SPEAKERS       CONTENTS       INSERTS    
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23–816 PDF

2005
IMPROVING FEDERAL COURT ADJUDICATION OF PATENT CASES

HEARING

BEFORE THE

SUBCOMMITTEE ON COURTS, THE INTERNET,
AND INTELLECTUAL PROPERTY

OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED NINTH CONGRESS

FIRST SESSION

OCTOBER 6, 2005

Serial No. 109–59

Printed for the use of the Committee on the Judiciary
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Available via the World Wide Web: http://judiciary.house.gov

COMMITTEE ON THE JUDICIARY

F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
LAMAR SMITH, Texas
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
STEVE CHABOT, Ohio
DANIEL E. LUNGREN, California
WILLIAM L. JENKINS, Tennessee
CHRIS CANNON, Utah
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
JOHN N. HOSTETTLER, Indiana
MARK GREEN, Wisconsin
RIC KELLER, Florida
DARRELL ISSA, California
JEFF FLAKE, Arizona
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia
STEVE KING, Iowa
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TOM FEENEY, Florida
TRENT FRANKS, Arizona
LOUIE GOHMERT, Texas

JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
SHEILA JACKSON LEE, Texas
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
CHRIS VAN HOLLEN, Maryland
DEBBIE WASSERMAN SCHULTZ, Florida

PHILIP G. KIKO, General Counsel-Chief of Staff
PERRY H. APELBAUM, Minority Chief Counsel

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Subcommittee on Courts, the Internet, and Intellectual Property

LAMAR SMITH, Texas, Chairman
HENRY J. HYDE, Illinois
ELTON GALLEGLY, California
BOB GOODLATTE, Virginia
WILLIAM L. JENKINS, Tennessee
SPENCER BACHUS, Alabama
BOB INGLIS, South Carolina
RIC KELLER, Florida
DARRELL ISSA, California
CHRIS CANNON, Utah
MIKE PENCE, Indiana
J. RANDY FORBES, Virginia

HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
RICK BOUCHER, Virginia
ZOE LOFGREN, California
MAXINE WATERS, California
MARTIN T. MEEHAN, Massachusetts
ROBERT WEXLER, Florida
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
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BLAINE MERRITT, Chief Counsel
DAVID WHITNEY, Counsel
JOE KEELEY, Counsel
RYAN VISCO, Counsel
SHANNA WINTERS, Minority Counsel

C O N T E N T S

OCTOBER 6, 2005

OPENING STATEMENT
    The Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property

    The Honorable Howard L. Berman, a Representative in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property

    The Honorable Darrell Issa, a Representative in Congress from the State of California, and Member, Subcommittee on Courts, the Internet, and Intellectual Property

WITNESSES

Ms. Kimberly A. Moore, Professor of Law, George Mason University School of Law
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Oral Testimony
Prepared Statement

Mr. John B. Pegram, Senior Counsel, New York Office, Fish & Richardson, P.C.
Oral Testimony
Prepared Statement

Mr. Chris J. Katopis, Counsel, Drinker, Biddle & Reath, LLP
Oral Testimony
Prepared Statement

The Honorable T.S. Ellis, III, United States District Judge, Eastern District of Virginia
Oral Testimony
Summary of the Prepared Statement

APPENDIX

Material Submitted for the Hearing Record

    Prepared Statement of the Honorable Howard L. Berman, a Representative in Congress from the State of California, and Ranking Member, Subcommittee on Courts, the Internet, and Intellectual Property

    Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, and Member, Subcommittee on Courts, the Internet, and Intellectual Property
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    Article submitted by Kimberly A. Moore, Professor of Law, George Mason University School of Law, entitled ''MARKMAN EIGHT YEARS LATER: IS CLAIM CONSTRUCTION MORE PREDICTABLE?''

    Article submitted by Kimberly A. Moore, Professor of Law, George Mason University School of Law, entitled ''FORUM SHOPPING IN PATENT CASES: DOES GEOGRAPHIC CHOICE AFFECT INNOVATION?''

    Article submitted by Kimberly A. Moore, Professor of Law, George Mason University School of Law, entitled ''Are District Court Judges Equipped to Resolve Patent Cases?''

    Article submitted by John B. Pegram, Senior Counsel, New York Office, Fish & Richardson, P.C., entitled ''Should There Be a U.S. Trial Court With a Specialization in Patent Litigation?''

    Letter from the Honorable T.S. Ellis, III, United States District Judge, Eastern District of Virginia to the Honorable Lamar Smith, a Representative in Congress from the State of Texas, and Chairman, Subcommittee on Courts, the Internet, and Intellectual Property

    Article submitted by the Honorable T.S. Ellis, III, United States District Judge, Eastern District of Virginia entitled ''Presentation: Distortion of Patent Economics by Litigation Costs''

    Article submitted by the Honorable T.S. Ellis, III, United States District Judge, Eastern District of Virginia entitled ''Presentation: Quicker and Less Expensive Enforcement of Patents: United States Courts''
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    Charts prepared by the Intellectual Property Owners Association (IPO) on IP Litigation Commenced in the U.S. District Courts, 1993–2004, and IP Suits Filed in U.S. District Courts, 1995–2005

IMPROVING FEDERAL COURT ADJUDICATION OF PATENT CASES

THURSDAY, OCTOBER 6, 2005

House of Representatives,
Subcommittee on Courts, the Internet,
and Intellectual Property,
Committee on the Judiciary,
Washington, DC.

    The Subcommittee met, pursuant to notice, at 4:34 p.m., in Room 2141, Rayburn House Office Building, the Honorable Lamar Smith (Chair of the Subcommittee) presiding.

    Mr. SMITH. The Subcommittee on Courts, the Internet, and Intellectual Property will come to order.

    I'm going to have an opening statement. Then the Ranking Member will have an opening statement. And then Congressman Issa of California will have an opening statement, as well. Let me recognize myself for mine.

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    Today, our Subcommittee will begin an examination of the state of patent adjudication in the Federal judiciary. In 1992, the Advisory Commission on Patent Law Reform stated, in a report to the Secretary of Commerce, ''One of the most significant problems facing the United States patent system is the spiraling cost and complexity associated with the enforcement of patent rights.''

    Since that report, there has been an explosion in the cost, volume of cases, and complexities associated with enforcing patent rights. Though the number of patent cases filed in U.S. district courts has almost doubled in the last decade, the reality is that patent cases make up a small fraction—typically, less than 1 percent—of total cases filed in a given court.

    Nevertheless, this small percentage of cases accounts for nearly 1 in 10 complex cases, which require 20 or more days of trial and demand disproportionate resources from district courts and attention from trial judges.

    The basic statutory structure of the Federal judicial system, which is responsible for adjudicating patent cases has been largely untouched by Congress for more than 20 years. In the last significant structural change, Congress created the Court of Appeals for the Federal Circuit in 1982, as part of the Federal Courts Improvements Act.

    In establishing the Federal Circuit, Congress eliminated the traditional ability of regional courts of appeals to hear patent cases, in the interest of promoting greater stability in the patent law, increasing uniformity of decisions, and restricting forum shopping.

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    Nevertheless, there is a growing awareness that the U.S. patent adjudication system remains beset with inefficiencies, inconsistencies, and opportunities for forum shopping.

    Two of our witnesses today will provide the Subcommittee with considerable anecdotal and statistical evidence that suggest the patent adjudication system is not functioning in an efficient, cost-effective, and predictable manner.

    While acknowledging deficiencies, our remaining witnesses will articulate the view that there is insubstantial evidence that the system is broken, and postulate that none of the proposed solutions are guaranteed to work.

    Still, there is a widespread and a well deserved perception that patent litigation is too expensive, too time consuming, and too unpredictable. In a knowledge-based economy that is intended to reward innovation, the cost and effects of unnecessary delays and uncertainty are not incidental or academic.

    A patent claim that is construed too broadly deprives potential competitors and consumers of new products. One construed too narrowly deprives patent holders of the full benefit of their innovation.

    As the Subcommittee with jurisdiction over both the administrative functions of the United States Patent and Trademark Office and the Federal judiciary, we should begin to address these issues.

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    And I want to acknowledge here the role of Representative Issa, who suggested that we begin this inquiry. As one of the few Members of Congress who has actually held patents, he brings a practical perspective to our work on the Committee. And after I finish asking my questions today, I'm going to turn the gavel over to Representative Issa.

    That concludes my opening remarks. And the gentleman from California, the Ranking Member, Mr. Berman, is recognized for his.

    Mr. BERMAN. Well, thank you very much, Mr. Chairman, for scheduling this oversight hearing. This hearing about the courts that handle patent litigation is an interesting intersection of two separate issues within the Subcommittee's jurisdiction. Patents are the cornerstone of the economy. They provide incentive for innovation. Therefore, the effect litigation of patents has on the preservation of patent rights is all the more important to continually assess.

    The combination of the complex science and technology, the unique patent procedures and laws, the historical right to jury trials, the equitable division of labor and administration of the courts and their dockets, and the multiple methods available for dealing with the issues raised by patent litigation makes improvement of the patent adjudication system a uniquely complicated and difficult task.

    Many say the system works well. Yet at the same time, some say the high costs of litigating and the reversal rate at the district court level reveal otherwise. These complexities appear to have distorted patent markets and patent economics.

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    The increasing costs of litigating patent infringement and validity issues now frequently gives weak, untested, and presumptively valid patents the same kind of protection that was previously only granted to or reserved for strong or judicially tested patents.

    Patent quality has been a long-time priority of mine and, with the introduction of the Patent Reform Bill, we are trying as a Subcommittee to ensure the quality of patents. Even so, despite the many efforts made so far, there are still many legal scholars, patent owners, and members of the judiciary and patent bar who believe changes to the patent litigation process in the courts are also necessary to improve the quality of patents.

    The creation of the Court of Appeals for the Federal Circuit alleviated the inconsistencies at the regional circuit court level. However, some continue to raise concerns about forum shopping at the trial court level.

    The Court of Appeals for the Federal Circuit has placed the job of construing patent claims in the hands of our Federal district judges, and kept other complex issues, such as non-obviousness and equitable conduct and novelty, in the hands of the jury. Concerns have been expressed about whether a judge or jury can truly learn the intricacies of some of the science and technology placed before them during the length of a typical patent trial.

    Hopefully, if the post-grant opposition procedures in the Patent Reform Bill are enacted, this will address many of these complex issues before resort to district court litigation occurs.

    Recent accounts demonstrate that as time passes and the district court Federal judges are becoming more proficient at application of the claim construction rules spelled out by the Court of Appeals for the Federal Circuit in Markman, that that reversal rate is coming down. However, evidence suggests that our Federal district courts still spend a much greater ratio of time on patent cases than any other types of cases that come into their courts.
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    There are many proposals for change in the patent adjudication system. Before implementing changes, we must first be able to fully understand the issues confronting the system, the many options that may be available to remedy issues in the patent litigation system that have been raised, and the effects of those proposed solutions.

    Thank you, Mr. Chairman.

    Mr. SMITH. Thank you, Mr. Berman.

    The gentleman from California, Mr. Issa, is recognized for his opening statement.

    Mr. ISSA. Thank you, Mr. Chairman. I greatly appreciate your holding this important hearing, a hearing that closely parallels the patent reform effort that you have spearheaded. I must say that I have never seen such interest generated about patents than you have generated in this last year.

    Your patent reform, to a great extent, is changing the product of the patent. This hearing today, hopefully, will begin the process of talking about the delivery system, or the evaluation system post-patent, beyond the Patent and Trademark Office.

    I believe that the axiom that ''justice delayed is justice denied,'' which is often used in the case of misdemeanors and felonies, is just as applicable in the business world, and certainly has proven to reduce the value of a patent until justice is finally delivered.
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    As many of you know, I have a background in the electronics business. The company that I founded vigorously protected its staple of intellectual property, as did some of my competitors. This resulted in my involvement in numerous patent suits before the district courts, the ITC, and the fed circuit.

    When I was in business, I had to accept the cards that were dealt to me; but now I am in Congress, and have the unique and pleasurable opportunity to look into reforming this system so that others would not have to endure many of the examples that I found when in the private sector.

