<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:24582.wais] S. Hrg. 109-182 PERSPECTIVE ON PATENTS: HARMONIZATION AND OTHER MATTERS ======================================================================= HEARING before the SUBCOMMITTEE ON INTELLECTUAL PROPERTY of the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ JULY 26, 2005 __________ Serial No. J-109-35 __________ Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 24-582 WASHINGTON : 2005 _____________________________________________________________________________ For Sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800 Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001 COMMITTEE ON THE JUDICIARY ARLEN SPECTER, Pennsylvania, Chairman ORRIN G. HATCH, Utah PATRICK J. LEAHY, Vermont CHARLES E. GRASSLEY, Iowa EDWARD M. KENNEDY, Massachusetts JON KYL, Arizona JOSEPH R. BIDEN, Jr., Delaware MIKE DeWINE, Ohio HERBERT KOHL, Wisconsin JEFF SESSIONS, Alabama DIANNE FEINSTEIN, California LINDSEY O. GRAHAM, South Carolina RUSSELL D. FEINGOLD, Wisconsin JOHN CORNYN, Texas CHARLES E. SCHUMER, New York SAM BROWNBACK, Kansas RICHARD J. DURBIN, Illinois TOM COBURN, Oklahoma David Brog, Staff Director Michael O'Neill, Chief Counsel Bruce A. Cohen, Democratic Chief Counsel and Staff Director ------ Subcommittee on Intellectual Property ORRIN G. HATCH, Utah, Chairman JON KYL, Arizona PATRICK J. LEAHY, Vermont MIKE DeWINE, Ohio EDWARD M. KENNEDY, Massachusetts LINDSEY O. GRAHAM, South Carolina JOSEPH R. BIDEN, Jr., Delaware JOHN CORNYN, Texas DIANNE FEINSTEIN, California SAM BROWNBACK, Kansas HERBERT KOHL, Wisconsin TOM COBURN, Oklahoma RICHARD J. DURBIN, Illinois Bruce Artim, Majority Chief Counsel Bruce A. Cohen, Democratic Chief Counsel C O N T E N T S ---------- STATEMENTS OF COMMITTEE MEMBERS Page Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont, prepared statement............................................. 58 WITNESSES Beier, David, Senior Vice President for Global Government Affairs, Amgen, Washington, D.C................................ 12 Dickinson, Q. Todd, former Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, and Vice President and Chief Intellectual Property Counsel, General Electric Company, Fairfield, Connecticut.................................................... 5 Mossinghoff, Gerald J., former Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, and Senior Counsel, Oblon, Spivak, McClelland, Maier & Neustadt, Alexandria, Virginia....................................................... 3 Phelps, Charles E., Provost, University of Rochester, on behalf of the Association of American Universities, American Council on Education, Association of American Medical Colleges and Council on Governmental Relations, Rochester, New York......... 10 Phelps, Marshall C., Jr., Corporate Vice President and Deputy General Counsel for Intellectual Property, Microsoft Corporation, Redmond, Washington............................... 7 Siwik, Christine J., Partner, Rakoczy Molino Mazzochi Siwik, LLP, Chicago, Illinois.............................................. 8 SUBMISSIONS FOR THE RECORD Beier, David, Senior Vice President for Global Government Affairs, Amgen, Washington, D.C., prepared statement........... 24 Bureau of National Affairs, Inc., Patent, Trademark & Copyright Journal, C. Boyden Gray, former White House Counsel and Partner, Wilmer Cutler Pickering Hale and Dorr, Washington, D.C., article.................................................. 34 Dickinson, Q. Todd, former Under Secretary of Commerce for Intellectual Property and Director of the U.S. Patent and Trademark Office, and Vice President and Chief Intellectual Property Counsel, General Electric Company, Fairfield, Connecticut, prepared statement................................ 40 Mossinghoff, Gerald J., former Assistant Secretary of Commerce and Commissioner of Patents and Trademarks, and Senior Counsel, Oblon, Spivak, McClelland, Maier & Neustadt, Alexandria, Virginia, prepared statement................................... 60 Phelps, Charles E., Provost, University of Rochester, on behalf of the Association of American Universities, American Council on Education, Association of American Medical Colleges and Council on Governmental Relations, Rochester, New York, prepared statement............................................. 72 Phelps, Marshall C., Jr., Corporate Vice President and Deputy General Counsel for Intellectual Property Microsoft Corporation, Redmond, Washington, prepared statement........... 80 Siwik, Christine J, Partner, Rakoczy Molino Mazzochi Siwik, LLP, Chicago, Illinois, prepared statement.......................... 86 Teva North America, Steven J. Lee, Partner, Kenyon & Kenyon, Thomas L. Creel, Partner, Goodwin Procter LLP, Outside Patent Counsel, North Wales, Pennsylvania, prepared statement......... 103 PERSPECTIVE ON PATENTS: HARMONIZATION AND OTHER MATTERS ---------- TUESDAY, JULY 26, 2005 United States Senate, Subcommittee on Intellectual Property, of the Committee on the Judiciary, Washington, DC. The Subcommittee met, pursuant to notice, at 2:37 p.m., in room SD-226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, Chairman of the Subcommittee, presiding. Present: Senator Hatch. OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH Chairman Hatch. Good afternoon. Welcome to today's hearing on patent reform. Today we are going to focus principally on an important group of issues in the patent reform debate surrounding the proposals to increase harmonization in patent law and practice in the United States with prevailing international norms. I am pleased to note that we have really a great, top-notch panel of experts to inform our views about this highly technical area or set of areas of patent reform. We are a little bit pressed for time today because there is another important hearing in this room at 4 o'clock, so I will try and keep my remarks brief. Over the past several decades various experts, including academics, presidential commissions and blue-ribbon panels, have advocated increased harmonization between the U.S. patent system and the patent systems of other countries. Advocates of harmonization often site three different types of anticipated benefits from increased harmonization: first, faster, more predictable patentability determinations; second, decreased litigation costs in the long term; and third, reduced redundancy in patent examination and associated decreases in cost to patent holders in obtaining global patent protection. However, there are those who question the need for increased harmonization or who oppose it outright on a variety of bases. Some argue that harmonization would disadvantage specific interests or groups including independent inventors, small businesses, nonprofit entities and educational institutions. Others argue that the potential efficiencies of harmonization simply do not outweigh the perceived benefits of some of the unique aspects of patent law. I hope that today's hearing will shed some light on these and other issues that are central to the current patent reform debate. In particular, I hope that it will clarify some of the arguments from multiple perspectives regarding moving from our traditional first-to-invent regime to the internationally adopted first-to-file system, eliminating the best mode requirement, requiring publication of all patent applications after 18 months, and moving toward a more uniform definition of prior art that is closer to what is used internationally. I also suspect that today's panelists may have some comments on other aspects of patent reform proposals that are circulating on Capitol Hill, and we would be interested in hearing about that as well. I want to note that we have endeavored to achieve a balance between diversity of viewpoints and expertise on this panel, but of course, not all affected parties can testify today, so in the interest of compiling a complete public record on these issues, we invite other interested parties and organizations to submit written statements for the record. Senator Leahy is at an appropriations meeting, and he may or may not be able to arrive, but when he does we will certainly recognize him for any remarks he would care to make. As I mentioned, we are lucky to have such a truly amazing and outstanding panel of witnesses with us today. First we are going to hear from an old friend, Gerald J. Mossinghoff, former Assistant Secretary of Commerce and Commissioner of Patents and Trademarks. Mr. Mossinghoff is currently Senior Counsel at Oblon, Spivak, McClelland, Maier & Neustadt, where he continues to focus on patent issues for a wide variety of clients. Next we will hear from Q. Todd Dickinson, Former Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office. Mr. Dickinson-- and we welcome all of you here--is now Vice President and Chief Intellectual Property Counsel at GE. After Mr. Dickinson is Marshall C. Phelps, who is Corporate Vice President and Deputy General Counsel for Intellectual Property at Microsoft. Next we will have Christine J. Siwik. I think I am pronouncing that right, Christine. Is that okay? Okay. Outside Counsel for Barr Laboratories, the company she is representing here today, or at least that viewpoint. Following that we will hear from Charles E. Phelps, Provost of the University of Rochester--we are very grateful to have all of you here--who