[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

REVIEW OF RECENT JUDICIAL DECISIONS
ON PATENT LAW

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

HEARING

BEFORE THE

SUBCOMMITTEE ON
INTELLECTUAL PROPERTY,
COMPETITION, AND THE INTERNET

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED TWELFTH CONGRESS

FIRST SESSION

__________

MARCH 10, 2011

__________

Serial No. 112-20

__________

Printed for the use of the Committee on the Judiciary

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COMMITTEE ON THE JUDICIARY

LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr., JOHN CONYERS, Jr., Michigan
Wisconsin HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina JERROLD NADLER, New York
ELTON GALLEGLY, California ROBERT C. ``BOBBY'' SCOTT,
BOB GOODLATTE, Virginia Virginia
DANIEL E. LUNGREN, California MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio ZOE LOFGREN, California
DARRELL E. ISSA, California SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana MAXINE WATERS, California
J. RANDY FORBES, Virginia STEVE COHEN, Tennessee
STEVE KING, Iowa HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona Georgia
LOUIE GOHMERT, Texas PEDRO PIERLUISI, Puerto Rico
JIM JORDAN, Ohio MIKE QUIGLEY, Illinois
TED POE, Texas JUDY CHU, California
JASON CHAFFETZ, Utah TED DEUTCH, Florida
TOM REED, New York LINDA T. SANCHEZ, California
TIM GRIFFIN, Arkansas DEBBIE WASSERMAN SCHULTZ, Florida
TOM MARINO, Pennsylvania
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona

Sean McLaughlin, Majority Chief of Staff and General Counsel
Perry Apelbaum, Minority Staff Director and Chief Counsel
------

Subcommittee on Intellectual Property, Competition, and the Internet

BOB GOODLATTE, Virginia, Chairman

HOWARD COBLE, North Carolina, Vice-Chairman

F. JAMES SENSENBRENNER, Jr., MELVIN L. WATT, North Carolina
Wisconsin JOHN CONYERS, Jr., Michigan
STEVE CHABOT, Ohio HOWARD L. BERMAN, California
DARRELL E. ISSA, California JUDY CHU, California
MIKE PENCE, Indiana TED DEUTCH, Florida
JIM JORDAN, Ohio LINDA T. SANCHEZ, California
TED POE, Texas DEBBIE WASSERMAN SCHULTZ, Florida
JASON CHAFFETZ, Utah JERROLD NADLER, New York
TOM REED, New York ZOE LOFGREN, California
TIM GRIFFIN, Arkansas SHEILA JACKSON LEE, Texas
TOM MARINO, Pennsylvania MAXINE WATERS, California
SANDY ADAMS, Florida
BEN QUAYLE, Arizona

Blaine Merritt, Chief Counsel

Stephanie Moore, Minority Counsel

C O N T E N T S

----------

MARCH 10, 2011

Page

OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from
the State of Virginia, and Chairman, Subcommittee on
Intellectual Property, Competition, and the Internet........... 1
The Honorable Melvin L. Watt, a Representative in Congress from
the State of North Carolina, and Ranking Member, Subcommittee
on Intellectual Property, Competition, and the Internet........ 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Ranking Member, Committee on the
Judiciary, and Member, Subcommittee on Intellectual Property,
Competition, and the Internet.................................. 3

WITNESSES

Dan L. Burk, Chancellor's Professor of Law, University of
California, Irvine
Oral Testimony................................................. 4
Prepared Statement............................................. 7
Andrew J. Pincus, Partner, Mayer Brown LLP
Oral Testimony................................................. 14
Prepared Statement............................................. 16
Dennis Crouch, Associate Professor of Law, University of Missouri
School of Law
Oral Testimony................................................. 31
Prepared Statement............................................. 33

APPENDIX
Material Submitted for the Hearing Record

Prepared Statement of the Coalition for Patent Fairness.......... 63
Prepared Statement of John Boswell, Senior Vice President and
General Counsel, SAS Institute................................. 68
Prepared Statement of Lateef Mtima, Professor, on behalf of the
Institute for Intellectual Property and Social Justice......... 73

