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74–258 PDF 2012

IMPLEMENTATION OF THE LEAHY-SMITH 

AMERICA INVENTS ACT 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

MAY 16, 2012 

Serial No. 112–128 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

RICHARD HERTLING, Staff Director and Chief Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

(III) 

C O N T E N T S 

MAY 16, 2012 

Page 

OPENING STATEMENTS 

The Honorable Lamar Smith, a Representative in Congress from the State 

of Texas, and Chairman, Committee on the Judiciary ..................................... 1 

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

State of Michigan, and Ranking Member, Committee on the Judiciary ......... 2 

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

of Virginia, and Member, Committee on the Judiciary .................................... 5 

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

of North Carolina, and Member, Committee on the Judiciary ......................... 6 

WITNESSES 

The Honorable David J. Kappos, Under Secretary of Commerce for Intellectual Property, Director of the United States Patent and Trademark Office, 

United States Department of Commerce 

Oral Testimony ..................................................................................................... 10 

Prepared Statement ............................................................................................. 13 

Response to Questions for the Record ................................................................ 187 

Robert A. Armitage, Senior Vice President and General Counsel, Eli Lilly 

and Company 

Oral Testimony ..................................................................................................... 34 

Prepared Statement ............................................................................................. 36 

Response to Questions for the Record ................................................................ 193 

Eliot D. Williams, Partner, Baker Botts L.L.P., on behalf of the Financial 

Services Roundtable (FSR), the American Bankers Association (ABA), the 

American Insurance Association (AIA), the Independent Community Bankers of America (ICBA), the National Association of Federal Credit Unions 

(NAFCU), and the Credit Union National Association (CUNA) 

Oral Testimony ..................................................................................................... 92 

Prepared Statement ............................................................................................. 95 

Response to Questions for the Record ................................................................ 200 

Carl Horton, Chief Intellectual Property Counsel, General Electric, on behalf 

of the Coalition for 21st Century Patent Reform 

Oral Testimony ..................................................................................................... 103 

Prepared Statement ............................................................................................. 105 

Response to Questions for the Record ................................................................ 204 

Kevin H. Rhodes, President and Chief Intellectual Property Counsel, 3M 

Innovative Properties Company, on behalf of the Intellectual Property Owners Association (IPO) 

Oral Testimony ..................................................................................................... 121 

Prepared Statement ............................................................................................. 123 

Response to Questions for the Record ................................................................ 208 

Richard Brandon, Associate General Counsel, University of Michigan, on 

behalf of the Association of American Universities (AAU) 

Oral Testimony ..................................................................................................... 144 

Prepared Statement ............................................................................................. 146 

Response to Questions for the Record ................................................................ 213 

Page

IV 

Timothy A. Molino, Director of Government Relations, Business Software 

Alliance (BSA) 

Oral Testimony ..................................................................................................... 153 

Prepared Statement ............................................................................................. 174 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee 

on the Judiciary ................................................................................................... 4 

Material submitted by the Honorable Melvin L. Watt, a Representative in 

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

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

Material Submitted by Timothy A. Molino, Director of Government Relations, 

Business Software Alliance (BSA) ...................................................................... 154 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Member, Committee on the Judiciary ......................................................................................................................... 185 

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

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

the Judiciary ......................................................................................................... 186 

Financial Services Roundtable Submissions ......................................................... 215 

List of companies affected by H.R. 1249, the ‘‘America Invents Act’’ .................. 241 

Joint Prepared Statement of IEEE-USA and NSBA ............................................ 242 

(1) 

IMPLEMENTATION OF THE LEAHY-SMITH 

AMERICA INVENTS ACT 

WEDNESDAY, MAY 16, 2012 

HOUSE OF REPRESENTATIVES, COMMITTEE ON THE JUDICIARY, Washington, DC. 

The Committee met, pursuant to call, at 10:09 a.m., in room 

2141, Rayburn House Office Building, the Honorable Lamar Smith 

(Chairman of the Committee) presiding. 

Present: Representatives Smith, Sensenbrenner, Coble, Gallegly, 

Goodlatte, Issa, Franks, Griffin, Gowdy, Conyers, Scott, Watt, 

Lofgren, Waters, Quigley, and Deutch. 

Staff Present: (Majority) Blaine Merritt, Counsel; Travis Norton, 

Counsel; (Minority) Jason Everett, Counsel; and Norberto Salinas, 

Counsel. 

Mr. SMITH. The Judiciary Committee will come to order. 

Without objection, the Chair is authorized to declare recesses of 

the Committee at any time. 

And we welcome everyone here today. I am going to recognize 

myself for an opening statement, then the Ranking Member, and 

then the Chairman and Ranking Member of the Intellectual Property Subcommittee as well. 

The America Invents Act took 6 years to negotiate and represents the most comprehensive change to American patent law in 

175 years. The new law improves our patent system and demonstrates that Congress can successfully work on a bipartisan and 

bicameral basis. 

While the America Invents Act is a noteworthy achievement, it 

is a complex statute that the Patent and Trademark Office labors 

to implement. Today’s hearing allows us to receive updates from 

PTO Director Kappos and representatives of a broad cross-section 

of patent owners and users affected by the law. 

The America Invents Act directs the PTO to initiate a number 

of rulemakings on a variety of subjects and to publish studies on 

other important patent issues. Is PTO making satisfactory progress 

on these projects? Is the agency complying with congressional intent? And does the law need some tweaks? 

The America Invents Act matters because technological innovation from our intellectual property is linked to three-quarters of 

America’s economic growth, and American IP industries account for 

over one-half of all U.S. exports and more than a third of our GDP. 

These industries also provide millions of Americans with well-paying jobs. Our patent laws, which provide a time-limited monopoly 

2 

to inventors in exchange for their creative talent, helps create this 

prosperity. 

The Commerce Department released a report in April that further documents the importance of IP to the American economy. The 

report focuses on those industries that produce or use significant 

amounts of IP and rely most intensively on these rights. The updated figures are stunning. There are 75 industries that qualify as 

being ‘‘IP-intensive.’’ Direct employment in these industries exceeds 

27 million jobs, with indirect activities associated with these industries providing another 13 million jobs. This means that 40 million 

jobs in the American economy, about 28 percent of all jobs, are 

linked to our IP system. So you don’t have to be Thomas Edison 

to understand why Congress should be concerned about maintaining the health of our IP sector. 

Senator Leahy and I decided to pursue patent reform 6 years ago 

because our system hadn’t been comprehensively updated for 60 

years. During this time, we have seen tremendous technological advancements, with the transition from computers the size of a closet 

to the use of wireless technology in the palm of your hand. But we 

cannot protect the technologies of today with the tools of the past. 

The old patent system was outdated and was dragged down by 

frivolous lawsuits and uncertainty regarding patent ownership. Unwarranted lawsuits that typically cost millions of dollars to defend 

prevent legitimate inventors and companies from creating products 

and generating jobs. And while America’s innovators are forced to 

spend time and resources to defend their patents, our competitors 

are busy developing new products that expand their businesses and 

grow their economies. The more time we waste on frivolous litigation, the less time we have for innovation. 

American inventors have led the world in innovation and new 

technologies for centuries, from Benjamin Franklin to the Wright 

brothers to Steve Jobs. But if we want to foster future creativity, 

we must do more to encourage today’s inventors. That is what the 

patent reform bill is all about. It fixes modern-day patent problems 

and liberates modern-day inventors. 

While we didn’t succeed in making every stakeholder 100 percent 

happy, the goal was more realistic: to make most of the stakeholders content most of the time. And I hope that is the case with 

the members of our two witness panels today. 

That concludes my opening statement, and the gentleman from 

Michigan, the Ranking Member of the Judiciary Committee, Mr. 

Conyers, is recognized for his. 

Mr. CONYERS. Thank you, Chairman Smith. I can safely say I 

agree with everything you said. 

Mr. SMITH. Good to hear that. 

Mr. CONYERS. But it still makes my opening statement important 

because I want to create a few distinctions and add to—I hope that 

you can say the same thing about mine when I finish. 

Mr. SMITH. I am sure I will. 

Mr. CONYERS. Well, this is an unusual hearing because the law 

that we are having a hearing on was signed by the President last 

September. And so the hearing is about how we implement the provisions in a law that we have already agreed on. 

3 

We have had at least four hearings. Chief Kappos has been before us about three times. We have been working on patent reform 

for 6 years. And we are required to come here again this morning 

because of the different times that the implementation of particular 

provisions go into effect. And, of course, my principal concerns have 

been the fee diversion elimination and the ending of a 700,000 

backlog of applications that already exist. 

So I begin by congratulating the Director for selecting Detroit as 

the first branch PTO office. I plan to be there in July in Detroit. 

And a great name, for one of the first major African American inventors, Elijah McCoy. I hope it is going to be on the 19th, but I 

am not sure if that is definite yet. But whenever it is going to open, 

the office is eagerly awaiting our opening and a considerable number of employment opportunities that go along with it. 

Now, the concerns are these: Would the benefit go to large multinationals at the expense of independent inventors and thereby diminish job creation in the country? The provisions in the bill regarding retroactivity with regard to business method patents and 

false marking cases are all my concern. And it seemed that stripping the legal rights of private parties involved in pending litigation was not good. 

And now that the bill is law, our focus should be on how it can 

be improved. Twenty provisions that require implementation; seven 

are in effect. Notices of rulemaking have been issued for nine others. And so there is a lot of work left for the Patent and Trademark 

Office. In particular, the proposed rules for an inventor’s oath and 

declaration, pre-issuance submissions, supplemental examination, 

and inter-parties review are all to be considered, with other things, 

in the hearing that we have this morning. 

Another area is how we deal with the universities, who provide 

immeasurable, if not one of the most important, contributions to 

the patent system. And one of the most important things that we 

can do is clarify the intent of the grace period. I want to find out 

how we can ensure that universities receive proper protection 

under the law, as well as why the grace period is so important to 

them. 

And so I have shared this concern, that such a provision can be— 

some definitions can be overinclusive and allows covered business 

method patents to include anything used in the provision of financial services. So I am very nervous about the retroactive discussion 

that we will hear this morning. But I remind you that the section 

18 has been referenced by our recognized constitutional experts, 

Epstein and Massey, and have observed that this provision really 

boils down to special interest legislation. 

And so I am happy to be here. Critical that any revisions to the 

act must consider the interests of all the parties and not harm the 

small inventors. 

Thank you, Mr. Chairman. I will put my statement in the record, 

what remains of it. 

Mr. SMITH. Without objection. Thank you, Mr. Conyers. 

[The prepared statement of Mr. Conyers follows:] 

4 

Prepared Statement of the Honorable John Conyers, Jr., a Representative 

in Congress from the State of Michigan, and Ranking Member, Committee on the Judiciary 

Today’s hearing gives us an opportunity to study the implementation of the America Invents Act—the most significant reform to the Patent Act since 1952—which 

was signed into law by President Obama on September 16, 2011. 

The Judiciary Committee has been working on patent reform for more than over 

six years, under both parties. 

Over the course of these efforts, my principal priorities have been to prohibit patent ‘‘fee diversion’’ and eliminate the Patent and Trademark Office’s 700,000 plus 

application backlog. 

I have concerns about whether sufficient progress has been made and whether the 

America Invents Act adequately addresses my concerns. 

To begin with, I want to congratulate Director Kappos for running the PTO in 

a transparent and open manner and for his leadership in implementing the Act, 

which I understand has been going smoothly. 

In addition, Director Kappos has made an excellent choice in opening the first 

PTO satellite office in the Detroit business district. His decision has sent a strong 

signal to businesses, innovators, and educators all over the Nation and the world 

that Detroit is a top notch technology destination. 

The Elijah J. McCoy Detroit Satellite office, which is scheduled to open in July, 

will create more than 100 high technology jobs, according to the PTO. 

Equally important, the opening of this satellite office will help facilitate patent 

filings by thousands of Detroit area businesses. 

I look forward to working with the PTO and the Commerce Department to ensure 

that the opening of this office becomes a model for others to emulate. 

Second, when we debated the Act on the floor, I had serious concerns as to 

whether it would benefit large multinationals at the expense of independent inventors and innovation, and thereby harm job creation in our Nation. For this reason, 

I opposed the bill. 

But, now that the bill is law, our focus should be on how it can be improved and 

whether further action is needed. 

Of the 20 provisions requiring implementation, only 7 provisions are in effect. Notices of Proposed Rulemaking have been issued for 9 provisions and regulations for 

the remaining 4 provisions are under development. That leaves a lot of work to be 

done by the PTO. 

In particular, the PTO’s proposed rules for an inventor’s oath and declaration, 

pre-issuance submissions, supplemental examination, inter partes review, post-grant 

review, covered business method review, and derivation should be considered as 

part of today’s hearing. 

A third area that we should examine today is how the Act’s implementation affects various constituencies. 

For example, we must make sure universities are adequately protected during implementation. Universities provide immeasurable value to the patent system and deserve to be protected. 

Accordingly, I will be particularly interested to hear from the representative from 

the University of Michigan today about how we can ensure that universities will receive proper protection under the law. 

And, with respect to section 18 of the bill, which deals with transitional business 

method patents, I want to know how this provision is being implemented. 

We have received reports from several entities about ways to improve this section 

under the proposed rules. 

Specifically, they cite the definition of technological invention for the transition 

program for covered business method patents. 

I understand their concern to be that the definition is over-inclusive because it 

allows covered business method patents to include anything used in the provision 

of financial services. 

I have shared similar concerns in that this provision could provide large banks 

a special, new bailout at the expense of small inventors and the American taxpayer. 