    I approach this effort with one key guiding principle: Business must have confidence in its intellectual property, confidence that derives from predictability of court decisions. This certainty allows a company to plan which products it will invest and develop, which it will market, and also fosters confidence from the investment community.

    District court patent holdings are currently reversed at least 35 percent of the time. And as my colleague from California said, although that is coming down, I believe it is coming down very slowly, and will not come down much further without affirmative action by this body.

    Judges have often commented that this makes them feel like their time and effort are considered by the fed circuit to be something of a rough draft. Such high reversal rates encourage entities to enter into more appeals, rather than less, on patent issues than would otherwise occur; dragging out litigation for years longer than is necessary. Obviously, this does not foster certainty.
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    We need to find mechanisms for improving the track record of the district courts. I think there is no one that would disagree with that. And that is why we are here today.

    I have circulated one proposal, to conduct a pilot program within the district courts to encourage patent specialization among the district judges. Unlike many drafts you'll see, where the author believes that they have created the perfect document, this is a deliberately imperfect document.

    I'm looking forward to each of you responding as to the flaws you saw. Hopefully, many of those flaws will be common flaws. Certainly, the length of the study is open to debate, as are many of the other hurdles that we have to get past in this study; not the least of which is that everybody at the appellate level and at the district level is concerned that somehow any change will affect their lives adversely.

    I must add to this that we're also looking—or at least, that I'm hoping to encourage the Chairman and the Committee to look into several other possible reforms; including, as part of this pilot, the moving up, or the encouraging of moving up, of the Markman process to the earliest point, as far before a potential trial as possible; and also, formally opening up the interlocutory appeals process to the fed circuit on claims construction, since that is where the majority of the appeals are, and in any study our goal would be to accelerate the process of learning of whether we're doing better or worse by this specialization.

    I appreciate the witnesses joining us today. And I have had an opportunity to review your written testimony, but I look forward to a lively discussion afterwards. And I yield back, Mr. Chairman.
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    Mr. SMITH. Thank you, Mr. Issa. Before I introduce our witnesses, would you all please stand and be sworn in.

    [Witnesses sworn.]

    Mr. SMITH. Thank you, and please be seated. Let me say, for the benefit of those in the audience today, that this is the first day Congress has been in session this week, and we don't have any votes until 6:30 tonight. Despite that, this is a very good turnout of Members, and I appreciate their being here, as well as the people in the audience being here to hear what the witnesses have to say.

    Our first witness is Kimberly A. Moore, who is a professor of intellectual property law at George Mason University School of Law. Professor Moore is a co-author of the textbook entitled ''Patent Litigation and Strategy.'' She has conducted extensive empirical research on intellectual property topics, and has written numerous articles on patent case adjudication and patent litigation in general.

    Professor Moore earned her juris doctorate from the Georgetown University Law Center. She received a bachelor of science in electrical engineering and a master of science from MIT.

    Our second witness is John B. Pegram, who is senior counsel to the New York office of Fish and Richardson, where he specializes in patent litigation.

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    Am I pronouncing that right, ''Pegram''?

    Mr. PEGRAM. You are, sir. Yes, you are.

    Mr. SMITH. Thank you. Thank you. Mr. Pegram is a past president of the New York Intellectual Property Law Association, and a past director of the American Intellectual Property Law Association, where he twice served as chair of the patent litigation committee.

    Mr. Pegram received his law degree from New York University, and earned an undergraduate degree in physics from Columbia University.

    Our next witness is Chris Katopis, who is a counsel with the intellectual property practice group of Drinker, Biddle and Reath. Mr. Katopis previously served as director of congressional relations for the U.S. Patent and Trademark Office. In that capacity, he was responsible for legislative policy within the Office of Legislative and International Affairs, which included patents, trademarks, copyrights enforcement, and other domestic and international intellectual property matters.

    Mr. Katopis is also an adjunct professor at the Catholic University. He attended the University of Pennsylvania, where he was awarded a bachelor of science degree in biomedical engineering. He received his JD from Temple University.

    Our final witness is the Honorable T.S. Ellis, III, who serves as U.S. District Judge in the Eastern District of Virginia. Judge Ellis was nominated by President Ronald Reagan on July 1, 1987, and confirmed by the U.S. Senate on August 5, 1987. Often referred to as the ''rocket docket'' by members of the legal profession, the Eastern District of Virginia has for years been among the top 25 districts in adjudicating patent cases.
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    Judge Ellis received his JD from Harvard University, where he graduated magna cum laude. He earned his bachelor of science from Princeton.

    Now, welcome to you all. And we have your written statements which, without objection, will be made a part of the record. And please limit your testimony, as you already know, to 5 minutes.

    Judge Ellis, I'm tempted to look at the quick time it took you to be confirmed in 1987. I bet anybody now being considered would be jealous of those few days that it took back then.

    Our first witness and first person to testify today is Professor Moore, if you will begin.

TESTIMONY OF KIMBERLY A. MOORE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW

    Ms. MOORE. Chairman Smith, Ranking Member Berman, and Members of the Subcommittee, thank you for this opportunity to testify on this very important topic of Federal court adjudication of patent cases. I plan to focus my testimony today on two problems that I perceive confronting the patent litigation system.

    The first: Let me assure you, forum shopping is alive and well in patent cases in the district courts. If you look at my studies—one from the 5-year period, 2000-2004—you find that 47 percent of all patent cases are consolidated in just the top ten districts. Well, that might suggest that: Why do we need anything specialized? We have great consolidation already. The problem is, when I compare that to my data from the five previous years, there were only 44 percent consolidated.
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    I'm making a bit of a joke here. The real problem is, it's not the same ten districts. So you have consolidation among ten districts 5 years ago; you have the same amount of consolidation now, but it's not the same ten districts. Obviously, there's some overlap, but there also are some changes and some differences.

    I'm articulating these statistics in the study in more detail in a paper that I have forthcoming. I've titled it ''Patent Lemmings,'' like the birds.

    Okay. So what I wanted to address in particular, in the way of a solution, would be the change to the patent venue statute. Lucky for me, Congress beat me to it. In H.R.2795, in the amendment in the way of a substitute, Congress has introduced a limitation to the venue statute, which I find very compelling and favor strongly.

    You would limit venue to the defendant's principal place of business, or where the defendant has committed acts of infringement and has a regular and established place of business. This is a very important limitation. Currently, patentees have the ability to sue in any of the 94 district courts—virtually unfettered ability.

    My only two very minor suggestions with regard to the pending legislation would be to expand the idea of corporate residence to include State of incorporation. I think that it would be fair that a corporation could be sued in the State in which it incorporated. I would also suggest that you create an exception to the venue rule that permits patentee plaintiffs to consolidate their actions pursuant to an MDL agreement—pursuant to the MDL procedures, without a venue obstacle. So you would create an exception to the venue statute for MDL consolidated cases.
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    The Coalition has made a recommendation to this Committee in the way of, instead of changing the venue statute, introducing a transfer of venue statute that is much more vibrant than the currently existing one. I prefer Congress' way of doing it.

    In short, the transfer of venue statute will not level the playing field, and it just adds another layer to what is already extensive, complex patent litigation. If you recognize there is a problem existing in forum shopping, the way to solve that problem is ex ante, with the venue statute, not ex post, with a motion to transfer. So I think that it's in everyone's best interest that Congress continue to pursue the venue statute in H.R. 2795 exactly the way it has been currently articulated.

    This brings me to my second proposal: the idea of designating specialized district court judges to hear patent cases. Patent cases are complex, difficult, time consuming, and expensive. Despite the nature of these cases, they are litigated before generalist judges and lay juries.

    The United States is unique in this respect. No other country allows lay juries to decide patent cases. In fact, many countries have created specialized patent trial courts.

    We have nearly a thousand district court judges capable of currently hearing patent cases; 680 active judges, and another 290 senior judges. There are only about 3,000 patent cases a year filed, and only 3 percent go to trial.

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    As you can see, the result is that district court judges simply do not get sufficient exposure to patent cases to develop the kind of expertise that would assist them in adjudicating these very complicated cases. Certainly, a few notable patent jurists have arisen from the mass of district court judges who hear patent cases, and they truly are exceptional patent jurists.

    This is why my proposal is not to create a specialized court. I actually don't think that's the way to go. And it would be problematic, in light of the fact that we already have a specialized appellate court. But instead, to designate individual judges—the number to be decided according to the docket—in each district, that would hear all of the patent cases in that district.

    Why do we need this? Well, we need it because of the forum shopping. But we also need it because of the high reversal rate that currently exists among the district court judges.

    It is not for lack of trying. Our district court judges are unbelievably dedicated and hard-working. They have ever-increasing dockets that they continually face. Despite this, they try very hard to construe patent claims. Yet the reversal rate continues to be about 35 percent.

    One thing I want to point out to the Committee in particular: The reversal rate is actually rising; not going down. In my study, which I produced to the Committee as one of the published papers, the reversal rate has actually increased over the course of the last 10 years. The Federal Circuit has been reviewing the district courts' claim construction for about 10 years since Markman, and the reversal rate is in fact climbing.
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    So my proposal with regard to specialized district court judges would include allowing those judges to continue to hear the regular cases that district court judges hear. They should have a general docket. They should remain generalist judges.

    In the short term, I am very favorably inclined toward Congressman Issa's proposal for the pilot program. I have just a few very modest, humble suggestions. The first is, 1 year is not enough time.

    Mr. SMITH. Professor Moore, your time has expired.

    Ms. MOORE. Oh, thank you, Chairman. I'm very sorry.

    Mr. SMITH. And maybe we could get those minor suggestions in the question-and-answer period.

    Ms. MOORE. Thank you, Chairman.

    [The prepared statement of Ms. Moore follows:]

PREPARED STATEMENT OF KIMBERLY A. MOORE

    Chairman Smith, Ranking Member Berman and members of the Subcommittee, thank you for the opportunity to testify today on the topic of improving federal court adjudication of patent cases. Patent litigation is critically important to the functioning of our patent system. Without a credible, predictable means of enforcing patent rights, the rights themselves would cease to function effectively to spur innovation.
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    I plan to speak today about two problems confronting the patent litigation system.

    Patent Venue Statute: The first is the virtually unfettered ability of patentee plaintiffs to file a patent suit in any of the 94 different district courts. The patent venue statute, 35 U.S.C. §1391, allows a corporation to be sued anywhere that personal jurisdiction exists which is any judicial district in any state where products are sold. This was not a problem when commerce was limited geographically, but in this day of national and, in fact, global commerce, this venue statute is no longer workable. The Amendment to H.R. 2795 addresses this problem by limiting venue to the judicial district where the defendant resides or the judicial district where the defendant has committed acts of infringement and has a regular and established place of business. The Amendment defines corporate residence as the district where the corporation has its principle place of business. I support this change to the venue statute.

    I have two minor suggestions to make. First, expand the definition of corporate residence to include state of incorporation. Venue is appropriate in either the judicial district where the principle place of business is located or the judicial districts in the corporation's state of incorporation. When a corporation selects a state in which to incorporate and thus avails themselves of the corporate laws of that state, it seems reasonable to permit them to be sued there.

    My second minor suggestion is to consider creating an exception to the venue rule that permits patentee plaintiffs to consolidate actions against defendants pursuant to the MDL procedures. If a patentee would like to simultaneously sue multiple defendants for the same or similar acts of infringement, it is more efficient to have these cases consolidated in a single forum and venue ought not to be an obstacle to that consolidation.
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    I have also read the Coalition's recommendation for venue reform which instead suggests a more vibrant transfer of venue statute. I favor the Amendment to H.R. 2795. It is more effective and efficient to fix a problem ex ante than ex post. Transfer of venue motions will delay resolution and divert resources unnecessarily. Moreover, the Coalition draft language which allows the action to go forward anywhere there is ''substantial evidence or witnesses'' is sufficiently vague and likely to cause additional unnecessary litigation.

