutions, we need to carefully examine how they will effect not only 

the bad actors, but how they will effect all participants in the patent system. And, while the Chairman released two discussion 

drafts, prior to introducing his bill, to date the process of developing and testing these legislative proposals has been, quite frankly, both insular and disappointing. 

While I support some of the concepts in H.R. 3309, I worry about 

the interaction and execution of some of its particular provisions 

and question the wisdom of others. In the meantime, we risk jeopardizing comity with the Federal Judiciary with overly prescriptive 

mandates, losing the trust and confidence of the small and independent innovators with unbalanced remedies that leave them out 

of the equation, and even worse we run the risk of enacting measures that could not only be ineffective, but could exacerbate the 

current problem or invite new unintended problems. 

One need only look to the joinder provisions incorporated at the 

eleventh hour in the America Invents Act. These joinder provisions 
7 

were intended to disrupt the practice of joining unrelated defendants in a single case. In that respect, the joinder rules were successful. But the unintended, yet, upon reflection, not entirely unpredictable consequence has been an explosion of litigation against 

single defendants. 

There are multiple credible and thoughtful stake holders who 

have expressed grave reservations about one provision or another 

in the Chairman’s bill. These concerns should not be dismissed as 

opposition or obstructionism. Reflection is much needed here. And 

I hope that moving forward here, there will be in-depth, constructive and open reflection and engagement. 

We have spent a considerable amount of time in various hearings 

discussing, even arguing about, the problem. I urge the Chairman 

to devote at least a comparable amount of time to evaluating these 

very discreet and unrelated proposed solutions. 

I look forward to hearing from the witnesses and yield back. 

Mr. GOODLATTE. The Chair thanks the gentleman. 

And without objection, all other Members’ opening statements 

will be made a part of the record. 

[The prepared statement of Mr. Watt follows:] 

Prepared Statement of the Honorable Melvin L. Watt, a Representative in 

Congress from the State of North Carolina, and Member, Committee on 

the Judiciary 

Thank you, Chairman Goodlatte. I appreciate the opportunity to thank and welcome all the witnesses and especially welcome back the former Under Secretary for 

Commerce and Director of the United States Patent and Trademark Office 

(USPTO), Dave Kappos. He has been a tremendously valuable resource to me, my 

staff and other members of the Intellectual Property Subcommittee and this Committee and I want to thank him for his continued generosity of time and expertise. 

I supported the America Invents Act (AIA) and actively participated in its development through bipartisan Member meetings, as well as joint meetings with stakeholders, congressional leadership and Administration officials. The reforms enacted 

in the AIA were designed to equip the PTO to deliver better quality and more efficient services to the innovative Americans who rely upon the Office to evaluate and 

process their patent claims fairly. The USPTO is ground zero in our efforts to maintain a world-class patent system. But in order to protect our innovators from false 

reliance on bad patents, costly litigation in the federal courts, services that are not 

commensurate with the fees and a full range of other negative outcomes, we must 

find the political courage to fully fund the PTO. 

That is why I was happy to join with Mr. Conyers and my Republican colleagues, 

Mr. Collins and Mr. Issa, in introducing the ‘‘Innovation Protection Act.’’ Guaranteeing that our inventors, whether large or small, whether individuals, businesses 

or universities, get the services they pay for is not a complicated proposition. Congress has exhaustively studied and acknowledges the adverse effects of depriving 

the PTO of needed resources for years. Its good policy with virtually universal support and the time to deliver is overdue. I hope that all members of this Committee 

will join as cosponsors of our bill and that this Committee will act on our legislation 

promptly. 

The problem we confront with the so-called ‘‘patent trolls,’’ while real, is not, in 

my opinion, nearly as enormous as it has been portrayed, nor is it as urgent. The 

GAO dutifully fulfilled its mandate to assess the consequences of patent litigation 

by Non-Practicing-Entities (NPEs). The take away from that study was that operating companies fight more among themselves and brought the bulk of the patent 

lawsuits examined over a period of years and that NPEs brought only a fraction of 

cases but engage in litigation tactics that pose some unique challenges. These 

unique challenges will undoubtedly require equally unique solutions, not solutions 

that could erect unfair barriers that impact all litigants. 

While the Chairman’s bill proposes a number of creative solutions, we need to 

carefully examine how they will affect not only the bad actors, but how they will 

affect all participants in the patent system. And while the Chairman released two 

discussion drafts prior to introducing his bill, to date the process of developing and 
8 

testing these legislative proposals has been, quite frankly, both insular and disappointing. 

While I support some of the concepts in HR 3309, I worry about the interaction 

and executive of some of its provisions and question the wisdom and workability of 

others. In the meantime, if we move forward precipitously with this bill, we risk 

jeopardizing comity with the federal judiciary with overly prescriptive mandates, 

losing the trust and confidence of the small and independent inventors with unbalanced remedies that leave them out of the equation and, even worse, we run the 

risk of enacting measures that could not only be ineffective but could exacerbate the 

current problem or invite new, unintended problems. 

One need only look to the joinder provisions incorporated at the eleventh hour 

into the AIA. These provisions were intended to disrupt the practice of joining unrelated defendants in a single case. In that respect the joinder rules were successful. 

But the unintended (yet, upon reflection, not entirely unpredictable) consequence 

has been an explosion of litigation against single defendants. 

There are multiple, credible and thoughtful stakeholders who have expressed 

grave reservations about one provision or another in the Chairman’s bill. These concerns should not be dismissed as opposition or obstructionism. Reflection is much 

needed here. And, I hope that moving forward there will be in-depth, constructive 

reflection and open engagement. We have spent a considerable amount of time in 

various hearings, discussing, (even arguing about) the problem. I urge the Chairman 

to devote at least a comparable amount of time to evaluating these very discrete 

and unrelated proposed solutions. 

I look forward to hearing from the witnesses and yield back. 

Mr. GOODLATTE. We welcome our panel today. 

And, if you would all rise, I will begin by swearing in the witnesses. 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you. 

Let the record reflect that all the witnesses responded in the affirmative. And I’ll begin by introducing them. 

Our first witness is Mr. Krish Gupta, Senior Vice President and 

Deputy General Counsel of EMC Corporation. In his position, Mr. 

Gupta manages a worldwide portfolio of IP and technology licensing, including patent and trademark prosecution and IP litigation. 

Prior to his position at EMC, he served 10 years as senior counsel at Digital Equipment Corporation. He is a registered patent attorney and currently serves on the board of directors at the Intellectual Property Owners Association and at the Association of Corporate Counsel, Northeast Chapter. 

Mr. Gupta received his J.D. from Suffolk University Law School; 

MBA from the University of South Carolina, Columbia; M.S. in 

electrical engineering from Clemson University; and his Bachelor’s 

Degree from the Birla Institute of Technology and Science. 

Our second witness is Mr. Kevin Kramer. Mr. Kramer is vice 

president and deputy general counsel for intellectual property at 

Yahoo! where he is responsible for all intellectual property matters 

including the defense of the company in patent infringement cases. 

Prior to joining Yahoo!, Kevin was a partner at the law firm 

Pillsbury Winthrop Shaw Pitman representing both plaintiffs and 

defendants in a wide range of patent litigation. 

Kevin has also extensive government and international experience. He worked for several years as an associate solicitor for the 

U.S. Patent and Trademark Office. In that capacity he represented 

the USPTO in more than 20 direct appeals before the U.S. Court 

of Appeals for the Federal circuit and in numerous civil actions before the U.S. District Court for the District of Columbia. 
9 

Kevin also worked for several years as a legal officer in the Patent Cooperation Treaty Legal Division of the World Intellectual 

Property Organization in Geneva, Switzerland. 

Our third witness is the Honorable David Kappos. We welcome 

Mr. Kappos’ return in front of this Committee. He served as the 

Undersecretary of Commerce for Intellectual Property and Director 

of the United States Patent and Trademark Office from August 

2009 to January 2013. He is currently a partner in the law firm 

of Cravath, Swaine & Moore. 

Before joining the PTO, Mr. Kappos led the intellectual property 

law department at IBM, serving as vice president and assistant 

general counsel for IP. During his more than 25 years at IBM, he 

served in a variety of roles including litigation counsel and AsiaPacific IP counsel, based in Tokyo, Japan, where he led all aspects 

of IP protection activity for the Asia-Pacific region. 

Mr. Kappos received his Bachelor of Science degree in electrical 

and computer engineering from the University of California at 

Davis in 1983; and his law degree from the University of California, Berkley, in 1990. 

Our fourth witness is Mr. Robert Armitage. Over the past several 

decades, Mr. Armitage has been an active participant in formulating patent policy in the U.S. and abroad. And we are very happy 

to be bringing him back out of retirement for the day to testify in 

front of the Committee. 

Mr. Armitage previously served as senior vice president and general counsel of Eli Lilly and Company. Prior to this, he served as 

chief intellectual property counsel for the Upjohn Company and 

was a partner in the Washington D.C. office of Vinson & Elkins 

LLP. 

Mr. Armitage has served in as a past president of the American 

Intellectual Property Law Association and the Association of Corporate Patent Counsel. 

Mr. Armitage received his Bachelor’s Degree in physics and 

mathematics from Albion College, and his Master’s Degree and 

Law from the University of Michigan. 

Welcome to all of you. 

And we’ll begin with Mr. Gupta. 

And let me say that each of your written statements will be entered into the record in its entirety and we ask that you limit your 

testimony to a summary in 5 minutes or less. To help you stay 

within that time, there’s a timing light on your table. When the 

light switches from green to yellow, you will have 1 minute to conclude your testimony. When the light turns red, it signals that the 

witness’ 5 minutes have expired. 

Now, Mr. Gupta, welcome. 

TESTIMONY OF KRISH GUPTA, SENIOR VICE PRESIDENT AND 

DEPUTY GENERAL COUNSEL, EMC CORPORATION 

Mr. GUPTA. Chairman Goodlatte, Ranking Member Conyers and 

Members of the Committee. 

My name is Krish Gupta and I am senior vice president and deputy general counsel for EMC Corporation. I would like to thank you 

for the opportunity to testify today regarding patent litigation reform and express EMC’s strong support for the Innovation Act. 
10 

Headquartered in Hopkinton, Massachusetts, EMC is a global 

leader in cloud computing as well as data storage, backup and recovery systems. 

EMC has a keen interest in seeing that our patent system is rational, fair and evenly balance. We create many innovations and 

look to the U.S. patent system to protect those innovations and the 

jobs that result from them. We have more than 3,600 U.S. patents. 

At EMC, I have worldwide responsibility for IP law and licensing 

matters including patent litigation. In my 20 years in this field, I 

have witnessed firsthand how our patent system has undergone 

transformation, not always for the better. Abusive patent litigation 

has swept our country, diverting billions of dollars from economic 

growth and innovation to battling frivolous suits filed by patent assertion entities or PAEs. 

Since 2005, EMC has been sued by PAEs over 30 times and has 

never found to have infringed. As a matter of principle we don’t 

settle frivolous suits, but defending those suits has cost us millions 

and has caused great disruption of our business, requiring our employees to shift their attention from designing new products and 

growing the business to sitting in depositions or going to court. 

EMC is not alone in this regard. For us a typical PAE suit involves a shell company with secret backers created solely to file 

suits. The PAE often sues EMC and dozens of companies in separate suits that get consolidated for pretrial purposes. The complaint 

is often vague, provides little information about the specific infringement allegations. When cases are consolidated, we lose some 

of our due process rights. We are forced to compromise on defense 

strategies and incur additional legal fees in coordinating with others. 

Furthermore, PAEs try to pressure us into settlement by demanding thousands of documents and emails during discovery, 

most of which are irrelevant to the suit and costly to produce. If 

we want a decision on the merits, we have to typically wait 2 years, 

spend millions and endure massive business disruption. Meanwhile, the PAE has nothing to lose, with lawyers on contingency, 

and a steady income stream from defendants who have settled 

along the way. Faced with these choices, most defendants cave and 

are forced to settle. But we don’t. 

EMC supports the reform set forth in the Innovation Act. Five 

key elements of this bill are of particular importance to us. 

First, this bill ensures that PAEs have something to lose when 

they file meritless suits. We believe the fee-shifting provision will 

strongly discourage the filing of frivolous suits. 

Second, this bill levels the playing field by requiring disclosure 

of the real-party in interest and permitting joinder of that party. 

Entities that have a financial interest in a lawsuit should not be 

able to operate in secrecy. They should be part of the suit, subject 

to counter claims and liable for attorney’s fees for frivolous suits. 

Third, the bill recognizes the need to strengthen the specificity 

in pleadings for patent infringement cases. It ensures that a plaintiff has in fact conducted pre-suit diligence and has a real basis for 

filing suit. 

Fourth, the legislation promotes certainty and discovery in patent cases. Discovery has become a significant weapon in the arse-
11 

nal of PAEs to try to extort cost of litigation settlements in 

meritless cases. 

Fifth, the bill protects end-user customers by providing explicitly 

that a manufacturer can intervene on behalf of and stay a case 

against a customer. PAEs sue customers in order to pressure the 

manufacturers to settle. This provision is a common sense approach that will curb this particularly egregious tactic. 

In conclusion, EMC believes the Innovation Act must be enacted 

to restore accountability and balance back into the system to alleviate the unfair burdens that PAEs are able to put on hardworking 

companies that are the lifeblood of our economy. We believe that 

this legislation is essential to protecting America’s position as the 

most innovative nation in the world. We urge you to swiftly pass 

the Innovation Act and we stand prepared to help you in any way 

we can to bring a bill to the President’s desk in short order. 

Thank you and I look forward to your questions. 

[The prepared statement of Mr. Gupta follows:] 
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Mr. GOODLATTE. Thank you, Mr. Gupta. 

Mr. Kramer, welcome. 

TESTIMONY OF KEVIN T. KRAMER, VICE PRESIDENT AND DEPUTY GENERAL COUNSEL INTELLECTUAL PROPERTY, 

YAHOO! INCORPORATED 

Mr. KRAMER. Chairman Goodlatte, Ranking Member Conyers, 

Members of the Committee, thank you for inviting me to testify 

today. 

Yahoo! shares your interest in reducing patent litigation abuse 

and promoting American innovation. And we applaud your leadership and we support the Innovation Act. 

I am honored to have the opportunity to offer my perspective as 

Yahoo!’s lead IP attorney and based on my previous experience as 

a trial attorney in private practice and the USPTO. 

Yahoo! is an Internet pioneer and serves over 800 million users 

worldwide today. Our success is due, in no small part, to our continual innovation. We hold over 1600 U.S. patents. And we have 

enforced those patents when we felt the need to do so. 

Clearly, we believe in the patent system and we believe patents 

have a positive role to play in society. But here is the bottom line: 

abusive patent litigation practices by patent trolls are harming our 

business and harming our industry. 

This has a cost. For Yahoo! the money effort and time that we 

spend could be more productively spent elsewhere developing new 

products, investing in equipment and creating jobs. We believe that 

common sense reform, like measures proposed in the Innovation 

Act, would make significant strides to restore the desired balance 

between protecting intellectual property and discouraging patent 

litigation abuse. 

