U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

For sale by the Superintendent of Documents, U.S. Government Printing Office

Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800

Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001

72–690 PDF 2012

PRIOR USER RIGHTS: STRENGTHENING 

U.S. MANUFACTURING AND INNOVATION 

HEARING 

BEFORE THE

SUBCOMMITTEE ON 

INTELLECTUAL PROPERTY, 

COMPETITION, AND THE INTERNET 

OF THE

COMMITTEE ON THE JUDICIARY 

HOUSE OF REPRESENTATIVES 

ONE HUNDRED TWELFTH CONGRESS 

SECOND SESSION 

FEBRUARY 1, 2012 

Serial No. 112–78 

Printed for the use of the Committee on the Judiciary 

( 

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

(II) 

COMMITTEE ON THE JUDICIARY 

LAMAR SMITH, Texas, Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

ELTON GALLEGLY, California 

BOB GOODLATTE, Virginia 

DANIEL E. LUNGREN, California 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

J. RANDY FORBES, Virginia 

STEVE KING, Iowa 

TRENT FRANKS, Arizona 

LOUIE GOHMERT, Texas 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

TREY GOWDY, South Carolina 

DENNIS ROSS, Florida 

SANDY ADAMS, Florida 

BEN QUAYLE, Arizona 

MARK AMODEI, Nevada 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JERROLD NADLER, New York 

ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia 

MELVIN L. WATT, North Carolina 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

STEVE COHEN, Tennessee 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

PEDRO R. PIERLUISI, Puerto Rico 

MIKE QUIGLEY, Illinois 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JARED POLIS, Colorado 

SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel 

PERRY APELBAUM, Minority Staff Director and Chief Counsel 

SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET

BOB GOODLATTE, Virginia, Chairman 

BEN QUAYLE, Arizona, Vice-Chairman 

F. JAMES SENSENBRENNER, JR., 

Wisconsin 

HOWARD COBLE, North Carolina 

STEVE CHABOT, Ohio 

DARRELL E. ISSA, California 

MIKE PENCE, Indiana 

JIM JORDAN, Ohio 

TED POE, Texas 

JASON CHAFFETZ, Utah 

TIM GRIFFIN, Arkansas 

TOM MARINO, Pennsylvania 

SANDY ADAMS, Florida 

MARK AMODEI, Nevada 

MELVIN L. WATT, North Carolina 

JOHN CONYERS, JR., Michigan 

HOWARD L. BERMAN, California 

JUDY CHU, California 

TED DEUTCH, Florida 

LINDA T. SA ́ NCHEZ, California 

JERROLD NADLER, New York 

ZOE LOFGREN, California 

SHEILA JACKSON LEE, Texas 

MAXINE WATERS, California 

HENRY C. ‘‘HANK’’ JOHNSON, JR., 

Georgia 

BLAINE MERRITT, Chief Counsel 

STEPHANIE MOORE, Minority Counsel 

(III) 

C O N T E N T S 

FEBRUARY 1, 2012 

Page 

OPENING STATEMENTS 

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

of Virginia, and Chairman, Subcommittee on Intellectual Property, Competition, and the Internet .................................................................................... 1 

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

of North Carolina, and Ranking Member, Subcommittee on Intellectual 

Property, Competition, and the Internet ............................................................ 3 

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

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

Member, Subcommittee on Intellectual Property, Competition, and the 

Internet ................................................................................................................. 4 

WITNESSES 

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

and Director, U.S. Patent and Trademark Office (USPTO) 

Oral Testimony ..................................................................................................... 7 

Prepared Statement ............................................................................................. 9 

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

and Company 

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

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

Dan Lang, Vice President, Intellectual Property, Cisco Systems Inc. 

Oral Testimony ..................................................................................................... 48 

Prepared Statement ............................................................................................. 50 

John C. Vaughn, Executive Vice President, Association of American Universities 

Oral Testimony ..................................................................................................... 56 

Prepared Statement ............................................................................................. 59 

Dennis Crouch, Associate Professor of Law, University of Missouri School 

of Law 

Oral Testimony ..................................................................................................... 65 

Prepared Statement ............................................................................................. 67 

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING 

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

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

on the Judiciary, and Member, Subcommittee on Intellectual Property, 

Competition, and the Internet ............................................................................ 4 

(1) 

PRIOR USER RIGHTS: STRENGTHENING 

U.S. MANUFACTURING AND INNOVATION 

WEDNESDAY, FEBRUARY 1, 2012 

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

The Subcommittee met, pursuant to call, at 10:08 a.m., in room 

2141, Rayburn Office Building, the Honorable Bob Goodlatte 

(Chairman of the Subcommittee) presiding. 

Present: Representatives Goodlatte, Quayle, Sensenbrenner, 

Coble, Chabot, Issa, Jordan, Adams, Watt, Conyers, Chu, Sa ́nchez, 

Lofgren, Waters, and Johnson. 

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

and (Minority) Stephanie Moore, Subcommittee Chief Counsel. 

Mr. GOODLATTE. Good morning. This hearing of the Subcommittee on Intellectual Property, Competition, and the Internet, 

and on the subject of Prior User Rights: Strengthening U.S. Manufacturing and Innovation will come to order, and I have an opening 

statement. 

Today we are holding a hearing on the prior user defense. This 

provision was included as an integral part of the Leahy-Smith 

America Invents Act, and the move to a first inventor to file system. 

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

the most substantial reform of U.S. patent law since the 1836 Patent Act. This legislation brought together individuals and businesses that represent the full spectrum of the American economy— 

from individual inventors to businesses and job creators of all sizes 

from the technology, pharmaceutical, manufacturing, biotech, consumer goods, finance, defense and retail sectors. 

The prior user rights provision was developed to ensure that it 

created a strong right for those who first commercially use inventions, protecting the rights of early inventors, and giving manufacturers a powerful incentive to build new factories in the United 

States to keep and bring jobs back home. The provision helps to ensure that factories are able to continue using manufacturing processes without the fear of costly litigation. This ensures that the 

first inventor of a new process or product used in manufacturing 

can continue to do so. 

The AIA’s prior user defense protects American manufacturers 

from having to patent the hundreds of thousands of processes they 

2 

use in their facilities. Further, prior user rights are an important 

part of the switch to a first inventor to file system. For many manufacturers, the patent system presents a Catch-22. If they patent 

a process, they disclose it to the world, foreign manufacturers will 

learn of it, and in many cases use it in secret without paying licensing fees. The patents issued on manufacturing processes are 

very difficult to police and oftentimes patenting the idea simply 

means giving the invention away to foreign competitors. On the 

other hand, if the U.S. manufacturer does not patent the process, 

then under the pre-AIA patent system, a later party can get a patent and force the manufacturer to stop using a process that they 

independently invented and used. Due to this litigation threat, it 

has been easier for a factory owner to idle or shut down parts of 

a plant and move operations and jobs overseas rather than risk 

their livelihood through an interference proceeding before the 

USPTO. 

It is important to note that under the AIA, interference proceedings have been eliminated for patents that will be issued under 

the first inventor to file system. A less costly derivation proceeding 

will be used to settle such disputes within the USPTO. 

Post-AIA, the factory owner who has been commercially utilizing 

an innovation can continue doing so even if a subsequent patent is 

issued. The AIA’s prior user rights provision results in an equitable 

outcome whereby a factory stays open, jobs stay here, and the subsequent patent owner gets to keep their patent albeit within a limited carve-out to the prior user. 

Currently, nearly every foreign country that has adopted a first 

inventor to file system recognizes prior user rights. We are here 

today to look at the recently issued AIA report on prior user rights, 

and also to examine whether we need to improve the prior user defense going forward. 

In particular, two key areas have stood out for further discussion. 

This includes reducing the 1-year trigger for the prior user defense that requires that action be taken 1 year prior to the earlier 

of either the effective filing date of the claimed invention or the 

date of public disclosure to qualify. 

And second, modifying the prior user defense to account for the 

situation where a company has taken substantial steps toward 

commercialization. 

As part of the AIA, an interagency report on prior user rights 

was mandated. When we were first drafting the bill, we slotted the 

report to take 1 year to finish, but after talking with Director 

Kappos, he was confident that it could be done in a quarter of the 

time. 

So we wrote in a 4-month deadline for the report starting the day 

H.R. 1249 was signed into law. I am pleased to see that the report 

has arrived on time and under budget. 

Well, at least I can confirm that the report arrived on time, 

though I am sure that Director Kappos will be able to confirm that 

it came in under budget. I look forward to hearing from all of our 

witnesses on the findings of the report, and also engage in a discussion on how we can improve the prior user rights defense going forward to promote U.S. manufacturing technology and innovation. 

3 

It is now my pleasure to recognize the Ranking Member of the 

Subcommittee, the gentlemen from North Carolina, Mr. Watt. 

Mr. WATT. Thank you, Mr. Chairman. If I can get my microphone to cooperate I will make an opening statement also. 

I thank the Chairman for convening this hearing. American intellectual property whether in the form of patents, copyrights, 

trademarks or trade secrets should be shielded from theft, piracy 

and infringement. Constructing an effective shield is vital to the 

U.S. economy and consumers, and is the challenge of policymakers 

and the law. 

For that reason, I supported the inclusion of a robust prior user 

rights defense in the America Invents Act with a carefully crafted 

consensus carve-out for universities. Prior user rights appropriately 

recognize and reward commercial ingenuity by allowing manufacturers to continue using innovations that benefit the public, that 

were created before a patent application was filed by another party. 

It is not always feasible or desirable for every true invention to 

receive patent protection. Such a requirement could stymie 

progress and delay marketing and manufacturing of products that 

improve the quality of life for our citizens. 

Moreover, because the patent system is premised upon disclosure—a policy that incentivizes businesses to reveal all new technologies in order to avoid legal liability would have the perverse effect of allowing foreign markets to capitalize on American intellectual investments. 

By affording cover for a restricted category of undisclosed innovations, however, the prior user rights provision represents a fair balance between trade secrets and patented inventions within the 

marketplace. It protects all businesses, big and small, and levels 

the playing field for U.S. industries against foreign competitors 

who enjoy prior user rights in their home country. 

The conversion to a first to file system also mandated by the 

America Invents Act could not effectively promote and reward 

American innovation without the fundamental prior user rights defense. Absent an effective prior user rights defense the race to the 

Patent Office under the first to file system would likely have led 

to lower quality defensive patent applications covering trade secrets from multiple industries. 

Moreover, a robust prior user rights defense was essential to harmonize U.S. adoption of the first to file system with similar systems throughout the rest of the world. The U.S. Patent and Trademark Office report on the prior user right defense concludes that 

the provisions in the America Invents Act, ‘‘need not be altered at 

this time’’, and ‘‘should be maintained with no change’’. 

However, some have raised concerns both about the amount of 

progress toward commercialization and about the 1-year durational 

requirement necessary to trigger the defense. They maintain that 

the current standard is not on par with what is practiced in other 

countries, and consequently puts our private sector industries at a 

disadvantage from foreign competition. 

I am anxious to hear the views of our witnesses about these concerns. There is clearly unfinished business for our Nation to secure 

the intellectual property rights of our inventors and creative comVerDate Aug 31 2005 09:55 Mar 16, 2012 Jkt 000000 PO 00000 Frm 00007 Fmt 6633 Sfmt 6601 H:\WORK\IP\020112\72690.000 HJUD1 PsN: 72690
4 

munities from threats of infringement and deceptive practices, especially from abroad. 

But I am also mindful of the painstaking process that led to the 

compromises embodied in the America Invents Act. 

I look forward to hearing from the witnesses about whether additional legislative action is necessary or desirable to reinforce the 

global competitiveness of American companies and whether that 

action can be undertaken without betraying the good faith concessions made by our Nation’s university associations on the prior 

user rights defense. 

It seems to me that the conclusion of the U.S. Patent and Trademark Office that Congress should make no changes at this time 

sets a high bar to demonstrate otherwise. 

Thank you, Mr. Chairman, and I yield back the balance of my 

time. 

Mr. GOODLATTE. I thank the gentleman. 

The Chair is pleased to recognize the Ranking Member of the full 

Committee, the gentleman from Michigan, Mr. Conyers. 

Mr. CONYERS. Thanks, Chairman Goodlatte and Mr. Watt. 

I don’t want to take the time to all of us say the same thing 

three times, so I will put my statement in the record with this recommendation. 

I think that we might want to find a way to resolve these differences before 2015. And so all I am doing is suggesting that in 

a year from now, we look at what has actually been happening. 

The President signed the bill a few months ago so I think about 

a year from now we will be able to look at this more critically. I 

think we are moving in the right direction. I supported the major 

bill signed September 16, and I think that our leader here of the 

intellectual property trademark office—and by the way, I am glad 

that there is one coming to Detroit, which we are looking forward 

to help develop and I hope that it will be useful. But I commend 

the Under Secretary Kappos, and also join in welcoming him to the 

hearing and I will put the rest of my statement in the record. 

[The prepared statement of Mr. Conyers follows:] 

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

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

the Judiciary, and Member, Subcommittee on Intellectual Property, Competition, and the Internet 

Today’s hearing focuses on the prior user rights defense provision included in the 

Leahy-Smith America Invents Act (AIA), which President Obama signed on September 16, 2011. 

I recognize the sensitivities that surrounded the prior user rights debate and do 

not believe we should wait until 2015 to reevaluate the economic impacts of the 

prior user rights defense as the United States Patent and Trademark Office report 

recommends. That is too long to wait. 

We want to be fair and contemplate all of the concerns that are raised by technology companies as well as consider concerns raised by the higher education community with respect to prior user rights. 

Nonetheless, I recognize that the bill was enacted last September, so I recommend 

that a year from now we come back and look at this issue to see what has developed. At that point, we should have additional evidence about whether this issue 

warrants more hearings or more reports. 

There are several critical issues that we should consider during this hearing. 

First, there is the fundamental inquiry as to whether this provision can be modified 

to boost innovation and aid the manufacturing sector. 

