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76–092 PDF 2012

S. HRG. 112–558 

OVERSIGHT OF THE U.S. PATENT AND TRADEMARK OFFICE: IMPLEMENTATION OF THE 

LEAHY-SMITH AMERICA INVENTS ACT AND 

INTERNATIONAL HARMONIZATION EFFORTS 

HEARING 

BEFORE THE

COMMITTEE ON THE JUDICIARY 

UNITED STATES SENATE 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

JUNE 20, 2012 

Serial No. J–112–81 

Printed for the use of the Committee on the Judiciary 

( 
(II) 

COMMITTEE ON THE JUDICIARY 

PATRICK J. LEAHY, Vermont, Chairman 

HERB KOHL, Wisconsin 

DIANNE FEINSTEIN, California 

CHUCK SCHUMER, New York 

DICK DURBIN, Illinois 

SHELDON WHITEHOUSE, Rhode Island 

AMY KLOBUCHAR, Minnesota 

AL FRANKEN, Minnesota 

CHRISTOPHER A. COONS, Delaware 

RICHARD BLUMENTHAL, Connecticut 

CHUCK GRASSLEY, Iowa 

ORRIN G. HATCH, Utah 

JON KYL, Arizona 

JEFF SESSIONS, Alabama 

LINDSEY GRAHAM, South Carolina 

JOHN CORNYN, Texas 

MICHAEL S. LEE, Utah 

TOM COBURN, Oklahoma 

BRUCE A. COHEN, Chief Counsel and Staff Director 

KOLAN DAVIS, Republican Chief Counsel and Staff Director 
(III) 

C O N T E N T S 

STATEMENTS OF COMMITTEE MEMBERS 

Page 

Grassley, Hon. Chuck, a U.S. Senator from the State of Iowa ............................ 3 

prepared statement .......................................................................................... 48 

Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont .................... 1 

prepared statement .......................................................................................... 59 

WITNESSES 

Kappos, David J., Under Secretary of Commerce for Intellectual Property, 

and Director, U.S. Patent and Trademark Office, Washington, DC ................ 4 

QUESTIONS AND ANSWERS 

Responses of David J. Kappos to questions submitted by Senators Leahy, 

Klobuchar, Blumenthal, Grassley, Hatch, Cornyn, Lee and Coburn ............... 23 

SUBMISSIONS FOR THE RECORD 

Kappos, David J., Under Secretary of Commerce for Intellectual Property, 

and Director, U.S. Patent and Trademark Office, Washington, DC, prepared 

statement .............................................................................................................. 52 

(1) 

OVERSIGHT OF THE U.S. PATENT AND TRADEMARK OFFICE: IMPLEMENTATION OF THE 

LEAHY-SMITH AMERICA INVENTS ACT AND 

INTERNATIONAL HARMONIZATION EFFORTS 

WEDNESDAY, JUNE 20, 2012 

U.S. SENATE, COMMITTEE ON THE JUDICIARY, Washington, D.C. 

The Committee met, pursuant to notice, at 10:07 a.m., in room 

SD–226, Dirksen Senate Office Building, Hon. Patrick J. Leahy, 

Chairman of the Committee, presiding. 

Present: Senators Leahy, Feinstein, Whitehouse, Klobuchar, 

Coons, Grassley, Hatch, Lee, and Coburn. 

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

SENATOR FROM THE STATE OF VERMONT 

Chairman LEAHY. Mr. Kappos, if you could take a seat there, I 

will explain what we are doing. Normally, I am one that likes to 

take pictures. I am more interested in taking them than being in 

them, but this is one where Mr. Kappos and I both were at the 

signing of the Leahy-Smith America Invents Act, and you can see 

both of us and, of course, the President. And I am standing there 

because I am trying to take a picture of the President’s hand signing the bill. Over the years, I have been able to get pictures of 

Presidents Ford, Carter, Reagan, both Bushes, Clinton, and 

Obama, pictures of their hands, because no other photographer 

stands behind the President when he is signing a bill. But this particular picture, Mr. Kappos, as I mentioned to you, has special significance to me because it was taken by my son-in-law, who is one 

of the President’s photographers, and we just wanted you to have 

it. 

Nine months ago, the U.S. Congress did something that has become all too rare. It sent to the President bipartisan legislation 

that is going to unleash American innovation to create jobs and improve our economy. The Leahy-Smith America Invents Act, signed 

by the President last September, was the product of more than 6 

years of hearings and markups, and I thank all the Senators on 

both sides of the aisle that came to all those hearings and markups. And we had countless hours of meetings and negotiations, Republicans and Democrats, Senate and House, sitting down together 

and working on legislation the way we used to, the old-fashioned 

way. 
2 

The patent reform process was bipartisan and bicameral effort 

right from the outset. Every member of this Committee made important contributions to the legislation. Director Kappos’ leadership 

was also invaluable to this process. I had known him before from 

his days in the corporate world. He did not need a tutorial to know 

what was necessary. And Ambassador Locke, who was Secretary of 

Commerce when the Senate first passed the America Invents Act 

in March, I think of all the number of times that Gary Locke sat 

in long meetings with all of us, Republicans and Democrats, to 

work this out. 

But the Act creates a more effective, efficient, and streamlined 

patent system that will get the highest-quality patents to issue 

from the PTO as quickly as possible. It required major structural 

changes to the system of granting and enforcing patents, and that 

will take the PTO time and work to implement. 

But it has begun. So far, the PTO has initiated more than 10 different rulemakings and hired more than 800 examiners and 40 administrative patent judges. It has conducted seven road shows 

across the country to explain and receive feedback on proposed 

rules, and I appreciate this transparent manner where not just 

people in Washington but people in other parts of the country can 

have their input. 

I am pleased that even before the Act is fully implemented the 

PTO has focused on reducing the backlog of patent applications. 

Over the last 2 years, the backlog has been reduced roughly 12 percent, and I want these numbers to continue to improve. 

But speed is only one part of the equation. The patents that are 

issued need to be of high quality, because if they are not, instead 

of being an incentive to inventions, they are going to impede innovation. We have in the Leahy-Smith bill important quality controls. 

We also need to do more to protect American investors in overseas markets. We should encourage other nations to adopt a grace 

period similar to in our law. 

We can make it easier for American inventors to seek patent protection abroad by implementing the Patent Law Treaty and the Geneva Act Treaty on design patents. Those have been supported by 

both the Bush and the Obama administrations, so I hope, following 

the bipartisan example of President Bush and President Obama, 

that we can implement legislation in the same bipartisan and bicameral manner as we did on patent reform. 

So I think this is an efficient and effective patent system, and 

this was one that had not been updated for half a century. This 

will unleash American innovation and improve the American economy. 

So we have done our part in Congress, and I look forward to 

hearing from the Director about the steps the administration is 

taking to ensure the Leahy-Smith America Invents Act fulfills its 

potential as I believe we are creating the first truly 21st century 

patent system. 

I will put my full statement in the record. 

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

Chairman LEAHY. Senator Grassley. 
3 

STATEMENT OF HON. CHUCK GRASSLEY, A U.S. SENATOR 

FROM THE STATE OF IOWA 

Senator GRASSLEY. I will likewise put a full statement in the 

record and refer to a couple points. 