REVIEW OF RECENT JUDICIAL DECISIONS
ON PATENT LAW

----------

THURSDAY, MARCH 10, 2011

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

The Subcommittee met, pursuant to notice, at 1:06 p.m., in
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte
(Chairman of the Subcommittee) presiding.
Present: Representatives Goodlatte, Coble, Sensenbrenner,
Issa, Poe, Reed, Griffin, Adams, Quayle, Watt, Conyers, Chu,
and Nadler.
Staff present: (Majority) Blaine Merritt, Subcommittee
Chief Counsel; Olivia Lee, Clerk; and Stephanie Moore, Minority
Counsel.
Mr. Goodlatte. Good afternoon. The Subcommittee will come
to order.
I have a statement. At the outset I want to express my
surprise, as well as delight, that the other body has acted so
expeditiously on their Patent Reform Bill. I look forward to
continuing to work with Chairman Smith, Ranking Member Watt and
other Members of the Judiciary Committee to fashion the House
bill. This is the closest we have come in the past 6 years to
enacting comprehensive patent reform and I am optimistic that
we can get a bipartisan, bicameral bill on the President's desk
in the near future.
Whatever the fate of patent reform in the coming weeks, we
can all agree that Congress has found it difficult to enact a
truly comprehensive reform bill. Why? The answer is twofold.
First, different versions of the legislation have addressed
many core provisions of the Patent Act. And second, a number of
different stakeholders use the patent system in different ways.
Businesses that devote significant resources on research and
development have a greater financial need for patent protection
than those spending less on R&D. In addition, some companies
may generate one or two clearly understood patents that define
an entire product while others, in the software or tech realms,
may develop products that contain hundreds or even thousands of
patents. In addition, many industries practice their patent
portfolio defensively while other industries and patent-holding
companies tend to go on the offensive to pursue their patent
rights.
What this means is that our unitary patent system does not
treat or affect all patent players in the same way. Some
companies don't need the Patent Act to innovate or operate;
others couldn't exist without it and the rest fall somewhere in
between the two extremes.
All of these factors have certainly made Congress' task
more difficult. Some patent observers believe that Congress
cannot accommodate the concerns of all industry stakeholders
with competing or incompatible financial interests every time a
need to reform our patent law arises. They claim it would be
far too time consuming and would generate substantial
administrative cost for the courts and uncertainty for the
stakeholders. There is also a strong likelihood that any
industry specific legislative reform would ultimately fail
because its lack of sufficient generality would not contemplate
later changes in technology.
Finally, it is possible that such Balkanization of the
Patent Act violates our international obligations under various
treaties or protocols such as TRIPS, the intellectual property
component of the General Agreement on Tariffs and Trade.
According to these patent critics, the courts are better
positioned to generate appropriate reform over time, at least
if Congress cannot do so legislatively. My belief is that
Congress can learn from what the courts are doing and if the
courts sufficiently have addressed an area of patent reform,
then that may obviate the need for the Congress to act. In
fact, one reason we are making greater progress on patent
reform is because some of the more controversial issues that
engendered the most disagreements are no longer addressed in
the Senate bill. That is because the Supreme Court and the
Federal Circuit have handed down decisions addressing many of
the contentious issues we have grappled with over the years.
This hearing will examine what the courts have done over
the past 6 years to address the concerns Congress have
expressed regarding--in the form of patent reform legislation
and what remains for Congress to tackle.
For example, when we first began to discuss patent reform I
argued strongly that patent reform legislation needed to
include reform of the way injunctions were being ordered by the
courts in patent cases. The courts had developed a pattern of
granting injunctions in almost all cases despite the plain
reading of the statute. While finding common ground on a
legislative solution proved extremely difficult, the Supreme
Court addressed this issue conclusively with the eBay v.
mercExchange decision in 2006.
I look forward to hearing from our witnesses about other
progress the courts have made in correcting some of the abuses
that have been occurring with our patent laws. This hearing
could not come at a more meaningful time in the process as the
House readies its version of patent reform legislation for
introduction.
It is now my pleasure to recognize the Ranking Member of
the Subcommittee, the gentleman from North Carolina, Mr. Watt?
Mr. Watt. Thank you, Mr. Chairman and thank you for
convening today's hearing. It is an important hearing and I
think it will be valuable to us as we move forward in this area
of crafting new patent legislation.
As a former litigator of 22 years, I know both of the
benefits of meaningful, warranted litigation and the burdens of
frivolous, costly litigation, to the parties and to society at
large. As a legislator for the past 19 years I also appreciate
the need for Congress to monitor developments in the judicial
system and where appropriate respond legislatively.
Today's hearing fittingly provides us with the opportunity
to examine recent developments in patent law, to assess whether
the courts are trending in the direction we think best or
whether we should just stay out of some areas and let what the
courts have said continue to be the prevailing law there and
avoid additional controversies.
So for us to do that and do it appropriately and in a
balanced way, I think we need to have a better understanding of
what the courts have done, have not done, what people perceive
are the gray areas, the nuances that we need to be evaluating.
And I am looking forward to hearing the testimony with that in
mind.
With that, Mr. Chairman, I yield back.
Mr. Goodlatte. I thank the gentleman. And it is now my
pleasure to recognize the Ranking Member of the full Committee
and a very consistent participate--participant in this
Subcommittee, the gentleman from Michigan, Mr. Conyers?
Mr. Conyers. Thank you, Mr. Chairman and Ranking Member. My
congratulations on bringing us together at this point in time
on a very important subject.
Most of my opening statement deals with the fact that
patent reform has frequently ended up bipartisan in this
Congress and in the 110th and 109th too, as a matter of fact.
And that the courts have helped us, as you have said, Chairman
Goodlatte, in ferreting out a lot of issues that seems to me
that we can take mostly off the table. There are a number of
subject matter where the courts have been helpful: venue,
injunctions, willfulness, damages, obviousness have all helped
us a lot.
We now have a Senate product and we will be meeting here,
informally, with Chairman Smith, with our colleagues, Issa,
Coble, Watt, Zoe Lofgren and of course Howard Berman. And so I
think we are well on the way.
I have got a list of decisions that have been very helpful
in sorting out some issues that the court can handle, perhaps,
arguably even better than the legislature and some issues that
are--that are leaving us with issues that are unique to
ourselves.
And so we are pleased to have these witnesses before us and
I look forward and yield back the balance of my time.
Mr. Goodlatte. I thank the gentleman. Without objection,
other Members' opening statements will be made a part of the
record and we will now welcome our witnesses.
We have a very distinguished panel today. Each of the
witness's written statements will be entered into the record in
its entirety. And I ask each witness to summarize their
testimony in 5 minutes or less. To help you stay within that
time limit there is a timing light on your table. When the
light switches from green to yellow you have 1 minute to
conclude your testimony. When the light turns red it signals
that the witness' 5 minutes have expired.
Before I introduce our witnesses I would like them to stand
and as is the custom of this Committee, be sworn in.
[Witnesses sworn.]
Mr. Goodlatte. Thank you and be seated.
Our first witness is Dan Burk, Chancellor's Professor of
Law at the University of California, Irvine, School of Law.
Professor Burk is an internationally prominent authority on
legal and social issues related to high technology whose
research encompasses the areas of patent, copyright, electronic
commerce and biotechnology law.
Some of his most recent work has considered the statutory
policy levers used by courts to apply patent incentives to
industries with diverse innovation profiles, as well as the
affect of intellectual property rights on the structure of
firms and of industries. He is the co-author, along with Mark
Lemley, of ``The Patent Crisis and How the Courts Can Solve
It.''
Professor Burk received his BS in microbiology from Brigham
Young University; his MS in molecular biology and biochemistry
from Northwestern; his JD from Arizona State and his JSD from
Stanford. He has covered the West Coast pretty well and even
got as far as Illinois.
Our next witness is Andrew J. Pincus, a partner at Mayer
Brown here in Washington, D.C. Mr. Pincus will testify on
behalf of the Business Software Alliance. He focuses on
appellate practice on briefing and arguing cases before the
U.S. Supreme Court and the Federal and State appellate courts.
He is argued 22 cases before the Supreme Court and has filed
Supreme Court briefs in more than 100 other cases. Mr. Pincus
has also served as a Federal law clerk; general counsel of
Anderson Worldwide and as the general counsel of the Department
of Commerce.
He was educated at Yale and the Columbia School of Law.
Our final witness is Dennis Crouch, Associate Professor of
Law at the University of Missouri. Prior to joining the
Missouri faculty Professor Crouch taught at Boston University
and practiced law in Chicago. He has also worked as a research
fellow at NASA; a software developer at the Mayo Clinic and a
Peace Corp volunteer in Ghana.
He is perhaps best known as the editor of the popular
patent blog, ``Patently-O''. Is that ``O'' or zero?
Mr. Pincus. ``O.''
Mr. Goodlatte. The--Professor Crouch earned his BSE in
mechanical engineering from Princeton and his JD from the
University of Chicago Law School.
Welcome to you all and we will begin with Professor Burk.

TESTIMONY OF DAN L. BURK, CHANCELLOR'S PROFESSOR
OF LAW, UNIVERSITY OF CALIFORNIA, IRVINE

Mr. Burk. Thank you very much, Mr. Chairman.
I am honored to be here with you, with the Committee today.
I speak only for myself, as a scholar, but I am happy to
present some of my research findings to the Committee.
And I congratulate you, Mr. Chairman and that of our
colleagues, on your leadership in addressing this question of
patent reform and especially this question as to what has been
decided by the courts, what could be decided by the courts and
what might be the role of Congress at this point.
Mr. Chairman, I would say that the news is good news. As
you indicated in your opening statement, as we also hear from
Mr. Watt and Mr. Conyers in their opening statements, many of
the contentious and difficult issues that have been identified
in the area of patent reform over the past several years and
which were suggested as possible topics of legislative reform
have been addressed by the courts. And what that tells us, Mr.
Chairman, is that the system is working the way that it is
supposed to, that the courts are applying the statute, that we
have a robust and dynamic statute that can address the needs of
innovators.
Innovation is a messy and protracted and dynamic and often
unexpected business. The needs of innovators vary widely, as
you indicated in your opening statement, Mr. Chairman. The
needs of the software industry are very different than the
needs of the pharmaceutical industry. Both of their needs are
very different than semiconductors and other industries. There
are industries that we had not yet imagined or that are just
emerging and all of them have very diverse innovation profiles.
All of them need the assistance of the patent statute to
help them innovate. How can that possibly happen? It is neither
practical, nor desirable, nor necessary for this Committee or
for the Members of Congress to sit and continually tweak and
adjust the patent statute to meet all those different needs
that you pointed out in your opening statement, Mr. Chairman.
Rather, what can happen, what is happening is that Congress
charts the course. Congress sets the goals, sets the rules of
the game, if you will, and then supplies the tools, through the
statute to the courts, and sometimes to the patent office, in
order to continually update and adjust the law to meet the
ongoing changing needs of American industry so that the
innovation that we all depend on can happen.
And we have seen that happen over the past several years.
You gave a wonderful example in your opening statement, Mr.
Chairman, of the way that injunctive relief has been addressed
by the Supreme Court. And since that has happened we have seen
empirically a drop off in the number of injunctions,
incorrectly or improvidently granted, that might impede
innovation.
The same type of process is ongoing in other areas, such as
inequitable conduct, venue for patent lawsuits or the size of
damage awards. In each of those cases we see the courts
addressing those issues, grappling with those issues and
solving those issues. And the written statements contain
information and data about those particular cases.
Are there places where Congress needs to intervene? Each of
the opening statements asked that question. I would say that
the answer is yes. For example, if you want to make a
fundamental change to the rules of the game, if you want to
adjust the fundamentals of the patent system, such as, for
example, the current proposals to switch from a first-to-invent
system that we have now, to a first-to-file system, that has to
happen in Congress. The costs of making that switch are very
significant; it would be disruptive to nearly 200 years of
established law; and the determination must be made before that
happens that the costs are worth the benefits that might happen
from the change. The courts can't do that, the courts should
not do that, that is a determination that really has to be made
here.
Similarly, the question of post-grant opposition. It is a
decision that the Patent Office can't make, the courts can't
make, that is something for you here in this legislative body
to address.
So in summary, Mr. Chairman, as I say, the news is good.
Many of the most difficult issues that were before Congress 7
years ago have been resolved or are being resolved by the
courts. That tells us that we have a robust statute, that the
courts, and sometimes the Patent Office, can use to resolve
most of these problems. And there remains a very small subset
of problems, such as first-to-file or post-grant opposition,
for this body to address.
I again congratulate you on looking into this issue and I
look forward to answering any questions, either oral or
written, that you or the distinguished Members of the Committee
might have for me. Thank you.
[The prepared statement of Mr. Burk follows:]

__________

Mr. Goodlatte. Thank you, Professor Burk.
Mr. Pincus, welcome.

