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26–914 PDF 2006

PATENT QUALITY ENHANCEMENT IN THE

INFORMATION-BASED ECONOMY

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET, 

AND INTELLECTUAL PROPERTY

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

SECOND SESSION

APRIL 5, 2006

Serial No. 109–99

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 

F. JAMES SENSENBRENNER, JR., Wisconsin, Chairman 

HENRY J. HYDE, Illinois 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

STEVE CHABOT, Ohio 

DANIEL E. LUNGREN, California 

WILLIAM L. JENKINS, Tennessee 

CHRIS CANNON, Utah 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

JOHN N. HOSTETTLER, Indiana 

MARK GREEN, Wisconsin 

RIC KELLER, Florida 

DARRELL ISSA, California 

JEFF FLAKE, Arizona 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TOM FEENEY, Florida 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

RICK BOUCHER, Virginia 

JERROLD NADLER, New York 

ROBERT C. SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

WILLIAM D. DELAHUNT, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California 

CHRIS VAN HOLLEN, Maryland 

DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, General Counsel-Chief of Staff 

PERRY H. APELBAUM, Minority Chief Counsel 

SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

LAMAR SMITH, Texas, Chairman

HENRY J. HYDE, Illinois 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

WILLIAM L. JENKINS, Tennessee 

SPENCER BACHUS, Alabama 

BOB INGLIS, South Carolina 

RIC KELLER, Florida 

DARRELL ISSA, California 

CHRIS CANNON, Utah 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

HOWARD L. BERMAN, California 

JOHN CONYERS, JR., Michigan 

RICK BOUCHER, Virginia 

ZOE LOFGREN, California 

MAXINE WATERS, California 

MARTIN T. MEEHAN, Massachusetts 

ROBERT WEXLER, Florida 

ANTHONY D. WEINER, New York 

ADAM B. SCHIFF, California 

LINDA T. SA ́ NCHEZ, California

BLAINE MERRITT, Chief Counsel 

DAVID WHITNEY, Counsel 

JOE KEELEY, Counsel 

RYAN VISCO, Counsel 

SHANNA WINTERS, Minority Counsel 

(III)

C O N T E N T S 

APRIL 5, 2006

OPENING STATEMENT 

Page 

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

of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property .................................................................................................... 1

The Honorable Howard L. Berman, a Representative in Congress from the 

State of California, and Ranking Member, Subcommittee on Courts, the 

Internet, and Intellectual Property .................................................................... 2

The Honorable Zoe Lofgren, a Representative in Congress from the State 

of California, and Member, Subcommittee on Courts, the Internet, and 

Intellectual Property ............................................................................................ 3

WITNESSES 

The Honorable Jon W. Dudas, Under Secretary of Commerce for Intellectual 

Property and Director of the U.S. Patent and Trademark Office 

Oral Testimony ..................................................................................................... 4

Prepared Statement ............................................................................................. 7

Mr. James Balsillie, Chairman and Co-Chief Executive Officer, Research in 

Motion 

Oral Testimony ..................................................................................................... 14

Prepared Statement ............................................................................................. 16

Mr. Robert A. Stewart, Director and Chief Patent Counsel of Americas, UBS 

AG 

Oral Testimony ..................................................................................................... 22

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

Mr. Mark A. Lemley, William H. Neukom Professor of Law, Stanford Law 

School 

Oral Testimony ..................................................................................................... 35

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

MATERIAL SUBMITTED FOR THE HEARING RECORD

Prepared Statement of the Honorable Howard L. Berman, a Representative 

in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property ......................... 67

Prepared Statement of The Institute of Electrical and Electronics EngineersUnited States of America (IEEE-USA) ............................................................... 67

(1)

PATENT QUALITY ENHANCEMENT IN THE 

INFORMATION-BASED ECONOMY 

WEDNESDAY, APRIL 5, 2006

HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, COMMITTEE ON THE JUDICIARY, Washington, DC.

The Subcommittee met, pursuant to notice, at 4:55 p.m., in Room 

2141, Rayburn House Office Building, the Honorable Lamar Smith 

(Chairman of the Subcommittee) presiding. 

Mr. SMITH. Subcommittee on Courts, the Internet, and Intellectual Property will come to order. Thank you all for your patience 

and for waiting. We obviously had a series of votes that we were 

not exactly expecting at 4 o’clock this afternoon. Plus there was a 

privileged resolution we weren’t necessarily expecting to take up 

another half hour. I was told this was an angry crowdawaiting us, 

and I am glad you calmed down a little bit and we will proceed as 

quickly as we can, but having started late, I also need to say as 

well that we are expecting another series of votes in 1 hour, so we 

will probably enforce the 5-minute rule fairly strictly, and try to 

move along with the testimony with the questions as quickly as we 

can. 

I will recognize myself for an opening statement. Today, the Subcommittee returns to the gift that keeps on giving, patent reform 

and the 109th Congress. We have devoted much time and energy 

to this project. And I expect progress to continue. 

In light of our ambitiousness and the competing interest involved, perhaps it is not surprising that we haven’t eliminated all 

differences by now. I have announced a new round of hearings for 

this spring with the intent of further illuminating a need for reform and to nudge the process along. That said, today’s hearing addresses patent quality enhancement. 

While the Subcommittee has documented a steady increase in 

application pendency and backlogs at the PTO in recent years, the 

view among agency officials in the inventor community is that efforts to address these problems should not take precedent over improvement of patent quality. Patents of questionable scope or validity waste valuable resources by inviting third-party challenges and 

ultimately discourage private sector investment. 

At the front end of the system, we can do much to enhance the 

quality of patents issued by ensuring that PTO is allowed to keep 

all of the revenue it raises. While money isn’t the answer to all of 

life’s problems, American inventors and the public are best served 

2

by a fully-funded agency that can devote sufficient sources to hiring 

outstanding examiners, retaining experienced workers and modernizing PTO operations. 

In addition, every patent reform draft reviewed by the Committee this term has included a provision to allow third party submission of prior art. 

This will help examiners to determine whether the inventions 

under review truly are new and nonobvious. 

But no matter how diligent and thorough PTO examiners are, 

there will also be some patents issued that prompt questions about 

scope and validity. This is why the Subcommittee is also committed 

to improving patent quality at the back end of the system. This includes enacting improvements to the underutilized PTO re-examination proceeding. 

Significantly, the Subcommittee also is committed to the creation 

of a post grant opposition system that will enable parties to resolve 

patent disputes in an administrative setting. In other words, concerns about patent quality can be addressed more quickly and less 

expensively in such forum compared to litigation in Federal Court. 

The final comment on how we should examine quality, it is selfevident that all persons and entities affected by the operations of 

the U.S. System endorsed patent quality enhancement in the abstract, however, actual patent practice frequently involves the competing and conflicting interests of different businesses and individuals. 

For example, a software developer might endorse a specific 

change to the current statutory treatment of injunctive relief where 

damages computations set forth in title 35. The same revisions 

would be opposed by a number of patent interests, especially those 

in the biotechnology and the pharmaceutical industries. 

Different entities use the patent system in different ways, depending on their respective business models. It is important to acknowledge that dynamic when reviewing changes intended to enhance patent quality. That concludes my remarks, and the gentleman from California, Mr. Berman, is recognized for his. 

Mr. BERMAN. Thank you, Mr. Chairman, I apologize for being 

late. 

I believe this may be the 6th hearing on patent reform in this 

Congress. I want to start out by sincerely thanking the Chairman 

for his hard work in highlighting the need for patent reform in this 

Congress. 

He brought together a large coalition of bipartisan Members to 

support a patent reform bill and managed to almost achieve consensus among the different party interests. 

However, I must state that I wonder about the benefits of pursuing further hearings on the identical issues we discussed last 

year, if there are few new ideas being proposed and no further clarity about which legislative approaches this Subcommittee should 

follow regarding patent reform. 

I am concerned that merely discussing the issue without any 

movement on a legislative proposal will further entrench the parties in their respective positions. The recent cases which have been 

settled, NTP, BlackBerry, or have been granted cert by the SuVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00006 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
3

preme Court, eBay versus Merck exchange, demonstrate that the 

time to address these issues is sooner rather than later. 

Past attempts at achieving more comprehensive patent reform 

have been met with resistance. However, the call for legislative action is loud. 

The New York Times has noted ‘‘something has gone very wrong 

with the United States patent system.’’ the Financial Times has 

stated, ‘‘it is time to restore the balance of power in U.S. Patent 

law.’’ therefore, today Congressman Boucher and I have introduced 

a narrowly tailored patent quality bill to address some of the more 

urgent concerns. 

Once again, I firmly believe that robust patent protection promotes innovation. However, I also believe that the patent system 

is strongest and that incentives for innovation are greatest when 

patents protect only those patents that are truly inventive. When 

functioning properly, the patent system should encourage and enable inventors to push the boundaries of knowledge and possibility. 

If the patent system allows questionable patents to issue and 

doesn’t provide adequate safeguards against patent abuses, the system may stifle innovation and interfere with competitive market 

forces. 

High patent quality is essential to continued innovation. Litigation abuses, especially those which thrive on low quality patents, 

impede the promotion of the progress of science and the useful arts. 

Thus we must act quickly—I hope the 109th Congress—to maintain the integrity of the patent system. 

Thank you, Mr. Chairman. 

Mr. SMITH. Thank you, Mr. Berman. I am hoping other Members 

will allow their opening statements will be made a part of the 

record, but if not, the gentlewoman from California, Ms. Lofgren is 

recognized. 

Ms. LOFGREN. I will be very brief. First, I want to thank each 

of the witnesses for their really very excellent testimony, which I 

have had a chance to read. You know, only a few of us who follow 

these patent issues as closely as the Members here do. I, however, 

participate in the debate on the floor that is going on at the same 

time. So I have to apologize in advance for leaving and I wanted 

to especially let the witnesses know that I have read their testimony. I hope to be back for questions and I thank the gentleman 

for having this hearing. 

Mr. SMITH. Thank you, Ms. Lofgren. Before I introduce our witnesses, would you please stand and be sworn in. Please raise your 

right hand. 

[Witnesses sworn.] 

Mr. SMITH. Thank you and please be seated. And we are operating with a makeshift mike up here, which seems to have some 

back noise here. 

Let me introduce our witnesses and we will proceed. Our first 

witness is Jon Dudas, Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office. In his previous life, Director Dudas worked for this Subcommittee. So we welcome him back. 

He earned a bachelor’s degree in finance summa cum laude from 

Illinois and a law degree with honors from University of Chicago. 

4

Our next witness is Jim Balsillie, chairman and CEO of Research 

In Motion, or RIM, the manufacturer of the BlackBerry, which I 

have in my pocket. He is a graduate of the University of Toronto, 

and the Harvard School of Business. A chartered accountant, he 

also holds a doctorate from Wilfrid Laurier University in Waterloo, 

Ontario. 

Our next witness is Robert Stewart, director and chief patent 

counsel of UBS AG in the Americas. Headquartered in Switzerland, 

UBS AG is the world’s largest wealth management firm for private 

clients. Mr. Stewart’s responsibilities include intellectual property 

litigation, prosecution, licensing mergers and acquisition and contractual matters for UBS AG. He studied electrical engineering at 

Polytechnic University located in Brooklyn, and earned his law degree from Georgetown University. 

Our final witness is Mark Lemley, the William H. Neukom Professor of Law and director of the Program in Law, Science and 

Technology at Stanford law School. In addition to his teaching and 

writing, Professor Lemley is of counsel to the San Francisco law 

firm of Keker and Van Nest. He earned his undergraduate degree 

with distinction from Stanford University and his law degree from 

University of California Berkeley. 

Mr. SMITH. Welcome to you all. We have your statements and 

without objection, they will be made a part of the record. As I mentioned we would like to try to stay in the 5-minute rule so we can 

try to finish with our questions before the next series of votes commences, and with that, Mr. Dudas, we will begin with you. 

TESTIMONY OF THE HONORABLE JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY 

AND DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE 

Mr. DUDAS. Thank you. Mr. Chairman, Ranking Member Berman and Members of the Subcommittee, thanks for holding this 

important hearing on patent quality. 

Every private property system requires certainty of property 

rights and a fair method to adjudicate disputes. The quality of patents is a fundamental element of establishing certainty. The intellectual property system in the United States is the envy of the 

world, and it is a shared responsibility of the courts, the Congress, 

and the Administration to ensure that the best system in the world 

gets even better. With the activities in the Supreme Court and in 

this Committee, it is clear this is a responsibility taken quite seriously. 

It is also a responsibility that the Administration takes quite seriously, and we at the USPTO are proud of the progress we have 

made. I have testified in the past that we would be improving the 

way we hire, the way we train, the way we promote, the way we 

reconfirm skill levels, the way we emphasize quality throughout 

the examination process, and the way we conduct our quality reviews. 

We have, and I am happy to report that we have shown measurable improvement in every quality goal I just mentioned. That information is more specifically laid out in my written testimony. But 

even with improved patent quality, what can you do if you believe 

5

the USPTO has made a mistake? Congress, in anticipating such 

concern, gave broad rights to all applicants and literally everyone 

who is concerned about another’s patent. And these systems for 

challenging patents have improved as well. 

On any patent the USPTO issues, any person has a right to request a reexamination of a patent that the USPTO has issued. It 

can be requested at any time. And it can be requested on any patent. 

