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35–851 PDF 2007

S. HRG. 109–929

PERSPECTIVES ON PATENTS: POST-GRANT REVIEW

PROCEDURES AND OTHER LITIGATION REFORMS

HEARING

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

May 23, 2006

Serial No. J–109–78

Printed for the use of the Committee on the Judiciary

(

(II)

COMMITTEE ON THE JUDICIARY 

ARLEN SPECTER, Pennsylvania, Chairman 

ORRIN G. HATCH, Utah 

CHARLES E. GRASSLEY, Iowa 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

JEFF SESSIONS, Alabama 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

HERBERT KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

RUSSELL D. FEINGOLD, Wisconsin 

CHARLES E. SCHUMER, New York 

RICHARD J. DURBIN, Illinois 

MICHAEL O’NEILL, Chief Counsel and Staff Director 

BRUCE A. COHEN, Democratic Chief Counsel and Staff Director 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY

ORRIN G. HATCH, Utah, Chairman 

JON KYL, Arizona 

MIKE DEWINE, Ohio 

LINDSEY O. GRAHAM, South Carolina 

JOHN CORNYN, Texas 

SAM BROWNBACK, Kansas 

TOM COBURN, Oklahoma 

PATRICK J. LEAHY, Vermont 

EDWARD M. KENNEDY, Massachusetts 

JOSEPH R. BIDEN, JR., Delaware 

DIANNE FEINSTEIN, California 

HERBERT KOHL, Wisconsin 

RICHARD J. DURBIN, Illinois 

BRUCE ARTIM, Majority Chief Counsel 

BRUCE A. COHEN, Democratic Chief Counsel 

(III)

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS

Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah ............................ 1

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 8

prepared statement .......................................................................................... 67

WITNESSES 

Cadel, Andrew, Managing Director, Associate General Counsel and Chief 

Intellectual Property Counsel, JP Morgan Chase, New York, New York, 

on behalf of the Financial Services Roundtable and BITS ............................... 12

Chandler, Mark, Senior Vice President and General Counsel, Cisco Systems, 

San Jose, California ............................................................................................. 4

Johnson, Philip S., Chief Patent Counsel, Johnson & Johnson, New Brunswick, New Jersey .................................................................................................. 6

Myhrvold, Nathan P., Chief Executive Officer, Intellectual Ventures, Bellevue, 

Washington ........................................................................................................... 9

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

Washington, D.C. ................................................................................................. 10

QUESTIONS 

Questions submitted to the witnesses by Senator Dewine. (Note: Responses 

to Senator DeWine’s questions were not received by the Committee prior 

to the time of printing (July 2, 2007).) ............................................................... 31

SUBMISSIONS FOR THE RECORD 

Cadel, Andrew, Managing Director, Associate General Counsel and Chief 

Intellectual Property Counsel, JP Morgan Chase, New York, New York, 

on behalf of the Financial Services Roundtable and BITS, statement ............ 32

Chandler, Mark, Senior Vice President and General Counsel, Cisco Systems, 

San Jose, California, statement .......................................................................... 40

Haken, Jack, Vice President, Intellectual Property & Standards, U.S. Phillips 

Corporation, Briarcliff Manor, New York, statement ....................................... 53

Johnson, Philip S., Chief Patent Counsel, Johnson & Johnson, New Brunswick, New Jersey, statement and attachment ................................................... 57

Myhrvold, Nathan P., Chief Executive Officer, Intellectual Ventures, Bellevue, 

Washington, statement ........................................................................................ 68

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

Washington, D.C., statement .............................................................................. 98

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PERSPECTIVES ON PATENTS: POST-GRANT 

REVIEW PROCEDURES AND OTHER LITIGATION REFORMS 

TUESDAY, MAY 23, 2006

U.S. SENATE, 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, 

COMMITTEE ON THE JUDICIARY, 

Washington, DC. 

The Subcommittee met, pursuant to notice, at 2:08 p.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Orrin Hatch, (Chairman of the Subcommittee) presiding. 

Present: Senators Hatch and Leahy. 

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. 

SENATOR FROM THE STATE OF UTAH 

Chairman HATCH. We are happy to welcome you all here to this 

very important hearing on patent reform today. We have some 

really stellar witnesses, and I look forward to it myself. 

Today’s hearing will focus principally on questions surrounding 

post-grant review proceedings. As many of you know, post-grant review refers generally to the procedures allowing the validity of a 

patent to be challenged in an administrative proceeding conducted 

by the Patent and Trademark Office, rather than in court litigation. 

Under current law, there are now reexamination procedures by 

which the PTO may reconsider a patent’s validity at the request of 

an interested party. However, current reexamination proceedings 

are very limited and do not allow for a full consideration of a patent’s validity. As a result, even when reexamination is available, 

potential litigants generally wait to challenge a patent’s validity 

until an infringement suit has been brought against them despite 

the higher cost and prolonged uncertainty of doing so. 

Proponents of adopting a more robust post-grant review proceeding, myself included, believe that providing a more efficient 

means of challenging a patent’s validity in an administrative proceeding is necessary to address systemic problems in our patent 

system, making post-grant review an essential component of any 

meaningful reform legislation. 

There appears to be substantial agreement regarding the need 

for a more meaningful post-issuance review. There are strong disagreements over specific attributes and scope. The most significant 

of these disagreements appears to flow from fundamentally different opinions regarding the appropriate policy goals of such a 

2

procedure. From my perspective, the proponents of post-grant review appear to rely on one or more of the following basic policy rationales for expanding administrative review. 

First, some argue that the PTO is institutionally better equipped 

than the Federal Courts to resolve highly technical disputes regarding patentability. 

Second, many feel that a relatively inexpensive opportunity to 

challenge patent validity at an earlier point in time would significantly improve patent quality by allowing challengers to invalidate 

or narrow problematic patents soon after they are issued. 

Third, some believe that various aspects of litigation, including 

the presumption of validity, and the clear and convincing standard 

of proof place unwarranted burdens on a party seeking to challenge 

a patent’s validity. They argue that these burdens would not be 

necessary in a specialized system of adjudicating patent validity 

due to the judge’s higher level of technical expertise, and that such 

a system would allow a fairer opportunity to challenge validity. 

While these are not necessarily inconsistent rationales, there are 

significant tensions between the second and third goals. Obviously, 

the most suitable type of post-grant review system depends on the 

relative importance accorded these goals as well as how one balances a patent owner’s countervailing interest and sufficient certainty and finality with respect to the validity of an issued patent. 

At its most fundamental level some form of post-grant review is 

necessary to ensure that the validity of questionable patents as adjudicated, which corresponds to the goal of improving patent quality by allowing a less expensive way to adjudicate validity issues. 

At present it appears that the substantial cost, delay and uncertainty of challenging a patent frequently outweigh the benefit to 

any one potential litigant of doing so. Thus, even though the aggregate costs of a suspected patent may be substantial, in many cases 

no single party has sufficient incentive to litigate the patent’s validity to conclusion. In part this is because the benefits of a successful challenge flow to everyone against whom the patent could 

have been asserted, while the litigation costs are borne by only one 

of them. If reducing the disincentives to validity challenges is the 

primary goal of post-grant review, it would likely be necessary to 

limit or exclude various factors that would greatly increase its cost, 

including the availability of discovery and extended proceedings 

with live testimony. 

Additionally, as Professor Thomas and others have suggested, 

simply decreasing the cost would not address the public goods aspect of patent challenges. Rather, doing so, would require some additional incentive or ‘‘bounty.’’

On the other hand, to the extent that the main goal of post-grant 

review is to create a specialized system for fully adjudicating patent validity, it would be necessary to include many aspects of adversarial litigation that would drive up the cost and potential 

delays associated with these proceedings. 

For obvious reasons, if post-grant review largely replicates the 

costs and delays of court proceedings, it is unlikely to be an attractive alternative to litigation unless the challenger’s likelihood of 

success is increased by stripping away the presumption of validity 

and lowering the standard of proof required to establish invalidity. 

3

However, if the solution is merely to allow patents to be invalidated using a lower standard, it is unclear why we go to the trouble of inventing or creating an entire post-grant review system instead of simply lowering the standard that is applicable in litigation. 

To date, widely disparate proposals and suggestions regrading 

post-grant review have been made by stakeholders, academics and 

lawmakers. At one of the spectrum are proposals that would create 

a low-cost streamlined proceeding by simply expanding the current 

inter partes reexamination. 

At the other end are suggestions for the creation of specialized 

patent courts that would partially supplant Federal Court litigation. Many proposals fall somewhere between these two extremes. 

For example, some propose making an expanded reexamination 

available throughout the life of a patent, while also providing a 

separate more robust opposition proceeding for a short window of 

time after a patent’s issuance. 

There are also a variety of suggestions regarding how to increase 

the incentives to challenge patents preemptively, such as awarding 

attorneys’ fees to a successful challenger, or according a presumption of validity only to patents that have survived the challenge to 

their validity. 

It is my hope that today’s hearing will shed some light on how 

to address the fundamental tension between these various models 

of post-grant review and their relative benefits and limitations. 

I do look forward to the witnesses’ testimony and to a lively discussion of these important issues, and we will take Senator Leahy’s 

opening statement whenever he arrives, and we will interrupt 

whatever we are doing to take that statement. I understand he is 

on his way. 

We have a particularly wonderful panel here today, and I will 

just introduce them all. 

Mark Chandler, a Senior Vice President, General Counsel, Cisco 

Systems, Inc.; Philip S. Johnson, Chief Patent Counsel for J&J, 

Johnson & Johnson; Nathan P. Myhrvold, Chief Executive Officer 

of Intellectual Ventures; John R. Thomas, Professor of Law, 

Georgetown University Law Center; and Andrew Cadel—am I pronouncing that right or is it Cadel. 

Mr. CADEL. Cadel. 

Chairman HATCH. I knew there would be some fancy way of saying it. 

[Laughter.] 

Chairman HATCH. Managing Director, Associate General Counsel 

and Chief Intellectual Property Counsel, JP Morgan Chase. 

This is a really good panel, and we are really grateful to have 

you here, and we need some help in this area, so I am going to particularly pay attention to what you have to say, and let’s hope that 

we can arrive at what is really the best of circumstances in the 

end. 

