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ABUSIVE PATENT LITIGATION: THE IMPACT ON 

AMERICAN INNOVATION AND JOBS, AND POTENTIAL SOLUTIONS 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

COURTS, INTELLECTUAL PROPERTY, 

AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED THIRTEENTH CONGRESS 

FIRST SESSION 

MARCH 14, 2013 

Serial No. 113–13 

Printed for the use of the Committee on the Judiciary 

( 

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

COMMITTEE ON THE JUDICIARY 

BOB GOODLATTE, Virginia, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

SPENCER BACHUS, Alabama 

DARRELL E. ISSA, California 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

MARK AMODEI, Nevada 

RAU ́ L LABRADOR, Idaho 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

JOHN CONYERS, JR., Michigan 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

JUDY CHU, California 

TED DEUTCH, Florida 

LUIS V. GUTIERREZ, Illinois 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

JOE GARCIA, Florida 

HAKEEM JEFFRIES, New York 

SHELLEY HUSBAND, Chief of Staff & General Counsel 

PERRY APELBAUM, Minority Staff Director & Chief Counsel 

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

HOWARD COBLE, North Carolina, Chairman 

TOM MARINO, Pennsylvania, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

LAMAR SMITH, Texas 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

TED POE, Texas 

JASON CHAFFETZ, Utah 

MARK AMODEI, Nevada 

BLAKE FARENTHOLD, Texas 

GEORGE HOLDING, North Carolina 

DOUG COLLINS, Georgia 

RON DeSANTIS, Florida 

KEITH ROTHFUS, Pennsylvania 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

JUDY CHU, California 

TED DEUTCH, Florida 

KAREN BASS, California 

CEDRIC RICHMOND, Louisiana 

SUZAN DelBENE, Washington 

HAKEEM JEFFRIES, New York 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

JOE KEELEY, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 
(III) 

C O N T E N T S 

MARCH 14, 2013 

Page 

OPENING STATEMENTS 

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

of North Carolina, and Chairman, Subcommittee on Courts, Intellectual 

Property, and the Internet .................................................................................. 1 

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

of North Carolina, and Ranking Member, Subcommittee on Courts, Intellectual Property, and the Internet .......................................................................... 3 

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

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

Member, Subcommittee on Courts, Intellectual Property, and the Internet .. 5 

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

of Virginia, and Chairman, Committee on the Judiciary ................................. 6 

WITNESSES 

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

Inc. 

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

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

Janet L. Dhillon, Executive Vice President, General Counsel and Corporate 

Secretary, JCPenney Company, Inc. 

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

Prepared Statement ............................................................................................. 37 

John Boswell, Senior Vice President and General Counsel, SAS Institute, 

Inc. 

Oral Testimony ..................................................................................................... 42 

Prepared Statement ............................................................................................. 44 

C. Graham Gerst, Partner, Global IP Law Group, LLC 

Oral Testimony ..................................................................................................... 49 

Prepared Statement ............................................................................................. 51 

Philip S. Johnson, Chief Intellectual Property Counsel, Johnson & Johnson 

Oral Testimony ..................................................................................................... 55 

Prepared Statement ............................................................................................. 57 

Dana Rao, Vice President of Intellectual Property and Litigation, Adobe Systems 

Oral Testimony ..................................................................................................... 78 

Prepared Statement ............................................................................................. 80 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

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

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts, Intellectual Property, and the Internet ......................... 113 

APPENDIX 

MATERIAL SUBMITTED FOR THE HEARING RECORD

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

Congress from the State of North Carolina, and Ranking Member, Subcommittee on Courts, Intellectual Property, and the Internet ......................... 147 
Page

IV 

Prepared Statement of the Honorable George Holding, a Representative in 

Congress from the State of North Carolina, and Member, Subcommittee 

on Courts, Intellectual Property, and the Internet ........................................... 158 

Material submitted by the Honorable Jason Chaffetz, a Representative in 

Congress from the State of Utah, and Member, Subcommittee on Courts, 

Intellectual Property, and the Internet .............................................................. 160 

Letter from C. Graham Gerst, Partner, Global IP Law Group, LLC .................. 167 

Letter from Bill Hughes, Senior Vice President, Government Affairs, Retail 

Industry Leaders Association (RILA) ................................................................. 169 

Submission entitled ‘‘The Costs and Benefits of United States Patents’’ ........... 171 

Letter from the Coalition of Patent Fairness ........................................................ 217 

Prepared Statement of the American Bankers Association ................................. 220 

Letters from John Lindgren, President and Chief Executive Officer, MOSAID 

Technologies Incorporated ................................................................................... 222 

Prepared Statement of Bruce Lehman, on behalf of TeleCommunications Systems, Inc. .............................................................................................................. 229 

Response to Questions for the Record from Mark Chandler, Senior Vice President and General Counsel, Cisco Systems, Inc. ................................................ 234 

Response to Questions for the Record from Janet L. Dhillon, Executive Vice 

President, General Counsel and Corporate Secretary, JCPenney Company, 

Inc. ......................................................................................................................... 236 

Response to Questions for the Record from John Boswell, Senior Vice President and General Counsel, SAS Institute, Inc. ................................................. 239 

Response to Questions for the Record from C. Graham Gerst, Partner, Global 

IP Law Group, LLC ............................................................................................. 243 

Response to Questions for the Record from Philip S. Johnson, Chief Intellectual Property Counsel, Johnson & Johnson ....................................................... 249 

Response to Questions for the Record from Dana Rao, Vice President of 

Intellectual Property and Litigation, Adobe Systems ....................................... 258 
(1) 

ABUSIVE PATENT LITIGATION: THE IMPACT 

ON AMERICAN INNOVATION AND JOBS, AND 

POTENTIAL SOLUTIONS 

THURSDAY, MARCH 14, 2013 

HOUSE OF REPRESENTATIVES

SUBCOMMITTEE ON COURTS, INTELLECTUAL PROPERTY, AND THE INTERNET

COMMITTEE ON THE JUDICIARY

Washington, DC. 

The Subcommittee met, pursuant to call, at 11:36 a.m., in room 

2141, Rayburn Office Building, the Honorable Howard Coble 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Coble, Marino, Goodlatte, Chabot, Issa, 

Poe, Chaffetz, Amodei, Farenthold, Collins, DeSantis, Rothfus, 

Watt, Conyers, Johnson, Chu, Deutch, Bass, Richmond, DelBene, 

Jeffries, Nadler, Lofgren, and Jackson Lee. 

Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee, Clerk; 

and (Minority) Stephanie Moore, Minority Counsel. 

Mr. COBLE. The Subcommittee will come to order. Without objection, the Chair is authorized to declare recesses of the Subcommittee at any time. 

We welcome all of our witnesses and others in the audience 

today. 

Let me go off the record for a moment. 

[Pause.] 

Mr. COBLE. Good morning, again. And as Yogi Berra once said, 

it is deja vu all over again. 

Although the ink from the American Inventors Act of 2011 is still 

setting, the first topic for our Subcommittee in the 113th Congress 

is patent litigation. 

In 1999, the American Inventors Protection Act dealt with submarine patents, and although the recently enacted landmark legislation, Leahy-Smith America Invents Act, is in the process of overhauling our patent system, frivolous patent litigation continues to 

stifle innovation and job creation. 

Patent assertion entities, or patent trolls, appear to be at the 

root of many problems. The Leahy-Smith America Invents Act of 

2011 reestablished the U.S. system as a global standard. The U.S. 

Patent and Trademark Office has been working diligently for the 

past 18 months implementing many of AIA’s provisions, and we 
2 

probably will not fully realize its innovative benefits and related 

job growth until this implementation process has run its course. 

That being said, the AIA has not resolved all of the drag created 

by frivolous patent lawsuits. It is my belief that a number of patents that have been issued or are currently being reviewed under 

the old system have enabled patent trolls to game the system. 

Patent trolls have also sought out weak or overbroad patents to 

foster more litigation. To ensure that the American economy does 

not suffer due to the legal gamesmanship that is currently taking 

place, it is important for us to consider ways to remedy the situation. 

There are many ideas out there to deal with various aspects of 

abusive patent litigation. One idea is the SHIELD Act which would 

allow fee shifting in certain patent cases to the prevailing party 

who asserts invalidity or no infringement of the patent. 

Although another idea deals with patent discovery abuse, that 

would limit discovery to court documents and require the party 

seeking initial discovery to bear the cost. 

Another idea deals with providing stays of action against a nonmanufacturing party in patent cases. 

Apart from the legislative process, there may also be ways that 

our courts, the U.S. Patent and Trademark Office, and litigants can 

help remedy the patent troll phenomenon. All options should be on 

the table, it seems to me, for consideration. 

Another tangential issue that is not a priority for today’s hearing, but I am concerned, is the result of patent litigation deals with 

federally mandated services. These services transmit the caller’s location alongside the 911 call and PAEs or patent trolls have found 

secure, wireless technology to be fertile ground. This is unfortunate 

and could seriously undermine public safety. 

Needless to say, we have an excellent panel for today’s hearing, 

with far more insightful and enlightening testimony on how we can 

curtail abusive patent litigation in America. 

At this juncture, I am going to reserve the balance of my time 

and recognize the Ranking Member, the distinguished gentleman 

from North Carolina. 

But first of all, Mel, if you will, let me swear in the witnesses, 

if you would. 

Each of the witness’s written statements will be entered into the 

record in its entirety. 

I ask that each witness summarize his or her testimony in 5 

minutes or less, if possible. You will not be keelhauled if you violate that, but we would like for you to stay within the 5-minute 

rule, if possible. 

To help you stay within that time, there is a shining light on 

your table. When the light switches from green to yellow, you have 

will have 1 minute to conclude your testimony. When the light 

turns red, it signals the witness’s 5 minutes have expired. 

I will begin by swearing in our witnesses before introducing 

them. 

If you would, please, all rise? 

[Witnesses sworn.] 

Mr. COBLE. Let the record reflect that the witnesses answered in 

the affirmative. 
3 

We appreciate it. You may be seated. It is good to have you with 

us. 

Now, I am pleased to recognize the distinguished gentleman from 

North Carolina, Mr. Mel Watt, for his opening statement. 

Mr. WATT. Thank you, Chairman Coble. 

And of course, this is our first opportunity to congratulate you 

publicly on your Chairmanship and note how pleased I am that two 

North Carolinians sit at the leadership of this important Subcommittee. I also am looking forward to working with Vice Chairman Marino. 

I also want to acknowledge that one of our—— 

Mr. COBLE. If you will suspend for a minute, Mel? I am sorry, 

Mel. 

When I depart, the gentleman from Pennsylvania will assume 

the Chair. 

Mr. Watt. 

Mr. WATT. Also, I want to recognize that one of our witnesses 

today is from one of our North Carolina constituent companies, 

SAS, which was very helpful to us during the debate leading up to 

the passage of the patent reform legislation in incorporating the 

joinder provisions that were designed to address some of the issues 

we continue to examine today. 

‘‘Critics of the patent system, including many high-tech and software companies, believe that trolls contribute to the proliferation 

of poor quality patents. Ultimately, these critics assert trolls force 

manufacturers to divert their resources from productive endeavors 

to combat bogus infringement suits. Other companies and individuals argue that licensing is a standard and time-honored component of the patent system. They also assert that some proposals to 

change certain provisions in the Patent Act will disadvantage many 

legitimate companies, vendors, and universities.’’ 

If this characterization of the debate resonates, it is with good 

reason. Those were the words of then-Chairman Smith at a hearing 

of the Subcommittee entitled, ‘‘Patent Trolls: Fact or Fiction?’’ June 

15, 2006. 

Then-Ranking Member Howard Berman made a statement at 

that time, at the same 2006 hearing, that still resonates today, at 

least with me. He said, ‘‘Perhaps the place to start at this hearing 

is not the question of whether patent trolls are fact or fiction, but 

rather the definitional question of what is a patent troll.’’ 

Almost 7 years later, some things have changed and some things 

have remained the same. There is widespread acknowledgment 

that so-called patent trolls or patent assertion entities do exist and 

that they impose a substantial cost on innovation for the companies 

caught in their crosshairs by engaging in litigation strategies that 

game the system. 

Much has been done to address these abusive practices. In 2006, 

the Supreme Court, in eBay v. MercExchange, arguably made it decisively more difficult for patent assertion entities to obtain injunctions against infringing products where money damages were sufficient to remedy the infringement. 

This arguably made litigation in Federal court for the purposes 

of extracting unwanted settlements less attractive, at least in so 
4 

far as it thwarted or frustrated the ability of companies to continue 

to produce the product in question. 

The Federal Circuit has increasingly issued orders of mandamus 

to address venue abuse, disrupting the tactic of forum shopping 

and the dubious joinder of defendants with tenuous connections to 

the claim. 

The America Invents Act also sought to curtail the practice of 

joining unrelated defendants who, based on entirely different acts, 

are accused of infringing the same patent. 

The America Invents Act also gave the Patent and Trademark 

Office additional tools to enhance patent quality. Of note are the 

post-grant review procedures that will allow early challengers to 

weed out poor quality patents. 

The PTO has also embarked upon a process to aid in deciphering 

ownership. This real party in interest proposal will require patent 

applicants to disclose and update real parties in interest information, including transfer of ownership throughout patent prosecution. This will add transparency to the process and enable patent 

users to identify whether and from whom they should seek to license. 

This will also undercut the ploy of hiding ownership until infringement occurs when then suing to enforce the patent. 

So 6 years since the patent troll hearing, much has been done 

that acknowledges and tackles certain behaviors that must be discouraged. But acknowledgment of the problem does not expose its 

magnitude, or enlighten us on the specific entities that are at the 

root of the problem. 

This definitional problem, highlighted by Mr. Berman years ago, 

was recently echoed by Federal Court Judge Randall Rader in a recent speech, when he said that a patent troll can be ‘‘anybody who 

asserts a patent far beyond the value of its contribution to the art.’’ 

He went on to say, ‘‘That means any institution can be a troll.’’ 

Nor has the marketplace helped in streamlining our task. Late 

last year, a group of 12 high-profile companies together with a 

much-maligned patent troll purchased Kodak patents for over $500 

million, saving it from bankruptcy. News reports indicate that the 

patent troll will retain ownership of the patents. 

Under the deal, the 12 companies will be immune from suit on 

those patents for which they were alleged infringers at the time of 

the purchase. The purchase undoubtedly saved thousands of jobs 

and it insulates innovative companies from what would have been 

viewed as normal litigation had Kodak been able to survive without 

the sale to press its claims. 

But it also enables a non-practicing entity to pursue litigation 

against other infringers on patents duly acquired from Kodak. 

The GAO response to the mandate in the America Invents Act, 

that it study patent troll litigation, underscores the problem of defining both the entities and activities that ought to be scrutinized. 

Although the GAO study has yet to be released, and they continue to work to meet the mandate, they initially questioned the 

existence of reliable data or reliable methods to identify trolls. 

When anyone can be a troll, the task of Congress to craft legislation targeting only trolls becomes elusive. 
5 

Proposals have emerged to target specific entities, like the 

SHIELD Act. Others aim at specific phases of litigation, like e-discovery. Others directly challenge patentability altogether, specifically they call to eliminate or restrict software patents. And one 

proposes to give judges greater latitude to impose attorneys’ fees or 

other sanctions by lowering the exceptional case standard under 

current law. 

While I believe that there is abuse in patent litigation, particularly in suits against downstream users, we should be cautious in 

considering remedies that focus on disincentivizing poorly defined 

entities without examining the collateral effects on the system as 

a whole. 

Moreover, I am concerned that an insular view that only seeks 

to deter one class of conduct without examining the incentives that 

may unintentionally be provided to others is wrongheaded and may 

result in today’s prey becoming tomorrow’s predators. 

Erecting overly broad barriers to enforcing patents could lead to 

infringers having little or no incentive to respect the patent owner, 

which would, in turn, destabilize the marketplace and devalue patents. 

In a letter to the Subcommittee, which I offer for the record, renowned civil rights procedure and Federal courts expert, Professor 

Arthur Miller, reminds us that, ‘‘From its inception, the U.S. system was designed to encourage people to buy and sell patents, because doing so enabled the ordinary worker or inventor that didn’t 

have capital to commercialize his or her own discoveries to still 

participate in the economic upside of inventing and publishing 

those inventions.’’ This ability to license patent rights turned inventing into a career path for thousands of people—but technically 

creative citizens. 

As we continue to examine the competing data and explore possible solutions, I hope that we will do so with all that background 

in mind. While we should seek meaningful reforms, I believe that 

measures that would up-end or create more uncertainty and litigation about definitions in other parts of the judicial system are illadvised. 

I thank the Chairman for his indulgence, and I yield back, and 

look forward to listening to the witnesses. 

Mr. COBLE. I thank the gentleman. 