Even worse, this provision would do so on a retroactive basis. 

Several constitutional law experts, including Richard Epstein and Jonathan 

Massey, have observed that this provision ‘‘is special interest legislation, pure and 

simple.’’ 

They concluded that the provision would constitute an unconstitutional taking of 

property, which would force the federal government—that is, you and me and American taxpayers—to pay just compensation to the patent holders. 

5 

It is critical that any revisions to the Act must consider the interest of all parties 

and not harm small inventors. 

It is also important to keep in mind that the Act has been in effect less than a 

year and that, therefore, it is premature to make any changes at this time. 

The PTO’s America Invents Act Implementation Team has been reaching out to 

interested parties across the United States in order to generate a dialogue about the 

PTO’s proposed rules recently released for public comment. 

Yet, the most important goal, as the Act is implemented, must be to protect small 

inventors, which was my fundamental concern with the bill when it was considered 

in Congress last year. 

Mr. SMITH. I am going to introduce the Chairman and Ranking 

Member of the Intellectual Property Subcommittee, but I first want 

to say, in the case of Mr. Goodlatte and Mr. Watt, that both played 

very, very influential roles in the development of the bill and its 

enactment. And all of us were at the signing ceremony, as well, 

very appropriately. 

The gentleman from Virginia, Mr. Goodlatte, the Chairman of 

the Intellectual Property Subcommittee, is recognized for an opening statement. 

Mr. GOODLATTE. Well, thank you, Mr. Chairman. And I appreciate your holding this hearing on the implementation of the—I 

prefer to call it the Smith-Leahy America Invents Act. 

The AIA was the first patent reform bill in over 60 years and the 

most substantial reform of U.S. Patent law since the 1836 Patent 

Act. But as the Members who drafted and worked to enact this 

law, our primary purpose today is to ensure that the hard-fought 

reforms in the AIA are implemented by the PTO in keeping with 

congressional intent. 

It needs to be made crystal-clear that the rulemakings and the 

regulations promulgated by the PTO should move us forward toward greater certainty and not be allowed to maintain the status 

quo. As we implement these changes in the patent system, we need 

to ensure that the new post-grant review and other proceedings 

provide simple, cost-effective methods for raising challenges to potential PTO prosecution mistakes and that they provide less expensive alternatives to Federal court litigation. If implemented correctly, these proceedings will increase certainty with regard to patent rights and thus spur more investment in new ideas. 

The PTO also needs to continue working to ensure that our patent system not only expeditiously reviews patent applications but 

issues high-quality patents that obviate the need for subsequent 

challenges and that can be enforced through the courts and administrative proceedings. This means we need to focus simultaneously 

on patent quality and patent quantity. 

A significant focus of the AIA was to reduce the problem of overpatenting, particularly by so-called patent trolls—the situation 

where weak or frivolous applications have been developed through 

creative or predictive lawyering, rather than, as Abraham Lincoln 

put it, through the fire of genius. The strength of our system relies 

on granting strong patents that are truly novel and are nonobvious 

inventions, those that are the result of true innovations and not 

the product of legal gamesmanship. 

As the PTO reviews the volume of applications and works 

through the backlog, the bar needs to be set higher and quality 

6 

controls need to start on the front end rather than relying with the 

courts. 

A positive example from the AIA is the work being done to implement a transitional program to correct the egregious errors made 

in the granting of a wide range of business method patents. This 

program will provide the PTO with a fast, precise vehicle to review 

low-quality business method patents, which the Supreme Court has 

acknowledged are often abstract and overly broad. This program 

has the potential of making our Nation’s patent portfolio stronger, 

and if it is successfully implemented, we may want to consider 

making it permanent in the future and expanding its applicability 

to other nontechnological patents. 

One area I plan to continue to watch is PTO fees. The fee authority Congress gave the PTO is finite for a reason. We sunset this 

authority so that the PTO would be mindful that it would need to 

come back to Congress to make the case that they have exercised 

this authority wisely. We will continue to monitor fees and make 

sure the PTO is enacting reforms to achieve maximum agency efficiency before it resorts to fee increases in the future. 

The issues that we discuss in today’s hearing will require ongoing vigilance as we work to implement the AIA. We look forward 

to working with the PTO, American innovators and industry to 

help identify specific concerns and issues so that we can ensure 

that the bill is implemented in line with congressional intent and 

promotes U.S. economic growth and job creation. 

I look forward to hearing from all of our witnesses on the implementation of the AIA and ensuring that the U.S. patent system 

helps to promote U.S. manufacturing, technology, and innovation. 

And I particularly look forward to hearing from and continuing to 

work with our Director, Mr. Kappos. 

Thank you, Mr. Chairman. 

Mr. SMITH. All right. Thank you, Mr. Goodlatte. 

Mr. SMITH. The gentleman from North Carolina, Mr. Watt, is 

recognized. 

Mr. WATT. Thank you, Mr. Chairman. 

And this is not part of my opening statement, but Ranking Member Conyers made reference to the fact that they are opening an 

office in Detroit that is going to be named in honor of Elijah 

McCoy, an African American inventor. And it triggered my recollection that during Black History Month I had done a presentation on 

the floor of the House about African American inventors. And they 

have a long, elaborate history that is given very little attention to. 

So I thought it might be a good time for me to ask unanimous consent to insert a copy of the comments that I made on the floor of 

the House into the Judiciary Committee’s record so that they will 

be memorialized here in our Committee also. 

Mr. SMITH. Without objection, so ordered. 

[The information referred to follows:] 

7 


74258A-1.eps
8 

Mr. WATT. Thank you. 

The Leahy-Smith America Invents Act was a monumental 

achievement and the first significant legislative overhaul of the 

patent system in over 50 years. After several cycles of congressional consideration, the patent reform bill was made possible in 

large part by the sheer doggedness of many of today’s witnesses 

and the industries they represent, as well as the leadership of the 


74258A-2.eps
9 

Administration and Director Kappos and Members of this Committee and our Senate counterpart. 

The key reforms incorporated in the America Invents Act, as part 

of Obama administration’s commitment to promote innovation, 

stimulate job growth, and enhance America’s global competitiveness, are far too numerous to recite in the time I have. However, 

I do want to acknowledge one that unified virtually all Members 

of this Committee, and that is full funding for the Patent and 

Trademark Office. 

Earlier this month, the House passed the CJS appropriations bill, which included $2.93 billion for the Patent and Trademark Office for fiscal year 2013. That represents a 9.5 percent increase over 

the 2012 appropriation. This amount reflects a spending level equal 

to the estimated fees the Patent and Trademark Office will collect 

and is consistent with the gentlemen’s agreement in the America 

Invents Act. 

Despite the unfortunately large number of negative things in the 

CJS appropriations bill that made it impossible for me to vote for 

it, the record should be clear that I have never deviated from my 

views that the PTO should and must have access to all the fees it 

collects to provide the efficient and quality services our innovators 

deserve. 

The increasingly uncertain plight of most annual appropriations 

bills highlights the uncertainty, if not the folly, of the deal that was 

struck on the anti-fee diversion provision in the America Invents 

Act. I can only hope that we will not allow rank politics to hijack 

or hold hostage the policy objectives we all agree are in the best 

interests of our country. This is an ongoing concern and leads me 

to wonder to what extent the PTO or its users’ fears about the precariousness of full funding has or will influence or negatively impact implementation of the vision and provisions of the America Invents Act. 

But we are not here to reiterate the shortcomings of the America 

Invents Act. Rather, we are here to obtain an update on its implementation. Of the 20 provisions in the law requiring the PTO to 

establish new procedures or adjust current ones, the agency has 

fully implemented 7. Of the remaining provisions that require PTO 

action, nine have been addressed in recent notices of proposed rulemaking and await public comment, while only four remain under 

development. 

The PTO is on schedule with each of these provisions and, by all 

accounts, has conducted a fair, inclusive, and transparent process. 

Unless we hear something compelling to the contrary from our second panel today, I believe Director Kappos and his staff are clearly 

to be commended for their accomplishments to date. 

While the development, evaluation, and implementation of the 

procedures and processes to carry out the mandate of the America 

Invents Act ultimately rests with the PTO, I look forward to hearing from the witnesses today on the various approaches they recommend to the agency to meet its challenges and about any legislative recommendations they may have. 

Mr. Chairman, I thank you for calling this hearing and assembling an impressive panel of witnesses. And I yield back the balance of my time. 

10 

Mr. SMITH. Thank you, Mr. Watt. 

We have two distinguished panels of witnesses today. And I will 

first introduce Director Kappos, and he will proceed with his testimony. After Members have an opportunity to ask him questions, 

we will proceed to our second panel of witnesses. 

The Honorable David Kappos is the Under Secretary of Commerce for Intellectual Property and Director of the United States 

Patent and Trademark Office. In this role, he advises the President, the Secretary of Commerce, and the Administration on intellectual property matters. 

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

law department at IBM. He has served on the Board of Directors 

at the American Intellectual Property Law Association, the American Intellectual Property Owners Association, and the International Intellectual Property Society. He has held various other 

leadership positions in intellectual property law associations in 

Asia and the United States and has spoken on intellectual property 

topics around the world. 

Mr. Kappos received his Bachelor of Science Degree in electrical 

and computer engineering from the University of California—Davis 

in 1983, and his law degree from the University of California— 

Berkeley in 1990. 

Without Director Kappos’ steady hand, expertise, and support, 

we would not have enacted the America Invents Act. He and his 

staff did an outstanding job of providing us with advice, briefings, 

and drafting assistance. We can all thank him for his work at PTO. 

Director Kappos, we look forward to your testimony, and if you 

will please proceed. 

TESTIMONY OF THE HONORABLE DAVID J. KAPPOS, UNDER 

SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, 

DIRECTOR OF THE UNITED STATES PATENT AND TRADEMARK OFFICE, UNITED STATES DEPARTMENT OF COMMERCE 

Mr. KAPPOS. Well, thank you. Good morning, Chairman Smith, 

Ranking Member—— 

Mr. SMITH. Make sure your mic is on. And maybe move it a little 

bit closer. 

Mr. KAPPOS. Chairman Smith, Ranking Member Conyers, and 

Members of the Committee, thank you for this opportunity to discuss the USPTO’s ongoing efforts to implement the Smith-Leahy 

America Invents Act. 

Mr. Chairman, before I do, I would like to again thank you and 

your colleagues on this Committee for your efforts over several 

Congresses that led to enactment of this historic legislation. We 

would not be here today but for your tireless efforts on behalf of 

America’s innovators. Thank you, thank you, thank you. 

Mr. Chairman, I am pleased to report that the AIA implementation efforts are indeed proceeding on schedule. We have implemented seven provisions of the AIA, all within the time frames prescribed by the act. We have published proposed rules for nine additional provisions, and we are on schedule to implement all of them 

on time. While our stakeholders have differing views on some of 

our proposals, most all of them have commented quite favorably on 

11 

our transparent, thorough implementation process and the extent 

of our public outreach. 

Our AIA implementation team continues to review hundreds of 

comments received from individuals and IP organizations and IP 

practitioners and other government entities and academic institutions. And our ultimate goal, of course, remains to produce rules 

consistent with the language and intent of the AIA that will best 

serve the needs of America’s entire innovation community. 

We will respond to the comments in our final rules, to be issued 

on or before August 16th of this year. The rules will then become 

effective on September 16, 2012, providing us with a window of 

time of a month or more to educate our patent examiners and the 

public regarding the final rules in advance of their implementation. 

In early February of this year, we published proposed fees as authorized by the AIA for our patent services and received substantial feedback and recommendations from the public. We also look 

forward to receiving a report from our Patent Public Advisory Committee before we begin the rulemaking process relative to our fees. 

Our stakeholders are already benefiting from the AIA. We 

launched the accelerated examination program known as Track 

One that provides for patent application processing in less than 12 

months and offers small businesses a discount. Since its inception, 

we have received more than 3,500 Track One applications already, 

completed first examinations on them in an average of less than 90 

days. 

Needless to say, Mr. Chairman, our satellite office program has 

drawn quite a bit of interest. We are on schedule to open the first 

satellite office, the Elijah J. McCoy Satellite Office in Detroit, 

Michigan, in July. And we are in the process of reviewing and analyzing the more than 600 comments and suggestions we received 

in response to our Federal Register notice. We expect to announce 

the locations of additional offices this summer. 

While we are pleased with the progress we are making to implement the AIA, we are also concurrently working to improve the 

patent examination process and move important innovations more 

quickly into the marketplace. And my written statement details a 

number of those efforts. 

With adoption of the AIA, Congress has enabled the USPTO to 

promote a new vision of an IP world in which national and regional 

patent systems are coordinated to create an optimal environment 

for technological innovation globally. Passage of the AIA has provided an opportunity to restart long-stalled discussions with our 

foreign counterparts toward substantive harmonization that will 

help U.S. businesses succeed in the global business environment. 

And a critical part of these discussions is adoption by other countries of a modern grace period. The grace period has been adopted 

in many patent systems throughout the world, and it is recognized 

as a global best practice. We look forward to continuing these discussions. 

It is clear that policies supporting a high-quality IP system are 

making a difference in our Nation’s economic recovery now. The recent IP jobs report, ‘‘Industries in Focus,’’ shows that America’s 

core strength continues to lie in our ability to innovate. Sensible 

government policies encouraging that spirit of innovation can deVerDate Aug 31 2005 10:51 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00015 Fmt 6633 Sfmt 6601 H:\WORK\FULL\051612\74258.000 HJUD1 PsN: DOUGA
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monstrably contribute to job creation and economic wellbeing. The 

end result: 40 million jobs in IP-intensive industries, representing 

35 percent of U.S. GDP. 