is representing the Association of American Universities at this hearing. And last but not least, we have David Beier, Senior Vice President of Global Governmental Affairs at Amgen. While I suspect Mr. Beier remains a committed Democrat, I still have hopes that he will someday see the light. [Laughter.] Chairman Hatch. I have been working on him. He has always been a great witness for this Committee and has always helped me in every way to hopefully do a better job. I want to thank you all for being here today. I really look forward to this testimony. Because of the time constraints today I may be a little stricter than usual in limiting opening statements to 5 minutes. I would ask that all witnesses attempt to wrap up their statements when the yellow light shows on this little thing in front of you, when that yellow light comes on, so that we will have enough time for as many statements and questions and as much dialogue as possible. I also want to commend our colleagues over in the House, Chairman Lamar Smith and ranking Democratic member, Howard Berman. They have done an awful lot of hard work in moving patent reform in the House, and Senator Leahy and I will continue to work with them and other interested parties. We are very interested in getting some work done that basically is correct, does the best job we can for the overall processes that we are all concerned about here. So with that, Mr. Mossinghoff, we will turn to you. STATEMENT OF GERALD J. MOSSINGHOFF, FORMER ASSISTANT SECRETARY OF COMMERCE AND COMMISSIONER OF PATENTS AND TRADEMARKS, AND SENIOR COUNSEL, OBLON, SPIVAK, MCCLELLAND, MAIER & NEUSTADT, P.C., ALEXANDRIA, VIRGINIA Mr. Mossinghoff. Thank you, Mr. Chairman. It is a great honor for me to appear before the Subcommittee today to discuss international patent harmonization, an area that I have worked at for a long time as you know. In the interest of time I am going to move to page 3 in my statement, and point to Figure 1 that is on page 3. That is an analysis done by the Japan Patent Office of the cross-border flow of patent applications among Japan, Europe and the United States last year. You see a total of 210,000 applications flown across the borders, separating those three trilateral barriers. A total of more than 940,000 applications were filed last year in the European Patent Office, the U.S. Patent and trademark Office and Japan Patent Office, 940,000. It is going to be a blink of an eye till that gets up to a million applications filed each year in those three offices. We really do need to move to deep harmonization and work sharing if we are going to do a decent job of examining that one million number of applications filed each year. An initial effort to achieve deep harmonization of patent laws within the World Intellectual Property Organization was cut short in 1997 when then Secretary of Commerce, the Ronald H. Brown, informed the WIPO that while ``international negotiations continue, [the United States] will maintain our first-to-invent system, while keeping open the option of full harmonization in the future.'' Recent efforts of the World Intellectual Property Organization's Standing Committee on Patent Law, working on a substantive patent law treaty, have not fared much better, largely as a result of a few developing countries trying to use that forum to roll back the progress that we made in the landmark TRIPS agreement. Currently, the hopes for substantive patent harmonization hinge on the efforts of a number of countries that signed a statement of intent of interested countries. They met in Alexandria in February, and April in Europe, and they are going to meet again in JPO, the Japan Patent Office, and the USPTO. I have attached to my statement an article I wrote some time ago about what a world patent system might look like, and I would appreciate that being put in the record of these hearings. Chairman Hatch. Without objection we will do that. Mr. Mossinghoff. Although there are many aspects of deep patent harmonization, none is more important than the United States moving to a first-inventor-to-file system of priority. At the end of 1997 there were two nations that used the so- called first-to-invent system, the United States and the Philippines. Effective January 1, 1998, under its Republic Act No. 82-93, the Philippines adopted a first-to-file system, leaving the United States alone in the world with a first-to- invent system. An argument is sometimes heard that adopting the universal first-inventor-to-file rule, would somehow disadvantage independent and small businesses, two classes of extremely important and productive users of the U.S. patent system. 22 years of experience indicates that that is not the case; actually, the opposite is true. Small entities were disadvantaged more often than they were advantaged by the first-to-invent system. As you recall, Mr. Chairman--it is a long time ago, but it is still very important--you introduced a bill in the Senate under President Reagan's administration to greatly increase user fees and to let the Patent Office use those user fees to run its operations rather than having them go into miscellaneous receipts of the Treasury. That bill was enacted in Public Law 97-247. A key part of the statutory scheme, which we recommended and you went along with, was that we would give a 50 percent discount to independent inventors, small businesses and nonprofit institutions, and that is happening today and has happened for the last 22 years in the U.S. Patent and Trademark Office. As a result of that, the applications now have earmarks on them. We know what applications came from independent inventors, what came from small business and what came from nonprofits and what came from large concerns. So for the first time in 1983 we have earmarks on each application. Thus, for the first time the Patent and Trademark Office can tell what happened to them in interferences. Turning very quickly to page 9 of my statement, of those advantaged by the first-to-invent system, there was 296 small entities, 289 were disadvantaged, a virtual tie. For nonprofit institutions it was 50 to 30; for small businesses, 97 to 92; and then for independent inventors, some of those most vocally in favor of first-to-invent, 139 were advantaged--on page 10-- and 167 were disadvantaged. Two things about that, one it is extremely small numbers, but during that period of time we have 4-1/2 million applications, 2-1/2 million patents, and we are talking about whether 139 were advantaged and 167 were disadvantaged. But basically on net, independent inventors did not do as well as they would have under a first-to-file system during our 22 years when we have earmarks on the applications. Thank you, Mr. Chairman. [The prepared statement of Mr. Mossinghoff appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Mossinghoff. We appreciate that. Mr. Dickinson? STATEMENT OF Q. TODD DICKINSON, FORMER UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DIRECTOR OF THE U.S. PATENT AND TRADEMARK OFFICE, AND VICE PRESIDENT AND CHIEF INTELLECTUAL PROPERTY COUNSEL, GENERAL ELECTRIC COMPANY, FAIRFIELD, CONNECTICUT Mr. Dickinson. Thank you, Mr. Chairman. I join my good friend and colleague, Commissioner Mossinghoff, in thanking you and the Committee for hearing from us today. Although we have different political backgrounds, Commissioner Mossinghoff and I are very much aligned on a number of these issues, and particularly on the great need for harmonization, which these hearings seek to address today. I enjoyed working with you and your colleagues and your staff in the past, particularly on the American Inventor's Protection Act of 1999, and look forward to working together on harmonization and the patent reform efforts which may help implement that. I am now at General Electric, and we probably have one of, if not the, broadest intellectual property portfolio almost of any other company. It is often said that we are the only company that may have won both a Nobel prize and an Academy Award. This gives us kind of an interesting and maybe a little bit of a unique position on a number of these issues, but in the area of harmonization and international harmonization, as Commissioner Mossinghoff said, this is one of our most important priorities. The breadth of these technologies and the need to protect them around the world, makes this an urgent issue for us. It is also an urgent issue I saw as Commissioner as well, helped negotiate a number of treaties and participated in a number of international organizations. I continue to do so as the American Bar Association's IP Sections Representative to the WIPO. The challenge right at the moment for international patent harmonization is that we are stuck basically at the WIPO, and there are a few reasons for that. But partly, and candidly, I think it is because there is not a general desire and there is not a sufficient incentive for the bodies to move collectively forward, and so something needs to be done. One of the issues we have talked about, Commissioner Mossinghoff addressed and I will too, the first-inventor-to-file I think is a good faith effort to move that forward. The impact of international harmonization on a company like mine is enormous. We spend something like $26 million a year maintaining our patent portfolio around the world, and a huge piece of that is