TESTIMONY OF ANDREW J. PINCUS, PARTNER,
MAYER BROWN LLP

Mr. Pincus. Thank you, Mr. Chairman, Ranking Member Watt--
--
Mr. Goodlatte. You may want to turn that on and pull it
close.
Mr. Pincus. Got you. Thank you, Mr. Chairman, Ranking
Member Watt and Members of the Subcommittee. It is an honor to
appear before you today, as you noted, on behalf of the
Business Software Alliance.
As the Members of the Subcommittee know BSA has been a
strong supporter of patent reform throughout the nearly 6 years
that this Committee has been focused on modernizing the patent
law. BSA companies are innovators, they are substantial patent
holders and at the same time they are frequently named as
defendants in patent infringement actions. And so they have a
great interest in properly calibrating the standards for
obtaining patents, for challenging dubiously granted patents in
administrative proceedings and also for enforcing patents in
the courts.
This Committee's intense focus on the problems in the
patent system since 2005 has had a real impact, significant
impact on the court's interpretation of the patent law. From
2000 to 2005 the Supreme Court decided only three patent cases.
From 2006 through the end of the current term The Court will
have ruled on eight patent issues. And the Federal Circuit has
also been quite active in clarifying previously uncertain or
unjustified legal principles.
And the Supreme Court's opinions and the Federal Circuit's
opinions have addressed, and largely cured, the imbalances in
the law that created risks for inventors and diminished their
incentives to innovate that this Committee focused on in its
deliberations over this period. Just to name a few:
The standard governing the issuance of injunctions in
infringement cases, as you noted, Mr. Chairman, was a critical
and very, very controversial issue in 2005 when the first bill
was introduced. The Supreme Court resolved that issue
unanimously in its eBay decision.
The low standard for proof of willfulness, which results in
the imposition of multiple damages and the associated
unjustified intrusion on the attorney/client privilege, which
was also the subject of a lot of the Committee's deliberations,
were overturned by the Federal Circuit in the Knorr-Bremse and
the Seagate decisions.
The broad interpretation of Section 271F of the patent law,
which led to significant extraterritorial application of our
patent laws, was overturned by the Supreme Court in the
Microsoft v. AT&T decisions.
And the vague standards for calculating reasonable royalty,
which is one of the principal drivers of abusive infringement
litigation have been clarified. In a series of several rulings,
the Federal Circuit has made clear that first of all, there
will be appellate review of damages awards; there is not going
to be a hands-off attitude by the Federal Circuit. That the
entire market value rule, something this Committee focused on a
lot is something that is inapplicable in most cases. And the
compensatory damages, in the reasonable royalty context
especially, should be based on the specific features of the
defendant's product that are attributable to the infringed
patent and that that is the rule, not the exception.
And finally, as you noted, forum shopping has been
addressed by a series of Federal Circuit rulings in which the
Court, exercising its mandamus authority, has required
plaintiffs to show a real connection between the forum and the
litigation in order to maintain an action.
So these key litigation issues have been resolved for the
courts, at least for now. Obviously we will have to wait and
see what will happen in the years ahead, no one can predict.
But Congress still has an essentially role to play. The
courts can interpret the statutory provisions governing
infringement actions, as Professor Burk noted, but there is
some issues the courts can't address, because they require new
legislation. And BSA member companies urge the Committee to
focus its patent reform efforts on these areas, in particular,
funding of the PTO, which the PTO obviously needs the freedom
to set its own fees, to reduce pendency and have the funds it
needs to become the efficient operation that it can become and
of course fee diversion should be ended.
An effective administration system to weed out bad patent.
The experts at the PTO are in the best position to decide if a
patent has been poorly issued, and they need an effective
procedure in place to allow them to do that so people can
challenge patents that were issued unjustifiably, bring those
issues to the PTO and that requires changes to the current
inter partes system. Allowing third parties to submit prior art
for consideration of the examination process, something--this
has been in all the bills considered by this Committee; putting
an end to the false marking litigation, cottage industry that
has grown up, really a new issue that has just arise in the
last couple of years, that really needs to be addressed is this
plague of false marking cases. And finally, adopting the first
inventor to file system with the accompanying prior user rights
that go along with it.
Thank you very much, Mr. Chairman. I look forward to
addressing the Subcommittee's questions.
[The prepared statement of Mr. Pincus follows:]

__________

Mr. Goodlatte. Thank you, Mr. Pincus.
And Mr. Crouch, welcome.

TESTIMONY OF DENNIS CROUCH, ASSOCIATE PROFESSOR
OF LAW, UNIVERSITY OF MISSOURI SCHOOL OF LAW

Mr. Crouch. Mr. Chairman, thank you very much. Mr. Vice-
Chairman, Members of the Committee, I would like to thank you
for inviting me here today.
Last week in Missouri we held a major conference that
focused on the role of the Court of Appeals for the Federal
Circuit, in patent policy. And United States Patent and
Trademark Office Director David Kappos was there, along with
academics from around the world, as well as a couple of hundred
patent law practitioners. There was broad consensus, amongst
everyone there, without anyone voicing disagreement, that the
Federal Circuit and the Supreme Court have been actively
involved in patent policy over the past 6 years, and that we
have had a tremendous and rapid development in patent law, in
patent law doctrines over the past decade, even without
congressional action.
And it--with--in my law school I teach--in addition to
teaching patent law I also teach real property. Real property
is very much about the common law doctrine that had a radical
change back in the day of William the Conqueror, 900 years ago,
and has slowly plodded along since then, developing different
doctrines in property.
Patent law has been very much a counter-example of that. We
have seen doctrines change rapidly these past 6 years. And I
think the Federal Circuit and the structure of the Federal
Circuit that Congress created almost 30 years ago is a big
reason, although aided by the Supreme Court, why we have seen
that rapid change.
Over the past decade the Federal Circuit has heard well
over 4,000 patent cases, which is a surprising number. Two
weeks ago I sat in on a 10th Circuit Court of Appeals copyright
case. Although the judges there, I believe, asked appropriate
questions and will decide the copyright case very well, it
turned out that none of might had ever heard a copyright case
before, even though they had all been judges for upwards of a
decade.
At the Federal Circuit all of the judges hear 20 to 30
patent cases every year. Every single major patent law doctrine
arises multiple times each year before the Federal Circuit.
What that means is that even as the Court makes incremental
changes, case by case, over a short amount of time they can
still make major developments just applying the common law
doctrine and that is because they hear so many cases and the
second reason because they are this nationwide court that has
automatic, nationwide application of their decisions.
Now I absolutely agree with Mr. Pincus and Mr. Burk that
the decisions that have occurred in the past 6 years have
related directly to the proposals that we have seen in this
body and in the Senate over that time. And almost across the
board and maybe actually across the board, all of the decisions
on these particular issues have gone the way that the
legislation was headed. That is, we have had legislation to
control damage awards, and that is what the courts have
directed--have worked to do. We have had legislation toward
limiting injunctive relief, especially at times when we have an
entity that is just a holding company and someone else
manufacturing, and we want to allow that manufacturing to go on
and have some kind of damage award. And that is what this body
was thinking of and that is what the courts did.
We had a similar approach with enhanced damages for willful
infringement, that we limited--the courts limited the scope of
that as well as venue and inequitable conduct, that has been
discussed.
I certainly believe that although this has been going on
the past 6 years, it appears, and every indication that I have,
makes it look like it will continue into the future.
Now, in addition to legal changes, there is a lot of other
changes that have happened this past 6 years. One of them is
that the Patent Office backlog has continued to grow, something
like up 30 percent from where it was 6 years ago, so that now
we have about 1.2 million patent applications pending at the
Patent Office, which is a serious problem. In addition, the
Patent Office has its own internal board of review. Six years
ago they had about 700 cases pending, now they have 20,000
cases pending and a 3-year backlog just to hear those cases
within the Patent Office.
My--I guess my final point is maybe on a re-examination
system. That 6 years ago people did not use re-examination as a
form of post-grant opposition. These days most defendants who
think they have a reasonable invalidity defense file for re-
examination at the Patent Office and many of them have been
successful at invalidating the patent that way as opposed to
through--as opposed to through the courts.
And I look forward to taking your questions as well. Thank
you.
[The prepared statement of Mr. Crouch follows:]