Yahoo!’s experience highlights how the system is now out of balance. Between 1995 and 2006, Yahoo! faced between two and four 

patent cases on its docket at any given time. Since 2007, we’ve seen 

a tenfold increase in the number of cases on our docket at any 

given time. And the merits of those cases has declined. In about 

96 percent of all cases filed against Yahoo! in the last 6 years, the 

plaintiffs fail to identify a patent claimant issue and they fail to 

identify the features of our products at issue. So, instead we have 

to guess what the cases are about when they’re filed. 

Requiring more genuine notice pleading would make cases more 

efficient for everybody. In most cases we’re required to produce 

hundreds of thousands of document before the court construes the 

patent claims at issue. Most of the cost of production could be 

avoided by simply staging discovery after claim construction, since 

that is the most pivotal point in most cases. In our experience, less 

than 1 percent of all documents are actually used in the cases. 

Placing presumptive limits on discovery would help to avoid that 

needless cost. 

In many cases we face shell corporations as plaintiffs. Those entities exist only to litigate. Yet, when it comes time to discuss settlement, we are routinely told that the investors and partners, who 

are not named plaintiffs, need to approve. Joining those with a financial interest in the patent or the litigation will help curb that 

abuse. 
24 

When we do prevail at trial, it’s next to impossible to recover our 

attorney’s fees. For example, we were sued by a patent troll called 

Bright Response, their patent was based on a provisional application which conceded that the claimed invention had already been 

in public use more than 1 year prior to the filing date of the application. That is, by its own admission the patent was invalid, yet 

Bright Response pursued trial and charged ahead. And the jury 

found both the patent invalid and not infringed. However, despite 

the exceptional nature of that case, the District Court refused to 

award our attorney’s fees. And we believe that clarifying the standard for attorney’s fees, in Section 285, would discourage abusive 

cases like that. The thoughtful, balanced provisions in the Innovation Act would address all these problems. 

Our options for less expensive alternatives to litigation are limited or come with drastic consequences. For example, both the inter 

partes review and patent post grant review apply estoppel to all 

issues that could have been raised before the PTO, potentially erasing our ability to defend ourselves in court. And the current covered business method program is limited in scope to only those patents used in the practice, administration or management of financial product or service. We look forward to working with this Committee on these issues. 

I should note that, while Yahoo! has the wherewithal to defend 

itself, patent trolls know we’re not going to try every case. Particularly where nuisance-level settlements are available. But, we’re not 

alone. Settlement rates in our industry are at about 75 percent. 

That high settlement rate only feeds the troll model and leads to 

more troll litigation. 

We do our part, we try cases when we have to, we act as a friend 

of the court in others, and we act responsibly when selling our patents. Our policy has been to sell patents only to operating companies, rather than to non-practicing entities. We do not want our 

patents to be obtained by a troll and irresponsibly asserted against 

others in our industry. 

We believe that comprehensive common sense reforms are needed, only Congress can make those reforms. We think the Innovation Act is on the right track. It would streamline cases from the 

start, prioritize important decisions, reduce costs, force real parties 

in interest into the litigation, and clarify when winning defendants 

are able to recover their fees. 

Again, I thank you for the opportunity to be heard. We look forward to working with you. And I welcome your questions. 

[The prepared statement of Mr. Kramer follows:] 
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Mr. GOODLATTE. Thank you, Mr. Kramer. 

Mr. Kappos, welcome. 

TESTIMONY OF DAVID J. KAPPOS, PARTNER, 

CRAVATH, SWAINE & MOORE LLP 

Mr. KAPPOS. Chairman Goodlatte, Ranking Member Conyers, 

Members of the Committee thank you for this opportunity to provide my views on H.R. 3309. 

I’m testifying today solely on my own behalf. 

Let me start by congratulating you, Mr. Chairman, on introducing H.R. 3309, a bill designed to improve our strong patent system by removing litigation loopholes that debase strong patent 

rights. Various provisions of this legislation can achieve that objective, given refinement. Other provisions, as I’ll explain, will require 

a bit more substantial deliberation or would be best deferred. 

Before turning to H.R. 3309, the most important point I’ll make 

today is that Congress simply must ensure full funding for the 

USPTO. Less than 2 years after passage of the AIA, we found ourselves again, this year, looking at an agency having its lifeblood 

drained away. I cannot overstate the destruction this is causing as 

the work remains without the funding to handle it, creating an innovation deficit that will require future generations of innovators 

to pay into the agency again and again. Nor will it be possible for 

USPTO to accomplish the mandates of the AIA, much less the 

added responsibilities contemplated by H.R. 3309, without access to 

its user fees. 

In this regard, I thank Ranking Member Conyers, Ranking Member Watt and Representatives Issa and Collins for their introduction, just yesterday, of the Innovation Protection Act, designed to 

ensure full funding of the USPTO. 

Mr. Chairman, given the importance of U.S. innovation-based industries rooted in an innovation ecosystem that’s the envy of the 

world, substantial alterations to this ecosystem must be undertaken with caution. Caution in turn calls for a deliberative process 

that reaches out to all stakeholders. Many innovators, today’s 

Edisons, have not had the time to make their views heard yet. 

Now, Mr. Chairman, I do believe that a number of the provisions 

of H.R. 3309 can reduce litigation costs and increase the value of 

legitimate patent rights for American innovators. But, I also believe that significant further work is necessary to avoid major negative consequences of over correction. Consequences more harmful 

potentially than the problems the legislation is intended to address. 

Now, turning to key provisions of H.R. 3309: fee shifting, realparty and interest disclosure, litigation procedure, and joinder are 

good policy. As most of these provisions directly impact the work 

of judges, it bears emphasizing that further effort is needed to ensure that judges are not deprived of their ability to exercise judgment. Consideration should be given to reducing prescription to a 

minimum and tasking the judiciary with turning legislative guidance into court precedent. 

For covered business methods: the right course, in my view is to 

let Section 18 settle in further. The courts are in the best position 

to review USPTO interpretation of covered business method and 
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technological. The provision is certainly not being interpreted too 

narrowly thus far. 

Intention and extension of Section 18 to software-related inventions should be avoided. Such an overextension devalues innovation 

implemented in software, one of America’s most important and innovative sectors, discriminating against a critical field of technological innovation. The U.S. is home to a software industry that 

dazzles the world and we should not declare software innovation 

any less important than other kinds of innovation. 

H.R. 3309’s stay provision, offering protection to innocent end 

users and retailers is also good policy. But also there a number of 

improvements are needed. 

Finally, a covered customer will almost never be in precisely the 

same situation as its covered manufacturer, when you’re talking 

about the stay provision. That is because a covered customer cannot be expected to be bound in all respects by a judgment against 

its covered manufacturer. There are many different circumstances 

effecting the two parties. As a result, parties will find themselves 

embroiled in more, not less, litigation caused by this provision, unless clarity is added to it to avoid this result. 

In conclusion, Ranking Member Conyers, Representative Watt, 

thank you for recommending me to testify today. 

Mr. Chairman, thank you again for this opportunity to share my 

thoughts. I commend you for introducing H.R. 3309. 

[The prepared statement of Mr. Kappos follows:] 
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Mr. GOODLATTE. Thank you, Mr. Kappos. 

Mr. Armitage, welcome. 

TESTIMONY OF ROBERT A. ARMITAGE, 

IP STRATEGY AND POLICY CONSULTANT 

Mr. ARMITAGE. Thank you, Chairman Goodlatte, Ranking Member Conyers and Members of the Committee. I do appreciate the 

opportunity to appear before the Committee this morning. 

Before getting to the nitty-gritty of the specific patent litigation 

reform topics, I would like to underscore the point that has already 

been made several times today on the importance of full funding 

to a well-functioning patent system. 

With this in mind, I want to offer a special thanks to Ranking 

Member Conyers, Members Watt and Collins for their work on this 

issue, particularly 3349, a bill that was introduced yesterday. 

While I’ve not had the opportunity to study the bill into detail, my 

hope is that this will be the decisive step forward to permanent action on fixing PTO funding issues. 

I’d like now to move on, if I could, to discuss a few of the important provisions of Section 9 of H.R. 3309. First, Section 9 would 

specify that the new post grant review system, created under the 

America Invents Act, must use the same standard for construing 

what a patent covers in assessing the validity of the patent that 

the courts use when the courts are determining patent validity in 

a patent infringement action. 

The USPTO, under its current rules today, is placing inventors 

in an untenable situation. The same patented invention that may 

be found invalid by an administrative patent judge in the Patent 

Office would, at the same time, be found potentially valid by a District Court judge determining that same issue of patent validity. 

These opposite outcomes can arise solely because the administrative patent judge is permitted, under PTO regulations, to use an 

artificial standard of claim interpretation, one that stretches the 

meaning of the claim beyond any subject matter that the patent 

owner could ever hope to assert would infringe the claim in the 

patent infringement litigation. 

Fixing this claim construction disparity, opens the door to securing broader support for another provision in Section 9, a provision 

that would correct the AIA’s broad estopple against later challenges 

to the same patent in a post grant review procedure. The Section 

9 estopple fix corrects an inadvertent legislative drafting error in 

the AIA. Indeed, without this correction the AIA’s new post grant 

review procedure is almost certain to be underutilized and the important benefits that this procedure can bring to the patent system, 

by removing questionable patents, would be lost or at least significantly impaired. 

Another important reform in Section 9 relates to the so-called 

double patenting doctrine. The bill offers a codification of this 

judge-made law for the new first inventor to file patents that will 

soon begin to issue under the AIA. In a nutshell, this provision will 

assure that when two patents are issued with highly similar claims 

they cannot be independently enforced against an accused infringer. 
48 

In my written submission I’ve suggested that there are other 

issues that relate to the AIA that merit inclusion in H.R. 3309. In 

the interest of time, let me briefly mention only two of them. 

First, the Committee should consider including a statutory research-use exemption to patent infringement that would replace an 

antiquated judge-made doctrine. The common-law standard today 

is overly sparse and sometimes inconsistent in its application. Second, the AIA has opened the way for the Committee to remove the 

last vestige of secrecy in the patenting process by mandating publication of all patent applications 18 months after they’re initially 

sought. 

This brings me to a few final points on the provisions of H.R. 

3309 that relate most directly to patent litigation. Like Mr. Gupta 

and Mr. Kramer, I would like the Committee to move with a sense 

of urgency to get a comprehensive patent reform bill through the 

House and on to the Senate. Like, Undersecretary Kappos, I’d like 

to see the Committee act with deliberation with a 360-degree vetting of each of these provision to assure that the details of statutory information don’t destroy the promise of the underlying reform. 

As with many issues of life and patent reform, some of the most 

promising initiatives at a conceptual level may prove problematic 

to make work as intended. I’d like to mention, perhaps, just one of 

these. The stay of discovery provision in the bill would indeed—as 

convincingly, I think, set out in the testimony today—provide an effective and efficient vehicle for rapidly eliminating non-meritorious 

infringement allegations. Critics of that provision wonder whether 

perhaps it has the potential to deny justice by delaying it or even 

increasing the aggregate cost of securing it. I’d ask the Committee 

to be careful in provisions where one size appears to fit all patent 

lawsuits. Indeed this same concern relates to Section 6 of the bill 

that would mandate the judicial conference to implement very specific rules and procedures. 

In conclusion, I believe the case is made today, in the testimony 

that I’ve heard and I’ve read, that patent reform should proceed in 

this Congress. The bill now before the Committee has jumpstarted 

the process. I believe it’s positioned the Committee to make decisive progress in crafting a refined legislative package in the days 

and weeks ahead. 

Thank you for the opportunity to be here this morning. 

[The prepared statement of Mr. Armitage follows:] 
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Mr. GOODLATTE. Thank you, Mr. Armitage. 

And the Committee—I guess your advice would be to proceed 

with all due concentrated deliberation and get it right. 

Mr. ARMITAGE. I’ll give you a few weeks to get it done right, sir. 

Mr. GOODLATTE. There you go. 

The Chair will begin the questioning process under the 5-minute 

rule. And I’ll recognize myself. 

Mr. Gupta and Mr. Kramer, could you walk us through how you 

see the abusive patent litigation environment changing, if this bill 

is enacted? Specifically, how the provisions on fee shifting, heightened pleading standards, discovery and transparency would reduce 

litigation, extortion and abusive practices? 

Mr. GUPTA. Certainly. Thank you for the opportunity, Chairman. 

Mr. GOODLATTE. And you’re also going to have to be expeditious 

about that—— 

Mr. GUPTA. Sure. 

Mr. GOODLATTE [continuing]. Because I have a few other questions I want to—— 

Mr. GUPTA. I can answer that with one example of a recent case 

for us. 

We were sued by a patent assertion entity on a patent that the 

claims were very vague, in terms of the pleadings, there was so 

specificity as to how we were alleged to infringe. And the product 

that was identified was a product that we’d long discontinued. 

When we notified the plaintiff about that we got no response from 

them for months. About a month before discovery was supposed to 

close, they served us with a request and they identified 14 additional products from our company asking that we produce information and documents related to those 14 products. 

With about a month left in discovery, we approached the court 

and said that that was not proper or fair. The court allowed the 

plaintiff to proceed. We were then asked to produce a significant 

number of documents to this particular plaintiff. In the meantime, 

we were seeking some discovery from them which they vigorously 

defended and fought. Ultimately, when we got those documents, it 

turned out that they had licensed a software manufacturer, whose 

software was imbedded in our products, and we were all licensed. 

At that point they walked away from the suit, after having settled 

in the meantime with tons of companies and having collected settlement fees from them. 

Now, at the end of the day, we sought to recover our costs and 

fees from having had to have defended against this frivolous and 

abusive practice. And our fees were denied. So, the provisions in 

this bill address many of these procedural abuses and would make 

our lives and the lives of defendants who are faced with these abusive practices a whole lot easier. 

Mr. GOODLATTE. So, you would say that that company hid the defects in their litigation while they attempted to drive up your litigation costs and procure a settlement. And, when that tactic failed, 

because you finally did discover what you needed to discover, you 

were not awarded any compensation for the added—one would 

argue—willful contribution to pursuing an abusive and, I would 

say, frivolous lawsuit, if indeed the products had been properly li-
108 

censed in the first place. If people had been able to find that out 

in the first place, you wouldn’t have had the problem. 

Mr. GUPTA. I agree, yes. 

Mr. GOODLATTE. Mr. Kramer? 

Mr. KRAMER. Thank you, Mr. Chairman. 

The Innovation Act is a bundle of common sense reforms that 

will help level the playing field, create transparency and allow defendants to defend themselves in cases. The provision on clarification of Section 285 will provide disincentives for patent trolls to 

abuse the court system and bring bad cases. The staging—the 

standards, with respect to genuine notice pleading in patent cases, 

will encourage the focus of the litigation from the start so we all 

know what we’re talking about. That will decrease costs for everybody. Staging of discovery until after claim construction will also 

make litigation more efficient for everyone, both plaintiffs and defendants. Focusing discovery and making presumptive limits on 

what should be produced will also help everybody by making the 

process more efficient. 

So, all these things are tremendous steps forward and create a 

more level playing field for everyone in the litigation. 

Mr. GOODLATTE. Thank you. 

Mr. Kappos, when it comes to the patent system, especially patent ownership, do you believe that it is appropriate for entities to 

assert a patent far beyond the value of its contribution to the art? 

Should there be greater requirements to asserting patents in litigation, such as fee shifting, heightened pleading standards and transparency? And, can you describe a clearly abusive patent litigation 

case that you faced in the private sector? 