    The Coalition draft also suggests that venue ought to be appropriate in any judicial district where the patentee resides or maintains its principle place of business. The suggestion being that it should not be fair to make the patentee bear the expensive of litigating away from home. First, let me note that this merely shifts the burden of litigating away from home from the plaintiff to the defendant. Second, patent litigation now costs on average two to four million dollars per side, the marginal cost to the patentee of conducting the litigation in a district other than its home turf is not likely to inhibit anyone who can already afford this expense. Moreover, there are always contingent fee options and patent infringement insurance which aid patentees in enforcing their rights. Finally, the patentee who files suit gets to select the judicial district and the Amendment to H.R. 2795 gives her several districts from which to choose. Giving the patentee the option of choosing its own district would allow patent trolls to game the system more than they already do. They would simply locate themselves where they believe the laws and procedures to be most favorable and then litigate all their cases there.

    Amending the venue statute as proposed in H.R. 2795 with the modest changes suggested above will significantly reduce forum shopping by plaintiffs and some of the unpredictability which plagues the patent litigation system.
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    Forum Shopping in Patent Cases: To the extent that there is any doubt about the existence and pervasiveness of forum shopping in patent cases, let me offer some empirical evidence. See Kimberly A. Moore, Forum Shopping in Patent Cases: Does Geographic Choice Affect Innovation, 79 N.C. L. REV. 934 (2001). Patent cases are not evenly distributed among the 94 district courts. Comparing the data on patent litigations from the five year period 1995–1999 (9542 patent cases) and 2000–2004 (12,768 patent cases) provides insight into the changing landscape of patent litigation. In the last five years, the top ten district courts have 47% of all patent cases. Comparing this to the data from 1995–1999, where the top ten jurisdictions had 44%, it seems at first blush like patent cases are even more heavily consolidated now in just a few key jurisdictions than they were five years ago. The problem is that it is not the same key jurisdictions. The data show, however, that plaintiffs in patent cases are moving en mass away from some judicial districts and towards others. I have titled the draft paper where I present these empirical results—Patent Lemmings.

    For example, the Eastern District of Virginia, affectionately know as the Rocket Docket, used to be a hub for patent cases. In 1997, 3.2% of all patent cases were resolved there. In 2004, the percentage dropped to 1.6% (a 50% decrease)—dropping in the rankings from seventh to twenty-third. The Eastern District of Texas, on the other hand had 0.3% of all patent cases in 1997 and in 2004, it had 1.9% (a 633% increase)—going from tied for fifty-eighth to seventeenth. These changes are not due to a major relocation of large sectors of industry—they reflect forum shopping on the part of opportunistic plaintiffs who perceive a benefit to filing in the Eastern District of Texas and who have grown disenchanted with the Eastern District of Virginia. I am not suggesting that the cases that are filed in Texas belong more properly in Virginia, in fact, the Eastern District of Virginia was not the appropriate venue for many of the patent cases that had been filed there—a fact reflected in their 16% transfer rate in 1997.
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    I have also found that the percentage of patent cases in a given district is not always linked to the percentage of civil cases filed there or the percentage of patents acquired by the residents of the district. For example, the District of Delaware, had 4.8% of all patent cases resolved in the last five years, but only 0.4% of all civil cases generally. Delaware's high percentage of patent cases is not correlated with patenting by local industry either—Delaware only has 0.41% of U.S. patents issued to U.S. inventors. Some practitioners claim that Delaware is selected by patentees because it is a pro-patentee forum. Empirical evidence demonstrates that Delaware judges do not grant summary judgment as frequently as judges in other courts and that summary judgment is more often a win for the infringer. The failure to grant summary judgment means that Delaware allows a much higher than average number of cases to go to trial—generally a trial by jury. Given the perception that juries are pro-patentee (which is supported by empirical evidence), patentees may prefer Delaware for this reason.

    My conclusion from this empirical analysis is that plaintiffs, who are patentees in 85% of the patent suits, forum shop and their preferences change over time which undermines any expertise judges in a given district do develop in patent cases. I have also found considerable variation in the manner of patent case adjudication by the different district courts and significant differences in win rate. In short, patentees are gaining an unfair advantage in litigation by forum shopping. The Amendment to H.R. 2795 would significantly curtail this gamesmanship and level the playing field.

    This brings me to my second, related proposal.

    Designating Specialized District Court Judges: Patent cases are complex, difficult, time consuming and expensive. Despite the nature of these cases, they are litigated before generalist judges and lay juries. The United States is unique in this respect. No other country allows lay juries to decide patent cases. In fact, many countries no longer have patent cases decided by generalist judges and have instead created specialized patent trial courts such as Germany, China, Japan, the United Kingdom, Australia, New Zealand, Singapore, Zimbabwe, Jamaica, Kenya, Thailand, Korea and Turkey.
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    In the United States, there are 680 active district court judges in the 94 districts (and 290 additional senior judges). With 2800 patent cases per year and only 3% going to trial, district court judges have little exposure to patent cases. If patent cases were consistently being consolidated in the same jurisdictions, then the market would itself be creating specialization and there would be no real need for a specialized trial court. However, as the empirical evidence demonstrates, the distribution of patent cases among the judicial districts fluctuates with patentee preferences. Although a few notable patent jurists have arisen from the mass of district court judges who hear patent cases, forum shopping combined with the small number of cases has inhibited judges from developing expertise.

    If all patent cases in a given district were consolidated in one or more designated trial court judges, they would have a better chance to develop expertise in this area. The high claim construction reversal rate of district court judges supports the need for such specialization. Claim construction is the most important part of any patent dispute. The Supreme Court ruled that claim construction ought to be performed by district court judges rather than juries because they would be better at it. The Federal Circuit held that claim construction is a matter of law which results in de novo review of all district court claim construction decisions. In an empirical study of all claim construction decisions appealed to the Federal Circuit from 1996 through 2003, I found that district court claim constructions were reversed 35% of the time. Worse yet, the reversal rate is still going up ten years after district court judges were charged with the task of construing patent claims indicating that district court judges are not getting better at construing patent claims. See Kimberly A. Moore, Markman Eight Years Later: Is Claim Construction More Predictable?, 9 LEWIS &See also Kimberly A. Moore, Are District Court Judges Equipped to Resolve Patent Cases?, 15 HARV. J. L. &starting point for any infringement or validity analysis, the high reversal rate of district court determinations results in considerable uncertainty until the Federal Circuit review process is over. Since the Federal Circuit has declined to review any claim construction decisions on interlocutory appeal, the parties and the district court are forced to adjudicate the entire patent case on what ends up being a faulty claim construction more than one third of the time. The inefficiencies and frustrations are obvious.
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    The high reversal rate undermines confidence in district court decision-making and the integrity of our legal system. It also results in considerable frustration for the district court judges. This brings me to my proposed solution to these serious and pervasive problems—designating a limited number of district court judges in each judicial district to adjudicate patent disputes. The number of designated judges would, of course, have to be correlated with the size of the court generally. Clearly one district court judge would not be able to handle all the patent cases brought in the Northern District of California for example.

    Although there would certainly be advantages to a single specialized patent trial court, in my opinion, designating trial court judges in each judicial district is a better approach. If a specialized trial court were created, it would have to be given exclusive jurisdiction rather than concurrent jurisdiction with the district courts. Concurrent jurisdiction would merely provide yet another forum shopping alternative.

    A specialized trial court would eliminate forum shopping, inconsistency and unpredictability which would decrease patent litigation overall. The judges on a specialized trial court would develop greater expertise in patent law due to increased exposure. Moreover, creation of a specialized patent trial court would help reduce the crowded dockets of the district courts.

    There are, however, drawbacks to a specialized patent trial court. First, specialized courts are potentially subject to capture by the bar—in this case the patent bar. Second, having only one trial court for all patent cases would eliminate the percolation that currently occurs among the various district courts. Having numerous courts simultaneously considering similar issues permits the law to evolve and often aids in flushing out the best legal rules. Unlike other countries, the United States already has a specialized appellate court which resolves all patent cases—the United States Court of Appeals for the Federal Circuit. Given the single appellate court for all patent cases, adding a single specialized patent trial court would in my opinion be too much specialization.
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    Instead, I propose that a single judge or a small number of judges in each judicial district be designated to adjudicate all the patent cases filed there. To the extent possible, the docket of the designated judge should not be limited to patent cases. Ideally, the judge who is appointed to this role would be technically educated or trained and/or have a patent background. This proposal would considerably limit the number of potential judges who would preside over patent cases and increase predictability without loosing the percolation and considered development of the law. Through experience these judges would develop more expertise at resolving patent cases. It would, of course, be important, that the designated judge remain the designated judge. In short, this position should not be rotated among the judges or the benefits of experience and predictability would be entirely eviscerated. Limiting the number of judges who adjudicate patent cases will decrease forum shopping and with experience these judges will develop greater expertise.

    Let me caveat this proposal by saying that I am not meaning to criticize the existing district court judges. They are charged with a difficult job and an ever increasing workload. District court judges work hard to resolve patent cases. In fact, many excellent patent jurists have evolved from this group. Yet, even some of these judges have raised concerns about adjudicating patent cases and one has publicly advocated for a specialized trial court to adjudicate patent cases. See Judge James F. Holderman, Judicial Patent Specialization: A View From the Trial Bench, 2002
U. ILL. J.L. TECH. &(2002).

    Let me also explain that I am not proposing that the specialized trial court eliminate the role of the American jury in patent litigation. Under current interpretations of the Seventh Amendment, it seems unlikely that the jury could ever be entirely removed from patent litigation. To the extent though that there is concern about juror comprehension or bias, a specialist district court judge would be in a better position to preside over patent cases to ensure more informed, accurate decision-making by the jury. The specialist judge, by virtue of his knowledge and experience, would also be better able to resolve issues as appropriate on summary judgment, eliminating unnecessary jury trials.
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    In conclusion, empirical evidence substantiates forum shopping by patentee plaintiffs which is inefficient and reflects inequity in our legal system. By amending the patent venue statute, the Amendment to H.R. 2795 will significantly level the playing field for plaintiffs and defendants in patent cases. While changing the venue statute might result in a greater dispersion of patent cases among the judicial districts, designating specialized judges in each judicial district would consolidated patent cases among a smaller number of judges. The experience and expertise gained through this consolidation will increase predictability, reduce litigation, improve patent case adjudication and enhance the integrity of the legal process.

    [Additional material submitted by Ms. Moore is located in the Appendix.]

    Mr.
SMITH. Thank you. Mr. Pegram.

TESTIMONY OF JOHN B. PEGRAM, SENIOR COUNSEL, NEW YORK OFFICE, FISH & RICHARDSON, P.C.

    Mr. PEGRAM. Mr. Chairman, Ranking Member Berman, and Committee Members, thank you for all of the attention you're giving to the improvement of the patent system. Thank you also for the opportunity to testify today.

    I'm testifying as an individual who has studied this subject of adjudication of patent cases for many years. I support the study of this subject by the Subcommittee. The problems are widely recognized. There have been many proposed solutions. There's been little detailed study, to date. In particular, today I will be suggesting the designation of the U.S. Court of International Trade as an alternative or parallel jurisdiction patent trial court.
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    The serious problems in the patent trial court system today are revealed in several ways. First is correctness. A high percentage of appealed cases are reversed, so the courts are not getting it correct as frequently as they do in other areas of the law. Predictability is low, and so the result is more litigation and more extended litigation. Efficiency: Cases are often slow, and there is a huge cost.

    Some of the causes are the limited patent experience of most judges. I would be happy if the witness to my right, with his biomedical degree, could clone Judge Ellis, and we could have him many times over. And that would certainly be one cure, but one that perhaps is not available yet.

    The judges have limited time. I want to emphasize the lack of standardized procedures. The Federal Circuit now defers to the regional circuits on issues that they conclude are not specific to patent law; which means, therefore, that the damages are calculated in different ways, depending on which regional circuit is involved.

    In my view, there is an excessive diversity of courts and judges. There is a lot of gaming of the system, the forum shopping that Professor Moore referred to.

    Today there are over 600 regular, and almost 300 senior, district judges. These are generalists. They have, on average, too little exposure to patent litigation. The average judge gets four to five new patent cases a year. There are only a hundred patent trials per year—a fairly steady number for many years. So that means the average judge gets a patent trial every 7 years.
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    Judicial management is a big issue. The judges have limited time, because of their large dockets, and also because of the priority that is given to criminal cases. Also, it is difficult for a judge with limited patent experience to effectively manage the litigation. The litigants' costs are higher, due to lack of standardized procedures.