Mr. Chairman, we look forward to working with you and the entire Committee to ensure that the innovation-advancing, job-creating, deficit-neutral work conducted by the USPTO continues to 

best serve America’s innovators. We appreciate your continued support for the employees and operations of the USPTO. 

Mr. SMITH. Thank you, Director Kappos. 

[The prepared statement of Mr. Kappos follows:] 

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Mr. SMITH. As you know, the goal of the act was to enable the 

Patent and Trademark Office to approve better patents more quickly. And it sounds like you are well on your way to helping us accomplish that goal. You have mentioned, as we all know, the backlog, 3-year wait, and you have some of those patents speeded up 

to the process of 90 days, it sounds like. So all I can do is thank 


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you for the progress you have made, and I hope we can continue 

to make that progress. 

My first question goes to the patent fees, and I know you have 

proposed some increases. I think they have generally been well accepted and are appreciated because they know what the money is 

going to be spent for. But if you could tell us a little bit more of 

what you have in mind with the patent fees and also specifically 

how you might use that additional revenue. 

Mr. KAPPOS. Sure. Thank you for the question. 

Yes, we have proposed in our initial February document substantial increases in fees. We have received great input relative to some 

of those fees that could be recalibrated in the lower direction, and 

we are inclined to do that. In fact, we are working on approaches 

that will take some of those fees that the American innovation 

community was concerned about down somewhat. We believe we 

can do that and still stay on track to meet our strategic plan goals 

by 2015, getting our backlog and pendency under control in that 

time frame. 

Now, we are also very cognizant of what we need to spend that 

money for, and that is to improve our IT system—continue improving our IT system, to continue hiring patent examiners and board 

judges so that we can keep increasing the quality of our output. As 

you said, Mr. Chairman, higher-quality patents issued more quickly, we have to do both of those. And that is what the fee increases 

are aimed at. 

We inherited a large backlog. When we started, we had over 

750,000 patent applications awaiting examination and no money in 

the agency with which to conduct that work. We are going to get 

that backlog under control, and we are making some progress. We 

have it down to 640,000 now. We are headed toward about 600,000 

by the end of this financial year, and we will just keep it going 

down. 

So in order to do all that work, it requires more examiners. And 

in order to hire those additional examiners, it requires funds. So, 

in effect, we are putting fees together that enable us to get the resources in place to overcome an unfunded mandate, a backlog that 

just did not have any money matched against it. You have to get 

that money to do that work. 

Mr. SMITH. Do you have any specific goals as far as the backlog 

goes or as far as the average time to secure a patent goes? I mean, 

do you have a goal of trying to get to 1 year or 2 years and reduce 

the average of 3 years by any certain period of time? 

Mr. KAPPOS. Yes, absolutely, we have extremely specific goals. 

We will take the backlog down to an appropriate inventory level of 

about 330,000 applications. That represents the right workload so 

every examiner has a good docket but not too much. We can do 

that by about the end of 2015. All of this is in our strategic plan. 

And when we hit that level, it will mean that, on average, we 

will be processing a first office action, so we will be doing the first 

substantive review of every application about 10 months after filing, and we will be completing review on every application about 

20 months after filing. And our community informs us that those 

are optimal processing times, balancing the need to have adequate 

information against the need to go as fast as possible. 

21 

Mr. SMITH. Okay. That is great news. 

Another question is this. We live in a world economy. Information is transmitted literally at the speed of light. Are we doing everything we can, and in what ways does the act enable us, to protect American patents overseas? 

Mr. KAPPOS. Yes, well, thanks. 

The AIA, as I mentioned somewhat in my statement, has proven 

to be transformative, in terms of repositioning America at the forefront of the global patent system and enabling us to, again, take 

leadership and work with our overseas trading parties for them to 

put in place 21st-century patent systems that are much more similar to what we have done under the AIA. 

So U.S. patent protection, as important as it is, is no longer completely adequate for many innovators, many American innovators. 

They need global protection. They need protection in Europe, they 

need protection in China, they need protection in Korea and Japan 

and other parts of Asia. And to do that, they are incredibly hampered by patent systems that are totally misaligned. 

The AIA creates a new gold standard for patent systems that has 

been the U.S. system. We now are in a position to work with our 

trading parties overseas, and we are doing that aggressively, to get 

them to update and improve their patent systems to make it easier 

for American innovators and innovators everywhere to take an 

idea, file a patent application here, essentially file about the same 

application and get the same level of protection where they need 

it overseas. 

Mr. SMITH. Okay. Thank you, Director Kappos. 

The gentleman from Michigan, Mr. Conyers, is recognized. 

Mr. CONYERS. Thank you, Chairman Smith. 

Under Secretary David Kappos, you have been in your office 

since August 2009. At the present time, it takes almost 3 years, 2 

months short of 3 years—if a person filed an application today, 

they would be waiting 33.9 months before a final resolution. 

Now, I am here to help you about what can you do. How about 

some new technology in applying this? And what if we were to give 

you lots more patent examiners and anything you might have to 

add to how we speed this time up? It is too long. An independent 

inventor can’t hang in here for 3 years waiting for the office to do 

what it should be doing much, much sooner. 

Mr. KAPPOS. Well, thank you, Ranking Member Conyers. I appreciate the question. 

Indeed, the numbers have gone down slightly from 34 months. 

We are now in the 32-month range for final pendency, so we have 

made a little more progress. I fully agree with you that 32 months 

remains too long. We do have some additional, however, good news 

coming on the horizon, which is that our forward-looking pendency 

numbers for our first action—this is first time we look at an application—are now down to about the 16-month range, which means 

that for applications being filed today, the review time is getting 

much, much shorter. 

That is a byproduct of the fact that, as you say, we are doing a 

lot of work on our IT, we are doing a lot of work with hiring examiners, including in Detroit, where we have already hired examiners, 

and we are easily going to meet and surpass our hiring goals of exVerDate Aug 31 2005 10:51 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00025 Fmt 6633 Sfmt 6601 H:\WORK\FULL\051612\74258.000 HJUD1 PsN: DOUGA
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tremely qualified people, experienced IT professionals, who we will 

be able to put to work within a few weeks of joining the USPTO, 

have them examining applications right there in Detroit, in addition to several panels of board judges, extremely highly qualified 

folks, already hired, already being trained, ready to go as we open 

that office in just less than a couple of months. 

So I fully agree, we have more work to do. Putting more examiners in place is clearly part of the equation. We are working on 

it. Thank you so much for your focus on funding and stewarding 

this agency, which has enabled us to engineer this transformation. 

We keep running our play with hiring more people and working on 

IT and working on efficiencies, all of which we are doing. But you 

are right, we can get this under control, and we can take these 

numbers down further. 

Mr. CONYERS. I feel a little better. And that is the only question 

I am going to ask you, because this is where we have to put our 

focus and direct attention as much as we can. 

Thank you, Chairman Smith. 

Mr. SMITH. All right. Thank you, Mr. Conyers. 

The gentleman from Wisconsin, Mr. Sensenbrenner, is recognized 

for his questions. 

Mr. SENSENBRENNER. Thank you, Mr. Chairman. 

Director Kappos, let me say that the Congress unloaded upon 

you one very, very big job when the AIA was passed. And I think 

that you have done an extremely good job in meeting the mandates 

and changing the procedures in your office as directed by Congress. 

I opposed the AIA. I made no secret of that. And what we are 

talking about in part here is legislation that seems to be kind of 

secret, in terms of making technical corrections to the AIA. And the 

fact that we have a roomful of witnesses in something that is supposed to be technical and nonsubstantive in nature, to me, raises 

a very red flag. 

So I am directing these comments less to you, Mr. Director, and 

more to the two senior Members that are seated to my left. First 

of all, don’t play ‘‘I have a secret’’ with the changes that you are 

proposing. Bring the bill draft around, seek input from people who 

opposed your law rather than supported it. 

Second, keep it technical and only keep it technical. Otherwise, 

we are going to go through the same fight that we had for 6 years 

in getting the AIA passed, where some people will be winners and 

exceedingly happy and some people will be losers and even more 

mad than they were before. We have to bridge that gap. And how 

this technical corrections bill is done will go a long way to determining whether the gap gets bridged or whether the gap gets 

wider. You know, the fact that we are talking about technical corrections I think should be an admission that the bill was not properly drafted in the beginning, because now we are going to have to 

fix a few parts of it. 

Now, in terms of substantive and nontechnical issues that are 

being considered, let me talk about a couple of things. First of all, 

changes in the language that could have raised estoppel from the 

post-grant review process isn’t technical. That is very substantive. 

And I think that this should be considered separately and not in 

something that is supposed to be noncontroversial. 

23 

Also, I think substantive issues would be the expansion of the 

prior-use rights to create a new right that extends to commercial 

products and changes to the first-to-file provisions to address concerns about unanticipated limitations of the university grace period. These are substantive issues as well. 

So let’s keep it technical. It does have a chance to get through 

this Congress and will help make Director Kappos’ job of implementing this big assignment that we have given him much easier. 

Let’s debate the substantive things in separate legislation. Some 

may pass, some may not pass, some will be modified. 

But, in sum, don’t play ‘‘I have a secret’’ with this, as happened 

in the past with this and other types of legislation. Because when 

you don’t expose massive legislation to the full light of day and 

have a full debate on it, there will be mistakes that will require 

technical corrections. 

Strike one on you folks. Let’s not have strike two or strike three. 

Thank you. 

Mr. SMITH. Thank you, Mr. Sensenbrenner. 

The gentleman from North Carolina, Mr. Watt, is recognized. 

Mr. WATT. Thank you, Mr. Chairman. 

Since Mr. Sensenbrenner spoke about the people to his left and 

the only Member of his side of the House who is left at the present 

is the Chairman, I hope he is not talking about the other people 

to his left down here. Because if there is a bill that is either substantive or technical, we haven’t seen it either. So I would join him 

in requesting that it be a transparent discussion of all of these 

issues if we are talking about making changes. 

But I just wanted to make sure, since he was talking about people to his left, and the only person I saw to his left that was on 

his side of the aisle who might have some of control over this would 

be his own Chairman—— 

Mr. SMITH. Would the gentleman yield? 

Mr. WATT. He is putting up his thumb to suggest that it might 

be—— 

Mr. SMITH. Before we make this too personal and before you act 

too quickly to join the gentleman from Wisconsin, let me assure 

you that there is no technical bill and everybody will be—— 

Mr. WATT. That is what I thought, too, but—— 

Mr. SMITH [continuing]. Made aware of it when there is. 

Mr. WATT.—I thought maybe Mr. Sensenbrenner knew something that we didn’t know. But I wasn’t aware of a bill either. So, 

anyway, let me get on to the questions I wanted to ask. 

Director Kappos, the PTO published a notice on April 20 seeking 

public comment on whether the procedures it employs to screen 

patent applications for national security implications should also be 

used to consider, quote, ‘‘economic security implications.’’ The request, which the notice indicates emanated from the Appropriations Committee, is based on the concern that a loss of competitive 

advantage during the time between required publication of a patent application and the time the patent is granted—that is the 

time that the Ranking Member was expressing concern about—undermines domestic development, future innovations, and contingent 

economic expansion because of worldwide access to the applications. 

24 

I wonder if you could comment conceptually on whether the notion of an economic security evaluation is compatible with the goals 

of the AIA or our various treaty obligations. What are your 

thoughts about that? 

Mr. KAPPOS. Well, thank you for the question, Congressman 

Watt. 

And the answer is that an economic security test would be a new 

kind of a test. We don’t have anything like that that we currently 

employ. We have national security tests that are actually executed 

by the various national security-related agencies, DOD and others. 

USPTO does not, itself, conduct those kinds of tests. 

There would indeed be challenges relative to the AIA. An economic security test is not, on its face, compatible with the AIA, so 

something would need to be done about that. There would be challenges relative to treaty obligations that we have, and those would 

have to be worked out if we did decide to go down the road. 

But the USPTO felt it was important to act on the concerns of 

the CJS Appropriations Committee that also oversees us. And we 

were asked to seek input, and so we are trying to do that in as balanced a way as we can. 

Mr. WATT. All right. 

Director, based on recent press accounts, technology companies 

seem to be engaged in a so-called patent arms race. Tech companies are spending a lot of money to buy patent portfolios and suing 

to block technologies in every conceivable venue. And on Monday 

a Federal appeals court ruled that Apple can move ahead with its 

case to block some Samsung tablets over patent infringement 

claims. That is according to Reuters. 

Over the course of this Congress, we frequently heard representatives of the tech community argue that copyright infringement 

suits brought against tech companies by content owners stifle innovation. By that logic, it would seem the rash of patent cases 

brought by tech companies against tech companies might stifle 

technological innovation. 

Can you give us your take on this? And does litigation to protect 

intellectual property rights stifle innovation? Is there any reason to 

think that copyright litigation against tech companies stifles technological innovation any more or less than patent litigation? 

Mr. KAPPOS. Well, the answer is, no, I don’t think there is any 

reason to believe that either copyright or patent lawsuits of the 

kind that we are seeing in the so-called smartphone wars are a 

sign of stifling technological innovation. In fact, much to the contrary. 

First of all, we have seen this movie before. We have seen this 

movie many times before. We saw it when Boulton and Watt got 

in their fights in the 18th century in England over the patents that 

started out—— 

Mr. WATT. That is W-A-T-T? 

Mr. KAPPOS. Well, we saw it again with them too. We saw it 

when the sewing machine was invented. Then we saw it when the 

telegraph was invented. And we are seeing the same dichotomy, we 

are seeing the same series of events play out. 