a function of the redundancies in the system. Before I delve into that, I think I should for the record, as we almost always do, touch on another issue that both the recent NAS and FTC reports highlighted, and that is giving the USPTO the resources it needs to perform its critical job. Harmonization will not mean anything if the USPTO does not have the resources that it needs, and while the administration and the Congress ought to be commended for in this fiscal year stopping the fee diversion that has occurred in the past, we need to end it permanently. If we get those resources let me suggest that one area we should focus some attention is using those resources for additional examination time. Turning back to harmonization, the key question in large part, as Commissioner Mossinghoff has mentioned, is the priority question, the question of whether we grant priority to the first inventor, as we do alone, or the first inventor to file. The study which Commissioner Mossinghoff cites, a ground- breaking study, clearly shows that the process we use for determining priority is a failed promise for small inventors, even though they are the organization or the collective group which feels most impacted, or believes they are most impacted by this change. No one is more sympathetic to independent inventors than I am. I established the Office of Independent Inventor Programming when I was Commissioner. I outreached to them in every way possible. So I think I understand their concerns, but we need to get, and probably do a better job at educating them about how those concerns are not being met by the current system. I had the opportunity, when I was Director, to speak to a lot of small inventors. One day a woman from North Carolina came up to me, and she had invented a new soccer net for the children to practice with, and she was complaining, she said, because in Poland she understands people were copying that net and she was not getting anything for her invention, and that was unfair and why could we not do something about that? I had to explain to her patiently that the systems are territorial and that without an international harmonized system, her ability to protect her invention worldwide, even as a small inventor, is severely, severely compromised. One criticism of the first-inventor-to-file system is that somehow inventors may disclose their invention, someone else may find out something about it through a publication or otherwise, and race to the patent office ahead of them and file the application. They would not be the first inventor though, that is why we call this first-inventor-to-file. They would be a deriver or, frankly, a thief, and we have a mechanism that has been proposed in various legislation that is currently pending, which would deal with that question of determining inventorship in an efficient and effective manner, that would cure this problem, which is probably the leading problem. The other issue that is very important I think that links to this is grace period. We need to make sure that we maintain the grace period in the United States and that we need to build in incentives to cause other countries like Japan and the European Patent Convention to also put in place a grace period. You touched on some of the other important harmonization issues, eliminating best mode, permitting the filing in the name of the assignee, publishing all patent applications. Those are very critical. Post-grant review, which we do not have time to talk about now, is another key area which I know other witnesses will address, which we are very, very supportive of. Thank you, Mr. Chairman. [The prepared statement of Mr. Dickinson appears as a submission for the record.] Chairman Hatch. Thank you. Mr. Phelps? STATEMENT OF MARSHALL C. PHELPS, JR., CORPORATE VICE PRESIDENT AND DEPUTY GENERAL COUNSEL FOR INTELLECTUAL PROPERTY, MICROSOFT CORPORATION, REDMOND, WASHINGTON Mr. Marshall Phelps. Chairman Hatch, I want to thank you for the opportunity to be here today. Microsoft believes that our patent system is fundamentally strong, but its long-term health requires we take this opportunity to embrace reforms for the 21st century challenges ahead of us. Through its recent hearings on the opportunities to improve it, the Subcommittee has heard testimony on patent quality, the impact of excessive litigation and the benefits of promoting international harmonization. I will talk about all 3 briefly. Microsoft is among the Nation's largest investors in R&D spending, about $7 billion a year. This makes us one of the Nation's largest holders of IP rights and one of its leading patent filers. Indeed, we are a major customer of the system. Patents are a key part of our IP portfolio and that of virtually every technology company. The reasons for this are simple. Because patents provide critical protection for distinctive technologies, they encourage technology developers to license and share their technologies, and they provide a repository of accumulated knowledge. Like many companies in the IT sector, Microsoft earns more than 50 percent of its revenues overseas. While our business and that of a growing number of American companies big and small is global, there is not a global patent system. Inventors who desire protection in a particular country must seek to obtain protection in that country. A focus on promoting international harmonization and greater cooperation at work sharing among national patent authorities is key to reducing these barriers. It is essential that the U.S. recognize where its system is out of step. As you just heard, the United States is the only country that applies a first-to-invent standard for establishing priority. Every other country awards the patent to the first-inventor-to-file. In the past some have argued that this first-to-invent system benefits small inventors and should be preserved. You just heard about some recent research, and if we have questions on that, I think Commissioner Mossinghoff would be the best one to address that briefly. As we move to the first-inventor-to-file system, care must be taken to avoid unnecessary changes that would impact patent quality. For example, wholesale redefinition of what constitutes prior art is not required in our opinion for harmonization with a worldwide first-inventor-to-file system, and could serve to increase uncertainty. We also endorse USPTO publication 18 months after initial filing. The law already requires this where the invention is also the subject of a foreign patent application. We believe continued adequate funding for the agency and an end to the diversion of user fees paid to the USPTO must be a priority. In fact, if you ask me what one thing we could do, it would be that. We also believe persistent concerns about patent quality could be mitigated if interested parties were given sufficient opportunity to address questionable patents through appropriate and carefully structured administrative mechanisms. Currently the primary way to challenge the validity of a patent is through litigation. Well, patent litigation is expensive, time consuming and unpredictable. We support the establishment of a post-grant opposition procedure to enable third parties to challenge the validity of issued patents, and we also support proposals to ensure that interested parties have sufficient opportunity to alert the USPTO of questionable patents within the review process itself. Finally, the IT industry, like so many others, is encountering the enormous cost of dealing with patents of questionable quality. Today hundreds of patent infringement cases are pending against computer software and hardware companies, costing the industry hundreds of millions of dollars each year. Too many of these cases are brought by speculators who do not develop, make or distribute anything. Our industry is particularly vulnerable to such claims because our complex products often have hundreds of patent or patentable features contained in them. Patent reform that deals only with the harmonization issue or only with administrative procedures of the PTO ignore the legacy problems associated with the system's weaknesses. In urging that litigation excesses be addressed, we recognize that other industries are not as directly impacted by speculators and others who would abuse the system. We have been working with affected interests to explore ways to address the challenges of excessive litigation, while ensuring that the patent system continues to function well and fairly for all sectors, and we continue to engage in those discussions. Thank you again for the opportunity for Microsoft to testify today. [The prepared statement of Mr. Marshall Phelps appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Phelps. Ms. Siwik. STATEMENT OF CHRISTINE J. SIWIK, PARTNER, RAKOCZY MOLINO MAZZOCHI SIWIK, LLP, ON BEHALF OF BARR LABORATORIES, INC., CHICAGO, ILLINOIS Ms. Siwik. Thank you, Mr. Chairman. I am pleased to testify today on behalf of Barr Laboratories, the first member of the generic industry invited to express its views on these important patent-related issues. For the generic industry there is always one paramount question when considering the relative merits of various patent reform proposals: will the legislation have negative, albeit unintended, consequences on successful Federal statutes, specifically the Hatch-Waxman