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27–224 PDF








APRIL 27, 2006

Serial No. 109–100

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


F. JAMES SENSENBRENNER, Jr., Wisconsin, Chairman
HENRY J. HYDE, Illinois
HOWARD COBLE, North Carolina
BOB INGLIS, South Carolina
MARK GREEN, Wisconsin
DARRELL ISSA, California
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JOHN CONYERS, Jr., Michigan
HOWARD L. BERMAN, California
MELVIN L. WATT, North Carolina
ZOE LOFGREN, California
MARTIN T. MEEHAN, Massachusetts
WILLIAM D. DELAHUNT, Massachusetts
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California

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
BOB INGLIS, South Carolina
DARRELL ISSA, California

HOWARD L. BERMAN, California
JOHN CONYERS, Jr., Michigan
ZOE LOFGREN, California
MARTIN T. MEEHAN, Massachusetts
ADAM B. SCHIFF, California
LINDA T. SÁNCHEZ, California
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SHANNA WINTERS, Minority Counsel


APRIL 27, 2006

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


Mr. Q. Todd Dickinson, Vice President and Chief Intellectual Property Counsel, General Electric Company
Oral Testimony
Prepared Statement

Mr. Robert A. Armitage, Senior Vice President and General Counsel, Eli Lilly and Company
Oral Testimony
Prepared Statement
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Mr. Gary Mueller, President and Chief Executive Officer, Digital Now, Inc.
Oral Testimony
Prepared Statement

Mr. Pat Choate, Political Economist and Author of ''Hot Property: The Stealing of Ideas in an Age of Globalization''
Oral Testimony
Prepared Statement


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

    Copy of the Coalition Bill from Q. Todd Dickinson, Vice President and Chief Intellectual Property Counsel, General Electric Company



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

    The Subcommittee met, pursuant to notice, at 9:09 a.m., in Room 2141, Rayburn House Office Building, the Honorable Lamar Smith (Chairman of the Subcommittee) presiding.

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

    Good morning to you all. Appreciate the interest in such an important subject.

    And let me explain that we're going to proceed. The Ranking Member, Howard Berman of California, is at a mandatory party meeting and will be here, he hopes, in time for questions. And other friends to my left will be here about approximately the same time.

    But I think it will be good to get our testimony on the record and go on and get off to a timely start.

    I'm going to recognize myself for an opening statement. And then we'll, as I say, swear in the witnesses and begin the testimony.

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    Also let me say that I appreciate the gentleman from Tennessee, Mr. Jenkins, being here this morning and helping us get off to this good start. We need two Members here at least. And so, Mr. Jenkins is the indispensable Member this morning.

    Today, the Subcommittee conducts its sixth hearing in the 109th Congress on patent reform. We're going to explore the merits of promoting global harmonization within the patent system. Inventors and the public are better served when patent systems world wide share the same basic components or framework.

    For example, a harmonized patent system reduces legal fees associated with filing and prosecuting the applications in several countries. Harmonization also inhibits forum shopping across national boundaries during patent disputes involving scope, viability, and ownership. Perhaps most importantly, a harmonized system creates greater certainty regarding patent rights internationally, which enhances the value of those rights for the affected owners world wide.

    As our previous hearings on patent reform have demonstrated, it is imperative that we improve the quality of issued patents that circulate in the economy here and overseas. Patents of acceptable integrity attract investors who commercialize inventions. This leads to the creation of wealth, new jobs, and enhanced living standards for patent owners and their employees.

    Better still, it means the public derives enormous health and lifestyle benefits that flow from the development of new products that incorporate patented inventions. This is why harmonization was one of the principles that animated the Subcommittee's work on patent reform this Congress.
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    In terms of the hearing scope, harmonization is a large thematic umbrella. It potentially invites discussion, of course, of many other issues. That said, certain issues that are incorporated in H.R. 2795 and related substitute drafts are fair game for consideration, including the following topics.

    For starters, H.R. 2795 changes the U.S. system from one that protects an individual who invents first—who invents first to one that protects an individual who invents and files first. The current U.S. system leads to uncertain and expensive patent disputes and is at odds with the international first to file standard.

    Most of the witnesses who testified at our previous hearings support a first to file system, although we may encounter opposition from some independent inventors.

    Second, H.R. 2795 deletes the best mode requirement from section 112 of the patent act that sets forth the requirements for the contents of a patent application. The National Academy of Sciences report recommended the deletion of the best mode requirement, which requires the description of the best mode the inventor contemplated for carrying out the invention at the time the application is filed as one of the subjective elements in the patent law that adds unnecessarily to the cost of patent litigation.

    Other industrialized nations have not adopted a best mode requirement, and I believe we are better served without it as well.

    Third, H.R. 2795 and subsequent drafts require all U.S. filed applications to be published within 18 months of filing. The last comprehensive patent law that Congress passed adopted this standard, but with a major exception. The provision does not apply to applications that are not filed in a third country that also requires publication.
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    Publishing an application after 18 months places a company on notice that a patent relevant to its business may issue, which allows the company greater opportunity to revise its operations and rethink investment strategies. The bill eliminates the existing loophole and extends the 18-month publication feature to all applications.

    And fourth, H.R. 2795 creates a new post grant opposition system that allows patent disputes to be resolved in a less expensive administrative forum compared to District Court litigation. This permits any member of the public to request that the PTO review the scope and validity of a patent within 9 months from the date of its issuance, a time limit intended to encourage early weeding out of questionable patents and to prevent harassment.

    The system provides full rights of appeal to the Federal circuit by an opposer of any adverse decision in the proceeding.

    While these subjects are fair game for discussion today, I encourage the witnesses and Members to broach other harmonization issues as well. For example, what are the major impediments overseas to harmonizing the world's patent systems? Does harmonization serve the interest of independent inventors as well as big businesses?

    We have a good panel of witnesses who can speak to these matters, and I look forward to their testimony. That concludes my opening statement. Without objection, all Members' opening statements will be made a part of the record.

    Mr. SMITH. At this point, I'd like to ask the witnesses to stand to be sworn in.
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    [Witnesses sworn.]

    Mr. SMITH. I thank you. Please be seated.

    Our first witness—oh, excuse me. I wanted to recognize Adam Schiff to my left, the gentleman from California, and I didn't look to my left.

    Do you have an opening statement or any comments to make?

    Mr. SCHIFF. No, Mr. Chairman. I'm just glad to join you. I look forward to hearing the testimony of the witnesses.

    Mr. SMITH. Thank you, Mr. Schiff.

    Our first witness is Todd Dickinson, vice president and chief intellectual property counsel for General Electric. Mr. Dickinson previously served as the under secretary of commerce for intellectual property and the director of the U.S. Patent and Trademark Office. He is a graduate of Allegheny College and the University of Pittsburgh School of Law.

    Our next witness is Robert Armitage, senior vice president and general counsel for Eli Lilly and Company. He also serves as a member of Lilly's policy and strategy committee. Mr. Armitage received a bachelor's degree in physics and mathematics from Albion College and a master's degree in physics from the University of Michigan and a law degree from the Michigan law school as well.
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    The next witness, Mr. Mueller, is president and CEO of Digital Now. His company develops digital imaging technology for the photo processing industry and other consumer software products. He earned his bachelor and master of science degrees from the Rochester Institute of Technology and his MBA from Marymount University.

    Our final witness is Pat Choate, a political economist who served as Ross Perot's vice presidential running mate on the Reform Party ticket in 1996. Dr. Choate is also a policy analyst, public speaker, and the author of six books, including most recently ''Hot Property: The Stealing of Ideas in an Age of Globalization.''

    He teaches advanced issues management at George Washington University and serves as the director of the Manufacturing Policy Project in Washington. Dr. Choate performed his undergraduate work at the University of Texas at Austin—institution I represent—and earned his doctorate at the University of Oklahoma. We won't talk about the OU-University of Texas games. [Laughter.]

    Mr. SMITH. Welcome to you all. Again, we have your complete statements, which will be made a part of the record, and please limit your testimony to 5 minutes.

    Mr. Dickinson, we'll begin with you.

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    Mr. DICKINSON. Thank you, Mr. Chairman, Ranking Member Berman who was here a bit ago, and other Members of the Subcommittee.

    As the Chairman indicated, my name is Todd Dickinson. I'm honored to be here today. I presently serve as the corporate vice president and chief counsel for intellectual property for GE and was formerly the under secretary of commerce for IP.

    In that role, I enjoyed particularly working with this Committee on the American Inventors Protection Act, which was a successful opportunity to move a number of these issues forward, though there is still some more work to be done.

    At GE, I am fortunate to manage one of the largest IP portfolios in the world with one of the broadest ranges of technologies and issues. We have content-based issues in our film and television business, NBCU. We have genomics and proteomics issues in our biosciences group. We have aircraft engine technology and lighting technology, plastics technology. We like to say we may be the only company that's won both a Nobel Prize and an Academy Award.

    Because of the breadth of those issues and perhaps the past experiences, it gives us, I think—it gives me an opportunity to comment broadly, but also to focus in particular on some consensus approaches, which I think might be helpful to this Committee on a number of the patent reform issues that we've talked about.

    As the Chairman alluded to, both the Federal Trade Commission and the National Academies of Sciences dealt very in depth with a number of these issues, produced very extensive and important reports and recommendations, and a number of those recommendations have found their way into 2795 and other legislation and I think have served as the primary impetus for that.
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    But also as a part of that process, Mr. Chairman, you asked that a number of members of the intellectual property community—trade associations, companies, and others—come together and try to have a consensus approach to this—to this extremely important topic. We worked very hard last summer, and a group that came from that, named the—called ''the coalition''—and I think my colleague Mr. Armitage may refer to it as well—developed a so-called ''coalition text,'' which I think the Committee may be familiar with, which of—includes a number of the issues in an actual text of a bill.

    And I'd request, if it was possible, to have that text entered into the record. I'm not here representing the coalition today.

    Mr. SMITH. Let me interrupt you. Without objection, that text will be made a part of the record.

    [The information referred to follows in the Appendix]

    Mr. DICKINSON. Thank you.

    Patent harmonization, as you've alluded to, is probably one of the most important issues facing both the patent system today and, frankly, the global economy today. The fact that we have territorially based administration and maintenance and enforcement regimes for patents around the world make—foster extraordinary redundancies in cost and in time and in resources.

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    GE spends something like $32 million a year on patent prosecution and maintenance of our foreign portfolio. And a significant portion of that is a function of this multiplicity of systems.

    We're trying—we're working very hard, for example, to see if we can get Europe to pass—to ratify the London agreement, which would simply allow for English language prosecution in many countries in Europe. That would save us over a million and a half dollars a year alone.

    So patent reform around the world, not only here in the United States, is extremely, extremely important.

    Let me touch on a couple—I've been a participant in WIPO, the World Intellectual Property Organization, on a number of these issues. That process, candidly, Mr. Chairman, is stalled, and that's unfortunate.

    I represent the American Bar Association at the Standing Committee on Patents. And for a variety of reasons, issues in developing countries around genetic resources and the so-called development agenda, issues around patentable subject matter, that effort is, frankly, just sitting dead in the water at the moment, and that's unfortunate.

    The current Administration chose to develop a group of countries, brought a group of countries together recently at the Patent and Trademark Office, the so-called Alexandria Group, which has been a good attempt—a very good attempt, and we should applaud them for that—to try to deal with harmonization among just one set of countries, developed countries who have, I think, the bulk of the interest in this regard and whose—and may be able to multilaterally and outside of the WIPO framework develop a program which will get us further down the road. So I would hope that this Committee would look into that and applaud those efforts.
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    As far as the best practices that this bill contains, and I think one of the goals of global harmonization in WIPO and in the Alexandria Group has been to identify best practices. A number of them have found their way into 2795, and I'd like to comment briefly on those best practices.

    First and foremost is the one which you mentioned, which is the first inventor to file. We are alone in the world among countries having—retaining the so-called first to invent system. It's a costly system. With all due respect to my good friends in the independent inventor community—and as director and commissioner, I don't think anyone else was closer to that independent inventor community—the first to invent system is a failed promise.