    In the past, there's been an aversion in the United States to specialized courts. The Court of Appeals for the Federal Circuit was intentionally made not just a patent appeals court, for that reason. However, if we benchmark, we find that the foreign courts are going to patent specialization; that the U.S. courts very successfully in other areas, such as business and commercial courts, have been moving toward greater specialization.

    And I would suggest a medical analogy: When you have cancer, do you want to go to the City of Hope Hospital, or just let your general practitioner take care of it?

    The Court of Appeals for the Federal—excuse me. The Court of International Trade is a court within the Federal Circuit, already. That would permit development of procedural law and simplified procedures under the Federal Circuit's supervision.

    There would be substantially no cost to adopting my proposal. There are existing under-utilized judges; there's an existing courthouse and offices. These judges have no criminal dockets which would delay their proceedings. As I mentioned, they have available time; although I would say that they're not sitting on their hands. They're being effectively used by designation in district courts, where they have experience. They have existing jury trial competence; both when they sit in their own court in certain types of cases, and also when they sit by designation in the district courts. And they have uniquely an existing authority to conduct trials anywhere in the United States.
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    There are many more details and legislative suggestions in my articles.

    So if this proposal helps, hurray. If not, nothing would be lost. I look forward to the other witnesses' testimony and the question period. Thank you very much.

    [The prepared statement of Mr. Pegram follows:]

PREPARED STATEMENT OF JOHN B. PEGRAM

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    [Additional material submitted by Mr. Pegram is located in the Appendix.]

    Mr. SMITH. Thank you, Mr. Pegram.

    Mr. Katopis.

TESTIMONY OF CHRIS J. KATOPIS, COUNSEL, DRINKER, BIDDLE & REATH, LLP

    Mr. KATOPIS. Thank you very much, Chairman Smith, Ranking Member Berman, Members of the Subcommittee, for the privilege of testifying today. My name is Chris Katopis. I'm a patent attorney with the law firm of Drinker Biddle; although the views I'm espousing are my own, and should not be ascribed to any of our clients.

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    I am testifying today not as a litigator, but as someone who has had a decade of experience in Government, with the House and the PTO, working on patent and judiciary issues.

    I'm sorry to tell Mr. Pegram that my Republican brethren generally frown on cloning, even in the case of esteemed judges. So I hope to focus your attention on some other alternatives that may prove useful.

    Certainly, this Subcommittee ''gets it,'' for continually, again and again, acknowledging the importance of the patent system for institutions like universities, investors, entrepreneurs, small business. You are to be commended for that. You are also to be commended for elevating patent issues to an unprecedented level, with a record number of hearings this year. I just wanted to acknowledge that.

    But patent litigation is notoriously known as ''bet the company litigation.'' The stakes are high; the verdicts are often huge, multi-million-dollar. And the fierce nature of our system, which is winner-take-all, I think, amplifies the sound of the crisis.

    But unfortunately, I don't think the frustration, the statistics, the anecdotes that we're hearing, justify suggesting that the system is flawed. And I also think it's premature to suggest structural alternatives to the Federal judiciary and expanding some of the processes that will be discussed today, like expanding interlocutory appeals.

    In focusing your attention on issues to look at, I think you must start with the USPTO. As the Subcommittee heard at last month's oversight hearing, the USPTO is engaged in a number of productivity initiatives. And if you have confidence in the PTO management, you will believe that they will be successful and this will lead to a dramatic increase in the number of patents issued over the next 5 years, as well as patents with increased complexity.
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    And you can quibble. You know, we saw the graph last month, and there was some quibbling over how much the rate of increase would occur. But it is certain that the number of patents that will be entering the marketplace will increase, along with their complexity. And this will guarantee that the number of patents in litigation, as well as the percentage that goes to trial, will dramatically increase over the next 5 years.

    So this hearing is very timely for Congress to sort of assess and ask whether the system can adequately handle the enhanced caseload and the complexity of these cases. I call this the bulge in the snake moving.

    One of the issues which we're going to talk about today is the Federal Circuit and the high reversal rate regarding interlocutory appeals. Even though there's a big number attached to the statistic, for me, it doesn't have meaning without more unraveling of the layers of the onion.

    It could be one of three things. It could be that the Federal Circuit is not putting enough deference to the lower court—the ''run amok'' argument. The lower courts may be lacking some capabilities. Or it may be that these cases are the tough cases; they're too close to call and, in a winner-take-all system, the appeals are necessary, you know, to justify your inventive rights.

    So I think there's some mix of issues at stake. And certainly, if you favor certainty, then it's worth looking at ways of giving increased deference to the district court. And I outline a suggestion in my testimony.
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    Further, I think we can still enhance the—even though we increase the certainty, increase the accuracy of the district courts. In my written statement, I justify a number of ways of adding capabilities to the district courts, in terms of education, resources, tools, expanding the use of special masters.

    It struck me in the course of researching and preparing for this hearing that—I talked to a special master, where the judge found him by doing a Google search. There is not a good resource for judges to find neutral court-appointed experts. I think this is lacking.

    So I think Congress needs to take a deep breath, and assess where we are with the system, what's coming down the pike; do an in-depth study; conduct pilots; increase the capabilities of the district court; and open a dialogue between the courts and Congress.

    Today's hearing is a great start, and I think that the sooner the better. There are initiatives that you can begin before Congress adjourns, sine die, the sooner the better. America's entrepreneurs, inventors, and small businesses deserve nothing less.

    So thank you, and I'm happy to entertain any questions.

    [The prepared statement of Mr. Katopis follows:]

PREPARED STATEMENT OF CHRIS J. KATOPIS

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    Mr. SMITH. Thank you, Mr. Katopis.

    Judge Ellis.

TESTIMONY OF THE HONORABLE T.S. ELLIS, III, UNITED STATES DISTRICT JUDGE, EASTERN DISTRICT OF VIRGINIA

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    Judge ELLIS. Thank you, Chairman Smith, Ranking Member Berman, and the other Members. I'm delighted to be here today, and I appreciate very much the opportunity to express my views on these various proposals.

    I'm here today, of course, speaking only for myself. But my views, of course, are informed by my life experiences, which I think are, in the circumstances, worth elaborating on very briefly. I've spent about 35 years, or 36 years, in the law. I've spent about 18 years as a partner in a large law firm, where I litigated the widest variety of cases: business cases of all kinds, everything from nuclear licensing to motorcycle accidents, medical malpractice. Almost anything you can think of, I've tried, and lost, and won a few.

    Then, as noted, I was appointed to the bench in 1987. And I might note, since the Chairman noted it, that I was appointed by Ronald Reagan, so I should point out that this is as close as any Federal judge should get to law-making.

    Now, having said that, I should also point out that I appreciate the kind words by Mr. Pegram, but I'm sure that there are many litigants who have appeared before me—and my wife—who would have strong, cautionary words to say about trying to clone me. [Laughter.]

    In any event, going on, over the time that I've served as a district judge, again, I've tried the widest variety of cases. The Eastern District of Virginia has a very rich docket; everything from espionage cases, which I'm involved in almost all the time, to patent infringement cases, to product liability cases, environmental toxic tort cases, nude bathing in the Potomac—I can't imagine being able to tell you how broad the range of litigation is.
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    And I do suggest to you that the notion that patent infringement cases are the most complex or the most difficult or the most time-consuming is not true. Sure, they're time consuming, they're labor intensive. And sure, they are complex. And I'll get to the range of those cases that I've tried. But to conclude that they're the only complex cases is a mistake.

    And they're also not the only ''bet the company case.'' I can assure you of that, as well. Most cases these days—when I first began practicing law, a $30,000 case was a big case. Soon after that, everything became ''third world war,'' practically.

    In any event, based on that experience, it is my view that the current system is working. It is working to produce fair and generally correct results that are consistent with fairness and with the overall goals of the patent laws; which of course, as we know from the Constitution, is to promote the progress of the useful arts.

    But I agree with the Chairman that it is far too costly. I think the discovery process for all cases is a black hole into which we throw enormous resources and it gives off very little light in return.

    How do we deal with that? Judges need to deal with that. In the Eastern District of Virginia, we deal with it by having every case go to trial within about six or 8 months, regardless of nature or dimension; with only the rarest of exceptions. That includes patent cases. This is a fairly rigorous time schedule. It imposes severe discipline on judges and litigants. But it is appropriate. It does keep costs down.

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    Now, there are other ways to keep costs down. We need to explore those. Although I have a strong caution about Congress getting into the job of micro-managing the adjudicatory process. I think that's a mistake. But I do think it is important for judges to be more conscious of the enormous costs of litigation. And the fact is, I think one of the articles I submitted is an article I wrote on how litigation costs distort patent economics. I believe that's available.

    But in any event, let me address what I think is the major impetus for the proposals. And that is the Markman decision and the reversal rate related to Markman. There's no question that Markman, of course, was a landmark, a watershed event in patent infringement litigation. I tried lots of cases before which were non-Markman, before Markman came along, and many since then; and I know the difference.

    And it is—it does make it more labor intensive. The principal result is that judges must engage the technology. They must engage it, and they must write opinions about their Markman decisions. And judges are now becoming aware of that.

    My view is that the first year there was about a 40-percent reversal rate, according to the figures I had from the Federal Circuit. And my view of that is that it took a while for district judges to get the message. And it's still a message that is being propagated by the Federal judicial center and many of us. That is, to engage the technology, write opinions, and demonstrate that you have thought about it carefully.

    Then the reversal rate went way down, into the 20's, by 1998. Then it crept up again. And it is now, as Professor Moore pointed out, I think about 35 percent. But that figure is flawed. It's not flawed because of Professor Moore. She's an exceptional researcher and an exceptional academic, and I bow to her.
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    But she is limited by the way in which the data exists. She can't, for example, tell you how many cases were not appealed, where the people were satisfied with the Markman determinations and accepted them. She cannot tell you how many cases where the Court of Appeals of the Federal Circuit reversed a Markman determination, but affirmed five or six others.

    I had a case in which I had 24 patents involved in electronics, transistor circuitry; patents in which I made dozens of Markman determinations. Now, that case never went to appeal. I think the parties might—they settled ultimately. I can tell an interesting story of how that went, because we used independent experts, which was not a good idea. And I can come back to that.

    But the fact of the matter is that there are many cases where numerous patent Markman determinations are made that are affirmed, in effect, by the Federal Circuit, and those aren't accounted for in the 35 percent.

    But the bottom line is this. The normal reversal rate for cases is roughly 20 percent. But that includes both clearly erroneous or factual determinations, and de novo determinations, matters of law, about which there is a higher percentage rate. No one knows what that figure is exactly, so far as I'm aware; but it's estimated to be about 24, 25, to 26 percent.

    Markman is up at 34, at the last I heard. I believe that will decline. I think it is stable now. I do not believe it's rising. I believe it is stable and it will continue to decline.

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    Why was there a blip going up? I think because the Federal Circuit was in the process of getting organized about its rules of construction. We all know about the dictionary disputes, and how that went back and forth for some period of time and caused some confusion. But that will stabilize, and that will come down.

    So I do not believe that there is any need for any specialty courts or specialty trial judges. And then, think of the problems that that would create.

    Mr. SMITH. Judge Ellis, I hate to say that you're out of time; I hate to do that to any judge. But maybe there'll be some time during the question-and-answer period.

    Judge ELLIS. This is your court, sir. [Laughter.]

    Mr. SMITH. Okay.

    [The summary of the prepared statement of Judge Ellis follows:]

SUMMARY OF THE PREPARED STATEMENT OF THE HONORABLE T.S. ELLIS, III

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    [Additional material submitted by Judge Ellis is located in the Appendix.]

    Mr. SMITH. Professor Moore, let me direct my first question to you. But at the outset, let me say that, at least from my perspective, it seems to me that we do have a legitimate problem, both in the increase in the number of patent cases, their complexity, and perhaps or at least in the amount of reversals that we see; all of which have been documented by you.