Mr. KAPPOS. Yeah, well the—thanks for the question, Mr. Chairman. 

I do like, in general, the provisions that shift fees that stay some 

discovery that focus discovery. I think that’s all good for the system, whether you are a plaintiff or defendant, frankly. 

I think where further consideration is going to be needed is in 

balancing some of those provisions, for instance cases where a 

plaintiff may engage or where a prevailing party may engage in action that’s found to be vexatious. So there’s fairness on both sides 

that need to be achieved there. 

In terms of overbroad claiming, which I think is a great question 

and central to the issue, I’ve seen that in any number of situations, 

you know, both in the government and in my private practice experience. And it is indeed—tends to be claims that cover all solutions 

to a problem, which frequently are business method claims, which 

brings up the value of the covered business provision as it is currently being worked through the USPTO. And it is those claims 

that enable, at times, patentees to assert far beyond any contribution they made to the field. And it is those claims, I believe, that 

this litigation should be directed to, in terms of its discovery, fee 

shifting and other provisions. 

Mr. GOODLATTE. Thank you very much. 

Chair recognizes the gentleman from Michigan, Mr. Conyers for 

his questions. 

Mr. CONYERS. Thank you very much, Chairman Goodlatte. 
109 

I’d like to just follow up with Mr. Kappos on this notion that— 

what we can do to ensure full funding of the USPTO. And I note, 

in your testimony, that the GAO found their recent report that patent assertion entities are not driving patent litigation. And I want 

to find out if you believe the broad new legislation to constrain patent assertion entities is needed in that—in this general range of 

considerations. What’s your view, sir? 

Mr. KAPPOS. Well, thank you, Ranking Member Conyers. 

And indeed the GAO report, which was obviously very nonpartisan, found that non-practicing entity behavior is not primarily 

what’s driving litigation. Moreover there have been scholarly papers that have come out, some within the last few years and even 

more recently, that are getting the facts and are showing that 

when the effects of the AIA are factored out, the total number of 

lawsuits really is not changing. 

That being said, I would agree with the assertions of my colleagues here that there clearly is a problem. I don’t see the problem as one about identifying bad guys like patent assertion entities 

or trolls. I see the problem as one of behaviors. Behaviors that anybody can engage in, whether you’re a large well-funded company or 

a small litigant whatever sector you’re in. And so, I applaud the 

parts of the legislation and the sentiment, that I heard earlier, to 

direct our attention toward those actions and behaviors that need 

to be restrained and redirected rather than trying to label parties. 

Mr. CONYERS. Thank you very much. 

Mr. GOODLATTE. The Chair recognizes the gentleman from North 

Carolina, Mr. Coble, Chairman of the Subcommittee. 

Mr. COBLE. Thank you, Mr. Chairman. 

Gentlemen, thank you for your testimony. Some of this may become repetitious, but it’s nonetheless important. 

Mr. Gupta, let me ask you this: we’ve all heard about patent 

trolls, but what about patent privateering, that is the situation 

where a company outsources its patent lawsuits to a shell company 

to harass competitors? Should such behavior be subject to FTC or 

DOJ antitrust scrutiny for anticompetitive behavior? 

Mr. GUPTA. Thank you for the question. 

I think there is an opportunity for the DOJ and the FTC to investigate and look at those practices. And I understand that they 

are in the process of doing so. This bill has several provisions that 

are directed toward the abusive litigation practices that we see 

today from these PAEs. And, while the FTC and the DOJ are looking at those privateering practices, if these provisions are enacted, 

we should see a significant decrease in abusive practices. 

And I particularly think that the opportunity to hold PAEs financially accountable for having brought frivolous and abusive litigation would go a long way in changing the basic paradigm, which 

is that companies, if given an opportunity—or defendants, if given 

an opportunity to defend these actions and not feel extorted to settle in light of the significant expenses associated with getting to 

judgment, would choose to actually take cases to trial more often 

than not. And that simply would then break the model of abusive 

PAEs who thrive on early settlements. 

Mr. COBLE. Thank you, sir. 
110 

Mr. Kramer, how do the Innovation Act’s provisions work together to level the playing field in patent litigation? And with that 

new level playing field, do you expect that we’d see demand letters 

and suits against small businesses and startups to increase or decrease? And, if you would Mr. Kramer, define ‘‘demand letter.’’ 

Mr. KRAMER. Thank you, Congressman, for your question. 

I’m sorry, I did not catch the last part of that question. 

Mr. COBLE. I said, with the proposed new level playing field that 

we would expect—would the demand letters and suits against 

small businesses and small startups increase or decrease? 

Mr. KRAMER. Thank you, Congressman. 

So, I think that the provisions in this bill are commonsense reforms that will decrease those types of demand letters because, 

once you clarify the standards for fee shifting under Section 285, 

then all of a sudden there is a disincentive to send out blanket demand letters just willy-nilly and haphazardly because, like the 

Martha Stewart case that was discussed earlier, that could provoke 

a declaratory judgment action. And all of a sudden, fees could be 

in play. 

So, I think that the behavior that we’re talking about here, abusive patent troll litigation behavior, would actually be disincentivized. And that’s for all players in the system, both large 

and small. So, the first part of your question, with respect to how 

it would level the playing field, I think the legislation would provide incentives for defendants to actually defend themselves in 

cases instead of settling more cases and just feeding the behavior. 

The vicious cycle of troll litigation is such that, the more cases 

there are the more you settle, the more you pay the trolls go out 

and buy more patents to assert against you. And all of a sudden 

you get more litigation. If you stage discovery, if you have presumptive limits on discovery, if you create a disincentive for bringing bad cases in the form of clarifying Section 285 then you will 

level the playing field. And, as a result, you will see fewer bad 

cases. 

Mr. COBLE. And Mr. Kramer, if you would, define a demand letter. What is a demand letter and what would a demand letter consist of? 

Mr. KRAMER. Demand letters typically consist of an assertion 

that your business practices somehow infringe a patent and they 

request that you stop doing what you’re doing, whatever activity 

they accuse you infringed with. 

Mr. COBLE. I thank you, Mr. Chairman. 

I see my red light is about to illuminate, so I will yield back. 

Mr. GOODLATTE. The Chair thanks the gentleman and recognizes 

the gentleman from North Carolina, Mr. Watt, the Ranking Member of the Subcommittee for 5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. 

And, let me start by trying to find common ground here. There 

are some provisions in this bill, I think, that a number of us agree 

with. There are other provisions where we have some real concerns. 

Mr. Kappos, there are some provisions that you said you are 

comfortable with. Can you kind of identify what those are so that 

we can kind of start from common ground? That would be—and 
111 

maybe you want to just take some time to do that and give that 

to me following the hearing. 

The other concern I have is with a case pending on the payment 

of fees before the Supreme Court now. Mr. Gupta and Mr. Kramer, 

what would you think the justification would be for this Committee 

acting on that subject before the case is heard and decided by the 

Supreme Court? 

Let’s—let me go on the reverse order. That’s probably an easier 

more direct answer to the later question. 

Mr. Gupta and Mr. Kramer? 

Mr. GUPTA. Thank you, Congressman. 

I think that, as the Supreme Court explains or does a better job 

of qualifying what an exceptional case is, that there is an opportunity here and a much needed change in the law that, in the 

event, that we have a plaintiff that brings an abusive action and 

defendants are forced to spend millions to defend themselves, that 

there’d be an opportunity to hold those plaintiffs financially accountable so that there is a shifting of that burden that was entirely—— 

Mr. WATT. And would you think it would be appropriate to apply 

that same standard to a defender to counter claim or would you 

put him in a different category? 

Mr. GUPTA. I would completely support a bilateral proposal along 

those lines where it would be—if it’s good for the plaintiff it’s—— 

Mr. WATT. And is it your sense that the Supreme Court or the 

courts don’t have that discretion now? 

Mr. GUPTA. Right now the default is that there is no shifting of 

fees. One has to make a showing of exceptional case. This bill, we 

think, very effectively and will, efficiently address this problem of 

abusive litigation by making the default be that, in the event a defendant is able to show that a plaintiff’s claims were objectively 

baseless the default would be that there would be a shifting of fees 

so that there is some financial accountability felt by the non-practicing entity or the PAE who currently—— 

Mr. WATT. This is not restricted to non-practicing entities, is it? 

Mr. GUPTA. It could be. 

Mr. WATT. I mean, is this—this is everybody in the litigation 

chain gets a—this provision gets applied to, does it not? 

Mr. GUPTA. It does. And I think, from our experience, when practicing entities are in litigation, they tend to be a lot more cautious 

and judicious and thoughtful about claims they bring in litigation 

because they know that when they assert a claim that they’re likely to get a counter claim. As we’ve seen, with our experience with 

having this patent assertion entities, they are not fearful for any 

of those checks and balances. 

Mr. WATT. Mr. Kramer? 

Mr. KRAMER. Thank you, Congressman. 

In short, Congress is in the best position to remedy the situation 

and address the problem with respect to everyone involved, right, 

not just Octane Fitness, which is the case pending before the Supreme Court. And, like Mr. Gupta has alluded to, the current bill, 

Innovation Act, goes a little bit farther than what the Supreme 

Court could possibly do in that case and therefore would provide 

broader remedy—— 
112 

Mr. WATT. You think 535 Members of the House and the Senate 

are in a better position to address question than some thoughtful 

response from the court. That’s what you’re saying? 

Mr. KRAMER. Congressman, thank you for that—yeah. I—— 

Mr. WATT. Okay, I’m just a—I got you—— 

Mr. KRAMER. The answer is yes. 

Mr. WATT. Okay. Alright. You got a lot more confidence in us 

that I think the public has in us. [Laughter.] 

Mr. Kappos, I gave you a little opportunity. Can you tick off just 

the provisions that you think are noncontroversial in this bill, I 

guess, that’s kind of the bottom line of the—— 

Mr. KAPPOS. Well, yes. Thank you, Ranking Member Watt. 

I would start by saying, for instance, the fee shifting provision, 

which others have lauded here, while not without its issues—including that the Supreme Court is looking at two cases right now 

that involve that—is good policy. But, apropos, your question 

should be bonding in both directions that inappropriate behavior on 

the part of either prevailing party should be kept in mind in applying fee shifting. 

I think real party in interest is in the category of being fairly 

noncontroversial, although I’ve heard calls that maybe real party 

in interest identification should go be a little more aggressive than 

it is and that more should be required than is currently in the bill. 

Litigation procedure—we’ve talked about that. I think that is 

positive. Stage discovery will cut a lot of unnecessary litigation expense. 

But, once again, there needs to be some reciprocity or bilateralism brought into that. So, in the case of a counter claim party, 

so an original defendant that makes a counter claim of invalidity 

or non-infringement or declaratory judgment plaintiff, should have 

the same requirements as the original patentee, relative to stage 

discovery and paying for the other party’s discovery beyond a basic 

limit. But, I think the idea is a good one. Again, also subject to letting the Federal courts do their job and Congress not being overly 

prescriptive with permitting judges to use judgment. 

The joinder provision, we’ve talked about, that clearly positive 

also in holding to account those parties, like Mr. Kramer pointed 

out, who are behind the scenes, who are not disclosing their identities. So, there’s goodness there. But, again, some confusion and 

some lack of clarity in my reading of that provision and can stand 

more discussion so that it doesn’t wind up being interpreted in a 

way that a licensee of a patent portfolio becomes subject to joinder. 

Which is, as I read that provision, a risk right now. 

And then lastly, I would mention, stays. We haven’t talked very 

much about that. But, that’s, I think, a positive provision also. It 

can protect the innocents, the retailers and the end users who are 

brought in sometimes as hostages in patent infringement suits. 

And I think the provision is good from that respect, but the danger 

in it—several dangers. One that’s prominent is that, the way it’s 

written, it can apply to any party in the distribution channel. 

So, from the top of the food chain, if you will, the party that 

makes the subcomponent then sells it to an aggregator that puts 

that subcomponent with other subcomponents, creates a card or a 

board, if I can refer to computers for a moment, then sells that ac-
113 

cumulation to another party that assembles the product. I don’t 

think you want all of those intermediary parts of the value chain 

to be able to benefit from stays. You want that end user or that 

retailer to benefit. And so, I think some tuning, some refinement 

of the statute will solve those problems. 

Mr. WATT. Thank you, Mr. Chairman. I thank you for your indulgence of allowing the response to go over time. 

Mr. GOODLATTE. Not at all. It was a learned response. 

The Chair will now recognize the gentleman from Texas, Mr. 

Smith, for 5 minutes. 

Mr. SMITH. Okay. I thank you, Mr. Chairman. 

And also, I want to thank you again, Mr. Chairman, for making 

this subject a priority of the Judiciary Committee. I think it will 

be one of the most important bills that we consider this year. 

I also want to welcome back Director Kappos to the witness 

table, I believe, for the first time since he left PTO and entered the 

private sector. And it’s always nice to hear your expert testimony 

as well. 

The Innovation Act codifies the first post grant review decision 

on covered business method patents. And I have two questions I 

would like to direct to Mr. Armitage, Mr. Kappos and Mr. Kramer. 

And the first one is this: what should the Committee consider or 

contemplate as it thinks about the amendments to the program for 

covered business method patents? And my second question is this: 

are there any negative consequences to expanding the covered business method program? 

And Mr. Armitage, could we start with you? 

Mr. ARMITAGE. In the course of enacting the America Invents 

Act, probably the most contentious part of that work was figuring 

out what role the PTO should play with patents that have already 

issued. I think there was wide support for post grant review procedures. Post grant review takes place immediately after the patent 

issues. It allows every issue that you could raise in a District Court 

to be raised in the Patent and Trademark Office and indeed protects the public, if it’s used and used effectively, against patents 

that might be sued 5 years, 10 years down the road. 

It becomes much more difficult to justify these procedures once 

the patent is in the marketplace for several years, investments 

have been made in reliance on the patent because you simply can’t 

protect the rights of the patent owner in these procedures to the 

same degree the rights of the patent owner would be protected in 

District Court. 

With CBM this was the last exception to the rule that the PTO 

should get out of the way, after the post grant review period was 

over, and not consider these issues of patentability. 

So, I would urge the Committee to respect that compromise. And, 

if there’s a provision in the bill that I would hope might come out, 

it would be everything related to Chapter 18. I didn’t hear any witness testify today that Chapter 18 was needed to get the much 

needed litigation reforms done. 

Mr. SMITH. Okay, thank you, Mr. Armitage. 

Mr. Kappos—Director Kappos? 

Mr. KAPPOS. Yes, thank you, Chairman Smith. 
114 

So, relative to covered business method issues, I’m first and foremost concerned that covered business method be expanded in a 

way that it encompasses all software patents. I think that that 

sends a—just a really terrible message about the importance of 

software innovation and puts into scope a huge number of patents 

that don’t belong in Section 18. As Mr. Armitage alluded, there’s 

plenty of other provisions of the AIA procedures that those patents 

are appropriately subject to. 

I would also say that the extension of the CBM provision to become permanent or to be extended for a number of additional 

years—it’s just too early to say whether that makes sense. There 

was a great compromise and wonderful work done by Congress, 

this Committee, that set that procedure up as a bridge provision 

with a set number of years. I just don’t see any reason to go and 

return to that, at this point. 

