<DOC> [109 Senate Hearings] [From the U.S. Government Printing Office via GPO Access] [DOCID: f:38536.wais] S. Hrg. 109-983 PERSPECTIVES ON PATENTS ======================================================================= HEARING before the SUBCOMMITTEE ON INTELLECTUAL PROPERTY of the COMMITTEE ON THE JUDICIARY UNITED STATES SENATE ONE HUNDRED NINTH CONGRESS FIRST SESSION __________ APRIL 25, 2005 __________ Serial No. J-109-17 __________ Printed for the use of the Committee on the Judiciary U.S. GOVERNMENT PRINTING OFFICE 38-536 WASHINGTON : 2007 _____________________________________________________________________________ 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) 512ÿ092104 Mail: Stop IDCC, 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 Cornyn, Hon. John, a U.S. Senator from the State of Texas........ 6 Feinstein, Hon. Dianne, a U.S. Senator from the State of California..................................................... 7 Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah...... 1 prepared statement........................................... 108 Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont. 4 prepared statement........................................... 135 WITNESSES Armitage, Robert A., Senior Vice President and General Counsel, Eli Lilly and Company, Indianapolis, Indiana................... 30 Dudas, Jon W., Under Secretary of Commerce for Intellectual Property, and Director, U.S. Patent and Trademark Office, Department of Commerce, Washington, D.C........................ 7 Kamen, Dean, President, DEKA Research & Development Corporation, Manchester, New Hampshire...................................... 28 Kirk, Michael K., Executive Director, American Intellectual Property Law Association, Washington, D.C...................... 32 Levin, Richard C., President, Yale University, New Haven, Connecticut, and Co-Chair, Committee on Intellectual Property Rights in the Knowledge-Based Economy, Board on Science, Technology, and Economic Policy, National Research Council..... 17 Myers, Mark B., Visiting Executive Professor, Management Department, Wharton Business School, University of Pennsylvania, Philadelphia, Pennsylvania, and Co-Chair, Committee on Intellectual Property Rights in the Knowledge- Based Economy, Board on Science, Technology, and Economic Policy, National Research Council.............................. 19 Parker, William, Chief Executive Officer and Director of Research, Diffraction, Ltd., Waitsfield, Vermont............... 23 Poppen, Joel L., Deputy General Counsel, Micron Technology, Inc., Boise, Idaho................................................... 25 Simon, David, Chief Patent Counsel, Intel Corporation, Santa Clara, California.............................................. 26 SUBMISSIONS FOR THE RECORD Armitage, Robert A., Senior Vice President and General Counsel, Eli Lilly and Company, Indianapolis, Indiana, prepared statement and attachment....................................... 44 Dudas, Jon W., Under Secretary of Commerce for Intellectual Property, and Director, U.S. Patent and Trademark Office, Department of Commerce, Washington, D.C., prepared statement... 93 Kamen, Dean, President, DEKA Research & Development Corporation, Manchester, New Hampshire, prepared statement.................. 112 Kirk, Michael K., Executive Director, American Intellectual Property Law Association, Washington, D.C., prepared statement. 115 Levin, Richard C., President, Yale University, New Haven, Connecticut, and Co-Chair, Committee on Intellectual Property Rights in the Knowledge-Based Economy, Board on Science, Technology, and Economic Policy, National Research Council; and Mark B. Myers, Visiting Executive Professor, Management Department, Wharton Business School, University of Pennsylvania, Philadelphia, Pennsylvania, and Co-Chair, Committee on Intellectual Property Rights in the Knowledge- Based Economy, Board on Science, Technology, and Economic Policy, National Research Council, prepared statement.......... 137 Parker, William, Chief Executive Officer and Director of Research, Diffraction, Ltd., Waitsfield, Vermont, prepared statement...................................................... 146 Poppen, Joel L., Deputy General Counsel, Micron Technology, Inc., Boise, Idaho, prepared statement............................... 156 Simon, David, Chief Patent Counsel, Intel Corporation, Santa Clara, California, prepared statement.......................... 167 PERSPECTIVES ON PATENTS ---------- MONDAY, APRIL 25, 2005 United States Senate, Subcommittee on Intellectual Property, Committee on the Judiciary, Washington, D.C. The Subcommittee met, pursuant to notice, at 1:37 p.m., in Room SD-226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, Chairman of the Subcommittee, presiding. Present: Senators Hatch, Cornyn, Leahy and Feinstein. OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM THE STATE OF UTAH Chairman Hatch. Good afternoon. Today, I am pleased to chair the first hearing of the newly created Intellectual Property Subcommittee of the Senate Judiciary Committee. I commend Senator Specter for his support in establishing the IP Subcommittee. I also want to thank Senator Leahy for agreeing to serve as the ranking Democratic member on this important Subcommittee. We have always worked together in a bipartisan fashion on intellectual property issues, and many others as well. For example, Senator Leahy and I, along with all Judiciary Committee members, joined together on legislation last year designed to curtail the diversion of patent fees from PTO. I have every hope and expectation that this Subcommittee will attempt to continue to address IP issues on a bipartisan basis. To Senators Cornyn and Feinstein, I am grateful for all their work last Congress and appreciate the work that they do especially in securing passage of an important bill that passed the House last Tuesday, S. 167, the Family Entertainment and Copyright Act of 2005. I am pleased that this important piece of intellectual property legislation has finally been sent to the President. That bill contains several provisions, including the anti- camcording protections that Senators Cornyn and Feinstein championed in the Senate. The bill also authorizes the National Film Preservation Board, a matter of great interest to Senator Leahy, myself and many others. Additionally, the bill contains a provision protecting certain technologies that help parents shield their families from material in motion pictures that may be too graphic for young family members. This has been a matter of some interest in my home State of Utah and I am pleased that it has finally passed both Houses of Congress. I commend Chairman Lamar Smith and Jim Sensenbrenner and ranking Democratic members Howard Berman and John Conyers for their contributions in bringing this bill through the House. Today, we will move to the patent side of the intellectual property arena. This is the first in a series of hearings that we plan to hold on patent reform to discuss in a fairly comprehensive manner some of the proposed changes to the substantive procedural and administrative aspects of the system that governs how entities here in the United States apply for, receive, and eventually make use of patents covering everything from computer chips to pharmaceuticals, to medical devices, to, I am told, at least one variety of crustless peanut and jelly sandwiches. As the Founding Fathers made clear in Article I, Section 8, of the Constitution, Congress is charged with promoting the progress of science and useful arts by securing, for limited times to authors and inventors, the exclusive right to their respective writings and discoveries. It is my hope that today's hearing will help further that charge by encouraging an active debate on patent reform. There is a growing consensus among those who use the patent system that reform is needed. For example, at least two of the organizations represented here today--the Business Software Alliance and the American Intellectual Property Law Association--have taken the initiative to develop discussion drafts of patent legislation, many key provisions of which have been incorporated in Chairman Smith's committee print over in the House. I have also received a number of other suggestions, some of them fairly broad, some very narrow, from a variety of individuals and businesses around the country on changes they would like to see made to the current patent system. Both Senator Leahy and I always welcome constructive suggestions throughout the legislative process. There appears to be a high degree of agreement on some issues relating to patent reform, such as the advisability of creating a new post-grant review process. There are other areas such as modifying the role of injunctive relief in patent litigation where, at least based on the testimony before us, significant differences remain. I hope that today's hearing will help to further the important debate regarding patent reform. Now, in order to better understand the current state of affairs of U.S. patents and the climate from which these reform proposals have emerged, we will first hear from Jon Dudas, Under Secretary for Intellectual Property and Director of the United States Patent and Trademark Office. We certainly welcome you, Under Secretary Dudas, back to this hearing room and look forward to hearing your testimony. Under Secretary Dudas will help describe the growing importance of patent protection in the increasingly interdependent global economy. The United States has consistently led the world in many critical areas of technology development, such as the computer hardware and software, telecommunications and biotechnology industries. To remain in the forefront of developing and translating new ideas into tangible goods and services for the benefit of Americans and other consumers around the world, there must be in place an equitable and efficient patent review and protection system both here and abroad. We should all take pride in the fact that the United States Patent and Trademark Office is widely recognized as one of the leading IP organizations in the world today. Thousands of dedicated professionals at PTO are responsible for this success, but the agency faces great challenges in accommodating the ever-increasing number and complexity of patent applications being filed each year. As Under Secretary Dudas will detail, U.S. patent applications have doubled since 1992, and last year the PTO issued more patents, some 173,000 patents, than it did during the first 40 years of the agency's existence. We will also hear today where PTO stands in the implementation of its 21st Century Strategic Plan. In addition, we will have an opportunity to discuss how PTO is responding to the key recommendations contained in the September 2004 Department of Commerce Inspector General's report entitled ``USPTO Should Reassess How Examiner Goals, Performance Appraisal Plans and the Awards System Stimulate and Reward Examiner Production.'' As well, we plan to explore the degree to which Under Secretary Dudas agrees or disagrees with the recommendations made by the National Research Council of the National Academy of Sciences in its major study, ``A Patent System for the 21st Century.'' We are pleased to have the distinguished Co-Chairs of this report on our second panel today--Dr. Mark Myers, of the Wharton School of the University of Pennsylvania, and Dr. Richard Levin, President of Yale University. We welcome them to the Subcommittee, as well. On our third panel we will have a collection of inventors and protectors of intellectual property. This panel includes two inventors--William Parker, of Waitsfield, Vermont, and Dean Kamen, who was recently inducted into the National Inventors Hall of Fame. I am pleased to have these two independent inventors before us today because it helps to emphasize that although we lawyers have a modest role to play, the real purpose of intellectual property is to help ensure that the interests of innovators and consumers are both well served. We will also hear from David Simon, Chief Patent Counsel of Intel, and Bob Armitage, General Patent Counsel of Eli Lilly. Bob is a veteran of testifying before the Judiciary Committee due to his work on improving the Schumer-McCain amendments to the Hatch-Waxman Act that were part of the 2003 modernization bill. We are also particularly pleased to have with us Joel Poppen, Deputy General Counsel of Micron Technology. While Micron is based in Boise, I understand that they have some outstanding employees and facilities in Utah. Of course, I understand that. I have been there. [Laughter.] Chairman Hatch. I have enjoyed working with Micron on a number of trade issues to ensure that U.S. computer chip makers are treated fairly in Asia and around the world. Last, and by no means least, we have Mike Kirk, Executive Director of the American Intellectual Property Law Association. Dating back to his days at PTO, Mike has long been a calm, clear and reasonable voice in all intellectual property legislation. I would also like to recognize that there are a number of distinguished authorities on patent law present today that we were not able to invite to testify today. Particularly, I would like to note the presence of Herb Walmsley, of the Intellectual Property Owners Association, as well as representatives from a variety of intellectual property groups here in Washington. It is my hope that today's hearing will help the members of this Committee better understand what works well and what should be improved in our current patent system. Before we attempt to fashion any legislative fixes to the patent system, it is essential that we carefully identify the problems we are attempting to solve. We have learned time and time again--the Digital Millennium Copyright Act and the American Inventors Protection Act come to mind--that it can take a lot of time-consuming and hard work to forge successful consensus on IP legislation. I stand ready to roll up my sleeves and work with my colleagues in the Congress and other affected parties on intellectual property issues. One area where I hope we can join together on a broad bipartisan basis is working to help curtail international piracy of U.S. intellectual property. We must be vigilant in our trade negotiations to make sure that our trading partners do not merely talk the talk. They must walk the walk on enforcing intellectual property laws. Not to put too fine a point on it, many of us in Congress are watching USTR closely to see what the agency will do in relation to IP theft in the next special 301 round with respect to such countries as China and Russia. While there may--I emphasize the word ``may''--be a case to support Russia's entry into the WTO, Russia should not be permitted to become the new China when it comes to only half-heartedly enforcing laws that some experts believe are only half-baked to begin with intended to protect against the piracy of intellectual property. The Subcommittee plans to hold a hearing on piracy of intellectual property in the week following the next recess. Let me close by saying that I think the fact that 13 of the very busy 18 members of the full Judiciary Committee have made it a priority in their already overcrowded schedules to join this new Subcommittee speaks volumes about how important we on both sides of the aisle view intellectual property matters to the continued success and growth of the American economy and, of course, the quality of life of U.S. citizens and people all over the world. [The prepared statement of Senator Hatch appears as a submission for the record.] So I look forward to today's hearing and the future work of this new Subcommittee, and I will turn to the Vice Chairman of this Subcommittee, Senator Leahy. STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT Senator Leahy. Thank you, Mr. Chairman. I applaud you for holding this hearing. Today, the Intellectual Property Subcommittee does begin its public examination of all the issues--and there are a lot of them--facing the patent system. We can sit here and enjoy the fact that the spirit of American innovation has made the United States the world's leader in intellectual property--something we would like to maintain throughout my children's and grandchildren's lives. But the expressions of American innovation in the patented goods and processes are only as good as the system that fosters and protects such innovation. I share the growing concern about our patent system's ability to address many of the challenges it faces. I looked forward to hearing from Mr. Dudas at a hearing last Thursday, but that hearing was canceled at the last minute. I am grateful that you were able to rearrange your schedule to be here with us this afternoon. We have all worked with Mr. Dudas, first, to get him confirmed, and that was a bipartisan effort. Both Republicans and Democrats on this Committee worked on it. Before, of course, we