So, Mr. Chandler, we will begin with you. 

4

STATEMENT OF MARK CHANDLER, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, CISCO SYSTEMS, INC., SAN JOSE, 

CALIFORNIA 

Mr. CHANDLER. Thank you, Mr. Chairman. My name is Mark 

Chandler. I am Senior Vice President and General Counsel of Cisco 

Systems. 

Just three points following on your opening statement. First, why 

we think the current patent litigation system does not work; second, how a post-grant administrative review process can help remedy one defect of the system; and third, why some other changes 

are also required. 

Cisco has over 47,000 employees and invests over $3 billion each 

year in research and development. Our innovation helped create 

the global Internet. We hold over 2,500 issued U.S. patents, and 

have applied for over 4,000 more. Cisco believes deeply in strong 

protection for intellectual property. 

So why would a company like Cisco favor legal changes that 

some say would decrease the value of patents, and why would the 

manufacturer of the Blackberry pay over $600 million to license 

patents that the PTO said were invalid? 

The answer is that the patent litigation system is broken. When 

a patent holder is willing to license patented technology, the system should encourage negotiation of a license fee reflecting the fair 

value of the intellectual property. Our current litigation system 

completely fails that test. The current rules incentivize winnertake-all jackpot-like strategies. The patent litigation rules themselves are now a means of enhancing patent value instead of a neutral system for resolving disputes. 

Increasingly, those who manufacture products or offer services 

like Cisco are defendants in a new type of patent litigation. These 

efforts use in terrorem leverage that comes from recent changes in 

the patent system and abuse of that system to receive disproportionate and unearned fees, often through just the threat of litigation. 

Justice Kennedy recognized this in his opinion in the Supreme 

Court’s eBay decision. Let me quote him: ‘‘[i]n cases now arising...the nature of the patent being enforced and the economic function of the patent holder present considerations unlike earlier 

cases. An industry has developed in which firms use patents not 

as a basis for producing and selling goods but, instead, primarily 

for obtaining licensing fees’’. 

In my written statement, I have provided documentation regarding abuse of patent litigation and studies of that problem. That 

said, we reject the use of pejorative terms such as ‘‘patent trolls.’’ 

The rise of this new type of litigation is not the issue, it is merely 

a symptom of an underlying problem. That is why Cisco and hundreds of other technology manufacturing media and financial services companies have joined together to seek reform. 

One important reform is a sensible post-grant review system 

linked to but separate from the litigation process. As the absurd 

outcome in the Blackberry case illustrates, there is currently no effective way to review the validity of a patent. The inter partes process is not a practical option due to the broad estoppel standard, 

5

and the presumption of validity that applies in litigation precludes 

effective challenges in court and drives extorsive negotiations. 

The solution is post-grant proceedings heard by administrative 

law judges trained to fairly assess merits. A first window immediately after a patent is granted will not solve the problem because 

a company like mine simply cannot anticipate when a patent is 

issued how the patent might be stretched to apply. A second window after receipt of notice of infringement would place the decisionmaking where it belongs, with the export agency guided by appropriate evidence. 

Patent holders must not face dilatory and duplicative proceedings, however. Justice delayed is justice denied in the patent 

system as well. To avoid unnecessary burdens the second window 

has to be constrained. 

First, if the prospective defendant choose to initiate post-grant 

review, he must estopped from relitigating any issues actually 

raised and decided in the proceeding. 

Second, if the defendant chooses not to initiate an administrative 

proceeding, then any later court challenge to patentability must 

overcome the presumption of validity. 

Third, a patent holder should have the right to block initiation 

of this post-grant proceeding, but in that case the presumption of 

the patent’s validity would not apply in any subsequent court action. 

And finally, strict time limits and penalties should be included 

to ensure an administrative proceeding is not used for delay. 

This way we would avoid duplicative litigation, and also avoid 

the problem of the broad estoppel in the current inter partes system. 

There are several other necessary changes, however. First, venue 

at principle should be enacted to prevent forum shopping. Second, 

damage rules should require that fact finders determine actual inventive contribution of the patented technology, rather than basing 

royalties on a product’s entire market value. Justice Kennedy recognized the harmful effect of the current rule in his observations 

about the leverage that is applied when ‘‘the patented invention is 

but a small component of the product the [defendant] companies 

seek to produce.’’

Mr. Chairman, I see my time has expired. May I make some 

final, concluding remarks? 

Chairman HATCH. Go ahead. 

Mr. CHANDLER. Thanks. Two other principles that should be included are to make sure that U.S. patents apply only in the United 

States so there is not double jeopardy for products manufactured 

outside the U.S., and willfulness standards should better reflect 

traditional principles regarding treble damages. 

To conclude, it is simply not true that these modest reform proposals will eliminate longstanding rights of patent holders. As the 

Supreme Court unanimously found with respect to injunctions, the 

present rules and types of litigation they have engendered, are the 

result of recent decisions and exploitation of loopholes in the system. 

Congress should act to restore fairness and balance to patent litigation, and we look forward to working with you. 

6

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

Chairman HATCH. Thank you very much. 

Mr. Johnson, we will take your statement. 

STATEMENT OF PHILIP S. JOHNSON, CHIEF PATENT COUNSEL, JOHNSON & JOHNSON, NEW BRUNSWICK, NEW JERSEY 

Mr. JOHNSON. Thank you. Chairman Hatch, it is indeed a pleasure to appear today. I want to thank you for the opportunity to testify on patent reform. Although I am active in a number of professional organizations, I am appearing here today only in my capacity as Chief Patent Counsel at Johnson & Johnson. 

Johnson & Johnson is a family of more than 200 companies, and 

is the largest broad-based manufacturer of health and personal 

care products in the world. Collectively, Johnson & Johnson companies represent this country’s largest medical device business, its 

third largest biotechnology business, its fourth largest pharmaceutical business, and a very substantial consumer and nutritional 

and personal care business. Johnson & Johnson companies employ 

over 55,000 people in the United States, and these businesses are 

research-based businesses that rely heavily on the U.S. patent system and its counterpart systems around the world. 

In 2005, Johnson & Johnson’s businesses invested $6.3 billion in 

research and development, and indeed from time to time, Johnson 

& Johnson’s companies have become involved in patent litigation, 

about equally as plaintiffs as they are defendants. While we are occasionally sued by non-manufacturing patentees, most of our litigation is with actual or would-be competitors. 

I am here today because I want to see us preserve and enhance 

the patent system’s incentives to invest heavily in research and development. By doing so, we will not only improve the quality of life 

through new products and processes, but we will preserve our global competitiveness in an increasingly competitive world. 

While other issues are perhaps better at capturing the public’s 

attention, I believe there is no more important issue that faces us 

today than that of patent reform. 

The Coalition Text attached to my written testimony is a balanced and politically achievable approach to patent reform. It includes an immediate post-grant 9-month opposition window designed as an immediate quality control check on newly issued patents. To stimulate public involvement in the process, it features 

lowered collateral estoppel and burden of proof standards. It also 

features an expanded list of validity issues that may be raised as 

compared to ex parte reexamination. 

The institution of such a post-grant opposition procedure will, 

nonetheless, come at a very substantial cost, especially to patentees 

who may have trouble affording the extended uncertainty of the 

proceedings that such an opposition approach might engender. To 

Johnson & Johnson and the 38 other companies and organizations 

that support the Coalition Text, these costs are a tradeoff worth 

making in favor of improved patent quality and reliable enforceability. The Coalition Text does not include any provision for subsequent post-grant oppositions, although ex parte and inter partes reVerDate 0ct 09 2002 11:11 Jul 02, 2007 Jkt 035851 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35851.TXT SJUD1 PsN: CMORC
7

examinations will continue to be available to would-be patent challengers throughout the life of the patent. 

To provide a so-called second window opposition, especially one 

with lowered collateral estoppel and burden of proof standards, as 

suggested, for example, by Mr. Chandler, would be grossly unfair 

to patentees. Such proceedings would be counterproductive to participation in first window oppositions, would provide an unfair second bite at the apple to accused infringers, would likely add to the 

ultimate expense of patent enforcement, would provide an opportunity to infringers to disrupt patent rights near or at the end of 

the patent’s term, would create the potential for concurrent and/or 

conflicting opposition and court proceedings and appeals, and/or 

would unfairly delay rightful enforcement of valid patents. 

Understandably, second window opposition proposals have been 

widely opposed within the intellectual property community, not 

only from those who oppose first window oppositions, but from a 

far broader spectrum of stakeholders, including AIPLA, IPO, ABAIPL, PhRMA, BIO and many others from a broad base of industries, including Johnson & Johnson. 

Another important aspect for patent reform is inequitable conduct. This defense, which has become the defense of last resort in 

patent cases, has a negative impact both on patent litigation and 

on the practice before the Patent Office. 

Although the National Academies recommended that this defense 

be eliminated, the Coalition Text proposes to preserve it, but to 

apply two threshold limitations: a pleading limitation requiring 

that at least one asserted claim first be held invalid, and an evidentiary threshold requiring that the challenger show that but for 

the inequitable conduct the patent would not have been allowed. 

On the damage issue, Johnson & Johnson, frankly, sees no need 

for reform. Throughout the debate in the House and here again 

today, proponents of damages reform failed to support their position by citation to court cases showing that the courts are getting 

it wrong. In our experience, they simply are not. Where lost profits 

are involved, and where nexus is shown between the patented invention, its features, attributes and characteristics, and those included in the accused infringing product, we see no problem in having the royalty base include the entire value of the infringing product or process. 

There are areas of common ground, however, including agreement or apparent agreement on venue, on adequate funding for the 

United States Patent and Trademark Office, and on approaches 

that would punish people who attempt to game or otherwise abuse 

enforcement proceedings. 

I look forward to working with the Committee on these issues 

and any others that may come to the fore. Thank you. 

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

for the record.] 

Chairman HATCH. Thank you, Mr. Johnson. 

Senator Leahy is here, and he takes a tremendous interest in 

these intellectual property issues. We will take his statement at 

this time. Mr. Myhrvold, we will turn to you as soon as he is 

through. 

