```

[Senate Hearing 114-137]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-137

                  PATENT REFORM: PROTECTING INNOVATION
                          AND ENTREPRENEURSHIP

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

                                HEARING

                               BEFORE THE

                      COMMITTEE ON SMALL BUSINESS
                          AND ENTREPRENEURSHIP
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 19, 2015

                               __________

    Printed for the Committee on Small Business and Entrepreneurship
    
    
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]    

         Available via the World Wide Web: http://www.fdsys.gov
         
         
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           COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP

                    ONE HUNDRED FOURTEENTH CONGRESS

                              ----------                              
                   DAVID VITTER, Louisiana, Chairman
              BENJAMIN L. CARDIN, Maryland, Ranking Member
JAMES E. RISCH, Idaho                MARIA CANTWELL, Washington
MARCO RUBIO, Florida                 JEANNE SHAHEEN, New Hampshire
RAND PAUL, Kentucky                  HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina            EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska                CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado               CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa                     MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire          GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
                  Zak Baig, Republican Staff Director
                 Ann Jacobs, Democratic Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              

                           Opening Statements

                                                                   Page

Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana..     1
Cardin, Hon. Benjamin L., a U.S. Senator from Maryland...........     2

                               Witnesses

Mr. David Winwood, President-Elect, Association of University 
  Technology Managers, Chief Business Development Officer, 
  Louisiana State University's Pennington Biomedical Research 
  Center, Baton Rouge, LA........................................     4
Mr. Robert N. Schmidt, Co-Chair, Small Business Technology 
  Council, National Small Business Association, Fort Meyers, FL..    23
Tim Molino, Director, Policy, BSA | The Software Alliance........    40
Ms. Rachel King, Founder & CEO, GlycoMimetics, Chair of the 
  Maryland Life Sciences Advisory Board, Gaithersburg, MD........    48
Mr. Craig Bandes, President & CEO, Pixelligent Technologies, 
  Baltimore, MD..................................................    57

          Alphabetical Listing and Appendix Material Submitted

American Continental Group, Inc.
    Chart titled ``Litigation Rate 1991-2014''...................   114
American Hotel and Lodging Association
    Statement dated March 19, 2015...............................    75
Application Developers Alliance on Patent Reform
    Statement dated March 19, 2015...............................    77
Association of American Universities
    Letter dated March 2, 2015...................................    80
Association of Public and Land-grant Universities
    Statement dated March 3, 2015................................    81
Bandes, Craig
    Testimony....................................................    57
    Prepared statement...........................................    60
    Responses to questions submitted by Chairman Vitter and 
      Senator Booker.............................................   164
Big Ten Since 1896
    Letter to Senator Cardin dated January 21, 2015..............    82
Biotechnology Industry Organization
    Statement dated March 3, 2015................................    84
Cardin, Hon. Benjamin L.
    Testimony....................................................     2
Engine
    Statement of Julie Samuels, Executive Director...............    85
    Patent One Page Executive Summary 2015.......................    87
    Patent White Paper 2015......................................    88
Innovation Alliance
    Statement dated March 3, 2015................................    97
Institute of Electrical and Electronics Engineers (IEEE-USA)
    Letter to Senator Coons dated March 4, 2015..................    98
Kappos, David J.
    Report titled ``The Great Patent Debate: Changing Horizons''.    99
    Report titled ``An Overview of the United States Patent 
      System, 2015''.............................................   114
King, Rachel
    Testimony....................................................    48
    Prepared statement...........................................    51
Medical Device Manufacturers Association
    Statement....................................................   116
Molino, Tim
    Testimony....................................................    40
    Prepared statement...........................................    42
National Association of Home Builders
    Statement dated March 19, 2015...............................   118
National Association of Realtors
    Letter dated March 17, 2015..................................   122
National Retail Federation
    Statement dated March 19, 2015...............................   124
National Venture Capital Association
    Statement dated March 3, 2015................................   133
Pharmaceutical Research and Manufacturers of America
    Statement dated March 3, 2015................................   134
Schmidt, Robert N.
    Letter dated March 4, 2015...................................    16
    Letter dated March 13, 2015..................................    20
    Testimony....................................................    23
    Prepared statement...........................................    25
    Responses to questions submitted by Chairman Vitter..........   148
Startup Investors
    Letter dated March 17, 2015..................................   135
Vitter, Hon. David
    Testimony....................................................     1
Winwood, David
    Testimony....................................................     4
    Prepared statement...........................................     7

 
       PATENT REFORM: PROTECTING INNOVATION AND ENTREPRENEURSHIP

                              ----------                              

                        THURSDAY, MARCH 19, 2015

                      United States Senate,
                        Committee on Small Business
                                      and Entrepreneurship,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 10:02 a.m., in 
Room 428, Russell Senate Office Building, Hon. David Vitter, 
Chairman of the Committee, presiding.
    Present: Senators Vitter, Risch, Gardner, Ernst, Cardin, 
Cantwell, Shaheen, Booker, Coons, Hirono, and Peters.

 OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S. 
                     SENATOR FROM LOUISIANA

    Chairman Vitter. Let's go ahead and get started.
    Good morning and welcome, everybody, and welcome to our 
hearing on ``Patent Reform: Protecting Innovation and 
Entrepreneurship.''
    I want to thank our panel of witnesses for taking time away 
from their jobs and, in many cases, making the trip to 
Washington for this important hearing. We look forward to your 
testimony.
    As many in this room are aware, there is a growing call for 
the Senate to act swiftly and make patent reform legislation a 
priority for floor consideration once committees have done 
their work.
    Today, we are here to answer a sole question: How do we 
address patent reform while protecting innovation and not 
impose negative consequences on small businesses and 
entrepreneurs? It is important to ensure that any bill that 
moves to the U.S. Senate floor achieves this goal.
    Certainly, we want to combat frivolous lawsuits and patent 
trolling, but we also want to maintain a level playing field 
for small business investors and large companies alike.
    Patent jurisprudence has changed considerably over the past 
three years, and there are ample ongoing changes to the patent 
system which are still being implemented.
    Protecting small business and safeguarding those 
innovations is the responsibility of this Committee, not to 
mention the bedrock of the American entrepreneurial spirit.
    Similarly, it is essential to remember that many legitimate 
owners of intellectual property do not manufacture anything 
but, nonetheless, have very important legitimate claims of 
patent infringement against other parties. These include 
independent inventors, research and development companies, and 
universities, who all qualify as nonpracticing entities. 
Therefore, Congress should act decisively, but it should also 
act with prudence.
    We have heard pleas from businesses across the board that 
the patent system is increasingly becoming a forum for 
financial speculation and litigation rather than innovation. 
American innovators and small businesses across the country are 
being forced to divert critical resources to defend themselves 
against vague claims of patent infringement, resulting in 
substantial drains on our economy.
    Main Street businesses using off-the-shelf technology need 
to be protected against frivolous demand letters and suits. 
This must stop, but it would be similarly disturbing if we 
uprooted a major portion of the U.S. economy to address harmful 
behavior from a few bad actors.
    The discussion surrounding patent reform must include a 
detailed analysis of how legislation would further impact small 
businesses, investors, and universities.
    And as chair of this Committee on Small Business and 
Entrepreneurship, I certainly feel an obligation to highlight 
that our patent system fuels the economy.
    Unfortunately, many businesses have seen some bad actors, 
and patent abuse by bad actors certainly wastes vital funds 
that could otherwise go to productive activity. It is this 
reason that I fully support bringing the patent discussion 
forward to address specific targeted legislative fixes as long 
as that discussion carries the necessary protection for smaller 
businesses and startups.
    Unfortunately, when dealing with bad actors, there is very 
rarely a one-shot solution. I have seen disturbing efforts 
that, in an attempt to demonstrate a greater level of ``growing 
abuse,'' lump innocent, well-intended business suits in that of 
trolling.
    So legislation should not have the effect of allowing one 
group to strong-arm another smaller group simply because of 
immediate access to resources. Efforts to unbalance the system 
using misguided information will ultimately lead to less 
prosperity in our system.
    Licensing one's patents is not a bad thing. It is for that 
reason I believe the discussion deserves the necessary room to 
include what the legislation's further impacts will be on small 
businesses and investors and universities.
    And so it is my hope that today with our witnesses and 
experts across the spectrum, we can discuss how best to balance 
a path forward. And I certainly look forward to carrying this 
issue and discussion on as a member of the Senate Judiciary 
Committee as well.
    With that, let me turn the mic over to Senator Cardin.

 OPENING STATEMENT OF HON. BENJAMIN L. CARDIN, A U.S. SENATOR 
                         FROM MARYLAND

    Senator Cardin. Well, Chairman Vitter, first of all, thank 
you for convening this hearing. This is our first committee 
hearing here in Washington of the Small Business and 
Entrepreneurship Committee of this Congress, and I want to 
thank Senator Vitter and his staff for the cooperative 
arrangements that we have in putting together this particular 
hearing.
    It is very interesting; there are lots of committees in the 
Congress that deal with issues that affect small business.
    The Finance Committee deals with the tax code, and there is 
major impact on small businesses.
    The Environment and Public Works Committee deals with the 
regulatory environment for an environment that affects small 
business.
    The Banking Committee deals with the financial systems in 
this country that affect small business.
    And the Judiciary Committee deals with pensions and pension 
laws that affect and patent laws that affect--excuse me. They 
deal with patent laws that affect small businesses.
    Only this Committee focuses on the small business 
community, and it is very appropriate that we have a hearing 
dealing with the impact of these policies as they affect small 
business. So, Mr. Chairman, I am very pleased that we are 
having this hearing to deal with patents so that we can take a 
look at the impact it has on small business.
    We are trying to balance two different thoughts on how the 
patent system is working. We have our universities and large 
biotech companies that have one view, and we have smaller 
companies that have different views.