__________

Mr. Goodlatte. Thank you, Professor.
I'll begin the questioning with one to each of you. That is
to make the point, aren't the courts fallible, as the Congress
may be fallible as well, and how can we be sure that they will
make the right decisions? And as a corollary to that, let me
ask you, are any of the decisions they have made in the last
few years wrong-headed and therefore should be addressed by the
Congress because the courts didn't get it right?
We will start with you, Mr. Burk.
Mr. Burk. Thank you, Mr. Chairman. Of course the courts are
fallible. And what we see in the court system and in the common
law system is, as I describe it to my students frequently, it
is very much like an impressionist's picture. When you start
with one dab of paint or two dabs of paint, you can't tell what
the picture is going to look like, but as these dabs of paint
build up over time, in the manner that Professor Crouch has
described to you, you begin to see the picture.
Mr. Goodlatte. Since my time is limited, let me get you to
focus in on any decisions that they have made that you think we
should attempt to improve up.
Mr. Burk. I don't think there is one that I can think of at
the moment, Mr. Chairman. As I said, I would urge you to focus
on structural changes like first-to-file, post-grant opposition
and so on.
Mr. Goodlatte. Got you.
Mr. Pincus?
Mr. Pincus. In terms of decisions to focus on, I think the
critical one is the false marking area. The Federal Circuit
really took a bad turn in the Forest Group/Bon Tool case by
saying that private plaintiffs who can invoke that false
marking statute don't have to show any harm to themselves. And
so anybody can bring these claims and it has really evolved
into an avalanche of litigation, even though there may be no
harm to anybody. And that is a real problem in terms of the
litigation costs that are being visited on legitimate
companies, for no good reason.
Mr. Goodlatte. Thank you.
Professor Crouch?
Mr. Crouch. Yeah, I had--I had actually written down the
same case that Mr. Pincus had written down, the Bon Tool case,
which there may--the--you know, it is possible that there is no
need to--for this chamber to act in that there is a District
Court that has invalided that statute on constitutionality
grounds, but that remains to be seen whether the Federal
Circuit will address it in that manner.
Although, the false marking cases, from my perspective,
they appear to be a flash in the pan in that most companies
were ignoring that doctrine that had been around since the
1840's, but now that it has become such a hot ticket item,
folks have--folks who are in business in manufacturing now
understand what they need to do to avoid the problems. And so
there has been a thousand cases filed in the past 2 years and I
expect that in 5 years from now, if there are no changes, there
may be something like 10 to 20 cases a year.
Mr. Goodlatte. Are litigants making greater use of the
existing inter partes re-examination system? And if so, should
we change the proceeding in our patent reform bill?
Professor Burk?
Mr. Burk. Yes, Mr. Chairman, there is no doubt that re-
examination has become very popular. And as Professor Crouch
indicated in his testimony, if re-examination is going to be
used as a form of post-grant opposition, then it behooves this
body to look at turning it into a real proceeding post-grant
opposition, not the very limited one that we have today.
Mr. Goodlatte. Mr. Pincus?
Mr. Pincus. The numbers are up, Mr. Chairman. I think our
view is it is not clear, especially for technology companies,
that it is the useful process that it could be and that there
are improvements. Frankly, the ones that were in the bill that
this Committee reported on and the House passed in 2007, would
really turn it into a system that would be very, very
effective.
Mr. Goodlatte. Professor Crouch?
Mr. Crouch. Yeah. In my testimony I put a few numbers in
that from the Year 2000 to 2004 there were 53 requests for
inter partes re-exam, and--but in the past 5 years that has
jumped up to 903.
Now, ex parte re-exam is much more popular and it has about
doubled in its popularity over that time period. From my
discussions with people involved with this, it appears that the
Patent Office has put their highest caliber examiners in what
they call the Central Re-examination Unit. And I have not
spoken to any individual on either side who has questioned the
quality of the work being done by this re-examination unit.
And we have also seen that a number of cases--or we have
seen statistically that parties requesting this do get
favorable outcomes. That is, they are able to invalidate
patents through this mechanism. But I would say the biggest
failure, especially of inter partes re-examination, is the
timeline, in that these tend to be extremely slow, as are many
things at the Patent Office. And if there can be something to
be done to shorten up that timeline, then what we have for
inter partes re-exam may be sufficient.
Mr. Goodlatte. Finally, let me ask, I think Mr. Pincus you
addressed this in your statement, but let me ask each of the
other two, if you want to add something you're welcome to, what
areas of patent law would you put into a patent reform bill and
what areas should be skipped by the Congress.
Professor Burk?
Mr. Burk. So, as I mentioned, Mr. Chairman, structural
changes are the ones that this body needs to address. If it is
desirable to go to first-to-file, this body must address that.
If it is desirable to have a better post-grant opposition, this
body must address that. Certainly this body needs to address
the question of funding for the Patent Office.
I disagree a little bit with my colleagues to my left, my
guess is that the courts will work out the problem on false
marking, probably by the time that this body could address that
problem.
So those are the ones that I would focus on.
Mr. Goodlatte. Professor Crouch?
Mr. Crouch. I absolutely agree with Professor Burk on that
point and I guess without taking a specific position on first-
to-file, if something is going to happen with that it has to
happen here.
And there is another issue in the background, in terms of
the Patent Office's ability to really work as an administrative
agency in interpreting the law. And thus for--thus far the
Federal Circuit has been reluctant to give the Patent Office
that power and so it is possible that that may be an additional
kind of non-structural element that you could take.
Mr. Goodlatte. Thank you.
Gentleman from North Carolina, Mr. Watt is recognized.
Mr. Watt. Thank you, Mr. Chairman.
Professor Crouch, you indicated that doctrines have changed
rapidly over the last several years and that is always--raises
a potential red flag with legislators because it is sometimes
hard for us to know whether the courts are interpreting the law
or whether they are making the law.
And I wasn't clear whether you were saying that they were
interpreting the law and because of the number of cases they
have clarified it and therefore doctrines have been changing,
or that----
Mr. Crouch. Right.
Mr. Watt [continuing]. The courts are making the law.
Which--where do you come down on that?
Mr. Crouch. If the courts are not making the law, they are
coming extremely close to that in how they are operating. Just
because we--just by looking at how the doctrines have shifted,
you know, it is clear to me they are setting policy, from a
practical standpoint.
Mr. Watt. Give me an example.
Mr. Crouch. Now----
Mr. Watt. Give me an example.
Mr. Crouch. Well, so you know, there is the recent Supreme
Court of KSR v. Teleflex, that is about the question of
obviousness. And obviousness is really the core question of
most patent law issues. Is this invention you have created a
substantial step beyond what came before? That----
Mr. Watt. Okay. Is that something we could legislate, a
definition of obviousness?
Mr. Crouch. Absolutely. You know, so if you look at what
the European Patent Commission has done, they have, through
essential legislature, spelled out exactly what they mean by
obviousness, spelled out the steps that you would take to
approach that question and try to figure it out. Now, there is
always going to be a bit of subjective analysis, but certainly
if this body wanted to you could, I would not recommend that.
But----
Mr. Watt. Okay. So you are comfortable with the courts
making----
Mr. Crouch. Right. Right.
Mr. Watt [continuing]. The law in some areas? Okay.
Mr. Crouch. Right. For--to a limited extent I think that is
right. And the truth is----
Mr. Watt. And in an area of innovation, I mean you--I
presume you are a little bit more comfortable with the courts
making the law as opposed to us having to come back every time
a new innovation----
Mr. Crouch. Right.
Mr. Watt [continuing]. Gets made and having to change the
law to fit the new innovation? I take it you are--all three of
you are probably comfortable with that to some extent, or am I
misreading?
Mr. Pincus. I think that--I think so, Congressman. I guess
I disagree with my colleague a little bit about what the courts
have been doing. I think what has happened is patent law was a
little bit like the part of a pier that is under water. And
there had been a lot of growths, a lot of mussels and mollusks
and things had sort of grown up over the years that people
maybe hadn't thought a lot about. And there has been a lot of
chipping away to get back to the basic principles.
I mean I think willfulness is a perfect example. There was
a principle, you get multiple damages for willful conduct, but
somehow a series of decision had turned willfulness into
negligence. And so the Federal Circuit said, you know what, we
are going to go back to what this really means. And I think at
several of the--in a number of these areas--eBay is another
example, we are going to apply--the Supreme Court said, we are
going to apply the equitable principles that have applied for
200 years, not a different rule for patents, et cetera.
Mr. Watt. I am going to run out of time if I pursue this
academic discussion. Let me ask a couple of more practical
questions, because we are having--I mean I enjoy the academic
discussion but in 5 minutes it is hard to really pursue it.
The Court of Appeals of the Federal Circuit has issued
several recent opinions allowing defendants to obtain a
transfer of venue when another district is potentially more
convenient and appropriate. Let me ask you a couple questions