First of all, Senators Leahy and Hatch and Members of the 

House who were involved in this, you need to be complimented for 

having the most comprehensive reform of patent law since the 1836 

patent law. It is a product of 6 years. The America Invents Act 

makes the U.S. patent system more efficient and streamlined. It 

will eliminate or at least cut down on frivolous lawsuits. Transparency is very important. Patent quality is very important. That 

will be enhanced. These reforms contained in this law have helped 

the Patent Office to cut down on its backlog and process patent applications more expeditiously. 

The law contained a number of provisions that required the Patent Office to promulgate rules and regulations, so holding this 

hearing is very important on our constitutional responsibility of 

oversight to make sure that regulations follow congressional intent. 

We also want to determine whether the legislation has produced 

any discrepancies, difficulties, or unintended consequences that 

have been revealed during this implementation. So I believe it is 

appropriate to ask whether technical, clarifying, or other changes 

to the legislation are warranted. If so, I expect to work with my 

colleagues in a transparent and open manner to improve the America Invents process, and hopefully nobody will try to use technical 

or clarifying language to get something done that they could not 

get done during the 6 years that this process was being negotiated. 

And also to point out, last, that in 2007 the Patent Law Treaty 

and the Geneva Act of the Hague Agreement concerning the International Registration of Industrial Designs, these were ratified by 

the Senate. The Senate now needs to pass implementing legislation, and I look forward to hearing more about these treaties and 

how they can help American patent holders. 

That is only a part of my statement, so I will put the whole thing 

in the record. 

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

Chairman LEAHY. Thank you very much, and thank you for your 

help on this. 

David Kappos is the Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office, and he was invaluable to me and others in providing 

counsel and guidance as we worked to pass the Leahy-Smith America Invents Act. 

Before he joined USPTO in 2009, he was vice president and assistant general counsel for intellectual property at IBM; bachelor’s 

from the University of California, Davis; law degree from the University of California at Berkeley; but, more importantly, somebody 

who not only understands this, but has a commitment to make the 

Patent Office work. 

Director, it is all over to you. Go ahead. 
4 

STATEMENT OF THE HONORABLE DAVID J. KAPPOS, UNDER 

SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, 

AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE, 

WASHINGTON, D.C. 

Mr. KAPPOS. Well, Chairman Leahy, thank you very much; Ranking Member Grassley, Members of the Committee. Thank you for 

this opportunity to discuss the USPTO’s ongoing efforts to implement the Leahy-Smith America Invents Act and our pathway to 

international patent law harmonization. 

Mr. Chairman, you and your colleagues deserve special praise for 

making patent reform a reality. Our Nation’s innovators and our 

economy are truly the beneficiaries of your hard work. Thank you, 

thank you, thank you. 

Mr. Chairman, I am pleased to report that our AIA implementation efforts are indeed proceeding apace. We have implemented 

seven provisions of the AIA—all within the timeframes set by the 

Act. We have published proposed rules for nine additional provisions, and we are on schedule to implement all of them on time 

this summer. 

While our stakeholders have expressed differing views on some 

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

the transparency of our implementation process and the extent of 

our public outreach. Our AIA implementation team continues to review hundreds of comments received from individuals, IP organizations, IP practitioners, innovators, government entities, and academic institutions. And our ultimate goal, of course, is 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 issue the final rules on or before August 16th of this 

year. The rules will then become effective on September 16, 2012, 

to give us a window of a month or more to educate our personnel 

and the public regarding the final rules in advance of their implementation. 

Now, in early February of this year, we published initial proposed fees, as authorized by the AIA, for our patent services, and 

we received substantial feedback and recommendations from the 

public on them. We will also be receiving a report from our Patent 

Public Advisory Committee on the proposed fee structure before we 

issue a final rule late this year or early next year. 

Mr. Chairman, we should note that our stakeholders are indeed 

already benefiting from the AIA. We launched the prioritized examination program, known as Track One, that provides for patent application processing in less than 12 months and offers small businesses a substantial discount. Since its inception, we have received 

more than 4,000 Track One applications, and we have completed 

first examination on more than 2,300, an average of about 90 days, 

which is exactly what we had intended to implement. 

Needless to say, Mr. Chairman, our Satellite Office Program has 

drawn quite a bit of interest. We will open our first satellite office 

in Detroit, Michigan, next month. With respect to additional offices, 

we are in the process of reviewing and analyzing 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. 
5 

Mr. Chairman, this is an exciting time in the patent world. With 

the passage of the AIA and Europe’s consideration of a unitary patent, we are positioned to make real progress toward the establishment of a more effective international patent system overall. Adoption of the AIA has enabled the USPTO to promote a new vision 

of an intellectual property world in which national and regional 

patent systems are coordinated to create an optimal environment 

for technologically innovative companies and individuals globally. 

The AIA provides 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. A 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 with our overseas counterparties. 

It is clear that policies supporting high-quality intellectual property and a high-quality IP system are making a difference in our 

Nation’s economic recovery. 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 demonstrably contribute to job creation and 

economic well-being. 

So, Mr. Chairman, we look forward to working with you to ensure that the innovation-advancing, job-creating, deficit-neutral 

work conducted by the USPTO continues to best serve America’s 

innovators, and we appreciate your continued support for the employees and operations of the USPTO. 

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

for the record.] 

Chairman LEAHY. Well, thank you very much, Director. 

One of the things that I might mention, we had a grace period 

we included in the transition to a first inventor to file system. I 

have been told that has been essential to researchers at universities, independent vendors seeking venture financing. You said 

that you are working with other countries to see if they will provide similar protections. 

How are we coming with these other countries and trying to get 

that kind of grace period? 

Mr. KAPPOS. I think it is fair to say that we are making pretty 

solid progress. As a result of the recent free trade agreement between the U.S. and Korea, Korea now has a great grace period. 

Japan has a good grace period. We have got to work on a little bit 

of timing with them still. Other countries, including Canada, Australia, have excellent grace periods. We are working with folks over 

in Europe, the European Union and the major countries over there, 

in the direction to moving toward a grace period also. And I think 

it is fair to say that across the board people are receptive because 

they understand that a grace period is pro-innovation, it is pro-tech 

transfer, it is pro-opportunity. 

Chairman LEAHY. In the European Union, they are probably a 

bit distracted these days on other matters, but keep on with them. 

What are the biggest obstacles remaining as part of the implementation of the new law? 
6 

Mr. KAPPOS. Well, relative to implementation of the law overall, 

I actually do not see major obstacles. It is an excellent piece of legislation. We have got the tools to implement it. Financial resources 

are always a concern, understandably, but we have gotten great 

support from Congress. Our fee collections are running right about 

where we expected them to. Our expenses are right about where 

we expected. And we have got all the resources we need at this 

point to implement. 

Chairman LEAHY. I mean it as a compliment and not as a pejorative when I talk about a roadshow, but have those worked out 

pretty well in your mind? 