And then lastly, I’d say, while it’s too early to measure, with only 

15 months with—sorry, only about 13 months under our belt so far 

in a procedure that’s designed to take at least 15 months to 

produce decisions, if you look at what we know so far, there’s been 

over 70 of these things that have been instituted, CBM procedures. 

That’s significantly more than we anticipated at the USPTO. So, 

that could be viewed as a good thing. Participants are investing in 

the process and that’s good. 

There’s been exactly one decision so far, in the Versata case. In 

that case, the USPTO took out an entire patent, despite that it had 

been found to be valid previously by a District Court, getting rid 

of a multi-hundred-million dollar judgment. So, if you extrapolate 

that single event out and just guess that there might be two-thirds 

of patents that go through the CBM procedure in the next year, 

have their claims either significantly or completely invalidated, you 

could be looking at a far different world than the one that we were 

living in a year ago with huge relief for the companies sitting to 

my right here at this table, with many, many business-method patents having been taken out. And it’s in that context that I say, it 

feels like we should let the USPTO and its reviewing courts work 

a little further, because they’re actually making progress with this 

provision. 

Mr. SMITH. Thank you, Mr. Kappos. 

Mr. Kramer, my time is expired, but do you have anything you’d 

like to add briefly? 

Mr. KRAMER. Yes, Congressman, thank you for the opportunity. 

The one concern that I would say that the Committee should 

keep in mind is providing low-cost alternatives to District Court 

litigation for bad patents—bad quality patents. The PTO has enacted very good rules that backstop the covered business method 

program including identifying that patents that have a technical 

solution to a technical problem should be excluded from that program. So, the program, by its own implementation—by its own 

rules, is very narrow. 

Mr. SMITH. Okay, thank you, Mr. Kramer. 

Thank you, Mr. Chairman. 

Mr. GOODLATTE. Chair recognizes the gentleman from Tennessee, 

Mr. Cohen, for 5 minutes. 

Mr. COHEN. Thank you, Mr. Chair. 
115 

Mr. Gupta—Gupta—is it ‘‘Gupta?′′ 

Mr. GUPTA. Gupta, sir. Gupta is fine. 

Mr. COHEN. Okay. You were discussing this case where, after 

discovery, you found out that there was a license. Did you file a 

Rule 11 there? 

Mr. GUPTA. If I recall correctly, we sought to recover our costs 

and fees after the plaintiff approached us and wanted to drop the 

suit. And we were unable to because we could not make a showing 

that it was an exceptional case. And that’s where, I think, the 

standards are really high right now. And the plaintiff was able to 

walk away knowing full well—— 

Mr. COHEN. I’m missing something. Tell me about this license. 

The—you discovered that it was—— 

Mr. GUPTA. So, we sell—in this particular case, the products that 

were accused of infringement were generally hardware products 

that needed some operating system software. And, in this particular case, the operating software came from two or three different sources. Each one of those companies had previously obtained the license to the patent from the patent assertion entity. 

And the license covered downstream users of that operating system 

software. 

So, understanding that that operating system software needed to 

work with pieces of hardware, the operating system provider had 

obtained a license that was broad enough. 

When that patent was asserted against us, we did not know and 

we had been trying to figure out what sort of licenses were already 

in place with—you know, with that patent. That information was 

not provided to us readily. Now, it is our belief that the patentholder knew all along—the patent assertion entity knew all along 

that these folks had indeed been licensed. And they had kept that 

information away from us as long as they could. 

Mr. COHEN. I may not understand this, but it seems like if 

they—if there was a license that it was—that that’s when the—was 

a slam dunk. 

Mr. GUPTA. Yes. 

Mr. COHEN. Well then, how could you not have succeeded? Now, 

was this the judgment of the court under Rule 11? I don’t—it just 

doesn’t seem like the facts as you describe them could even—could 

a judge find other than to award fees. 

Mr. GUPTA. That is part of, I believe, the reason why this bill is 

actually—targets or has directed remedies for some of the challenges that we face today. 

In this particular case, we had to go through months of discovery 

to ultimately get that document or get those set of facts. And even 

after we were able to establish that there was indeed a license, the 

patentee is—or, the plaintiff is simply about to walk away and 

without any financial accountability for having put the defendants 

through this very expensive process. 

Mr. COHEN. And Rule 11 wouldn’t have covered that? 

Mr. GUPTA. We did not, you know, it’s not that—— 

Mr. COHEN. You did assert Rule 11? 

Mr. GUPTA. There—we—there are Rule 11 sanctions that are 

available, but we sought to recover fees under Section 285 for frivo-
116 

lous—you know, for having initiated this action. And our case was 

deemed not to have satisfied the exceptional case standards. 

Mr. COHEN. This is somewhat, as I understand it, patterned this 

remedy or change under the Equal Access to Justice Act. Are you 

familiar with that? 

Mr. GUPTA. Somewhat familiar with it. 

Mr. COHEN. Are there not some countervailing standards whereby if there—one side has protracted the litigation and caused additional expenses that the ward can be reduced by the judge. 

Mr. GUPTA. In patent cases it’s very rare that a prevailing defendant is able to recover their fees and costs. And generally, you 

know—— 

Mr. COHEN. Right. And this would change that. 

Mr. GUPTA. This would put some financial accountability back on 

the abusive plaintiffs. 

Mr. COHEN. And shouldn’t—just like the Equal Access to Justice, 

shouldn’t it be balance though that if there’s certain harm or fault 

on the defendant maybe then the expense of litigation that that 

should be something the judge takes into consideration? 

Mr. GUPTA. And I think this bill talks about, you know, if the 

non-prevailing party has—takes positions in litigation that are objectively baseless then there is an opportunity for the prevailing 

party’s fees and costs to—— 

Mr. COHEN. So you think that should occur, if whether does or 

doesn’t—— 

Mr. GUPTA. Yeah. 

Mr. COHEN. Mr. Kappos, let me ask you this—Mr. Watt asked 

you, ‘‘What are the things that you find are okay in this bill?’’ And 

in response to Mr. Smith you said a few things that maybe weren’t. 

What are the things that you think are most egregious in this bill? 

Mr. KAPPOS. I wouldn’t identify anything as ‘‘egregious.’’ I think 

the—— 

Mr. COHEN. All right. The things that are your least favorites. 

Mr. KAPPOS. Yeah. 

Mr. COHEN. The thinks we should—the things we—shouldn’t be 

in this bill, how about that? 

Mr. KAPPOS. Well, the one thing that comes to mind, I think it’s 

a very productive discussion, but on balance, as I’ve mentioned, I 

would tend to leave the covered business method situation the way 

it is given how much in flux and how early in implementation that 

is. 

Mr. COHEN. Is that the only Section that causes you any concern? Otherwise you’re for this bill? 

Mr. KAPPOS. Well, with all the points that I’ve raised, you know, 

relative to the judiciary and letting the judiciary play its role, et 

cetera. I can’t think of a provision that, as I sit here though, that 

I would say is completely unacceptable or bad policy, per se. 

Mr. COHEN. It’s hard for me to even to comprehend that there 

should be a bill because Mr. Smith was such a great Chairman and 

passed such a good bill that I supported, that I wouldn’t think we 

need to be here this year. But apparently there was something 

he—even he missed. 

I yield back. We have a new Chairman. [Laughter.] 

Mr. BACHUS [presiding]. Yeah well, he’s not new, but he’s—— 
117 

Mr. COHEN. He’s not new. He’s 20 years—— 

Mr. BACHUS. That’s right. 

Mr. COHEN [continuing]. Great service—— 

Mr. BACHUS. Thank you. 

Mr. COHEN [continuing]. To the country. I yield back the balance 

of my time. 

Mr. BACHUS. Thank you. 

First of all, I’d like to also say, Mr. Conyers you’re a man of— 

a very wonderful person as an individual. 

Mr. CONYERS. Thank you. 

Mr. BACHUS. And I have really enjoyed by 21 years association 

with you and your connection with Alabama. 

Mr. CONYERS. Yes. 

Mr. BACHUS. And we appreciate that. 

Mr. CONYERS. Yes. Rosa Parks. 

Mr. BACHUS. With Rosa Parks—came to work for Mr. Conyers 

when she moved to Detroit. 

Mr. CONYERS. Yeah. 

Mr. BACHUS. Thank you. 

Mr. CONYERS. Until she retired. 

Mr. BACHUS. Now, I’m just reviewing this. The enhanced pleading standards appears to be somewhat noncontroversial. The fee 

shifting to discourage frivolous lawsuits seems to be a lot of support for that. The transparency—the discovery limitation, at least 

initially, seems to be the—we’re not getting a lot of feed-— 

pushback on that. The covered business method patent program 

is—seems to be controversial. 

I noticed, in fact in my case, Microsoft/IBM business software alliance strongly opposed expanding the program. We got Google, National Retail Federation, Food Marketing Institute, Internet Association there for it. I would think Yahoo! would be for or against 

it, I’m not sure. 

Mr. Kramer? 

Mr. KRAMER. The covered business method program? 

Mr. BACHUS. Yeah, the expansion of it—— 

Mr. KRAMER. Yeah. 

Mr. BACHUS [continuing]. To include its first issue patent. 

Mr. KRAMER. Yeah. Thank you for the question, Mr. Chairman. 

Certainly we are in favor of trying to find low-cost alternatives 

to litigation, particularly in situations where we feel like the patent 

quality is very low, right. We feel like, in that situation, we should 

have the ability to go back to the Patent Office on any ground and 

address that question with the Patent Office, rather than spending 

millions of dollars in the litigation. 

Mr. BACHUS. Right. 

Mr. KRAMER. Now, I understanding that there’s debate on both 

sides of the issue, with respect to the scope and the length of this 

program. And we’re certainly happy to work with the Committee 

on that point. 

Mr. BACHUS. And I know Mr. Kappos, as he’s testified to sort of 

an alternative approach to what is in the legislation. 

Mr. KAPPOS. Well I—yeah, on balance relative to covered business methods, I would—the alternative, if I can call it this, is to 
118 

return to full funding for the USPTO because it’s doing a lot to 

bring to life those procedures. 

Mr. BACHUS. Right. 

Mr. KAPPOS. And, if the agency is funded it’ll do more. 

Mr. BACHUS. In fact, there are other requirements in this bill 

which would—you would have to spend additional money on developing software, so—— 

Mr. KAPPOS. Yeah. Exactly right. 

Mr. BACHUS. Mr. Gupta, what is your position on expanding the 

covered business method? Yeah, on financial services, I think it’s 

critically important that we do it in that field in some way. But, 

do you have any comment on covered business method program— 

on how we should approach that? 

Mr. GUPTA. Mr. Chairman, we have—at EMC we have generally 

focused on the procedures and the processes that have been set 

forth to deal with abusive litigation practices. 

Mr. BACHUS. Which are the transparency, the enhanced pleading 

standards—— 

Mr. GUPTA. You know, fee shifting—— 

Mr. BACHUS [continuing]. Discovery—— 

Mr. GUPTA [continuing]. Specificity in pleadings and the like. 

And that’s where we think the bill can really do a lot to—— 

Mr. BACHUS. So, it’s not a—— 

Mr. GUPTA [continuing]. Address those issues. 

Mr. BACHUS. It’s not—— 

Mr. GUPTA. It’s not a particularly relevant topic for us—— 

Mr. BACHUS. All right. 

Mr. GUPTA [continuing]. At this time. 

Mr. BACHUS. How about the stay for customer suits? That also— 

we’re hearing two different sides of that. Is that—would those be 

the covered business method patent programs—the expansion of 

that and the stay for customer suits? Are those the two main 

points of conflict? 

Mr. KAPPOS. Mr. Chairman, I would just say that I—in my view, 

the stay for customer suits is not, at its highest level, particularly 

controversial. It’s clearly good policy to let innocent retailers and 

so-called mom-and-pops and end users stay litigation. The issue is 

crafting the provision so they’re not over broad. 

Mr. BACHUS. Right. Okay. 

And whether or not the—whether it’s mandatory or discretionary 

on part of the manufacturer? 

Mr. KAPPOS. Well, there clearly has to be thought given to an appropriate amount of discretion for—including for a court so that, 

for instance, manufacturers who can avoid judgments or are not 

reachable under U.S. jurisdiction can be accounted for. 

Mr. BACHUS. Would—could you give us recommendations on 

the—any of you on the panel, just give us some written recommendations on how to fashion that stay for customer suits or 

look at the legislation? Would that be possible? 

Mr. KRAMER. Certainly happy to work with the Committee on 

that. My personal view is that the language in the statute that— 

the bill, sorry—that requires agreement between the—both the customer and the plaintiff that’s a great start. 
119 

Mr. BACHUS. All right. Yeah, and then it is—in that regard, it 

is somewhat discretionary. 

Mr. KRAMER. Correct. 

Mr. BACHUS. Okay. 

Mr. KRAMER. Correct. 

Mr. BACHUS. Mr. Armitage? And I’m exceeding by 1 second my 

time—— 

Mr. ARMITAGE. I just had two brief comments. While I think everything in the litigation part of this bill is actually—needs to be 

done. The real question is how. 

There are two issues that I’d point out. One is time to commencement of discovery to the Markman process, the claim construction 

process. Does that work in all cases? And, if not, does—is more 

flexibility needed? And then, the rules and procedures judicial conference will be mandated to put in effect. Are those, in fact, rules 

and procedures to specific in the sense that they don’t cover situations beyond practicing—beyond some of the concerns that the witnesses have given here? 

Mr. BACHUS. Okay, thank you. 

I do. Thank you very much. I appreciate you all’s testimony. 

And at this time, Mr. Johnson is—the gentleman from Georgia 

is recognized for 5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman. 

Through executive actions, President Obama has already worked 

with the Patent Office to improve the quality of patents by tightening functional claiming. Patent quality is at the heart of this 

issue. And, if we make strides today to eliminate low-quality patents, we’ll make great leaps and bounds in improving patent litigation for all parties over time. The President has already made real 

party in interest the new default for patent applications and has 

worked to educate and protect consumers and other downstream 

users who are targeted by the patent trolling phenomenon. 

Now, there’s no doubt that there is abusive behavior occurring in 

patent litigation and it’s causing harm to large and small businesses alike. And so, I think you are all happy with the fact that 

the U.S. Supreme Court has accepted cert on the Octane Fitness 

case and will be deciding the issue of 285—Section 285. 

When is it or what is the definition of what—how do construe 

this exceptional standard that is put forth under 285? And so, now 

that case will be decided by the court, which is going to be looking 

at the legislative history, which includes input from the APA, both 

sides, plaintiffs and defense. It’ll be looking at various cases that 

have developed over the time of patent litigation. And certainly has 

to be well suited to be able to construe this issue of exceptional 

cases. 

Is there anyone who disagrees with that? 

Yes, sir. 

Mr. ARMITAGE. If the issue is should this Committee wait until 

the Supreme Court renders this decision, I would urge the Committee not to do that. I think that what the Supreme Court is doing 

is try to define precisely where the goalpost is placed today. And 

what the provisions in the bill do would actually move that goalpost for good policy reasons. So, I think, to some degree, the Su-
120 

preme Court, I hate to say, is wasting its time. But, certainly 

would be if Congress were to effectively move the goalpost. 

Mr. JOHNSON. Anyone disagree with that? 

Mr. KRAMER. Congressman, thank you for the questions. 