Act of 1984? As you know, Mr. Chairman, the Hatch-Waxman Act largely is responsible for the robust generic industry that we see today. In its 20 plus years of existence, your legislation has saved the taxpayers and consumers literally tens of billions of dollars. It is in fact an essential component of our health care system, and several critical Federal programs depend on and require the savings that flow from swift generic market entry. Unfortunately, many of the patent reform proposals currently under consideration, including some proposed in the name of harmonization, threaten to undermine these savings. Indeed, these proposals could jeopardize Congress's ability to finance existing programs such as the MMA's prescription drug benefit which is set to being in 2006, as well as additional programs Congress is considering. Let me give you an example. H.R. 2795, the legislation being discussed in the House, would eliminate unenforceability as an independent defense to patent infringement. Enactment of this provision would reward fraud before the PTO with a Government-sanctioned patent monopoly. Today a valid patent can be rendered unenforceable because of the patentee's misconduct during the patent application process. But under the proposed House bill, an applicant could be caught in an outright lie to the PTO and continue to reap the benefits of a patent monopoly. In some industries unenforceable patents might not have a big impact on the consumer, but in the pharmaceutical industry they can cost the public billions of dollars. For instance, a series of patents once protected the drug product OxyContin from generic competition. However, the Federal Circuit recently upheld a decision finding those patents to be unenforceable in light of the material misrepresentations that the patentee made with an intent to deceive the PTO. If H.R. 2795 was a law of the land today, despite that misconduct finding, that company could continue to generate sales in excess of $2 billion a year through the year 2013 when the last of its patents would expire, and this does not include the 5 plus billion dollars in sales that that company reaped while the litigation itself was pending. It is hard to see how this result would square with the goals of one of the most successful components of the Hatch- Waxman Act, encouraging generic pharmaceutical companies to challenge the invalid and unenforceable patents that often block introduction of less expensive generic drugs. Another problematic provision in H.R. 2795 that I would like to briefly mention today is the proposed elimination of the best mode requirement currently found in Section 112 of the Patent Act. The patent law strikes a bargain. In the pharmaceutical context that means that the public suffers monopoly prices for medicines for a limited period of time in exchange for the patentee's complete disclosure of the claimed invention and the right of generic companies to use that invention once the patent expires. Without the best mode requirement, a patentee continues to get exclusivity while actively concealing the best way to carry out its invention. The bargain no longer exists, leaving the public with the short end of the stick. At the same time that Congress is considering such counterproductive proposals, abuses of the patent system go unaddressed. In Barr's experience, many of the patents that brand companies obtain seem to have more to do with inventive legal strategies than with true scientific innovation. For example, on a single product that Barr currently is pursuing, the brand company has amassed over 200 patents which would provide that company with roughly four decades of patent production. From Barr's perspective, addressing this kind of manipulation of the patent system would have at least two obvious benefits to the public. First, it would help ensure that consumers continue to enjoy the much-needed benefits of Hatch-Waxman, one of the most important consumer protection bills ever passed by Congress. Second, it would help lighten the load of an already beleaguered Patent Office, which must contend with applications that all too often the pharmaceutical arena reflect little if any technological advancement. Again, Mr. Chairman, thank you very much for the opportunity to testify. As I stated at the outset of my remarks, Barr believes it is imperative that Congress carefully scrutinize any patent reform legislation to ensure that it does not create negative consequences for the many people who rely on Hatch-Waxman's continued success. I would be happy to answer any questions that the Committee might have. [The prepared statement of Ms. Siwik appears as a submission for the record.] Chairman Hatch. You certainly know how to talk about Hatch- Waxman is all I can say. [Laughter.] Chairman Hatch. I am happy to hear all of that. Mr. Phelps. STATEMENT OF CHARLES E. PHELPS, PROVOST, UNIVERSITY OF ROCHESTER, ON BEHALF OF THE ASSOCIATION OF AMERICAN UNIVERSITIES, AMERICAN COUNCIL ON EDUCATION, ASSOCIATION OF AMERICAN MEDICAL COLLEGES AND COUNCIL ON GOVERNMENTAL RELATIONS, ROCHESTER, NEW YORK Mr. Charles Phelps. Thank you, Chairman Hatch. I appreciate the opportunity to appear before the Subcommittee to present the views of four associations that represent the universities and medical colleges that conduct most of the Nation's basic research, and whose working group on patent reform I chair. The research conducted in our Nation's universities expands the frontiers of knowledge and produces discoveries that enhance our Nation's security, strengthen our economic competitive, enrich the lives of our citizens. We believe the landmark 1980 Bayh-Dole Act has been an extraordinarily successful mechanism for facilitating the transfer of university basic research into the commercial sector for development, and of course the patent system is an integral part of this process. Changing the U.S. patent system from a first-to-invent to a first-inventor-to-file process would harmonize U.S. patent law with that of other countries, increasing the simplicity and reducing the costs of patent filing, all desirable goals. Moving to a first-inventor-to-file process would also add greater clarity to the patent system by replacing subjective determination of the first inventor with the objective identification of first filer. This change would reduce or eliminate unpredictable and often substantial costs of interferences and litigations associated with determining the first inventor. However, other ramifications of moving to a first-inventor- to-file process raise concerns among some members of the university community. Before filing a patent application, universities often need time to consider the potential commercial application of a basic research discovery. Universities also need to assess the receptivity within the commercial sector to licensing any resultant patent for development. Budgetary limitations may limit the resources universities can devote to rapid filing of full developed patent applications. Despite these concerns, the associations recognize the benefits of a first-inventor-to-file and would not oppose a move to such a process if the U.S. patent law maintains three components of the current law: first, the 12-month grace period for published articles containing a disclosure of the invention; second, provisional applications; and third, the requirement that an applicant sign an oath or a declaration that he or she is an inventor of the claimed invention. Let me comment briefly more on two of these issues. First the provisional application procedure under which the patent applicant can file a provisional application and obtain an early filing date. This can aid in rapid filing. It will be particularly important to universities operating in a first- inventor-to-file process. Second, current U.S. patent law provides a broad 12-month grace period before the effective filing date of an invention, during which the publication or other disclosures of the inventor and others carrying out research in the same area are not treated as prior art. This provisions facilitates research collaboration and encourages publication and other forms of disseminating research results. A broad grace period preserves the ability of researchers to decide what to publish, where to publish and when without foreclosing of the opportunity of other researchers in the field to pursue a patent application. We recognize that in a first-inventor-to-file patent system such a grace period could allow another person to scoop up or at least speed up the work based on an original inventor's publication. But we believe the benefits to research collaboration and open communication encouraged by a broad grace period would override this problem. The benefits of the grace period should not be limited to the United States. In the spirit of harmonization we urge Congress to request the administration to seek adoption by other countries of the U.S. grace period as recommended by the National Research Council. My written testimony presents the views of these associations on several other patent reform proposals. I note here briefly our support for post-grant opposition procedures and continuation of the CREATE Act. I also want to emphasize the importance of the continuation applications for universities, particularly in some fields such as the life