We have greatly improved this process by establishing a central 

reexamination unit. And in doing so, we have dramatically increased the thoroughness, consistency, the quality and the timeliness of reexaminations. Where once it could take more than 4 years 

to even see an action is brought down to nearly 2 years in almost 

all cases. We believe we will have all cases, most all cases done 

within 2 years, completed within 2 years at the Patent and Trademark Office fairly soon. 

So patent applicants, and those who wish to challenge patents 

issued to others, have important and many options and many responsibilities, and indeed rights. And as I have learned working on 

important issues in this Committee for 5 years, with every right is 

a responsibility. So, while most are quick to remind policy makers 

of their rights, some are a bit more hesitant to raise the issue of 

their responsibilities. But a private property right system depends 

on the responsible behavior of all, not just Congress, the courts and 

the Administration, but every applicant and every entity interested 

in other patents has responsibilities as well. 

Every applicant has a duty to disclose all relevant information 

and only relevant information. Some applicants give us no relevant 

information and some give us reams and reams of irrelevant or 

useless information, virtually burying that which is important—in 

some cases, not in most. We also sometimes receive multiple continuations, essentially do-overs after a patent application has been 

rejected in an effort to wear down an examiner who rejected it the 

first time, or in the hope that another examiner will get the case 

and grant the patent. 

There are many legitimate uses for continuation as well, but we 

want to address this behavior. 

Applications with inordinate numbers of claims are also a problem. All these are choices that some applicants make, choices that 

degrade the quality of the patent process and the patents issued. 

The USPTO has proposed rules to address some of these issues and 

we are considering other proposed rules to address the rest. 

There are many things we need to do at the Patent and Trademark Office, and there are many things we need to do throughout 

our system. But I’d like to take off on the theme that the Chairman 

and Ranking Member pointed out. I think everyone involved has a 

responsibility to promote sound proposals that will improve patent 

quality, even if it means they will not get everything they want immediately. 

There are two proposals pending before this Subcommittee that 

are widely supported throughout the intellectual property community that I think will directly and dramatically improve patent 

quality. I think we should all support public participation of prior 

art submissions and post grant opposition. There is plenty of opporVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
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tunity to work in good faith to resolve the many remaining issues 

that are more controversial. 

But we may be able to make a real difference now. And we may 

need to get those provisions enacted now. Both provisions allow everyone to better exercise both their rights and their responsibilities. 

Public prior art submissions allow anyone to give the USPTO information believed to help with the quality examination. Post grant 

opposition allows anyone to challenge an issued patent in the most 

effective and most efficient manner. We have to approach it with 

the right balance but philosophically these are largely supported by 

nearly everyone in the intellectual property community. 

I look forward to working with the Subcommittee on these provisions. I look forward to working with the Subcommittee to swiftly 

resolve the many other important issues we face. I am honored to 

be here and I look forward to answering all your questions. 

Mr. SMITH. Thank you, Mr. Dudas. 

[The prepared statement of Mr. Dudas follows:]

7

PREPARED STATEMENT OF THE HONORABLE JON W. DUDAS


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Mr. SMITH. Mr. Balsillie. 

TESTIMONY OF JAMES BALSILLIE, CHAIRMAN AND CO-CHIEF 

EXECUTIVE OFFICER, RESEARCH IN MOTION 

Mr. BALSILLIE. Thank you very much. Chairman Smith, Ranking 

Member Berman, and Members of the Subcommittee. My name is 

Jim Balsillie, and I am chairman and co-chief CEO of Research In 

Motion. I am pleased to appear here before you to speak on the 

issue of patent quality in the context of RIM’s experience in the 

U.S. Patent system. 

RIM is the leading developer for innovative wireless solutions for 

the worldwide mobile communications market. RIM’s BlackBerry 

products and services are used by tens of thousands of corporate 

and Government organizations around the world. Our largest market is United States, which accounts for more than half of RIM’s 

revenues. And our biggest customer is the U.S. Federal Government. 

RIM is proud to serve the Department of Defense, the Department of Homeland Security, and the U.S. Congress, just to name 

a few of our valued Federal customers. 

As the Members of the Subcommittee are aware, last month, 

RIM paid over $612 million to settle a patent lawsuit brought 

about by a patent holding company NTP. Despite the fact that the 

Patent Office had rejected all of NTP’s patents, and it was very 

likely to declare these patents invalid, RIM was forced to pay one 

of the largest settlements in U.S. History in order to end the uncertainty caused by the lawsuit. 

By appearing before you today, it is my hope that we are helping 

to advance patent law reform. The NTP case raises many questions, but there are a few that are particularly relevant to the 

scope of this hearing. 

First, and perhaps most puzzling for those who follow the NTP 

case, it is the role of the Patent Office versus the courts, particularly in the context of the reexamination process. In our case, our 

all of the five asserted NTP patents were completely rejected by the 

PTO in multiple office actions upon reexamination. At the time of 

the hearing on the injunction on February 24th, two of the three 

patents remaining had final office actions issued that rejected all 

of the claims on at least 3 grounds each. 

The remaining patent had all of its claims rejected as 

unpatentable on at least four grounds, including a determination 

that RIM had invented what NTP was trying to claim for itself. 

Even with these patent office rulings, the District Court judge 

appeared unmoved, and his comments during the proceedings suggested that he viewed the Patent Office rulings as irrelevant to his 

decision. 

A recent article in Newsweek Magazine that compared the NTP 

case to a judge in a murder case pondering execution while ignoring new DNA evidence that exonerates the accused. Congress 

should, at a minimum, provide industry with certainty as to the 

relevance of reexamination proceedings. 

Second, it is generally agreed that the Patent Office does not 

have the resources it needs to effectively review more than 300,000 

applications it receives each year. Consequently, concerns have 

15

been raised about the length of time it takes to process a patent 

application and the quality of patents that ultimately issue. The 

Patent Office has introduced two proposed changes to address 

these concerns. The first attempts to limit the number of claims in 

a patent. The average number of claims in a patent is 22. 

In the NTP case, NTP’s eight patents had an average of 240 

claims each, with one having 655 claims. The NTP patent with 655 

claims was initially issued by the Patent Office without a single 

documented office action. 

The second proposed change attempts to place some restrictions 

on continuation practice. Eight of the nine claims ultimately issued 

to NTP were continuations filed more than 8—more than 7 years 

after the initial NTP patent was filed. The Patent Office concluded 

that six of the nine claims were based on RIM’s own technology. 

NTP was able to aggressively use the continuation process to 

copy RIM’s ideas and seek an injunction that would prevent RIM 

from practicing what it invented. We think the facts in our case 

support the need for reform in these areas. 

Third, there is the matter of when an injunction is the proper 

remedy for patent infringement. We understand and appreciate the 

concerns that the pharmaceutical biotechnology and some independent vendors have expressed about changes to this standard. 

However, we firmly believe that the concerns raised by the technology sector can and should be addressed without harming others. 

We want to help Congress work with all others interested in improving the patent process so no other company in any industry experiences what RIM endured. 

Making technology products available to the public requires an 

aggregation of hundreds of different ideas in the development of 

products. 

In our case, the District Court was prepared to provide an injunction against us, our partners and customers, even though NTP 

had publicly acknowledged that they desired a monetary solution 

and that the threat of an injunction increased their leverage for a 

higher payout. 

Congress has directed courts on how to apply injunctive relief in 

section 283. At a minimum, it should not allow judges to undermine standards established in the law by this body. This would 

dramatically reduce the daily Russian Roulette that patent assertion companies are playing on the whole U.S. Tech and telecom 

system, which is currently condoned. 

Further enabling a patentee to obtain compensation for a patent 

that far exceeds the value of the patent invention cannot help but 

impact the economic and social benefits that the patent system was 

introduced to achieve and may well deter rather than promote innovation. 

We hope that Congress will keep these serious risks and costs in 

mind as it goes forward with Patent law reform. Mr. Chairman, 

thank you again for the opportunity to appear before you today. I 

will be pleased to take any questions you may have. 

Mr. SMITH. Thank you, Mr. Balsillie. 

[The prepared statement of Mr. Balsillie follows:]

16

PREPARED STATEMENT OF JAMES BALSILLIE

INTRODUCTION

Chairman Smith, Ranking Member Berman and Members of the Subcommittee, 

my name is Jim Balsillie and I am Chairman and Co-Chief Executive Officer of Research In Motion. I am pleased to appear before you today to speak on the issue 

of ‘‘Patent Quality,’’ and am grateful for the opportunity to share with you RIM’s 

experience with the United States patent system. 

Research In Motion (RIM) was founded in 1984 and is a leading developer of innovative wireless solutions for the worldwide mobile communications market. Through 

the development of integrated hardware, software and services that support multiple wireless network standards, RIM provides platforms and solutions for seamless 

access to time-sensitive information including email, phone, Internet and intranetbased applications. RIM’s award-winning BlackBerry products and services are used 

by tens of thousands of corporate and government organizations around the world. 

RIM technology also enables a broad array of third party developers and manufacturers to enhance their products and services with wireless connectivity to data. 

RIM operates offices in North America, Europe and Asia Pacific and has approximately 5 million subscribers in over sixty countries. Our largest market is the 

United States, which accounts for more than half of RIM’s revenues. Our biggest 

customer in the United States is the federal government. RIM is proud to serve the 

Department of Defense, the Department of Homeland Security and the U.S. Congress, just to name a few of our valued federal customers. 

As the Members of the Subcommittee are certainly aware, last month RIM paid 

$612.5 million to settle a patent lawsuit brought by patent holding company, NTP. 

Despite clear evidence that the Patent Office had rejected the NTP patents and was 

very likely to declare these patents invalid, RIM was effectively forced to pay one 

of the largest settlements in U.S. history in order to end NTP’s highly publicized 

threats and the associated uncertainty felt by RIM’s U.S. partners and customers. 

Underlying virtually every debate about patent laws are two distinct views of the 

nature of patents. Simply put, are patents an absolute property right, or a property 

right that must be construed in the context of its Constitutional objectives? 

The latter point of view is not new. The Supreme Court in Graham v John Deere 

Co. reiterated Thomas Jefferson’s conclusion that the primary objective of intellectual property is to promote the Country’s social and economic benefits and not to 

protect inventors’ so-called ‘‘natural rights.’’ In other words, patent rights are granted as a means to an end, and not the end itself. If the patent right is asserted in 

a manner that does not promote social and economic benefit, then it has become 

unmoored from its Constitutional foundation. 

Many, however, are of the view that, because the Patent Act grants the ‘right to 

exclude,’ in order to give effect to this right, patentees must have virtually automatic injunctive relief for a breach of their rights. Those that hold this view also 

generally believe that patentees ought to be free to seek whatever compensation 

they are able to extract for their invention—even if that compensation bears no correlation to the value afforded by the invention in their patent. 

In the end, Congress must choose which characterization of patent rights better 

reflects its objectives for patent law and the Constitutional mandate that granted 

patent rights must promote the useful arts. If nothing else, RIM’s experience in the 

NTP case demonstrates that there are significant undesirable social and economic 

costs contrary to promoting the useful Arts when patents are treated as an absolute 

property right. We hope that Congress will consider these costs carefully in deciding 

which is the appropriate characterization of patent rights. 

We understand and appreciate the concerns that Pharmaceutical, biotechnology 

and some independent inventors have expressed regarding changes to patent laws. 

We continue to firmly believe, however, that the concerns raised by the technology 

sector can be addressed without harming these other sectors. By appearing before 

you today, it is my sincere hope that we are helping to advance meaningful patent 

law reform, thus helping to assure that no other company experiences what RIM 

endured over the past five years. I believe that RIM’s experience will prove instructive for all who care about innovation, competitiveness and free enterprise. 

ROLE OF THE U.S. PATENT AND TRADEMARK OFFICE

The NTP case raises many questions, but there are a couple that are particularly 

relevant to the scope of this hearing. We should first ask: ‘‘What is the role of the 

U.S. Patent and Trademark Office (PTO) in the patent system and how can the 

quality of patents be improved?’’

17

REEXAMINATION PROCEEDINGS

Perhaps the most puzzling thing for those who followed the NTP case is the role 

of the patent reexamination process in pending litigation. If the patent system is 

to function properly, policymakers must clearly define what role the reexamination 

of patents should play in the patent system and what impact they should have on 

any court proceeding. 

The Patent Office has realistically acknowledged that, with 300,000 applications 

per year, mistakes are inevitable and the easiest way to deal with this problem in 

the short term is to focus their limited resources on improving the processes to reexamine patents after they have issued. While historically the Patent Office reexamination process has been criticized, in 2005, the Patent Office established an elite 

group of examiners to complete reexaminations with the ‘special dispatch’ required 

by Statute and its own procedures. According to these procedures, priority is to be 

given to patents that are in litigation. 

RIM commends the Patent Office for implementing these much needed changes 

in the reexamination process. However, in our case, this initiative came too late. If 

these new procedures and commitment to special dispatch had been implemented 

earlier, the first office actions for the reexaminations, which began in December 

2002, would have issued by April 2003, several months before the district court 

ruled on NTP’s first injunction request. Instead, the first office actions did not start 

to issue until March of 2005. 

All of the five asserted NTP patents were completely rejected by the PTO in multiple Office Actions upon reexamination. At the time of the hearing on the injunction 

on February 24 of this year, two of the three patents remaining in suit had final 

office actions issued that rejected all of the claims on at least three grounds each. 