worked with him when he staffed the Republican leadership in the House and on their Judiciary Committee. I am looking forward to continuing our collaboration. You have a very exciting time ahead of you--exciting and probably daunting as we come into the 21st century. I am also pleased that Professor Richard Levin of Yale University is here, and Professor Mark Myers from the Wharton School of Business. They are the authors of the acclaimed National Academy of Sciences report on patent reform. Their continued assistance is going to be very useful. The size of the project we are undertaking seems to be reflected by the number of witnesses we have here, and I want to thank them all because they are the people who live with this every single day. If I might, Mr. Chairman, I would like to draw attention to one of those witnesses, for it is particularly fitting that in discussing creativity and innovation, we have someone who knows and understands both and just happens to be a Vermonter. I want to thank Bill Parker for traveling to Washington today to share his thoughts with us as an inventor and a spokesperson for inventors. Of course, he is part of our wonderful tradition in our little State, exemplified by the fact that the first U.S. patent issued and signed by George Washington went to a Vermonter. I just thought I would throw that in, and we have been doing it ever since. I think in at least one year, on a per-capita basis we had the most patents in the country. In 2002, the House and Senate directed the Patent and Trademark Office to develop a five-year plan designed to modernize and expedite, and parts of that plan are being implemented. Last year, I supported a compromise in the Appropriations Committee that will, for one year, prevent PTO user fees from being diverted to other Government programs. So I am interested in hearing more from our witnesses about the implementation of the PTO's plan. I am also interested in discussing the proposal we have all been hearing that suggests improvements in the quality of the patents the PTO is issuing. You have a herculean task. The volume of patent applications has increased three-fold since the 1980s. Just to put this in perspective, the PTO receives more than 350,000 patent applications every year. They approved 187,000 in 2004 alone. That is roughly 500 approved patents every single day. I think that could be a matter of concern. When you have non-innovative inventions that are patented, some patent-holders fear they will spend more time litigating than they do innovating as a result of predatory tactics. It is a real problem. We should explore ways to alter the patent examination process in order to allow for patent challenges before you tie it all up just with costs of litigation. I am especially interested in the suggestion that we find ways to allow outsiders with prior art to present information in the examination stage. At the same time, we are hearing calls to reform the very way in which these cases are being litigated. One criticism I have heard is that the standards which courts use to determine whether a patent violation is willful have been applied in a way that encourages patent-holders to wear blinders to what others invent. We have also heard about abusive litigation practices of ``patent trolls,'' described to me as companies that neither invent new or produce anything at all, but simply acquire patent rights and then push the bounds of their patent, suing patent-holders who actually do innovate. I am interested in hearing more about these concerns, as well as proposed solutions. I want to encourage those people who actually do innovate, and they ought to be able to get the benefit of their innovation. I don't want somebody who is just going to leach on their innovations. So these are just a few of the things we have before us. I can think of no better issue to start off with. The House finally granted final passage of the Family Entertainment and Copyright Act. I know looking around this table, Senator Hatch, Senator Cornyn, Senator Feinstein and myself sponsored that. We approved it last year and again this year, in February of this year. Chairman Hatch and I worked cooperatively on that legislative package last year, with the result that it has now been enacted by the Congress. It is an example, as the Chairman was saying, of bipartisan legislation. I have more which I will put in the record because I find with the beauty of spring and pollen, my voice is gone. Thank you, Mr. Chairman. [The prepared statement of Senator Leahy appears as a submission for the record.] Chairman Hatch. Thank you, Senator. Senator Cornyn, would you care to make any comment? Then I will call on Senator Feinstein, since this is our first meeting. STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE STATE OF TEXAS Senator Cornyn. Mr. Chairman, I don't have anything extended, but I did want to congratulate you as the new Chairman of this brand new Subcommittee for convening this hearing and the series of hearings on patent reform. Of course, as Senator Leahy said, intellectual property protection has been something that the Judiciary Committee has been concerned about. Senator Feinstein and I, along with Senator Leahy and you, had a chance to work on some important legislation that has just recently passed to do that. It is important for America to maintain our edge as the innovator in the world in a global economy that we do provide a means by which innovation can be fostered, but also, once people invest their intellectual capital and their hard-earned money into a product, that it be protected. This is a matter that remains a tremendous challenge around the world. I am delighted to be on the Subcommittee with you. Unfortunately, I won't be able to stay long because I am going to be working on another subject near and dear to your heart, Mr. Chairman, and that is asbestos. But I do want to congratulate you for holding the hearing, and thanks to all of our witnesses for contributing their insight and expertise in tackling some of the tremendous challenges we have before us. Thank you. Chairman Hatch. Thank you, Senator. Senator Feinstein, and then we will go the witnesses. STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE STATE OF CALIFORNIA Senator Feinstein. Thanks very much, Mr. Chairman. I would like to echo those words. Patent and copyright protection is a very big deal to California, and that is really why I am here. It is interesting to harken back on an early patent, and that was a patent which was issued to Levi Strauss for jeans in 1873. I believe at that time, it was a 17-year patent. It is now a 20-year patent from date of application, or 17 years. So there are a lot of questions about these patents. Is 17 years fair? Should it have been longer? I mean, when Levi Strauss came forward in those early Gold Rush days, it was a very big deal to come up with a fabric like jean fabric because the pants of the miners were wearing out too fast. Yet, as soon as that patent expires, you see Levi- type jeans everywhere. In this day of high costs, high labor costs, high every kind of cost, I have begun to wonder whether the time for the patent is really an adequate time. So I look forward very much to hearing your comments, Mr. Dudas, on that subject. May I put my full remarks in the record, please? Chairman Hatch. You certainly can. Senator Feinstein. Thank you very much, Mr. Chairman. Chairman Hatch. I appreciate that, Senator Feinstein. We will turn to you, Mr. Dudas. We are honored to have you here and we appreciate the work you are doing in the Patent Office, among other things. STATEMENT OF JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE, DEPARTMENT OF COMMERCE, WASHINGTON, D.C. Mr. Dudas. Thank you, Mr. Chairman. Thank you, Ranking Member Leahy and members of the Subcommittee. It is an honor for me to testify here today at the first hearing of this Subcommittee. I would like to note that it is an appropriate time to reflect on the incredible success of innovation and of our patent system in the United States. It was 215 years ago this month that our young Nation adopted our first patent statute. There is a lot of talk about history. It was 215 years ago this month, on April 5, 1790, that your predecessors in the Senate passed the final version of the statute and President George Washington signed it into law on April 10. The benefits of our patent system have always been obvious to Americans. You are all familiar with Article I, section 8, clause 8 of the Constitution granting Congress the power ``to promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries.'' James Madison wrote in one of the Federalist Papers, ``The utility of this power will scarcely be questioned.'' He was right. That clause was adopted into the Constitution without a single dissenting vote. It was adopted without even any recorded debate. History has repeatedly affirmed the wisdom of these decisions of our Nation's Founders. The tremendous ingenuity of American inventors, coupled with an intellectual property system that encourages and rewards innovation, has propelled the growth of our Nation from a small agrarian society to the world's preeminent technological and economic superpower. The flexibility and strength of our system have helped entire industries to flourish rather than perish. Everyone has benefitted from the innovative products encouraged by that system. And all of this technology finds its way into the public domain within 20 years, freely available to any and all, going to your thought, Senator Feinstein. The success of this system has not been limited to the United States. It has been the basis for economic development in nations throughout the world. Unfortunately, a growing chorus of critics is questioning whether the fundamental patent system that has been so critical to the growth of innovation and economic success in the United States and other nations will enhance or hinder the development in their own nations. Many of the nations questioning the efficacy of this intellectual property system have become hotbeds for the manufacture and export of counterfeit goods, with more than 90 percent of goods in some industries being counterfeited and pirated. Quite frankly, in many cases that thought process occurs in reverse. Many nations that have expanded economic development by allowing their citizens to counterfeit and pirate others' intellectual property have then come to question a system that encourages and rewards innovation and discourages copying and free-riding. I believe it is our responsibility not only to do everything we can to perfect the patent system in the United States--something you are clearly doing by holding this hearing today--but we must also actively educate the rest of the world that it is fundamentally the right system. Having the fundamentally right system, however, is not enough. I will be the first to acknowledge that even the best system in the world can and should improve. As you know, the genesis of the USPTO's 21st Century Strategic Plan was the result of directives from the President and the Congress that the USPTO improve. We are implementing a multitude of improvements and are building on these initiatives, and there is more that we plan to do. To remain the best patent examination system in the world, the USPTO is focused on improved quality and productivity. To ensure the timely granting of patent rights, we must reduce our backlog of patent applications. Earlier this year, the USPTO announced several initiatives to improve quality and efficiency. They include increasing our transparency, improved our ex parte reexamination, and saving applicants tens of millions of dollars by revamping our process of appeal brief submissions. The USPTO is a collection of 7,000 people, including scientists, engineers and Ph.D.s, many of whom spend their time considering how we might improve our system. A multitude of others are reflecting upon our system as well, and many of them have been or will be at your doorsteps to suggest changes. We are hearing legislative proposals in three general categories--operational issues and administrative issues, litigation reform, and convergence of international laws and best practices. In my view, each of these discussions must center on how the patent system encourages innovation and how well it serves the public at large. We and you, I believe, must look at these issues from every angle. We must look at them from the perspective of the independent inventor who may be the next Thomas Edison, to the perspective of a large and successful company that believes its innovations are being tied frivolously in unnecessary legal knots. We must look at these proposals from the perspective of an economic superpower negotiating treaties to create a better intellectual property system throughout the world, to the perspective of an American patent examiner who is striving to improve high-quality and timely examinations. I will certainly not shy away from focusing on how we can improve our processes at the USPTO. We have spent the last three years working to do just that, and I am thankful for all of the work you have done on this Committee in passing legislation that will give us many of the tools that we need to improve. And there is definitely more that we can do. Although Washington is a place where it is easy to identify problems and give excuses, it is my responsibility to identify opportunities and deliver results. I fully appreciate that you will hold the USPTO and me accountable, and I am confident that we will deliver you results. As you reflect upon the proposals you will hear, I urge that you not focus exclusively on litigation--an occurrence at the end of the process--nor exclusively on how the USPTO handles an application--the middle of the process. Those are areas that must be reviewed, and must be reviewed vigorously, but patent quality begins with the application and it begins with the applicant. When we have shown the light on the USPTO, we have found areas where we can improve and we will continue to implement those improvements. But I can tell you that the challenge I hear most often from our examiners in the office is the problem quality. I do not purport to have all of the answers at this time. However, I can assure you that we are reviewing this issue within the USPTO and will welcome the opportunity to share what we learn with you and how we believe we can appropriately address the issue of application quality. Let me assure you we are committed to adopting practices and policies at the USPTO that promote the innovation and dissemination of new technologies. While we work to improve our systems by internal reform at the USPTO, we realize that measures within your domain will make invaluable contributions to our system. In this regard, the USPTO and the entire administration look forward to continuing to work with you as you consider legislation to ensure that the U.S. patent continues to lead the world. Thank you. [The prepared statement of Mr. Dudas appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Dudas. Now, there appears to be a growing consensus that the U.S. should abandon its long-held policy which rewards the first to invent in favor of the international system of first inventor to file. For example, the NAS report is supportive of this concept. I understand that former Commissioner Mossinghoff and colleagues have produced empirical evidence that our existing system actually works to the detriment of small independent inventors. I also understand that under this new system, you can't just be the first to the PTO; you must still be a genuine inventor, not necessarily the first inventor. Nevertheless, it may be counterintuitive to some that the ``first to invent'' policy should be discarded, since it is based on the principle ``first in time, first in right.'' I would like to know what the administration's position is on this particular issue. If there is no final position at this time, please take the opportunity to explain to the Subcommittee and the public what this issue is all about and what the tradeoffs really are. Mr. Dudas. Absolutely. Thank you, Mr. Chairman. Well, there is growing, broad support among private sector groups and internationally moving toward adoption of a first inventor to file standard. It is perceived of by offices throughout the world as an international best practice. As you point out, advocates point to the fact that it is a simpler method. There are downsides to our current interference practice which make it very difficult to enter into the subjective elements of finding out who was the first to invent, the kinds of questions you need to ask there. I believe that ``first to invent''--many believe that it is philosophically more consistent with the basis of our patent system. Senator Feinstein brought up that the basis of our patent system is to disclose. Ultimately, it is to disclose