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Committee Meeting Regarding Patent Quality Improvement

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Location: Washington, DC


COMMITTEE PRINT REGARDING PATENT QUALITY IMPROVEMENT

HEARING BEFORE THE SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY OF THE COMMITTEE ON THE JUDICIARY

HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
FIRST SESSION

APRIL 20 AND APRIL 28, 2005

Serial No. 109-11

Mr. GOODLATTE. Mr. Chairman, thank you for holding this important hearing to examine the committee print on improving patent quality. As we all know, article I, section 8 of our Constitution lays the framework for our Nation's patent laws. It grants Congress the power to award inventors for limited amounts of time exclusive rights to their inventions.

The framers had the incredible foresight to realize that this type of incentive was crucial to ensure that America would become the world's leader in innovation and creativity.

These incentives as just as important today as they were at the founding of country, if not more so. We must make sure the incentives our framers put into our Constitution remain meaningful and effective. The U.S. patent system must work efficiently if America is to remain the world leader in innovation.

It is only right that as more and more inventions with increasing complexity emerge that we should examine our Nation's patent laws to ensure that they still work efficiently and that they still encourage and do not discourage innovation.

One industry sector which is beginning to showcase the potential problems inherent in our Nation's patent system is the high tech industry.

In today's economy, many high tech products involve hundreds and even thousands of patented ideas. Technological innovators must work to ensure that they obtain the lawful rights to use the patents of others through licenses and other lawful mechanisms.

However, it appears that a cottage industry is emerging that seeks to take advantage of the complexity of these products, combined with loopholes in our patent laws, to extort money from high tech companies, both large and small.

To be sure, these problems are not limited to the high

tech industry. Inventors in all industries are increasingly facing these types of problems. The solution to these problems involves both ensuring that quality patents are issued in the first place and ensuring that we take a hard look at patent litigation and enforcement laws to make sure that they do not create incentives for opportunists with invalid claims to exploit.

All inventors will reap the rewards of a streamlined patent system that ensures that good quality patents are issued and that opportunists cannot take advantage of loopholes in our enforcement laws.

I look forward to exploring the details of the committee print with the witnesses.

Again, Mr. Chairman, I thank you for holding this important hearing, and I'd ask that my full opening statement be made a part of the record.

Mr. SMITH. And without objection, they will be.

[The prepared statement of Mr. Goodlatte follows:]

PREPARED STATEMENT OF THE HONORABLE BOB GOODLATTE, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF VIRGINIA

Thank you, Mr. Chairman, for holding this important hearing to examine the committee print on improving patent quality.

Article I Section 8 of our Constitution lays the framework for our nation's patent laws. It grants Congress the power to award inventors, for limited amounts of time, exclusive rights to their inventions. The Framers had the incredible foresight to realize that this type of incentive was crucial to ensure that America would become the world's leader in innovation and creativity.

These incentives are just as important today as they were at the founding of our country. As we continue our journey into the digital age, we must make sure that the incentives our Framers put into our Constitution remain meaningful and effective. The U.S. Patent system must work efficiently if America is to remain the world leader in innovation.

It is only right that as more and more inventions with increasing complexity emerge, that we should examine our nation's patent laws to ensure that they still work efficiently and that they still encourage, and not discourage, innovation.

One industry sector which is beginning to showcase the potential problems inherent in our nation's patent system is the high tech industry. In today's economy, many high tech products involve hundreds, and even thousands, of patented ideas. Technological innovators must work to ensure that they obtain the lawful rights to use the patents of others, through licenses and other lawful mechanisms. However, it appears that a cottage industry is emerging that seeks to take advantage of the complexity of these products, combined with loopholes in our patent laws to extort money from high tech companies, both large and small. To be sure, these problems are not limited to the high-tech industry-inventors in all industries are increasingly facing these types of problems.

The solution to these problems involves both ensuring that quality patents are issued in the first place, and ensuring that we take a good hard look at patent litigation and enforcement laws to make sure that they do not create incentives for opportunists with invalid claims to exploit.