Mr. KAPPOS. Yes. So we ran seven roadshows all over the country—east coast, west coast, a number of places in between. I 

thought they were excellent, and the reason is because they gave 

an opportunity for people who do not often interact with the 

USPTO to get in a room and spend an entire day with our leadership team and understand the legislation, understand our implementation and tell us how we can improve it. So we touched over 

1,300 people all over the country. We got tremendously positive 

feedback. We got great comments and suggestions, all the way from 

Sunnyvale to Boston and everywhere in between, so much so that 

we are going to run a second set of roadshows—— 

Chairman LEAHY. Mentioning that, there is one State that has 

the most number of patents per capita of any State in the country. 

Senator FEINSTEIN. Where are you going with that? 

Chairman LEAHY. I thought maybe we could go alphabetically, 

starting with Vermont. 

[Laughter.] 

Chairman LEAHY. I am sorry. Go ahead. 

Mr. KAPPOS. Well, we will run a second set of roadshows late this 

summer and early into the fall when the final rules are out to 

touch, again, a many people as possible. 

Chairman LEAHY. Fall is a beautiful time in Vermont. 

[Laughter.] 

Chairman LEAHY. I am concerned that standard essential patents are becoming the new front of the tech patent wars. Senator 

Kohl and I wrote to the administration expressing our concern that 

preventing the use of these patents by going to the International 

Trade Commission after promising to license them on reasonable 

terms could have anticompetitive effects. I think the Federal Trade 

Commission and I know other Members of Congress have expressed similar concerns. 

Are there times, in your view, when enforcing these types of patents might harm consumers? 

Mr. KAPPOS. Yes, I think that the situation is definitely cause for 

careful study at this point. So standard essential patents implicate 

a number of very important intellectual property and also competition issues. You are talking about situations where a number of 

competitors are agreeing to use the same technology. Once that occurs, they go off and they make commitments to manufacturing 

equipment and processes, and they put networks in place. There is 

a tremendous lock-in effect that creates extremely high value for 

the technology that is in the end implemented. 
7 

When competitors get together and make pledges of fair, reasonable, nondiscriminatory licensing, so-called FRAND pledges, in the 

context of standard setting, those pledges need to be kept, and 

what they mean is that licenses will be offered. If later folks who 

have offered their patents under FRAND terms then are able to get 

exclusion orders or injunctions, you can certainly have some tremendously negative side effects. 

On the other hand, though, I think there is also a fair point to 

be made that a FRAND commitment does not stand for licensing 

under any terms and conditions, and you cannot wind up in a situation where FRAND means no opportunity to enforce a patent because what that will create is a situation where nobody will have 

any incentive to take a license. So finding the right balance is really the challenge. 

Chairman LEAHY. Well, and I agree with you. You explored the 

poles on that, and I agree with you on both of them. But we have 

got to find a way—not so much bring both sides together, but find 

a way through this. And I do not begin to underestimate the difficulty of threading that needle, but please keep us posted on this, 

will you? Thank you. 

Just one last thing. You mentioned the Patent Law Treaty and 

the Geneva Act and the Hague as treaties since ratified, but they 

require implementing legislation to be effective. I assume you feel 

those are going to be pretty effective, pretty helpful to this country 

if we get the implementing legislation through? 

Mr. KAPPOS. Yes, I do, Chairman Leahy. Both of those treaties 

are pro-innovation. In the case of the Patent Law Treaty, you are 

talking about a straightforward instrument that will cut costs for 

U.S. patent filers and patent filers globally, streamline the system, 

reduce redundancies, you know, a very light lift. In the case of the 

Hague Act, you are talking about design innovation, which has become a major, major issue lately. Look at the corpus of innovation 

that Steve Jobs created which showed us all that there is tremendous action at the intersection between design and utility innovation. And the Hague Act is all about providing a streamlined single 

instrument that will enable American design creators to get global 

protections. Both of those treaties are pro-American innovation, 

pro-global innovation, pro-jobs, pro-opportunity, very light lifts, and 

I would love to see implementing legislation. 

Chairman LEAHY. Thank you. I will submit my other questions 

for the record, especially one on the Patents for Humanity Program. 

Chairman LEAHY. Senator Grassley. 

Senator GRASSLEY. Director, I hope you will recall that I was instrumental in getting a provision dealing with tax strategy patents 

included in this Act so that all taxpayers would have equal access 

to strategy in complying with tax law. These patents encumber the 

ability of taxpayers and advisers to use the tax law freely, interfering with the voluntary tax compliance system and undermining 

the fairness. Tax patents provide windfalls to lawyers and patent 

attorneys by granting them exclusive rights to use tax loopholes, 

which could provide some businesses with unfair advantages. Some 

taxpayers could face fees simply for complying with the Tax Code. 

Because tax strategy patents are unlikely to be novel given the 
8 

public nature of the Tax Code, we included a provision in the law 

that expressly provided that a strategy for reducing, avoiding, or 

deferring tax liability cannot be considered a new or non-obvious 

idea and, therefore, a patent on tax strategy cannot be obtained. 

So I am interested in hearing whether the tax patent provisions 

included in the law are working out as Congress intended. Specifically, is the Patent Office continuing to receive patent applications 

involving tax strategy? And, second, what procedures have been 

put in place to screen for tax strategies and ensure that the law’s 

provisions are complied with? 

Mr. KAPPOS. Well, right, thank you, Senator Grassley, for the 

question, and we are indeed intent on accurately and faithfully implementing that provision. It is an important part of the law. 

A couple of comments. Number one, it is a little early to tell because patent applications that we have received since the law went 

into effect have been small numbers, but we received only small 

numbers ahead of that. We are talking like in the neighborhood of 

20 applications. Very, very small numbers. We will examine them 

rigorously based on the strictures in the law. So I think the law 

will be very helpful for its intended purpose, but given the 

timelines of these things when they get received and when they get 

examined, it is too early for me to give you statistics on results yet. 

The other thing I will say is that Section 18 of the AIA, the covered business method review provision, is also going to be extremely helpful, and with great guidance from Congress, we have 

written rules that will ensure that tax strategy patents will in, if 

not all cases, the very large majority of them be applicable for Section 18. So that will give us an opportunity at the request of third 

parties to take a close second look at those patents. Section 18 will 

be helpful also. 

The other thing I would say is that I have initiated on my own 

signature Director-ordered re-examinations of two particular tax 

strategy patents that I felt strongly had serious validity problems 

with them. Both of them have been re-examined in the USPTO. 

Both have been rejected. One has been finally rejected and is on 

appeal. The other one is under rejection, no claims deemed allowable in them. 

So I think the guidance from Congress has been extremely valuable to us. We are applying it as much as we can already, and 

there will be more to come. 

Senator GRASSLEY. Would you be able to be consulting with the 

IRS if you need guidance on tax law? 

Mr. KAPPOS. We certainly will. And, in fact, the basis that we 

have used for the Director-ordered re-exams that we have done so 

far have been highly based on IRS regulations and information. So 

their work is indeed seminal to our handling these cases. 

Senator GRASSLEY. My next question involves some oversight 

work I have been doing, and if you feel that you can answer it in 

writing better than answering orally, I would give you that option. 

Since you are before the Judiciary Committee now, I want to take 

the opportunity to ask about my oversight inquiries of the Patent 

Office expenditure relative to international conferences. Preliminarily, I want to make clear that I understand it is important for 

the United States to do international outreach and training with 
9 

respect to protection of intellectual property rights, but we also 

need to know that we do it in a smart way using taxpayers’ money. 