So, again, I think that—I’m not going to pretend to guess where 

the Supreme Court is going to come out on the—that case. But that 

cases is limited to its facts for that party. And I think the clarification that is in the Innovation Act goes farther and is a better provision for everyone in the patent litigation system. 

Mr. JOHNSON. So you’re both saying that you think the legislature is in a better position to deal with when a case is so exceptional that it requires or that it merits an award of fees and costs. 

My problem is the small investor and—or, excuse me, the small 

inventor without access to the cash to commercialize the product 

that he—this invention would fit within or that it would constitute. 

And, if there’s an infringement on a patent that is owned by an individual without the cash or the resources to assert that patent, 

then it drives down innovation. 

And so, I’m afraid that the legislative approach to tightening— 

further tightening of the ability of plaintiffs, be they patent—be 

they non-practicing entities or patent assertion entities, for them to 

be able to, on behalf of that small inventor, protect what that inventor has invented. So, I don’t want us to go too far, in terms of 

closing the courthouse doors to those types of good-faith—— 

Mr. BACHUS. Thank you. 

Mr. JOHNSON. Good-faith litigants. And we can’t just throw a 

broad brush on all patent litigation and say that it—the majority 

of it is abusive, when in fact the GAO has found that is not the 

case. 

Mr. BACHUS. Thank you. 

Mr. JOHNSON. Thank you. 

Mr. BACHUS. Of course what it does, it just establishes the standard that’s used in the Equal Access to Justice Act. So there is— 

we have case law going back to 1980, which is well established and 

it has not really eliminated the legitimate lawsuits in that regard. 

So, I think we’ve got a long history of—this is not a new standard, 

it’s just a—you’re changing the standard to fit something that 

works very well. 

At this time, Mr. Marino is recognized for 5 minutes. 

Mr. MARINO. Thank you, Chairman. 

First of all, I would like to enter five demand letters. I ask for 

unanimous consent that these documents be entered into the 

record? 

Mr. BACHUS. Without objection. 

[The information referred to follows:] 
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122 
123 
124 
125 
126 
127 
128 
129 
130 
131 
132 
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Mr. MARINO. And I will say what they are. The first letter is 

from Isa Mai—I do not know if I’m pronouncing this right, so I’ll 

spell it: I-s-a M-a-I—dated June 16, 2013 from—doing business out 

of Delaware. The next one is Farney—F-a-r-n-e-y—Daniels LLP, 

dated August 1, 2012 out of Texas. The third demand letter is 

Lerner, David, Littenberg, Krumholz & Mentlik, dated July 1, 

2013, and I believe they’re out of New Jersey. The next letter is 

Desmarais—D-e-s-m-a-r-a-i-s—LLP, it’s dated June 2, 2011 and 

they’re from New York. And the last is Innovation Wireless Solutions LLC from Texas, dated April 10, 2013. 

These letters are typical letters, they fail to state a claim by the 

plaintiff. The features of the alleged abuse by defendants are absent and we don’t know who is suing. 

Mr. BACHUS. Thank you and those are made a part of the record. 

Mr. MARINO. Even one of the letters has a little diagram. And 

the diagram says, ‘‘if your main computer is dealing with a fax machine, sending information to a fax, to another computer, or to a 

printer, there’s a violation.’’ Well, apparently I have some problems 

in my house because my children’s computers and mine and my 

wife’s are all linked together. We go to the fax machine, we go to 

the printer, we go to the Internet, and we send each other airmails—emails. 

So, this is how ridiculous these letters are, particularly to small 

businesses in my district who are just scared to death when get 

something like this, because they do not know what’s going on. So, 

this legislation is clearly, clearly needed. 

Mr. Kappos, could you please—I may have misunderstood, and I 

know a couple of my colleagues have stated that there’s not an 

abuse, the—was it the GAO or one of the offices said cases haven’t 

increased, it doesn’t appear to be an abuse of litigation. But you’re 

certainly saying that that is the standard because there’s no increase or because there doesn’t appear to be a great deal of abuse 

in the legal system, that we should not look at penalizing, somehow, the plaintiffs in these cases for sending demand letters among 

other things just like this. So—— 

Mr. KAPPOS. Well, there clearly is a problem with abusive litigation. Your examples—— 

Mr. MARINO. But, we’re not basing it on the number of cases— 

you’re not basing it on the number of cases or the increased litigation in the courts, are you? 

Mr. KAPPOS. I’m basing that view on—not on the number of 

cases—— 

Mr. MARINO. Okay. 

Mr. KAPPOS [continuing]. But on the exemplars of abuse, like the 

ones that you’re talking about. 

Mr. MARINO. Sure, and thank you. 

I do agree with you. I think the—we need to fund the USPTO. 

It’s in drastic need of funding. And I think three areas will really 

make a difference in this: Funding PTO, because enough people to 

look at the patents coming in can tell whether they’re, you know, 

they’re legitimate and they’re following the rules that are prescribed. Number two is making sure the courts get serious about 

fees and sanctions. And, as a prosecutor for 18 years, I give a great 

deal of—I was a U.S. attorney in the middle district, the judges 
134 

were excellent there. But, I hope that courts are really going to 

take a serious look at this, as far as awarding fees and applying 

sanctions. 

And I would like to ask anyone who wants to respond to this: 

this is a—based on what Mr. Gupta stated, if that plaintiff knew 

about that license, is there anyone on the panel that says that this 

is not a fraud against the court by omitting that information? And 

why should criminal charges not be filed against somebody for 

doing this? 

No response, so I’m guessing you agree with me on this. 

Mr. Kramer, I see you want to make a statement here? 

Mr. KRAMER. Thank you, Congressman. 

Certainly that is egregious behavior. Courts typically have already the ability to sanction that type of behavior. And I agree, in 

that situation, they should use that power. 

Mr. MARINO. And I find the courts, both from when I worked in 

the State court and the Federal court, the courts are very reluctant 

to reward fees and to enforce penalties and sanctions. I’m hoping 

that we get the courts’ attention. I really don’t want to get into a 

position where Congress, to a great deal, is telling the court what 

to do in discretionary matters. But, if your plaintiff knew and that 

could be shown, I think it is fraud on the court and I think, not 

only should there be severe fees and sanctions, but I think there 

should be criminal charges filed as well. 

Mr. Gupta? 

Mr. GUPTA. And, if I might add to that. I agree with you, Congressman. And if, as Chief Judge Rader wrote in the Op-Ed piece 

he authored in the New York Times, he acknowledged that there 

is a problem where District Courts are not awarding fees, you 

know, and shifting costs in this regard. And I think there’s also an 

acknowledgement that the Federal circuit feels that the judges 

don’t act uniformly or the courts don’t in doing so. 

Mr. MARINO. If I were a U.S. attorney, I’d be all over this like 

white on snow. 

Mr. ARMITAGE. One of the difficulties with most patent litigation 

is the subject matter is complicated, the patent law is complicated. 

There’s a certain fog of patent litigation that engulfs the courts and 

it’s to the advantage of someone to have vague pleadings and broad 

discovery requests et cetera that, even if they’re meritless, it’s, in 

the fog, it’s hard to see the lack of merit sometimes on the part of 

the court. And that to me is why these maybe special remedies are 

needed for this special kind of litigation. 

Mr. MARINO. And I’m going to yield back with this closing. It’s 

not my idea by my colleagues. So, I notice that the three tech guys 

are reading from paper and the pharmaceutical guy is reading from 

the pad. [Laughter.] 

Mr. BACHUS. Thank you, Mr. Marino. 

And actually he did not exceed his time because he had a unanimous consent request, which doesn’t count on his time. 

The gentlelady from California, Ms. Chu, is recognized for 5 minutes. 

Ms. CHU. Thank you, Mr. Chairman. 

I’d like to ask Mr. Gupta a question about end users. I’m very 

concerned about the effect of frivolous suits that are filed against 
135 

the end users of products. These customers of everyday technologies are oftentimes the victims of demand letters and patent 

infringement lawsuits. 

And I know, from example in my local area in southern California, about this because the local credit unions were the subject 

of a lawsuit from the patent assertion entities just because they 

had features on their websites that had to do with online banking 

features. And, you know, some of them are very, very small credit 

unions, but they were sued as a group. And ultimately they had 

to make a decision between reducing staff or proceeding with a 

lawsuit. Finally, they just gave up and they settled with the patent 

trolls. 

I just think this is outrageous. And I think that we need to find 

some way of relieving our end users. So, that’s why I’m so pleased 

to see that Chairman Goodlatte included a provision that would 

allow customer suits to be stayed, while a manufacturer intervenes 

on their behalf. Because a manufacturer has the ability to defend 

a patent infringement lawsuit given that it has prior art and 

knowledge of how the technology truly works. 

So, Mr. Gupta, I know your company has a great deal of experience in dealing with these cases. Can you tell us more about the 

nature of these lawsuits and walk us how your legal team makes 

the decision to intervene in an end user suit? What factors do you 

consider? And do you ask that the end user consent to being bound 

by the outcome of the case? 

Mr. GUPTA. Thanks for that question, Congresswoman. 

We find ourselves as being the covered manufacturer at times. 

And we also find ourselves as being the covered customer at times. 

So, there are instances where we buy a chip or a component that 

then get—you know, is used to develop a computer system. And the 

infringement accusations are really directed to the chip, but we’re 

the ones that are sued. 

In those instances we look to the chip manufacturer to intervene 

and defend the litigation. And we believe that that’s a more productive way to go about it. And there are times that, when we are 

suppliers of technology in times our customers get notices, in addition to the fact that we have been sued and we have to, at that 

point in time, intervene and attempt to resolve the case. 

The—what’s incentivizing this sort of behavior is that PAEs have 

figured out that, if you go further and further downstream, you are 

potentially able to target a customer or a party that is least able 

to defend the action and probably has a larger revenue base, relative—you know, relative to the component or the product that’s 

accused. 

I give the example often of a patentee that might have a patent 

on a wiper blade. Why would you sue the wiper blade manufacturer for a ten-dollar part, when you can sue an automaker for 

shipping a car that sells for $30,000 with the wiper? And why stop 

there? Why not go after an auto rental agency and attempt to collect a certain portion of their rental fees because they rent out cars 

that have wipers? 

Now, in those circumstances, it makes utmost sense—and this 

bill provides a mechanism for it, where the auto rental company or 

the auto manufacturer would agree to a stay with the manufac-
136 

turer of the wiper blade and let the wiper blade manufacturer take 

it up with the patentee. 

There might be instances where, if indeed it is the auto rental 

company that says, I need a custom part designed for my wipers 

and they customize the wiper or they take it to put a special coating on it, they trim it in a different way that’s unique to their use 

and the patent goes to that unique aspect, then the suit may be 

rightfully brought against that party that made those modifications 

that brought it to—within the claims of the patent. But, by and 

large, the abusive behavior tends to be where there are discrete 

parts where the end users is really not in any way, shape or form 

modifying the part that’s accused of infringement. But they’re the 

ones that are sued. 

Ms. CHU. Thank you for that. 

And, I’d like to enter into the record now a letter that was sent 

to the Committee on Monday, in support of expanding the covered 

business method program. It was signed not only by high-tech 

groups, but other industries that are badly in need of relief, such 

as grocers, chain restaurants and retailers. The money was taken— 

that was taken from them impacts thousands of constituents. So, 

I ask to enter this letter into the record, Mr. Chair. 

Mr. BACHUS. Without objection. 

[The information referred to follows:] 
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138 
139 
140 
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Ms. CHU. Mr. Kramer, if I may ask about these covered business 

methods. You’ve fought back against these suits for many years 

now. Can you tell us about any past cases in which an expanded 

CBM program would have been helpful? 

Mr. KRAMER. Thank you for that question, Congresswoman. 

Unfortunately, off the top of my head, I don’t have a great fact 

situation to share with you. But, I can say that there—we have 

been participants in a pending CBM, at this point in time. So, you 

know, we think it’s a useful proceeding. It is helpful to have lowcost alternatives to litigation. And, because of that, you know, we 

certainly support that program. 

Ms. CHU. Thank you. 

I yield back. 

Mr. BACHUS. Thank you. 

Just to clarify, you know, the business methods already are reviewed, we’re including patents. Is that your - all of your understanding? You know, in the covered business method, it includes 

patents. We already include the business methods, in the original 

bill that mister—that we passed, shouldn’t it? 

Mr. KAPPOS. I’m not sure I understand the question. Could you 

restate it? 

Mr. BACHUS. We keep talking about a—there’s a difference in 

business methods and patents. And we already have statutory language that’s already covering business methods. So, what we’re 

talking about here is patents, is that correct? 

Mr. ARMITAGE. In the America Invents Act, there was a special 

Section—— 

Mr. BACHUS. For financial services. 

Mr. ARMITAGE. Right. That covered—— 

Mr. BACHUS. Yeah. 

Mr. ARMITAGE [continuing]. Business method patents. It’s the 

Patent Office, in fact, has given that term quite a broad interpretation. As, I think, as broad as the statute would allow. And it goes 

on for a period of 8 years. So, if this Committee did nothing on that 

issue, that procedure would continue in place for years to come. 

Mr. BACHUS. Sure. Okay. 

Mr. Farenthold? 

Mr. FARENTHOLD. Thank you very much. And I’m really glad 

we’re having this hearing today, as patent reform is an important 

issues. I’m a tech guy, so I enjoy it. 

But you know there’s a problem when you’ve got—you know, I 

can’t get Wi-Fi at my local Whataburger and the prices in my grocery store are coming up because they’re getting tagged by frivolous 

lawsuits. 

So, I kind of wanted to touch on some of the stuff that the 

gentlelady from California talked about because I’m specifically interested in end users as well. And, Mr. Gupta, you said that you 

don’t settle unmeritorious suits because it would be tantamount to 

giving in to extortion. And I understand, as a player in the intellectual property game, that—I applaud that. But, you know, 

Whataburger for instance, which, you know, Texas-based burger 

company—better than In-N-Out Burgers. [Laughter.] 

But, they make hamburgers. They don’t play in the intellectual 

property game. And they don’t have the expertise in it. They get 
142 

a demand letter—or, you know, you take it down even lower to a 

mom-and-pop business and you get these demand letters listing all 

the demands, all the claims, all the potential damage. And then 

hitting you three or four paragraphs on how you can’t—how to 

avoid a spoliation claim. And you’ve got to—you know, you got to 

replace all the hard drives to all you computers to preserve evidence. I mean, does this go far enough to protect end users in what 

we’re doing, do you think? 

Mr. GUPTA. I think there are several provisions in the bill. And, 

what you touched on is really a collection of abusive practices that 

lead to that sort of messy outcome for those defendants. And I 

think there are several provisions in the bill that would address 

very specific aspects of abusive procedural uses that would ultimately curtail those sort of behavior. 

But, you know, in the example of the burger manufacturer, if indeed it was something they felt they needed to take a stand on, 

like Martha Stewart did, if they knew that ultimately, if they did 

take it to trial and they prevailed, that there would be some accountability on the part of the plaintiff for having harassed these 

folks in the first place. That there would be some sort of remedy 

at the end of the day to shift the burden. 