The Committee Print addresses both of these concerns. It would create a new post-grant opposition system in which any member of the public could request the USPTO to review the scope and validity of a patent within nine months from the date of its issuance. While this provision would help to ensure that quality patents are issued, the nine month limit is intended to prevent third parties from harassing a patent owner. In addition, the Committee Print eliminates the provision in current law that prohibits a party from raising an issue on appeal that could have been raised during a reexamination proceeding. This provision is meant to encourage more participation in the reexamination process to ensure that only quality patents are issued.

The Committee Print also includes provisions to ensure that patent litigation benefits those with valid claims, but not those opportunists who seek to abuse the litigation process. Specifically, the bill creates a clear standard for ''willful infringement,'' ensures that injunctions are issued only when the patentee is likely to suffer irreparable harm that cannot be remedied by the payment of money damages, and ensures that damages awarded to a party are proportional to the value that the party's invention contributes to the total value of the defendant's product.

All inventors will reap the rewards of a streamlined patent system that ensures that good quality patents are issued, and that opportunists cannot take advantage of loopholes in our enforcement laws.

Thank you again, Mr. Chairman for holding this hearing. I look forward to hearing today from our witnesses.

BREAK IN TRANSCRIPT

Mr. GOODLATTE. Thank you, Mr. Chairman. Mr. Hawley, as I mentioned in my opening statement, software and other high tech companies face a serious problem. Many of their inventions and products involve hundreds of patents which must be lawfully cleared for use. In this environment, do you see how the threat of a permanent injunction by one nefarious party could impede the development of innovative products and encourage disproportionate settlements from high tech companies? And if so, what can be done to solve this problem without rolling back permanent injunction, since I understand that's one provision of this legislation you're not happy about?

Mr. HAWLEY. I apologize that I don't fully understand your question, but let me say a few things in response.

The software industry and the microelectronic industry is not unique in having products that are covered by large numbers of patents. We are in the electro photographic copying business, and I think you would be quite amazed at the stack of patents that covers any particular electro photographic machine. There could be thousands.

Mr. GOODLATTE. I understand. One of those many hundreds of patents is challenged and an injunction is issued. What do you do about it if you can't have a---

Mr. HAWLEY. I think--

Mr. GOODLATTE.-different way of handling injunctions than is handled under current law?

Mr. HAWLEY. When you are faced with a patent infringement suit on a portion of a large machine, maybe a small portion, you have a fairly long period of time in which you can evaluate the design around alternatives. Litigation lasts for a very long time. You're usually well aware of the patent before it issues.

Mr. GOODLATTE. But can't the treble damages penalties that are hanging over your head ensue from the date that it's been brought to your attention that the patent might be infringed upon and therefore if you loose that process all during the time that you're doing exactly what you're talking about, you're subject to quite a heavy threat of losses if you do not settle up with this party that may be trying to hold you up from every other aspect of moving forward with your product?

Mr. HAWLEY. Okay. You're getting into the area of treble damages and with respect to treble damages in any serious disputes you will have ameliorated your risk by obtaining-but exercising your duty of due care and obtaining opinion of counsel, and if the opinion of counsel is that you don't have any other alternative, you design around the patent and go about your business. Otherwise, you're not being-you're not subjecting yourself to treble damages.

So the treble damages hanging over your head is that the committee print addresses itself to is really-the provision in the committee print is really an anti-troll provision in the sense that we are now getting on a fairly regular basis non-specific accusations of infringement that are essentially form letters that are sent to hundreds-I've heard as many as thousands-of companies.

All of those place those hundreds or thousands of companies into a legal limbo.

Mr. GOODLATTE. I've got other questions to ask.

Mr. HAWLEY. I'm sorry.

Mr. GOODLATTE. I'm going to have to cut you short. But let me turn to Mr. Lutton and ask him based upon Mr. Hawley's testimony that permanent injunction is the primary remedy by which patent owners can enforce their exclusive rights, do you believe the injunction provision in the committee print could inhibit legitimate patent owners from getting an injunction in cases in which there are only one or very few patent claims involved in litigation? And if so, do you have some suggestions on how to prevent that problem?