The Chair recognizes the distinguished Ranking Member of the 

full Committee, the gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. Thank you, Chairman Coble. 

I come here with a couple problems, and I apologize to this distinguished group of witnesses that have to listen to us first. And 

then after you are thoroughly exhausted, we listen to you. 

But I do want to commend you, Chairman. We have a pretty 

even distribution of the witnesses here. We have two people with 

us that have some reluctance about the SHIELD Act and patent 

assertion entities. 

But let me get to the heart of the matter, as far as I am concerned. 

We have a measure before us that the plaintiff pays and the defendant, who might be the alleged patent infringer, pays nothing, 

and this is disturbing. 
6 

We have a situation in which, in this kind of system, the corporations can pressure injured parties into settlements, because the 

dangers are so much greater for a small business. And I hope we 

have some discussion about that. 

In my view, so far, the law already provides a balanced approach 

to fee shifting. And to the extent the bill is designed to protect 

against meritless claims of patent infringement, I suspect that the 

tools to deal with this already exist. 

So I am going to listen carefully, but, if in the course of your 

presentation or discussion that we will share with each other, I 

want to try to find out if most of you agree with me that current 

patent law already allows a judge to award attorney fees for 

meritless cases, patent law allows that a court may award reasonable attorney fees for the prevailing party in exceptional cases. 

And most of all, why can’t we fix this problem by improving patent quality and notice of patent ownership? What is the big deal? 

The America Invents Act directed the GAO to study the consequences of this kind of litigation and will soon make recommendations. And so we look forward to reviewing these findings. 

The final rules of the America Invents Act were implemented 

last September, and I think they will help address this abusive behavior. So we should work with PTO, all of us, to require better 

notice requirements of patent ownership to enable folks to avoid infringement. 

This Congress can make sure that, going forward, the Patent and 

Trademark Office retains its fees, all of its fees, to hire more patent 

examiners to allow them to find all of the relevant prior art for 

every patent application. 

So I am happy to join you. I invite your best thinking on this 

subject, and I thank the Chairman for allowing me this time and 

return the balance of it. 

Mr. MARINO [presiding]. Thank you, Mr. Conyers. 

The Chair now recognizes the Chairman of the full Judiciary 

Committee, Congressman Goodlatte. 

Mr. GOODLATTE. Thank you, Mr. Chairman. 

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

That bill was the most significant reform to our patent system in 

my lifetime. The AIA modernizes our patent system and sets it on 

the right path for decades to come. 

The AIA included a number of provisions that went directly to 

addressing the issues surrounding patent quality. The PTO has 

new programs in place to ensure higher quality patents that can 

stand up to review, setting the bar higher so that quality control 

starts on the front end rather than relying on the Federal court 

system to fix problems. 

The U.S. patent system is designed to be fair, meeting our international obligations and not discriminating against any field of 

technology. 

The strength of the U.S. patent system relies on the granting of 

strong patents, ones that are truly novel and nonobvious inventions, those that are true innovations and not the product of legal 

gamesmanship. 

An example of a positive retrospective provision from the AIA is 

the work being done to implement a transitional program to correct 
7 

the egregious errors made in the granting of a wide range of business method patents. 

This program will provide the PTO with a fast, precise vehicle 

to review low-quality business method patents, which the Supreme 

Court has acknowledged are often abstract and overly broad. This 

program will make our patent system stronger and better, and it 

may even make sense to make it permanent in the future and expand its applicability to other nontechnological patents. 

While the AIA paved the way for higher quality patents on the 

front end, there were a few issues that were left on the cutting 

room floor during the last Congress that could help go more directly to the immediate issues surrounding patent assertion entities, or patent trolls. 

Abusive patent litigation is a drag on our economy. Everyone 

from independent inventors to startups to mid- and large-sized 

businesses face this constant threat. 

The tens of billions of dollars spent on settlements and litigation 

expenses associated with abusive patent suits truly represent wasted capital, wasted capital that could have been used to create new 

jobs, fund R&D, and create new innovations and technologies that 

would promote the progress of science and useful arts. 

Nonpracticing entities are those that hold patents, but do not 

practice or produce an actual product based on those patents. The 

term ‘‘NPE’’ covers everything from universities to high-technology 

companies that focus on R&D, but monetize their research through 

legitimate licensing. 

But within that universe, there are a specific subset of entities, 

PAEs, which oftentimes acquire weak or poorly granted patents 

and proceed to send blanket demand letters, or file numerous patent infringement lawsuits against American businesses with the 

hopes of securing a quick payday. 

Many of these PAEs file lawsuits against small- and medium-size 

businesses, targeting a settlement just under what it would cost for 

litigation, knowing that these businesses will want to avoid costly 

litigation and probably pay up. 

PAE lawsuits claim ownership over basic ideas, such as sending 

a photocopy to email, podcasting aggregated news articles, offering 

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

Something is terribly wrong here. The patent system was never 

intended to be a playground for trial lawyers and frivolous claims. 

We need to work on reforms to discourage frivolous patent litigation and keep U.S. patent laws up-to-date. 

Abusive patent troll litigation strikes at the very heart of American innovation and job creation, and that is why Congress, the 

Federal courts, and the PTO should continue to take the necessary 

steps to ensure that the patent system lives up to its constitutional 

underpinnings. 

I look forward to hearing from all of our witnesses on the issue 

of abusive patent litigation and potential solutions to this growing 

problem in order to ensure that we continue to promote American 

ingenuity, innovation, and jobs. 

Thank you, Mr. Chairman. 

Mr. MARINO. Thank you, Chairman. 
8 

Initially, I am going to introduce each of our witnesses. I want 

to thank you for being here today. Once you are introduced, then 

you will have up to 5 minutes to make an opening statement. You 

do not have to take 5 minutes, and I reserve the right to determine 

whether I will use the keelhauling if one goes over 5 minutes, particularly with us up here. 

So to begin with, our first witness today is Mr. Mark Chandler, 

Senior Vice President, General Counsel, and Secretary of Cisco 

Systems, Inc. Mr. Chandler leads a team of 250 professionals and 

has served in that role since 2001. Prior to his current position, he 

was the company’s managing attorney for the Middle East and African region, based in Paris. Mr. Chandler joined Cisco in 1996, 

when the company acquired StrataCom, where he served as General Counsel. Mr. Chandler received his bachelor degree in economics from Harvard College and his law degree from Stanford Law 

School. 

Welcome, Mr. Chandler. 

Mr. CHANDLER. Thank you, Mr. Chairman, Ranking Member 

Watt, Chairman Goodlatte. 

Mr. MARINO. I am to go through and introduce everyone. 

Our second witness is Ms. Janet Dhillon, Executive Vice President, General Counsel, and Secretary for JCPenney, Inc. Prior to 

joining JCPenney in February 2009, she served for 5 years at U.S. 

Airways as Senior Vice President and General Counsel. In that 

role, she directed the airline’s corporate governance and legal affairs, including litigation, commercial transaction, and regulatory 

matters. Ms. Dhillon received her J.D. from UCLA Law School and 

her bachelor’s degree from Occidental College, graduating magna 

cum laude. 

Our third witness is Mr. Boswell, Senior Vice President, Chief 

Legal Officer, and Corporate Secretary of SAS, pronounced ‘‘sass,’’ 

Institute, where he manages a group of 40 attorneys and 220 staff 

members globally. He joined SAS in 1991 as a Senior Marketing 

Counsel, where he authored many of the company’s standard license agreements. Mr. Boswell’s prior experience includes serving 

as President of Vista Development, a software company, and General Counsel and Secretary for Raima, another software company. 

Mr. Boswell attended the University of South Carolina at Columbia, where he received both his law degree and bachelor’s degree 

in philosophy. 

Our fourth witness is Mr. Graham Gerst, partner at the Global 

IP Law Group, where he specializes in patents including sales, licensing, and litigation. Before joining Global IP Law Group in 

2009, he served as Senior Counsel to the Deputy Attorney General 

at the Department of Justice, handling technology-related security 

matters, international IP enforcement, and computer forensics. He 

also served as Special Assistant U.S. Attorney and as Deputy U.S. 

Coordinator for International IP Enforcement. Prior to that, Mr. 

Gerst spent 9 years as partner at Kirkland and Ellis, specializing 

in patent litigation. Mr. Gerst received his—good point, Mr. Nadler. 

Okay, I think we got it. Thank you. 

Mr. Gerst spent 9 years as partner at Kirkland and Ellis, specializing in patent litigation. Mr. Gerst received his J.D., cum laude, 
9 

from the University of Chicago Law School and bachelor’s degree, 

cum laude and with honors, from Williams College. 

Our fifth witness is Mr. Philip Johnson, Senior Vice President 

and Chief Intellectual Property Counsel at Johnson & Johnson, 

where he manages a group of 100 patent attorneys in the United 

States and in Europe. Prior to joining Johnson & Johnson in January 2000, he worked in the private sector for 27 years. Mr. Johnson 

also served as trial counsel in more than 100 patent cases, with 

more than 50 cases resulting in reported decisions in the Federal 

District Courts. Mr. Johnson received his bachelor of science degree, cum laude, from Bucknell University and his law degree from 

Harvard Law School. 

Last but not least, our sixth witness and final witness is Mr. 

Dana Rao, Vice President and Associate General Counsel for Intellectual Property and Litigation for Adobe Systems. Prior to joining 

Adobe, he served as Associate General Counsel of Intellectual Property at Microsoft for 11 years. Mr. Rao received his BSEE, bachelor 

of science in electrical engineering, degree from Villanova University and his J.D. from George Washington University Law School. 

Mr. Rao also worked as an engineer at GE Astro Space before attending law school. 

I want to welcome you all and thank you for being here. And we 

will begin with no more than 5 minutes with Mr. Chandler. 

Thank you. 

TESTIMONY OF MARK CHANDLER, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, CISCO SYSTEMS, INC. 

Mr. CHANDLER. Mr. Chairman, Ranking Member Watt, Chairman Goodlatte, Members of the Subcommittee, I apologize for my 

jumping the gun, but I am eager to testify before you today about 

abusive patent litigation. 

Mr. MARINO. That is quite all right. I think I led you on there 

for a moment, so I apologize. 

Mr. CHANDLER. This Subcommittee and the Judiciary Committee 

as a whole have consistently shown leadership on a bipartisan 

basis in addressing problems in the patent system, and for that, we 

are grateful. 

I have testified previously on the economically destructive nature 

of certain aspects of patent litigation. In fact, since the first time 

I testified on this issue in 2006, Cisco has spent a third of a billion 

dollars in legal fees alone related to this type of litigation. 

This problem has now spread to my customers and partners, retailers like JCPenney, as well as small businesses, hospitals, auto 

companies, the telecom companies that use our equipment. In 

short, this problem has now spread from Silicon Valley to Main 

Street. 

I am here today in support of three legislative changes: first, passage of the SHIELD Act or other means to discourage the procedural abuses that feed this litigation; second, completing a technical fix to the post-grant opposition provision that was in the AIA; 

and third, slowing down patent assertion entity, or PAE, use of the 

International Trade Commission as another shakedown mechanism. 
10 

As general counsel of Cisco, I am responsible both for intellectual 

property and for litigation for the world’s largest manufacturer of 

telecom equipment. This year, we expect to receive our ten-thousandth U.S. patent, a reflection of our long-term investment in 

telecom innovation, and our commitment to a strong patent system. 

However, despite spending over $6 billion per year on R&D, employing over 20,000 engineers in the U.S., we currently spend more 

than $50 million a year on legal fees, fighting about 50 PAE litigations, a phenomenon that did not exist for us a decade ago. We 

have virtually no patent litigation with companies that make products. 

In one current matter, a PAE, which bought nearly expired patents from a large chip manufacturer, has targeted 13,000 entities, 

including small businesses, retirement homes, children’s health 

clinics, restaurants, which happen to offer Wi-Fi to their customers 

using equipment supplied by Netgear, Motorola, my company, and 

others. 

Tellingly, much of that equipment is already licensed, because 

they include chips costing just a few dollars apiece that are made 

by licensed manufacturers. 

This PAE tells these targets, however, that unless they pay up 

$2,000 or $3,000 per location within 2 weeks, they will be sued and 

have to engage counsel to review thousands of pages of documents. 

While we are pursuing our rights against this PAE in court, this 

case is just a symptom, sort of like lab mice running through a 

maze and—actually, I wanted to say ‘‘rats’’, but my staff asked me 

to soften it—like lab mice running through a maze because there 

is food at the end, PAEs simply follow the incentives in their ecosystems. It is up to Congress to redesign the maze to remove the 

incentive for antisocial behavior, so that patents are used to defend 

actual markets for real products. 

First, we need to fix the cost asymmetry by making PAEs pay 

when they bring litigation on weak patents and drive costs up by 

abusing discovery or using procedural games. The SHIELD Act 

starts us down that road, and we command you, Congressman 

Chaffetz, and also Congressman DeFazio, for your efforts in that 

regard. 

For instance, PAEs would be more likely to voluntarily stay their 

patent litigation if the patent office has found cause to commence 

a reexam if they are the ones who face both sides’ costs for fruitless 

litigation if the patents are invalidated. 

Now that the AIA has speeded up the time for reexams, there is 

no excuse for refusing such a stay. 

Second, many asserted PAE patents are weak, either because 

they are invalid or cover very narrow inventions. PAEs ultimately 

lose 92 percent of the time of the court, versus 60 percent for other 

plaintiffs. 

The AIA, as passed for this by this Committee, included a new 

procedure to challenge weak patents when they are first issued. 

But somehow the language changed to raise an unreasonable estoppel bar to those challenges before it was voted on the floor. Congress should fix what leaders in both chambers have called a scrivener’s error. 
11 

Third, many PAEs now use the ITC as an additional shakedown 

forum. The ITC’s mission is to protect U.S. industries and universities by excluding foreign knockoffs. PAEs use the ITC as leverage 

for larger settlements. 

Face it, they do not want an injunction; they do not make a product. They just want the money. 

We recently spent $13 million defending ourselves in the ITC 

against a Canadian PAE called MOSAID, using a patent originally 

created in Israel, but trying to keep our products out of the United 

States, which the ITC judge ultimately called out for its ‘‘wrongdoing’’ for improperly trying to concoct a domestic industry. 

Finally, we need more clarity on how damages should be calculated, as uncertain damage awards are one of the biggest incentives for patent profiteering. We applaud Chief Judge Rader, Judge 

Posner, and others’ efforts to focus damage calculations on the 

value of the invention itself, rather than on systems which use the 

inventions. 

In conclusion, the $50 million my company spends annually on 

patent litigation does not grow on trees. To meet my budget, I have 

reduced the number of new patent filings we make each year from 

1,000 to 700, in order to fund the litigation. 

This isn’t a trade-off American industry should face. We ask for 

your help in having the patent system operate as it did for over 

200 years before being transformed by 21st-century financial operators into a casino unrelated to innovation. 

Thank you. 

[The prepared statement of Mr. Chandler follows:] 
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Appendix A: 

RPX Research Patent Litigation Data (2006–2012) 
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Appendix B: 

ITC Working Group white paper 
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Mr. MARINO. Thank you, Mr. Chandler. 

Ms. Dhillon, please. 

TESTIMONY OF JANET L. DHILLON, EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND CORPORATE SECRETARY, 

JCPENNEY COMPANY, INC. 

Ms. DHILLON. Thank you. Good afternoon. And I appreciate the 

opportunity to appear before you this afternoon. 

Every day, stories are written about patent lawsuits between 

large technology companies, but very little is reported about the 

abusive patent lawsuits filed against retailers like JCPenney. 

Through my testimony, I hope that the Subcommittee will have 

a better understanding of the constant struggle by JCPenney and 

other retailers to contain the damaging effects of abusive lawsuits 

that are brought by an ever-growing group of increasingly sophisticated and well-financed patent trolls. 

My name is Janet Dhillon. I am the executive vice president, 

general counsel, and corporate secretary of JCPenney. JCPenney is 

a 111-year-old company. We operate 1,100 stores in 49 states, and 

we employ over 100,000 team members. 

Our business model is simple. We sell quality, affordable men’s, 

women’s, and children’s apparel and footwear, and a collection of 

home products. While our business model is simple, the means that 

we use to promote and deliver our products and services to our customers is not. 

As customers embrace and utilize technology in their daily lives, 

they expect retailers to do the same. And, therefore, to support and 

deliver the services to our customers, we are employing innovative 

technology to heighten the shopping experience, both in our stores 

and online. 

When I joined JCPenney over 4 years ago, we had no patent 

cases, and I did not expect that we ever would. We are a department store. But over the past 4 years, the company has had to defend or settle over two dozen patent infringement lawsuits that 

have absolutely nothing to do with what we sell. These suits forced 

the company to invest in an infrastructure to defend these cases 

and to hire sophisticated outside counsel who charge well for their 

services. 