The remaining patent is in inter partes reexamination in which an action closing 

prosecution (substantially the same as a final office action in the ex parte reexams) 

had issued rejecting all claims in the ’592 patent on at least four grounds each, including anticipation of each claim by RIM’s own technology—i.e., a determination 

that RIM invented what NTP was trying to claim for itself. 

Even with the Patent Office issuing these rulings, the District Court hearing the 

case was unmoved. Although the Court did not formally enter a ruling at that time, 

the Judge’s comments during the proceedings emphatically suggested that he 

viewed the final office actions as irrelevant to his decision—in spite of the fact that 

(1) the liability ruling on which injunctive relief would be granted was based on deference given during trial to the Patent Office’s expertise in initially granting the 

patents, (2) the PTO specifically indicated in its office actions during reexam that 

it was seeking to address the concerns raised by the Court about reexamination timing, and (3) several patent practitioners have noted the exceptional quality of these 

office actions (as compared to the original examination to which deference was given 

at trial even though no substantive examination was apparent). Countless media articles commented on the Court’s indifference to the PTO’s rejections, including a recent article in Newsweek magazine that compared the NTP case to a judge in a 

murder case pondering execution while ignoring new DNA evidence. 

As this Subcommittee contemplates patent reform, RIM respectfully suggests that 

this circumstance should be addressed and that clarity be given as to the relevance 

of reexamination proceedings, possibly by providing formal guidance to the courts 

on what deference to give the Patent Office’s reexamination proceedings during its 

different stages as the Court weighs the procedural options in litigation (e.g., stay 

the litigation or limit injunctive relief pending the outcome of the reexamination). 

GRANT OF PATENTS

It is generally agreed that the Patent Office does not have the resources it needs 

to effectively review the more than 300,000 applications it receives each year. Concerns have been raised both about the length of time it takes to process a patent 

application, and the quality of patents that ultimately issue, (e.g. broad and vague 

specifications, broad and inconsistent claim language, ‘obviousness’ of claimed inventions, patents seeking to claim technology that already exists in the public domain, 

etc.). 

Few would contest that the Patent Office is overburdened. Last year, Patent Commissioner John Doll was reported saying, ‘‘When you’ve got 1.3 million cases in 

backlog, and it’s taking [four to six] years to take a first office action, you’ve got 

to ask the question: Is the patent system still actually working, or are we just 

stamping numbers on the applications as they come through?’’

Commissioner Doll is not alone. In a survey by the Intellectual Property Owners 

Association of the nation’s top patent lawyers, over half rated the quality of patents 

issued in the U.S. today as less than satisfactory or poor. Unless the Patent Office 

18

gets more resources, including additional qualified examiners, and is able to reduce 

the demands on its existing resources, the future may not be much better. According 

to the survey, over two-thirds of respondents said they thought the patent process 

would get longer, not shorter, over the next three years. And nearly three-quarters 

said they thought they would be spending more time, not less, on patent litigation 

over the coming years. 

LIMITATION ON NUMBER OF CLAIMS

One of the ways to reduce the demands on the Patent Office’s existing resources 

is to deter patentees from filing excessive numbers of claims in a patent. Why is 

the number of claims important? The Patent Office’s recent figures suggest that the 

average number of claims in a patent is twenty-two. However, a small number of 

patentees file patents with many times this number of claims. For example, in the 

NTP case, NTP’s eight patents had an average of 240 claims each, with one having 

665 claims! 

Patents with an excessive number of claims put a huge burden on the process and 

can compromise the quality of the patents issued. The analysis required to ensure 

that the language in a patent claim is unambiguous, properly disclosed in the patent, and not claiming known technology that is already in the public domain, is by 

its nature a time-consuming one. Our understanding is that with the huge volume 

of patent applications, examiners’ performance is assessed based on ‘‘counts’’ allotted 

to them when specified activities are completed. They receive the same number of 

‘‘counts’’ for allowing a patent, regardless of the number of claims in that patent. 

Therefore, a patent with an excessively large number of claims may receive less 

scrutiny per claim and thus be more likely to issue without the substantive examination required to ensure high quality patents. 

In our case, an NTP patent with 665 claims issued without a single documented 

office action. The prosecution history consists solely of references to undocumented 

meetings with the applicants. Indeed, Qualcomm noted in its request for a directorinitiated reexamination of the NTP patents, ‘‘[w]e understand that the U.S. Examiner allowed over 1690 claims in five U.S. Patents...without ever issuing an action 

on the merits, with the exception of one double-patenting-only rejection on the ’172 

patent.’’

Excessive claims also result in considerable expense for parties defending actions 

by patent holders. Patent assertion companies may send letters to a large number 

of industry participants ‘‘suggesting’’ the desirability of a license, as NTP did to 47 

companies, including RIM. The cost of a legal opinion as to the infringement/validity 

of claims increases with the number of claims. Further, the litigation cost and burden on the defendant of preparing a defense in court increases with the number of 

claims. For example, NTP sued RIM under all of its claims—over 1,900 in eight patents. Even though NTP ultimately reduced this number to 16 claims in five patents 

shortly before trial, the strain posed by the initial large number of claims had NTP’s 

desired effect of prejudicing RIM’s ability to fully and fairly defend itself in the fastpaced litigation of the so-called ‘‘Rocket Docket.’’

The Patent Office recently has proposed rules changes to limit the initial review 

of a patent application to ten claims (which would generally include all independent 

claims) unless the applicant prepares an ‘‘examination support document’’ to reduce 

the workload of the examiner with respect to additional claims. RIM understands 

the Patent Office is encountering resistance to its proposed changes from the patent 

prosecution bar, but nonetheless encourages Congress to support the Patent Office’s 

endeavors to address this problem. 

LIMIT CONTINUATIONS

Another issue of patent quality relates to the ability of patent holders to file multiple continuation applications during the life of the patent. In the aftermath of the 

NTP litigation, we have to ask if the ability to file continuations in this manner is 

consistent with the objectives of progressing innovation. 

Why are continuations an issue? While there are bona fide reasons to file a continuation, patentees can (and do) use continuations to gain a monopoly over later 

innovations that they never envisioned. In particular, a continuation enables a patentee to draft new claims based on what it has learned about the products of others, 

years after the patentee initially filed its patent. Giving a patentee the ability to 

draft claims that copy the independently developed technology of another company—claims the patentee otherwise would not have thought of—and then use those 

copied claims to shut down or hold-up that company is contrary to the most basic 

principles of fairness, and to the Constitutional mandate that patents must promote 

innovation. 

19

In the case of NTP’s suit, four of the five patents asserted at trial were continuations. After RIM’s success on appeal, there were nine claims in three patents left 

at issue in the suit, all but one were from continuations. Six of these claims were 

in the ’592 patent, which was a continuation filed more than eight years after NTP’s 

first patent application. NTP filed the ’592 patent application six months after RIM 

launched the BlackBerry solution, and NTP sued RIM on that patent the day after 

it issued. NTP plainly crafted the ’592 patent claims to specifically cover what RIM 

already had independently developed. Indeed, in the reexamination of the ’592 patent, the Patent Office determined that RIM—not NTP—was the first to invent what 

NTP claimed in its ’592 Patent. Thus while RIM never copied the inventions in the 

NTP patents, NTP was able to aggressively use the current continuation process to 

copy RIM’s ideas and seek an injunction that would prevent RIM from practicing 

what RIM invented. 

Shortly after commencing its lawsuit, NTP refused RIM’s request to explain precisely why it thought RIM infringed NTP’s patents. NTP indicated that it did not 

matter whether or not RIM would be found to infringe in the initial trial, because 

NTP would simply draft another continuation based on what it learned at trial and 

sue RIM again. In fact, NTP even attempted to add over 32,000 claims in its reexamined patents, including claims intended to cover a design that RIM had confidentially disclosed to NTP. 

The Patent Office is proposing restrictions on continuation practice by requiring 

a patentee to explain why the claims sought in a second or subsequent continuation 

could not have been included in the original application or first continuation. RIM 

understands that these proposals are being resisted by the patent prosecution bar 

for a variety of reasons, some of which reflect valid concerns and a need for further 

clarification by the Patent Office, (for example the potential impact on existing patents drafted with a view to the continued availability of continuations, and the impact on divisional practice) and others that may simply reflect an interest in resisting any limit on the service they provide for their clients. RIM encourages Congress 

to support the Patent Office achieving reform in this area. 

REMEDIES FOR PATENTEES

A second key question raised by the NTP case is: ‘‘Should there be limitations 

placed on the compensation available to patentees?’’ In order to ensure that the 

costs associated with patents do not outweigh the social and economic benefits afforded by them, restrictions must be in place to ensure that the compensation for 

a patent bears some reasonable relation to the actual value of the invention in that 

patent. Bringing a single wireless technology product to market and into the public 

hands is very risky and involves a myriad of complex technologies—e.g., display 

screen technology, RF technology, application software, etc. Such products typically 

involve hundreds of inventions as well as the development, production and distribution of hardware and software components. If there are no limits on the compensation each patentee can seek for each of the hundreds of inventions in those products, 

there may not be sufficient remaining resources to bring the product to market—

or even to compensate other patentees. In the NTP case, the Federal Circuit concluded that the patented invention in the NTP patents was the integration of an 

existing email system with a wireless system. 

The patents left it to RIM and others to design and build a two way handheld 

with desktop computer-like processing power, handheld email applications and operating system software, battery management systems, encryption software, special 

keyboards, communication protocols across the email and wireless system, redirector 

software and a relay infrastructure to route data between the email system and the 

wireless network—as well of course as the pre-existing email system and wireless 

network. In other words, the NTP patents did not come close to disclosing what is 

required to place in the hands of the public an actual, commercially viable and useful product. Inventor’s rights are important. But if the ultimate objective is to put 

technology into the hands of the public at a reasonable price, no single patentee 

should be able to demand compensation that far exceeds the value of its actual and 

specific contribution to the ultimate product or system. 

Although some may ask ‘‘why can’t we let the marketplace take care of the problem’’, the reality is that the current law on injunctions effectively gives patentees 

a gun, and the availability of a gun to one party in negotiations tends to skew the 

results that would otherwise naturally occur in the marketplace. Patentees are effectively able to use the Courts as a weapon to extort settlement amounts far greater than the reasonable market value of their patents. 

20

INJUNCTIVE RELIEF

As was widely reported during the course of the NTP litigation, and especially in 

the last six months, RIM faced the very real possibility of an injunction being imposed by the District Court by patents asserted by a patent assertion company.1 

NTP further leveraged this threat against RIM by hiring a public relations firm to 

instill fear amongst RIM’s customers and shareholders by way of a publicity campaign, effectively threatening millions of American customers in order to put additional pressure on a public company to capitulate to excessive demands. Even with 

a solid workaround design, the uncertainty inherent in a threat of an injunction created some disruption of our business. An injunction was not warranted in the NTP 

case, and the possibility that an injunction was available in such circumstances 

demonstrates the need for reform. These circumstances include not only those discussed in this section, but the Patent Office reexaminations described earlier, in 

which the Patent Office had fully and finally rejected all the remaining claims in 

suit as unpatentable at the time of the hearing in the District Court in February 

2006. 

In the general case, injunctive relief for patent infringement 1) should not be virtually automatic, and 2) should not be made available where the patentee has clearly acknowledged it is seeking monetary compensation and is using the injunctive 

remedy as leverage solely to obtain money in excess of market value. Although there 

is a clear need to ensure that small inventors can receive reasonable compensation 

in a timely manner for their patents, these objectives can be accomplished without 

a virtually automatic injunction. 

Remedies, as opposed to rights, are typically tailored to the individual circumstances. Injunctions are viewed as extraordinary remedies in other areas of the 

law and are generally only available upon a demonstration of the inadequacy of 

money as a remedy—i.e. where the nature of the harm caused to the injured party 

is such that it cannot be compensated for with money. Even though in Section 283 

of the Patent Act Congress appears to have applied the same traditional four part 

test for the availability of injunctive relief as applies in other areas of the law, the 

courts appear to ignore this Congressional mandate by creating an attenuated 

version of the test for patent cases. It is easy to see how in many instances damages 

would not be an adequate remedy in a patent case, but this should not make it an 

essentially irrebutable presumption. Where a patentee’s business depends on excluding others from using its invention, money would probably not be an adequate remedy. However, an entity whose business is granting non-exclusive licenses has by 

its nature relied on a business model built on an inclusive, rather than exclusive, 

use of the technology by others. Such a patentee has no bona fide need to exclude 

and can be adequately compensated with money. And to be clear, we are not suggesting that such a patentee does not get any remedy. The issue is not whether they 

get a remedy, but what is the appropriate remedy. In such cases, the proper remedy 

is monetary relief rather than injunctive. 

Some argue that this impacts a patentee’s ability to choose its licensees. The reality is that once a patentee has made the decision to grant a non-exclusive license, 

as opposed to an exclusive one, a patentee is not generally selective about its licensees. Unlike copyright or trade marks, patents tend to cover broad ideas (rather than 

narrow implementations), and the quality of the implementation of a broad patented 

idea would rarely reflect negatively on the patentee. Certainly, it would be unusual 

to find a patent assertion company that was selective about its licensees. The standard non-exclusive licensing business model in our industry is simple—maximize revenue by maximizing the number of licensees. A monetary award, rather than injunctive relief, should not impact on the patentee’s ability to acquire other licensees. Indeed, because courts can award enhanced damages and must award at least a reasonable royalty, it is difficult to see how it could promote innovation by enabling 

a patentee that is not engaged in putting technology into the public’s hands to shut 

down one that is, solely to enable the patentee to extort more than a reasonable 

royalty. The argument frequently heard that patentees need an injunction to avoid 

courts imposing their views of a reasonable royalty is specious. Courts award damages in every other area of law, and injunctions in those areas are not issued as 

a matter of course simply because the litigant might have a different view as to the 

appropriate amount of the award. 