8

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

FROM THE STATE OF VERMONT 

Senator LEAHY. Thank you, Mr. Chairman. As you know, we are 

handling immigration on the floor, so we are kind of juggling back 

and forth. Unfortunately, it seems that everything that goes on 

goes through this Committee as of recent time. 

But the very complex issues in patent litigation, something that 

Senator Hatch and I have been grappling with for years, we were 

kind of asked by a lot of the others, both parties, to do that. A 

number of you I have met with both here and out of this room, so 

it is helpful what we are hearing from our witnesses. As I look 

around the room, I see an awful lot of people I have worked with 

over the years, and appreciate their help too. 

We have to figure out what the proper scope and form of review 

procedures are after the Patent and Trademark Office has granted 

a patent. It raises matters of patent law, administrative adjudication, and litigation strategies, all of these things. I think we have 

to keep in mind what our Constitution said, enshrined patent 

rights for the reason ‘‘to promote the progress of science and useful 

arts.’’ There is no mandate from the Founders that we embrace any 

particular approach to the patent litigation system, no requirement 

that we favor one side or another in a patent dispute, no directive 

to ensure that any other policies, however laudable they might be, 

be advanced. We are charged with creating and maintaining a system that gives inventors exclusive rights in their inventions for 

limited times in order, as I said, to promote the progress of science 

and useful arts. 

I believe an effective post-grant review procedure can and should 

do just that. It allows us to weed out efficiently invalid patents. 

The PTO can correct its own errors, and they do make errors. Infringement claims can be evaluated more effectively. And patent 

holders can be more confident in the rights secured to them. 

I have read over the written testimony. We could have a little 

bit of a lively debate among the people who are here. In fairness, 

I have said before I favor a strong post-grant process, including a 

limited—understand the word—limited second window in the event 

that a patent holder sues for infringement. But there are a multitude of subsidiary issues to be addressed within that framework. 

I do want to note, in closing, the strong praise I have of Senator 

Hatch for doing this. He and I have tackled these things over the 

years, I think sometimes, Mr. Chairman, when nobody else wanted 

to. We have always been able to reach a bipartisan conclusion. I 

think we are better for that, and that is what we are trying to do 

here. 

So I will put my whole statement and any other statements from 

this side in the record. 

Chairman HATCH. Without objection, so be it. 

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

Chairman HATCH. We are so happy to have Senator Leahy here. 

When we get together, we can get things done, and so we are working hard on this to try and come up with something that will hopefully bring the parties together. That is pretty tough to do. 

9

Mr. Myhrvold, we are honored to have you here, and look forward to your testimony. 

STATEMENT OF NATHAN P. MYHRVOLD, CHIEF EXECUTIVE 

OFFICER, INTELLECTUAL VENTURES, BELLEVUE, WASHINGTON 

Mr. MYHRVOLD. Well, I am honored to be here, Mr. Chairman, 

Member of the Committee. I am here to talk from the perspective 

of an independent inventor, which is my current job title. I filed 

more than 100 patent applications myself, but prior to this, I was 

Chief Technology Officer of Microsoft for 14 years, so I also something of the issues that happen in a big company. 

The first point I would like to make is that this really is an issue 

about property rights, and the patent system bestows property 

rights on an idea in order to give that idea the same status as any 

other kind of property in our capitalist system. It is very important 

that we keep that property right and that we keep it for small inventors. So regardless of whether it is Cisco or Microsoft, many of 

the most exciting huge companies today were tiny companies in recent memory, started by one or two people that had a great idea. 

And it is very important that this Committee keep that in mind. 

The small seeds are what grow this great forest of ideas. Going forward, to be competitive, we need to keep that. 

I think my second point is that this is not about tort reform. Although litigation is part of the patent system, I do not think this 

is really a tort situation. It is not about an abuse—there are, of 

course, abuses to litigation. There are abuses of every system that 

people have. I would suggest to you that the patent system is not 

quite in the state of crisis some others may think it is. Patent litigation is the least common form of intellectual property lawsuit, so 

it is lower than both trademark and copyright. It has been growing 

because the number of patents have been growing, but on the basis 

of the litigations per patent, that has been declining. In fact, it is 

at the lowest now that it has been since 1995. 

The court records show that the number of cases that reach trial 

has been flat in recent years. 104 cases reached trial in 1998, 107 

did in 2005. That is not a giant crisis. 

The awards for patents have gone up, but so has the stakes in 

technology. We took a look at added up the awards of the top set 

of tech companies that have paid big awards, and we discovered 

that over a 13-year period, this set of companies had paid $3.7 billion. It is a lot of money, until you consider that their revenue for 

the same period was an incredible $1.4 trillion. I think maybe the 

Senate is the only place you can go and say trillion and not have 

it be a big number, just amazing. 

So if you take those patent cases—

Chairman HATCH. That was a terribly cheap shot, but it was—

[Laughter.] 

Mr. MYHRVOLD. But I know you are not disputing it. 

[Laughter.] 

Chairman HATCH. No, no, I think you have a very good point. 

Mr. MYHRVOLD. All together, these losses to patent things 

amount to about one-quarter of 1 percent of the revenues of these 

companies over this period. So while it is great to reform it and I 

10

am for many kinds of patent reform, we should keep in perspective 

this is not a litigation disaster. When you look at the companies 

that receive those payments, they are mostly very honorable companies. 

Post-grant review is a very important topic. I want to first 

though mention that the existing forms, ex parte and inter partes 

are far more successful than they are made out to be. Ex parte in 

2005 handled 524 cases. That is more than five times the caseload 

that the Federal courts handled. Inter partes only really got going 

in 2003, so it is 3-years-old. It doubled between 2004 and 2005. It 

is already over half the rate, the caseload. 

So why are we looking for a new one? Why do we need a new 

post-grant mechanism? I suggest it is because this is a slippery 

slope. If you want a streamlined procedure, you have to take something out, or it has the full cost of trial. But if it is streamlined, 

there is a lot of advantages to going to trial. So as a result, we continually creep along, adding more and more features to these postgrant reviews, trying to recapitulate and recreate what a trial is. 

And so my solution to that is to suggest that in fact a dedicated 

patent court might be a better approach. Rather than say let’s create a semi-trial over in the Patent Office and a full trial in the judiciary, let’s restructure the trials in the judiciary to eliminate forum 

shopping, eliminate a bunch of the things that make it difficult and 

complex. 

With respect to first and second window, I would go back to what 

I said at the beginning, the small inventor is incredibly important 

here. We need to be able to give them certainty and give them 

speed. An extended period of review after the patent is issued 

means, in practical sense, they do not have the patent yet. Their 

financial backers probably will not give them the extra thing. They 

will say, ‘‘Now, wait a minute. You have to go that extra period.’’ 

It is like increasing pendency, the amount of time it takes to get 

a patent. 

Second window, I would agree with Mr. Johnson, is an incredible 

burden to place on the patent holder, and it is not going to serve 

a purpose of actually taking anything away from trial. 

To echo remarks that you made, Mr. Chairman, there is a huge 

public value to bad patents being taken out of the system. A strict 

time limit on a first window—if we need one; I am not convinced 

we do—but a strict time limit creates the incentive for people to 

speak now or forever hear your piece. 

And I see that I have actually run over my time, so thank you 

very much. 

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

Chairman HATCH. Thank you. We appreciate hearing from you. 

Professor Thomas, we will turn to you. 

STATEMENT OF JOHN R. THOMAS, PROFESSOR OF LAW, 

GEORGETOWN UNIVERSITY LAW CENTER, WASHINGTON, D.C. 

Mr. THOMAS. Thank you, Mr. Chairman, for the opportunity to 

testify on the subject of post-grant review procedures. 

I appear today on my own behalf as a concerned observer of the 

patent system. 

11

One of the issues the two previous witnesses had discussed relates to time limits. Is there to be an initial 9-month period for oppositions, and then followed by a 6-month second window. As you 

have just heard, imposing time limits is justified on the basis of uncertainty and burden. I think that further explanation of this issue 

is appropriate. The 9-month period appears to be adopted from the 

European Patent Convention, which I think is a similar limit. However, the European Patent Convention does not put an end to patent challenges after the 9 months. Signatory states of the European 

Patent Convention are free to challenge patents in different national member states at the national level, and nullity proceedings 

or other sorts of proceedings once the 9 months expires. 

In the U.S., the Patent Act places no limit on filing a reexamination, and indeed, patent proprietors obtain the ability to tune up 

their patents by returning to the U.S. PTO and filing a reissue procedure throughout the entire term of the patent. 

Similarly, continuation practice, the doctrine of equivalence, create a relatively fluid environment for patent claims. Within that 

environment I think it is relatively difficult to make the case that 

lenient opposition time limits will contribute to uncertainly. 

Strict time limits may also detract from the ability of an opposition to serve as a prompt, inexpensive mechanism for assessing a 

patent’s validity. Patents often issue long before the inventions 

they claim become commercially viable. Areas of which you know 

very well, pharmaceuticals and medical devices, patents often issue 

years before FDA marketing approval occurs. 

Other patents are sold to owners of more aggressive litigation 

postures. Other patents describe inventions that are simply ahead 

of their time. So debate over time limits for oppositions may not 

be properly centered on whether we ought to have a 6-month window, but really whether we ought to have any time limits at all, 

for filing the opposition. 

You will note there is a time limit sense that we ought to avoid 

harassment of patentees. Experience under the German patent system suggests the opposite. There used to a 5-year limit on contesting validity for German patents, and the experience was that 

virtually all of the oppositions were filed on the eve of the 5-year 

deadline. When they got rid of the deadline, suddenly the number 

of oppositions dropped. 

On the other hand, there may be concerns that the availability 

of the second window discourages potential opponents from taking 

advantage of the first window. One way of solving that problem, 

again, based on German practice, is to adjust the presumption of 

validity. Under the law of many European states, a presumption of 

validity does not attach during the initial opposition period, but it 

would attach in a subsequent nullity proceeding. We could borrow 

from that approach here, allow a presumption of validity to attach 

in the second window, but not in the initial term for an opposition. 