It starts with fundamental technological innovation that is transformative in nature. Then others come along and want to do increVerDate Aug 31 2005 10:51 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00028 Fmt 6633 Sfmt 6601 H:\WORK\FULL\051612\74258.000 HJUD1 PsN: DOUGA
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mental innovation on top of it. The original innovators—let’s say, 

the Apples of the world as an example, companies that everyone 

would say have made transformative changes in our lives—have intellectual property positions resulting from massive investments. 

They seek to enforce those positions, level the playing field in some 

way, and you have a dustup like we are seeing right now. 

I do not believe that it is a sign that there is anything at all 

wrong with the innovation environment in the U.S. In fact, I think 

it is a byproduct of a very healthy overall innovation environment. 

These things happen. They sort themselves out over time. It is a 

strength of our system that we have strong and balanced intellectual property rights that let folks play their hands out the way that 

they are. 

And the last thing I will say is, I don’t think that it is in any 

way a sign that there is some fundamental problem with patents 

at all across the board. It would be one thing if we were talking 

about noninnovators involved in these patent wars, but we are 

talking about some of the most innovative companies on the planet 

that have done tremendous research, have sought to protect their 

research, and are now protecting their rights that go along with it. 

So I actually just see this as a, you know, market reaction to a 

market development in a very competitive space, by the way. The 

smartphone space is characterized by extremely sharp drops in 

costs over time, extremely strong increases in performance, multiple changes in market leads, with different companies leading at 

different points in time. It is a tremendously competitive marketplace. And so I think what is going on here is just the natural ebb 

and flow of technology development. 

Mr. WATT. Thank you, Mr. Chairman. I yield back. 

Mr. SMITH. Thank you, Mr. Watt. 

The other gentleman from North Carolina, Mr. Coble, is recognized. 

Mr. COBLE. Thank you, Mr. Chairman. 

Director Kappos, refresh my memory. First to file was to take effect 18 months after enactment? 

Mr. KAPPOS. Correct. 

Mr. COBLE. Which would be, I guess, March. 

Mr. KAPPOS. March next year. 

Mr. COBLE. Do you anticipate any transition problems? 

Mr. KAPPOS. No, we don’t. We are in the middle of the transition 

actually already. We are in the period where applicants need to decide whether they file under the old grace period and the old firstto-invent rules or under the new grace period and the new firstinventor-to-file rules. 

We are preparing our NPRM, our notice of proposed rulemaking, 

right now. We intend to conduct roundtable discussions and get 

great public input on it. We will be right on time with implementing it. 

There has been speculation about whether there will be a big 

bubble of patent applications filed before or after. I really don’t 

think there will be. There will be several things that will be interacting, including fee changes, including just the needs of the marketplace. And I think that the transition will be quite manageable. 

Mr. COBLE. Thank you, sir. 

26 

Mr. Kappos, a recent hearing was conducted regarding international patent issues. And in the wake of the passage of the AIA, 

how are your talks going with our European and Japanese allies 

and others toward patent harmonization, including adoption of the 

1-year grace period, A? And, B, what have been the most obvious 

stumbling blocks that you encountered? 

Mr. KAPPOS. Well, Mr. Coble, thank you very much for that question. 

The answer is that we are making actually quite considerable 

progress with our trading parties overseas on harmonization. The 

Japanese already have a good grace period. It is not exactly the 

same as ours, but it doesn’t need to be exactly the same as ours. 

They need to extend theirs to 1 year, but I believe that we can 

work with them on that. The Republic of Korea, South Korea, recently put in place an excellent grace period based on our free 

trade agreement with them. And that has been implemented, so 

they are clearly in good condition. Other countries have good grace 

periods also. 

The main issue is working with the Europeans on that point. 

And, indeed, we are working hard with them. They are, I think, 

taking a very honest and appropriate look. We now have study 

groups consisting of USPTO employees working with employees of 

various European offices—the German office, the U.K. Office, the 

Dutch office, the French office. The European Patent Office is involved also. And we are working through the details of what would 

be an approach to the grace period that I would hope will inspire 

the European movement. 

Mr. COBLE. Thank you, sir. 

One final question, Mr. Kappos. Can you provide us with an update on the selection process for further PTO satellite offices? 

Mr. KAPPOS. Right. So, sure. We are working on that. As I mentioned, we open the Elijah J. McCoy office just in a couple months, 

I think probably even a little less than that now, in July. 

We are mandated by the legislation to identify two additional offices. We plan to do that by this summer. We are working through 

a process that I think Congress did a good job of outlining for us. 

It is very objective. It looks at factors, including the ability to attract and retain examiners in the area; the ability to interact with 

an applicant community, with an IP community in the area; and 

the ability, importantly, to increase the economic vitality of the 

area generally. 

So we have criteria under those basic requirements. They are 

very objective in nature—how many patent practitioners there are, 

how many university graduates there are in the technological 

fields, cost of living, cost of housing, other objective factors. We 

have a gigantic matrix of all of that information, and we are sifting 

through it now on a very objective basis to try and identify good 

candidates. 

Mr. COBLE. Thank you. Thank you for being with us, Mr. 

Kappos. 

I yield back, Mr. Chairman. 

Mr. SMITH. Thank you, Mr. Coble. 

The gentleman from Virginia, Mr. Scott, is recognized. 

Mr. SCOTT. Thank you, Mr. Chairman. 

27 

Mr. Kappos, are there any provisions of the law that you will not 

be able to implement on time? 

Mr. KAPPOS. No. We will succeed in implementing all of them on 

time. 

Mr. SCOTT. And are there any other initiatives that the PTO has 

implemented to improve the patent process? 

Mr. KAPPOS. Yes, Congressman Scott. Thank you for that question. It could be a very long answer, so I will give just a few examples. 

We are very intent on improving—continuing to improve the 

quality of our work while also improving the efficiency of our work 

so we can get more workflow through the agency. To do that, you 

have to have get examiners who have the time and the tools and 

the processes available to them to do a great job. 

So we have given examiners more time, right? Quality more important than quantity, at the end of the day. We have actually 

given our examiners across the board more time. And, not surprisingly, quality went up when we did that. 

We have given our examiners much better training and much 

better performance systems to incent them to engage with applicants to understand applications deeply the first time through and 

to get them done, whether ‘‘done’’ means granting a patent or finally rejecting an application. And it is showing progress. We are 

going to hit somewhere in the neighborhood of 170,000 hours of examiner interviews this year, which is an all-time world record for 

our agency. It compares with under 100,000 hours just a couple of 

years ago. So we are increasing the amount of time examiners 

spend understanding applications by wide, wide margins. 

Our IT tools are finally starting to come on line and relieve some 

of the burdens of examiners. We have our universal laptops almost 

completely deployed, and I think 99 percent of the agency is done. 

So our examiners finally have a good platform to work on. Not surprisingly, it is causing our IT systems to have less down time than 

they did, so examiners are becoming more productive. 

Our new Patents End-to-End system is coming up. Our CRU, 

Central Examination Unit, is already using PE2E. It is transformative for the examiners who use it. They are just blown away 

by the quality. We are gradually bringing function on. We are 

going to get the whole CRU over here in the next several months. 

Then we are going to start bringing the corps of over 7,000 examiners on. That is another step to function up in efficiency of the 

agency. 

And the last thing I will mention is, at the same time you are 

doing all of that, you have to give examiners the substantive tools, 

in terms of the guidelines and procedures internally, so that they 

can do a great job. So we are responding very quickly to case law 

that is coming out of the Supreme Court, the Federal circuit, and 

the accumulation of everything those courts are doing. We put out 

new rules within 24 hours after the Supreme Court’s Prometheus 

decision to keep our examiners going but to keep them very current. 

We put out for the first time in the history of the agency guidelines to improve the quality of our examiners’ work relative especially to software-related patent applications, applications that use 

28 

broad functional language. We have had that in place for nearly a 

year now. We have tested it. It has indeed increased our examiners’ 

use of what is called 112 rejections and objections, which is exactly 

what we wanted to have happen. Very pleased with the ability of 

our agency now to put in place these new tools, IT, new processes, 

substance, new management systems, getting examiners to work 

with applicants. So at the same time then increasing the quality 

and the effectiveness of the work we are doing. 

Mr. SMITH. Thank you, Mr. Watt—Sorry, Mr. Scott, excuse me. 

The gentlewoman from California, Ms. Lofgren, is recognized. 

Ms. LOFGREN. Thank you, Mr. Chairman; and thank you, Director, for being here. 

Just a comment. Something like a quarter of the patents in the 

United States come from the Silicon Valley. And I know that there 

has been a strong interest in the Valley for a next office, and I am 

hoping that you will consider that overwhelming fact as you consider these various offices. 

A small comment on the patent thicket and kind of the patent 

wars that are developing. I understand your point that you made 

to Mr. Watt, but it is certainly not just the cell phone wars. It is 

also the social network wars. And recently an independent analysis 

suggested that in the infringement litigation currently under way, 

for example, between Yahoo and Facebook that there were over 

30,000 patents implicated in that litigation. And it seems to me if 

you are a software engineer and there is potentially 30,000 patents 

implicated, I mean, there is no point in even looking in terms of 

infringement. 

I think there is a problem, and I think we are not going to solve 

it here today, but I think it bears examination, and especially for 

the engineers involved in the Valley. And I am hoping to have 

some discussion among the parties. Because that kind of litigation—everybody has to do it, both as a sword and a shield. But 

from a 30,000-foot level it is draining a lot of money from innovation that I think is a problem. 

I want to talk about the inter partes situation. Some have suggested that the PTO will be accepting too many re-exams, even 

though the AIA raised the acceptance threshold; and some have 

suggested that you should have voluminous initial disclosures, 

which I have some questions about. And I am wondering what your 

thoughts would be, what the Office would do and what would the 

costs be for the Office if the patent claims scope were similar to a 

Markman hearing, as opposed to what I think most of us envisioned when the bill was crafted. You know, I just don’t know how 

we would pay for that, but maybe that is a misconcern on my part. 

I am also interested in the costs for a company defending itself 

against an invalid patent in district court. How would that compare 

if we were to go to a more voluminous filing as some have suggested? And your comments on that would be very welcome, as well 

as any other in that as the process is developed. 

Mr. KAPPOS. Well, thanks for the questions and comments, Congresswoman Lofgren. And I will tell you I am concerned about patent wars, also, despite my previous comments. While I think they 

are a reflection of marketplace reality, they involve creative companies on both sides. You mentioned the Yahoo-Facebook suit. 

29 

Ms. LOFGREN. Yes, and I am not taking one side over the other. 

I am just noting that, for business reasons, companies are buying 

up and using as a sword and a shield these gigantic portfolios that 

are weighing down the sites. 

Mr. KAPPOS. But I think the AIA provides us with an opportunity to help sort those things out much more cost-effectively. 

The second part of your question, in a suit that involves however 

many patents between litigants, if we can reassess the patentability of those inventions quickly and cost-effectively through postgrant opposition and inter partes review at the PTO, that is where 

the action is and that is where parties can then quickly and effectively assess their relative positions and resolve those suits without 

having to spend extreme amounts of money. 

So that is the first part of the question. 

Now I will be out in your home State and my home State, California, later this week—no, actually, first of next week talking 

about these various issues with judges and with members of the IP 

community there specifically to learn more about this and to make 

sure we are doing everything we can at the PTO as we implement 

the AIA. 

So relative to the second part of your question and voluminous 

disclosures in these post-grant processes, I am concerned, also. One 

thing I will tell you is I do not believe that the USPTO will be living up to the mandate of the AIA if we implement it just like a 

district court process. That is it not what you intended. I do not 

believe that is what the Congress intended. I do not believe that 

is what is reflected in either the statute or the legislative history, 

and I do not believe we can proceed that way. 

Parties who want to spend millions of dollars on voluminous extensive document discovery with lawyers fighting with each other 

inexorably and then dumping millions of documents on dispute resolvers need to go to district courts to do that. That is what district 

court discovery looks like. 

You put in a process for us that you want us to get done in a 

year. That is going to require a lot more oversight and a lot more 

proactive involvement and a lot less voluminous disclosures by parties. 

One of the smartphone lawsuits—there was a report just last 

week on one of the parties that filed a document that was over a 

thousand pages and the judge looked at the document and reactively said, I am not even going to read this thing. The situation’s 

out of control. 

What we are trying to create in the PTO is a system that 

proactively prevents those kinds of abuses and wastes from happening by having our ALJs reasonably involved all along the way, 

just like the district courts are starting to do with magistrates who 

are getting more involved in litigation all along the way. It is a 

best practice being recognized in the district court. We want to do 

the same thing with our procedures so that our folks are involved 

helping to guide the parties in a streamlined, cost-effective, fast 

way and not get into this situation with voluminous uncontrolled 

disclosures that will run up costs just like in district courts, waste 

millions of dollars, not behave in a manner that is consistent with 

30 

your statute, and create a process that we will never be able to administer at the PTO. 

So I am very alert to your concern. We are trying to balance all 

of these issues with parties on the one hand who want wide-open, 

district-court-like processes in the USPTO and, on the other hand, 

get these processes completed in a reasonable amount of time. 

Ms. LOFGREN. If I could, Mr. Chairman, I am wondering if you 

could tell us what percentage of accepted inter partes exams today 

result in a change to the claims? 

Mr. KAPPOS. Well, I am doing this from memory, but today my 

recollection is that a high percentage of the cases that are accepted 

actually do result in a change of claims. A number like 85 percent 

is sticking in my mind. But it may be slightly more or less. But 

it is a high number. I believe that actually is a testament to the 

strength of the process that when we accept one of these into review it is one that we really do need to look at. 