5 

The prior user rights defense permits someone who had been making or using an 

invention to continue to do so after the invention has been patented by another. 

Before enactment of the AIA, the prior user defense was applicable only to business method patents, which made it a limited defense. This defense was created in 

response to the 1998 Federal Circuit decision in State Street Bank & Trust Co. v. 

Signature Financial Group. 

In the State Street decision, the Federal Circuit explicitly held that business method patents were patentable. 

The AIA enlarged the prior user rights defense to patent infringement to safeguard third parties who can establish that they were commercially using an invention at least one year before the filing date of a patent application in regard to such 

invention. The AIA extends the prior user rights defense to all patents, not simply 

business method patents. 

The prior user rights provision in the AIA was drafted to establish a powerful defense for those who first commercially use inventions, and to provide manufacturers 

an incentive to build new factories in the United States. 

A prior user right defense has been used by many countries and is used as a counterpart in many first-to-file systems. 

Another concern is whether the prior user rights provision adequately protects 

universities. As many of you will recall, university associations and their memberships raised serious concerns about this provision during the debate on AIA. 

Over the six years that we debated patent reform, the higher education community voiced substantial concerns about the increase of prior user rights to be used 

as a defense against infringement for all patents. 

At the same time, numerous organizations in the private sector argued that there 

was a need for broad prior use defense, especially if the U.S. moved from a firstto-invent to a first-to-file system for determining patent priority. 

AIA included a prior user rights provision to address the concerns of the higher 

education community. 

The Act’s defense provision has been drafted to maintain a high burden of proof 

and shield universities and technology transfer organizations from its enforcement. 

Supporters of the prior user language in the Act argue that university concerns 

have been addressed because all university patents are exempt from the assertion 

of a prior use defense, except those that result from research that could not have 

been conducted with federal funds. 

In apparent response to all of these concerns, section 3 of the AIA required the 

United States Patent and Trademark Office to study and report to Congress on 

prior user rights. 

In light of the fact that this report was just issued last month, today’s hearing 

provides a timely opportunity to consider the results and recommendations of this 

report. 

The report was developed in consultation with the office of the United States 

Trade Representative, the Justice Department, and the State Department. 

It reflects critical input that the USPTO received from a public hearing that it 

conducted and from interested parties who shared their opinions about this provision. 

The study compares the operation of prior user rights in other industrialized 

countries with the law in the United States. Specifically, the report examines the 

effects of prior user rights on innovation, startups, and venture capital. The report 

also looks at the legal issues that arise with trade secret law and the impact of 

switching to a first-to-file patent system. 

According to the USPTO report, the ‘‘prior user right defense under the AIA 

should be maintained with no change at the present time because there is no substantial evidence that it will have a negative impact on innovation, venture funding, 

small businesses, universities, or independent inventors.’’ 

Additionally, the report suggests that the ‘‘USPTO should reevaluate the economic 

impacts of prior user rights as part of its 2015 report to Congress on the implementation of the AIA, when better evidence as to these impacts might be available.’’ 

The report concludes that the AIA strikes the right balance by limiting the prior 

user rights defense to those parties that can prove commercial use at least one year 

prior to the filing date of the patent application by clear and convincing evidence. 

We heard many arguments against expanding prior user rights that included the 

need for public disclosure in the patent system. There was also an argument that 

the patentee receive a limited monopoly in return for disclosing new knowledge to 

the public. 

Supporters of broader prior user rights argue that in complex products and manufacturing processes, which contain hundreds or thousands of patented components, 

it may not make sense to patent every component or process. 

6 

Supporters also argued that prior user rights are essential to ensure that those 

who have invented and used a technology but choose not to disclose that technology 

are provided a defense against someone who later patents the technology. 

I expect to hear that some of the changes that can be made to the prior user language can include changing the requirement of commercial use one year before filing of the patent application or publication of the invention. 

In addition, there are those who argue that ‘‘commercial use’’ should be modified 

to explicitly include substantial preparation for the actual internal commercial use 

or arms length commercial transfer of a useful end result. 

While we consider if the language of prior user rights should be improved, I would 

like to note one thing about the AIA that I am particularly pleased was included. 

The AIA requires the USPTO to establish 3 satellite offices within 3 years of the 

Act’s enactment, which is September, 2014. 

I am particularly pleased that the very first PTO satellite office will be in Detroit 

this summer as the Elijah J. McCoy United States Patent and Trademark Office, 

located on 300 River Drive. 

The USPTO estimates that this satellite office will create more than 100 high 

technology jobs. 

This is a positive development and I look forward to working with the USPTO 

and the Commerce Department to make sure the office opening is successful. 

We all invested a significant amount of effort over the years in working on patent 

reform legislation. 

Our patent system has been immensely successful at promoting the advancement 

of the useful arts and sciences. Our Nation’s economic future is dependent on our 

ability to innovate and efficiently and effectively protect the products of that innovation. 

I look forward to hearing from our witnesses whether there are particular ways 

that the prior user rights defense language can be improved. 

Mr. GOODLATTE. I thank the gentleman. 

Without objection, all their opening statements will be made a 

part of the record. 

And we have two very distinguished panels of witnesses today. 

Each of the witnesses’ written statements will be entered into the 

record in its entirety, and I ask each witness to summarize their 

testimony in 5 minutes or less. 

To help you stay in that time, there is a timing light on your 

table. When the light switches from green to yellow, you have 1 

minute to conclude your testimony. When the light turns red, it 

signals that the witness’ 5 minutes have expired. 

Before I introduce our witnesses, I would like them to stand and 

be sworn. We will do this one panel at a time. We don’t need to 

wait for the next panel, to swear them. 

[Witness sworn.] 

Mr. GOODLATTE. Thank you very much and welcome. 

Our first witness is the Honorable David Kappos, Under Secretary and Director of the U.S. Patent and Trademark Office. Director Kappos served in this role since August 2009, advising the 

President, the Secretary of Commerce and the administration on 

intellectual property matters. 

Before joining the U.S. Patent and Trademark Office, Director 

Kappos served as Vice President and Assistant General Counsel for 

Intellectual Property at IBM, where he managed worldwide intellectual property operations. 

Director Kappos received his Bachelor of Science degree in electrical and computer engineering from the University of California, 

Davis, and his law degree from the University of California, Berkeley. Welcome. 

7 

TESTIMONY OF DAVID J. KAPPOS, UNDER SECRETARY OF 

COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE (USPTO) 

Mr. KAPPOS. Well, good morning, Chairman Goodlatte, Ranking 

Member Watt and Members of the Subcommittee. Thank you for 

this opportunity to discuss the issue of prior user rights, and the 

prior user rights defense and the report the USPTO prepared pursuant to the Leahy-Smith America Invents Act. 

As you are well aware, the AIA represents the most significant 

and necessary modernization of our Patent laws in many decades. 

Mr. Chairman, you and the Members of the Judiciary Committee 

deserve special praise and our special thanks for your tireless and 

successful efforts over multiple Congresses toward enactment of the 

AIA. 

We at the USPTO are in your debt, and we have already taken 

a number of steps necessary to implement the new law including 

issuing proposed rules and completing two of the seven studies required by the AIA to evaluate specific provisions of the legislation. 

Among the many important components of the AIA is the expansion of the prior user rights defense to infringement to apply to all 

classes of patents. The prior user defense protects third parties 

who can demonstrate that they commercially used an invention for 

at least a year prior to the filing date of the patent application relative to that invention. 

As I have said in previous testimony before this Subcommittee, 

I believe that expanding the prior user defense is pro-manufacturer, pro-small business and, on balance, good policy. 

Section 3(m) of the AIA directed the USPTO to prepare a report 

on specific issues regarding the defense including the operation of 

the prior user rights in industrialized countries, impact on innovation in small business, impact on trade secret law, and the relationship with the first inventor to file patent system. In preparing the 

report, we conducted our own research, we held a public hearing, 

and solicited comments from stakeholders. We also obtained input 

from USTR, the Department of Justice, and the Department of 

State. 

Most of the comments we received supported the AIA’s prior user 

rights defense provision, though several did express concerns. 

While a few comments took a view that prior user rights may 

have the consequence of promoting secrecy over disclosure, the vast 

majority of comments noted that the ability to maintain trade secrets is vital to American competitiveness and job growth, and that 

a limited prior user rights defense is an appropriate complement 

to a first to file system. 

In summary, Mr. Chairman, we found that the AIA strikes the 

right balance by limiting the prior user rights defense to those parties who can prove by clear and convincing evidence commercial 

use at least 1 year prior to the filing date of the patent application. 

We believe that patent owners’ rights will not be unjustly impaired 

and that the defense will not have a negative impact on small business or independent inventors. 

Further, we believe that the defense is constitutional and can legally coexist with trade secret law. 

8 

Lastly, the defense is a proper fit with a first inventor to file system and represents a significant step toward patent law harmonization with our trading partners. 

Based on our findings, Mr. Chairman, we made a number of recommendations including the need of the USPTO to reevaluate the 

economic impacts of prior user rights as part of our report on AIA 

implementation in 2015, although we would be happy to do it even 

sooner if that is requested by the Committee. 

While our recent report recommends that no legislative alteration of the provisions is necessary at this time, we believe that 

stakeholder concerns should be carefully and continuously reviewed 

and possibly addressed in future legislation. Such changes could indeed strengthen the defense for U.S. manufacturers while still protecting the vital interests of our university community. 

Mr. Chairman, again thank you for this opportunity to share our 

views on this important issue. And thank you for your continued 

strong support of the employees and operations of the USPTO. 

[The prepared statement of Mr. Kappos follows:] 

9 


Kappos-1.eps
10 


Kappos-2.eps
11 


Kappos-3.eps
12 

Mr. GOODLATTE. Thank you, Director, and I will start the questioning. 

Say a U.S. company is taking substantial steps toward commercializing a product and shares an unpatented trade secret with a 

subcontractor in a foreign country who is involved in that process. 

For example, that subcontractor might be in China. 


Kappos-4.eps
13 

Now what if the subcontractor then shares that information with 

a third company who then files for patent protection in China, establishing a priority date, and later files in the United States. 

What type of protection would the U.S. company have apart from 

a derivation proceeding at the PTO? 

Mr. KAPPOS. Well, that is a good question—a bit of a law school 

hypothetical there. If I follow everything, the derivation proceedings would be the first line of defense. It could be a challenging 

situation for the U.S. manufacturer. 

Another line of defense could be, of course, prior user rights as 

the obvious tool, and this hypothetical is an example of why prior 

user rights can be very effective to protect U.S. manufacturing. 

The other possible defense I can think of is the claim that the 

Chinese party wasn’t an inventor because they copied the invention 

from the U.S. provider, but that defense would probably be raised 

in a derivation proceeding. 

Mr. GOODLATTE. In fast moving sectors like the technology and 

pharmaceutical industries, would it make sense for the prior user 

rights defense to take into account the issue of substantial commercial preparation? 

Mr. KAPPOS. Well, that is a great question. It has been raised already, I think, in some of the floor statements. 

Other countries do uniformly take substantial preparations into 

account. In fact, one of the things we pointed out in our report was 

that the U.S. approach in AIA is unique in not taking substantial 

preparations into account. That being said, as I think Ranking 

Member Watt commented, there was a very delicate balance that 

was struck, and we need to be cognizant of the needs of the university community in this regard, and make sure we are protecting 

that important channel for breakthrough inventions to enter the 

manufacturing marketplace. 

And it was that sense of balance that caused us to say, look, we 

certainly recognize that substantial preparation is a good rubric to 

use, and would be beneficial to many U.S. industries, probably including pharmaceutical and others. 

But a balance was struck, and it was indeed a delicate one. 

Mr. GOODLATTE. So you are not prepared to tell us to take that 

next step yet? Is that what your answer is? 

Mr. KAPPOS. Yes. I wouldn’t be confident saying that it is clearly 

necessary at this point. 

Mr. GOODLATTE. In your testimony you mention that the 1-year 

threshold for using the prior user defense in the AIA is significantly more restrictive than the approach used in any other country. Do you think that the threshold should be reduced or eliminated altogether? 

Mr. KAPPOS. Well, that question goes hand in hand with the substantial preparation question. The approach that is used in every 

other country is no 1-year trigger, but a substantial preparation 

test. 

If a change were to be made, probably those two changes would 

go together. It certainly would be harmonizing, but then again it 

could have a deleterious effect on the university community, and 

we are cognizant of the issues there. 

14 

Mr. GOODLATTE. Now, to the point that was raised by the Ranking Member of the full Committee, Mr. Conyers, and you mentioned it in your testimony as well, regarding the 2015 report. The 

USPTO’s report on prior user rights concluded that the prior user 

defense under the AIA should be maintained with no changes and 

the USPTO should reevaluate the economic impacts of prior user 

rights when it submits another AIA required report due in 2015 on 

implementation of the AIA. 

Would the 2015 report reflect on more and better evidence than 

we have currently about the impact of the prior user rights included in the just passed AIA? 

I think this is sort of a balancing argument that the sooner you 

do it, the happier some people might be, but the longer you wait, 

maybe you will be basing it on better information. What is your 

comment on that? 

Mr. KAPPOS. Well, that is exactly right, Mr. Chairman. We could 

do a report in another year. The challenge will be that it is going 

to take some time to build up data. We really need to get data on 

the impact that the new U.S. system has on the U.S. intellectual 

property marketplace and on our manufacturing sector. 

And it will really only be a few years into the legislation that we 

will be able to say with some confidence that we have that data. 

Now, we can certainly go out and start collecting data more 

quickly, come in with an interim report if that is helpful, and still 

do reporting in 2015 as another option. 

Mr. GOODLATTE. Thank you. 

The Chair recognizes the gentleman from North Carolina, Mr. 

Watt? 

Mr. WATT. Thank you, Mr. Chairman. 

Mr. Kappos, I think the Chair has asked in at least one of the 

questions, and that is on the timing of this. Whether this report 

may have been required too early in the process before there was 

really any evidence built up to base a reliable conclusion on. 