Mr. FARENTHOLD. So, Mr. Kappos, you—I mean, you talked 

about not wanting to reach down to the mom-and-pops. I think that 

was in answer to one of your questions. It seems like this stuff naturally rolls downhill. Once the patent trolls have finished shaking 

down the big businesses, then they move down to the—they’ve already moved down to the Whataburgers. I’d call them a mediumsized business. You know, when do they move down to the, you 

know, the person who has the one retail store or the boutique? Or 

when do they move into my house and say, ‘‘Oh my. You got a WiFi router in your house and you got a cell phone. That’ll be 50 

bucks licensing fee or were going to sue you for 10,000?′′ 

Mr. KAPPOS. Yeah, so I think there are—first of all, that is happening already. And that’s why you’ve seen, in some States, some 

State action being taken. But there are a number of issues with 

this provision that I think, for the Whataburgers of the world in 

Texas, are going to make the provision probably not helpful in its 

current manifestation. 

The top one on my list is that there’s a requirement for the covered end user or retailer, in this case, to agree to be bound by the 

judgment. But the problem with that is that parties are never in 

exactly the same position. They’re in different positions. They were 

put on notice at different times. 

Mr. FARENTHOLD. So what would you propose to fix that? 

Mr. KAPPOS. There needs to be work done on the statute in order 

to ensure that parties—— 

Mr. FARENTHOLD. But you could—would you say a provision to 

stay, then an option to be bound by it, and then, you know, a tolling of the statute of limitations during that time—would that be 

a workable solution? Or—I mean, I’m trying to figure out how to 

fix this so it solves those problems. 

Mr. KAPPOS. Yeah, I’m not sure if I understand that. But, certainly, I think the issue is resolvable for—so that the statute benefits the retailers without being overextended. 
143 

Mr. FARENTHOLD. All right. 

And does anybody else on the panel want to comment on ways 

we could improve that? And I’m specifically concerned about end 

user protection. Does anybody else want to anything? I don’t want 

to leave the opportunity. 

Go ahead. 

Mr. KAPPOS. I would say one other thing. There’s an issue also 

there with the commonality of interests that’s needed in order to 

trigger the provision. The way it’s worded right now, I think we’re 

going to see a lot of reordering of commercial relationships with 

parties, you know, like the EMCs of the world, when their customers are in asking for—to change indemnity provisions, that’s 

going to create one set of situations. Because customers are going 

to want to get indemnities to get under this new provision—— 

Mr. FARENTHOLD. Right. 

Mr. KAPPOS [continuing]. And be able the stay litigation. And an 

EMC, when it’s in the position of being a customer, is going to 

want to change indemnity language. Now, I’m not sure Congress 

meant to reorder commercial relationships, so that needs to be 

taken into account too. 

Mr. FARENTHOLD. All right. I see I’m out of time. And I think Mr. 

Kramer wants to answer, if the Chair will indulge me and let him 

answer. 

Mr. BACHUS. Yes, you may answer. 

Mr. KRAMER. Thank you, Mr. Chairman. 

Thank you for the question, Mr. Farenthold—Congressman. 

You know, I steadfastly believe that those who manufacture 

should stand behind their technology, right? I know we do. We expect our partners to do that. And so, I think the provisions in the 

act regarding end user stays are a great start. And certainly happy 

to have my staff get in touch with your staff and work on appropriate language to make sure everybody is satisfied. 

Mr. FARENTHOLD. Thank you very much. 

Mr. BACHUS. Mr. Deutch, are you next or Mr. Jeffries? 

Mr. Deutch? 

Mr. DEUTCH. I’m next. 

Mr. BACHUS. Okay. 

Mr. DEUTCH. Thank you, Mr. Chairman. 

Mr. Chairman, as an early advocate for legislative fixes to the 

troll problem, I’m glad we’re having the opportunity to discuss this 

in detail today. And I—while I don’t agree with all of the provisions 

of the bill, I applaud Chairman Goodlatte’s attention to the issue 

and his willingness to dive into this with solutions to a genuine 

and growing problem. And I appreciate, in particular, Chairman 

Goodlatte’s willingness to work through disagreements. I’m hopeful 

that we can get to a place where we can all be supportive of a final 

piece of legislation. 

For a problem this complex there can’t ever be one solution 

alone. Any work that we do to combat the predatory environment 

that has allowed patent trolls to prey on both large and small companies has to focus, I think, on stopping bad behavior and establishing incentives for responsible action rather than going after 

specific business models. Those business models will change if we 

don’t address the underlying behavior. 
144 

And we also have to take a comprehensive enough approach so 

that we don’t find ourselves back in the same situation a year 

down the line, with little actually solved in spite of bills that we 

may have passed. I think this necessitates a kitchen sink approach. 

Chairman’s bill certainly does this, bringing together several approaches aimed at making the patent troll business less profitable. 

It gives us a lot to talk about today. 

And I’d just like to focus the remainder of my time on a component of the Chairman’s bill I strongly support, which is bringing 

greater transparency to the patent system. 

Mr. Kappos, you spoke—you mentioned real party in interest as 

one of the items that would be a constructive addition to current 

law. You also acknowledged earlier in the hearing that the real 

party in interest language that some have advocated for stronger 

language still. I count myself as among those who do. 

And, first though, I’ve been monitoring the PTO’s current examination of what can be done to enhance real party in interest disclosure within their exiting authority. I’d welcome your comments on 

the work that they’ve done thus far and particularly where that 

might go, as former PTO director. 

Mr. KAPPOS. Well, thank you, Congressman. 

And, indeed, where I was going with my comment before was 

that the provisions of this bill mainly effect the real party in interest disclosure and litigation. What about in all those other contexts, in front of the expert agency, where people really need to 

know who they’re dealing with. So, I applaud your focus on the 

USPTO’s efforts. I do not think the USPTO has enough statutory 

authority now. I would love to see them get more to be able to require the necessary disclosures at all the touch points in the patent 

system, where parties are coming in and asking the agency to do 

work for them. 

Mr. DEUTCH. I appreciate that. I think it’s not just the touch 

points in the patent system. As you know, the Goodlatte bill adds 

new requirements at the initial complaint stage. And I certainly 

agree it’d be helpful over the current system. And I agree with you 

that identifying those specific points within the system are appropriate. 

But, I worry that it leaves out earlier places in this chain where 

it would also be critically helpful. People who receive demand letters without a key piece of information that they need in order to 

decide whether to settle or whether to litigate or, frankly, sometimes whether to just shut their doors. What additional transparency requirements might be helpful for the system, as a whole, 

as we try to approach it that way? 

Mr. KAPPOS. That’s a good point. So, you’re talking demand letters, you’re talking the portion of the system that lies between the 

USPTO’s authority and the courts authority. 

Mr. DEUTCH. Right. 

Mr. KAPPOS. And a great example of why I think more discussion 

is needed, as we consider this bill, on this particular point. 

Mr. DEUTCH. Mr. Kramer, you—you’re testimony also highlighted 

the value to practicing companies for enhanced transparency. 

When I started on this Committee a few years back I assumed that 

patent ownership was fairly straightforward, it was easy to iden-
145 

tify. I’ve learned, obviously, otherwise. The opposite is true. It can 

be difficult to know who the true party behind a demand letter is, 

when a—or even when a defendant goes into court. And even properly identifying real parties in interest for a particular patent can 

be complicated based on exclusive licensing agreements that are 

also in place, other private contracts that might exist. 

So, I’d ask if you could just expand upon your experience managing the IP portfolio in dealing with plaintiffs who intentionally 

hide the identities of owners or key investors. And then, finally, 

just stepping outside of the bill for a moment, as the person responsible for a large patent portfolio, if you could address whether it 

would be overly burdensome for you to have to record ownership 

of your patents whenever you sell or acquire them. 

Mr. KRAMER. Thank you, Congressman. 

Let me take your second question first. I—the—patents are a 

government grant, right? And I think that the government, you 

know, as well as the public should understand who has a financial 

interest in them. As a holder of patents, I’m more than happy to 

record my transactions with the Patent Office, right, but—so, people know who owns those patents. So, that’s your second question. 

In terms of complicating the procedures, certainly, you know, my 

experience has been in the real problem is in the settlement of litigations, right, when all of a sudden the party across the table says, 

‘‘Well, you know, I got to talk with my investors to see whether I 

can accept that,’’ right, and that’s a problem, right. I, personally, 

want to know who I’m dealing with, in the context of a litigation. 

I, you know, I don’t want to keep feeding this vicious cycle of troll 

litigation. So, if I know that the same person is on the other side 

of the case from me, I might fight it harder, I might not settle because otherwise whatever money Yahoo! ends up paying them, 

right, they’re just going to go buy another patent and sue me again, 

right? And I don’t want that to happen. So I think it’s very important that we know the parties who have an interest in the patent 

and an interest in the litigation. 

Mr. DEUTCH. Thank you. 

Thank you, Mr. Chairman. 

Mr. BACHUS. Thank you. 

Mr. Collins from Georgia is recognized for 5 minutes. 

Mr. COLLINS. Thank you, Mr. Chairman. I appreciate the opportunity. 

Also, I appreciate this process and this is something that I have, 

before I was even sworn in, began the process of looking into this 

because we knew it was going to be coming back up. There was too 

much conversation going on. 

I appreciate Mr. Armitage, what you said about the fog around 

patent litigation. I come to think of it not more as a fog, but when 

my staff comes in and we have these sort of dream sequences, I believe. When am I going to wake up and I’m in the shower or something. 

But, it’s like, what is this—where are we headed here? And I 

think that’s the concern I have, in looking at—over this. And the 

question, Mr. Kappos, I want to ask this to you and it’s long and 

I’ll sort of lay it out. The question I’ll—that I have is on whether 

or not Section 18 should have been, one, originally included in AIA 
146 

and whether its expansion in this bill is necessary or even really 

appropriate? Now, is that—one that I have been giving a lot of 

thought to and honestly it causes me some trouble. 

There’s a question that there—there is no question that the right 

to patent, the right to exclude is given inventors by the Constitution. Patent rights are property rights, but they are unique in they 

only—in that the only way for an inventor to protect his property 

and to protect his patent is to assert it in court. If a subject matter 

is patentable, then I believe that it has the same value as another 

patentable subject matter. No monetary—not monetary, of course, 

but it should enjoy the same protection, the same ability to license, 

the same ability to assert as other patentable subject matter. 

Many other minds have discussed at great length, during the 

AIA floor debates of Section 18 placed expediency of process above 

protection of patent rights. And I’m not seeking to rehash or relive 

those debates, however I am struggling with a provision that would 

make permanent a temporary program that does not expire for 6 

years. What I have found in my short time here is Congress legislates then they collect data and suppose to conduct oversight. I am 

in mind of that in finding that that’s what we’re sort of doing again 

here. We’re running to do something, then we’re going to look at 

how it works or maybe look at it later. 

So, is there anything that you can tell me that would basically 

assure my fears? Or is there some compelling argument for why we 

must make permanent today a provision that doesn’t expire for 6 

years? Wouldn’t it be more prudent to let this provision act as it 

was intended? Operate for 8 years, conduct oversight, assess the 

program and its achievements, and then decide if so to, whether to 

extend it or make it permanent. 

Mr. KAPPOS. Well, thank you, Representative Collins. I would, if 

anything, amplify your fears so that bubble sequence could get 

rather darker. 

The challenge with this provision is that it has just been implemented. It is just getting on its feet. And, in fact, Congress has 

called for a study of the post grant procedures, including Section 

18, about this time 2 years from now, September of 2015. So, I 

completely ascribe to and agree with the process that you’ve articulated. Congress already called for that process as part of the AIA. 

We need to let it run forward. And—— 

Mr. COLLINS. Yeah. 

Mr. KAPPOS [continuing]. Learn more. 

Mr. COLLINS. Well I appreciate that. I want everyone in this 

room, because there’s holders in all these seats here, looking at 

this. This is a—this is not a good workable system, what we have 

now. There are problems all up and down the line. And I think 

there’s some things that we’ve got to do to address this. 

What really concerned me though is—Mr. Kramer, is just a comment that you made that sort of took my whole question when you 

were asked directly, ‘‘Can you cite an example where an expanded 

process would have helped you?’’ And you said you really couldn’t 

name one. That concerned me. 

But I have a—do have a question for you as well. That your 

statement just brought my—crystalized my whole question line, 

and you as mister well—Mr. Gupta as well. I understand that both 
147 

of you have some concerns with the provision in the bill on the 

standard for the PTO to apply when examining a patent in the post 

grant procedures. Can you explain the—you know, as briefly as 

possible, the nature of your concern and the reasoning for your concerns on this standard for post grant procedures? 

Mr. KRAMER. Certainly. 

Let me first address the example question. I understood that 

Chu—Congresswoman was asking me for a prior case, I couldn’t 

think of a prior case. I can think of a current case where we’ve 

used the system and that’s the Metasearch case. So there is one 

that—— 

Mr. COLLINS. Well, he question was where is one that would expansion would have helped you. And—— 

Mr. KRAMER. Correct. 

Mr. COLLINS.—I think that’s sort of where we’re headed here. So, 

you really—and I appreciate that because—— 

Mr. KRAMER. Correct. 

Mr. COLLINS [continuing]. It crystalized my question. So—— 

Mr. KRAMER. Great. In terms of an example, I’m sorry. 

Mr. COLLINS. The post grant review. 

Mr. KRAMER. The post grant review. That’s a—I understand 

there are concerns on both sides of the aisle with respect to the 

standard of claim construction being proposed. You know, certainly, 

you know, that’s an issue where on the one hand you’ve got a hundred years of PTO history using one standard and to change 

things, I think, might be dramatic for them. Certainly, willing— 

happy to work with you on finding a resolution to that problem. 

Mr. COLLINS. Well, I think, in some way, wouldn’t you agree that 

this bill itself is in—and Mr. Armitage, I think, sort of alluded to 

this—this bill is changing procedural provisions in a specialize way 

for patents. That, you know, really if this goes through as is, books 

will be written because you’re going to have to explain how you’re 

going to go through the process now. 

Mr. KRAMER. It is a process that is currently a standard that we 

all have to face already. 

Mr. COLLINS. Well, when new discovery requirements, stays, 

those kind of issues like that—I mean, that’s an issue that—you 

know, there’s many things in this bill that are—that I believe can 

be workable and are workable and I support. You know, I think the 

PTO office—actually—and that’s one of the reasons I signed on to 

make sure that we put the right resources where the resources 

need to go. 

Mr. KRAMER. Right. 

Mr. COLLINS. And I—that was a concern. 

Anything to add to post grant? 

Mr. GUPTA. You know, we happened to—our patents are, from 

time to time, subject to post grant review process—procedures and 

we put patents through post grant review procedures as well. And, 

from our perspective, whatever—you know, wherever we end up on 

this in a thoughtful sort of outcome, we’re wanting to live by the 

same set of rules when they’re applied to our patents and when we 

apply them to others’ patents. 

But where we really have a lot hope and our focus has been on 

is sort of—you know, anytime a system goes out of whack you get 
148 

feedback. And then, with the feedback, you could take some corrective action. There’s clear feedback on the litigation abuses that we 

see. And this bill has so much good in the area of procedural abuse, 

you know, sort of feedback mechanisms, you know, our focus has 

always been on supporting those aspects and making sure that 

those tweaks are indeed put in place. 

Mr. COLLINS. And I know my time is running short. But I do appreciate the fact that you’re willing to be—you know, everybody 

need to play by it. That’s something that’s sort of lost in this town. 