Ms. LOFGREN. I yield back, Mr. Chairman. Thank you very much. 

Mr. SMITH. Thank you, Ms. Lofgren. 

The gentlewoman from California, Ms. Waters, is recognized. 

Ms. WATERS. Thank you very much, Mr. Chairman. 

I would like to thank Mr. Kappos for his presence here today. 

There is one part of the bill that I continue to have concerns 

about. Mr. Kappos, as you may recall, I sponsored an amendment 

on the floor to the America Invents Act with Congressman Schock 

to extract Section 18 from the bill. This section created an additional review process for financial services related business method 

patents. According to an April 13th, 2011, article published in the 

Huffington Post entitled: One observer claimed the banks were 

using patent reform to seek special consideration exemptions. 

Many of the major banks have been using patented business 

methods without permission of the patent owners or payment to 

them. The financial industry has persuaded this Administration 

and the Senate and the House Judiciary leaders to retroactively 

change patent office rules in a way that makes it impossible for 

patent owners to enforce their constitutional rights against the 

banks’ infringement. In effect, the Congress is voiding issued patents on behalf of the banks. 

I was struck by the information that we were presented with, 

particularly a case by a man named Mr. Claudio Ballard. I never 

met this gentleman, but he explained to us that he had founded 

something called Data Treasury Corporation and that he had really 

created the technology that removed paper checks from the payment process and replaced them with electronic digital images. And 

he explained that the financial services industry took extraordinary 

steps to try and invalidate his inventions. 

They took him to court, and he won in court. They came to the 

Congress in 2008. The Congress did not see fit at that point to do 

anything to invalidate these inventions. They even went to the 

Federal Court, and the Federal Court supported them, and I think 

your office supported them. But they were able to use the power 

and influence of the financial services industry to insert this Section 18. 

And so now you have the responsibility, I suppose, for determining whether or not these inventions are valid, this transitional 

31 

review proceeding that you have the responsibility for. And you 

could literally invalidate patents retroactively. 

Have you taken a look at Section 18 and determined how you 

will be implementing this? And what input have you had coming 

to you, comments in this process, the regulatory process? Could you 

help me with that? 

Mr. KAPPOS. Sure. Yes, we have looked at that section carefully; 

and indeed we put out proposed rules on it. We have gotten comments from the intellectual property community on the proposed 

rules, and we are currently in the process of drafting the final rules 

to implement the covered business method procedure. 

Now we benefit from the fact, relative to the transitional CBM, 

that there is a lot of legislative history. A lot was said on the floor 

of both Chambers. And so our job is to implement the legislation 

that Congress passed. We are implementing it right along the lines 

of the law and the legislative history that explained the intent. 

Ms. WATERS. So I guess what I am asking is, do you have the 

authority and the flexibility to make a determination about whether or not these patents in the financial services industry that are 

being challenged are legitimate challenges? And do you have the 

authority to retroactively invalidate patents in this area? 

Mr. KAPPOS. Well, yes, I think we do in the sense of retroactivity. 

The CBM provision 18 is no different from inter partes re-examination nor post-grant opposition or even supplemental examination or 

ex parte reexamination that we already have and have been executing for years in the sense that it charges the PTO with taking 

a second look at a patent that we have granted and potentially determining that some or all of the claims were unpatentable. So it 

is retroactive in the sense that we are always looking at patents 

that we previously granted. Congress has given us the authority 

and the obligation to do all of that. 

Ms. WATERS. Well, I recognize that in Section 18. And let me just 

say that what draws my interest to all of this is we encourage innovation, we encourage creativity, and we have encouraged the average American citizen with an idea to pursue it. It seems to me that 

there is gross unfairness in the way that this gentleman and others 

have been treated by the financial services industry. They have a 

lot of power, they have a lot of money, and they have a lot of clout. 

And it seems to me this issue is costing these companies a lot of 

money going into court, winning; coming into your office, winning; 

and all of a sudden, because they were able to get this in this legislation, this Section 18, they have to continue to pay lawyer’s fees 

and use their precious resources to try and fight against basic unfairness. 

And I just want to put that on your mind and let you know that 

some of us would encourage you: Just do the right thing. 

Mr. SMITH. Thank you, Ms. Waters. 

The gentleman from Illinois, Mr. Quigley, is recognized. 

Mr. QUIGLEY. Thank you, Mr. Chairman. 

Welcome. 

The enhanced transitional review program, as you know, is 

tasked with reviewing business method patents that have been 

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cess to the most relevant prior art to assist examiners as they reviewed business methods. 

You know, on one hand, these smaller institutions that support 

something like this, they struggle to defend themselves against 

lawsuits. Some of these are pretty small, community bankers and 

so forth. So a lot of them settle to avoid an extraordinary cost of 

litigation. 

On the other hand, while this new process will help, these institutions would have a difficult time paying large fees to get a patent 

reviewed under the business method patent review program unless 

the fees were scaled, I guess. Is that your intention? Is that your 

understanding, the intention of PTO to scale the fees to help smaller institutions? 

Mr. KAPPOS. Well, if I recall right, we are permitted by Congress 

to scale fees in a lot of areas, and we are. We are going to be for 

the first time offering micro-entity fee discounts of 75 percent in 

addition to small-entity discounts of 50 percent. 

But if I recall right, Congress did not give us the authority to 

scale the fees to a micro level for those post-grant processes. Well, 

my understanding was that the overall view was that as you get 

into processes like that, like the covered business method review 

process, you are really almost always in a position where the PTO 

is by far the least-cost alternative, because your other alternative 

is going into district court. So the cost in USPTO our fees are going 

to be circa a few tens of thousands of dollars. You have got the lawyers’ fees on top of that. But compared with going into district 

court and spending millions of dollars to get the same thing done. 

Mr. QUIGLEY. And I appreciate that you say that is your understanding. 

Mr. Chairman, can I ask you if you know or someone else knows 

what your understanding was of whether Congress was giving the 

PTO the authority to micro target? 

I see by the shaking heads it appears no. 

Mr. SMITH. I think the answer is no, having consulted with staff, 

but we can look into it further for you. 

Mr. QUIGLEY. I would appreciate it, sir, if you and your staff 

could, Mr. Chairman. 

Thank you, and I yield back. 

Mr. SMITH. The gentleman yields back. 

There are no other Members here for questions so, Director 

Kappos, thank you for your testimony today, very much appreciated. 

We will now go to our second panel of witnesses, and as soon as 

they are seated I will introduce them. 

Our first witness is Bob Armitage, Senior Vice President and 

General Counsel for Eli Lilly and Company. Before joining Lilly in 

1999, Mr. Armitage worked as Upjohn’s Chief IP counsel and practiced law for Vinson & Elkins in Washington, D.C. He is also an 

Adjunct Professor of Law at George Washington University. 

Mr. Armitage earned a degree in physics and mathematics from 

Albion College as well as a Master’s degree in physics and a law 

degree from the University of Michigan. He was a major stakeholder participant in the negotiations of the American Invents Act 

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cently published in the AIPLA Quarterly Journal. I have a copy 

here, and the article I think is 110 pages long. So—and I have 

heard it is well written and look forward to reading it. 

Our next witness is Eliot Williams, a Partner in Baker Botts’ 

New York office, who will testify on behalf of the Financial Services 

Roundtable, the American Bankers Association, the American Insurance Association, the Independent Community Bankers of 

America, and the National Association of Federal Credit Unions. 

Mr. Williams practices in all areas of intellectual property law, 

with a focus on patent and trade secret litigation. Mr. Williams frequently speaks on IP issues and is an Adjunct Assistant Professor 

at Brooklyn Law School where he teaches patent litigation. He 

earned a B.S. in electrical engineering from Texas A&M University 

and his law degree from New York University. 

Our next witness is Carl Horton, Chief IP Counsel for General 

Electric, who will testify on behalf of the Coalition for 21st Century 

Patent Reform. He also served as an IP counsel for GE’s 

Healthcare and Distribution and Control Businesses. 

Before joining GE, Mr. Horton practiced IP law for 4 years in Alexandria, Virginia, for Burns, Doane, Swecker & Mathis. He received a chemical engineering degree from the University of Utah 

and a law degree from George Washington University. 

Our next witness is Kevin Rhodes, President and Chief IP Counsel at 3M Innovative Properties Company in St. Paul, Minnesota, 

who will testify on behalf of the Intellectual Properties Owners Association. Mr. Rhodes manages the IP assets of 3M and its worldwide affiliates. 

Before joining 3M in 2001, Mr. Rhodes was a partner at Kirkland 

& Ellis in Chicago, where he specialized in IP litigation. He earned 

his undergraduate degree in chemistry from Grinnell College and 

his law degree from Northwestern. 

Our next witness is Richard Brandon, Associate General Counsel 

for the University of Michigan. His practice focuses on patent, technology transfer, and research legal issues. Prior to joining the university, Mr. Brandon practiced IP law in Chicago for a number of 

years. He has experience in domestic and foreign patent prosecution, licensing, and other technology and IP-related issues. 

Mr. Brandon received concurrent bachelor degrees in Chemistry 

and Spanish from Wayne State University and his law degree from 

the University of Michigan. 

Our final witness is Timothy Molino, Director of Government Relations for the Business Software Alliance. Prior to joining BSA, 

Mr. Molino served as Chief Counsel for Senator Amy Klobuchar 

and worked for the Antitrust, Competition Policy, and Consumer 

Rights Subcommittee. He was responsible for advising the Senator 

on a variety of tech and IP issues. 

Mr. Molino also practiced IP law in Washington with two firms: 

Bingham McCutchen and Burns, Doane, Swecker & Mathis. He 

earned his undergraduate degree from the University of Mary 

Washington and his law degree from Washington and Lee University. 

We welcome our witnesses today. Please limit your testimony to 

5 minutes. And, Mr. Armitage, we will start with you. 

34 

TESTIMONY OF ROBERT A. ARMITAGE, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ELI LILLY AND COMPANY 

Mr. ARMITAGE. Thank you, Chairman Smith and Ranking Member Conyers. 

It was exactly 8 months ago today that the Leahy-Smith America 

Invents Act became law. This achievement was largely attributable 

to the bipartisan persistence of this Committee and its Senate 

counterpart over what seemed like a short 6-year period to see a 

comprehensive patent reform bill through to enactment. 

The new law positions the United States as the global leader in 

efforts to improve the world’s patent systems through greater international cooperation and harmonization. On a host of issues the 

AIA implements what the U.S. patent communities agreed would 

be the best patent practices for a globally harmonized patent system. This was done so that our law might serve as the mold and 

model for the rest of the world. 

As the United States Patent and Trademark Office moves to implement our new law, the devil in such an implementation sometimes lies in its most obscure details. This makes today’s hearing, 

with the aim of focusing on several of those details, of the utmost 

importance to the country. Thus, I am pleased to be able to offer 

the views of Eli Lilly and Company on the AIA implementation efforts thus far. Let me begin by offering a few words on the process 

that the USPTO has followed in bringing the AIA to life. 

If there were a single word for that process, it would be transparency. If you were to grant me two words to describe the Office’s 

efforts, they would be transparency and candor. The USPTO has 

reached out to the patent community to understand both the 

‘‘what’’ and the ‘‘why’’ of the sometimes quite diverse viewpoints 

being expressed on these implementation issues. Let me therefore 

publicly thank those in the Office who are leading this effort. They 

have shown an uncommon dedication and focus on seeing their 

mission to a successful conclusion. The Nation could hardly be better served by those now leading this effort, beginning with Director 

Kappos. 

With the limited time available for my opening remarks, let me 

highlight just a few points from a written statement. 

First, the USPTO efforts to implement the new fee-setting authority indicate that Congress was fully justified in giving to the 

Office this fee-setting responsibility. Lilly wants the Office to be 

run frugally and efficiently and for the Office to use its financial 

resources to invest for the long term in ways that will make it 

more efficient and more effective and that hold the promise that 

the fees of the future might indeed even be lower. In the aggregate, we see the plan to invest $2.93 billion of user 

fee collections next year as a well-justified target, set at the right 

level for the investments the Office is making in the future of this 

country’s patent system. That, of course, assumes, as we have 

heard today, that those fees are not just collected but also available 

to the Office for their use. 

Second, with respect to the new supplemental examination procedure, the Office, at least in Lilly’s view, has not fully embraced this 

procedure, nor has it sought to optimize its potential for increasing 

the reliability and quality of issued patents. The Office could inVerDate Aug 31 2005 10:51 Sep 14, 2012 Jkt 000000 PO 00000 Frm 00038 Fmt 6633 Sfmt 6601 H:\WORK\FULL\051612\74258.000 HJUD1 PsN: DOUGA
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deed improve the quality and usefulness of the information coming 

before patent examiners during the original examination of a patent by facilitating more ready access to supplemental examination, 

and to do so it must greatly simplify the requirements that now appear in its proposed rules. 

Third, I would like to commend the Office for its response to the 

criticism of its proposed rules implementing assignee filing and the 

so-called inventor’s oath provision of the AIA. It is clear from recent actions of the Office that the final rules will proceed to fully 

implement the assignee filing provisions of the AIA, and hopefully 

this augurs well for the Office’s final rules as they relate to the inventor’s oath. 

Fourth, Kevin Rhodes, appearing today on behalf of IPO, has 

submitted testimony for the record that provides a detailed road 

map for crafting rules on the new post-issuance procedures in the 

AIA. This road map was created on a cooperative basis by the ABA, 

IPO, and AIPLA. 