And, I suppose the real answer, you will continue to study this 

until 2015—that is what I—and give another report at that time? 

Mr. KAPPOS. Yes. 

Mr. WATT. Okay. 

The second question that one of the witnesses on the next panel 

has raised is whether the U.S. Patent and Trademark Office is 

really the appropriate body to be answering this question. 

He says that the problem is that under U.S. law the U.S. Patent 

and Trademark Office has no role in patent infringement analysis, 

patent litigation or regulation of start-up ventures. The agency has 

no expertise in this area and yet is being asked to determine the 

general impact of the law. 

A superior body may be the Federal Trade Commission, the 

courts and the community of U.S. innovators. How do you respond 

to that? 

Mr. KAPPOS. Well, I would respectfully disagree with that point 

of view. I think, first of all, the United States Patent and Trademark Office is the Administration’s advisor on intellectual property 

issues, intellectual property policy issues. 

We of course did, as I mentioned, consult with USTR, the Department of Justice, the Department of State. We conducted a 

15 

hearing. We took public comments. We got several dozen public 

comments. 

So the USPTO is acting in large measure as a channel, as a collector and aggregator, and an ‘‘analyzer’’, if you will, of exactly the 

kind of evidence that the comment calls for. 

We also do have expertise in the area that enables us to prepare 

the kind of report we did, including reaching out overseas, accumulating information going back many years from what other jurisdictions are doing, and putting together views of the entire Administration. 

Mr. WATT. So, how consistent are we with the rest of the world? 

It seems to me that, the more I thought about this after we passed 

the law and reflecting on the sharing, is that we could be more aggressive in—than we were in the statute on prior user rights to 

take into account a shorter period, possibly a whole series of things 

that one of the witnesses has raised on the second panel. 

What would it take to get us consistent with the rest of the 

world? 

Mr. KAPPOS. Well, okay. A couple of points. One, we are generally consistent with the new approach that is in the AIA. So, at 

a high level, we are much more harmonized than we were before. 

The places where we are now not harmonized include the 1-year 

provision that has been mentioned already. The defense has the 1- 

year look back. The fact that we are not using a substantial preparation kind of a test, and the language in the provision that at one 

point seems to relate to processes, but then goes back and articulates articles of manufacture and products, compositions as well, 

which in my view is somewhat confusing language and could frankly on a technical level stand to be cleaned up. 

Mr. WATT. All right. I think that addresses the concerns or questions I have. I am not sure that necessarily answers all of them, 

but this is—we don’t have hearings to get answers to all the questions, just to get different perspectives on them. 

And I will be anxious to hear the witnesses on the second panel 

give their perspectives on some of the same issues. So, thank you. 

And I yield back, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

The gentleman from Arizona, Mr. Quayle, is recognized for 5 

minutes. 

Mr. QUAYLE. Thank you, Mr. Chairman. 

Director Kappos, how has switching from the first to invent system to the first inventor to file system with the inclusion of prior 

user rights helped to decrease the backlog at the PTO? 

Mr. KAPPOS. Well, the switch from first to invent to first inventor 

to file I believe will be quite helpful relative to the backlog—not 

really an issue that intersects with prior user rights which come 

about after patents are issued, generally years down the line. 

But just to briefly respond to the core of the question. The switch 

to the first inventor to file system enables our examiners to have 

a much more objective view of prior art. In other words, pick up 

a document and know by looking at the face of the document 

whether it can be used in examination under the new system. 

As opposed to the current system where they really don’t know 

if many documents can be used in examining a patent application, 

16 

which hampers them and causes us to be less efficient than we otherwise could be. Having to impose rejections that then later are not 

sustainable in view of the fact that the date on a prior art document frequently does not determine whether it can be used as prior 

art currently. 

And that is what gets fixed. Under first inventor to file will enable us to move through the examination process more effectively. 

Mr. QUAYLE. Okay. And we have all heard about the issue of 

over-patenting, and the ongoing tension between the volume of patents that are being granted and their quality. Though the AIA was 

designed to help go a long way toward improving this situation, 

how do you envision the prior rights defense being used in litigation to defend against weak or overly broad ‘‘paper patents’’—you 

know, those types of patents that were basically invented in a law 

firm rather than in a lab? 

Mr. KAPPOS. Well, I think the prior user rights will be very helpful relative to that kind of scenario without commenting on overpatenting or under-patenting. Prior user rights are all about manufacturing and incenting innovators to manufacture here in the U.S., 

enabling them to go on and manufacture without having a cloud 

brought on later by a late filed patent right. 

So, prior user rights relative to areas that are heavily affected 

by patents, where there is a large quantity of patents over a specific technology, will help manufacturers to be able to make rational decisions about what inventions they file patent applications on 

and where they stop filing patent applications with the assurance 

that they will still be able to manufacture their products and won’t 

have someone coming in with a paper patent or any other kind of 

patent later on and shutting them down. 

Mr. QUAYLE. Okay, thanks. 

I want to go back to what the Chairman was talking about in 

terms of the 1-year approach and the possible switch to the substantial preparation test that you were mentioning. And I was just 

wondering if that actually leads to more subjective rulings on this? 

Because the 1-year is very hard and fast whereas the substantial 

preparation leads to more subjectivity and could possibly lead to 

more uncertainty or at least less certainty. How do you envision 

the substantial preparation test alleviating those concerns? 

Mr. KAPPOS. Well, I would say you are making a fair point that 

there is some subjectivity in a substantial preparation test. It 

would have to be defined and then ultimately there would be some 

litigation, no doubt, over what level of preparation is substantial. 

Mr. QUAYLE. Okay. Thank you very much. 

Thank you, Mr. Chairman. I yield back. 

Mr. GOODLATTE. The gentlewoman from California, Ms. Chu, is 

recognized for 5 minutes. 

Ms. CHU. Thank you, Mr. Chair. Mr. Chair, thank you for having 

a hearing today. 

I raised the issue of prior user rights during two of our hearings 

last year, and I am glad that there is some interest on the part of 

the Committee on examining the issue further. Many commentators in the patent community have interpreted the PTO’s report as 

supporting expansion of prior user rights. 

17 

Would you agree with this characterization? And, if so, how 

should such an expansion be pursued? 

Mr. KAPPOS. Well, thanks for the question. So, our report supports the expansion that Congress made in the AIA. We state, I 

think it is fair to say quite clearly, that the law does not need to 

be expanded further at the present time. 

Ms. CHU. Do you see any need for the future? In the long term? 

Mr. KAPPOS. Well, we do see a few issues that have been raised 

that need to be followed carefully. 

As I mentioned, the fact that substantial preparation is not included, the 1-year look back period, and since some language that 

is less than clear defining or distinguishing between processes and 

products and articles of manufacture—those three items certainly 

should be watched closely, and could be the subject of appropriate 

legislation in the future. 

Ms. CHU. Okay. I would also like to ask about your statements 

regarding the impact of prior user rights on manufacturing jobs. In 

your testimony, you stated that a prior user rights defense is promanufacturing and pro-jobs as it rewards businesses that put new 

technology promptly into commercial use. 

Could you further explain the statement, and discuss the role 

that that prior user’s rights defense plays in preserving manufacturing jobs. 

Mr. KAPPOS. Well, sure. I would be happy to. I will give two scenarios, if that is okay. 

The first one is simply a U.S. innovator that puts a new product 

on the marketplace, goes through the work of establishing a manufacturing line, all of the effort and investment associated with that, 

and then is years later accused of infringing a patent based on a 

patent application that was filed much later than that manufacturer went into production. It is an inequity, I believe, in the system for an early inventor to be presented with a later patent, and 

very economically inefficient to take the risk of having to shut 

down a manufacturing line and potentially put out of work all of 

the Americans who are working on that line. 

And that leads to the second example—our trading partners have 

prior user rights, which means that their nationals in their countries are protected against third parties, including Americans, coming in and accusing their nationals of patent infringement for manufacturing in their countries. 

So the system that we had before AIA was, in my view, substantially inequitable to our country and quite risky because it presented the situation where an inventor, an innovator, including an 

American one, was incentivized to establish their manufacturing 

line overseas where they would get the benefit of prior user protection and not in the U.S. because they would have the risk here of 

having to shut down a manufacturing line later on. Fortunately, 

that has been substantially corrected by the AIA. 

Ms. CHU. And I would like to also ask about the impact of prior 

user rights on innovation. Your report indicated on page 31 that 

the public commented the Federal Register was not consistent concerning the innovation impacts of allowing a prior user defense. 

18 

What were some of the factors that the PTO considered when 

trying to ascertain the impact of the prior user defense on innovation rates? 

Mr. KAPPOS. Well, we were looking for comments from the public 

including examples, if there were any. And the U.S., of course, had 

a prior user right from 1836 until 1952. We weren’t able to find 

any evidence during that period of time including during expansions like the advent of electricity and the pharmaceutical industry 

as well as many other breakthrough innovations in U.S. industries 

that were created, some of which rely more on trade secrets, some 

of which rely more on patents, all of which seemed to thrive during 

that period of unprecedented growth. 

So you take that economic history, you take the fact that we received quite a few comments and testimony with no evidence submitted that would indicate that there was a negative effect on innovation, so we are just simply not able to say that there is any evidence of any problem in prior user rights. 

Ms. CHU. Thank you. 

I yield back. 

Mr. GOODLATTE. I thank the gentlewoman. 

The Chair now recognizes the gentleman from California, Mr. 

Issa, for 5 minutes. 

Mr. ISSA. I thank the Chairman. 

Good to see you again. I think you are bringing us a very good 

point that ultimately all of us who supported patent reform have 

been concerned about. We were asked to work on essentially harmonization. If I hear you correctly, and review the record correctly, 

we missed harmonization in this one area, didn’t we, by having a 

disparity in prior user rights between much of the world and ourselves? 

Mr. KAPPOS. Well, I would say we made a lot of progress toward 

harmonization, but in the ways we have discussed here this morning, we didn’t completely harmonize prior user rights. 

If it is okay, Mr. Issa—— 

Mr. ISSA. Of course. 

Mr. KAPPOS. One other comment I would make in that regard is 

that the exception of universities and tech transfer offices associated with universities is another area in which we did not harmonize our prior user rights provision. 

I believe we did exactly the right thing, and I would recommend 

we not try to harmonize with any other country in that regard. 

I believe that the excepting of universities and their breakthrough innovations is 21st century practice—21st century best 

practice—and I think the U.S. has leapfrogged the rest of the world 

in that regard. 

So, yes we want to harmonize, but only on best practices, and 

that particular one is one where I would not advise harmonizing. 

Mr. ISSA. So, as we consider legislation that might, if you will, 

correct or bring about a small change here—substantial but still 

technical change. 

I wanted to follow up with one area—trade secrets. Ultimately, 

how do we, in your opinion, take someone who has reduced to practice something, has not gone to the Patent Office, but is keeping 

it secret versus—or choosing not to bring it to market—versus 

19 

somebody who is reducing to practice and simply doesn’t run to the 

Patent Office? 

How do we make sure that we get it right, that we are not encouraging, if you will, public disclosure to be withheld because they 

are going to maintain their prior rights. 

If somebody today figures out how to make the Coca-Cola secret 

recipe, it is not patentable. If somebody were to, if you will, know 

that they had something but not want the world to know, not want 

the clock to tick, but then as soon as there is a patent granted says, 

‘‘Hey, I have been doing this for 5 years.’’ How do we balance that 

act if we bring new legislation? 

Mr. KAPPOS. Right. So that is a great question. That is really the 

question at the crux of the balance between a trade secret regime 

and a patent regime, and prior user rights are designed to relieve 

some of that tension. 

Mr. ISSA. And if someone patents out from underneath me, it 

wasn’t a trade secret, I was just about to disclose it, I am sure. 

Mr. KAPPOS. Well, there is that. That is right. 

I would also say, though, that there are so many incentives to 

file patent applications that the USPTO has discovered well over 

a half a million times last year—a 5-percent growth rate in patent 

filings. 

So, folks know how to file patent applications. There are lots of 

great incentives to file them, and there are lots of risks built into 

the system for those who retain trade secrets and don’t disclose 

their inventions. 

As you point out, Mr. Issa, the challenge for the folks at Coke 

is if someone is able to reverse-engineer their trade secret, they are 

out of luck forever, right? And if you get a patent, on the other 

hand, you have at least got some ability to have—— 

Mr. ISSA. But they have enjoyed a century by keeping it a secret. 

How do we make sure that no one enjoys the ability to deny somebody else exclusivity when in fact they did discover it? 

Let’s just say two entities discover it, roughly the same time. A 

year later, a patent is filed by one. The other has taken no action. 

We would generally say that is a prior use, depending upon how 

far along they were. 

But let’s say it is 3 years or 4 years, where do we divine the difference of somebody simply not intending to give we the public 

what the patent law was intended to. You know, we reimburse 

them, but we reimburse them with this exclusivity for a reason. 

And that reason is we get the benefit in those twenty or so years 

down the road. 

How do we make sure we get that balance because I want to see 

the legislation tweaked, but I want to make sure that we don’t induce people to have it both ways. 

Mr. KAPPOS. Right. Well, key to that balance is ensuring that 

there is a manufacturing requirement. This gets back to the question of substantial preparations. 

What you certainly don’t want is to incent people to create inventions, retain them indefinitely as trade secrets, do nothing with 

them, and then later still have lots of options open including a 

prior user kind of option. 

20 

And the way you do that is to have some time limit. Right now, 

the AIA has the 1-year time limit. Could it be a little bit shorter? 

Well, we have discussed that. You know, it could, but that is a very 

close question relative to the needs of the universities. 

I certainly would not recommend making it any longer. I think 

then you do tend to shift the balance in a direction that 

incentivizes people to sit on their rights, hold secrets, not disclose 

them, not enrich the corpus of knowledge, and then knowing that 

they can later still in effect have their cake and eat it too. 

Mr. ISSA. I thank you, Mr. Chairman. Thank you for the indulgence of the time. I yield back. 

Mr. GOODLATTE. I thank the gentleman. 