    And I would hope that we could harmonize those views. That 
may be asking a little bit too much, but I think this hearing 
can help us in trying to figure out how is the best way to deal 
with these conflicting roles.
    The role of small business is critical to the dialogue on 
patents. Small business produces 16 times more patents than 
larger businesses. And the ability of entrepreneurs to obtain 
patents often acts as a precursor to investors' willingness to 
provide funding at critical stages.
    An effective and functioning patent system is critical to 
the economic growth of the United States. Intellectual property 
has been a fundamental source of American innovation and 
economic prosperity since our nation's founding.
    Of late, there have been many efforts to improve the 
system. The administration issued a series of executive 
actions, and Congress passed the America Invents Act in 2011, 
which put in place our First-to-File system, procedural 
changes, fee revisions, and post-grant review.
    I look forward to hearing from today's witnesses as to how 
those reforms and executive actions are working in practice, 
the impact it has on businesses in our community.
    I also look forward to hearing from our witnesses about 
their experiences with the patent assertion entities, also 
known as patent trolls. Small businesses are particularly 
vulnerable, as the chairman pointed out. They do not have the 
deep pockets. They are particularly vulnerable to claims that 
their work is invalid or requires significant investment of 
time and money to litigate.
    Research institutions also play a significant role in the 
patent arena. University-owned research labs spur innovation by 
transferring patentable inventions developed in their labs to 
the private sector for commercialization as new technologies.
    In the State of Maryland, I have seen how technology 
transfer programs at the University of Maryland, the National 
Institutes of Health, the Johns Hopkins University have had to 
stimulate growth in my State; indeed, in the entire country.
    Nationwide, similar programs have generated hundreds of 
billions of dollars of economic activity and three million jobs 
in the past three decades alone.
    So, Mr. Chairman, this is an issue that this Committee is 
ideally suited, I hope, to find a common ground. The Small 
Business and Entrepreneurship Committee has had a reputation of 
working in a bipartisan way to help small business, and we will 
be challenged in this area, but I think today's hearing can 
help us find a way forward.
    I am very impressed by the witnesses that we have before 
us, and we look forward to your testimony and helping us 
understand how the current system is working, the challenges we 
have, how we can balance innovation moving forward, protecting 
intellectual property of creative people but also allowing 
companies to be able to move forward in more discoveries for 
the benefit of our economy.
    Chairman Vitter. Great. Thank you, Ben.
    We do have five great witnesses. I am going to introduce 
the first three before each of their testimony, and then 
Senator Cardin will introduce the remaining two.
    First, we will hear from Mr. David Winwood, President-Elect 
of the Association of University Technology Managers and Chief 
Business Development Officer of LSU's Pennington Biomedical 
Research Center.
    Prior to his current position, David served in research, 
business development, and company leadership roles in three 
startup businesses.
    Welcome, David, and please proceed.

  STATEMENT OF DAVID WINWOOD, PRESIDENT-ELECT, ASSOCIATION OF 
UNIVERSITY TECHNOLOGY MANAGERS, AND CHIEF BUSINESS DEVELOPMENT 
  OFFICER, LOUISIANA STATE UNIVERSITY'S PENNINGTON BIOMEDICAL 
                        RESEARCH CENTER

    Mr. Winwood. Thank you, Mr. Chairman.
    Chairman Vitter, Ranking Member Cardin, committee members, 
I am grateful for the opportunity and privilege to testify 
today.
    I am President-Elect of the Association of University 
Technology Managers, AUTM, a nonprofit organization dedicated 
to enhancing the global academic technology transfer 
profession, and as mentioned, I am also the Chief Business 
Development Officer of Louisiana State University's Pennington 
Biomedical Research Center in Baton Rouge.
    The Center's mission is to discover the triggers of chronic 
diseases through innovative research that improves human health 
across a life span.
    Well, university research has brought huge benefits to the 
American economy, national security, and health care. An 
independent survey released just this week indicates that since 
1996 academic industry patent licensing has contributed up to 
$1.18 trillion to the U.S. economy, bolstered U.S. GDP by up to 
$518 billion, and supported up to 3.82 million U.S. jobs.
    In that same 18-year period studied, AUTM reported the 
creation of more than 4,200 startup companies based on academic 
and nonprofit research.
    And, in 2013 alone, AUTM reported 24,000 inventions from 
academic research, inventions that helped launch 719 new 
products and served as the basis for the creation of more than 
800 startup companies.
    The Bayh-Dole Act in 1980 helped unleash the power of the 
patent and provided a framework in which universities are 
encouraged to engage with corporate partners to take inventions 
from the lab to the marketplace. Under Bayh-Dole, universities 
exercise a preference for licensing to small entities, 
including startup companies.
    Now Congress has been a partner with universities by 
funding the basic research that industry no longer performs, 
and the process by which federally funded inventions are moved 
to the market has been refined and improved as the technology 
transfer profession has matured over the years.
    Patenting is a complex, lengthy, unpredictable, and 
expensive process. Yet, it is crucial for the commercialization 
of most inventions, with patents often being used effectively 
as collateral to attract early stage investments to allow 
commercialization to proceed.
    And certainly, Chairman, the innovative proof of concept 
funding program recently implemented by the LSU Board of 
Supervisors to turn LSU research into companies and products 
requires evidence of IP protection before funding is approved.
    But there is a real concern among universities and small 
businesses regarding the sweeping changes to the U.S. patent 
system that some in Congress are advocating in bills such as 
H.R. 9., a concern that our efforts to fill a vital role in the 
innovation ecosystem will be stifled.
    Fee-shifting and joinder provisions proposed in the pending 
legislation could effectively exclude universities and our 
licensed startup companies from enforcing our legitimate patent 
claims, resulting in significant losses to the entrepreneurial 
and innovation ecosystem that propels the U.S. economy.
    Now going to court is always a last resort for patent 
holders, but if going to court becomes too risky then patents 
will lose their value to licensees and to investors. We believe 
the investment community would clearly be much less inclined to 
risk-making, early stage funding commitments, including to 
startups, if H.R. 9 became law.
    Now the university community understands the concerns of 
lawmakers and industry groups regarding what has become known 
as the patent troll issue. Indeed, in a February 2015 press 
release, six higher education associations commenting on H.R. 9 
clearly stated that our associations want Congress to pass 
legislation this year that would put an end to the abusive 
behavior of patent trolls.
    But in saying that, we mean a targeted, narrow approach 
that focuses on the abusive behavior, such as that recently 
proposed by Senator Coons in the STRONG Act, which is aimed at 
protecting small businesses, universities, and entrepreneurs 
from abusive patent litigation, addressing the problem but 
without the negative side effects the other legislation might 
cause by impeding legitimate patent holders from enforcing 
their patent rights. So we are happy to work with Congress 
toward that end.
    At AUTM, we see a broad landscape as having changed over 
the past year or so. The Supreme Court has issued rulings 
giving judges more discretion to assess legal fees to losers in 
litigation if the judge believes the case is unjustified. The 
FTC has recently pursued a patent troll who sent out misleading 
demand letters to hundreds of small retailers, and the 
Commission says it plans to do more. And, the PTO itself has 
new procedures in place that are helping remove bad patents 
before they ever get to trial.
    So, in closing, I would urge this Committee to express 
itself to the Senate Judiciary Committee and raise these 
concerns as that committee begins to work on its own version of 
patent litigation reform because we simply cannot allow 
overzealous pursuit of trolls to take the American patent 
system out of reach for universities, small businesses, and 
small inventors who are counting on you to protect them from 
legislation that overreaches.
    So I thank you for providing the opportunity for us to make 
these comments, and I will be happy to answer questions.
    [The prepared statement of Mr. Winwood follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Vitter. Great. Thank you very much.
    Next, we have Robert N. Schmidt, Co-Chair at the Small 
Business Technology Council and also with the National Small 
Business Association.
    For the past 25 years, Bob has been founding and growing 
companies in the medical device and aerospace fields. He is a 
professional engineer, an attorney, and specifically, a patent 
attorney. He has 31 patents to his name, and the 5 companies he 
has founded control over 160 U.S. patents and applications plus 
additional foreign patents.
    And also, one of the groups, Bob, as part of the National 
Small Business Association, along with its coalition partners, 
recently sent a letter to Representatives Goodlatte and Conyers 
and Senators Grassley and Leahy, imploring Congress to slow 
down and fully consider that legislation.
    And so I want to move that we make that part of the record. 
Without objection, so ordered.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Vitter. Bob, please proceed.

   STATEMENT OF ROBERT N. SCHMIDT, CO-CHAIR, SMALL BUSINESS 
    TECHNOLOGY COUNCIL, NATIONAL SMALL BUSINESS ASSOCIATION

    Mr. Schmidt. Senator Vitter, Senator Cardin, members, thank 
you very much for asking me to testify today on this very 
important matter for technology startups and small businesses.
    For the past 25 years, I have founded and led these 
companies, and we have about 80 employees in total and a dozen 
doctorate degrees and over $10 million in annual revenues. That 
gives you a scale of what we do, but we sell our products on 
seven continents.
    So I am here today as the co-chair of the Small Business 
Technology Council, speaking on behalf of the 5,000 firms who 
participate in the SBIR and SDTR programs. I do so to raise our 
concerns regarding the detrimental effects that patent reform, 
bills such as H.R. 9, the so-called Innovation Act, will have 
on small inventing companies.
    We would like to add small business to the list of 
individuals, of individual inventors, universities, venture 
capitalists, patent examiners, former patent commissioners, and 
patent court judges that oppose such legislation. Crafting a 
narrow and targeted alternative to this harmful legislation is 
important to small business inventors as patents are critical 
to all innovative firms and especially SBIR firms.
    The Federal Reserve found that patents are the number one 
indicator of regional wealth.
    Small businesses employ 37 percent of the scientists and 
engineers, 50 percent more than all the large corporations 
combined.