That some people want this treatment and other treatment and we 

want to treat the same here, as we move forward. 

Mr. Armitage, I’ve watched—I’ve just—as my last moments here, 

is there anything to my questions or stuff that you’d like to add to 

that? 

Mr. ARMITAGE. Just that we do have a hundred year’s history of 

the PTO in examination using one standard. But for the last 220 

years, the PTO has never been given the authority by Congress to 

adjudicate the validity of issued patents. And so, we’re in a situation where the PTO is actually being the court, substituting its administrative patent judges for District Court judges. And those 

claim construction standards in those two proceedings simply must 

be the same for the sake of fairness to the patent owner. 

Mr. COLLINS. Well, I think my time is over. There are some other 

issues on studies on transfer of venues, some other things. We’ll get 

to those. 

But I appreciate the Chairman’s time. And I appreciate this coming forward in our discussions today. 

Mr. BACHUS. Thank you. 

And, at this time, the gentlelady from Washington, Ms. DelBene 

is recognized. 

Ms. DELBENE. Thank you, Mr. Chair. 

And thanks to all of you for being here and for all of your time. 

I kind of wanted to follow up actually, Mr. Kappos, discussing 

Section 9’s changes to the standard of claim construction in interparty and post grant review proceedings. You pointed out that this 

may lead to the PTO endorsing and issuing broader claims in these 

proceedings. And so, I wondered if you could speak more about the 

impact of this provision and whether you view the current use of 

broadest reasonable interpretation standard as effective in achieving the goals of our proceedings or whether you think there needs 

to be change. 

Mr. KAPPOS. Well, I think that Congress, when it put the AIA 

in place, did so knowing that the USPTO has for many, many years 

been using the so-call BRI or broadest reasonable interpretation. 

So, I think that there’s fairness on both sides of this debate. The 

reason BRI has always been the standard is that in the USPTO, 

unlike in the courts, applicants or patentees have opportunities to 

amend their claims. And so the view is, ‘‘Look the agency’s mandate is to protect the best interests of the public, ensure that 

overbroad claims are not being granted and therefore take a reasonable but broad interpretation.’’ Applicants can amend their 

claims and the public’s best interest is protected. 

The challenge that we get into with moving the USPTO to the 

skill of ordinary—one of ordinary skill in the art standard, that the 
149 

courts use, is that then, quite clearly, the agency will be issuing 

claims that are going to be broader in some cases, less clearly defined in some cases. And, in that sense, that provision, while there 

are plenty of merits to it as Mr. Armitage points out, does cut 

against the core of this legislation, which is to try and improve the 

quality of the patent system and reduce vague patents that lead to 

these overbroad assertions that folks to my right are concerned 

about. 

Ms. DELBENE. Thank you. 

Mr. Kramer, do you have anything else to add as we were talking about post grant review? Or do you—— 

Mr. KRAMER. No comment. 

Ms. DELBENE. Okay, thanks. 

We also know that the impact on small business and venturebacked businesses, startup companies—the impact that abusive 

litigation is having. Today, Robin Feldman, the professor of law at 

the University of California, Hastings, and the National Venture 

Capital Association released findings from a survey that they did 

of venture capitalists and startup companies. And the results are 

very clear that the number of patent demands received by venturebacked companies has increased over the last 5 years. Roughly one 

in three startup companies report receiving patent demands. 

When we talk about this legislation and I think, Mr. Kappos, you 

brought up earlier that we may still need feedback from small inventors in terms of the impact of this legislation. I wondered what 

your thoughts were with respect to the impact of this legislation on 

small inventors, small innovators? And, what changes you might 

look at, given what you might perceive their feedback to be, going 

forward? 

Mr. KAPPOS. Right, well thank you for that question. 

And my sense, and I don’t pretend to represent the small inventor community, but my sense is that when they register their views 

they will have some concerns. They’ll have some concerns that go 

along the lines of access to justice by being potentially priced out 

of the system. And we need to be sensitive to that. 

They’ll have some concerns that when they go to enforce their 

valid patent rights that large companies and medium-sized companies and even modest-sized companies that have far more resources 

though than the small entities and the independent inventors will 

be able to potentially engage the same kind of actions that we’re 

talking about here that we don’t want patent trolls engaging in. So 

that’s why I commented before that while I like lots about the bill, 

I think that reciprocal provisions are needed to ensure that parties 

in the role of defendants are acting responsibly, just as we’re requiring parties in the role of plaintiffs to act responsibly. 

Ms. DELBENE. And, Mr. Gupta, the—you know, you also talk, in 

your written testimony, about the impact on small business. So, I 

wondered if you had anything to add with respect to how this bill 

might balance the needs of large businesses but also small 

innovators. 

Mr. GUPTA. I think the—again, I can’t necessarily speak for all 

small businesses. But, I think, if you think about VC-backed companies or small companies that are truly entrepreneurial, they 

have an idea—a business idea, they get a patent on it and they’re 
150 

working toward bringing a product to market. I think they are 

more concerned about the abusive litigation tactics that are directed toward them. 

The data that we have suggests that more than half of these patent suits are filed against companies that have less than 10 million 

and a vast majority against companies whose revenues are less 

than 100 million. And so, you know—and when small companies 

initiate patent action against someone else, they generally do not 

take advantage of procedural tricks to increase the cost of litigation 

of the—on the other side. And they are certainly not looking of an 

early settlement to get out of it. They are, at that point, protecting 

their invention, their innovation, their business. They’re not looking for a settlement where they end up licensing the patents or 

that this alleged infringer could then be competing against them 

using the technology that they want to commercialize. 

And in talks—and in the context of Access to Justice, I think you 

have to look at the fact that the defense costs, in today’s patent 

system, is so great and so high for small businesses, I think effectively they are being excluded from this justice system because the 

only way they can feel they can participate is by having to give in 

to these extortions and settle, rather than actually get to the merits of the dispute to prove their non-infringement position or the invalidity position. 

Ms. DELBENE. Thank you. 

I yield back my time, Mr. Chairman. 

Mr. BACHUS. Thank you. 

Mr. Poe is recognized for 5 minutes. 

Mr. POE. I thank the Chairman. 

One of the strengths of our system is that it treats everybody the 

same. And, in fact, the United States has fought to establish a nondiscrimination between types of inventions in international trade 

under the TRIPS Agreement. Do you think that other countries, 

like Brazil, India and China will use this as an invitation to harm 

one of our best industries, like software? And this is open to whoever wants to answer it. 

Mr. KAPPOS. Yeah, I’ll certainly take that on. I’ve been mentioning that all morning here. 

Well, I do think there’s risk of that. And I think that the provision that you’re referring to, Section 18, the covered business method provision and inserting into it an overt—quite blatant discrimination against software-based innovation will invite our trading 

partners sit up and take notice and to potentially have that come 

up in trade negotiations. And I think that’s one of the many reasons why extension to the software field is a not good policy. 

Mr. POE. So, the answer is what? I’m sorry I didn’t hear what 

the answer was. 

Mr. KAPPOS. The answer was—is enthusiastically to agree with 

your concern. 

Mr. POE. And so, what do we do about it? Do you have an answer 

on what we should do about it? Any of you? 

Mr. KAPPOS. Well—— 

Mr. POE. I’ve never seen four lawyers quiet in my life, like this. 

[Laughter.] 
151 

Mr. KAPPOS. Yeah, relative to Section 18, I do. Which is that we 

certainly should not be expanding it to cover software. 

Mr. POE. Right. 

Mr. KAPPOS. And the better judgment, I think overall—given 

that it’s so new, given that it is getting traction, given that the 

USPTO has interpreted it broadly, given that its reviewing court 

hasn’t had time to even look at the USPTO’s interpretation—is 

that it’s best to let that procedure keep running forward and not 

amend it at this point. 

Mr. POE. All right. 

Mr. Armitage, did you want—— 

Mr. ARMITAGE. Yes. 

Mr. POE [continuing]. To make a comment? Thank you. 

Mr. ARMITAGE. I would just say that, in the course of the America Invents Act, Congress made a finding that there were particular type of patent, based on developments in the law and the 

work of the Patent Office in examining them that justified a transitional procedure to deal with those patents and specify the transition period. And, as Mr. Kappos says, the case hasn’t been made 

to change any of those findings much less make what was a transitional program a permanent part of our patent law. 

Mr. KRAMER. Congressman, thank you for the question. 

I think that there should be low-cost alternatives to challenge, 

within the U.S. Patent and Trademark Office, patents that do not 

have a technical solution to a technical problem. That is the definition that the USPTO has adopted, therefore I think it’s a good program. 

Mr. POE. Okay. 

Mr. Armitage, did you want to weigh in on that again? 

Mr. ARMITAGE. Yeah, just one comment. 

Every issued U.S. patent that meets the CBM definition tomorrow could be challenged in the Patent Office. And there’d be another 6 year when that can happen. And that could happen for 

every newly issued patent during the next 6 years. Under the new 

patent law, every first inventor to file a patent that issues is subject to the identical type of procedure on any ground of patentability. It covers all technologies. So, we already have in place a 

comprehensive system of post grant review. We don’t need yet another procedure or to expand an existing procedure to take care of 

existing patents. 

Mr. POE. Every time—not every time, but many times when Congress gets involved in anything it makes it worse, whatever it is. 

Of course, we don’t want to do that. And now the proposal is, you 

know, H.R. 3309 would expand the covered business method program, even though it’s only been in effect about a year. Is it too 

soon to make changes in the law that really hasn’t been tested 

much—two cases I believe? Too soon? 

Mr. KAPPOS. I would say yes, on balance it is. 

Mr. ARMITAGE. Too soon. 

Mr. POE. That’s two. 

Mr. KRAMER. And in my opinion it’s not too soon. 

Mr. POE. Two and one. 

Mr. GUPTA. I’d have to concur. 

Mr. POE. That it’s too soon or not too soon? 
152 

Mr. GUPTA. I think, as we have only one decision, we’d really like 

to see how the system plays out. 

Mr. POE. All right. Three and one. All right thank you. 

Small guys. I think the reason—one reason we got patent trolls 

to begin with is because the small guys are looking for help. That’s 

one reason. Does—I’m concerned about the small guy going against 

Yahoo! or somebody else. They don’t have lawyers. They—you 

know, they call their family lawyer or something, if they need help. 

Patent law, as we know, is a very specific, difficult litigation process. It’s much more complicated than probably anything. So, small 

guy. How do we make sure the small guy isn’t excluded from the 

system? That’s the end of the question because I’m out of time. 

How do we keep the small guy excluded from taking care of their 

patent? 

Mr. KRAMER. Mr. Chairman, I see the time is expired. Can I respond to the question please? 

Mr. BACHUS. Yes. 

Mr. POE. Thank you, Mr. Chair. 

Mr. KRAMER. Thank you. Since Yahoo! was identified in the 

question, I feel like I have an—a responsibility—— 

Mr. POE. I’m not picking on Yahoo!, I’m just giving examples. 

Mr. KRAMER. There is nothing in this bill that prevents anyone 

from filing a meritorious lawsuit, right? Matter of fact, there are 

provision in this bill that will—would help the small guy. Staging 

discovery, giving presumptive limits on discovery—those things will 

definitely help the small individual inventor to pursue a meritorious claim against any company. 

Mr. POE. Well, what they’re concerned about it the losers pays 

provision. 

Mr. KRAMER. I’m sorry, I didn’t understand. 

Mr. POE. What they’d be concerned about, of course, is if they 

lose and then they got to pay. Well, they can’t pay. 

Mr. KRAMER. So—— 

Mr. POE. Some of them say, ‘‘I can’t pay, so I can’t litigate.’’ 

Mr. KRAMER. Under the provision, as written, it’s very forgiving, 

right. Although there is a presumption that if you have a—there 

is a presumption toward fee shifting. But, if you have a substantially justified case, i.e. a good case, right, you’re not going to pay. 

Or there is also a provision that provides the District Court judge 

with discretion in special circumstances, if it—if fee shifting is not 

warranted than fee shifting will not happen. And it’s a good thing 

to give the District Court judge that discretion. 

Mr. POE. As a former judge, I like the word discretion. 

I yield back. Thank you for your patience, Mr. Chairman. 

Mr. BACHUS. All right. Thank you. 

Gentleman from New York, Mr. Jeffries, is recognized for 5 minutes. 

Mr. JEFFRIES. Thank you, Mr. Chairman. 

And let me thank the witnesses for your testimony today. I found 

it to be both helpful and illuminating. 

I represent a district largely anchored in Brooklyn that increasingly has become home to technology and innovation companies, 

particularly a significant number of startups and tech entre-
153 

preneurs. That’s been a very positive addition to the local economy 

and one that we embrace and want to foster and develop. 

Unfortunately, many of these same entrepreneurs and startups 

have increasingly found themselves on the wrong side of the patent 

troll issue. And that’s why, Mr. Chairman, I think this is such an 

important hearing and an issue that we need to address thoroughly, comprehensively, but also deliberately here in the Congress. 

Let me start with Mr. Gupta. You testified, I believe, that you 

were sued more than 30 times since 2005 by patent assertion entities, is that correct? 

Mr. GUPTA. That is correct. 

Mr. JEFFRIES. And it’s fair to say that, in your view, each of 

these actions were lacking in merit and frivolous, is that right? 

Mr. GUPTA. That is correct. In fact, you know, of all these 30 

cases we have settled only one piece of litigation. We’ve taken cases 

to trial, cases have also been dismissed on summary judgment in 

our favor. 

Mr. JEFFRIES. So in the cases that you did not settle, all but one, 

you prevailed in one way or the other in all of those other matters, 

is that right? 

Mr. GUPTA. Yes. Or, when the—we were able to convince the patent assertion entity that we were the last one standing and we 

were going to fight until the end and have our day in court, they 

had walked away. 

Mr. JEFFRIES. Now, were you awarded attorney’s fees? And did 

you apply pursuant to Section 285 in those cases that you ultimately prevailed in, either at the pleading stage or some point during the lawsuit or at trial? 

Mr. GUPTA. In a couple of instances we were awarded our fees— 

I’m sorry, our costs in connection with having had to continue litigating after a certain point. But we have never been successful in 

recovering our attorney’s fees and costs. 

Mr. JEFFRIES. Okay. Now, I think you also testified that patent 

assertion entities bring unmeritorious suits and then leverage the 

high cost of litigation to negotiate, I think what you termed, 

‘‘Extortionary settlements,’’ is that correct? 

Mr. GUPTA. That is correct. 

Mr. JEFFRIES. I think that’s a colorful but fair framing of the 

issue that folks confront. 

I think, Mr. Kramer, you characterized the problem as, ‘‘Defendants being forced to spend millions to litigate against abusive actions,’’ is that right? 

Mr. KRAMER. That is correct. Yes, Congressman. 

Mr. JEFFRIES. Now, is it also fair to say that this litigation cost 

tends to primarily be anchored in the expensive nature of discovery 

in the patent context? 

Mr. KRAMER. That is a large component of the cost, yes. 

Mr. JEFFRIES. And so, is it also fair to say that the ability to negotiate the extortionary settlements, that these patent trolls seek 

either with a demand letter or in the commencement of action, is 

largely anchored in the fact that the costs of discovery is so expensive in many instances? 
154 

Mr. KRAMER. I think it’s anchored in the cost, in the fact that 

litigation as a whole is expensive and time consuming and requires 

a lot of effort and attention from everybody involved. 