innovation; it is to make things available. If you choose to use the patent, you choose to invent and protect, and that is a way to incentivize you to invent because you get that protection. You can also go the trade secret route, where you will hide what you have. You will keep secret what you have, but you don't have the protection of the law. What our system should do is encourage people to disclose. Supporters of our ``first to invent'' system have focused on concerns that others can more easily steal inventions and that applications might be filed more rapidly. So a small inventor or a new inventor might feel more pressure to apply quickly and then question whether or not there is the quality. So there is a tradeoff in that regard. I am eager to hear the debate on both sides. It is a debate that has been around for many decades. But, again, the studies you point to by former Commissioner Mossinghoff have suggested and have shown that the high costs of our current interference practices under our ``first to invent'' system may be disproportionately falling on independent inventors and small businesses. Chairman Hatch. Your testimony and the testimony of many others here today supports the development of a new system of post-grant review at PTO. Can you tell is where this issue is among your priorities for patent code reform, how much you believe it will cost and whether you have any position on the issue of whether the challenge period should last for nine months, two years or some other time period? Mr. Dudas. It is a high priority. It is a very high priority, but a post-grant opposition proceeding is something that the United States Patent and Trademark Office has talked about from the very beginning of our strategic plan back in 2002 when we began putting that together. Some of the questions you ask depend on how that post-grant opposition system might work. I believe that we can implement that system in the United States Patent and Trademark Office. I think the post-grant opposition system is an answer to many of the problems that people raise right now. One of the concerns now is that litigation is too costly, litigation takes too long, litigation is too subjective, and perhaps you are not sitting before the experts when you go to a district court. Post-grant reexamination is a proceeding we have in the office right now that allows you to go before the office, but doesn't give you all of the freedoms; it doesn't give you all of the options that you have in litigation. Post- grant opposition gives you the benefits of the protections of litigation, while still gets you before the office. I think we can implement that, and it will take resources and it will be necessary for us to get the resources in place. It will be something that, if it is authorized, we will have to have the appropriation for it as well. As far as the time period, I think there is a lot of agreement toward a nine-month. At the Patent and Trademark Office, we believe that it should be a one-year period where you can raise an issue in post-grant opposition, and then after that time if you show a credible sign of being sued for infringement or have otherwise a reason to bring that up. Chairman Hatch. Well, let me just ask one last question. Let me draw you into the thicket of injunctive relief. I know that there is no final administration policy on either the BSA or the AIPLA versions of the injunction provision. Mr. Kamen, who will testify later, also has strong feelings about this issue, coming from the small inventor perspective. I am not asking you for a final answer on this issue at this point because I think the affected parties need to continue to work on this issue, but help us understand the issues involved. Please tell us what is at stake and why the tech folks and biotech folks, as well as some small inventors, look on this issue so differently, and please help us define the problems associated with the granting of injunctions with respect to patent litigation. Mr. Dudas. Thank you. Chairman Hatch. My time is up, so if you could answer this. Mr. Dudas. I am sorry. I didn't hear the last-- Chairman Hatch. My time is up, if you could answer this. Mr. Dudas. Okay, absolutely. Thank you. This is an excellent example of where a balance needs to come in, and you made a point in there that you need to listen to everyone. In my testimony, I pointed out that on these kinds of issues we need to listen to independent inventors, we need to listen to big companies, we need to listen across industries. I think you are right to say that we need to hear a whole lot more. I will tell you one thing that I find disturbing. A study was done last year that talks about increases in litigation costs. The increases in prosecuting patents went up 1 percent. The increase in litigation across the board went up 1 percent. The increase in patent litigation and intellectual property litigation went up 32 percent. So there is statistical evidence and there is also anecdotal evidence that some predatory practices in litigation are finding their way into intellectual property, into the courts, and we are seeing more issues along those lines. I think it is important that we look at that. The other side of the issue which you hear from many people--and this is what is very important--is there is a real problem, but is the injunctive relief solution the right solution, is what people are raising. It is throwing the baby out with the bath water? Injunctive relief has been looked at because the right is an exclusive right, the right to exclude others from the use of your patent. Under injunctive relief, there are four areas where you need to look to determine whether or not there is injunctive relief. One area is whether or not there is irreparable harm. I think the debate really turns on that. If you hold a patent and you have a right to exclude others, then if you can't get injunctive relief, is there or is there not irreparable harm? The moment you allow someone to encroach upon that or develop along those lines, the original patent owner loses the right to exclude. If you compared it to a real property example, if someone holds a deed and title to property and someone else came along and said I would like to build on that property, I don't think you own it, et cetera, does the court say, well, you can build so long as you can get monetary damages? That is what I think the debate has turned on. I think you hear other industries being concerned because they want to maintain that they have consistently the right to exclude. They are worried that this would create a system of compulsory licenses, but you see a real difference based on the experiences that different industries have had both in the courts and in the patent system. Chairman Hatch. Thank you. Senator Leahy, we will turn to you. Senator Leahy. I raised earlier this question of patent- holders seeking multiple continuations of their patents, and I understand the practice may be abused. One, I would like to know if you feel there is a possibility of it being abused, and would it be a good idea to put a specific numerical cap on the number of times a patent applicant can file an application for continuation, three strikes and you are out or something like that? Mr. Dudas. I am glad you raised that point. Continuation practice is something that we are looking at in our office both in terms of quality and in pendency, because over 25 percent of the work we are doing is working on continuing applications. There are many legitimate reasons to have continuing applications, but in essence that means a quarter of our work is going to rework. Our system allows a great deal of flexibility, but I think we are at a point now--and it is something that many of you have raised--where we have to start choosing how many different flexibilities we can have and what judgments we need to make in our system. There are cost/benefit analyses that perhaps didn't exist that do exist today after we have broken records in the number of applications we receive. Senator Leahy. Are you seeing an abuse of this continuation? Mr. Dudas. There are certainly people that are reporting that there are abuses of the continuation practice. Particularly, I think what people are focusing on is the idea that you can broaden out your claims through a continuation after another technology develops. So we have certainly heard reported abuses and there is evidence that people have tried to use continuation practice in that light. I will also tell you from our standpoint I don't know if a hard limit is the right answer. We have looked at that in our office and there are concerns if there can be more. But what we ask our patent applicants to bring up--this is one of the questions at the heart of application quality that I referred to earlier. Perhaps we need to either charge more or we need to have them have higher burdens to bring in if they are going to have that many continuations. Senator Leahy. Well, you mention charges. One proposal I have heard to help small inventors is the elimination of filing fees at the PTO for individual inventors and small businesses. For large businesses, you would have to have some kind of a standard, of course, that they would be required to pay. I wonder if you have a position on that proposal. What about universities, some of whom partner with the private sector? Should they part of an exemption from fees? Mr. Dudas. I am glad you raised that. I think there are concerns with a system that would allow no cost/benefit in whether or not to file a patent application. Currently, under our system small inventors, universities, independent inventors and small businesses, as defined by the Small Business Act, get half off of fees. So there is a sense that there is a break in place. There are those who question whether or not there are too many applications that get a price break, a half off. There is a concern sometimes in our system, often in other patent offices, of whether or not junk is filed, whether or not the system allows for too much to come in and that bogs down the system. If there were no fees whatsoever for an application for any particular group, I think that is a concern that we would have to look at, if there was no cost/benefit that was made at all. We want to make certain of the quality of applications that come in. Our office and the administration has always been supportive of having smaller fees for smaller inventors and independent inventors. Senator Leahy. I think we should, but you talk about the high number coming in. I have heard that the patent examination process doesn't allow for relevant information of third parties to be brought to the PTO prior to the time when you are in litigation. I am wondering if there should be a better way of getting information from third parties, those who work in the same field and have expertise and have an incentive to make sure the new inventions are truly innovative, some kind of a partnership there. Might that be a way to help the PTO so that you are not over-patenting inventions? You have some reference in your testimony to something along this line. Would you want to elaborate on that, please? Mr. Dudas. Certainly, that can be helpful. In fact, we are engaged now with partnerships with a number of different industries, not on particular patent applications, but our examiners will get together with industry representatives and discuss what relevant art is, what is the state of art in each of the industries. This is particularly important when you begin to see patenting techniques used in new industries. So in the financial industries, after the Supreme Court decided State Street Bank, we saw patenting techniques used more and more in certain industries. Our examiners, who are always eager--and when compared internationally, the examiners throughout are always eager to get more information and are working with sometimes hundreds of people from the industry coming in and training our examiners, et cetera. I think what you are talking about is a more robust system of seeing applications, published applications, et cetera, and being able to submit prior art with a little bit more relevance. We are very open to that. We would have to manage it properly. Senator Leahy. I will put my other questions in the record, but I was concerned about a letter I received from the head of the Patent Office Professional Association. You probably have seen it. They claim that the recent contract proposal has demoralized a workforce that they feel is highly motivated. It says PTO wants to reduce current performance incentives and eliminate a current contract provision that says employees will be treated equitably and fairly by management. According to their newsletter, they say when the PTO's automated systems fail to function, as sometimes they will, employees will be sent home without pay. Now, in the 21st Century Strategic Plan you speak of how you get a highly motivated workforce. Is this showing an area where that motivation may be undercut? Mr. Dudas. I don't think ultimately it will and I sincerely hope it isn't. I can tell you one thing where our union, our examiners and management in our office agree. We are one team and our goal is to make sure that we provide the examiners with the tools they have. I would hate to think--and I have talked to a number of folks--that a proposal would in any way cause a demoralization because it is a discussion process. I have solicited comments from our union, from our managers and from our examiners. In fact, I get some of the best comments on how we can change and how we can improve from working out in the fitness center in our office. So this is meant to be a collaborative process, one in which we are bringing everyone in. We certainly feel a certain amount of responsibility in my office--I feel it--for us to be able to improve and become more efficient, and the only way we can do that is by passing those--within in the office, how can we improve? So my sense would be that there is not a sense of demoralization based upon that, or if there is, I think that will be remedied as people discover how there will be give-and-take and discussion as we go forward. The goal is indeed to give our examiners the tools they need. We are the most efficient office in the world and our examiners, I am certain, are the best in the world. Senator Leahy. Thank you very much. Thank you, Mr. Chairman. Chairman Hatch. Well, thank you, Senator Leahy. Senator Feinstein. Senator Feinstein. Thank you very much, Mr. Chairman. Mr. Dudas, I want to ask you a question about university of patents. The University of California is listed by the Patent and Trademark Office as the university that received the largest number of patents in the Nation last year, with over 400 patents. Its patents and its licensees have contributed a lot to the development of high-tech and biotech in California. All of American biotech sprung right out of the University of California. It was amazing. However, in a university setting research is not always done with patenting in mind, and depending on how changes in the patent system are structured they may have an adverse effect on large research-oriented universities. What do you think the impact of some of the reforms mentioned such as the change from the current ``first to invent'' standard to a ``first to file'' standard will be on universities? Mr. Dudas. I think you raise what is at the heart of what is happening within universities. There is a sense that university research and what professors want to do are sometimes inconsistent with the patent system. The patent system is about protecting and keeping private until you apply. The university system is often about getting information out as quickly as you can. My sense is that the universities can do just as well in a ``first to invent'' as in a ``first inventor to file'' system. Particularly as you point out, I think the universities have really gotten beyond the issue, most universities have, through education, of wanting to publish before they think about patents. You talk about an incredibly successful system in the University of California, Wisconsin, Stanford. There are a number of universities that now work that problem out very well. I think that universities can and will thrive in either environment. The Bayh-Dole Act is an example of how universities came into thrive where government couldn't thrive, where government couldn't really develop these patents. So the experiences I have had in working with universities and seeing that is that they adjust very rapidly and can thrive under either system. Senator Feinstein. But are you saying that they are better off under the ``first to invent'' rather than ``the first to file?'' Mr. Dudas. I am not saying that they would be better off under ``first to invent,'' and I apologize. They probably would be better able to articulate, if they do feel that way, why they would feel