sciences. The rapid pace of discovery makes continuation applications, particularly including continuation in part, an important procedure for updating applications to reflect recent developments. In general the goals of the associations for which I am testifying today would be to support harmonization when possible, find ways to reduce cost and remove ambiguity in the patent system, and I am pleased to answer any questions that might arise later. Thank you. [The prepared statement of Mr. Charles Phelps appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Phelps. Mr. Beier. STATEMENT OF DAVID BEIER, SENIOR VICE PRESIDENT FOR GLOBAL GOVERNMENT AFFAIRS, AMGEN, WASHINGTON, D.C. Mr. Beier. Chairman Hatch, my name is David Beier. I am here today representing Amgen, which earlier this year celebrated its 25th birthday. Amgen began as a result of a collaboration between researchers at the University of California Los Angeles and venture capitalists. In our 25-year history we have produced products as a result of massive investments of billions of dollars that have treated 8 million Americans and people worldwide. The products that we produce, 7 in number that are approved, 7 major products treat anemia associated with dialysis, anemia associated with chemotherapy and rheumatoid arthritis and a number of other grievous illnesses. The representation here today is on behalf of Amgen, but you should know, and I am sure you do, Mr. Chairman, there are 1,500 biotechnology in the United States. The United States is a leader in biotechnology. The biotech industry currently employs 400,000 Americans. Each of those jobs in turn has a multiplier effect of 5.7 other jobs, and the total market capitalization of the industry has gone from virtually nothing in 1980 to over $300 billion. The industry has produced scores of products that have been approved by the FDA and those products have treated worldwide more than 320 million people. The reason that the United States is substantially ahead of the rest of the world in biotechnology is through, Mr. Chairman, to be blunt, a lot of your work. It is a product of a science-based economy that has supported basic research at the NIH, a science-based approach to regulation at the FDA, access to venture capital through sound tax rules, and also to be even blunter, the world's best patent system. We as Amgen are deeply worried that in the rush to change the patent law that we lose focus on the importance of all of the accomplishments of a strong intellectual property system. There are, however, some systems' changes that are appropriate. Therefore we support an end to fee diversion, making sure, as Todd Dickinson noted, that the PTO has adequate funding. We support increased compensation for examiners especially in hard to recruit examination areas like biotechnology or software. We support changes in rules of litigation which require courts to inquire into the subjective mindset of patent applicants, things like inequitable conduct. And we support changes in the standard of willfulness, which we believe will increase the amount of due diligence that inventors have to engage in before they can avoid liability. We also support changes in the first-inventor-to-file system along the lines of the testimony of Mr. Mossinghoff and Mr. Dickinson. We do have two major sets of concerns. The first is with respect to procedures that have been proposed in the House with respect to injunctions. The reason for that opposition is multi-fold. First, to the extent that it includes anything like a working requirement--which, Mr. Chairman, you worked a long time to eliminate in WTO--we think it could be a dangerous precedent in a international context. We are also concerned that it would be inconsistent with legislation that you helped author in 1988 on the Tariff Act changes, eliminating the requirement of proving injury in addition to validity and infringement. Most importantly, we are concerned that changes in the law of injunctions will fundamentally alter the equation the Supreme Court has upheld many times, which is, intellectual property is property, and that once you have found that it is validly obtained, that the title is settled and it has been infringed, there should be action taken against it and not just damages. The second set of concerns relates to post-grant opposition procedures. This procedure is known in Europe and it has been frequently used, somewhere between 5 and 9 percent of the time. If that system were in place in the United States, it would choke the Patent and Trademark Office and make it unable to achieve the proponent's goals of security quality. That dilemma is exacerbated of there is a different burden of proof in a post-grant opposition procedure. If you have a lower standard to invalidate a patent, the fear is that more people will rush into a post-grant system and that the goals of the proponents will be undermined. We are also concerned that the standard in order to get into a post-grant opposition procedure is not high enough, and therefore you have not narrowed the funnel enough to be effective. In sum, Mr. Chairman, there are many elements of a consensus bill that could go forward that Congress should pass. There are some elements that should be neglected. If not, there a substantial risk if language on injunctions or inappropriate procedures on post grant are included that there will be fewer cures, slower approvals and fewer choices for patients at the end of the day. Thank you. [The prepared statement of Mr. Beier appears as a submission for the record.] Chairman Hatch. Thank you. You have all been very interesting here today. I am extremely interested in every one of your comments. What a wonderful panel this is. Let me just say, in hopes of generating some discussion on the core feature of many of harmonization proposals, the first- to-file rule. I would like each witness on the panel to expand on what was said in your opening statements about whether the U.S. should move to a first-to-file system, what are the perceived benefits and detriments of doing so? What are your best arguments from each of your perspectives on both sides of these issues? Mr. Mossinghoff? Mr. Mossinghoff. Mr. Chairman, I would lead off. For U.S. going to a first-to-file system I believe is something the U.S. ought to do outside of harmonization concerns. I think that as long as we have a so-called first-to-invent system, any discussion of deep harmonization, it becomes hypothetical or theoretical. It is just not going to happen. Setting that aside, I think first-inventor-to-file makes a lot of sense for everyone. As I have indicated, and the data are pretty clear over the last 22 years that it does not favor independent inventors. To the contrary, it somewhat disfavors them or disadvantages them. It is much simpler. It removes a very complicated set of subjective issues. When did an inventor have a concept of the invention? What kind of proofs can they bring forward? Can they bring corroboration forward? Interferences, in the patent profession there is a subset called the interference bar, and it is a very, very cumbersome, expensive process to determine under our current rules what is first-to-invent. So I would say first-to-invent is the best practice that we should go to even if there were no concerns of international harmonization. Add the fact that harmonization simply will not occur with our having a system different from the entire rest of the world, that is just a reinforcing reason to go to first-inventor-to-file. Chairman Hatch. Mr. Dickinson. Mr. Dickinson. I probably should just say ditto and sit down. I think Commissioner Mossinghoff has outlined it very, very well. I think in addition to some of the arguments which he made, we have--since the last time when this was thoroughly debated internationally, when the first President Bush--and there was a diplomatic conference at the time--tried to deal with this issues--since that time, a lot of the concerns at the time have been changed by either circumstance or things which we have put in our own law, a provisional patent application, for example, the development of the Internet, which gives the small inventor a lot more access to online searching capability, a lot more online access to legal assistance for the filing of patent applications, and frankly, you can file patent applications online now and search at the USPTO. So the playing field, which was a concern of small inventors, has become a lot more leveled. In some ways, to be candid, small inventors may actually be slightly advantaged. At a big company like mine we have, unfortunately for good or bad--we try to work on it--we have sometimes cumbersome procedures ourselves to get a potential patent application through our bureaucracy. So I the can be nimble if I need to be, but it is not as easy as it might be for an individual inventor who can make those kinds of decisions to file their application themselves, and can generally do it pretty quickly. One final point. I think there is a growing consensus. Commissioner Mossinghoff's study in particular was a key in this. There is a growing consensus that this should and is a best practice. Most recently the House of Delegates of the American Bar Association reversed an over-30-year-old position this past winter, and has now endorsed first-inventor-to-file