    SBIR firms have received about 121,000 patents.
    The Fortune 500 firms' share of R&D 100 Awards, the world's 
most valuable innovations, has dropped from over 40 percent in 
the 1970s and early 1980s to just 6 percent, or 1 in 16, while 
SBIR firms receive 4 times as many of these R&D 100 Awards as 
the Fortune 500 firms together.
    In short, SBIR firms and small business is where innovation 
happens.
    Large firms can, and do, survive without strong patents; 
small businesses cannot. Weakening patent rights threatens the 
very interest of universities and small business. Without 
strong patents, we cannot commercialize our inventions, and 
technology jobs will go overseas.
    The over-broad and sweeping proposed legislation in H.R. 9 
will have the effect of suppressing patent rights of all 
patentees and, in particular, will hurt the small, high-tech, 
job-creating SBIR businesses and, thus, the economy.
    Simply stated, patents are far more important to small 
business survival and growth than to large businesses, and 
licensed patents are the only way universities can 
commercialize their research.
    The Senate is now presented with a choice between two 
bills--the House's H.R. 9, the ill-named Innovation Act, or S. 
632, appropriately termed STRONG Patents Act of 2015.
    H.R. 9, which I believe should be more aptly named the 
Ending the American Dream Act, with functions such as those 
providing for endless review, clouds title to patents, weakens 
the patent holder's ability to economically enforce their 
patents, and undermines fundraising and licensing activities.
    In contrast, the STRONG Patents Act ends the invention tax 
by securing PTO user fees from diversion away from the Patent 
Office, ensuring that resources are commensurate with 
examination workload. And, the STRONG Patents Act protects 
patent holders from large patent ogres, those who would 
otherwise infringe small firms' invalid patents with impunity.
    Let me repeat. H.R. 9 does not eliminate trolls, but it 
will engender the large monopolistic and market dominant firms, 
encouraging more patent ogre activity.
    Finally, I want to put to rest the myth that small business 
supports the Innovation Act. H.R. 9 does not solve the troll 
problem.
    Virginia Gavin, a small business owner who had received two 
demand letters and paid twice, she was as anti-troll as one 
could be. But once she understood each and every provision of 
H.R. 3309, which was H.R. 9's predecessor, she stated, ``There 
is nothing in this bill that will help me and several items 
that will harm my business.''
    Thus, we oppose H.R. 9.
    However, we do support legislation proposed in the STRONG 
Patents Act and the Troll Act.
    Thank you very much.
    [The prepared statement of Mr. Schmidt follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Vitter. Thank you. Thank you very much, Bob.
    And next, we have Tim Molino, Director of Policy for BSA 
the Software Alliance.
    Mr. Molino has a long history of policy work related to 
patents, including as a former top Senate staffer and as chief 
counsel for Senator Amy Klobuchar. During his law career, Tim 
focused on patent litigation in the areas of software, medical 
devices, and biotech, and he also prosecuted patent 
applications and provided counseling regarding non-infringement 
and validity issues.
    Welcome, Tim, and please proceed.

 STATEMENT OF TIM MOLINO, DIRECTOR, POLICY, BSA | THE SOFTWARE 
                            ALLIANCE

    Mr. Molino. Chairman Vitter, Ranking Member Cardin and 
members of the Committee, thank you for the opportunity to 
testify on this very important topic of patent reform.
    BSA is the world's leading voice for the software industry. 
From the way our children learn, how we communicate with 
colleagues and loved ones, the cars we drive, and to the 
medical devices that save our lives, software is making the 
world a better place.
    In order to keep this innovation thriving, BSA member 
companies believe that there is an urgent need for legislation 
to address abuse that all too often happens during patent 
litigation.
    The Small Business Committee is the ideal venue for an 
organization like BSA to present our views. Although our 
members range in size from very small to large, each of them 
was founded by one or two individuals with passion, an idea, 
and a vision for bringing that idea to the marketplace. 
Software-related patents are especially important for our 
members and other small businesses in many sectors of the 
economy that rely on the patent system--a patent system that is 
strong, predictable, efficient, and fair.
    In today's world, much of the innovation that is occurring 
comes through the development of software, whether it is 
building energy efficient offices and homes, running factories 
more safely and productively, or making transportation systems 
more efficient. Software patents play a vital role for small 
businesses by protecting their ideas against copiers, 
preserving the value of their innovation as they build their 
businesses, and providing a foundation to attract the 
investment capital needed to launch and grow.
    But the promise of software patents rings hollow if an 
inventor cannot properly enforce their rights or defend 
themselves when sued.
    There is no escaping the reality that patent litigation is 
enormously expensive and the costs are only growing. 
Unfortunately, the escalation often comes because bad actors 
drive up litigation costs by employing abuse tactics.
    And, more and more, they prey on smaller companies with 
limited experience of the patent system and limited resources. 
A small business that is the victim of abusive litigation 
tactics often faces the need to use scarce resources to fund 
the litigation rather than grow its business.
    To be clear, however, we firmly believe that the ability to 
legitimately enforce a valid patent is the foundation of a 
strong and effective patent system. We are just trying to end 
the abuse.
    Abusive litigation tactics serve none but the abuser. They 
do not create jobs. They do not deliver new products and 
services. And, they do not contribute to our innovation 
economy.
    Senate action to end abusive litigation is urgently needed.
    We believe that effective litigation must provide genuine 
notice by requiring plaintiffs to clearly set forth their 
allegations in their complaint, make discovery more efficient 
by having courts issue an early claims construction decision 
that will narrow the issues relevant to the suit before the 
expensive part of discovery begins, and deter weaker frivolous 
cases by awarding fees only when a party asserts objectively 
unreasonable claims, and then ensuring a party that is awarded 
fees has an efficient mechanism to collect them.
    By enacting such legislation, Congress will help foster 
innovation and entrepreneurship for businesses of all sizes.
    Some argue that no legislative changes are needed to the 
patent system because the Supreme Court has ruled on several 
patent cases in the last few years. The Supreme Court's 
decisions, however, only nibble at the edges of abuse. At 
bottom, the abuses have not ended and are not likely to end 
unless Congress takes action.
    Some have also proposed making changes to the America 
Invents Act passed by Congress in 2011. In BSA's view, doing 
this would be premature. The AIA has only been up and running 
for about two years. The lack of a track record under these 
programs argues against making any changes at this time.
    In conclusion, BSA is committed to ensuring that our robust 
patent system remains the envy of the world. To advance this 
goal, we believe patents should be available for all types of 
inventions, including software. We also believe that there is 
urgent need to end abusive litigation by focusing on 
legislation that addresses opportunistic behavior. We do not 
see these efforts as being inconsistent but, rather, 
complementary in promoting innovation and entrepreneurship.
    We urge the Senate to move quickly to enact reforms that 
support a robust patent system while deterring abuse.
    I look forward to answering your questions.
    [The prepared statement of Mr. Molino follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Vitter. Great. Thank you, Mr. Molino.
    And now I will turn to Senator Cardin who will introduce 
our next two witnesses.
    Senator Cardin. Well, let me first welcome Rachel King, the 
CEO of GlycoMimetics, to our Committee.
    GlycoMimetics is a small pharmaceutical company with about 
40 employees. Ms. King guided the company as it gathered $38 
million from venture companies--quite a task.
    GlycoMimetics' current patent portfolio includes two main 
pharmaceutical patents targeting sickle cell disease and 
leukemia. It is currently in a Phase II trial for sickle cell 
drugs.
    All their technology is homegrown within the company's own 
labs. It is located along the 270 corridor in Gaithersburg, one 
of the real high-tech areas of Maryland.
    We have a lot of high-tech areas in our State, and I think 
what Ms. King represents is really one of the growth areas in 
our country for good jobs and innovation.

 STATEMENT OF RACHEL KING, FOUNDER AND CEO, GLYCOMIMETICS, AND 
       CHAIR OF THE MARYLAND LIFE SCIENCES ADVISORY BOARD

    Ms. King. Thank you very much and thank you, Chairman 
Vitter and Ranking Member Cardin, for inviting me to testify 
today.
    And, thank you also for the opening remarks that you both 
made. I feel very encouraged by the perspective that you are 
bringing, the support of innovation, the critical recognition 
that we need balanced and bipartisan legislation that will 
continue to support entrepreneurship and small businesses. This 
is really critical and very important to biotechnology and to 
companies like ours. So thank you very much.
    I run a company, as Senator Cardin said, called 
GlycoMimetics based in Maryland. We are focusing on developing 
drugs for unmet medical needs, focused initially on sickle cell 
disease and on leukemia.
    And I have spent my career working in biotechnology, both 
in startup companies like these and on the venture capital 
side. So, from that perspective--from those perspectives, I 
have seen the really critical role that patents play in 
encouraging investment and how very important it is that we 
ensure a robust, dependable system.
    So, based on my experience in those different settings, I 
can say that I think biotechnology is probably one of the most 
dependent areas of the economy on a robust patent system. And 
one of the reasons for this is that our patents are--we often 
have products that depend on very small numbers of critical 
patents.
    So we do not have 20, 50, or 100 patents on our products. 
We might have 1 or 2 that are critically important for us to 
defend in order to bring our products forward.
    And, we have to do that in a setting where we have got to 
raise millions of dollars over many years at great risk.
    So the amount of money, the amount of time, and the amount 
of risk in our industry make it really critical that we have 
strong patents.
    In our company's case, we raised about $60 million through 
private venture capital. We had to raise that money to complete 
our initial study in sickle cell patients. We then had to do 
another major partnership with a pharmaceutical company to 
bring in more money. We raised another $64 million in an IPO 
last year. So our own company's story is one of many years of 
long, risky investment.
    And, if we are successful, it will probably take something 
like 15 years and tens of millions of dollars until we actually 
have a drug that could be available to patients. And, during 
that time we really, critically, have to be able to defend our 
patents.
