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[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

        SOVEREIGN IMMUNITY AND THE INTELLECTUAL PROPERTY SYSTEM

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                     COURTS, INTELLECTUAL PROPERTY,
                            AND THE INTERNET

                                 of the

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             FIRST SESSION

                               __________

                            NOVEMBER 7, 2017

                               __________

                           Serial No. 115-46

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
LAMAR SMITH, Texas                   ZOE LOFGREN, California
STEVE CHABOT, Ohio                   SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr., 
TRENT FRANKS, Arizona                    Georgia
LOUIE GOHMERT, Texas                 THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio                     LUIS V. GUTIERREZ, Illinois
TED POE, Texas                       KAREN BASS, California
JASON CHAFFETZ, Utah                 CEDRIC L. RICHMOND, Louisiana
TOM MARINO, Pennsylvania             HAKEEM S. JEFFRIES, New York
TREY GOWDY, South Carolina           DAVID CICILLINE, Rhode Island
RAUL LABRADOR, Idaho                 ERIC SWALWELL, California
BLAKE FARENTHOLD, Texas              TED LIEU, California
DOUG COLLINS, Georgia                JAMIE RASKIN, Maryland
RON DeSANTIS, Florida                PRAMILA JAYAPAL, Washington
KEN BUCK, Colorado                   BRAD SCHNEIDER, Illinois
JOHN RATCLIFFE, Texas
MARTHA ROBY, Alabama
MATT GAETZ, Florida
MIKE JOHNSON, Louisiana
ANDY BIGGS, Arizona

          Shelley Husband, Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

    Subcommittee on Courts, Intellectual Property, and the Internet

                 DARRELL E. ISSA, California, Chairman
                  DOUG COLLINS, Georgia, Vice-Chairman
LAMAR SMITH, Texas                   JERROLD NADLER, New York
STEVE CHABOT, Ohio                   HENRY C. ``HANK'' JOHNSON, Jr., 
TRENT FRANKS, Arizona                    Georgia
JIM JORDAN, Ohio                     THEODORE E. DEUTCH, Florida
TED POE, Texas                       KAREN BASS, California
JASON CHAFFETZ, Utah                 CEDRIC L. RICHMOND, Louisiana
TOM MARINO, Pennsylvania             HAKEEM S. JEFFRIES, New York
RAUL LABRADOR, Idaho                 ERIC SWALWELL, California
BLAKE FARENTHOLD, Texas              TED LIEU, California
RON DeSANTIS, Florida                BRAD SCHNEIDER, Illinois
MATT GAETZ, Florida                  ZOE LOFGREN, California
ANDY BIGGS, Arizona                  STEVE COHEN, Tennessee
                                     LUIS GUTIERREZ, Illinois
                            
                            
                            C O N T E N T S

                              ----------                              

                            NOVEMBER 7, 2017
                           OPENING STATEMENTS

                                                                   Page
The Honorable Darrel Issa, California, Chairman, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     1
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................     5

                               WITNESSES

Mr. Karl Manheim, Professor of Law, Loyola Law School
    Oral Statement...............................................     7
Mr. William Jay, Partner and Co-Chair, Appellate Litigation, 
  Goodwin Procter LLP
    Oral Statement...............................................     8
Mr. Philip Johnson, Principal, Johnson--IP Strategy & Policy 
  Consulting
    Oral Statement...............................................    10
Mr. Christopher Mohr, Vice President for Intellectual Property & 
  General Counsel, Software and Information Industry Association
    Oral Statement...............................................    12

 
        SOVEREIGN IMMUNITY AND THE INTELLECTUAL PROPERTY SYSTEM

                              ----------                              

                       TUESDAY, NOVEMBER 7, 2017

                        House of Representatives

     Subcommittee on Courts, Intellectual Property and the Internet

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 2:00 p.m., in 
Room 2141, Rayburn House Office Building, Hon. Bob Goodlatte 
[Chairman of the Subcommittee] presiding.
    Present: Representatives Issa, Goodlatte, Smith, Chabot, 
Franks, Jordan, Marino, Farenthold, Gaetz, Biggs, Johnson of 
Georgia, Jeffries, Lieu, Schneider, and Lofgren.
    Staff Present: John Lee, Counsel; Carlee Tousman, Clerk; 
Jason Everett, Minority Chief Counsel; David Greengrass, 
Minority Counsel; and Rosalind Jackson, Minority Professional 
Staff.
    Mr. Issa. The Subcommittee on Courts, Intellectual 
Property, and the Internet will please come to order. Without 
objection, the chair is authorized to declare recess of the 
Subcommittee at any time. We welcome everyone here today to a 
hearing on ``Sovereign Immunity and Intellectual Property 
System.'' I will now recognize myself for a short opening 
statement.
    The St. Regis Mohawk tribe was invited to testify here 
today, but they declined, and so, with that, I will place in 
the record in its entirety, some eight pages plus many other 
inserts, totaling about 40 pages that came from the St. Regis 
Mohawk tribe as their position and testimony.
    [The information follows:]

                            COMMITTEE INSERT

    Mr. Issa. I also would place in the record at this time 
that the following statements of Dale White, general counsel 
for the tribe. When he was asked whether he would consider 
doing more sovereign immunity deals, he answered to Bloomberg, 
``We will probably take as many as Shore law firm can handle.'' 
When asked by MSNBC, he said, ``Yes. Can you put my phone 
number in your article?'' We will take that in addition to 
their defense of their current position as they have done 
these; they want to do more.
    [The information follows:]

                            COMMITTEE INSERT

    Mr. Issa. The IP system only works if it strikes the right 
balance. We know that we want to, and this Committee is 
committed to, reward true innovators for their creative works. 
But the IP system must be protected from several types of 
wrongful behavior, and I want to make sure that today, because 
the subject will come up over and above sovereign immunity, 
that we understand those who have tried to use the PTAB program 
and try to use it to short funds or essentially, as trolls to 
coerce money in lieu of a filing have, in fact, been gaming the 
system every bit as much as we may find today from others.
    It is important to understand that under the AIA, the 
review of patents was intended to end, and in a small way has 
succeeded, in finding patents which claim claims that belong to 
someone else. The invalidity of claims overwhelmingly comes 
from a finding of prior art in which someone else has already 
owned that invention.
    This would be no different than if, in fact, you claim to 
have rights to land and you put a fence on it and later found 
out through surveying that somebody else owned four feet of 
that land. You would be asked to move your fence and nobody 
would view it as anything other than you get to have the land 
you truly always had, not the land you may have thought you had 
without a proper survey.
    Speaking of surveys, 99 percent of all patents are not 
being reviewed under this review process and of that less than 
one percent that are reviewed, nearly half survive intact. 
Well, about half have some or all of their claims reviewed or 
eliminated. In other words, you are dealing with--essentially, 
a fraction of 1 percent of all patents will be invalidated 
under this procedure. And again, approximately half of those 
that are considered actually have that happen.
    For that reason, it is important to understand that this is 
not a large-scale operation, and yet it would, in fact, attract 
many companies, not just Allergan--who was asked also to be 
here today and declined, but sent a representative through an 
association--to put their patents into what I would consider a 
sham deal.
    The word ``sham'' does not imply illegal. The word ``sham'' 
simply says that this was not a good-faith sale of their patent 
rights, but in fact a sale leaseback for no purpose other than 
to evade the kind of patent review that is currently in the law 
and for which Allergan and other pharmaceutical companies 
regularly find themselves.
    One of our challenges here today is that the particular 
patents that are in this portfolio represent a drug which has 
been on sale for two decades and for whom the original patents 
have expired, therefore the companies in this case are not some 
troll, as I mentioned could occur. The companies that are 
involved in looking at these patents are ones who want to make 
what now rightfully would be a generic product. They seek to do 
so without falling under new patent claims that they could 
either avoid or that may be invalid.
    For this reason, we take particular interest not in 
Allergan, but in the patents not in suit, so to speak, and in 
fact, in what I believe is a sham decision.
    I want to make one last statement. I have been an advocate, 
as I am required to do under the Constitution, for 
constitutional rights, and the right of sovereignty of 
government and of their lands to Native Americans without a 
doubt will be protected by this committee and by this Congress.
    And one of the groups that has talked to me more than any 
others are Native American groups concerned that this 
commercial activity could somehow cause Congress to restrict 
other commercial activity covered by Native American 
sovereignty. It is our goal to be very careful in this hearing 
and in any legislation so that we not diminish in any way the 
earned and constitutional rights of Native American tribes for 
their sovereignty, their self-governance, and their own 
internal commerce.
    And with that, I recognize the ranking member of the 
committee, Mr. Nadler, for his opening statement.
    [The prepared statement of Mr. Issa follows:]