The gentlewoman from California, Ms. Sa ́nchez, is recognized for 

5 minutes. 

Ms. SA ́ NCHEZ. Thank you, Mr. Chairman. 

Director Kappos, in your written testimony you stated that a 

prior use right defense is good for small business, and you just detailed earlier how it might be beneficial to manufacturing, but I am 

wondering if you can go into more detail about why, for example, 

small businesses, small businessman in my district, should be 

happy that this was included in AIA, and does that particularly, 

or I should say, specifically apply to manufacturing or other areas 

as well? 

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

And I think it does. So for small businesses in my home state 

of California, where my entire family still lives, and all other states 

in the U.S.—one thing about small businesses is they all want to 

get bigger. They all share that in common. And the way you do 

that is—the way you grow as a small business is you have to put 

product or service out in the marketplace. You either do that 

through licensing someone to manufacture for you or you do it by 

developing manufacturing capability yourself. 

We want to promote both of those kinds of activities. For a small 

business, which has hard decisions to make about patent filings, 

typically will be able to afford some level of patent protection, but 

will have to decide at some point, do I file a patent on that next 

incremental innovation? Or do I just stop it, and spend my incremental resources going out into the marketplace and manufacturing? 

Those are the firms that are the most vulnerable to the situation 

where someone later comes in with a patent and stops them from 

growing, stops them from hiring more people, stops them from 

manufacturing. They don’t have the resources to file for potentially 

the hundreds or thousands of patents that cover the entire manufacturing process, but they are totally dependent on the entire process step to step, or step by step to the end, to get their product into 

the marketplace. 

So, the prior user right, while I believe beneficial to manufacturers generally, is extremely helpful to growing small businesses that 

are trying to put product into the marketplace. 

Ms. SA ́ NCHEZ. Great. Thank you for that answer. 

The only other question I have for you is, how do you expect— 

or how often would you expect or can you even predict that the 

prior use defense might be invoked prospectively? 

21 

Mr. KAPPOS. Yes. So, that is another great question. And we 

point out in our study that it is not heavily used in other countries 

that have it. We surveyed quite a few countries in Europe, Asia, 

you know, further north in North America here, in Canada. It is 

a lightly used defense. 

That being said, I believe that the prior user rights defense remains an important defense. The fact that it is lightly used does 

not mean it is unimportant, first of all. And the reason I say that 

is because where it is used, it is in those critical situations where 

you have Americans’ jobs at stake on a manufacturing line that 

otherwise could get shut down. You want a fail-safe defense like 

that for those situations. 

The second point I would make is that the prior user defense is 

also used in a pre-litigation context, and it is harder to study those 

situations because they don’t frequently get reported. 

But it comes up, my experience, I would say regularly, perhaps 

not frequently, but regularly in contexts of licensing patents in patent portfolios between companies of various sizes where you will 

find either as a manufacturer or as a patentee that someone else 

has a piece of property out there or has a manufacturing line, a 

product in the marketplace such that the prior user right will 

cause you as the manufacturer to correspond with the patentee 

saying, ‘‘Look, you know, you shouldn’t bother with me because I 

had this thing in the marketplace.’’ 

And that winds up being a litigation that never happened. Therefore, a report that never occurred, wasted resources that never had 

to be wasted, and all upside for our economy. Happens on both 

sides of the equations. Patentees benefit from that and manufacturers do, too, all without going into a litigation context. 

And I believe that it is that part of the iceberg, if you will, the 

consensual negotiations in an effort that is not wasted, that is an 

important part of prior user rights. 

Ms. SA ́ NCHEZ. Great. Thank you for being so thorough with your 

answers, and I appreciate your testimony today. 

I yield back. 

Mr. GOODLATTE. Well, Director Kappos, I think that concludes 

our questions, and this has been very helpful. We appreciate your 

taking the time to come be with us and share your thoughts on 

where we stand on this issue. 

And we also appreciate your ongoing hard work to implement the 

new patent reform laws and to improve our patent system. 

Mr. KAPPOS. Chairman Goodlatte and Ranking Member Watt, 

thank you very much. 

Mr. GOODLATTE. Thank you. 

We will now move to our second distinguished panel of witnesses. 

Each of the witnesses’ written statements will be entered into the 

record in its entirety, and I ask that each witness summarize their 

testimony in 5 minutes or less. 

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

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

1 minute to conclude your testimony. When the light turns red, it 

signals that the witness’ 5 minutes have expired. 

As is the custom of this Committee, before I introduce the witnesses I would like them to stand and be sworn. 

22 

[Witnesses sworn.] 

Mr. GOODLATTE. Thank you very much, and please be seated. 

Our first witness is Mr. Robert Armitage. Mr. Armitage serves 

as the Senior Vice President and General Counsel of Eli Lilly and 

Company. 

Prior to this, he served as Chief Intellectual Property Counsel of 

the Upjohn Company, and was a partner in the Washington, D.C. 

office of Vinson and Elkins, LLP. 

Mr. Armitage served as a past president of the Intellectual Property Law Association, and the Association of Corporate Patent 

Counsel. 

Mr. Armitage received his bachelor’s degree in physics and mathematics from Albion College, and his master’s degree and law degree from the University of Michigan. 

Our second witness is Mr. Dan Lang. Mr. Lang serves as Vice 

President of Intellectual Property and Deputy General Counsel at 

Cisco Systems. 

Prior to this, he was a partner at the law firm of Ritter, Lang 

and Kaplan, and an associate at Townsend, Townsend and Crew. 

Mr. Lang earned his master’s degree in electrical engineering 

from Stanford University, and his law degree from the University 

of California at Berkeley. 

Our third witness, Mr. John Vaughn. Dr. Vaughn serves as Executive Vice President of the Association of American Universities. 

He supervises all of the Association’s policy and analysis work, and 

is responsible for areas of intellectual property, information technology, research libraries and scholarly communication, and international education. 

Dr. Vaughn received his BA in psychology from Eastern Washington State College, and he received a Ph.D. in experimental psychology from the University of Minnesota. He was also awarded an 

NIH post-doctoral traineeship, and served as a post-doctoral fellow 

at Duke University. 

Our fourth and final witness is Dennis Crouch. Professor Crouch 

is Associate Professor of Law at the University of Missouri School 

of Law. 

Prior to joining the MU Law faculty, he was a patent attorney 

at McDonnell, Boehnen, Hulbert and Berghoff, LLP, and taught at 

Boston University Law School. Prior to law school, he worked as 

a research fellow at NASA’s Glenn Research Center, and as a 

Peace Corps volunteer in Ghana. 

Professor Crouch is the founder of Patently-O, one of the Nation’s 

most widely read patent law blogs. Professor Crouch received his 

B.Sc. in mechanical engineering from Princeton University, and his 

J.D. from the University of Chicago Law School. 

Welcome to you all, and we will begin with Mr. Armitage. 

You may want to turn on your microphone there. 

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

Mr. ARMITAGE. Thank you. Chairman Goodlatte, Ranking Member Watt—— 

Mr. GOODLATTE. Pull it closer to you as well. 

Mr. ARMITAGE. Okay. 

23 

Mr. GOODLATTE. There you go. 

Mr. ARMITAGE. I appreciate the opportunity to appear before the 

Subcommittee today to offer testimony on the provisions of the 

America Invents Act that address the so-called prior user defense. 

The Subcommittee has before it already an excellent analysis of 

all aspects of this issue in the report prepared by the USPTO. My 

belief in a nutshell is that the Director’s testimony you have just 

heard and the USPTO’s report says almost everything that needs 

to be said about that issue. 

That will not stop me, however, from using the remainder of my 

5 minutes. This is an issue where the Members of the Subcommittee are well versed already given the work that led to the 

enactment of the America Invents Act. 

One point that at least in my view can’t be underscored enough 

is the magnificent bipartisan efforts by Members of this Subcommittee that led H.R. 1249 to becoming our Nation’s new patent 

law. 

Indeed, I would be remiss today if I didn’t specifically cite your 

work, Mr. Chairman, and the work of Ranking Member Watt, and 

the work of your respective staffs in putting together the provisions 

of this bill that made it the first 21st century patent law anywhere 

in the world, something we can be proud of as a country. 

Let me move on to the prior user right defense. My own experience as a practicing patent attorney has taught me that a strong 

patent system is one that carefully balances the scope of protection 

afforded to worthy inventions, and also takes account of the residual rights that ought to remain in the public domain. An effective 

patent system both provides rights to patent holders and limits the 

reach of those rights. 

One of the balancing points in an effective patent system is a 

prior user defense. It arises in the very rare circumstance where 

someone has commercialized an invention domestically without 

taking out a patent, and a competitor in that very same field has 

created the very same technology independently, and then subsequently sought a patent on the already commercialized technology. 

In that case, who should have superior rights under the patent 

law? Should it be the prior domestic user, the commercializer who 

has created the new technology being able to trump the patent 

owner who subsequently then was able to share a patent? 

I think in those rare circumstances, Congress has provided a 

clear-cut answer in almost every situation that arises under the 

law. Someone who is a prior commercializer of new technology almost always creates prior art that prevents a subsequently sought 

patent from being secured or if it is secured from being found valid 

in the court. 

They are only, therefore, the rarest of circumstances where prior 

commercialization in the United States does not invalidate a subsequently sought patent. And that is when the new technology that 

has been developed is maintained and used as a trade secret. 

And in this situation, Congress has said to the patent owner, yes, 

you can have a valid patent, but there’s a proviso. Where the patented invention has been previously commercialized, the person 

who invested in that prior commercialization in this country, who 

created manufacturing facilities in this country, who hired workers 

24 

in this country, is given the ability to continue to undertake those 

commercial activities. 

In other words, it is that balance that is always needed in an effective patent system if it is an effective one between patent owner 

rights and the rights of the public to continue to practice an invention. And indeed, I suspect that most Americans, if asked to examine these provisions in the America Invents Act, would say Congress chose to tilt the balance in favor of the patent owner to be 

able to bar any one of 300 million Americans from practicing the 

patented invention save for one person who was already in prior 

commercial use of the invention. 

Moreover, I think that what Congress did in the America Invents 

Act actually makes the trade secret system we have in this country 

and the patent system both operate with optimal effectiveness. 

My written testimony suggests three areas where this statute 

might be improved. I think you have already discussed those in the 

panel you had earlier with Director Kappos. My hope is that there 

can be a consensus developed on the desirability of further improvements to the America Invents Act, and in fact, it was the willingness to compromise and find consensus that led to the enactment of the law after a 6-year legislative effort. 

We have at the table with me today, two individuals who were 

right at the forefront of forging compromise and consensus: Dave 

Lang and John Vaughn. And, frankly, without them and the productive engagement of the American Association of Universities 

and Cisco, the entities they represent here today, there would have 

been no America Invents Act. 

Thus I am eager to hear their views on how we might work together to take this great achievement in reforming U.S. patent law, 

and make it an even greater one. 

Thank you. 

[The prepared statement of Mr. Armitage follows:] 

25 


RAA-1.eps
26 


RAA-2.eps
27 


RAA-3.eps
28 


RAA-4.eps
29 


RAA-5.eps
30 


RAA-6.eps
31 


RAA-7.eps
32 


RAA-8.eps
33 


RAA-9.eps
34 


RAA-10.eps
35 


RAA-11.eps
36 


RAA-12.eps
37 


RAA-13.eps
38 


RAA-14.eps
39 


RAA-15.eps
40 


RAA-16.eps
41 


RAA-17.eps
42 


RAA-18.eps
43 


RAA-19.eps
44 


RAA-20.eps
45 


RAA-21.eps
46 


RAA-22.eps
47 

Mr. GOODLATTE. Thank you, Mr. Armitage. 

Mr. Lang, welcome. 


RAA-23.eps
48 

TESTIMONY OF DAN LANG, VICE PRESIDENT, 

INTELLECTUAL PROPERTY, CISCO SYSTEMS INC. 

Mr. LANG. Chairman Goodlatte, Ranking Member Watt, Members of the Subcommittee. Thank you for the opportunity to testify 

today. 

I am Dan Lang, and I am Vice President of Intellectual Property, 

and Deputy General Counsel at Cisco Systems, where I am responsible for Cisco’s patent strategy. I am here on behalf of not only 

Cisco, but also the Coalition for Patent Fairness, which includes 

the technology companies that employ hundreds of thousands of 

Americans, invest billions in U.S. research and development, and 

own tens of thousands of U.S. patents and patent applications. 

I have come to testify today on an aspect of patent law that is 

very important to U.S. competitiveness and jobs—the prior user 

rights of inventors that develop technology that is then later patented by someone else. 

As I will explain, I am going to ask you to consider small, but 

critical, changes to prior user rights law. Last year, Congress 

passed the America Invents Act, the AIA. It was the biggest change 

to our Nation’s patent laws in the last 175 years. 

One great indication of Congress’ accomplishment in the AIA and 

the leadership of Chairman Smith, Chairman Goodlatte and Ranking Member Watt in bringing it to fruition, is that Mr. Armitage 

and I are here together singing from the same hymnal in supporting the same clarifications to the law. 

One significant change in the AIA was a shift from a first to invent system, which awards a patent to the first to invent, to a first 

to file system which awards a patent to the first inventor to file. 

This is a positive step, which simplifies the patent system, and 

brings the U.S. into greater harmony with our peers. 

But with a first to file system comes the possibility that an 

American company may develop technology and then be subject to 

claims of patent infringement by a patent holder, quite possibly a 

foreign competitor who filed for a patent on the same technology 

even if the American company invented it first, but had not yet 

patented it or otherwise publicized it. 

A robust prior user rights system is therefore necessary to protect American businesses who invent first, but do not file patent 

applications and instead rely on trade secret protection. Many of 

us, particularly manufacturers both in traditional industries and 

new ones like Greentech, frequently rely on trade secret protection 

because we do not want to rely on patent enforcement in foreign 

countries to protect critical innovations, and we do not want to directly tip-off competitors as to technologies we are developing, 

which publication of patents would do. 