    If patents can be invalidated under overly broad criteria 
or if we have difficulty enforcing them, then it makes it very 
difficult for us to raise funds.
    So I want to urge Congress as you look at issues related to 
patent trolls, I want you to also keep in mind the need to 
protect patent innovators, so to protect the people who 
actually generate patents in the first place, not to only look 
at abuses by patent owners but abuses perpetrated against 
patent owners and against innovators.
    And, in particular, one of the things that is of a great 
deal of concern to us in the biotech industry is this new 
system of patent challenges called Inter Partes Reviews, which 
is really having a game-changing effect on our industry because 
so many patents can be invalidated under that process. 
Something like 80 percent of the challenges that are brought 
result in the innovator's patent being invalidated.
    And, it is so bad now that people who have no standing are 
bringing these challenges because they are betting on the 
ability to invalidate these patents.
    We have cases in our industry, for example, where hedge 
funds will short a biotech company's stock, file an IPR, make 
money when then the company's stock goes down as a result of 
the announcement of the IPR just having been filed.
    I think that should be criminal. It is manipulation. It 
invalidates patents inappropriately. And, this whole IPR 
process basically sets a lower standard than the current 
district court standard has, which is very well-developed, with 
a lot of experience.
    And we cannot--we are particularly vulnerable to that type 
of challenge. So I really think that needs to be addressed.
    And so I am particularly appreciative of the STRONG Patents 
Act, and I want to thank Senators Coons, Durbin, and you, 
Senator Hirono, for sponsoring that Act. That would address a 
lot of the problems with the IPR case in our view and, I think, 
could be very important to continuing to support innovation in 
biotechnology.
    So I want to make the point--obviously, I am biased--I 
think biotechnology is not like just any other business. It is 
a business that we really, critically, have to support because 
of the important work that we are doing.
    We are not finished in developing cures for cancer, 
Alzheimer's disease, diseases like sickle cell. These are 
critically important needs that we need to continue to address 
in our society.
    And I want to ask you to specifically be concerned about 
the role that patents play in biotechnology and to continue to 
support us.
    Thank you.
    [The prepared statement of Ms. King follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Senator Cardin. Well, thank you for your testimony.
    Mr. Craig Bandes is President and CEO of Pixelligent 
Technologies. It is a Baltimore-based company that creates nano 
materials that allow more light to be derived out of LED light 
bulbs, panel display, and optical components.
    Pixelligent started with 9 employees and currently has 42 
employees. They have received funding through both government 
and private investment sources during the course of their 
development.
    Pixelligent holds 25 patents, spends hundreds of thousands 
of dollars each year developing its patents and attorneys to 
ensure patent protection.
    They currently have an international reach and are looking 
to start distribution in Europe soon.
    It is a pleasure to have Mr. Bandes here.
    As I explained earlier, in Maryland we are proud throughout 
our State of having a lot of high-tech type operations in the 
Baltimore region and the Washington region and throughout our 
State.
    Mr. Bandes.

   STATEMENT OF CRAIG BANDES, PRESIDENT AND CEO, PIXELLIGENT 
                          TECHNOLOGIES

    Mr. Bandes. Thank you, Senator Vitter and Senator Cardin, 
for the opportunity to come speak today.
    There has been a lot of discussion on the panel already, 
which I will save us all from repeating.
    Our company is very focused on--and patent protection is 
critical to our ultimate success as a company. We believe when 
we think about patents that there is both the focus on 
protecting patents and protecting innovation but also 
accelerating the innovation that we have here in the United 
States.
    So, again, my name is Craig Bandes. I am the CEO of 
Pixelligent Technologies.
    And the materials that we make here in Baltimore enable us 
to take materials, put them into a number of devices, and 
materials that are commonly used in electronics today. Our main 
focus is in LED lighting, which is sweeping the world really in 
next-generation lighting, and OLED lighting, where using our 
materials makes those lights more efficient, gets more light 
out, and actually creates better economics.
    Our materials also go into things like touch screens to 
help improve scratch resistance and overall image quality.
    The company has been funded today through a combination of 
private equity funding, some venture but a lot of what you 
would call ``super angel'' type of investment, about $23 
million to date, and we also have received about $11 million of 
funding from government programs.
    All of this funding has really gone to initially focus on 
building a team of technologists, manufacturing experts, sales 
and marketing folks, but it is all based on the core of our IP.
    Ultimately, when we go to market and we are selling to big 
multinationals, which include today 3M and Dow Chemical and 
Samsung and OSRAM and LG, on a global basis, the first thing 
they do is take a sample and see if it works. Then they figure 
out, okay, well, the economics work to get a product into their 
system. All that is very hard and takes anywhere from six 
months to a year. So it is easier said than done.
    And then, if you get through all of that, you then go 
through a process of having to show that the IP they are going 
to incorporate, our IP, into their products will not infringe 
when they go to the marketplace. And it goes through a pretty 
exhaustive process called the Freedom to Operate.
    So here is where the challenges come in, where invariably 
just because of how many technologies there are in our space--
nano has become a very active space for patenting--that they 
will find something that may give them some concern.
    Our job then is to show them that we can beat back that 
concern. The best way we can do it is having very strong 
patents that are defensible and having a broad set of patents 
that show they really cover the landscape and the areas that we 
focus on, which are making the material, how we coat that 
material, how we put it into our customers' material, and then 
how we manufacture that material.
    And we have to be able to prove that we have protection 
really across that to convince someone like a 3M, for example, 
because ultimately if there is a problem, someone that would 
come after the company more will focus on a 3M with much deeper 
pockets than a Pixelligent which is just now starting to 
commercialize.
    So our focus really is making sure that the patents that we 
have and we put into the Patent and Trademark Office come out 
and are strong and defensible.
    One of the challenges that we see today is less because we 
have not been directly involved in any kind of troll situation. 
And I think the panel here has covered the universe on the 
issues there, and a balanced approach clearly is the best 
answer.
    But our focus is when we file a patent it takes 2.3 years 
to get that patent out of the Patent and Trademark Office. 
There are currently 600,000 patents in backlog in the PTO. You 
think about the amount of economic value and real value that is 
being held up in that.
    Now these folks work hard. Examiners work hard. They care 
about their jobs. There just are not enough of them.
    And when you think about the PTO, it is one of the few 
agencies in the government that actually self-funds and 
actually makes what we call in our world a net profit--about 
$300 million addition, or 350, on almost every year beyond the 
$3 billion they get appropriated to go spend. And then there is 
a battle over who gets that money.
    Imagine if you reinvested that money like a business would, 
to create a more efficient system, bring in more people, and 
drive more value.
    Not only will there be more value and more fees--and it is 
a great strategy because you pay once and then you pay forever, 
or at least the 23 years while your patents are active, but the 
ability to unlock all of that innovation so that I do not have 
today 23 patents pending.
    Today, maybe I only have 10 patents pending, which means 
when I go and I talk to 3M or Dow or Samsung or whoever, I am 
saying we have a broader portfolio of patents that are actually 
issued and we can defend them versus pending and waiting.
    So I would encourage this Committee to think about this 
concept of innovation and protecting and accelerating patents 
beyond just the issues of litigation.
    Thank you.
    [The prepared statement of Mr. Bandes follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Chairman Vitter. Okay. Thanks to all of you.
    We will now have a round, a five-minute round of questions 
from the members here. I will start and then Senator Cardin, 
and then we will alternate sides using the ``early bird'' rule.
    Mr. Winwood, you mentioned that universities conduct 15 
percent of all R&D and over 50 percent of all basic research in 
the U.S. and spend over $65 billion in research funds, $40 
billion is from Federal sources, and that results in all sorts 
of inventions and patent applications.
    How does abusive patent litigation affect universities now, 
number one?
    And, number two, you specifically referenced mandatory 
joinder and presumptive fee-shifting as provisions you would 
oppose in any patent bill. Why don't you elaborate on that, and 
why would this be bad for universities?
    Mr. Winwood. Thank you, Chairman Vitter.
    Yes, how does this affect universities now? I think our 
primary area of interest here is our relationship, our very 
close relationship, with our startups and our small businesses, 
and the fact that most university technology licensing offices 
run on a very, very narrow margin.
    We are determined to help bring our technologies to the 
private sector, who can move it on into the marketplace for the 
benefit of consumers.
    When it comes to taking that extra risk of maybe being 
exposed to some of the abusive litigation, our universities 
simply do not have the depth of pocket to make that happen.
    And so there is a reluctance to engage, presumably, in this 
pursuit of moving technologies out to the marketplace if we 
have the threat over our head of this kind of abusive 
litigation, if we are in the firing line, if you will, along 
with our licensees and startup companies.
    So, in particular, the fee-shifting and joinder provisions 
cause us great concern. Imagine following the joinder 
provisions through whereby anyone with a financial interest in 
the outcome of a litigated procedure could be joined.
    So the universities certainly, but as you know, our 
universities share our royalty revenues with our inventors. 
These may be faculty members. These may be students. They may 
be post-docs. I suspect that there would be a chilling effect 
on disclosure to my office, and many other offices, if those 
inventors were aware that they might suddenly be joined into a 
suit with--maybe it is a hedge fund at the helm of this thing, 
as mentioned by Rachel.
    So there is a real chilling effect, I suspect, that is 
possible on participation from our universities and our 
inventors because we just do not have the capacity in this kind 
of combat. We run on very, very narrow margins to keep these 
things moving into the private sector.
    Chairman Vitter. Okay. Thank you.
    And, Mr. Molino, can you give some thoughts about how 
ongoing activity addresses some areas of abuse and if you think 
it is adequate for those areas or not?
    For instance, there are ongoing judicial conference changes 
related to the Federal Rules of Civil Procedure. What is your 
thought about that work and how it will properly address those 
possible areas of abuse or not?
    Mr. Molino. So thank you for the question.
    We are very encouraged by the judicial conference's work. 
However, we do not think that the judicial conference is going 
to address the abuses that actually happen in patent cases.