Mr. LUTTON. The answer is no. I don't think it could because the provision in the committee print is simply instructing a court to do equity. It's providing another factor that the court should consider or amplifying a factor that the court should consider in administering equity.

That being said, I would echo again the comments I made earlier that I do believe that what-the core of what we're looking for is a reinjection of principles of equity into the injunctive issue, reempowering courts to decide whether in a particular case an injunction is needed or not. If it is needed, it should be granted. If it's not, it shouldn't.

Mr. GOODLATTE. Let me get in one more question if the Chairman will allow me and just ask all the witnesses if they can tell me why small businesses or independent inventors should support any of the provisions of this print? What's in it for them? Start with Mr. LaFuze.

Mr. LAFUZE. First of all, it's a less costly system. Second of all, it's a more predictable system. In a perfect environment, you ought to be able to go to the Patent Office, take a look at the file wrapper, take a look at what's publicly available and tell what the scope of the patent is and whether the patent is valid or not. The system that we have now is predicated on many different kinds of secrets that are not publicly available. You can't tell easily whether something has been offered for sale what constitutes the bar. You can't tell when somebody may have conceived, reduced practice, used diligence in terms of advancing an invention. There are so many unknowns with the system that we have today that you can't tell really what rights you have very easily. And it's very expensive to litigate them, as we all know. And we need a system that gives a simpler, fairer, more cost effective, more predictable outcome to the question of what valid rights do you have as a patent owner.

Mr. GOODLATTE. Mr. Kushan?

Mr. KUSHAN. Thank you. Two reforms are going to enhance the ability of the independent inventor and small business to use our patent system.

First, I think it's going to be a very good thing to dispel the myth that the first to invent system has benefits for the independent inventor. As a company that spends millions of dollars in interference proceedings, it's certainly not a cheap proceeding and if-considering as the statistics have shown, that 13 or so people who got-were worse off because of the system over the last decade, it's not benefiting them. A fairer system is one where a true inventor who files an application first gets the patent and there's no fight. There's no cost. It's just over. That's more predictable, more certain, and it will cost a lot less.

The reforms that Mr. LaFuze has walked through also make it clear to understand what you're going to get.

Post-grant opposition proceedings are also valuable to any patent owner, including the independent inventor. The big question that companies face when they see a patent or license offer is whether that patent is valid. If you have an opposition proceeding and your patent has gotten through that proceeding, that's going to be a very solid, definite and certain legal right. And that's going to induce very healthy negotiating processes between the patent owner and the company, and I think everybody who values their patent right is going to want to have that kind of an assurance of patent quality behind it.

Mr. GOODLATTE. Mr. Chairman, do I have your lead to allow the other two witnesses to answer that question or--

Mr. SMITH. The Gentleman is recognized for an additional minute for the other two witnesses to answer.

Mr. GOODLATTE. You each get 30 seconds.

Mr. LUTTON. I think this bill is tremendously beneficial to small business. They benefit from quality of patents. They benefit from predictability in the system, but most of all they benefit from control around damages and injunction abuses. The small business that goes out of business-if they have to spend 5 or 10 million dollars defending themselves, and there's so much of that burden that they're bearing now that this bill will be tremendously beneficial for them.

Mr. GOODLATTE. Thank you. Mr. Hawley.

Mr. HAWLEY. You asked about what the benefits are. All of the benefits that I could think of have already been stolen by my other panelists here, so I would point you to the-again-the injunction provision and the specific reference to encouraging the court to consider in an injunction context whether or not the patentee is actually themselves using the invention. Many small business, small start ups, individual inventors have not yet found the resources to do that. And this would limit their ability to-and their opportunity to negotiate good agreements because of not being users themselves, they are at a disadvantage.

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

Mr. SMITH. Thank you, Mr. Goodlatte. The Gentlewoman from California, Ms. Lofgren is recognized.

BREAK IN TRANSCRIPT

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