Last September, I wrote to you regarding the U.S. Patent Office’s 

sponsorship of a 2-day intellectual property conference in Tokyo. It 

is my understanding that $180,000 was spent for four high-level 

Patent Office staff members, including yourself and six judges, and 

two staffers of the Federal Circuit Court of Appeals. However, in 

the meeting I had with Chief Judge Rader, he told me that Japan 

no longer has significant intellectual property problems that are 

prevalent elsewhere around the world. I asked the Patent Office 

and the Federal Circuit Court of Appeals for specific documentation 

about the amount of funding spent for this and other international 

conferences. The Patent Office response provided vague justification for the expenditures and no actual documentation. 

So I still want to receive the documents that are requested in the 

September 2011 letter. I hope you would commit to providing me 

with the conference and travel expense documents that I requested. 

And I would like to have you explain why the Patent Office spent 

over $180,000 for a conference in a country that has already addressed its significant intellectual property problems. Why was it 

necessary to send so many people, by my count at least 12 individuals, to that conference? The response that I received stated that 

the Patent Office would be sponsoring an intellectual property conference in China this year. I would like to know the status of that 

trip and who is scheduled to attend and how much is going to be 

spent for the sponsorship and travel expenses. 

Again, the message I am trying to send to you is that in this day 

of extremely limited resources, we all should be looking for focus 

on our efforts where they need to be most, and we should be trying 

to find as many ways as possible to save money. 

Mr. KAPPOS. Well, thank you for that question, Senator Grassley, 

and I would start by saying I could not agree more strongly with 

you that in this age—in fact, in any age but especially this one— 

we need to be extremely judicious about the way we spend money, 

especially travel money, because trips can get expensive. And that 

is why, in specific, for the conference in Japan, to my memory we 

took three people on that trip: myself; the solicitor of the USPTO, 

who is my senior-most litigators; and one staff person to help staff 

the trip. 

I have ensured that USPTO pays only for coach class travel for 

all travel that I do and all other USPTO employees. So our travel 

is extremely cost-effective, even for extremely long trips like a trip 

to Japan. 

That conference, in my view, was enormously important and was 

very successful. We were able to get together hundreds of Japanese 

practitioners with their judiciary. Indeed, they have got a great intellectual property system, respect the law there. They are leaders 

in Asia, and by holding that conference like we did, with a small 

U.S. Government footprint but helping to bring together all the 

folks over in Japan and, in fact, throughout Asia, we were able to 

get a first huge gathering of Japanese judiciary with their practitioners, leaders from other countries including the U.S. and other 

parts of Asia, and have what I thought was an extremely valuable 

discussion about the intellectual property system, the importance 
10 

of patent, trademark, copyright, trade secret enforcement all over 

Asia. 

We did indeed, Senator Grassley—you correctly asked about the 

follow-on conference in China. We help that conference just a few 

weeks ago in Beijing. I attended that, again, along with just a few 

other USPTO people, again, if my memory serves, exactly two other 

folks: our solicitor and a staff person. It was an enormous and successful conference. About 1,200 people attended, including several 

hundred Chinese judges, members of their Supreme People’s Court 

who hear their intellectual property-related cases, and it gave us 

a huge opportunity to talk all at the same time in person and 

through the media in China to literally hundreds and hundreds of 

people who we need to help get on board with understanding and 

championing a strong intellectual property rights system. 

So in my job, as our administration’s leader in intellectual property policy development and promulgation, I feel these were extremely valuable trips, lightly staffed by the USPTO; and while we 

are not going to go doing these all over the world, I think they 

clearly are the right things in the right places in order to help 

move the rule of law and respect for intellectual property forward. 

Senator GRASSLEY. Will you give me the documents I requested, 

please? 

Thank you, Mr. Chairman. 

Chairman LEAHY. Thank you. 

I commend you on flying coach. All of us around this table, when 

we fly overseas on Government business, usually fly either business class, first class, or on a Government airplane. So before we 

get too concerned about your flights, we want to make sure that 

we are not throwing stones at a glass house. 

Senator Feinstein. 

Senator FEINSTEIN. Thank you very much. 

Welcome, Mr. Kappos. I wanted to talk to you a little bit about 

the length of time it takes to get a patent and recognizing that you 

now have funds to hire because you can now increase filing fees, 

which I think is a very positive development. The figure is that the 

average patent pendency has essentially doubled over the last 20 

years, from 18.2 months in 1991 to a high of 35.3 months in Fiscal 

Year 2010. 

Now, I am very pleased to see that this has begun to decline for 

the first time in 8 years to 33.7 months in Fiscal Year 2011. This 

is the latest figure my staff could get. 

I can tell you that in discussions with Silicon Valley CEOs like 

Apple, this is their number one concern: the length of time it takes 

to obtain a patent. 

Here is my question. I see your hiring numbers on this chart. I 

see how many applications come in, and I see really out of that 

how few right at this time are on board, how few have been made 

offers. The question comes. Are you setting a goal for a patent? Let 

us take for me it is a high-tech patent. How long can a company 

like Apple or Google expect for patent processing? 

Mr. KAPPOS. OK. Well, Senator Feinstein, thank you very much 

for the question. As someone who came from the tech industry, in 

fact, from Silicon Valley, I am extremely attuned to the need for 

rapid processing by the tech sector. We do have very explicit, very 
11 

clear goals in this regard. We believe, based on input we have gotten from all sectors of the U.S. innovation economy that the optimal processing time for a patent application is indeed 18 months 

to completion, on average, and that you get to 18 months, on average, to completion by getting a first office action, a first substantive 

response in about 10 months. And that is why we have set targets 

of 10 months to first action and 20 months to final action which 

ensures that with a little bit of some cases coming out early, the 

early cases will come out at 18 months, the later cases will come 

out at about 22 months or so, and we will not be pre-publishing 

patent applications before 18 months but we will get them done 

very close to 18 months. 

So the answer to your question is our target is first action in 10 

months, final action on an average of 20 months, which, you know, 

gets you between 18 and 22 months, and we will reach those targets by 2015 and 2016, and we are well on our way to getting 

there. 

Senator FEINSTEIN. The biotech industry has given me a question 

to ask you, and that is, patent examiners keeping up to date on 

new developments. You mentioned your very successful roadshows. 

I wonder if you could not do something like that with respect to 

new technology to keep examiners up to date. 

Now, this came from a big biotech company, and that was their 

concern. What would your reaction to that be? 

Mr. KAPPOS. Well, that is a very valid concern. Biotech as an example operates, you know, at the very, very leading edge of technological development, and it is challenging to keep examiners, and 

we have got great examiners. In the biotech area, we have got examiners who in general have Ph.D.s, very highly educated, very capable, but keeping up on the latest technology is a challenge. So 

we are doing two things to work on that, and there is a third thing 

that I would like to start doing in the future. 

The first that we are doing is we have instituted a very vibrant 

patent examiner technical training program where we invite companies from all over the country—and it includes tech and bio companies from California—to come to USPTO, either in person or virtually, by teleconference or videoconference, and give lectures to 

our applicable examiners. They can be short or long. They can be 

15 minutes or 2 hours. We have had tremendous success with that. 

