```

[Senate Hearing 114-899]
[From the U.S. Government Publishing Office]

                                                        S. Hrg. 114-899

                   S.1137, THE ``PATENT ACT''--FINDING
                     EFFECTIVE SOLUTIONS TO ADDRESS
                        ABUSIVE PATENT PRACTICES

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

                                HEARING

                               BEFORE THE

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION
                               __________

                              MAY 7, 2015
                               __________

                           Serial No. J-114-16
                               __________

         Printed for the use of the Committee on the Judiciary
         
         
                    [GRAPHIC NOT AVAILABLE IN TIFF FORMAT]       

                        www.judiciary.senate.gov
                            www.govinfo.gov
                            
                               __________

                    U.S. GOVERNMENT PUBLISHING OFFICE
                    
52-845                     WASHINGTON : 2024                              
                            

                       COMMITTEE ON THE JUDICIARY

                  CHARLES E. GRASSLEY, Iowa, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont, Ranking 
JEFF SESSIONS, Alabama                   Member
LINDSEY O. GRAHAM, South Carolina    DIANNE FEINSTEIN, California
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
MICHAEL S. LEE, Utah                 RICHARD J. DURBIN, Illinois
TED CRUZ, Texas                      SHELDON WHITEHOUSE, Rhode Island
JEFF FLAKE, Arizona                  AMY KLOBUCHAR, Minnesota
DAVID VITTER, Louisiana              AL FRANKEN, Minnesota
DAVID PERDUE, Georgia                CHRISTOPHER A. COONS, Delaware
THOM TILLIS, North Carolina          RICHARD BLUMENTHAL, Connecticut

                Kolan L. Davis, Majority Staff Director
                Kristine Lucius, Minority Staff Director

                            C O N T E N T S

                              ----------                              

                         MAY 7, 2015, 9:34 A.M.

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Grassley, Hon. Charles E., a U.S. Senator from the State of Iowa.     1
    prepared statement...........................................   125
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     3
    prepared statement...........................................   127

                               WITNESSES

Witness List.....................................................    47
Chandler, Mark, senior vice president and general counsel for 
  Cisco..........................................................     6
    prepared statement...........................................    48
Hadad, Henry, senior vice president and deputy general counsel-
  intellectual property for Myers Squibb.........................    11
    prepared statement...........................................    63
Lettelleir, Diane, senior managing counsel of litigation at J.C. 
  Penney.........................................................    10
    prepared statement...........................................    76
Rhodes, Kevin H., vice president and chief intellectual property 
  counsel for 3M Company, St. Paul, Minnesota....................     8
    prepared statement...........................................    82
Samuels, Julie, executive director and president of the board at 
  Engine.........................................................    13
    prepared statement...........................................   116

                               QUESTIONS

Questions submitted to Mark Chandler by:
    Senator Grassley.............................................   129
Questions submitted to Kevin Rhodes by:
    Senator Grassley.............................................   129
Questions submitted to Diane K. Lettelleir by:
    Senator Grassley.............................................   130
Questions submitted to Henry Hadad by:
    Senator Grassley.............................................   130
Questions submitted to Julie P. Samuels by:
    Senator Grassley.............................................   130
Questions submitted to Mark Chandler by:
    Senator Grassley.............................................   129

                                ANSWERS

Responses of Mark Chandler to questions submitted by:
    Senator Grassley.............................................   131
Responses of Henry Hadad to questions submitted by:
    Senator Grassley.............................................   133
Responses of Diane Lettelleir to questions submitted by:
    Senator Grassley.............................................   135
Responses of Kevin Rhodes to questions submitted by:
    Senator Grassley.............................................   138
Responses of Julie Samuels to questions submitted by:
    Senator Grassley.............................................   144

                MISCELLANEOUS SUBMISSIONS FOR THE RECORD

Submitted by Senator Grassley's Office:

    Letter from Federal Circuit Bar Association dated April 13, 
      2015.......................................................   149
    R Street letter dated April 29, 2015.........................   150
    Google letter dated April 29, 2015...........................   151
    JCPenny letter dated April 29, 2015..........................   153
    The Latino Coalition letter dated April 29, 2015.............   155
    National Association of Realtors letter dated April 29, 2015.   157
    National Council of Chain Restaurants (NCCR) letter dated 
      April 29, 2015.............................................   159
    National Restaurant Association letter dated April 29, 2015..   161
    NRF, The Voice of Retail letter dated April 29, 2015.........   162
    Oracle Letter dated April 29, 2015...........................   164
    Redhat letter dated April 29, 2015...........................   166
    Samsung Electronics America, Inc. letter dated April 29, 2015   167
    SAS, The Power to Know letter dated April 29, 2015...........   168
    Sprint letter dated April 29, 2015...........................   169
    Verizon News Release dated April 29, 2015....................   170
    Adobe Letter from Dana Rao dated April 29, 2015..............   172
    American Gaming Association (AGA) letter dated April 29, 2015   173
    Application Developers Alliance from Sarah Elliot dated April 
      29, 2015...................................................   174
    Competitive Carriers Assocation (CCA) letter dated April 29, 
      2015.......................................................   175
    Consumer Electronics Association (CEA) letter dated April 29, 
      2015.......................................................   176
    Cisco letter dated April 29, 2015............................   178
    American Hotel and Lodging Association (AHLA) letter dated 
      April 29, 2015.............................................   179
    Intuit letter dated April 29, 2015...........................   182
    Coalition for Patent Fairness letter dated April 29, 2015....   183
    Microsoft letter from Kathryn Stack dated April 29, 2015.....   184
    SAS Letter from John G. Bowell dated April 29, 2015..........   185
    Computer & Communications Industry Aassocation (ccia) letter 
      dated April 29, 2015.......................................   186
    Biotechnology Industry Organization letter from George Goodno 
      dated April 29, 2015.......................................   187
    The Coalition for 21st Century Patent Reform 
      letter from Brian Walsh dated April 29, 2015...............   189
    United for Patent Reform letter dated April 29, 2015.........   191
    America Trucking Association letter from Dave Osiecki dated 
      April 30, 2015.............................................   195
    Tyco letter from Judith A. Reinsdorf dated April 30, 2015....   197
    Food Marketing Institute letter dated April 30, 2015.........   199
    Global Automakers letter dated April 30, 2015................   200
    Internet Association letter dated May 1, 2015................   202
    Merick Sharp & Dohme Corp. letter from William Krovatin dated 
      May 4, 2015................................................   203
    National Association of Broadcasters (NAB) letter dated May 
      4, 2015....................................................   204
    International Trademark Association letter dated May 5, 2015.   205
    Whataburger letter dated May 5, 2015.........................   206
    National Association of Convenience Stores (NACS) letter 
      dated May 6, 2015..........................................   208
    National Association of Home Builders letter dated May 6, 
      2015.......................................................   210
    The Pharmaceutical Research and Manufacturers of America 
      (PhRMA) letter from Charles M. Clapton dated May 6, 2015...   212
    Rackspace letter dated May 7, 2015...........................   213
    Sabre letter dated May 7, 2015...............................   214
    SIIA letter dated May 7, 2015................................   215
    Statement for the Record by financial institutions dated May 
      7, 2015....................................................   216
    NRF, The Voice of Retail dated May 7, 2015...................   224
    Dell Applauds Senate PATENT Act..............................   232
    Engine Statement of Engine Executive Director Julie Samuels 
      re: Introduction of the PATENT Act.........................   233
    ETA Electronic Transactions Association letter dated April 
      29, 2015...................................................   234
    Facebook Supports PATENT Act.................................   235
    Higher Education Asspcoatopm Statement dated April 30, 2015..   236
    Letter from various institutions dated May 13, 2015..........   237
    Statement by Dick O'Brien....................................   239

Submitted by Senator Coon's Office:

    Key Provisions Chart dated March 23, 2015....................   146
    National Venture Capital Association Letter dated May 7, 2015   147

 
                  S.1137, THE ``PATENT ACT''--FINDING
                     EFFECTIVE SOLUTIONS TO ADDRESS
                        ABUSIVE PATENT PRACTICES

                              ----------                              

                         THURSDAY, MAY 7, 2015

                                       U.S. Senate,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Committee met, pursuant to notice, at 9:34 a.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Charles E. 
Grassley, Chairman of the Committee, presiding.
    Present: Senators Grassley, Hatch, Cornyn, Lee, Flake, 
Perdue, Tillis, Leahy, Feinstein, Schumer, Durbin, Whitehouse, 
Klobuchar, Franken, Coons, and Blumenthal.

 OPENING STATEMENT OF HON. CHARLES E. GRASSLEY, A U.S. SENATOR 
                     FROM THE STATE OF IOWA

    Chairman Grassley. Before I and Senator Leahy give our 
opening statements, we have a vote at 10:30, and this is such 
an important hearing that I hope that we can keep the meeting 
going by people going over and voting. Even though I am not 
here and, in fact, even if just the Democrats here, I hope you 
would feel free to go ahead and take use of the time in your 
turn to ask questions if I am not here.
    Senator Schumer. Can we move to change staff allocations?
    [Laughter.]
    Chairman Grassley. I want to go even further than you. We 
want to make sure that that does not happen January 5, 2017.
    [Laughter.]
    Senator Durbin. I understand your concern.
    Senator Leahy. I am staying out of this one.
    Senator Whitehouse. I would like to get involved.
    Chairman Grassley. Just on a gentleman's agreement, keep 
the questions going when we are voting.
    Good morning. We are here to discuss the problem of abusive 
patent practices and the solutions offered by the PATENT Act. 
Abusive patent litigation is having a serious impact on small 
companies, innovators, manufacturers, Main Street businesses, 
high-tech firms, and consumers. The patent troll problem is 
being felt across every sector of the economy, from small town 
Iowa to Silicon Valley. It is critical that we enact reforms to 
prevent this from further stifling the innovation and 
entrepreneurship that our patent system is designed to protect.
    The volume of abusive patent litigation has exploded in 
recent years. By some accounts it is costing the U.S. economy 
upwards of $80 billion annually. Bad actors are exploiting the 
high costs of patent litigation and using deceptive tactics to 
prey on businesses.
    Last week, several of us on the Judiciary Committee 
introduced the bipartisan PATENT Act. Since the process started 
in the last Congress, we have engaged stakeholders that have 
been targeted by patent abuse. In addition, we have sought to 
be responsive to concerns raised by other industries and 
constituencies. Because of this, we have made significant 
progress. As I have maintained from day one, patent holders 
have a very legitimate right to enforce their patents against 
infringement. Our efforts must strike the right balance.
    As a result of these efforts, the PATENT Act has received a 
tremendous positive response. The bill has the support of 
groups as diverse as hotels, retailers, tech companies, 
realtors, automakers, broadcasters, homebuilders, and 
restaurants. Further, other stakeholders such as the 
associations representing higher education and universities, 
the Coalition for 21st Century Patent Reform, and 
Biotechnology Industry Organization have recognized our 
commitment to finding effective solutions that do not produce 
unintended consequences or impinge upon the ability of good-
faith actors to enforce patent rights. I ask unanimous consent 
to put several letters and statements in the record in support 
of the bill.
    [The letters follow as submissions for the record]
    Chairman Grassley. The PATENT Act deters abusive litigation 
through a series of targeted reforms. I would like to state 
briefly some of the key provisions. The PATENT Act establishes 
clear uniform pleading standards in patent infringement 
lawsuits and gives defendants clear notice of the claims 
against them. It increases transparency of the parties bringing 
lawsuits.
    It places standards on demand letters and clarifies that 
the widespread sending of deceptive demand letters are covered 
by Section 5 of the FTC Act. The bill also allows 
manufacturers--rather than end users--to litigate cases in 
order to protect consumers--customers who are targeted for 
patent infringement just because they buy a product off the 
shelf.
    Further, the bill deters frivolous suits and abusive 
litigation practices by allowing the award of attorney fees if 
a court determines that the position or conduct of a non-
prevailing party that was not--was not objectively reasonable. 
It creates a mechanism for a court to recover fees where an 
abusive litigant is judgment-proof. Finally, in order to deal 
with the asymmetries in discovery burdens and litigation costs, 
the bill requires courts to stay discovery pending the 
resolution of certain preliminary motions such as dismissal or 
transfer venue.
    Because of the wide-ranging positive reactions to the 
PATENT Act, I am comfortable with where we are on the language 
contained in the bill. However, I am also aware of concerns 
about processes at the Patent and Trademark Office that have 
been recently raised by patent holders. They worry that 
administrative proceedings created by the America Invents Act--
the inter partes review and post-grant review proceedings--are 
being abused and are stacked against patent holders. Other 
stakeholders, however, are of the view that these new 
proceedings have been very effective at weeding out weak 
patents.
    I am committed to looking at these concerns, determining 
whether they are valid or not, and working with my colleagues, 
particularly all the cosponsors, to see what can be done to 
improve this process.
    We will be hearing from witnesses on where they stand on 
these proceedings, so we will be able to evaluate what should 
and can be done to ensure that they are fair to all parties.
    As we move forward with this legislation, it is important 
that we continue the collaborative process that has 
characterized its created--creation and best represented by the 
cooperation of the cosponsors of the bill. Again, I thank my 
colleagues for their dedication and constructive engagement on 
this bill.
    It is my friend Senator Leahy's turn.

OPENING STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM 
                      THE STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman.
    Last week, we had seven bipartisan members of this 
Committee that came together, and we introduced legislation to 
address abusive [Video stopped as this point] conduct in our 
patent system. [Video started back up] We have been working on 
this issue for almost 2 years. Senator Lee and I introduced 
bipartisan legislation in the fall of 2013 that has been 
included in this package. Last Congress, Senators Cornyn and 
yourself and Senator Hatch and Senator Schumer and Senator 
Feinstein all had individual bills. Senator Klobuchar had her 
views. After long negotiations, we brought people together, and 
I think we have crafted a strong and fair compromise that will 
address abusive conduct while preserving the strength of our 
patent system, and I think legislation is needed.
    I hear this--I am home a number of times every month, and 
we are a small State and everybody knows everybody else. Just 
walking around the small businesses in Vermont, I hear what 
they have been threatened with. It is the same every Senator 
has, how they have been threatened with patent suits simply for 
using equipment they purchased off-the-shelf. Website owners 
have faced costly litigation for using basic software in e-
commerce. Predatory conduct that takes advantage of the 
complexity of patent law does not serve the important goal for 
which our patent system was intended. It was intended to 
advance science and the useful arts.
    Writing legislation that involves our patent system 
requires care and balance. It can be a Rubik's Cube. Congress 
spent years and years developing what ultimately became the 
Leahy-Smith America Invents Act of 2011. Throughout our 
negotiations on this patent abuse bill--and I see a number of 
the people that we have worked with on the Leahy-Smith bill and 
now worked on this bill--I have emphasized the need to work 
with manufacturers, universities, and other patent holders to 
ensure we get the right balance. The administration--in fact, a 
number of those groups have written to this Committee to 
welcome the changes we made in the Senate bill. The 
administration has praised this legislation. Yesterday, the New 
York Times Editorial Board came out in support of the bill.
    As the legislation heads to markup, we should continue to 
work on reasonable amendments--reasonable amendments--to 
improve the bill. Some have raised concerns about unfair 
practices that are taking place in the post-grant review 
proceedings at the Patent and Trademark Office. I think we 
should look at that. Those proceedings are an important tool to 
improve patent quality, but if they are being misused, then let 
us address it. We are already working on those ideas, and I 
think we will discuss them today.
    Our patent system is a wonderful thing to have, and bad 
actors that use abusive practices, they discredit it. No one's 
interest that they continue. Let us act on behalf of Main 
Street and the patent system alike.