    I think the judicial conference's work is more based on 
overall litigation. While that will be helpful, there are 
certain things in patent cases that only occur with patent 
cases, such as a Markman decision.
    No other area of law has something called a Markman 
decision, where a court actually issues an order defining what 
the scope of the patent is. Because of that, oftentimes, once 
you have a Markman order, the scope of the case narrows and the 
cost of discovery narrows.
    We do not believe the judicial conference is going to 
address that. So I think that while the judicial conference is 
doing a lot of good things they certainly are not going to be 
addressing the specific issues to patent law.
    Chairman Vitter. Okay. Thank you.
    And going back to Mr. Winwood, some small inventors have 
raised the issue of a so-called integrity loophole cause by a 
court decision denying judicial relief to patent holders whose 
patents have been subject to fraudulent or sham petitions for 
reexamination at the Patent and Trademark Office.
    Do you agree that this is a problem? Would you support 
Congress restoring a judicial remedy specifically to that?
    Mr. Winwood. Yes, Chairman Vitter. Clearly, there are areas 
of disagreement regarding patent reform, but one area where we 
believe everyone should agree is that fraud cannot be 
tolerated, or deliberate abuse of patent reexaminations, or 
post-grant reviews.
    Applicants are held to a very high standard of honesty in 
dealing with the PTO, or else they risk losing their patent 
rights. So we believe that third-party requesters should be 
held to a similar standard. The patent owner currently has to 
be truthful, but a third-party requester can basically commit 
fraud with no financial penalty due to some recent court 
decisions.
    So it appears the door is wide open for unscrupulous 
parties around the world to abuse our system, knowing that it 
will take the patent owner years and cost them hundreds of 
thousands of dollars of effort just to defend their patent in 
the U.S. PTO.
    So this, as indicated by some of my small business 
colleagues here, is time and money that they just do not have 
and cannot afford to fight such challenges. It can really deny 
them access to desperately needed venture funding while there 
is a cloud over the patent, as referenced earlier, or delay 
entry into the marketplace for valuable new drugs, medicines, 
and so on.
    So we think that there should be an opportunity to restore 
traditional rights of patent owners to sue for damages in these 
cases and that will close this integrity loophole, if we are 
able to do this, and particularly prevent it being used against 
small companies who would seem to be very vulnerable in this 
regard. And, obviously, many of those small companies are our 
startups and licensees.
    Chairman Vitter. Right. Okay. Thank you.
    Now, Senator Cardin.
    Senator Cardin. Well, thank you, Mr. Chairman.
    Again, I thank all five witnesses for your time here today. 
It is extremely helpful to us.
    Your testimony recalls some of the hearings that I attended 
when I was on the Senate Judiciary Committee, and they were 
long hearings, and it is a technical field.
    But I cannot imagine the fear that a small high-tech firm 
must go through if they receive a letter where they do not know 
really the source of who is behind it, who threatens their 
existence, challenging their legitimacy to the work that they 
have done.
    And it is very interesting; there are two sides here, and I 
am not sure why there are two sides to this debate because both 
sides agree that we have got to protect intellectual property 
and both sides believe that fraudulent activity and patent 
trolling is wrong.
    So I am going to start with the two business owners that 
are here. Could you just highlight what you think the most 
important change could be in our patent laws to protect the 
work that you are doing?
    There are two different companies here. One relies on 
basically one patent to advance a drug. The other is advancing 
a final product that will contain what you are doing, which 
will rely upon a lot of patents, ultimately.
    What is the one change we could make, or the two changes we 
could make, in the patent laws that would protect your type of 
work, give you better access to capital so that you can get 
more predictable funding, and yet, avoid the problems of 
fraudulent activity or at least make it less vulnerable?
    Ms. King. I can begin by answering that I would suggest 
reforming the current problems that we have under the IPR 
system.
    And, as I mentioned in my testimony, I think that the fact 
that a hedge fund could come out of nowhere and short a company 
stock, knowing that they are about to file an IPR, which then 
drives the company stock down. I think that is criminal, and I 
think that is an abuse that really needs to be corrected.
    One way to correct that is to address the issue of standing 
because that is the case where a hedge fund would have no 
commercial standing to bring that case.
    But the basic problem, I think, with the IPR system as it 
currently is, is that it currently sets a lower standard than 
the district court current system sets. And so--and we can see 
that because there is so much abuse that has started now, where 
people try to bring these challenges through that system.
    So, in my view, that would be the critical thing that we 
would need to correct.
    Senator Cardin. Thank you.
    Mr. Bandes.
    Mr. Bandes. So I would say in the--two areas.
    One is, you know, in business there is nothing that will 
make you more nervous, or an investor more nervous, than 
uncertainty. And so having a blind letter that does not really 
tell you who it is and what the actual rights are they are 
saying you may be infringing on is an impossible battle.
    So there should be full disclosure. If you are going to get 
contacted and say that there may be a patent issue, they need 
to be forthright in telling you what the issues are so you can 
address them early.
    I would say the second piece is--you know, I read this a 
little bit, and I think it was in one of the acts, and I have 
read many in the past few days--about the concept of loser 
pays.
    I mean, there really is no risk. You know, if you are a big 
fund and you are going after a small company, you know, part of 
what you are trying to do is just bleed them dry. You know, you 
do not have the resources, and so you can play bully tactics.
    But if there is a chance that if they lose they have to pay 
up for all of the costs involved in that case, then maybe they 
think a little more about it before they just, you know, send a 
letter and try and use bully tactics.
    Senator Cardin. I think that, Ms. King, your suggestion is 
one that could be addressed rather quickly.
    I think the points that you raise, Mr. Bandes, are more 
complicated because the judicial system is not always amenable 
to the statutes we pass as to how they enforce. So it is not as 
easy to deal with some of the issues you did.
    Several of you mentioned the patent office itself. How 
effective is the patent office? Do you think they have the 
resources they need in order to expedite this process?
    You mentioned something about hundreds of thousands of 
backlogs.
    Mr. Schmidt.
    Mr. Schmidt. Yeah, 600,000 is the backlog.
    And you should be very thankful for your 2.3 years because 
most of ours are 6 years and over; we have got some that are 8 
years now, that are pending. So this means things do not get 
commercialized as timely as they could. It is an extreme 
problem.
    So, right now, we have $1.7 billion that has been diverted 
from the patent office that could be paid for, you know, better 
examiners, more qualified examiners, and more time for an 
examiner versus roughly a week to be able to--or, pardon me, a 
day to be able to look at a patent and examine it and be able 
to rule on it, which means almost everything gets rejected the 
first time through.
    So you submit an application, and if it is not rejected you 
are just shocked.
    So, you know, this is all because of this huge diversion, 
what I call the invention tax on inventors that, you know, 
Congress and the system extracts from us and then uses the 
money for something else.
    So just letting the patent office keep their own money 
would be a huge benefit to be able to plough back into the 
system.
    Senator Cardin. Thank you.
    Thank you, Mr. Chairman.
    Chairman Vitter. Okay. Next, we have Senator Peters.
    Senator Peters. Thank you, Mr. Chairman, and thank you to 
our panelists here today.
    Certainly, a very important topic. There is not anything 
more important for the productivity of this country than to 
have innovation that is the driver of economic well-being for 
everybody, middle-class families, and everybody in this 
country, and you are a big part of that.
    And I appreciate this discussion because this debate is 
going to be important for us to move that forward.
    I just want to pick up on some of the comments on the 
patent office and the backlog because I think that is very 
significant.
    Mr. Bandes, I appreciate your comments. This is not about 
just litigation. We also have to make sure we are moving this 
through the process.
    And I am happy, as the Senator from Michigan and Detroit, 
we actually had the first field office of the U.S. Patent 
Office in Detroit. I want everyone to know that. It was not in 
Silicon Valley. It was not in the Research Triangle of North 
Carolina. It was in Detroit, Michigan, because of the work that 
we do.
    But it is a significant problem when you have a backlog of 
600,000 cases now, 2.3 years.
    When I was in the House, I actually led a letter to try to 
deal with this tax, which it is; it is an inventor's tax.
    When we had the sequestration, the sequestration actually 
funneled money away--these across-the-board cuts that then took 
the seed corn, which is the patents, away from it.
    So I would just like a yes or no from each of the 
panelists. Do we need to have--the Congress has to put in law 
that we do not need additional congressional action.
    This is a user fee. All of these resources need to be 
applied to the patent office. That is probably one of the top 
priorities as we are dealing with this issue. Would all of you 
agree this would have a significant impact on our ability to be 
a leader in patents?
    We will start with Mr. Winwood, just yes or no or a brief 
comment.
    Mr. Winwood. Yes, I would agree with you it is a big 
problem.
    Mr. Schmidt. Yes, we are supportive of that.
    Ms. King. Yes, I would agree.
    Mr. Bandes. No question.
    Senator Peters. I have never found anybody against it.
    [Laughter.]
    So this just approves that.
    So, Congress, we need to act on this, and I think this has 
got to be at the top of our priorities.
    Next, what I want to do is go to the litigation aspect and 
to Mr. Winwood.
    Since the House passed the Innovation Act, the judiciary 
has made some progress towards patent litigation, and I think 
some of you have referred to that, particularly on fee-
shifting, where the Supreme Court decisions have led to fees 
being awarded in more cases than prior to those decisions.
    However, Judge Gilstrap, who had about 20 percent of all 
patent cases last year filed in front of him, said in a recent 
Law360 article that Highmark and Octane does not really change 
much.
    He said, ``I really do not see it changing what we would 
have determined was appropriate for the award of fees even 
before the case came out.''
    He also said, ``I do not think it changed the internal 
dynamics of what judges like me or my colleagues would be 
convinced is exceptional but made it clear we have the option 
at our disposal.''
    So you, Mr. Winwood, have articulated a concern with the 
proposed fee-shifting position.