Now, following the lead of Professor Mark Janis, I would also encourage Congress to consider, when looking at some of the particulars of patent opposition proceedings, to look at trademark opposition proceedings. The U.S. PTO has run a trademark opposition for 

many years without really any sort of significant complaint, got 

lots of rules like discovery and motion practice. While I do not want 

12

to naively suggest that those ought to be transferred to the patent 

context where the stakes can be higher and the issues more numerous and complex, it seems like a good starting point. Also, certainly 

opposition procedures ought to reflect the substantive patent law 

provisions they complement. So if the substantive provisions tend 

to lead to less complex issues like a first inventor to file a priority 

system or elimination of thus mode, that would certainly weigh 

against discovery provisions in an opposition. It would seem that 

if we streamline those provisions there is certainly less need for 

discovery. 

Senator, you have already mentioned the public goods problem 

that accompanies patent litigation. The legislation that bears your 

name, the Hatch-Waxman Act, incorporates 180-day generic exclusivity to account for those kind of public goods problems. Within 

the oppositions, as you have mentioned, one mechanism for recognizing the public interest involved in patent challenges would be an 

attorney fee shifting rule with respect to oppositions. It could be 

two way, it could be one way, in favor of a successful patent challenger. Of course, another thing to think about is who is going to 

bring the oppositions, but also how they are going to terminate. Of 

course, many patent adversarial proceedings terminate by settlement, and, of course, that potentially leaves an invalid patent on 

the books. 

So one notion to think about is should we have a notice-based 

proceeding like the Medicare Modernization Act or Hatch-Waxman 

pharmaceutical litigation, or should, in fact, like the reexamination 

statute, we compel that these oppositions run to their full term. 

Thank you very much. 

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

for the record.] 

Chairman HATCH. Well, thank you, Professor, we appreciate it. 

Mr. CADEL.

STATEMENT OF ANDREW CADEL, MANAGING DIRECTOR, ASSOCIATE GENERAL COUNSEL AND CHIEF INTELLECTUAL 

PROPERTY COUNSEL, JP MORGAN CHASE, NEW YORK, NEW 

YORK; ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE AND BITS 

Mr. CADEL. Thank you. Chairman Hatch and Ranking Member 

Leahy, my name is Andy Cadel, and I am a Managing Director, Associate General Counsel and Chief Intellectual Property Counsel at 

JP Morgan Chase, and I am pleased to be testifying today on behalf of the Financial Services Roundtable and BITS, which are affiliated financial services trade associations. 

As you know, the financial services community—

Chairman HATCH. Is your microphone on? 

Mr. CADEL. I believe it is. Maybe I am not talking close enough. 

Chairman HATCH. You might need to pull it a little closer. 

Mr. CADEL. Better? 

Chairman HATCH. I can hear, but I am not sure people in the 

back can. 

Mr. CADEL. If you cannot hear me, let me know. 

As you know, the financial services community is intensely interested in patent quality and litigation issues, and is grateful that 

13

you are considering these matters. We believe that various provisions can be adopted which will make our patent system and effective and efficient mechanism that fosters economic growth, and 

have submitted written testimony to this effect. 

In my oral testimony I would like to focus on two of these provisions: one, creating a meaningful opposition proceedings with two 

windows; and two, establishment of an interlocutory appeal for 

Markman rulings. 

In the opposition proceeding, the PTO proposed a post-grant review of patent claims in its 21st Century Strategic Plan that was 

released in 2002, and we strongly support establishment of an opposition proceeding, again, with two windows. 

With respect to the first window, we recommend that the opposition procedure allow the public to petition the PTO to cancel one 

or more claims of a patent within 12 months of issuance. The counterpart U.K. opposition law provides a period of 24 months, European Patent Convention is only 9 months. So we respectfully suggest that this reasonably moderate time of 12 months is a good 

midpoint. 

With respect to a second window, we recommend allowing anyone who is threatened with a patent infringement action to follow 

the request for an opposition proceeding within 6 months after receiving notice of the patent infringement action. Without the second window, the opposition proceeding would not achieve its goal 

of significantly improving patent quality by having suspect patents 

reviewed. 

In the United States the financial industry has no infrastructure 

in place to monitor patents in time for parties to take full advantage of the first window. As many products and services today integrate multiple technologies, it will be difficult, if not impossible, to 

monitor all the categories necessary in the time allotted for the 

first window. Further, the public often does not truly know what 

the patentee intends for the scope of the claims until the patent is 

enforced. 

We respectfully submit that it is just not reasonable to expect 

businesses to review all patents issued within a year of their issue 

date, determine every possible interpretation an inventor may ascribe to the claims, identify those of suspect validity, and then undergo the expense of attacking all those that may be applicable and 

suspect during a first window. I suggest that is difficult for large 

institution such as financial firms, even harder for small businesses. 

For both windows, launching an opposition would foster a more 

detailed scrutiny of patents than ordinarily occurs during the typical 25 hours or less of examination at the PTO. A first window 

could be subject to a preponderance of evidence standard for showing of validity, and the second window could be generally subject 

to a clear, convincing standard for proof of validity, consistent with 

current treatment in trial court to foster efficient use of dispute 

resolution resources. 

The second topic I would like to address is interlocutory appeals 

and Markman hearings. One of the most, if not the most, important determinations in a patent litigation is the determination of 

the meaning of the claims. This determination takes place early in 

14

the suit during a Markman hearing, and will eventually define the 

scope of the patent. This determination is crucial to the question 

of both validity and infringement. It is difficult to overstate the importance to the parties of obtaining a claim construction they can 

rely on. 

District Court patent claim interpretations are frequently overturned by the Federal Circuit. For instance, in the period from 

1996 to 2003, 35 percent of District Court claim interpretations 

were overturned by the Federal Circuit. The inconsistent claim interpretations between the District Court and the Federal Circuit 

create uncertainty and imbalance between the parties. 

An interlocutory appeal to the Federal Circuit should be permitted after a Markman hearing. This procedure would help to 

mitigate the judicial inefficiency that occurs when a full trial is 

conducted based on an incorrect interpretation of a patent at the 

District Court proceeding, and then the Federal Circuit modifies or 

reverses that interpretation and orders a new trial based on that 

modified interpretation or reversal. 

In addition to the attorneys’ fees and other incurred costs, litigants also pay heavy business costs due to this uncertainty. For example, litigants may experience escalated business costs because of 

delayed product launches and decreased productivity, which arise 

from distracted key employees, who must focus on litigation instead of their business. 

Interlocutory appeal will bring more certainty to claim construction to help each party more accurately evaluate its settlement position, which in turn will lead to earlier settlements and fewer 

suits in the legal system. Moreover, interlocutory appeal removes 

the undue advantage that a party who benefits from an erroneous 

claim construction has not only on the opposing party, but to others 

in the industry who fear they will be subject to the same faulty interpretation. 

The Financial Services Roundtable and BITS membership believes the U.S. patent process is fundamental to a healthy U.S. 

economy and a robust free enterprise system, and we thank this 

Committee for taking up this important matter. 

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

for the record.] 

ChairmanHATCH. Thank you so much. 

Senator Leahy. 

Senator LEAHY. Mr. Chairman, I am going back to the floor, so 

I will submit my questions. I wonder, with your permission, if I 

just might ask one? 

Chairman HATCH. Sure. 

Senator LEAHY. Mr. Myhrvold says that—did I pronounce your 

name correctly? 

Mr. MYHRVOLD I have been called worse. Yes, Myhrvold is fine. 

Senator LEAHY. OK. You said patent lawsuits are declining. Of 

course, Mr. Chandler said they are on the rise. Now, I would like 

to know who is correct, also what these suits are about. If they are 

legitimate disputes, then the numbers do not bother me as much. 

That is what I was taught at Georgetown, that is what the courts 

are there for. Of course, if their business strategies masquerade in 

15

this case in controversy, that is another thing. Are they going up 

or are they going down? Who wants to—Mr. Chandler? 

Mr. CHANDLER. The numbers that we have—and I am not sure 

they are inconsistent, I think they are consistent with what was in 

your testimony as well—there were 1,212 suits filed in 1990, patent 

suits; in 2004, 3,055; in 2005, 2,700, so I think the consistency—

as Mr. Myhrvold pointed out, they declined from 2004 to 2005. 

That is certainly true. The trend since 1990 has generally been up, 

would be our view of how the numbers play out. 

Mr. MYHRVOLD. The number of suits has gone up, I do not dispute that it has gone up. However, it has gone down in many important measures. It literally went down between 2004 and 2005, 

as noted, but since 1995, the number of lawsuits per patent has declined. So that means the likelihood a given patent is in a lawsuit 

is declining. 

We should expect, if 50 years from now we have 100 times as 

many patents, there is likely going to be 100 times as much economic activity around it, there will be some additional suits. But 

since it is on a per patent basis, it is low. 

The other thing is the number of suits that are filed is quite different than the number that actually go to trial, whereas 2,700 

suits were filed in 2005, 107 of them actually cases were heard in 

court. 

Senator LEAHY. Of course, settling cases is good if you really settle to the parties’ satisfaction. If you are settling to pay off nuisance factor, that is an entirely different thing. If you have a true 

case in controversy, and the parties come together to settle, that 

is not a bad thing. If it reflects hold-ups, it is a bad thing. I will 

put my questions in the record. I was fascinated by something that 

Professor Thomas said about the German system—I think I am 

paraphrasing this correctly—that they used to have a deadline, and 

so a whole lot of suits got filed by the deadline. They got rid of the 

deadline, the number of suits went down because you did not have 

to worry about your rights being cutoff. Did I state that basically 

correct? 

Mr. THOMAS. You did, sir. 

Senator LEAHY. Thank you. When I was at Georgetown Law 

School I was not used to asking the professors questions. They usually asked me, and the answer could have been way up in the air. 

Here I got a direct answer. Thank you. 

Mr. Chairman, thank you for your courtesy. 

Chairman HATCH. Thank you, Senator Leahy. We appreciate 

your attention to these type of very serious issues. 