    I welcome the witnesses that are here. Mr. Chairman, I 
thank you for having this hearing. I think it is extremely 
important.
    Chairman Grassley. I thank you for your cooperation through 
all the weeks of negotiation on this bill.
    Senator Leahy. There have been a lot of them.
    Chairman Grassley. Yes. I am going to call on Senator 
Klobuchar because we have a Minnesota person here, but 
remember, this Minnesota person was born in Iowa.
    [Laughter.]
    Senator Klobuchar. All right. Let me begin. Mr. Kevin 
Rhodes was born in Iowa, but there is just a little bit more to 
his resume, but really maybe I need to say nothing else. He is 
actually the vice president and the chief intellectual property 
counsel of 3M Company. Senator Franken and I are very proud of 
that company, and I think that their work is very----
    Senator Franken. What do the three M's stand for?
    Senator Klobuchar. Minnesota Mining and Manufacturing. 
Thank you. It is a company that has so many patents that it 
actually has more patents than it has employees, and it has a 
lot of employees. We like to say that it has a patent for every 
employee. They care very much about the topic today.
    Kevin is responsible for managing the global intellectual 
property assets of 3M Company and its worldwide affiliates. He 
serves as the chairman of the Steering Committee of the 
Coalition for 21st Century Patent Reform. He is a 
member of the Board of Directors of the American Intellectual 
Property Law Association. He also serves on the Executive 
Committee of the Association of Corporate Patent Counsel.
    He has used his expertise as well as the expertise of all 
of the patent holder companies that are involved in 21st 
Century Patent Reform to make significant and constructive 
changes to this bill, and I just want to thank Senator 
Grassley, Senator Leahy, Senator Cornyn, Senator Schumer, 
Senator Hatch, and Senator Lee. We have all worked together to 
make this bill a balance--and we know that people will have 
different views on it, but a balance of not only going after 
the patent trolls and the lawsuits, but also making sure that 
we have made some changes to the bill that allow companies like 
3M that have to assert their rights to protect patents to be 
able to continue to do that.
    I want to thank him for his constructive work, and thank 
you, Mr. Chairman.
    Chairman Grassley. I am glad to do it.
    Before I introduce the other people, I want to inform my 
colleagues from Minnesota that one of the reasons I am voting 
for Trade Promotion Authority is because the Knoxville plant of 
3M exports about 40 percent of their product.
    Our first witness is Mark Chandler, senior vice president 
and general counsel, Cisco. Mr. Chandler joined Cisco in 1996 
upon acquisition of StrataCom, Inc., where he had been general 
counsel. Prior to working at StrataCom, he worked as vice 
president of corporate development and general counsel of 
Maxtor Corporate, a manufacturer of hard disk drives. In 2010, 
the National Law Journal named Mr. Chandler one of the 40 Most 
Influential Lawyers of the Decade. In 2013, American Lawyer 
numbered him among the ``Top 50 Big Law Innovators of the Last 
50 Years.'' Mr. Chandler holds a bachelor's degree in economics 
summa cum laude from Harvard College and a juris doctor from 
Stanford Law School.
    I am going to pass over for obvious reasons Mr. Rhodes.
    Third on our panel is Diane Lettelleir, who is senior 
managing counsel--litigation at J.C. Penney, where she is 
responsible for all patent litigation matters. Prior to joining 
J.C. Penney, Ms. Lettelleir was a shareholder at Winstead PC, 
Dallas, and a member of the Intellectual Property and 
Commercial Litigation Practice Group. Ms. Lettelleir's 
litigation experience includes complex patent, copyright, and 
trademark matters, including patent infringement, patent 
invalidity, copyright infringement, copyright in violation of 
technical--technology licensing agreements. She holds a 
bachelor's degree from Indiana State University magna cum laude 
and a juris doctorate from Southern Methodist Dedman School of 
Law.
    Henry Hadad is senior vice president and deputy general 
counsel intellectual property, Bristol Squibb-Myers Squibb, 
where he is responsible for all aspects of patent and trademark 
procurement, counseling, litigation, and even policy. Mr. Hadad 
previously held positions as vice president and associate 
general counsel at Schering-Plough Corporation where he was 
chief IP counsel until 2009. Immediately prior to joining BMS 
in 2011, he was associate patent counsel at Johnson & Johnson. 
He is a member of the Board of Directors of the Intellectual 
Property Owners Association, American Intellectual Property Law 
Association Education Foundation. He holds a bachelor of 
science in biology from Haverford College and a juris doctor 
cum laude from American University Washington College of Law.
    Our fifth witness is Julie Samuels who is executive 
director and president of the board at Engine, a nonprofit 
focused on technology entrepreneurship and giving startups a 
seat at the table of policy debates. Ms. Samuels is a frequent 
commentator on technology and policy issues for national media, 
particularly the intellectual property space, and she has filed 
briefs with the Supreme Court and has testified before 
Congress. Ms. Samuels came to Engine by way of the Electronic 
Frontier Foundation, where she was senior staff attorney and 
Mark Cuban Chair to Eliminate Stupid Patents. That is what it 
says here.
    [Laughter.]
    Chairman Grassley. I think I will stop there.
    [Laughter.]
    Senator Leahy. Tell us what is really on your mind.
    Chairman Grassley. We will go left to right here. Start, 
Mr. Chandler. Then we will wait until everybody has testified 
before we have questions.

 STATEMENT OF MARK CHANDLER, SENIOR VICE PRESIDENT AND GENERAL 
          COUNSEL, CISCO SYSTEMS INC., WASHINGTON, DC.

    Mr. Chandler. Mr. Chairman, Ranking Member Leahy, and 
members of the Committee, at Cisco we have over 25,000 
engineers who have obtained over 12,000 U.S. patents----
    Senator Leahy. Is his microphone on?
    Chairman Grassley. Is your microphone on? Is the red light 
on?
    Mr. Chandler. I have a red-green----
    [Laughter.]
    Mr. Chandler. There we go. OK. Thank you. Sorry about that.
    Senator Leahy. We get things done technically here. 
[Laughter.]
    With our low-tech machines.
    Senator Klobuchar. Yes, just a little 3M technology over 
there.
    [Laughter.]
    Mr. Chandler. Chairman Grassley, Ranking Member Leahy, 
members of the Committee, at Cisco we have over 25,000 
engineers who have obtained over 12,000 U.S. patents who are 
working hard to extend and secure the Internet. Our coalition, 
United for Patent Reform, includes thousands of companies in 
the automotive, retail, hospitality, and other industries.
    Mr. Chairman, Ranking Member Leahy, Senators Hatch, 
Klobuchar, and Lee--and I would like to thank Senator Cornyn 
and Senator Schumer as well--thank you for introducing the 
PATENT Act. You are addressing a fundamental systemic imbalance 
that is simple to illustrate. Last year, over 4,400 patent 
suits were filed, the third highest in history, and almost 
double the number 10 years ago, with the pace rising this year. 
Sixty-three percent of those, or about 3,000, came from 
entities who do not make any product but seek only the reward 
of litigation gamesmanship, compared to only 20 percent of 
suits 10 years ago, a rate of about 400 or 500 a year 10 years 
ago up to about 3,000 now. An astounding 40 percent of the 
suits last year were filed in only two judicial districts, 
where less than 1.5 percent of Americans live.
    When plaintiffs and defendants pervasively believe, rightly 
or wrongly, that judicial results depend on where an action is 
brought, fundamental precepts of legal integrity and 
consistency of legal application are endangered.
    Behind these dry statistics, of course, are stories of 
abuse. In one recent case, a lawyer bought semiconductor 
patents related to Wi-Fi that were close to expiration and set 
up a company he cynically called ``Innovatio.'' These standard-
essential patents had previously been heavily licensed to other 
chip companies, so the majority of Wi-Fi devices did not need 
any new license at all. Innovatio and the Niro law firm sent 
over 14,000 letters to small businesses ranging from cafes to 
bakeries to children's health clinics, anyone they thought 
might use Wi-Fi. They did not tell them that most devices were 
already licensed but demanded $2,000 to $3,000 per location. 
They did not tell the victims that Cisco had intervened to 
protect its customers but, rather, told them that equipment 
manufacturers had not stepped in.
    They planned to extract $4 billion from the productive part 
of the American economy. Before we stopped them, they collected 
several million. We, with other companies, litigated 
aggressively, and a judge determined that the patents were, in 
fact, worth 3.2 cents per chip for the ones that were not 
licensed already. We got the right result, but we had to pay 
$13 million in legal fees to get there.
    This issue is hard because, while our cause is just--and 
who comes here to testify without saying that--the concerns of 
those who do not yet support the PATENT Act are also 
understandable. Both sides suffer from abuse. Yes, I am 
outraged by those who game the patent litigation system, 
forcing Cisco alone to spend a quarter of a billion dollars in 
the last decade on legal fees for cases that never should have 
been brought, or who shake down small businesses with 
misleading demand letters. I am equally outraged by the 
activity of hedge funds, often the same people who bring the 
suits against us, who use the inter partes review system to 
throw doubt on the legitimacy of innovative companies' hard-won 
patents in order to short the stocks and make a quick buck.
    How do we get to yes? We can fix the problem by ensuring 
that patents that never should have been granted are 
invalidated by giving more transparency to the process and by 
limiting extortion litigation games that artificially raise 
costs.
    As to bad patents, while everyone supports patent quality, 
few raise their hands to have their own bad patents 
invalidated. Patent rights are not inalienable natural rights 
endowed by the Creator like life, liberty, and pursuit of 
happiness. They are a Government-created tool designed, as our 
Constitution says, for an industrial policy purpose, to promote 
progress in science and the useful arts. They allow the patent 
holder to exclude from the market even those who innocently and 
independently arrive at similar results. For every entrepreneur 
who is given a monopoly right in order to promote innovation, 
others are precluded from exercising their God-given talents.
    I do urge you to directly address, such as through 
securities laws, the issue of the hedge funds I referred to. 
This legitimate issue should not be used to justify unrelated 
steps making it harder to invalidate bad patents like the 
misguided STRONG Act proposes to do. The IPR and covered 
business method programs, while limited in scope, are effective 
because they provide a consistent mechanism for review.
    Second, we support transparency efforts reflected in the 
heightened pleading standards and disclosure of true interests 
behind litigation, and we support ensuring that those 
benefiting from patent litigation cannot hide behind shell 
entities in egregious cases where attorneys' fees are imposed.
    Third, the PATENT Act helps address procedural abuse. 
Provisions on pleading, customer stay, and fee shifting are 
strong steps in the right direction. We would prefer to have an 
absolute stay of discovery before the Markman ruling, 
understand the concerns of other industries, but we think 
tightening the venue rules and the transfer rules and limiting 
discovery further prior to transfer would ameliorate our 
concerns.
    Thank you again for the opportunity to appear today and for 
your efforts to fix a national problem that each year sucks 
billions of dollars from the inventive and productive parts of 
our economy.
    [The prepared statement of Mr. Chandler follows as a 
submission for the record]
    Chairman Grassley. Thank you, Mr. Chandler, for keeping 
within the time limit.
    Now, Mr. Rhodes.

    STATEMENT OF KEVIN H. RHODES, VICE PRESIDENT AND CHIEF 
 INTELLECTUAL PROPERTY COUNSEL, 3M COMPANY, ST. PAUL, MINNESOTA

    Mr. Rhodes. Chairman Grassley, Ranking Member Leahy, 
members of the Committee, thank you for the opportunity to 
testify here this morning, and thank you, Senator Klobuchar, 
for that very kind introduction this morning.
    Because of the longstanding importance of the patent system 
to 3M and other member companies of the Coalition for 21st 
Century Patent Reform, we have been engaged with members of 
this Committee and your terrific staffs and many other 
stakeholders for years in discussions of patent law and policy. 
We bring a balanced perspective to these issues as 3M, like 
other 21C member companies, has diverse business interests in 
several industry segments, and we litigate patent disputes as 
both a plaintiff and as a defendant. We thus support measure 
reforms to curb the patent litigation abuses that undeniably do 
exist today, but balanced against the need to ensure that the 
ability of all patent owners to enforce their rights against 
infringers is not unduly undermined by unbalanced or overly 
broad reactions to litigation abuses by some patent owners. 
That is the elusive balance that we have been seeking in the 
patent reform legislation that was proposed last year and in 
this Congress, and we very much appreciate the opportunity to 
continue this dialog today.
    21C congratulates Chairman Grassley, Ranking Member Leahy, 
and the other cosponsors--Senators Cornyn, Schumer, Hatch, 
Klobuchar, and Lee--on the introduction of the PATENT Act. We 
do believe that the bill represents a significant, thoughtful, 
and constructive contribution to the patent reform effort.
    I will be pleased to explain further this morning, we 
appreciate that the language of the bill reflects a number of 
welcome compromises on such litigation issues as the way it 
balances pleadings and early disclosures, the customer stay, 
the stay of discovery pending early motion practice, calling 
upon the expertise of the Judicial Conference to develop in-
court discovery and case management procedures for patent 
cases, and fee shifting and making sure that fees are 
recoverable against parties who ought to be paying them, as 
well as non-parties.
    21C does not believe that the PATENT ACT is ready to be 
reported out of this Committee just yet. The job of patent 
reform is not yet done. In our view, meaningful patent reform 
legislation must also include provisions to ensure that the so-
called AIA review proceedings, the IPR and PGR proceedings that 
were referenced in Senators Grassley' and Leahy's opening 
remarks, are balanced and fair to patent challengers and patent 
owners alike. We ask this Committee to prioritize reforms of 
these AIA review proceedings equally with litigation reforms.
    Let me be clear: AIA reviews are critical elements in the 
overall framework of a properly functioning patent system. They 
serve an essential role in providing faster and less expensive 
alternatives to litigation to determine the validity of issued 
patents. That is why we supported their creation in the first 
place in the Leahy-Smith America Invents Act. They should be 
conducted in a manner that is equitable to all participants, 
not so skewed against patent owners that they invite 
gamesmanship and abuse, which regrettably is the case today. I 
look forward to discussing this morning some common-sense 
changes to the way AIA reviews are handled that will address 
the concerns without undermining their effectiveness.
    It is a Rubik's Cube, as Senator Leahy said this morning. 
There are a lot of moving parts. What we would propose is a 
comprehensive set of reforms that gets at these issues:
    First, reforming the procedures used when the PTO is 
considering petitions to institute reviews, to level the 
playing field in that process.
    Second, allowing patent owners to have issues raised in 
review proceedings first considered in reissue or reexamination 
proceedings where they can amend the claim and BRI is 
appropriate in that examination, and that would take place 
prior to IPR or PGR review.
    Third, applying the same standards in reviews that do take 
place then as are applied in court, including claim 
construction, burden of proof, and presumptions.
    As Mr. Chandler said just a minute ago, the validity of 
patents ought not to--or how patents are litigated ought not to 
depend on the court. The validity of patents ought not to 
depend on where it is determined either. These are intended to 
be faster, cheaper alternatives to district court litigation. 
They ought to apply the same standards and get generally the 
same results.
    These reforms will achieve increased fairness, balance, and 
consistency in adjudications of patent validity in PTO and in 
the courts. By addressing the questions and uncertainty that 
now exist concerning these reviews, Congress can reassure the 
innovation community that our patents can be relied upon to 
protect and support the investments in research, development, 
commercialization, technology transfer, and collaboration that 
are so essential to future innovation.
    As always, I, 3M, and 21C remain committed to working with 
members of this Committee, their staffs, and other stakeholders 
to couple the provisions in the PATENT Act as introduced with 
provisions to restore balance and fairness in AIA reviews. We 
look forward to lending our strong support for a bill that 
addresses both patent litigation and AIA review proceedings in 
an effective, balanced, and comprehensive fashion.