    The way we resolve the disputes in that area is through a process I think you know called interference. It can cost hundreds of thousands of dollars to resolve that. A study that was done by my good friend and colleague former commissioner Mossinghoff shows that even when the small inventors enter that system, they are disadvantaged by that system disproportionately, and it's a system that's crying out for change.

    The change would be to move to the first inventor to file system, which is captured in the bill as it currently stands. And I would hope that any version of that bill that comes forth from this Committee would include first inventor to file.

    Several other things, you did mention particularly the elimination of the best mode. That always seems like a good idea because it seems to foster the idea of greater disclosure. What is the best mode of your invention?
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    What happens and has happened in reality and in practice is that it's become a trap for the unwary. In litigation, it's a defense that gets interposed on occasion, and it's kind of a ''gotcha'' in litigation and does not really satisfy the goal, I think, for which it was originally intended.

    Eighteen-month publication, complete 18-month publication. Again, an excellent goal. One of the disappointments of the AIPA was that we did not have full and universal 18-month publication. It has proved successful.

    The folks who opposed it, primarily again, and our independent inventor community have disproportionately not used the opt-out provision. It's used by some particularly important technologies, frankly, in my opinion, to try to game the system a little bit, to buy a little more time, to keep their disclosures from being made. And it undermines, I think, confidence in the system as a whole.

    You mentioned externally around the world where there needs to be other reforms and the grace period. I think in terms of best practices, the U.S. grace period is, indeed, a global best practice. And we need to make sure that we bring the grace period to other countries around the world, and I'm pleased that those discussions are underway.

    I think one additional topic, which I think may get touched on and is in the current draft of the legislation—and my good friend Mr. Armitage will probably touch on it as well—is what is the definition of prior art?

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    We should eliminate secret prior art, which is currently available around the world, to undermine I think the value and virtue of a number of the patents in the United States. We should also make sure that we—and I think it's appropriate to redefine the availability—redefine prior art as that which is reasonably accessible. Given the global nature of our information systems now, reasonable accessibility is an appropriate standard.

    And finally, I wouldn't be—I would be remiss, Mr. Chairman, if I didn't touch on what is for many of us in the community, and certainly as a former director, maybe the most important recommendation in both of the reports that we mentioned, and that's continuing to end the diversion of patent office fees to other governmental purposes.

    Mr. SMITH. Mr. Dickinson, you know I agree with you on that. But I think we need to move on.

    Mr. DICKINSON. I thank you very much, Mr. Chairman.

    [The prepared statement of Mr. Dickinson follows:]



    Chairman Smith, Ranking Member Berman, and Members of the Subcommittee:

    My name is Todd Dickinson and I am honored to appear before the Subcommittee on an issue that critical to our Nation's economic growth and prosperity: patent reform. I presently serve as the Corporate Vice President for Intellectual Property of the General Electric Company, and was formerly Under Secretary of Commerce for Intellectual Property and Director of the United States Patent and Trademark Office. I hope that these experiences may offer a valuable perspective on some of the issues facing us in this area, in particular the impact of patent reform legislation on issues of international harmonization.
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    As Director, I enjoyed working on the cause of adapting our patent system to the needs of the 21st Century. I was particularly proud that the Congress passed and President Clinton signed the American Inventor's Protection Act of 1999, during the time I lead the USPTO, and that we had the opportunity to work together on the implementation of that Act, leading to many vital and important changes in how the USPTO operated and was organized.

    At General Electric, I am fortunate to help manage the intellectual property assets of one of the world's largest corporations. GE's IP holdings and concerns are extraordinarily broad, ranging from content-based copyright issues in our film and television organization, NBC Universal, to genomics and proteomics patenting in GE Healthcare, with everything else in between from aircraft engines to engineered polymers. We may be the only company that has won both a Nobel Prize and an Academy Award(r).

    Because of that breadth of IP issues and concerns, we are uniquely positioned to participate in this debate about patent reform. With such an extraordinary investment in technology, the need to protect that investment and the shareholder value it represents, makes the U.S patent system and its global analogues, more important than ever to us at GE. While our system is one of the greatest and most productive in the world, as with all systems, evolving needs require a regular review and reform in order to ensure the promise of the system is fully realized.

    In my previous role as USPTO Director and now at GE, I have followed with keen interest the two studies of the U.S. patent system undertaken by the Federal Trade Commission/Department of Justice and the National Research Council of the National Academy of Sciences and the resulting reports. I was a witness several times before both bodies and was a reviewer of the NAS report. In general, both reports were thorough, well-thought out, and made recommendations the majority of which were highly appropriate to advancing the cause of patent reform in positive ways. I am heartened that the reports have served as a motivation for the cause of patent reform, and congratulate this Committee for its hearings on this topic.
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    Towards that end, and in the interest of attempting to find a consensus position on a number of the important patent reform issues currently under consideration, GE has also actively participated in a coalition of some 30 of the most recognized and well-respected companies in the world, representing a wide array of our most important technologies, including Eli Lilly, whose General Counsel, Robert Armitage is testifying here today as well. This Coalition, which also includes the American Intellectual Property Law Association and the Intellectual Property Owners Association, has worked hard to find common ground and our proposals represent some of industries best thinking on how to deal with the specifics of the patent reform agenda.

    We do not undertake this effort lightly, however. As one of the leading academic economists recently noted with some concern in his extensive review of these issues:

''Social progress in our technological age is intimately bound up with the creation and protection of intellectual property.'' . . . ''[But j]ust when intellectual property (IP) has made its greatest contributions to this nation's technological growth, many critics on all sides of the political spectrum have assailed the soundness of the underlying legal structures.''(see footnote 1)

    As stewards of this system, and the benefits it brings the world, we must resolve to make sure that whatever reforms or changes come forth are ones which serve the public's interest, and encourage the economic development which that public deserves.

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    One of the most critical issues facing the patent system today, globally, is the need for harmonization of patent laws and procedures. With their territorially-based administration, maintenance, and enforcement regimes, the current systems foster extraordinary redundancies in cost, time, and resources. These inefficiencies inhibit the ability of inventors, large and small, to obtain and maintain the protection they deserve, and encourage the innovation so vital to global economic development. GE innovation has resulted in an active global portfolio that comprises over 38,000 patents and this number includes over 5,700 global patent applications in 2005. We also filed over 2700 U.S. patent applications in 2005. The cost to obtain and maintain this portfolio is not trivial. In 2005, GE spent in excess of $32,000,000 on the patent prosecution and maintenance of the foreign portfolio, a significant portion of which is a function of the multiplicity of world systems.

    Efforts at greater harmonization have been debated for years, with only modest success. As a negotiator of intellectual property issues on behalf of the U.S. government, and now as a delegate to the World Intellectual Property Organization, I have witnessed the frustrations in this area first hand. While we have succeeded in negotiating new treaties in many other areas of intellectual property over the last decade to deal with rapidly evolving changes in the technology and content worlds, substantive patent harmonization has proven difficult and challenging for a variety of reasons. I would like to first address the current state of play on international harmonization and some of the concerns we have on that current status.


    Substantive patent law harmonization has been a topic of discussion in the World Intellectual Property Organization (WIPO) since at least the mid-1980s in response to increasing calls for harmonization of national and regional patent laws.
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    Following the last major, but unsuccessful, effort to advance substantive harmonization in 1991 at the WIPO, and the completion of the Patent Law Treaty of 2000, dealing with procedural matters, renewed discussions on a draft Substantive Patent Law Treaty (SPLT) began again in earnest in May 2001 in the Standing Committee on Patent Law. Only limited progress has been made in WIPO, the discussions, especially those over the past few years, having been marked by attempts on the part of a coalition of developing countries to inject a number of highly sensitive political issues into the discussions and to introduce other proposals that seek to undermine the goals of patent law harmonization or generally weaken patent rights. These have primarily involved issues regarding patent application disclosures of the source of origin of genetic resources/traditional knowledge and exceptions to patentability or patentable subject matter.

    As a way of moving forward, the U.S. delegation has actively supported a compromise proposal to limit the scope of work of the Standing Committee on the Law of Patents (SCP) to discussions regarding a limited number of issues, the so-called ''mini-basket'', which includes the issues of the definition of prior art, priority of invention to be awarded to the first inventor to file the patent application, a grace period for filing after the public disclosure of the invention, and issues relating to novelty and inventive step.

    Unfortunately, efforts to reach a specific work plan for the SCP thus far have been unsuccessful. In fact, the most recent attempt to define the work plan, the informal meeting of the SCP held from April 10–12, 2006, failed to reach agreement on such a plan for harmonization talks.

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    While in the past efforts focused around the original work plan of the SCP in WIPO, it is becoming increasingly apparent that success in the near term at WIPO is not likely. For this reason, new avenues and strategies for attaining progress on substantive patent law harmonization have been explored.

    In February of 2005, the USPTO was instrumental in setting up the ''Alexandria'' group or ''Group B+'' comprised of members of like-minded countries interested in harmonization. The inaugural meeting was attended by 20 nations, the European Union, and the European Patent Office and resulted in the unanimous decision to establish a technical working group for the express purpose of discussing certain areas of patent law harmonization.

    Since its inception, the Group B+ , or ''Alexandria Group'', has been meeting biannually and been working toward harmonization on this a limited number of issues. While significant progress has been made, certain sensitive issues remain, however, such as first-to-file, grace period, and secret prior art treatment and effect. Also, some of the European delegations have expressed reservations over proceeding with harmonization discussions outside of WIPO, if WIPO will not be the forum where an agreement is ultimately reached. The USPTO and the Bush Administration should be congratulated for taking the initiative on this effort to establish the Alexandria Group and to move its agenda forward, and we look forward to additional engagement and progress in the future.


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    High among the principals underlying the work of the SCOP and of the Alexandria Group's efforts has been a desire for so-called ''deep harmonization'' resulting from an understanding of what are the best practices among the world's patent systems. This identification of best practices also underlay in many ways the study and reports of both the Federal Trade Commission/Department of Justice and the National Academies studies and reports. In particular, it is important to note that the comprehensive National Academies of Science report, among its recommendations for patent reform, addresses broadly the importance of reducing the redundancies and inconsistencies among national patent systems. They specifically recommend reconciling application priority, i.e. first-inventor-to-file, elimination of the best mode requirement and universal publication of all patent applications.(see footnote 2)

    I have been asked to comment specifically on certain issues in H.R. 2795 and various other draft bills which have discussed, which relate in particular to harmonization such as those identified above, and am pleased to do so.


    Before delving into the patent reform issues, however, I want to briefly address another issue that probably most significantly affects the successful functioning of our patent system. As both the NAS and FTC reports highlighted, the USPTO must have sufficient resources to perform its critical role in administering the patent system. For years, the USPTO was denied these resources as patent and trademark fees, paid to the USPTO in return for specific services, were diverted to unrelated government agencies and activities. As a former Director, I have seen and had to manage first-hand the problems this denial of funds causes in the USPTO. While Congress and the current Administration are to be commended for fully funding the USPTO during the current fiscal year, fee diversion from prior years has left the USPTO with a tremendous work backlog, obsolete systems, and an inability to restructure. As contemplated in H.R. 2791, recently introduced here in the House, the USPTO would be given authority to raise its fees, but also gives statutory assurance that those fees will not be diverted to unrelated programs.
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    Too often we regard this issue as ''Mom and Apple Pie'' in the mix of patent reform issues. It would be tragic to have it be overlooked in the debate over more procedural reforms, and remains probably the single most important reform to our system this Congress could and should make. This Subcommittee, and you Mr. Chairman, should be commended for the support they are giving, and have consistently given, over the years to a permanent solution to the diversion problem.

    In the event that additional resources are provided, we would submit that attention should be focused on using those funds to provide additional examination time for examiners, continuing to increase the searching resources and databases available to examiners, and training and other means to continue to develop the technical and legal expertise of our examining corps.


    One of the major obstacles to global harmonization has traditionally been resolution of the basic question of who is entitled to priority of invention. Alone now among the world's countries, the U.S. has maintained a system awarding priority of inventorship to the so-called ''first inventor''. This seemingly innocent characterization has become fraught with difficulties of definition, proof and cost. The rest of the world awards priority to the first inventor to file their patent application. While this debate has been ongoing for decades, the time appears to be at hand for the U.S. to join the rest of the world in implementing this simpler, fairer and less burdensome means for awarding priority.