Let me start with you, Mr. Chandler. One of the most controversial questions about post-grant review is whether parties should be 

forced to initiate an opposition proceeding during a short window 

of time after a patent is issued. Some stakeholders, primarily in 

the technology and financial services sector, suggest that it would 

be very difficult, if not impossible, to identify problematic patents 

within the first 9 or 12 months after issuance. Could you explain 

more fully why this is so difficult, this would be so difficult, and 

also any specific examples or illustrations of actual patents would 

be helpful as well. 

16

And, of course, after Mr. Chandler gets his answer, I would be 

happy to hear from any other witnesses who would agree or disagree with what he has to say. 

Mr. CHANDLER. Sir, the principal reason why a short first window would not suffice is that the ability to determine when a patent is issued, the way those claims will be applied by the patent 

holder in bringing an action is very, very constrained. I think Mr. 

Cadel referred to this in his testimony as well. 

In the case of our products, there are potentially tens of thousands of patents which someone could try to say somehow applies. 

We have numerous pieces of litigation that we have had where 

there is no way, if you look at the patent, you would imagine that 

someone would try to apply it to the product that we have because 

of the way the patent was granted before in a way that referred 

to things totally different than what we are doing. 

I will give you one example. We have one suit currently pending 

where a gentleman who had been involved in religious studies and 

in a seafood importing business, had not technical background, was 

receiving literature through his fax machine, and thought of a way 

that he thought it would improve the way fast mass fax distribution would occur. He worked with a patent lawyer, filed a patent. 

There’s nothing in there that would make you think it would apply 

to anything we do or that it would have been picked up in any kind 

of search when the patent was issued. He eventually claimed that 

he had created the Internet. I think there were former Federal officials who may have a higher claim than he does to that. 

Chairman HATCH. We know some around here. 

[Laughter.] 

Mr. CHANDLER. And yet, at this stage of the game, we are faced 

with having a high burden with a presumption of invalidity to try 

to go back and show that there was not much inventive content in 

what he did. And that is the problem is that if—you referred to the 

issue of the presumption earlier, the presumption of validity. When 

we look at a second window, we are talking about working immediately after a claim of infringement comes, so the defendant would 

have to move very, very quickly, and then having that decided by 

the experts with all the appropriate evidence I front of them, and 

without being burdened with a presumption of validity that will 

preclude effective review. 

Chairman HATCH. Mr. Myhrvold? 

Mr. MYHRVOLD. You know, I think that largely this is a cultural 

issue between different industries. Most tech companies that I’m 

familiar with—and as I say, I used to be chief technology officer of 

one—tell their employees not to look at patents. They have no procedure for checking patents. The reason 6 months wouldn’t be 

enough is, if you don’t read them at all you’re not ever going to find 

out. 

Now, the reason they don’t do that is twofold. One is that they 

figure it will slow people down to worry about those things. Better 

to get out in the market and we’ll sort out the issues later. It’s a 

cultural thing in that there’s never been a tradition of doing that. 

Now, in the wireless industry, that’s quite different. Qualcomm 

is an example of a company that is very prominent, but everyone, 

actually, in the wireless industry, also very high-tech, just as comVerDate 0ct 09 2002 11:11 Jul 02, 2007 Jkt 035851 PO 00000 Frm 00020 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35851.TXT SJUD1 PsN: CMORC
17

plicated a set of products as a Cisco or a Microsoft or an Intel 

would create, and there they’re really on top of it. I see this when 

my own patent applications are published. You know, 18 months 

after you file, the application is published. And in some areas, if 

the application is published, no one seems to look. And in other 

areas, where it’s in an industry that people are really engaged with 

the patent system, you get pieces of e-mail or people call you up 

within days, weeks of a patent being published on the PTO Web 

site. So they’re absolutely are industries that watch very, very 

closely. 

Chairman HATCH. Anybody else? 

Mr. JOHNSON. Senator? 

Chairman HATCH. Yes, sir. 

Mr. JOHNSON. We think there’s plenty of time. We do read patents in our industries. But now that patent applications are by and 

large publicly available within 18 months of filing, you frequently 

have a year, 2 years or more before the patent issues. There’s really no reason, having watched the patent application go through 

prosecution, that a 9-month period of time isn’t plenty of time within which to put together an opposition and file it. 

Mr. CADEL. In our experience, we do watch patents in areas 

where we can predict where they’re going to come from. So we look 

at our competitors, for instance. That’s an area where it’s predictable and we know what to look for. But I have to agree with Mr. 

Chandler that, at least in our industry, in my experience, it is extremely difficult to anticipate how some of these patents are going 

to be interpreted, and it is rather routine for us to be contacted by 

an inventor, presented with a patent and the claim that we’re infringing it, and we look at it and in all candor have no idea where 

this thing might apply in our business. 

And, you know, maybe that’s because we run everything from—

on just the technology side, everything from the ATM machine that 

you’re getting cash from all the way through our settlement systems, all the way through systems that have to price complex derivatives in multiple currencies. But there’s just a tremendous 

amount we’re doing and there’s a tremendous amount of vagueness, frankly, in a lot of the patents that are being issued. And for 

us to make that connection within a year is just difficult. 

The other question, just to address what Mr. Johnson said, is 

that we find that a lot of patents are filed with requests for confidential treatment. So a lot of the patents that we’ve seen issued 

we haven’t had notice of within the 18-month publication period, 

but in fact we don’t hear about until they’re issued. 

Mr. THOMAS. Senator, if I may. Let me simply note I’m somewhat skeptical that this is a matter of tradition and culture and 

some industries are very vigilant and others are just lazy and they 

deserve the results that they get. The fact is, in certain industries—and chemical and biotech are among them—there’s a standard nomenclature. We use a standard Geneva nomenclature to describe small molecule chemicals. So when you read the claim on the 

patent, there it is. Now, it’s not always like that, but there’s much 

more of a standard in nomenclature. Finance and business software, there’s much less of a standard nomenclature. 

18

And again, let me remind you, as some of the witnesses have already said, this is a private regulatory environment of enormous 

complexity, with 3,000 to 4,000 patents issuing every Tuesday and 

that number growing month by month. So to impose a burden of 

observation, it’s an incredible burden even for those patents that 

are published prior to grant. 

Thank you. 

Mr. JOHNSON. Senator? 

Chairman HATCH. Mr. Johnson. 

Mr. JOHNSON. Speaking as someone who is in the biotechnology 

industry, I’d like to point out that there’s anything but a standard 

nomenclature relating to biotechnology inventions. And in fact, 

early on in the biotechnology development, there were issues of description that had to be sorted out and regulations and approaches 

developed. But they were indeed developed. 

The patent laws require, under 35 U.S.C. Sec. 112, that the applicant for a patent provide a written description of his invention 

and, further, that he particularly point out and distinctly claim 

that which he regards to be his invention. And that requirement 

is one which should be enforced in the Patent Office, and is, and 

in the courts as well. Indefiniteness is a reason to invalidate a patent claim. If the argument is that the courts aren’t doing their job 

on invalidating patents because they’re indefinite or there is no 

written description, or the claiming isn’t sufficiently definite, the 

cure is not to institute additional proceedings or engender hostility 

toward the system overall, it’s to reinvigorate the Section 112 

standards that should apply. 

It was always understood as part of the patent grant that the reward would only come to those inventors who would disclose their 

invention. The reward is not just for inventing. The reward is also 

for disclosing the invention so that others may garner information 

that will help them in their own endeavors, albeit perhaps not commercial ones until the patent expires. 

Mr. CADEL. Chairman Hatch, maybe just one more thing. If it 

would be helpful to you, we’d be happy to submit some patents that 

we’ve been presented with, so that you can see the exact challenge 

that we’re up against in trying to—

Chairman HATCH. It would be helpful if you would do that. 

Now, Mr. Johnson, in your testimony you seem to make the point 

that having a second window undermines the public interest, as I 

see it, in two ways, the way you seem to say. First, you argue that 

it would reduce incentives to bring a challenge in the first window. 

That’s delaying the invalidation of defective patents. And second, 

you say it would create uncertainty for the patentee, which decreases the patentee’s incentive to invest in commercializing an invention. 

Could you just expand a little bit on these points? And specifically, why do you believe that having a limited first window is the 

most appropriate way to create incentives for earlier preemptive 

challenges. And also, since the court could make an invalidity determination at any time during the life of the patent, why would 

having a second window substantially increase the uncertainty for 

patentees? 

19

And of course after Mr. Johnson gives his answer, I would be 

happy to get some others. 

Mr. JOHNSON. Well, I think on the first point, Professor Thomas 

has given me a tail wind by pointing out that the German experience was that people who had oppositions, if there’s one window, 

will file them before the time limit expires. Indeed, if you are 

aware as a competitor of a piece of important prior art, a patent 

or a publication that might invalidate a patent, and you know that 

you can sit on your hands for as long as it takes until someone 

happens to charge you with infringement, why in the world would 

you begin an opposition procedure? In your mind, you have in essence a personal defense to the patent. 

And so you’ll let the patent stay out there, where it may chill the 

competitive activities of others. That’s the best of both worlds for 

the person who knows of such prior art. But it’s not the best result 

as a matter of public policy. 

For areas where people do read patents and do adjust their behavior accordingly, if there is an invalid patent that’s issued by the 

Patent Office, we want it to be removed. That way, other people, 

who are designing their research and development activities and 

deciding what new products can come out, can do so with a fair understanding of what the patent landscape will be. 

We will never know, in a situation with a second window opposition proceeding, how many drugs weren’t developed, how many 

other important products weren’t developed because someone, in 

essence, suppressed a piece of prior art waiting for a second window in the event they should ever have to use it. So I feel very 

strongly that the public interest should be to encourage immediate 

presentation of all prior art. 

Now, as a practical matter, patents do more than simply reward 

the invention by the grant of a patent. In today’s world, an increasingly complex technological world, it takes millions to hundreds of 

millions to a billion dollars or more to develop some inventions for 

market. That’s certainly commonplace in the pharmaceutical and 

biotechnology areas. Calculations are made when people decide 

whether or not to fund these development programs as to what the 

technical risk is, what the patent risk is, what the market might 

be, and the expected period of exclusivity. And part of the patent 

risk that goes into these calculations is the likelihood that someone 

will choose to challenge the patent as invalid. 