The numbers are ramping up rapidly. Many thousands of hours of 

training a year we are getting from that program. It is working extraordinarily well. The examiners love it, and the companies that 

come in rave about how great it is to get to spend time with our 

examiners. 

The second thing we are doing is we have reinstituted a program 

that we had in past years of sending examiners out on short, lowcost trips to actually spend a day or two with various companies, 

and it includes companies in California right there in the Valley. 

I know we have touched companies that are ones that I am sure 

you are hearing from and sending examiners to spend a day or two 

with them to understand their processes, to really absorb the leading edge technology that they are working on. So that is the second 

thing we are doing. 
12 

Of course, that becomes a financial issue because of the money 

involved, so we are gradually ramping that up. We are trying to 

be very, very cognizant of the travel cost, apropos of the previous 

question, but we will continue investing in that because, as you 

say, it is very, very valuable to get examiners out. 

The third thing that I would like to start doing and hope to be 

able to institute in 2013 is to resume the USPTO supporting our 

examiners in receiving technical training post-graduation. So we 

have got examiners who are in the agency who want to take a 

graduate course in biotech at some school, hopefully here in the 

area, in some cost-effective way. I would like us to be willing to at 

least partially, if not wholly, pay the tuition expenses and help our 

examiners to continue to develop their technical education even 

after they are on board. 

Senator FEINSTEIN. Could I just make one other comment? I appreciate this. This is on software patents. It is my understanding 

that studies, statistics, and companies show that the patent system 

drains resources from high-tech industries. Software and Internet 

patents are litigated about 8 times more often than other patents, 

and much of this litigation is brought by the so-called patent trolls, 

yet a quarter of all patents issued are software patents. 

Are you undertaking any initiatives in the Patent Office to address this? 

Mr. KAPPOS. Yes, absolutely. It is clearly a concern, and we are 

doing several things. First of all, the AIA is going to have and is 

starting to have an enormously positive impact. So the AIA put in 

place Section 18, the covered business method section, which touches on software patents because many business methods are claimed 

as being implemented in software. So that provision and our implementing rules will enable us to provide a venue to take a second 

look at many of these business method patents that have software 

concepts in them. 

Second, inter partes review, post-grant opposition are all about 

providing a fast, clear, inexpensive route to take a second look at 

patents that we have granted, and I expect it will be extremely 

helpful in the software area. Now, those provisions, of course, go 

into place in September, so we have got a few months we will be 

starting to work on them. 

The other thing that we have already done is put in place for the 

first time new guidelines that we put in place a little over a year 

ago that were especially directed to the software field to have our 

examiners spend more effort and be more precise in our examination of patent applications for the clarity of their disclosure, which 

is a key problem in the software area. We had a lot of that set of 

guidelines—they are called 112 guidelines. A lot of them were directed to issues that come up with software patents. We have 

baselined, we have done the statistics on changes that have occurred in the agency, and, indeed, our examiners have put out increasing effort and increasing objections and rejections in the areas 

that you are concerned about. So we clearly are making progress. 

We will be doing more there. 

Chairman LEAHY. We are going to go to Senator Hatch, then 

Senator Klobuchar, Senator Coburn, Senator Coons, Senator Lee, 

Senator Franken, and Senator Whitehouse. I have just been ad-
13 

vised we are going to have a vote at 11:30. I have tried to be as 

flexible possible in giving extra time, but we are going to have to 

keep it as close as we can because we will not come back after we 

leave for the vote. 

Senator Hatch. 

Senator HATCH. Well, thank you, Mr. Chairman. 

I just want to tell you that I am pleased with your service. I 

think you are doing a very fine job, and I have very little to criticize you with. But let me just say this. I continue to follow closely 

how the USPTO plans to implement the supplemental examination 

provisions of the America Invents Act. By establishing the new 

process, USPTO would be asked to reconsider or correct information believed to be irrelevant to the patent, as I understand it. 

As you know, the law enables patent holders to request a supplemental examination of a patent if information arrives after the initial examination. The goal, when crafting this provision, was to 

provide the patent owner the ability to take action to remedy any 

potential deficiencies, thus enhancing the quality and accuracy of 

the patent examination record. 

However, since the USPTO published its proposed rules to implement the supplemental examination provisions, I have heard some 

concerns that the proceeding would be very expensive, if not cumbersome, to use. How do you respond to concerns that the cost for 

filing a supplemental examination is steep and will discourage patent owners from utilizing this procedure? 

Mr. KAPPOS. Thanks for the question, Senator Hatch, and that 

is indeed something that we are concerned. We want the cost to be 

set at a level at which these processes are affordable. 

We have taken a lot of input on both the cost and, I will say, the 

procedural difficulty issue that you raise, and we are indeed looking for ways to simplify the procedures. We are working on that 

right now. And we are looking for ways to moderate the cost. So 

messages received in both cases, and we are working on making 

improvements in both regards. 

The one other thing I will say is that we are prepared to make 

further improvements as we go forward. We will all get some experience with these procedures once we put them in place soon, and 

we are very amenable to then learning and further simplifying as 

we learn what works. 

Senator HATCH. Well, thank you. Would you mind commenting 

on the opportunity patent owners now have with the supplemental 

examination to improve the quality of their patents? It seems one 

would think the costs associated with strengthening one’s patent 

may very well be worth the moneys that are invested up front. 

Mr. KAPPOS. Well, yes, I think that is clearly right, and so the 

way we are trying to implement supplemental examination, we will 

charge a more moderate fee up front for those patents that just require the kind of clarification, Senator Hatch, that you are pointing 

to and then reserve for further work in re-examination as called for 

by the statute those cases that require really substantial additional 

work. 

Senator HATCH. OK. During consideration of the America Invents Act, I joined 47 of my colleagues in supporting Senator 

Coburn’s amendment in which user fees would go directly into a re-
14 

volving fund for the USPTO, separate from annual appropriations. 

Even though the Coburn amendment failed, we were assured that 

the House compromise language, which created a reserve fund for 

fees collected, would be more than enough to provide the USPTO 

with the resources it needs to fulfill its mission. 

Now, recognizing that the reserve fund is tied to the appropriations process, how does the continuing resolution affect your operations? And do you believe that the House agreement applies to 

continuing resolutions as well as appropriations bills? 

Mr. KAPPOS. Well, the reserve fund is indeed a much less robust 

solution than the amendment that Dr. Coburn offered, and thank 

you for raising the issue, Senator Hatch. 

What I would say is so far, so good relative to funding. We have 

not yet used the reserve fund because we have not had money yet 

to put into it. It is just going to be coming into effect next year. 

During a continuing resolution period like we may be entering 

this fall, we will be subject to the appropriations process and the 

issues with CRs like we always have. In the past, they have been 

challenging. However, we have been able to plan for what could be 

a continuing resolution this fall that I believe will enable the agency to continue our operations seamlessly through the CR. And if 

the reserve fund works out the way that it looks like it will, I believe it will be helpful to us also in future periods because it will 

be a corpus that we can then tap into during those periods. 

Senator HATCH. Well, thank you. My time has expired. I do have 

a few more questions, so I will submit them in writing. 

Senator HATCH. Thank you so much. We appreciate the work you 

are doing. I think you are really, really accomplishing quite a bit 

down there. I appreciate it. 