And the number of lawsuits is just continuing to grow. In 2012, 

the number of patent suits increased over the 3,600 that had been 

filed in 2011. And for the first time, a majority of these cases were 

filed by patent trolls. 

The fact that our company headquarters is in the Eastern District of Texas, and that we are increasing our use of technology, are 

two reasons that JCPenney has become a target. The other core 

problem is that patent trolls attempt to extend the reach of the 

issued patent far beyond the metes and bounds of what is allowed 

by the PTO. 

Please understand, JCPenney is a responsible user of technology. 

We pay the license fees that we owe when we license technology. 

But what patent trolls are attempting to do is something fundamentally different from the way the process was designed to 

work. 
36 

The PTO awards the inventor a narrow invention, but long after 

the issuance, most times near the end of the life of the patent, the 

patent is acquired by the troll who then attempts to enforce the 

patent far beyond what the invention intended. 

We have been sued for displaying catalog images and having 

drop-down menus on our Web site, activating gift cards at the 

point-of-sale, being able to browse our mobile Web site on a phone, 

or enabling the customer to put her purchases in an electronic 

shopping bag. 

We have also been subject to multiple claims for providing information regarding our store locations on a mobile phone. 

These patents date back to the late ’80’s and the early ’90’s, have 

had multiple owners with minimal or no continuing involvement by 

the actual inventor. 

Defending suits against broadly asserted patents that are 15 to 

25 years old is very difficult. The trolls know that the evidence necessary to invalidate these patents has been discarded, potential 

witnesses have died, memories have faded, and that reconstructing 

the prior art can be almost impossible, and in all cases is extremely 

expensive. 

And the cost of defending these suits is why we have to settle 

so many of them without a judgment on the merits, which means 

that the companies often settle even though there is no actual infringement, and the patent holders are compensated far beyond 

what they have invested to acquire these patents. 

A study by the American Intellectual Property Law Association 

reported that the median cost of litigating a patent case, asserting 

a single patent through trial, is between $650,000 and $5 million. 

The discovery phase alone costs between $350,000 and $3 million. 

In the retail business, our margins are already thin and the decision to settle or go to trial and spend millions of dollars litigating 

what we know is a junk patent has to be weighed against growing 

our business. 

Unlike retail, patent trolls do not manufacture or sell any product to American consumers. They do not build stores. They do not 

contribute to charities in our communities. They do not create local 

jobs. And they do not participate in civic organizations. 

JCPenney does all of those things. What patent trolls do is 

produce lawsuits against retailers and other businesses just to enrich themselves. 

At the end of the day, companies like ours have to ask a simple 

question: Do we pay to settle, or do we spend millions of dollars 

to invalidate patents that we know are simply junk and that we 

are not infringing on in the first place? 

It is a situation that no general counsel should have to be put 

in to, but it is something that I and my colleagues face on a regular 

basis. That is why I look forward to continuing this dialogue with 

the Committee in hopes of finding some solutions to curtailing 

these abusive suits, while maintaining a robust patent system. 

Thank you. 

[The prepared statement of Ms. Dhillon follows:] 
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Mr. MARINO. Thank you, Ms. Dhillon. 

Mr. Boswell, please. 

TESTIMONY OF JOHN BOSWELL, SENIOR VICE PRESIDENT 

AND GENERAL COUNSEL, SAS INSTITUTE, INC. 

Mr. BOSWELL. Mr. Vice Chairman Marino, Ranking Member 

Watt, Members of the Subcommittee, SAS is a privately held software company based in the great State of North Carolina. 

We have been in business since 1976. We do our software development in North Carolina and in Texas. 

The only time SAS ever gets sued for anything, we are being 

sued by a patent troll. 

Now, we have never lost a patent troll case, but that does not 

mean we are not losing. Patent trolls are business terrorists. Their 

weapons of mass destruction are software and business method 

patents with fuzzy boundaries that can be asserted against many 

different products, many different companies, in many different 

ways. 

And the terror is not really the threat of losing the case. It is the 

cost to fight. 

Patent trolls have no employees. They make nothing. They sell 

nothing. They have no witnesses. Therefore, they are immune from 

the discovery burden. 

Given that patent trolls are immune from the discovery burden, 

their strategy is to make discovery as broad and expensive as possible. Patent troll cases are filed in jurisdictions that allow broad 

discovery and that do not decide dispositive motions, including motions to transfer, until most of the money for discovery has already 

been spent. In other words, when the case is filed, the defendant 

has already lost. 

In a recent case, we actually won the case on summary judg- ment, but we had to spend over $8 million to get there. $1.5 million 

of those dollars was paid to an outside consultant simply to collect 

electronic documents. We had to collect over 10 million documents 

because the judge allowed that level of discovery. 

The plaintiff in the case listed as possibly relevant 1,873 documents. Had the case gone to trial, probably 20 or 30 of those documents might have shown up. 

The stack of documents that might possibly have been relative, 

I did the math: 8 inches tall. The stack of documents, if we had 

had to print them out, that we had to collect, if you took the World 

Trade Center and put the Washington Monument on top of it, the 

stack of documents would have been higher than that. 

That is abuse. 

Now, to be clear, SAS is not in favor of ending the ability for legitimate inventors to enforce their patents in Federal court. That 

is not what this is about at all. 

It is about ending abusive litigation tactics by entities that are 

not advancing the idea behind the patent system. They are not advancing knowledge and advancing society. They are taking advantage and being opportunistic through weakness in the patent system, and they are extorting money from the very companies that 

are advancing, that are inventing, that are hiring people, that are 

moving the economy forward. 
43 

And ladies and gentlemen, this is completely a Federal Government problem. We are being sued on patents that should have 

never been issued, that were issued by a Federal agency. We are 

being sued in Federal courts that are allowing this abuse to happen. And unfortunately, this has been going on for some time. 

So I disagree with some of my colleagues who are going to advocate ‘‘let’s just wait and see if this will all work itself out. I don’t 

think we need to do anything.’’ No, if the courts were going to fix 

this, they would have done so already. 

There are many good ideas being discussed, some of which Chairman Coble mentioned. One that I think bears serious consideration 

is an idea that we sort of borrowed from Chief Judge Rader, and 

that is the only thing you really need to decide a patent case is, 

what does the patent say and what does the product do? And if you 

share the information around that, you should be able to decide 

your patent case. 

If you want more discovery than that, fine. You just have to pay 

for it. 

In that way, patent cases that should go forward, can go forward. 

We do not have to worry who is or isn’t a patent troll or a patent 

assertion entity. It will rein in abusive discovery, whether it is 

done in the patent troll litigation or in any other litigation. 

If we did that, and if, additionally, we made sure that judges 

first decided motions to transfer before you had to go through the 

process of paying for discovery, so they would decide whether you 

should be there at all before you had to pay for it, I think that we 

would go a long way to ending abusive patent tactics. 

But unfortunately, or maybe fortunately, only you can help us. 

And that is why we are here. 

Thanks. 

[The prepared statement of Mr. Boswell follows:] 
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Mr. MARINO. Thank you, Mr. Boswell. 

The Chair recognizes Mr. Gerst, please. 

TESTIMONY OF C. GRAHAM GERST, PARTNER, 

GLOBAL IP LAW GROUP, LLC 

Mr. GERST. Thank you very much. 

My firm, the Global IP Law Group, represents the broadest 

range of interests represented on the panel today. We have represented very large technology companies like Alcatel-Lucent, Motorola Mobility, and Nortel Networks. We also represent midsized 

and small companies, including many startups. And we also represent non-practicing entities. 

What I hope to do today is highlight how changes at one end of 

the spectrum can have ramifications throughout the system that 

are unanticipated. 

Any large system is going to have problems and inefficiencies, 

and the patent system is no exception. But you run the risk of unintended consequences for the system as a whole in trying to fix 

those limited problems. 

And let’s remember that this is the system that is, overall, working very well. That is something that often gets lost. 

The Founding Fathers included the patent system in the U.S. 

Constitution to encourage innovation. Today, we have the strongest 

patent system in the world, and at least part in relation to that, 

or part as a result of that, we have the most innovative economy 

in the world. And we need continuing innovation to maintain the 

strength of our economy. 

Changes that weaken our patent system put future innovation at 

risk. It is the sort of risk that isn’t immediate or that makes for 

good stories in the newspaper. The biggest issue our patent system 

does face is the cost of litigating patent disputes, which creates two 

problems. One is the opportunity to sue simply to get a settlement 

that is less than the cost of litigation, and numerous of my fellow 

panelists have already talked about this, and that will continue 

during the remainder of the panel here today. 

The second problem is less talked about, and that is that a lot 

of companies that cannot afford to protect their own investments 

in innovation by asserting their own patents. Moreover, because of 

recent changes to the Federal Circuit in damages law and related 

to injunctions, those costs are even more difficult to justify. 

When I had lunch with the chief IP counsel at a sizable company, 

he said that he no longer considers the NPEs anything more than 

a nuisance. But he is worried that his company, which relies on innovation to distinguish itself, cannot use it patent portfolio because 

of the costs and the weakened remedies. And a couple weeks ago, 

I was at an event where the chief patent counsel for Conair said 

much the same thing. 

This is part of the reason why the statistics about how big a percentage of patent cases are brought by NPEs, why that statistic exists. It is because a lot of small and midsize companies cannot afford to bring their own patent cases. 

What is not an issue for the patent system is the existence of 

NPEs. NPEs are not new, and they do fill a valuable role in the 

patent system by helping to reward innovators. My firm recently 
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represented a technology company that was one of the lead developers of electronic communication technology in wide use today. 

That company invested in the development incentivized by the 

promise its patents would ultimately prove very valuable. We, ultimately, sold those patents to one of a group of NPEs that were the 

only ones really willing to give what approached fair value for 

those patents, thereby rewarding those innovators. 

In addition, NPEs provide a way to recirculate capital to investors. In the situation I just described, I know that major investors 

in that company have circulated some of those earnings from that 

patent sale back to other innovative companies. 

And finally, by acquiring patents, non-practicing entities keep 

the market liquid and keep patent values up, which is valuable to 

companies that use their patents as collateral. That includes large 

companies, like the recently concluded Alcatel-Lucent deal, and 

small startups. 

What can Congress do to improve this system? It can make 

changes that are limited and target particular behaviors, but minimize the risk to the system from unintended consequences. 

I would echo what Mr. Chandler said about changing the law regarding injunctions at the ITC. But that is a limited change, and 

it creates consistency through the patent system. 

In addition, the creation of a small claims patent court would 

help some of the problems with companies being able to enforce 

their own patents, which are blocked today by the cost of litigation. 

And continuing to fund the PTO to improve patent quality is important. 

What Congress should not do is engage in getting into the business of dictating to the Federal courts about how to manage Rule 

11 sanctions and discovery costs. Those issues are best done in a 

very tailored, measured fashion that the courts are in the best position to determine. 

In addition, the SHIELD Act is something that I would advocate 

Congress not pursue. It is wrong on a whole number of levels. But 

it targets entities, not activities. And it would have a whole host 

of unintended consequences. 

If Company A buys Company B, the patents of Company B would 

automatically be subject to the rules of the SHIELD Act. In addition, in the Alcatel-Lucent deal that we recently concluded, if something terrible were to happen to Alcatel-Lucent and it were to go 

bankrupt and the lenders took control of that patent portfolio, 

those patents would be subject to the SHIELD Act. 

Finally, the SHIELD Act, if it helps anybody, it helps big nonpracticing entities. Those big, non-practicing entities, and you know 

the names of them, have the money to post bonds for these litigations. It would basically eliminate the competition they have from 

smaller non-practicing entities. 

Finally, there has been talk about a straight loser pay system for 

all patent cases. That would just aggravate the problem of small 

and midsize companies being able to enforce their own patents. 

Thank you very much. 

[The prepared statement of Mr. Gerst follows:] 
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Mr. MARINO. Thank you, Mr. Gerst. 

The Chair recognizes Mr. Johnson, please. 

TESTIMONY OF PHILIP S. JOHNSON, CHIEF INTELLECTUAL 

PROPERTY COUNSEL, JOHNSON & JOHNSON 

Mr. JOHNSON. Thank you, Mr. Chairman, Ranking Member 

Watt, and Members of the Subcommittee. I appreciate being invited here today to give the views of the Coalition for the 21st Century Patent Reform, a broad and diverse group of nearly 50 corporations, including 3M, Caterpillar, Eli Lilly, General Electric, 

Procter & Gamble, and my company, Johnson & Johnson. 

Our coalition advocates for patent reforms that foster investment, innovation, and job creation, and that promote vigorous competition in bringing new products and services to American consumers. 

The issue of patent litigation abuse is simply not a new one. 

Over the last 6 years, both the Supreme Court and the Federal Circuit have issued important decisions addressing the criticism that 

our courts unduly favor of the assertion of vague or overbroad patents by non-practicing entities. 

These decisions restrict the availability of patent injunctions to 

NPEs, mandate transfer of patent cases to more convenient and 

less NPE-friendly jurisdictions, clarify the damages may be awarded based only on the value of the invention rather than on the entire system on which the invention is only a small component, clarify that innocent infringers may not be subjected to treble damages, 

and strengthen existing patentable subject matter, written description, and enablement requirements to ensure that overly vague and 

ambiguous patents will not be upheld. 

In early 2011, Congress passed the pilot patent court bill to establish a 10-year pilot program to test the concept that patent 

cases can be better handled and abuses deterred by District Court 

judges specializing in them. 

This initiative is now being implemented and is already yielding 

fruit in the form of a number of proposals for courts to limit the 

amount and cost of discovery in patent cases, and to actively deter 

and punish litigation abuse. 

Congress acted again later in 2011 by passing the AIA, which included many additional provisions now going into effect to lessen 

the opportunity for abusive patent litigation. The AIA revamped 

the criteria for patentability, authorized the public to participate in 

the patent examination process, and increased patent office funding, all to ensure that future issued patents will be of the highest 

possible quality. 

The AIA also created several new procedures to allow members 

of the public, including those who are being sued for infringement, 

to quickly and inexpensively challenge a patent’s validity before a 

panel of administrative law judges in the patent office. 

It also eliminated NPE marking suits, mandated that patent 

plaintiffs could no longer indiscriminately join unrelated parties in 

a single lawsuit, and provided for further as of yet uncompleted 

study of issues relating to NPE patent assertions. 

As Congress recognized in authorizing a study into NPE litigation, little empirical evidence existed to confirm or refute claims 
56 

that NPEs bring a disproportionate percentage of specious patent 

suits. 

Unfortunately, specious claims and specious defenses have always been a part of patent litigations and can be perpetrated by 

any party, if so inclined. Fortunately, courts already have the 

power to award attorneys’ fees in exceptional patent cases, and in 

our experience are willing to do so when a party engages in reprehensible litigation conduct. 

This does not mean that everything that could be done to deter 

patent litigation misconduct has been done. Other remedies have 

been suggested during the consideration of the AIA that include 

lowering the standard for fee shifting, so it is easier for judges to 

award fees to the prevailing party, and automatically staying suits 

against customers and users where the original provider of the 

product or service accused of infringement elects to bring a suit to 

resolve the issue with the patentee. 

Our coalition continues to view these approaches as having 

merit. In my written testimony, we make specific legislative recommendations for the Subcommittee to consider. 

Otherwise, our coalition believes that Congress should monitor 

the effects of these numerous remedies, which have already been 

enacted, to see how they do. Congress has already gone a long way 

toward fixing the problem of patent litigation abuse. To further 

modify the system at this time would run the risk of chilling innovation and the jobs that flow from it by making reliable patent import enforcement substantially less certain. 

I thank you for the opportunity to testify here today, and I would 

be happy to answer any of your questions. 

Thank you. 

[The prepared statement of Mr. Johnson follows:] 
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Mr. MARINO. Thank you, Mr. Johnson. 

The Chair recognizes Mr. Rao, please. 

TESTIMONY OF DANA RAO, VICE PRESIDENT OF 

INTELLECTUAL PROPERTY AND LITIGATION, ADOBE SYSTEMS 

Mr. RAO. Mr. Chairman, Ranking Member Watt, and other distinguished Members of the Subcommittee, thank you for inviting 

me to testify on this important issue. 

I am appearing before you on behalf of Adobe and BSA, the Business Software Alliance. I oversee all aspects of Adobe’s intellectual 

property and litigation matters. 

The focus of this hearing is very important, enhancing our patent 

system to promote innovation and make sure patents are not used 

opportunistically in ways that disrupt the marketplace. Some may 

say that the problems in PAEs today are software patents, and 

that the solution is to stop granting patents on software or to make 

it harder to get such patents. I do not agree with those proposals 

and believe they do not appreciate or address the actual nature of 

the litigation that our industry faces today. 