as a best practice stand alone, exclusive of international harmonization. Chairman Hatch. Mr. Phelps. Mr. Marshall Phelps. I would just echo what you have heard. I would say two things. There is no doubt it is a best practice. And there is little doubt in my mind at least, we will not have harmonization without this issue being undertaken. I guess to the small inventors of the world I would say if we need to do more to make the system accessible to small inventors and work for small inventors, then we ought to do it, and we ought to find ways to make that happen if they are not sufficient already. I would agree with Todd that we are in a world-is-flat situation here, and I do think that the system is far more accessible than it used to be for all concerned. Chairman Hatch. Ms. Siwik. Ms. Siwik. Mr. Chairman, we obviously understand the points that my fellow panel members have made. But speaking for a generic pharmaceutical company, we see some potential benefits to adopting the first-inventor-to-invent system, including for the generic companies certainty when evaluating what is and is not prior art. However, Barr has not yet seen a proposal implementing that system where the cost to the generic companies outweighs the harm that would be done. H.R. 2795 is an example of such a proposal where the harm that would be done in implementing that system, the harm to generic companies, would far outweigh the benefits that Barr sees to adopting the system at this time. Chairman Hatch. Mr. Phelps. Mr. Charles Phelps. Thank you. I would like to put a slightly different cast on the discussion by turning to the primary business of higher education, which is teaching and research. Quite honestly, the current system in the United States is very comfortable for universities in the sense that it provides no impediments at all to open scholarly communication among scholars worldwide. There is no problem in the current system of publishing in advance. It does not harm your ability to file a patent or do anything of that sort. Under a shift to a first-inventor-to-file system, we can operate under that system reasonably comfortably as long as we have the grace period for publications. The worst outcome for scholarly communication in that world would be one where there is no grace period, because there you have to dampen off all scholarly communication about your work until the patent is filed. It is very inhibiting of appropriate scholarly communication. The best circumstance would be a very broad grace period such as we currently have, that gives a year's grace both for the publications of the inventor and others from the field, and a narrow grace period that only gives an exception or exemption for publications of the person who is filing for that patent is in between, and that in between or narrow grace period has some perverse incentives in affecting where I would want to publish my work and when and how. There in effect would be a race to get a publication out if you could preempt others from getting a patent, and it might affect the quality of our scholarly publication in ways that I think would be adverse. So to me the most important aspect of this is not the shift to first-to-file, which I think we can live with quite comfortably so long as we have that grace period intact, preferably the broadest of all possible grace periods in terms of how much publication it encompasses. Chairman Hatch. Thank you. Mr. Beier. Mr. Chairman, I am just going to focus on one component, that is best mode and the elimination of best mode that was first proposed in 1992 by an advisory Committee under President Bush and has been ratified as a recommendation by the National Academy of Sciences. There is good reason for eliminating best mode separate and apart from harmonization. There is already an enablement requirement, and the only purpose that best mode serves is to permit the courts to inquire into the mental state of the patent applicant, as to whether they knew the best mode at the time of the application. It does not advance in any kind of material way, according to the National Academy, the useful arts and sciences, which is after all the constitutional purpose for the patent law. Chairman Hatch. Most of all of you today are in agreement that harmonizing the U.S. patent system could benefit U.S. interests, if I have read you all correctly. Ms. Siwik says that while this goal is laudable, implementation could be problematic from the standpoint of the industry she represents, that is, the generic drug industry. For example, you raise, Ms. Siwik, concerns about the proposal to eliminate the best mode requirement, if I have it correctly, and I think you said that this is part of the tradeoff in being exclusive rights in exchange for the full public disclosure of the invention. Mr. Beier, if I understood you correctly, you said that is a subjective requirement that is the source of extensive litigation designed to attack the underlying invention, not to promote public disclosure, if I have you correctly. Let me just start with the two former Patent Commissioners, and then we will go across again, and ask what they have to say about the continuing need for the best mode requirement, and then let everybody else comment right across the board. Mr. Mossinghoff. Mr. Chairman, I support eliminating the best mode requirement. I think the National Academy and the Federal Trade Commission, focusing on expense in litigation and expense of discovery, it is a purely subjective area. The Patent and Trademark Office examiners rarely, if ever, examine against best mode. They have no way of knowing inside the inventor's mind whether there was a mode different from or better than the mode that is disclosed in the patent application. The rest of the world operates on an objective standard to have you enable someone of ordinary skill in the art to make and use the invention. If the answer is yes, then you have filed a sufficient quid pro quo, a constitutional quid pro quo or whatever their version of that is, so I support eliminating the best mode as an unnecessary subjective issue in the current system. Chairman Hatch. Mr. Dickinson. Mr. Dickinson. I would join Commissioner Mossinghoff in that, and again, would support the elimination of the best mode. It is highly subjective, and in litigation it is almost a trap for the unwary, the benefit of which is minimal. Speaking to international harmonization, and particularly now at the deliberations at the WIPO on this topic, most of the developed countries would like us to eliminate it because we stand alone again with this requirement, so if we are going to have harmonization this is one thing we should consider eliminating to get that harmonization. Interestingly, there are developing countries, poor countries, who have talked about having us retain the best mode. And what is their reason for that? Well, because they would like to be able to learn very quickly or learn easily how to make our patented inventions and then use them many times possibly while there are still patents in force, and I think that kind of, shall we say, technology transfer is inappropriate. Chairman Hatch. Mr. Phelps? Mr. Marshall Phelps. Not much to add except to say that any time you can eliminate an unnecessary subjective test is probably a good thing, and this is probably one of those good things, at least if you pay attention to the National Academy studies on this, and we would support that. Chairman Hatch. Ms. Siwik? Ms. Siwik. Mr. Chairman, I cannot speak for what the best mode does or does not do in other areas of technology or how it fares from a purely intellectual, theoretical standpoint for debating purposes, but in the pharmaceutical industry the best mode is critical. It is not duplicative of the written description requirement. It is not duplicative of the enablement requirement, and it does not increase the cost of litigation. I have been litigating Hatch-Waxman cases for 10 years. I can scarcely think of a case that I was not litigating where we did not talk with the inventor for one reason or another during deposition. The fact that we asked some questions about whether or not he or she had a subjective best way of carrying out the invention did not appreciably add to the length of deposition, let alone the cost of the litigation. The best mode in the generic pharmaceutical or pharmaceutical context provides a very different function than enablement or the written description. It tells the public the inventor's best way of carrying out an invention. The inventor should be the most familiar person with the subject matter of that patent, and if he or she has a best way of carrying it out, that is what the public is entitled to under the bargain that the law strikes. In the pharmaceutical industry the public suffers monopoly prices for years, and the exchange, the benefit they are supposed to get from that is public disclosure sufficient for companies like Barr and other generics to pick up those teachings and use them to develop their own products. I understand that the best mode can sometimes involve commercially sensitive information, and it is information that companies might not want to share, but that amounts to a trade secret. If someone wants to maintain that information as a trade secret they certainly can, but the patent law should not