                            COMMITTEE INSERT

    Mr. Nadler. Thank you, Mr. Chairman. Mr. Chairman, state 
sovereign immunity is a well-established concept, enshrined in 
our Constitution that generally protects States from being sued 
in federal courts without their consent. Similarly, Federal law 
generally extends sovereign immunity to Native American tribes 
as well. For many years Congress and the courts have wrestled 
with numerous questions concerning the appropriate scope and 
use of sovereign immunity as it pertains to intellectual 
property.
    For example, is it fair that States can protect their 
intellectual property from infringement by availing themselves 
of the legal system, yet they can shield themselves from 
liability by invoking sovereign immunity if they are sued for 
the same infringing behavior?
    What limitations can be placed on sovereign immunity while 
staying within constitutional boundaries, and what incentives 
could we design to encourage States to waive sovereign immunity 
in IP cases? These are all important questions worthy of 
careful consideration.
    In light of recent events, however, a new set of questions 
have arisen: Can sovereign immunity be used as a giant loophole 
for private actors to evade legal scrutiny of their 
intellectual property and to exploit for their own commercial 
purposes? And if so, what can Congress do about it? These 
questions arise because of the recent actions by the 
pharmaceutical company, Allergan, and its cynical ploy to 
shield its patents on a lucrative drug from review at the 
Patent and Trademark Office, by taking advantage of a Native 
American tribe's sovereign status.
    Rather than subject itself to the Patent Office's inter 
partes review, IPR process, Allergan transferred the patents on 
its highly successful drug Restasis to the same St. Regis 
Mohawk Native American tribe, which immediately granted an 
exclusive license back to Allergan.
    Allergan paid the tribe $13.75 million upfront as part of 
the deal, plus it committed to ongoing royalties of $15 million 
a year. In exchange, the tribe needed only to agree that it 
would invoke its sovereign immunity if the patents were 
challenged in IPR.
    According to Allergan, it took this step because it 
believes IPR is deeply flawed, unfair to patent holders, and 
disruptive to the balanced process established for generic drug 
competition under the Hatch-Waxman Act. Moreover, they argue, 
their patents could still be reviewed in Federal court, just 
not in IPR. I would note here that if they believe that to be 
the case their proper recourse is to go to Congress and try to 
persuade us to change the law, but they did not choose to do 
that.
    It is true that Allergan's gambit did not shield the 
patents from Federal court review, and in fact, those patents 
were recently held invalid by a court in the Eastern District 
of Texas.
    However, the Court in that case also made clear that it had 
``serious concerns about the legitimacy of the tactic that 
Allergan and the tribe have employed.'' This deal has been 
widely condemned, not just because it is seen as thumbing its 
nose at the legal system, but also because if successful, other 
drug companies could use the same scheme to protect expensive 
brand-name drugs from lower priced generic competition.
    IPR was created in the 2011 America Invents Act. It is 
intended to be a relatively quick and inexpensive way for the 
Patent Office to conduct a second look at an issued patent and 
to invalidate patents that should never have been issued in the 
first place.
    This administrative process occurs separately from, though 
often concurrently with, Federal court consideration of the 
same patent's validity. The IPR process has many critics, not 
just Allergan, and many questions have been raised about 
whether it is functioning as intended.
    Some stakeholders have complained that it provides 
competitors with multiple bites at the apple in challenging a 
patent's validity. Others rightly in my view have argued that 
it is problematic for IPR proceedings to use a different 
standard for evaluating patent validity from the one that is 
used in Federal courts. IPR is also criticized by some as being 
stacked against the patent holder and as being too likely to 
find a patent invalid.
    The IPR process also has many defenders, however. They 
argue that the patent system is strengthened by having an 
efficient system for weeding out invalid patents. They point 
out that the stockintrade of patent trolls is weak patents that 
never should have been issued, and they argue that IPR has been 
invaluable in removing such patents from the market.
    They also note that the PTO only institutes an IPR 
proceeding when there is a reasonable likelihood that the 
patent is invalid. Thus, they argue, it is to be expected that, 
once instituted, a significant percentage of proceedings would 
result in canceling a patent and that statistics should not be 
read to imply that IPR is unfair to patent holders.
    The merits of the IPR process should be debated, and if 
changes are needed, we should consider them in due course. That 
is for Congress to decide, with input from relevant 
stakeholders. It is unacceptable, however, for private actors 
like Allergan to do an end run around IPR by making use of a 
third-party sovereign immunity solely for strategic advantage. 
Such behavior makes a mockery of congressional authority and of 
the rule of law.
    More worrisome is the precedent this transaction sets. 
Already, other companies are rushing to make similar deals, 
across various industries. Whatever one thinks of IPR, it is 
the law of the land, and it is the clear intent of Congress 
that it be available to anyone who seeks to challenge a patent 
under its rules.
    We should not allow gamesmanship to circumvent 
Congressional authority. I look forward to hearing from our 
witnesses today on their thoughts on the appropriate scope of 
sovereign immunity and intellectual property and what we can do 
to ensure that it is not abused. I thank the chairman for 
holding this important hearing and I yield back the balance of 
my time.
    [The prepared statement of Mr. Nadler follows:]

                            COMMITTEE INSERT

    Mr. Issa. I thank the gentleman. We now welcome our 
distinguished panel of witnesses here today. And if you would 
all please rise, and I will issue the oath. I will get to you 
in just a second, Chairman.
    Please raise your right hands. Do you swear that the 
testimony you are about to give will be the truth, the whole 
truth, and nothing but the truth? Please be seated.
    Let the record reflect that all witnesses answered in the 
affirmative. And with that, it is my great pleasure and 
responsibility to introduce the Chairman of the full Committee, 
Mr. Goodlatte, for his opening statement.
    Chairman Goodlatte. Thank you, Mr. Chairman. I thank you 
for holding this hearing and for yielding to me. This may be a 
case of everything that needed to be said has been said by you 
and the Ranking Member, but not everyone who needs to say it 
has said it.
    Sovereign immunity is a legal doctrine that has existed 
since the beginning of our Republic. It is a privilege of 
sovereign entities, such as State governments and Native 
American tribes, which are responsible for the well-being of 
those they govern. In recent years, however, it is become 
apparent that in some circumstances sovereign immunity is being 
used not on the activities of constituents of State and tribal 
governments but in a way that harms the intellectual property 
system all Americans depend on.
    There is no doubt that the IP system is vital to the health 
and competitiveness of the U.S. economy. A strong intellectual 
property system helps the U.S. maintain its place as the 
world's leader in technological innovation and creative 
expression.
    The IP system is weakened, however, when some participants 
of the IP system do not play by the same rules as the rest. I 
share the concern about the recent instances of private 
companies paying to rent the sovereign immunity of Native 
American tribes to protect their intellectual property. Tribal 
sovereign immunity was never intended to serve the interests of 
private companies unrelated to the tribes.
    If successful, these private companies will be able to 
enforce their patents against others while exploiting the 
tribe's sovereign immunity to prevent legitimate challenges to 
those patents at the Patent and Trademark Office. In effect, 
these companies will not be playing on a level playing field.
    That is similar to the situation before Congress acted to 
restore fairness to the patent system by passing the America 
Invents Act, or AIA. This bipartisan measure passed both 
chambers of Congress by overwhelming margins because of the 
broad recognition that the patent system had become unbalanced 
by abusive litigation conduct and low-quality patents issued by 
an overworked Patent Office.
    Inter partes reviews, or IPRs, are a critical part of the 
AIA's reforms because they provide the Patent Office an 
opportunity to correct mistakes it made when issuing patents. 
IPRs allow the Patent Office to weed out low-quality patents 
that should not have been granted in the first place, leaving 
in place stronger patents that cover real innovations.
    If questionable deals with sovereign entities can extend 
immunity to artificially protect low-quality patents, the 
entire IP system is harmed. The facts demonstrate that IPRs and 
other AIA procedures are effective and accurate.
    For example, last year the U.S. Court of Appeals for the 
Federal Circuit affirmed decisions of the Patent Trial and 
Appeal Board in AIA cases about three quarters of the time, 
which was roughly the same affirmance rate as for District 
Court patent cases.
    In 2015, the affirmance rate was even higher at about 85 
percent. As a district court recently noted when considering 
the very issues presented at this hearing, the entire system of 
AIA post-issuance review may be in peril if the practice of 
private companies paying for sovereign immunity continues.
    I want to thank Chairman Issa for convening this hearing. I 
want to thank former Chairman Smith for his great, outstanding 
leadership in getting the America Invents Act passed in the 
first place. I thank their witnesses for their participation, 
and I look forward to delving further into this very important 
and serious issue.
    [The prepared statement of Chairman Goodlatte follows:]

                            COMMITTEE INSERT

    Mr. Issa. Thank you, Mr. Chairman. All Members' opening 
statements will be placed in the record in written form.
    [The information follows:]

                            COMMITTEE INSERT

    Mr. Issa. It is now my honor to introduce our witnesses, 
which include Mr. Karl Manheim, professor of law at Loyola--
this is why I did not attend Loyola; I cannot do that; I have 
tried--Law School; Mr. William Jay, partner and cochair, 
appellate litigation, Goodwin Procter, LLP; Mr. Philip Johnson, 
principal, Johnson-IP Strategy and Policy Consulting; and Mr. 
Christopher Mohr, vice president of intellectual property and 
general counsel at the Software and Information Industries 
Association.
    Before we begin opening statements, I am also going to 
place in the record a letter we received, Mr. Nadler and I, 
from Mylan, one of the companies involved in the other side of 
litigation. And I will just briefly insert that they assert 
that this has been to them 22 billion doses that would have 
been available for generic that were not as a result of the 
activity we are involved in today, and they put an estimate of 
$1.5 billion in revenue that was distorted. So, without 
objection, that will be placed in the record. Mr. Manheim.
    [The information follows:]

                            COMMITTEE INSERT

STATEMENTS OF KARL MANHEIM, PROFESSOR OF LAW LOYOLA LAW SCHOOL; 
   WILLIAM JAY, PARTNER AND CO-CHAIR, APPELLATE LITIGATION, 
  GOODWIN PROCTER, LLP; PHILIP JOHNSON, PRINCIPAL, JOHNSON-IP 
STRATEGY & POLICY CONSULTING; CHRISTOPHER MOHR, VICE PRESIDENT 
  FOR INTELLECTUAL PROPERTY AND GENERAL COUNSEL, SOFTWARE AND 
                INFORMATION INDUSTRY ASSOCIATION