that way. I find that the system is one that can adjust either way and I don't feel that a ``first to invent'' system--or at least it is not obvious to me why that would be a preferred method for universities. Senator Feinstein. Could you tell me a little bit more about the backlog in the patent office and what other steps you would take to ensure that the patent office would be able to handle the new class of proceedings on top of its existing workload? Mr. Dudas. Yes, two questions. One was about the backlog and the second is how we can handle the hiring that we are doing now. Senator Feinstein. The number in the backlog. Mr. Dudas. The number in the backlog, absolutely. In the last 20 years, the Patent and Trademark Office has broken a record every single year for more than 20 years in how many applications it has received. That is great news for our economy. It is great news for the United States because, of the American filers, that number has consistently gone up. It is also great news for the USPTO, but it is a challenge as well. Despite the growing numbers of applications, certainly in the last several years and years before we did not hire in record numbers. We now have, because of the bill that was passed last year--I am sorry. Senator Feinstein. I guess I am asking you what is the current backlog. Mr. Dudas. The current backlog is approximately 490,000 applications in the backlog. Senator Feinstein. That is a big backlog. Mr. Dudas. That is a very big backlog. Senator Feinstein. Is that the highest ever? Mr. Dudas. It is the highest ever, and it won't comfort you much to know that it will certainly grow over the next few years. Senator Feinstein. So what are you doing to have at it, so to speak? Mr. Dudas. What we are doing now is we are hiring more examiners now. We are going to start getting at that backlog. The reason that backlog will grow is because pendency is measured going backward, basically. If pendency is at 28 months, that means we are measuring a patent that comes out today and 28 months ago it was filed. So we know you could hire 12,000 patent examiners now and it wouldn't affect where it goes in the next two years. What you will see is three years down the line, four years down the line, the hiring we are doing will have an effect. We are hiring at record numbers now more patent examiners than we have ever hired before. Eight hundred and sixty patent examiners is what we plan to hire this year. We have already achieved 80 percent of the goal. Senator Feinstein. How many do you have now? Mr. Dudas. We are going from 3,600 to about 4,400, and there will be some attrition in there. We are hiring a quarter of our workforce. Senator Feinstein. I guess the second part--well, I guess the hiring is the answer to the second part of the question. Thank you very much, Mr. Chairman. Chairman Hatch. Well, thank you, Senator. Could I just ask you for some help? We would like you to continue to work with us as we fashion patent reform legislation. We would like to have the best advice you can give us. Secondly, Senator Lieberman and I will likely be shortly reintroducing our bioterrorism legislation. This bill has several IP provisions in it and I just want to know if Senator Lieberman and I can count on you to aid us and help us with that on this very important bipartisan bill. Mr. Dudas. Absolutely. Whatever we can do we will do, and thank you very much for having me. Chairman Hatch. Thank you so much. We appreciate you taking time, we appreciate you being here and we look forward to working with you on these issues and we appreciate the good work you do. Mr. Dudas. Thank you. Chairman Hatch. Thanks so much. Panel two will consist of Dr. Richard C. Levin, President of Yale University, from New Haven, Connecticut, and Co-Chair of the Committee on Intellectual Property Rights in the Knowledge-Based Economy, Board on Science, Technology and Economic Policy of the National Research Council, and Dr. Mark B. Myers, Visiting Executive Professor, Management Department, at the Wharton Business School at the University of Pennsylvania, in Philadelphia, Pennsylvania, and Co-Chair of the Committee on Intellectual Property Rights in the Knowledge- Based Economy, Board on Science, Technology, and Economic Policy, National Research Council. We welcome both of you here today and look forward to hearing what you have to say. We will start with you, Dr. Levin, first, and then we will go to Dr. Myers. STATEMENT OF RICHARD D. LEVIN, PRESIDENT, YALE UNIVERSITY, NEW HAVEN, CONNECTICUT, AND CO-CHAIR, COMMITTEE ON INTELLECTUAL PROPERTY RIGHTS IN THE KNOWLEDGE-BASED ECONOMY, BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, NATIONAL RESEARCH COUNCIL Mr. Levin. Chairman Hatch, Senator Leahy, Senator Feinstein, thank you for offering me the opportunity to discuss the National Research Council's recommendations for improving the patent system in the United States. Patents play a crucial role in promoting the technological innovation that is the most important underpinning of economic growth. I am grateful to the Subcommittee on Intellectual Property for scheduling this hearing. The project undertaken by the National Research Council was the most comprehensive review of the patent system in decades. Our committee was perhaps the first to bring together practicing patent lawyers, judges, academic lawyers and economists, business leaders, technologists and inventors. We started with highly divergent views, but over the course of our deliberations our views converged and we reached consensus on several important recommendations. We concluded that, on the whole, the patent system is working well and does not need fundamental revision. Yet, we did note some causes for concern. The sheer volume of patent applications, especially those involving new areas of technology, overwhelms the examination corps in ways that affect the quality and timeliness of decisions. In addition, it has become more expensive to acquire patents, to obtain licenses to patented technologies, and especially to enforce and challenge patents through litigation. Our recommendations are set forth in greater detail in an accompanying written statement coauthored with Dr. Myers. But, here, I would like to emphasize three main themes. First, we believe the Congress and the PTO should take steps to ensure the quality of patents that are issued. The single most important step would be the establishment of a simple administrative procedure for opposing a patent after it has been granted, a post-grant review system. The process should be timely and efficient so that uncertainty can be resolved quickly without either inhibiting socially productive investment by competitors in situations where the patent proves to be invalid or, on the other hand, encouraging wasteful investment when the patent proves to be valid. A new post-grant review system is needed because the existing inter partes reexamination procedure only permits challenges to be lodged on narrow grounds. It is rarely used and has not proven to be effective. The only way to challenge patent through the courts today is to infringe it and to draw either an infringement suit or a demand to take a license. This is an unnecessarily expensive method to resolve doubts about a patent's validity, and disputes take many, many years to resolve. Patent quality can also be improved by the assiduous application of the non-obviousness standard by the Patent and Trademark Office. The PTO needs to develop new approaches to gathering information about the state of the art in emerging areas of technology, relying on outside experts when patent examiners lack expertise. The committee commends the PTO for the development of guidelines in emerging technology areas such as genomics and business methods. It is important to offer such guidance promptly as new technologies emerge. The committee also recommends that the Congress provide more resources for the PTO to hire needed examiners to improve its information systems and to fund a post-grant opposition procedure. A second theme beyond that of patent validity is the harmonization of the United States patent system with the European and Japanese systems. Differences among the world's major patent regimes entails wasteful duplication of effort by both inventors and governments. The committee believes that gains in efficiency from harmonization would be considerable. The United States is now the only country that gives priority to the first person to reduce an invention to practice. Elsewhere, it is the first inventor to file who is given priority. The latter test is objective. What date did you file with the patent office? The former requires years of discovery, reams of depositions and hours of trial testimony. Moreover, the U.S. is the only country in the world that requires the patent-holder to prove that he or she has disclosed the best mode of practicing a patent. This, too, is costly and time-consuming to prove. Harmonization with global practice makes sense. Finally, the committee recommended that the Congress mitigate other subjective elements in the law that contribute to the extraordinary expense of patent litigation. For example, Congress would be well advised to eliminate or modify the standards governing inequitable conduct. There should be penalties for misconduct by patent applicants, but misconduct should not automatically invalidate a patent. Similarly, the doctrine of willful infringement should be modified because willfulness is subjective and costly to prove, and the doctrine creates a perverse incentive for inventors to avoid the study of prior art, lest they fail to cite a patent that turns out to be relevant. In this brief overview, I have not mentioned all the recommendations of the committee which are explained more thoroughly in our written testimony and, of course, in our full report. My colleagues and I on the committee recognize that some of our proposals will engender controversy, but we believe that is imperative that the United States take the steps necessary to ensure the quality of patents, to harmonize patent systems and to reduce the cost of patent litigation. I would be pleased to answer any questions. Thank you. Chairman Hatch. Thank you so much. Dr. Myers, we will take your testimony. STATEMENT OF MARK B. MYERS, VISITING EXECUTIVE PROFESSOR, MANAGEMENT DEPARTMENT, WHARTON BUSINESS SCHOOL, UNIVERSITY OF PENNSYLVANIA, PHILADELPHIA, PENNSYLVANIA, AND CO-CHAIR, COMMITTEE ON INTELLECTUAL PROPERTY IN THE KNOWLEDGE-BASED ECONOMY, BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, NATIONAL RESEARCH COUNCIL Mr. Myers. Chairman Hatch, Senator Leahy and Senator Feinstein, I join my colleague, President Levin, in thanking you for the opportunity to discuss the recommendations of the National Academy of Sciences concerning the patent system. Rather than speak from my experience now at the university, I would like to speak from my experience of a career of 37 years that I spent in industrial research and development at both large and small entrepreneurial firms. In the last ten years of my career, I was head of Xerox's corporate research, where I was involved in the process of creation of intellectual property which offered key options for economic growth of the firm. In the creation of new firms, patents were an imperative to attract the investment necessary to fuel early growth. Over these many years of experience and practice, there were two very important innovative trends that really had major impact on the ability to establish a firm competitiveness. One is the ever-accelerating pace of innovation. Time frames once measured in decades are now measured in years, years are now measured in months, and months are measured in days. A second major trend has been the globalization of markets and technology sourcing. The innovation process is unconstrained in time, place and movement. These trends place new requirements on our patent system. If it is going to continue to enable innovation, as it has so ably done in the past, the quality of patents and issues of potential infringement must be determined earlier in the innovation process. We need common standards of right to use of technology across global markets. Uncertainties with respect to these rights of use create negative incentives for innovation investment. The recommendations of this report speak directly to the needs of patent quality, earlier validity determination, as well as moving us along toward international harmonization. I would like to join now President Levin and accept questions from the panel. [The statement of Messrs. Levin and Myers appears as a submission for the record.] Chairman Hatch. Thank you very much. Dr. Levin, I am tempted to ask you a question on the minds of many parents, what role will the new essay on the SAT play in college admissions, but I won't ask you that. Both of you come from leading academic institutions. The NAS report contains a lengthy discussion of the extent to which universities should be liable in patent infringement cases. I will stipulate that probably no party enjoys patent litigation, certainly not universities. I am struck, however, by the examples that you gave on pages 74 to 76 of your report. This includes several extremely important university-assigned and licensed biotechnology inventions, such as the Harvard mouse and the University of Wisconsin stem cell lines. The Federal Circuit, in Madley v. Duke, distinguished between research, quote, ``solely for amusement to satisfy idle curiosity or for the strictly philosophical inquiry is protected,'' but that ``organized scientific research with commercial dimensions is not protected from infringement liability.'' Given the manifest commercial character of some university- based science, why should this type of research be shielded? Your report notes that, quote, ``University administrators and legal counsel were uncertain what precautions to take to avoid infringement.'' Now, as members of the NAS study and key university leaders, can you update us on the developments in this area since the report was written and tell us the extent to which you believe that immunity should be granted to university research and why? Mr. Levin. Well, the committee did not in the end recommend a blanket exemption for university research. We actually looked at the possibility of crafting several types of narrow research exemptions and actually noted strengths and weaknesses of each of them, and in a sense tossed it back to you, Senator Hatch, and others in the Congress for resolution. We are concerned about access to research tools, but we have worked out ways of doing it. I mean, I would say that there are increasing numbers of agreements these days within universities, even since our committee completed the substance of its work more than a year-and-a-half ago. We are getting better at figuring out how to license these tools and to make our faculty compliant with taking licenses for the intellectual property they are using. On the other hand, it is important that we not inhibit fundamental research that is undertaken for non-commercial purposes. Much more is proprietary now in the area of research tools than was the case even a decade ago. So to do even fundamental research in universities now, especially in the genomics area, requires significant numbers of licenses and agreements to be crafted. And we are worried about this, but as I say, it is not easy to craft good language. In principle, what you would like to do is protect basic research that has no commercial purpose. But, of course, universities are engaged in commercial activity and we shouldn't have an unfair advantage in competition, so we should have to take the same kind of licenses the private sector takes. So you see the dilemma. There is no simple answer to this. Chairman Hatch. Dr. Myers. Mr. Myers. As a study group, we did not come to one mind on this question. Part of it is it is a very complicated issue which people from the university community and industrial community have not yet reached common ground, and so it is clearly going to be the subject of more conversation. I think, though, it is an extraordinarily important question for the following reason. One of my focuses is on international competitiveness, and particularly competitiveness in U.S. industry. As we have seen the transition of private research in the United States move less from basic science into more downstream-related activities, a great deal of the force of laboratories like Bell Laboratories in the past will be now present in our national research universities. So our national research universities are going to be increasingly important agents in our competitiveness posture. We are not completely sure how that should be shaped in the future so that we do not harm or destroy what is great about the university research environment. But, clearly, in the kind of knowledge-based economy that we are in today, our national