about that.
If a plaintiff is allowed to name several defendants in the
same lawsuit, what analysis does the court use to decide where
to transfer the case? Would a plaintiff be able to defeat a
transfer of venue simply by naming several defendants from
various different places? And have there been any decisions
that would limit patent plaintiffs from suing multiple
defendants where there is no rational relationship among the
defendants or the products accused of infringing?
So I am just trying to figure out, are there still any
areas in this venue area that we need to be ratcheting up or
concerned about or has that law been made enough that we ought
to just stay out of it?
Mr. Pincus. I am happy to take----
Mr. Watt. Go ahead.
Mr. Pincus [continuing]. It first. I think, Congressman,
there is a lot of progress. Is it perfect? No.
I mean first of all the Federal Circuit has to use its
mandamus authority, which by definition means it can only deal
sort of the outer edges of what is egregious. But it has begun
to lay down a set of principles that at least deal with a one
defendant case, deal with attempts to manufacture venue by
moving things to districts before the lawsuit is filed.
I am not aware of cases dealing with the multiple defendant
situation. I will be happy to get back to you on that. But I
think the Federal Circuit, you can see in the decisions that it
sees the problem and is trying to address it, as the cases come
to it.
Mr. Watt. But generally, I mean we set the venue standards
here, legislatively. We don't leave it to the courts to say
what the venue of particular cases should be. Is that an
appropriate area for a court to be making case law as--making
law by case or is that something that we ought be doing here?
Mr. Pincus. Well there is the out--the statute sets the
outside limit. The problem is, if your products are distributed
nationwide, the way the statute works, the case can be brought
anywhere. And so the statute itself doesn't set the limits and
so the courts are using the transfer power, which is, you know,
convenience of witnesses, convenience of justice, in order to
alleviate the worst kind of abuses that arise.
Mr. Watt. Well get back to me on the multiple--if any of
you know multiple----
Mr. Crouch. Mr. Watt, there is one----
Mr. Watt [continuing]. Are there cases? I am sorry, my time
is expired. So--but you can answer the--answer that question--
--
Mr. Crouch. Oh.
Mr. Goodlatte. That is fine.
Mr. Watt [continuing]. That I already asked it.
Mr. Crouch. There is one case called In re: Nintendo in
which there was a set of something like one party in
California, another in New York and they brought the case in
Texas and they said, well this is the middle of the country and
it--you know, it is half way between each and the court said
absolutely not. You absolutely cannot do that, there is no kind
of central to our--all the parties' rule that allows you to
bring it in Texas even though nobody is here.
Mr. Reed [presiding]. Okay, thank you very much.
At this point in time we will recognize my colleague from
Florida, Ms. Adams.
Ms. Adams. Thank you.
It sounds to me like the legislative patent debate from '05
to '11 at least has sparked the interest of the courts in
getting involved, from your testimony.
Is there something to be said for Congress maybe taking the
first crack at amending the statute rather than deferring to
the courts hoping they will adjudicate appropriately? Is--do
you believe that might be the better way to go? Any of you.
Mr. Burk. Well, Ms. Adams, that is a great question and I
think it relates to the question that Mr. Watt asked a moment
ago.
Ms. Adams. Yes.
Mr. Burk. We have a very robust patent statute and Congress
has done a marvelous job, you and your predecessors have done a
marvelous job of setting, as Mr. Pincus says, ``the outside
boundaries.'' And now the courts are working out the details.
There are very few places where Congress needs to tinker
with the statute because the goals or the outside boundaries
are unclear. So to answer both your question and the question
of Mr. Watt, as long as the courts are headed in the direction
that Congress has indicated, and are achieving the goals that
Congress has set--yes, they are making law and that is what
they are supposed to do, that is what you have empowered them
to do, and the statute is very robust and lets them do that.
Ms. Adams. Anyone else?
Mr. Pincus. As I said earlier, I think a lot of these
problems were frankly of the courts making because they didn't
follow Congress' directions in the first place. And so I think
a lot of what has happened, in a number of these areas, and
again, I go back to injunctions as sort of the classic, where
the language in the patent law is the same as the language in
other areas in which Congress has authorized courts to grant
injunctions, but somehow in the patent statute it got
interrupted differently than everywhere else. And the Supreme
Court said, no, same words, Congress used the same words, it
should mean the same thing.
So I think a lot of this has been moving back to what
Congress did in the first place. Even the KSR decision that
someone referred to earlier, on obviousness, the Federal
Circuit had just said, we are going to adopt an arbitrary rule
on how you prove obviousness, it is not in the statute, it
wasn't anywhere, we are just going to adopt this rule. And the
Supreme Court said, the rule is not in the statute, so you
can't make it up.
So I actually think what has happened in the last 5 years
has been to move closer to what Congress intended and carve
away a lot of this stuff that had grown up.
Mr. Crouch. Now, there is a big difference with patent law
and copyright law in that if you pick up the copyright statute
and drop it on the table it makes a loud thud, but the patent
statute is, you know, one-tenth or maybe one--you know, maybe
one-twentieth of the size of the copyright statute. And so in
the patent world Congress has spoken with much less detail,
which is one reason why the Court, I think, feels this leeway.
And so although it is robust, right, there is still a lot of
room for the courts to interpret and it is not as true in other
areas of law and maybe with more recent statutes that have been
developed. But I certainly don't see that as a problem.
Ms. Adams. And is there any patent decisions the courts
have gotten wrong, in your idea or beliefs, that may be still
subject to appellate review?
Mr. Crouch?
Mr. Crouch. I don't think I understand the question.
Ms. Adams. In other words, there is--you know, the
decisions on the patent--the patent decisions from the courts
that maybe you feel the courts were a little bit wrong and
therefore are subject to appellate review and may be impacted
by something we do here today or during this Congress.
Mr. Crouch. You know, it is hard to say whether
congressional action 6 years ago, right, that--right there
were--there was no positive vote taken, but just from the way
things worked out, it looks like courts responded to the
activity in Congress. And we just don't know if that is true or
not, because they were just taking the cases that came to them
and deciding them. And after the series of cases it turned out
we were Congress was headed.
And so I--you know, I don't know, but I do know that,
right, we know that this court is sitting here in D.C. and we
know that courts are political actors just like everyone else,
and they are listening, we just don't know in the future will
they respond in the same way or if you need to push them do you
have to take legislative action that actually has a kick to it.
Mr. Pincus. I think this false marking area is an area of
concern. I--some of my colleagues may disagree, but although
the Federal Circuit has a case in which it could declare the
statute unconstitutional, the government--the Administration is
defending the statute, that might not happen. And if something
isn't done, it is a big problem. And so that is an area where I
think there is a big role for Congress.
Mr. Burk. I do disagree a bit. I think that that the site
an example for you of lower court decisions that are probably
mistaken, that are probably counterproductive, but that is a
work in progress.
And as I said, earlier, I fully agree with Professor
Crotch, that if we come back in 5 years I think we will find
that most of that problem has been solved.
Ms. Adams. Okay.
Mr. Reed. Thank you, Ms. Adams.
The Chair, at this point in time would recognize the former
Chairman, Mr. Conyers, from Michigan.
Mr. Conyers. Thank you, sir.
Let us look at the first-to-file and the prior user rights
provision. How do you feel about that when we don't have prior
user rights--if we have first-to-file without prior user
rights? Anybody want to volunteer?
Mr. Pincus. I'm happy to. I think it is a significant
problem. Obviously first-to-file is a shift from first-to-
invent. And the problem is you have first-to-file without prior
user rights, that creates an opportunity--companies have one of
two choices. Either they have to patent almost anything that is
patentable, as soon as it happens to avoid the possibility that
something that is incorporated into their product, even though
they wouldn't patent it today, because it is not that
significant, but in a first-to-file system, if they don't
patent it and someone else does and there are no prior user
rights, they have a big problem.
So you force them into the situation of patenting
everything, which is going to lead to more of a burden on the
PTO, which is going to lead to more of a backlog, et cetera.
The way to solve that is, as other countries have done, is to
provide prior user rights that will protect companies that are
users, from the possibility of an infringement action by some
subsequent person who happens to be the first-to-file. But
unfortunately, you know, that is not something that, for
example, is in the Senate-passed bill, but we think it is very
important.
Mr. Conyers. Do you have some reservations, Professor?
Mr. Burk. Mr. Conyers, what I would say is, is just what I
said to my students, which is that a bill that implements
first-to-file in the United States, should really be entitled,
``The Patent Lawyers Full Employment Act of 2011.'' The reality
is that that is an enormous change. It will create an enormous
amount of work for my students and for my former students. And
although it is perhaps a statement against interest, I think