    I will be pleased to answer any questions or supply any 
additional information for the record today. Thank you very 
much.
    [The prepared statement of Mr. Rhodes follows as a 
submission for the record]
    Chairman Grassley. Thank you, Mr. Rhodes.
    Now, Ms. Lettelleir.

   STATEMENT OF DIANE K. LETTELLEIR, SENIOR MANAGING COUNSEL-
    LITIGATION, J.C. PENNEY CORPORATION, INC., PLANO, TEXAS

    Ms. Lettelleir. Chairman Grassley, Ranking Member Leahy, 
and members of the Judiciary Committee, I am Diane Lettelleir, 
senior managing counsel of litigation for J.C. Penney 
Corporation. I want to thank you for the opportunity to testify 
today about the devastating impact of abusive patent litigation 
on J.C. Penney. It is an honor to present the company's 
perspective, and I can assure you that our views are shared by 
many other Main Street businesses around the country, including 
other retailers, grocers, homebuilders, convenience stores, 
advertisers, restaurants, realtors, and hoteliers.
    On behalf of J.C. Penney, I also want to thank the 
bipartisan sponsors of the PATENT Act for their commitment to 
tackling this very important issue. This legislation will make 
great strides toward addressing the abusive patent litigation 
facing J.C. Penney and other Main Street businesses.
    In 1902, James Cash Penney opened his first store in 
Wyoming. Since that humble beginning, J.C. Penney has grown to 
be one of the Nation's largest retailers. Today J.C. Penney has 
over 1,000 stores employing approximately 114,000 associates 
across 49 States and Puerto Rico.
    J.C. Penney's business model is simple, but we use a 
complex array of technologies to enhance our customers' 
shopping experience. J.C. Penney, like countless other Main 
Street businesses, has been ravaged by the exponential growth 
and aggressiveness of patent troll industries.
    While abusive patents initially targeted the high-tech 
industry, they expanded their focus to include Main Street 
businesses. In fact, in 2012, for the first time, non-
practicing entities reportedly sued more Main Street companies 
than technology companies. The motivation for this strategy is 
easy to understand. Main Street businesses that only use 
technology are easy prey because they often lack the technical 
or legal expertise to fight patent infringement claims. Abusive 
patentees take advantage of these weaknesses and strategically 
offer settlements at a level set below the cost of defense. 
Faced with this calculus, many Main Street businesses have 
little choice but to pay.
    J.C. Penney's experience provides a framework for 
understanding why this legislation is so important to Main 
Street businesses. J.C. Penney has been a defendant in 30 non-
practicing entity lawsuits just in the last 6 years. In 
addition, J.C. Penney received countless threatening demand 
letters demanding settlements for what we consider to be very 
weak patents or invalid patents. None of these NPE lawsuits or 
demand letters relates to items we sell; every claim relates to 
the technology we use to operate. NPEs frequently seek tens of 
millions of dollars in damages in these cases.
    J.C. Penney agrees that innovation and the U.S. patent 
system are important to the U.S. economy, and J.C. Penney 
respects the intellectual property rights of others. While 
patent protection and the right of enforcement are important 
components of the innovation ecosystem, so, too, is the 
adoption of innovation. Innovation without the opportunity for 
commercial adoption does not lead to economic growth or further 
innovation. The current patent infringement litigation 
environment is undercutting the opportunity for Main Street 
businesses to adopt innovation.
    In parallel to the direct costs of patent infringement 
allegations, the steady stream of claims has disrupted J.C. 
Penney's adoption of innovation offered by small businesses. 
The disruption manifests itself in two ways. First, J.C. Penney 
knows that by adopting new technology, it becomes a target for 
abusive patent litigation. Second, the small technology company 
itself becomes a target by virtue of its efforts to 
commercialize its innovation. In both instances, J.C. Penney 
knows that the small company will not have the financial 
strength to defend itself or J.C. Penney against these threats.
    This dynamic has caused a shift in how J.C. Penney and many 
other Main Street businesses approach the adoption of 
innovation. J.C. Penney's shift away from small companies has 
not been driven by concerns that the new technology actually 
infringes any patent. In most cases, the small companies 
themselves own patents covering the technologies they offered 
to J.C. Penney. Instead, J.C. Penney's shift away from small 
technology companies is driven by the cost of defense of patent 
litigation.
    J.C. Penney and Main Street businesses fully support the 
rights inventors and patent holders to market their products 
and to bring claims to enforce their intellectual property 
rights. We believe that the thoughtful and balanced patent 
litigation reforms set forth in the PATENT Act will preserve 
these rights while curbing abusive patent litigation.
    Thank you once again, Chairman Grassley, Ranking Member 
Leahy, and members of the Committee, for holding this critical 
hearing. We urge this Congress to pass meaningful reform 
without delay.
    Thank you.
    [The prepared statement of Ms. Lettelleir follows as a 
submission for the record]
    Chairman Grassley. Thank you, Ms. Lettelleir.
    Mr. Hadad.

  STATEMENT OF HENRY HADAD, SENIOR VICE PRESIDENT AND DEPUTY 
 GENERAL COUNSEL-INTELLECTUAL PROPERTY, BRISTOL-MYERS SQUIBB, 
                       NEW YORK, NEW YORK

    Mr. Hadad. Chairman Grassley, Ranking Member Leahy, and 
members of the Committee, thank you for the opportunity to 
appear on this panel.
    Bristol-Myers Squibb is a global biopharmaceutical company 
with over 25,000 employees focused on our mission to discover, 
develop, and deliver innovative medicines that help millions of 
patients prevail over serious disease. In 2014 alone, BMS spent 
over $4.5 billion in research and development. BMS leads the 
industry with our ground-breaking immuno-oncology therapies and 
pipeline which harness the body's own immune system to target 
and detect cancer cells. Given the extraordinary challenges, 
expense, and time it takes to discover and develop a new drug, 
BMS depends on strong and predictable IP protection to justify 
this investment.
    BMS acknowledges the patent litigation concerns expressed 
by other members of this panel and appreciates the significant 
efforts by the bill's sponsors and their staffs to strike a 
balance between curbing abuses of the patent litigation process 
and promoting innovation.
    Provisions around early disclosure of ownership 
information, Judicial Conference involvement in discovery and 
case management, and customer stay should improve the 
litigation process overall. Provisions around fee shifting 
appropriate focus on objectively unreasonable behavior by a 
non-prevailing party, while the fee recovery provisions reflect 
a balanced and improved approach. And the discovery stay and 
pleadings provisions include important concepts that should 
reduce potential abuse.
    Despite this significant progress, however, BMS strongly 
urges the Committee to strengthen the bill by addressing 
abusive litigation practices not only in the district courts 
but also in the context of IPR and PGR proceedings before the 
USPTO. We commend the USPTO and the PTAB for their efforts in 
professionally and diligently managing nearly 3,000 IPR 
filings. Unfortunately, in an effort to timely address the 
deluge of filings, these proceedings have been implemented in a 
manner that lacks due process protections and unfairly 
prejudices patent owners.
    Recent statistics show that the PTAB grants IPR petitions 
and finds at least some of the challenged claims invalid over 
75 percent of the time. Moreover, 80 percent of the patents 
challenged in IPRs are also asserted in parallel district court 
proceedings. Given this data, it is not surprising to see 
increasing abuse of these proceedings, including IPR petitions 
filed by hedge funds that are short-selling stock based largely 
on investor anxiety around these proceedings, by parties 
primarily seeking to extract a financial settlement from patent 
holders, and by litigants presenting the same or substantially 
the same arguments that were presented in Federal court.
    The same challenges and serial harassment that confront 
other members of this panel regarding patent assertion entities 
are mirrored in the abuses of the IPR-PGR system. The stakes 
are high. If there is a reduced confidence in the patent 
system, the biopharmaceutical industry will innovate less, 
invest less, and employ fewer. To that end, there will be fewer 
ground-breaking therapies for patients.
    There are three procedural changes that, if enacted 
together, would more fairly balance these proceedings, aid in 
their efficient adjudication to the benefit of patent owners 
and challenges alike, and provide faith and predictability in 
the patent system.
    First, in IPR and PGR proceedings, the PTAB apply the same 
``correct'' claim construction standard as district courts 
rather than the ``broadest reasonable'' interpretation.
    Second, the PTAB also should respect the presumption of 
validity for granted patents and apply the same ``clear and 
convincing'' evidentiary standard as applied in district courts 
for establishing invalidity of the patent. By doing so, this 
would minimize inconsistent results and duplicative proceedings 
between the courts and the PTAB and ultimately increase 
fairness and predictability.
    The second proposal would be that patent owners should be 
permitted to make minor amendments to claims during the 
proceeding and more substantial amendments through the filing 
of a reissue or reexamination application prior to the 
institution of any IPR or PGR.
    My third and last proposal is that the procedural rules 
governing IPR and PGR should be revised to ensure fairness and 
due process for patent owners, including equal opportunity to 
submit evidence, reducing potential bias by having someone 
other than the PTAB Merits Panel decide whether to institute 
the petition, and by permitting live testimony on key issues.
    I would be pleased to address these proposals in more 
detail if there are any questions. The PATENT Act, with the 
suggested modifications to USPTO post-grant proceedings, is a 
productive step that will curb abusive practices and minimize 
unintended consequences for legitimate patent owners.
    I thank you for the opportunity to appear today and look 
forward to answering any questions you may have. Thank you.
    [The prepared statement of Mr. Hadad follows as a 
submission for the record]
    Chairman Grassley. Before I ask questions, I just got 
notice from the floor that the 10:30 vote will probably be now 
around 1:30. If you have got any other information, let me 
know.
    I will start, and we are going to have 5-minute rounds---I 
screwed up your introduction, so I might as well do that. Go 
ahead.
    [Laughter.]
    Ms. Samuels. No problem.

STATEMENT OF JULIE P. SAMUELS, EXECUTIVE DIRECTOR AND PRESIDENT 
            OF THE BOARD, ENGINE, NEW YORK, NEW YORK

    Ms. Samuels. Chairman Grassley, Ranking Member Leahy, and 
members of the Committee, I am Julie Samuels, executive 
director of Engine, an organization started several years ago 
to help advocate for high-tech, high-growth entrepreneurship. 
Using policy analysis and economic research, we represent 
startups nationwide. I am also a recovering patent lawyer. It 
is an honor to be here today, and I look forward to discussing 
effective solutions to the patent troll problem, especially 
because this problem disproportionately harms the community of 
high-tech, high-growth startups I represent.
    Today I am going to tell you about what the startup 
community needs from a functioning patent system--fairness and 
balance--and why the PATENT Act would help ensure those things.
    Patent trolls are armed with two weapons: low-quality, 
impossible-to-understand patents, on the one hand, and the 
outrageous costs, both in time and money, of patent litigation, 
on the other. Imagine you are a small startup, cash-strapped 
and hungry, and you get a patent demand from a company you have 
never heard of, claiming to own some basic technology. Your 
choices are: hire a lawyer and spend valuable time and limited 
resources fighting back, or simply pay the troll to go away, 
which is why I want to talk today about fairness and balance.
    Right now we have a system that across the board favors 
patent holders who want to abuse that system. Those parties 
have exclusive access to all of the relevant information 
surrounding the patent, basic things such as who owns it, who 
else has rights to it, along with the ability to singlehandedly 
drive up the costs of litigation with motion practice and 
discovery. It is a system that essentially allows for legalized 
extortion, and that leaves startups nearly powerless to fight 
back without great personal risk and expense.
    Take the experience of Jump Rope, a Chicago startup founded 
by Peter Braxton. An Air Force veteran and former combat pilot, 
Peter found himself facing a troll suit less than 1 month after 
he launched Jump Rope. Peter's lawyers advised him to settle, 
but he instead decided to fund the litigation himself. 
Ultimately the court found no infringement and that the 
plaintiff failed to conduct even due diligence before filing 
suit, but not before Peter was forced to spend more than 
$250,000 on his defense.
    Or take Life360, an app keeps over 55 million families safe 
and connected. After raising $50 million in capital early last 
year, the company was hit with a troll suit that it decided to 
fight. In spite of a jury finding the troll's claims meritless, 
Life360 still had to spend over $1.5 million to defend itself, 
with no reasonable recourse to recover that money.
    Many of the startups--and this is incredibly important, I 
think. Many of the startups who support reform are also patent 
holders themselves, like Foursquare, which currently faces four 
rolls. This year's legal budget set aside enough money for 
these cases alone that could otherwise have been enough to hire 
between six and ten engineers--good jobs that now do not exist.
    There are countless other companies in our network, too, 
who invest in the patent system, yet still support strong 
reform. Many asked that I not use their names because they are 
afraid of attracting more troll suits.
    One startup general counsel told me, and I quote, ``The 
system is set up in such a way that it pretty much guarantees 
that the troll gets paid. It has nothing to do with the 
patent's claims, but with the litigation fees. We were 
bombarded with letters, emails, discovery requests, and 
motions. It was all meaningless paper, but we still had to 
spend time and money to respond.''
    In each case, startups divert resources from innovating, 
growing their business, and creating new jobs to fight what are 
often meritless claims. To make matters worse, the bulk of this 
money never finds its way back to inventors or R&D departments.
    For a small startup, even one troll suit can ruin its 
business, and the mere threat can cause significant disruption. 
No small business owner should be forced to put her company at 
risk to defend what she knows is right, which is why we need 
the kind of comprehensive set of reforms that is the PATENT 
Act. The PATENT Act would bring much needed transparency to the 
system through heightened pleading and demand letter reform, 
giving startups tools to understand the scope of the threat 
they face, helping them decide how to respond. The bill creates 
the appropriate incentives for startups facing meritless suits 
to fight back. By shifting fees and allowing for real recovery 
and by reforming discovery, the PATENT Act allows parties a 
fighting chance in court.
    Right now, a startup worried about its bottom line has 
almost no choice but to pay a troll to go away. The PATENT Act 
would dramatically change this calculation and keep the 
courthouse doors open to everyone. Taken together with the 
strong post-grant review procedures from the America Invents 
Act, the PATENT Act represents an important package of 
incentives that would rebalance and restore faith in a broken 
system.
    To be clear, no single reform in the bill can accomplish 
this task alone. It is only when they are all taken together 
that we can find the missing balance and fairness.
    Opponents of reform argue that proposed changes in the law 
would have the unintended consequence of making it harder to 
assert valid claims. In fact, nothing in the PATENT Act would 
hinder an inventor from monetizing, asserting, or enforcing 
valid patents, or making claims that are substantially 
justified or objectively reasonable.
    The freedom to innovate has always been a central part of 
the American dream. For the sake of our economy and our 
identity, we must not let innovation become a legal liability. 
A patent should be valued for what is covers and how it 
incentivizes innovation, not for its litigation value. The 
PATENT Act would go a long way to making that the case.
    Thank you, and I look forward to your questions.
    [The prepared statement of Ms. Samuels follows as a 
submission for the record]
    Chairman Grassley. We will have 5-minute rounds.
    I am going to start with Mr. Chandler. We have heard 
concerns that the PATENT Act could have the unintended effect 
of undermining patent property rights. In your opinion, because 
Cisco, I have been told, has 12,000 patents, are you concerned 
that this bill would devaluate your company's extensive patent 
portfolio?
    Mr. Chandler. Not at all. Our portfolio is used to stop 
others when they are infringing our patents. We also cross-
license freely with other companies so that each of us can be 
empowered by each other's patents when that makes sense for us 
to do so with other companies.
    The PATENT Act is a series of changes that will bring 
litigation fairness, that will allow for removing artificially 
imposed costs in the system that do not produce useful results.