But also we may not file for certain patents because there are 

numerous innovations in every product, and the money we spend 

on filing for patents on every conceivable invention is then not 

available to spend on research and development and hiring employees. 

Because we should not and cannot file for a patent on every invention, we need prior user rights to protect us from the opportunistic players, including foreign ones, who will spend money to figVerDate Aug 31 2005 09:55 Mar 16, 2012 Jkt 000000 PO 00000 Frm 00052 Fmt 6633 Sfmt 6601 H:\WORK\IP\020112\72690.000 HJUD1 PsN: 72690
49 

ure out which innovations we are already working on, and file patents to harass us. 

We know that these concerns are not theoretical. A recent study 

showed that the prior user rights defense would have been raised 

in 90 patent infringement cases between January 1, 2005 and October 15, 2011. Virtually all of our foreign competitors enjoy prior 

user rights in their home jurisdictions. 

The recent USPTO report on prior user rights very clearly explains the need for them, as did Chairman Smith in the discussions 

leading to the enactment of the AIA. I fully agree with Chairman 

Smith and the USPTO, and give credit to this Subcommittee for including broader prior user rights in the AIA. 

Today, I am asking you to consider three technical changes to the 

prior user rights provisions of the AIA to ensure that they both 

provide the needed protections to American companies and to make 

them comparable to the provisions that our foreign competitors 

enjoy abroad. 

First, I want to make it very clear that prior user rights protect 

all statutory subject matter, including both products and processes. 

The PTO report on prior user rights explains that commercial use 

of any subject matter can give rise to a prior user right. I agree 

with the PTO’s understanding of the AIA here, and recommend 

that a modification be made to avoid any unintentional confusion 

that might make the prior user rights protection available to American companies narrower than that available to our foreign competitors. 

Second, I am asking you to consider that the prior user rights 

language be modified to clarify the inclusion of substantial preparation of technology as a form of commercial use. This is especially 

important for those of us who spend years and millions of dollars 

to develop products for market. This protection is already available 

to our foreign competitors. Modified language would be very useful 

to clarify this important point. 

Third, I am asking you to consider that the prior user rights language be modified to eliminate the requirement in the AIA that 

prior use take place at least a full year prior to the patent application’s filing. This limitation puts my company and other American 

companies at a disadvantage compared to our foreign competitors 

that are not subject to it. The PTO report points out that this limitation is, ‘‘significantly more restrictive than that for any other 

prior user right system’’. Taking this restriction out will help put 

American businesses on par with foreign ones. 

To conclude, these three suggested modifications would help assure an adequately robust system of prior user rights to protect 

American industry and jobs. 

Thank you for inviting me to testify today. I have also provided 

a written statement that I ask be put into the record of today’s 

hearing, and I will of course be happy to take any questions. 

[The prepared statement of Mr. Lang follows:] 

50 


Lang-1.eps
51 


Lang-2.eps
52 


Lang-3.eps
53 


Lang-4.eps
54 


Lang-5.eps
55 


Lang-6.eps
56 

Mr. GOODLATTE. Thank you, Mr. Lang. Dr. Vaughn, welcome. 

TESTIMONY OF JOHN C. VAUGHN, EXECUTIVE VICE 

PRESIDENT, ASSOCIATION OF AMERICAN UNIVERSITIES 

Mr. VAUGHN. Thank you, Chairman Goodlatte, Ranking Member 

Watt and Members of the Subcommittee. I appreciate this opportunity to present the views of the higher education community on 


Lang-7.eps
57 

prior user rights and their impact on U.S. manufacturing and innovation. 

The proposed expansion of prior user rights defense was one of 

the most contentious issues debated over the course of the more 

than 6-year effort at patent reform of U.S. patent law. 

The higher education community was strongly opposed to that 

proposal. Private sector groups argued just as strongly for the need 

for an expanded prior user defense. To explain the concerns of the 

higher education community about prior user rights, I would like 

to make a few brief comments about the nature of university research. 

Universities are the major performer of the Nation’s basic research—56 percent of it in 2008. The 1980 Bayh-Dole Act, which 

allowed universities and small businesses to retain patent and licensing rights to the results of federally funded research, greatly 

enhanced the ability of universities to contribute to the Nation’s innovative capacity and economic competitiveness by transferring 

their discoveries into the commercial sector for development. 

A couple of anchor points illustrated by those impacts—in 1985, 

500 patents were granted to the top 200 research institutions. In 

2009, university research led to the issuance of 3,147 patents, 596 

new companies and 658 new commercial products. Given the productivity and promise of university research, both the Federal Government and universities are now focusing on ways to increase the 

breadth and pace of university research commercialization. 

One of the key obstacles to increasing commercialization is the 

so-called ‘‘Valley of Death’’—the gap between early-stage university 

inventions and their successful commercial development into products and processes that benefit the Nation. 

This has led to a growing recognition of the importance of proof 

of concept programs that support the next stage of concept development, market analysis and attendant activities often needed to 

move promising but early-stage university inventions into the commercial market. 

The important point here is that the early-stage, high-risk nature of university inventions that calls for developing proof of concept programs to expand and accelerate commercialization is the 

same aspect of university inventions that calls for avoiding overly 

expansive prior user rights policies that could move commercialization in the opposite direction by increasing uncertainty and weakening patents, crippling the ability of universities to license those 

patents for development. 

We believe that the AIA prior user rights provisions have struck 

an effective balance between the needs and interests of the private 

sector for an expanded prior use defense, and the necessity for universities to preserve an environment in which they can license 

their inventions effectively into the commercial sector. 

The key provisions of the AIA prior user rights scheme for universities are the following: most important is the exemption of university patents from the assertion of a prior user rights defense. 

This provision will free early-stage, high-risk university patents 

from the added risk of prior user immunity from patent rights, 

which would create a disincentive for companies to license university patents. 

58 

The 1-year separation of commercial use from a later patent filing or disclosure qualifying for the grace period reduces the risk 

particularly that university licensees, most of which are start-up 

companies and small businesses, will be developing new technologies in a market that includes substantial trade secret products 

or processes immune from the patent rights of that company. Reducing that risk encourages investment in such new technologies at 

a sensitive, early stage. 

The USPTO’s thorough, thoughtful report on prior user rights defense recommends that the AIA prior user rights defense should be 

maintained with no change at the present time, but that USPTO 

should reevaluate the economic impacts of prior user rights as part 

of its 2015 report to Congress. We agree with those recommendations. 

Thank you. 

[The prepared statement of Mr. Vaughn follows:] 

59 


Vaughn-1.eps
60 


Vaughn-2.eps
61 


Vaughn-3.eps
62 


Vaughn-4.eps
63 


Vaughn-5.eps
64 


Vaughn-6.eps
65 

Mr. GOODLATTE. Thank you, Mr. Vaughn. Professor Crouch, welcome. 

TESTIMONY OF DENNIS CROUCH, ASSOCIATE PROFESSOR OF 

LAW, UNIVERSITY OF MISSOURI SCHOOL OF LAW 

Mr. CROUCH. Thank you, Chairman Goodlatte and Ranking 

Member Watt. Thank you for inviting me here today to testify. 

I was here last year in the ramp up to the passage of the AIA, 

and we have moved a great distance. I also want to take just a moment to thank your Committee for all of your hard work on intellectual property in general, and for both preserving the rights of 

innovators as well as the rights of users. 

At the same time, I think we should congratulate Director 

Kappos and his entire staff for all of their efforts in putting the 

AIA into place. I receive about two dozen emails each day from patent attorneys around the country, and I continue to be surprised 

and amazed at the good feeling that continues to be exhibited toward Director Kappos because of his responsiveness to the patent 

community. 

Now the biggest change that has occurred at the Patent Office 

in the past 6 months since the passage of AIA is that the Patent 

Office now has more funding. And what they are doing with that 

funding is addressing the tremendous backlog of cases that continue to be pending at the Patent Office. And I know this is the 

field of this hearing, but I just hope that you will continue that 

funding as we move forward. 

Now, I want to speak for a moment about prior user rights as 

what we might call a protectionist measure. On balance, prior user 

rights—what they do is take rights away from the patent holder, 

and give them to manufacturers and commercializers, right? And 

our rights go to U.S. manufacturers and U.S. commercializers. 

Because of the U.S. territorial limitation, the folks that receive 

rights are typically in the U.S. while the patentees losing rights 

could come from any country around the world. 

Now, important in this analysis, and I think important in the 

politics of why this was passed is the realization that now for the 

first time in history, more U.S. patents are being applied for by foreign entities than by American entities. And this changes the calculus, and I believe this signals what is a growing shift in our perspective on the balance between rights of users and rights of 

innovators. 

Now, Dr. Vaughn has spoken about a major caveat here of universities, and universities sit in a unique position in our system because they are typically not manufacturers, right? And so, they are 

just patent holders in this system, and so this—all right, so the law 

was created, and from this front I agree with both Mr. Vaughn and 

Director Kappos that without the particular exception for universities the law that was passed would uniformly hurt universities 

more than most other U.S. entities. 

Now the main point of my testimony that is—the main point of 

my written testimony parallels much of Mr. Armitage’s statements. 

And that is that prior user rights as drafted in the AIA are in reality unlikely to have any substantial impact on innovation. 

66 

And the way we know this comes directly from the USPTO report where the USPTO looked through the decades of the European 

experience and found no impact. They looked through the first half 

of the century in our system, and found no impact. They looked 

through the past decade where we had prior user rights for business method patents, and found no impact. Right? 

And this leaves me to a nice conclusion that prior user rights, as 

we have them now, right, are not creating a problem. They are unlikely to shift our innovative environment, right, and as Director 

Kappos mentioned and Mr. Armitage mentioned, prior user rights 

have the benefit of, in those rare cases where they come into play, 

having an important equitable result that we see is fair. I think I 

will conclude my remarks. 

Thank you. 

[The prepared statement of Mr. Crouch follows:] 

67 


Crouch-1.eps
68 


Crouch-2.eps
69 


Crouch-3.eps
70 


Crouch-4.eps
71 


Crouch-5.eps
72 


Crouch-6.eps
73 


Crouch-7.eps
74 

Mr. GOODLATTE. Thank you very much, and we will now move 

to our questions for the panel. 

The gentleman from North Carolina, Ranking Member Mr. Watt, 

is recognized for 5 minutes. 

Mr. WATT. Thank you, Mr. Chairman. 

And I thank the witnesses again for being here. 


Crouch-8.eps
75 

Let me see if I can clarify one thing between Mr. Lang and Mr. 

Vaughn to see whether there is a difference or not. Mr. Lang seems 

to suggest that we need to do three technical modifications. I am 

not sure that they are necessarily technical modifications. 

One is clarifying that all innovations are covered under prior 

user rights. I think that already exists. Do you agree that that already exists, Dr. Vaughn? 

Mr. VAUGHN. Mr. Lang said that the language was somewhat 

confusing, and that is probably why I wouldn’t give a crisp answer. 

I think it was intended to circumscribe subject matter so that prior 

user rights would not cover all subject matter, but focus on processes or products used in processes. I believe that—— 

Mr. WATT. Do you agree that needs to be clarified, or do you 

think we ought to leave it? 

Mr. VAUGHN. Universities would be comfortable with a narrower 

definition, but I think this is something really that ought to be discussed further. 

Mr. WATT. But I think Mr. Lang is talking about a broader definition. Am I misinterpreting what you are saying, Mr. Lang? 

Mr. LANG. No, I don’t believe so, Ranking Member Watt. In fact, 

what we are seeking is a clarification that the language does not 

indeed include all subject matter. 

Mr. WATT. It includes all subject matter, and the universities 

would have some concerns with that? 

Mr. VAUGHN. Our preference would be to have the focus on process. This was one of the issues debated a great deal in the compromise, and, I must confess, I think where we came out is in a 

somewhat murky area, and clarifying that would be worthwhile. 

Mr. WATT. It would create war again, huh? 

Mr. VAUGHN. No, no. no. I don’t think so. [Laughter.] 

Mr. WATT. Substantial preparation, which is not obviously included under the current prior user language in the AIA, and the 

1-year requirement, which is included, which Mr. Lang wants 

shortened, I assume you would have some concerns about that? 

Mr. VAUGHN. I think that is an area where we would have concern. The substantial preparation strikes us as a much more openended standard. As Director Kappos said earlier this morning, you 

likely would need litigation to try to clarify that, and one of the 

major thrusts of AIA was to try to reduce litigation. 

So that, I think, would give us some concern, and we—having the 

1-year look back was a very important part of the compromise for 

us. 

Mr. WATT. Okay, then there is at least substantively some disagreement on these two points between Mr. Lang and Mr. Vaughn. 

Let me see if I might be able to narrow the differences. 

Mr. Lang, how soon do you think we should attempt to make the 

suggested technical changes that you have suggested? Maybe that 

would give us more comfort here. 

Mr. LANG. My recommendation is that these changes be made as 

soon as possible. 

Mr. WATT. Which is before 2015? Or should we await the report 

in 2015? Do you think we are doing ourselves a substantial injustice by waiting until 2015 to reopen this again? 

76 

Mr. LANG. Yes. I believe that we should not wait until 2015. And 

the reasons are that we see these changes as actually part of the 

implementation of the AIA. In fact, the statutory provision to have 

such a report, and the language in the legislative history and also 

spoken by Chairman Smith that already foresaw the need for carefully looking at the scope and provisions of the prior user rights 

provisions, that this is therefore something that was already contemplated to face now. 

Mr. WATT. Mr. Armitage is smiling. It sounds like he has been 

in the trenches between the two interests that are debating this before, so let me get his opinion on this touchy subject. 

Mr. ARMITAGE. If your desire is to split the difference, I am probably the wrong person to ask that question. This is the 20th anniversary of my first appearance before this Subcommittee testifying 

on the issue of prior user rights, and frankly I thought in 1992 it 

was time to have the features of a prior user right law in our patent law in the way Mr. Lang has described them. 

Mr. WATT. So you are biased here? 