businesses probably want to create products and produce
products more than they want to pay patent lawyers.
So you have to think very carefully that the benefits of
that change, and in particular the way that Mr. Pincus
indicated, if you're going to have prior user rights----
Mr. Conyers. So you are not for first-to-file to begin
with?
Mr. Burk. I am saying this can be very disruptive----
Mr. Conyers. Yes.
Mr. Burk [continuing]. And very expensive. And it may be
that it is worth it, but I am not convinced.
Mr. Conyers. Right. I can appreciate that.
Mr. Crouch. Excuse me.
Mr. Conyers. What is your feeling?
Mr. Crouch. Thank you, Mr. Conyers. You know, the--I guess
there is the first point that currently we don't have prior--we
do not have prior user rights right now. And so there are cases
that come up where someone was using a product before someone
else independently invented it and then the patent law can stop
them from using it.
And you know, getting to Mr. Burk's point, I--you know, in
reading the Senate bill, which may or may not be, you know,
this House might present something different, but by just
reading through it, time after time I ran across these words
that are new, completely new to the patent system that we have
had for 200 years and left undefined in the act.
And I certainly don't want that to happen, because all that
will lead to is litigation. And these cases are big cases and
any single word like that that is left undefined is just going
to lead to appeal after appeal, which I think is problematic.
Mr. Conyers. What about inter partes re-examination? That
could become a pretty big consideration. We have had it in our
bill H.R. 1908, a couple of congresses ago, do we get general
agreement on that? Are you okay on that as well?
Mr. Crouch. I am okay on--and certainly, right, certainly
we have had problems of current re-examination has limited
scope.
There are lots of reasons why people would want to
invalidate a patent and they are not able to because of the
current re-examination system. And so if we expanded that out I
think it could actually improve our ability to get rid of
patents that should have never issued.
Mr. Conyers. Okay. Finally, inequitable conduct, patent
amnesty, we may--we are going to be meeting with the Chairman
of the Committee with Berman and Coble and Goodlatte and Zoe
Lofgren, to try to work that out. How would you recommend us
take care of this in a closed-room, secretly with nobody
knowing that we had talked to you?
Mr. Pincus. I think, Congressman Conyers, that inequitable
conduct falls in the same category as a lot of the other
litigation issues that we have been discussing, venue and
injunctions and the rest. As my colleagues both note in their
testimony, there--the Federal Circuit has decided one
inequitable conduct case that tightens up on the standards for
inequitable conduct. It has another case before it on--now,
that seems to be another one of these areas where the courts
are working it out and Congress doesn't have to intervene.
Mr. Conyers. Thank you very much, Mr. Chairman.
Mr. Reed. Thank you, Mr. Conyers.
I'll recognize myself at this point in time.
I'm concerned about any reform that we enact and
encouraging or allowing for frivolous type of lawsuits, or be
it also in a litigation setting but also the administrative
review, the post-grant review, et cetera.
Could you offer any comments on ways that we can make sure
that we don't open up the door to frivolous type of action
going down the road.
We'll start with Mr. Burk, if you don't mind.
Mr. Burk. Again, I think that the courts are well
positioned to deal with that. So if you set the broad
parameters, if you say, you know, we are going to have post-
grant opposition review and we are going to allow the Patent
Office or we are going to create a remedy in the courts to deal
with frivolous problems, that can be worked out. So I guess I
would advise you not to try to tinker too much.
Mr. Reed. Okay.
Mr. Pincus?
Mr. Pincus. I think in terms of the courts a lot of what
they have done is helping to solve what has been a real problem
with abusive litigation in this area And as I say, the false
marking piece is sort of the last piece left.
In the administrative process I think empowering the PTO to
take action against abuses of its processes is the way to go
there. I don't think you need artificial limits on how it
works, you could certainly prevent people from bringing some
repetitive administrative claims but also just giving the PTO
the power to issue regulations to prevent abuse of its
processes I think would do the trick.
Mr. Reed. What type of tools would you envision them
having, other than repetitive filings?
Mr. Pincus. The--the same kinds of tools that the courts
have now. If parties bring repeat, unjustified claims they can
be sanctioned, sort of a Rule 11 equivalent--for the PTO
process. They can be, as I say, barred from being repetitive
claims.
Mr. Reed. Okay.
Mr. Crouch?
Mr. Crouch. Yeah, I would--I think--I agree with Mr.
Pincus, but I want to make a slight distinction in that I think
there is little chance for abusive opposition filings. And the
reason is because it--unlike, you know, unlike--sometimes we
talk about abusive litigation where someone files a claim
seeking some settlement amount of money, right, with these
oppositions, right, you would only file these to invalidate
someone else's patent. And there is no kind of money that tends
to change hands with those and so far, with our re-examination
system we really have not seen any accusations of this
happening and no examples of that happening.
But what we have seen is within the process. So once a re-
examination is ongoing, then folks are abusing the process. And
one problem is, I think at this point, the Patent Office just
isn't as good as an Article III judge at kind of managing what
is essentially litigation within this administrative body.
Mr. Reed. Yeah, because I--I guess I am concerned about
also is not only just the commencement of frivolous actions, be
it in the administrative venue in order to force negotiations,
you know, of using it as a tool rather than for the endgame or
the ultimate result, but using it from a practical--I used to
be a former litigator before I came here and a lot of times
there was strategy involved by utilizing litigation as a tool.
So that is what I'm getting to. There may not be a
financial problem, but a leveraging piece that could be
utilized. Is that what you are touching upon?
Mr. Crouch. Yeah, that is exactly right, but also, you
know, I--last week I was talking with the Patent Office
director, Dave Kappos, and he was speaking to me about, you
know, at times with these--especially with inter partes re-
examination, they receive petition after petition after
petition and at this point they don't feel like they have the
power to enact rules that stop that.
And so one way, potentially, and maybe this is the way that
they would like, is for you to give them power to do that as
opposed to explicitly spelling out, you know, what abusive
process means and what the sanction would be and so forth. But
then you just have to trust the Patent Office can do a good job
of setting forth those rules.
Mr. Reed. Okay. Thank you.
I'll yield back the balance of my time. And the Chair will
recognize, I believe, the colleague from California, Miss Chu?
Ms. Chu. Thank you, Mr. Chair.
I wanted to go back to the first-to-file and the prior user
rights issue. Of course as you know this, the Senate Bill 23
does put in the first-to-file system so that we can harmonize
with the rest of the world. On the other hand, there is the
prior user rights issue, and I know that Mr. Burk had--has
problems with that.
But I'm wondering, Mr. Pincus, is there some way for us to
address the concerns that universities have with prior user
rights and the expansion of that, if we are to try to move to a
first-to-file system?
Mr. Pincus. I think Congresswoman, there are--there is a
way to do that. I think part of the problem is, you know, there
hasn't been the willingness of everyone to really get around
the table and talk about what the problems--what the specific
issues are, what the specific concerns are. But, I think you
know, what is critical is the tech companies that are worried
about this problem are worried that basically their ongoing
business and processes are going to be--something they are
using is going to be disrupted and that is their concern, that
is what they wanted protected.
As you know right now, the prior user rights privilege only
applies to methods, it doesn't apply to the other types of
patents. So there are problems in scope, there are problems in
use that we think have to be addressed. And I think there
probably is a way to do that that wouldn't make educational
institutions concerned that their investments in patents could
somehow be overcome by the fact that there were these prior
users out there, who, after all, have developed this thing
separately. It is not like they looked at the patent and then
magically started using that product or service or process,
they have done it independently.
Ms. Chu. Should there be a carve out for universities?
Mr. Pincus. That certainly is one thing that could be
talked about. It was talked about in other parts of the bill
and earlier incarnations, with things like the venue provision,
when it was in the bill. And there may be some way to do that.
But I think that the critical interests, the balance are
finding a way to make sure the universities are protected, but
also making sure that businesses are protected. And also, you
know, frankly, any kind of carve out that is developed is
susceptible to other people trying to use it and so it would
have to be----
Ms. Chu. That is true.
Mr. Pincus. Drafted pretty tightly to avoid that problem.
Ms. Chu. Let me ask also about patent trolls in the eBay
decision. Have firms whose business models primarily focused on
purchasing and asserting patents, the so-called patent trolls,
been able to obtain injunctions after the eBay decision?
Mr. Pincus and then Mr. Burk?
Mr. Pincus. I think Mr. Burk actually has some study about
that and----
Mr. Burk. The--a number of scholars looked at this and in
fact I think that some of this is in Professor Crouch's written
treatment. And I would also commend to you the FTC report that
was issued last week that has some of this data.
The number of such injunctions has dropped dramatically