    Judge Ellis called you a respected professor and researcher whom he admires, but he said your data was flawed. And I wanted to know if you wanted to respond to that.

    Ms. MOORE. Thank you, Chairman Smith. Well, the data is not flawed, and I'm happy to make it freely available to anyone who is interested in reviewing it. I do actually, contrary to Judge Ellis' suggestion—the data includes every single claim term that was appealed. So if he had a case where 24 were appealed, and 23 were affirmed, those are all counted as 23 separate affirmances in my data and one reversal.

    Despite that, there's a 35-percent reversal rate. The 35 percent reversal rate is the cumulative rate over the 8 years of the study from Markman to last year. The 35-percent reversal rate is for all 8 years. If you do look at the graph, there is a continuing rise over the time period. So the most recent year is higher than 35 percent. It's the mean of all the years.

    Mr. SMITH. Okay. Professor Moore, what do you think of Mr. Pegram's idea; that is, giving the Court of International Trade patent jurisdiction?
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    Ms. MOORE. Well, I am not—I don't support the idea. If we were to give them concurrent jurisdiction with the district courts, it just creates another avenue for forum shopping by plaintiffs.

    Beyond that, if we give them exclusive jurisdiction—I'll tell you, once I actually wrote an article advocating the consideration of a specialized trial court. I'd like to retract it here formally. You know, I'll chalk it up to youth.

    But in any event, the reason that I oppose the idea now is simply because, with the creation of the Federal Circuit, I believe we have enough of a specialized court situation, and we would lose all the percolation that comes from having many district courts be able to weigh in on the law and then have the Federal Circuit look at all of those different interpretations and come up with the right one.

    Mr. SMITH. I understand. Mr. Pegram, in regard to your idea, you clearly, by saying that the Court of International Trade should have patent jurisdiction, are willing to designate a particular court and give that jurisdiction to a court other than the courts that now have it. So what's wrong with Professor Moore's idea about designating a judge within each district and having that judge become an expert in patent law?

    Mr. PEGRAM. Ninety patent courts is too many. And I think that there is a big difference between having a collegial court that are all under the same rules of procedure, which I think we should try as an experiment with the CIT, and having 90 different judges that the only thing that is assured is that each one's in a different district and that they're under all the different regional courts of appeal.
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    Mr. SMITH. All right. Thank you. Mr. Katopis, I'm going to read from your testimony, page 10. You say that, ''all of the available evidence suggests that the number and complexity of patent disputes will climb dramatically in a few short years.'' And then you say further on that one of the underlying reasons that the Federal Circuit reversal rate is so high is that the district court lacks certain capabilities.

    Isn't this the whole point of what Professor Moore is saying? And yet, your response is to suggest another study and another commission. If the problem is as severe as you describe it—and I believe that it is—why not have a specialty judge, so to speak?

    Mr. KATOPIS. I think that there may be merits in that, specialty judges. However, I think Congress really needs to take a deep breath, and assess what's going on. I would be interested in knowing, in terms of the reversal rate, what's really going on? Are these all electrical engineering cases, for example? Is there some problem with the electrical engineering patents that are coming out of the PTO? Is that something that we need to look at?

    So I think it's important to—I would like to know, are special masters or magistrates being used in these cases? I'd like to understand why that number is so large, before Congress takes action, especially radical action.

    Mr. SMITH. Do you have a quick response, Professor Moore, to that?

    Ms. MOORE. Well, my quick response would be that, with regard to the 35 percent number, that 35 percent number has nothing to do with the PTO issuing good or bad patents, because it's claim construction. Whether it's a good or a bad patent, somebody's got to construe the claims. And that's, unfortunately, not getting done correctly 35 percent of the time.
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    Mr. SMITH. Okay. Mr. Katopis, you don't think that there might be at least just a little bit of institutional resistance here to a change in the status quo or the loss of jurisdiction on the part of some members of the judiciary? Which is totally understandable and totally natural. Members of Congress don't want to give up any jurisdiction. Those of us on the Judiciary Committee don't want to lose any of it to any other Committee, and so forth. But it strikes me that that might be a partial explanation for the resistance to something that might be needed in our society today.

    Mr. KATOPIS. Well, Mr. Chairman, maybe I'm just really conservative and leery of change. So perhaps that——

    Mr. SMITH. Well, usually conservatives—at least, I don't think it's a Republican idea to suggest more studies and commissions, but maybe it is. I guess it depends on which side of the desk you're on.

    And Judge Ellis, you wanted to respond, real quickly. And my time is up after your response.

    Judge ELLIS. Well, I agree that we don't know the precise reasons for the high reversal rate, but I think I have a clue. And if you'll give me some time, I'll tell you.

    Mr. SMITH. Okay. Without objection, I'll yield myself another 2 minutes.
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    Judge ELLIS. All right.

    Mr. SMITH. And please proceed.

    Judge ELLIS. If I reflect on the kinds of Markman determinations that I've been required to make, we're talking about the vagaries of language. And it's no respecter of technical area. You will find dicey Markman determinations in swimming pool toys, as I had recently, or in transistor circuitry, or in air disc brakes, or indeed anywhere.

    Because it is the goal of every person seeking a patent to get the broadest possible patent they can. And how do you do that? You use broad, vague claim language. And once you have that broad claim language, you can argue in a patent infringement case that it covers something you maybe hadn't anticipated, but you can still argue it. And then, a district judge has to decide whether it's that broad or not. And then, the court of appeals has to decide.

    I suppose everyone here knows, of course, that the Court of Appeals for the Federal Circuit has 12 judges, only six of whom have technical backgrounds. And what do you do? Do you then have—there is a chemical PhD on the Federal Circuit, but there are no procedures in the Federal Circuit to ensure that Judge Newman hears all chemical patents. In fact, they have explicitly rejected such a procedure.

    Generalist people can do this, and can understand it. The ablest judges—or the ablest lawyers who have appeared before me in patent infringement cases have often had AB degrees in English.
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    But the reason for the high reversal rate, I think, is the expansive, broad language, and the changing definitions, and district judges need to engage.

    Mr. SMITH. And not a lack of expertise; or so you would argue.

    Judge ELLIS. Not a lack of expertise.

    Mr. SMITH. Okay.

    Judge ELLIS. I think if you had an expert set of courts, you'd have disagreements again. And if you put appeals there, you'd have disagreements among experts up there.

    Mr. SMITH. Professor Moore, any response?

    Ms. MOORE. Well, the only response I would have to Judge Ellis' comment is that you have to consider the position he's coming from. He is, without question, one of the most esteemed of all the patent jurists in the country. He—I don't know, but probably—has a lower reversal rate than other judges. I could look at my study and figure that out.

    So maybe what is easier for some judges, given the experience he has with the high number of patent cases, may not be quite so easy for other judges who have very, very few patent cases.
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    Mr. SMITH. I thank you all for your responses.

    The gentleman from California, Mr. Berman, is recognized for his questions.

    Mr. BERMAN. Thank you very much, Mr. Chairman.

    If a group of schlubs like us can decide whether or not the patent law should be amended—I mean, I am a believer in a generalist being able to sort of learn enough—just enough to be dangerous. In other words, I mean, I wonder if you lose something by having somebody who is so tied up and so involved by background and training and everything else in patent law. Sometimes, the benefit of a fresh look at something is useful in these situations.

    The issue of reversal rates, there are people around who like to say, ''Oh, the Ninth Circuit is reversed more than any other circuit.'' And I say, ''Well, let's see, what does that measure? The number of times the court granted cert and then reversed the Ninth Circuit? Or was it the number of decisions the Ninth Circuit made? Or the number of decisions where someone sought cert and it was not granted? Is that factored into it?''

    I mean, you can create a lot of different conclusions based on where you decide to draw the line in determining the reversal rate.

    But I guess you indicate, Professor, you don't want a specialized patent court. You want what, judges, one or more judges, in each of the districts to handle all the patent cases in that district? Is that your suggestion?
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    Ms. MOORE. I think that would be a better proposal, yes, Mr. Berman.

    Mr. BERMAN. Done based on volunteering for it? Or the chief judge having the authority to say, ''You're the new guy here, you're stuck with this''?

    VOICE. That's how they do it now.

    Mr. BERMAN. ''Here's your reward.'' No, that isn't how they do it now. Now they have a random method of selecting judges; notwithstanding the Judiciary Committee's investigation into how judges get cases. It's a random determination, by and large, isn't it, in almost every district?

    Judge ELLIS. Well, it is in the Eastern District of Virginia, but it wasn't until relatively recently. But relatively recently, for reasons we all understand now, it has now become random everywhere.

    Mr. BERMAN. The chief judge used to decide who would get the case?

    Judge ELLIS. Yes. But the chief judge didn't do it. It was often—I can remember times in the '80's when someone would come in and say, ''You know, I'm not really up to trying this case. I haven't been feeling well. Who here wants to try it?'' There were lots of different ways in which it happened, and that was wrong. They all ought to be randomly assigned, without regard.
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    Now, I don't know how you would appoint somebody, or designate somebody. If you designated, for example, somebody with an electrical engineering background, and somebody came to that person with a life sciences case, what good is that electrical engineering background going to do?

    Mr. BERMAN. And are patent cases the only kind of really complicated cases?

    Judge ELLIS. Absolutely not. I can attest that there are many other kinds of complicated cases that are—I'm not saying patent cases are not time consuming. They're very labor intensive for judges. I cannot tell you how many hours I poured over transistor circuitry diagrams, struggling to understand it.

    But I have also had espionage cases that have been terribly difficult and time consuming; securities fraud cases; toxic tort environmental cases that involve very complicated questions of statistical methodology.

    Mr. BERMAN. How did you get Federal jurisdiction over a nude bathing case?

    Judge ELLIS. The Potomac.

    Mr. BERMAN. What, they bathe across State lines?

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    Judge ELLIS. State park—national park.

    Mr. BERMAN. I see. Okay. So it wasn't the original package doctrine.

    Judge ELLIS. No.

    Mr. BERMAN. Okay. [Laughter.]

    Judge ELLIS. It was really a very uninteresting case. [Laughter.]

    Mr. BERMAN. All right. The issue of claims construction, Professor, you divorced it from the issue of the quality of the patent. And I don't quite understand why it would be divorced. If the Patent Office is granting a patent to a broad and vague claim, isn't that, by definition, a critique of the quality of that patent?

    And how a claim is construed, if it's construed in one way, it very well could be a poor quality patent, because there was prior art that wasn't novel, or it was obvious. Construed that way, it was a poor-quality patent; construed another way, it might—Why aren't they totally interrelated, the issue of quality of patents and how claims are construed?

    Ms. MOORE. I guess, Mr. Berman, I don't see that as contributing to the complexity, making it more difficult for the district court judge to accurately figure out which way it should be construed. If it's construed so broadly as it reads on the prior art, as you correctly pointed out, the patent is going to be invalid, and his job is actually quite easy. If it's construed narrowly, then maybe you won't have infringement.
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    But I guess that I don't see the quality of the job the Patent Office does as really having any very big impact on the likelihood a district court's claim construction is going to be right or wrong, or get reversed or be affirmed.

    Mr. ISSA. [Presiding.] One more minute, by unanimous consent.

    Mr. BERMAN. Okay. Thank you.

    Judge ELLIS. May I respectfully dissent? I do think that the way in which the patent claim is written can affect the validity of it. And the vagueness of it can affect the validity of it. And it's often a battle in construing a claim to construe a claim to preserve its validity; is one of the cardinal rules. And as I said earlier——

    Mr. BERMAN. You mean like construing a statute to preserve its constitutionality?

    Judge ELLIS. That's right. So while I agree in essence with Professor Moore that basically the validity of the patent isn't inextricably intertwined with it, it can be related to it. And if you take a looking, I think it would be worth studying a range of the kinds of Markman determinations.

    You know, if you get a patent that says in a method, ''heated to 500 degrees approximately,'' or ''more or less,'' and then a district judge has to decide, well, is 490 degrees ''more or less''; is 491 degrees ''more or less''? Experts are going to disagree about that. I had experts testifying in this transistor circuitry case, and even they couldn't agree on the definition of a term.
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    Mr. BERMAN. Could I just—this is really going to be sort of a ''yes'' or ''no'' answer, if I could.