research universities will be key competitive factors of our future. Chairman Hatch. Thank you. Senator Feinstein. Senator Feinstein. No questions. Chairman Hatch. Let me just ask one other question, then. It is my understanding that the PTO is currently engaged in international harmonization negotiations. Some have expressed concerns that if Congress pushes ahead with international harmonization of the patent system before these negotiations are concluded, it will undercut the United States' negotiating position. This seems to be a real problem to me. In your opinion, should Congress hold off on harmonization? Mr. Levin. I would offer the point that I think it is in the unilateral advantage of U.S. companies to harmonize; that is to say, no, Congress should not hold off. The things we are proposing in many ways are simply going to be better for firms that are trying to do business around the world. It is going to simplify their lives to operate under one standard, such as the first inventor to file, and save lots of litigation costs right here in the United States. So we think you should go ahead. Chairman Hatch. As you know, there is a hearty debate taking place over how to change the injunctive relief provisions of the Patent Code. Do either of you have any views on this matter? Mr. Levin. The committee didn't take a position on this. Do you have a personal view? Mr. Myers. No, I would rather not offer a personal position, but we did not discuss this subject. Chairman Hatch. Let me thank you and the rest of your panel and staff and outside consultants and participants for all the hard work that you have done in producing the NAS report. Can you give us a sense on what you believe are the highest priorities among the seven key recommendations in the NAS study? Let me just put it this way: If there was one thing that Congress could do to make the patent system better in the future, what, in your opinion, would that be? Similarly, if there were one thing that you could prevent from happening legislatively, what would that be? I would like to have your best advice on those two issues. Mr. Levin. Well, I am very partial to the idea of the post- grant review system. In an environment where technology is changing very rapidly, such as the Internet business patents that were filed in the late 1990s, or at an earlier time genetic patents, having the capacity to quickly determine what kinds of patents are going to hold up, what kinds of patents are going to be valid, is going to create such a stronger environment of certainty for the industrial sector that you will see a more rapid pace of innovation. People won't hold back in making investments because they are worried that they are infringing. On the other hand, people won't make wasteful investments that turn out to be invalid later. Having a timely way to really test an emerging area of law, which is always the case when there is a new technology-- there are new questions to resolve--is very, very important. I would say that is the most important of our recommendations. Chairman Hatch. Thank you. Mr. Myers. I would agree with that. I think that I would put it under patent quality. I think patent quality is extremely important, and I think the post-grant review enables that. I would have to slip in, if you would allow me, that international harmonization, as rapidly as we can move there, is a very close second. Chairman Hatch. Well, thank you very much. We really appreciate you both taking time from your busy lives to come down here and help us try to understand this a little bit better. Thank you very much. Mr. Levin. It is an honor to help. Thank you. Mr. Myers. Thank you. Chairman Hatch. It is an honor to have you here. We will turn to our third panel now: William Parker, of Diffraction, Limited, in Waitsfield, Vermont; Dean Kamen, President of DEKA Research and Development Corporation, in Manchester, New Hampshire; David Simon, Chief Patent Counsel for Intel Corporation, in Santa Clara, California; Robert A. Armitage, Senior Vice President and General Counsel for Eli Lilly and Company, in Indianapolis, Indiana; Joel Poppen, Deputy General Counsel of Micron Technology, Inc., in Boise, Idaho; and Michael K. Kirk, Executive Director of the American Intellectual Property Law Association here in Washington, D.C. Mr. Parker, we will begin with you. STATEMENT OF WILLIAM PARKER, CHIEF EXECUTIVE OFFICER AND DIRECTOR OF RESEARCH, DIFFRACTION, LTD., WAITSFIELD, VERMONT Mr. Parker. Mr. Chairman, Ranking Member Leahy--I guess he stepped out of the room--and members of the Subcommittee, my name is Bill Parker and I am Chief Executive Officer and Director of Research for Diffraction, Ltd., a technology and intellectual property-based small business in Vermont. Thank you very much for inviting me to testify today on this most important topic. In my testimony, I hope to present some of the views of individual inventors and other small entities on needed changes to the United States patent system. As evidenced by the substantial numbers of innovations and patents that spring from small businesses around this great country and the jobs that these innovations create or maintain, these small-scale operations have a significant role to play in the United States economy. My company, Diffraction, Ltd., is not just small, it is a micro business. This panel's members are by and large from large entities or represent groups of patent-holders. I will try to make this presentation as focused as possible on a few issues of patent reform as they affect individuals and small businesses. Like many small technology-based businesses, our company was founded by an inventor and patent-holder. In our case, it was my wife Julie. After earning a graduate degree from MIT, having little or no business background, she decided to start her own company to further develop and capitalize on her skills, talents, inventions and discoveries. She thought it was useful to have a partner in this endeavor, and that is where I came in. As an inventor from childhood with some reasonable commercial successes, I had collected a considerable range of experience learning about the things one did and did not do to capitalize on one's creativity. Fifteen years later, we have three little inventors at home and a company with a staff of 20 innovators. We have produced a number of commercially-viable developments and patents in holography, optics, micro electronics and nanotechnology. We recently launched an effort to develop innovations that may help win the war against terrorism, work supported with Federal government contracts as well as private funds. It is important to note that we believe our intellectual property in the long term will have value than our tangible output will in the short term. Said a different way, the product of our minds probably has more value than the things we can make with our hands. When we have done our inventing job well, we may need to depend on others to take our innovation to the market. Like other inventors that choose the licensing route over manufacturing, we then ask for a royalty payment as a return on our investment in the innovation. That the United States is moving toward an economy where money generated from intellectual property is a significant element of the GDP is undeniable. That we are doing everything we can as a country to protect our IP is questionable. The future world market will need new rules regarding the ownership of ideas, rules that need to be fair and balanced. We would like to offer an image to the Subcommittee of a day when the U.S. has little to offer other than intellectual property, a few raw materials and some farm produce. This is a scary scenario if we are not prepared or able to protect our most important assets. On the quality of patents--this is the number one issue, I think, for all inventors--the patent process must be flawless for a patent to be above question, and it must be above question to have any real value. As the art becomes more involved and specialized, it is increasingly more difficult to factor out mistakes of omission. Better access to prior art is part of the solution, but more is needed in the examination process to prevent a poor outcome despite a significant amount of time and money being spent. Redirecting PTO fees is not part of the solution. Money not spent by the PTO to ensure quality is often spent instead by the patent-holders and their challengers in legal actions. Tremendous amounts of money are spent in challenges, when a fraction of that could have been spent better to prevent the problem at its source. There is a need for skilled examiners in emerging technology areas, keeping in mind that experts in their specific art are, in fact, their customers. From biotechnology to nanotechnology and software and micro electronics, as well as other cutting-edge fields, the experts are the ones making the inventions, not the ones determining if they are, in fact, inventions. On first to file versus first to invent, it sounds like a good approach in many ways for individual inventors, for harmonization and for the system in general. But, in fact, it poses a few big problems for small entities. It would be very difficult, but not impossible, to change the system and not disadvantage small inventors. Due to the high cost of building prototypes or doing laboratory work, it takes a small inventor a reasonable amount of time to go from idea to reduction to practice. The ability to submit continuances in part and amend claims are the other tools available to small inventors. We would like to see ways to encourage the creativity and capabilities of our country's small inventors, but reduce their cost in obtaining patents, while still giving them protection in the world market. As far as injunctive relief, we don't believe that all inventors are opportunists or patent predators, even though a lot of talked is aimed at protecting big businesses from the actions of a few opportunists who try to use the system against itself. In conclusion, I speak for many of my colleagues and small entities when I thank the Subcommittee for this opportunity to be able at the table for this hearing. We only ask for more chances to provide views to Congress on this important topic and for more presence on advisory boards during the patent reform debate. I personally thank you for the opportunity to be here before you today, Mr. Chairman, and I offer my continuing efforts to find or invent ways to make our patent system work for the 21st century and beyond. Thank you. [The prepared statement of Mr. Parker appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Parker. We will just go across the table. Mr. Poppen, we will take you next. STATEMENT OF JOEL L. POPPEN, DEPUTY GENERAL COUNSEL, MICRON TECHNOLOGY, INC., BOISE, IDAHO Mr. Poppen. Chairman Hatch, Senator Leahy and members of the Subcommittee, I am the Deputy General Counsel for Micron Technology. Thank you for allowing me to testify today on the very important issue of patent reform. Since my submitted testimony covers a number of issues in some detail, I will focus on just a couple of major points today. Micron is one of the world's leading providers of advanced semiconductor products. Our products are used in today's most advanced computing, networking, communications and imager products. Micron's investment in R&D has led to over 12,000 U.S. patents, and in the past five years Micron has been among the top ten recipients of U.S. patents. Accordingly, Micron is a significant stakeholder in the patent system and has a keen interest in its improvement. In recent years, opportunists have exploited the patent system to attack those who innovate and manufacture products. According to studies, this trend has led to a 60-percent increase in patent suits in the last decade and staggering costs. As authors Jaffe and Lerner note in a recent book, quote, ``Burgeoning patent litigation is increasingly making lawyers the key players in competitive struggles rather than entrepreneurs and researchers. As the patent system becomes a distraction from innovation rather than a source of incentive, the engine of technological progress and economic growth begins to labor,'' close quote. To curb the growing abuse of the patent system, to realign the intended incentives and to restore fairness for everyone, the patent system should be reformed through targeted legislation. First, manufacturers increasingly are coming under attack from those who are inventing patents rather than patenting inventions. These inventors of patents use continuation practices in the patent office to tailor patent claims over time to cover the activities of others. Later, they surprise manufacturers who are locked into technologies with unanticipated patent claims and steep royalty demands. To redress the patent problem, patent applicants should be required to file their broadest claims very early in the process and should not be allowed to later claim broader or different inventions after watching the activities of others. A second problem area relates to significant judge-made advantages for patent plaintiffs. When plaintiffs prevail, courts virtually automatically enter an immediate injunction shutting down a defendant's business, even though the applicable statute plainly requires that principles of equity be weighed first. Courts simply short-cut the analysis by presuming that the plaintiff will suffer irreparable harm if an injunction does not issue. But many patent plaintiffs are in the business of only collecting royalties and money damages are sufficient to fix any harm. To ensure the proper balancing, the patent injunction statute should be amended to instruct courts to weigh all the equities before issuing an injunction. A final area of problems relates to excessive damage awards. Patent opportunists use system claims and court- sanctioned damage theories to claim damages on entire products even when only a small part is the actual invention. Accordingly, the patent damages statute should be amended so that damages are limited to the proportion of the value directly attributable to the invention rather than the larger system in which it resides. Additionally, defendants almost always are faced with allegations of willful infringement and the threat of triple damages. But since enhanced damages are punitive in nature, they should only be available upon an express finding that the defendant's conduct was egregious or reprehensible. In conclusion, targeted manufacturers often face a Hobson's choice: daunting litigation costs, slanted evidentiary standards, exorbitant damage awards and virtually certain injunction relief on the one hand, and predatory licensing demands on the other. Patent reform legislation is essential to restore fairness and to protect the integrity of the patent system. Thank you again for the opportunity to provide some perspectives on patents. [The prepared statement of Mr. Poppen appears as a submission for the record.] Chairman Hatch. Well, thank you, Mr. Poppen. We will turn to you, Mr. Simon, and take your testimony. STATEMENT OF DAVID SIMON, CHIEF PATENT COUNSEL, INTEL CORPORATION, SANTA CLARA, CALIFORNIA Mr. Simon. Thank you, Mr. Chairman. My name is David Simon. I am the Chief Patent Counsel of Intel Corporation and I am here to testify on behalf of the Business Software Alliance. Our group contains not only some of the largest patent-holders in the United States, but we also contain many small patent- holders, and I am here to talk about the imbalances that arise from complex products that contain often billions of components or billions of lines of code that are alleged to be touched upon by thousands of patents. It is our belief the patent system needs some adjustment to meet the needs of our industry. In addition to being overwhelmed by new applications, which have caused a five-fold increase in backlog in patents, the PTO also faces a deluge of continuation applications. I believe it is about 25 percent, according to Director Dudas. Patentees file these continuation applications even up to a decade after the original filing date, filing to stretch their disclosures to claim evolving technology or standards. They then tax the industry with what can only be viewed as inventive patents. Then, once issued, the procedures by which the PTO can review the validity of these patents are inadequate. Ex parte reexamination has proven futile over 85 percent of the time. Why? Because after filing the request, the requester is no longer participating in the process. The patentee will then narrow the claims, while avoiding the prior art sitting there with the requester's product trying to make sure that the claims cover that. We firmly believe that a robust inter partes opposition procedure needs to be there so the patent office can deal with the mistakes that overtaxed examiners will unfortunately make, particularly if, as Director Dudas said, we are going to