Mr. ARMITAGE. I am quite biased, but I did give the same testimony in 1995 and 2006 so I don’t lack consistency on the issue. 

Mr. WATT. Okay. All right. Well, given the fact that it took us 

6 years to get to an agreement that got the AIA passed, I guess 

my parting words should be to Mr. Lang and Dr. Vaughn—it seems 

to me that if we are going to make any technical modifications of 

the kind that you suggested, it might be necessary for the two of 

you all to reach some kind of agreement about this. 

So, otherwise we will be stuck in place. The default, generally for 

Congress I have found, is to do nothing, and I have found that is 

even more true for the Senate, by the way, than it is the House. 

But that is a subject of another day. 

But, maybe I should suggest as my parting comment that maybe 

the two of you ought to talk some more about this and see if you 

can reach some kind of agreement about it. Otherwise, I think we 

are stuck, kind of where we were leading to the passage of what 

we now have in the law. 

I yield back, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

I will recognize myself. Mr. Armitage, from a business perspective, what is the greatest benefit of the prior user rights defense? 

Mr. ARMITAGE. To be perfectly honest, I think the greatest benefit of the prior user right defense is it helps guarantee integrity 

in the patent system. I think, as I pointed out in my testimony— 

written submission testimony, one of the issues that you face in 

any competitive environment is not all competitors at all times 

have the highest level of integrity. 

Right now, almost every country who manufactures things in the 

United States has a global workforce. We know that there are some 

of our competitors who in fact hire our employees not for the right 

reasons, but to do a bit of industrial espionage. And one of the 

things that you need to worry about in a patent system, particularly the one we will have under the AIA, is that if we have built 

a plant around some key trade secret technology, and by some nefarious means, one of our competitors knows exactly what we are 

doing in our plant, and can start out—— 

77 

Mr. GOODLATTE. By that you mean a plant here in the United 

States? 

Mr. ARMITAGE. A plant here in the United States. 

Mr. GOODLATTE. So the provision makes it more likely that your 

company in the future will be able to continue to manufacture in 

the United States without the threat of frivolous litigation? 

Mr. ARMITAGE. There is no way to defend ourselves efficiently or 

effectively without a prior domestic commercial use defense, such 

as in the AIA. And you are basically giving a 1-year grace period. 

Mr. GOODLATTE. Got you. 

I got a bunch of other questions here. 

Mr. Lang, Cisco is a company that operates around the globe. 

You work with and sometimes share proprietary information with 

subcontractors and local partners. Is there still a fear of trade secrets finding their way into patents sought by your foreign competitors? 

Mr. LANG. Yes, absolutely. And that is a key reason why a robust 

prior user rights system to us is important as a means of competitiveness against foreign companies, of which we have some very 

important ones. 

And, under the previous first to invent system, we had the notion 

in the law that if we were the first to invent, and we brought a 

product to market without abandoning, suppressing or concealing 

it that what we had done would serve as prior art. Not only as the 

defense for us, but to invalidate the patent. 

Whereas under a system that is first to file, which we have 

moved to now, without prior user rights, the work that the—the 

trade secrets that we give up can then be used as a basis for other 

people’s patents that will then be used to attack us. 

Mr. GOODLATTE. And, again, it makes it more likely that your 

company in the future will continue to be able to manufacture in 

the United States without the threat of frivolous litigation? 

Mr. LANG. Yes. And it extends even beyond manufacturing to the 

fact that we are a very large U.S. innovator that invests over five 

billion dollars in research and development. 

Mr. GOODLATTE. And continue to do that research and development in the United States. 

Mr. LANG. Yes. 

Mr. GOODLATTE. Okay. 

Mr. LANG. Some of it is spent in the U.S., and we have many significant foreign competitors that we need this provision for. 

Mr. GOODLATTE. And Dr. Vaughn, your organization represents 

universities, which increasingly seek to commercialize their discoveries through the creation of start-up companies. How will the proposed changes affect the challenging and risky environment that 

university-based start-up companies typically face as they seek to 

translate university discoveries into products, companies and jobs? 

Mr. VAUGHN. Well, I think that our concern about prior user 

rights at the outset was a preference for the public disclosure of 

patents and the possibly chilling effect of being able to license 

those if there was a broad set of products developed by trade secret 

that would be immune from the assertion of patent rights. 

But we think that the compromise that we reached, which we 

pursued both because we wanted the bill passed and because we 

78 

came to realize the importance of trade secret protection through 

prior user rights, sets the right balance. 

The proposed changes that Mr. Lang has recommended, we are 

concerned that those would then move this compromise back to the 

area, bringing in certain factors in a prior user rights scheme that 

would in fact make it more difficult for us to license our patents. 

They are early-stage, high-risk; they are going into often undercapitalized start-up companies. If those companies trying to raise 

additional capital have to deal with the specter of a market that 

they may not be able to manage by the assertion of patent rights, 

the ability to exclude by virtue of these immune trade secret products, that is going to greatly complicate our ability to license. 

Mr. GOODLATTE. I have another question for you. It is clear the 

universities are a hotbed of invention and innovation in America. 

When universities license their inventions, how do they determine 

who to license to? Is it simply a business decision, or do universities carefully look at who can best help take the innovation to the 

next level? 

Mr. VAUGHN. It is very much the latter, Chairman Goodlatte. 

The universities see as their mission taking the basic research that 

taxpayers have funded, and moving that into the commercial sector 

for the benefit of the Nation as a whole. 

So, we have developed some very sophisticated technology transfer offices. They are working constantly with industry, seeking 

those companies that can develop the promise of this basic research 

and turn it into useful products. 

Mr. GOODLATTE. And one more, for Mr. Armitage. 

How would you compare U.S. prior user rights under the AIA 

relative to our key trading partners? Is it superior, roughly equivalent, inferior? What is your view? 

Mr. ARMITAGE. If we made the three changes that Mr. Lang 

talked about in his testimony, we would be at a par with what I 

think the best of the best of foreign country prior user right provisions provide. Right now, I think as the PTO report clearly lays 

out, we are behind where other countries are in terms of, I believe, 

striking the right balance. 

Mr. GOODLATTE. Thank you. 

The Chair recognizes the gentlewomen from California, Ms. Chu, 

for 5 minutes. 

Ms. CHU. Thank you, Mr. Chair. 

Mr. Lang, you argue pretty forcefully for the expansion of the 

prior user rights defense to include substantial preparation. Could 

you offer specific real world examples, and why is it so important 

to your business? 

Mr. LANG. Certainly. So, at Cisco we and our peer companies in 

the CPF, we develop many complicated products, and they begin 

with an idea, but between the idea and coming to the marketplace, 

come many steps of the design, development, building prototypes, 

testing them, and finally bringing them to market. 

We want to make it absolutely clear that all of these steps, the 

substantial preparation for, are counted as part of commercial use. 

And we seek this change to the language, and the other changes 

we seek do not affect what we see as the basic compromise inherent in the prior user rights legislation that brought the universities 

79 

on board, which was to actually carve university-based inventions 

out of the prior user rights language. 

Ms. CHU. While some might argue that the lack of substantial 

preparation standard would create a greater burden on manufacturers because it might be their manufacturing process itself that 

makes up their ‘‘secret sauce’’, at a time when American manufacturers are struggling with the world economy, it would seem to me 

that our patent system must give them equal protections. 

Do you believe the—that U.S. manufacturers are harmed vis-?- 

vis their foreign competitors without the substantial preparation 

standard? 

Mr. LANG. I fully agree with that, and at Cisco we face significant competition overseas. And, we see that going through the PTO 

report and its excellent analysis of prior user rights provisions 

around the globe in key industrial countries that virtually all of 

those provisions contain substantial preparation or something akin 

to it to protect the steps that I outlined in design and development 

to make sure that that activity counts as commercial use and is not 

then later attacked by harassing patents. 

Ms. CHU. Okay. Thank you. 

And I wanted to pursue the questions that were previously asked 

about the impact that any expansion of prior user rights would 

have on the universities. I know this was a big issue that last time 

this Committee had a hearing on intellectual property, and I asked 

the witnesses whether there was any sort of compromise that could 

be reached between those supporting prior user rights and those 

with concerns, which was mainly the universities. 

And ultimately this Committee adopted the compromise that 

gave the university carve-out. 

So I would like the opinion of the panel on this, particularly Mr. 

Lang, and then Dr. Vaughn. 

Mr. Lang, would the expansion of prior user rights create any 

new or additional risk for universities, specifically the substantial 

preparation standard? 

Mr. LANG. We do not see any additional risk or damage to university interests from the modifications that we are asking for, and 

that is in large part because the compromise that was set carves 

out university inventions from the effect of prior user rights. Nothing that we are asking for affects that carve-out. 

Ms. CHU. Dr. Vaughn, your organization did support this compromise, the university carve-out, and given the broader stakeholder ideas that the prior user right defense needs to be expanded, 

do you think that this compromise carve-out will continue to work 

for your community? 

Mr. VAUGHN. Well, Congresswoman Chu, I would describe the 

compromise differently from Mr. Lang. There was an earlier 

version of the provision, which had solely a university carve-out, 

and as I indicated, that is the most important provision, but it 

wasn’t until several other factors were added that the university 

community was comfortable making a change from a total opposition to prior user expansion to a compromise that included a year 

look back, commercial use instead of substantial preparation— 

those were parts—they were heavily discussed provisions, and were 

part of the compromise. 

80 

And, I do think if there is a need to reevaluate those, that can 

be something that would be put in the 2015 report, but the compromise that we agreed to had those provisions and those were important parts of it. 

Ms. CHU. And other panelists, Mr. Crouch and Mr. Armitage? 

Mr. CROUCH. You know, one thing we have been discussing here, 

right, is this potential fraud where someone finds a trade secret 

that a U.S. manufacturer has, takes it abroad and then applies for 

a U.S. patent, and then comes back and goes after the U.S. manufacturer, right?. And that is kind of the fraud that Bob Armitage 

described. 

If we add the language of substantial step, right? Or something 

akin to that, I worry about fraud going the other way in that we 

have someone that who is now claiming prior user rights where 

they say, look, 10 years ago, I started down this substantial step, 

and I kept it a trade secret this whole time, and here, I will go 

back to my file room and discover it, right? 

And they produce papers to discover it, but I think there is a real 

risk of fraud there, and certainly with the patent system and any 

system where you have this ability to back-date materials, we have 

experienced fraud. 

And it is a struggle for the courts to deal with that, and so I 

would hope that if we—any compromise that we come to, that 

something that needs to be considered is the potential for fraud in 

both directions. 

Mr. ARMITAGE. I think one of the difficulties this Subcommittee 

will have is everyone on this panel is absolutely correct. We need 

a patent system that if we make changes to it, doesn’t provide an 

opportunity, much less an incentive, for fraud. We, in the America 

Invents Act, had a carefully crafted compromise, and the provisions 

currently in the law and prior user right reflect that compromise. 

We know from Dan Lang’s testimony that we don’t have a prior 

user right provision that is as effective as exists in foreign countries. That’s a competitive disadvantage, and at some point that 

needs to be addressed. 

So I guess the real question for the Committee is when. 

Ms. CHU. Thank you. 

I yield back. 

Mr. GOODLATTE. I am going to follow up on the question of the 

Ranking Member and say, are you better off now than you were 

before this bill, but you would like to still get to a better place, or— 

I know you want more, and I know some people were a little hesitant about that, so—— 

Mr. ARMITAGE. If you own a patent today in the United States, 

and you are in the business of getting more patents, it is part of 

your business model, you are much better off with the America Invents Act. It is a remarkable patent reform law. 

Mr. GOODLATTE. Including in the area of prior user rights defense? 

Mr. ARMITAGE. Including in the area of prior user rights. 

Mr. GOODLATTE. Thank you. 

I now recognize the gentlewoman from California, Ms. Sa ́nchez, 

for 5 minutes. 

Ms. SA ́ NCHEZ. Thank you, Mr. Chairman. 

81 

Mr. Armitage, can you speak as to how the prior user rights provision in AIA compares to that of our major trading partners, and 

how do you think that might impact our trade with them? 

Mr. ARMITAGE. You know, I had a chance to read the actual prior 

user rights statutes in several countries—Korea, Germany, Japan 

and China, maybe Mexico, one or two others. They are very simple 

provisions. 

Fundamentally, what they say is, if you have made substantial 

preparations for commercialization, or you have commercialized 

your invention, then nobody can touch those operations if they seek 

their patents even a day after you have completed those substantial preparations. 

What we have done in our law are three things, and Dan has explained them. 

We have a subject matter limitation, and only some kinds of patents are under the prior user right law. 

Second, we have a 1-year holdback. 

Three, we require actual commencement of commercial operations. 

Even if you spent a billion or two billion dollars building a plant, 

and you can’t operate it until Monday, if the patent’s filed on Friday, you get no benefit of our prior user rights statute. 

Ms. SA ́ NCHEZ. Thank you for making that clarification. 

I don’t have any more questions. I will yield back to the Chair. 

Mr. GOODLATTE. I thank the gentlewoman. 

And the gentleman from Georgia, Mr. Johnson, is recognized for 

5 minutes. 

Mr. JOHNSON. Thank you, Mr. Chairman for holding this very 

important hearing. 

I would ask Mr. Armitage, and also Mr. Lang—I will note that 

in both your testimonies, you both suggest some changes to the 

prior user rights defense to bring the U.S. in line with other countries like Germany, Japan and South Korea. Mainly, the three 

changes are relating to protecting all forms of invention, providing 

the defense, not only to products that are in commercial use, but 

also to protect substantial preparations for commercial use, and 

eliminating the 1-year holdback requirement. 

How do you respond to the university community that has concerns about these changes? 

Mr. LANG. Well, I would go back to my earlier comment that a 

part of the compromise—and you know, we just heard from Dr. 

Vaughn on the other significant elements of the compromise—but 

an important part of the compromise was carving the universities 

out and university-based inventions out of prior user rights, so we 

believe that their interests will be unaffected. 