One final point on injunctive relief: even if Congress concludes that damages are 

an inadequate remedy for patentees engaged in the business of granting non-exclusive licensees generally, injunctions should not be generally available to patent assertion companies. The activities of patent assertion companies are inherently at 

odds with the objectives of patent law. If every patentee decided to avoid the costs 

and risk inherent in going into business and instead waited for someone else to 

21

come up with the same idea and implement it and then charge the second company 

to stay in business—the costs of the patent system would soon outweigh its benefits. 

The patent assertion model is not the business model of independent inventors and 

universities seeking to introduce new technology to the market by licensing their 

technology to third parties for its commercialization. The patent assertion business 

model requires that the invention already be in the marketplace, else there is literally no one for them to assert the patents against. This business model effectively 

results in consumers paying twice for innovation—first for the real and substantial 

independent research and development costs incurred by the alleged infringer and 

second for the royalties paid to the patentee so that the alleged infringer can use 

that independently developed technology. There are additional economic costs because the royalties paid by the alleged infringer are not available for research and 

development or investment in capital infrastructure that might bring prices down. 

These costs can be significant and may even threaten the ongoing availability of a 

product or viability of a company, as there is no limit on the amount that the patentee can seek in compensation for the use of its patent—and no incentive for the 

patentee to limit its demands to an amount reflecting the value of its invention. 

Congress should take steps to ensure that Courts properly apply the traditional test 

for injunctive relief in patent cases it mandated in Section 283, and do so in light 

of the specific Constitutional objective that patents must promote the useful arts. 

WILLFULNESS

A finding of willful infringement entitles a patentee to an award of up to treble 

damages. The standards by which willful infringement is established must also be 

considered. Does it further the Constitutional objectives of the patent system to 

place the entire burden of determining whether there is an infringement of a patent 

on an alleged infringer, as is currently the case? Recent case law suggests that a 

patentee need only provide notice of a patent to a defendant to establish willful infringement. Under recent case law, patentees apparently are not required to make 

a clear claim of infringement, or to support their allegations of infringement in 

order to successfully allege willful infringement. This means that, with the cost of 

the stamp to deliver a vague letter mentioning its patents to a company, patentees 

can impose on that company costs easily exceeding tens of thousands of dollars to 

acquire legal opinions as to the validity and infringement of any patents provided. 

The patentee does not have to lift a finger to determine whether there is infringement, yet they can impose substantial costs on a targeted defendant to seek legal 

opinions that meet the rigorous requirements that case law requires for those opinions to be deemed competent. 

In the NTP case, NTP mass-mailed letters to 47 companies, including RIM in January 2000. RIM responded with a letter to NTP asking for additional information 

about its patents. NTP claims never to have received the letter, and made no further effort to contact RIM until NTP filed suit. Nonetheless, RIM was found liable 

for willful infringement based on what RIM did or did not do after receiving NTP’s 

letter. The fact that the patent owner took no interest and forwarded no claim 

charts or otherwise showed there was an infringement simply did not matter. A recent case in the Court of Appeals for the Federal Circuit further suggests that, even 

if NTP had acknowledged receipt of RIM’s letter, it would have no obligation to respond to inquiries or to provide support for its claims of infringement in order for 

it to obtain enhanced damages for willfulness. Thus, even though a patent owner 

does not deem the potential infringement worthy of investing time and money to 

do a proper infringement analysis and may never even bring a claim of infringement, the targeted defendant must do so or risk treble damages and the brand of 

‘‘willful infringer.’’

To illustrate the economic costs inherent in this bias towards patentees, one need 

only consider the NTP case. With 1920 claims in the NTP patents, each of the 47 

companies would likely have to spend at least $200,000 for a legal opinion of invalidity and/or non-infringement. Thus, for about $19 in postage, a single patentee like 

NTP can require 47 companies to divert over $9 million from other industry endeavors to obtain legal opinions regarding NTP’s patents. Although it is currently rare 

for that many claims to be asserted, it is common for companies to receive dozens 

of such letters each year and to spend several hundreds of thousands or more each 

year on external legal opinions alone (not including the salaries and overhead for 

those that deal with these issues). 

It seems outrageous that companies must invest this sort of money in formal legal 

opinions as a result of vaguely crafted patent notice letters where the patentee has 

determined it is not worth its time or money to provide even a basic explanation 

as to why there may be infringement. 

22

RELATION OF COMPENSATION TO VALUE OF PATENTED INVENTION

Without any restriction on the amount of compensation a patentee is entitled to 

for its patented invention, there are a number of circumstances in which, rather 

than promoting the useful Arts, patents can result in a reduction in the technology 

available to consumers or at least a significant increase in its price. 

One such instance is where the royalty rate for a particular patent fails to take 

into account that a single product requires patent licenses with multiple technology 

companies covering hundreds of patents. For example, the royalty rate determined 

by the jury at trial in the NTP case was 5.7% of the gross revenue on RIM’s handsets, software and services. Considered in isolation 5.7% may not seem an onerous royalty. However, were each of our existing patent licensors to be entitled to 

this same 5.7%, neither RIM nor any other technology company could afford to bring 

the product to market. 

Similarly, significant economic and social costs can result from permitting a patentee to recover damages not only on the revenue of a party supplying products that 

directly or indirectly infringe a patent, but also on bona fide third party products 

or services used in combination with these products where those third party products or services would not themselves directly or contributorily infringe the patents. 

For example, there is a growing tendency for patentees with patents covering, for 

example, a small component of a handheld or a handheld software application, to 

seek royalties based not only on revenue generated by the handheld manufacturer’s 

products, but on carrier network service revenue as well. These types of patents 

likely add no innovation to the wireless carrier network, which essentially acts as 

a pipe to deliver data from the handheld. The carrier’s business model requires it 

to make services available to a wide range of products with no real depth of technical knowledge about these products. If in fact the handheld component or software 

application does infringe a patent, in these circumstances the carrier might well 

look to the supplier to indemnify it for any resulting damages. If those damages are 

calculated based upon not only the manufacturer’s revenue, but the revenue from 

carriers’ services as well, the manufacturer may be required to pay damages on 

money it has never received, and the total damages may exceed its total revenue 

for the infringing product. This is not only inconsistent with industry patent licensing practices; it simply is not economically feasible. 

A patent system that affords patentees ready access to compensation reflecting 

the value of their patents would seem better suited to achieve both protection for 

the patentee and the promotion of the useful Arts. RIM encourages Congress to provide guidance to the Courts and certainty to industry to achieve this end. 

CONCLUSION

Mr. Chairman, thank you again for the opportunity to appear before you today. 

I hope that my testimony has been helpful to you and Members of the Subcommittee 

as you consider reforms to the patent U.S. patent system. If I can be of any further 

assistance to you with this very important work, I am at your service. I will be 

pleased to take any questions you may have. 

1 A patent assertion company is an entity whose primary business is enforcing 

its patent portfolio against technology companies that have independently researched, developed and commercialized similar technology. Such patent assertion 

companies typically do not practice the patented technology at all, but merely expend their energies in drafting claims in their pending continuation patent applications to claim for themselves successful products independently developed by others. 

Their business model is very different from that of independent inventors and universities that work to place in the hands of the public products that are not already 

in the marketplace by partnering with industry to commercialize their patented inventions, typically providing substantial know-how to implement their invention and 

related technology.

Mr. SMITH. Mr. Stewart. 

TESTIMONY OF ROBERT A. STEWART, DIRECTOR AND CHIEF 

PATENT COUNSEL OF AMERICAS, UBS AG 

Mr. STEWART. Thank you. Chairman Smith and Ranking Member Berman. My name is Robert Stewart, and I am the chief patent 

counsel for UBS AG in the Americas. I am pleased to testify today 

on behalf of the Financial Services Roundtable and BITS, which 

are affiliated financial services trade associations. The Financial 

23

Services Roundtable represents over 100 of the largest diversified 

financial institutions who account directly for millions of jobs. The 

Financial Services Roundtable would like to commend Chairman 

Smith and the rest of the Subcommittee for their time and effort 

in an attempt to strengthen the quality of the U.S. Patent system, 

and encourage innovation without discouraging economic activity. 

In particular, I would like to commend Congressman Berman for 

the introduction of his thoughtful bill today. 

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

for considering these matters. 

It is perhaps too easy and convenient to place the entire burden 

for patent quality on the staff of the U.S. Patent and Trademark 

Office, who I will refer to as the PTO. 

We believe that Director Dudas and his staff continue to overcome the challenges facing the PTO, including reducing the backlog 

of pending applications. However, the fact remains that over 

800,000 applications are pending in PTO and examiners aren’t able 

to spend enough time to provide meaningful examination. As a result, patent quality has suffered and patents of dubious quality 

threaten to destruct lawful economic activity. Patent quality can be 

improved by improving the disclosure of relevant prior art, improving the quality of district court decisions, and the inclusion of an 

effective post grant opposition proceeding, and we mustn’t forget 

litigation reform measures. 

We can improve the disclosure by ensuring that relevant art is 

disclosed in a meaningful way to examiners that are pressed for 

time. Any examination by the PTO is only as reliable as the information that the examiner is readily able to apply to the claims 

under review. 

And in furtherance of this goal, we are quite pleased that H.R. 

2795 has a third party submission procedure which will allow for 

more effective disclosure of relevant prior art to the examiners at 

the PTO. 

Also, Congress should adopt an interlocutory appeal of claim interpretation. The Federal circuit frequently overturns claim interpretations, and as you may be familiar with Kimberly Moore’s 

work, 35 percent of District Court claim interpretations were overturned between 1996 and 2003. The inconsistent claim interpretations between the District Court and the Federal Court are representative of the U.S. Patent system’s wasteful use of limited judicial resources. 

So to further improve the efficiency of the judicial resources, an 

interlocutory appeal to the Federal circuit should be permitted 

after a Markman hearing, where the claims are interpreted by the 

District Court. This new procedure will help mitigate the judicial 

inefficiency that occurs when a full trial is conducted based on an 

incorrect interpretation of the patent. 

In addition, Congress should support specialized patent courts. 

Many District Court judges have no special or technical patent expertise, and have never been admitted to practice before the U.S. 

Patent and Trademark Office, whereas patent attorneys hold technical degrees and pass a special patent bar. Therefore, we encourage preferential venue in the 10 District Courts that currently hanVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00027 Fmt 6633 Sfmt 6601 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
24

dle the most patent matters and professor Moore has also been 

very instructive on this particular matter as well. 

We also strongly support the establishment of a post-grant opposition proceeding with a second window that will allow anyone who 

is threatened with a patent infringement action to follow a request 

for an opposition proceeding within 6 months after receiving notice. 

Without the 6-month window, many organizations may not expend 

the resources necessary to invalidate a patent in an opposition proceeding. 

The second window could be subject to a clear and convincing 

standard of proof. 

As for litigation reform, the patent quality problem cited above 

make the need for litigation reform all the more compelling. Congress can and should provide financed firms and other businesses 

with the additional safeguards against frivolous claims without impairing the important protections afforded to intellectual property. 

As owners of intellectual property, we have as much interest as 

anyone in protecting true innovation that benefits society has a 

whole. 

Specifically, Congress should clarify the damages role with respect to willfulness and apportionment, limit venues to the place 

of incorporation, expand the scope of prior user rights beyond business methods, and modify the standard for injunctive relief. 

In conclusion, the Financial Services Roundtable is a strong believer in the U.S. Patent process as fundamental to a healthy U.S. 

Economy. 

Given the importance of the patent process, the PTO should be 

fully funded without fee diversion and given adequate resources to 

perform its duties. At the same time, it is not enough for the PTO 

to turn out patents in greater quantity if those patents are not of 

the highest quality. 

I know that Director Dudas shares this view, and we appreciate 

his dedication to patent quality issues. Moreover, because of increases in frivolous claims of patent infringement, we encourage 

you to continue your focus on appropriate defenses and other tools 

for litigation risk management. We look forward to participating 

further as you develop and move legislation to improve the patent 

laws. Thank you. 

Mr. SMITH. Thank you, Mr. Stewart. 

[The prepared statement of Mr. Stewart follows:]

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PREPARED STATEMENT OF ROBERT A. STEWART


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Mr. SMITH. Professor Lemley. 

TESTIMONY OF MARK A. LEMLEY, WILLIAM H. NEUKOM 

PROFESSOR OF LAW, STANFORD LAW SCHOOL 

Mr. LEMLEY. Thank you, Mr. Chairman. I think everybody can 

agree there are bad patents out there. The Patent Office, I think, 

is doing more and more to try to solve the problem and try to weed 

out the bad patents. But the reality of the situation is we are never 

going to find them all. And it’s probably not even cost effective to 

find them all in the Patent Office, because somewhere between 90, 

95 percent of patents, once they are issued from the Patent Office, 

are never heard from again. 

Instead, it seems to me if our focus is patent quality enhancement, what we need to do is try to find the patents that matter, 

weed out the bad patents that actually matter that are going to affect people later in life. 