If we can move that risk forward so that people who have challenges will bring them, say, within the first 9 months after 

issuance, drugs which are not now developed may indeed be developed, because we will be reducing the patent risk and leaving the 

companies who are deciding to make the investment only with the 

technical risk. And standing alone, the technical risk may be tolerable. And indeed, we may find, and I expect we will find, that if 

patents become more reliably enforceable—and I’m talking about 

high-quality, valid patents becoming more reliably enforceable—

that will stimulate more investment in research and development, 

which is much needed in many areas, not just in the health care 

area, but in many areas that are important to this country. 

Chairman HATCH. Anybody else? 

20

Mr. CADEL. I mean, just on the question of why would you bring 

an opposition in the first window, I think there are a few things 

I’d like to raise. One is we suggested we think there should be an 

escalating burden of proof in a second window. I think everyone—

it sounds like everyone can agree that you want as much brought 

in the first window as possible, so there should be things to encourage that. 

I have to disagree with the contention that sitting on prior art 

is the best strategy. We, too, spend a lot of money in research and 

development and putting out new products. We spend a lot of 

money in marketing. It’s really not in our best interest to play legal 

chicken and have this piece of prior art sitting in my desk and, you 

know, hoping that if there’s a challenge brought to a patent that 

I’ll be OK under that. My preference would clearly be, if there was 

a good opposition proceeding, to take that prior art, challenge it, 

get the patent off the table so I can go ahead and market and just 

win in the marketplace as opposed to have to have that worry 

hanging over me. 

The second point that was raised is on the question of the importance of getting more certainty behind your patents. It’s been 

raised an the context of raising money. Obviously, as an investment bank we spend a lot of time, and I personally spend a lot of 

time, looking at companies that we’re either going to invest in or 

we’re potentially going to buy and looking at their patent portfolio. 

And as you mentioned earlier in your statement, there is no guarantee ever of clean title or quiet title in a patent. It’s always subject to an invalidity challenge as a defense in litigation. 

So the idea that having a first window then gets rid of that, I 

think, is false. What we find in the investment community is 

there’s a very big difference between the presumption of validity 

that you have in the courts and a presumption of validity in the 

marketplace. There is no presumption of validity in the marketplace. If a company comes to us and they have a patent portfolio, 

we don’t look at that and say that’s great, this is definitely 100 percent, we have this market locked up. We look at things like was 

this patent ever challenged. Was it challenged in court—that’s 

great. Was it brought up through the appeals process in the Patent 

Office. 

All these things strengthen the patent, and I believe that 

throughout the life of any patent you’re going to have challenges. 

It’s important to be able to have those challenges and to make sure 

that the patents you have outstanding are still valid, but there 

shouldn’t ever be a point in time where we say this patent is valid 

and there’s no further challenge to it. And I don’t think the markets require that. 

Mr. MYHRVOLD. You know, if you look at the set of legal articles 

that lawyers have written about patent litigation strategy, you’ll 

discover an overwhelming number of them explicitly recommend, if 

you’ve got great prior art, you probably don’t want to put it into 

one of the existing procedures. It literally is the advice. I’ve been 

given that advice by attorneys when we were at Microsoft—you 

know, no, don’t start the reexamination because—It’s streamlined, 

but if you really care about whether you win or lose, the difference 

in cost isn’t worth the difference in potential outcome. So most trial 

21

attorneys, not surprisingly, will recommend you wait for a trial. 

That’s what they’re good at. 

So I think that this issue of people sitting on the best prior art 

absolutely exists. And I know personally of many cases where people do that. If you look online at people’s strategy papers, they explicitly say it. 

Mr. CHANDLER. Mr. Chairman? 

Chairman HATCH. Yes. 

Mr. CHANDLER. I think it’s important to go back to the first principle, which is what we are seeking is to have a fair and level playing field to assess the quality of a patent and to assess its patentability. The court system does not provide that because of the presumption. 

I think what Mr. Myhrvold has just referred to advice to avoid 

the existing procedures is exactly the case that’s being made for a 

new procedure. Mr. Johnson in his written statement referred directly to the various types of challenges to patentability that are 

not currently permitted in the ex parte process. It doesn’t cover indefiniteness of claims. It doesn’t cover best mode. It doesn’t cover 

enablement. It doesn’t cover prior sale. So I would agree completely 

that the existing processes are not a desirable place to go. 

Unfortunately, it’s a rock and a hard place for those of us who 

would not have the ability, as Mr. Cadel pointed out, to readily determine on a consistent basis what patents might be asserted 

against our products at the time the patents are issued. And that’s 

why we seek a short, speedy, and not expensive process when we’re 

on notice of infringement to go have experts at the Patent Office, 

with appropriate evidence, take a fair look at any patentability 

issues that might arise. 

Mr. THOMAS. Senator, if I may, I think the issue before you is 

whether we ought to encourage prompt patent challenges through 

the Draconian sanction of disallowing individuals from bringing 

them at all. Fifteen months seems like a fairly short period of time 

in the 20-year patent term. Again, when the United States stands 

apart from patent-granting jurisdictions which usually invite comparison, I think we ought to ask why are we somehow limiting the 

right of members of the public to challenge these important rights. 

Again, patentees traditionally have enjoyed, since the 19th century, the ability freely to amend their claims at the Patent Office 

throughout the entire term of the patent. The issue is whether 

third parties should face the same restrictions. It seems to me 15 

months is already a considerable restriction. 

Mr. MYHRVOLD. Mr. Chairman, do you wish to hear one last 

word? 

Chairman HATCH. I will hear one last word, then I have another 

question. 

Mr. MYHRVOLD. First of all, we’re not proposing that members of 

the public can’t freely challenge patents using other procedures, 

such as inter partes or ex parte reexaminations. But the more expanded provisions in an opposition proceeding, we are suggesting, 

should be done right away. This is especially true because they relate to issues which should be apparent on the face of the patent. 

If you can’t tell, for example, what the patent is claiming, as Mr. 

Chandler has suggested, you can tell that by looking at the patent 

22

and you can bring your opposition immediately and get it taken 

care of. 

But why are we doing this? Why are we worrying about this? It’s 

because of what Mr. Myhrvold, Dr. Myhrvold, suggests, which is it 

is important for our society to provide a reliable patent right if we 

want science and technology to move forward. And that is, after all, 

the primary purpose of the patent system. 

Chairman HATCH. Well, thank you. Let me just say, in his written testimony, Mr. Myhrvold notes the perceptions vary about what 

constitutes a so-called patent troll and comments that it is all but 

impossible to pin people down on exactly what a patent troll is. I 

myself refer to them as good patent trolls and bad patent trolls. 

And I have to admit this may not work. I have to admit that I have 

had the same experience as we have looked at these matters. 

So in hopes of clarifying the issue, let me just address this question to each one of the witnesses. We will start with you, Mr. Chandler. Exactly what is a patent troll. Just give us the best shot you 

have, OK? 

Mr. CHANDLER. OK, I don’t—I didn’t coin the term. That derivation is elsewhere. I really don’t find it a useful category for addressing the issues. I think what we have is a setting where, for 

a number of reasons largely due to recent court decisions, the patent system now creates a huge amount of leverage through litigation and the threat of litigation. And when parties choose to try to 

receive fees for their patents based on the fact that a validity challenge will be very hard to do, based on the fact that it can be made 

to apply to the entire value of a product when in fact the inventive 

contribution seems to be very, very small, until the decision last 

week an almost automatic injunction would issue, when it’s routine 

to try to seek treble damages. 

When those are the bases for which a claim is made for very 

large fees, I think that’s what’s given rise to the use of that terminology. But the issue isn’t the nature of the parties themselves that 

come in. It’s that we have a system that encourages that kind of 

conduct, and I think that’s what the Committee can do, is take a 

large step toward making sure that when patent licensing negotiations occur, they’re based on the economic value of the patent rather than on the ability to utilize the litigation system to change the 

equation. 

Chairman HATCH. OK, Mr. Chandler. Mr. Johnson? 

Mr. JOHNSON. I don’t use the term, but as I understand any 

proper use of it, it would pertain to people who have frivolous lawsuits who use the threat of patent enforcement proceedings and the 

specter of the costs that are included in those proceedings in order 

to coerce settlements, which settlements are typically defined based 

on being a proportion of what it will cost to defend and to go ahead 

and win the case. To me, that is an abuse of litigation and one 

which we should remedy if we can. 

But what I do not find as a patent troll is someone who has a 

meritorious claim and who has found that someone is infringing 

their patent, and who wins in court and, as part of winning in 

court, expects to receive either a fair measure of damages or an injunction, or both. Those people are legitimate inventors who deserve not to be labeled as trolls. 

23

Chairman HATCH. Thank you. Mr. Myhrvold? 

Mr. MYHRVOLD. You know, the term ‘‘patent troll’’ was originated, actually, by an Intel employee who now works for me, to define exactly the case that Mr. Johnson had said, people that were 

taking patents and coming and offering a settlement so cheap that 

it was never going to be adjudicated. And so they had a bogus 

claim, but it was so expensive to call them on the claim being 

bogus that it never is adjudicated. 

In addition, I would add to that people that manipulate the system in ways that are really beyond what it was originally intended. 

There’s a famous case of an inventor who had patents that stayed 

40 years in the Patent Office, and through that incredible set of 

loopholes that he was able to do that, was able to get a patent that 

had a 20-year life starting in 1994 even though he’d filed it in 

1954. There are a few cases like that. There’s very few cases like 

that. 

Instead, the term has been corrupted to be used as someone you 

don’t like. And it’s been associated particularly with people that 

haven’t been successful in the market. A very common case is a 

young company gets venture financing, they think they have the 

world by the tail, they work very hard. Turns out they are a little 

bit optimistic about timing or they try something a little too hard. 

Later on, the company says, well, we innovated, we were the first 

there, we genuinely invented, isn’t it appropriate for us to get compensated by people who later came along and squatted on our property. 

I don’t think there’s anything wrong with that either in terms of 

the outcome—I don’t think it’s proper to be able to take other people’s property without paying for it. I don’t think that’s outside the 

intent of the Constitution, as Senator Leahy read. It’s to promote 

people in fact benefiting from their inventions. It takes a huge 

amount of risk up front to pay people without knowing what on 

earth they’re going to invent. 