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    As the groundbreaking study by my colleague and friend, former PTO Commissioner Gerry Mossinghoff, has shown, the very individuals who in recent tradition have been most concerned about this change, the individual or small inventors, have actually been disadvantaged by our current system.(see footnote 3) The primary means for determining inventorship when there is a contest is a process in the USPTO known as interference. Costly,(see footnote 4) rule-bound, and time-consuming, the interference process is a failed promise for individual inventors, as well as small and medium size enterprises, universities and non-profit organizations, who also have sometimes opposed such a change.

    Moreover, since this was last seriously debated at the international level, during the first Bush Administration, many other structural and systemic changes have helped level the playing field relative to concerns previously expressed. The adoption of provisional applications, the availability of technical and legal resources on the internet, and electronic searching and filing capabilities on-line have made the application process more accessible and timely to all Americans.

    This past year, both the NAS report and the American Bar Association's House of Delegates urged the U.S. to change to a ''first-inventor-to-file'' (FITF) system as a best practice.(see footnote 5) While it has sometimes been suggested that the U.S. should not unilaterally move to this FITF system, and should only consider it as part of an overall package of international harmonization treaty obligations, the advantages of this system in terms of simplicity, cost, and a serious reduction in uncertainty about priority, argue strongly in favor of making such a change now. It may also be that such a good faith move on the part of the U.S. will reinvigorate the stalled negotiations at the WIPO, an important and valuable goal in itself, and will help facilitate possible agreement in the Alexandria Group's work.
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    Therefore, I would like to strongly support Section 3 of H.R. 2795 which would change the U.S. patent system from a first-to-invent system to a first-inventor-to-file system. Often known as just first-to-file, the bill calls the new system ''first-INVENTOR-to-file'' to make clear that an individual cannot obtain a valid patent if he is not an inventor, i.e., if the individual derived the invention from someone else and then file, or as some small Inventors are concerned surreptitiously learn of their invention and beat them to the USPTO. Under the new system, among two or more competing inventors the patent would go to the inventor with the earliest ''effective'' patent filing date.

    With the switch to first-inventor-to-file by the U.S., no country in the world would have a first-to-invent system. I join with my colleagues in support of proposed changes that would amend Title 35 to award priority to the first inventor to file a patent application, and urge this subcommittee to include language to that effect in any patent reform statute under consideration.


    We also support the propose redefinition of prior art to that which consists of information that is available to the public anywhere in the world. Public availability requires reasonable accessibility and includes all types of communications as well as public display and uses. This may directly impact patent examination and, by extension, overall quality, and will also hopefully be available in a post-grant review procedure, also currently under consideration and a major recommendation of the NAS and FTC/DOJ reports. It also consistent with the currently-considered harmonization proposals and, thereby advances that goal, as well. This is additionally true in its removal of the ''in this country'' limitation on the use of such prior art. In today's globalized trade environment, with significantly easier access to data from around the world, the anachronistic limitation to domestic art has little place in our patent regime.
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    Along with this, a ''grace period'' would apply to all publications of the inventor including earlier published patent applications. This grace period would arise by operation of law without any requirement for the filing of a declaration. The Coalition text supports a more extensive grace period than the one contained in the Chairman's July 26th substitute text, and was the work product of on on-going dialogue with the university community for whom this issue is particularly resonant.

    We also support the elimination of so-called ''secret prior art'' which might also be available to avoid art which would other invalidate inventions. This elimination is also a major discussion issue in the ''mini basket'' of harmonization issues currently under discussion. Permitting secret prior art, creates uncertainty and frustrates the goal of searching for prior art for the purpose of improving patent quality.


    The best mode requirement of 35 U.S.C. §112 requires patent applicants to disclose what they consider to be the best way of carrying out their claimed invention. HR 2795 proposes eliminating this requirement. This change would accomplish two purposes. First, it would bring the US patent system into conformance with many other jurisdictions throughout the world, which lack such a requirement. Second, this change would eliminate a point of subjectivity in order to make patent validity more predictable. Repeal of the ''best mode'' requirement would remove another barrier to global harmonization.

    Furthermore, while this has often been portrayed as a positive, in that it seems to encourage greater public disclosure, in practice, it has more often resulted in a trap for the unwary or a ''gotcha'' in patent litigation, further undermining confidence in the system.
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    Universal publication of patent applications after 18 months is the norm in the rest of the world. However, in the U.S. patentees who do not wish to file for a foreign patent can opt for non-publication of their patent application, so long as they give up their right to file on that invention outside of the U.S. Section 9 of HR 2795 would eliminate this anomaly of the U.S. patent law. This change would also lead to greater disclosure and sharing of information and, of course, remove another barrier to harmonization.

    It also prevents entities from making important and expensive investments of research dollars, unaware that that research may at some point infringe an issued patent. This is not a wise use of limited research dollars. This also, by extension, encourages additional research, which is all to the public good. In any event, it is my understanding that USPTO statistics show that there is only a minor ''opting out'' that is occurring, but it may be in important technologies,(see footnote 6) where the applicant may be using the opt-out provisions initially to avoid exposing their technology publicly for a period, while opting in later. Such gamesmanship should not be encouraged, especially when the public policy grounds for publication are so strong in the first place. 18 months is enough time for inventors to determine whether or not to proceed with the publication and prosecution or to abandon the application and keep it a trade secret. We support universal publication.


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    In conclusion, while a member of the Coalition, and supportive of that text, GE supports much that it in HR 2795, in particular in the areas of harmonization which I have identified, and applaud the continuing efforts of this subcommittee to improve the patent system, globally, by updating U.S. law and practice to permit a more globally harmonized system. Intellectual property protection on an international level is a critical element of GE's research and development cycle and to our continued introduction of innovative products and services to global markets.

    I would be pleased to respond to questions from the Subcommittee.

    Mr. SMITH. Thank you, Mr. Dickinson.

    Mr. Armitage.


    Mr. ARMITAGE. Yes, thank you, Chairman Smith, for the opportunity to be here this morning.

    I'll begin. Thank you, Chairman Smith, for the opportunity to be here this morning to speak on the topic of patent harmonization and its relationship to broader issues of patent reform.

    I, frankly, am most appreciative of the efforts that you and other Members of your Subcommittee have undertaken to advance the cause of patent reform in this Congress, including the development of legislative proposals that would advance harmonization along with broader patent reforms.
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    In my written testimony, I attempted to set out at some length how patent harmonization efforts have been and remain inherently intertwined with broader efforts at patent reform. My written testimony offered a fairly detailed tour of the three major reform efforts over the past 40 years—the 1966 President's Commission, the 1992 DOC Advisory Commission, and, as Mr. Dickinson referenced, the more recent National Academies report.

    Remarkably, whether these efforts were undertaken in the '60's or the '90's or at the start of this century, they consistently reached many of the same conclusions. Significant and some might say radical measures must be undertaken by Congress to elevate patent quality. Improving patent quality, however, is only one aspect of measures that must be undertaken to ensure civil justice for patent litigants.

    Like many others whose businesses are greatly impacted by the U.S. patent system, my company supports a fair, balanced, and comprehensive patent reform bill to both elevate patent quality and advance civil justice for patent litigants.

    Indeed, as Mr. Dickinson said, the reforms that we seek are now supported by three dozen major companies and leading IP associations. These reforms would result in greater harmonization with patent systems outside the United States, but harmonization for its own sake is not really the driver behind these reforms.

    In our view, we agree with Mr. Dickinson that the National Academies recommendations should represent the template for designing patent reform in this Congress. We believe first inventor to file, elimination of the best mode requirement, publication of all applications at 18 months, and introducing a new 9-month window for post grant oppositions that would be open to all issues of the validity of a patent ought to be enacted into law.
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    First inventor to file, by itself, would remarkably simplify our patent system and simplify the work of the Patent and Trademark Office. It would also, frankly, be a necessary predicate for conducting a post grant opposition that would be open to all issues of whether a patent was valid or not.

    Perhaps the most important benefits from making harmonizing changes to the U.S. patent system would be the objectivity and transparency that it would introduce into the patent law. The reforms in 2795 in a few words would allow someone with sufficient knowledge and skill to pick up any U.S. patent, read it, reference only publicly accessible information, and be able to make a full and complete determination of whether the patent is valid or not.

    And as we well know, today's patent system, even after millions of dollars of discovery of issues that are sometimes based on secret prior art, sometimes based on subjective impressions of the inventor in what was or was not the best mode always leaves uncertainty and doubt in whether a patented invention is, indeed, validly patented.

    Also, adopting a full set of reforms would facilitate the initiative that Director Dudas at the United States Patent and Trademark Officer has been championing to increase responsibility of applicants. It would do so by creating a safe harbor for inventors who obtain fully valid patents, so that those fully valid patents couldn't later be challenged in court on the basis that the patent was procured through inequitable conduct.

    Finally, as Mr. Dickinson noted, the patent reform process in this Congress appears to have slowed because of controversies over a few issues. The most controversial of these issues relate to disabling or at least diminishing the availability to inventors of adequate remedies when their patents have been found both valid and infringed.
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    If Congress were to move forward, however, with patent quality and related reforms that advance civil justice for patent litigants, we believe that these misguided calls for diminishing or disabling patent remedies would cease.

    We have heard the arguments that it's unfair to put a company out of business or force the payment of a king's ransom because of a patent of questionable validity that can't be effectively challenged either administratively or in the courts. However, with the enactment of patent quality and related civil justice proposals that we support, that specter would disappear.

    When a high-quality patent is issued, and its claims are properly limited to truly novel and innovative technology that an infringer can't avoid by redesigning a product or incorporating any alternative technology, no possible justification should exist for denying such an inventor the full economic rewards from his contribution, including the assurance that ongoing infringement of such a valid patent will be stopped by the courts.

    Thank you for permitting me this opportunity to speak today as part of your ongoing efforts at patent reform.

    [The prepared statement of Mr. Armitage follows:]


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    Mr. SMITH. Thank you, Mr. Armitage.

    Mr. Mueller.


    Mr. MUELLER. Thank you, Mr. Chairman and Members of the Committee, for allowing me to be here today and express my views on patent harmonization.

    I would also like to thank the competitive—the Association for Competitive Technology for its leadership on this issue and helping me prepare for this testimony.

    My name is Gary Mueller, and I'm the president and chief executive officer of Digital Now. We're a small, Herndon-based—Herndon, Virginia-based company. We have several employees on staff locally and a handful of programmers throughout the United States, and we highly leverage our partners and our suppliers in our business.

    Despite our small size, we think we're poised to take advantage of emerging technology and being a leader in consumer services on the Internet. In the past, we've built film scanners and Internet photo sites for photo finishers. Now we're providing digital safe deposit box services to safely and securely store files, digital emotional property that belongs to the consumer, such as digital photos, home videos, important documents and records, as well as digital IP, or intellectual property, that consumers buy over the Internet, such as music, ring tones, e-books, and games.
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    Let me say up front that I support the changes in the patent processes in the U.S., including the harmonization efforts. I specifically support the first to file proposal and the proposal to file all publications or patent applications within 18 months of their filing date.

    I'll try to be succinct. I have four points to make from a small business perspective. One disclaimer first. I am not a patent attorney.

    Okay. Point one. File locally, grant globally. In 1999, we got a patent for a lamphouse technology quite unique for—and a film-scanning technique capability. Because of the cost and complexity, we decided not to file outside the United States. It was a mistake.

    In the fall of 2000, I was at Photokina, which is a large trade show for us in Cologne, Germany. And I was shocked when Gretag, a large equipment company based in Regensdorf, Switzerland, was openly showing the use of our patent in a new competitive scanner.

    When I discussed the issue with our patent attorney, he just told me it was too late. Wait until they enter the U.S. market.

    The lack of that patent protection cost me European sales and revenue. That impacted U.S. jobs and hurt my ability to build a great next product.