                   STATEMENT OF KARL MANHEIM

    Mr. Manheim. Thank you, Mr. Chairman, Chairman Goodlatte, 
and Mr. Nadler. I am Karl Manheim, a professor of law at Loyola 
Law School in Los Angeles, where I teach constitutional law and 
intellectual property. I had the pleasure of serving the 
subcommittee as a fellow in 2007 and help with that year's 
patent reform legislation. It is an honor to be back.
    The matter in front of this committee was prompted by 
Allergan, Incorporated's assignment of its patent for 
ophthalmic drug to the St. Regis Mohawk tribe. The tribe claims 
sovereign immunity from suit, thus immunizing the patent from 
challenge at the Patent Office.
    This assignment occurred after two generic manufacturers 
filed with the FDA an abbreviated new drug application, or 
ANDA. ANDA is a mechanism created by the Hatch-Waxman Act to 
encourage the entry of generic competition as a means of 
lowering drug prices. By law, an ANDA is deemed an infringement 
of the drug patent.
    After Allergan sued for infringement in Federal court, the 
generics filed the petition for inter partes review at the PTO, 
pursuant to the America Invents Act. That administrative 
proceeding was intended by AIA to provide an expeditious and 
less costly mechanism than litigation to challenge poor-quality 
patents.
    In the Allergan case, the company had assigned its patent 
to the tribe, making them an indispensable party in any patent 
challenge. My testimony will focus on the tribe's claim for 
sovereign immunity, which is still pending before the Patent 
Office.
    As a related matter, States also have sovereign immunity. 
They are far more active in the patent enterprise through 
research universities and faculty and other commercial 
activities. State sovereign immunity, however, is grounded in 
the 11th Amendment.
    Tribal immunity, in contrast, is a product of common law 
and statutory recognition, thus it is easier for Congress to 
address abuses of the system in situations like this, where a 
patent holder assigns its rights to a Native American tribe in 
order to insulate the patent from challenge. However, solutions 
do exist for similar abuses by States, and I discuss several of 
those in my written testimony.
    Indian tribes are considered domestic dependent nations. As 
with other nations, tribes enjoy a degree of sovereignty. The 
Supreme Court has questioned the wisdom of continuing tribal 
immunity, but has yet to overrule it. But because the doctrine 
is grounded in common law and not in the Constitution, it may 
be set aside by Federal statute. Doing so, either in general or 
in specific cases such as patent immunity, raises no 
constitutional questions, in my opinion.
    Senator McCaskill has introduced a bill in the Senate to 
abrogate tribal immunity in IPR cases. Some rights 
organizations argue that singling out tribes for adverse 
treatment discriminates against Native Americans in violation 
of the equal protection principle in the Fifth Amendment. I do 
not agree with that argument. Tribes enjoy a privilege that no 
other entity except States have: immunity from suit. Abrogating 
and limiting that immunity is not a discriminatory act; rather, 
its purpose is to restore balance to patent and competition 
policies.
    As the Supreme Court said in Bonito Boats v. Thunder Craft 
Boats, the patent clause reflects a balance between the need to 
encourage innovation and the avoidance of monopolies which 
stifle competition without any concomitant advance in the 
progress of science and the useful arts. That balance is 
maintained on the one hand by awarding patents to innovative 
technologies, and on the other hand by facilitating challenges 
to poor-quality patents. The Hatch-Waxman Act is a prime 
example of this balance. It encourages generic companies to 
enter the market and thus to lower drug prices through 
competition, but they first have to successfully challenge an 
existing patent. That is made more difficult when the patent 
holder or assignee has immunity.
    Sovereign immunity, whether asserted by a tribe or a State, 
has the potential of disrupting this finely crafted balance 
between U.S. innovation and competition policies. I believe 
Congress has the tools to preserve that balance. On the one 
hand, it can narrow tribal immunity; on the other, it can 
condition the grant or assignment of a patent to a sovereign 
entity by requiring that entity to waive its immunity in patent 
litigation and IPR proceedings. Those, and other solutions, 
will likely survive constitutional scrutiny and would benefit 
the public welfare. Thank you. I will be happy to answer 
questions later.
    [The prepared statement of Mr. Manheim follows:]

                                INSERT 1

    Mr. Issa. Thank you. Mr. Jay.

                    STATEMENT OF WILLIAM JAY

    Mr. Jay. Thank you, Mr. Chairman. Thank you, Ranking Member 
Nadler and members of the subcommittee. I would like to thank 
the subcommittee for its attention to these important issues, 
and I appreciate the opportunity to participate today.
    I am a partner at the law firm Goodwin Proctor, where I 
litigate constitutional cases and issues of Federal 
jurisdiction, and also patent cases. I have been asked to 
testify today on behalf of the Association for Accessible 
Medicines, which represents companies that develop and bring to 
market generic and biosimilar medicines. Those products saved 
the U.S. healthcare system $1.7 billion over the last 10 years, 
and we are concerned that the rental of sovereign immunity 
tactic that Allergan has pioneered will put those savings at 
risk.
    Why is Allergan renting sovereign immunity for tens of 
millions of dollars a year? It is looking for protection from 
competition for a product that brings in billions of dollars. 
And Allergan had a period of patent protection on this product 
which was coming to an end in 2014, so Allergan went and got a 
second generation of patents, more patents on the same product, 
just as its patent monopoly was about to expire. And those new 
patents do not expire until 2024.
    Allergan had reason to be worried that those patents would 
be subject to challenge under the procedures that Congress 
created in the Leahy-Smith America Invents Act, so it sought to 
put its patents beyond the reach of the Patent Office. 
Effectively, it sought asylum for its patents in Indian 
country. On the eve of the hearing before the PTO, Allergan did 
this multimillion-dollar deal with the tribe and within hours 
the tribe had stepped forward to demand that the PTO stop 
reviewing these patents and to decide whether these are patents 
that never should have been issued.
    If every company with enough money could use that tribal 
tactic to block their patents from review, the result will be 
to leave more bad patents on the books for longer, and that 
problem is not limited to bad pharmaceutical patents. The St. 
Regis Mohawk tribe has also apparently already done a deal to 
rent immunity to a patent troll that is suing Apple. These 
deals would be bad for the patent system, for competition, and 
for consumers. And in the healthcare pharmaceutical context, 
that means patients who need access to medication. It would cut 
against the very reason why Congress created IPR review in the 
Leahy-Smith American Vance act just a few years ago.
    Now, Congress has set out very clear rules for issuing 
patents, and one of the clearest is that a patent cannot be 
issued on something that is just existing knowledge or an 
obvious variation on existing knowledge. That knowledge might 
belong to another patent owner, or it might belong to the 
public because it is out in the public domain. And the authors 
of the AIA understood all too well that the patent examination 
process does not always uncover all of the flaws in a patent 
application, all of the ways in which it duplicates or is just 
an obvious variation on existing knowledge.
    The incredible volume of patent applications makes that an 
incredibly difficult process for examiners. They often do not 
even see all of the published papers and other writings that 
set out what is in the public domain. That is where IPR comes 
in. IPR is a reform that allows third parties to participate 
and allows more information to come to light before the Patent 
Office.
    It is one of the most important reforms because it helps to 
screen out bad patents while bolstering valid ones, and it 
ensures that poor-quality patents can be weeded out through 
administrative review rather than costly litigation. It is 
faster, it is time-limited, it is more efficient, and they just 
focus on one thing. They focus on whether this is a patent that 
never should have been issued because it was already in the 
public domain in the prior art, or it was obvious all along.
    Now, IPR co-exists with litigation in court, but it is 
different, and it is complementary. Now, while some interested 
parties have criticized IPR as a form of double jeopardy, that 
is a completely inaccurate criticism. Patent owners get to file 
multiple lawsuits on the same patent, and it is not surprising 
that there could be multiple different challenges to the 
validity of a single patent. But it is important to note that 
Congress wrote a protection into the AIA that once the PTAB 
takes up a challenge in an IPR or a similar proceeding and 
decides on the merits, if the challenger loses, that is it. The 
challenger cannot relitigate that in court. That is hardly 
double jeopardy.
    But whatever criticisms some people might make of Congress' 
work in the AIA, what Congress adopted is a set of rules that 
applies to everybody. Nobody is entitled to a patent on 
something that is obvious. Since Congress created re-
examinations back in 1980 every patent owner has understood 
that the issuance of the patent does not necessarily mean the 
last word.
    Mistakes can be fixed, but the Allergan strategy of renting 
sovereign immunity would set up a different set of rules for 
patent owners with enough money and enough gall to enter into a 
transaction like this one. That is why we urge Congress to give 
this problem its close attention and to use its power to 
regulate the common-law principle of tribal immunity; to 
restrict that immunity to what its true purpose is: to protect 
Native American sovereignty, to protect the sanctity of tribal 
land, to protect the businesses that tribes may run on that 
land--but not to rent out their sovereign immunity in a way 
that is going to interfere with not just the patent system but 
the healthcare system as well.
    I thank the subcommittee and I look forward to answering 
your questions.
    [The prepared statement of Mr. Jay follows:]

                                INSERT 2

    Mr. Issa. Thank you. Mr. Johnson.