One way to do that is post grant opposition. And endorse both 

the H.R. 2795 and the Berman-Boucher bill that proposed post 

grant opposition system. Though, in fact, it seems to me the disputed issue in the post grant opposition area, which is whether we 

can have a second window, have an opportunity to identify those 

patents, when they become relevant in litigation, is the critical 

issue. Without an opportunity for people to file a post grant opposition at the time that they are aware of a patent, the post grant opposition becomes somewhat illusory. 

We can go further. In my paper I submitted along with my testimony, I suggest a sort of what you might call a gold-plated patent 

mechanism, where people could opt in for their most important patents to higher scrutiny, submit a search, ask for more time from 

the Patent Office, pay a higher fee, and in exchange, get something 

of value, in exchange get a patent that was treated by the courts 

with greater respect, with more deference. 

Both of these systems would allow us to focus the patents that 

matter because they would harness the information that private 

parties have and that the PTO currently doesn’t have about which 

of the patents is important to focus on and which ones are not. 

I also think, though, that you can’t discuss patent quality without talking about the problem of Patent lawsuit abuse. There is a 

very real problem out there confined, I think, to some industries, 

but to a very wide and important sector of the economy, of patent 

lawsuit abuse. To some extent, those are bad patents being asserted. They are patents that shouldn’t have been issued, that are 

invalid, that people are asserting. 

But there is also a problem even with patents that are legitimately issued, when people wait in the wings and surprise a mature industry or a standard setting organization with a patent that 

he they didn’t know about after it has been to—for people who 

have already made irreversible investments, when people overclaim 

the breadth of their patents, when they actually invent something, 

but pop up 10 years later and claim they invented something much 

broader covering an entire industry that they hadn’t thought of at 

the time, or when they use the threat of injunctive relief or of damages in excess of actual compensatory value to coerce a settlement, 

that so often happens in patent litigation where the defendant 

36

might have a good claim that the patent is invalid, might have a 

good claim that they don’t infringe, but isn’t willing to put their 

product on the line. 

The testimony we just heard about Research in Motion is, in one 

sense, exceptional. They actually took the case all the way to litigation. Most people aren’t willing to take that risk and so they settle. 

You can solve those problems, it seems to me, in a couple of 

ways. You can get at the problem of hiding in the wings with publication and with limitations on continuation practice, and you can 

get at the problem of holdup or threats of holdup by restricting the 

ability to claim super compensatory damages to cases in which they 

are really warranted, where the conduct really is copying, or by 

giving the district courts, confirming that the district courts have 

in the existing statute, the discretion to consider equitable factors 

in deciding whether or not to grant injunctive relief. 

Now, the one thing it seems to me that the patent reform process 

has taught us is that different industries have very different experiences with the patent system. The way the patent system affects 

you if you are in the IT industry is very different than if you are 

in the biotech or the pharma industry. I think for that reason it 

is unlikely you are ever going to get broad industry consensus on 

meaningful patent reform. 

You can either throw up your hands and do nothing, or I think 

you can try to tailor the patent reform efforts in such a way that 

they actually target the problems that exist in certain industries 

without doing real harm to other industries. So you can tailor damages rules to the problem of component industries. You can tailor 

injunctive relief by giving the District Court the discretion to decide only in a few cases, is injunctive relief inappropriate; and in 

cases where it is a vital part of the patent right, we should keep 

it. 

You can even tailor things like post grant second window perhaps by having a lack of notice rule. Anyone who is on notice of 

a patent doesn’t get a second window. They have to file in the first 

window. But if you didn’t know about the patent, then you ought 

to have a opportunity to challenge it. 

All of these things, it seems to me, have one thing in common, 

which is they solve real problems in the patent system that are industry specific, not by writing industry specific laws, but by writing 

general laws that will effect different industries differently, and 

that is what I urge you to do. 

Mr. SMITH. Thank you, Professor Lemley. 

[The prepared statement of Mr. Lemley follows:]

PREPARED STATEMENT OF MARK A. LEMLEY

INTRODUCTION AND EXECUTIVE SUMMARY

Reforming the patent system is important. Patents are critical to innovation, and 

the patent system generally works well in encouraging invention. But the system 

also has problems, and is in need of an overhaul. In particular, improvements can 

be made in two main areas: (1) finding tailored ways to improve patent quality 

without wasting money examining unimportant patents; and (2) preventing abuses 

of the system by people who use patents not for their intended purpose of supporting innovation, but to hold up legitimate innovators. 

Let me be clear at the outset that these are both important problems, and patent 

reform that addresses those problems will be an important step in encouraging innovation in the United States. It is particularly important that Congress act to preVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00040 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
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vent abuses of the patent system by those who use the patent system not to develop 

and make products but to squeeze money out of those who do. While there are as 

yet no reliable statistics on the extent of the holdup problem, there is no question 

that it is a widespread and extremely serious problem in the semiconductor, computer, Internet and telecommunications industries. Large, innovative companies 

such as Intel and Cisco never have a week go by without threats of suit from a nonmanufacturing patent owner claiming rights in technology that the defendants did 

not copy from the patent owner—usually they’ve never even heard of the patent owner—but instead developed independently. While there is a legitimate role for 

small and individual inventors who patent their technologies and license their ideas 

to others, increasingly the patent owners are not contributing ideas at all, but popping up years or even decades later and trying to fit an old patent to a different 

purpose. Unscrupulous patent owners do this because the law permits it, and because it gives them a chance to make a lot of money—under current law, far more 

money than their technology is worth. 

Patent reform needs to deal with these abuses of the system without interfering 

with the normal, legitimate use of the system to protect and encourage innovation. 

Doing so requires careful balancing of the interests of patent owners, technology 

companies, and the public. 

One fact that complicates patent reform efforts.is that the patent system works 

very differently in different industries. See Dan L. Burk & Mark A. Lemley, Policy 

Levers in Patent Law, Va. L. Rev. (2003). While innovators in the semiconductor, 

computer, Internet and telecommunication industries identify abusive patent litigation as the major problem they face, there is no similar problem in the medical device, biotechnology and pharmaceutical industries. Those industries have very different characteristics—pharmaceutical patents are more likely to cover a whole 

drug, rather than one of 5,000 different components of a semiconductor chip. So patent owners in the pharmaceutical industries don’t have to worry about and endless 

stream of patent owners asserting rights in their drugs. Further, innovators in the 

biotechnology and pharmaceutical industries consider patent protection far more important to their R&D efforts than do the information technology industries. The 

challenge is to craft a unitary patent law that can accommodate the very different 

needs of each of these important industries. 

Because patents are so important to a large group of stakeholders, and those 

stakeholders have such diverse interests, it may not be possible to get universal 

agreement on all aspects of a comprehensive reform bill. A workable bill will necessarily involve compromises, and won’t leave everyone happy. That is not a reason 

to abandon the effort. It is important that something be done to improve patent 

quality and reduce patent lawsuit abuse. Rather, it suggests the need to take measured steps towards reforming the system. 

In the sections that follow, I discuss a number of proposed reforms. I have also 

attached copies of two short papers with ideas for dealing with both problems, one 

entitled ‘‘What To Do About Bad Patents’’ and co-authored with Doug Lichtman at 

the University of Chicago and Bhaven Sampat at Columbia, and the other a speech 

I recently gave entitled ‘‘Ten Things To Do About Patent Holdup of Standards (And 

One Not To).’’ Some of the ideas in those papers are reflected in pending or proposed 

legislation; other ideas may be worth thinking about as the patent reform effort continues. 

PUBLICATION AND POST-GRANT OPPOSITION

Summary: Requiring publication of all patent applications and creating a post-grant 

opposition system are important changes that will improve the patent system. 

The first goal of patent reform should be to ensure that the procedures in the Patent and Trademark Office are adequate to identify and weed out bad patents when 

it is cost-effective to do so. Two proposed changes will help. 

First, it is extremely important that the patent system require prompt publication 

of all U.S. patent applications. Section 122(b) currently permits some patent applications to avoid publication, with the result that some applicants can conceal their 

invention from the public for years. Those applicants can then take a mature industry by surprise when the patent issues. Requiring publication of all applications 18 

months after they are filed will put the public on notice of who claims to own particular inventions, allowing companies to make informed research, development and 

investment decisions. 

Second, post-grant oppositions are a valuable addition to the patent system that 

will help identify and weed out bad patents without the cost and uncertainty of litigation. The post-grant opposition bill is well-written and will significantly improve 

the patent system. 

38

The best approach is one that permits a post-grant opposition to be filed either 

within 9 months after a patent issues or within 6 months after the opposer is notified of infringement, whichever comes later. The addition of the second, 6-month 

window has been controversial in some circumstances, but it is critical to the success of the post-grant opposition procedure. Because of the long timelines associated 

with many patents, and the fact that those engaged in patent holdup often wait for 

years after patents issue before asserting them, limiting opposers to a 9-month window after the patent issued would render post-grant opposition ineffective for the 

majority of patents. An example is pharmaceutical patents. Because of the long FDA 

approval process, potential generic manufacturers will likely have no idea at the 

time a patent issues whether the drug it covers will survive clinical trials and be 

approved for sale. By the time they know which patents are actually important, it 

would be too late to oppose them. This problem extends to other industries as well. 

Submarine patentees and other trolls often sit on patent rights for many years before asserting them against manufacturers. In order to take advantage of the ninemonth window, those manufacturers would have to guess which of the millions of 

patents in force might become important a decade from now. Since only 1% of patents are ever litigated, forcing them to make such a guess would make the system 

worthless to most of the people who would use it. 

Including a second window for defendants who were not on notice of the patent 

when it issued seems an appropriate way to solve this problem. This gives a short 

period in which to oppose patents once they are brought to a company’s attention, 

without permitting undue delay. 

DAMAGES: REASONABLE ROYALTY AND WILLFULNESS

Summary: Changes to the entire market value rule in reasonable royalty damages 

and limitation of willfulness claims are both important steps that will help deal 

with serious problems in the patent system. The reasonable royalty portion of 

H.R. 2795 does not need any modification. The willfulness provision of that bill 

improves the current law in certain respects, but could be made better still. 

Reasonable Royalties. The reasonable royalty provisions in the existing law create 

significant problems in those industries in which patented inventions relate not to 

an entire product, but to a small component of a larger product. Because courts have 

interpreted the reasonable royalty provision to require the award of royalties based 

on the ‘‘entire market value,’’ juries tend to award royalty rates that don’t take into 

account all of the other, unpatented components of the defendant’s product. This in 

turn encourages patent owners in those component industries to seek and obtain 

damages or settlements that far exceed the actual contribution of the patent. There 

are numerous cases of just this problem occurring. Most notably, there are hundreds 

of ‘‘essential’’ patents covering proposed new standards for third-generation wireless 

telephones. Carl Shapiro and I have an empirical study of this ‘‘royalty stacking 

problem’’ in progress right now. As originally drafted, H.R. 2795 solves this problem 

by encouraging the courts to consider the contribution of other elements of the invention. 

There seems to be consensus that reasonable royalty damages should be limited 

to the share of a product’s value that comes from the invention, and that patentees 

should not be able to capture value they did not in fact contribute. The only question is how to get there. H.R. 2795 does so in a straightforward way, by requiring 

courts to determine the value of the ‘‘inventive component’’ of the product. A proposed ‘‘Coalition Draft’’ of HR 2795 circulated in the fall of 2005 would make a 

seemingly small change, from ‘‘inventive component’’ to ‘‘component of the claimed 

invention.’’ Unfortunately, this change could have the unfortunate consequence of 

allowing patentees to manipulate their damages by changing the way they claim 

their invention. For example, the inventor of the intermittent windshield wiper 

could claim the wiper alone, or alternatively could choose to claim a car including 

an intermittent windshield wiper. The invention is the same, and the patentee 

shouldn’t be able to capture more money by phrasing the claim in the second way 

than the first. But the coalition draft may produce just such an effect, since the 

‘‘claimed invention’’ is literally the whole car and not just the windshield wiper. 

Willfulness. The doctrine of willfulness is a mess. Over 90% of all patent plaintiffs 

assert willful infringement, even though most of the defendants in those cases developed their products independently and had never heard of the plaintiff or its patent. 

Patent law currently punishes not just those who copy from the patent owner but 

also these independent developers. But independent developers are not ‘‘willful’’ in 

any ordinary meaning of the term. Rather, the way the courts have interpreted patent law has created a bizarre game. By sending a carefully crafted letter, patent 

owners can cause companies to have to obtain written opinion letters and waive the 

39

attorney-client privilege, and if they don’t can declare them willful infringers for 

continuing to sell products they designed in good faith and without knowledge of 

the patent. It is important to clean up the willfulness doctrine. [While some have 

proposed eliminating it altogether, I think that goes too far. Enhanced damages for 

willfulness serve as an important deterrent in those cases where the defendant really does steal the technology from the patent owner.] 

H.R. 2795 makes two important changes that reduce the abuse of willfulness. 

First, it requires a letter that puts the defendant on notice of a patent to be sufficiently specific that a defendant can file a declaratory judgment action asserting its 

innocence. This should reduce the casual, off-hand sending of such letters. Second, 

by requiring the pleading and litigation of willfulness only after a defendant has 

been found to infringe, H.R. 2795 eliminates many of the harms associated with the 

court’s reliance on advice of counsel, because the defendant will not have to decide 

whether to waive the privilege until after the primary trial has ended. Further, by 

requiring bifurcation of willfulness, the bill simplifies the patent litigation process 

by separating out discovery as to willfulness and eliminating the need for that discovery in the cases where the patent is ultimately held invalid or not infringed. 