    So I'm sensitive to this issue of harmonization, as someone who has to make payroll and watch the bottom line. It makes no sense to pay for the same work of patent searching and examination to be done for the same invention in each country where patent protection is sought. Small companies simply can't afford it. A single search and examination in a single office should be recognized in every other country where patent protection is sought.
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    Point two. File now and attract the cash cow. As a small business, our goal is not to put competitors out of business, but to bring others into our businesses. Patents are a key tool to attract investment equity, secure business loans, develop supplier and channel partners, and, yes, ensure that we're fairly compensated for what we created.

    When I learned Gretag was violating our patent, I did not want to put them out of business. I wanted to play ''Let's Make A Deal.'' As a big company, they had more resources, stronger world-wide distribution channels, and a customer support infrastructure. That's leverage for what we bring to the market.

    We are now seeking new investors for our new initiatives, and guess what they ask first? ''Do you have any patents?''

    We've already mentioned the Mossinghoff study. So I won't go into that. But I believe that that study supports the position of first to file, and we see that as an important element for our business as well.

    Point three. Turbo charge the PTO. In my own view, speed, or the lack thereof, is one of the biggest issues facing my industry when it comes to patents. They say that speed kills on the highway. Well, pendency kills on the information superhighway. The longer I have to wait for a patent to be granted, the longer I have to wait for that tool to attract investment and partners.

    The average length for receiving a patent from the U.S. PTO is 29 months. For software, a very changing industry, the average pendency is even longer—40 months. Our own patent on image rotation, automatic image rotation, took us almost 6 years to get.
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    I've had to abandon other patent applications and, therefore, the business opportunities that those patents represented because the market moves faster than the PTO office. The opportunity to participate and probably improve the marketplace was lost.

    In today's fast-paced world, a patent delay is a potential market denied. Why? Because, as a small business, I have to weigh the risks of ongoing costs of R&D and commercialization against the ability to protect that investment from those that can outpace me.

    This also speaks to speed in publishing all applications in 18 months. If someone has beaten me to the punch, I want to know about it right away, as soon as possible, and cut my losses. Go to plan B.

    If not, I'm in a better position to raise funds, take the additional risk, continue development, and, best of all, get a product to the market and sell it.

    Clarity would come with the publication of all patent applications at 18 months after the filing date. We would have more information about the competitive environment in which we operate.

    Point four. Small business entrepreneurs need an on-ramp to get in the game. As a small business, we have to deal with ''bet the company'' issues almost every day, much more than the larger counterpart sitting at the table. We are often in the red to prove our technology and our business models.

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    Consequently, we have to ante up early in the process $30,000 or more to get through the patent application process. That money would otherwise be used to keep the doors open by paying the rent or making the payroll. To suggest that we should not spend this precious capital on improving our products and services, but spend it by rushing to the patent office is a very tough sell in our environment.

    There is a real and persistent fear among entrepreneurs, who are often cash poor, that inventions disclosed and patents applications once published will be stolen by larger, deep-pocket competitors. These fears can be best addressed by a patent system driven by quality, clarity, and speed.

    Achieving progress on these points helps a lot. Education is also going to be important to re-educate the small entrepreneur.

    In general, bad behavior fosters bad behavior. Bad behavior because of the length of the patent process, the backlog of the PTO, and the system in general fosters bad behavior by entrepreneurs and inventors.

    Harmonization, improving the PTO performance will foster good behavior, especially with small business entrepreneurs. We will trust the system, have greater clarity, know where we stand with our initiatives and ideas, and we'll use the system to our advantage.

    Mr. SMITH. Mr. Mueller, we're going to need to move on. I think you got your four points in, though.

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    Mr. MUELLER. I did. Perfect timing.

    [The prepared statement of Mr. Mueller follows:]


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    Mr. SMITH. Thank you very much.

    Mr. Choate.


    Mr. CHOATE. Thank you, Mr. Chairman.

    I'm here today on behalf of the Professional Inventors Alliance. The two founders of that, Ron Riley and George——

    Mr. SMITH. Mr. Choate. Yes, pull the mike a little bit closer to yourself.

    Mr. CHOATE. Okay. I'll be happy to.
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    I'm here on behalf of the Professional Inventors Alliance. Two of the founders of that organization, Ron Riley and George Margolis, are here with us today.

    Small inventors are part of a group called the ''small entity inventors.'' That is independent inventors, small businesses such as Mr. Mueller's, nonprofits, academics. They make up and contribute 45 percent of the patents done in this country.

    If you remove the foreign patent applications submitted, they're the largest contributors to the patent system. They make the most patent applications. And studies done by the Small Business Administration reveal that they produce more highly sighted patents than large firms on average, and small patenting firms produce 13 to 14 times more patents per employees as large patenting firms.

    They're an important part of the innovation in this country. And so, how patent law affects them is vastly important to our technological and innovative future for this country.

    The question really is not whether one is for or against harmonization. Harmonization is a good thing. No one opposes having similar administrative procedures. I think it's a good thing for the world to file patents in English. English is the language of commerce in the world today.

    The question of reasonable access to prior art is—is a very desirable thing, and it's facilitated by the Internet. Researchers such as myself increasingly depend upon it. Ten years ago, I employed two research assistants. Today, I employ none. The Internet serves that function actually even better. And I think no one objects to standard searches.
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    The question is, is in this process of harmonization, will we lower the U.S. patent standards to that of other countries, or will we raise—insist upon raising the standards of other countries to our own, which I think is the finest patent system in the world and has served us very well for two centuries?

    As I take a look at the issue, there are three major issues that this patent system faces today. The first is the extended pendency rates. In the past 12 years, they've gone from 19 months to almost 30 months.

    We talk about wanting a surge of innovation in this country. We can go over into Virginia, and there is something like 500,000 to 600,000 patent applications in a warehouse waiting for their turn to be considered. If we could get the pendency rate down to something like 6 months, we could unleash a vast amount of new innovations.

    And what we're talking about here are some simple procedures and the Congress appropriating another billion or $2 billion to hire more patent examiners, which would be one of the best investments this country could make.

    The second major question is piracy. So much of what we're talking about today reflects our inability to deal with piracy. Now this Congress and this country led the way in the 1990's to create TRIPs, a major shift in world intellectual property rights. We created for ourselves and to get those rights, we swapped off the American apparel and textile industry. We have major rights there.

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    But when we deal with countries such as China, we have not filed a single WTO case against China, and they're facing major violations.

    And then finally, the premature—what I call the premature publication of patents. The issue, it would seem to me, is not to pick up that 10 percent of inventors that are left out of that, but for us to go and renegotiate to take the United States off that 18-month patent rule.

    Think about it, what it says. First of all, we've set up the rule, the 18-month rule, because we're unwilling to deal with the pendency issue. We're unwilling to deal—if we were issuing patents at 6 months, there'd be no need for an 18-month rule.

    Alexander Graham Bell, for example, got his patent in 3 weeks. It was 600 lawsuits, including 5 challenges at the Supreme Court. This is doable.

    But more importantly, what we find is this 18-month rule is a major boon to pirates around the world. The Japanese patent office, for example, sent some of their people to China, visited with various countries. And what they found was rows and rows of computers where the Japanese—I mean the Chinese companies were pulling down the information off the Net about Japanese and English and German and American patents. And they said, ''We don't need to research. All we need is this access to the 18-month rule.''

    And moreover, when the Japanese went back and checked their own computers, they found they were getting 17,000 hits a day from Chinese companies looking into their patents, and they found that South Korea was hitting it 50,000 times a day.
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    Another thing that happens with the 18-month rule, if an inventor makes a filing for a patent, if it goes up at 18 months and if he's denied or if that inventor is denied a patent, after that 18-month rule the application is filed, he, in effect, loses the right to operate his innovation as a trade secret. It's given away already.

    Now about a third of the patent applications every year are rejected. We're losing 60,000 or 70,000 innovations a year that inventors have, where they could use it as a trade secret, re-release it entirely to the world.

    As to the question of best mode, the golden covenant that the Constitution provides is an exchange of knowledge for a grant of the exclusive right to use. Best mode is, I think, a necessity.

    This country has had some very bad experiences in the past. As we moved into the early part of the century and World War I, Germany had a monopoly on dyes, certain chemicals, painkillers, analgetics, aspirin, et cetera. The Germans cheated. The Germans didn't give the best mode of use.

    When the Dupont Company, at the direction of the U.S. Government, moved to try to replicate those inventions in a time of crisis, what they discovered is that if you followed the techniques laid out by I.G. Farber and others, you'd kill your chemist. Best mode is very important.

    And thank you for your questions, and I am glad to come.
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    [The prepared statement of Mr. Choate follows:]


    Mr. Chairman and Members of the Committee:

    Thank you for the invitation to present my thoughts on ''Patent Harmonization.'' I appear as a member of the Advisory Board of the Professional Inventors Alliance—a group of independent inventors that support strong patent protections.


    The U.S. patent system has three major problems today.

1. Pendency rates are far too long, denying the nation new innovations in a timely manner;

2. Piracy of U.S. intellectual property rights is not being adequately addressed;

3. Premature publication of patent applications at 18-months is (a) enabling the theft of U.S. intellectual properties, (b) denying patent applicants the ability to use their innovations as trade secrets, and (c) encouraging inventors not to file patent applications, thereby diminishing the nation's general knowledge.

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    Proposals to shift from a first-to-invent to a first-to-file system, to eliminate the ''best mode'' requirement in a patent application and to expand the publication of patent applications will weaken the U.S. Patent System and discourage American innovation at just the moment both should be strengthened to meet expanding global competition.


    The President and Congress have six basic tools to direct the U.S. economy:

1. Fiscal Policy

2. Monetary Policy

3. Exchange Rate Policy

4. Trade Policy

5. Technology Policy

6. Competition Policy (Antitrust)

    For more than two centuries, the strongest of those six has been U.S. Technology Policy, the heart of which is the nation's system of intellectual property laws and the rights they create. Those laws and rights, the strongest in the world, have encouraged national innovation and the spread of general knowledge beyond anything achieved by any other country in history.
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    These intellectual property rights, in whatever form they exist, are ultimately social contracts between the originator of an idea and society. The arithmetic of the exchange is simple: the temporary award of ownership allows the public to benefit from new ideas and encourages the creation of even more innovations.

    What varies among nations is the way they balance this quid prod quo—ownership for disclosure—and which interests they favor in their patent policies.

    At its heart, the American system of intellectual property protection—whether that protection comes as a patent, copyright, trademark, computer mask, or trade secret—favors the rights of ownership. U.S. law gives inventors and writers the long-term, exclusive right to make, use, or sell their creations and powerful legal means to defend their rights in U.S. courts.

    Most other nations, however, still view an originator's discovery as a legacy to society almost from the inception. Thus, those intellectual property systems favor the quick distribution and shared commercialization of new ideas, even if this puts the inventor or writer at a disadvantage.

    Think about cameras. In the United States, Kodak violated Polaroid's instant photography patents, lost their case in court and then had to pay Polaroid $1 billion in damages. In Japan, by contrast, one company develops a killer application, such as technology to stabilize shots, but all other Japanese camera makers soon introduce the same technology. In the U.S., the innovator could use that technology to sweep the market. In Japan, a government-approved and often a government-guided cartel shares the technology among competitors.
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    The differences of national emphasis—ownership vs. sharing—among the U.S. European, and Japanese intellectual property systems are substantial.

    The stated or explicit goal of patent harmonization efforts is to synchronize these divergent patent systems so they generally work alike. In itself, this bringing together of national systems is desirable.

    However, there is an unstated, and vital, issue involved: Will patent standards and protections be raised or lowered in the harmonization process? Harmonize up? Or, harmonize down?

    That is the choice now before Congress.


    For almost two centuries, Congress has set intellectual property rights by allowing the affected parties to find a compromise. Now that process is impaired, largely because of the changing nature of the parties at interest. Before the 1960s, the battle was between domestic industries and between individual industries and large corporations. With globalization, the conflict is between national systems, which means foreign nations and their corporations versus both small and large entity inventors. As U.S. corporations offshore their R&D and manufacturing, their interests are increasingly aligned with those of foreign-based multinational companies that are trying to weaken U.S. protections for small entity domestic inventors.

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    Small versus Large Entities—The United States Patent and Trademark Office (USPTO) distinguishes between what it terms ''small entities'' (independent inventors, companies with 500 or fewer employees, not-for-profit organizations and universities) and ''large entities'' (larger corporations).