Also, we see this as very important, the competitive differentiation versus our peers around the globe, that these American companies are affected by the disparate impact of U.S. prior user rights 

law on U.S. companies as opposed to the prior user rights statutes 

around the world, you know as we have outlined and as we have 

catalogued and their impact on foreign companies and the protections that foreign companies enjoy under those statutes. 

And I would also add that as far as small, innovative businesses, 

I mean, the PTO report that is, you know, very thoughtful in its 

82 

economic analysis and did not find any negative impact on innovation of prior user rights, and we believe that the changes and the 

modifications that we are proposing will not disturb that. 

As a part of the PTO report process there were public comments 

submitted by a range of companies including companies that are 

small businesses and the Greentech industry—a company that is a 

space exploration start-up, and they were very consistent with and 

supportive of our view of prior user rights, and how they should 

proceed. 

So we believe that the changes that we are advocating are very 

positive for American innovation over a range of industries and 

businesses, and we believe that they will make American industry 

and American manufacturing more competitive with those around 

the world. 

And we believe that that will be accomplished in a way that encourages and does not discourage innovation. 

Mr. JOHNSON. Thank you. 

Mr. Armitage, you have pretty forcefully made the case of us 

modifying the law so as to include substantial preparation as a protective vehicle for establishing prior use. 

Is there anything else you would like to say about that? 

Mr. ARMITAGE. Just one comment, perhaps, about the ‘‘valley of 

death’’. And this was the comment that there are small venture 

start-up companies that may be hurt by the prior user rights. 

The way I look at it, companies like Cisco and Lilly actually are 

the ones who acquire these companies, and invest in these companies. And for us, those companies that are start-up ventures—that 

even those companies that depend on a strong patent system because we are really buying patent rights—prior user rights actually 

make those investments more valuable to us, make them more valuable to the small ventures themselves because they eliminate the 

possibility that we may have someone on the verge of commercialization where we want to buy the technology, bring it to market. 

We don’t have to worry that some belatedly filed patent is going 

to come in and sit on top of the actual way they have tried to commercialize that technology, and require us to get into patent litigation or engage in third-party licenses in order to commercialize. 

If you believe in a strong patent system, a good prior user right 

is a good way of making that patent system work more effectively 

with a trade secret system that’s essential to I think almost anybody who commercializes technology. 

Mr. JOHNSON. Okay, thank you. 

Professor Crouch, do you have anything you would like to contribute? 

Mr. CROUCH. Dovetailing with what Mr. Armitage mentioned, I 

think there is one minor area where the U.S. rights are broader 

than many other countries and that is that we allow for an increase in volume. That is, if the original prior commercialization 

was at a small volume that entity can continue to sell the same 

product, and increase the volume, right? And I think, in my estimation that is also a good provision for many start-up companies 

who have the idea of starting off small, and eventually growing 

into a larger company, right? 

83 

Or perhaps have the way out of getting bought out by Lilly or 

Cisco where those companies want to rely on the prior use defense, 

and can only do so if we have this volumetric flexibility. 

Mr. JOHNSON. Dr. Vaughn? 

Mr. VAUGHN. Bob discussed a circumstance where a small, startup company is acquired by a bigger company like Cisco or Lilly, but 

there may be many circumstances where a start-up company wants 

to launch an independent and self-sustained venture, and we are 

concerned that an expansion of prior user rights, which would be 

affected by the proposed changes that are in discussion here, going 

from commercial use to substantial preparation, eliminating the 1- 

year look back, could run a risk of creating trade secrets that otherwise wouldn’t have been created—that are built in anticipation 

of a forthcoming patent that is closer in temporal proximity, creating a market situation where the start-up is now going to have 

an inability to assert its patents and a situation that wouldn’t 

occur if commercial use had to be required a year before. 

Mr. JOHNSON. Would substantial preparation? 

Mr. VAUGHN. Substantial preparation—the problem there is both 

that it is—it makes—it is a vaguer standard and as I mentioned 

earlier, and Director Kappos had indicated, because of that vagueness, you have a much higher likelihood of getting into litigation, 

of the problems of discovery. 

Professor Crouch mentioned the difficulty of back-dating and 

opening up the possibility of fraud so we are concerned that getting 

into vaguer circumstances, bringing the prospect of prior user 

rights closer to a patenting activity can create a climate where 

start-ups are going to have more difficulty raising capital for independent development and as a matter of process just to go back to 

the point that we went, I think, as a community in good faith a 

long way from flat-out opposition to prior user rights to having the 

substantial expanded provisions we have. 

If that needs to be reexamined, I think we should take the time, 

get the evidence, and do it with care. 

Mr. JOHNSON. Mr. Lang? 

Mr. LANG. If I might add, I mean, we see substantial preparation 

as not some extra new defense that was never previously available 

under the law, but rather in a sense a partial restoration of protections that we enjoyed in the first to invent regime, and that the 

development process that I outlined previously, if it were followed, 

we would have been entitled to a date of conception as a date of 

prior art that would actually invalidate the patent. 

And in seeking substantial preparation as a clear example of 

commercial use that would entitle us to a prior user right we are 

wishing to protect that work that we do as against a patent that 

would be later filed on our own work, and would be used to disrupt 

our activity. 

A patent that would be generated by somebody who is out there 

in the marketplace could be a foreign entity who is looking at our— 

analyzing our external moves and guessing what we might be 

working on internally, able to devote their resources to filing patents and patent applications and then able to harass us with those, 

even though it is our work that started first, and that work needs 

to be counted in substantial preparation. 

84 

Mr. GOODLATTE. The time of the gentleman has expired. 

The gentlewomen from California, Ms. Waters, is recognized for 

5 minutes. 

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

I would like to thank all of our panelists that are here today. 

Mr. Lang, are you speaking on behalf of the Coalition for Patent 

Fairness? 

Mr. LANG. Yes, I am. 

Ms. WATERS. And, that includes Adobe, Apple, Cisco, Dell, 

Google, Intel, Intuit, Micron, Oracle and RIM—all of those companies? 

Mr. LANG. I do not—I believe that it includes all of those companies with the exception of Apple as of today. 

Ms. WATERS. I see. I am sure you are aware of the article that 

is causing so much discussion that appeared in the New York 

Times entitled, ‘‘How the U.S. Lost Out on the iPhone Work’’. In 

that conversation, the President—well, in a conversation with some 

of the representatives of these industries, and particularly to 

Apple, I think, the President asked Steve Jobs about what it would 

take for Apple and presumably other tech companies to repatriate 

manufacturing jobs back in the U.S. And the answer was that 

those jobs are not coming back to the United States. 

As you know, most of the Members of Congress wish to have our 

companies in a position of profitability. We want our companies to 

make money, but we want our companies to hire the people in this 

country. We know all of the arguments about how it is not economically feasible to do that anymore, so as we talk about the competition that you face and why it is important for us to expand user 

rights, etc., you want us to help make you more profitable, but 

what does that do in terms of answering this question of whether 

or not you are going invest more in job creation? 

When I take a look at Cisco, Cisco will double its manufacturing 

in China. That was what John Chambers said, the CEO. The company will inject 350 million into start-up investments and provide 

up to 400 million in customer financing—the Cisco Systems Capital 

China. It will also open another 300 of its networking academies 

to train 100,000 students on networking technology as part of an 

MOU—that is a memorandum of understanding—with the Ministry of Education under which will also donate 6 million in networking equipment. 

Now, I can remember some years ago having this discussion with 

Cisco about training, and simply, in South Central Los Angeles, because when you were in the bubble a lot was going on in Silicon 

Valley and those areas a lot of jobs were being created, and we 

thought that perhaps it made good sense that if our universities 

were not turning out the kind of people that you needed to do the 

jobs, that perhaps Cisco and other companies like Cisco, could have 

these academies, or right on their own campuses to help train and 

develop young people to be involved in this new technology—that 

was not thought of as something that could or should be done. 

But I see it has been done abroad. What can you say about that? 

Do you think jobs have gone forever? What are you and your cohorts willing to do about bringing jobs back to the United States, 

and how can we help you to be more profitable even though Apple 

85 

was number one in the country—made more money than anybody, 

including the core manufacturers, etc.? 

So I kind of asked you a lot, but I would just like to hear what 

you think about that, Mr. Lang. 

Mr. LANG. Sure. Thank you, Congresswoman Waters. So, Cisco 

is a vigorous U.S. competitor in a foreign marketplace, and I am 

here as the patent expert, but Cisco, of course, has an interest in 

a vigorous U.S. economy that is going to help bring us to full employment. 

The issue that we are talking about today is prior user rights, 

which is one of many policies that affect employment in the United 

States. And we—you touched on some of our investments in China. 

We have a—obviously, like many of our peers in the IT industry, 

we have a global—— 

Ms. WATERS. Could you talk specifically about the training that 

you do in China? 

Mr. LANG. I am sorry? 

Ms. WATERS. The training that you do in China. The money that 

you are investing in training Chinese to do the work that you need. 

Mr. LANG. Yes, I am not actually familiar with our specific training investments in China. I know that we operate a program of 

Cisco network academies, which exist in the United States, as well 

as other countries of the world. 

In the United States, I will say—well, globally, we spend five billion dollars on R&D and 80 percent of that is in the United States. 

And also, we employ 30,000 people in the United States. The 

United States is very significant, you know - 

Ms. WATERS. How many do you employ offshore? 

Mr. LANG. Excuse me? 

Ms. WATERS. How many people do you employ offshore? 

Mr. LANG. I don’t know the exact number. 

Ms. WATERS. You know, domestically, it is about 30,000. 

Mr. LANG. Yes. 

Ms. WATERS. You think it is more offshore, collective, totally offshore? 

Mr. LANG. I am not sure sitting here, no. 

Ms. WATERS. You are not sure of that number? 

Mr. LANG. I do not have that number. 

Ms. WATERS. Do you think that as we talk about—let’s go back 

to the question the President asked. Do you think that—what can 

be done to get these jobs back to this country? 

Mr. LANG. Well, again, I have come to—as the patent expert, to 

testify on prior user rights. However, I know that our company has 

advocated a number of issues including prior user rights, and 

changes to the patent law, but also issues concerning taxation, education, etc. And, I think that there is a variety of policies that could 

be followed to encourage employment. 

Ms. WATERS. Do you think it is legitimate for us ask you the 

question if you want us to help make you more competitive, more 

profitable, is it not reasonable for us to ask when will we see the 

results of that with more investment in this country? 

Mr. LANG. Yes, that is a reasonable question to ask. The reason 

that we are here advocating for prior user rights or under prior 

user rights is a part of that discussion—an important part in our 

86 

view in terms of strengthening and balancing our patent laws to 

encourage innovation in the United States. 

Ms. WATERS. Well, if I may say that many of us would love to 

support you in expanding the user rights and other kinds of things 

to make you more competitive, but there must be a direct relationship to job expansion and creation in the United States. 

And, I suppose, if we are going to continue this discussion that 

at some point if you can relate to that and you can identify how 

what we do will help you to be more competitive and more profitable, we certainly will jump over all kinds of hurdles in order to 

be of assistance and supportive. 

With that, I yield back the balance of my time. 

Mr. GOODLATTE. I thank the gentlewoman. 

I have an additional question for the panel and I know that the 

Ranking Member does as well. We will see if anyone else does after 

we do those. 

And I will address this to all of you, starting with Mr. Armitage. 

Could the university exemption provide an opportunity for gamesmanship whereby companies could arrange in advance of an invention an agreement to assign that invention to a university, and 

take back an exclusive license right at a very low cost and avoid 

applicability of the prior user right? 

Mr. ARMITAGE. You know, I think that is a theoretical possibility 

someone could try doing that. I think in the real world it has virtually no prospect of succeeding. 

Mr. GOODLATTE. Why do you say that? 

Mr. ARMITAGE. Well, first of all, understanding how universities 

operate. They’re really not in the business of doing contract research to reverse-engineer somebody else’s trade secret so they can 

file patent applications so they can license back the technology. We 

do this, and we want to be in a business of manufacturing a product. We may have to engineer everything that is needed to be 

known to how to manufacture. 

We may be reverse-engineering somebody else’s trade secrets, 

but I doubt that any university in John’s membership wants to be 

used as that kind of reverse-engineering factory, to be honest. 

Mr. GOODLATTE. What if the company comes to the university 

without disclosing that as their objective, but says, hey, we got a 

great idea. We want to make this arrangement with you? 

Mr. ARMITAGE. So, let me give you an example. We perform the 

same reaction ten thousand times to figure out the optimal temperature, number of reagents, type of reagents and create trade secret technology about how best to do that. I know of no one in a 

university who would want to take on that kind of dull, mundane 

research to optimize the way we mix chemical A and B at this temperature, this concentration, for this long for the sole purpose of filing a patent application that they could license back to us. That 

just isn’t the innovative, cutting edge thing that any professor I 

have ever been in contact with would consider doing for money or 

otherwise. 

Mr. GOODLATTE. Mr. Lang? 

Mr. LANG. Yes. If I might just spend a few seconds addressing 

one of Congresswoman Water’s questions about networking acadVerDate Aug 31 2005 09:55 Mar 16, 2012 Jkt 000000 PO 00000 Frm 00090 Fmt 6633 Sfmt 6601 H:\WORK\IP\020112\72690.000 HJUD1 PsN: 72690
87 

emies. We, in fact, operate over 100 networking academies in California that include 13,000-plus students. 

Now to get to the question of the potential for gamesmanship in 

the university carve-out. I agree with Mr. Armitage that the universities represented by Dr. Vaughn would not willingly enter such 

arrangements to exploit the carve-out, and we are not here to suggest changes to the carve-out which we realize was an important 

part of the compromise that was shaped last year in prior user 

rights. 

That being said, I do not underestimate the creativity of my colleagues in the legal profession to find loopholes and try to exploit 

them, and it could be that if that problem arises we will need to 

address that issue in due course. 

Mr. GOODLATTE. Or as a part of any changes that you are recommending to us today to make sure that that doesn’t happen as a 

result moving forward? 