Lilly’s hope is that the views in Kevin’s submission will become 

the detailed blueprint for the Office’s final rules. And indeed, just 

to underscore what Director Kappos has said, it is very important 

that those rules be crafted so that the post-grant review procedures 

are efficient and economical, providing discovery that is fair and 

needed but not trying to duplicate district court litigation. 

Let me end with just one final observation. Congress in passing 

patent reform of the U.S. laws undertook a task that hadn’t been 

successfully undertaken since 1836. It is a remarkable achievement. It deserves implementation efforts commensurate with that 

achievement. 

To date, I would contend that the Office has shown itself to be 

up to the task of securing a remarkable implementation of this remarkable new law. The proof, however, of my contention will come 

in the pudding of the final rules and examination guidelines, rules 

yet to be finalized and examining guidelines yet to be proposed. 

Thank you. 

[The prepared statement of Mr. Armitage follows:] 

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Mr. SMITH. Thank you, Mr. Armitage. 

Mr. Williams. 

TESTIMONY OF ELIOT D. WILLIAMS, PARTNER, BAKER BOTTS 

L.L.P., ON BEHALF OF THE FINANCIAL SERVICES ROUNDTABLE (FSR), THE AMERICAN BANKERS ASSOCIATION (ABA), 

THE AMERICAN INSURANCE ASSOCIATION (AIA), THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA), THE 

NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS 

(NAFCU), AND THE CREDIT UNION NATIONAL ASSOCIATION 

(CUNA) 

Mr. WILLIAMS. Thank you, Mr. Chairman. Thank you for the opportunity to testify today regarding implementation of the newly 

renamed Smith-Leahy America Invents Act. 

I am going to focus my comments on Section 18, which relate to 

the transitional program for review of business method patents, 

which attracted some interest from Members of the Committee, 

today. 

We would first like to begin by thanking the Chairman and the 

other Members of the Committee and the Members of the Intellectual Property Subcommittee for their leadership on this important 

program, and we would like to thank Director Kappos and his as 

team at the Patent Office for the commendable job they have done 

in their initial rounds of rulemaking. 

While we are largely supportive of those proposed rules, we do 

have some suggestions for slight alterations that will properly 

carry out the congressional intent of the underlying program. I will 

touch on a few of those recommendations in my oral testimony 

today and refer the Members of the Committee to my written statement for some further discussions of additional recommendations. 

Let me preface the recommendations with a few words about the 

importance of the transitional business method review program. 

The program offers a less costly and more efficient administrative alternative to patent litigation so that companies acting in 

good faith do not have to spend the millions of dollars it can often 

cost to litigate a business method patent of questionable validity in 

Federal court. 

Unlike the traditional patent application process where the patent office hears only from the patent applicant, the transitional 

business method review program permits full participation by a 

party charged with infringement. This allows the patent office to 

obtain the most pertinent prior art known to that accused infringer, which can be especially important in the case of business 

method patents, because the most pertinent prior art is most often 

found in nontraditional locations, such as marketing literature, 

prior sales, et cetera, and therefore may be difficult for the patent 

office to uncover without the assistance and involvement of industry participants. 

Notably, the business method review program is only available 

after the patent office determines, after reviewing the materials 

and arguments submitted by the accused infringer in the request, 

that it is more likely than not that at least one claim of the challenged patent is invalid. This relatively high threshold provides 

ample protection to patentees against improper use of the program, 

93 

and the program should therefore be implemented so that there are 

no technical loopholes that would permit a questionable patent to 

escape review. 

With these guideposts in mind, we offer the following more specific comments: 

First, we believe the burden should be on the patentee to show 

that the technological invention exception applies. In close cases, 

the Office should err in favor of permitting review of a patent 

under challenge. Proposed rules should therefore be clarified to put 

the ultimate burden of persuasion on the patentee to show that the 

patent escapes review under the program because it qualifies as a 

technological invention. 

We believe the economy will be benefited by erring on the side 

of including patents within the program so that these potentially 

invalid patents do not escape review. Notably during the House’s 

legislative hearing on impending H.R. 1249, Director Kappos testified that it is more costly to the U.S. Economy when the threshold 

for determining whether to reevaluate a patent is set too high, because this can cause invalid patents to escape review in the Patent 

Office. 

Moreover, the legislative history of the AIA shows that the Act’s 

authors, including the Chairman, intended the implementing regulations to be drafted so that the business method program would 

apply as broadly as possible. Similarly, Senator Schumer, one of 

the sponsors of the provision in the Senate in his comments to the 

PTO has cautioned that the term ‘‘technological invention’’ should 

not provide a haven for clever lawyers to draft patent claims that 

would escape review under the program. 

The regulations that implement the review program should be 

simple and should err in favor of permitting review. The use of 

overly complicated or inflexible standards risks the exact kind of 

damage to the economy that Director Kappos previously testified 

about when he cautioned against setting thresholds for review too 

high. And in particular the complex test for eligibility under the 

program will risk keeping improperly granted patents on the books, 

which is contrary to the intent of this important program. 

The second point we would like to address has to do with the definition of ‘‘charged with infringement.’’ In particular, we believe 

there should be no requirement that a patentee use any magic 

words in its correspondence with potential targets, such as ‘‘litigation’’ or ‘‘infringement’’, before an accused infringer can invoke the 

program to test the patent’s validity. Instead, we believe the Patent 

Office should apply a test similar to that used in the District courts 

to decide if declaratory judgment is present. And we believe this 

will make it most likely that patents that are of particularly questionable validity will make it into the program without clever 

lawyering avoiding such a review. 

Finally, we note that the business method proposed rules seem 

to prevent the use of the business method program for the first 9 

months of first-to-invent patents—in other words, the patents 

which are currently on the books—which we believe is an incorrect 

reading of the statute. The proposed rule effectively insulates these 

first-to-invent business method programs from review during the 

first 9 months of their term, which is again inconsistent with the 

94 

exact text of the AIA. So we encourage the PTO to look at that proposed rule again. 

In conclusion, we do want to thank the Chairman and the Members of the Committee again for the opportunity to testify. We are 

very excited about the transitional business method review program and look forward to working with the Patent Office and 

Members of the Committee to ensure it is implemented properly. 

Thank you. 

[The prepared statement of Mr. Williams follows:] 

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Mr. SMITH. Thank you, Mr. Williams. 

Mr. Horton. 

TESTIMONY OF CARL HORTON, CHIEF INTELLECTUAL PROPERTY COUNSEL, GENERAL ELECTRIC, ON BEHALF OF THE 

COALITION FOR 21st CENTURY PATENT REFORM 

Mr. HORTON. Mr. Chairman, Members of the Committee, I appreciate the opportunity to testify today in my capacity as chair of the 

Coalition for 21st Century Patent Reform, or the 21C as we are 

known, a diverse group of nearly 50 innovative companies in 18 different industry sectors that employ millions of Americans in wellpaying jobs. 

Let me begin by expressing my sincere gratitude and appreciation to all Members of Congress, and especially Members of this 

Committee, for your leadership in passing the Leahy-Smith/SmithLeahy America Invents Act. It represents a tremendous step forward for the patent laws of the United States that will continue 

to pay dividends for years to come. 

Let me also thank the staff of the Office, and particularly Director Kappos, for all their efforts to implement provisions of the AIA 

in a manner that is timely, transparent, and collaborative with the 

user community. 

The 21C was intimately involved in the discussions leading up to 

the passage of the AIA. Armed with this knowledge and experience, 

we have critically reviewed each of the various rules issued by the 

Office to ensure that they faithfully adhere to congressional intent. 

For the most part, such rules have remained true to the provisions 

of the AIA. Consequently, I will address only those provisions 

where additional changes would yield the greatest benefits or 

where the rules have strayed farthest from what was intended 

when the AIA was passed. 

Collectively the new post-grant review, PGR, and inter partes review, IPR, proceedings work to form the key cornerstone of the 

AIA. The PGR and IPR proceedings were to provide a fast, fair, 

and cost-effective manner to challenge patents of excessive scope or 

questionable validity. However, as currently drafted, these proceedings are not nearly as streamlined as they might be, and they 

also lack procedural safeguards that would better balance the proceedings between patent owners and patent challengers. 

Both PGR and IPR proceedings could be dramatically improved 

if requests were comprehensive at the outset, containing all information on which petitioners intend to rely, and patentees were permitted to respond with all information explaining why a petition 

should be denied, thereby providing the Office with a full and complete record on which to base its decision to institute such proceedings. 

Once instituted, IPR and PGR proceedings should be further 

streamlined by using proven best practices such as automatic protective orders, clearly articulating the appropriate scope and limitations on discovery, restricting the length and breadth of witness 

questioning, and eliminating any and all unnecessary motion practice that would do little more than inflate legal fees. 

104 

Finally, claims should be interpreted consistently with other adjudicative proceedings, lest patentees face one claim scope for validity and a conflicting claim scope for purposes of infringement. 

Despite the global economic uncertainties and cost pressures facing our companies, the 21C supported the Office and the goals in 

its strategic plan by approving the 15 percent surcharge levied in 

conjunction with the AIA. However, the 15 percent surcharge is already having a significant adverse impact on the number of patent 

applications that applicants can afford to file, issue, and maintain. 

Further fee increases could have even greater detrimental consequences on applicants. 

The AIA should in no way act as a deterrent to R&D, nor should 

it inhibit a company’s ability to protect the fruits of such innovation. We are committed to working with the Office to simplify processes to eliminate fee increases so that applicants can secure rights 

to all innovations that have the potential to fuel future U.S. economic growth and recovery. 

One such opportunity for cost savings is the arcane practice of 

signing an oath or declaration when inventors have already assigned such rights to their employer. The current U.S. practice and, 

unfortunately, the draft rules proposed by the Office are tedious 

and time consuming. By requiring only an express statement by 

applicants that they have obtained the requisite right to file the 

patent application, the U.S. could dramatically simplify current 

practices to coincide with global best practices, as was intended. 

Section 18 of the AIA likewise has the potential to divert precious resources within the Office if the proceedings are made overly 

complex or unduly ambiguous. In its attempt to define technological inventions that do not qualify for business method challenges, the Office has conflated the issues of both novelty and nonobviousness together with the definition of technological feature, as 

well as requiring the technological feature to solve a technological 

problem with a technological solution. 

Finally, the supplemental examination provisions permit patentees an opportunity to ask the Office to consider or correct information possibly relevant to patentability before seeking to enforce 

their patents. The draft supplemental examination rules impose 

overly burdensome and unnecessary requirements such as detailed 

statements from applicants for each item of information submitted. 

The Office’s draft rules would also deny applicants access to the 

benefits of this procedure if it determines the request did not comply with all of the formal requirements set forth, including the formal of the papers filed. We believe some relaxation of these requirements is in order. 

Thank you for the opportunity to present our Coalition’s views on 

the implementation of the AIA. I would be pleased to answer any 

questions. 

[The prepared statement of Mr. Horton follows:] 

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Mr. SMITH. Thank you, Mr. Horton. 

Mr. Rhodes. 

TESTIMONY OF KEVIN H. RHODES, PRESIDENT AND CHIEF INTELLECTUAL PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY, ON BEHALF OF THE INTELLECTUAL 

PROPERTY OWNERS ASSOCIATION (IPO) 

Mr. RHODES. Chairman Smith and Members of the Committee, 

thank you for the opportunity to testify today. I am speaking on 

behalf of IPO, the Intellectual Property Owners Association, which 

is a trade association of more than 200 companies and more than 

12,000 individuals representing all industries and all fields of technology. 

I will echo what the previous panelists have said, thanking the 

Committee for its work in guiding through the enactment of the 

Smith-Leahy America Invents Act and for all the efforts that went 

into that. And, also, I will join in commending Director Kappos and 

the patent office for their excellent progress to date in promulgating and implementing regulations for the Act. 

I offer my testimony today in a constructive and not critical spirit. I will focus my remarks on the proposed rules to implement the 

new post-grant review and inter partes review proceedings. 

IPO is concerned that the proposed rules for these reviews do not 

yet fully implement the full intent and the promise of the Act, and 

IPO is not alone in those views. A cross-organization committee of 

experienced practitioners that was appointed by IPO, APLA, and 

the IP law section of the American Bar Association joined together 

and submitted detailed comments asking for specific changes to the 

proposed rules. 

My written testimony that I have submitted lays out nine of 

those recommendations that all three of these leading IP organizations have endorsed and that they believe are the most critical to 

effective implementation of the new review proceedings. I will summarize a few of those recommendations today. 

Before I get into specifics, however, I would like to respond to a 

point that was made during the prior testimony. I do not believe 

that it is accurate to characterize the rules that all three of the IP 

organizations have recommended as being a version of litigationtype discovery. The discovery that we have proposed and the initial 

disclosures that go along with those are much more limited, restricted only to the issues on which review has been granted. They 

are not simultaneous discovery as in district court litigation. They 

are sequential. So no party to a review will need to take and defend discovery at the same time. And they really do implement 

some of the best practices in district courts around the country as 

how to make sure there is a full and complete disclosure of information at the outset of proceedings. 

District courts around the country, including the Eastern District 

of Texas and the Northern District of California, have adopted patent disclosure rules that really do promote the streamlined, efficient, and fair adjudication of patent infringement lawsuits, and 

that is what we are trying to replicate in our proposed rules that 

the three organizations have endorsed. 

122 

As far as a summary of a few of the specifics, first, the rules 

should ensure that that the PTO bases its decision whether to institute a review on as complete a record as possible. The petition 

seeking review should disclose all of the petitioner’s invalidity arguments and supporting information, and the patent owner should 

be permitted in its preliminary response to provide any evidence 

showing why the review should not be instituted. 