have 25 percent new staff. Specifically, inter partes reexamination should be fixed by removing the time limitation on patents that may be reexamined and by fixing the collateral estoppel provision in Section 315(c) of Title 35. In addition, we firmly believe in a meaningful post-grant opposition procedure. We do not believe that a nine-month window, however, is sufficient, as advocated by others. We think that there needs to be a second window because, unfortunately, with the speed with which our technology moves, it could be years before we realize that a patent that issued years ago might be significant or not. While we support the efforts to improve the patent office's internal procedures, we also believe that it is important to fix major problems that have cropped up in litigation. First, the law of triple damages and willful infringement needs to be fixed. We believe these are punitive damages and they should be reserved, according to the standards set forth by the Supreme Court, for cases of reprehensible conduct, such as intentional copying of a patent without a good-faith belief that the patent is inviolate. The current gamesmanship of letters or the gamesmanship of artfully drawn letters that are advocated by some other organizations has little to do with ferreting out reprehensible conduct. Instead, it creates hardships, including forcing a defendant to choose between defending against triple damages, on the one hand, or on the other hand waiving its attorney- client privilege. These hardships are used by clever litigants seeking only to maximize the settlement value of their cases. Second, the BSA supports adding certainty to the measure of damages on complex products. Today, when a small feature of a multi-faceted product is alleged to infringe a patent, the patentee will often claim that they are entitled to the entire market value of the good rather than the value of their little patented feature. We believe that reform is needed to rein in these excessive damages. In addition, the BSA supports clarifying the jurisprudence regarding injunctions. The law today directs the courts to balance equities before issuing an injunction. Nonetheless, essentially the only reason that courts frequently will cite for not granting an injunction is in the face of a national health emergency. That interpretation of the public interest risks turning equity into a needle's eye which is very difficult to meet. All of these issues have led to a new business model of acquiring control of patents from distressed companies and then suing American manufacturers in plaintiff-friendly jurisdictions, with the threat of inevitable permanent injunctions and high damages at the end of the case to extort settlements. The defendant is thus threatened with having its entire business shut down, and no matter how convinced we may be on the merits of our position, we cannot simply afford to take even a 10-percent chance of losing and having billions of dollars of business or factories worth billions of dollars being shut down. We are aware of the concerns of some that this would undermine the exclusive rights of inventors, but there are persons who abuse these exclusive rights that run contrary to the equitable principles set out in Section 283 and to the fundamental goals of the patent system. What we are saying is that Congress needs to address these abuses by ensuring that equities are fully taken into account by the courts and the public will continue to see the system as fair and balanced. Thank you. [The prepared statement of Mr. Simon appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Simon. Mr. Kamen, we will turn to you. STATEMENT OF DEAN KAMEN, PRESIDENT, DEKA RESEARCH & DEVELOPMENT CORP., MANCHESTER, NEW HAMPSHIRE Mr. Kamen. Good afternoon, Mr. Chairman and the other members of the Subcommittee. I appreciate having the opportunity to speak from the perspective of a small inventor. By way of introduction, I really am a small inventor. I started my first business inventing in the basement of my parents' house. I was building audio-visual systems and then started building medical systems products for my older brother, who was then in medical school. At the time I started my first business, we actually did it all. We conceived it, we designed it, we developed it, we manufactured it, we marketed it, sold it, serviced it. As our medical products company grew, we learned a bunch of things, one of which was all of that takes a lot of work. After about a decade of doing that, I sold that business to a major medical products company in this country and decided that we should focus on what we really do well, which is conceive of solutions, design them, develop them, make sure they work, and then try to align ourselves with large companies that have the reach and the scale in terms of manufacturing, distribution, sales and support so that our technology could get out to the people that need it. I started a company to do that 20-some-odd years ago, and over that period of time we have built home dialysis equipment which is used all over the world, stents and many other kinds of products. I think that system works for everybody. We can focus on what we do very well. Our corporate partners can get these products much more quickly and much more cost-effectively to people around the world. The only bug in all of that is we turn these things over and even though my company now has 180 people working in it, since we don't have a brand name, we don't have distribution, we don't have manufacturing, what we bring to the table is the solutions to these problems broadly represented in patents. It is what we have. We are an intellectual property company. Almost our entire revenue stream is derived from the royalties we get by licensing our partners to be able to make these products. I really think it is a win-win-win, and it is what the Founders had in mind. Patents were there to encourage people to take risks to invent things. We focus on doing precisely that. Since I only have about two minutes, I guess I would like to restrict my remarks then to two issues. One which is sort of down in the weeds--and I know a little bit about it because I have been recently made a member of PPAC, the Public Patent Advisory Committee, in which I have had an opportunity to see the patent office from the inside. One of my issues then would be to say we have got to make sure the quality of patents is kept high. We have heard different people talk about staggering numbers, Jon Dudas pointing out that they are 400,000-some-odd behind, so to speak, in pendency. But, frankly, a problem like that for most private companies would be an embarrassment of riches. The whole world is now seeing the importance of patents. There is enormous growth and demand for these patents. That is a problem a lot of companies would like to have, but the way a company would resolve that is they would quickly grow, put resources to it and hopefully not allow the quality of that company's products to suffer as they dealt with this great growth opportunity. I would urge you--and I heard you say that in your opening remarks--to make sure, for instance, that there is no diversion of fees away from the patent office, not at a critical time like this, but to do everything you possibly can to make sure that the quality of patents is kept high, because if there is no quality there, there is nothing there. When you hold up that patent that you have worked for years and spent millions of dollars to develop, it is in everybody's best interest that it is a quality product. My second issue is speaking not as somebody who knows the inside, but just as a citizen, an inventor, not a lawyer, on this issue of dramatically weakening the value of patents by removing the presumption of injunctive relief. The idea that my patent gives me exclusive rights to my own property is pretty clear. I mean, the Constitution, as has already been pointed out, doesn't say I have the right to my idea. I don't need the Constitution to give me the right to think. What it gives me is the exclusive right to my idea so that after I show the world what it is, they still, for a limited period of time, need to come to an agreement with me to exploit it. If we eliminate my capability to give an exclusive right to my invention to my partners, it will be very difficult to get investors or large corporations to invest the time and money, many times millions of dollars, in developing new products if they are being asked to uniquely invest in these ideas, but in the end they don't get a unique and exclusive license to it. If we take away the right to prevent other people from exploiting our technology, a patent would be nothing but an empty promise, and I hope that that doesn't happen because I think we all know that intellectual property and investment in it are what drive this economy. And in the next century, they will be the primary driver of the economy of the United States. Thank you. [The prepared statement of Mr. Kamen appears as a submission for the record.] Chairman Hatch. Thank you. Mr. Armitage, welcome back to the Committee. We are glad to have you here. STATEMENT OF ROBERT A. ARMITAGE, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ELI LILLY AND COMPANY, INDIANAPOLIS, INDIANA Mr. Armitage. Chairman Hatch, I am delighted to be back. Senator Leahy, thank you very much for allowing me to appear here today. Dean Kamen gave a very impassioned speech and relatively preempts the first part of what I was going to say. We had a chance to talk very briefly before the hearing began and I discovered that he and I are partners, unbeknownst to me. One of his pumps was a pump that is used in one of our high-tech insulin devices, and the ability to marry a high- technology delivery system with a high-technology insulin product literally changed the lives of patients who use our drug. I know this because one of my first experiences as a Lilly employee was practically being tackled by one of our patients at an evening reception telling me how much her life had changed. So, Mr. Kamen, thank you. I want to address perhaps three areas. I would like to talk a little bit about what I think the highest priorities are for patent reform. One area is I would like to provide a cautionary flag on a reform that I really do believe is important and desirable, and then there really is one area where I need to ask the Committee to proceed with great caution before making a change to the patent system. Because this last area is the one of most importance to the pharma-biotechnology industry, I would like to begin with it first, and that deals with the issues of injunctions and damages. As you have heard, Congress is being asked to consider whether to deny an injunction to the owner of a valid patent who can't make an affirmative showing that he has been irreparably harmed. Also, the proponents, BSA, of this proposal have paired it with a second one that would impact the provisions in the patent statute that guarantee the patent owner the right to adequate compensation when a valid patent has been infringed. Lilly would urge Congress to take these two proposals off the patent reform table. Congress simply should not compromise on the principle that absent some overarching public interest, demonstrating ownership of a valid patent property right should be the only showing needed to stop someone from trespassing on that right. In a similar vein, no owner of a valid patent should be denied adequate compensation when a valid patent has been shown to have been infringed. I would now like to just raise a couple of cautionary flags. You are being asked to consider a new post-grant review procedure for issued patents beyond the two such procedures that are already in the patent statute. This perhaps is the most important reform of all the reforms that we have been talking about today. However, experience in other countries should provide some sobering realities. In Europe, oppositions cost enormous amounts of money and can take years and years to conclude. Their system clearly is not a model for our emulation. The new capabilities that the office will need to implement these oppositions could be staggering. If you just assume that 1 percent of patents will be opposed, which is far fewer than the percentage of oppositions you see in countries outside the United States, it could perhaps take years for the Patent and Trademark Office to assemble a cadre of experienced administrative patent judges who would be able to efficiently handle these procedures. Also, Lilly has been at the forefront of support for creating a nine-month window for post-grant oppositions, and it is clear to us that it will be a huge challenge to get a nine- month post-grant opposition window law done just right. However, the proponents have much more ambitious proposals that wouldn't limit the right to seek an opposition to just this nine-month window. We frankly see no possibility that giving the patent office expansive jurisdiction over all issued patents potentially at any time in their life could possibly make sense at this juncture. As a last point, there really is no other country in the world that attempts to couple a post-grant opposition system with the complexities we now have in our law as a result of the ``first to invent'' principle, and indeed it is far from clear that unless we are prepared also to move to a ``first inventor to file'' system that a post-grant opposition system here could be successfully implemented. Now, let me move on to the top areas that I see for patent reform and suggest that we may rally around Director Dudas' call for reforms that make the work of the patent office easier. In this respect, I would suggest we look at four areas. One, of course, is the ``first inventor to file'' reforms that eliminate the need you have heard about today for the office to consider invention date proofs and conduct patent interferences. Second are the other best practices reforms that would eliminate other tests or conditions for patentability that also make the work of the office more difficult. Third, we need to rein in the inequitable conduct defense, which in Director Dudas' statement is quite clearly responsible for a lot of the defensive patent prosecution practices that he bemoans and that make the work of the office more difficult. Fourth, it truly is important for Congress to find a way to stop continuing application abuse. They are now about a third to a quarter of all the work in the patent office. The time is right for reform, and from our point of view we are just delighted to be here providing our perspective and hoping to be able to work with all the constituencies to move this process forward. Thank you. [The prepared statement of Mr. Armitage appears as a submission for the record.] Chairman Hatch. Thank you, Mr. Armitage. Mr. Kirk, we are always happy to have you here. We will take your testimony. STATEMENT OF MICHAEL K. KIRK, EXECUTIVE DIRECTOR, AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION, WASHINGTON, D.C. Mr. Kirk. Thank you, Mr. Chairman and Senator Leahy. I am pleased to have the opportunity to present the views of AIPLA on the need to improve the U.S. patent system. My complete statement sets forth the convergence of the recommendations by the Federal Trade Commission, the National Academy of Sciences and AIPLA for addressing this need and the proposals that AIPLA has developed based on these recommendations. These proposals were explained to stakeholders across the country in three town hall meetings cosponsored by NAS, FTC and AIPLA, and we refined our proposals to reflect the input that we received following these town meetings. There will be a fourth meeting in June of this year here in Washington to wrap up this proposal and further attempt to educate and involve all stakeholders. On the basis of this effort--and I must say, being last, there is a certain amount of repetitiveness, but I will try not to dwell on this--we believe that a coordinated and interrelated set of reforms should be made to the patent system; adopt the ``first inventor to file,'' we have heard; eliminate the subjective elements of patent litigation, as President Levin said earlier and Mr. Armitage just said; complete the desirable legislative enhancements in the American Inventors Protection Act, that is mandate the publication of all applications at 18 months; and, finally, adopt a fair and balanced post-grant opposition system that takes advantage of the elimination of the subjective elements in patentability criteria that follow the elimination of a ``first to file'' principle. AIPLA would like to highlight the most fundamental problem in need of a solution. Of course, you, Mr. Chairman, are well aware of this, and that is the urgent need for adequate and stable funding for the PTO. Both NAS and the FTC agreed with the user community on this crucial point, as pointed out earlier this afternoon. The