    And I am concerned that the decision, the Octane Fitness 
decision, may not have provided sufficient guidance for some of 
patent litigation.
    So, if you could talk maybe specifically about language in 
the bill that you particularly find problematic, if that is 
possible.
    And, what if the potential fee-shifting role was not 
presumptive but, rather, we just provided the court with some 
additional guidance on how to deal with fee-shifting? Is that 
something you think may make some sense?
    Mr. Winwood. First of all, thank you for the question.
    Yeah, I am not an attorney. So I am not going to give the 
specificity that you may be looking for in that particular 
language.
    But I do believe that we want to make sure that this is a 
discretionary and appropriate shifting rather than presumptive, 
which I think would really tend to persuade most universities 
and startup companies that they cannot engage in these 
activities.
    And this is our main fear, that if this is sort of a 
mandatory aspect of any engagement, then our boards of trustees 
and supervisors will simply say we do not have that capacity.
    So I think the language, as I understand it, is a little 
beyond what we would be comfortable with in the higher ed 
associations community, and we prefer to defer to what the 
judges have set out as discretionary decisions to levy costs as 
they see appropriate in justified cases.
    Senator Peters. Well, if the judge, as I mentioned, who I 
quoted, reviews 20 percent of all patent litigation cases, does 
not believe that the Supreme Court has made a substantial 
change, do you agree that there might still be some work that 
should be done by Congress in that area?
    Mr. Winwood. It is quite possible that there is work to 
clarify how this should be implemented.
    Senator Peters. Very good. Thank you.
    Thank you, Mr. Chairman.
    Chairman Vitter. Okay. Next, we have Senator Shaheen.
    Senator Shaheen. Thank you, Mr. Chairman.
    Thank you all for being here today.
    You know, when we passed the America Invents Act in 2011, 
one of the selling points was that that was supposed to 
expedite the patent process. Have we seen any improvements as 
the result of that legislation in the backlog of patents?
    I am up for anybody who would like to address that.
    Mr. Bandes. The data would say we may be moving in the 
right direction, but it is, you know, a slow-turning barge. I 
think it is--the backlog has been running around the same 
level, in the 600,000 range, for the last 3 or 4 years.
    There is a goal, I think by 2019, to go from 2.3 years to 2 
years or 23 months.
    But I think if you pass an act but do not give the 
resources to deliver on the changes that that act is trying to 
enable, you are tying their hands.
    So, you know, back to the innovation tax that we are 
talking about here, you know, we are all paying fees into it. 
And, ultimately, why that should not be reinvested in PTO to 
bring on more resources and more examiners does--you are not 
going to fix it if you keep taking the resources away.
    In fact, you should be doing the opposite. You should be 
trying to find ways to put in more resource because you 
actually see a significant economic return on those 
investments.
    Senator Shaheen. Anyone else want to respond to that?
    I mean, I certainly agree with that and agree with the 
point that Senator Peters was making, that the resources are 
there; we need to use them for innovation and to keep the 
patent system moving.
    One of the challenges--as someone who is not an attorney, 
who is dealing with a very technical issue, one of the 
challenges I have--coming from a small state where we have a 
number of large businesses, technology businesses represented, 
but we also have a lot of innovation in our small businesses--
is balancing what the larger firms say they would like to see 
with respect to patent reform versus what the small businesses 
say with respect to patent reform, and they are not on the same 
page.
    So I do not know if--and certainly, the university, or main 
research university, is also not on the same page.
    So I do not know, Mr. Winwood, if you have any--as someone 
who represents an academic perspective, a research perspective, 
who I think may generally be viewed as having less of an ax to 
grind on this issue, if you have a view about how we balance 
those interests.
    Mr. Winwood. I think it really is--and thank you for asking 
me that.
    I think it is really important to balance those issues; I 
think between the divide, whether it is between large companies 
and small companies. It may actually be between different 
industries as much as it is between size of company.
    You have heard a little bit about the length of time it 
takes to get a patent issued.
    Senator Shaheen. Right.
    Mr. Winwood. And I think while the hundreds of thousands of 
backlog cases is certainly serious, it varies between art 
groups within the office.
    I think, Bob, you recognize that within different groups 
you might wait six or eight years to get a patent issued; 
others may be much faster than that. So there is a massive 
imbalance.
    And when you then look at--I think Mr. Bandes referenced 
taking 6 to 12 months to do a proof of concept study.
    Well, I think if Rachel could do a proof of concept study 
in 6 to 12 months she would be a very happy person.
    The two sides of the industry coin are very different. So I 
think that is probably one of the areas that really leads to 
some of these perceived frictions.
    What I wrote down earlier in the testimony here was we are 
in raging agreement about almost everything except for how to 
implement it because I think we all are opposed to patent----
    Senator Shaheen. Sounds like Congress.
    [Laughter.]
    Mr. Winwood. Yeah. I will let you say that and not me.
    But we are in agreement that abusive behavior is bad.
    And I think whether you are a large or small company, 
abusive behavior is inappropriate, is wrong, and should be 
stymied and corrected, if necessary by congressional action.
    But do not make that action an impediment to those of us 
who are trying to push our technologies from the very, very 
fundamental and basic research level out to companies such as 
the ones represented here along the panel with me.
    That is the key thing to do--balance and target.
    Senator Shaheen. Yes, I think addressing abuse is the 
critical issue, and I acknowledge the difficulty in balancing 
these concerns.
    And I think we--you know, we live through this too when we 
try to make our own points. We all need a strong system.
    And I think what happens often--you know, you pass a law, 
and then we see the unintended consequences. So if you could go 
after the abuses, I think we could all benefit.
    And, thank you.
    I am almost out of time, but I just wondered; in 2014, the 
Patent and Trademark Office launched an online tool kit to help 
consumers and mainstream retailers deal with patent trolls. Is 
anybody familiar with this effort?
    Have you heard of anybody using it?
    Do you think it would be helpful? No?
    Mr. Molino.
    Mr. Molino. So I am aware of it, and I think it is a 
helpful tool because one of the biggest things that patent 
abusers do is focus on those that are not educated about the 
system and take advantage of that. So any education that we are 
doing for smaller businesses, retailers that do not usually 
involve themselves in the patent system I think is a very 
positive thing.
    Some of our members have used it, our smaller members, but 
it is a positive thing.
    Senator Shaheen. Mr. Schmidt.
    Mr. Schmidt. Well, one of the things we need to remember is 
this is all about how do you make sure you can try and 
invalidate patents. The entire U.S. PTO system there is to say, 
you know, we want to keep people and defend them from patents 
that we are issuing.
    There is nothing there that says we want strong patents and 
we want to enforce it. There is no balancing. There is no 
balancing in any part of H.R. 9 to be able to say we would like 
strong patents.
    It is all about how do we take away the rights of patent 
owners, how do we eliminate these, you know, smaller patents. 
And this is just very bad for small inventors.
    The whole thing with the fee-shifting, it is like I do not 
think anybody understands.
    When a big company says, oh, you have got to pay $5 million 
to that thing, well, you know, let's take it out of the petty 
cash thing.
    For me, it is I not only lose my company. They then take my 
house. When they take my house, they take my spouse, and my 
children go with it. I am betting my entire life on a patent.
    And this is just, oh, it is fee-shifting. You should be 
able to do this.
    Well, I am submitting myself to, you know, the problems of 
the court who may go any way. So I cannot enforce my own 
patent.
    So Congress is telling me, Schmidt, you are too poor to 
invent. Stop inventing. Stop inventing.
    Senator Shaheen. But you are speaking to the House bill. 
You are not speaking to the effort to educate.
    Mr. Schmidt. Yes, that is absolutely correct.
    And since we have two-thirds of the Coons-Hirono bill, I 
would like to thank you both for your support of that because 
you obviously have seen the light. Thank you.
    Senator Shaheen. Thanks very much.
    Thank you, Mr. Chairman.
    Chairman Vitter. Great. Next is Senator Hirono.
    Senator Hirono. Thank you, Mr. Chairman, for holding this 
hearing.
    And as long as I believe that two out of the five panel 
people have read the STRONG bill, I would like to know whether 
the other panelists have also read the STRONG bill.
    Okay. Good. Then I would like to ask what your view is 
about the STRONG bill because as one of the supporters of the 
STRONG bill we obviously are against patent trolls, but we 
would like to present a balanced approach to how we are going 
to make those changes.
    So I would like to ask each of the witnesses, very briefly, 
if you think that the approach represented by the STRONG bill 
is a good approach.
    Go ahead. We will just start from Mr. Winwood.
    Mr. Winwood. Yes. Thank you, Senator.
    Yes, the higher education associations, in general, have 
written and supported very strongly the legislation that was 
introduced by yourself, Senators Coons and Durbin recently.
    We do support this targeted, balanced approach. We think it 
really hits the right way for doing this, to let the FTC take 
care of these issues rather than burden or really mangle the 
patent system, which we believe is really the great strength of 
the U.S. economy and innovation system. So we are very 
supportive of it.
    Mr. Schmidt. Again, thank you very much.
    The Small Business Technology Council, the 5,000 firms that 
participate in the SBIR program, we can take your bill just as 
it is. It is much better than any other alternative we have 
seen in the past.
    However, there are some other things that, you know, since 
we are doing legislation, that I would love to see--is the 
return of the one-year grace period. This is a disaster for 
America's budding scientists and engineers.
    Out of--a group of 150 patent attorneys were asked, can you 
explain whether you have a grace period or not? No one would 
raise their hand to be able to respond to that issue. It is so 
unclear as to whether we have a grace period in America.
    And the only person that would dare to answer said, yes, I 
tell all my clients there is no grace period.
    So that is gone in America.
    And I have had 5 different people come up to me that had 
gone to inventors fairs or science fairs dealing with 15- and 
17-year-olds, and they are telling them: Why are you here? You 
should not be presenting your material. Stop talking about 
this.
    And so this is squashing innovation. So that is number one.