[Once this bifurcation occurs, the same jury that determined validity obviously cannot make the delayed willfulness determination. The sensible way to solve this problem is to make willfulness a question for the district judge, just as the damage enhancement for willfulness already is.]. 

However, H.R. 2795 as currently written leaves intact the opinion letter ‘‘game’’

for many patent lawsuits. Because a defendant’s only defense to willfulness under 

the statute is the existence of ‘‘an informed good faith belief’’ in invalidity or noninfringement, defendants are as a practical matter extremely likely to decide they 

have to obtain an opinion, rely on the advice of counsel, and therefore waive the 

attorney-client privilege. This waiver distorts legal advice in difficult ways, making 

settlement more difficult. See Mark A. Lemley & Ragesh K. Tangri, Ending Patent 

Law’s Willfulness Game, Berkeley Tech. L.J. (2003). 

This problem could largely be solved if defendants could rely on strong (though 

ultimately unsuccessful) arguments to avoid a finding of willfulness. To do this, section 284(b)(3) of H.R. 2795 should be modified by adding after ‘‘under paragraph (2)’’

the following: ‘‘if the infringer offered an objectively reasonable defense in court or’’. 

This would make either an objectively reasonable argument or a subjectively good 

faith belief grounds for avoiding willfulness. It makes little sense to conclude that 

defendants are acting willfully if the case was a close one. Adding an objective reasonableness defense would permit defendants who think they have a strong argument to rely on that argument, rather than having to waive privilege. 

INJUNCTIVE RELIEF

Summary: Injunctive relief is an important part of the patent right, but it is subject 

to abuse in certain situations. It is important to preserve the right of injunctive 

relief in the case of legitimate patent claims, while preventing those who abuse 

the system from using the threat of injunctive relief to extort money from legitimate innovators. H.R. 2795 takes a step in the right direction by giving courts 

the power to stay injunctive relief pending appeal where doing so wouldn’t harm 

the patentee. It takes another step in the right direction by explicitly introducing 

fairness concerns, but it is important that those concerns be determinative only 

in limited contexts and that injunctive relief be available in the normal case of 

patent infringement. 

The goal of any revision to the injunctive relief sections of the patent law should 

be to ensure that people who actually need injunctive relief to protect their markets 

or ensure a return on their investment can get it, but that people can’t use the 

threat of an injunction against a complex product based on one infringing piece to 

hold up the defendant and extract a greater share of the value of that product than 

their patent warrants. 

Section 283 of the Patent Act by its terms provides the tools needed to achieve 

this goal: district courts are granted the discretion to decide whether and under 

what circumstances to issue patent injunctions. The statute provides that courts 

‘‘may’’ grant injunctions once infringement is found, but only ‘‘in accordance with 

principles of equity’’ and ‘‘on such terms as they deem reasonable.’’ 35 U.S.C. § 283. 

Those principles of equity are well-established in a long line of cases, both from this 

Court and from the regional circuits. See, e.g., Weinberger v. Romero-Barcelo, 456 

U.S. 305, 312 (1982) (setting out the four equitable factors to be considered in granting injunctive relief: (i) whether the plaintiff would face irreparable injury if the injunction did not issue; (ii) whether the plaintiff has an adequate remedy at law; (iii) 

whether granting the injunction is in the public interest; and (iv) whether the balVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00043 Fmt 6633 Sfmt 6621 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
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ance of hardships tips in the plaintiff’s favor); see also Mueller v. Wolfinger, 68 F. 

Supp. 485, 488 (D. Ohio 1946) (applying the factors under predecessor to Section 

283). Before the creation of the Federal Circuit, regional circuits applied these principles, and occasionally denied permanent injunctive relief to patent owners based 

on their application of traditional equitable principles. See, e.g., Foster v. Am. Mach. 

& Foundry Co., 492 F.2d 1317, 1324 (2d Cir. 1974); Vitamin Technologists, Inc. v. 

Wisc. Alumni Res. Found., 146 F.2d 941, 956 (9th Cir. 1945); City of Milwaukee v. 

Activated Sludge, Inc., 69 F.2d 577, 593 (7th Cir. 1934). 

Unfortunately, the Court of Appeals for the Federal Circuit has effectively read 

the terms ‘‘may’’ and ‘‘in accordance with principles of equity’’ out of the statute. 

In no case in the last twenty years has the Federal Circuit permitted a district court 

to apply its equitable powers to refuse a permanent injunction after a finding of infringement.1 Indeed, the court’s grant of permanent injunctive relief is so automatic 

that it rarely even recites the equitable factors any longer, relying instead on an 

all-but-conclusive presumption that injunctive relief is appropriate. In this case, for 

example, the Federal Circuit made it clear that a district court had the power to 

deny injunctive relief only in exceptional circumstances. MercExchange, LLC v. 

eBay, Inc., 401 F.3d 1323, 1339 (Fed. Cir. 2005). Further, the only exceptional circumstance the court identified was one involving imminent danger to public health, 

in which case the court suggested it might be appropriate to consider the public interest in access to the invention. While the Supreme Court is considering that case 

at this writing, there is no guarantee they will interpret the statute as it was actually written rather than as the Federal Circuit has done. 

Holdups occur on a regular basis under the Federal Circuit’s mandatory-injunction standard. Patentees can obtain revenue in excess of the value of their technology by threatening to enjoin products that are predominantly noninfringing and 

in which the defendant has already made significant irreversible investments. In 

numerous cases, the parties settle for an amount of money that significantly exceeds 

what the plaintiff could have made in damages and ongoing royalties had they won. 

In these cases it is not the value of the patent but the costs to the defendant of 

switching technologies midstream that are driving the price. For example, one patent owner charges a 0.75% royalty for patents that don’t cover industry standards, 

and 3.5% for patents that do cover industry standards. Mark R. Patterson, Inventions, Industry Standards, and Intellectual Property, 17 Berkeley Tech. L.J. 1043, 

1059 n. 61 (2002). The patent owner can demand nearly five times as much money 

once the industry has made irreversible investments in a particular technology. 

Many other patent owners report settling their cases for dollar amounts significantly in excess of what they could have won in royalties. The windfalls to the patentee in these cases stem from the ability to threaten to shut down the defendant’s technology altogether. 

Holdup is of particular concern when the patent itself covers only a small piece 

of the product. A microprocessor may include 5,000 different inventions, some made 

by the manufacturer and some licensed from outside. If a microprocessor maker unknowingly infringes a patent on one of those inventions, the patent owner can 

threaten to stop the sale of the entire microprocessor until the defendant can redesign its product and retool its plant to avoid infringement. Small wonder, then, that 

patentees regularly settle with companies in the information technology industries 

for far more money than their inventions are actually worth. Defendants are paying 

holdup money to avoid the threat of injunctive relief. That’s not a legitimate part 

of the value of a patent; it is a windfall to the patent owner that comes at the expense not of unscrupulous copyists but of legitimate companies doing their own research and development. 

Explicit consideration of principles of equity would give the courts the tools they 

need to deal with this problem. Patent owners who do not manufacture the patented 

or any other competing good, and who seek only to license their invention at a reasonable royalty, should be entitled to injunctive relief only if they would be irreparably injured by the infringement. If the patentee has an adequate remedy at law, 

that fact properly weighs against granting injunctive relief. Those equitable principles would also permit courts to consider the balance of the hardships, so that the 

ordinary grant of injunctive relief can be avoided where it would have significant 

negative consequences and little affirmative purpose, as in the case of the 5,000-

component invention. At a minimum, courts should delay the entry of injunctions 

pending appeal in order to give the defendant a chance to implement a designaround if in fact they can do so without infringing the patent. 

I should be clear that the application of equitable principles would not mean that 

injunctions are generally problematic. Injunctive relief is an important part of the 

patent law, and in most cases there will be no question as to the patentee’s entitlement to such relief. To begin, equity warrants an injunction absent extraordinary 

41

circumstances if the patentee practices the patent in competition with the accused 

infringer. Even if the patentee doesn’t sell the patented product, if it sells a different 

product in the same market, equity should entitle it to an injunction to prevent an 

infringer from competing with the product it does sell. Similarly, if patentees assign 

or exclusively license the patent to someone who competes in the marketplace, they 

should also be entitled to injunctive relief under normal circumstances. And even 

if the patentee hasn’t done these things in the past, if it is actively engaged in research and development and preparing to do so in the future equity might well support injunctive relief. Patentees also ought to be entitled to an injunction in cases 

where the defendant copies the idea from the patentee, even if the patentee is not 

participating in the market and has no plans to do so. Infringers shouldn’t be able 

to copy an invention from the patentee, knowing that if they are caught they will 

still only have to pay a royalty. Even if none of these things are true, some injunctions won’t lead to a risk of holdup, and so even patentees who don’t meet any of 

the criteria listed above will often be entitled to an injunction. This is the virtue 

of equitable discretion—courts can grant injunctions when they are warranted, without being bound to grant them when they create more problems than they solve. 

The grant of discretion in the statute should be coupled with legislative history 

making it clear that injunctive relief is the normal remedy and will be available in 

the circumstances just described. Doing so will help to avoid the risk that other 

countries will seize upon our equitable doctrines to try to inappropriately limit patent rights. 

Permitting stays will further help solve the problem of holdup by threat of injunctive relief. Confirming the equitable power of courts to stay injunctions is a good 

idea. It will give companies time to retool their factories to avoid infringement. At 

the same time, the irreparable harm limitation ensures that patent owners that actually need injunctive relief, like pharmaceutical companies litigating against 

generics, will be entitled to get it. 

VENUE

Summary: Some limitation on venue in patent cases is desirable. 

Patent cases, unlike general federal civil cases, can today be brought anywhere 

a patented product is sold or used. In practice, this means that they can be brought 

in any district in the country. Patent plaintiffs (and declaratory judgment plaintiffs 

too) engage in forum-shopping, seeking a location perceived as most favorable to 

their side. 

There is no reason the law should permit such forum shopping. A rule that allowed the plaintiff to sue in either its home forum or the defendant’s home forum 

would give ample consideration to the plaintiff’s interest in convenient adjudication 

while reducing the worst abuses. Such a rule wouldn’t solve the forum-shopping 

problem entirely—one can imagine patent litigation companies setting up shop in 

a favored jurisdiction in order to take advantage of that forum—but it will help. 

1 The Federal Circuit occasionally affirms a refusal to grant preliminary injunctions, see Hybritech Inc. v. Abbott Laboratories, 849 F.2d 1446, 1458 (Fed. Cir. 

1988), or to enter injunctions when the patentee has failed in some other aspect of 

proof, see Odetics, Inc. v. Storage Tech. Corp., 185 F.3d 1259, 1273 (Fed. Cir. 1999) 

(patentee committed laches, and could not enjoin products produced during the period of its laches). But not since the 1984 decision in Roche Products Inc. v. Bolar 

Pharmaceuticals Co., 733 F.2d 858, 866 (Fed. Cir. 1984), has it refused to enter a 

permanent injunction because of considerations of equity.

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Mr. SMITH. Mr. Dudas, let me direct my first question to you. Everyone in this room has probably read a number of articles about 

the RIM case, the BlackBerry case. And I would like for you to respond to a couple of points that Mr. Balsillie made and that I 

would make, and that is the impression that we have had from 

reading these articles and looking at the case is that the Patent 

and Trademark Office issued patents that were questionable, and 

then when it came to the reexamination of some patents did not 

act with dispatch. 

Would you respond to those points? 

Mr. DUDAS. Certainly. I think one of the points about reexamination is it shows largely that the process does work in that—— Mr. SMITH. Because it cost BlackBerry over a half a billion dollars to learn that lesson. 

Mr. DUDAS. If you look at reexaminations, it gives you an opportunity to challenge a patent that the Patent and Trademark Office 

has issued. So I think philosophically, it is something we think post 

grant is better. On special dispatch, I think it is unacceptable to 

be taking the amount of time that the office had taken just 3, 4 

years ago, where it took 4 years before we even touched an action. 

I testified before this Subcommittee that that was going to 

change, that we were going to make certain we had an action on 

every case before 2 years. We were able to do that I think special 

dispatch has real meaning now. 

The special reexamination unit not only increases quality, it increases consistency. In some cases we are taking 30 times the 

amount looking at reexamination. Professor Lemley had a good 

point, there is a difference between 408,000 applications that come 

in that you have to deal with every single one of those in an appropriate manner, or looking at 540, where someone says we have a 

substantial question. But I will also point out there is an excellent 

point on anyone’s part, we should have these done. We believe we 

will be able to get them done eventually within 20 months very 

soon. 

But the other thing to look at as well is the responsibility of the 

patent applicant who is involved in a reexamination and the responsibility of the requesters. There are many cases where the request for reexamination did not come upon a notice letter, it did 

not come upon being sued, it did not come upon losing a motion to 

dismiss. But the reexamination question is not coming in until 

after that case is lost in court, there is a finding of damages and 

it goes forward. 

If the request comes in sooner, we certainly would be able to get 

it done sooner. Judges are less likely—the evidence shows both in 

terms of policy, and in fact—judges are less likely to stay cases 

once a full decision has gone through a full discovery and a full decision has been made. That is an issue, I think, where there is responsibility across the board. I think we can give folks a stronger 

sense that the Patent and Trademark Office is doing a better job 

which makes us a more viable alternative. 