                  STATEMENT OF PHILIP JOHNSON

    Mr. Johnson. Thank you, Chairman Issa, Ranking Member 
Nadler----
    Mr. Issa. Would you pull the mic a little closer, please? 
Would you turn it on, please? Thank you. That helps.
    Mr. Johnson. Thank you, Mr. Chairman, Ranking Member 
Nadler, and distinguished Members of the committee. In my 
written statement I have detailed three issues relating to this 
topic that should be of concern to the subcommittee: why patent 
owners now feel it is necessary to assign their patents to 
sovereigns to aid in their patents enforcements; why sovereigns 
prefer to have issues relating to their patents adjudicated in 
the Federal courts rather than in the Patent Office; and what 
reforms would eliminate any advantage to be gained from 
assigning patents to sovereigns. All three of these problems 
are symptoms of the flawed implementation of the inter partes 
reviews, IPRs, first authorized by the America Invents Act.
    Former Chief Judge Michel was right when he testified to 
you earlier that these IPR proceedings are now doing more harm 
than good. Because they were not conformed to the validity and 
due process standards traditionally used in the courts, they 
are now fueling a myriad of abuses based on arbitraging the 
differences in cost and outcomes between IPRs and court 
proceedings. These include a number of forms of reverse or IPR 
trolling, as well as disruptions of other time-honored patent 
challenge frameworks, such as Hatch-Waxman patent proceedings.
    Many patent owners now see IPRs is grossly unfair, and 
therefore prefer to have their patents subjected to challenge 
in the Federal courts, which they view as more likely to reach 
just outcomes. While most patent owners can't avoid IPRs, 
sovereigns may and increasingly are preferring to have all 
issues relating to their patents, including validity, decided 
by the courts. Federal court litigation, unlike IPRs, is one-
stop shopping.
    Federal courts address all issues that could arise 
concerning the patent's validity and infringement and set the 
gold standard for fairness, impartiality, and due process. 
Appellate reviews of district court judgments are also more 
robust. In appeals from the district court, the Federal Circuit 
is not usually restricted to a review using only the 
substantial evidence standard. Especially now that fees are 
being more routinely shifted to losing parties in district 
court cases, sovereigns and others are not unreasonable in 
wanting to have their patent infringement claims assessed 
there, which is, in the case of the sovereigns, their right to 
do so.
    The solution of these concerns is to remove any meaningful 
advantage from sovereign patent ownership by revising Patent 
Office post-grant procedures to conform them to the substance 
and outcome of the Federal courts, thereby removing any 
incentive to arbitrage differences between the two, which are 
now fueling the abuses I mentioned.
    What is at stake here is the confidence of investors and 
their investors in the Constitution's promise that Congress 
will encourage innovation by securing for limited times to 
Inventors the exclusive Right to their Discoveries. At present, 
even fully and fairly litigated court judgments are not being 
respected as final resolutions. They do not provide quiet title 
to patents because they may be challenged over and over again 
by the same or different persons in IPRs, thereby thwarting our 
Constitution's promise that inventors' patent rights will be 
secured.
    Fortunately, the problems with IPRs are now widely 
recognized within the IP community and their fixes are well 
within this subcommittee's purview. But time is of the essence, 
as the same recognition is now rapidly eroding confidence in 
our patent system. Since the implementation of IPRs just 5 
years ago, the U.S. patent system has dropped in the U.S. 
Chamber of Commerce's ranking from first to 10th place, due 
largely to the impact of IPRs on patent reliability.
    Moreover, the ability of infringers to invalidate U.S. 
patents, seemingly at will before the PTAB, is emboldening 
foreign competitors to copy U.S. technology just when their 
home countries are strengthening their patent systems for more 
likely use against U.S.-originated imports. To attract more 
investment and innovation in this country, enhance our 
productivity, create more well-paying U.S. jobs, and increase 
our GDP, we must act now to strengthen the reliability and 
enforceability of U.S. patents.
    To do this, we must not only provide fair and consistent 
for determining validity and infringement, but also ensure that 
patent owners may enjoy quiet title to their patent properties 
without fear from unfair IPRs. If we are successful in 
accomplishing these goals, patentees would not need to assign 
their patents to sovereigns as there would be nothing to be 
gained by doing so. Thank you, and I look forward to answering 
any questions you might have.
    [The prepared statement of Mr. Johnson follows:]

                                INSERT 3

    Mr. Issa. Thank you. Mr. Mohr.

                 STATEMENT OF CHRISTOPHER MOHR

    Mr. Mohr. Chairman Issa, Ranking Member Nadler, and Members 
of the committee, on behalf of the Software and Information 
Industry Association and its members, thank you for this 
opportunity to share our views.
    SIAA is the principal trade association for the software 
and information industries and represents over 700 companies 
that develop and market software and digital content for 
business, education, and consumers. Our members range from 
startup firms to some of the largest and most recognizable 
corporations in the world. SIAA has long viewed assertions of 
sovereign immunity from suit as out of place in the modern 
intellectual property system, and we commend the committee for 
both its past actions on and its continuing interest in this 
subject.
    The doctrine prohibits governments from being sued without 
their consent, but it is important to understand that it is a 
procedural, not a substantive, doctrine. It renders the 
sovereign immune procedurally from being involuntarily hauled 
into court to answer for its actions without its consent. It 
does not render the sovereign's actions substantively lawful. 
And that immunity is necessary when those governments are 
involved in their core governmental functions. That immunity is 
out of place when the State participates in a modern and 
national intellectual property marketplace.
    For example, as the committee is well aware, States are 
active owners and users of intellectual property, engaging in 
sports broadcasting, merchandising, and a variety of research 
and licensing activities. In SIAA's view, when they, or any 
other entity acting as a commercial participant, engage in that 
federally created sphere the law should require them to play by 
the same set of rules as anyone else. This committee has 
historically agreed with that premise.
    In 1990, and again in 1992, Congress passed legislation 
making States liable for damages and intellectual property 
suits in the same way as other commercial participants. The 
Supreme Court held the patent version of that legislation 
constitutionally insufficient to abrogate sovereign immunity. 
What we face now is different, a situation in which a sovereign 
has rented out its immunity for the benefit of a private 
company to avoid inter partes review under the AIA.
    There are already patent infringement suits filed by Native 
American tribes against members of the technology industry, and 
patent trolls are approaching State universities and tribes, 
looking to make similar arrangements. Our members are concerned 
that immunity for hire could undo much of the committee's 
success in improving patent quality. This committee spent years 
crafting the AIA and its IPR provisions in response to serious 
and widespread concerns over the quality of patents issued by 
PTO, and now IPR is successfully improving patent quality, 
giving the PTO a chance to reexamine past decisions.
    Sovereign immunity should not be used, much less rented, to 
undermine the committee's hard work and frustrate the Federal 
scheme. Our members are deeply concerned that this practice 
will proliferate to impact all industries plagued by bad 
patents, which certainly includes the software industry. That 
result should cause concern to everybody concerned about a 
strong, balanced, and uniform patent system. Even some 
pharmaceutical companies have publicly stated that they are not 
supportive of the sovereign immunity argument presented in the 
Allergan case. Judge Bryson was right to characterize immunity-
for-hire transactions as a sham.
    The Patent Office, the courts, and, ultimately, you have 
the ability to prevent this sham. There is no sovereign right 
to a bad patent, and there is no sovereign right to stop the 
Patent Office from reconsidering a decision to issue a bad 
patent. There are good arguments that sovereign immunity should 
not apply to IPR, which is a procedure by which the Patent 
Office reconsiders its decision to make a patent grant, albeit 
with input from the public. IPR does not impose legal liability 
or determine rights between adverse litigants. Instead, it is a 
procedure by which PTO reconsiders its decision to grant a 
public franchise.
    Moreover, as I mentioned earlier, the immunity is 
procedural not substantive. Thus, there are narrow procedural 
ways for the courts to solve this problem in the context of IPR 
proceedings that do not involve sovereign immunity at all. For 
example, as Judge Bryson suggested, it is not at all clear that 
the assignment necessary to create immunity for hire is legally 
valid, nor is it clear that the sovereign is a necessary and 
indispensable party in such cases; thus, even though the 
sovereign cannot be required to appear in an IPR proceeding, 
the PTAB may well still be able to conduct its review.
    If, of course, the courts permit the subterfuge, or the 
problem becomes widespread before it reaches a proper 
resolution, Congress will have to act. The tools available to 
Congress differ depending on which kind of sovereign it is 
dealing with. There is a difference between the nature of the 
immunity afforded to Native American tribes and that afforded 
to the States. In any event, thank you for considering our 
views, and I look forward to answering the committee's 
questions.
    [The prepared statement of Mr. Mohr follows:]