There are important steps we can take. We do need to address 

the asymmetry of incentives in our patent litigation framework, 

and we have to improve the quality of our already strong patent 

system. 

For 30 years, Adobe has pushed the boundaries of computing, 

publishing, and printing. With over 11,000 employees and over 

3,000 patents and pending applications, it should come as no surprise that Adobe is a strong supporter of the patent system. 

Congress and the courts have acted with vision and foresight by 

protecting software with intellectual property rights. The creation 

of these rights has led America to have the leading software companies in the world, companies that contribute over $400 billion to 

our gross domestic product. And patents help protect that investment. 

Recent trends in patent litigation have created a serious problem 

for Adobe. This is a new problem. Lawsuits by patent assertion entities, or PAES, take advantage of the lopsidedness in our litigation 

system, where it is more expensive to win than lose. 

We recently took a case from a PAE to trial. We won. There is 

no infringement, no damages. But it cost us $4 million to prove 

that point. 

Studies show that PAEs lose at trial 90 percent of the time, but 

who can afford to prove it? Adobe’s customers are now the targets 

of PAEs. 

Since 2009, Adobe has received more than 100 indemnification 

requests from our customers. The PAEs target the end-users, small 

retailers all across the country. 

One of our customers was recently sued. The PAE immediately, 

after filing the complaint, offered to settle for just a few thousand 

dollars. There is no way our customer could answer that complaint 

for less money than that. 

The nature of the patent is irrelevant. After reaching a few lowcost settlements, the PAEs acquire a new asset and repeat the 

process all over again. These repeat serial patent aggregators are 
79 

manipulating our patent system, but they are only adding cost, not 

innovation, to our economy. 

We recommend the following actions. We believe Congress can 

make important changes that will help curb abusive litigation. I 

note that patent law already permits shifting fees to address abuse 

of process, as was mentioned before. If there is an exceptional case, 

a court can shift fees under 35 USC 285. However, the way it is 

currently applied, it is a high standard rarely met. 

Let’s clarify this law. When a court sees litigation with these telltale signs—high demands, low settlements, no practice in the field 

of the patent—the court can act. 

Similarly, strengthening Rule 11 of the Federal Rules of Civil 

Procedure would also help. Rule 11 serves a similar purpose. Unfortunately, it suffers the same problems. 

We can also look at more focused fee shifting, such as being proposed in the SHIELD Act or the SAS proposal around discovery 

costs that was mentioned earlier. 

SHIELD focuses on shifting fees if there is an assertion without 

any exploitation. That is a good focus: Is the plaintiff really using 

the patent system to validate a property interest, or are they taking advantage of issues inherent in our litigation system? 

In any solution, it is imperative that the PAEs face significant 

financial exposure if they are found to violate the standard. Preferably, this determination is made as early as possible in the litigation. Otherwise, the defendants will still settle in the face of a lowcost offer. 

And the approach also has to protect the rights of those seeking 

legitimate access to the courts. We note the SHIELD Act does have 

provisions in place explicitly protecting the original inventors of the 

patent and universities. We applaud that approach and look for 

such protections in any bill that is passed. 

Finally, we can also continue to improve the quality of patents. 

A clear patent is a good patent for the public and the public interest. Using the new tools in the AIA, patent quality is on the rise, 

and we commend PTO leadership. They have offered various proposals now on increasing the clarity of claims, and Adobe supports 

those. 

The AIA also established mechanisms for challenging recently 

granted patents through procedures of the U.S. PTO. These have 

a real chance in helping address the questionable patents before 

they even enter the marketplace. 

We need to continue to focus on improving examiner access to 

prior art, especially in the software area where it difficult to find 

the best prior art merely by searching the patent database. The 

crowdsourcing efforts they have introduced go a long way in helping that problem. 

Mr. Chairman, Ranking Member Watt, and Members of the Subcommittee, I thank you again for giving me the opportunity to testify before you, and I look forward to answering your questions. 

[The prepared statement of Mr. Rao follows:] 
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Mr. MARINO. Thank you, sir. 

We are now going to move to the questioning from the panel. I 

ask my colleagues to do their best to keep those statements and 

questions at 5 minutes. 

And the Chair now recognizes the Ranking Member of the Subcommittee, Congressman Watt. 

Mr. WATT. Mr. Chairman, I think I am going to pass and go last. 

So if Mr. Johnson is ready, I will defer to him. 

Mr. MARINO. The Chair recognizes Mr. Johnson, Congressman 

Johnson. 

Mr. JOHNSON OF GEORGIA. Thank you, sir. 

Mr. MARINO. My traveling companion. 

Mr. JOHNSON OF GEORGIA. Yes. 

At this time, I would like to, while reserving my 5 minutes, yield 

to the lady from California, Congresswoman Lofgren, if that is acceptable. 

Mr. MARINO. The Chair recognizes Congresswoman Lofgren. 

Ms. LOFGREN. Thank you, all of you. I am sorry to be late. I was 

meeting with John Chambers, so I know that Mr. Chandler will 

forgive me for that. 

And also, to have Adobe also in my district, represented here, is 

awesome. 

And, of course, Mr. Johnson. We have worked together. 

I have this one question, if I can. Mr. Chandler, I read your testimony, which was excellent. You mentioned in the testimony that 

there was a patent troll threatening small businesses with Wi-Fi 

patents that have already been licensed. I am interested in this 

case, the specifics of this case. Could you even tell us who is doing 

this? 

And I will end very promptly, because I do not want to abuse Mr. 

Johnson’s courtesy to me. 

Mr. CHANDLER. Sure. Thank you very much. 

The company involved is called Innovatio, but it is one individual 

who is a former intellectual property counsel at a chip manufacturer called Broadcom who bought 31 patents that were nearing 

expiration. They were no longer useful for protecting in the marketplace that Broadcom was in. Broadcom had broadly cross licensed them to other chip companies—Qualcomm, STMicro, Agere, 

and others. 

And the Wi-Fi chips involved sell for a few dollars apiece and are 

used by manufacturers to create devices that allow people to use 

wireless Internet. Many of the patents had been declared by 

Broadcom to be standards essential and had been given to standards bodies on that basis. 

Because they could not go to the chipmakers or did not want to 

go to the chipmakers, because they would have gotten a royalty of 

a few cents apiece, and manufacturers like us or Motorola Solutions or Netgear would have said go talk to the chip people, they 

decided to try to intimidated 13,000 small businesses around the 

country, similar to a scheme of telling people that they can’t collect 

their Social Security benefits unless they sign up for a certain service. That type of scam has been well known for a long time. 

By offering a license, in many cases, for products that were already licensed—but if you run a cafe, and Caribou Coffee was one 
92 

of the companies they want to. Caribou does not know what chips 

are in the boxes that are in their closets that offer Wi-Fi. 

And the choice was pay $2,000 or $3,000 per location, or we will 

sue you. And if you want to defend it, you can. Here are the documents you need to review, and it listed the length of each document, adding up to thousands of pages. And it told people what it 

would cost to litigate a patent case. So many of them just paid up. 

Now, we were pretty outraged that our customers were being 

treated that way. My first job as general counsel really is to make 

sure our customers get taken care of. So we brought an action 

against them for breach of contract, because they did not fulfill the 

obligations to the standards bodies that Broadcom had put out, and 

also for racketeering. 

The breach of contract claims are moving forward. The judge in 

the case decided that they were petitioning the government by 

bringing this patent litigation or by preparing for litigation. And 

since Innovatio did not know for sure whether a particular customer’s Wi-Fi device included a licensed chip or not, he did not 

view it as enough of a sham to allow the racketeering claim to go 

forward. 

But I think the case illustrates well the way a financially driven 

operator will use the procedural opportunities in the patent system 

to try to shake down people who really do not owe any money. And 

that is where I think the focus of the Committee should be, on how 

to fix these procedural abuses so that companies that are really 

aiming only at litigation—it is their only business—cannot establish the value of a patent, as Mr. Gertz described, because of the 

litigation value, but to get that value tied back not to procedural 

abuse, but tied back to what the value of the invention is. 

Ms. LOFGREN. Thank you very much. I was just listening, and 

the testimony was uniformly excellent. 

I do not know what the remedies are. But as I am listening to 

you, I am thinking maybe we ought to have a vexatious litigant 

statute, as we do in California, as an additional part of our arsenal 

in the Federal system. 

And with that, I yield back, Mr. Chairman. Thank you for letting 

me go out of order. 

Mr. MARINO. Thank you, Congresswoman. 

The Chair now recognizes Mr. Chaffetz. 

Mr. CHAFFETZ. Thank you, Mr. Chairman. And I appreciate the 

panel and all the expertise that has come here before us. 

I think, clearly, with the one example of Mr. Gerst’s testimony, 

we have exemplified the idea that there is a major problem here. 

It is a Federal problem. It is something that can be remedied. It 

is something that must be addressed. 

I thought, actually, Ranking Member Conyers made an important point that I want to respond to. One of the assertions that he 

said is that we have to be careful that we are protecting the little 

guy so that they have some resources and the ability to go after 

some of the big boys. But then we also have to make sure that 

there is some balance there. 

There is a statistic that I think is particularly pertinent here. 

Look, I introduced the SHIELD Act with Congressman DeFazio in 

a bipartisan way. I think it is a great piece of legislation. If it 
93 

needs further perfection or input, we are totally open to that. But 

we want to help solve this problem. 

But interestingly, statistically, 55 percent of unique troll defendants made $10 million or less. Now, I appreciate, we have some big 

companies here, from Adobe to Cisco and others, that are very important. They are part of the growth of this country. They are a 

success in our economy that is thriving. We have to make sure that 

they continue to thrive globally. 

But think about that: 55 percent of the defendants are making 

less than $10 million. And they need to be able to defend themselves. 

So, Mr. Gerst, to suggest that everything is fine. Your quote was 

that it is working well. It is not working well for those people. They 

do not have the resources that Cisco has. 

And the SHIELD Act, if a company inventor does at least one of 

the following things, nothing changes: They are the original inventor or assignee; they are involved in exploitation of the patent; they 

are a university or tech transfer organization. It does not affect 

them. 

But there are trolls out there. There are problems out there. 

Sixty trolls brought 62 percent of the 2012 patent litigations—62 

percent. That is what is going on in our courts. 

A Boston University study found that NPE litigation is growing 

rapidly, affecting 5,842 defendants in 2011. The direct costs of NPE 

patent assertions are substantial, totaling about $29 billion. And 

55 percent of those defendants are making less than $10 million. 

There is a huge, massive problem that we can solve with a very 

simple, straightforward approach. 

I think I would go first, actually, to Mr. Chandler. Again, there 

are some that doubt that there is a problem. If you could, in your 

own way, because you are dealing with lots of vendors, you have 

a lot of suppliers, people contracted, give us a perspective, if you 

can, also, on what the little guys are going through, because I 

think Mr. Conyers brings up an important point, but I think that 

is an argument actually in favor of the SHIELD Act, not in opposition to it. 

Mr. CHANDLER. Well, I agree with you. Just to add to the information you just shared, from 2005 to 2011, 82 percent of the targets of the non-practicing entities, the PAEs, had less than $100 

million of revenue, as opposed to Cisco. 

You are right. We have the resources to defend ourselves. I was 

able to spend a third of a billion dollars on legal fees in the last 

6 years on suits with companies that do not produce products. 

I think the key focus ought to be on the procedural abuses that 

run up the costs. I think Mr. Boswell spoke very effectively about 

the discovery costs and the imbalance in discovery. 

In that ITC case I referred to, we produced over 3 million documents, had to provide over 20 of our employees as witnesses, all 

before the ITC ever even looked at the issue of domestic industry 

and threw them out. 

I had $13 million of expense there. 

So I think you find a situation where—I have one case that is 

in trial right now, as a matter of fact, where all of the patents in 
94 

suit have been subject to reexam and at least partially declared invalid. And yet, the case is proceeding. 

Those reexams are moving much more quickly, thanks to the 

America Invents Act. I think that when a party makes a decision 

they want to go ahead, even though a case is in reexam, they ought 

to be bearing the cost of the litigation. The same with the discovery 

approach that Mr. Boswell referred to. 

Mr. CHAFFETZ. And, Mr. Boswell, you gave a very vivid explanation of the problem and challenges that you are facing. 

I want to have, given the remaining seconds that I have, the gentlewoman from JCPenney to give us her perspective, because this 

is not a problem that is just in the tech sector. Again, tech is one 

of the most important, thriving parts of our economy. Let’s talk 

about outside of tech, because it is also affecting them. 

Ms. DHILLON. Thank you. And I do agree with your comments. 

As I indicated, retailers and other businesses that are not typically what you would think of as high-tech companies are being seriously affected by the menace of the patent trolls. 

I think that a number of the proposals that have been put forward here today could definitely help retailers like JCPenney and 

other companies that are similarly situated. And I think, in particular, what is important is looking at limitations around suits 

against downstream users before the litigation against the licensor 

has been fully exhausted. 

Mr. CHAFFETZ. Thank you. 

Thank you, Mr. Chairman. I yield back. 

Mr. MARINO. Thank you. The Chair will now recognize Congresswoman Chu from California. 

Ms. CHU. Thank you, Mr. Chair. 

Mr. Chandler, I am concerned and outraged by these frivolous 

suits that are filed against the end-users of products, these 13,000 

demand letters that were levied against those who rightfully purchased your products, such as wireless routers. 

My question is, do the patent trolls have an actual legal claim 

against the customers? Would it actually even stand up in court? 

Mr. CHANDLER. Well, certainly not if they are already licensed. 

But the patent statutes, I think, appropriately, will allow anyone 

who makes, uses, or sells, a product that infringes to be subject to 

suit, and so that can include anyone in the chain of distribution. 

But what the assertion entities want to do is sue the people as 

far down the user chain as possible, because they have a bigger 

revenue base. 

Why sue the maker of the chip that is a $5 chip that Broadcom 

might have licensed to get a royalty that is $.50 when you can sue 

a Cisco that sells a box for $100 that allows Wi-Fi. 

But why stop there? Why not sue the coffee shop and try to get 

some of their revenue? 

That is an issue of how damages are calculated. And what we 

need to do is move toward much more clear standards, so that, in 

advance, it is known what that revenue base is that will be subject 

to the patent infringement claim. Even if you sue Caribou Coffee, 

the damages should still be based on the value of that chip. That 

is the unit that includes the patented invention. 
95 

And until the courts or the Congress make clear that that is the 

only way that the damages will be calculated, there will still be an 

incentive for these assertion entities to go for the biggest possible 

revenue base and to be suing innocent end-users who have very little means to defend themselves. 

Ms. CHU. Should there be a test case in court? 

Mr. CHANDLER. Well, there are cases moving forward. Chief 

Judge Rader at the Federal Circuit helped with this a few years 

ago. Judge Posner of the Court of Appeals, sitting by designation 

on a District Court case, made this clear. 

But at the moment, the law of the land is a case called GeorgiaPacific that gives the jury very wide latitude in looking at 15 different factors. Because of the uncertainty that that causes, at this 

point, it is a casino when you walk into litigation. You have no idea 

how those damages will be calculated, and that creates a huge incentive to settle, especially when you look at the cost of litigation. 

So there are cases out there. I think that is one that courts are 

going to work through. We tried very hard with the Congress for 

over 7 years to work on it, and very hard to balance the various 

interest groups. Our hope is the courts will fix that in years to 

come, if Congress does not. 

Ms. CHU. And is there a way that the end-user could protect 

themselves? 

Mr. CHANDLER. Well, I think Mr. Johnson made some very helpful observations on that. One thing that Congress could perhaps 

provide is that the end-users could force the cases to be stayed, so 

that the litigation would be with the manufacturer of the device. 

And we would certainly be open to working with Mr. Johnson on 

a proposal that could work for all industries, that maybe Congress 

could enact. 

Ms. CHU. Yes, sir, in fact, I do want to pursue that with Mr. 

Johnson. 

You said that a solution would be allowing suits against manufacturers of the allegedly infringing products to take precedence 

over suits against the customers, and that then a manufacturer 

would have the right to pursue a separate suit, or intervene in an 

existing suit. 

If your solution is enacted, do you foresee companies willingly intervening in an existing suit or pursuing suits on their own? And 

what would be the incentive for them to intervene? 

Mr. JOHNSON. Well, I think whether they institute new suits or 

choose to intervene may depend a lot on the venue of the original 

suit, and their view of the convenience of the forum. 

I think quite frequently the manufacturers would bring suits, 

probably declaratory judgment (DJ) suits, and their home jurisdictions, where it would be convenient to pursue them. And if that 

would result in the automatic stay of the customer suits, then I 

think it would be an expeditious way and a less expensive way to 

resolve the litigation. 