    Mr. ISSA. Without objection, an additional half-minute.

    Mr. BERMAN. Assuming that claim construction is essential to properly determining both issues of infringement and validity, and many cases would be settled earlier with reasonable claim constructions, would you recommend, would any of you recommend, establishing a procedure that would make interlocutory review of claim construction to the Federal Circuit available to litigants? I guess, under the theory that if you send that judge decision up for appeal on an interlocutory basis, and that's resolved, you might in many cases get a settlement and do away with a lengthy jury trial and all of the other stuff that goes with it.

    Ms. MOORE. Yes, I would favor that. But there are some concerns you need to be wary of; which is the volume of cases that would put in the laps of the Federal Circuit judges. And you know, while you would remove a lot of the inefficiency from the district court, you may over-burden the court with very complicated cases.

    Mr. PEGRAM. For that reason, I'm not ready to adopt that proposal. But I'm willing to see what comes up in further discussion of this subject.

    Mr. KATOPIS. Well, I'm not a litigator, so I'm going to embarrass myself, probably. But I'll say the earlier in the process you have——

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    Mr. BERMAN. You worked here. You can't be more embarrassed than that.

    Mr. KATOPIS. Well, talk to Mr. Merrit. [Laughter.]

    The earlier in the process you have the appeal, the more half-baked the record is. So you probably won't have enough really to give a meaningful appeal. So I think there's a little bit of a ''Catch-22.'' But the judge can speak to that more fully.

    Judge ELLIS. I have not thoroughly thought that out, but I would be preliminarily opposed to it; the reason being that the record wouldn't be sufficiently developed. But more than that, I have on many occasions—I always hold Markman hearings as early as possible—early as possible. It's one of the first things I do, to get a sense of that. And I make rulings as early as I can.

    Oftentimes, I'm not able to make rulings, because I'm not confident that I fully understand the case. So I tell the lawyers, ''Make alternative assumptions, and put those alternative assumptions to your infringement experts to see whether there is infringement.''

    I have even had occasion in the course of a trial to change my mind about a Markman determination and change my definition in front of the jury because a bright light went on in a dark recess of my mind that hadn't gone on when it should have much earlier. So I'm not sure interlocutory appeal is the fix that it might appear to be.

    Mr. ISSA. Thank you. And the Chair recognizes the gentleman from Virginia, Mr. Goodlatte, for his round of questioning.
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    Mr. GOODLATTE. Well, thank you, Mr. Chairman. I appreciate your yielding me this time. I was very interested in the last question asked by the gentleman from California, Mr. Berman, and I'd like to follow up on it.

    It seems like the majority of you are skeptical about the idea of an interlocutory appeal. I'm still concerned about the estimate that you've given us, Professor Moore, that perhaps as many as a third of district court claim constructions are improper. Others have said that it could be as high as 47 percent.

    And so I'll ask you. But since you were somewhat supportive of the idea of interlocutory appeal, I also want to hear the three dissenters' ideas of how we get away from that problem if we don't use the interlocutory appeal.

    Are there other things that we can do before it gets to the district court? Are there things we can do to improve the quality of the district court decisions? Or do you disagree that the quality is that low? Because being wrong a third of the time is awfully high for any district court. They wouldn't want to be reversed a third of the time on appeals in most other areas of the law. So we'll start with you, and work our way back.

    Ms. MOORE. Thank you. Certainly, Congressman, I agree with you that the reversal rate is cause for concern. As far as interlocutory appeal goes, I am extremely receptive to the idea. I would very much like to see the Federal Circuit taking cases under interlocutory appeal. They've had many such appeals. They've rejected all of them; which is their matter of right. So maybe there would be a way that we could encourage them to take some. And that would probably be a very good thing.
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    Mr. GOODLATTE. We could do that. Let me ask you to respond to Mr. Katopis' observation that if you allow the appeal earlier in the process the record on which the appeal is based is skimpier.

    Ms. MOORE. That's not a concern in claim construction, sir. In claim construction, you're supposed to construe the claims in light of the intrinsic record. It's like construing a statute in light of the legislative history. Once it's there, it's there.

    Really, district court judges are discouraged from looking outside of the patent documents itself to determine what the claim terms mean. So there really isn't the need to develop this extremely extensive record for part of claim construction.

    Mr. GOODLATTE. Thank you. Mr. Pegram?

    Mr. PEGRAM. In the practical world, however, I agree with the views expressed by Judge Ellis, that sometimes the light does dawn later, either in the minds of counsel or in the minds [sic] of the judge. We are talking about something——

    Mr. GOODLATTE. But obviously, if the rate of determination of improper constructions is between 33 percent and 47 percent, a lot of the time, the light never goes on. What do we do to get the light to go on?

    Mr. PEGRAM. Well, if you'll bear with me, sir, I agree with Judge Ellis that the problem isn't quite as bad as the statistics look, because there are so many cases in which the claim construction is never appealed: the parties have settled; there is an adjudication by summary judgment. Only 3.6 percent of the cases go to trial. So there are many, many cases in which the district court has reached a Markman decision of some sort, that may go unrecorded and unreported, that I think may not appear in the statistics.
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    I, personally, don't feel that the driving reason for making an improvement in the adjudication system is this issue of reversals on the Markman hearing. And I would tend to agree that we should encourage, as Judge Ellis said, a preliminary determination.

    But this is a matter of law. And as a matter of law, it's subject right up to the end of the trial to be changed, and to be changed in the Federal Circuit. And that's just the way it is in our system, if it's going to be a matter of law.

    So there are going to be changes to occur. And I don't think that the numbers are so outrageous, when you look at it in the context of over 3,000 patent cases a year.

    Mr. GOODLATTE. How many of those are appealed?

    Ms. MOORE. Four hundred and fifty a year.

    Mr. GOODLATTE. Out of 3,000 are appealed. And so we're seeing somewhere between 150 and over 200 of those constructions determined to be improper. Judge Ellis?

    Judge ELLIS. Well, the reversals could be for other reasons, not having to do with Markman. So you can't attribute the full 30——

    Ms. MOORE. No, the 35 percent are solely claim construction reversals.

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    Judge ELLIS. All right. Well, my view is that the interlocutory appeal is not a good idea, especially in our docket. Everything is over in 8 months.

    Mr. GOODLATTE. Okay. I heard that. What I'd like to know, with due respect to all of you, what do you do instead to reduce that number?

    Mr. KATOPIS. Congressman, if I may, I still don't understand what underlies that number. Is it, as I suggested, the Federal Circuit running amok; a deficiency in the district courts; these are just tough cases, they imply issues of patent quality? I think there needs to be more information, and perhaps the Professor has that. And I have only been thinking about these issues for several months.

    The ''water cooler talk'' at the USPTO is pretty boring, actually. And this comes up——

    Mr. GOODLATTE. I can imagine.

    Mr. KATOPIS. And one of the things that we discussed internally—and I probably shouldn't talk about this too much—is that, where you have this problem, can you give greater deference to the district court by looking at what the legacy of Markman is?

    It was suggested that Markman took the issue away from the juries, gave it to the judges, but maybe didn't make it a pure question of law; and maybe there's a way Congress can revise the standard as de novo, based on a question of fact, or something to clamp down on the appellate review.
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    This may limit an inventor's rights. This may not be a good thing. I guess the goal for Congress is to decide what is an adequate number. Is it 33 percent, 20 percent, 10 percent? You know, what is the goal? Or is it just because of this sound of the cries of frustration that you keep hearing?

    Mr. GOODLATTE. Well, let's ask Judge Ellis. Is there something that should be done in the process, before it reaches the district court, that would make district court judges better able to handle this? Or do you just not agree that they're not handling it well to begin with?

    Judge ELLIS. Well, I don't agree that they're, en masse, not handling them right. There are always going to be district judges who don't do their job as well as they should; just as there's a bell curve in every profession, including lawmakers.

    Mr. GOODLATTE. Sure. Well, there's no question about that. [Laughter.]

    Judge ELLIS. But in the main, I think we are a conscientious group, dedicated to doing the job in all cases. Now, what can be done in advance? Well, certainly there has been a process. We've only been at Markman for 10 years, and there has been a long, tedious process of getting correct, or getting straight, getting clear the rules of construction—from Vitronics through today—and that process is still going on, to some extent.

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    In fact, I recall one case—and Professor Moore doesn't have to look for it—I was reversed on a Markman construction, where I wasn't reversed in other cases. But there was a dissent. So here is an expert court, two-to-one, and the person who dissented was the person with the technical background.

    What can be done? My view is that we can do better about requiring more specific language in patent claims, perhaps. You would be astonished, I think, and it would be instructive to look at the range of patent Markman decisions. What kind of language are judges being asked to determine? ''Approximately,'' ''more or less,'' ''nearly,'' that kind of thing. Some are technical terms, to be sure; but those are the easy ones.

    Mr. GOODLATTE. Mr. Chairman, I wonder if I might slide in one more question?

    Mr. ISSA. Without objection, the gentleman is granted an additional minute.

    Mr. GOODLATTE. I thank the Chairman. Mr. Pegram, since related State claims are often tried in Federal district court, what do you anticipate the effect on the parties would be if we permitted patent cases to be tried at the CIT, as you propose?

    Mr. PEGRAM. I don't see that there would be any particular difficulty with that. The district judges have to take up the law of the particular state today, and under those circumstances the CIT judges would have to consider the law of the State. But the fact of the matter is that that rarely occurs and is really significant in, I would guess, less than 5 percent of the cases.
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    Mr. GOODLATTE. Would this have any relation to these determinations made in district court? Is this court in any way better able to make these determinations than some of the other courts involved?

    Mr. PEGRAM. As to State claims?

    Mr. GOODLATTE. Yes.

    Mr. PEGRAM. Well, I don't think that—you know, I think that, certainly, a district court sitting in a State would have the most knowledge about the laws of that State, and it therefore would be—the CIT would be less of an expert court in the law of the State.

    Mr. GOODLATTE. So it's not going to improve the results.

    Mr. PEGRAM. But in the 95 percent of the cases which were only patent issues, they'd be much more up to speed. And I would suggest, in answer to your prior question, that the way to have better dealing from the court's point of view with Markman situations is to use more experienced judges. I think Judge Holderman, in his paper that I've submitted along with my materials, also alludes to that.

    The other thing, I do agree with what Judge Ellis has said; and that is that some of these patents are very poorly written claims, the ones that filter up. But what I can't grasp is that, even if the U.S. Patent Office improved 90 percent of the patents issued, we would still be getting several thousand cases a year in which there were badly written claims that would be in the courts. And so I don't really think that we'd have the problem.
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    Where the claims are clear, we frequently don't even have a dispute, we don't even have a litigation.

    Mr. GOODLATTE. Thank you, Mr. Chairman.

    Mr. ISSA. Well, thank you. And one nice thing about being the last to question, not only will I have, let's just say, a greater flexibility on my time, but so many good questions have already been answered.

    Picking up where the gentleman from Virginia left off, Mr. Pegram, I would be the first to say that I would like this Committee to deal with the ITC and ITC reform, and perhaps enhancement. I have the luxury of being somebody who won a case as a defendant at the ITC. That's the good news.

    The bad news is, I also understand that it denies the normal rights; not the least of which is, your accuser throws a Molotov cocktail and then runs away and lets a Federal judge and a Federal prosecutor double-team you.

    So having succeeded, I would say that, at this time, to include the ITC in anything that I'm going to suggest to the Chairman may not be yet appropriate. But I'll give you, certainly, a chance to respond. I'd feel inappropriate otherwise.

    Mr. PEGRAM. We have the wonderful situation in the United States of several confusing designations. I am referring not to the International Trade Commission, or ITC, which does have a peculiar, to say the best, procedure. I am referring to what used to be the Customs Court, the Court of International Trade.
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    This is an article 3 court, and it has judges who are fully equivalent to Federal district judges. Although it has its own rules of practice and procedure, they are almost identical to the Federal rules of civil procedure. But it has the benefit that if we wanted to try some experimentation, those rules could be revised for patent cases.