Mr. KAPPOS. Thank you, Senator Hatch. 

Chairman LEAHY. Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. Thank you, Director 

Kappos. Thanks for your good work in this area. This was an incredibly complex bill and something that I worked hard on, as did 

many members of this Committee, truly a bipartisan effort to get 

this done. 

As you can imagine, our State, the State of Minnesota, has a 

great history of innovation. We have given the world everything 

from the Post-it Note to Scotch tape, water skis, pop-up toaster, 

and rollerblades, just to name a few. I do not know if you knew 

that, but it is true. And what we know is that one of the keys to 

innovation and economic growth is making sure a country’s inventors that work for small businesses or even in their own garages 

can get patents for their inventions. And the America Invents Act 

directed the PTO to work with intellectual property lawyers to create pro bono programs that assist individual investors and small 

businesses with applying for patents. I used to be at a law firm. 

I know how expensive patent lawyers can be, and that is one of the 

ideas here, is to try to get smaller inventors an easier way in. 

I am pleased to see that you are collaborating with Legal Corps, 

which is a Minnesota nonprofit that connects IP lawyers with inventors to provide that kind of pro bono assistance and are taking 

the program to cities across America. 

Can you provide an update on how that is working? 
15 

Mr. KAPPOS. Right. Well, Senator Klobuchar, thank you very 

much for the question. Indeed, the congressionally mandated pro 

bono initiative has gotten off to an extremely good start. We started the first chapter, as you mentioned, in the Twin Cities in Minnesota. It has been extremely effective. In fact, I just received an 

e-mail this morning indicating that the very first patent has now 

issued, so we have reached yet another milestone. 

Inventors from the Minnesota area, that whole area of the Upper 

Midwest around the Twin Cities, are receiving legal advice and getting help preparing patent applications. The program is going extraordinarily well. We started the second chapter in the Denver, 

Colorado, area. We have got five more that we are working on. We 

will have as many as 13 additional up and running next year that 

are well in the pipeline, and we intend to have complete coverage 

for the U.S. by 2014. 

So the program is going along extraordinarily well. The push 

from Congress in the AIA was exactly what we needed, and we are 

really making good use of it. 

Senator KLOBUCHAR. Then also the America Invents Act included 

reduced fees for small businesses and micro entities. Do you think 

that will be a help to increase the number of patents filed by small 

businesses and individuals? 

Mr. KAPPOS. Well, I think clearly. Now, the micro entity fees 

have not yet gone into effect. They are subject to the new rulemaking in AIA, so I put out the draft rules on those. They are in 

the clearance process right now, or if they have not already 

emerged from it. So we will be implementing the micro entity fees. 

But relative to small entities, another fact that I should mention 

is that the Track One Initiative enabling applicants to get very fast 

patent protection by paying a few, has been used in very high proportions by small entities. In fact, I think about a third of the 

usage of that program is by small entities, so that to me really 

stands for the proposition that small entities need patents quickly, 

that fee discounts work for them, and that they will go out and create opportunity by getting through the patent system promptly. 

Senator KLOBUCHAR. One of the key provisions in the America 

Invents Act is moving from a first to invent to a first inventor to 

file system, as you are aware. Can you describe the preparations 

that are underway to make sure that the PTO is ready for this important switch in March 2013. 

Mr. KAPPOS. Yes, there is a lot going on in that regard. We are 

in the process of preparing the draft rules or what is called the Notice of Proposed Rulemaking that will go out and begin getting 

comments. We plan to hold a roundtable, a special roundtable on 

just that provision in order to get input, especially from small entities and independent inventors. And we will go through the whole 

rulemaking process, make sure that we put out rules that are simple and that help especially the small inventor community to understand the change and to implement it effectively. 

Senator KLOBUCHAR. Well, very good, and I will have some additional questions for the record. 

Senator KLOBUCHAR. I want to thank you for your work and 

again stress how important this is to our country and especially my 

State, where at 3M we actually have the same number of patents 
16 

as we do employees. So, literally, we can say that every employee 

invented something. All right? 

Mr. KAPPOS. Thank you, Senator Klobuchar. 

Senator KLOBUCHAR. Thank you very much. 

Chairman LEAHY. Thank you. 

Senator Coburn. 

Senator COBURN. Thank you, Mr. Chairman. 

Director Kappos, thanks for being here. Thanks for the great job 

that you and your group are doing. One of the things I would hope 

you would consider no matter who wins this next election is staying on in your position. I will lobby for you no matter who the 

President is. I think the continuity is important for this office, and 

it is very important for our country and our economic growth. 

I want to go back a little bit to your fees. First of all, talking 

about—we saw this big runup in filings prior to the end of September in anticipation of the new fees. And it looks like from Fiscal 

Year 2011 about $210 million was diverted from the Patent Office. 

Have you seen any of that money come back? 

Mr. KAPPOS. Yes, that is a great issue, Dr. Coburn. Indeed, there 

were a lot of fees paid at the very end of the financial year just 

in advance of the fee change, and it was very unfortunate. That 

money was diverted, has gone away, and it has not come back in 

the sense of somehow being, you know—— 

Senator COBURN. Redirected to the—— 

Mr. KAPPOS. Redirected. It has not. 

However, our filings have rebounded, and fee collections have rebounded, and so we have been able to accommodate the loss of that 

revenue. 

Senator COBURN. Just so the American people know, the fees for 

the Patent Office are meant to be directed for the processing and 

granting of patents. And, unfortunately, now over $1 billion of applicant fees have never been given to the Patent Office, and, consequently, our frequency or our ability to respond to patent applications is much slower than what it would have been had that $1 billion actually been directed to where individuals pay for it. 

One other question on fees, if I might. In your setting of fees, is 

your goal to cover the costs associated with those fees? Or are you 

using fee setting to try to direct some policy or make some direction? Could you comment on that? 

Mr. KAPPOS. Yes. Mostly we are setting the fees to recover the 

costs of performing the services. However, not across the board. So 

as an example, we are still fly subsidizing the cost of patent application filing and basic processing. We are not proposing to charge 

anywhere near the cost of examination in the fees that we charge 

for initial filings. So, obviously, you have to make that up somewhere else in the process. We are proposing to make it up largely 

through the renewal fees or what is called the maintenance fees 

and through some of the other surcharges like surcharges for late 

filing of documents and for extensions of time. So mostly we are 

trying to charge what the cost is, but with some modifications here 

and there. 

Senator COBURN. Let me go to one other area. It is my understanding you have been working with certain Members of Congress 

in terms of technical corrections to the America Invents Act, and 
17 

I just want to be on record that I am fine with technical corrections, but things greater than technical corrections deserve a full 

and comprehensive hearing where all stakeholders have an opportunity to have input. 

Could you discuss with us the areas other than true technicalities that you are working on with Members of Congress? 

Mr. KAPPOS. Sure. So, you know, we are in the role of technical 

adviser in these kinds of things. There are a number of pure 

technicals, kind of clerical mistakes that we would like to correct. 

There are some issues beyond those. We talked about a couple of 

them already, you know, the PLT and the Hague Agreement. 