                                INSERT 4

    Mr. Issa. Thank you. I recognize myself for a round of 
questions. Mr. Mohr, I am going to take your very last 
statement first. Under the Constitution, the Federal Government 
does have treaties with tribes and has the exclusive right to 
do those. So, when there is a treaty, there is, in fact, a very 
similar right, a constitutional right, enshrined in the 
Constitution that would make whatever that was essentially the 
same as a State. In the famous Andy Jackson Trail of Tears, I 
think that was well decided that you cannot trump that, if you 
will. Would that be your understanding?
    Mr. Mohr. Well, the question to me is a little bit 
different, so I am not sure I completely understood.
    Mr. Issa. Well, the idea that on Federal lands----
    Mr. Mohr. Yep.
    Mr. Issa [continuing]. That are held in trust for tribes: 
all their governance and activities are exclusively regulated 
by the Federal Government, and that under treaties, which 
essentially that land in trust is part of a treaty process, 
they have rights that are protected by the Constitution that 
are every bit as strong as a state. Would not you agree?
    Mr. Mohr. Sure, under the treaties, yes.
    Mr. Issa. So, we are really talking not about all of the 
various sovereign things enshrined in the Constitution. We are 
limited to the other part of the statement you made, and I am 
going to come back to you, because you made the best statement 
of the whole crowd, and they were all good. I am going to come 
back to you after I asked two simple questions of all the 
witnesses.
    Does anyone see anything wrong with Allergan trying to get 
additional patents on this drug, making those applications, and 
initially being granted them? Is there anything wrong that 
Allergan did by getting those patents?
    Hearing no noes, I will take that every inventor, every 
company, has a basic right to try to write up a new patent with 
some additional claims, and if the Patent Office gives it to 
you, good on you.
    And would everyone agree that since a court has held that 
those patents were obvious, they were not new, that in fact 
there was an inherent process that had to happen somewhere to 
bring justice to the process of determining whether or not they 
would be able to further restrict the production of this very 
profitable drug? Anyone disagree on that? Mr. Johnson, briefly.
    Mr. Johnson. This is a technicality, but they may have been 
new, but still been obvious.
    Mr. Issa. Well, but I mean, a court struck down the 
patents, right?
    Mr. Johnson. A court has struck down the patents as 
obvious, but it does not mean that what they had was not new. 
It meant that----
    Mr. Issa. Right.
    Mr. Johnson [continuing]. If it were new it did not reach--
--
    Mr. Issa. Right.
    Mr. Johnson [continuing]. The standard.
    Mr. Issa. Mr. Johnson, that is the point I want to make, 
that no wrongdoing was done in asking for the patents and no 
wrongdoing is implied by the striking down of those patent, as 
the examiner got it wrong, basically, when it was fully 
disclosed. And that was not, in fact, the Trade Patent Office 
doing it, it was an Article III judge, right?
    So, the odd thing is we are dealing here with--I think it 
is five patents in the portfolio--we are dealing with patents 
that were adjudicated at a high cost in Federal court that 
could have gone through the other process but were stayed as a 
result of the claim of sovereign immunity. So, now I am going 
to go to Mr. Mohr.
    You made a point that is so good that I hope we can flesh 
out here to turn it into legislation and save litigation. The 
patent, itself, is what is being adjudicated in the Patent 
Office. Let me ask you a couple of easy questions; hopefully, 
they are easy. One, did the Indian tribe have to show up at all 
in this process?
    Mr. Mohr. Arguably, no.
    Mr. Issa. Did Allergan have to show up at all?
    Mr. Mohr. No.
    Mr. Issa. If this were in an ex parte reexamination, and it 
went back through the normal Patent Office, does the inventor 
have to show up, or can they simply allow the ex parte 
examination to be no party examination, and they can look at 
it, right?
    Mr. Mohr. Right.
    Mr. Issa. So, there is no requirement to produce yourself, 
whether you are a sovereign entity or the patent holder. In 
fact, this is an administrative process over the patent. In 
other words, it is a survey of the property. Right?
    Mr. Mohr. That is right.
    Mr. Issa. So, since it is completely optional, if Congress 
were to through statute make it clear that in fact the 
jurisdiction, the possession, and the asset lie in the Patent 
Office, and any adjudication that occurs down the road in 
Virginia is, in fact, of the patent and not of the people, 
neither the plaintiffs nor the defendant, even if we allow them 
to sit submit information. Right?
    Mr. Mohr. Congress could do that.
    Mr. Issa. And lastly, in a patent reexamination, and 
actually, even in an ex parte, if you learn of it, is not it 
true that anybody in the entire wide world can submit to the 
Patent Office information to be considered?
    Mr. Mohr. I believe that is correct.
    Mr. Issa. So, there is no standing in these cases.
    Mr. Mohr. No, there is no--if you mean case for 
controversy, that is right. No.
    Mr. Issa. So, what we have here is an administrative 
process going on, no different than the original examination, 
in which you could send a patent to the Patent Office as an 
application and never look at it again except to pay the fees 
as a patent holder and take your chances that the patent holder 
does not send you back--excuse me--a denial that you then have 
to discuss with them. Right?
    Mr. Mohr. Right.
    Mr. Issa. So, for those who have not seen it, that to me is 
the essence of what we are discussing here. We are not 
discussing, I hope, in the long run the question of whether the 
tribe did something wrong, or whether we need to change 
sovereign immunity. And one-half of what we are discussing here 
today it seems to me we can define where the patent is and what 
is being adjudicated, and I am going to pass this on to the 
Ranking Member.
    My concern, which I will leave to a second round, if we 
have one, is that when it comes to assigning a plaintiff role 
in which someone is suing--``heads I win, tails you cannot do 
anything to me''--we may have to look at that, the active role 
of when you essentially assign, with the help of a troll, to do 
lawsuits. And that part will come in the second round. Mr. 
Nadler.
    Mr. Nadler. Thank you. Mr. Jay, the Allergan deal called 
for by the St. Regis Mohawk tribe called for the St. Regis 
Mohawk tribe to assert sovereign immunity only in the IPR 
proceeding. I gather there is no reason that any other patent 
holders could not transfer their patents to a sovereign on the 
condition that the patents be shielded from reviewing in both 
IPR and the Federal courts.
    Mr. Jay. That is correct.
    Mr. Nadler. Use your mic.
    Mr. Jay. That is correct, as we understand the terms of 
the----
    Mr. Nadler. And what would be the impact in generic 
competition and consumer drug prices if people did that?
    Mr. Jay. Often in litigation in district court there is 
more to the dispute than just whether the patents being 
asserted by the plaintiff, the brand-name company, are 
infringed and valid. So, for example, the brand company may try 
to hold back some patents and not assert them right away as a 
way of prolonging litigation and deterring generic companies 
from coming onto the market for an even longer period. One way 
to combat that right now is that the generic company can file a 
counterclaim, trying to invalidate all----
    Mr. Nadler. And they could not.
    Mr. Jay. The concern is that if the plaintiff is a 
sovereign, that that counterclaim could not be litigated.
    Mr. Nadler. It would be a one-way situation, then?
    Mr. Jay. Right. And similarly, they could not go into court 
as a declaratory plaintiff and seek a declaratory judgment of 
invalidity.
    Mr. Nadler. Now, some defenders of this deal argue that 
Allergan's transference of its patents to the tribe to make use 
of its sovereign status is no different from cases in which 
State universities have asserted sovereign immunity in IPR 
proceedings. I think Mr. Manheim gave his reasons why that was 
not true. Would you agree that there are differences?
    Mr. Jay. There certainly are differences, including both 
the foundation of the form of immunity which in the case of 
tribes is a common-law immunity that----
    Mr. Nadler. As opposed to----
    Mr. Jay [continuing]. Congress has power over. And also, 
the State cases have involved actual inventions by State 
universities, State research arms, State employees doing 
innovation themselves, not taking money to rent out the State's 
sovereign immunity.
    Mr. Nadler. In your testimony you argue that Congress 
should consider legislation abrogating tribal sovereign 
immunity in patent proceedings. Aside from the practical 
difficulties in abrogating State sovereignty, is there any 
reason to single out the tribes? Do you think there will be a 
fair result?
    Mr. Jay. Well, the constitutional difficulty in abrogating 
State sovereign immunity obviously is a significant obstacle, 
and that is why our proposal has focused on----
    Mr. Nadler. All right, but given there is a practical 
obstacle, given the practical obstacle in the one case, but not 
in the other, do you think abrogating sovereign immunity in the 
one case but not the other would be a fair result?
    Mr. Jay. We do, because Congress has the power to solve the 
problem before it and to use its power under the Indian 
Commerce Clause to confine tribal sovereign immunity to its 
historic function of preserving tribal self-government and 
preventing it from interfering with the patent system and 
competition.
    Mr. Nadler. Thank you. Mr. Mohr, if agreements like the 
Allergan deal become the norm, can the IPR process survive, and 
what impact do you think this would have on the patent troll 
problem?
    Mr. Mohr. I think it is going to get a lot worse.
    Mr. Issa. Microphone, please.
    Mr. Mohr. I think the patent troll problem is going to get 
a lot of worse. From the viewpoint of my members, the IPR 
system has been an enormous benefit in terms of the ability of 
our innovative companies to challenge bad patents. The relative 
ease with which the deal in Allergan could be structured means 
that, frankly, it could be very easily replicated. Once you 
know what the terms are and that they have been judicially 
approved, all you really need is a Xerox machine and you are 
off and running. So, we are extremely concerned that that, if 
widespread----
    Mr. Nadler. Would destroy the IPR process.
    Mr. Mohr. Precisely.
    Mr. Nadler. Do you think that Congress should consider 
limitations of sovereign immunity and IP matters, even when the 
rights holder developed the property itself rather than 
acquiring it through an Allergan-type transaction?
    Mr. Mohr. Yes.
    Mr. Nadler. Because?
    Mr. Mohr. Because everyone should play by the same set of 
rules.
    Mr. Nadler. Okay, fair enough. Much of the discussion today 
has focused on sovereign immunity in the context of patent law, 
but since the hearing is Title VII Immunity and the 
Intellectual Property System, can you tell me a little about 
whether sovereign immunity is concerned for other forms of 
intellectual property, like copyright?
    Mr. Mohr. Sure. Our members, those that are copyright 
holders, have the same concerns. We used to have an enforcement 
program, and we would not be able to assert infringement suits 
against States, and the cornerstone of the problem is the same.
    In other words, it is States being able to operate by 
different sets of rules. The difference between the two 
statutes, the one that was struck down by the Supreme Court and 
the one that was invalidated by the Fifth Circuit, is that 
there is more of a record for copyright infringement, I think, 
than there was present at the time that the Patent Remedy 
Clarification Act was enacted. I am still holding out hope that 
that may pass muster.
    Mr. Nadler. Thank you. My last question is to Mr. Manheim. 
Given the challenges in abrogating sovereign immunity by 
statute, what incentives can Congress establish to encourage 
States and Native American tribes to waive their sovereign 
immunity in IP cases, short of abolishing the right?