let them allow trade secrets by burying the best mode of carrying out the invention and still receiving the monopoly that the Patent Act provides. Chairman Hatch. Interesting. Mr. Phelps. Mr. Charles Phelps. I think the general view of those in higher education would be that removal of subjectivity would be generally desirable, and the best mode certainly falls into that class. I would also ask the question, as an empirical economist-- my training before I became provost--and that is, how often-- and I do not know the answer to this, but ask how often would the best mode described in original patent filing still be the best mode at the time the patent had expired and became available for others to use? My conjecture would be that technical progress would make that best mode at original declaration somewhat outmoded, but that is an empirical question in balancing the benefits and cost of that clause. Mr. Beier. Mr. Chairman, Provost Phelps is absolutely correct. One of the reasons best mode does not make a lot of sense is the best mode at the time a patent is filed and the best mode at the time the patent is issued is oftentimes different, so it is a trap for the unwary to determine how best mode might change during the patent application process. There is little doubt, however, that I need to disagree with the witness from the generic drug industry who has used twice the phrase ``suffers monopoly prices.'' All of us up here who have represented inventors and copyright owners have been in a situation where people have attempted to free ride on our inventions. The fact that we have gone through a process of obtaining a patent or a copyright and have the opportunity to exclude others from free riding does not mean monopoly prices, and no one is suffering under the current intellectual property system in the United States. In fact, the reason we have economic growth is we have such a strong intellectual property system. Chairman Hatch. Let me just say to Mr. Dickinson and Mr. Mossinghoff again, although it is not strictly relevant to most of the harmonization issues, I would like to just raise the issue of patent quality while we have this distinguished panel before us, because some argue that certain practices and the incentive structure at the PTO may negatively affect patent quality, and in particular, some argue that the combination of the compensation system for patent examiners and the time pressure to finish the examination serve to create incentives to allow patents to issue without sufficient scrutiny. Any witness on the panel will be welcome to comment on this, but I would like to at least ask both Mr. Mossinghoff and Mr. Dickinson and Ms. Siwik, in particular, to give their views on the effect of these types of incentives within the PTO. And also beyond the specific issue of these incentives, I would be interested in hearing the panel's views on the one or two most important things Congress could do legislatively to increase patent quality if we could. So I turn to you first, Mr. Mossinghoff. Mr. Mossinghoff. Thank you, Mr. Chairman. Patent quality is job one at the U.S. Patent and Trademark Office, and those elements of patent reform that people are talking about that could have an adverse impact on patent quality, I think should be really thought through. Two I would bring to mind. One is in the inequitable conduct area there was a provision in the original House bill that had the office doing several investigations and making determinations on inequitable conduct. I think that would detract from the job one of the Patent Office, which is to examine applications in a quality way. Secondly, the idea of a post-grant opposition, which I fully support, and in fact wrote an article two or 3 years ago proposing a post-grant review--and I talked about what is being called the second window, that there would be a first time immediately after the grant of a patent, and then there would be when you were challenged by the patent. I have since thought more about and heard a lot of discussion, and I think we ought to move very slowly in that area, because we do not want to take the best examiners who do job one and move them off to the opposition procedure. I think we ought to go very slowly in that area. In terms of more time, I hypothetically support that, but then I am very alive to the number of applications that are being filed these days. There are 350,000 applications. If a patent is granted six or 7 years after the application is filed, it does not serve any interest, and so the office this year is hiring 900 examiners. That is pretty close to the limit of number of people you can bring in and train and mentor, and so I do not in any way disagree that the examiners could use more time productively, but I would go very carefully because of the fact that if a patent is not granted for six or 7 years, it really is not worth a lot to a large number of industries that rely upon a patent being issued a lot sooner than that. So it is a real tradeoff that you and the policymakers in the Government are going to have to make on how to do that. Chairman Hatch. Mr. Dickinson. Mr. Dickinson. Just to speak to something I spoke to in my testimony and to link it up to some of the things Commissioner Mossinghoff just said, I think the resources that the office needs desperately to do this job is the number one and number two issue with regard to patent quality. It affects everything from top to bottom. It affects the ability to hire more examiners. I also went through a situation where I hired almost 1,000 examiners 1 year when we had raised the additional revenue to allow us to do that, and it was extremely important. This is not throwing money at the problem as it is sometimes characterized. It is a system that desperately needs the additional resources, additional training resources, additional search and examination resources, additional ability to develop and library prior art and gain access to that prior art, a key issue for quality. Examiner compensation continues to be an issue. I was pleased that during my tenure we were able to increase examiner compensation by around 10 percent 1 year, and I think that is a good thing, and it slowed attrition, which was a major problem at the time. Retaining skilled examiners, who we have a significant investment in, is a key issue for the office. I may differ just slightly with Commissioner Mossinghoff on the issue of time. I am probably more of a proponent of devoting some of those resources to the issue of time. With regard to the question of incentives in the current system, I think--Commissioner Mossinghoff may correct me--I think the last time this was reviewed may have been over 20 years ago. A Rand study was done as to how that time gets allocated. It may be that it is time to do that again. I had given some consideration to that. It takes many to do that, so additional resources are needed for that kind of study, but it may be that the time has come to do that. Chairman Hatch. Ms. Siwik, should we go to you? And then anybody else who cares to comment. Ms. Siwik. Mr. Chairman, you are correct that Barr believes that increase patent quality should start in the Patent Office, and this sentiment has obviously been echoed by several people here today and by other witnesses that appeared in the House. Barr, in its written testimony, emphasized the compensation system, and we believe that a balance has to be struck between quick review of patent applications and a quality review of patent applications, that the compensation system cannot just compensate people for saying yes to patent applications, but that they have to say yes to quality patent applications. The Federal Circuit has recently emphasized that the issuance of invalid patents has extremely detrimental consequences to the public, and in the pharmaceutical context those negative ramifications are huge because the public does get saddled with monopoly prices for drugs. And I understand that the representative from Amgen does not like the term ``monopoly prices for drugs,'' but the fact of the matter is the American public today pays an enormous amount for their health care costs, and that is particularly true in the biologic area where today there is not generic competition. Chairman Hatch. Okay. Anybody else care to comment? Mr. Beier. Mr. Chairman, if I could comment briefly on the proposals that have been made by the other witnesses with respect to post-grant opposition as a cure. I think we need to be modest in our ambitions. Many of the proposals that are before the Committee today go back to recommendations from President Johnson--that is five Presidents ago--including a post-grant procedure. The experience to day in Europe is that it is not a panacea for quality problems. And if you do not have a high hurdle before you can file a post-grant procedure, that is something like a prima facie showing of invalidity, or if you have procedures which encourage people to take advantage of the differences in the burden of proof for invalidating a patent, for example, having a preponderance standard if it is an administrative or quasi-judicial proceeding in the Patent Office and it is clear and convincing evidence in court, you may have more people using post-grant than is appropriate and it may not solve the problems that the proponents really