There are also discussions that have gone on about one of the estoppel provisions as an example. There are discussions about prior 

user rights. There are discussions about a provision in Section 102, 

the basic definition of ‘‘prior art’’ that some folks want to modify. 

So there have been discussions about a number of things that I 

would readily agree are beyond technicals. 

Senator COBURN. Well, I just want to be on the record that I am 

fine with a pure technical correction bill, but anything that significantly changes the estoppel provisions in the bill we passed needs 

to have the full consideration of all the stakeholders and all the 

members of this Committee before we would do that. 

Mr. Chairman, I yield back. 

Chairman LEAHY. Thank you very much, Dr. Coburn. 

Senator Coons. 

Senator COONS. Thank you, Chairman Leahy, and thank you, Director Kappos, for the very strong leadership you have provided to 

the Patent and Trademark Office. As someone who was in-house 

counsel to a materials-based science company that critically relied 

on its intellectual property, I heard for years bitter complaints 

about fee diversion, concerns about pendency, quality of examiners, 

and I think there is very broadly shared amongst members of this 

panel and the communities that we represent enthusiasm for your 

leadership and the direction you have taken. 

I was encouraged by your testimony previously to Senator Feinstein about a goal to reduce pendency to 18 months. I was pleased 

to hear how you are doing with Track One and with its early implementation and the balance that you are striking with lower fees 

for those who are small or early-stage inventors. 

I am interested in how you retain, train, motivate, and pay qualified examiners because the absence of a sufficient number of qualified examiners is an absolutely critical barrier to your success. Now 

that we have made, I think, significant progress toward dealing 

with fee diversion, do you feel that the fees you are able to set are 

likely to be necessary for you in order to be able to pay examiners 

appropriately? And what are the barriers to your being able to pay 

examiners sufficiently that you can retain and train the most qualified folks possible? 

Mr. KAPPOS. Right, yes, that is a great question. 

Chairman LEAHY. And before you answer it, just a housekeeping 

thing. I have to be at another matter. It is not that I am disinterested by any means. Senator Franken will take the gavel in my 

absence. 
18 

Mr. KAPPOS. Yes, so retention is incredibly important in any enterprise. As a leader, I am always extremely concerned and committed to the view that if we cannot retain our work force, we cannot succeed. So it is fundamental to success. 

I am happy to report that our retention is actually quite strong 

these days. Our attrition rate is about 3.2 percent, which is very 

functional, very appropriate commercial grade. No problem right 

now. 

We are helped by the Detroit satellite office where we have had 

tremendous success, having very qualified judges and new experienced examiners. So the satellite office program I think is going to 

be very helpful because it gets us access to a new demographic that 

we just do not have in the Washington, D.C., area. 

Senator COONS. I presume it also gets you access to a lower cost 

of living since you are more competitive. 

Mr. KAPPOS. Absolutely, yes. 

Senator COONS. There are many other places that would serve as 

excellent locations for field offices, Minneapolis probably top of the 

list, and you are announcing two more. 

Senator FRANKEN. Why, thank you. 

Senator COONS. Recognizing that two Minnesotans sit to my 

right, which has a certain amount of wisdom, I hope, and that 

Delaware is close enough, frankly, that a field office in Delaware 

is probably not on the top of your list. You will announce two more 

field offices in July, I believe. 

Mr. KAPPOS. We hope this summer. 

Senator COONS. Do you have the authority you need to explore 

further initiatives? You are allowing some of your more senior examiners to work from home through a hoteling program. If you find 

some success in these field offices, which I am confident you will, 

is that something you have the authority and ability to move more 

aggressively to expand rapidly? 

Mr. KAPPOS. Yes. Thanks, Senator Coons. For the most part, yes, 

we actually do have the authorities that we need. Our telework 

program has been extraordinarily successful. It enables examiners 

to live and work from literally every State in the continental U.S. 

It has been a great program. We will continue with that. The satellite office program, we have got all the authorities we need there. 

The one area that we are a little bit challenged is on the salary 

cap for our highest qualified primary examiners. Unfortunately, 

they get cut off by the salary cap that we have for our workers and 

then literally have to stop working. And so we have done statistical 

work that shows that if we had statutory permission to relax that 

somewhat, even temporarily for short-term small amounts, the 

value of the work that those examiners do is extremely productive. 

It is much more cost-effective than hiring the like number of new 

people we would need. 

Senator COONS. Well, given how long it takes for you to break 

in and develop the proficiency of examiners, that makes great 

sense to me. 

My last question would be: Given that PTO is a predominantly 

user fee-funded agency at this point, I have done some outreach in 

the intellectual property community in my home State. I want to 

commend you for how much outreach you have been doing with the 
19 

roadshows, how open you have been to user community input. I 

have had more than one lawyer who represents a firm or individual 

who leads a company that relies critically on your office’s services 

say if the fees are not being diverted, they would pay significantly 

more than the current fees. They would pay whatever it took in 

order to get the pendency down and the quality of the examiners 

up. 

Do you think that is a widely held view? And do you think you 

could raise the fees significantly and get the pendency down below 

18 months and the quality of the examiners up? 

Mr. KAPPOS. Yes, I think it is a widely held view. I am cognizant 

that there are limits on everything, and that as we are getting the 

office in better shape and reducing pendency—in fact, the total 

backlog just dropped to 627,000, which is a new low point in many 

years. So we are continuing to whittle away and make progress. 

What I am finding is that the amount of money that we need and, 

therefore, the amount we need to increase the fees is by no means 

astronomical, is by no means mind-boggling. And so we will raise 

the fees as we need to. We are getting great support on that. But 

I do not think we need to do anything that anyone would consider 

outlandish. 

So apropos some of the other questions, what we are trying to 

do now is tune our fee changes so that they are good policy, we are 

incenting use of these processes, and we are not either undercollecting or overcollecting. 

Senator COONS. Well, as you move through the final rulemaking 

processes, I just want to close by urging you to be bold, striking a 

fair balance, that it respects small inventors and making sure that 

they have access to a fair and appropriate process as we work 

through technical amendments. But I am just grateful for your 

leadership and excited to see what the AIA is going to bring for our 

economy and for our country in the year ahead, and I look forward 

to working with you closely on this. 

Mr. KAPPOS. Thank you very much, Senator Coons. 

Senator COONS. Thank you. 

Senator FRANKEN. [Presiding.] Senator Lee. 

Senator LEE. Thank you very much for joining us, Director 

Kappos. A number of individuals and organizations, including some 

Members of Congress, the FTC, and industry groups, have expressed some concern to the International Trade Commission regarding the use of exclusion orders in cases involving standard essential patents. As you know from your work at the PTO as well 

as time prior to that that you spent in the private sector, the adoption of these internationally recognized standards has contributed 

quite significantly to competition, and in so doing has really contributed substantially to innovation and to consumer choice in the 

marketplace, particularly within the tech industry. 

The standard-setting process that occurs relies for its existence 

and for its success on a commitment from companies that are contributing technology to license their standard essential patents to 

all the parties that happen to be implementing this agreed-upon 

standard and to do so on a reason and non-discriminatory basis, on 

RAND terms, as they say. 
20 

Yesterday, I along with several of my colleagues sent a letter to 

the ITC expressing some concern about the implications of granting 

an exclusion order in a case involving standard essential patents. 