    You know, the IPR process has been discussed a little bit 
this morning, and the IPR process is good for Cisco because it 
is good for the integrity of the patent system. We recently 
brought litigation against a company which systematically used 
our patented technology as well as word-for-word copying of our 
copyrighted materials. They have asked for IPR review at the 
Patent Office of our patents in the case.
    Of course, I do not want my patents invalidated, and I 
believe our patents are strong. If I do not like the result of 
the IPR, there is an appeal process. But at the end of the day, 
the patents need to be more than just a blank and unexamined 
check to bring litigation. It really needs to stand for true 
innovation. If some of my patents are invalidated after getting 
a closer look under the rules that exist before I am able to 
enforce them, so be it. We will have a stronger, more credible 
patent system as a result, even if I do not like a particular 
short-run result.
    We strongly support the PATENT Act, and we do not buy the 
need to undermine the ability of the Patent Office to undertake 
the reviews that were created in the America Invents Act.
    Chairman Grassley. I would have questions for Chandler, 
Samuels, and Lettelleir, hopefully a short answer: Do you 
believe that the PATENT Act is effective in addressing the 
patent troll problem? Would you in a short way say what you 
think is the most important reform in the bill? I will start 
with Chandler.
    Mr. Chandler. I think the most--the answer is yes, and the 
most important reform in the bill is the fee-shifting, fee 
recovery provisions that ensure that people with weak lawsuits 
and weak patents think twice before bringing them.
    Chairman Grassley. Ms. Samuels.
    Ms. Samuels. I would also answer yes to the first--sorry. 
Sorry about that. Yes, I think it is effective, and I actually 
have a hard time saying that there is one most effective 
provision. I think the most effective characteristic of the 
bill is that it is comprehensive and that, when taken together, 
we have a package of incentives that can rebalance the system.
    Chairman Grassley. Ms. Lettelleir.
    Ms. Lettelleir. I agree with Ms. Samuels. I think that it 
is a very important piece of legislation and will be a powerful 
tool for those that are the victims of abusive patent 
litigation tactics. I feel like the most important attribute of 
the PATENT Act is the fact that the provisions complement each 
other, and one provision makes another provision more 
effective, more meaningful, as it is applied to individual 
scenarios. I think the fact that they work together, they 
complement each other, and they strengthen each other--if you 
start picking apart one aspect, one provision, it weakens 
another provision. It is a very carefully crafted piece of 
legislation, and we think that has been very well crafted, and 
we support all the provisions as they work together.
    Chairman Grassley. A short question for Mr. Rhodes. Do you 
believe that the PATENT Act's litigation provisions strike the 
right balance between patent holders and petitioners?
    Mr. Rhodes. Yes, thank you for the question, Chairman 
Grassley. Yes, we think a lot of very welcome compromises have 
been made to the provisions that get it to that balance and 
really address the concerns that we have heard about on the 
panel this morning, while still providing balance and for the 
ability of patent owners to assert their rights against true 
infringement and to attain effective and prompt and expeditious 
relief. We think that the improvements that I mentioned in my 
opening statement are welcome advances in that regard.
    Chairman Grassley. I am skipping over a question here 
because my time is running out. For Ms. Samuels, as you note in 
your testimony, patent abuse is a problem that 
disproportionately targets startups and small businesses, so 
legislation trying to put a stop to these predatory practices 
is something that companies should welcome. However, at the 
same time, concerns have been expressed that some of the 
proposed patent reform bills will negatively impact the ability 
of these same startups and small businesses to attract 
investment.
    Since you are someone that deals with startups on a daily 
basis, do you believe that the PATENT Act will have an adverse 
impact on venture capital investment for small companies and 
startups?
    Ms. Samuels. Thank you for the question, Chairman Grassley. 
I absolutely do not think this will have any impact on the 
venture capital as opposed to startups.
    Chairman Grassley. OK. Senator Leahy?
    Senator Leahy. Thank you, Mr. Chairman.
    Mr. Rhodes, you are a chief of intellectual property 
counsel for 3M, but you also wear another hat, the chair of 
21C. Let me ask you, you have been involved in this. An 
important part of the PATENT Act was the customer stay 
provision. Those who are not familiar with that, it allows end 
users and retailers to stay a lawsuit against them when the 
manufacturer is available to litigate the case instead.
    Some have criticized this for not focusing on end users. 
They have said, and I believe incorrectly, that the provision 
would leave patent owners without redress for infringement by 
foreign manufacturers outside of the jurisdiction of U.S. 
courts.
    Senator Lee and I authored this provision in our original 
bill last Congress. I hate to think of the number of hours and 
months we spent reworking it to address those exact concerns. 
As a patent holder and a manufacturer, can you share your views 
of the concerns that have been raised?
    Mr. Rhodes. Yes, thank you for the question, Ranking Member 
Leahy. I have heard those concerns. I do not share them. I 
think the customer stay provision is a very carefully crafted 
compromise among many different stakeholder groups, some of 
whom are sitting at this table this morning. We are really 
talking, with respect to customer stay, about a three-part 
negotiation balancing the interests of the patent holder, the 
manufacturer, and the customer. I will assure you that we 
looked very carefully at the issues that you talked about in 
reaching those compromises.
    In particular, with respect to retailers and end users, we 
did define ``covered customer'' to only encompass those 
entities, not entities who either manufacture products or who 
modify the products in a way that gives rise to the charge of 
infringement. Those are the parties that should be defending 
against the infringement charge.
    As to foreign, if you would like me to answer that 
question, the stay is only available if the manufacturer is 
either a party to the case in U.S. court with the covered 
customer or a party to another case in U.S. Federal district 
court. We added that language into the bill to address the 
exact concern you mentioned, so it is just not possible that a 
manufacturer beyond the jurisdiction of U.S. courts could--its 
customer could avail itself of the stay. That is just not 
possible.
    Senator Leahy. I assumed that was going to be your answer, 
but after all the time that Senator Lee and I spent on that, I 
am glad to have that answer.
    Mr. Hadad, you raised concerns about abuses of post-grant 
review programs created by the America Invents Act, and I am 
troubled by the behavior you described. It is vital, I think we 
would all agree, that PTO programs remain a strong tool for 
patents to be reviewed in an efficient setting. Of the reforms 
you are suggesting, what is most important? Can you assure us 
that those reforms would not undermine the law as it is now, 
the America Invents Act?
    Mr. Hadad. Thank you for the question, Ranking Member 
Leahy. I think the three proposals I set out are somewhat 
interconnected, and I think they all serve to make it a fair, 
more balanced proceeding. I think----
    Senator Leahy. You would make them of equal importance?
    Mr. Hadad. I do, but I would say the first one, though, I 
think really sets the tone for the rest, which is the standards 
that the claims are reviewed by, whether it is a claim 
construction standard that is used in district court, which 
takes into account the extensive examination record of the 
patent that took place before the USPTO; whether it is the 
clear and convincing evidentiary standard for establishing 
invalidity; or the presumption of validity.
    What those things do, when you think about it, is make a 
patent the property right that it is. When you diminish that, 
it undermines the strength and, frankly, the predictability of 
whether that patent right can be invested in in the future.
    I think that piece of it, coupled with if the standards 
were the same, you would actually have decreased duplicative 
proceedings because then the courts and the USPTO would 
acknowledge each other's determinations as being of equal 
weight.
    Senator Leahy. My time is almost up, and if anybody wants 
to add anything for the record, either in agreement or 
disagreement to what Mr. Hadad said, please do so. I did want 
to ask Ms. Samuels, you talked about the abusive letters, and, 
man, I hear that all the time in Vermont. We address it by 
making clear that it is a deceptive trade practice to send 
misleading demand leaders and the power of the FTC to give 
civil penalties. Does that make sense? And do you have examples 
from your own experience why we have got to have Federal 
legislation here?
    Ms. Samuels. Thank you for the question, Senator Leahy. I 
think that definitely makes sense, and I applaud what this 
bill, this piece of legislation does to address the demand 
letter problem. The demand letter problem is such a big 
problem, and we cannot even know the scope because it is all 
pre-complaint, right? There is no public record. I think when 
you empower the FTC, what you do is you really get at the worst 
actors, and those are the people who are sending the abusive 
demand letters. I think that that is a great step in the right 
direction.
    Senator Leahy. Thank you. Thank you very much, Mr. 
Chairman.
    Chairman Grassley. Thank you, Senator Leahy.
    Now, Senator Hatch.
    Senator Hatch. We are happy to have all of you here. This 
is a really, really important hearing. All of us have worked 
for a long time to try and get a patent bill that had pretty 
much great success.
    Let me ask you this, Ms. Samuels: As you know, especially 
over the past year, I have been working on a fee recovery 
provision to ensure that those who defend against abusive 
patent litigation and are awarded fees will actually get paid 
for them, and I am pleased that the PATENT Act includes this 
provision.
    From the small inventor startup point of view, can you 
explain how important the recovery provision would be in 
stopping patent trolls from litigating and dashing?
    Ms. Samuels. Yes, thank you, Senator Hatch, and thank you 
so much for making sure that recovery language was in the bill, 
because as you say, if we are going to have any kind of fee 
shifting, without an effective way to actually recover those 
fees, the fee shifting would be meaningless. We think that fee 
shifting is a core principle that is so important for small 
startups and for anyone facing abusive patent litigation, 
because right now, when you are a startup facing a patent 
demand, facing a lawsuit, you are looking at years of 
litigation and millions--potentially millions of dollars in 
legal fees. That is untenable. When there is no real 
expectation that you might see some of that money back, there 
is no incentive to fight back. If there is no incentive to 
fight back, then we are just, you know, emboldening the trolls' 
continued behavior.
    What you are doing is you are giving these tools to these 
small companies to really push back, and there are really 
important safeguards in the recovery language. I am not worried 
about any abuse. I mean, it has to be objectively reasonable, 
the case that is brought. I think we are in really good shape 
with the language as it is.
    Senator Hatch. Thank you.
    Mr. Chandler, the PATENT Act includes a provision to stay 
discovery if the defendant files certain motions like a motion 
to transfer venue. The provision also allows courts to order 
the exchange of information such as infringement intentions.
    What type discovery is typically required to create 
infringement contentions? With respect to motions to transfer 
venue, do you think that infringement contentions and any 
subsequent discovery should be postponed until the case is 
actually transferred to the appropriate court?
    Mr. Chandler. Yes, Senator, we do believe that the--all 
discovery should be stayed pending the resolution of the 
transfer motion, and there should be pressure on the judges to 
rule quickly on the transfer motion. Infringement and 
invalidity contentions can involve voluminous discovery. In 
fact, the invalidity contentions could end up implicating the 
majority of the discovery that would happen in the case. Costs 
typically can exceed $1 million to proceed with that discovery. 
The proposed legislation refers to the district court or local 
rules in terms of what would be required for discovery, and we 
see no reason to permit that discovery to proceed pending a 
transfer motion. The judge should rule quickly on the transfer 
motion. There should be an interlocutory appeal available on 
that, and the case should get going as quickly as possible in 
the appropriate court.
    Senator Hatch. Well, thank you.
    Mr. Rhodes, for several months now I have heard a great 
deal about what many stakeholders argue is an unanticipated 
abuse of the inter partes review process we established in the 
America Invents Act. I am committed to working to address any 
illegitimate instances of what some now refer to as ``reverse 
trolling.'' I was looking for realistic reforms that address 
the problem, but also ensure that the IPR process remains an 
effective option for ridding the system of invalid patents.
    Do you have any thoughts on what might fit that 
description?
    Mr. Rhodes. Yes, thank you very much for the question, 
Senator Hatch. The patent system is a Rubik's Cube. The patent 
ecosystem is very complex. We have heard here this morning the 
proponents for litigation reform saying it is interlocking, you 
know, multiple provisions are needed. We have heard those 
concerns. We have worked in good faith and constructively to 
address them on the litigation side. We think the mirror, the 
reverse, the converse is true with respect to PGR and IPR 
reforms in the Patent Office.
    I listed to three big buckets in my opening statement, and 
I think, you know, more fairness in reviewing petitions so both 
parties can submit the same evidence, different bodies consider 
it initially within the PTAB, and then at the end of the day, 
there is an obligation to disclose evidence at the outset. We 
think the hybrid approach which will make the right to amend 
real and put BRI in its proper place in the reexamination and 
reissue of claims, and then the fairness in burdens and 
presumptions that Mr. Hadad mentioned.
    We think just as the litigation reforms that we have 
listened to and responded to are interlocking, so, too, are our 
reforms that we are asking for in IPR and PGR interrelated and 
interlocking.
    Senator Hatch. Mr. Chairman, my time is up. I will submit 
the rest of my questions.
    Chairman Grassley. Yes.
    [The questions of Senator Hatch follow as a submission for 
the record]
    Chairman Grassley. Senator Schumer--well, she came after--
yes, Senator Schumer, and then Senator Durbin.
    Senator Feinstein. He came after me.
    Senator Schumer. No. I was here earlier.
    Chairman Grassley. No. He was here at----
    Senator Whitehouse. Ladies first.
    Senator Feinstein. OK.
    Senator Schumer. Would you like to go?
    Senator Feinstein. No.
    Senator Hatch. Typical of----
    Senator Schumer. Chauvinism is dead.
    Chairman Grassley. We are wasting----
    Senator Klobuchar. Senator Grassley says you are wasting--
--
    Chairman Grassley. We are wasting time. Go ahead.
    Senator Schumer. Excuse me. Do you want to go?
    Senator Feinstein. No. You go.
    Senator Schumer. OK. She was busy showing me the terrible 
thing that ISIS puts out, which people should look at, called 
``Inspire.''
    Senator Durbin. Another patent troll.
    Senator Schumer. They could be.
    I want to thank Chairman Grassley and Ranking Member Leahy 
for organizing this hearing and for your leadership and 
partnership on this issue. I really want to thank Senator 
Cornyn, whom we have worked closely with on this, as well as 
Senators Klobuchar, Lee, and Hatch, our cosponsors who have 
done a great job on this legislation.
    I am grateful that the Committee has the opportunity to 
hear today about the incredible strides we have been crafting 
in coming to a meaningful solution to the scourge of patent 
trolls without damaging the rights of legitimate patent 
holders.
    It is clear, based on what we are hearing today, that this 
is not yesterday's patent bill. This bill is different, and we 
are going to get it done. There will be patent legislation 
along the lines of what we proposed on the President's desk 
this year. I truly believe that. I think the panel, which last 
year, if all of you came, there would have been a much wider 
disparity. The consensus is growing around this bill, and we 
thank you for that, particularly our 21C friends who are 
helping us and being very constructive. Thank you.
    I want to make sure everyone watching this hearing 
understands what a breakthrough we have before us. Today's 
hearing marks the first time Congress is hearing a unified 
chorus that legislation we have drafted balances the interests 
of traditional patent holders and businesses that are only on 
the receiving end of infringement accusations.
    Have we made everybody happy? Of course not. That is 
literally impossible in the patent space, as we learned during 
the debate over the AIA. But I feel confident we have taken 
tremendous steps toward the goal that my colleagues and I all 
identified: solve the problem of frivolous, expensive lawsuits 
without damaging the legitimate claimants. I am committed to 
working with those who have opposed previous iterations of 
reform, especially those in the life science industry, to 
identify workable solutions to the problems they perceive in 
the PTO system.
    I do want to sound a note of caution. Just as we have said 
for years that it is important that patent litigation reform 
not undermine the legitimate rights of patent holders, it is 
similarly critical that the reforms to the post-grant system 
not undermine the ability of the PTO to provide cost-effective, 
efficient alternatives to litigation for the consideration of 
poor-quality patents.