And Mr. Chandler and our other witnesses point out, it would 

avoid large numbers of litigations against very small users who are 

not in a position to join the issue, and it would allow one lawsuit 

to resolve the matter once and for all. 
96 

Ms. CHU. And would companies even know about these demand 

letters? 

Mr. JOHNSON. Excuse me? 

Ms. CHU. Would companies even know about the demand letters 

being sent to the end-users? 

Mr. JOHNSON. Yes. Usually, I think most of us who make and 

sell products find that our customers are pretty quick to let us 

know when they have been sued. 

Ms. CHU. Thank you. I yield back. 

Mr. MARINO. Thank you. 

The Chair now recognizes Congressman Issa from California. 

Mr. ISSA. Thank you. I will follow up with Mr. Johnson. 

Do you envision any kind of test for the question of whether a 

DJ would take precedent? For example, would there have to be a 

relationship between the retailer which you have a responsibility 

to indemnify him? And could that be a test, if we were to enact it 

into law, that could codify that? 

Mr. JOHNSON. I do think we would have to look closely as we 

move forward in developing legislation, because there are a variety 

of relationships between suppliers and their customers, and there 

may, as you point out, be indemnities. There may be UCC implied 

indemnities. And there may be some situations where the components have been supplied pursuant to the specifications of the customer where it would not be appropriate. 

Mr. ISSA. Well, I want to thank you for that answer, because that 

begs the point for us in legislation. 

I would not want to see an automatic stay, based on the manufacturer’s DJ. In fact, there could be a material difference in the 

two cases, and if I were a retailer, or someone else in the supply 

chain, I wouldn’t want to be prejudiced by a case being argued 

somewhere else. On the other hand, you do not be prejudiced by 

it. 

But I do think you are onto something very important. As a manufacturer, they never shopped my venue. As a patent holder, I have 

to be honest, when I found myself with Chrysler in a DJ in Detroit, 

I was not happy, so I am well-aware why each of us would look at 

that. 

Let me go back to Mr. Chandler. Currently, we do have this dilemma that the ITC is where you go for an exclusion/injunction. 

And you go to District Court for damages and you use one against 

another. 

It is an oddity of Congress that we have jurisdiction over one 

part. Another Committee has primary jurisdiction over another. 

The two questions I have for you are, should we as a Congress actively take on to resolve this, so that never again could somebody 

essentially shop both to the detriment of, to be honest, cost to the 

government, and for a resolution not envisioned post-eBay? 

Mr. CHANDLER. Certainly, there has been a trend in the last 5 

years, since the eBay decision, to a very significant increase in the 

caseload in the ITC, both in terms of the number cases and the 

number of defendants involving nonpracticing patent industries. 

Mr. ISSA. And I do not want to limit it to nonpracticing. If you 

take the Qualcomm-Broadcom suit, you had two large—and there 

were others. There was Kodak. There were others. You have large 
97 

domestic entities in which they clearly both are domestic, and importation is simply a matter of a portion of the supply chain in 

America today, including for your company. 

Those are really the cases where I want to know, because we can 

talk about trolls. We can talk about people who do not manufacture. The ITC requires there be a domestic entity in order to get 

standing. 

But let’s assume that you are talking about two S&P 500 companies, substantial assets, more than enough to pay any damages. 

And yet one of them goes to the ITC in order to, essentially, twist 

the knife and get a settlement. It could be your company doing it 

to somebody else, on occasions. 

Mr. CHANDLER. The ITC has a specific mandate to move quickly 

to stop foreign knockoffs from coming in. Now, some parts of the 

supply chain, as you alluded to, there simply are no domestic 

sources of components. And the fact that a very small component 

of an essentially domestic product comes from abroad, and is alleged to infringe, can subject you to the ITC. 

I wouldn’t say that the ITC’s reason for existence is obsolete. 

And, certainly—— 

Mr. ISSA. No, and I’m not suggesting. 

And my time is very limited. What I am suggesting is that, currently, in some of the cases I mentioned, the ITC told us they were 

without power to do anything other than to use the sledgehammer 

they were given. And we, in the Congress, have the ability to give 

them an additional tool. 

For example, the ITC finding that there is substantial domestic 

assets sufficient to pay any damages could choose to stay their 

case, and recognize that their need is only when, if you will, there 

is an import situation in which money is not going to be paid because there is not as substantial import. 

And to be honest, the Open Act, something that I sponsored in 

the last Congress, and will re-drop in this Congress, envisions that, 

in the case of intellectual property—classic movies, music—that the 

ITC may have a greater role, because it is, by definition, coming 

from entities that you can’t touch other than through exclusion. 

Mr. CHANDLER. I agree with you completely that rationalization 

of the dual jurisdiction and duplicative litigation would make an 

awful lot of sense. There is no reason that these cases need to be 

carried out in two different fora simultaneously. 

Mr. ISSA. Thank you, Mr. Chairman. 

Mr. MARINO. Thank you. 

The Chair recognizes Congressman Deutch from Florida. 

Mr. DEUTCH. Thank you, Mr. Chairman. 

Mr. Chairman, I want to thank all the witnesses for appearing 

today. It is actually very helpful hearing. 

And I understand there are a number of elements in our patent 

system that have contributed to the troll problem that so many of 

you have already discussed. And patent quality, particularly in 

emerging technologies, has been a problem with PTO. That has 

come up, today, as well. And I know it is an issue that they have 

been working on to remedy. 

But even if we assume that, going forward, the quality of all new 

patents is unimpeachable, there is still a question of what to do in 
98 

the interim to deal with vague patents, overbroad patents that 

have already been issued. 

So there are lots of proposals, lots of ideas. You have laid out 

some. The SHIELD Act has been introduced by my colleagues as 

a way to, in that case, limit litigation using the questionable patents. 

I remember the discussions that we had during the America Invents Act about reexamination of limited types of patents. Everyone that I have talked to about this troll problem, all the folks who 

have been in office, people that we have met with, seem to agree 

that there is no silver bullet here. There is no one thing that can 

be done. 

We have to look at all the options to minimize abuses. But there 

would also be unintended consequences, if we are not careful. 

Mr. Gerst, you spoke about the unintended consequences that 

would stem from the SHIELD Act. If we had this fee-shifting provision, the impact that that would have on small and medium-size 

businesses would be exactly the opposite of what we would want 

to encourage and the kind of innovation that we are actually trying 

to encourage, by having these discussions to begin with. 

Mr. Rao, I wanted to ask you about one small aspect of the entire 

ecosystem. I understand it is not a significant issue in this whole 

broad discussion. But I think the troll problem in the patent system as a whole would benefit from greater transparency, significantly greater transparency. 

And in my background, coming from real estate law, there was 

always very obvious title for all property. Records were kept up to 

date. They were easily searchable. And similarly, I understand the 

copyright has diminished remedy for failure to register in a timely 

manner. 

But in the patent world, in the patent universe, the records seem 

woefully lacking. 

Why can’t we—let me phrase it more positively. Is there a way 

to have a more transparent system to record patents, so we know 

who it is who we are talking about, we know who these trolls are, 

and there’s a clear line, and that we don’t simply—they don’t simply wait until there is a lawsuit to go ahead and record an order 

for them, to proceed? 

Mr. RAO. Thank you for the question. 

Absolutely, I think there is a way to address this problem. And 

we think it is a problem. 

We think that the large patent aggregation entities are typically 

holding the patents in other names or shell companies, because 

they don’t want to draw attention to the size of their portfolio. And 

they also want to ensure that there is not declaratory judgment actions are reexamination proceedings initiated against them. And by 

hiding the true ownership of the patents, that is their way of avoiding that problem. 

The PTO has suggested some process for identifying the real 

party of interest. For example, having the patent holders record the 

current assignee status at the time of maintenance fee renewal. 

That seems to be a very low-cost way of providing up-to-date information about who the true owner of the patent is, because you already have to interact with the patent office at that time. 
99 

There has been some concern about real party in interest causing 

a burden on patent holders, but I think that if you take the PTO’s 

approach, I think the burden is low, and I think the benefit to the 

public is pretty high. 

And not only do we want that transparency at the time of when 

they own the patent. We would also like to have a little more 

transparency when we are being sued. We find that our discovery 

is also limited into finding out who is suing us. 

And we feel that, as defendants, we should know who is getting 

the ultimate economic benefit from the patents that are being asserted against us. 

Mr. DEUTCH. Also, what is the best way to do that? What would 

that look like? 

Mr. RAO. Right now, there is a corporate disclosure statement 

you have to file, Rule 7.1. It is fairly nominal, the information you 

have to provide. 

So we could strengthen that and require disclosure of all the entities that are getting an economic interest in the pattern that is 

being asserted. That would really help us understand who is asserting the patents against us. 

Mr. DEUTCH. What about the idea of diminished remedies for 

failure to provide the necessary transparency? 

Mr. RAO. What the remedies would be for failing to disclose it? 

Mr. DEUTCH. Limiting the remedies in the event that they don’t 

disclose? 

Mr. RAO. I think that is a solution that has merit. I think that 

if you are unwilling to state that you own the patent, I think, like 

you mentioned in real estate law, there should be a prohibition or 

limitation on your ability to assert the patent, just like it is in 

copyright. 

Mr. DEUTCH. Thank you. 

Thank you, Mr. Chairman. 

Mr. MARINO. Thank you. The Chair now recognizes Mr. Holding 

from North Carolina. 

Mr. HOLDING. Thank you, Mr. Chairman. 

Mr. Boswell, you used some pretty strong language referring to 

patent trolls as business terrorists. Perhaps that might be a bit 

strong. 

But I will say that you look at their activity, and it doesn’t take 

too much imagination to imagine it as criminal activity. Perhaps I 

have spent too much time with criminals over the past 10 years, 

and I am thinking about it in that context. But a protection racket 

where ‘‘we won’t sue you if you just give us a little bit of money’’ 

isn’t too far removed from ‘‘we won’t burn down your business if 

you just give us a little bit of money this week.’’ 

It is one of the oldest criminal activities in the business—the protection racket. 

You were talking about discovery and the cost of discovery, and 

that being a weapon, an instrument of terror. 

Other than the cost of discovery, the AIA looked at the issue of 

joinder and at the issue of what was driving venue. How has that 

been working? How has that solution been received? And how is it 

working? 
100 

Mr. BOSWELL. Well, I believe when Congress passed the joinder 

position, the intent was to allow the traditional venue rules to operate. Prior to that, patent trolls would sue 20 or 30 defendants in 

a favorable jurisdiction, because venue wasn’t appropriate anywhere, so they would sue them wherever they wanted to, which 

would be the best venue for the patent troll. 

The idea, I believe, behind the joinder provision was to allow the 

traditional rules of venue selection to operate. You had to sue the 

defendant where it was appropriate to sue the defendant. 

Unfortunately, that hasn’t been our experience. We have no connection to the Eastern District of Texas. And in the last case we 

were sued, we were sued in the Eastern District of Texas. We made 

a motion to transfer. But unfortunately, that motion sat, but discovery had to start. 

And so, if what happens is a motion to transfer doesn’t get heard 

until so much discovery has happened that, in the interest of judicial economy, the case should stay there, then I think that the 

courts are thwarting what the America Invents Act intended to 

have happen. And I know that that issue was just looked at in an 

EMC case that went up to the Federal Circuit Court of Appeals. 

So without requiring that motions to transfer be heard first before the burden of discovery attaches, then I think one of the main 

provisions that the America Invents Act hoped to accomplish didn’t 

get accomplished. 

Mr. HOLDING. It seems like the Eastern District of Texas is the 

most popular venue. And I think I read somewhere in the materials that the number of cases being filed in the Eastern District 

of Texas is up 104 percent in the last 2 years. Is that correct? 

Does anyone know that statistic? 

Mr. BOSWELL. I didn’t see that statistic. I know the greatest patent filing day in the history of the world was the day before the 

America Invents Act went into effect. And that happened in the 

Eastern District of Texas. 

Mr. HOLDING. Mr. Gerst, I assume you practice in the Eastern 

District of Texas. You take cases there, and so forth. 

Mr. GERST. I have, Congressman. 

Mr. HOLDING. What makes the Eastern District of Texas so different from everywhere else? Why is it such a favorite jurisdiction? 

Mr. GERST. That is a great question. 

I think there are a few reasons, and the reasons have evolved 

over time. I think, first, early on, you had some jury verdicts there 

that were very pro-plaintiff, and so you started to see more activity 

taking place there. You also had a court that issued local patent 

rules that made it more straightforward, and you had a very patent 

sophisticated set of judges down there, who knew patent law 

and—— 

Mr. HOLDING. Let me interrupt. Do they have different local 

rules in the Eastern District of Texas than they have in the other 

Federal districts of Texas? Are they much different from Federal 

districts in general? 

Mr. GERST. At this point, I haven’t compared them. But the Eastern District of Texas was one of the first jurisdictions to institute—— 
101 

Mr. HOLDING. How many judges are there in the Eastern District 

of Texas? 

Mr. GERST. I believe there are two. 

Mr. HOLDING. And is there anyone that is particularly inviting 

to plaintiffs? 

Mr. GERST. Now that I am aware of. I haven’t looked into that. 

Mr. HOLDING. So two judges in one Federal district are attracting 

all of the patent troll litigation that can possibly be attracted. 

Doesn’t that seem a bit odd? 

Mr. GERST. One of the big reasons, that I didn’t get a chance to 

get to about why so many of the cases go there, is that the Eastern 

District of Texas has tended not to stay patent cases pending reexamination. 

So a standard tactic employed by a lot of defendants is to put the 

patent in for reexamination and you move for a stay. Under the old 

rules, it would stay the case for, essentially, 2 years. The Eastern 

District of Texas did not do that. 

I know I filed a motion to stay a case pending reexamination that 

I thought should have been granted, and it was not. It was very 

difficult to do in the Eastern District of Texas. 

That is why there are so many patent cases there. 

Mr. HOLDING. Thank you. 

Thank you, Mr. Chairman. 

Mr. MARINO. Thank you. The Chair now recognizes Mr. Richmond from Louisiana. 

Mr. RICHMOND. Thank you, Mr. Chairman. 

I would just say, before I start, that I thought Congress, that we 

get called some bad names, but today I have heard rats, terrorists, 

criminals, and now we have added arsonists and protectionists to 

the list. So it kind of makes me feel good up here. [Laughter.] 

I will start with you, Mr. Chandler, because in the beginning, 

you mentioned the case in which the judge ruled that the First 

Amendment protected the action. And we are here today to talk 

about maybe remedying that. 

But if the judge is ruling that the Constitution trumps, what can 

we do beside a constitutional amendment to affect his ruling, if he 

is ruling that it is protected by the First Amendment? 

Mr. CHANDLER. Yes, I will say that I said lab mice and not rats, 

and it was an analogy. 

In that particular case, we were dealing with a set of facts that 

we thought constituted racketeering. And I think access to justice 

is an extremely important principle and the right to petition the 

government is as well. And the legal doctrine applicable to that is 

called Noerr-Pennington, that allows people to bring litigation and 

have that be a petitioning activity. 

There is an exception to that, if litigation is sham, if the only 

purpose of it is to use the litigation process to extract some benefits. 

In this particular case, because some of the customers that these 

people were suing or threatening to sue might have had equipment 

that wasn’t licensed, the judge said it wasn’t a complete sham, and, 

therefore, he wouldn’t apply the racketeering statute to the activity 

that these people had undertaken. 
102 

At the same time, the range of procedural games that are played 

by these financial operators—and you have to understand, many of 

these patent assertion entities are funded by hedge funds or other 

private equity groups at this point. MOSAID, for instance, is private equity owned, the one that we spent $13 million with at the 

ITC. 

And they are really in the business of only litigating. And so the 

only thing they care about is how they can manipulate the procedures. 

So we certainly don’t propose a constitutional amendment, or 

anything that would limit access to justice. But we do think some 

of the procedural games that are played in the patent world can 

be remedied effectively by Congress. 

I think Mr. Johnson and I agree on at least one of them. And 

we also support what Congressman Chaffetz is undertaking and 

look at ways that the SHIELD Act could be used to address some 

of these procedural problems. 

Mr. RICHMOND. Ms. Dhillon, two questions for you. I will start 

with the first one, which is, in your testimony you discussed the 

range of areas in which you have been sued—displaying catalog images, dropdown menus, and all those things. At the end of it, you 

mentioned that patents date back to the late ’80’s, mid-’90’s. They 

have had multiple owners with no continuing involvement of the 

actual inventor. 

But when you mention that, I guess what stood out to me, and 

I wanted to give you a chance to elaborate, was that you didn’t deal 

with the merits of the litigation. And I am trying to figure out, if 

the fact that they are old and they are not very active, and the person who created it has no involvement, should that be pertinent to 

the lawsuit? 