    Mr. Manheim. Sure. I think we should draw a distinction 
between existing patents and existing intellectual property 
rights and those that are yet to be granted, and that could be 
conditioned upon the waiver of the right to assert sovereign 
immunity. I think it would be much harder for Congress to 
require a waiver for existing rights, at least when it comes to 
States, than for yet-to-be granted rights, because then you are 
changing the nature of the right that is being awarded.
    So, as Chairman Issa was talking earlier about an IPR 
proceeding, that really the patent holders need not be present, 
that you are actually challenging the patent as a res, R-E-S; 
that, I think, is a workable solution going forward. I do not 
believe it is a solution that would work retroactively.
    Now, the distinction between existing patents and 
prospective patents is an important one when it comes to a 
statutory remedy for State sovereign immunity. I do not think 
it is as difficult when we are talking about tribal sovereign 
immunity, because that really is a creature of statute and 
common law which Congress has the right to overcome.
    Mr. Nadler. I see. I cannot help but observe that you think 
in that case, the case that you are talking about, that that 
res is not really res publica.
    Mr. Manheim. Yes, exactly.
    Mr. Issa. The gentleman yields back. We now go to the 
gentleman from Pennsylvania, Mr. Marino.
    Mr. Marino. Thank you, Chairman. I would like to start with 
Mr. Mohr and then move down, or up, however you want to refer 
to it, if you want to comment on it.
    A recent analysis found 263 cases where a district court 
ruled a patent was valid, only to have the patent subsequently 
challenged before the PTAB. In 200 of those cases, the PTAB 
reached a different result and in fact invalidated at least one 
of those patent claims. How do you explain those disparities 
between the district court and the PTAB?
    Microphone, please. If you want to review your notes, we 
will go on to Mr. Johnson----
    Mr. Mohr. Sure.
    Mr. Marino [continuing]. If you are looking for something 
specific. Mr. Johnson?
    Mr. Johnson. Thank you. Well, it is quite simple. The rules 
that are used in the PTAB are different and much easier to 
invalidate patents than the rules that are used in the Federal 
courts.
    Mr. Marino. Can you give me an example of that?
    Mr. Johnson. Sure. The claims are interpreted using the 
broadest reasonable interpretation standard before the PTAB 
instead of the ordinary and customary meaning of the claims, 
which is known as the Philips standard.
    So when these patents which were examined and ended up 
coming out of the Patent Office with the expectation they would 
be interpreted using the Philips standard, and then they get to 
the PTAB, the PTAB broadens the claim so it sweeps in within 
its coverage prior art that makes them easier to invalidate.
    Using the chairman's example, it is as if everyone agreed 
that the fence was where it was going to be, but when it goes 
to the PTAB, the PTAB moves the fence out, and lo and behold, 
instead of just losing the difference between how the fence was 
moved, they lose the entire property.
    And that is why there is rampant invalidation, and what was 
intended originally by the AIA was that there would be a robust 
ability to at least amend the claims, to pull them back in if 
necessary to get them on the right boundaries, but as 
implemented, the PTAB simply is not allowing those amendments.
    Mr. Marino. All right. Mr. Mohr.
    Mr. Mohr. Yeah, I mean, I guess it is unsurprising that I 
would disagree with that characterization. I think the 
difference between the two for a couple of reasons.
    The first reason is--I mean, again you go back to first 
principles. Right? The IPR allows the PTO to reconsider its 
earlier decision to issue a patent, so there is a different 
standard in Federal court, but that standard reflects deference 
to the expert agency. There is no reason for the agency to 
defer to itself.
    So you are operating with respect to the broadest 
reasonable interpretation standard. The PTAB applies the same 
principles as district court. It is not possible to identify a 
definitive claim interpretation that every court is going to 
agree on, so what the PTAB is supposed to do is apply the 
broadest reasonable interpretation that a court could come up 
with, and that is the limit on their power.
    Mr. Marino. Mr. Jay.
    Mr. Jay. Thank you. Just to build on what Mr. Mohr said, 
there are safeguards in district court litigation because those 
are cases being heard by a generalist judge, and often by a lay 
jury, and the standards for invalidating an issued patent under 
those circumstances are understandably higher, and Congress has 
put that in statute.
    Congress also put in the statute that, as Mr. Mohr said, 
when it is the Patent Office, when it is expert adjudicators 
from the Patent Office doing the adjudication, they do not have 
the generalist judge problem or the lay jury problem, and as a 
result, they apply the same standard that the examiner applied 
when considering whether to issue the patent, because their job 
is to decide whether the patent should never have issued in the 
first place.
    Mr. Marino. Professor.
    Mr. Manheim. I agree with that. The district courts are 
generalist courts. They hear every variety of Federal claim, 
and a lot of State claims. There is a presumption of patent 
validity when a patent gets to district court; there is no 
presumption of validity in the IPR proceeding, which is heard 
by a panel of usually people with technical training.
    One other thing to say about the district court litigation. 
There is a very hard reversal rate in district court cases at 
the Federal Circuit, which is a specialist court. So, this is 
not to impugn district courts at all. They are doing absolutely 
the best they can, but this is one explanation for why you 
would see a different----
    Mr. Marino. Do you think that has some to do with 
experience? Not so much experience of the repetitiveness of the 
cases versus district court, or review at the Patent Office.
    Mr. Manheim. Absolutely. And I have heard that some 
district court judges are hiring scientific or science students 
as clerks because their cases are so technically oriented. Now, 
there is also the patent pilot program in Federal court so that 
some judges can develop that expertise. I do not have any 
statistics on that, but--and this is a partial explanation for 
why you would find different statistical outcomes.
    Mr. Marino. Thank you. My time is expired.
    Mr. Issa. The gentleman yields back. We now go to the 
gentleman from New York, Mr. Jeffries.
    Mr. Jeffries. I thank the chairman. I thank the witnesses 
for your presence here today. Mr. Jay, am I correct that the 
process for a generic drug company bringing a product to the 
market is set forth in the Hatch-Waxman act?
    Mr. Jay. That is generally correct, yes.
    Mr. Jeffries. And so, just to make sure I have got this 
process correct, the generic drug company would file a 
paragraph for abbreviated new drug application, which would 
then expedite the potential approval of bringing that generic 
drug to market. Is that right?
    Mr. Jay. Right. The ANDA is a streamlined application that 
avoids the need to go through clinical trials and so forth, 
because it builds off of what is already known about the 
reference drug.
    Chairman Goodlatte. And then the legacy drug company would 
sue the generic for patent infringement under Hatch-Waxman. Is 
that right?
    Mr. Jay. That is right, if the generic drug company has 
certified that the patent is either not infringed or is 
invalid, and that triggers a time limit for the brand company 
to sue. If the brand company does not sue, the generic can 
bring a declaratory action to clarify whether the patent is 
valid or not.
    Chairman Goodlatte. And if the brand company sues, which I 
believe is the case in the Eastern District of New York where 
the sovereign immunity issue has arisen, if the brand company 
sues, then the generic could issue or choose to file a 
counterclaim in the context of that lawsuit. Is that right?
    Mr. Jay. That is correct. It generally does happen that the 
defendant files a counterclaim alleging that the patent is 
invalid or unenforceable or both.
    Mr. Jeffries. Professor Manheim, did you want to comment?
    Mr. Manheim. I wanted to add to that. We are getting to 
some areas of technical Federal court jurisdiction, but there 
is a difference when it comes to sovereign immunity between 
compulsory and permissive counterclaims.
    So, as Mr. Jay said that, if a sovereign entity or assignee 
is asserting a patent against a defendant or a competitor, they 
may defend on any ground or assert a counterclaim relating to 
that patent.
    However, recall that the patent system crafts a fine 
balance between promoting innovation and protecting 
competition, and so, under a case called Walker Process, if it 
turns out that the patent was procured by fraud, then the 
defendant may do more than simply defend patent infringement, 
but may also counterclaim for any trust violation.
    And that is one way to keep the system in balance, but if 
the patent holder has sovereign immunity, that counterclaim may 
not be able to go forward, either in that case or any other 
case. And so, that is one of the problems I see in sovereign 
entities being able to resist any form of affirmative 
litigation or counterclaim or IPR proceeding, as it may upset 
that balance between innovation and competition. So----
    Mr. Jeffries. Thank you for that, professor. The judge in 
the Allergan case ruled or stated that sovereign immunity 
should not be treated as a monetizable commodity that can be 
purchased by private entities as part of a scheme to evade 
their legal responsibilities. I assume you agree with that 
statement. Is that right, professor?
    Mr. Manheim. Basically, I do agree with that.
    Mr. Jeffries. Mr. Jay.
    Mr. Jay. Certainly.
    Mr. Jeffries. Now, I guess the question is, is this an 
issue that we should allow to resolve itself through the court 
proceedings? You have got a pending case right now in the 
Eastern District of Texas. Presumably, whichever way that goes, 
that will be appealed to the Fifth Circuit; whichever way that 
goes could potentially be appealed to the United States Supreme 
Court.
    You know, we have three branches of government for a 
reason, and the courts are endeavoring to tackle what is a 
complicated legal issue involving a potential sovereign's 
involvement in a domestic dispute. Or, when is the right moment 
for Congress to potentially intervene to address what is a 
complicated challenge here?
    Mr. Jay. We do urge that that Congress not wait, and let me 
explain why these pending cases are not likely to result in 
solving the problem promptly.
    First, the Eastern District of Texas case that you referred 
to, Congressman, the trial judge in that case, you know, one of 
our best patent judges, former acting Solicitor General of 
United States Judge Bryson, decided to let the patent tried 
into the case permissively, basically to take the sham nature 
of the transaction off the table as an issue on appeal.
    So the Federal Circuit is not going to be considering the 
sham nature of the transaction in an appeal in that case. Then 
there is the proceeding going on about the Restasis patents 
before the Patent Board.
    The PTAB recently put out its projected schedule for 
resolving the case. It has extended the time for a final 
decision not until next April, April 2018, and there is no way 
to know what they are going to decide on this motion to 
dismiss. It could take a long time for the issue to percolate 
up to the Federal Circuit, from the Federal Circuit to the 
Supreme Court, and if it comes up in future cases where the 
Patent Board feels it is unable to even begin in IPR, decisions 
not to begin an IPR are not appealable at all.
    And so, if sovereign immunity starts chilling the board 
from taking action, that will not be something that can be 
litigated up to the Court of Appeals.
    Mr. Jeffries. Thank you. My time is expired. Thank you.
    Mr. Issa. Thank you. I am only going to inquire; the 
gentleman from Texas is next. Will the gentleman be able to 
remain? Okay, the gentleman from Texas is recognized.
    Mr. Farenthold. Thank you very much. You know, we have had 
numerous hearings in this committee and other committees in 
Congress about the high price of prescription drugs, especially 