I started Microsoft Research at Microsoft, which is the only really large computer science research laboratory of its type started in 

the last 25 years. Very difficult to convince the Microsoft board 

that it was sensible to pay up to—I think they’ve got up to 700 researchers now—to pay all the salaries and all the costs without 

having a concrete idea of what you’re going to get back. Anything 

that closes the loop and bring merit back into the thing so that people who are successful get paid makes it easier to make that investment. 

Mr. Johnson talked about that in terms of the business calculations in a pharmaceutical companies—the technical risk, the patent 

risk. That’s one aspect of it, but the same decision is made by independent inventors. Should I risk my time, energy, and money to 

create something really new. And if you do, I don’t think there’s 

any issue in the system with you benefiting from it. 

Mr. THOMAS. In my opinion, a patent troll is an entrepreneurial 

speculator who, animated by the high transaction cost of resolving 

patent disputes, attempts to exercise hold-up rights against established industries based upon patents of dubious merit. I agree with 

my predecessor speakers, though opposition systems may be animated or you may be inspired by trolling practices or putative trollVerDate 0ct 09 2002 11:11 Jul 02, 2007 Jkt 035851 PO 00000 Frm 00027 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35851.TXT SJUD1 PsN: CMORC
24

ing practices, I think the challenge before you is to develop a robust opposition system that’s useful against all manner of patentee 

by all sorts of industry to lower those transaction costs of patent 

disputes. 

Mr. CADEL. This is definitely a question where going last doesn’t 

leave me a whole lot to say. Most days it just feels like ‘‘anyone 

who’s suing JP Morgan Chase.’’

[Laughter.] 

Mr. CADEL. But generally, I think I agree with everything that 

people said. There are some cases where there are very clearly people who are gaming the system, but I think those are the exceptions. I think most of the time there are legitimate reasons and I 

think what we’re all trying to do here and what we really appreciate you trying to do is close up those loopholes so that those who 

are trying to game the system can’t. 

Chairman HATCH That was a pretty honest answer, really. All of 

you gave good answers as far as I was concerned. 

And Professor Thomas, in your written testimony, you refer to 

the lack of incentives to adjudicate patent validity as a public goods 

problem and suggest that—at least, I interpret it this way—that 

some sort of a bounty is needed to create sufficient incentives to 

bring challenges. Two things that have been discussed in terms of 

providing such a bounty are attorney fee shifting, and allowing the 

presumption of validity to attach only once a patent has survived 

a validity challenge. 

In your opinion, would either of these options work? If not, what 

type of bounty do you have in mind? 

Mr. THOMAS. Well, I favor both of those proposals, although I 

suppose I’m more inclined toward attorney fee shifting. We do that 

in the Copyright Act, we do it in a number of other areas of law, 

and I think that might be the most appropriate way. Also, out of 

sympathy to individual inventors and smaller firms, this would 

allow a more equal playing field between larger and smaller companies, because a smaller firm that has a meritorious claim can effectively be financed to pursue that claim and act as a private attorney general. 

I’m less inclined to the presumption of validity until it’s already 

been tested, although I’m eager to hear more about that proposal. 

That was essentially a situation that existed prior to the existence 

of the Federal Circuit. And although many of us have concerns 

about viewing infringement as a public service, regardless of how 

many of us believe the eBay case was correctly decided, nonetheless I think there was a presumption of administrative regularity 

that ought to be weighed, whether we detract from it. 

I propose that simply the patentee pay a cash bounty to any successful challenger that defeats one of its claims. I believe that that 

cash payment system would refine the ability both of patentees to 

file claims and also incent individuals to challenge those claims. 

Thank you. 

Chairman HATCH. All right. Mr. Myhrvold, let me ask you this 

question. In your written testimony, you seem to make the point 

that the reexamination procedures may be a more appropriate 

model for post-grant review than the adversarial proceedings that 

are favored by others. You also argue that a more robust system 

25

of post-grant review might be subject to abuse and could encourage 

strategic behavior by defendants in litigation. 

I would like you to expand on these points and, in particular, 

how do you think some parties might use a second window either 

to delay final judgment in court or to exert leverage on existing—

well, in licensing negotiations. And also, is there some way to prevent these types of abuses? I would like to know that. 

Mr. MYHRVOLD. Well, I think the first thing is that the ex parte 

and inter partes reexamination procedures actually are enormously 

successful. Some people have an attitude that they’re a niche or 

that they’re barely used. As I discussed in my testimony, ex parte 

is used about five times more than the court system is. 

Also, following up with something that Professor Thomas said, 

reexamination procedures don’t stop if people settle. If you start 

one of these ex parte reexamination procedures, it will follow 

through even if the parties have settled. So it does get the bad patents off the table. 

Inter partes is a much more recent thing. It didn’t really become 

feasible until changes to the law in 2002, so it has only been a couple of years. It only applies to patents that were filed after November 1999, so many of those patents haven’t even issued yet, or some 

of them haven’t. So it’s a very small population of patents on which 

these things, the inter partes, could actually apply. 

Nevertheless, I think they’re both very successful. They’re successful because they’re doing something different than trial. 

They’re not a one-to-one substitution for a trial. Ex parte is simple 

and it’s inexpensive; that’s also the drawback. Because it’s simple, 

there are lots of things you can’t raise. In particular, the party 

bringing it can’t continue to participate and make further arguments. But it’s very, very successful in terms of having a way for 

people that don’t have those kinds of resources or interests to fire 

off a salvo that could invalidate the patent. 

So as we look at how we create a new mechanism, why would 

we create a new one? What would the reasons be? Well, the normal 

logic is to say we’d like to decrease the number of litigations. Well, 

in order to decrease litigation, you have to motivate a party who’s 

afraid of a patent to say I have a better chance of doing it in this 

new method versus trial. And at trial I have the full range of opportunities of discovery and arguments and oration and the entire 

legal tradition. That’s why it’s expensive and difficult and time-consuming. But you have that full option. So most attorneys would 

say, look, if you really care about winning or losing, and it’s a very 

serious issue, you probably want that full scope of things at trial. 

So as a result, there has been a progression both in this country 

and overseas of creating opposition or interference or post-grant review—in a general sense—proceedings that keep adding one more 

piece of what a atrial is. And the argument is always, OK, let’s 

have that one more piece, and if we get that one more piece, OK, 

that will be enough. But I don’t see any compelling argument as 

to why it will be enough and why you won’t just create, if we keep 

this notion going, why we won’t have four or five of these procedures at some point in the future, each one trying to bite off a little 

bit more of what’s in a trial. 

26

Now turning to your issue of the abuse question. These proceedings have a fundamental difference from a trial. The difference 

is that the patent holder has everything to lose and the other side, 

the challenger, has nothing to lose. In a trial for infringement, 

you’re going to consider multiple questions—validity, enforceability, 

and the actual facts of infringement. So if the trial goes one way, 

one party wins; if it goes the other way, the other party wins. This 

is a way of creating a forum in which only party can lose, and do 

it as a delaying tactic which is likely to take a couple of years. 

It’s very hard to believe, unless we did some quite miraculous 

thing, that a complicated second window scheme—by ‘‘complicated’’ 

I mean with more features than today’s inter partes scheme—that 

such a scheme could be done in less than a couple of years. Which 

means you’ve got the opportunity—And then there’s also appeal. 

The inter partes has the right to appeal to the Federal Circuit. So 

you could potentially take a multi-year proceedings against the patent holder which, even if they all fail, delay them enormously before they could start a trial where both sides have skin in the 

game. 

And, you know, this isn’t a theoretical worry here on my part. 

Again, if you look at the advice that lawyers give their clients or 

the articles that they write to their clients, many of these issues 

are discussed. As I mention in my written testimony, besides sitting on prior art it’s not uncommon for someone that has a special 

piece of prior art to just say, well, give me a cheap license and I’ll 

stay quiet. 

So I think you have to view all of these systems as being a very 

complicated set of checks and balances. There are motivated adversaries on both sides. It’s very, very difficult to come in with a mechanism that keeps those things even-keel. You know, today we have 

the three methods—trial, inter partes, and ex parte. And before we 

go and add some additional one, let’s be clear on what it’s going 

to be. 

Finally, to return to what I started with, it’s unrealistic to think 

that one of these mechanisms is going to obviate trial in a large 

fraction of cases. It may take some of the cases away, granted. 

Most likely, what a new post-grant opposition procedure does is it 

provides a voice for someone who couldn’t get a trial. Now, that 

may be a very valuable thing. But let’s not confuse ourselves that 

if we get the right mechanism, the number of trials will go down. 

Because trial lawyers, acting in the best interests of their clients, 

are often going to tell them, look, I want the full set of procedures 

available in trial, that’s how I can best defend you. 

Chairman HATCH. Mr. Cadel, let me just ask you this. In your 

written testimony, you suggested an interlocutory appeal of a district court’s Markman decision should be allowed. It seems to me 

that somewhat the same interest of creating additional certainty 

could also be achieved by increasing the deference, you know, given 

to the trial court. For example, some have suggested making claim 

construction a mixed question of law and fact. 

Could you expand a little on why you believe the interlocutory 

appeal would be beneficial? And when you have answered, I would 

be happy to hear from anybody else on the panel who cares to comment. 

27

Mr. CADEL. Sure. I think this goes along with another suggestion 

I made in my written testimony, where we think that specialized 

district courts for patent cases would also be helpful. And fundamentally, the creation of the Federal Circuit reflects the general 

feeling that the patent law is a very complex, technical area and 

specialization is helpful. I think why I would prefer to see the final 

decision on Markman made at the Federal Circuit level, as opposed 

to giving more deference to the district court, is I have a higher degree of confidence that the Federal Circuit is going to get it right. 

The reason I believe that interlocutory appeal is very important 

is for the reasons I stated in my testimony, it’s such an important 

decision and it happens so early on in the case that what you effectively have is a litigant—and this could be for plaintiff or defendant. I don’t think it skews one way or the other. But where you 

effectively stand is the Markman hearing is made and the decision 

of what the patent means is now decided. And you have to go to 

trial based on that even if, as a litigant, you believe that that’s 

wrong. So you’re now faced with a kind of Draconian choice of do 

I go ahead and kind of roll the dice and say I think this Markman’s

wrong and I can overrule it on appeal, or do I settle early and basically do I at that point settle and pay money to someone who’s patent I believe is either—I believe I’m not infringing. 