Ms. DHILLON. Absolutely. And please understand, whenever we 

receive one of these suits, we do an analysis to determine, do we 

think we are actually infringing on the patent? And if we do, as 

I indicated, we and most companies are responsible utilizers of 

technology. If we have overlooked something, and we are infringing, we will compensate to make up for that infringement. 

But in the cases I described, our conclusion was that we were not 

infringing on these patents, but the difficulty, particularly when 

the patents are that old and when the owners of the patents have 

transferred ownership so much, is to be able to develop the evidence to establish the prior art defense. Going back that far in time 

it is extremely difficult for companies like mine, and very expensive. 

Mr. RICHMOND. Which leads me to the question of do you think 

there should be a different standard, not a carve out, but a specific 

issues or legislation to address retailers? 

Ms. DHILLON. Well, I think that it would be helpful to have reforms around end-users. So I am most familiar with retailers, but 

other witnesses have referenced, for example, restaurants and the 

like, and I think that they are in a similar situation to ours. 

Limitations around suits against end-users, until there has been 

a resolution, vis-a ́-vis the vendor or the licensor, in the first instance, would do a lot to protect end-users like JCPenney. 
103 

Mr. RICHMOND. I see that my time has expired, Mr. Chairman. 

I yield back. 

Mr. MARINO. Thank you. 

The Chair recognizes Congressman Farenthold from Texas. 

Mr. FARENTHOLD. Thank you, Mr. Chairman. 

I apologize if I re-ask a question. The Governor of Texas was in 

for lunch, and you don’t upset Mr. Perry by no-showing on him. 

I did want to talk a little bit about the patent assertion entities. 

In Texas, if you buy groceries, there’s a pretty good chance you buy 

them from HEB. It is a big grocery store chain in Texas. And believe me, they get plenty of my money. 

But one of the reasons the prices might be so high is they tell 

me that they were approached by one of these entities for a device 

that reads checks. They bought it off the shelf and plugged it into 

their system. And they are basically saying settle with us now, or 

we will run this through litigation, and it will be 10 times the cost. 

JCPenney has mentioned that it is happened to them. 

My fear is I have a lot of electronics. I have Adobe Photoshop 

Touch on my iPad. If you guys unintentionally have something in 

there that is infringing, you would expect the patents to be asserted against you. But if I take this to its logical conclusion, they 

can come sue me for more than I paid for my iPad, more than I 

paid for the software on my iPad, and potentially more than I 

made this month. Do you think that is accurate statement? 

Mr. RAO. Unfortunately, they are allowed to sue you. That is correct. 

They are allowed, as Mr. Chandler mentioned earlier, they are 

allowed to sue the user of technology, if that method is patented. 

That is the law today. 

I think the question, of course for you, particularly, is damages. 

But I think Adobe, generally, we stand behind our software, as 

mentioned before. We work with our suppliers and our customers, 

and when we find that someone is accusing Photoshop of infringing 

a patent, we will step in and intervene. 

Mr. FARENTHOLD. And you have been approached by customers 

to do this? 

Mr. RAO. We have. Safeway, another grocery store, has asked us 

to do this. REI has asked us to do this. L.L. Bean has asked us 

to do this. Pacific Sunwear has asked us to do this. Small retailers 

are asking Adobe to step in. 

Mr. FARENTHOLD. So, what percentage of your patent litigation 

comes from these patent assertion entities? 

Mr. RAO. About 85 percent of our patent litigation. 

Mr. FARENTHOLD. Eighty-five percent. 

I am a little bit concerned. I guess it is enlightened self-interest, 

because I am an early adopter of technologies. But would a solution 

be legislatively create an end-user exemption where, if I go buy 

something off the shelf and don’t modify it and use it the way it 

was intended and just plug it into the USB port of my computer, 

or plug it into the wall, or whatever I do, I will go down the line, 

does anybody see any problems with that? Would that be at least 

a stopgap solution? Anybody want to take a stab at that? 

Mr. Johnson. 
104 

Mr. JOHNSON. Under the Uniform Commercial Code, there is already an implied obligation, implied indemnity against noninfringement from a manufacturer to a customer. 

And the prevailing jurisprudence is that customer suits like 

those we are talking about should be stayed in favor of a manufacturer resolving the issue. 

Mr. FARENTHOLD. I guess my fear is, and I practiced law for a 

while, and one of my lines to my client—you can beat the rap, but 

you can’t beat the ride. 

Mr. JOHNSON. Well, that is exactly the problem, that some courts 

have ignored that jurisprudence, which is why a statutory fix may 

be required in order to get rid of this problem. 

But I don’t think that you have to wholesale deprive a patent 

owner of a right where there really is an infringement in order to 

do that. It may be that you have unintended consequences, because 

the only person who could be sued might be the one you would exempt, and you wouldn’t want to do that. 

Mr. GERST. Congressman, if I could just echo that? There are certain patent claims that are called method claims that are only infringed, in some cases, by the end-user. And so that is the issue 

that Mr. Johnson is speaking of. So that adds complexity to what 

you are trying to achieve. 

Mr. FARENTHOLD. All right, well, I appreciate it. I see I am just 

about out of time, so I will yield back. 

Mr. MARINO. Thank you. 

The Chair now recognizes Mr. Jeffries from New York. 

Mr. JEFFRIES. Thank you, Mr. Chairman. 

I want to express appreciation for the presence of the witnesses 

to speak on such a very significant issue. I share their concern, as 

I think all of my colleagues do, with making sure that unnecessary 

or unjustified litigation doesn’t stifle innovation and entrepreneurship. And I think this is something that we have to confront. 

Obviously, there are various ways to get at the problem, and the 

remedy here is going to be what we all need to find common 

ground on, to determine the best way to address what I think is 

universally or almost universally recognized as a legitimate problem. 

And there seems to be at least five different potential remedies, 

and I want to get into the details related to a few of those. 

But you have the loser pay. You have expedited discovery. You 

have the possibility of shifting burdens. You have enhanced standing as a possibility. And then lastly, I guess, improving or strengthening the Rule 11 requirements. 

But I want to hone in on the notion, and I guess the proper expression is patent assertion entities. I was hesitant at the very beginning of this hearing to use the word patent trolls, thinking that 

perhaps it was an unnecessarily aggressive expression. But, as my 

good colleague from New Orleans has catalogued so thoroughly, apparently, that may be the kinder, gentler way to approach these individuals. 

But I guess, Mr. Rao, from the standpoint of the subset of individuals who fall within this category as plaintiffs, who are bringing 

litigation, how many of those matters eventually go to trial? I understand that many don’t, because of the cost of litigation resulting 
105 

in settlement. but how many of those matters—and anyone else 

can answer—but how many of those matters go to trial? 

Mr. RAO. As a whole, very few patent litigations go to trial. They 

settle. In the NPE cases, at least in Adobe’s experience, very few 

historically have gone to trial. So I would say the vast majority end 

up being settled. 

And that is part of the problem, that you have highlighted, that 

the cost of defense is higher than the money they are asking for. 

And the current group of patent plaintiffs, they are not looking to 

have the patents scrutinized. They are merely hoping to get you to 

pay. 

Mr. JEFFRIES. I gather you support a strengthened Rule 11 requirement. Is that correct? 

Mr. RAO. That is correct. 

Mr. JEFFRIES. So the reason I asked the question, and I gather— 

in other words, in order for the Rule 11 sanctions to kick in, there 

has to be some decision along the way, in the litigation, whether 

that was a motion to dismiss that was granted, summary judgment 

granted, or withdrawal perhaps, or a decision at trial. 

And so the question for me is, how do you get to the point, if you 

are going to enhance the Rule 11 requirements, you are still going 

to have to arrive at the decision. And so it seems like you can’t simply enhance the Rule 11 requirements. Perhaps we need to look at 

either enhanced standing to make sure that those who were bringing the litigation legitimately have an issue, or you shift the burdens, which then perhaps make it substantively more difficult to 

achieve a result, but design to shift the burden so that those with 

legitimate claims can make it through the litigation. 

And if you strengthen either of those two requirements, or perhaps both, then those who are bringing the litigation, it is just a 

lot easier to determine who is bringing the frivolous litigations and 

then the sanctions can apply. 

If you or any of the other general counsels might comment on 

that? 

Mr. BOSWELL. Mr. Jeffries, may I respond to that? 

Mr. JEFFRIES. Yes 

Mr. BOSWELL. If at the end of the process, the defendants had 

a way to just not lose more. In other words, even if we win a case, 

we have lost, where these cases are filed, we are never going to get 

Rule 11 sanctions. We are never going to cost shifting. 

If Congress did something to change that, then we would have 

less incentive to settle. We would be inclined to take the cases until 

you got a decision. And as soon as you do that, the entire business 

model of the patent trolls changes, because they use early settlements to fund litigation. And as soon as people stop settling, the 

whole paradigm shifts. 

Mr. JEFFRIES. Yes, I would suggest that we explore that. But to 

that point, and I am not sure where I am at. I wasn’t in the institution when Congress—I think it was in 1995—passed the Private 

Securities Litigation Reform Act. But it was an act of Congress 

that was designed to get at this very problem, that there was at 

least a perception that there was excessive litigation being brought 

by individual plaintiffs, not all of whom were legitimate. 
106 

Again, I don’t know where I fall on this litigation. I have been 

on both sides, on the defendant side and on the plaintiff’s side, in 

my prior practice. But it does seem to me that it would be helpful 

for us, for you guys and the gentlelady to take a look at its success, 

what Congress may have done right with that litigation, what perhaps hasn’t worked. And then use that as a basis for perhaps coming up with some creative suggestions to get at how to stop the excessive litigation. 

Mr. MARINO. The gentleman’s time has expired. I think he is 

through. 

Mr. JEFFRIES. Yes. Thank you, Mr. Chairman. 

Mr. MARINO. The Chair now recognizes the Chairman of the Subcommittee, Chairman Coble from North Carolina. 

Mr. COBLE. The late Howard Coble has returned. I thank all of 

you. 

Mel, I want to thank you, and, Tom, for manning the ship. 

Mr. Boswell, good to have you up from Carolina, as Mel mentioned earlier. 

Mr. BOSWELL. It is good to be here. 

Mr. COBLE. Curtailing abusive discovery practices could be one 

way to deal with abusive patent litigation. Speak a little more specifically to that. 

Mr. BOSWELL. As I was mentioning just a minute ago, one of the 

challenges is patent trolls have the ability to make it so expensive 

that even if you are sure you are going to win, you are going to 

lose. 

I actually had a conversation with a patent troll where we demonstrated without question that there is no way our product that 

they accused could violate their patent. His answer was, I don’t 

care. 

Mr. COBLE. He just wants to buy his piece, I presume. 

Mr. BOSWELL. Well, he wanted us to pay him money, so we could 

prevent ourselves of having to go through the expense of going 

through litigating. And he knew and I knew that even if we won 

on all counts, we weren’t going to get any of our money back, and 

we were still going to have to pay the cost of discovery. 

So I am trying to change the paradigm, so that defendants do not 

have to settle, so they can’t be extorted, basically. And that is, if 

you can afford to litigate, then you don’t have to settle. And that 

is really the point. 

And as soon as we do that, I think the paradigm shifts in the 

patent troll world. 

Mr. COBLE. Thank you, Mr. Boswell. 

I will put this to either or all of the witnesses. Do you believe 

that patent assertion entities are those that accumulate large numbers of patents for purely offensive purposes should be subject to 

antitrust scrutiny? 

And we will start with Mr. Chandler. 

Mr. CHANDLER. I think the patent grant is a monopoly in order 

to encourage progress in science and the useful arts. And patent 

holders try to find various ways to extend the scope of that monopoly beyond what the patent grant intends. 

And I think that patent aggregation efforts deserve very close 

antitrust scrutiny for that reason. I think they have the impact 
107 

across whole industries of forcing settlements and suppressing competition in ways that are not intended as part of the patent grant. 

Ms. DHILLON. I would concur with Mr. Chandler’s remarks. I 

know the Department of Justice and the FTC have been looking at 

this very question, and we support that effort, because I think that 

it does raise legitimate issues. 

Mr. BOSWELL. Yes. 

Mr. COBLE. Thank you for your brevity, Mr. Boswell. 

Mr. GERST. Congressman, I am not an antitrust lawyer. It does 

seem to me, though, that it is hard to conceive that these patent 

assertion entities, non-practicing entities, have anything approaching market power, but I am not an antitrust lawyer. 

Mr. COBLE. Thank you, sir. 

Mr. JOHNSON. The mere aggregation of patents may have very 

beneficial effects, especially, for example, if it brings together conflicting technologies, patents that would conflict with each other, to 

make them available for competitive purposes. It could be very beneficial. Or you could aggregate patents as we have seen in the 

Hartford Empire case years ago for anticompetitive purposes. 

So I would say it’s not the fact of the aggregation, but you have 

to look at what the use and effect is under the antitrust laws. 

Mr. COBLE. Thank you, sir. 

Mr. RAO. I would agree with that. There are definitely 

proconsumer aspects to patent pooling, for example, for standards. 

But I think the larger point that Mr. Chandler mentioned about 

a patent assertion entity who is just aggregating lots of patents 

and using that volume to demand fees I think is worth looking at 

a little more closely. 

Mr. COBLE. Thank you, sir. 

Mr. Chairman, I hope you will take note that the red light has 

not illuminated, and I am yielding back. 

Thank you, ladies and gentlemen. 

Mr. MARINO. We will give you credit for that in the future, Chairman. 

Mr. COBLE. Thank you. 

Mr. MARINO. You are welcome. 

The Chair now recognizes Congressman Nadler from New York. 

Mr. NADLER. Thank you, Mr. Chairman. 

Mr. Chairman, I have sat here through this hearing. It has been 

very illuminating. 

I have a couple questions. 

Mr. Chandler, getting back to this question, and maybe Ms. 

Dhillon, getting back to this question of end-users. It certainly 

seems unfair to have the end-users, to have the Starbucks or whoever, sued. 

What about simply a rule or statute that said that they cannot 

be sued. It goes right up the chain to whoever first used to the patent in a productive way? You just implead the first user, and it is 

their problem, and they just get right out of the suit? 

Mr. CHANDLER. Well, I think that Mr. Johnson’s proposal in that 

regard, regarding staying of suits with end-users and permitting 

the manufacturers to intervene—— 

Mr. NADLER. Why stay it? Why not just dissolve it, eliminate it? 
108 

Mr. CHANDLER. I think that there may be cases where the only 

way to assert a patent would be against the end-user for various 

reasons. And so an automatic elimination of that right I think 

would be a significant change. 

Mr. NADLER. If you gave the plaintiff the right to go against whoever originally used it, he could initially sue Starbucks. They just 

get out and say here, and go up the chain. They have a right to 

sue. Even if the original complaint was against Starbucks, just get 

rid of them and give them the right to sue whoever first used that 

technology. 

Mr. CHANDLER. I think that having patent litigation focused on 

the technology that is described in the patent is the right result. 

And there are going to be a number of different ways to skin the 

cat, and I think the proposal you are laying out is one that ought 

to be in the mix, in figuring out how to do that. 

Mr. NADLER. Okay. Thank you. 

Mr. Boswell, in his testimony, Mr. Boswell says essentially says, 

talking about shifting the cost, and the cost here is overwhelmingly 

discovery. And he says the critical discovery relates to certain core 

documents. These core documents include the patent at issue, the 

technical specifications of the allegedly infringing product or feature, and the prior art. 

He proposes that in any patent lawsuit, normal rules of discovery 

apply with respect to these core documents; that is, the person producing the documents pays the cost of production. 

But he would go one step further. We would propose additional 

discovery is permissible, and that parties could ask for whatever 

documents they need. The difference is that the party requesting 

such other discovery bears the cost of that discovery. 

Does anybody object to that? And if so, why? Yes? 

Mr. JOHNSON. I object to it, or we object to it, the extent that it 

removes the discretion from the courts. Right now, the courts have 

that authority. They have the authority to condition the provision 

of discovery based on whatever conditions are appropriate, including paying for the discovery. They are the best positioned to get in 

and figure it out—— 

Mr. NADLER. Given the nature of the problem that we have, if 

we define the classes of core documents and said that is where the 

plaintiff pays for the discovery. Beyond that, it is different. Or that 

is where the defendant pays for the discovery. Beyond that, it is 

different. 

What is wrong with saying that to the courts? Why do they need 

further discussion? 

Mr. JOHNSON. There are all manner of different plaintiffs—universities, individual inventors, and the like—and all manners of 

lawsuits. The core discovery concept was originated by Judge 

Rader. And the pilot patent courts program is looking at that very 

closely. And they have other management techniques as well, to try 

to avoid excessive discovery. 

Mr. NADLER. But that hasn’t worked, obviously. 

Mr. JOHNSON. Well, it is just getting going. Congress just passed 

the bill in January 2011, and it is now being implemented. And 

they are very active, and we should wait to see how they are doing 

before we try to give them a blunt or one-size-fits-all rule. 
109 

Mr. NADLER. Can anyone tell me why they disagree with Mr. 