Mr. LANG. Like if there is a—we are not proposing—we are proposing three modifications to be done as soon as possible. 

This other category I would suggest is something that may need 

further exploration. 

Mr. GOODLATTE. We just have to take into account that as we enhance prior user rights defense, we have to take these things into 

account ahead of time rather than after the fact, and find that 

somebody has been creative and therefore we have got to go back 

and close. We need to know whether that’s a likely problem or not. 

Dr. Vaughn? 

Mr. VAUGHN. I think it is an intriguing and disconcerting issue 

that you raise. And as Bob said, it probably is a technical possibility. It is so at variance with the mission of universities that I 

can assure you that when we are in the process of implementing 

this, and it goes to the earlier question you asked about what kinds 

of industries do we want to work with, we really have a public mission of paying back the taxpayers that funded so much of our research to benefit the Nation. 

And I can just assure you that as a matter of policy and procedure our institutions would assiduously avoid any kind of arrangement like that which just goes—runs totally counter to our public 

mission. 

Mr. GOODLATTE. So you would have to be fooled into doing it, if 

it were to happen. It certainly wouldn’t be an objective of the university. 

Mr. VAUGHN. Absolutely not. 

Mr. GOODLATTE. It might be an objective of the—— 

Mr. VAUGHN. And I think our technology transfer and general 

counsels are smart enough. It would be very hard to fool them. 

Mr. GOODLATTE. Good. 

Professor Crouch? 

Mr. CROUCH. I agree with all that is said, and I think that we 

have—in the law as it now stands we have protections against that 

in terms of first the good faith element and in addition the restriction on deriving your inventions from someone else that are already there in the prior use statute. 

Now, what is true though, is that since universities aren’t subject 

to this prior use that does make them marginally more attractive 

88 

for people to invest in, right? Especially if you are going to invest 

in the area of research where you think somebody else might also 

be doing competitive research. And so, if you bring a university on 

board, then you are at a competitive edge especially when you have 

a patent race going on. 

And so that’s not fraud, but it is—but it does shift the landscape 

in favor of working with universities, and that is really the point 

of why this was put in and that is why universities wanted this 

provision in there. 

Mr. GOODLATTE. Thank you. 

Mr. Watt? 

Mr. WATT. So, here is my situation. I am somewhat sympathetic 

to the three suggestions that Mr. Lang has suggested, but I also 

am politically aware that in order for anything of that kind to move 

forward at least on any kind of quick timeframe or modestly quick 

timeframe, there would have to be a very broad agreement, and 

that agreement would have to bring the universities along and be 

palatable to them. 

So, let me ask this question, and I am just kind of talking off the 

top of my head. I am looking for sources of compromise here as I 

generally am to try to make something happen. Substantial preparation is about substantial preparation for commercialization, I am 

correct about that, am I not? 

It seems to me that in a university context, substantial preparation could be really advantageous to universities because they are 

doing a bunch of substantial preparation not necessarily initially in 

preparation for commercialization, but they are putting a lot of 

time and effort and preparation into whatever the venture is even 

before they get to thinking about commercializing it, I presume. 

So what would you think of a compromise that as far as universities are concerned might define substantial preparation as a little 

bit more generous than just substantial preparation for commercialization. Would that be something that might be the starting 

point of something that might lead to a compromise? 

Dr. Vaughn, Mr. Lang, Mr. Armitage, Professor Crouch? That is 

the only question I have. 

Mr. VAUGHN. It is, I understand, your question, Congressman 

Watt, that the substantial preparation might also include activities 

by the university in the course of their commercialization. 

Mr. WATT. Or non-commercialization. 

Mr. VAUGHN. Yes, right. I think the concept of substantial preparation for commercialization here provides, applies strictly to the 

private sector, that is it would apply to universities if we were 

manufacturing things, but we don’t. 

So, we create discoveries through taxpayer-funded basic research. 

Our job is to move those early discoveries into the commercial sector so that they can develop them and the substantial preparation 

that prior user rights is being discussed is all in the commercial 

sector. 

But in the interest of, I think, your broader goal of can we try 

to reach an agreement where we have a difference, I would just say 

two things. 

In terms of process, we did have a compromise that was very difficult to achieve, that universities moved a long way to support, 

89 

which involved not only the exemption of university research—university discoveries from the assertion of prior user rights university 

patents, but also the 1-year look back and commercial use, not substantial preparation. 

But universities are—the members of AAU and beyond work so 

closely with Cisco, with Lilly, with these companies, we are allies 

in so many things. I think we cannot and should not ignore their 

concerns. 

I have stated that I think the right process is to leave this compromise in place. Let the PTO examine with better evidence in 

2015 the impacts of this. If there is a need to do something further, 

I do think we should move with caution. I would assert that there 

is no country in the world that has a more robust university industry, technology transfer, commercialization process than this country. 

The impact of Bayh-Dole has been enormous. Other countries are 

trying to build that, but I think our universities are more productive in commercialization than any other country, and when I hear 

from our campus experts a concern about too broad an expansion 

of prior user rights, we need to listen to them carefully, but we also 

need to listen to our allies in the commercial sector. 

So I think if there are problems, we should be open to discussing 

those, but doing it cautiously over time. But that could move us to 

the compromise—to the agreement that you are seeking. 

Mr. WATT. Anybody else want to add to that, or should I just go 

away and let you all work on it? 

Mr. ARMITAGE. Well, as Chairman Goodlatte knows, when we 

were doing the AIA up until the last minute there were things that 

needed further work. I think your work and the work of your staff 

on supplemental examination was something that looked like there 

was no way to bridge the gap. 

At the eleventh hour we finally found a way to do that. We have 

a compromise here, I think, that was a good, sound compromise. 

On the other hand, if someone asks this panel to come and say 

is this the way the law should be for all time, in all good conscience, I cannot say yes. My view is that we need to continue to 

look at this and find ways to be competitive with the rest of the 

world on this provision. I heard very clearly that there may be a 

potential for fraud or abuse with a substantial preparation standard that is too loose. It seems to me that is a very productive area, 

where as on other issues, we find the right concepts. We find the 

right words to make sure it can’t be abused by anyone. 

I think it is much more difficult to compromise on the issue of 

the 1 year. We already have built into the prior user rights statute 

full protection for anybody who publishes on an invention, not just 

files a patent application on it so that it has protections that exist 

nowhere else in the world for the patent owner. 

So I don’t know how to compromise on the 1 year, but I think 

that maybe on the other aspect we could get our heads together 

and do something quite constructive. 

Mr. WATT. Go ahead. 

Mr. LANG. Now, I will add that the—to reinforce Mr. Armitage’s 

point that the existing prior user rights statute already incorporates many aspects of compromise that we are not seeking to disVerDate Aug 31 2005 09:55 Mar 16, 2012 Jkt 000000 PO 00000 Frm 00093 Fmt 6633 Sfmt 6601 H:\WORK\IP\020112\72690.000 HJUD1 PsN: 72690
90 

turb the publication as being an effective date of comparison 

against the prior commercial use, things like restrictions on transfer of the right and the university carve out itself. 

That being said, I think that our intention here is clear to be 

able to get to a prior user rights regime that is an improvement 

over the present one in the bill in the sense it leaves us at no competitive disadvantage compared to our foreign peers, and if there 

are other ways of accomplishing that on the specific three points 

I mentioned. Although the 1 year is difficult to understand how 

there would be an alternative if there are other ways of accomplishing those and leaving us in a position where we are in a similar position protected by a prior user rights regime in the U.S. comparable to that our foreign competitors enjoy, we are certainly willing to explore those. 

Mr. CROUCH. Yes, I think the problem is the universities have 

patents, but they are not benefitting from the prior use exception 

because they are not commercializing. 

And I think one way to shortcut through that is potentially just 

to give them the right to transfer, or the ability to transfer a prior 

user right to whoever the spinoff company that they handover the 

technology to. So if they made steps in their innovation, and steps 

toward commercialization, if then at that point when they hand 

that off to a commercial venture that that new commercial venture 

both gets the patent rights and gets whatever prior user rights are 

available then I think that potentially draws them back into a parallel scenario as other manufacturing entities. 

Mr. WATT. Well, I thought that might be close to what I was suggesting, but okay, I am not going to ask anymore questions. 

I yield back, Mr. Chairman. 

Mr. GOODLATTE. I thank the gentleman. 

Does this prompt any questions from Mr. Johnson or Ms. Waters? 

Mr. JOHNSON. Yes, I do. I am just sitting here thinking. This university carve-out benefits universities and I was thinking about 

how the private sector has come into our universities or actually 

our institutions of higher education, I believe, is how we referred 

to our universities—come in endowed, various activities and placed 

requirements for the use of the endowment, hiring decisions, editorial control as the price, or is there compensation, if you will, for 

making the endowment or the investment in an institution of higher education? 

And that would seem to offer a unique opportunity for say, an 

energy-related business, to endow a professorship or a school of X 

with funding to produce a certain process and then they could perhaps benefit from not being subject to the prior use defense. 

And I am also thinking in terms of higher—institution of higher 

education. When we think of that we think about Harvard, Yale, 

Spelman, Morehouse, Howard, Clark Atlanta University, the University of Pennsylvania, University of Connecticut, UCLA, those 

kinds of institutions, but yet you have no other institutions of higher learning. You have private, for-profit institutions of higher 

learning—I wonder if they benefit also from the prior use carveout, and I wonder whether or not the carve-out under those kinds 

91 

of circumstances could be used to perpetuate fraud, or some kind 

of an abuse of the patent system. 

It’s very intriguing, this issue, as I sit and listen to more of it. 

Anybody have any comments about what I said? 

Mr. VAUGHN. There is sort of a two-part question there, and, first 

of all, the research universities that conduct both education and research have an enormous number of very productive relationships 

with industry. You mentioned endowments. Universities love to try 

to build their endowments from donors, sometimes from industry. 

They all have fairly formal, circumscribed conditions under which 

they will accept gifts. Universities would love to have open-ended 

donations. There are often conditions put on, but—— 

Mr. JOHNSON. Let’s say a gift is conditioned upon the denial, the 

scientific denial of global warming. 

Mr. VAUGHN. Any respectable university would refuse that gift 

flat-out. 

Mr. JOHNSON. Well, I mean there are a lot of—I could name 

names in terms of the funders of these endowments, and also the 

universities that accept them and conform their actions therewith. 

Private, non-profit standard type universities, right here in Washington, D.C., in fact. I am thinking of one with a name that is 

very—that brings back a—that has a historic connotation to it. You 

know, you would never think they would be corrupted intellectually, but it appears that that they may. I am not going to call the 

name, but they have fallen victim to this phenomenon. 

Then also on top of that, you have the non-profit—I mean forprofit—institutions of higher education, some of which even advertise on TV, and they may not have the kind of standards in terms 

of enrollment, education requirements, prerequisites. They may 

just be a place that accepts federally guaranteed student loans, and 

churns out people who are not equipped to deal in our current marketplace. These are my concerns. 

Mr. GOODLATTE. I am going to interrupt. The gentleman’s time 

has expired, and this is a discussion that we—could go on for quite 

some time. But I am going to allow him to discuss that with you 

at the conclusion—— 

Mr. VAUGHN. Can I just make one quick comment on that? 

Mr. GOODLATTE. Very quickly. 

Mr. VAUGHN. With respect to the prior user rights and the university exemption, the legislation as written clearly limits it to notfor-profit. No for-profit institutions will qualify for it. 

Mr. GOODLATTE. Ms. Waters? Did you have some questions you 

would like to add? 

Ms. WATERS. Well, not really. I would just like to wrap this up 

by saying that—to Mr. Lang, that U.S. innovation policy includes 

patent law, antitrust, tax and immigration. I don’t see it separately. So, I, you know, in raising these questions, I would raise it 

with representatives because I think that representatives from any 

of these companies should understand that when we talk about 

jobs and jobs creation and our U.S. innovation policy, we are talking about all of these things not just patent law. Not just antitrust, 

but tax and immigration also. 

And I am familiar with the academies in the United States, and 

how they work in our elementary schools. And what I am talking 

92 

about in China is very different. It is the training of people for jobs 

now, similar to what was described in the New York article with 

the dormitories and the tea and biscuit and hundreds of thousands 

of employees available around the clock. I am really talking about 

that kind of atmosphere, and whether or not the training that you 

do there is training for those kinds of jobs. 

And I will just leave that for the time being, but the reason I 

mention it is because exportation of jobs offshore for cheap labor 

is increasingly a highlighted issue in this country, and it is going 

to become even more so. 

And so I think it needs to be thought about always as you enter 

into these discussions about how we are helpful or not helpful in 

making our companies more competitive and why we are doing 

that, and what are the results of that. 

So, I would like you to just keep that on the radar screen, and 

advise the company that this came up in the discussion as with the 

universities. 

When I talked about doing whatever is necessary to support our 

companies, I certainly wasn’t talking about that to the exclusion of 

our universities. I think you have a very important role to play, 

and I think that Congressman Mel Watt got you to the point in the 

discussion where not only did you talk about how well you know 

each other, and how you worked together and how you helped to 

forge the compromise that is in law now. 

And you can continue to work, but when you raise, Professor, the 

idea of the transfer of prior user rights onto the companies I think 

that is very attractive so, I am hopeful that whatever happens, it 

will not be to the exclusion certainly of the university. 

So I thank you, Mr. Chairman, for the additional time, and I 

yield back. 

Mr. GOODLATTE. I thank the gentlewoman. 

And I would like to thank the witnesses for their testimony 

today. 

Without objection, all Members will have 5 legislative days to 

submit to the Chair additional written questions for the witnesses, 

which we can forward and ask the witnesses to respond as promptly as they can so that their answers may be made a part of the 

record. 

Without objection, all Members will have 5 legislative days to 

submit any additional materials for inclusion in the record. 

And with that, I again thank the witnesses, and declare the 

hearing adjourned. 

[Whereupon, at 12:26 p.m., the Subcommittee was adjourned.] 

Æ