since the--that decision, which is why it is one of the real
success stories in addressing a current patent reform problem
by applying, as Mr. Pincus said, the statute as Congress wrote
it, so that legitimate injunctions can still be issued for
first time innovators. Patent--non-practicing entities or
patent trolls can still get their monetary damages, so they can
still get their income from the patents, but the statute
indicates there is no reason they ought to get an injunction
and I think that has been a real success story of the courts
addressing that problem.
Ms. Chu. Is this a success story that is left well enough
alone or should Congress consider addressing it?
Mr. Burk. As far as we can tell, Congress did address it in
the original statute. As Mr. Pincus said, the Supreme Court
reminded the lower courts of that and it seems to be working
itself out.
Ms. Chu. Okay. And then finally, how--what is your
assessment of how the damages provision in the current patent
statute has been handled by the courts? Do you believe that the
current case law properly assesses damages for patent
infringement or does the current system allow patent owners to
be overly compensated?
Mr. Pincus. I think, Congressman, that was--this was one--
after injunctions it probably is the biggest problem as when
this Committee started looking at this issue in 2005. And I
think although it is not quite as great a success story as
maybe the eBay decision, as I think the Federal Circuit in
several recent decisions has moved down the road of explaining
that the way reasonable royalty damages especially, which are
the royalties that are sought by non-practicing entities,
because they don't have any lost profits to recover, have to
be--that the lower courts sort of reflective use of the entire
market value rule, which as you know, meant that the royalty
could be based on the whole product even if the patent involved
just a tiny little aspect of what the product delivered, that
that rule really is the exception and not the rule and the
Federal Circuit has been very firm on laying that down. It has
been very firm in saying that a rule of thumb, that royalties
should be 25 percent just because that seemed like a good place
to start, was specifically rejected.
And that in the most recent--in the Unilock decision saying
that the basic rule should be that the royalties have to be
commensurate with what the infringement adds to the product and
that is the critical focus. And if that principle gets applied
in subsequent decisions that is going to really do for the
damages issue what eBay did for the injunction issue.
Ms. Chu. Thank you.
I yield back.
Mr. Reed. Okay. Thank you very much.
The Chair, at this point, would recognize Mr. Griffin.
Mr. Griffin. Thank you, Mr. Chairman.
Mr. Burk, I want to follow up on your comments on first-to-
file.
Mr. Burk. Yes.
Mr. Griffin. I have spoken to a lot of people about this
and I am told that a lot of our actors act as if first-to-file
is already in place, particularly people who are operating
internationally. And so I am interested in hearing your
comments on the impact of moving to a first-to-invent system,
if people are in fact already acting as if we have a first-to-
file system.
Can you comment on that?
Mr. Burk. I think you are certainly correct that
internationally people have to take into account the fact that
most countries are first-to-file. And there is no question that
in some ways it would be cheaper and easier for everyone to be
first-to-file, for those companies that are doing that.
But within the United States, as Professor Crouch mentioned
earlier, this is going to have a very disruptive effect on
domestic patenting and on companies that are primarily focused
on domestic patenting. We are going to have to figure out what
all these terms mean, unless they are very carefully defined
and so that is the disruption that I mentioned.
Mr. Griffin. And what about the major tech companies that
are doing business internationally, are they already acting as
if we have a first-to-file?
Mr. Burk. Well, they certainly are internationally and
thinking about when and where to file. All right. But again,
domestically when they file in the United States there are all
kinds of provisions and Section 102 and 103 that they will have
to figure out what that means in the U.S.
Mr. Griffin. Some of the testimony that we have hard has
basically said that with a first-to-invent system, your
disadvantaging smaller businesses because they don't have the
resources or the funds to be in prolonged litigation. And if we
go to a first-to-file then that will somehow help in that area.
Can you comment on that and that is for all three of you.
Mr. Burk. I think it is very difficult to assess that.
There are arguments both ways. I have both heard that first-to-
file disadvantages small businesses because they don't have the
resources to file as quickly. And then I have heard that first-
to-invent disadvantages small businesses, as you indicated,
because they don't have the resources to be tied up in
interferences and other kinds of litigation.
So I think everyone is guessing at that. What I do know
is----
Mr. Griffin. Could I stop you there for a second?
Mr. Burk. Sure.
Mr. Griffin. And I don't know if you are familiar with
this, but the witnesses who testified previously in some other
hearings, one in particular cited some studies, a Hasting Law
Review study, and where they had gathered data on litigation.
And you know, you have probably seen those, if you haven't I
would certain commend that to you because that sort of
convinced me, to some extent, that they were guessing, that
they had some data to back up their argument on that. But I
welcome your comment on that.
Mr. Burk. No, you are absolutely correct, Mr. Griffin. I
mean people have tried to gather some data There is also data
that goes the other direction and I think the data we have is
inconclusive. So I am not sure whether it will advantage or
disadvantage small businesses. What I do know is we will spend
the next decade figuring out what that means for domestic
patent law, which as I said, is going to be great job security
for my students, but it may or may not be good for businesses.
Mr. Griffin. Sure. Do you all want to comment on that
particular?
Mr. Crouch. I have a quick comment. And there is no way
that I will be able to convince people to change the name of
this away from first-to-invent verse first-to-file, but the
change that occurs is not really about the patent race between
two entities. Right? The biggest change for most patent
applicants is that under the current system there is a
potential to focus on your invention date, which is some time
in history versus focusing on your filing date.
And if we look at what the Senate has passed, basically we
have take amount--some amount of prior art that didn't used to
be prior art under the old system, because you could claim back
to your invention date, and now if we go to first-to-file there
is going to be a lot more prior art that is everything that
came out from the day you invented to the day you filed. And
all of that can be used against you, not just in litigation or
these protracted battles, but just when you are trying to get
your patent through the Patent Office. And the Patent Office
can find those and make it easier to invalidate the patent.
Mr. Griffin. I want to get one more question in, you can
answer it and my time is about up.
Look at the universe of decisions, and that is really what
this hearing is supposed to be about, can you identify
particular decisions that have either positively or negative
impacted certain sizes of business, small business versus big
business and what that impact has been? Because as we have gone
through this debate we have heard a lot about the impact of
changes in the law on either small business or big business,
businesses with resources, those that don't have them.
So if there is anything in particular that--any cases you
would want to point out, I would love to hear it.
Thank you, Mr. Chairman.
Mr. Pincus. I think the decisions we have been talking
about, eBay, the damages decisions, the willfulness decisions,
the venue decisions all go to the burden on defendants. And I
think those defendants can be large or small. There is
certainly, I know, in the Committee's past hearings on this
issue over the last 6 years, there have been a number of small
businesses that have said that they were victims of lawsuits,
either by MPEs or by others and just had to settle because they
couldn't afford to defend them under the rules that existed.
And now that playing field has been leveled in a way that
hopefully they can afford to defend them.
Mr. Reed. Thank you, Mr. Griffin.
At this point in time I will recognize the gentleman from
New York, Mr. Nadler?
Mr. Nadler. Thank you. Thank you, Mr. Chairman. Gentlemen,
I have been listening to your testimony and let us get down to
one brass tack in particular. Given what you have all said
about the progress that we have made in solving some of these
problems through the courts, in particular perhaps the measure
of damages question that was of great concern and which may
have been taken care of through the courts, take a look
specifically at the Senate bill that just passed the Senate. In
your opinion, should we pass it? Should we ignore it? Should we
modify it?
For all three of you. One at a time.
Mr. Burk. I guess my first answer would be I was fairly
encouraged that the bill that passed the Senate, whatever you
may think about the individual provisions, seems to focus on
the kinds of things that I said earlier Congress ought to focus
on. So most of the issues that we have said the courts have
dealt with seem to have disappeared out of that bill. There is
this kind of funny thing about tax patents, I am not sure what
that is doing in there.
Mr. Nadler. Tax patents?
Mr. Burk. Yes, there is provisions----
Mr. Nadler. Oh. Tax strategies?
Mr. Burk. Exactly, yeah. I am not sure that is something
that this body needs to take up.
But for the most part, the questions are the structural
questions that Congress needs to think about, first-to-file,
post-grant opposition and those kinds of things. So I find that
encouraging.
Mr. Nadler. Would you--and you would encourage us to pass
that bill?
Mr. Burk. I would encourage you to focus on those same
questions.
Mr. Nadler. Okay.
Mr. Pincus. I think I would encourage you to look at the