Mr. SMITH. Mr. Balsillie are you at least partially reassured by 

those remarks? 

Mr. BALSILLIE. Yes, I am. I think the improvements in the Patent Office are appropriate. And we support them. And I think they 

59

are making some positive directions. And it is too easy to make the 

Patent Office a scapegoat. Some of the things that I have experienced is that we think when there is reexaminations, there needs 

to be clarity also to the courts, just what is the strength of the patents and what is the strength of the reexamination rulings? 

In our case, all of the final office actions, rejecting all of the 

claims and yet that had no weight in injunctive relief, so there is 

a special dispatch element, but there is also an element of waiting 

and quality that the court should be guided in this case as well. 

Mr. SMITH. Thanks. Mr. Dudas, one more question I have actually been waiting weeks to ask you this. Let’s assume that we 

agree that you could be doing a better job when enforcing the nonobvious standard. 

And I think you would agree that we would hope that courts, district courts would be a little more strict in how they interpret the 

nonobvious standard. This is not a issue that was called to my attention, but this is a paper napkin ring that is the kind typically 

wrapped around napkins of plastic wear, you know rectangular 

piece of paper with a little glue on one end. 

This was patented many years after it allegedly was being used 

informally. This to me may be an example of a patent that was obvious rather than nonobvious. And I don’t know the origin of this, 

but to me, this has always seemed a little bit like the peanut butter and jelly sandwich that is being patented, and an example, perhaps, of how we can do a better job along the process. 

Do you have any comments on that? 

Mr. DUDAS. Absolutely. I will comment more generally, and then 

I will get specifically to that. 

Mr. SMITH. Be very quick. 

Mr. DUDAS. I will get specific. There is a concern—it is certainly 

frustrating to some examiners when they feel that they have a 

finding of obviousness, and they need to show something more specifically. We don’t want to have willy nilly discussions of obviousness, et cetera. But there is no question we share the same goals 

as the Federal circuits and the courts that have given us guidance, 

which is to not do too much second-guessing. At the same time, we 

do think it is a worthy area to be looking into. 

Mr. SMITH. Thank you, Mr. Dudas. I will have additional questions after the other Members have asked their questions. The gentleman from California, Mr. Berman. 

Mr. BERMAN. Thank you. I would like to pick up on the issues 

raised by the Chairman’s initial question, and your response, and 

I would like to ask, Director Dudas, would you prefer to be Secretary Dudas, which is better? I don’t know. But I would like to ask 

you, and then I would like to ask Mr. Balsallie to comment, and 

Professor Lemley, if he would, an issue that has come up that you 

now just discussed, at least I wasn’t aware of until last fall, is this 

issue on inter partes reexamine, where we spoke about the effect 

of instituting an inter partes after a decision of the District Court. 

So what I would like to know at this point is what do you believe 

the effectiveness of a PTO review, which finds a patent invalid, 

should be on a district court decision during various trial phases? 

If the PTO is in the middle of the review and the court is in the 

middle of the liability phase, should the court stay the proceeding? 

60

What if the court is in the damages phase, what if the PTO has 

made a decision that the patent is invalid? What should be the effect on the liability or damages phase? And should those same conclusions apply in where it is an ex parte reexamination proceeding? 

Also, what should the deference be to the enter party’s decision in 

the district court? And to what extent in all this are you—if what 

the Chairman originally proposed last year in his legislation—we 

didn’t address this issue then, but in the bipartisan bill that he 

proposed, that changed, that provided a better kind of balance on 

the injunction issue and a second window, and a post exam process 

and a second window and made a number of these changes, should 

your answers to these questions, would they be different if that 

were now the law? 

Can you answer these 14 questions? 

That is a continuation process. 

Mr. DUDAS. That is not one question. There are a lot of claims 

as well. But at any rate, the world we live in now, quickly, I will 

answer as director. If any ex partes reexamination upon being 

filed, we will follow through its conclusion regardless of when it’s 

filed. We have no authority to stay that. An inter partes reexamination, we must stay it after a final decision, which means a 

CAFC decision, or a district court decision that hasn’t come forward. 

I agree that——

Mr. BERMAN. But if the district court decision has come down 

finding a patent was valid and infringed, but the other side still 

has time to file a notice of appeal, or is pursuing an appeal—— Mr. DUDAS. We are not estopped. However in that case, we have 

the authority, we believe, under good cause, to stay the proceeding 

within our office, and so as not to waste administrative resources 

while the CAFC makes that determination. We have done that in 

a case that is outstanding right now, and there is an action against 

us in the Eastern District of Virginia suggesting we don’t have that 

authority. We believe we do have that authority. 

The law is fairly clear that we are estopped in an inter partes, 

case after a final decision. It’s also clear under the law, we believe, 

that we must go on in any ex partes reexamination regardless. I 

think the policy should be that there needs to be certainty. There 

shouldn’t be a policy of who goes first. 

I talked to a number of Federal judges about this and off the 

record the discussion has been along the lines of, if the Patent and 

Trademark Office can get a reexamination done within a certain 

amount of time, then they would more likely stay their actions. 

But you are in an exact point. The question becomes, I believe, 

at what point is the reexamination requested? I think there is a 

difference in judges’ minds. There is a difference certainly in our 

minds, from a policy perspective not from under the law, but from 

a policy perspective, if a reexamination is filed before you go to 

court or before the discovery phase versus after a decision has been 

made, findings have been found, et cetera. That looks more like a 

second bite at the apple. And it seems to me, as Under Secretary, 

at this point we need to have clearer rules along those lines. 

I think the same is true for post grant. I think the post grant 

opposition proceeding that we would suggest would have a second 

61

window. It would allow for the PTO to stay an action in the cases— it would only let you in a second window if you had a threat of a 

lawsuit. And I think there are answers to that where judges have 

the opportunity to stay and the PTO does. There is a lot more to 

this answer. I know my time is up, but the key is when is that requested. But I do think certainty will help. 

Mr. BALSALLIE. In the case of Research in Motion, it’s really a 

real-life case. It is not a hypothetical case. And when you look at 

the wireless system that we employ, in our preliminary searches of 

the Patent Office, there is approximately 1.1 million patents that 

apply to our wireless system. Now, if you applied 2 to 3 dozen average claims, that means we have 30 million approximate claims that 

could apply against BlackBerry. And it takes one claim to shut 

down the whole system. That is what I call Russian Roulette. 

And then you come at us and then what happens is with that 

Russian Roulette, somebody is holding a gun to your business, and 

has the ability—— Mr. BERMAN. Worse than Russian Roulette. 

Mr. BALSALLIE. I am trying to be polite, but there is no limit on 

what they can ask. For they can ask for $612 million and my kidney. So there is no limit. And that is Russian Roulette and worse. 

And then you have—and so definitely, when somebody is not 

practicing, they are not furthering the arts. And this doesn’t prejudice innovators, and it doesn’t prejudice those that sell products. 

And there is a contradiction between somebody wanting to be protected with irreparable harm, but really, all this want is money. 

And there is no harm done in just prescribing a royalty and keep 

it in, keep it paid and just keep it in escrow. There is no irreparable harm. 

And in terms of the reexamination process, I have yet to understand why the patent—injunction is a blunt instrument. And the 

only place where it is used almost absolutely is in the patent process. 

Yet, it’s this broad system with tens of millions of claims. 

It doesn’t bear any relation to what would protect the society and 

furthers innovation. It’s an anomaly. And in our case, we actually, 

they actually did find office actions. They actually did their job. It 

was done. It was in three cases. And what is ironic is we were 

stayed as the primary inventor, so we are being shut down for 

something the Patent Office said shouldn’t have been issued, and 

we are the inventor and the courts gave no weight to it. And in 

fact, there was some joking by the courts that if we stop wireless 

e-mail, it won’t be ‘‘the end of the free world.’’ yet I thought it 

wasn’t about the end of the free world, it was about a balance of 

equities. 

Mr. SMITH. Thank you, Mr. Balsillie. Let me go back to a couple 

of questions that I had, and give you all a chance to respond as 

well. 

I have an intervenor here. I didn’t see you until right now. Welcome back, and the gentlewoman from California is recognized for 

her questions. 

Ms. LOFGREN. Thank you, Mr. Chairman. There are so many 

questions, but I think I just like each of the witnesses to comment 

on a back end, if you will, question, with respect to injunctions. We 

62

have been, the three of us and several other Members have been 

working through these issues in public hearings, in discussions, in 

various forms and formats throughout this Congress, and one of 

the things that I have been told, and I would like you to comment 

on, is that in the area of patent litigation, once there has been an 

ajudication of infringement, an injunction is awarded against the 

infringing party in virtually every instance, which is very different 

from other types of litigation where it is more difficult to get injunctive relief. And I think that is exactly the issue that is before 

the court today on the Merck exchange eBay case, and I don’t think 

it would be appropriately necessary to talk about that one case. 

But I am interested in, one of the prongs of the injunction standard is ordinarily the prospect of irreparable harm, harm that can’t 

be made whole by a monetary award. And it seems to me in a situation where a patentee does not compete in the same line of business as the infringing party, what could the irreparable harm be 

that couldn’t be made whole by a monetary award? And what is the 

theory of irreparable harm in that case? 

And I think probably this had a lot to do with the RIM case and 

perhaps, Mr. Balsallie, I hope I am not mispronouncing your name, 

but I am particularly interested in NTP’s theory of irreparable 

harm for injunction as well as, certainly, Professor Lemley. I appreciate you have come all the way from Stanford to be here today. 

I make that trip every week, so I know it is not easy to do. 

Mr. BALSALLIE. Very briefly, because Professor Lemley certainly 

has great background in this, and I would say that we were puzzled because they put forward that all they wanted was money, but 

they wanted an irreparable harm remedy. And it was really to extract more leverage than due the value of the patent. It was never 

clarified. They never answered why. It was just an automatic. They 

didn’t practice anything, any innovation, they didn’t further the 

arts. One of their patents was issued, they filed a suit, it was 

issued well after BlackBerry had been in the market through continuation. So, I mean, I am at a complete loss to give you any understanding as to why that instrument was used. 

Mr. LEMLEY. The existing statute says, courts may grant injunctions in accordance with principles of equity, which seems to suggest that courts and patent cases ought to do exactly what they do 

in copyright cases, in real property cases, in personal property 

cases, which is considered irreparable harm, balance of the hardships and so forth. But the Federal circuit, over the last 20 years, 

has kind of drifted into a rule that really is, I think, unique to patent cases, which is an absolute entitlement to injunctive relief once 

the patent has been found invalid and infringed. 

I think that is a mistake. Now let me be clear. I think injunctions are normally the right remedy. They are the right remedy 

where you have somebody competing with the patent owner, 

whether or not the patent owner is practicing the same invention. 

I also think they are the right remedy where the defendant engaged in copying from the patent owner. You shouldn’t be able to 

copy and then continue using the technology. 

But, I think it is important for this Committee to emphasize that 

the traditional principles of equity and the ability for district courts 

to sort of think through the question of whether injunctive relief 

63

is appropriate, in any given case, really is and ought to be an important part of the patent system. 

Mr. LEMLEY. At the eBay hearing last week, counsel for 

MercExchange said, well, you shouldn’t change this rule of absolute 

entitlement to injunctive relief because Congress has already 

thought about changing injunctive relief, and they haven’t acted. 

Ms. LOFGREN. We actually thought about readopting the statute 

we have. 

Mr. LEMLEY. I heard a proposal on the Senate side you ought to 

italicize the word ‘‘may’’ in section 283. I don’t know whether it’s 

possible to italicize something in the United States Code, but that 

is not a bad start. 

Ms. LOFGREN. If I could, I just have a little bit more time. I’m 

interested, Professor, you had—we have heard opponents of the coalition draft talk about the ability of courts to reduce damage 

awards in patent litigation to take account of the portion of an infringing product’s value contributed by nonpatent components, and 

I have heard from proponents that the current law does not actually accomplish this, in part because of the deficiencies we all agree 

need to be addressed at the front end. 

Can you talk just briefly about your view of inventive contribution rather than whole claims under current law? 

Mr. LEMLEY. Yes. The current law, like in the injunction context, 

at least nominally gives you the ability to deal with this problem 

because it allows courts to take into consideration all of the other 

nonpatented components of the invention. The problem is courts 

don’t generally do so, or at least they don’t do so to a significant 

extent. 

I’m producing an empirical study on this issue right now. What 

we find is they reduce damages a little bit as royalty percentage 

in component industries, but not by very much; in fact, so little 

that on average a component product would have only 1.3 or 1.4 

components in it. That’s, of course, not true. 

You could solve this problem theoretically in the courts if you 

could get the courts to really take all of this into account, but it’s 

hard to do so, and so I think actually encouraging them specifically 

to consider this in the statute by focusing on the inventive contribution that is the subject of the patent and how it relates to the 

broader product will get us damages numbers that are in line with 

the patentee’s actual contribution, which is what I think we want 

at the end of the day. 

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

Mr. SMITH. Thank you. 

Let me return to a subject that is a part of our patent reform 

effort and, Mr. Stewart and Mr. Lemley, ask you about it. This is 

the second window review under the postgrant system. I think all 

of our witnesses support that, as do I, but there are others who oppose the postgrant system because they say that will potentially 

unsettle any patent title, so to speak, and the owner of that patent 

will always be concerned that they may be challenged. What is a 

good response to the concerns of those who oppose the postgrant 

system. Mr. Stewart and Mr. Lemley. 