    Number two, patentable subject matter. Since the Supreme 
Court cannot decide what is patentable subject matter, somebody 
needs to be able to help them. So that is a Section 101, which 
is--the first one with the grace period was 102. This is 
Section 101.
    The third thing is greater elasticity for punitive 
behavior.
    So since the Supreme Court cannot tell me whether my patent 
is valid or not, or has trouble with it--obviously, they do at 
the end, but there is great concern--how am I supposed to know 
as a little inventor of whether this is patentable or not?
    And all of a sudden I fall into this trap. I have sued 
somebody, and now I get my patent invalidated. I did it in good 
faith. I thought I was on right standing. And all of a sudden, 
you know, I go through my lose my house, spouse, children 
routine. And you know, that is a problem.
    And so I am looking for a get-out-of-jail card for honest 
people. So that is the third thing.
    And then, finally, there should be a balance between 
plaintiffs and defendants because the whole way these other 
bills are all done it is all on the--you know, it all protects 
the infringer rather than the patent enforcer. And so I am 
looking for a balance there.
    Thank you.
    But other than that, we can take everything the way it is.
    Senator Hirono. Mr. Molino, we are running out of time. So 
if we can----
    Mr. Molino. We are unable to support it right now.
    We think that the AIA has just been implemented basically 
about two years ago. We are seeing some issues pop up, but I 
think it is too early to tell if those are going to be 
systematic problems that require Congress to act.
    Senator Hirono. But aren't you supporting the Innovation 
Act?
    Mr. Molino. We do support the Innovation Act.
    Senator Hirono. Which is very broad. It is much broader 
than what we are proposing in the STRONG Act. So I am a little 
bit confused about your position.
    Mr. Molino. The Innovation Act addresses abuses that occur 
in the litigation system that have been going on for over a 
decade, to which there has been a ton of study showing that 
these abuses happen. There have been years and years of 
academic, congressional research on this.
    Whereas, the Innovation Act--and the alleged abuses that 
are beginning to pop up, I think it is a little too early to 
tell whether those are actually going to continue and deserve 
congressional action.
    Senator Hirono. I am sorry. Did you say you are not 
supporting the Innovation Act or you are?
    Mr. Molino. No. We do support the Innovation Act, yes.
    Senator Hirono. Okay. I guess there are differences of 
opinion on that.
    Ms. King.
    Ms. King. Yeah, I respectfully disagree.
    I think that these are not alleged abuses. These are 
clearly abuses. And I think that the way that you have 
addressed them is really right on point.
    Three things: Setting the same standard for what is 
happening in IPRs and what happens in district court, allowing 
greater flexibility in amending claims, and addressing this 
issue of standing. I think those are three critical issues.
    We have seen the abuses, and I really appreciate what you 
are doing with this bill to address them.
    Senator Hirono. Mr. Chairman, if I can ask the last panel 
person to respond briefly.
    Chairman Vitter. Sure.
    Mr. Bandes. Yeah. So, far from an expert, but from what we 
have seen, we are also in favor of the STRONG Act.
    I think having the FTC involved is great, but I would go 
back to a similar theme around the PTO. Make sure you give them 
enough resources because if you give them the enforcement but 
not the capability to actually help with this problem my 
question would be how quickly will they be able to resolve 
issues. So, if you are going to ask them to do it, make sure 
you give them the resources they need to go do it.
    Senator Hirono. All right. Thank you, Mr. Chairman.
    Chairman Vitter. Great. Thank you.
    Senator Coons is next.
    Senator Coons. Thank you, Mr. Chairman.
    And thank you, Senator Hirono, for your great partnership 
in this work, and Ranking Member Cardin.
    I want to say that it is, for me, exciting to hear this 
being considered in the Small Business Committee as well as on 
the Judiciary Committee on which I serve.
    As someone who was in-house counsel for eight years to a 
highly inventive company that had thousands of engineers but 
that began literally in a basement by a sole inventor, I had 
the experience and the excitement of working with a company 
that was constantly generating ideas and filing patents and 
relied on that patent protection to grow from a new small 
startup to, ultimately, a more sustained and successful 
company.
    So I am pleased we have had a chance today, Mr. Chairman, 
to hear from this impressive group of witnesses, all of whom 
have testified to the enormous importance of a strong and 
predictable patent system, a system of patent rights that is at 
the basis of our nation's innovative ecosystem.
    This property right, rooted in our Constitution, is one I 
think we should be very careful about how we revise, or amend, 
and how we change the system of litigation.
    Now there has been a lot of talk--there has been not just 
talk but legislation in the last Congress--about how we need to 
diminish the rights of patent owners for the benefit of small 
businesses, but today's hearing has done no less than turn that 
argument, in many ways, on its head.
    And what we have heard today is that strong predictable 
patent rights, the ability of a patent owner to enforce that 
patent against infringement, is central to the ability of small 
businesses in technology, biomedical, and material sciences to 
survive by attracting and sustaining investment.
    So, to address these abuses, Senator Hirono and I, along 
with Senator Durbin, have introduced the STRONG Patents Act, as 
has been discussed, which streamlines and strengthens pleading, 
empowers the FTC to go after the real patent trolls, those who 
really have no basis in law or fact for their suits, tackle 
some of the recent and notable abuses of the post-grant review 
system at PTO.
    When a hedge fund can erase $100 million or more of 
investor capital simply by filing a PGR, solely for the purpose 
of shorting the stock, I think it is time for us to look 
seriously at acting.
    And it ends fee diversion to fully fund the Patent and 
Trademark Office and improve patent quality, something I think 
everyone can support.
    So I look forward to listening and working with my 
colleagues to enact meaningful, targeted reforms that respect 
the diversity of the innovative ecosystem.
    And, if I might, Mr. Chair, I would like to submit for the 
record letters that support either explicitly the STRONG 
Patents Act or its approach from the National Venture Capital 
Association, the National Small Business Association, the 
Biotech Industry Association, the Association of American 
Universities, the Association of Public and Land-Grant 
Universities, the Medical Device Manufacturers, the 
Pharmaceutical Research Manufacturers, the Innovation Alliance, 
and the IEE-USA.
    Chairman Vitter. Without objection, so ordered.
    [The information follows:]
    [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] 
    
    Senator Coons. Let me, in the time I have left, ask a 
question or two.
    Ms. King, your testimony goes to the heart of my interest 
and concerns about this debate, and I am appreciative of your 
support for the STRONG Patents Act.
    You explained that in raising $64 million just to support 
your R&D pipeline focused on patients with sickle cell anemia, 
it was possible only because of the strength of your patent 
portfolio.
    And you note every biotech exec has stories to tell about 
very promising compounds that ultimately did not work out and 
the risks taken.
    And your comment: The injection of additional systemic 
uncertainty by making the enforceability of patents more 
uncertain negatively affects which new cures and treatments may 
be available a decade from now.
    So let me just summarize that in plain terms. If we make it 
harder for a small company like yours to enforce your patent 
rights, they will suffer from less external investment and 
narrow the scope of diseases we could otherwise hope to cure in 
the next decades.
    Ms. King. Absolutely.
    Senator Coons. Is that right?
    Ms. King. Yeah, that is absolutely correct.
    And, as I said at the end of my testimony, we have so much 
work still to do in terms of diseases that need to be treated 
that we really have to thoughtfully continue to incentivize 
investment in this sector.
    And, the ability to hold and to defend and to really depend 
upon patents is critical to our ability to raise the amounts of 
money that we need to raise over the long periods of time for 
which we have to get the investment. So it is absolutely 
critical to us.
    Senator Coons. And Mr. Molino just commented that it is too 
early for us to try and address abuses in the Inter Partes 
Review or the post-grant review processes.
    Isn't that abuse actually directly affecting the ability of 
companies like yours to attract and sustain investment?
    Ms. King. Yeah. Well, the example you gave is a biotech 
company, and the difference we have in biotech versus some 
other industries is that our products have very few critical 
patents associated with them. So, unlike a cell phone that may 
have hundreds of patents, you know, we might have a drug that 
has one or two critical patents, and that is why it is so open 
to the possibility of abuse if someone files an IPR against us. 
So these are extremely problematic, currently.
    Senator Coons. Well, my core view is that how you see 
patents and their importance, in some ways, depends on the 
sector you are in, whether you are in software or in bio or 
pharmaceuticals or materials.
    And we should first do no harm. We should not address--we 
should not adopt a legislative solution that is so over-broad 
that it will kill the ability of a small inventor to defend 
their patent or that will impart other agendas into trying to 
fix the real patent troll issue in a way that defeats the 
ability of patent owners to exercise their right.
    I see I am out of time.
    Thank you very much, Mr. Chairman, for bringing this 
hearing forward today.
    Chairman Vitter. Thank you, Senator.
    Senator Cantwell is next.
    Senator Cantwell. Thank you, Mr. Chair.
    You know, my colleagues comments provoke me to comment on 
the last--the bill that we passed. I think we do need to take 
inventory of where we are and what it has done to impact small 
inventors.
    But I think I want to turn--keep going with you, Ms. King, 
on the issue of the uniqueness of the biotech industry and on 
the patents and how you think this litigation reform proposal 
will impact the industry uniquely.
    And I also see where the House already did like a carve-out 
on some generic drugs and so if you would comment on that as 
well.
    Ms. King. As far as the challenges that we face, I mean, 
because our products, as I said, are often covered by just a 
very few number of patents, if any one of those is challenged 
or invalidated, it has a great impact on our ability to raise 
money and on the value of the----
    Senator Cantwell. And I think what people do not understand 
is juxtaposed to Mr. Molino's group, who can build and ship a 
product, or show you a beta, in 6 months, you sometimes have to 
work for 18 for 20 years before you can even--and you have to 
get capital during that whole process.
    Ms. King. Yeah, exactly. And if we are successful at our 
company, it is going to take us about 15 years and tens of 
millions of dollars to get our first drug on the market.