    I have said many times, my lodestars in this debate are the 
small New York startups. These are the seed corn of New York's 
economy and similar companies throughout the country of 
America's economy. These are the companies, the future Googles 
and the future Facebooks and the future Oracles, that are going 
to create thousands and thousands of jobs and export so much 
materials. They are snuffed out by these parasitic trolls, and 
we cannot allow that to happen.
    The post-grant proceedings at the PTO are particularly 
important to those companies who simply do not have the 
resources to litigate or who benefit from the collective 
efforts of others who have been hit by the same troll to 
invalidate bad patents.
    I will not be able to support any deal on post-grant that 
does not preserve the viability of the process for these little 
startups. I do have to say that, again, we are making good 
progress here. There are ways we can all come together.
    My questions: First, to Mr. Samuels--Ms. Samuels, you 
represent exactly the kind of startup companies I care about in 
New York and elsewhere. Do you think that this bill solves 
their problems? You can give a short answer?
    Ms. Samuels. I will be very short. I think, yes, it mostly 
does. Obviously, there are some things we can discuss, but it 
is a good compromise bill, and it will allow those companies to 
do what they do, which is innovate and create jobs, in New York 
and all across the country.
    Senator Schumer. I know Mr. Chandler and Ms. Lettelleir, 
because Senator Grassley asked the question, feel the same 
about problems faced by Cisco and J.C. Penney. It is amazing. 
One of the reasons we are gaining support is Main Street is 
being hit by these trolls. A restaurant owner said to me in New 
York that, ``They are going to sue me because they say they 
patented the spoon.''
    OK. Now, to Mr. Rhodes, last question, to Mr. Rhodes and 
Mr. Hadad. Both of you represent companies that have had 
substantial concerns about previous versions of patent reform 
legislation. Do you feel like the sponsors of this bill have 
listened to you, been responsive to the concerns you have 
raised? You may answer any way you choose. Mr. Rhodes?
    Mr. Rhodes. Yes, I am happy to go first. Thank you, Senator 
Schumer. We do think we have been listened to. We think many of 
our concerns have been addressed, and that is why in the 
context of an overall bill that addresses our additional 
concerns about IPR and PGR, we would look forward to supporting 
the bill as a whole moving forward.
    Senator Schumer. We have been mindful of your concerns, 
because you have a lot of expertise in your organization.
    Mr. Hadad, who represents retailers who have just all of a 
sudden been right in the cross hairs of these horrible trolls.
    Mr. Hadad. I represent Bristol-Myers Squibb, and I agree 
with----
    Senator Schumer. Sorry. Represents pharmaceuticals.
    [Laughter.]
    They retail pharmaceutical drugs.
    Mr. Hadad. In the interest of time, I agree with Mr. 
Rhodes' characterization.
    Senator Schumer. Right. J.C. Penney, a retailer, agrees as 
well. That is who I was referring to.
    OK, Mr. Chairman. My time has expired.
    Chairman Grassley. Senator Lee.
    Senator Lee. Thank you, Mr. Chairman, and thanks to all of 
you for your help and for your insight today.
    I would like to thank all of the other original 
cosponsors--Senators Leahy, Cornyn, Schumer, Hatch, and 
Klobuchar--for their work in putting together this really 
important legislation.
    In the last Congress, Senator Leahy and I proposed 
legislation to deal with abusive patent practices directed at 
small businesses: sending demand letters, extorting money, and 
filing expensive patent infringement lawsuits filed against 
retailers and other end users of products instead of against 
the manufacturers of those products. We are pleased to report 
that in the PATENT Act, with the support of a bipartisan array 
of cosponsors, we will finally be able to enact these reforms. 
It has been a pleasure working with this great bipartisan group 
and with so many people in the industry who have provided such 
valuable insight.
    I would like to start with you, Ms. Lettelleir. You said in 
your testimony that you support a statutory customer stay. I 
just want to make sure that everyone understands why that is 
important. J.C. Penney is in the retail sales business. You all 
do not manufacture technology or design complex software for a 
living, right? You sell clothing and you sell other 
merchandise. You do not know anything about the microprocessors 
in the bar code reader or some other technology that you use in 
order to get on with your business. When you get slapped with a 
patent infringement lawsuit over some product that you did not 
design, that you did not manufacture, you are not going to be 
able to evaluate the merits of that suit. The manufacturer has 
to do that. Yet, according to your testimony, district courts 
are currently somewhat reluctant to stay litigation against 
retailers or against end users, even when the manufacturer is 
already defending its patent litigation.
    Can you tell us a little bit more about that and about how 
you think the customer stay language in this bill will help in 
the industry?
    Ms. Lettelleir. Yes, thank you for your question, Senator 
Lee. We have been called upon to defend various aspects of 
technology we have acquired from other companies, companies 
like Cisco, companies like Oracle, intel processors, the whole 
array of technology that you can imagine we have been called 
upon to try and defend. You can imagine when J.C. Penney is 
sued on the premise that an intel chip that resides in its 
point-of-sale terminal in its store, that we are at a severe 
disadvantage in terms of even beginning to defend that 
technology. We do not have access to the evidence that would 
even be required to defend that.
    A customer stay is very important to us with respect to 
those particular types of suits. It is not all the suits that 
we see, but it is a good percentage of them. I think the 
customer stay provision is really geared toward getting to the 
truth. Does the chip infringe? It addresses the issue of who is 
the best party to defend that issue, and we feel it is the 
manufacturer, and we think that the language that has been 
carefully crafted to balance all the different interests of the 
different stakeholders is the best way to get to that result. 
It does not absolve us of liability, but it does shift the 
burden of proving and addressing the infringement allegations 
to the manufacturer who actually supplied the technology.
    Senator Lee. Thank you.
    Mr. Rhodes, you have been focused, and appropriately so, on 
ensuring balance in our litigation reform proposals. You have 
been an honest broker in this process, and I hope you know how 
much we appreciate that.
    Are you satisfied that under our proposal eligibility for a 
customer stay is sufficiently far down the chain of 
distribution?
    Mr. Rhodes. Yes, thank you for the question, Senator Lee. I 
do think that we took careful pains, as I mentioned earlier, in 
the definition of who a ``covered customer'' is to limit it to 
retailers and end users who are reselling products from covered 
customers who are in a position to defend the case. They have 
not manufactured, they have not modified the product in a way 
that gives rise to the charge of infringement. They are well 
positioned if they have done that to defend based on their 
modifications.
    I think with those protections in place, we are not talking 
about absolving people of liability. I think that is an 
important principle on which I agree. We are talking about, in 
the first instance at least, having the parties well positioned 
to defend the case have the first and foremost role in 
defending it.
    Senator Lee. Thank you very much.
    I see my time has expired. Thank you, Mr. Chairman.
    Chairman Grassley. Thank you.
    Senator Durbin.
    Senator Durbin. Thank you, Mr. Chairman.
    Chairman Grassley. Senator Durbin, and then it will be 
Senator Perdue. I am going to go to Agriculture for a few 
minutes.
    Senator Durbin. Thank you, Senator. Let me thank the panel.
    Throughout the morning we have heard the word ``balanced'' 
used repeatedly. I thank you for coming here to testify, but it 
appears that this panel is divided between those who love the 
bill and those who really love the bill.
    There are some people who may not be in that category. They 
include the National Venture Capital Association, which said of 
this bill, ``We think as presently worded it will raise the 
cost and risk of patent litigation for startups that need to 
defend their intellectual property against much larger 
incumbents and will discourage investment in any new company 
that wants to enter lines of business where patents are 
important.''
    The U.S. Alliance for Startups and Inventors for Jobs said 
of this bill, ``It will make it far more difficult for small 
companies to protect and enforce their patented technologies 
against larger competitors.''
    There is another side to this story which has not been 
given a chance to speak this morning, and I hope that during 
the course of considering this bill we can reflect on it.
    Let me also say to Mr. Chandler from Cisco, I do not think 
you started with your strongest argument, your strong argument 
that you spent $50 million in legal fees defending against 
these nuisance lawsuits. The revenues of Cisco last year were 
$47 billion; $50 million represents one-tenth of 1 percent of 
your revenues. It is as if a $1 million corporate making 
$20,000 a week had to spent $20 a week in legal fees. Let me 
ask you, since both you and Mr. Rhodes represent companies that 
have patents, how many patent lawsuits did you file to protect 
your patent lawsuits last year?
    Mr. Chandler. We filed one lawsuit last year.
    Senator Durbin. Only one?
    Mr. Chandler. Only one.
    Senator Durbin. Mr. Rhodes?
    Mr. Rhodes. We filed--over the last 5 years, 60 percent of 
our patent lawsuits have been patent--when we have asserted our 
patents against others. We currently have a dozen of those 
suits pending and only three cases that we are defending.
    Senator Durbin. This is what it gets down to is Large 
corporations either filing one or more lawsuits have the 
resources to play under this new law as proposed, because it 
takes quite an effort under the proposed law to assert your 
rights under a patent. You have the requirement of detailed 
pleadings. You have the reduction of opportunities for 
discovery. You have fee shifting, and in a great number of 
cases at least leads to the possibility of fee shifting, which 
could discourage the small patent holder.
    One small business witness said in the Small Business 
Committee, ``If you need to pay $5 million in order to assert 
your patent rights, that is not petty cash for me. It is taking 
my house, my spouse, and my children.''
    This responsibility that is put into the law makes it much 
more difficult than it might for Cisco or for 3M.
    Ms. Samuels, the case that you referred to here, the Jump 
Rope case, where a patent troll called Smart Options sued them, 
you are aware of the fact that the court awarded fees after 
finding that Smart Options, the patent troll, failed to perform 
even minimal due diligence before suing.
    Ms. Samuels. That is right, Senator Durbin, but then the 
patent troll came back and sued again under new patents, and 
they have just recovered a small fraction. What I would like 
to----
    Senator Durbin. Do you know what percentage of cases now 
recover fees for this type of nuisance litigation under patent 
law?
    Ms. Samuels. I understand it is still a very, very low 
percentage, and in certain districts it has not happened at all 
since the----
    Senator Durbin. It turns out, according to the Federal 
Circuit Court Bar Association, defendants have a 50-percent 
chance of winning these fees. It is not as if we are dealing 
with a remote possibility. Under the current law, a 50-percent 
chance of winning these fees.
    Ms. Samuels. Fees are not granted in 50 percent of patent 
litigation.
    Senator Durbin. This is the Federal Circuit Court Bar 
Association. You are welcome to look at their report.
    May I ask the panel here, particularly those who are 
representing the larger corporations, there are exemptions 
built into this law, exemptions from fee shifting, pleadings, 
and discovery. One of the exemptions relates to bill--patent 
infringement lawsuits between generic and brand-name drug 
companies. In other words, the bill protects this one type of 
patent litigation from the burdens and risks the bill would 
impose on all other patent holders.
    I am not saying that drug patent cases should not be 
exempt. Maybe they should. Why does the bill draw the line 
there? Shouldn't we also protect original inventors in the 
bill? They are not trolls. They earned their patent. What about 
small businesses and universities? Can you tell me why we have 
carved out one group in this bill to say that they would be 
exempt from the more demanding procedural requirements than 
these other categories? Would anyone like to----
    Mr. Hadad. Senator Durbin, I will, since I am in the 
industry. As you know, with cases under 271(e), or the so-
called Hatch-Waxman procedure, these cases have to get done 
within a 30-month period--that is sort of a statutory mandate--
because that is the period where the FDA is stayed from 
approving any products while a litigation is pending. Anything 
that would delay the case would somehow maybe derail, I think, 
the balance of that statute, and that is, I believe, why those 
exemptions are in there.
    When it comes to the fee shifting, I have to say I have a 
bit of mixed feelings about that one myself, because I believe 
that the standards for behavior in cases should be applied 
equally in all cases, and so I do not see the need to 
necessarily differentiate here.
    Senator Durbin. I may come to a different conclusion as to 
fee shifting, but I would say that since we are dealing with 
patent trolls, which, according to the GAO, represent 20 to 25 
percent of all the patent litigation, this new proposed law 
applies to all patent litigation, I think--except for the ones 
that I mentioned, the expectation that was made.
    I yield back to whoever is presiding. I think it may be 
Senator Lee at this point.
    Chairman Lee. [Presiding.] Thank you.
    Senator Perdue.
    Senator Perdue. Thank you, Mr. Chairman, and thank you, 
panelists, this morning for your testimony.
    You know, in my experience--I have been on both sides of 
this in my career--the economic boom of the last 70 years is 
really attributable, in my opinion, to three things: one is 
innovation; two is our ability to form capital; and, three, the 
rule of law. Unfortunately, today we face abuses in several of 
those areas, and I have got a real concern that we find the 
right balance that does not hinder our ability to form capital.
    Ms. Samuels, I think you mentioned this earlier, 
particularly as it relates to the fee shifting part of this 
bill. Can you give us your views? You are the closest to--I do 
not know how many rounds you have been through. I am part of a 
little startup--have been part of a little startup. We went 
through four rounds, and I know what impact this can have on 
small companies' abilities to raise capital.
    I share Senator Durbin's concern about the small player, 
the young player, getting from that angel stage into the 
venture capital stage, and then being hit by a fraudulent or 
problematic lawsuit that is totally frivolous.
    Ms. Samuels. Thank you for the question, Senator Perdue. As 
a preliminary matter, the VC community--and particularly the 
venture capital community that invests in high-tech, high-
growth entrepreneurship, that invests in software companies--by 
and large supports this kind of comprehensive legislation. I 
can happily provide lots of examples. I have some written down, 
but I would rather just get to the meat of what is going on 
here. I think what we see is that those venture capitalists who 
are investing in small startups, their interests are so closely 
aligned with the small startups, of course. It is in their 
benefit to see those startups succeed.
    When a patent troll comes after that company, you run into 
a lot of problems because a small company, even backed by 
venture capital, does not have a lot of resources to fight 
back. That is incredibly problematic.
    I think, you know, to address some of the things that 
Senator Durbin said that play into this, there is some concern 
that this kind of legislation makes it harder to attract 
investment. I do not think that is true at all. This 
legislation is a compromise piece of legislation. It is really 
measured.
    The kinds of things that this bill wants a company to do 
before filing suit, like basic due diligence, are the kinds of 
things anyone should do before they take advantage of the 
Federal court system in our country.
    Senator Perdue. Right. Thank you very much.
    Ms. Samuels. Thank you.
    Senator Perdue. Ms. Lettelleir, I competed with Penney and 
I also sold to Penney, but welcome this morning. I just have a 
question about balance. We have heard that mentioned several 
times today. The balance I am concerned about is between, you 
know, the focus on pleading and the initial disclosure 
provisions of the bill. Can you speak from your perspective 
about have we found that balance? Or do you still have 
concerns?
    Ms. Lettelleir. I think the bill has done--it presents a 
very finely crafted compromise position between all the 
stakeholders, and I think that it achieves what we will need to 
make meaningful changes to the system. You know, as a target of 
this type of litigation, we receive just ridiculously broad 
assertions.
    For example, I just received one last month that they list 
a patent number and then beside it they have only the word ``e-
commerce,'' and that constitutes my notice of what they are 
alleging. I do not even know where to start in terms of 
analyzing the potential risk, whether, in fact, I should seek a 
license, or if I think that, in fact, we do not actually 
practice the invention.
    I think that the pleading requirements that are set forth 
will be very helpful, I think the requirements in the demand 
letters will be very helpful, in terms of moving the ball down 
the path in a less expensive way for all the parties.
    Senator Perdue. Thank you.
    Mr. Rhodes, relating to demand letters, in your written 
testimony I think you suggested that provisions of the bill on 
abusive demand letters may encourage a ``sue now, talk later'' 
approach. I would like to give you an opportunity to expand on 
that, because we are really trying to make sure that these 
provisions will actually--well, basically you are saying that 
this increases the likelihood of litigation. Is that correct? 