    Until the last half of the 20th century, the principal patent conflict was between independent inventors and large U.S.-headquartered corporations, reflecting the fact that individual inventors are a natural enemy of the status quo, large corporations and state-owned enterprises.

    ''Innovation is a hostile act as it threatens the status quo and those who benefit from it,'' says inventor Paul Heckel. That threat, Heckel claims, explains the difference between the U.S. patent system and those of Japan and Europe. Those systems were developed to minimize the threats to entrenched interests, while ours was created after our Revolution when the entrenched interests, that is, the British, had been overthrown and those in power had little but the vast future of a nation to develop.

    The American experience is that these small entities, particularly independent inventors, can devastate an entrenched interest, almost overnight. Indeed, doing just that, and becoming rich and famous is the dream of most such entrepreneurs. Moreover, it happens repeatedly in America. Small entity invention has a particular American quality, reflecting our culture. Even with all the filings from large U.S. corporations and their counterparts from around the world, small entity inventors still file roughly 45 percent of all U.S. patent applications every year. That happens nowhere else in the world.

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    Such innovation is the very heart of what Austrian economist Joseph Schumpeter called ''creative destruction.'' For more than two hundred years, it has been the engine of America's economic growth. It is our principal hope for meeting the global economic challenge we face.

    For the small entity inventors, their IP rights are essential. Patents provide them the means to raise capital, make license arrangements and defend themselves against infringers. As surely as night follows the day, other nations will seize upon patent changes to weaken intellectual property rights in the United States and thus weaken those same IP rights abroad.

    Moreover, with weakened protections, no U.S. IP holder will be safe, whether small or large. In a world where China, India, and other nations are quickly becoming the world's workshop—manufacturing everything from the simplest to the most advanced technologies—a large and growing number of traditional U.S. corporations are in reality little more than intellectual property holders, who are ''non-practicing'' their technologies. In this radically different economic environment, the protection of those corporations' intellectual property rights is vital because those rights are what constitute their stockholders' real value.

    Small Entities versus Transnational Entities—Europe, Japan, China, India and other nations aggressively use their patent systems as a tool of national development. Changes in U.S. patent laws that enable their corporations to get a look at U.S. patent applications before a patent is awarded is to their advantage. So, too, processes that ease their ability to challenge U.S. patents as a means to coerce a license or shorten the duration of a patent through confrontation, or place the validity of a patent into legal limbo is also to their advantage.
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    Since the early 1990s, one of the principal goals of Japanese and European-financed lobbying in the United States has been to change U.S. patent practices. Theirs is a formidable force. Overall, the Center for Public Integrity reports that foreign governments and corporations now fund almost one-third of all lobbying in Washington, D.C. When the lobbying dollars of the largest U.S.-based corporations and their trade associations is added to the foreign efforts, almost 80 percent of all lobbying dollars come from a coalition of businesses and governments that wish to weaken U.S. patent protections. Their goal, moreover, is fully understandable—in America, an inventor with strong patent protections, a contingency fee law firm, and access to the federal court system is a real economic threat to a patent pirate.


    Not surprisingly, many U.S. corporations have long sought to weaken patent protections for independent inventors. Repeatedly over the past forty years, a succession of Presidents has appointed patent reform commissions dominated by these corporate interests. Their reports repeatedly offer the same solutions—(1) they seek to cut the term of patent protection; (2) they seek to give the world a look at a patent application before the USPTO grants patent protection; (3) they seek to weaken the legal remedies and damage awards to small entity patent holders; and (4) they seek to change the award of an invention from the first-to-invent to the first-to-file a patent application.

    In short, these corporate-led commissions have urged Congress to harmonize down—that is, to make the U.S. patent system more like that of Japan and Europe rather than have U.S. patent negotiators try to raise the patent standards of those nations to that of the United States.
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    Moreover, the temptation of the Executive Branch of the U.S. Government to reduce IP rights is great. The temptation arises out of the creation of TRIPS within the World Trade Organization, which has put IP rights into trade negotiations. In the past, the United States has traded away various U.S. industries to secure global trade agreements—textiles, apparel and steel are the most visible examples.

    In the current WTO round, developing nations refused to begin the negotiations unless the United States would agree to compulsory licensing of pharmaceuticals. The USTR capitulated, putting this nation on a slippery slope of IP concessions in exchange for trade rights.

    Indeed, we are already along that path. China is a flagrant violator of U.S. IP rights, yet our government refuses to bring a case against China at the WTO for denying U.S. intellectual property owners' rights that are supposedly theirs under China's accession agreement to the WTO. Again, the U.S. is swapping away IP rights for foreign policy and other trade goals.

    This ''harmonize down'' effect comes into sharp relief by reviewing a landmark GAO study—Intellectual Property Rights—US Companies' Patent Experiences in Japan, published in the spring of 1993. It provides a baseline comparison of the U.S. and Japanese patent systems, as they existed 13 years ago. The changes since then are dramatic.

    In this study, GAO examiners interviewed Japanese patent officials and lawyers, and they surveyed 300 corporations who were top patent holders in Japan. The respondents were top U.S. patent holders in three sectors—chemicals, semiconductors, and biotechnology—and included 90 percent of the U.S. companies that were part of the top 200 U.S. patent holders in 1991. Almost half of these companies had 10,000 employees or more, 32 percent had between 501 and 10,000, and 19 percent had 500 or fewer. More than 90 percent of these respondents had also filed patent applications in Japan during the past five years, two-thirds held ten or more Japanese patents, and all were experienced international businesses. The majority of these respondents were also large enterprises, with 60 percent reporting sales of more than $1 billion annually.
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    While the 300 responding companies had all the resources needed to hire the best talent and do whatever the Japanese required foreign businesses to do in Japan, two-thirds reported significant problems dealing with Japan's patent system. By contrast, only 25 percent said they had similar patent problems in Europe and 17 percent in the United States.

    In stunning detail, the GAO study also revealed that, unlike the United States, which administered its patent system in a country-neutral manner, Japan's patent system then was at once a defensive, offensive, and a strategic tool of national development. It was being used to (1) keep foreign goods out of Japan, (2) protect proprietary Japanese technology, (3) examine the inner workings of the best foreign technology and (4) get foreign patents under advantageous conditions.

    The GAO concluded that the differences in patent policy between the U.S., Japan and Europe were as follows:

 The United States awarded patents to the person who is the first-to-invent. Europe and Japan awarded patents to the first-to-file an application.

 The United States provided seventeen years of protection from the date it issues a patent, no matter how many years the USPTO took to process the application. Europe and Japan provided protection that ended twenty years after the filing date, despite how much time they consumed in the review process.

 United States patent applications were secret until the government granted a patent. All other nations published patent applications eighteen months after an applicant files.
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 The United States gave inventors a grace period of one year in which to file an application after they have shown their invention to the public and imposed no restrictions on the ways originators may reveal their inventions. Europe and Japan gave inventors a grace period of six months for disclosure and limited the types of disclosures they could make without losing their right to a patent.

 The United States and Europe excluded third parties from the patent review process. The Japanese Patent Office allowed third parties, including rival companies, to participate in their patent reviews.

 The United States did not allow third party opposition during the patent review process. Japan allowed third parties to oppose a patent application even before they grant an award. Europe allowed third party opposition but only after they grant a patent.

 The United States Patent Office automatically examined every patent application filed. Europe allowed patent applicants to defer examination for up to six months. Japan allowed patent applicants to defer examination for up to seven years.

 The United States accepted patent applications in all languages. Europe accepted applications in the languages of nation party to the European Patent Convention. Japan accepted the patent applications in Japanese.

 The United States and Europe processed patent applications rapidly, generally in nineteen months or less. Japan processed patent applications slowly, generally in six to seven years.
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 The United States' and Europe's scope of patent protection is wide, giving the inventor exclusive rights within a broad boundary of claims. Japan construed the scope of its patent protection as narrowly as possible.

 The United States and European legal systems eased the private enforcement of patent rights. Japan has discouraged private action.

    Most of the 300 corporate respondents to the GAO survey answered that they were unable to protect their intellectual property in Japan, and many also acknowledged that they were forced to enter cross-licensing and partnership deals with Japanese rivals that they would never have even considered in Europe or the United States.

    If these large transnational corporations were unable to cope in Japan, then most individual inventors and small firms faced an almost impossible task.

    In the intervening years, Japan has made some changes in its patent system. It has established a tribunal to hear patent cases, takes applications in English, hired more examiners and lowered its pendency rate. Yet, its basic system remains unchanged. It uses the first-to-file approach, limits patent terms to 20 years, pre-publishes applications and permits third party opposition.

    As this list reveals, the direction of U.S. patent law changes over the intervening years has been to change the U.S. patent system so that it is more like Japan's.
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    Moreover, the USPTO is taking (May 3, 2006 deadline) public comment on a proposed rule on the practice of continuation applications that will further make the U.S. system like Japan's—a rule that will cut the number of a patent claims in an application.

    As you know, pendency is an ongoing and increasing problem for the PTO and frankly for American competitiveness. However, any change in PTO rules that limits the number of continuations and the number of claims will not affect pendency. But, it will create great suffering for small entity inventors—universities, biotechnology firms, emerging technology companies, small businesses and independent inventors. Currently, they can file a patent application and modify it as one's research progresses. Application and revision costs are borne by the applicant progressively and timely public disclosure occurs.

    The proposed rules restrict the patent applicant to 10 claims and to 1 continuation absent special circumstances. The PTO thinks that this will reduce examiner workload and relieve pendency, though it has yet to demonstrate this. Instead, the rules create new, amorphous requirements that the patent applicant must meet. Essentially the rules mean that the patent applicant must perform the examination process themselves all in advance. This radical change represents a first step toward converting the PTO into a registration system.

    This rule change is so significant it is something for Congress and not for the PTO to decide. I urge this Committee to review those proposed changes and comments in hearings.

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    First-to-Invent Versus First-to-File—For more than two centuries, the United States has awarded a patent to the first person to invent the creation. All other nations award the patent to the first person to file a patent. The Governments of Japan and Europe support U.S. adoption of a first-to-file system. Several Presidential and academic study commissions also favor a first-to-invent approach. In the 1993 GAO survey, three-quarters of the companies with 10,000 employees or more favored a first-to-file system, as did about half the companies with 501 to 10,000 employees.

    In that survey, of course, a quarter of the large corporations and about half of the mid-sized companies favored a continuance of the first-to-invent approach. I am unaware of any survey of small entity inventors on this issue. Various independent inventor groups, however, advocate leaving the first-to-invent system in place, arguing that it is functioning well.

    In a recent study of whether small or large entities are advantaged or disadvantaged by the first-to-invent approach, former Commissioner of Patents and Trademarks Gerald J. Mossinghoff did a statistical analysis of what happens when two parties claim to have invented something at nearly the same time, a process called interference cases or two-party decisions. If there were problems in the first-to-invent system, a large number of such cases would exist.

    Remarkably, in the 22-year period 1983–2004, Mossinghoff found there were only 3,253 two-party decisions, a period when the USPTO received 4.5 million applications and granted more than 2.4 million patents. Thus, there were on average only such 155 such cases per year, or as Mossinghoff pointed out, fewer than one in one thousand applications filed.
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    Mossinghoff also found that the number of small entities advantaged in that 22-year period by the interference process was 286 and the number disadvantaged was almost the same (289), a strong statistical suggestion that the USPTO was ably managing the process.

    Mossinghoff's data provides a strong argument for not changing from a first-to-invent to a first-to-file patent system. Specifically, the supposed disadvantage of the present approach is that it leads to confusion and conflicts. Yet, as Mossinghoff's data reveals, the number of interference cases in the 22 years analyzed was administratively trivial.

    His data also reveals that small entities were involved in only 17.6 percent of these two-party cases, although they generate 45 percent of all patent applications. The overwhelming majority of those interference cases (82.4 percent) were between large entities fully capable of financing their advocacy.

    Mossinghoff's data reveals that the number of small entity inventors affected by interferences occurs only with one of every 7,800 applications. This is so statistically insignificant as to be irrelevant. One of 7,800 is not a problem.