Johnson on this point? 

Mr. Boswell. 

Mr. BOSWELL. Because although the courts have that power now, 

I don’t think any of us will have ever seen a court that has used 

it. 

Mr. NADLER. Even though it is a brand-new power? 

Mr. BOSWELL. No, I mean he was saying the courts could do that 

now. But the patent trolls are not filing in any court where any 

judge would do that. 

And I disagree that there would be any problem with our proposal. Obviously, I like our proposal. 

And the other point I need to make here is that the idea of, well, 

we are going to study this problem and we have to give it time, if 

we were standing there and someone was drowning, we wouldn’t 

say, well, we are going to study the problem. 

Mr. NADLER. Congress might. 

Mr. BOSWELL. We would jump in and save them. 

Mr. NADLER. I said Congress might have a study completed. 

Most people wouldn’t. [Laughter.] 

Mr. BOSWELL. I hope not. 

Mr. NADLER. Thank you. I yield back. 

Mr. MARINO. Thank you. 

We are going to go a little bit out of rules procedure here. President Obama will be meeting with the Democrat Caucus about 2:15 

today, as he met with the Republican Caucus yesterday. 

So, my colleagues, my Republican colleagues, have graciously 

agreed to allow the rest of the Democrat side to get their questions 

in, so they can get to the meeting. And then we will follow up later. 

So I think the next person to have questions is Congressman 

Johnson from Georgia. 

Mr. JOHNSON OF GEORGIA. Thank you, Mr. Chairman. And thank 

you Members on the other side of the dais here for your generosity 

and graciousness. 

I hearken back to the days when I was growing up. My aunt in 

the backyard, just past the backyard was a bridge that then 

emptied onto the street behind her property. And she would always 

tell us, do not go out there on that bridge, because the three little 

billy goats. The three billy goats, she told us that story about the 

three billy goats and the big, bad troll waiting under there. 

And so I understand what a troll is, but I also know that every 

person or entity that files a patent infringement suit is not a troll. 

And I also know that while software is a product that can easily 

be broadened, or expanded, in so far as claims are concerned, by 

those who would file patent lawsuits, this legislation that we are 

looking at, the SHIELD Act, would apply to all types of patents, 

not just those patents. 

And I know that there is abusive behavior occurring in patent 

litigation cases. Many examples of that, even in the northern district of Georgia, scanner trolls targeted BlueWave Computing and 

other Atlanta-based businesses for merely using an office scanner 

to scan documents to email. 

BlueWave reportedly received a demand from Project Paperless, 

a patent assertion entity, stating that BlueWave had to pay $1,000 
110 

per employee for a license to distribute its computer architecture, 

or they would face a lawsuit. 

In this case, BlueWave fought the lawsuit and won in court after 

spending millions of dollars to defend itself. And that is something 

that they should not have to be subject to. 

Finding solutions to this problem is incumbent on the courts, 

businesses, the Patent and Trademark Office, and on this Congress. These solutions should both address immediate concerns and 

also be forward-looking to enable the breadth of patent claims to 

be included. 

But we should also be careful to avoid solutions that create barriers to the courthouse for some litigants and not others. 

I also have concerns with fee shifting and bonding rules that 

would make it prohibitively expensive to enforce a valid patent for 

parties that do not produce materials associated with the patent. 

Lastly, although this is, indeed, a worthy issue for our consideration, we have to be careful that any legislation in this area that 

we may pass could open the door for other alleged reforms that 

would deny plaintiffs their rights to go to court in other tort situations, so-called tort reform. 

We must consider the implications of our solutions in other 

areas, even ones as close as copyright. 

Although we are not considering these questions today, these are 

important issues that we must be mindful of as we move forward. 

Lastly, I will say that a patent holder who files a lawsuit against 

a deep-pocketed predator corporation, making money off that person’s or entity’s patents would be covered by this legislation, would 

it not, Mr. Gerst? 

Mr. GERST. Your question, Congressman, is whether or not a 

company—— 

Mr. JOHNSON OF GEORGIA. Well, whether or not a person or an 

entity filing a claim for patent infringement, they would be covered 

by this act? 

Mr. GERST. By the SHIELD Act? 

Mr. JOHNSON OF GEORGIA. Yes. 

Mr. GERST. Well, if an individual is the inventor, the person 

would be excluded from the SHIELD Act. But if the person is not 

the inventor or one of the other exclusions, that person or entity 

would be affected by the SHIELD Act, yes, Congressman. 

Mr. JOHNSON OF GEORGIA. Thank you. 

Mr. MARINO. Thank you. 

The Chair now recognizes Congresswoman Jackson Lee from 

Texas. 

Ms. JACKSON LEE. Let me thank the Chairman and the Ranking 

Member. And I do want to thank our colleagues, again, for their 

generosity. 

I remain open on this question. I think the witnesses have laid 

out an able case for both perspectives. And I just want to cite some 

language into the record. 

A Boston University study suggested that NPE litigation has had 5,842 defendants in the litigation in 2011, costing about $29 billion. 

And the Boston University study represents that it impacts diversion of resources; it delays new products; and there is a loss of market share. 
111 

But I think the salient point by Chief Judge Rader out of the 

Fifth Circuit makes the point that really provides sufficient shock 

value, that we all understand that there are entities that are created solely for the purpose of litigating patents. 

And he follows by saying, which is intrinsically not necessarily 

bad, but that there is an entity or an industry. 

I have a series of questions that, hopefully, will allow for some 

give-and-take. And I think one just factual question to Mr. Chandler is to find out what the status of the case was that was with 

Judge Holderman, where you attempted to have a rebuttal action. 

Where is that case at now? 

Mr. CHANDLER. That is the Innovatio case that I was describing 

to Congressman Lofgren. 

The claims that we asserted against Innovatio for the way they 

have targeted these 13,000 end-users, the breach of contract claims 

related to their refusal to fulfill the obligations that attached to 

those patents that were declared to standards bodies are proceeding. 

Judge Holderman granted a motion to dismiss the RICO claims 

that we brought, and we are determining now how to proceed with 

that. 

I understand his decision and respect the reasoning that went 

into it, because of the importance of access to justice and the petition right. In that case, we felt that this particular plaintiff was 

well aware that many, many, many of the people they were sending letters to were already licensed. This guy is an expert on his 

patents. He used to work on for the company he bought them from. 

And we felt he should have been held to account for the tactics 

he was undertaking with innocent, unsophisticated end-users that 

he knew many of whom were licensed. 

Ms. JACKSON LEE. And you decided not to appeal the dismissal 

proceeding now in the District Court? 

Mr. CHANDLER. Well, we are in a process of determining what 

the right way is to proceed on that. I do understand the judge’s 

opinion. I respect him. 

Ms. JACKSON LEE. All right, let me try again to proceed with 

some give-and-take. 

Mr. Gerst and Mr. Johnson seem to be opposed to some form of 

a SHIELD Act legislatively. And so let me try to juxtapose Ms. 

Dhillon and Mr. Chandler. 

Mr. Gerst, what is your answer, then? Would you see this as a 

court solution or a patent office solution, because obviously the 

SHIELD Act is a legislative initiative? What would be your solution to a sizable amount of money being spent on this litigation? 

Mr. Gerst? And Mr. Johnson as well. 

Mr. GERST. Yes, Congresswoman, and first, I would say that the 

$27 billion number that you cited in the Boston University study, 

that has been widely refuted. I would recommend that you read 

something by David Schwartz who has written an analysis of it 

that really disposes of that number. 

Unquestionably, as I said during the testimony, the high litigation costs pose a problem. And I think a lot of, for example, Mr. 

Boswell’s recommendations about trying to get to the bottom of 

that makes sense. I think both Mr. Johnson and I posit that the 
112 

best place to do that, the best place to tailor those remedies, are 

at the courts. And it is being done now at the District Court level. 

The Federal circuit has issued guidelines. So, it takes little bit of 

time. 

Ms. JACKSON LEE. My time is short, and I think I got the gist 

of it. 

If Mr. Johnson could be quick, as you get ready to answer, let 

me just pose this question to all of you who have a different perspective: For those who are in the high-tech industry, the question 

will be, can you not protect your software, do nonobvious inventions that would lead to less trolls being able to provide these lawsuits? Are there other ways to protect what you have or to define 

what you have? 

I am going to let Mr. Johnson answer, but with the indulgence 

of the Chair, I hope I can get answers by Ms. Dhillon, at least, to 

tell me why it does not work the way Mr. Gerst wants it. 

Mr. JOHNSON. Would you like an answer to the high-tech question? 

Ms. JACKSON LEE. No, if you have a quick response to what Mr. 

Gerst just said, because I want to hear from Ms. Dhillon and Mr. 

Rao. 

Mr. JOHNSON. Congress needs to provide the courts the authority 

to act to take care of the problem, but the courts are the best place 

to take care the problem, in my view, with the assistance of the 

patent office by allowing the return of the patent to the patent office, under the America Invents Act, to challenge validity when 

that is appropriate. 

Mr. MARINO. The Congresswoman’s time has expired and you are 

going to have to be in that caucus, I think before the President gets 

there, or else you do not get in. 

Ms. JACKSON LEE. Can I get my answers in writing? Ms. Dhillon 

was supposed to answer quickly. 

Mr. MARINO. Yes, we just expect you to give them in writing and 

send them to us. 

Ms. JACKSON LEE. Thank you very much. 

Mr. MARINO. The Chair now recognizes the Ranking Member of 

the Subcommittee, Congressman Watt from North Carolina. 

Mr. WATT. Thank you, Mr. Chairman. And I thank all of the witnesses. It has been an exceptionally good hearing, very balanced 

presentation. I think that is the kind of hearing we need on this, 

to really try to get to the brunt of it. 

Before I forget, I want to ask unanimous consent to submit for 

the record written statements from the Electronic Frontier Foundation, the National Retail Federation, Professor Arthur Miller, and 

Professor Christal Sheppard. 

Mr. MARINO. Without objection, so ordered. 

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Mr. WATT. I want to thank my colleagues who have deferred, to 

allow us to get through in time to go see the President. 

And I want to ask a question, which I will really just ask all of 

the witnesses to address in writing, if you do not mind, because I 

think unless we get to some definition of what a patent assertion 

entity is, we are never going—if we define it too broadly, we are 

going to impact adversely a bunch of people who we should not be 

impacting. 

And a lot of what I have heard today, well, not a lot, but some 

of what I heard today, might suggest that the troll or patent assertion entity is anybody that we do not like. And we obviously have 

to be very tailored if we are going to craft legislation to deal with 

this. And I am not sure doing it by exclusion, which is what Mr. 

Chaffetz’s bill does, and Mr. DeFazio’s bill does, does it inversely. 

I am not sure that I am comfortable with that. 

So just give me a definition that you think would be workable, 

for legislative purposes, of what a patent assertion entity that 

would be covered by preventing them from proceeding in a lawsuit 

would consist of. 

Because if we cannot define what a troll is for this purpose, I do 

not think we are ever going to be able to pass a piece of legislation. 

And I think we have to limit this to patent litigation, because, 

otherwise, we are going to be over into a whole area that has been 

a lightning rod for a number of years. We will be back in tort reform and litigation reform. And we have done a lot of that. 

But I think this may be unique to the patent area of the law. 

And if we started by having a good definition that we could work 

from, I think we would all be serving ourselves very well. 

So with that, Mr. Chairman, I know my green light is still on, 

but the President’s red light is approaching quickly, because if they 

are not going to let me in after 2 o’clock, I am already in trouble. 

So as important as everybody here is, sometimes the President 

of the United States takes precedence over whatever else we are 

doing. So I hope you all will forgive me. 

That does not mean I think he is more important than you all. 

It just means that I would like to hear what he has to say, particularly since there is, ‘‘charm offensive’’ going on. [Laughter.] 

So I thank you all, and have a great day, and thank you for 

being here, and thank you all for deferring to us. 

Mr. MARINO. Thank you, Congressman, for your help today. 

What an appropriate word. 

But the Chair now recognizes the Chairman of the full Judiciary 

Committee, Chairman Goodlatte from Virginia. 

Mr. GOODLATTE. Thank you, Mr. Chairman. I know I was 

charmed by Mr. Watt and not at all offended. 

I apologize to the panel for not being here for all of your testimony, and I very much appreciate your participation today in this 

important issue, and I do some questions I would like to address 

first, to Mr. Gerst, and then I will ask some of the rest of you to 

comment as well. 

When it comes to the patent system, especially patent ownership, 

do you believe that it is appropriate for entities to assert a patent 

far beyond the value of its contribution to the art? Are there or 

should there be limits to asserting patents in litigation? 
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For example, is it appropriate for an entity to send out vague demand letters en masse without providing specificity as to how an 

individual is infringing on a patent? Should there be limitations toward bringing cases against customers or end-users who are least 

able to understand the patent system or meaningfully respond in 

litigation? 

Mr. GERST. Thank you, Congressman. 

There are already limits on what litigants can do in litigation, 

and these are Rule 11 sanctions. You can’t make assertions that 

are beyond the scope of the patent, unreasonably beyond the scope 

of the patent. 

And the problem is ex-ante. It is hard to tell exactly what that 

limit is, so you do need to litigate the issue. 

You are also talking about a—— 

Mr. GOODLATTE. We could provide more specificity, could we not? 

Mr. GERST. Again, Congressman, I think the courts are the best 

place to tailor that and to allow the standard to evolve over time, 

rather than having some standard one-size-fits-all that is very difficult to change. 

On the demand letters point, that is a slightly different issue. I 

mean, what you really have there is asymmetry of information, 

right? You have, on the one side, very sophisticated patent dealers, 

and they are approaching unsophisticated folks. And the answer 

may be, then, to try to help out the symmetry of information by 

perhaps giving some grant money to entities that will help coordinate and help these various targets of this activity coordinate their 

defenses. 

I will tell you those sort of broad-based campaigns, what they 

fear most is coordinated activity. So you don’t need, necessarily, to 

change the law. You just provide a way for that coordination 

among defendants who are targets to take place. 

Mr. GOODLATTE. It seems an unusual thing for the government 

to provide funds. We do not even know who we would be providing 

it to, since the targets, when you are talking about end-users, and 

companies like JCPenney, it could be anybody. 

But, Mr. Chandler, do you have a view on this? 

Mr. CHANDLER. Yes, I think that the issue of the broad attacks 

by companies is really driven by procedural opportunity. 

I think Ranking Member Watt’s question about the definition of 

a patent assertion entity sort of begged the question of, why is this 

activity happening? And it is happening because of procedural 

weaknesses that allow it to go on with impunity. 

And I think the courts have been reluctant to impose the sanctions that Mr. Johnson and Mr. Gerst have pointed out they have 

the ability to do today. 

And I think shifting some of the balance on that, so that when 

you have these particular procedural opportunities that are being 

exploited and that have driven the creation of a new industry that 

none of us faced a decade ago, when you address those particular 

procedural defects, there will be a self-correction. 

I think Mr. Boswell described that as a paradigm shift where the 

ability to, with impunity, extract unearned rents off of patents that 

do not apply—— 
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Mr. GOODLATTE. Got it. Let me interrupt you, because I want to 

get in a couple more questions. 

Mr. CHANDLER. Sorry. 

Mr. GOODLATTE. Ms. Dhillon, as a retailer, JCPenney is not sued 

because of the products it sells, but for the technology that it uses. 

Patent litigation, per se, is obviously not a new phenomenon, but 

the type of abusive litigation that we are seeing today is new. 

Why has there been such an exponential growth in these types 

of cases? Is it a result of certain plaintiff-friendly judicial districts, 

or are there other factors in play as well? 

Ms. DHILLON. I think there are number of factors in play. I think 

that there are certain plaintiff-friendly jurisdictions that have 

fueled it. I think that there are, I mention in my testimony, some 

older, more vague patents that have been exploited. And I think 

that nothing translates into success like success. 

So I think as NPEs started to gain some traction and others saw 

this as a money-making activity. They essentially have jumped 

onto the bandwagon, to the point where we find ourselves in the 

situation that we are in. 

I think that if the courts were in a position and had the ability 

to remedy these abuses, they would have done so. And the fact that 

we are all sitting here today, explaining the situation that we find 

ourselves in, suggests that the courts do not have the tools that 

they need to contain it. 

Mr. GOODLATTE. Mr. Chandler, you recently brought a case for 

you asserted that a PAE was violating RICO laws. I do not know 

if you talk about that already here today, but could you speak more 

about your theory? 

Mr. CHANDLER. I described it a little bit earlier, but the RICO 

statute was held by Judge Holderman in that case to not be usable 

because he found that some of the 13,000 people might not have 

already had licenses. And, therefore, the petitioning right of the 

patent plaintiffs should be protected. It was not enough of a sham 

to allow the RICO statute to apply. 