Mr. JEFFRIES. So, is it reasonable to focus, in terms of our effort 

to try and address the patent-troll problem, to try and limit the 

cost of the litigation either at the front end or as you pursue discovery in order to eliminate the primary weapon being used by, you 

know, illegitimate patent trolls to try and extort or extract settlements? 

Mr. KRAMER. I certainly think that the provision in the Innovation Act for staging discovery is a great step forward. And I certainly think that the proposal to have the judicial conference look 

at creating presumptive limits on the content of discovery, that’s a 

great step forward. 

Mr. JEFFRIES. And is the heightened pleading requirement also 

an important step in terms of limiting actions from moving forward 

unless there’s some judicial finding of merit? 

Mr. KRAMER. I agree that the requirement for genuine notice 

pleading would be a tremendous step forward to drive efficiency in 

the system, so we all know what we’re talking about when the complaint is filed. 

Mr. JEFFRIES. And, Mr. Kappos, I believe there was an article 

written by the Chief Justice of—or the Chief Judge of the Federal 

Circuit Randall Rader entitled, ‘‘Make Patent Trolls Pay in Court,’’ 

on June 4, 2013. 

I’d ask unanimous consent that this be entered into the record. 

Mr. BACHUS. Without objection. 

[The information referred to follows:] 
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157 
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Mr. JEFFRIES. And he makes some interesting observations in 

this op-ed written with two other individuals. He indicates that in 

2011 there were 3,000 patent cases filed but only 20 of those cases 

resulted in a finding of attorney’s fees pursuant to 35 U.S.C. 285. 

He then makes the observation that he believed that this statute 

does provide judges with the ability to defend against the trolls but 

it’s not being exercised with sufficient robustness. That’s my characterization of what he said in this article. 

I think that the challenge for us is to figure out how do you balance, you know, the need to maintain some integrity and judicial 

discretion with a coequal branch of government, with the ability for 

there to be some cost in pursuing frivolous actions. And I would 

just ask you to comment on that. 

Mr. KAPPOS. Right. Thanks for the question. 

So, yeah. The Federal Circuit jurisprudence interprets 285 to require both an objectively baseless claim and subjective bad faith on 

the part of the—or bad faith on the part of the plaintiff. And that 

is a very exacting standard. And as Chief Judge Rader points out, 

it has resulted in extremely few findings of violation of 285 or, you 

know, the exceptional case standard. 

Now, there are two cases in the Supreme Court pending right 

now that are set to look at that issue. So, query whether the Supreme Court will, despite some of the other comments on this 

panel, be able to significantly correct the situation. And history 

teaches us, if we look back at the eBay case and the injunction 

standard or the KSR case and the obviousness standard, that the 

Supreme Court—as well as other examples, the Supreme Court has 

done a good job in just the last 10 years or fewer of taking really 

thorny issues that were vexing to congressional action and resolving them. 

So, I appreciate the comments that others have made today mentioning that Supreme Court looking at two cases. And, Congressman, you mentioned the need to achieve balance and the challenge 

of legislating in this area. And one might consider what good the 

Supreme Court can do to help. 

Mr. JEFFRIES. Thank you. 

Mr. BACHUS. Thank you, Mr. Jeffries. 

At this time, Mr. Issa—— 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. BACHUS [continuing]. And Mr. Issa has—is on your funding 

bill. He’s on the funding bill. 

[Laugher] 

Mr. KAPPOS. Listen, I mentioned that in my opening remarks, 

Congressman Issa. 

Mr. ISSA. This should help as I batter the witnesses with questions. 

First of all, Mr. Chairman, I’d like to ask unanimous consent 

that a letter dated July 30, 2013, which went to the Chairmen both 

in the—and Ranking Members in the House and the Senate, be 

there—be submitted into the record because I’m going to speak on 

it. 

Mr. BACHUS. Without objection. 

[The information referred to follows:] 
159 
160 
161 
162 
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Mr. ISSA. Thank you. 

Mr. Kramer, your company was on this letter, which is no surprise, in support of expanding CBM to a certain extent, to a certain 

extent supporting the STOP Act, although not stating it. You obviously believe there needs to be a low-cost alternative to narrowing 

the claims or eliminating overly broad and poorly executed patents, 

is that correct? 

Mr. KRAMER. That is correct, Congressman, yes. 

Mr. ISSA. And by definition, if you’ve got bad patents—and, Mr. 

Armitage, I’ll give you a chance to respond—but, if you’ve got bad 

patents in one category and they’re being adjudicated, if you will, 

through a low-cost system and you have others that are being ignored but they’re being executed on in court, isn’t that inherently 

a flaw in existing legislation not to pick them up? 

Mr. KRAMER. I think it’s a flaw in existing legislation not to provide low-cost alternatives where, you know, you have these bad 

patents whatever their technology. And you don’t provide the ability, you know, in a broad way to go back to the Patent Office to 

address those things. And post grant review and inter partes review have limitations in scope. 

Mr. ISSA. And I certainly agree. 

Mr. Armitage, you said—you talked about a hundred years of a 

standard. You’re familiar with, until maybe 20 years ago—I think 

it’s less than that—about 20 years ago, means-plus-function claims 

allowed somebody a quick and dirty way to describe an invention 

and then make an extremely broad under the doctrine of equivalence. Do you remember that? 

Mr. ARMITAGE. Was it only—I’m sorry, I do remember before the 

Federal Circuit clarified how Section 112—— 

Mr. ISSA. They struck it down. They absolutely killed meansplus-function as a way to get broad patents while narrowly defining 

them, didn’t they? 

Mr. ARMITAGE. I don’t want to get into a debate, but I still urged 

clients when I practiced used means-plus-function claims because 

they—— 

Mr. ISSA. As long as all they wanted was the means and the— 

that they were showing, correct? 

Mr. ARMITAGE. I’m going to say you’re substantially correct. And 

afterward we can discuss the exceptions. 

Mr. ISSA. Well, the—Mr. Kappos, I lived under those old meansplus-functions as an inventor and as a manufacturer. And, you 

know, I saw people who took a couple of relays and popped them 

together and threw a patent with a line drawing out and then said, 

‘‘Darn it, your microprocessor or your complex gate array with 

thousands of gates in it or huge amounts of memory, it’s the equivalent,’’ and tried to claim that because the output of the device did 

the same thing that it must have the same input. Do—you also remember that era of overly broad interpretation that, quite frankly, 

paled in comparison to what’s happening today with business 

method patents, isn’t it? 

Mr. KAPPOS. I certainly do, Representative Issa—— 

Mr. ISSA. Not that you’re that old, but you know I am. 

Mr. KAPPOS. Over breadth associated with 112-6 would—definitely was a problem. It has been significantly reigned it. 
164 

Mr. ISSA. Well, it has. But there’s a new generation. A new generation of workarounds, just as the eBay decision is being worked 

around by going to the ITC whenever possible to get an exclusion, 

because the court, when they said—they set a standard for injunctive relief they didn’t consider that there’s an entity just down the 

street that only does effectively injunctive relief. It’s the only tool 

and they use it constantly because they have to. So, you know, legislatively, certainly, we have a similar challenge that the court only 

can consider what’s brought to it. Well we can consider all the 

problems that are brought to us. 

Mr. Kappos, you have a tough job. But, under the current law, 

if you do not have a standard to look at prior art as broadly as 

prior art is expressed when it comes before the Patent Office, don’t 

you inherently find yourself in a situation in which examiners are 

constantly being told that prior art is narrow. Well in fact, if that 

same prior art were coming before a court it would, like the old 

means-plus-functions, suddenly be expansive. Isn’t there a need for 

a standard change that makes it clear that you must consider prior 

art as broadly as possible from a standpoint of exclusion? And 

that’s not currently the case. The examiners are often faced with 

claims that something means very little and with relatively little 

recourse to argue that point. 

Mr. KAPPOS. Are you asking whether the court should have to 

move to the broadest reasonable interpretation instead? 

Mr. ISSA. No. Actually, my point is the broadest reasonable interpretation standard should apply to what has already been invented. And one of the challenges is it’s applied to your consideration of what a—an applicant is entitled to rather than the exclusion. The whole point is that the—and you mentioned earlier, the 

obviousness standard. We have a problem which is, if anyone of ordinary education—not necessary ordinary skill in the art—but of 

ordinary education reads the existing patents and then looks at a 

new patent, most often they search endlessly to try to figure out 

what’s new. And they find a little nuance. You know, I had a relay 

and I had a car. And now I’ve got a relay, a car and a mobile radio. 

And they say, ‘‘Ah ha. It’s the mobile radio.’’ Or is it? 

The fact is, we have a fundamental problem that regularly your 

examiners have a standard—which under the scrutiny of an opposition from an outside party bringing in the actual and real experiences, the actual products and what they do—are successful in narrowing patents dramatically on a regular basis, isn’t that true? 

Mr. KAPPOS. I see. So you’re asking about the inferences that examiners are able to draw. Certainly, in my view as a citizen, that 

has improved. Since KSR and some of the cases that have interpreted it, further refinement clearly is needed. I would agree with 

you, Congressman Issa that providing the USPTO with greater 

flexibility to apply inferences and to expect applicants to respond 

to those to—in order to clearly specify patent claims is good for the 

whole system. 

Mr. ISSA. When I was learning about patent law as a—both an 

inventor and as a manufacturer, you know, I understood that you 

could be sued for your—making, using or selling a product. But, I 

don’t think I ever considered that on—of these 40 companies that 

the ones most concerned with people with great new technology 
165 

would be suing—being sued, I didn’t think of Eddie Bauer, 

Safeway, J. Crew, Overstock.com, the Kroger Company, Macy’s. 

Now, I’ve been in a lot of Macys’. I’ve been in Kroger. I’ve been in 

Safeway. 

Isn’t one of the problems that this Committee has to deal with 

is the growth of deep pocket large companies? And Mr. Poe talked 

about little companies and I was a little company. And I appreciate 

the cost of litigation. But, isn’t one of our problems the idea that 

incidental use has made companies large targets just because 

they’re using a product? 

I’ve got Wi-Fi in my store and I’m going to be sued as a result. 

Is often—and isn’t one of the most important things that we have 

to do, in the legislation we’re looking at today, to make sure that 

the manufacturer, the—ultimately the entity, the single entity 

there probably is in the food chain, is the entity that deals with the 

eventual use of their product, rather than being sued in jurisdictions all over the country simply because I put a hundred Wi-Fi 

units into my store to help my customers. Or, you know, my airplane serves a certain type of food that somebody finds a way to 

have a patent on. 

Mr. Kappos, I’ll start with you and then I’d like to go to Mr. Kramer. 

Mr. KAPPOS. Yeah. So, that’s the stays for customers. And, as 

we’ve discussed, I certainly am in the group that would agree that 

retailers, right, the Kroger’s of the world—— 

Mr. ISSA. Particularly when they’re not selling the infringing 

product but simply using something that somebody has put 

through. 

Mr. KAPPOS. If they’re using it run their Wi-Fi’s or if they’re selling it, end users—and, you know, this would be Kroger in the role 

of an end user or Kroger in the role of a retailer, should be able 

to stay out of litigation. The trick is letting them do that in a way 

that doesn’t also let every other party in the manufacturing value 

chain stay out of litigation. Because, if you do that, then you significantly devalue patents for companies in—you know, whether 

it’s in auto alarms or any other industry where you’ve got, you 

know, lots of parties adding value to components, making more and 

more aggregated products. You don’t want to devalue the whole 

patent system. You do want to protect the end users and the retailers. 

Mr. ISSA. Well, and I know the Chairman’s being understanding 

about my time. 

But, you know, the intermittent wiper case was certainly a great 

case, under Avril Cohen, in which it added value to the car. And 

some understanding of entire market was the case. I’m pretty sure 

that the delivery of groceries at a Kroger’s or a Safeway is not so 

dependent on Wi-Fi. And I certainly think that there’s a fair test 

of entire market. But, that’s not the test that currently these trolls 

are using when they choose to go after deep pockets. 

Mr. Kramer, I’m—although the Chairman may allow others to 

answer. I’d like to just have—you know, you’ve been used as a big 

company. But, ultimately aren’t you just a big target? And isn’t 

that part of what you see every day? 
166 

Mr. KRAMER. Yeah. Thank you for that question. That is absolutely true. Since 2007, we have received roughly 70 patent infringement complaints. So, that’s a huge increase in our litigation 

burden particularly when compared to the first 12 years of the 

company where we had, at any given time, two to three cases on 

our docket. Now, I mean—you know, a case—we settle cases, we 

get new cases. On our docket at any given time is 20 to 25 cases. 

So, we are a huge target. 

And then, I think that has to do with the nature of the—our 

technology, the fact that, you know, you can see pretty easily what 

we do and the fact that software patents are, quite frankly, there 

are a lot of them out there on a lot of different things. And, yeah. 

It’s—I can’t emphasize how—enough how our situation has 

changed over the years. 

Mr. ISSA. Thank you. 

Mr. Chairman, I appreciate your indulgence. And I thank you for 

all the hard work that the Committee is doing to try to improve 

patent qualities and particularly empower the PTO to do so. 

Mr. BACHUS. Thank you, Mr. Issa. 

I wasn’t really concerned, you did spend 12 minutes. But you—— 

Mr. ISSA. You know, I—it’s the darnedest thing—— 

Mr. BACHUS. You almost—— 

Mr. ISSA. I just don’t—— 

Mr. BACHUS. I’ve never heard you—— 

Mr. ISSA [continuing]. Have a clock. 

Mr. BACHUS [continuing]. Badger a witness. But you came close 

on Mr. Armitage here. 

Mr. ISSA. You know, Mr. Chairman, you know, if you come next 

door, we’re accused to doing that to a number of people. 

Mr. BACHUS. Oh, no. I’ve never noticed. 

Mr. ISSA. Now, no. You know Eric Holder. Eric Holder said it 

was—he was a pleasure being here the last time. 

But, Mr. Chairman, I do think it—this is so important. I appreciate the extra indulgence of time. 

Mr. BACHUS. Well, thank you. 

That will conclude our hearing. 

I will make two comments. If you look at Section 9 of the legislation, that seems to be where a lot of the concern is for the post 

grant reviews and the business method patent review. And if each 

of you could go down, because you’ve—I know the Internet Association that Yahoo!’s a part of is on one side of this and some other 

companies are on the other. If you could take each of those subsections, like whether we—whether Section 145 is still necessary, 

the estopple fix, all those different parts and just go through each 

one and tell us what your thoughts on those are—would be. 

One of them is codifying the—taking the board’s decision in the 

business—I think it’s Sap versus Versata. Should that be—should 

we codify that, for instance, or just leave it alone? 

Mr. KAPPOS. Yeah, I don’t think we should. 

Mr. BACHUS. Okay. 

Mr. KAPPOS. I think that the Federal Circuit and the USPTO 

should have some time to further consider and refine that. 

Mr. BACHUS. Right. Okay. Thank you. 
167 

That concludes today’s hearing. Thanks to all of our witnesses for 

attending. 

Without objection all Members will have 5 legislative days to 

submit additional written questions for the witnesses or additional 

materials for the record. 

Now this hearing is adjourned. 

[Whereupon, at 12:57 p.m., the Committee was adjourned.] 

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