    The point is that our present system is not adversely affecting large or small entity inventors. Then, why change it? Why go to all the trouble, all the costs of changing to something else, when the benefits are so illusory and slight? If there is some benefit other than doing like other nations do, advocates of that change should be forthcoming as to what that is.

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    The other question raised in Messinghoff's paper is about the ability of those few, those one of 7,800, inventors to finance the legal costs of a two-party case. He found that 575 small entity inventors took their cases to conclusion, which also strongly suggests that legal costs were not a barrier, even for those few.

    The question of legal costs is related to a broader argument made for altering the U.S. Patent System, namely that the U.S. is in a ''patent litigation'' emergency—that is, a flood of lawsuits with little or no merit is threatening the innovation process.

    I examined that issue in a recent working paper published by the U.S.-China Economic and Security Review Commission (A Great Wall of Patents, October 2005). I concluded from publicly available data that the U.S. does not have a patent litigation crisis. Indeed, the data makes clear that the threat of lawsuits for most inventors is actually diminishing.

    The real litigation threat is to a handful of large corporations whose business models rely on the aggressive, unapproved and uncompensated use of the patented works of others. The owners of that intellectual property are suing these large companies and winning large awards. In appeal, the courts are upholding these awards as valid. Now, a handful of these large entity patent holders have banded together and are trying to achieve through legislation what they cannot get in the courts—easier access to the IP of others, at a lesser cost and with fewer penalties.

    Federal judicial caseload statistics for patent lawsuits and USPTO data on patent applications and patents issued reveal:
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 An inventor is less likely to be involved in a patent suit today than in the past. The number of patent lawsuits filed per the number of patent applications filed has been on a downward slope since 1990.

 Likewise, the number of patent lawsuits filed per the number of patents granted by the USPTO has also declined even greater—almost 13 percent between 1988 and 2004.

 Only 5/10,000 of one percent of patents issued are challenged in a patent trial.(see footnote 7)

 In 2004, more than 28 percent of patent lawsuits settled with no court action required.(see footnote 8)

 In 2004, more than 53 percent of patent lawsuits settled before pretrial.(see footnote 9)

 In 2004, more than 14 percent of patent lawsuits settled during or after pretrial.(see footnote 10)

 In 2004, only 96 patent cases went to trial, which represents only 3.5 percent of all patent cases filed that year.(see footnote 11)

    Put into context, the number of patent lawsuits that went to trial during the period 2001 to 2004 rose from 76 cases to 96.
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    Fewer than 100 patent trials a year is not a patent litigation crisis—particularly in a nation that issues almost 200,000 patents annually and where litigants settle almost all patent lawsuits before trial.

    Although the current first-to-invent system is working very well, imagine what is likely to happen if Congress were to change it to the first-to-file approach.

    The large corporations could standardize their global patent operations and perhaps get some savings out the efficiencies. They are well accustomed to working in first-to-file systems around the world.

    For the small entities, the shift would be chaotic. They are not accustomed to the first-to-file approach. Their experiences and knowledge of the patent system are grounded in the first-to-invent system. Hundreds of thousands of inventors, academics, lawyers and paralegals would be forced to learn a new system—a costly and disruptive process at best for them, and for the USPTO.

    The first worry on the part of many inventors and academics would be whether someone would steal their innovations and rush to the USPTO to file an application—a legitimate concern in today's world of unchecked piracy. Indeed, Chinese inventors are now taking patent applications posted on the Net and using that information to be the first-to-file in China.

    The fear of patent piracy, here and abroad, would motivate countless inventors to rush to file. Inevitably, the result would be a flood of premature patent applications. In turn, the influx of such applications will greatly burden the USPTO at a time when patent pendency is already rising.
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    And what are the principal gains from incurring these costs and dealing with the resulting chaos, other than pleasing patent bureaucrats in other countries and allowing transnational corporations to save a few patent-processing fees? Other than being like other nations, what is the advantage to the United States and small entity inventors for making such a shift?

    In short, the advocates of this change have failed to prove that the marginal benefits of this shift will equal the marginal costs and inventor confusion. This is significant, for we are at a moment when larger patent issues loom, such as unchecked patent piracy by nations such as China, the growing technological challenge from abroad and rising pendency rates at home. Our limited USPTO resources should be devoted to those issues, rather than to a change that would create unproductive chaos.

    Imagine the response if we were to ask England and Japan to change from a right to a left hand drive system for their automobiles so they could be like us and thus make life easier for our automakers. Congress should view their demands for patent harmonization in a similar way—deciding what is in our inventor's and our country's best interests.

    Best Mode—Should inventors be required to include in their patent applications the ''best mode'' to replicate and use their creations?

    I think the answer is yes—absolutely. The golden covenant of a patent is simple—exclusive use in exchange for making public new knowledge. Otherwise, the patent grantee gains the benefits of government-licensed exclusivity, while denying the public the full knowledge to which they are entitled.
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    In the early part of the 20th century, I.G. Farben, the giant German chemical cartel, was granted hundreds of chemical patents in the United States, giving them exclusive use over their creations. However, Farben cheated. When DuPont and other chemical makers tried to replicate those processes during World War I, they discovered that vital elements were missing. Indeed, Pierre DuPont, who lost more than $100 million of 1917 dollars trying to replicate those chemicals, claimed that if DuPont chemists had followed the Farben patents, they would have been killed.

    The point is the United States should not give exclusive rights to inventors unless they share with the public the best and true mode. Expanding public knowledge is one of the patent system's most important functions.

    Pre-Publication of Patent Applications at 18-Months From Filing—In 1999, the United States enacted harmonization legislation that required the USPTO to reveal to the world vital information from all patent applications that have been on file for 18-months. An exception was made for those inventors who seek a patent that is limited to the United States. Today, approximately 10 percent of patent applications fit that criteria and are not published on the Internet at 18-months if not granted.

    The 18-month rule may be meaningless for large entity inventors. It devastates small entity inventors—giving competitors and pirates the world over vital details about their creations before patent protections are granted.

    The 18-month rule is driving small entity inventors away from the patent process, denying the nation substantial knowledge. In the past, an inventor could take a failed application and apply the knowledge as a trade secret. With 18-month publication and 30 months plus patent pendency, the secret is spilled to the world. The USPTO rejects about one-third of all patent applications. This means that approximately 60,000 to 70,000 potential U.S. trade secrets will be made available to U.S. competitors and pirates worldwide annually.
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    Are foreign competitors stealing ideas and technologies from what I label the premature publication of patent applications? Consider this: In 2004, the director of Japan's External Trade Organization's Intellectual Property Rights Office in Beijing visited a leading Chinese company. The head of that corporation's intellectual property division showed him a room with several dozen computers whose exclusive purpose was to search the patent applications put up on the Internet by the USPTO and its equivalent in Japan and Europe. The Chinese executive explained it was easier and far less expensive to pull information from foreign patent applications than to do their own research.

    When informed of this, the Japanese Patent Office began monitoring the number of hits its patent application files on the Net were getting. They counted 17,000 hits per day from China and 55,000 per day from South Korea.

    Likewise, the very system that is supposed to protect America's most precious technological secrets is revealing them prematurely to the rest of the world. When I explain the 18-month publication rule to business executives, they are dumbfounded that such a thing could be possible.

    I conclude that the real issue is not whether to include the 10 percent of patents under the 18-month rule, but how to stop pre-publication altogether. I cannot imagine any benefits to U.S. inventors or the nation from the present approach, while the liabilities are obvious.

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    Harmonization of the world's patent systems is a desirable goal for the United States. The vital question in that harmonization process is whether the United States should lower its standards to those of other nations or whether we should work to raise their standards to ours.

    Put another way, what is there in the patent systems of Germany, France, Italy, England, Japan, Brazil, India and South Korea that is so superior to that of the U.S. that Congress should change two centuries of success to follow their lead and be like them? The argument that all other nations do something—that the U.S. should join a herd simply because there is a herd—is insufficient reason to change U.S. patent laws that have worked so well for this nation for so long.

    As I describe in this testimony, the U.S. has followed the lead of other nations in recent years and lowered its vital patent standards in the name of harmonization. Those changes, and those now before the Congress, weaken U.S. IP protections. Our independent inventors are greatly disadvantaged by those changes—shorter effective patent terms and the premature publication of patent applications particularly.

    It would be very useful to have these harmonization issues rethought in a forum where small entity inventors—independent inventors, small companies, non-profit organizations and academic inventors—are an integral part of the process. Such an exchange would be congruent with our long tradition of bringing a balanced compromise on patent policy to the Congress.

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    Thank you for allowing me to share my perspectives with you.

    Mr. SMITH. Thank you, Mr. Choate.

    To me, one of the primary purposes of today's hearing is to try to better answer the question of why independent inventors sometimes object to our efforts to try to implement a first inventor to file, the harmonization that you all have been talking about. And my questions are going to be focused primarily on trying to answer that particular question.

    Mr. Dickinson, for example, you mentioned in your testimony that the very individuals who, in recent tradition, have been most concerned about this change, the individual or small inventors, have actually been disadvantaged by our current system.

    In just a minute, I'm going to ask you all to respond to a couple of Mr. Choate's points. But I'd like for you to go into a little bit more detail, Mr. Dickinson and Mr. Armitage. You mentioned harmonization, bringing in objectivity and transparency. Mr. Mueller, you actually said that a patent system that requires application for the same invention to be researched and re-examined in each country where patent protection is sought makes little sense in today's global marketplace, and that harmonization will reduce the cost and complexity of obtaining patent protection around the world.

    If you can go into a little bit more detail, elaborate a little bit more as to why you think independent inventors are actually benefitted by harmonization? And maybe you can speculate—I'm going to give Mr. Choate equal time in a minute—maybe you can speculate as to why independent inventors seem to be opposed to the idea of harmonization?
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    And Mr. Choate, just a quick comment, your direction. You said you supported the concept of harmonization in some areas, but you had concerns about this particular proposal. I wonder a little bit if conservatives like you and me sometimes just don't resist change regardless.

    And I'm going to come back to that theory in just a minute. But Mr. Dickinson, if you will begin?

    Mr. DICKINSON. Thank you, Mr. Chairman.

    A couple of questions there. Let me see if I can respond. And I have pretty good contact with the independent inventors, talk with them a lot about these issues, and particularly this issue of first to file versus first to invent.

    Interestingly, I think the record shows that some 30 years ago, when hearings were held on this topic, the roles were actually reversed. The independent inventors actually supported moving to first to file, while the largest entities in some cases resisted it. Now we seem to have changed sides a little bit. I don't think the arguments have really changed, however.

    The challenge with first to file, and I think the reason why independent inventors—and they probably can speak for themselves—but I think the reason why they tend to generally oppose it is that they're worried on a couple of things.

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    One, that they will lose the so-called race to the Patent and Trademark Office. And that, on its face, is not such—there's maybe some validity to that on its face. In reality, large companies like mine, we have fairly—we try to make them very streamlined, but we have fairly cumbersome processes for approval. We have fairly elaborate mechanisms for taking the inventions from the bench, going through the invention disclosure process, and on up to an application.

    So, for us, we're a little inhibited in that race. Independent inventors, on the other hand—particularly with the development of the Internet, the opportunity now to electronically file patent applications, the ability to do research and to find legal resources, patent legal resources on the Internet and do the searching on the Internet—they are able to make those decisions a lot quicker.

    Mr. SMITH. Let me interrupt you because I want to—Mr. Choate made a point in his written testimony that I'm not sure he mentioned it in his oral testimony that maybe we're trying to address a problem that doesn't really exist.

    He makes the point that if there were problems in the first to invent system, a large number of interference cases would be filed, and they are not. So would you address that?

    Mr. DICKINSON. That's an interesting question. I think one reason why there aren't that large number of interferences is because of circumstances that give rise to the interference and, by extension, the concern that independent inventors have, the fact that two inventors coming to the same invention in roughly the same period of time only happens in a very few instances.
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    I think we declare each year something on the order of, off the top of my head, 400 interferences out of 400,000 patent applications that might be filed. So that process of determining who the first inventor is only occurs in a very minor subset. That dispute only occurs in that little—in that little——

    Mr. SMITH. Mr. Dickinson, let me sneak in another question here to Mr. Armitage and Mr. Mueller. Mr. Choate also makes the point somewhat similar to the one I just repeated. Our present system is not adversely affecting large or small inventors, then why change it? Why go to all this trouble? Mr. Armitage?