    And so we have successfully raised a lot of money so far, 
but we are constantly continuing to face that issue.
    And so, if our patents were to be invalidated, that would 
completely undermine our ability to raise the funds to go 
through that long period of time that is required for our 
development.
    Senator Cantwell. Okay. And any comments about what the 
House is looking at--various legislation where they would do 
carve-outs?
    Ms. King. Actually, I am not familiar with the specific 
carve-out.
    Senator Cantwell. Okay. We will get you information on 
that.
    Mr. Molino, what about the software innovations and recent 
developments? Do they raise concerns for you?
    Mr. Molino. Yes. Thank you very much, Senator.
    The Supreme Court recently ruled on a case involving 
software patentability called Alice v. CLS Bank. One good thing 
about that decision is it reaffirmed the patentability of 
software, which some have questioned. However, the Supreme 
Court did not provide a ton of guidance for lower courts on how 
they should analyze these types of cases.
    So our organization is very active in working with both the 
PTO to ensure that software patents remain available and also 
through our amicus filings in court to try to give lower courts 
and the PTO sufficient guidance on how to analyze these cases.
    Thank you.
    Senator Cantwell. Well, I think, Mr. Chairman, I am glad 
you are having this hearing and certainly support efforts to 
make sure that small businesses and their innovations are 
protected.
    So I think looking at what we did--and, again, to my 
colleague's point, it would have been great if we did major 
reform and protected the dollars in the patent office, but we 
did not accomplish that, and then moving first to--I am sorry. 
Moving to the European model I also do not believe is helping 
us.
    But I think let's see what the patent office is coming up 
with in details, and let's look at it.
    Thank you.
    Chairman Vitter. Great. Thank you.
    Next is Senator Ernst.
    Senator Ernst. Thank you, Mr. Chair.
    And I appreciate the witnesses' testimony today. So thank 
you for being here and raising such an important issue on a 
wide range of interests, especially to Iowa, from small 
businesses and individual inventors to our universities as 
well. And so we look at larger agricultural and biotech 
companies. Many of them are interested, very interested, in 
this topic.
    So I know that Senators Leahy and Lee have been pursuing 
legislation to prevent misleading demand letters, specifically 
making it an unfair trade practice.
    And do you believe that this should be part of an approach 
within patent reform? Could any of you answer that, please, and 
your thoughts?
    Mr. Schmidt. Well, unfortunately, you missed my comment on 
H.R. 9, which to a large extent is very similar to what Leahy 
and Lee were pushing in the Senate last year. Our concerns are 
numerous about this.
    First thing, I want to put some historical perspective on 
this whole patent issue because we went through this in the 
1990s with General Motors, and it is always about large, 
dominant players weakening patents because market-dominant 
companies do not need patents. And all patents do is keep them 
from keeping their market share because it is these new patents 
that are going to come and eat their lunch and eventually put 
them out of business.
    So it was the AT&Ts of the world that were supporting this 
previously, and you know, now they are gone. And GM is, you 
know, a new GM.
    And so we are going to see that with these new market-
dominant companies if we can keep a strong patent system, and 
so this is very important to be able to allow our companies to 
have creative destruction with new patents.
    Senator Ernst. Thank you.
    Any other thoughts from the panel?
    Yes, sir.
    Mr. Molino. So, yeah, thank you very much for the question.
    From our members' perspective, we are in favor of figuring 
out how to end the widespread sending of bad faith demand 
letters. We think it is a real problem. We think it preys on 
those that are the least educated on this with regard to the 
patent system, and it should be stopped.
    At the same time, we also note that a lot of states are 
implementing their own laws, and for national companies it is 
very challenging to try to navigate various state laws that can 
be very specific.
    So, from our perspective, not only do we want to end the 
widespread sending of bad faith demand letters, but we would 
like to have a national standard for that as well.
    Senator Ernst. Okay. Any other thoughts?
    Yes, sir.
    Mr. Winwood. Well, Senator, I would just say that last year 
Senator Leahy introduced legislation in the last Congress, 
1720, which we were quite supportive of. It was withdrawn later 
in the session, but that approach was one that was favored 
pretty well by all of the higher education association groups 
last year.
    Senator Ernst. Very good. Thank you.
    And, following up with that, as we talk about our 
universities, how do we balance the interests of the 
universities, smaller companies, larger technology and biotech?
    Many patent holders have the legitimate rights and claims 
that need to be available to them, but we also have a litany of 
frivolous law suits, legal tactics that are causing significant 
challenges to small businesses and inventors. So there has to 
be a balance that we can find.
    And, to all of you, if you were a legislator for a day, 
what would be your answer?
    Ms. King. I want to, first of all, acknowledge the 
complexity that you reference because it is absolutely correct 
that this is challenging to find a balanced perspective.
    I think that the best thing that we can do now is to go 
after what we know are examples of abuse because a lot of the 
system actually does work pretty well in terms of getting 
patents. You know, we can be proud of what we have been able to 
accomplish in this country with the system that we have.
    However, I think we can improve it, and I think we can 
certainly address abuses.
    The bill that Senator Coons and others have introduced, I 
think, does that quite well. So I would support that STRONG 
Act. I think that is a great step in the right direction.
    Mr. Molino. So we are also very interested in trying to 
prevent abuses--abuses that we know have been going on in the 
litigation system for well over a decade.
    So the things that we would be most interested in are just 
making sure:
    That when somebody actually files a case they clearly 
disclose why they are filing the case and what their claims 
are;
    That we do not start really expensive discovery until we 
figure out what the scope of the case is going to be, and a 
judge issues an order in patent cases unlike any other case 
that actually does that, and do not start discovery until then;
    That we do implement a fee-shifting provision that only 
shifts fees if a party brings an objectionably unreasonable 
claim.
    Again, both sides of the--both defendants and plaintiffs 
would be subject to this standard.
    And I think those are the main issues that we are concerned 
about.
    Senator Ernst. Okay. Well, I--yes, sir, did you have 
something?
    [Pause.]
    Well, I thank the witnesses very much.
    Thank you, Mr. Chair.
    Chairman Vitter. Great. Thank you.
    And I think Senator Cardin has some final questions or 
thoughts.
    Senator Cardin. Well, thank you, Mr. Chairman.
    I, again, want to thank the witnesses not only for their 
testimony but their candid response.
    As I said in the beginning of the hearing, we are very 
concerned to make sure we protect intellectual property. 
Whether it is a university so that we can get tech transfer to 
create jobs, whether it is a large multinational company that 
needs to be protected in the United States on global 
competition, we are concerned.
    The focus of this Committee is on small business, and that 
is why I think it was particularly important to hear from a 
small pharmaceutical company and a small high-tech company that 
is dealing with adding to the technology and value of larger 
products as to how the system is working.
    What impressed me is that it seems to me that we can do a 
better job--and I am glad that Senator Coons is still here--in 
dealing with areas where there should not be much controversy.
    There should not be much controversy in requiring standing 
for someone to challenge.
    There should not be much controversy to go after those who 
try to manipulate the value of stock by what they do in order 
to make a profit on that. We should be able to correct that.
    We should be able to have more transparency in the process, 
that you know who is challenging.
    And, we should be altogether against abusive practices, 
whether it is challenging for the purposes of trying to get a 
nuisance settlement on your legitimacy to use a patent or to 
review a patent that you currently have.
    I think in those cases we should be able to come together.
    And I thank Senator Coons and Senator Hirono for their 
leadership, and Senator Durbin.
    I am not endorsing a bill today; do not get me wrong.
    But I do think it is important that we have to take action 
to deal with those types of abuses in a way that we can find 
common agreement among the different stakeholders because there 
is no disagreement that we want to end abusive practices and we 
want to protect legitimate patent rights. So let's figure out 
where we can make some progress.
    And, lastly, I think there is also agreement that we have 
to make sure the resources are there in the patent office to 
give timely considerations to all these issues because it does 
delay the certainty that is necessary for Ms. King's 
contemporaries and colleagues to be able to get the type of 
financing they need in order to do their very, very creative 
work.
    I applaud the creative people that are here for what you 
have done, and I know that there are people in Maryland and 
throughout our country who are going to benefit from your 
creativity. And our economy certain benefits from a strong 
patent system that protects that type of intellectual property.
    Chairman Vitter. Great. I am going to move to Senator 
Coons.
    But before I do, I want to just say--briefly, because I am 
going to have to excuse myself and I am going to give the gavel 
to Senator Cardin if that is all right--thanks to all of our 
witnesses. You are all great witnesses.
    This is actually the first hearing in D.C. of the Senate 
Committee on Small Business and Entrepreneurship this Congress. 
I think this was an extremely appropriate topic because, quite 
frankly, there has been a lot of discussion and some activity 
elsewhere that I do not think appropriately focuses on the role 
and the interest of small business entrepreneurs, including our 
universities. So I am very glad this was a robust discussion 
and our first hearing.
    And certainly, I am committed to continuing to recognize 
that patents are a fundamental property right that our founders 
recognized and valued, that is in the Constitution--we need to 
protect that--and that our U.S. patent system has been strong 
and unique in a good way, and we should not rush to match other 
parts of the world necessarily that have very different 
systems, I think, and are not as positive as ours, and that 
certainly small businesses and innovators and entrepreneurs are 
absolutely at the center of our economy and prospects for 
better economic growth.
    So, thank you.
    With that, Senator Coons.
    Senator Coons. Thank you, Chairman.
    That was a beautiful, thorough, broad summary. I could ask 
other questions, but frankly, I think we should let that be the 
last word.
    Thank you for calling this great hearing.
    Chairman Vitter. You are just concerned about my handing 
the gavel to Senator Cardin, obviously.
    [Laughter.]
    Well, with that, thanks to all of our witnesses, and the 
hearing is adjourned.
    [Whereupon, at 11:29 a.m., the hearing was adjourned.]

                      APPENDIX MATERIAL SUBMITTED
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