Mr. STEWART. I agree with the Subcommittee that the postgrant 

opposition is a very effective tool, and the second window is more 

64

so effective. The postgrant opposition, as I think it’s currently situated, gives 9 months after the grant in which you could challenge 

a patent, and EPO has a similar statute on the books. 

This situation with the second window is that typically most 

firms do not monitor competitors’ patents to a large extent, especially in the financial services industry. In addition, when you monitor firms, that opens up a whole another can of worms in terms 

of liability and willfulness and things of that nature. So if you’re 

not monitoring the competitors’ patents that are coming out, you 

don’t have an opportunity to take advantage of that first 9-month 

window, and it’s only when you receive that letter, if you will, or 

that lawsuit or whatever the case may be at a later point do you 

have an opportunity to really look at the patent and actually challenge it in the USPTO and take advantage of the opposition precedent. We’ve had numerous problems with monitoring of competitor 

patents because of some of the willfulness issues you guys have 

tried to address. 

Mr. SMITH. Mr. Lemley. 

Mr. LEMLEY. I think the answer to—what’s a good answer to that 

objection is we already have a system in which you can go back to 

the Patent Office and ask for a reexamination at any time, regardless of how long you wait, and the reason we have that normal reexamination system is we think it’s actually better and cheaper to 

try to get the patent validity sorted out in the Patent Office without having to go through litigation that costs $5 million a side. 

I think of postgrant opposition as a sort of improvement in the 

reexamination process. It’s not and shouldn’t be full-fledged litigation, but it ought to be something more and have more involvement 

than a regular reexamination system. And then it seems to me to 

be reasonable to say not, as we do with regular reexam, you can 

bring it at any time, but you can bring it within a few months after 

you find out about the patent. 

That can happen either because the patent issued, I think, in the 

pharmaceutical industry—everybody is going to know about these 

patents on basically the day they come out, so second window 

maybe isn’t so necessary. But in the IT industry and the financial 

services industry, as Mr. Stewart indicates, people don’t find out 

about these patents until years later, or they may read them and 

not have any idea that they are going to be asserted against a different technology three generations down the line. Giving a limited 

period of time in which to go to the Patent Office and short-circuit, 

if we can, patent litigation is the right thing to do. 

Mr. SMITH. Thank you, Professor Lemley. 

Mr. Dudas, I’d like to propose a question actually from a constituent of mine, but it bears on some of the subjects at hand. RIM 

is upset that the reexamination of the NTP patents were not conducted with special dispatch as the Patent Act requires. I have also 

heard this is the constituent patentee who has been stuck in a 

reexam proceeding for nearly 6 years. As an act of fairness he suggested we require the office to add day-for-day term extension to 

any patent that is the subject of reexamination when that proceeding has not concluded after 2 years. In other words, if the office 

has not made a final determination after 2 years, the patent will 

65

receive additional term protection for each day thereafter. What’s 

wrong with that idea, if anything? 

Mr. DUDAS. The first thing that is wrong is that the reexamination has taken 6 years. I’m not aware; I can follow up to find out 

a little bit about that. We have gotten an action on every reexamination pending over 2 years. I don’t know if this involves appeals 

or whatnot, but we have to make certain that’s not a case where 

people are involved in reexaminations for 6 years unless it’s caused 

by their own actions. 

The question about patent term extension, I think that is probably not the right answer, because even pending before reexamination, your patent is valid, determined valid, still has a presumption 

of validity, et cetera. The patent term extension we have now says 

if the office takes too long, and you don’t yet have your patent 

rights, you’re losing under a 20-year filing term, so we’ll give that 

back to you. But under the patent reexamination, the patent is still 

valid and can still be held. 

I think this is an excellent opportunity, and I will invite the oversight of the Subcommittee to make certain that I make good on the 

pledges I have made that we are going to get these things done 

more quickly. I think patent term extension might skew the incentives. 

Mr. SMITH. Thank you, Mr. Dudas. 

Any other questions? 

The gentleman from California. 

Mr. BERMAN. Thank you, Mr. Chairman. 

I want to give Professor Lemley a chance to answer my initial 

questions, if I could. I also have another question, but I just have 

to follow up on something. 

Are you saying that in your case your opponents ended up 

through the continuation process filing or refining or changing a 

patent claim after your product was already out in the market, and 

that patent, that refined patent, became the basis for the finding 

of infringement? 

Mr. BALSILLIE. That was all but one of the claims in our case, 

yes. And the patent was issued long after our product was in the 

market, and then they sued us the day it was issued. 

Mr. BERMAN. Was the refinement made after your product 

was——

Mr. BALSILLIE. Yes, it was. 

Mr. BERMAN. They knew what you were doing. 

Mr. BALSILLIE. In fact, I’ll even tell you we disclosed the work 

route to them, and they filed continuations on that work route. Absolutely. You bet. 

Mr. BERMAN. Mr. Lemley. 

Mr. LEMLEY. Just to emphasize, that is actually one of the most 

problematic abuses of the continuation process is the use to identify something that your competitors come up with and change 

your patents to do it. 

Just briefly on the question of staying litigation pending reexam, 

I agree with Director Dudas on this, there are reexams filed because people actually want to get the patent’s validity determined 

early on, and there are reexams filed for strategic reasons late in 

litigation because there is no real cost to doing so. 

66

It seems to me the courts, I think, are, generally speaking, getting it right, staying the litigation if you file your reexam early, not 

staying the litigation if you’re filing your reexam late just as a strategic matter. That seems to me the right result. 

Mr. BERMAN. What about after—what if the, quote, infringer has 

lost a judgment and then asserts reexam? 

Mr. LEMLEY. That seems to me sort of very late. If you wait until 

you have already got your day in court, and then you’re going to 

the Patent Office and saying, I want to use a process that’s designed to be less expensive and avoid having to go have my day in 

court, that’s maybe not the way we want the system used. 

Mr. BERMAN. Director Dudas, we talked at one point about the 

issue of quotas for examiners and this whole issue of—is there a 

disservice in having quotas which keep a patent examiner from 

spending more time on a particularly complicated case, and has 

there been any discussion about the wisdom of that in the office? 

Mr. DUDAS. Absolutely, vast discussion. The bottom line is more 

time on a patent application, more time will lead to higher quality. 

I don’t think it’s necessarily a one-to-one relationship. All this, 

though, relies on a balance of 408,000 applications, we have to be 

able to examine. Right now we examine all claims in every application, and hiring 1,000 examiners a year at an 8 percent rate, we 

never actually get to the point where we’re turning the tide on 

pendency. Very important, not saying we get it to an ideal point, 

but turning the tide. A reexamination is very much like that. There 

are not time limits. If it takes 30 times the amount of time, we 

take 30 times the amount of time. 

One of the things that we are considering, big ideas, is should 

we be examining every single claim and every single application. 

And one of our rules actually suggests let’s at least look at a couple 

first, and then we can possibly look at all the rest later unless you 

abandon some of them. Even further down the line, talk about having a more robust examination for some applications. 

Mr. SMITH. Thank you, Mr. Berman, Mr. Dudas. 

We are going to vote, and as a result we’ll need to adjourn the 

Subcommittee. But thank you all for your testimony today. It has 

been very, very helpful. So we will stand adjourned. 

[Whereupon, at 6:01 p.m., the Subcommittee was adjourned.] 

(67)

A P P E N D I X 

MATERIAL SUBMITTED FOR THE HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE

IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

Mr. Chairman, 

I believe this may be the sixth hearing on patent reform this Congress. I must 

thank the Chairman for his hard work in highlighting the need for patent reform 

this Congress. He brought together a large coalition of bi-partisan members to support a patent reform bill and managed to almost achieve consensus among the different party interests. However, I wonder about the benefits of pursuing further 

hearings on the identical issues we discussed last year if there are few new ideas 

being proposed and no further clarity about which legislative approaches this subcommittee should follow regarding patent reform. I am concerned that merely discussing the issue without any movement on a legislative proposal will further entrench the parties in their respective positions. The recent cases which have been 

settled (NTP/BLACKBERRY) or have been granted cert by the Supreme Court 

(EBAY/MERCEXCHANGE) demonstrate that the time to address these issues is 

sooner rather then later. 

Past attempts at achieving more comprehensive patent reform have been met 

with resistance. However, the call for legislative action is loud. The New York Times 

has noted, ‘‘[s]omething has gone very wrong with the United States patent system.’’

The Financial Times has stated, ‘‘[i]t is time to restore the balance of power in US 

patent law.’’ Therefore, today, Congressman Boucher and I have introduced a narrowly tailored patent quality bill to address some of the more urgent concerns. 

Once again, I firmly believe that robust patent protection promotes innovation. 

However, I also believe that the patent system is strongest, and that incentives for 

innovation are greatest, when patents protect only those patents that are truly inventive. When functioning properly, the patent system should encourage and enable 

inventors to push the boundaries of knowledge and possibility. If the patent system 

allows questionable patents to issue and does not provide adequate safeguards 

against patent abuses, the system may stifle innovation and interfere with competitive market forces. 

High patent quality is essential to continued innovation. Litigation abuses, especially those which thrive on low quality patents, impede the promotion of the 

progress of science and the useful arts. Thus, we must act quickly during the 109th 

Congress to maintain the integrity of the patent system.

PREPARED STATEMENT OF THE INSTITUTE OF ELECTRICAL AND ELECTRONICS

ENGINEERS-UNITED STATES OF AMERICA (IEEE-USA) 

IEEE’s U.S. members are among the most frequent users of the USPTO, and 

therefore we have a compelling interest in ensuring that legal principles governing 

patent policy are consistent. By virtue of the practical experience of its members, 

the IEEE-USA respectfully believes that its views can assist this committee in evaluating the effect of patent reform proposals on technical innovation, especially that 

of independent inventors and small businesses. We support patent reforms that enhance our members’ abilities to secure the patent protection they need, the lack of 

which would adversely affect our country’s competitiveness, economy, and technological advancements. 

IEEE-USA believes that our nation’s global competitiveness and our economy are 

directly tied to the innovations made by inventors of all types, including indeVerDate 0ct 09 2002 13:04 Jun 27, 2006 Jkt 000000 PO 00000 Frm 00071 Fmt 6601 Sfmt 6621 G:\WORK\COURTS\040506\26914.000 HJUD2 PsN: 26914
68

pendent inventors, inventors employed by small businesses, inventors employed by 

research laboratories and universities, and inventors employed by Fortune 500 companies. The historical growth of more than one Fortune 500 company can be traced 

to the success of a startup with a handful of inventors that obtained funding due 

in great part to being able to protect their intellectual property. As such, the voice 

and concerns of the independent inventor and of small business entities must be 

considered along with the voice and concerns of larger entities at all stages of developing and when implementing changes to the patent process. 

We commend the Judiciary Committee’s efforts to explore the complicated issue 

of patent reform. However, IEEE-USA believes that an investigation of patent reform requires Congress to assess all concerns, including those relating to the actions 

of patent infringers and patent trolls. If Congress reacts to concerns about patent 

trolls without assessing the consequences for patent holders who are subjected to 

patent infringers, then Congress might risk implementing bad legislation. 

Patent reform requires the consideration of all viewpoints. Within IEEE’s U.S. 

membership, there is a diversity of views about patent reform. In contrast, witnesses at the Wednesday, April 5, 2006, Judiciary Subcommittee on Courts and Intellectual Property oversight hearing on ‘‘Patent Quality in the Information-Based 

Economy’’ presented a surprisingly unified position. Their testimony focused on restricting either the scope of patent coverage or the strength of patent enforcement 

provisions, without any real consideration of individual patent holders who may 

have valid concerns about losing their rights. In fact, the hearing presented the 

views of a Canadian company (Research in Motion), a Swiss Company (UBS), a legal 

scholar and the Under Secretary of Commerce for Intellectual Property. Many countervailing views, including the views of inventors and small business owners, were 

not presented. 

The IEEE-USA looks forward to assisting the USPTO and Congress in your efforts to improve the efficiency and quality of the patenting process. We believe that 

the subcommittee should hear a representation of all views before deciding on patent reform. More specifically, IEEE-USA believes that the subcommittee should 

hear from U.S. companies and at least one practicing patent attorney (that is not 

directly employed by a single company). 

About IEEE-USA 

IEEE’s U.S. members include inventors, innovators, designers, independent entrepreneurs, small business owners, and employees of firms that acquire, license and 

exploit intellectual property. Their collective efforts promote our nation’s prosperity, 

security, and competitiveness by fostering technological innovation. IEEE supports 

the engineering process of creating, developing, integrating, sharing and applying 

knowledge about electronics, information technologies and physical sciences for the 

benefit of the profession and humanity. 

This statement was developed by the Intellectual Property Committee of the 

IEEE-United States of America (IEEE-USA) and represents the considered judgment of a group of U.S. IEEE members with expertise in the subject field. IEEEUSA is an organizational unit of the Institute of Electrical and Electronics Engineers, Inc., created in 1973 to advance the public good and promote the careers and 

public policy interests of the more than 220,000 electrical, electronics, computer and 

software engineers who are U.S. members of the IEEE. The positions taken by 

IEEE-USA do not necessarily reflect the views of IEEE or its other organizational 

units.

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