So that’s really not the kind of situation you want to put litigants 

in. It’s not something that helps settlement and it’s not something 

that helps the system. Where an interlocutory appeal is very helpful is you get that decision before the Federal Circuit, who I believe 

is in the best position to make the correct decision. That decision 

that comes down, I believe, should be law of the case. We don’t 

think that it’s something that, you know, you should then get to 

go and reappeal. But armed with that decision, both sets of litigants know where they stand, and I think it does help to create 

a better settlement situation, where you’re—you know, the more information you have, the more certainty you have, the more confident you are—a settlement is just like any other investment, and 

the more confident you are in making that investment. 

Chairman HATCH. Anybody else? 

Mr. THOMAS. Senator—

Chairman HATCH. Let me ask one last question, then. Oh, I am 

sorry. Professor—

Mr. THOMAS. Oh, I apologize, Senator. 

Chairman HATCH. Oh, that is fine. I am happy to hear from you. 

Mr. THOMAS. One concern I would have about a specialized trial 

court for patent matters is that you would have the vast majority 

of patent cases would not interact with the general judicial system 

at all. We’ve just heard from the eBay case that—

Chairman HATCH. You think that is bad? 

Mr. THOMAS. I think that’s bad, as it’s just been reminded with 

the eBay case that the patent system is part of a larger jurisprudence. It’s part of an jurisprudence of competition, of evidence, of 

procedural law. And isolating it may not always lead to the best 

results. Having interaction with a general purpose trial court and 

a specialized appeal court at least allows more mainstream notions 

of coming from jurisprudence to interact with the patent law. I 

think one way to split the difference would be to consider magVerDate 0ct 09 2002 11:11 Jul 02, 2007 Jkt 035851 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35851.TXT SJUD1 PsN: CMORC
28

istrates or special masters in patent cases and provide a program 

that would pursue along those lines. I’m also sympathetic to the 

notion of interlocutory appeal, but I would note that of course a lot 

of jurists don’t hold a Markman hearing early in the trial; they 

hold it rather later. So I’m not sure those benefits would necessarily accrue in every sort of case. 

Thank you, Senator. 

Mr. MYHRVOLD. You know, just to differ with Professor Thomas 

on the specialized court issue, I think we have to understand that 

any really interesting and complicated post-grant review thing is 

another kind of a trial. OK? That is what you’re creating and it is 

separate from ordinary jurisprudence. So up can do that inside the 

Patent Office and say that’s a special branch of the executive that 

is going to do this thing that’s like a trial and maybe it’s got discovery but maybe it doesn’t have everything, and then go later. Or 

you can decide up front that you’re going to go and put it over 

there, as has been done in both tax and bankruptcy matters. And 

I’m sure there are other examples as well. 

So the issue that he brings up is an interesting issue, which is 

how does it interplay with the rest of the jurisprudence. Of course, 

the Court of Appeals for the Federal Circuit does hear more than 

just patents and the Supreme Court is still the ultimate arbiter, as 

it was in the eBay case. And I think all of those things should be 

preserved. But anything that winds up creating a very in-depth review process is by its nature a kind of a specialized court. The 

question is do you run it in parallel with existing Federal district 

courts, so that you have two parallel systems you have to manage 

in sync, or do you try to have one? 

Mr. CHANDLER. Senator? 

Chairman HATCH. Yes, sir? 

Mr. CHANDLER. I think that the importance of coordination of the 

litigation system was well illustrated by the RIM case, where, 

while the Patent Office was in the process of invalidating the patents involved, RIM was facing the possibility of injunction in that 

case and ended up paying $600 million. 

Interestingly, in a meeting in this building, I was asked once 

whether RIM really hadn’t made a big mistake by just paying $24 

million when they had the chance to do that and make the case go 

away. I would say as a general counsel of a technology company, 

it’s very, very hard for me to ever say I want to pay anything to 

someone who has patents that I believe are invalid. That’s why we 

seek this kind of mechanism. Mr. Myhrvold referred to the importance and saying it’s very hard to find a mechanism that keeps an 

even keel, in describing the success in some areas of the existing 

processes and also their failures. And that’s really what we seek, 

is to try to keep that kind of even keel so that you aren’t faced with 

being told that because of litigation leverage and lack of coordination between the different processes, you should pay money for 

something that is in fact valueless. 

Chairman HATCH. OK. Let me ask one last question, and that is 

in the eBay case, the Supreme Court recently handed down a decision involving the standard for obtaining injunctions in the district 

court—which I think has been one of the most controversial issues 

debated in the context of patent reform. I would just personally like 

29

to hear from each of you your views about what practical effect the 

eBay decision will have. And perhaps more importantly, I would 

like to know whether, from your individual perspectives, the Supreme Court’s ruling affects patent reform legislation. 

Mr. Cadel, we will turn around and start with you and work 

through the rest of the panel. 

Mr. CADEL. Thank you very much. 

No, we think the eBay case and the Supreme Court got it exactly 

right. We’re very pleased with that. We expect that, and I think 

you see this in some of the concurrences, particularly in Justice 

Kennedy’s concurrence, I believe it was, that the real issue is going 

to be how you look at companies that are only seeking monetary 

damages. I do believe that there is a distinction between a company that is enforcing its patent in a circumstance where it’s trying 

to protect a marketplace, trying to protect its market position, and 

a circumstance where they are seeking only monetary damages. 

And in the case where they’re seeking only monetary damages, it’s 

a little harder to justify the old rule that they’re entitled to an 

automatic injunction. So I think that this is going to help in that 

balance and where only monetary damages is sought. Hopefully, 

practicing companies will be under less of a threat that they’re 

going to be shut down and can pay, you know, an appropriate value 

for that invention but not have the veritable gun to their head. 

Chairman HATCH. Professor Thomas? 

Mr. THOMAS. I also agree. I believe that the Supreme Court got 

it right. I enjoyed reading the opinion. I was pleased that the Supreme Court articulated the appropriate factors. I believe it’s largely business as usual for the patent system, but there will be a 

handful of cases involving system claims and the entrepreneurial 

speculators I spoke of previously where results might differ. I think 

that will have a positive effect both in the courtroom and the board 

room. 

Thank you. 

Mr. MYHRVOLD. It’s sort of interesting that I both agree and disagree with these guys, and that’s sort of the mark of an interesting 

Supreme Court case, is everyone can see in it something that’s interesting. 

My company and a set of 20 of some of the most well-known inventors in America filed an amicus brief in this case about the 

issue of should you have lower rights if you are practicing your invention versus you’re not. We feel strongly that any inventor 

should have the same set of rights, so I disagree quite strongly 

with what Mr. Cadel said, that a company that practices products 

ought to be put in a different level. 

That said, I don’t think that this case actually harmed that principle, so we actually were pleased with the outcome of the case. It 

suggested that there is a four-factor test—or not suggested, it mandated the four-factor test, which many people from our perspective 

thought was a fine result. 

At the same time, it did not, absolutely did not say that there 

was a rule, as eBay had asked, that in fact people that don’t practice the product be disenfranchised. And the original district court 

ruling, which had not given an injunction to Mercexchange, on sevVerDate 0ct 09 2002 11:11 Jul 02, 2007 Jkt 035851 PO 00000 Frm 00033 Fmt 6633 Sfmt 6633 S:\GPO\HEARINGS\35851.TXT SJUD1 PsN: CMORC
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eral bases, wasn’t upheld. It has been remanded back with a different standard. 

I think the thing that’s slightly disappointing about this decision 

for everyone is that there’s very little guidance that the Supreme 

Court gave on some of the really key issues in the case. So yes, the 

court was remanded to use a four-factor test. Exactly how you’re 

supposed to do that, or how it was in this case, the decision was 

silent on. 

Mr. JOHNSON. We had also urged the four-factor test be used in 

our amicus brief. And there’s certainly something for everyone in 

the opinion. I think the more interesting question is whether it removes from your plate the question of whether to include any type 

of injunction language in patent reform legislation and, from the 

written statements, it would appear that there seems to be some 

consensus that we should let the courts go about their business 

now and see how it turns out. I would agree with that. 

Mr. CHANDLER. We believe the Court decision did remove one of 

the in terrorem elements of style of patent license negotiation that 

is applied by a lot of entities these days. On the other hand, it will 

put pressure on some of the other elements. There’s a good question as to whether it will lead to an increase in forum shopping due 

to the discretion that’s accorded to the trial court. And I think it 

points to the fact that it’s important for you and the Congress to 

followup to make sure we address each of those elements and establish a level playing field and really return to the traditions that 

we had of fairness in patent adjudication before recent decisions 

unleveled the playing field. 

Chairman HATCH. Well, thanks to you all. I don’t know if we 

could have had a better panel than this panel. You haven’t resolved 

all our problems for us, though, and if anything, you’ve made them 

more complex for us. We have been trying to find some simple way 

of solving all these problems and pleasing everybody and, as you 

know, there is no way we can do that. So what we have to do is 

sift through all this and see what we can do to try and be fair but 

yet honest and decent, and hopefully we can come up with something that will be acceptable to most people. But we appreciate 

your help, every one of you. You are brilliant people and this has 

meant a lot to me, this hearing. 

So I just want to thank you once again for appearing and for taking your valuable time and helping to try and help us to be able 

to get it right. So we will see what we can do, and we hope we can 

get some legislation that will help to resolve some of the difficulties 

that you have mentioned here today. We will do our best to do that. 

So thanks so much. With that, we will recess until further notice. 

[Whereupon, at 3:43 p.m., the Subcommittee was adjourned.] 

[Questions and submissions for the record follow.]

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85


35851.055
86


35851.056
87


35851.057
88


35851.058
89


35851.059
90


35851.060
91


35851.061
92


35851.062
93


35851.063
94


35851.064
95


35851.065
96


35851.066
97


35851.067
98


35851.068
99


35851.069
100


35851.070
101


35851.071
102

Æ


35851.072