    And so I think that if you look at the Court of International Trade, who I think is a highly regarded court, that you might not have the reservations that you would have about the International Trade Commission.

    Mr. ISSA. Okay. But one of the proposals, I believe, that was out there was the ITC expanding beyond just injunctive relief, to have damages as something they could grant; which they presently can't. Am I misunderstanding that?

    Mr. PEGRAM. It's not my proposal.

    Mr. ISSA. It's not your proposal.

    Mr. PEGRAM. I have heard people propose——

    Mr. ISSA. Okay.

    Mr. PEGRAM. —expanding ITC. And there may have been some confusion with my proposal as a result of that.

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    Mr. ISSA. Good. I've got this.

    Mr. PEGRAM. But I do not support that.

    Mr. ISSA. It's in there. Chris? Or Mr. Katopis?

    Mr. KATOPIS. Congressman, if I may share one observation? And I don't mean to be so sour about the CIT, but I think there's a lot of concern about reversal rates. I invite your attention to the AOC's website. The CIT has had traditionally about a 20 percent reversal rate by the Federal Circuit. For 2005, it's 35 percent. So if you're thinking about adding jurisdiction to the CIT, I just hope that, you know, it satisfies the goals that you're trying to achieve.

    Mr. ISSA. Okay. To the core of the proposal of specialization within the court, first, let me make a comment. What I think I heard all of you say is you don't want to take this and make it a separate, truly specialized court at this point, in spite of other countries' actions that do in fact in many cases have a specialized court, without juries, etcetera. Is that generally a nod, that you're all in various ways concerned about that?

    Okay. And the reason is, I'm concerned. The Federal judges I've talked to believe, as you do, Judge Ellis, that the generalist, given the right tools, can do better.

    To that extent, I'm going to ask a rhetorical question, as someone who's, obviously, never been a judge—except one time in a contest, and it did not involve any of that Potomac activity of yours. [Laughter.]
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    But Your Honor, you have a chief judge in your district. That chief has scheduling and other rights, and probably checks to make sure that, you know, the electric bill is being paid—a series of administrative responsibilities.

    Judge ELLIS. Yes.

    Mr. ISSA. And it's usually done on a rotation basis?

    Judge ELLIS. No.

    Mr. ISSA. Okay. In San Diego, it's a rotation, the way it works.

    Judge ELLIS. It is rotation in the sense that the most senior judge, provided he's under 62 or something like that——

    Mr. ISSA. Until he gets senior status, has it.

    Judge ELLIS. Well, he has it until he's 62. You cannot take senior status into your 90's. But you must be, I think it's 62, before you are the most senior to take it. And then you may only hold it for 7 years.

    Mr. ISSA. So it's a limited period of time.

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    Judge ELLIS. Yes.

    Mr. ISSA. Additional facilities and additional staff come with it?

    Judge ELLIS. Yes, I think it's one secretary.

    Mr. ISSA. Okay. And that's because it takes more people to do that job right.

    Judge ELLIS. Yes, sir.

    Mr. ISSA. Why would we not apply a similar concept to finding ways to deal with patent cases? And I know you're smiling because—I'm not trying to trap you.

    Judge ELLIS. No, I think you're going right down where I want to go.

    Mr. ISSA. Okay. [Laughter.]

    It's not a question of whether the judge is better or worse. It's not a question of whether they have a degree in chemical engineering. Because I really appreciate how you focused on it's not a matter of getting the right engineering degree for every patent case, and I think you're right on.

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    However, frequency—not exclusivity, but frequency of dealing with patent cases; the appropriate staff to help in that process, whether those are permanent staff or they're staff loaned when you have a case, or in fact special assistants or masters, brought to you, instead of the plaintiff and defendant bringing you their experts and trying to spin your head around like ''The Exorcist''—is that what you're saying would make your body work better?

    I know the gentleman next to you talked in terms of resources as one of the solutions. Is that what you're trying to achieve to do your job better?

    Judge ELLIS. I think that's a fascinating and interesting suggestion, and I think I like it. I haven't thought it through.

    Mr. ISSA. I didn't want you to. I wanted to get right to it.

    Judge ELLIS. If what you're suggesting is that judges who get patent cases, or a lot of them, should have an extra law clerk with expertise? Absolutely. I wouldn't disagree with that for a moment. That would be helpful. But I think it's very important for all district judges not to appoint experts or magistrates. You can't delegate what you've sworn to do. You're the decision-maker. You've got to engage the technology and do it.

    Now, I do agree that you ought to have help in doing it. And, sure, if I had another—I have a pretty full docket, but if I had another 20 or 30 patent cases, rest assured, I would be asking you, ''Please let me have one or two more law clerks.'' And I would certainly select them with some technical expertise; which might be in electrical engineering, but a person technically trained could think about life sciences, chemistry, and other things.
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    Mr. ISSA. Well, to that extent—and I'm going to ask you a follow-up, because it is unique for me to—I mean, actually, a lot of what we've come up with has come from meetings with other Federal judges. It's unique to have somebody in front of you, on the record, to help make the record.

    If in your court the rotation pattern, instead of being the next case, the next case, the next case, if it was, for the next year, every case that comes in that's a patent case goes to you; and you're supplemented with these people; but before people can figure out that they want to cheat the system and shop, you're into another one; and then maybe they're back to you, or maybe they're on to a third—would that still meet the requirement that you'd have other cases, you'd still be a generalist, but that we could help to not have what usually happens in San Diego historically?

    And I'm speaking for a moment from experience in San Diego. Every time a magistrate became a Federal judge or a district judge, or somebody from outside came in, and you had to redivide, guess what got redivided? Every patent case. In Michigan, the exact opposite. Judge Cohn reached out and took cases.

    Now, I have the good fortune that I had a case that I prevailed on in front of a magistrate elevated and then given my case by somebody who wanted to dump it quickly. And then, I also was in Michigan, where Judge Cohn reached out and grabbed a case and, oddly enough, a case that had been mismanaged and gone to the fed circuit and come back.

    I've seen the difference of time, expertise—exactly what you're talking about, as somebody who probably does have a lower reversal rating, who does move the ''rocket docket.''
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    Is the goal reasonable, if we can keep from promoting burn-out, keep from artificially creating venue shopping, and if these generalists can be better at what they do, while still having other cases? Are those elements that you would say would work, while still potentially not having every patent case equally divided into 14 judges?

    Judge ELLIS. Yes.

    Mr. ISSA. Excellent. Is there anyone that followed that, and agrees? [Laughter.]

    Ms. MOORE. I agree.

    Mr. PEGRAM. I agree, in principle, in the courts that have a sufficient number of judges to do that. But I think that there are other issues, as addressed in my testimony earlier; such as the coordination of procedures across the country and issues such as—I still believe, for example, that 94 district courts, each with a specialist judge, is too many.

    Mr. ISSA. Your Honor?

    Judge ELLIS. We've talked a little bit. I think Professor Moore mentioned narrowing the venue choices. I don't have a view one way or the other, but that would certainly help in this regard.

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    Right now, we allow people to select venues. And I believe—although Professor Moore can correct me—guess what? They go to the Northern District of California, they go to the Southern District of New York——

    Mr. ISSA. Eastern District of Texas.

    Judge ELLIS. Eastern—well, that's a new one. But you're right. And the District of Delaware. The reason they go to the District of Delaware is there's a marvelous hotel right across from the courthouse and good restaurants nearby.

    Mr. ISSA. Finally, a valid reason.

    Judge ELLIS. Yes. [Laughter.]

    But you're always going to have some forum shopping; which is perfectly appropriate, if the venue statute allows it. If you have a venue statute that says you can go to ''A,'' ''B,'' or ''C,'' then that's legitimate. And if you want to narrow it, go ahead and narrow it.

    But I understand what you're suggesting is: Look, let us have a system where a designated number of Federal judges in various districts get the patent cases for some period of time, and we give them some more resources to do it, and let them do all the other cases in addition.

    I think there would be some district judges who would oppose that, because they want to do them and they wouldn't be designated to do them. In other words, if you had a district of nine judges, as we do, there might only be two that would be designated. There might be another three or four who would want to do it.
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    By the way, there are many kinds of cases. Those aren't the only. There are a lot of district judges who, once they take senior status, say, ''No more patent cases, no more capital cases, no more securities fraud cases, no more habeas cases.'' So there are lots of those.

    Mr. ISSA. Or just the opposite.

    Judge ELLIS. Or just the opposite.

    Mr. ISSA. They choose to take——

    Judge ELLIS. Exactly.

    Mr. ISSA. —certain cases, because they're cerebrally beneficial.

    Judge ELLIS. I agree. I agree. But my own concern is that I don't want district judges, and I don't want, to reach out and take a case, because that impairs your impartiality. I think there ought to be a system that does it randomly; you get what you get, and you do what you are given to do.

    Mr. ISSA. Let me ask another question of the panel, because this is a suggestion that came up with a number of judges in the Southern District of California. For purposes of the pilot, the study, if we limited this to only double opt-in, meaning that although there would be a judge who was supplemented and relieved of sufficient other duties so that they would be able to rocket these cases, as appropriate—in other words, their criminal docket might be reduced—however, if there was this test, and there's a judge in the Southern District and there's a judge in your district or wherever, however, in order to get a case outside of the rotation, that both the plaintiff and defendant would have to agree, would that alleviate most of your concerns that somehow it was forum shopping? Or it would still be the same thing, except you'd have both sides agreeing to it? Yes, Professor Moore?
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    Ms. MOORE. I think that would be disastrous. Because you're never going to get agreement by them. And as a result, it's always going to go back into the random selection process. I mean, very seldom are you ever going to get them to agree. Everyone's going to have an idea of who's better for them and who's worse for them.

    Most of the time, the litigators are so smart, they can figure it out and get it right. So if it's better for me, it's worse for the other side, you know, and the other side is going to oppose the idea.

    Mr. ISSA. You know, every once in a while—and I'm not opposing your statement. You certainly have more qualification. But the only way you get a judge—a bench trial is if both the plaintiff and defendant do not demand a jury; which means both sides want justice, rather than the luck of the draw. And yet—well, I'm sorry—if you want justice, you get a judge; if you want your outcome, you hope for the jury.

    I wish I could disagree with that, but everyone who ever had a poor case but was hoping for the best, that I ever saw, asked for a jury. In patent cases. I'm being more narrow than general.

    That happens because both sides know that a bench trial is a lot faster. So to the extent that both sides agree to it because they're assured that things will go quicker, etcetera, and they have high confidence, to the extent that that happens, why wouldn't it happen that people would say, ''Look, we've got a high-level dispute, it's complicated, but we'd like a pro and we'd like it fast, and we're willing to take the chances that we're wrong''? You don't think that would ever happen?
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    Ms. MOORE. To the extent they're willing to do that, they already agree to binding arbitration and do it. Proctor and Gamble had a wonderful history of this. There are many companies that have engaged in binding arbitration. It avoids the litigation altogether. So to the extent that they want to sort of roll the dice, as you said——

    Mr. ISSA. Roll the dice, but not roll the dice on the appeal. Your Honor?

    Judge ELLIS. I think I agree with Professor Moore. I think it would be rare that it would happen. I've only had—without browbeating the lawyers, I've only had one instance that I can remember where they freely chose to have a bench trial.

    And the other interesting thing in this technical aspect, I can't tell you how many times I've had a technical case, and then had both lawyers strike every member of the jury with any technical expertise at all. We're all familiar with that phenomenon.

    Mr. ISSA. I'm a witness to it. As a matter of fact, in my case, which was based on relay technology, one time, amazingly, the elevator repairman was specifically excluded, because, basically, that's what elevators are, is relay circuits and relay logic at some point.

    The term of a study—now, let's be presumptive, since I saw the right amount of nods that a pilot in a study seemed to be something everybody could agree would give us some potentially good information. Would 4 years be long enough? Would 5 years be too long? Can you give me your opinion of how long you think it would take to have this relatively small group that are proposed here? Let's just say two districts in which this occurs—two circuits, and within that only a district in each.
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    How long would you think we'd need to go through the process, learning, the additional funding, for trial failure and modification? Judge Moore?