in the United States. The patent system is one of the reasons 
that that is there, but you also see problems once a drug goes 
into a generic when one company seems to be the only 
manufacturer of the drugs. And the pharmaceutical industry is 
taking a big hit in public perception, to the point it is 
forcing Congress to investigate this and look for solutions.
    What we are talking about now, this scheme by which we 
shield patents from review, seems to me to be another one of 
the abuses that, you know, non-intellectual property scholars--
and I will go to the average American--are just--they just 
throw up their hands. You know this is what is wrong with the 
system; this is what is wrong with Washington and they are mad 
about it.
    So, I want to start with Mr. Jay. Could you speak about the 
balance that is in the system right now with respect to the 
name-brand pharmaceutical companies and the inventions they do, 
the link to the patent, and how they go into generic, and how 
that affects cost, and how this might upset that balance?
    Mr. Jay. Absolutely, Congressman. Thank you for the 
question. Innovation is obviously tremendously important in the 
pharmaceutical industry, but not every patent that is issued on 
a pharmaceutical product represents a true innovation.
    And so, striking that balance is what the Hatch-Waxman 
framework is about, and it is what the IPR system is being used 
for as well, to sift between those patents that represent true 
innovations and that justify giving a period of market 
exclusivity to the innovator, and those that are really just an 
attempt to kind of evergreen the franchise, to make the 
monopoly last longer through a second-generation patent that 
does not represent a true innovation.
    Mr. Farenthold. And what effect does that have on prices?
    Mr. Jay. When there is no competition, of course prices are 
higher. That is why, for example, the price for Restasis, which 
is the product we have all been talking about, has more than 
doubled over 10 years when there is no competition.
    Mr. Farenthold. Now, the Federal Circuit judge sitting by 
designation in district court on the Allergan case said the 
court ``has serious concerns about the legitimacy of the tactic 
that Allergan and the tribe have employed. What Allergan seeks 
is the right to continue to enjoy the considerable benefits of 
the U.S. patent system without accepting the limits that 
Congress has placed on those benefits through the 
administrative mechanism for cancelling invalid patents.'' You 
are familiar with this case. Do you agree with the judge in 
that?
    Mr. Jay. Absolutely. I----
    Mr. Farenthold. Go ahead.
    Mr. Jay. Judge Bryson has been around the patent system a 
long time. As you mentioned, he is primarily an appellate 
judge. He sits by designation in Texas a lot. You know, he is a 
veteran of the system, and we agree with his observation.
    Mr. Farenthold. At the risk of opening this up and 
involving more folks in it, sovereign immunity is also enjoyed 
by the States and State universities. Is there an unfairness in 
the system that they are able to, say, be immune from copyright 
infringement on the software they use for--we will say word 
processing, just in developing the memos associated with 
developing whatever they develop.
    But yet they can enjoy the patent and copyright system on 
what they create, but they are not held accountable for their 
abuses of it. Is there a problem there, too?
    Mr. Jay. I would say a couple of things about that. Number 
one, as I mentioned before, you know, and as I think your 
question recognizes, often a State university's patent 
represents innovation that goes on on that campus, you know, by 
the faculty at that State university, you know, true 
innovation, not renting out the sovereign immunity. And second, 
you know, the difference between tribal sovereign immunity and 
State sovereign immunity is important. It is grounded in the 
Constitution.
    And third, it remains an option for States to agree to 
waive their sovereign immunity, and you know, a State 
government has more political accountability, you know, to the 
customers who buy products in a market that would benefit from 
competition, you know, than an Indian tribe does.
    Mr. Farenthold. I have one final question for Mr. Johnson. 
At the end of your testimony you said that fixing the IPR 
system is squarely within this committee's jurisdiction. Give 
me a couple of things we could do with fixing it, short of 
throwing it out.
    Mr. Johnson. You could require that the patent claims be 
interpreted using the same rules both in the federal courts and 
in the PTAB proceedings, for one. You could require that the 
procedures be fair and look at due process issues that are 
involved between the two.
    Right now, many of the protections for patent owners that 
were written into the America Invents Act have not been 
implemented, either by regulation or they have been left to 
individual panels of the PTAB, who basically do not apply them. 
And a classic abuse of the system is the fact that almost half 
of the petitions that are filed for IPRs are duplicative of 
other petitions that were already filed, and some patent owners 
have received not just one or two or three but a dozen or more 
petitions, and in one case I have heard over a hundred 
petitions.
    Mr. Farenthold. All right, thank you I know we addressed 
some of those as well. And my time is out.
    Mr. Johnson. Suffice it to say, I could go on.
    Mr. Farenthold. All right, thank you. I see my time is 
expired.
    Mr. Issa. We will try to give him time in good time. The 
gentleman from Georgia, Mr. Johnson.
    Mr. Johnson of Georgia. Thank you, Mr. Chairman. Mr. Mohr, 
are assertions of sovereign immunity out of place in a modern 
intellectual property system?
    Mr. Mohr. Yes--oops, sorry about that. Yes.
    Mr. Johnson of Georgia. Want to explain?
    Mr. Mohr. Sure. It goes back to the conversation that we 
were having earlier.
    Mr. Johnson of Georgia. Sorry, I missed it. I was getting 
in.
    Mr. Mohr. Oh, apologies. The example I used had to do with 
the States and how the States are involved in a variety of 
activities, such as broadcasting sports games and merchandising 
and research and licensing in which they act really very, very 
similarly--in fact, identically, in many respects--to private 
parties, and the idea is when they engage in that federally 
created marketplace they should play by the same sets of rules. 
It is a simple fairness question.
    Mr. Johnson of Georgia. Professor Manheim.
    Mr. Manheim. I think it is important to have a level 
playing field across the intellectual property ecosystem, and 
when one species of participant has an unfair advantage because 
of immunity it distorts the entire system, whether it is a 
State or a Native American tribe.
    Mr. Johnson of Georgia. Mr. Jay.
    Mr. Jay. We certainly agree that, especially as the 
chairman brought up earlier, you know, when the Patent Office 
has issued a patent, you know, it should be open to the Patent 
Office to reexamine that patent and to decide whether the 
Patent Office made a mistake really irrespective of who holds 
that patent at any given time.
    Mr. Johnson of Georgia. And Mr. Johnson.
    Mr. Johnson. We would not have the problem if the rules 
were being applied the same way both in the Patent Office and 
in the courts. And by the way, as to administrative review, 
sovereign immunity does not prevent an ex parte reexamination, 
even a third party-requested ex parte reexamination, because 
that is a different type of proceeding to which sovereign 
immunity does not apply.
    So, anyone at any time can go back in and have that patent 
re-examined by the Patent Office, not by administrative patent 
judges who really do not have any background in the particular 
field to which the invention pertains, but by elite patent 
examiners who actually have experience in understanding the 
prior art and can do a much better job of reconsidering them.
    And those have existed for 40 years, are considered to be 
fair, have reached resolutions comparable to the Federal 
courts, and to be an aid which is not susceptible to troll 
abuse. It is virtually unheard of with respect to ex parte re-
examinations.
    Mr. Johnson of Georgia. Thank you. In light of how Allergan 
has moved to distort, for lack of a better word, the inter 
partes review process. Is there a role for Congress to play on 
this issue? Anybody?
    Mr. Jay. I would happily speak to that, Congressman. We 
think that the issue really is that the assertion of tribal 
sovereign immunity after a rental transaction like this, you 
know, threatens to gum up the well-working system, and it 
threatens to raise prices by allowing some patent owners to 
escape review when their patents are flawed. We think that 
there is a role for Congress to play to ensure that sovereign 
immunity cannot be used to keep bad patents from being 
subjected to review.
    Mr. Johnson of Georgia. Yes, sir, Mr. Johnson.
    Mr. Johnson. In the case of drugs and would-be generic 
drugs, it is impossible for sovereign immunity to stop that, 
because under the procedures of the Hatch-Waxman act, after the 
paragraph four certification is given the patent owner must 
bring suit in Federal court if they want to stop that generic 
from coming on the market. And when they bring suit in Federal 
district court they waive sovereign immunity, so they do not 
stop anything from coming out unless they sue, and if they sue, 
sovereign immunity does not apply. There is no known case of a 
drug being kept off the market because of sovereign immunity.
    Mr. Jay. Not yet.
    Mr. Manheim. Mr. Jeffries asked a similar question and 
suggested that we might let the courts deal with the problem. 
However, the Supreme Court has made it pretty clear when it 
comes to tribal sovereign immunity that it is a matter for 
Congress to deal with and not for the courts.
    Mr. Johnson of Georgia. Mr. Mohr.
    Mr. Mohr. I think for us there would be no quicker way for 
me to go from five-eight to five feet than to get out in front 
of my members. Where we are right now is that we are extremely 
concerned about the proliferation of this kind of arrangement. 
We believe it is destructive. We think it is really important 
because the issue is complicated, particularly if you are 
concerned about stopping this kind of transaction with States. 
It is going to require careful study, and we are glad that you 
are examining this, but we are not in a position to endorse 
legislation at this time.
    Mr. Johnson of Georgia. Thank you, and I yield back.
    Mr. Issa. The gentleman yields back. We now go to the very 
patient gentleman from Florida, Mr. Gaetz.
    Mr. Gaetz. Thank you, Mr. Chairman. Mr. Manheim, one of the 
great threats to creativity in the American economy is the 
theft of intellectual property, particularly from China. The 
United States has to maintain some degree of credibility around 
the world to be able to marshal international efforts to bring 
China and other violators into compliance with norms.
    In recent years, some studies have indicated that the 
United States has slipped from the leading standard in 
intellectual property to tied for tenth with Hungary. Is it 
your assessment that the current construct of this sovereign 
immunity regime would continue to undermine the United States' 
credibility on broader issues related to intellectual property?
    Mr. Manheim. I do not believe so. I agree with your 
assessment, by the way, and of course, intellectual property is 
the major engine of the U.S. economy, so we want to do 
everything to promote innovation and smooth the wheels of 
progress. But I do not believe that the sovereign immunity 
issue has a great impact on the direction we have. I think 
there are other reasons for Congress to examine it, but not 
necessarily because it is going to affect the U.S.'s 
competitiveness in the world economy.
    Mr. Gaetz. Mr. Mohr, you stated earlier in response to, I 
believe, Mr. Johnson's question that tribes ought to act like 
any other private stakeholder in the pursuit of intellectual 
property. Have I paraphrased you correctly?
    Mr. Mohr. Not quite. I think what I said was that sovereign 
immunity does not have a place in a modern intellectual 
property system, which is a little different.
    Mr. Gaetz. Fair. Are there areas now where tribes are 
treated differently in the utilization of drugs than perhaps 
States or other entities?