But we are going to continue to try to find means to push back 

on behalf of our customers, who are being wrongfully victimized in 

that case. 

Mr. GOODLATTE. Does anybody else want to comment on that? 

Nope. 

Thank you, Mr. Chairman. 

Mr. MARINO. Thank you. 

The Chair now recognizes Congressman Rothfus from Pennsylvania. 

Mr. ROTHFUS. Thank you, Mr. Chairman. 

And thank you, panel, for a great discussion this afternoon. 

I am still trying to quantify the extent of the patent troll issue. 

We have referenced or heard reference to the Boston University 

study. 

I think, Mr. Gerst, you mentioned a Schwartz study. Are any 

panel members aware of any data on the number of patent troll 

claims that have been filed over, say, the past 10 or 15 years, actual actions? 

We heard Congressman Chaffetz cite some reference. 

Mr. Johnson? 
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Mr. JOHNSON. Cited in my written testimony is the Price 

Waterhouse litigation study, which specifically focuses on the number and success rates of NPE suits that have been brought over the 

last, I believe, 11 years, citing also the success rates by industry 

over several time periods. 

Mr. ROTHFUS. What are the success rates? 

Mr. JOHNSON. The success rates, I believe overall for the 11-year 

period, is about 24 percent, perhaps 23 percent, if my memory 

serves, compared to 31 to 33 percent. 

Mr. ROTHFUS. Is that for verdicts or is that for settlements? 

Mr. JOHNSON. These are the percentage of these cases that are 

ultimately successful. 

Mr. ROTHFUS. That could either mean reaching a settlement or 

verdict? 

Mr. JOHNSON. I believe that settlements are not included, because that does not result in a win or a loss, so these are of the 

decided cases, the cases that go through to final decision. 

Mr. ROTHFUS. Do we have any data on the number of claims that 

may have been subject to Rule 11 sanctions? 

Mr. JOHNSON. The number of cases that have been subject to 

Rule 11 sanctions, in my experience, is extraordinarily low. Mostly, 

Rule 11 is thought of as a remedy against the attorneys rather 

than against the party. 

More relevant would be the percentage of cases which were 

deemed exceptional, and where fees were awarded as a result of 

that. That is also very low, somewhere, I think, under about 1 percent. 

And of course, those fees are usually only awarded after the case 

has gone completely through trial. So as to settled cases, you would 

not expect someone with a frivolous case to push it through to trial, 

because there would be no upside in doing that. 

And so, therefore, the truly frivolous cases or the cases that are 

brought out without regard to any merit at all are brought for the 

reasons already discussed by many of the witnesses here, the plan 

is to settle them out quickly. The last thing they want to do is go 

on and go through trial. 

Mr. ROTHFUS. Now, the Price Waterhouse study, would that just 

include claims that were actually filed in court? So, for example, 

they would not consider any number of demand letters that may 

have been set out to various companies? 

Mr. JOHNSON. No, the Price Waterhouse study does not address 

demand letters. That becomes very problematic because there, of 

course, is a very wide activity of patent licensing, very legitimate 

patent licensing, as some of the witnesses have mentioned. 

And so a demand letter could be, ‘‘I have a patent I think you 

might be interested in taking a license under.’’ And that could be 

seen as a threat, or it could be seen as a legitimate transactional 

offer. 

A company like ours enters 300 to 500 licenses a year, and are 

happy to do so, because it gives us access to many technologies that 

can be brought together and incorporated in a product in order to 

provide the truly best solution possible. 

Mr. ROTHFUS. I was wondering if Mr. Gerst or Mr. Johnson 

would have any concerns with the statistics cited by Congressman 
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Chaffetz, about 60 trolls having brought 62 percent of the patent 

litigation. 

Is that something we should be concerned about? 

Mr. GERST. You said 60 trolls have brought? 

Mr. ROTHFUS. Sixty trolls have brought 62 percent of the patent 

litigation, is what Congressman Chaffetz stated earlier. 

Mr. GERST. I do not know about the 60 trolls part. I have seen 

data showing that 62 percent of patent cases are brought by nonpracticing entities. 

And is that a concern? The bigger concern, from my perspective, 

I mean, there is a lot that data does not show. We do not know 

what the optimum level of that activity is. And the other issue that 

I have a concern with is that such a high percentage of them are 

against companies that make $10 million or less. That does suggest 

that is more of the nuisance level activity, than otherwise. 

Mr. ROTHFUS. Thank you. I yield back. 

Mr. MARINO. Thank you. The Chair now recognizes Congressman 

DeSantis from Florida. 

Mr. DESANTIS. Thank you, Mr. Chairman. Thank you to the witnesses. 

You know, I have looked at our litigation system generally, and 

I think there is a big problem of cases being brought that really 

are not patently frivolous, but they are not going to win at trial, 

but it is usually just too expensive to try them. So there is just incentive to cut settlements. 

In my view is, if you have been wronged, you should be able to 

be made whole. But if you really do not have a case, I think that 

this is a huge inefficiency in our system. I think people contort the 

system for economic gain. 

But I must say, even with that view coming in, I mean, I am a 

little surprised at how abusive some of this patent litigation seems. 

Some of it seems pretty grotesque. 

Ms. Dhillon, you got to JCPenney 4 years ago. You guys didn’t 

have any patent cases at that time? 

Ms. DHILLON. No, we did not. 

Mr. DESANTIS. And obviously, any company of your size is going 

to deal with litigation, but has the arrival of patent litigation been 

a huge part of what you are now defending? 

Ms. DHILLON. Yes. It represents now about half of my overall 

legal budget. 

Mr. DESANTIS. Did you change your business practices at 

JCPenney from the time that you arrived when there were no patent cases to now, when you have patent cases, such that maybe 

people would all of a sudden think that you are infringing patents? 

Ms. DHILLON. We have not changed our business practices. I 

think it is being driven by other factors than how we go about conducting our business. 

I will say, however, that in response to it, we have changed. In 

response to the wave of patent troll cases, we have changed our 

business practices. 

So for example, in the past, where we might have considered licensing technology from a small inventor, the kind of typical few 

guys in a garage who are putting together a very exciting idea 

about technology, but that do not necessarily have the wherewithal 
141 

to defend and indemnify us in the event that a troll came after the 

technology, we are taking a second look at that. And there are 

times when we do not license that technology, because we are concerned that that young inventor, that startup may not have the 

wherewithal to defend and indemnify us in a patent troll case. And 

I think that that is a very unfortunate thing for innovation in general. 

Mr. DESANTIS. And to defend one of these cases, what is a ballpark figure price tag? 

Ms. DHILLON. To take a case through trial can be upwards of $3 

million or more. And that is hard dollar cost. That does not also 

count the amount of time and internal resources that are diverted 

to work on that case. And that is large, because those people, then, 

are not spending time driving our business. 

Mr. DESANTIS. And that actually was going to be my next question. So if you are having to defend these cases, it is not just your 

legal department and outside counsel who deal with it. You actually have to have other folks who are involved with the company, 

now all the sudden their time is diverted from trying to be productive and innovative to now having to participate in a lawsuit. 

Ms. DHILLON. That is exactly right. 

Mr. DESANTIS. Well, thank you, Mr. Chairman. I yield back the 

balance of my time. 

Mr. MARINO. Thank you. 

The Chair now recognizes Congressman Collins from Georgia. 

Mr. COLLINS. Thank you, Mr. Chairman. 

I think what is interesting here in just listening, and I apologize 

for missing some. I heard a lot by watching remotely. 

But the concerns that I have heard so far is stifling innovation 

and looking at the costs that are associated with some of these 

issues of ‘‘are we abusing a patent, taking a patent.’’ And I want 

to address several things as we go along here, because as I looked 

through all of your testimony, and was reading, some of the things 

that kept coming up were, ‘‘let’s go back to court.’’ 

And, Mr. Gerst and Mr. Johnson, especially, ‘‘let’s let the courts 

handle this.’’ ‘‘Let’s go to Rule 11.’’ ‘‘Let’s look at issues of discovery.’’ 

Just yesterday in this room, we were having another hearing on 

another issue that was not involved in this, and one of the issues 

was changing discovery practices, changing this issue, and using 

Rule 11. And my question was, why do not we use Rule 11 to fix 

this? 

A retired-now judge basically said, as judges, we do not like to 

do this. It takes our time, and we do not have—it would consume 

and also being the standard of also punishing litigants is too high. 

Looking through all of your testimony, you come up to some type 

at least of a discussion on procedure Rule 11 whether it be discovery or others. 

Sort of real quickly, and sort of not feeding off of each other, but 

if this is what we are hearing from judiciary, and this is court and 

IP, so there is a court aspect here as well. If we are hearing this 

problem, we can be saying ‘‘this is a solution,’’ but in the end, we 

are putting judges in a position where they are going to throw their 

hands up and say we have a problem with this anyway. 
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So I would like to hear somebody talk about that. Feel free. Have 

at it. 

Mr. BOSWELL. Well, I believe, Congressman, I believe that while 

it is important that judges maintain discretion, I think there are 

some hard and fast rules that it would be appropriate for Congress 

to implement, which takes the ball out of judges’ hands and gives 

litigants certainty going in, so that they can put that into their decisionmaking as to whether they want to settle a case, whether 

they want to sue at all to start with, whether they want to proceed 

through trial. Because as it stands right now, particularly in the 

case of patent trolls, they really have nothing to lose if they lose. 

And we would like to see that changed in some way so that it 

is more balanced, so there is not complete disincentive to take a 

case to trial. 

Mr. COLLINS. Mr. Johnson, do you disagree? 

Mr. JOHNSON. No, I think we are in agreement. Most places in 

the world, the loser pays. Here it is extraordinarily rare. There 

may be a middle ground that the courts could be instructed to use. 

I think you are right, though. My experience in dealing with the 

judiciary is they are reluctant to want to get in to deciding whether 

a defense that lost was meritorious or not. 

Mr. COLLINS. Mr. Gerst? 

Mr. GERST. Congressman, if I could just say one additional point. 

Leaving aside the whole NPE issue, the risk that you do run 

with these rules is it makes it much harder to assert patents for 

anybody. And the issue I pointed to in my testimony about companies that everybody here loves—operating companies, small and 

midsize—they do not have the ability to assert their patents to 

technology. And if you include in these rules things like loser pays 

or shifting discovery costs, it is going to make it much harder for 

those entities to assert their patents as well. 

Mr. COLLINS. Okay, let me just change it a little bit. It has been 

talked around a little bit, but I don’t think it’s actually been discussed a good bit. 

But one of the issues coming in here is the quality of patents. 

And the issue of quality patents is saying it can be looked at in a 

better way. 

In your opinion, is a solution to curb some of the abusive litigation, could it be drawn back to a quality of patent issue? Is that 

something that we have looked at and has there been enough time 

to actually see that? 

Mr. Chandler, why don’t you start? 

Mr. CHANDLER. Certainly, over time, the reforms enacted in the 

America Invents Act will result in higher quality patents. 

Mr. COLLINS. Let me stop you right there. Have we given it 

enough time? 

Mr. CHANDLER. No. There are steps that need to be taken. There 

are 20 years’ worth of backlog of patents that need to be properly 

subject to review. 

And one of the things we could do is have plaintiffs encouraged 

to stay litigation if the patent office found there was good cause to 

reexamine their patents. Right now, they are able to push forward 

with their cases, impose the costs, and extract settlements, even if 

the patent office has preliminarily found the patents invalid. 
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Mr. COLLINS. Legal extortion is what you are sort of getting at 

there. 

I will say it if you do not. 

In a sense. And I am not saying they are all invalid. 

And I think the problem, and I think Mr. Watt actually explained it, is actually getting to those that have valid claims, who 

are they and who are they not, and then dealing with it in a format 

in which we can move forward and not tie up companies’ hands 

and not tie up these issues, and deal with the ones who actually 

have a legitimate concern and complaint. 

So there is a lot more to discuss here. I appreciate you being 

here. 

Mr. Chairman, I yield back. 

Mr. MARINO. Thank you. 

I am going to take advantage of my couple minutes to ask some 

questions. I am in the habit of just waiting and going last, because 

I have to be here or the Chairman has to be here. 

But I think my colleague, it looks like he is going to sit there and 

listen to me. Thank you. 

Mr. COLLINS. I will be right here with you. 

Mr. MARINO. We touched briefly on patent privateers, but I want 

to go into it in a little more detail. And we know what that patent 

privateers are companies that outsource their patent lawsuits. 

They are PAEs. 

What is the scope of this? And should such behavior be subject 

to FTC and even, I think more importantly, because I was a former 

United States attorney, DOJ antitrust scrutiny for anticompetitive 

behavior? 

Mr. Rao, would you please respond to that? 

Mr. RAO. Thank you for the question. 

So I think the question about whether or not there is a anticompetitive issue with outsourcing your patent enforcement, it is a 

complicated one. 

I think the first issue is patents by themselves is a monopoly, 

and that is anticompetitive by its nature. But it is a constitutionally granted monopoly. So there is always an anticompetitive 

aspect of patents. 

And in the case where universities or small inventors want to 

have licensing programs and have technology transfer licensing 

programs, take their patents and license them and look to get rewards form that, that tends to seem of procompetitive way of getting their technology out there. 

I think that when you stop and look at the bigger aggregators 

who are just out there buying patents by the thousands, and then 

basically walking into your office and saying we have 100,000 patents, and you probably infringe a couple of them, so pay us, I think 

there is an aspect of that that we need to look at. 

Mr. MARINO. Thank you. 

Let us move to discovery, and anyone of you can respond to this. 

What do we do about jurisdictions? And judges control their own 

courtroom. They can actually hand out additional rules that one 

has to follow, so if you are in another jurisdiction, you better do 

some studying up on what the judge requires. 
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But what we do about the situation that happens a great deal 

of time where a judge allows unlimited discovery? 

Does Congress address that? Or do we seriously say to the judicial system, you have to make some changes here. 

Anyone or all of you? 

Mr. Johnson? 

Mr. JOHNSON. When the Federal Circuit Court of Appeals was 

established in 1982, it is my understanding that the discussion was 

had as to whether or not it should have the authority to mandate 

rules of practice in patent cases, and the conclusion was that it 

should not be able to disturb the rules of the regular circuits on 

procedural matters. 

So while Judge Rader has been very active and the patent pilot 

courts program will be effective, Congress has not given the Federal Circuit the authority to promulgate local rules that would be 

applicable across all districts. 

So at this point, if you are in a place where you have a particular 

local set of court rules, you are stuck with them. So the way litigants usually handle that is to try to get the case in a place where 

they like the rules. 

Mr. MARINO. My point exactly. 

Anyone else want to address that matter, because I do have a 

couple other questions? 

Okay, so the next one, Ms. Dhillon, and of course anyone else, 

how often do we see a court dismissing defendants in these types 

of cases, if there is a litany of them? 

So, Ms. Dhillon, could you respond to that, and anyone else? 

Ms. DHILLON. That certainly does happen, and we have been successful in being dismissed from cases. But I think it goes to the 

point you made previously, which is, unfortunately, that usually 

happens after we have incurred a great deal of cost in the discovery 

process. 

Mr. MARINO. Right. Okay. 

Anyone else? Mr. Boswell? 

Mr. BOSWELL. As I highlighted earlier in my testimony, the issue 

is not necessarily can you get out, but if you cannot get out until 

the end, it is really somewhat of a moot point. You have already 

lost. 

If the judge will not hear dispositive motions until all the discovery is done, in some ways, it does not matter, because you have 

already lost the case. 

Mr. MARINO. I am going to ask you to look into a crystal ball 

here. 

We get this legislation passed. It is on the books. It is signed, 

sealed, and delivered. What do you foresee out of this legislation 

happening? 

Do you understand my question? 

Mr. GERST. Which legislation? 

Mr. MARINO. Legislation where we improve what we have already done in the reform act. I mean, this is a never-ending process. At what point do we stop and draw the line and at what point 

to we say enough is enough? 

So, please, anyone want to respond to that? 
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Mr. RAO. I think if we pass something like the SHIELD Act or 

a fee-shifting bill, you would see a number of these patent assertion entities drop fairly dramatically. 

I mean, it has been a new phenomenon. I feel like people have 

found a litigation business model that works for them right now. 

If we correct that behavior, they will leave this field and find some 

other nonpatent-related field to employ themselves. 

But I think if you change the incentives—it is an economic problem—if you change the incentives, I think you will see the number 

of litigations go down. 

Mr. MARINO. Anyone else? 

Well, ladies and gentlemen, I want to thank you. This concludes 

today’s hearing, and I want to thank all of the witnesses for being 

here. 

[Whereupon, at 2:26 p.m., the Subcommittee was adjourned.] 

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