A review should be ordered only when the PTO determines, after 

considering all of the evidence presented, that the statutory evidentiary threshold has been met as well as the other factors that 

the Act allows the director and the board to consider in deciding 

whether to institute a review. 

Second, the reviews need to proceed without the extensive motion 

practice that the current proposed rules contemplate. Clear default 

rules mandating and limiting what must be disclosed and filed and 

when that must be done and what can be discovered are needed 

to ensure the rules can operate with minimal oversight from administrative patent judges and with minimal burdens on participants in terms of preparing for and participating in motion practice 

and other interactions with the board. 

Third, with respect to discovery, as mentioned, the rules should 

clearly set forth the scope and procedures of discovery to promote 

predictability, consistency, fairness, and due process for all parties. 

Both petitioners and patent owners alike should make initial disclosures so that the case is presented at the outset and the discovery can be narrowed from there, and that should take place 

without having to continually seek motions from the board on 

items of discovery that should be routine in nearly every review. 

Finally, with respect to claim construction, I will echo what Mr. 

Horton said. In IPR and PGR proceedings, claims should be construed using the same procedures as used in litigation. These are 

by nature, and as indicated in the House report on the bill, adjudicatory in nature; and if we apply a different claim construction 

in these proceedings as in litigation, the patent holder is not only 

going to face dual standards but it is going to operate to the disadvantage of the patent holder in each setting. 

In the PTO review, the claim would be given its broadest reasonable construction, a broad claim making it easier to invalidate with 

prior art. To turn around in litigation that might be occurring at 

the same time, the patent holder will face a claim construed under 

the Markman procedures, presumably narrower, thereby more difficult to prove infringement. I don’t think it was the intent of the 

Act to tip the scales against patent owners in that manner. 

Thank you. I will be happy to answer questions. 

[The prepared statement of Mr. Rhodes follows:] 

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Mr. SMITH. Thank you, Mr. Rhodes. 

Mr. Brandon. 

TESTIMONY OF RICHARD BRANDON, ASSOCIATE GENERAL 

COUNSEL, UNIVERSITY OF MICHIGAN, ON BEHALF OF THE 

ASSOCIATION OF AMERICAN UNIVERSITIES (AAU) 

Mr. BRANDON. Thank you for the opportunity to speak today 

about the America Invents Act. 

I am Rick Brandon, associate general counsel for the University 

of Michigan. I am here today to speak on behalf of the Association 

of American Universities, which includes 59 of the Nation’s leading 

public and private research universities. 

AAU was the lead negotiator on behalf of the universities for a 

consortium of six higher education associations to ensure that universities—— 

Mr. WATT. Mr. Chairman, I am still having a little trouble hearing. Could you pull the mic a little bit closer? 

Mr. BRANDON. Is that better? 

Mr. WATT. That is much better. 

Mr. BRANDON. We wanted to make sure that universities’ voices 

were heard during debate on the AIA. We very much appreciate 

how both the majority and minority Members of this group worked 

with us to craft the ultimate legislation. 

Let me begin by commending the U.S. Patent and Trademark Office for its work to implement the new patent law. As indicated by 

Director Kappos, the USPTO has provided ample opportunity for 

input from the public. Indeed, the Office has been conducting major 

outreach across the Nation, as you already heard about today, appearing at a variety of forums and answering the myriad of questions the new law has generated, in many cases involving universities. 

Let me also acknowledge how excited we are in the State of 

Michigan about the opening of the new Detroit satellite office, 

which you heard a bunch about today already. 

Universities play a key role in the U.S. Patent system, and the 

discoveries made on my campus and others throughout the country 

will lead to new cures for diseases, new technologies, and ultimately to the creation of new jobs and industries to keep our Nation competitive and our national security strong. 

Thanks to the effective work of this Committee, the USPTO, and 

their staffs, the product of the patent reform effort will hopefully 

be an improved system that is more harmonious with that of other 

countries and will stimulate the economy and simplify the patent 

process to the benefit of all sectors, including universities. 

As USPTO moves through its numerous rulemakings and proceeding, it is important that the carefully crafted promises that enabled passage of the AIA remain intact, allowing the USPTO to implement the bill as passed. We believe that any deviations from the 

compact embodied in the AIA be considered only with the agreement of all the affected parties. 

Two possible amendments to the AIA have arisen since its passage that are not strictly technical, one clarifying the grace period 

for inventors, which is a particularly important issue for university 

145 

researchers, and the other calling for a proposed further expansion 

of prior user rights, which in our view is even more substantive. 

Universities view these two issues differently. Let me start by 

clarifying the intent of the grace period. 

We believed that the grace period language in the AIA as passed 

would preclude obvious variants of a published invention from 

being considered as prior art during the 1-year grace period following an inventor’s disclosure. We now understand that this interpretation is being called into question, and we are discussing possibly amending language that would establish unequivocally that 

such obvious variants would not constitute patent-defeating prior 

art. 

Simply put, we are seeking a grace period amendment that 

would accomplish no more or less to implement the original intent 

of the grace period language that was introduced in 2005, which we 

believe was the intent of this Committee when it passed the Act 

last year. Indeed, a widely stated goal of this legislation was maintaining a strong grace period that would permit university researchers to continue to discuss and publish their research results 

in advance of actually filing a patent application. 

In contrast, some groups are now seeking further expansion of 

prior user rights, calling for adding provisions that were explicitly 

discussed at the end of the patent reform process and omitted from 

the compromise agreement that was a major factor in passage of 

the Act. That agreement involved universities reversing their longstanding opposition to any expansion of prior user rights. We understood at the time of the compromise that all parties had entered 

into a binding agreement, and we concur with the recent USPTO 

report that itself concludes that further expansion of prior user 

rights is not warranted at this time and that this issue can be revisited when the PTO conducts a mandated study of prior user 

rights and other issues in 2015. 

Nevertheless, in the interest of sound public policy, we have been 

negotiating with other groups to see if it is possible to reach agreement on language that would expand the prior user rights while 

effectively addressing the concerns of universities. To date, we have 

not found such language, and we would be strongly opposed to any 

effort to amend the AIA to expand prior user rights without broader agreement by universities and all affected parties. 

In conclusion, universities wish to thank the Members of this 

Committee for their effective work and diligence in helping to negotiate this landmark legislation. We believe that the PTO has done 

an excellent job of implementing the new law. We urge that, absent 

broad agreement, any technical corrections being considered be just 

that, technical in nature and not designed to make major changes 

to the Act that was just signed 8 months ago today. 

Thank you for your attention. I look forward to any questions. 

[The prepared statement of Mr. Brandon follows:] 

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Mr. SMITH. Thank you, Mr. Brandon. 

Mr. Molino. 

TESTIMONY OF TIMOTHY A. MOLINO, DIRECTOR OF GOVERNMENT RELATIONS, BUSINESS SOFTWARE ALLIANCE (BSA) 

Mr. MOLINO. Chairman Smith and other distinguished Members 

of the Committee, thank you for the opportunity to testify at this 

very important hearing. 

Intellectual property rights are the cornerstone of innovation, 

giving innovators confidence that it is worth the risk to invest and 

developing and commercializing new ideas. Patents are an indispensable part of these protections. 

The Business Software Alliance is the leading advocate for the 

software industry. BSA members have worked closely with this 

Committee for many years to modernize the patent system. Because of this Committee’s leadership, patent reform became a reality last year. The Business Software Alliance believes the America Invents Act is a substantial step forward in bringing our patent 

system into the 21st century. 

Current efforts by the Patent and Trademark Office to implement the American Invents Act follows this Committee’s goal of 

making the U.S. patent regime the best and most efficient patent 

system in the world. We support the PTO’s proposed rules with 

some clarifying changes, because they will enhance the patent system and promote innovation in computers and software. 

The PTO is being very open and transparent during the drafting 

of the proposed rules under Secretary Kappos, and the entire PTO 

team deserve a great deal of credit for their hard work in implementing this ground breaking law. BSA submitted comments to the 

PTO on the Office’s proposed rules. Our suggestions aim to strike 

a balance between intellectual property owners and those seeking 

to challenge an application of issued patent, and I ask that BSA’s 

comments be made a part of the record in this hearing. 

[The information referred to follows:] 

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Mr. MOLINO. BSA believes there are three areas in which the 

proposed rules can be improved. These are the transitional program for covered business method patents, inter partes review, and 

post-grant review. The purpose of these programs is to remove lowquality patents. Removing low-quality patents from the system will 

instill greater certainty and confidence. 

With respect to the transitional program for covered business 

method patents, which focuses on patents in the financial services 


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sector, BSA believes that the PTO should better define which patents will potentially be subject for review under this program. The 

PTO’s proposed definition of the technological invention exception 

provides that eligibility for review will be determined on a case-bycase basis using two criteria: where the claimed subject matter as 

a whole recites a technological feature that is novel and whether 

it is unobvious over the prior art and solves a technological problem using a technological solution. 

We believe that using only these criteria will potentially allow 

the definition of covered business method patents to include anything used in the provision of financial services, including patents 

covering general purpose servers, email clients, and basic spreadsheet applications. As a result, it could be interpreted to cover a 

significant number of general software and computing technology 

patents that have little or nothing to do with business methods. 

The availability of method patents benefits a vast variety of industries. Broad inclusion of these patents in the transitional program would be an unfortunate and unintended consequence of the 

proposed definition. This could produce effects beyond financial 

services and create unwelcome uncertainty, chill innovation, and 

reduce investment in bringing new technologies to American consumers and creating jobs here in America. 

At the same time, we recognize the financial industry’s strong interest in this area. Thus, it is important that the PTO strike the 

right balance in determining which patents fall under this program 

and which do not. 

BSA has suggested a four-factor balancing test to determine 

whether a patent should be reviewed under this program. It provides safeguards against the inclusion of general software and technology patents, while providing context so the patents directed to 

financial services or products are not excluded, looking at their 

technological contributions in isolation. By adopting this test, the 

PTO would provide clarity as to which patents fall under this program and which do not. 

BSA’s other suggestions relate to the procedures for inter parte 

review and post-grant review. We support the direction of the proposed rules, but we believe minor changes to the time line, scope 

of discovery, page limits, and process for resolving claim disputes 

can be made to more properly apportion respective burdens on the 

petitioner and patent owner. Our suggestions would also allow for 

more efficient administration by the PTO. 

Finally, BSA supports the PTO’s fee changes with a few considerations. Some of the fee increases, especially in traditional preparation and prosecution categories, may cause BSA members to reassess their patent strategies. Therefore, BSA believes the PTO 

should continue to review the fee increases to ensure that the 

prices that are charged are appropriate. On that note, we believe 

the fees set by the PTO for inter parte review and post-grant review, while high, are reasonable in view of the substantial work required from the Patent Trial and Appeals Board. 

Again, the Business Software Alliance appreciates this opportunity to testify. I look forward to answering your questions. 

[The prepared statement of Mr. Molino follows:] 

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Mr. SMITH. Thank you, Mr. Molino. 

Let me recognize myself for questions and begin with Mr. 

Armitage, if I may. 

Mr. Armitage, my question for you is what technical fixes would 

you recommend that we consider for the American Invents Act? 


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Mr. ARMITAGE. Let me start with what I consider to be the most 

obvious, and I will call it a technical fix, although I realize there 

may be some controversy on that issue. 

During the legislative process, in effect almost through the last 

day of the 6-year process, the estoppel and post-grant review 

against later judicial proceedings was ‘‘issues raised’’ in one form 

or another, not ‘‘issues raised or could have been raised.’’ Due to 

what I think everyone would acknowledge was an error in the legislative process, that estoppel includes issues that could have reasonably been raised, which may have the effect of essentially nullifying the provision unless that error can be corrected. So, to the 

exclusion of anything else that needs to be done, I would urge that 

correction to be done. 

Mr. SMITH. Thank you, Mr. Armitage. 

Mr. Williams, what else can we do either with the America Invents Act or what else can the Patent and Trademark Office do to 

discourage patent trolls? 

Mr. WILLIAMS. Wow. 

Mr. SMITH. That is a softball over home plate. 

Mr. WILLIAMS. Yes, well, I think, obviously, the business method 

review program is an excellent start. As you know, Mr. Chairman, 

those patents are ones that are sort of special in the sense they are 

seem to be litigated far more frequently than patents in general. 

And so to the extent there is a single classification of patents 

where the patent troll or non practicing entity companies become 

more involved, it seems to be those are the ones. 

So having an effective and cost-effective way to review those patents again, to give them a closer look using the best prior art is 

a good step in the right direction. And to do that in a way where 

companies who are acting in good faith don’t have to spend millions 

of dollars in District court litigation going through discovery that 

may or may not be relevant to the ultimate issues in the case on 

validity I think is definitely a step in the right direction. So I think 

that is the main point that I would say. 

And the second point in terms of technical amendments or 

changes to the Act—and I think this goes to a question from Mr. 

Quigley earlier during the discussion with Director Kappos—the 

fee structure is one that we do think is important to look at closely. 

We are supportive of, obviously, the patent office charging fees necessary to make these review programs work effectively and so that 

those are funded. But we would encourage the Committee and the 

members of the staff as well as the PTO to look closely at whether 

those fees could be staged or maybe reduced for small entities if 

they want to bring these types of reviews. 

Mr. SMITH. Thank you, Mr. Williams. 

Mr. Horton, actually that has led to my next question to you. 

How do you think the increase in fees are being received or will 

be received from what you heard Mr. Kappos say? 