    Ms. MOORE. No, not ''Judge Moore''——

    Mr. ISSA. Oh, I'm sorry. Professor Moore. I'll get to the judge in a moment.

    Ms. MOORE. If you have the power to do that, I'm all for it. No, I think that, at minimum——

    Mr. ISSA. I'll take you over to the other side of the rotunda. [Laughter.]

    Ms. MOORE. I think a minimum of 3 years, preferably five, would really be ideal; because just a couple of quick stats: Patent litigation takes on average 1.1 years, but that's for all cases, even the ones that settle. For a case to get to trial, there's an average over the last 20 years of 3.4 years. That's abominable. But 3.4 years. So if we want to see if judges can develop expertise, we've got to give them enough time to have enough cases, and also have those cases get up to appeal and back down.

    Mr. ISSA. Excellent. Mr. Pegram?

    Mr. PEGRAM. I agree.
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    Mr. ISSA. Chris?

    Mr. KATOPIS. I agree. And I'd also add, it may be possible, with all due respect to the stats we've seen, to have maybe another study looking back at 10 years of the results, the legacy of Markman; and try to figure out this granular information that keeps me up at night, apparently, about whether it's electrical engineering cases, whether these cases relied on court-appointed experts in the adjudications. So, at least 3 years looking ahead, and then maybe you could also do something concurrently, looking back.

    Mr. ISSA. Your Honor?

    Judge ELLIS. Yes. Although my competency doesn't really extend to knowing how long it would take to study something, I would think three to five—three would be minimal.

    Mr. ISSA. Okay. And I'm going to close in just a second. Because as much as I'd like to make the record very, very full, you certainly have all been generous with your time. But I do want to ask a question, because I think we have the right group.

    When we talked about claim construction, we talked about some of the challenges of reversal rates, I didn't hear anyone talk about the changing interpretation of doctrine of equivalence. You've all been in practice during this period of time. How do you think that the long-term results on that are going to be?

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    Because, obviously, claim construction at one time included the ''what if,'' you know. And we certainly—it's not just the 102 and 103 that you deal with now. But it was also, you know, ''How could we interpret somebody's product to be somehow the equivalent of?'' which often kept a case going for longer. Do you see that as changing these statistics, even if we did nothing? Professor Moore?

    Ms. MOORE. Thank you. The doctrine of equivalence is definitely being asserted in every, single patent litigation now. And it's a complicated, difficult assessment. Most of the time, it's left to the jury. However, the district court judge has the ability, through a number of avenues—like prosecution history estoppel and other mechanisms—to really impact the decision-making on whether or not it's going to even reach the jury on equivalence.

    This is where I think specialized judges would also be an enormous value. Specialized judges, in the way we've been discussing them—via frequency, having the expertise and doing this over and over again—would allow them to interpret the prosecution history more easily and, hopefully, more accurately. So I think it would be beneficial there, as well.

    Mr. ISSA. Thank you. Mr. Pegram?

    Mr. PEGRAM. I agree completely. The cost of educating a judge who has not had the experience of a patent trial or the experience of a summary judgment motion in the area of the doctrine of equivalence, it's an immense cost to educate that judge for the first time.

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    Mr. KATOPIS. Congressman, with all due respect, I'm going to pass, because I've only been in private practice for a short time. And as you reminded me before the hearing, I spent the better half of the last number of years raising patent fees, so——

    Mr. ISSA. And trying to raise them even further.

    Mr. KATOPIS. So I will not contribute to this.

    Mr. ISSA. Your Honor?

    Judge ELLIS. I agree with Professor Moore's comments. I think I dissent from Mr. Pegram's. You're always going to educate the judge. And I don't know what's different about a patent case from any other case, in terms of educating them. There are judges who get maybe one espionage or national security case, one classified information case, every 5 years. They have to be educated in that.

    I really think we've got to focus back on why are we concerned. It's this reversal rate that has everyone concerned. And I'm happy to have a further study of that. I think it's important for us to remember that reversal rate for all issues of law is not much lower than 35 percent.

    Mr. ISSA. Well, and I'm going to close with a very, very quick statement and a conclusion that's been written for me. [Laughter.]

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    But this particular Member, I'm as concerned about the remaining 90 percent that don't get to appeal and are never reversed, or not reversed; that the concept of specialization was the belief that if you lowered from 800-plus—over 1,000, actually, including everyone on senior status—down to 90—which Mr. Pegram objected to in some ways—that what we're doing is we're increasing from four a year, on the average, to maybe 40 a year that people would be dealing with.

    Even if it was only for a 2-year, 3-year period, 1-year period, the idea is that the intense focus—and Your Honor, you spoke about it, and I picked up on it. Judges need to focus more on this. The concept that we're hoping to find through the study is: How do we get focused?

    And perhaps, like a sabbatical, somebody concentrating in this area within their district for a couple of years; and then, ''Been there, done that, I'll give you advice, but Joe down the hall now has the majority of these cases,'' might allow for a ''have your cake and eat it too.''

    It is a concern of mine; not, though, about the ones that get reversed, alone; it's not just about that. It's about—Your Honor, you did a great job of telling us how the ''rocket docket'' works. The ''rocket docket'' isn't working everywhere.

    The hope is that all these cases would move better through some process. And if it's not this one, Your Honor, I look forward to learning as much as I can about other ways to provide good results quicker.

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    Anyone have any closing, before I close?

    [No response.]

    Mr. ISSA. With that, I'd like to thank the witnesses for their testimony. The Subcommittee is very appreciative of your contribution, and particularly the extended time you granted us.

    This concludes the oversight hearing on ''Improving Federal Court Adjudication of Patent Cases.'' The record will remain open for 1 week. I would like to ask, are all of you willing to take any additional questions that come from Members not able to be here?

    Then, we will also include that. Thank you for your cooperation. The Subcommittee stands adjourned.

    [Whereupon, at 6:05 p.m., the Subcommittee was adjourned.]

A P P E N D I X

Material Submitted for the Hearing Record

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

    Mr. Chairman, thank you for scheduling this oversight hearing on improving federal court adjudication of patent cases. This hearing about the courts that handle patent litigation will be an interesting intersection of two separate issues within the subcommittee's jurisdiction.
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    Patents are the cornerstone of the economy, and provide incentive for innovation. Therefore, the effect litigation of patents has on the preservation of patent rights is all the more important to continually assess.

    The combination of the complex science and technology, the unique patent procedures and laws, the historical right to jury trials, the equitable division of labor and administration of the courts and their dockets, and the multiple methods available for dealing with the issues raised by patent litigation makes improvement of the patent adjudication system a uniquely complicated and difficult task. Many say the system works well, yet at the same time, some say the high costs of litigating and the reversal rate at the district court level reveal otherwise.

    These complexities appear to have distorted patent markets and patent economics. The increasing cost of litigating patent infringement and validity issues now frequently gives weak, untested and ''presumptively valid'' patents the same kind of protection that was previously only granted to or reserved for strong or judicially tested patents.

    Patent quality has been a long-time priority of mine, and with the introduction of the Patent Reform Bill, we are trying to ensure the quality of patents. Even so, despite the many efforts made so far, there are still many legal scholars, patent owners, and members of the judiciary and patent bar who believe changes to the patent litigation process in the courts are also necessary to improve the quality of patents. The creation of the Court of Appeals for the Federal Circuit alleviated the inconsistencies at the regional circuit court level. However, some continue to raise concerns about forum shopping at the trial court level.
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    The Court of Appeals for the Federal Circuit has placed the job of construing patent claims in the hands of our federal district court judges (Markman), and kept other complex issues, such as nonobviousness, inequitable conduct, and novelty in the hands of the jury. Concerns have been expressed about whether a judge or jury can truly learn the intricacies of some of the science and technology placed before them during the length of a typical patent trial. Hopefully, if the post-grant opposition procedures in the Patent Reform Bill are enacted, this will address many of these complex issues before resort to district court litigation occurs. In addition, recent accounts demonstrate that as time passes, and the District Court federal judges are becoming more proficient at application of the claim construction rules spelled out by the Court of Appeals for the Federal Circuit, that the reversal rate is coming down. However, evidence suggests that our federal district courts still spend a much greater ratio of time on patent cases than any other types of cases that come into their courts.

    There are many proposals for change in the patent adjudication system. However, before implementing changes, we must first be able to fully understand the issues confronting the system, the many options that may be available to remedy issues in the patent litigation system that have been raised, and the effects of these proposed solutions.

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

PREPARED STATEMENT OF THE HONORABLE JOHN CONYERS, JR., A REPRESENTATIVE IN CONGRESS FROM THE STATE OF MICHIGAN, AND MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

    I have numerous concerns with the idea that Congress should establish a separate judicial system for patent cases. While I recognize that hyper-technical issues arise in patent lawsuits, every area of the law presents complex issues and circumstances. We should not go down the path of having isolated judiciaries or juries for every legal issue.
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    During today's hearing of possible reforms to adjudication of patent cases, some seek to remedy what they view as an inefficient and expensive system. They argue that the inefficiency is due to the inexperience of the judges, litigants, and lay juries on patent law as well as the technologies behind the cases. Although the increased expertise provided in these reforms, such as having only technical experts as judges or jurors, are an attempt to improve the system, I believe they may be misguided.

    The idea of designating certain judges as ''experts'' to hear those cases is problematic. For instance, how would we determine who gets the classification of ''expert?'' Furthermore, who would assign ''special masters'' to apply their technical proficiency and construe patent claims? And how would we be certain that these special masters would not have financial or personal conflicts? The replacement of a lay jury with a ''blue-ribbon'' jury in these cases invokes similar questions of classifications.

    More generally, if the Committee seeks to make these changes for patent litigation, an argument can be made that we should apply the same arguments of inefficiency to all other types of cases and permit only experts to hear them as well. A civil rights lawsuit would have only civil rights lawyers as a judge and jurors. A personal injury lawsuit stemming from an escalator accident would have only escalator engineers as jurors.

    For these reasons, I cannot immediately support any of the proposed reforms to the adjudication process for patent litigation.

ARTICLE SUBMITTED BY KIMBERLY A. MOORE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, ENTITLED ''MARKMAN EIGHT YEARS LATER: IS CLAIM CONSTRUCTION MORE PREDICTABLE?''
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ARTICLE SUBMITTED BY KIMBERLY A. MOORE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, ENTITLED ''FORUM SHOPPING IN PATENT CASES: DOES GEOGRAPHIC CHOICE AFFECT INNOVATION?''

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ARTICLE SUBMITTED BY KIMBERLY A. MOORE, PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, ENTITLED ''ARE DISTRICT COURT JUDGES EQUIPPED TO RESOLVE PATENT CASES?''

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ARTICLE SUBMITTED BY JOHN B. PEGRAM, SENIOR COUNSEL, NEW YORK OFFICE, FISH & RICHARDSON, P.C., ENTITLED ''SHOULD THERE BE A U.S. TRIAL COURT WITH A SPECIALIZATION IN PATENT LITIGATION?''

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LETTER FROM THE HONORABLE T.S. ELLIS, III, UNITED STATES DISTRICT JUDGE, EASTERN DISTRICT OF VIRGINIA TO THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND CHAIRMAN, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY

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ARTICLE SUBMITTED BY THE HONORABLE T.S. ELLIS, III, UNITED STATES DISTRICT JUDGE, EASTERN DISTRICT OF VIRGINIA ENTITLED ''PRESENTATION: DISTORTION OF PATENT ECONOMICS BY LITIGATION COSTS''

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ARTICLE SUBMITTED BY THE HONORABLE T.S. ELLIS, III, UNITED STATES DISTRICT JUDGE, EASTERN DISTRICT OF VIRGINIA ENTITLED ''PRESENTATION: QUICKER AND LESS EXPENSIVE ENFORCEMENT OF PATENTS: UNITED STATES COURTS''

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CHARTS PREPARED BY THE INTELLECTUAL PROPERTY OWNERS ASSOCIATION (IPO) ON IP LITIGATION COMMENCED IN THE U.S. DISTRICT COURTS, 1993–2004, AND IP SUITS FILED IN U.S. DISTRICT COURTS, 1995–2005

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