    Mr. ARMITAGE. Can I first go back and maybe add a little perspective on your original question——

    Mr. SMITH. Sure.

    Mr. ARMITAGE [continuing]. About why sometimes independent inventors think of the first to file system as a bad deal for them.

    In some of the discussions I've had over several decades, first of all, they think it's a true first to file system—in other words, whoever files first is going to get the patent—rather than a system that truly protects the inventor who files first. And if you're not the inventor and just the first filer, you're not entitled to a patent.

    In your bill, in fact, there's a section—a new section on inventors rights contests. If someone who files first and they're not the inventor, they don't get a patent. The first inventor to file gets the patent.
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    Second thing, and I think it's very important given what Mr. Choate said, sometimes when first to file is used, people think they're getting the European patent system with no grace period, where if an applicant files two patent applications on the same subject matter or similar subject matter, one application can collide with the other and destroy the right to fully patent the invention.

    They also think they're getting the European rule on absolute novelty, where any divulgation of the invention, even if it isn't publicly accessible, can be prior art. And in fact, in the first inventor to file proposal that's in H.R. 2795, none of those are true. It's a very inventor-focused system.

    Mr. SMITH. Thank you, Mr. Armitage.

    I'm going to come back and ask some more questions in just a few minutes. And Mr. Choate, we'll be sure and give you equal time.

    For now, my time is up, and the gentleman from California, Mr. Berman, is recognized for his questions.

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

    I apologize for not being here during most of the testimony. I sort of came in the middle of Mr. Choate's testimony, where mostly you were talking about the—the—your dislike. And I think I was aware of that because it was controversial at the time of the 18-month publication.
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    But I am curious that from the testimony, both you and Mr. Dickinson cite the study by Commissioner Mossinghoff for opposite propositions. Dickinson says it supports the change to first to file. Mr. Choate says it shows the advantages of maintaining the current system.

    Can you each respond to the other one's arguments?

    Mr. DICKINSON. I think the principal take-away from Commissioner Mossinghoff's study was that the purported advantage to small inventors by the current system doesn't really exist and that when small inventors get into the dispute resolution mechanism for that contest, the interference, that they are disproportionately, actually negatively affected. And that's irrespective of the fact that it costs probably multiple hundreds of thousands of dollars to be able to even try to take advantage of that mechanism.

    So that in the first instance, because of the cost, small inventors might not even be able to prove that they were the first inventor. And secondly, if they are able to do that, if they are as we say the ''junior party''—namely they are the second filer, but are seeking to prove they were the first inventor—the junior party routinely loses. Loses some 80 percent of the time because of the nature of the rules, the nature of the interference practice, and because the first filer is very often able to demonstrate they were also the first inventor.

    Mr. BERMAN. Mr. Choate?

    Mr. CHOATE. First of all, in the Mossinghoff study, it found that the small entity inventors were advantaged 286 times, and they were disadvantaged 289 times. That's 3 case difference. Now what that says is it's a wash at 289 to 286. Moreover, more dramatically, it says there's 576 such cases over a 22-year period when you were dealing with something like 4.5 million patent applications.
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    When you run those kinds of numbers, 500 cases—500 plus cases out of 4.5 million, and it splits, it says, first of all, the interference process is working fairly. Secondly, it says with 500 out of 4.5 million, it is a trivial, it is statistically totally insignificant in the management or operation of a system——

    Mr. BERMAN. But the figure is the figure of the number of patents filed.

    Mr. CHOATE. That's right.

    Mr. BERMAN. Not the number of places where two people——

    Mr. CHOATE. No, no.

    Mr. BERMAN [continuing]. Claim to have invented the same thing.

    Mr. CHOATE. The point I'm making is when you have a system where you're filing 4.5 million patents and you only have—you have less than 600 instances over 22 years where there's a contest, it means that that is so small, it means the system works so well that you only have 600 cases out of 4.5 million. It's a tribute to the system.

    Mr. BERMAN. That's the system with the 18-month publication?

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    Mr. CHOATE. No. It's the system with the way that we file patents now, a first to file system. I have other arguments against the 18-month rule.

    But the current system, from the Mossinghoff data, if you had this kind of efficiency in any business, everyone would be coming to study how you did it.

    Mr. DICKINSON. Mr. Berman, just a quick, brief follow-up. I think the data that Mr. Choate references actually proves the other point.

    I mean, we have so few of these contests, the need to determine who the first inventor is versus the first to file is so infrequent and so costly that there is very little harm in moving the system to first inventor to file to achieve the bigger goal of getting global harmonization.

    Mr. BERMAN. And why couldn't I draw the other inference it's very little reason to change it?

    Mr. ARMITAGE. Could I jump in here? This morning on NPR, there was a report that a new virus, a new vaccine against the Marburg virus had been tested in monkeys and appears to be very effective.

    Now it's stupid for researchers to work on the Marburg virus because it kills very few people, right? Wrong. It's a horrible death if you happen to have the Marburg virus, and also the fear in any community when that virus infects even one person is horrific.

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    Going back to what Mr. Mueller said, that's exactly the problem that faces the patent system. If you're a small inventor in an interference, it can be death. And not only that, the way the first to invent system works, you never know you're the first inventor because you never know when someone's secret invention date will come out of hiding, and they get your patent. Either take it away and give someone else a patent and exclude you from marketing the products you've developed, or simply invalidate your patent.

    So it's really the fear that it injects, the uncertainty it injects into every patent in the entire system that makes those small number of deaths intolerable.

    Mr. SMITH. Thank you, Mr. Berman.

    The gentleman from California, Mr. Schiff?

    Mr. SCHIFF. I just wanted to follow up on one issue related to the first to file, first to invent, and ask you to speak for some people that are not at the table today. The university community I know has raised some concerns about moving to a first to file system. And I know within the university community, in fact, within the individual universities, there are difference of opinion.

    But give us your assessment, pro and con, of what this change will mean to universities. I know they're concerned, among other things, with not being able to compete with the private sector in the race to file and the different nature of the academic process at a university. If you could share your thoughts on those issues?

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    Mr. MUELLER. I'll speak from my perspective. I went through getting my master's in electrical engineering and doing a paper and developing research on how to do film scanning. And came up with some novel ideas and some new techniques.

    From my perspective, when I look at this strategy, I believe there's an opportunity to foster under a first to file system. If that was in place, somebody would have tapped me and said, ''Gary, that's great. Let's write it up, and let's get it into the process.'' And why can't that be part of the educational system, especially with all of the research that's going on there now?

    And as a small company, we're always looking at research activities and working with graduate students that have some great ideas that may apply to ours. And I would think that in a first to file system, if encouraged and trained to the small entrepreneurial community that includes strong element of educational institutions, that that would be a great place to capture those ideas and credit to first person that invented it, have them file it, and then attract businesses like myself to say, ''Well, gee, I saw this patent application. You've done some research on this. I've now got a job for you.''

    And so, I look at it from that perspective and say the first to file, with the discipline of understanding that it's there and the encouragement to the educational institutions would be a great plus.

    Mr. SCHIFF. So you think that the universities can easily adapt if they educate their researchers, Ph.D. candidates to——

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    Mr. MUELLER. They should be doing that. I mean, I was recently up at Penn State because my son's looking at going there, and I actually ran into a lady who was actually teaching a minor in entrepreneurialship as part of the engineering department.

    And I think that if you bring the educational environment and the research that goes on in the educational environment together with this concept of ''great idea, great graduate paper. New intellectual property has been invented here. Let's get you into the system.'' I think that would be a tremendous plus for the American educational system as well as the entrepreneurial environment in the U.S.

    Mr. SCHIFF. If you could give me, I don't know if you wanted to add on also, but I'm curious, too, about in the effort to find consensus on this, are we missing the bigger problem at the patent office in terms of the delay and the backlog? Are we going after the low-hanging fruit rather than the bigger problem?

    Mr. DICKINSON. Speaking to the latter maybe, as a former director, I think that a number of the challenges and problems of the PTO can be addressed by some of the reforms we're talking about.

    But as I mentioned earlier, I think the biggest and best way to do that is to make sure that the PTO has the resources that it needs. And then when it gets those resources, that it deploys them effectively and efficiently. I think one of the——

    Mr. SCHIFF. On that second point?

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    Mr. DICKINSON. Yes.

    Mr. SCHIFF. Which do you think is the bigger problem, a lack of resources or lack of effectively utilizing the resources they have?

    Mr. DICKINSON. Fortunately, because of the work of this Congress and several previous Congresses and the Administration, full funding has come in the last several years on an annualized basis to the PTO. So the resources are moving to be in place.

    The next thing we'll have to see is whether they can be deployed in ways which try to ameliorate some of the problems. I was very fortunate that, at several points, I was able to get the resources and hiring necessary. I think in 3 years running, I hired 900 examiners each of those years, and pendency started to come down. It literally does.

    So while we like to say you can't buy your way out of the problem, you can buy your way out of a big chunk of the problem by hiring the folks who do the professional work.

    And then, candidly, one important point. I think you need to give the examiners more time. I think no single deployment of those resources—this is a personal opinion—better serves the examiners' cause and better serves our causes as applicants than to get more time for examination, both in terms of quality and, I think by extension a little bit, pendency.

    Mr. SCHIFF. Yes, sir.

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    Mr. CHOATE. To the question of the universities and the small inventors, we've used the system that—for 200 plus years. And our whole administrative structure is built around a first to invent. All of our forms, all of our people, all of our knowledge, all of our lawyers, our paralegals, the whole system is set up to operate in the way that it does, and it operates very well.

    If we administratively change this system, the first thing that you're going to have from small inventors and academics and small businesses is that fear is going to be acted upon that others are going to rush. And so, what you're going to see, I think, is a flush of premature applications going to the patent office. Applications that haven't been thought out or done in the way that they should be, which, in turn, will exacerbate our problem with pendency upon the backlog.

    I mean, the question I think that should be paramount here is do the marginal—what are the marginal benefits of making this radical change in our country against what are the marginal costs of undertaking that?

    I think the costs are going to be far more enormous than the benefits that are going to be laid out. I think where the attention should go, rather than taking a patent system and taking our patent people and focusing them into creating and administering this new system, it should be to give them the resources that they need and go after that pendency rate.

    For the Congress to set some Apollo moon shot objective to say that in 3 years, you want that pendency rate down to 18 months, and a year after that, 12 months, and a year after that, in 6 months. As Mr. Mueller said and as I think the history of the patent system says, if we can move those patents through there, we can get those innovations online, and that's what's in the best national interest.
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    Mr. SMITH. Thank you, Mr. Schiff.

    Do you want to respond real quickly, Mr. Armitage?

    Mr. ARMITAGE. Just one comment. In terms of the kind of surgery to the patent system first inventor to file is, you can think of it as an appendectomy. Okay, something gets taken out that had no function anyway.

    Literally, what you're doing and every time there is a contest over who should get a patent is first determine who filed first. You can't have a patent interference unless you know who filed first. And then in those rare cases someone has proofs of invention to prove they invented first, that's the appendix that gets cut out.

    So, in other words, there isn't any infrastructure that needs to be rebuilt in a first inventor to file. There is just this piece of the patent system that has enormous cost and uncertainty that gets removed. And indeed, I think we demonstrated with data on how much interferences cost, how long they take, that this is a seriously inflamed appendix.

    Mr. DICKINSON. Quickly——

    Mr. SMITH. Yes, Mr. Dickinson?

    Mr. DICKINSON [continuing]. With regard to the university community and a small addition to that, too.
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    International harmonization often pairs a grace period with first to file. We like to not try to link them, but they are, for good or bad, inextricably linked. Europe and other major developed countries don't have a grace period. That's particularly disadvantageous to the university community, where publication is the norm.

    So you're constantly worrying about whether an early publication is going to defeat the absolute novelty in a country in Europe, which does not have a grade period.