Mr. HORTON. You know, as I indicated in my oral testimony, I 

think it is a mixed blessing. I think we all generally support the 

patent office, particularly given their heroic efforts with the AIA, 

to try to get their hands around patent quality and just to do a 

stellar job of doing what we hoped they were always able to do but 

181 

*Mr. Horton amended this portion of his response to read as follows: 

We took a quick look at some of the fees. If I look at just the filing and issue fees associated 

with our portfolio, if I say 3,000 patents is roughly what we file on an annual basis, we would 

be looking at about a $1.8 million annual increase on our filing and exam fees at the PTO. 

It gets even worse if we try to maintain a portfolio over the life of those patents, which for 

us, being a long-cycle business, can be a full 20 years. The maintenance fees go up by about 

around $2 million at the first maintenance fee payment for 10,000 patents, another $3 million 

at the second maintenance fee payment for about 4,000 patents, and about $12 million at the 

third maintenance fee payment for 4,300 patents. That is $17 million in aggregate cost on a 

budget, granted the size of GE, which is north of $100 million, but still is no small fee increase 

for GE to absorb in order to maintain our protection. 

were lacking the funds to do so. That is why we supported the 15 

percent fee increase associated with the bill. 

However, that being said, my employer forces me daily to be cognizant of the realities of the economy that we are facing, and we 

are starting feel the impact of the fee increase already. I fear subsequent increases could cause even more pressure points to come 

to bear. 

We took a quick look at some of the fees. If I look at just the 

filing and issue fees associated with our portfolio, if I say 3,000 patents is roughly what we file on an annual basis, we would be looking at about a $3.5 million increase on our filings and search fees 

at the PTO.* 

It gets even worse if we try to maintain a portfolio over the life 

of those patents, which for us being a long-cycle business can be 

the full 20 years. The maintenance fees go up to about around $5 

million at the first maintenance fee payment for 10,000 patents, 

another $5 million at the second maintenance fee payment for only 

7,000 patents, and about $16 million at the third maintenance fee 

payment of 5-6,000 patents. That is $26 million in aggregate cost 

on a budget, granted the size of GE, which is north of $100 million, 

but still is no small fee increase for us to swallow to try to maintain our protection.* 

Mr. SMITH. Thank you, Mr. Horton. 

Mr. Rhodes, last question is for you. The America Invents Act 

permits the PTO, in fact, encourages the PTO to establish regulations that prioritize examination for products, processes, or technologies. Do you think that IPO member companies will take advantage of some of these provisions? 

Mr. RHODES. Thank you for the question, Mr. Chairman. 

I think that certainly with as diverse a membership as IPO we 

have companies that will be interested in various aspects of those 

programs. The green program that was announced, I know that we 

at 3M had some patent applications that we submitted into those. 

I think, more generally speaking, though, with such a diverse 

membership we are concerned when certain technologies or certain 

patent holders are put to the front of the line and prioritized 

among others who would have equally beneficial inventions. There 

is no denying that we want to encourage some of the subject matter 

of the inventions that are being prioritized, but we just don’t know 

what is in some of the rest of the backlog as well. So that does create some concern. 

I distinguish that, however, from the accelerated examination 

that we certainly support. If you are willing to pay more to accelerate examination, I think that program is a tremendous success. 

Mr. SMITH. Thank you, Mr. Rhodes. 

182 

That concludes my questions; and the gentleman from North 

Carolina, Mr. Watt, is recognized for his. 

Mr. WATT. Thank you, Mr. Chairman. 

I thank the witnesses for being here. 

I think all of you were here when I asked Director Kappos about 

this economic impact analysis that the Appropriations Committee 

suggested that he try to incorporate in the analysis. And I don’t 

want to leave the impression that I am not sensitive to the domestic economic impact. I am sensitive to that. I just do not know how, 

consistent with what we have tried to achieve in the patent reform 

bill and consistent with our treaty obligations internationally, how 

you can put that together and into the same analysis. 

So I am wondering if you all have any ideas about how, consistent with our treaty obligations, we can address the foreign economic impact that patent publication may facilitate and how all of 

this may be made more compatible. Any of you have any ideas on 

that? 

That is a softball question again, I thought. 

Mr. ARMITAGE. Could I speak to that question? 

Mr. WATT. Yes, sir. 

Mr. ARMITAGE. Because I think the gist of the proposal here was 

that if you did the economic impact analysis you could elect not to 

have your patent application published at 18 months, or in fact it 

just simply may not be published at 18 months. It seems like that 

is simply taking the patent law in the wrong direction. There was 

some justification perhaps for not publishing all patent applications 

promptly under our old regime. But our new regime basically guarantees someone once they file an application, and once that application is published, that no one can come later and get a patent 

that is either the same as what was originally filed or obvious in 

view of what was originally filed. It is a categorical guarantee that 

if anyone gets a patent, you do. It worked different with a first-toinvent system. 

So with the burdensome nature actually having to do the analysis and then with the fact that if you do it you are just perpetuating secrecy when sunshine would be a far better policy, I would 

strongly urge the Office as they move forward with this analysis 

to look at this as not only something we want to do but something 

we would not want our trading partners to do. That is, keep things 

secret, where we would also be better off globally knowing who was 

going to get patent rights and who wasn’t. 

Mr. WATT. Any other comments on that? 

I mean, as sensitive as I am to the economic impact of this, I 

don’t know you give it the same level of credibility, I guess, as national security, which might justify some level of secrecy. But I am 

open to any other discussion about that you might have. 

Mr. HORTON. I might add to what Mr. Armitage has said. The 

fact is that now, for the first time in a long time, the U.S. has regained its leadership position on patent harmonization and IP protection discussions globally. That is huge. Because where we really 

struggle I think for adequate protection for all the intellectual 

property that is generated in the U.S. is in other countries where 

those laws we find to be—and the enforcement of those laws is inadequate. By regaining that leadership position, by harmonizing 

183 

with some of our major trading partners, I think it puts us in a 

much better position to try and advocate for broader, better, 

stronger protection internationally that will give us the kind of 

rights that we benefit from here in the U.S. in many of the areas 

where our growth is also happening pretty quickly. So I think they 

have done a great job, by the way, of taking this and making it 

work internationally. 

Mr. WATT. Now, I shouldn’t lose sight of the fact that this is 

being done at the request of the Appropriations Committee, and 

there is a connection to the second question that I want to ask. 

They have got to do what the Appropriations Committee ask them 

to do, which is put out a rule and evaluate the implications of this 

economic impact. Otherwise, there is a fear that the appropriators 

will take the money that they are collecting and not give it back 

to them. 

I raised the question in my opening statement about the impact 

that this kind of gentleman’s agreement could potentially have 

going forward with the appropriators. I guess the question is, if the 

money is collected—you talked about your concerns about fees, but 

if the money is being collected and applied to something other than 

the workings of the PTO office, I assume you all would be even 

more concerned about the increase in fees. 

So I am raising this kind of to put it on the record so that maybe 

the appropriators will understand that these two things are connected to each other. And in this area our objective is to get an appropriate Patent and Trademark Office operation, not to collect 

more fees for the benefit of solving our budget deficit, I suppose. 

I won’t ask you all to comment about that. I mean, I assume everybody on the panel basically agrees with the general notion that 

I have expressed without alienating the appropriators. 

Mr. ARMITAGE. Billions for the Office, not one cent for diversion. 

Mr. WATT. That is probably a good summary in capsule. 

With that, Mr. Chairman, I will yield back. 

Mr. SMITH. Thank you, Mr. Watt. 

Let me thank our witnesses for their testimony today. We do 

have a number of questions in writing to submit to you all. A number of Members have to be on the House floor—have had to be on 

the House floor for the last hour or so, so we have a number of 

questions from them we would like you to respond to them in the 

next week or 10 days, if you could. 

So thank you again for your testimony, very, very helpful. And 

we do expect to proceed with a bill that will make some tweaks, 

and we look forward to your continuing input in that regard. 

Without objection, all Members will have 5 legislative days to 

submit additional written questions for the witnesses or additional 

materials for the record, and this hearing is adjourned. 

[Whereupon, at 12:15 p.m., the Committee was adjourned.] 

(185) 

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Bob Goodlatte, a Representative in 

Congress from the State of Virginia, and Member, Committee on the Judiciary 

Today we are holding a hearing on the implementation of the Leahy-Smith America Invents Act. The AIA was the first patent reform bill in over 60 years and the 

most substantial reform of U.S. patent law since the 1836 patent act. 

But as the Members who drafted and worked to enact this law, our primary purpose today is to ensure that the hard fought reforms in the AIA are implemented 

by the PTO in keeping with Congressional intent. It needs to be made crystal clear 

that the rulemakings and regulations promulgated by the PTO should move us forward toward greater certainty and not be allowed to maintain the status quo. 

As we implement these changes in the patent system, we need to ensure that the 

new post grant review and other proceedings provide simple, cost-effective methods 

for raising challenges to potential PTO prosecution mistakes and that they provide 

less expensive alternatives to federal court litigation. If implemented correctly, these 

proceedings will increase certainty with regard to patent rights and thus spur more 

investment in new ideas. 

The PTO also needs to continue working to ensure that our patent system not 

only expeditiously reviews patent applications, but issues high quality patents that 

obviate the need for subsequent challenges and that can be enforced through the 

courts and administrative proceedings. This means we need to focus simultaneously 

on patent quality and patent quantity. 

A significant focus of the AIA was to reduce the problem of overpatenting, particularly by so-called ‘‘patent trolls,’’ the situation where weak or frivolous applications 

have been developed through creative or predictive lawyering, rather than as President Abraham Lincoln put it, through the ‘‘fire of genius.’’ The strength of our system relies on granting strong patents that are truly novel and non-obvious inventions—those that are the result of true innovations and not the product of legal 

gamesmanship. 

As the PTO reviews the volume of applications and works through the backlog, 

the bar needs to be set higher, and quality control needs to start on the front end 

rather than relying with the courts. 

A positive example from the AIA is the work being done to implement a transitional program to correct the egregious errors made in the granting of a wide range 

of business method patents. This program will provide the PTO with a fast, precise 

vehicle to review low-quality business method patents, which the Supreme Court 

has acknowledged are often abstract and overly broad. This program has the potential of making our nation’s patent portfolio stronger and if it is successfully implemented, we may want to consider making it permanent in the future and expanding 

its applicability to other non-technological patents. 

One area I plan to continue to watch is PTO fees. The fee authority Congress gave 

the PTO is finite for a reason. We sunset this authority so that the PTO would be 

mindful that it would need to come back to Congress to make the case that they 

have exercised this authority wisely. We will continue to monitor fees and make 

186 

sure the PTO is enacting reforms to achieve maximum agency efficiency before it 

resorts to fee increases in the future. 

The issues that we discuss in today’s hearing will require ongoing vigilance as we 

work to implement the AIA. We look forward to working with the USPTO, American 

innovators and industry to help identify specific concerns and issues, so that we can 

ensure that the bill is implemented in line with Congressional intent and promotes 

U.S. economic growth and job creation. 

I look forward to hearing from all of our witnesses on the implementation of the 

AIA and ensuring that the U.S. patent system helps to promote U.S. manufacturing, 

technology and innovation. 

f 

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

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

the Judiciary 

The Leahy-Smith America Invents Act was a monumental achievement and the 

first significant legislative overhaul of the patent system in over 50 years. After several cycles of congressional consideration, the patent reform bill was made possible 

in large part by the sheer doggedness of many of today’s witnesses and the industries they represent, as well as the leadership of the Administration and Director 

Kappos and members of this Committee and our Senate counterparts. 

The key reforms incorporated in the America Invents Act as part of the Obama 

Administration’s commitment to promote innovation, stimulate job growth and enhance America’s global competitiveness, are far too numerous to recite in the time 

I have. However, I want to acknowledge one that unified virtually all members of 

this committee—full funding for the PTO. 

Earlier this month the House passed the CJS appropriations bill which included 

$2.93 billion for the PTO for fiscal year 2013, a 9.5 percent increase over 2012. This 

amount reflects a spending level equal to the estimated fees the PTO will collect 

and is consistent with the ‘‘gentleman’s agreement’’ in the AIA. Despite the unfortunately large number of negative provisions in the CJS appropriations bill that made 

it impossible for me to support, the record should be clear that have never deviated 

from my view that the PTO should and must have access to all of the fees its collects to provide the efficient and quality services our innovators deserve. The increasingly indeterminate plight of most annual appropriations bills highlights the 

uncertainty, if not the folly, of the deal that was struck on the anti-fee diversion 

provision in the AIA. I can only hope that we will not allow rank politics to highjack 

or hold hostage the policy objectives we all agree are the best for our country. 

This is an ongoing concern and leads me to wonder to what extent the PTO or 

its users fears about the precariousness of full funding has or will influence or negatively affect implementation of the vision and provisions of the America Invents Act. 

But we are not here to re-litigate the shortcomings of the America Invents Act. 

Rather we are here to obtain an update on its implementation. Of the 20 provisions 

in the law requiring the PTO to establish new procedures or adjust current ones, 

the agency has fully implemented 7. Of the remaining provisions that require PTO 

action, 9 have been addressed in recent Notices of Proposed Rulemaking and await 

public comment, while only 4 remain under development. The PTO is on schedule 

with each of these provisions and, by all accounts, has conducted a fair, inclusive 

and transparent process. Unless we hear something compelling to the contrary from 

our second panel today, Director Kappos and his staff are clearly to be commended 

for their accomplishments to date. 

While the development, evaluation and implementation of the procedures and 

processes to carry out the mandate of the America Invents Act ultimately rests with 

the PTO, I look forward to hearing from the witnesses today on the various approaches they recommend to the agency to meet its challenge. 

Mr. Chairman, I thank you for calling this hearing and assembling an impressive 

panel of witnesses and yield back. 

f 

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