Is that a correct observation from your testimony?
    Mr. Rhodes. Thank you, Senator Perdue, and that is the 
concern. I think the risk is if companies that want to put 
others on notice of their patent rights confront the current 
landscape that we are dealing with, with demand letters, the 
risk may be too high, and we may be incented into a ``sue 
first, talk later'' strategy--not because we do not want to get 
the information out there, but because the risks of doing so 
under the current regime are too high. What I mean by that is 
two problems and two proposed solutions.
    One is if it is not clear what the rules of the road are 
with respect to a particular demand letter, you might not know 
what you should or should not put in the demand letter. And 
people just want clear rules of the road. We do not have that 
today because different States have different rules now where 
they have legislated demand letter provisions. What we would 
like is national uniformity, consistency. We are asking that 
the U.S. FTC be allowed to enforce the uniform standard. If 
they do not, State Attorneys General would be empowered to step 
in and enforce that uniform standard. But it would be uniform 
so we would not have to wonder, you know, what we put in a 
letter in this State or that State.
    We also think the addition of a bad-faith requirement, as 
is in the bill proceeding in the House Energy and Commerce 
Committee, would be helpful to help really distinguish the 
truly bad-faith assertion letters that we heard about from some 
of the panelists this morning, from parties legitimately trying 
to put others on notice of their rights or promote licensing 
discussions, who may, for whatever reason, make a mistake.
    Senator Perdue. Thank you.
    I will now yield to Senator Klobuchar, who I think is next.
    Senator Klobuchar. Very good. Thank you very much. Thank 
you to all the witnesses. I know we have mentioned all of the 
cosponsors of this bill many times, but I also want to thank 
Senator Coons for his work. He knows a little bit, having been 
a counsel in the past, about how important it is to protect the 
rights of patent holders, as well as in a previous life in the 
private sector, as well as the work of Senator Durbin. I know 
people have some differing views here, but I think this is very 
important, and I really came around to working with our patent 
holder companies and making sure that there were provisions in 
the bill, as Mr. Rhodes has expressed, that make sure that we 
can differentiate some between legitimate assertions of patents 
and then the troll situation.
    I do not know if anyone has brought out this stat, but 
there were more cases filed by patent trolls in 1 month, in 
January 2015, than in the entire year of 2004--250 compared to 
234, just to give a sense of this changing problem and why we 
are doing something about it today.
    I also believe that we need to make some--look at some of 
the additional needs with this bill, and I deeply appreciate 
everyone's willingness to work on this issue.
    I thought I would start with one of the most poignant 
examples that I heard when I did a roundtable with 50 patent 
lawyers in Minnesota. It was a lot of fun. I heard at the 
roundtable the story about an infusion pump used to administer 
critical medicines to patients, including premature babies. The 
maker of the pumps has been sued by a patent troll who is 
claiming that the patent on the--that the infusion pump 
infringes on a fuel delivery system that is intended for the 
use in tractor-trailers. The litigation reforms in the PATENT 
Act are aimed at stopping, of course, these kinds of abuses.
    I have also heard, of course, from small inventors who are 
concerned about how this legislation might affect them, so I 
guess I would start with you, Ms. Samuels, and how you balance 
that, the small inventor's interest and then the effect on so 
many businesses across the country.
    Ms. Samuels. Thank you for the question, Senator Klobuchar. 
For starters, we have in our network of startups people who 
strongly support this reform and are patent holders themselves, 
and I think it is because we have crafted the kind of 
compromise here that I really do not believe puts much of a 
burden on a small patent holder. I mean, you are talking about, 
before you file a lawsuit in Federal court, doing certain due 
diligence. The fee-shifting standard, for instance, that you 
bring an objectively reasonable case, that is the kind of 
behavior we want to incentivized, right? And ``objectively 
reasonable case'' does not mean you have to win. You can lose 
and not get your fee shifted, right? You just need to give some 
thought before you go and sue someone in Federal court.
    I think--you know, to take a quick step back, I think part 
of the problem here is there is this knee-jerk reaction in a 
lot of what we are discussing, where people just assume that a 
patent is, as someone else said, some kind of God-given right 
to make money, and it is not. A patent exists to incentivize 
innovation, the progress of science and useful arts. And that 
is what we are talking about here.
    I actually think, to answer your question, that the 
balancing act that this bill does both protects small 
businesses who are targeted by trolls, but it also protects 
small businesses who have patents and want to assert them.
    Senator Klobuchar. OK. Thank you.
    Mr. Rhodes, as I mentioned in your introduction, innovation 
has been key to your company. You brought the world the Post-it 
Note, as we know, and as you point out in your testimony, some 
stakeholders continue to claim that the customer stay provision 
is subject to abuse that will harm legitimate patent rights. Do 
you agree with this concern?
    Mr. Rhodes. Thank you for the question, Senator Klobuchar. 
I do not. As I mentioned earlier, I think really the trick 
there was that delicate three-part negotiation: the patent 
holder, the covered manufacturer, and the covered customer. We 
really focused at the end of the supply chain so that the stay 
would be available for retailers or end users who really should 
be in the position of obtaining a stay.
    Senator Klobuchar. When you and I talked yesterday, you 
talked about some of the additional reforms that you thought 
could be helpful here. Do you want to enumerate those?
    Mr. Rhodes. Yes, and certainly I mentioned those this 
morning with the post-grant review procedures and inter partes 
review procedures in the Patent Office. I mentioned, you know, 
three buckets of interlocking reforms that we would like to see 
added to the bill: at the institution phase, leveling the 
playing field there; having sort of the hybrid approach where 
claim amendments could be considered if a patent owner elected 
to take the patent into a reexamination or reissue proceeding; 
and then for those claims that are examined--or, I am sorry, 
are adjudicated under IPR and PGR proceedings, making those 
consistent with the court.
    I would just like to emphasize that on the litigation 
pieces we have listened to the concerns of those who have 
called for changes to litigation practice to address imbalance 
and unfairness. We would now ask for the same attention and 
concerns on our side to what we perceive to be imbalance and 
unfairness to be brought to real solutions on the IPR and PGR 
front. Thank you.
    Senator Klobuchar. Thank you very much.
    Chairman Grassley. [Presiding.] Now, we have Senator 
Tillis.
    Senator Tillis. Thank you, Mr. Chair.
    Mr. Hadad, I had a question for you. I have heard from a 
lot of pharmaceutical companies about maybe one of the 
unintended consequences of the America Invents Act is some of 
this economic espionage that is going on with manipulating 
stock prices. I think you mentioned some of that in your 
opening testimony.
    Do you believe in the bill's current form that it 
adequately address those threats going forward?
    Mr. Hadad. No, it does not.
    Senator Tillis. Can you give me some idea of what we could 
potential look at that would improve our standing in that area?
    Mr. Hadad. Absolutely. Today I enumerated three proposals 
modifying the U.S. PTO's post-grant review proceedings which 
would make them more fair. What we are asking for is--and I 
just want to make it clear. BMS and other industry members are 
on both sides of this issue. Yes, we are patent holders, but we 
are also defendants at times. What we are looking for is a 
proceeding which is fair, which is a faster, cheaper, and 
analogous proceeding to what is going on in district court, but 
one that does not arrive at greatly different results every 
time, which is what we are seeing right here.
    The things that you mentioned about hedge funds trying to 
torpedo patents and take advantage of the stock market anxiety 
around this are really a symptom of an underlying condition. 
The underlying condition is these proceedings are at least 
perceived to be slanted against the patent holder, and they 
just need to be balanced.
    I also just want to follow-up, too. We have talked a lot 
about startups today and concerns of startups around patent 
assertion entities, but I would also want to point out that 
there are a lot of startups in the biotech area, and those 
startups, when bigger companies are looking to do deals with 
them, they have to have IP protection, meaningful IP protection 
for that investment and for that drug to be developed. I do not 
want that to be lost in the mix as well. Thank you.
    Senator Tillis. I talked with a pharmaceutical company down 
in North Carolina, the CEO, and we were talking about, because 
of this uncertainty, the long-term impact it has on very 
important business decisions. This particular company is in the 
middle of getting an Alzheimer's treatment drug ready. It is 
about 4 years out. They have to start making decisions about 
manufacturing capability today, billion dollar investments. 
With this level of uncertainty, it really changes the matrix 
for them in terms of making those sorts of capital 
expenditures, which are delaying good outcomes that the 
pharmaceutical industry is poised to provide.
    I do have another question. Mr. Rhodes, this may go to you 
because you mentioned, I think, a case for preemption. 
Generally speaking, I do not like the Federal Government 
preempting States' efforts. I understand the complexity that 
comes from having different rules in different jurisdictions.
    Last year, when I was Speaker of the House, we actually 
passed a bill that I think actually goes further. It 
essentially created a cause of action against entities who 
assert a bad-faith patent infringement and claims or who made 
bad-faith infringement assertions and demand letters.
    Do you believe that--it sounds like you would be arguing 
for a position that this may be preempted. Do you believe that 
the bill right now preempts that sort of law in North Carolina?
    Mr. Rhodes. Thank you for the question, Senator Tillis. I 
do not believe there is a preemption in the bill as introduced, 
no. To be clear, you know, what I am seeking, I think what the 
overwhelming majority of patent holders in this country are 
seeking, are, as I said, clear rules of the road so there is no 
ambiguity or confusion as to what we should or should not put 
in our demand letters. We have no wish to send out false or 
deceptive demand letters. We just want to know what we can put 
in the letter in this State or that State. You know, much like 
we are trying to make sure that we have a level playing field 
outside the U.S. with our trading partners and their patent 
laws, within the U.S. we would like that same kind of level 
playing field and certainty and uniformity.
    Patent law has always been a creature of Federal statute. I 
think it is really up to Congress, the Federal courts, and 
Federal agencies to develop that policy, and there is certainly 
a role for concurrent enforcement, but I would like that to be 
a uniform standard for enforcement.
    Senator Tillis. Ms. Lettelleir, the customer stay 
provision, the thing that concerns me is the way that that 
process could be gamed in terms of maybe technologies that have 
a 24-or 48-month cycle, components of products that may be a 
brand, and people could game the system to where it would be 
very difficult for someone who ultimately proves that their 
patent has been infringed upon actually collecting anything. Do 
you think there are safeguards in the proposed legislation 
against that?
    Ms. Lettelleir. I think that the very fact that the 
customer stay does not absolve the end user from liability, 
from the recovery potentially of damages, is the safeguard. It 
is just the way it mechanically would work. All it really would 
do would pause the cause of action against the end user while 
the manufacturer case proceeds on liability questions. Then at 
the conclusion of that, whatever may remain in terms of issues 
to be resolved with the end user simply picks back up, and you 
continue down that path. I do not see there--it does not really 
significantly delay or hinder their ability to be made whole 
if, in fact, there was infringement.
    Senator Tillis. My question more is once they get to the 
original offending entity, whether or not there is anything 
there to help make them be made whole. My time has expired. We 
will follow-up with questions. Thank you.
    Chairman Grassley. Thank you, Senator Tillis.
    Senator Franken.
    Senator Franken. Thank you, Mr. Chairman.
    Mr. Rhodes, I appreciate that you are here to offer 3M's 
perspective, and I know that abusive tactics have harmed 3M, as 
well as other Minnesota companies. I also understand that your 
business relies heavily on the continued strength of the United 
States patent system, and I remain hopeful that we can support 
that system with narrowly tailored legislation that targets bad 
actors while preserving our innovation economy.
    I know you have been involved in the discussions 
surrounding the PATENT Act, but you also wrote in your 
testimony,``. . . we do not believe that the PATENT Act is 
ready to be reported out of this Committee just yet . . .''
    Can you tell me how your perspective has changed over the 
last year overall, but also and specifically as it relates to 
the growing popularity of post-grant review proceedings?
    Mr. Rhodes. Yes, thank you very much for the question, 
Senator Franken. I think my perspective over the last year has 
changed in two respects: one is I am very much appreciative of 
the work that has been done by the Committee and their staffs 
to address some of the imbalance and concerns that we had 
expressed with the bill that--or prior bills that had been 
introduced. I agree this is different and improved in many 
ways.
    I think concurrently with that, the concern has growing--
has been growing with respect to the IPR and PGR proceedings in 
the Patent Office. We now have over 3,000 of those filed, we 
think under procedures that are not fair even beginning at the 
outset, where the challenger can put in all of its evidence to 
begin a review; the patent holder really has to respond with 
one hand tied behind its back and cannot put in testimony to 
rebut expert testimony put in by the challenger. The same body 
then decides on that incomplete record that it is more likely 
than not that one of the claims is invalid. That same body then 
carries through and is sort of in a position of justifying that 
initial decision in the final ruling.
    When you get into the proceedings, the right to amend 
claims that was codified in the AIA has effectively been 
negated. The way the rules have been set up, only a very small 
handful of amendments to claims have ever been granted. We 
think taking the amendment process out of perhaps what is not a 
good mix in the context of IPR and PGR and putting in a new 
hybrid process where you could have an effective ability to 
examine amended claims and BRI would make sense is a way to go. 
Then for those claims that really are adjudicated in IPR and 
PGR, those are supposed to be faster, more cost-effective 
alternatives to district court litigation. Let us make them 
that.
    You know, again, as was said this morning, we want to have 
consistent among courts. I think we ought to also have 
consistency among adjudicatory bodies when they are looking at 
patent claims. We ought not to have, as in the example I listed 
in my testimony, 4 years of district court litigation and then 
all the way up to the Federal circuit, a patent claim is 
upheld, its validity is upheld, and then you turn around and 
get an IPR petition that expressly leverages the difference in 
claim construction between the two to start over from scratch? 
That is not what--I would submit that is not what Congress 
intended when it set up these procedures of the AIA.
    Senator Franken. Thank you.
    Mr. Hadad, in your testimony you focus heavily on 
statistics that some in the pharmaceutical industry have argued 
demonstrate a pro-challenger bias in the post-grand review 
proceedings. What would you say to those on the opposite side 
who say that these statistics actually reflect the fact that 
the PTO has all too often issued overly broad patents? In other 
words, the people on the other side would say that these 
statistics demonstrate that these proceedings are serving the 
precise function they were intended to. What would you say to 
that?
    Mr. Hadad. Thank you, Senator Franken, for the question.
    I think when you look at the analogous proceedings in 
district court, I think no one has thus far, in my mind, 
criticized the excellent work the district courts have been 
doing in adjudicating patents in terms of the merits. The 
procedure has been somewhat onerous, the discovery and the 
like. Those statistics, from what I understand, are far lower 
in terms of the overturning of patents, certainly around, I 
think, 40 percent or so from the last statistics I saw. When 
you look at the USPTO, that is about a 75-percent rate of 
invalidation.
    I think that delta tells a story that suggests that perhaps 
if there were level standards, as I mentioned earlier, Senator 
Franken, they would consider these things in a corresponding 
way. I do not think bad patents would survive more reasonable 
standards any more than they would under these current 
standards. I think bad patents will go down in either case.
    Senator Franken. OK. Well, thank you.
    Thank you, Mr. Chairman.
    Chairman Grassley. Senator Coons.
    Senator Coons. Thank you, Chairman Grassley, for calling 
this hearing. It is my hope that this will be the first of 
several hearings on the proposed reforms to the patent system 
and that we will have an opportunity to hear from as broad a 
range as possible of the folks who will be affected by the 
proposed changes, including some of the critical voices not on 
today's panel, which I think essentially includes small 
businesses who rely on patent protection for attracting 
investment, especially in the bio and pharma and materials 
spaces and the venture capital community that invests in them.