    If we were able to get the international harmonization, and that would—I think it requires a pairing of first inventor to file and grace period—the university community would actually be better served, I think.

    Mr. SMITH. Thank you, Mr. Schiff.

    Let me go back to that question, Mr. Mueller, with you, and I appreciated your response to Mr. Schiff's question about the impact on universities.

    A university president with whom I spoke recently who is an expert on patent reform said basically what you did, which is, yes, there would be some initial, you know, inconvenience., but they could adjust, and they could adapt. And if you took the long view, it would be better for everybody involved.

    And Mr. Choate, that gets back to the direction I was going with you and which is I just wonder if there is just sort of a resistance to change regardless of or irrespective of whether there is a great deal of harm or a great deal of benefits?
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    And I'm going to quote you, part of your written statement——

    Mr. CHOATE. Okay.

    Mr. SMITH [continuing]. Which is a little bit different than what you just said a minute ago. You were talking about the cost far outweighing the benefits.

    In your written statement, you said that all the cost of changing to something else when the benefits are so illusory and slight. And I wonder if that wasn't a quote, a slight admission of a slight benefit as a result of harmonization?

    And to me, the benefits are real and not imagined, not illusory. But even your own statement says they may be slight. But that gets back to my point. Do you just oppose harmonization just because it is a change, and it's a little bit of an unknown future?

    Mr. CHOATE. Well, two things. As with everything, there are benefits to—there would be benefits to having everything the same. It would cut some of the administrative costs for those corporations, obviously, that are engaged internationally. It might speed time, and certainly I acknowledge that in my testimony.

    And as far as defending the status quo, that's a very unusual—I find myself in a very unusual position doing that. I don't usually defend the status quo. But in this particular case, I think it merits defending.

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    I think the existing system, though we might like it to be somewhat different, that the cost of changing it and the chaos of changing it would be great. And——

    Mr. SMITH. Let me ask some of the other witnesses to respond. You made the point a while ago you thought there might be a rush to file if we changed the system. I don't know whether that would occur or not. But if it did, it would sort of wash by and then we'd be back, left with a better system perhaps.

    But Mr. Dickinson, Mr. Armitage, Mr. Mueller, do you want to respond to some of the points we've been discussing?

    Mr. ARMITAGE. Yes, I think the question I would have is rush to file by whom?

    Forty some percent of our patent system is foreign inventors who come to the U.S. patent office. They already file based on a first inventor to file principle. You have another, maybe quarter of the patent system that's large entity, domestic-based inventors. They're already operating under a first inventor to file system to the extent they file globally, and most do.

    And then you have independent inventors, small businesses, and universities that, if they're getting any kind of good legal advice, know the imperative to file applications promptly once they're able to make a complete disclosure of the invention. And there are a couple of reasons.
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    One, technology moves quickly. Prior art is published. Your invention may be unpatentable if you wait to file. And of course, if you're waiting to file in the hope of winning a patent interference, good luck.

    If you're a small entity inventor, the costs and delays and the lost opportunities of not having the presumption of being the first inventor because you were the first filer leaves you with very little prospect of winning a patent interference.

    So if there are a few inventors who, as a result of this, get better legal advice and file their applications in a little more timely manner, that's a big plus for them and for the patent system.

    Mr. SMITH. Thank you, Mr. Armitage.

    Mr. Choate, one other question for you. Then I'll give Mr. Mueller a chance to respond.

    Why wouldn't it be an advantage to the independent inventor as a small businessman, business owner, to have harmonization where their patents would be better protected in other countries? If they were dreaming big dreams and expected their patents to be used across the world, why wouldn't they benefit from harmonization?

    Mr. CHOATE. Well, having their patents defended in other countries is, as we have learned, is really not a function of designing better patent laws. It's a function of the willingness of the U.S. trade representative to insist that American inventors' rights be respected and that treaties be enforced.
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    Mr. SMITH. Yes. Which we know is difficult.

    Mr. CHOATE. Which we know is difficult. So, in that circumstance, the best option for the small inventor is to say who may or may not get their rights enforced overseas is to ensure that a system that works is continued. They're comfortable. They're comfortable with this system.

    Mr. SMITH. Thank you, Mr. Choate.

    Mr. Mueller, you had a comment a while ago?

    Mr. MUELLER. Yes, I just wanted to respond to the comments that maybe there's going to be a rush to the patent office. And I'm sitting here saying, well, guess what? As a small business person, I'm not rushing unless I think I have something that's really worth it because I'm still facing the cost of the whole process to do this, and I've got other uses for those funds.

    So I think that's going to be a significant mitigating factor. And then when I go back and think about the educational institutions, how many grad students I know that have deep pockets that can do that as well?

    So—and they're the ones that are actually, when they're doing their graduate paper and doing the research, they're doing a plethora of studies and analysis and looking at what everybody else has published and what everybody else has done. So they're doing their homework.
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    And if they think that they've got something they can go to the patent office with, it's probably worth the time and an effort to pursue it.

    Mr. SMITH. Thank you, Mr. Muller.

    Let me see if other Members have questions. The gentleman from California, Mr. Berman?

    Mr. BERMAN. Well, thank you, Mr. Chairman.

    I note, Mr. Armitage, that you chose not to confine yourself to the issue of first to file and decided to comment on other aspects of patent reform. So I'd like to just pursue that with you a little bit.

    You criticized the second window provision of our bill, a provision that was once in an earlier draft, a bill that was circulated by the Subcommittee. I'm not particularly wedded to the second—I mean, one window, two windows, whatever. It's finding a way that we can address the problem of the quality of patents that have already issued.

    And having one window right after the patent is issued I don't think is adequate to dealing with that. I mean, we see patents that are being litigated now that were issued 6 years ago and 5 years ago. You mentioned the coalition support for reform that permits the public to see post issuance revocation of any patent at any time, which is what I think. But are you referring to the current inter parte/ex parte re-exam?
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    I know that you know the limitations of that process, and how do we avoid—how do we try to provide a useful, effective alternative to costly litigation that goes on and on at tremendous expense to both sides? That's what we were trying to do with the second window, to have something when the person knows that they're being charged with infringing conduct.

    Mr. ARMITAGE. You raise a good question. The coalition, in its September 1 text that will be part of the record of this hearing, actually proposed that post issuance revocation of all patents at any time during the term of the patent be available either through the new post grant opposition procedure, which was designed to have a 9-month window immediately after the patent granted, or by expanding inter parte re-exam in several important ways.

    First of all, inter parte re-exam today is not open to all patents. It would be. Second, inter parte re-exam today can't be effectively used because of the estoppel against later going into court and really having the opportunity to fully litigate the patent when you have full discovery available. That would go away.

    Mr. BERMAN. What would go away?

    Mr. ARMITAGE. The draconian part of the estoppel principle that basically makes it unusable. So what——

    Mr. BERMAN. Oh, I thought you said——
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    Mr. ARMITAGE. Would go away under, frankly, 2795 as well as the coalition text.

    Mr. BERMAN. But——

    Mr. ARMITAGE. So we would be left with then, at any time during the life of the patent, the ability to raise any new question of patentability based on a patent or a printed publication.

    Mr. BERMAN. But without discovery?

    Mr. ARMITAGE. Without discovery. And therein, I think, lies the rub. Because even in a post grant opposition, there is going to be very limited discovery available. And indeed, for certain kinds of prior art, such as unpublished prior art based on foreign knowledge of a patented invention, that is a serious compromise in the 9-month window for post grant opposition.

    Now it's a limited compromise because if you're talking about an alleged public disclosure in India that occurred a year or two before the patent was filed, and now you're talking about an opposition immediately after the patent was granted, it may be fair to have that administrative proceeding with limited discovery be able to wipe out a patent.

    But let's fast forward 15 years into the life of the patent and then say do you really want less discovery than you can get in a Federal District Court? And do you really want simply an administrative proceeding that was entirely designed to be a quality check in the immediate post issuance period?
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    My concern with your bill, Representative Berman—which I, frankly, admire your willingness to stick with the patent reform issue given all of the difficulties—is that it goes just a step too far.

    In a post grant opposition, you can raise all issues of patentability. You have in an inter parte re-exam the ability to raise almost all issues of patentability except if you want to prove public knowledge of an invention based on its use or sale, which could be anywhere in the world. And frankly, that, to me, is a bridge too far for an administrative proceeding.

    Mr. SMITH. Thank you, Mr. Berman.

    Mr. Schiff?

    Mr. SCHIFF. Sir, I have no further questions.

    Mr. SMITH. Okay. Thank you.

    That concludes our hearing. Thank you all very much for your testimony. You've been very informative.

    I am not sure we resolved everything, but at least we know more than we did. And so, appreciate your expert testimony.

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    With that, the Subcommittee stands adjourned.

    [Whereupon, at 10:20 a.m., the Subcommittee was adjourned.]


Material Submitted for the Hearing Record


    Mr. Chairman,

    Thank you for scheduling this hearing on patent harmonization. The past hearings on patent reform have primarily focused on litigation, quality, and damages issues, but have not really delved into the specifics of the harmonization issues—so I appreciate the opportunity to do so now. We have tried to bring in all the interested parties in this debate—by having witnesses from the technology and pharmaceutical sectors (among others), public interest groups, academics, and the USPTO. Our last attempt at harmonization was met with resistance by the small inventor community and that is why I believe that it is extremely important to include individual inventors in this process. Individual inventors are responsible for nearly half of all U.S. Patent applications filed each year.

    Article I, Section 8 of the Constitution is the basis for our patent system today: Congress has the power to promote the progress of science and useful arts, by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries. The United States stands apart in awarding patent protection to the inventor who is ''first-to-invent.'' Some question whether we are global leaders in innovation specifically because we reap the benefits of a first to invent system.
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    Confidence in the patent system is essential to encouraging innovation. When functioning effectively, the patent system should encourage inventors to push the boundaries of knowledge and possibility. Two presidential commissions have recommended that the U.S. change its patent system to a first-inventor-to-file system—first in 1966 and again in 1992. Most recently, the National Academies of Science recommends adopting that change as well. The advantages to amending the ''first to invent'' standard so that the ''first inventor to file'' is entitled the ownership of a patent seem clear. This change will bring U.S. patent laws into harmony with international patent laws and create ease in determination of priority rights. However, even though this change may encourage inventors to file more quickly and enable inventions to enter the public realm sooner, we must listen and evaluate the concerns of inventors, both large and small, as part of making substantial reform to the system's framework. I have always been a strong believer in the importance of robust patent protection and as we move towards a global economy, harmonization of patent laws becomes an extremely important issue for discussion.

    I yield back the balance of my time.



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(Footnote 1 return)
''Intellectual Property for the Technological Age'', R.A. Epstein, University of Chicago, April 2006, Executive Summary and p. 7.

(Footnote 2 return)
''A Patent System for the 21st Century, National Research Council of the National Academies, June 2004, pp. 11–12.

(Footnote 3 return)
Interestingly, it should also be noted that, in testimony before this Subcommittee's predecessor, a representative of small inventors once stated, ''[W]e endorse a first-to-file rule.'' Statement of Burke E. Wilford, National Director, the American Society of Inventors, Exhibit D, Hearings before the Subcommittee on Patents, Copyrights and Trademarks of the Committee on the Judiciary, United States Senate, 90th Congress, May 17–18, 1967, p.291.

(Footnote 4 return)
It is often estimated that the cost of an interference from declaration to resolution is routinely in the hundreds of thousands of dollars.

(Footnote 5 return)
The applicant must still be the true inventor. Inventions derived or stolen by others would not permit that deriver or thief to be considered the true inventor. For this reason, the term of art used to describe the new system is ''first-inventor-to-file''.

(Footnote 6 return)
And, interestingly, apparently not often by independent inventors, who lobbied strongly and successfully for inclusion of the opt-out language in the American Inventors Protection Act.

(Footnote 7 return)
Calculated from data contained in Federal Judicial Caseload Statistics, 2004, Table C-4 and Performance and Accountability Report: fiscal year 2004, Table 1, p. 116.

(Footnote 8 return)
Calculated from data contained in Federal Judicial Caseload Statistics, 2004, Table C-4.

(Footnote 9 return)

(Footnote 10 return)

(Footnote 11 return)