bill but probably make some changes. I think in particular the
re-examination, post-grant review provision that was in H.R.
1908 that the Committee reported out in 2007 and the House
passed is a much superior administrative process for the PTO.
Mr. Nadler. Why? Why is that provision superior to the
provision in the Leahy bill?
Mr. Pincus. Because the Senate-passed bill actually makes
the administrative process less open, less useful than current
law, in terms of the standard for starting the process is
higher, there are rules about when the administrative process
can be initiated that make it very difficult because they are
very tight after the--after someone has been sued they have a
relatively short period of time to initiate a post-grant
review. Remember, they have to file all their evidence at the
beginning, so they have a very--it is 6 months. It seems long,
but you have to file your entire case upfront, so it is really
not that long at all, if you are starting from a standstill.
It continues to have the broad estoppel which could have
raised--which as the Committee remembers from its
deliberations, makes going into the administrative process a
very treacherous thing for a company that may not know about a
potential grounds for challenging a patent, but gives it up by
not raising it even though it didn't know about it. And then in
a subsequent proceeding there is lots of litigation about
whether they could have known----
Mr. Nadler. Would you remove that estoppel from that
provision?
Mr. Pincus. Excuse me?
Mr. Nadler. Would you remove that estoppel from that
provision?
Mr. Pincus. Yes, the House-passed bill has said there was
only estoppel for things that were actually raised, and we
think that makes the provision sensible and eliminates this
sort of treachery.
And also the inequitable conduct provision that is in the
Senate bill, we don't believe is necessary given what the
courts are doing on inequitable conduct.
And finally, as I said before, on prior user rights, we
think that is sort of a critical aspect of first-to-file is
broadening prior user rights as every country that has first-
to-file has done.
Mr. Nadler. And this does not do that?
Mr. Pincus. No.
Mr. Nadler. Professor Crouch?
Mr. Crouch. Yes, sir. I have not made it all the way
through the Senate bill and so I don't know all the details.
Mr. Nadler. Most of us don't make it all through--all the
way through any Senate product, so that is okay.
Mr. Crouch. But I do know that the Senate had an
opportunity to pass a bill and they rushed to complete that and
certainly even if you want to enact this, the purpose behind
the Senate bill, there is a lot of work that needs to go into
it and the onus is now on you guys to fix a lot--what I might
call ``technical problems'' with the bill. And I think we have
mentioned some, in terms of definitions and language that is
there.
There is also some--you know, there is an entirely new
jurisdiction portion that essentially overrules a Supreme Court
case called Holmes v. Vornado that is maybe a 2002, 2003
Supreme Court case and takes certain cases that might have
patents as a counterclaim or a patent type defense and brings
those into Federal courts. And in my view that is a wholly new
provision and I never--I have never actually heard of Congress
holding a hearing on that topic. And so there are some new
things in there that I think got added at the last minute that
need some special look.
Mr. Nadler. Thank you.
Let me ask just one other question, to any of you. You have
identified a number of areas in which there are outstanding
issues that--to be resolved in patent law. Are there any
particularly significant cases now pending that you can advise
us of, on the appeals level, that may resolve these issues in a
way that you think is acceptable or will clarify the law? Any
particularly notable cases we could keep an eye out?
Mr. Pincus. I think there are a number of cases, the
Supreme Court has two, there are a number of cases pending in
the Federal Circuit. I don't know that any of them address the
issues that we think should be in the bill, with the exception
of, to go back to the false marking issue, there is a case
pending in the Federal Circuit. I think our concern is it
doesn't seem likely that it is going to resolve that issue but
that is certainly something that is out there.
Mr. Nadler. I see my time has expired. Thank you.
Mr. Goodlatte [presiding]. Thank you.
At this point in time I will recognize the Ranking Member
Mr. Watt?
Mr. Watt. Thank you, Mr. Chairman. Just to--I have three
more questions and I will direct one to each panelist.
Mr. Burk I didn't--I ran out of time before you got a
chance to respond to my question about multiple defendants and
some--the possibility that somebody might game the system by
just adding additional defendants, the venue system. Did you
have a response that you wanted to make to that?
Mr. Burk. I think the short response, Mr. Watt, is that we
don't know, that has not been decided yet. But the courts are
working on it, and that is the kind of thing that I think the
courts can and will solve. It is not clear to me that you need
to focus your attention on----
Mr. Watt. So we don't need to deal with it? Okay.
Second, Mr. Pincus, I saw something in one of the drafts
about the possibility of you take a--you get a second review
before the Patent and Trademark Office and that becomes the
absolute final opportunity. I mean there is no right of appeal
to the court. As a lawyer I always react to that in a negative
way. And I wonder if I am over reacting to that in a negative
way.
Are there any other precedents for something of that kind
or is there a reason why that should be done in this particular
area of the law?
Mr. Pincus. I know that it----
Mr. Watt. You are familiar with what I am talking about?
Mr. Pincus. Are you talking about--there is a provision
that says if the director declines to initiate an inter partes
or a post-grant proceeding, that that decision not to allow it
to be initiated is non-reviewable.
Mr. Watt. No. I thought there was a possibility at least
that we might come up with something that said if you go
through the post-grant review process, if you ever go through
it, that is the end of it. Is that--am I miss--I am not talking
about something that is----
Mr. Pincus. I----
Mr. Watt [continuing]. In the law, I am talking about
something that somebody proposed.
Mr. Pincus. Yeah. I am not aware of it. And I agree with
you, it seems to me important that if that process is opened
and the PTO makes a decision on the merits about the validity
issue that is before it, that it is hard to imagine why there
wouldn't be judicial review of that decision.
Mr. Watt. All right. Mr. Crouch, all three of the witnesses
seem very comfortable with the court either making or
clarifying or interpreting law. We won't get into that
distinction, whether they are making or clarifying or
interpreting.
Is there something in the current law that will enable the
court to make a good judgment interpreting law, as opposed to
making law, on two outstanding issues: business methods and tax
strategy patents? Is that something we can leave to the courts
to resolve or is that something we have got to deal with by
statute?
Mr. Crouch. Well, last year the Supreme Court decided a
business method case called In re: Bilski or Bilski v. Kappos
and that case was not a tax case but what it involved was
Bilski had invented a method of hedging, basically buying
commodities to hedge against the risk of bad weather, which for
a commodities trader sounds obvious, but I think there were
some potentially non-obvious, some inventive features. And the
Patent Office refused to give him a patent on grounds that that
is not the type of thing that they allow patents on.
The Supreme Court took the case and agreed, although their
reasoning maybe was slightly different, the Supreme Court said,
we have had a rule for over a 100 years that we don't give
patents on abstract ideas and the general idea of hedging is an
abstract idea, and therefore no patent on that. And I would----
Mr. Watt. Wait, now, remember I am on the Financial
Services----
Mr. Crouch. Okay. Yes.
Mr. Watt.--Committee so it is not abstract to those guys.
Mr. Crouch. Right. Right, I agree. You know, and you know,
I went to Princeton University and at this point in the
engineering school where I went, right, they had--they now have
a financial engineering department where you know, that--they
are doing engineering and using the same differential equations
that I used for mechanical and aerospace engineering, they are
using for financial issues and so they certainly believe that
is engineering.
And if those are the type of--right, that this is something
that is amenable to some legislation, but I--but there is a big
concern in that our--the statute that we have now on patentable
subject matter has been essentially identical since it was
passed, I think in 1794. And it has changed by two to three
words and that is--and there are about 50 to 60 Supreme Court
cases in that interim interpreting that particular statute.
And----
Mr. Watt. Do I read between the lines, if we change more
than two or three words we are going to be asking for more
litigation and reinterpretation----
Mr. Crouch. Absolutely. Absolutely.
Mr. Watt [continuing]. Than we are going to solve the
problem? That is what you think on both business methods and
tax?
Mr. Crouch. You know but the Supreme Court did not
absolutely ban those. And so if that is what you want to do,
then you may have to take action.
Mr. Watt. All right. I thank the Chairman for yielding me a
second round of questions. And I thank the witnesses for what I
think has been a very informative and instructive set of
responses.
Mr. Goodlatte. Well, thank you. The gentleman yields.
At this point in time I would like to thank the witnesses
for their testimony today.
Without objection all Members will have 5 legislative days
to submit to the Chair additional written questions for the
witnesses, which we will forward and ask the witnesses to
respond as promptly as they can, so that their answers may be
part of the--made part of the record.
Without objection all Members will have 5 legislative days
to submit any additional materials for inclusion in the record.
With that, again, I thank the witnesses and this hearing is
adjourned.
[Whereupon, at 2:29 p.m., the Subcommittee was adjourned.]

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