    While I congratulate my colleagues on their bipartisan 
effort, this is not a bill that I can support. While it has 
made progress and is less bad than H.R. 9, currently under 
consideration in the House, there are still, in my view, two 
central concerns that I have in reviewing this act.
    First, the reforms in this bill that will make it harder to 
enforce patents are not targeted toward trolls but will affect 
all patent holders. What this will mean in practice is that 
small investors, small inventors, startup businesses taking the 
biggest risks will be potentially hit the hardest by the 
proposed litigation reforms.
    Second, the bill contains nothing to encourage the 
innovation that our patent system is designed to support. In 
particular, there is nothing in this bill to remedy the well-
documented abuse of post-grant proceedings, and I greatly 
appreciate the comments of my colleagues Chairman Grassley and 
Senator Cornyn who have expressed a desire to incorporate 
improvements in these areas in markup.
    Allow me to briefly elaborate on both points, if I might.
    I am starting with the bill before us today. Our panelists 
have described some truly egregious conduct by trolls, 
including companies sending thousands of letters to small 
businesses or retailers and a company suing based on nearly 
expired patents. Yet none of those circumstances are 
limitations actually embedded in the provisions of this bill. 
Instead, it changes the rules for all patent holders.
    Specifically the provisions in heightened pleading 
requirements, delayed discovery, enhanced fee shifting do not 
even attempt to distinguish between patent trolls and the 
startups and small businesses across America that are 
potentially creating jobs and making new discoveries and 
delivering life-saving cures. We can make that distinction, and 
we must. The patent system is simply too important to make 
speed the ultimate goal of our efforts rather than accuracy.
    Several of you have described it as a Rubik's Cube, a 
complex system where there is a real risk of unintended 
consequences, and I think, frankly, the point about post-grant 
review makes that abundantly.
    Do not just take this from me. I have a letter--and, Mr. 
Chairman, I would ask permission to enter this into the 
record--from the National Venture Capital Association, which 
does----
    Chairman Grassley. Without objection, so ordered.
    Senator Coons. Thank you.
    [The letter follows as a submission for the record]
    Senator Coons. Which does speak on behalf of all of the 
venture capital community, that speaks to the significant 
unintended consequences that we may face, and I quote: ``It is 
important to recognize a patent is only as strong as the 
owner's ability to enforce it and the awareness of others of 
that ability. If the bill as written were to pass, NVCA 
believes both of these parameters would be impaired, making it 
more difficult to invest in early stage companies working on 
life-saving cures or significant breakthroughs.''
    To further understand these views, I encourage any of my 
colleagues or staff to watch the hearing and associated 
testimony from the recent Small Business and Entrepreneurship 
Committee hearing chaired by Senator Vitter. In that hearing, 
we heard from Rachel King, CEO of a small biotech company 
developing potentially life-saving treatments for blood 
cancers. She testified, quote ``If the ability to enforce 
patents becomes limited due to excessive lawsuit filing 
requirements or undue delays, third parties would be less 
likely to invest in or license our technology, and major 
sources of R&D funding would dry up.''
    We also heard from Robert Schmidt, co-chair of the Small 
Business Technology Council, who expressed fear that weakening 
patent laws would only benefit large, dominant firms in 
maintaining their market power.
    On the second issue, there is nothing in this bill that 
helps inventors attract investment to find new cures or disrupt 
current technologies, and I am pleased to hear Mr. Chandler's 
testimony in which he acknowledged that recent abuses of post-
grant review is outrageous and the expressed concerns by Mr. 
Rhodes and Mr. Hadad that these need to be addressed. My STRONG 
Patents Act, which Senator Vitter has joined Senators Durbin 
and Hirono in cosponsoring, really would address IPR abuse, and 
I would be interested, if I might, Mr. Chairman, in hearing Mr. 
Hadad speak to what are the changes in IPR and PGR proceedings 
that you would like to see incorporated into the bill. Since 
Mr. Rhodes has already had an opportunity to address that, I 
would be interested, Mr. Hadad, in how you see the changes 
needed to really deal with this issue.
    Mr. Hadad. Thank you, Senator Coons, and thank you for your 
concerns and considerations of these issues in your STRONG 
Patent Act.
    Many of the proposals that I brought up have analogous 
provisions in the existing text of the STRONG Patent Act. There 
are refinements, as thinking has continued, to really target 
this to the abusive conduct and really tailor it in a way that 
makes sense. As I mentioned, having the equivalent standards as 
the district court, giving an alternative to amending claims 
through this reissue or reexamination, and then providing some 
basic fairness and equity in terms of the type of information 
you can introduce, those three areas that I said--and I think 
Mr. Rhodes agrees with--are areas that would be areas of focus 
going forward, in my mind.
    Senator Coons. Thank you, Mr. Hadad.
    Thank you, Mr. Chairman.
    Chairman Grassley. Now, Senator Whitehouse.
    Senator Whitehouse. Thank you all. Let me begin by thanking 
the cosponsors and negotiators who worked so hard on this bill. 
I am at this point in undecided mode. I am waiting to let my 
Rhode Island universities have a chance to digest the bill a 
little bit more and to have a better sense from the small 
business and startup community in Rhode Island weigh in a 
little bit more with me. I echo Senator Coons' suggestion that 
there should be more hearings on this that bring in a wider 
range of viewpoints.
    My concern is that among the different conflicts that 
inhabit this patent space includes the ones we have talked 
about, like patent holders versus patent infringers or alleged 
patent infringers; includes the difference between the 
pharmaceutical companies, which have a huge stake in a 
particular patent but want to defend it at all costs, and tech 
companies that may have a product that implicates potentially 
thousands of patents and that gives them very, very different 
motivation in this space.
    Behind all of that, as somebody who used to do a certain 
amount of litigation, is the conflict of big versus little and 
the advantage that our litigation system kind of systemically 
gives to big, particularly through the ability to just crush a 
small plaintiff with endless discovery, lots of paper blizzard 
litigation techniques and strategies that basically prevent the 
small plaintiff company from ever getting to the merits. If you 
are gigantic incumbent, then you have enormous power to crush 
potentially disruptive competition by climbing into their space 
and simply overpowering them in court. All of the moves that 
were made in this bill with respect to heightened pleading 
standards and discovery limits and adding a threat of a 
potentially game-ending fee-shift award into the equation seem 
to move in the direction of big versus little.
    I am going to need to hear a little bit more from my 
universities, which tend to represent smaller folks, and from 
small businesses. I do think that a lot of progress has been 
made.
    I do think it is also going to be important that we have a 
clear understanding, Mr. Chairman, as we go forward, that if we 
reach an agreement that is very solid in the Senate, that we 
have some reassurance that we will not just get rolled in the 
conference process and end up with a bill that looks like the 
House bill, which I think is really unacceptable to most of us 
and would do real wrong as opposed to this, which I think is--
you know, we are in the hunt on this bill, and the question is: 
Have we got it right yet?
    My basic question, I would like to ask it to each of you. 
If you want to expand a little bit, please feel free to, but I 
think it is a yes-or-no question. If you had to sit down and 
write a definition of what a troll was so that you could tell a 
troll apart from a legitimate patent holder, would you be able 
to do that? Mr. Chandler.
    Mr. Chandler. I have felt for a long time that the issue 
here is abuse of the litigation process by big and small alike 
potentially, by active companies and inactive, that certainly 
there has been a huge increase in the number of suits brought 
by companies that are basically investment vehicles for buying 
patents and litigation. The reforms we are looking at in this 
legislation should improve the patent system overall.
    Mr. Whitehouse. My point is: Can you tell a troll apart 
from other litigants? Is there a way to define--we use the word 
a lot. Would you be capable of defining it if you had to?
    Mr. Chandler. Certainly--well, I do not use the term 
because I think the problem is systemic.
    Senator Whitehouse. OK.
    Mr. Chandler. I think you have rats running through a 
maze----
    Senator Whitehouse. Mr. Rhodes----
    Mr. Chandler [continuing]. because there is food at the end 
of it.
    Senator Whitehouse [continuing]. Would you be able to 
define the term if you had to?
    Mr. Rhodes. I do not use the term because I do not think 
there is any common or understood definition to it that people 
agree on, certainly that I am aware of, and I think it is 
important----
    Senator Whitehouse. Ms. Lettelleir?
    Mr. Rhodes [continuing]. to identify behavior, not people.
    Ms. Lettelleir. I have to agree with my colleagues on that 
because I really think it--at one point it might have been more 
easily defined, say 10 years ago when this movement started. 
Over time the vortex of behavior has drawn in what previously 
might not have been----
    Senator Whitehouse. Two seconds left on my clock. Mr. 
Hadad?
    Mr. Hadad. No.
    Senator Whitehouse. No.
    Ms. Samuels. I agree. It is trolling behavior, not troll as 
a party.
    Senator Whitehouse. Got it. OK. Thank you very much.
    I yield back my time, and I guess that puts Senator Cornyn 
in charge.
    Chairman Cornyn. [Presiding.]
    Good morning. Thank you for being here today. I was just 
getting a little update on what has happened. We have a 
remarkable way of scheduling multiple meetings and hearings at 
the same time around the Senate.
    I understand there was some concern about the process 
leading up to today's hearing, and I just would like to remind 
all of my colleagues, we got very close to actually bringing a 
bill from the Senate Judiciary Committee to the floor last 
year. Senator Reid, who then was Majority Leader, reportedly 
told the Chairman of the Judiciary Committee, ``Do not bother 
because I am not going to schedule it for debate and votes.'' 
We were unsuccessful bringing the bill to the floor then, but 
it has been a 2-year process, as many of you know, because we 
have consulted with each of you, and we have had intense 
involvement with stakeholders, an incredibly diverse array of 
stakeholders. This is the second hearing we have had on this 
issue this Congress.
    I just wanted to say that to remind all of my colleagues 
that we have worked very hard to get to where we are today, 
which is not to the finish line, but we are a lot closer. My 
thanks to each of you for your contribution to help us get to 
where we are today. I realize we are not done, but we are much 
closer.
    Mr. Chandler, I understand that Senator Durbin has some 
questions about the fee-shifting provisions. This is something 
that Senator Schumer and I worked hard to try to get right. As 
a former judge--State court judge, I had some concerns about 
the presumptive fee-shifting idea. I have seen a lot of people 
lose lawsuits that were not frivolous. They just lost. In cases 
where there is objective unreasonableness of the position, I 
think one of the things that is important is to have the fee-
shifting mechanism that we have tried to put in this 
legislation to make sure that it acted as an additional 
deterrent and did justice to the people who were sued based on 
a frivolous claim.
    Could you talk about the importance of fee shifting a 
little bit more and explain why the Supreme Court's decision in 
Octane Fitness was not enough?
    Mr. Chandler. Thank you, Senator Cornyn, and thank you for 
your sponsorship of the PATENT Act.
    The Supreme Court decisions are based on a statute that 
still refers to exceptional cases and have been very spottily 
applied. In fact, in one district a judge has indicated that he 
felt it was a suggestion, not mandatory law. The number of fee 
awards still based on the principle of exceptionality has been 
very low and we do not think serves as a sufficient 
disincentive to unmeritorious litigation.
    We do--we would prefer the presumptive language in the 
Innovation Act in the House but understand the process of 
crafting this bill and are comfortable with the way the 
language is presented in the PATENT Act to address this and to 
provide the district judges with a uniform national standard, 
which has not been the result from the Supreme Court decisions 
last year.
    Chairman Cornyn. I thought it was important to have--to 
require a hearing and to require evidence be introduced at that 
hearing and then to have an opportunity for appellate review to 
keep the district judges doing what Congress intended them to 
do when it comes to considering this matter.
    Mr. Rhodes, thank you for your contribution to this effort 
and working with us. Can you explain why this fee-shifting 
provision is an improvement over current law in your view?
    Mr. Rhodes. Yes, thank you for the question, Senator 
Cornyn. I do believe that the interests of uniformity are 
important. As Mr. Chandler said, you know, we currently have 
the Supreme Court opinions. We have long supported more 
frequent fee shifting in patent cases to drive the right 
behavior. The Supreme Court in giving district courts more 
discretion is still working within the confines of existing 
Section 285, which is an exceptional case. The Supreme Court 
defined that as cases that stand out from others, but, you 
know, there is still a lot of ambiguity in that.
    I would submit that having the protections, the safeguards 
that you mentioned, as well as making it clear that fees are 
not automatically shifted--that has been one of our core 
principles. It really should target bad behavior, not parties, 
got to go both ways and be premised on, as the bill says, you 
know, behavior or conduct that is not objectively reasonable. 
There is an interest-of-justice exception at the end.
    I think there is actual protection as compared to current 
law that this statute would provide to those who are concerned 
about more frequent fee shifting.
    Chairman Cornyn. I've heard--on a different topic, I have 
heard from life sciences industries and other concerns about 
inter partes review that was created by the 2011 America 
Invents Act, and I would like to hear from people on both sides 
of that discussion here. Mr. Hadad, you have testified your 
belief that reforms to IPR are necessary, in part because of 
what you view as a high rate of invalidation of patents after 
they have been issued, and I can understand the uncertainty 
that that might create, and particularly if there are different 
legal standards that apply to litigation as opposed to the IPR 
process. Could you share your views with us on that?
    Mr. Hadad. Thank you, Senator Cornyn. Yes, I do believe the 
IPR proceedings, as they have been implemented--and I think 
they have been implemented in the best of intentions by the 
USPTO, but there is a considerable deluge of these IPRs, and 
they have to be managed. I think to some degree lost in the mix 
a little bit have been some of the procedural safeguards to 
ensure a fair and level playing field between parties.
    You mentioned the standards, and I had mentioned them 
earlier. I think what they would do would be to give basically 
analogous type of decisionmaking to the district courts and the 
USPTO. We are looking for the USPTO to be a more efficient 
forum, not to be a different forum in terms of the level of 
invalidations.I think what we are seeing is an increased lack 
of confidence in patent--for patent holders in terms of 
investment when you consider that there is effectively a 75-
percent chance that your patent at one point will go down in a 
USPTO proceeding, at least based on current statistics.
    Mr. Chandler. Senator, may I address that as well?
    Chairman Cornyn. Certainly.
    Mr. Chandler. Thank you. I think first we ought to get a 
grip on the statistics. There are 2.48 million outstanding and 
in-force patents in the United States. There have been 3,000 
petitions for IPR review. The PTO has granted about 1,300 out 
of those 3,000, and that has resulted in 391 patents having 
some or all of their claims eliminated.
    I can understand why that is painful for the people who 
have that happen. I also understand that they are going to 
petition Congress for redress.
    The fundamental issue, though, that we see is things like 
this hedge fund activity that is initiating IPRs and then 
trying to short stocks. We ought to address that directly 
through securities laws, for instance. That is not acceptable 
behavior, in our view.
    The reforms that are being proposed to the IPR process 
would basically force the Patent Office to use standards that 
were set for the district court rather than taking a fair look 
at whether a patent was granted in the first place. The types 
of standards that the PTO uses where they use broadest 
reasonable interpretation to figure out what the scope of a 
patent should be, where they do not apply a clear and 
convincing evidence standard that we put in the district courts 
because they are not the experts the way the Patent Office is. 
All that does is roll back the ability of the PTO, which was a 
fundamental part of the process that was implemented in the 
America Invents Act, to take a fair look, should this patent 
have been granted in the first place, using the same standards 
that were used when the patent was looked at in the first 
place. If a mistake was made, let us fix it. There is no excuse 
for letting a mistaken patent grant result in a 20-year 
monopoly that raises costs to customers and keeps other 
entrepreneurs out of the marketplace.
    We think there are targeted reforms that should be 
implemented, but rolling back the standards the PTO uses is not 
the right answer.
    Chairman Cornyn. I know there are different views on the 
panel----
    Mr. Chandler. There sure are.