    Mr. Mohr. I think you would have to direct that question to 
somebody who knows a lot more about Indian tribes than I do. I 
cannot answer it.
    Mr. Gaetz. Sure. In the development of intellectual 
property, would we agree that there are some circumstances 
where tribes need to be treated differently than the several 
states?
    Mr. Mohr. It is theoretically possible, sure.
    Mr. Gaetz. All right. So, one example that comes to mind 
for me is cannabis. Right now, tribes are not under the same 
restrictions that other commercial entities are regarding the 
cultivation, production, and distribution of cannabis.
    Is there a risk if we were to adopt any of the proposals 
that have been discussed today that we could throw a wet 
blanket over innovation in the cannabis space if tribes were 
not treated differently but were instead treated like any other 
commercial actor?
    Mr. Mohr. That is a fair question. I mean, there are two 
answers. I have two answers to that question. The first is that 
we have no position on legal marijuana. The second answer to 
that question is that I think, again, if the tribe--we are 
looking at two different things. One is that if the tribe were 
to seek IP protection, specifically patent protection, for 
whatever they developed, our view would be that they should be 
subject to IPR to review those patents.
    Mr. Gaetz. Mr. Chairman, I would simply say that, as we 
move forward, there are areas where tribes are treated 
differently that can create an ecosystem for creativity that 
might not exist otherwise, and in solving the various 
challenges that we have seen raised today, I would hate to see 
us have an unintended consequence of potentially limiting that 
innovation, particularly in the area of cannabis.
    Mr. Issa. If the gentleman would yield?
    Mr. Gaetz. I will.
    Mr. Issa. Being an entrepreneur, but not in that particular 
field----
    Mr. Gaetz. Not yet, Mr. Chairman. You are from California.
    Mr. Issa. This job sometimes drives me to drink. But I 
agree with the gentleman's premise that nothing we do here 
should limit sovereign immunity of the States or of Native 
American tribes in a way that would have any consequences 
beyond the administrative issue before us, and I think you are 
exactly right.
    Mr. Gaetz. I yield back.
    Mr. Issa. The gentleman yields back, which leaves me and 
Mr. Nadler. I want to follow up on a couple of things I heard, 
because I think there are some very important points.
    Mr. Johnson, I do not know whether you have got these guys 
surrounded or they have got you surrounded, but you are doing a 
really great job. But I want to follow up on some things, 
because some of the people who, in a broad sense of the word, 
you may be speaking for today went out of their way to kill Mr. 
Goodlatte's bill because he would not, I would not, many of us 
would not do an outright carve-out on the PTAB process for 
pharma and bio.
    And I do not think anyone in this room, including some of 
my friends from the industry, are going to object to that being 
said. But one of the reasons was we were not able to find an 
effective alternative to an outright carve-out, and I think 
there were a couple of things you said here today that I want 
to make sure we get into the record.
    You know, one of them had to do with the double standard; 
the other had to do with your assertion particularly that your 
PTAB judges, and I have one next to me, may or may not be 
experts in the field, and I will take that point.
    And so, what I would like you to do for the record if you 
are able to do it, individually or as part of a group, is to 
look at the various off-ramp possibilities that could bring the 
experts back in.
    Currently, it is routine in a PTAB case to stay an ex parte 
reexamination that may be going on. There may be a question of 
fairness if the patent holder had become aware of some prior 
art, submitted that prior art, and reasonably believes that 
with an examiner knowledgeable in the area would be able to 
limit their claims, maybe change a dependent claim here or 
there, and come out with a bona fide as-new patent, and I would 
like to make sure that even if we can never agree on some 
things, that we explore the process of amending.
    And I say that, particularly, because the one area I am 
concerned in is when we voted for AIA, we went out of our way 
to give the court, the administrative court, the ability, 
actually, to amend claims, and they have used it almost never. 
And one of the reasons may be your assertion here today, that 
they lack the expertise, the confidence to do so, or they do 
not believe, perhaps, that we meant what we said. If you have 
any comments, and I would go to Mr. Mohr on this part of it.
    Mr. Johnson. Yes, that was the intention of the AIA to 
allow amendments, but I think when it came to implementation, 
in the short timeframe and given the backgrounds and other 
issues before the APJs, it seemed too unwieldy.
    They just, I think, did not know how to get their hands 
around the examinational aspect and seemed uncomfortable to do 
what most people would do, which would be to assume that any 
claim narrower than the originally allowed claim, any amended 
claim that was narrower, and they were required to be narrower, 
should be presumed to be valid.
    Because if you narrow down, if you have a claim saying you 
own the whole property, and you say, ``Well, at least I own the 
middle of it,'' you could presume that was a valid claim. But 
they seemed reluctant or unwilling to do that, and I think they 
punted and decided they just would not allow amendments.
    Mr. Issa. For the other witnesses that observe the 
process--and I know this is slightly outside the one part of 
the hearing, but it is certainly within the subcommittee's 
jurisdiction--would you agree that this is one of the areas 
that could be considered a deficit of this process? Anyone?
    Mr. Jay. One development to note on that, Mr. Chairman, is 
that the Federal Circuit sitting on bond has just recently 
changed the rules for what has to be shown in order to amend a 
claim. You know, that literally happened within the past few 
weeks and has not had a chance really to percolate. That 
obviously----
    Mr. Issa. It always is interesting to see when the Fed 
Circuit changes our laws, but having said that, you are right 
that encouraging a process is part of it. But let me just go 
back to Mr. Johnson's statement for the other three.
    If these judges are not the subject area experts, are we in 
fact asking a job that these judges are not generalist, but 
they are also not in specificity the experts that would be 
assigned within the Patent Office ordinarily to do an 
examination or reexamination? Mr. Mohr, you have got some 
experience there. Would you concur with that?
    Mr. Mohr. I would say your statements about my experience 
there are overrated, sir. What I would say is this----
    Mr. Issa. Let's just say that I have had to sit there in 
the old Crystal City with examiners who knew more about my 
products than I did, and I was the inventor, so I have been 
impressed at times with many of the well-read examiners. And I 
do not necessarily have the same experience other than my 
Federal court judges at the end of court cases, after they were 
decided off, often still had questions.
    Mr. Mohr. From our perspective, I think our members believe 
the IPR proceeding is working well, as it is, and we believe 
that the In re Aqua products decision should be allowed to 
percolate through the PTO before any consideration of tinkering 
occurs.
    Mr. Issa. Okay. I have been called a tinkerer at times. I 
have always taken as a compliment. Mr. Johnson.
    Mr. Johnson. Yes, I think I am the only one on the panel 
who is registered to practice before in the Patent Office and 
has actually written, prosecuted, and appeared before the 
office----
    Mr. Issa. Well, then we can disallow you altogether.
    Mr. Johnson. Right, you can. I am guilty of whatever you 
want to charge me. But I would be happy to submit supplemental 
testimony on the off-ramp idea. It has received a fair amount 
of attention, and I believe Chief Judge Michel in his 
supplemental testimony suggested it was something that should 
be looked at.
    Mr. Issa. Okay, and I will welcome that. I also would 
welcome it from organizations that some of you may be involved 
in. The only question I would ask is when you look at the off-
ramp, the most important question that probably would be asked 
and have to be answered by us is what would be the litigable 
date on the new, emerging claim? In other words, a normal 
reexamination you get the benefit that it is a lesser included, 
and you keep your original litigation date on a new patent.
    Especially, if PTAB has determined that you were overly 
broad, you may lose some of your trailing edge, and those 
questions, it would be helpful if justifications for all or 
some to be taken away. Obviously, one of the examples would be 
when we normally have a Latcha [phonetic] situation of six 
years. If time has gone by, would we at least limit past 
damages to six years if something emerged with a, if you will, 
new claim, or would we make it upon the day it went into 
reexamination, on the day it went out?
    These questions are important because I am--and I think my 
ranking member, too--we would like to find ways to take what we 
have--what Mr. Mohr likes, what Mr. Johnson is more reticent 
about--and find something that would be agreeable between the 
parties as even better. And if we can do that, that is 
certainly a goal of this committee. Mr. Johnson.
    Mr. Johnson. I would be happy to work on that but suggest 
that as long as the standards for finding invalidity are lower 
one place than the other, you are not going to get agreement 
because the people who see themselves as infringers will want 
the lower standard; the patent owners will want a higher 
standard.
    So, part and parcel of this will be a need to conform all 
proceedings so that everybody agrees there is one standard of 
validity, one standard of non-obviousness, one standard of 
novelty that is applied everywhere, and then I do believe that, 
procedurally, you could get where you want to go.
    Mr. Issa. Well, I hope to get there. I will say one thing. 
I have seen article III judges who know the standard but often 
consider that the standard is the same, and I think you would 
probably find that that has been the case.
    Certainly, in the case of the Allergan there certainly was 
a decision that, by clear and convincing evidence, the examiner 
was just dead wrong, period, and since the examiner did have 
the prior art, the actual prior patents, and made a decision 
which was patentable over it, the judge found a way to 
completely say that he was wrong and not show any deference, if 
you will, to that since the prior art was fully considered.
    Mr. Johnson. Since the beginning of the patent system, the 
courts have always looked at these issues, and when new 
evidence arises or when the evidence is considered in the full 
exposure of development to discovery, live testimony heard and 
determined by the courts, patents have been found invalid, or 
they have been found valid. And that is always going to 
continue, and we are not going to stop that.
    Mr. Issa. I look forward to it. Mr. Nadler, do you have 
anything else?
    Hearing no others, I will simply close with an admonishment 
to all that see the record to look at the 11th Amendment, 
because in looking at it, the one thing it makes clear is it 
never limited the Federal Government's decision on its behalf 
to decide what the States were responsible for.
    And I only say that because during the discussion today, so 
many people seem to think that the 11th Amendment applied, and 
I think we have to be careful. It certainly applies to if I 
want to sue my State; it does not seem to apply.
    And in legislation that we will be preparing we will make 
the assumption that if the decision is a decision of the 
Federal Government, it is binding on the States and on Indian 
tribes equally as to what the Federal Government's position is, 
notwithstanding the litigants on either side. And I only say 
that because we will be writing legislation based on that 
assumption, and I am happy to have you send me a different view 
on the 11th Amendment.
    Thank you, and we stand adjourned.
    [Whereupon, at 3:33 p.m., the subcommittee was adjourned.]

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