want. There are ways of attempting to deal with that either through experimentation or the like, but the idea that you can quickly implement a massive program which could potentially involve thousands of cases and substantial cost, probably very, very high user fees, as a solution to quality I think goes in the wrong direction. The correct direction is that mentioned by Mr. Mossinghoff and Mr. Dickinson, which is to focus on the front end of the funnel to make sure that patent examiners are given the resources, that there is a second eye review of important patents, that the training is adequate and the like, instead of trying to build in a better, bigger filter for allegedly invalidly issued patents. Mr. Marshall Phelps. Senator, just one quick point. You were asked what Congress can do. I think there are three things. The first thing is much of what comes down in all of this discussion are resources, and that is the whole diversion question, and so if I were to pick one thing that Congress could do it would be to fix the diversion of fees. I think some of these administrative points-- Chairman Hatch. I am trying to do that. [Laughter.] Mr. Marshall Phelps. I know. Whether it is pre-grant submissions or post-grant procedures or whatever you have, clearly we ought to walk before we run, but that does not mean we should not consider them, because I would just add that the worst place to work this stuff out is in the courtroom at the back end of the system, and that is today what we are doing, so I would say anything that at the end of the day results in better patents is a victory for everybody, and I would say let us put the weight behind that arrow at this point. Chairman Hatch. Okay. Let me--I know I am keeping you too long, but it has been interesting to me. I would like to just chat a little bit about patent trolls, and much has been said about that, where it meant nothing but litigation, I might add. Has anybody on this panel ever met a patent troll? [Laughter.] Mr. Beier. Mr. Chairman, yes. Chairman Hatch. You have? Mr. Beier. Yes. I think you are actually asking the right question. Chairman Hatch. Is this a big part of the problem? I mean I would like to know, and what is the actual evidence if you can? Mr. Beier. Well, I think it is really a definitional question. If the question is, should there be people who obtain patents who have no intention of commercializing them, that is, manufacturing and distributing them, I think the answer is, yes, there should be such people. One of them is sitting next to me representing the university community. Universities are not about the business of making and distributing products. Dean Kamen, who testified before you some weeks ago, by all legitimate definitions of most proponents of patent troll cure legislation, he would be a patent troll. I would submit probably General Electric could be construed as a patent troll because they have patents that they do not-- Chairman Hatch. Are you going to take that? Mr. Dickinson. I am going to be forced to agree with him. Chairman Hatch. I did not ask you. I asked General Electric. [Laughter.] Mr. Beier. So I think the question is not whether you use the nomenclature of troll. The question really is, are there adequate remedies for the perceived misconduct of parties in certain industrial sectors in whether the patent law per se should be changed for all technologies to accommodate those sectoral aberrations, and I think that is the point of differentiation, for example, between ourselves and Microsoft. Microsoft has a valid, legitimate business model. It is quite different. Their turnaround time for their $7 billion of R&D is quite a bit faster. It is not the 15 years, $1.2 billion for product development that the biotechnology industry goes through. And they are going to face different competitors and different pressures. So when people start talking about trolls, it really is going to have to be sectorially specific, factually specific and then procedurally focused. Chairman Hatch. I have to let---- Mr. Dickinson you agree that GE is a patent troll? Mr. Dickinson. Again, as Mr. Beier pointed out, it is a definitional matter. Thomas Edison, who was the founder of our company was actually accused of being a troll on a panel on this topic not too long ago. We do indeed own patents which we do not use, but which we license to others. We participate in patent pools, like the MPEG patent pool, for example, so this is in large part, any attempt to do something about the issues that are raised here, the problems that are raised here--and they are genuine--is a definitional one at the start. There are industries which are more affected by this than others. I think the software industry makes a good case. They have a particular set of problems. The challenge is how we define the remedy here. And the principal remedy that has been proposed to this point, which may be changing, but the principal remedy proposed at this point is to change the injunction system, particularly permanent injunctions, and the challenge there, the big challenge there, the big problem there, is that you lower the value of everybody's patents to deal with what I think is a much more discrete problem, a much more bounded problem than even its proponents would have it. Yes, predatory patent trolls are a problem, but let us confine the remedy of that problem much more narrowly than something like a broad attack on the permanent injunction system. Chairman Hatch. This has been a wonderful panel. Let me just say that I am going to submit this question to all of you in writing. I would like you to think about it. You do not have to answer it here today, but I would like to go over it with you. While today's hearing does not focus on following off- patent biologics, I would like to make a comment on this matter while I have this distinguished panel to see if anyone would like to respond in writing back. I will not take your time today to ask you. One of the most controversial decisions handed down by the United States Supreme Court last term was the takings case in Kelo v. New London. The majority opinion in that case relied upon a 1984 precedent, and that was Ruckelshaus v. Monsanto. It involved a provision of the Federal Insecticide Fungicide and Rodenticide Act under which the EPA could use data including trade secrets submitted by a pioneer pesticide applicant in approving a subsequent application if--and it is a big if--the subsequent applicant paid just compensation. Now, the recent Kelo decision said that while the Monsanto case acknowledged that the, ``most direct beneficiaries'' were the subsequent applicants, it ``found sufficient in Congress's belief that sparing applicants the cost of time-consuming research eliminated a significant barrier to entry in the pesticide market and thereby enhanced competition.'' I have been interested in the whole area of off-patent follow on biologics for some time, and in addition to the formidable, but in the minds of many experts surmountable, scientific issues. There will be many challenges relating to intellectual property. This includes the extent or manner to which a pioneer firm's data may be relied upon by the FDA, and the competitor firms. There is much to be explored here in my opinion. The full Judiciary Committee held a hearing on this matter last summer. Now, as we consider this issue, I believe that we should keep it advisable to keep I mind the balance nature of the original 1984 Drug Price Competition and Patent Term Restoration Act, which is called the Hatch-Waxman Bill, and consider trying to design a balanced set of incentives so that both generic and pioneer firms receive, and can do what they actually do best to provide innovative, cost effective products to the American public. The Subcommittee is going to examine these issues further in the future, but I thought that I would bring to your attention the way the Supreme Court analyzed the Monsanto case in the most recent takings decision in Kelo. If you can, if you would take some time and answer that for me, I would be very grateful. I do not expect you to answer that here today, but I would like to have your best feelings on that matter just for the record because it is something of interest today, and at least those in the pharmaceutical industry ought to be interested in as well. This has been a wonderful hearing. I am very appreciative. You are all top people in your fields, and I have picked up a lot from this hearing. We just hope we can put together legislation that will be beneficial for most everybody. We appreciate any further help or assistance you can give us. You folks really understand this better than anybody because you are right on the front lines in these areas. It is an extremely interesting area. I do not want to see us foul it up, and we have a tendency to do that up here on Capitol Hill, so we need some help. You guys should not be giving those big grins when I say we are fouling it up. That was just a nice little admission by me, and I cannot blame you for grinning. I think I fully understand. I am just grateful that you all took the time to come and visit with us today. This has been a particularly prescient panel, and it means a lot to me. Thank you for being here, and we will recess until further notice. 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