reforms that AIPLA and others are proposing will require that the USPTO play a greater role in the overall patent system, a role it cannot play unless adequately funded. Let me turn now to a few of the other reform proposals mentioned today, if I might. First, perhaps of most concern to AIPLA is the proposal to preclude a court from granting a permanent injunction for a valid and infringed patent. AIPLA believes that this proposal would essentially destroy the exclusivity of patents, as suggested by Dean Kamen earlier. This impact is going to be especially hard, in our opinion, on universities and independent inventors, who already face great difficulty in getting their patent inventions commercialized. It would be extremely unfortunate also internationally for the United States to suggest that there may need to be no exclusivity for inventions that aren't worked in the local marketplace. I spent a lot of my first career traveling around the world to fight against this, and this would be a suggestion we feel that would move in this direction. We do believe that there are opportunities for addressing some of the concerns that have been expressed by BSA or others. Whether or not these will be to their satisfaction remains to be seen. For example, where a court refuses to stay a permanent injunction pending an appeal, there may be some room to think about alternatives here. However, we strongly believe that a valid and infringed patent should enjoy exclusivity. Another proposal discussed today was the abusive use of continuations. We believe that it is appropriate to consider a targeted solution to these truly abusive practices. However, the solutions that we have seen to date in proposals are too draconian. They would deny any possibility of broadening claims before applicants will even have received the results of an examiner's search of the claimed invention to know what scope of claims they might be entitled to receive. In the effort to deal with a few bad and indeed abusive actors, we believe that these solutions that we have seen would unfairly preclude the legitimate efforts of most inventors to obtain the full measure of protection for their inventions which they deserve. It has also been mentioned that there is a proposal to limit damages. This is the situation where a small component of a larger machine is patented and found to be infringed. It is proposed that somehow this is resulting in damage awards that are out of proportion to the value of the small patented component. We understand that there are cases that may go in this direction, but also there are many situations that are addressed in current case law. One of the written statements earlier mentioned the Georgia Pacific case where there are 15 factors that courts routinely consider, and there have been cases where the courts have taken these factors and addressed cases to properly balance the award, be it on the entire value of the product or be it limited to the specific component. This has occurred also in cases where the component was actually claimed in the patent as part of an overall, entire product, and courts have been able to look at this and deal with this. So we are concerned that we not unfairly and unnecessarily limit the value-added to these damage awards. Finally, there is a proposal that we have seen that would reverse the decision of the Federal Circuit in Eolas Technologies and the Regents of the University of California v. Microsoft. This proposal would limit the definition of the term ``component,'' as used in Section 271(f) of the patent statute, to a tangible item that is itself physically combined with other components of the patented combination. It is argued that this interpretation creates an incentive to move software development outside the United States. Assuming there is evidence to support this, one might ask whether or not the Eolas case would have similar consequences for tangible components; that is, should we, in fact, revisit 271(f) entirely and should it now be repealed in light of today's trading situation around the globe? I thank you for the opportunity to present the views of AIPLA and I would be happy to attempt to answer any of your questions. [The prepared statement of Mr. Kirk appears as a submission for the record.] Chairman Hatch. Well, thank you so much. We appreciate this whole panel. It has been very interesting for us to listen. Mr. Kamen, let me just start with you. I always salute successful people who take the time and make the effort to give back to society. Senator Leahy. I think, Mr. Chairman, we should have both come in on a Segway here. Chairman Hatch. Yes, that right. Senator Leahy. The last time I saw him, we were riding them together. Chairman Hatch. Well, I was able to ride one of those pretty well. I liked that a lot, I will tell you. We need Segways for every Senator to get back and forth to the floor. I think it would be very helpful to us. We would probably be rolling over people, though, knowing some of the people around here and how athletic they are. Tell us what you were doing in Atlanta this weekend. You are a person who does give back. Mr. Kamen. This weekend, I had the final event--and by the way, Senator, you are going to get homework out of that event. I met three teams from your State who said they are determined to have one of our events next year in Utah. I told them to personally get to you as quickly as they could. Chairman Hatch. I am surprised you haven't come to Utah. We have more patents than any State in the Union, you know, and it is a nice atmosphere. Mr. Kamen. Well, these three teams are going to send you some pictures and some great memorabilia. We run a program, a non-profit, that tries to convince students while they are still making career choices that science and technology and engineering are every bit as much fun and accessible and rewarding as what are typically put in front of most kids these days, the world of sports and entertainment. In order to compete with sports and entertainment with our program, we make it a very exciting sporting event. We have grown to the point that we have a 1,000 high schools around the country competing in 30 cities, and that happened throughout each weekend in March. We took over the home of the 1996 Olympics, the Georgia Dome, in Atlanta, this weekend and about 30,000 engineers, 1,000 corporate sponsors behind them, and all of these high school students showed up to be in this robotics competition, in which what they are really doing is learning how much fun and excitement and reward there is for kids that will put passion into thinking and creating and problem- solving. I can also tell you that I asked the Director of the United States Patent Office to show up there and convince these kids that they are his next generation's customer, and he did an extraordinary job, I think, of energizing all these kids about the prospects of being inventors and carrying the tradition of the United States as a world leader in technology forward. I had one other speaker who might be relevant to the patent office. I convinced Larry Page, one of the founders of Google, to come out, and he stood on stage and pointed out to these kids that his company which he started in college has now got a market cap of $50 billion. He doesn't make anything that is physical. He is an intellectual property company. I think he is a poster child for that. These kids certainly responded to that. It was a great event. I hope that we will have events in Utah next year. I thank you for asking. Chairman Hatch. I hope so, too. Thank you. Let me just ask this. While it appears that there are many issues upon which there is consensus for patent term reform, one area in which there appears to be substantial disagreement is with respect to changing the standards for injunctive relief under the Patent Code. I see that BSA and AIPLA and Mr. Kamen have different positions on this issue. Before the Congress chooses an option, should it do so, it would be helpful for us to more fully understand not just your respective positions, but your respective interests. So please help us define the issue and why it is important to your various industries and tell us where you find mutual interests and where you find conflicting interests. We can just start with Mr. Parker, if you would care to respond. You don't have to respond, but anybody who cares to, from our left to my right. Mr. Parker. Thank you. I think the comments that Dean Kamen made on injunctive relief are pretty universal among individual inventors and small entities. By the time you have a patent, you have worked very hard. You have risked a lot both personally and in your finances and in your time and in your energies. It might be the one invention that you have made that will eventually make some money. You need to have every tool in the toolbox to be able to prevent someone from infringing that and you be able to recover your rights that you have lost from an infringer. And having strong injunctive relief is the answer to those problems. Chairman Hatch. Thank you. Mr. Poppen. Mr. Poppen. Well, Micron finds itself on both sides of this issue. We are both patent plaintiff and patent defendant in some circumstances. So we come at this understanding that it could impact us on both sides. The reason that we focused on it in our comments is that it is one of the most critical issues to us that we see on a day-to-day basis in real-world situations. There is a model that is developing that Mr. Simon referred to of essentially professional patent predators who are buying patents and exploiting them against manufacturers. The one thing that they point to, and increasingly publicly so, is the benefit that they enjoy of the threat of an injunction. For businesses like Micron and Intel and others, ultimately at the end of the day we need to advise our CEOs as to whether we can litigate a patent even when we think that it is a patent of little substance. We are faced with the prospect of saying if we lose here, we face a virtually automatic injunction. I think it is important to note that what we are really asking is for the statute to be returned to where it started. The statute itself, the existing Section 283 injunction, in fact, calls for weighing principles of equity. Over time, that has evolved into essentially skipping that step and saying that it is automatic. The other thing that I think is worth noting is that this isn't to say that in most circumstances an injunction wouldn't be appropriate or wouldn't be available. All that it says is that in appropriate circumstances you weigh the equities. If, for example, it is a licensing outfit that all they do is license their technology to a number of different companies, they clearly are in the business of collecting royalties. It is very clear that there is no advantage to them in shutting down a company. What they really want to do is use that as a lever to extract larger dollars than they otherwise would be able to if we could fairly litigate the merits of the patent. That is why we are in favor of the change to the injunction statute. Thank you. Chairman Hatch. Thank you. Mr. Simon. Mr. Simon. I agree with much of what Mr. Poppen said, but I would like to give the Subcommittee a very specific example. A few years ago, we were sued by a company over a patent that they had acquired for $50,000, and they immediately turned around and demanded $5 billion for settlement, saying that-- Chairman Hatch. Is that million or billion? Mr. Simon. That was billion, Senator. Chairman Hatch. Billion, with a ``b?'' Mr. Simon. Yes, $5 billion for settlement, and threatening us with, you know, we will just take it to trial and we will get an injunction and we will shut you down and then you will have to pay us the $5 billion. Fortunately, we have happened in that case to be in a forum where we had a judge who would consider summary judgment on some very complex technology. We thought we were in a very good position. We won that case. Summary judgment was affirmed. However, there are many fora in this country where there are judges unfortunately who are hesitant to grant summary judgment, and even some where they refuse to grant summary judgment in patent cases. There are some forums where there has been, for example, a track record, over 8 years, 50-some-odd cases with plaintiff verdicts and no defense verdicts. It makes it very hard, when you are looking down the barrels of an injunction, to take the case to trial. It is very hard to go to your management and say I have got billions of dollars in factories at risk that could potentially be shut down. And they say to you, well, how often has the defendant prevailed in this forum, and you say, well, in the least eight years, Mr. Chairman--it is a different chairman, by the way--zero. That is why this is the most important issue for Intel and this is the most important issue for the Business Software Alliance members. Thank you. Chairman Hatch. Thank you. Mr. Kamen, we know your point of view, but if you would care to say anything about this. Mr. Kamen. I would just say that I would be totally sympathetic to eliminating bad actors. Bad actors in any field hurt all the good actors. There are people taking steroids in baseball and I know that the Senate is considering what to do about that, but I haven't heard them talk about shutting down the national pastime of baseball. They go after the people who take the steroids. They don't destroy the game. Chairman Hatch. We have come close a few times, I have to say. [Laughter.] Mr. Kamen. Well, I would simply tell you that taking away the right of the owner of a piece of property--and know you have put the preface ``intellectual'' property, but unless that word ``intellectual'' is supposed to make it sub-standard or less important than any other kind of property--and I think, quite the contrary, in the future it will be the important-- after a person has worked to develop that property and has a valid patent, and after somebody has had the right and opportunity in the courtroom to challenge it and loses, and only after they lose, the person who has gone through all of this that has this piece of property should have the right to use it or dispose of it as they see fit, as we do with any other property. Anything that changes that essentially is equivalent in a patent system to compulsory licensing, which this country has rejected at every opportunity it can on a global scale. I think we should go after the problem and we should not wipe out a system that for 200 years has made us the envy of the world. Chairman Hatch. One of the problems is the court system. When you have a hundred percent granting of injunctive relief, even the most serious plaintiff's lawyer would have to acknowledge that that might not quite be kosher. So I can see the problem here. The question is how do we solve it. Mr. Armitage. Mr. Armitage. I am in the pharmaceutical business, so I won't use the sports analogy, but I will use another analogy. I have tried to listened carefully to the BSA and I have concluded that there probably is a cancer on the patent system, but you don't get credit for killing off the cancer by killing off the patient. The issue you have is are you going to kill off intellectual property as a property right. It is recognized under the Fifth Amendment as a property right. Congress needs to take that under consideration under the Takings Clause if it is going to affect any of the patents that are going to affect Business Software Alliance companies during the next decade. But what is the cancer rather than the patient? I think the cancer we are talking about is patents commanding intimidation rather than patents commanding respect. Patents ought to command respect, but they ought not to be so intimidating because of the way the legal system works that you can't afford the business risk of taking on a potentially bad patent and, if need be, wrestling it to the ground. I think the dilemma we have is that we are not talking to each other about the cancer. We are talking about the future of the patient. I don't want to prolong this discussion, but I just came back from a trip to India where I sat down with a senior government official who told me that the Indian parliament had just passed a law that would stop us from enforcing some of our patents, but that was okay because we could go to the patent office and they would give us reasonable compensation, probably a couple percent of the selling price of the generic versions of our medicine. You can do a quick mental calculation and realize that royalty stream, if we invested it entirely in innovative medicines, wouldn't be enough money to fund our Indianapolis research labs long enough to come up with a new medicine before the next ice age is likely to freeze them over. So my only plea would be it may be that there are some industries for which it is okay for patents not to be property rights. The