Are you concerned at all about any negative consequences that 

might flow from an ITC exclusion order in cases like these, any implications they might have on consumers, on innovation, and on the 

standard-setting process as a whole? 

Mr. KAPPOS. Yes, well, thanks, Senator Lee. I am. Senator Leahy 

asked a similar question earlier, and I share the concern. I think 

that the standard setting is extremely important in many industries, especially the tech industry. The network effects that result 

from standards are hugely beneficial, but can also be very dangerous if patents then that are pledged under FRAND terms are 

later enforced for exclusion orders or injunctions. And I think that 

the holdup power that a patent gains over whatever standard is 

chosen can actually be quite dangerous and debilitating to an industry if it is misused. 

Now, by the same token, we need to come up with a solution 

here that acknowledges that FRAND does not and really has never 

stood for licensing under any terms and conditions, and what we 

need to send is the right messages to both sides of the equation, 

both the patent holders who want to enforce and the folks engaging 

in standard setting who would otherwise perhaps say, well, why 

should we bother taking a license at all when the worst thing that 

can happen is we will get sued and after litigation we will just pay 

whatever we were going to pay for the license. 

Senator LEE. Right. 

Mr. KAPPOS. So finding that balance is what is really key here. 

Senator LEE. Right. And I guess that is significant because the 

ITC does not really—there is no process, as I understand it, whereby you can get the International Trade Commission to do anything 

other than issue an exclusion order. Is that right? 

Mr. KAPPOS. That is correct. That is the only tool they have. 

Senator LEE. You cannot get the ITC to decide what a reasonable 

non-discriminatory royalty for patent infringement might be. How 

does this contrast with the remedies that might be available in a 

Federal district court? 

Mr. KAPPOS. Well, of course, district courts have the full range 

of remedies available. Damages, injunctions—everything is available to them. 

Senator LEE. And would you agree with the overall assessment 

that some have made that allowing an order like this in this context could start to unravel this process or at least unravel the incentives that lead people into this process of negotiating these 

standard essential patents? 

Mr. KAPPOS. Yes, I think I would accept that it could. This is 

why letters like the one you sent are helpful, in my view, to guiding everyone to reach the right balance. 

Senator LEE. OK. Mr. Chairman, I see my time is about to expire. I yield my time back. Thank you. 

Senator FRANKEN. Thank you, Senator Lee. 

Under Secretary Kappos, I want to thank you for coming here to 

talk about the progress in implementing the Leahy-Smith America 

Invents Act. You have done a commendable job rolling out these re-
21 

forms, and while there is a long way to go, you have put a noticeable dent into the staggering application backlog. 

I would also like to thank you for mentioning the Minnesota pilot 

Pro Bono Inventor Assistance Program and congratulate them as 

well on securing their first patent for a small inventor just this 

week—or last week, I guess. I care a lot about small business and 

inventors, and I think we should be doing as much as possible to 

make sure that the guy inventing the next cool gadget in his or her 

garage has reasonable access to the patent system. 

I would also like to thank Senator Coons for pitching the Twin 

Cities for the next satellite office. As you may remember, I have 

written you a letter suggesting the very same thing, and I believe 

so has Senator Klobuchar. And so it probably will not surprise you 

that I am not going to pass up this opportunity to make a pitch 

to you in person. 

Minnesota, as you know, is home to some of the most innovative 

companies and research institutes in the world, like the Mayo Clinic and 3M and Medtronic. Minnesota is ranked among the top ten 

patent filers for the past 3 years, and the number of patents obtained by Minnesotans grew by 32 percent from 2008 to 2011. 

My State is also fourth in the Nation in the percentage of population with college or advanced degrees, and more than 35 percent 

of those degrees are in science, engineering, or technology. 

Is this impressing you? 

[Laughter.] 

Senator FRANKEN. Well, there is more. Minnesota is also ranked 

third for patent-intensive employment in the country, and there is 

really no place in the country that can boost the same level of affordability, which I think Senator Coons referenced. And my goodness, he is not from Minnesota. He is from Delaware. And so it is 

not just me saying it, is what I am saying. 

Are you getting this? 

Mr. KAPPOS. Yes, I have got it. 

[Laughter.] 

Senator FRANKEN. OK. I love Minnesota, but that is not the reason that you should locate your office there. It is because it makes 

a lot of good sense. And, again, retention will be important. 

Let me ask you a question that is not a shameless pitch for Minnesota. I have been asked about this from Minnesota companies. 

The administrative review process that was created in the America 

Invents Act was designed to reduce the expense and time associated with filing a lawsuit in Federal court. In fact, it is supposed 

to serve as a substitute, but I am hearing from a number of prominent Minnesota companies that your proposed standard for reviewing patent applications in administrative proceedings and the 

broadest reasonable interpretation standard is much broader than 

standards used by courts and the International Trade Commission. 

This seems a bit odd, especially since it can place a higher burden on patent holders to defend themselves in administrative proceedings. Why are these two standards not harmonized? 

Mr. KAPPOS. OK. Well, a couple of reasons. One, the broadest 

reasonable interpretation standard is the standard called for by the 

AIA, so I believe that the correct reading of the legislation is that 

Congress has directed us to evaluate for patentability, not for valid-
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ity, and an evaluation for patentability is an evaluation that applies the broadest reasonable interpretation standard. So we are 

implementing the legislation. That is sort of reason number one. 

Reason number two is the USPTO has applied the broadest reasonable interpretation standard literally for decades. For all the 

time we have been running post-grant processes, we have uniformly used this one single standard, and it comes from good policy 

actually. The policy reasoning is that when you are in front of the 

PTO, you have the opportunity by statute to amend your claims, 

and these new post-grant processes continue to give patent holders 

the right to amend their claims. And in that context, it is the mission of the USPTO to look out for the public’s best interest to apply 

the claims using their broadest reasonable interpretation so that 

the claims can be viewed clearly in the future, giving the applicant 

then an opportunity to narrow or add precision to their claims as 

they need to, generating patents that are as clear and defensible 

as possible. 

So I think Congress really has got the policy right on this one, 

and we are implementing the law, and we are using a policy that 

I think on balance is the right approach. 

Senator FRANKEN. Thank you. My time has expired, and I know 

Senator Grassley wants to say something, so I will pass it off to 

him, but not before I make a pitch for your next satellite office 

being in the Twin Cities. 

Senator Grassley. 

Senator GRASSLEY. I would say you answered my last question 

very lengthily, and I appreciate that, and I do not find fault with 

the answer you gave. But do not forget I did ask you were you 

going to supply the documents that we requested in our letter of 

last September. 

Mr. KAPPOS. And, Senator Grassley, I will certainly go back and 

look at the request and make sure that we do everything we can 

to supply answers to your questions. 

Senator GRASSLEY. Well, thank you. It is very necessary that we 

have the cooperation in order to do our job of constitutional oversight. 

Thank you. 

Senator FRANKEN. Thank you, Senator. 

Well, we thank you again for testifying, Under Secretary, and we 

will keep the record of the hearing open for other questions for a 

week. 

The hearing is adjourned. 

[Whereupon, at 11:23 a.m., the Committee was adjourned.] 

[Questions and answers and submissions for the record follow.] 
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