    Chairman Cornyn [continuing]. and that is the reason for 
the hearing in the first place so we can flesh this out and we 
can hopefully make better decisions.
    Mr. Rhodes.
    Mr. Rhodes. Yes, I think that, you know, these states that 
there are 2 million patents and only 3,000 IPRs have been file 
so far, that misses the point that this is not a representative 
sampling of the 2 million patents that are in force.
    What patents do you think are being challenged right now? 
The most important ones, the most valuable ones, the ones that 
are either in litigation or that others would like to be able 
to practice. Therein lies the problem.
    There is less confidence than has ever been, and this goes 
beyond the life sciences sector that we heard from Mr. Hadad. 
There is less confidence now, when I am talking to business 
decisionmakers, about whether we can safely put investments in 
commercializing patented technology and building products based 
on that technology, can we assure investments by knowing that 
we have patent rights that can protect them. That is a less 
certain question than it has ever been. It is because of the 
uncertainty, the perception of unfairness, the reality of 
unfairness that I mentioned in several respects this morning, 
and that directly drives business decisions, and it is beyond 
the life sciences sector.
    We have proposed a series of reforms. You know, we hope 
that our ask is listened to. The same way those who said there 
was imbalance in litigation that needed to be addressed, we 
hope our concerns are listened to as well in terms of the post-
issuance proceedings.
    Chairman Cornyn. Ms. Lettelleir, I should have recognized 
you first since you are a constituent, but welcome to today's 
hearing. We have heard testimony on the alignment or we should 
not align the IPR standards with those in district courts. What 
is your view of that?
    Ms. Lettelleir. I think the one thing that is very 
important for the Committee to keep in mind as it considers 
these requests for changes is that the post-grant review 
proceedings that were adopted as part of the AIA was part of a 
carefully structured provision, and if you now go in and try 
and pick just one element of that or two elements of that, you 
disrupt the balance of what was accomplished in the AIA.
    While I have heard the arguments that there is an imbalance 
between the district court standards and the PTO standards, the 
reality is that throughout the rules governing IPR and PGR that 
have been adopted and applied, there are imbalances. If you 
just start looking to making one element of those proceedings 
line up with district courts, then you have changed 
fundamentally the balance between challengers and patent 
holders. We are very concerned of disrupting the balance that 
was achieved when AIA was accomplished.
    As challengers of patents before the PTO in the context of 
these post-grant review proceedings, we are seeing unfairness 
as to the challenger as well. There may be a broader discussion 
that needs to be had down the road, but as part of this, I do 
not think you can just take one element and disrupt the entire 
balance that was achieved in the AIA.
    Chairman Cornyn. I have gone over my time for now. I will 
recognize Senator Blumenthal, who I think is next.
    Senator Blumenthal. Thanks, Senator Cornyn, and thank you 
all for being here. Thank you for the excellent testimony. I 
had to step out to attend one of the numerous conflicting 
hearings and meetings that we find we have in the Senate.
    I am very, very interested in this dilemma. For me it is a 
dilemma. I have wrestled with it for quite some time. I 
recently heard, for example, from a Connecticut Navy veteran 
names Michael Skelps whose photography company was, in fact, 
sued by a patent troll. The troll claimed to have patented the 
idea of taking pictures at a finish line and selling them to 
racers. I am a runner. I know about these photographs at finish 
lines. They are done commonly. Michael Skelps was threatened 
with this lawsuit. In fact, he was sued, and the troll's demand 
letter contained no information about his supposed patent. It 
made the case to Mr. Skelps that it would be cheaper to settle 
than to litigate, and it announced that the troll had already 
forced nine businesses to settle with much the same kind of 
claim.
    Mr. Skelps fought it as hard as he could. He spent $100,000 
and ultimately all three of the troll's patents were 
invalidated. He won the battle. He lost the war. I learned last 
night that Mr. Skelps will file Chapter 13 bankruptcy this 
month, and within 60 days his business will be gone.
    I have heard from innovators who are afraid what could 
happen if patent reform goes too far, but I am convinced that 
there are ways to focus and target legislation to help not only 
big companies and very well resourced entrepreneurs, but also 
the Michael Skelpses of the world, of America. He happens to be 
a veteran who obviously was not going to give up without a 
fight, and he fought and he won. Ultimately, though, he lost.
    I am hopeful that we will have a result here that 
vindicates the legal rights of people in America generally, 
both the entrepreneurs and the innovators, the business people, 
and our veterans. I want to thank all the bill's sponsors. I am 
not one of them. I hope that we can improve even more on what 
has been done already, which leads to the question that I have 
for you, and I will accept volunteers. Do you think there are 
parts of the bill that can and should be improved? What would 
you do to make it better and--what always troubles me, 
especially in an area that is so complex and challenging--to 
avoid unintended consequences?
    Ms. Samuels. I can answer that. Thank you, Senator 
Blumenthal, for the question. I think that this bill represents 
a really good compromise, which means, of course, that I do not 
think it is perfect. Right? That is the definition of 
compromise. Some of the things that I wish we saw in there 
were--I wish that we were dealing with quality, like we talked 
about last year, 2 years ago, with an expanded covered business 
method review; that we more directly were talking about 
improving patent quality, which for people in my industry, in 
the small startups in the tech space and not unlike the 
photographer, Mr. Skelps--if I got that correctly.
    Senator Blumenthal. You did.
    Ms. Samuels. That is what would really help. That is the 
core of this problem. I--actually the discovery provisions have 
been dialed back some during compromise, and I wish that were 
not the case, because I was so glad to hear your story and I 
will be quick just to say that there has been a lot of talk 
today about small businesses and they hurt on both sides of the 
equation, and I think that is probably always true. In this 
instance, we are so worried about small businesses having 
access to the courthouse, and that just does not mean 
plaintiffs, but it really means defendants in these cases, so 
that you do not have to spend $100,000, $200,000, $1 million to 
defend yourself, but you can go to court and make your case. So 
thank you for the question.
    Senator Blumenthal. Thank you.
    Mr. Chandler. We would--thank you, Senator. We would 
support making sure that the discovery stay in the case of 
transfer motions, motions to dismiss, motions to sever be more 
robust. Right now it allows for local rules that could impose a 
significant amount of discovery while a transfer motion is 
being considered, and we would hope there would be an 
interlocutory appeal on the transfer motions as well. As we 
noted, 40 percent of the patent litigation is now brought in 
two judicial districts where only 1.5 percent of Americans 
live. That imbalance forces people to bring large numbers of 
witnesses and travel to places that are very, very 
inconvenient, but cases are brought there for reasons that are 
obscure to us.
    Mr. Rhodes. We would certainly hope that any of the welcome 
compromises that we mentioned would not be dialed back in the 
bill. We think that would be a big step backward.
    Beyond that, I have mentioned two areas where we think 
improvement should be had this morning--no surprise to those of 
you who have been here the whole morning--AIA reviews as well 
as the demand letter section. We think if we could couple 
changes to those with what is in the bill today, at that point 
we would be in a position where we could support the overall 
package.
    Ms. Lettelleir. Senator Blumenthal, from the Main Street 
perspective, we recognize the balance that has been struck, and 
we accept that. While we would always hope to have stronger 
provisions, we accept the balance that has been struck. 
However, any further erosion of the critical provisions of the 
PATENT Act would greatly challenge our continued support for 
the PATENT Act as introduced.
    Mr. Hadad. To finish it up, we appreciate the compromises 
in the current existing bill. We do remain concerned about 
these post-grant proceedings and believe a comprehensive bill 
addressing abusive litigation procedures would also include 
those as well. Thank you.
    Senator Blumenthal. Thank you. I want to thank you all. As 
my colleague Senator Schumer remarked at the very beginning, 
the witnesses that we have before us today reflect a consensus, 
but it also may be without some of the disagreeing views, some 
of the other views, which may not be reflected simply because 
others have not been invited for whatever reason. I think that 
this Committee has an obligation to reach out for views that 
represent the diversity and continue to work to improve it 
without necessarily disrupting the compromise that has been 
struck. Even with a compromise, I think there may be room for 
improvement.
    Thank you, Mr. Chairman.
    Chairman Cornyn. Thank you, Senator Blumenthal.
    I agree with Senator Blumenthal, there is always room for 
improvement. But we----
    Senator Blumenthal. I want to thank the Chairman for his 
role in forging this compromise, along with our colleagues 
Senator Leahy, Senator Grassley, Senator Schumer, and Senator 
Klobuchar.
    Chairman Cornyn. We have learned, even with consensus 
legislation, which this is not yet, it is still hard to pass 
legislation in the Senate. We are going to keep at it. We are 
trying to make sure that we do get the views of stakeholders, 
and we have worked very hard at that, and, again, I will thank 
you once more for your sharing that with us and working with us 
in good faith.
    This to me is the sort of important piece of legislation--
maybe it is not important on a global scale, but it is to a lot 
of people. I have heard from everybody from restaurant owners 
to hotel/motel owners to operators, to people in the building 
trades that they are somehow swept up by the patent trolls 
litigation, and it is just incredibly destructive and unfair.
    Ms. Samuels, I think you had a great phrase: ``defendants 
access to justice.'' Sometimes we focus on the plaintiffs' 
access to justice in a lawsuit but do not give adequate 
recognition to the defendants' access to justice as well.
    I might just cover with you--and I apologize if you have 
talked about this before when I was not able to be here and I 
was at one of those other conflicting meetings and hearings 
that Senator Blumenthal alluded to. How would the pleading rule 
in this proposal help small businesses?
    Ms. Samuels. Thank you for the question, Senator Cornyn, 
and I have to thank you so much for your leadership on this 
effort.
    I think the heightened pleading provision is actually one 
of the most important parts, particularly for startups, for 
small businesses, for individuals who face threats from patent 
trolls, because you need to be able to understand the scope of 
the threat you face before you can make appropriate decisions 
about how to proceed, and without basic information, you cannot 
make those decisions.
    I think this is especially true when we are talking about a 
patent system--a patent system that is a system of public 
notice. That is the point of the patent system, and right now 
it does not operate like that. When we talk about property, we 
are talking about metes and bounds. If you want to grow a 
company, make some innovation, put something out there, it is 
literally impossible right now to know the scope of your rights 
because there is no information out there to help delineate 
that. The heightened pleading requirement would help fix that 
problem.
    Chairman Cornyn. Mr. Rhodes, you testified to the 
safeguards and the pleading rule. Would you describe those and 
perhaps explain those a little more?
    Mr. Rhodes. Yes, thank you for the question, Senator 
Cornyn. I think the trick with pleadings is to achieve, as in 
so many other areas of the bill, the right balance between 
putting all parties, both plaintiffs and defendants, on fair 
notice of the claims and the defenses at issue in the case 
without making the requirements too high or onerous that there 
is an access-to-justice issue or that the pleading targets do 
not just become a motion to dismiss--that it does not become a 
target for motions to dismiss. I think, you know, that is a 
balance we are trying to strike here.
    I was encouraged that some of the initial information that 
is not required to establish a claim for relief was moved to 
initial disclosures, so that cannot serve as the basis for a 
motion to dismiss.
    There is also an ability to plead matters generally, 
consistent with the Plaintiff's Rule 11 obligation, but more 
generally if information is not available to the plaintiff at 
the time the complaint is file.
    In addition, there is confirmation within the heightened 
pleadings requirement of the right to amend pleadings 
consistent with the standards in Rule 15(a) of the Federal 
Rules of Civil Procedure. I think those safeguards are 
important.
    Chairman Cornyn. If we can turn to the issue of discovery, 
if I worry about--the two things I worry about the most about 
our civil justice system is the costs and the delays necessary 
to resolve disputes. Not everybody can afford a high-priced 
lawyer or the discovery costs associated with protracted 
litigation. One of the things we tried to address here is a way 
to deal with this in an appropriate way. It is an item of 
consensus because you have plaintiffs who complain about 
discovery, and you have defendants who complain about 
discovery, too. But some, especially those with little to 
produce, rely upon the high cost of discovery to extract 
settlements regardless of the merits of the case.
    Since the introduction of the Patent Abuse Reduction Act 2 
years ago, which included a discovery stay, I have heard a lot 
from both sides about the right way to address discovery costs.
    Ms. Samuels, would you please tell us how you view the 
discovery stay in the PATENT Act and its impact on startup 
companies?
    Ms. Samuels. Of course, Senator Cornyn. Thank you for the 
question. You know, I think that a lot of what I said about 
heightened pleading is also true with regard to the discovery 
reforms in the early stays. What you are allowing startup small 
companies without a lot of resources to do is really take the 
necessary time with the necessary information to understand the 
scope of what they are facing, to understand as they make these 
decisions whether they should pay a lawyer and continue to 
fight, whether they should settle. These are the kinds of 
things we need to give these folks so that they, like we have 
talked about, have access to the courthouse.
    To be honest, while I am glad that the stay is in here, I 
wish it went farther. I wish it were to Markman. I understand 
we have a compromise and that is life, so we just think that 
anything that allows these people to get into the courthouse is 
a good thing.
    Chairman Cornyn. Mr. Rhodes, I think you touched on this, 
but let me just ask you again. Do you think we have reached a 
balanced approach on deterring frivolous litigation without 
unduly burdening patent holders who need to assert their rights 
when it comes to discovery?
    Mr. Rhodes. Yes, I think with respect to the discovery 
stay, that was a major area of concern for 3M and for 21C. As 
the original proposal that you referenced was drafted, it would 
stay discovery pending claim construction, and that is a 
complex and often protracted procedure that takes place in 
every case, nearly every patent case before the claims are 
construed. We were very concerned, as a company that makes 
investments based on our patent rights and, unfortunately, 
sometimes has to enforce those patents to prevent infringement, 
that staying all discovery in a case pending the claim 
construction process might delay our ability to get fast, 
expeditious, and effective relief.
    I think walking that back to preliminary motions does 
address concerns. The discovery proceeds while motions to 
transfer, for example, are not ruled upon. It does address some 
of that concern about discovery taking place in a court where 
maybe the case is not even going to proceed, while balancing 
the risk--against the risk of a protracted delay of that 
discovery stay as pending claim construction.
    I do disagree strongly with the pushback that we have heard 
this morning about the exception for initial disclosures. I 
think if you look across the country at the patent courts that 
have done the best job of--at the district courts that have 
done the best job of managing patent cases, a common 
denominator that you see are initial disclosure requirements, 
local patent rules that provide for an early exchange of 
information that helps narrow the issues in dispute. It helps 
identify opportunities on issues for early resolution. It helps 
identify early settlement opportunities. I think allowing that 
process to proceed in an orderly fashion, drawing upon the 
experience and the expertise of the Federal judiciary that has 
adopted that process is very important, even if we stay more 
intrusive discovery pending those preliminary motions.
    Chairman Cornyn. Thank you. I know Senator Blumenthal 
mentioned some concern about people who are not represented at 
today's hearing. I just wanted to note for the record that at 
the last hearing one of the universities were engaged, and I am 
pleased that as a result of the work we have done reaching out 
to the various university groups, we have welcomed both their 
input, and I think we were in a pretty much better place as far 
as their concerns and the compromise that we have reached, 
which is, as we have all said, is not perfect, but seems to be 
a consensus--we have reached a consensus, by and large, with 
some notable exceptions on the IPR and other areas where we 
need to continue to work.
    Senator Blumenthal, do you have any other questions you 
would like to ask?
    Senator Blumenthal. I do not. Thank you.
    Chairman Cornyn. OK. Thank you. Well, since we have run out 
of Senators and questions, thank you for your patience and your 
time, and thanks for continuing to work with us and get this 
right. Thanks. The hearing is adjourned.
    [Whereupon, at 11:54 a.m., the Committee was adjourned.]

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