pharmaceutical and biotechnology industries are not such industries. Chairman Hatch. Thank you. Mr. Kirk. Mr. Kirk. Senator Hatch, the AIPLA is made up of attorneys from corporations and private firms. About a third of our members are corporate attorneys; two-thirds are private attorneys. We have discussed the issue that is before us here and our corporate attorneys have not been able to be sympathetic to the proposal that is being advanced by BSA. They believe that a company can adequately protect itself by looking at what is coming out of the patent office, by investigating the validity of the patents. If, in fact, it is going to impinge upon one of their operations--and many of these companies have large, complex machines like, for example, Kodak, Xerox. If these companies see something coming, they either will reengineer, which advances the progress of the useful arts because we now have perhaps new inventions, or they will affirmatively go forward and seek a license. Looking it at from the standpoint of the smaller inventors, however, small businesses and/or universities, we believe that, as Mr. Armitage said, this really is killing the patient to go after a few bad actors. We are certainly not against trying to address the problems that BSA has identified with the bad actors. We think this, though, is the wrong solution. Chairman Hatch. Thank you. My time is way over. Senator Leahy. Senator Leahy. I think these are important questions, and as I mentioned to you, I certainly have no objection to the actual time. As some of you noted, I have had to go in and out a couple of times because of another matter that is going on. The other matter is work. This is the part that is really interesting, so I appreciate that I could come back. I want to tell Bill Parker how pleased I am that he came down. Was it 1997 the last time you were before our microphones? Does that seem about right? Mr. Parker. I think that is about right. Senator Leahy. Eight years ago. Time goes by. Mr. Parker. It sure does. Senator Leahy. You were extremely helpful then and you are extremely helpful today. I appreciate you coming here. Your own perspective is as a small inventor, not just by being a Vermonter, but being a small inventor. But I think you are typical of many of the small inventors we have not only in our State, but in the other 49 States. As you know, some of those inventions end up being major factors in our commerce throughout the country, as Mr. Kamen and others have noted. In your written testimony, you mentioned that moving the U.S. to a ``first of file'' standard is basically a good idea, but raises some concerns for the smaller inventors. Obviously, this is going to be one of the issues we are going to facing here, this ``first to file.'' If you were sitting in those discussions, what are some of the things you would tell us to watch out for? Mr. Parker. Thank you for bringing that point up. The ``first to file'' has harmonization aspects to it that are positive. It has aspects of reducing some of the uncertainty about the pedigree of an invention. Some of those issues could be solved at a later date, for example, with a post-grant review process. But, overall, I think the major differences, as I see them, are how that will affect the small inventor over the large inventor. In the final analysis, it all comes down to money. There are a lot of activities that occur in getting a patent cued up that drain an inventor. To think that they have time against them as well is a difficult proposition. And as many advantages as a small inventor can have, he needs. Certainly, the provisional patent application process has helped to get an idea written down and into the patent office in a way that starts the clock. That certainly should be maintained, and any allowances that come out of the post-grant review for an argument to be finally sealed against an invention being valid should be considered also in a timely manner. I think it has been discussed a year, possible longer for that process. I think we are more likely to see the small inventor run out of money by the time that process is over, if they have an active participatory role in the review, so shortening that or making it as inexpensive as possible for the small inventor to participate. So to get to the heart of the question of the first to file, it is a major change in the way that inventors, particularly small inventors, would be going about their business, and there should be as many safeguards to protect them and level the playing field, if that is possible, if we go to that system. Senator Leahy. Thank you. You talked about the quality of the patents issued by the PTO. Certainly, we are all worried, and PTO is worried about it, the sudden huge numbers and how you keep up the quality. What about permitting third parties to provide prior art to the patent examiners as they are examining a patent application? Would that help a small investor or would it make any difference one way or the other--a small inventor, I meant, not a small--well, a small investor, small inventor. Sometimes, a big investor is a small inventor. Mr. Parker. Yes. Very often, the small inventor is also the small investor in their own ideas. The entrepreneur is really the life that they are living at that point. They are taking all the risks from both sides, an emotional risk as well as a financial risk. To have third-party involvement sounds like it is fraught with a few difficulties with bringing ideas that have been very carefully kept by the inventor to themselves. They are sharing it only with the Patent and Trademark Office. They are only sharing it with others in a non-disclosure agreement. They are doing everything they possibly can to keep those ideas private. To bring in a third party that is now going to be looking over the shoulder of the examination process has those issues of confidentiality. For a patent examiner to do their job well, they should have as many resources as they can, including consulting with experts, but not at the cost of the confidentiality that is expressed in a relationship they have with the inventor. Senator Leahy. You don't think they could write confidentiality agreements that could protect all the parties? Mr. Parker. Well, that is done today in many cases with the belief that a non-compete or a confidentiality agreement will be capable of protecting the holder of the intellectual property. Business works on that principle everyday. We probably sign two or three non-disclosure agreements a week that we believe are going to act to protect both parties in the business transaction. At the scale that we are working with, going to a patent with a non-disclosure agreement as a form of protection for the inventor--I am not sure that that system is robust enough, nor has it been tested, but it certainly is worth reviewing. It is one of the many ideas that need to come forward in this process. There has to be perhaps some inventing of a new system based on not just taking old principles and reworking them, but coming up with some really new ideas. The world and its intellectual property value is changing. It is an exploding market for ideas and we are no longer at the tip of that spear. We have many others that we need to bring to the table in that process. Senator Leahy. Thank you. I have some other questions and I may write to you after this hearing to continue on. Mr. Simon, you touched on this in the questions and all, but one of the concerns about current patent law is the threat of a court-ordered injunction that prohibits a company from selling products that are in dispute in patent cases. When I think of Intel, some of your products can be cutting-edge today and can be outdated two years from now. I shouldn't say outdated, but you are constantly changing them. So the idea of having a product taken off the market for maybe a year or so while you litigate it is a great problem. On the other hand, if somebody has a legitimate complaint, they are looking for an injunction because they wouldn't want you--and I mean you generically--to be going and getting that market share that they will never get back. So what do you suggest? How do you get the balance? I mean, suppose, for example, your company sees somebody going out for a product and you think you have a good argument that it is infringing and you want an injunction. On the other hand, you also face the problem that somebody may have an injunction, and they may have a legitimate injunction and they may have one, however, because they want to negotiate a settlement. How do you work your way out of this? Mr. Simon. Well, first of all, to be clear, we are not for the elimination of injunctions in patent cases. I just want to be clear on that point. Rather, what we are for is the application of equitable principles to the determination of whether it is appropriate for the injunction to be granted. From our perspective, you have to look at the situation. If you have somebody who has developed something, pushed it, worked hard on it and is seeking an injunction, that might be the appropriate thing for a court do in the circumstances. On the other hand, if you have somebody who went into bankruptcy court and paid $50,000 to buy a patent and then is turning around and using it for a litigation business, that might be a case where a court would say maybe I shouldn't be granting an injunction. We think it should be dealt with on equitable principles. That is what the statute says and we think that that is the best solution for the problem. Senator Leahy. You said also in your testimony that software companies have to develop their products around other inventions that may be of dubious quality so you don't have litigation. Can you give me some examples of what you believe to be non-obvious software patents that have been asserted and forced software makers to react in that way? Mr. Simon. Well, other than the over a thousand that we own personally-- Senator Leahy. I have heard the anecdotal, but can you think of some specifics? Mr. Simon. Software patents that are non-obvious? Senator Leahy. That have been asserted and then forced software makers to do this working around inventions of dubious quality. Mr. Simon. Well, the problem is my colleagues at other software companies don't disclose those issues to me, generally speaking, or to the extent they do, we are doing it under a non-disclosure agreement. For what we do at Intel, we would have the same problem. It is an issue. We do look at it. We do try to avoid infringement. Senator Leahy. What you are saying is you are not about to give an example here in this room? Mr. Simon. That is correct, Senator. Senator Leahy. Well, just say so. Orrin and I are reasonable people. We never frighten people, I don't think. Mr. Armitage said that the Congress shouldn't change the burden of proof at trial for proving a patent is invalid. Mr. Poppen in his written testimony disagrees. He says that the preponderance of evidence is the standard in granting a patent and why shouldn't the same standard be applied in a patent challenge? Mr. Armitage. I am glad you asked me that question. Senator Leahy. I thought you might be. If it is a preponderance of the evidence--in my old business as a prosecutor, you had to prove it beyond a reasonable doubt, but what is wrong with a preponderance of the evidence being the standard all the way through? Mr. Armitage. Well, we are fair-minded in the pharma- biotech industry and we don't ask for beyond a reasonable doubt. We are willing to settle for clear and convincing evidence. Senator Leahy. Even though that is more than the original-- Mr. Armitage. More, though, than a preponderance. Senator Leahy. It is more than what was required before to get the patent. Mr. Armitage. No, no. I mean, the current standard and the standard traditionally applied to patents in litigation has been clear and convincing evidence to invalidate a patent. Senator Leahy. I understand, but it took preponderance of the evidence to grant the patent. Mr. Armitage. Right. Senator Leahy. But you want more at a trial to prove the patent is invalid. Mr. Armitage. That is correct, and the reason for that--and maybe I will give you a couple of answers, but one has to go the pharmaceutical and biotechnology industry and I will just take the situation where we are going to buy some technology from a small company and they have invested a huge amount of money. We may invest another $2 or $300 million and then we may invest twice that much money in order to educate and develop physicians and educate a market so there is a market for that product. We want to do that all that today fundamentally, as Senator Hatch well knows, on the strength of the patents that we have. And if it is tossing a coin in court as to whether that patent might or might not be held valid, it makes a much more risky investment. It makes our partners' portion of that much less valuable, and our willingness to pay and our willingness to invest that much less. So there are industries for which patents are so important that it is absolutely critical, if they have gone through a rigorous process in the patent office and been found valid, that we have a patent that can be respected, not that intimidates, but can be respected. Let me just say, as we talk about crafting a post-grant opposition system, we are talking about many proposals, notably the proposal of AIPLA. Also, the American Bar Association's IPL section has a proposal that would say that in the post-grant opposition proceeding it would be only a preponderance of the evidence that the opposer would need to show. Now, particularly if Congress were to take that step and not only have the patent office do a quality, rigorous examination, but allow an opposer to come in early within a nine-month window under a preponderance of the evidence standard, then it is absolutely to me categorically clear that a patent owner going through the trauma of examination and the rigors of an opposition ought to be able to bank on that patent in the courts and ought to have someone, if they wish to come later and challenge, come with clear and convincing evidence as to why that property right should be taken away. Senator Leahy. I think I understand your answer. I am going to submit questions to Mr. Kirk, but I suspect Mr. Poppen may want to say something. Mr. Poppen. I will be very brief. I think from our perspective if you talk about preponderance of evidence, it is a little different than saying flipping a coin. The reason for that is the realities of litigation are that the plaintiff, whether it is Micron or Intel or anyone else for that matter, has the opportunity to hold up a patent with a ribbon on it and say this was blessed by the patent office. They also enjoy a presumption of validity. When you think about the realities of the patent office and the process, including the process that you mentioned that it issues based on a preponderance of evidence, what we are really saying is no matter what you do in the patent office, they will never be perfect. To give a patent owner the advantage in litigation of being able to say it is presumed valid--all we are saying is the defendants really ought to be able to then take on the validity of that patent in a fair way. The reality is, as Mr. Simon mentioned, there are jurisdictions where jurors have a hard time taking on the patent office because based on the presumption and the level of proofs, they have a very difficult time thinking that the patent office ever makes a mistake with respect to a patent, including in situations where they don't have all the art in front of them. So the idea of a change in standard is really to give some fairness to the fight over whether the patent ought to be valid or not. Thank you. Senator Leahy. Thank you, Mr. Chairman. I will submit the rest of my questions for the record. And, of course, everybody is going to have a chance to add in anything they want to, having heard everybody else's testimony. But I applaud you for having this hearing, Mr. Chairman. I think it is a good idea. Chairman Hatch. Well, thank you, Senator Leahy. We will keep the record open for questions until the end of this week, and we hope you will assist here because this is important stuff and we don't want to make any mistakes, or at least we don't want to make the usual mistakes. We will put it that way. But we can use a lot of help here and we surely think it is time to resolve some of these problems, and hopefully with your help we will be able to do so. We are very grateful to have all of you here to take this kind of time to spend with us, and we will do our very best to try and sift through all of these problems and come up with patent reform that will be hopefully beneficial to everybody concerned. With that, I am going to come down and say hello to all of you, but we will adjourn until further notice. 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