Patents, Innovation and Jobs

A Congressional Briefing:

“Harmonizing” The U.S. Patent System

with Europe and Japan:
The Effect on the Small Inventor."

The U.S. Business and Industry Council is a national organization of business owners
and executives dedicated to making the U.S. domestic economy the world's
leading engine of economic growth. The USBIC was founded in 1933 to represent the
concerns of America's small and medium-sized business community. Its nearly 2,000
members are mainly family-owned domestic manufacturing companies. Many are patent
holders.
 Patents, Innovation and Jobs

Table of Contents

Tab 1. The Patent Harmonization Agenda

Tab 2 300 Big Corporations Increasingly Dominate the U.S.

Patent System

Tab 3 Global Patent Harmonization is Harming U.S.

Inventors, Venture-Investors, Start-Ups, and Innovative
Small Businesses

Tab 4 U.S. Inventors, Innovative Small Businesses, Venture

and Conservative Groups Oppose the American Invents
Act.

Tab 5 The America Invents Act is Deeply Flawed

Tab 6 The Wall Street and Bankers’ Patent Relief Provision

Tab 7 Chinese and Indian Patent Authorities Claim the Patent

Bill Will Make Infringing U.S. Patents Easier and
Cheaper

Tab 8 Litigation Abuse of the Post-Grant System by “Patent

Assassins”

Tab 9 Patent Spin

 Tab 1

The Patent Harmonization Agenda

 The Harmonization Agenda

Three hundred global corporations receive more than 50 percent of all U.S. patents
granted – a share that is quickly growing. These organizations undertake business in
virtually all countries, but have a loyalty to none.

A major portion of the value of these individual corporations is composed of their

intellectual properties – patents, copyrights, trademarks, and trade secrets, some as much
as 80 percent. The greatest threat to their market position is new leapfrog technology
devised by an inventor in some garage or small company. This is the essence of “creative
destruction” and the American experience. To do business globally and reduce the risks
created by new technologies not under their control, these corporations seek a weak set of
patent laws globally. Weak patent laws undermine the legal property rights of inventors,
start-ups and small businesses that may challenge these giants, but who are the principal
new job creators in the United States.

The United States has long possessed the strongest patent system in the world. For
almost two decades, transnational corporations and the governments of Asia and Europe
have lobbied Congress to enact laws that would harmonize U.S. patent standards
downward to those of the inferior patent systems in Europe and Asia.

The globalist corporations’ long-term harmonization agenda is to:

1. Shorten the term of a patent to 20 years from filing, regardless of the time
consumed at the Patent Office. (Enacted in 1994.)
2. Make public an inventor’s secrets before the Patent Office issues a patent. .
(Enacted in 1999.)
3. Create an adversarial post-grant challenge process in the Patent Office.
(Enacted in 1999.)
4. Create a European-type post grant process. (Proposed in 2011 legislation.)
5. Issue a patent to the first-inventor-to-file rather than the first-person-to-
invent. (Proposed in 2011 legislation.)
6. Permit third parties, including competitors, to participate in the Patent
Office review of patent applications. (Proposed in 2011 legislation.)
7. Share patent examination work with other nations. (Future)
8. Automatically adopt foreign issued patents by the U.S. Patent Office.
(Future)

The question before Congress is whether the United States will harmonize its standards
down to those of other nations or demand that they harmonize their standards up to those
of the U.S. The American Invents Act would harmonize down.
 Tab 2

Global Big Corporations Increasingly

Dominate the U.S. Patent System
Big Corporations Dominate the World’s Patent Systems

The U.S. Patent Office granted 45 percent of all utility passed

issued in 1999 to the top three hundred corporations. By 2009,
their share had risen to 53 percent.

During the same 1999-2009 period, the share of patents awarded to

small entity inventors (independent inventors, companies with 500
or fewer employees, universities and independent research
institutes) declined from 28 to 20 percent.

The percent going to individual inventors went from 15 percent in

1999 to 7.5 percent in 2009.

In major part, this decline in small entity and individual grants can
be traced directly to the harmonization changes made in the 1994
and 1999 changes in U.S. patent laws, coupled with the diversion
of patent fees from the Patent Office to the Treasury’s general
fund.

The harmonization change of publishing patent applications at 18-

months from the earliest filing drove many inventors to practice
their art as a trade secret.

The addition of the inter partes post grant procedure in 1999

absorbed significant resources and diverted them away from patent
examination. As a result, the processing time to get a patent
(pendency) doubled. Most small entity inventors cannot find
financing without a patent and they cannot get a patent, on
average, in less than three years.

Big corporations do not face those constraints on resources and

many such as IBM operate patent factories that churn out
thousands of patents annually that can be licensed or serve as a
challenge to new technologies created by others.

The top 300 transnational corporations operate globally. They

want a unified global patent system based on the lowest standards
found among them all. This eases their acquisitions of patents
even as it makes a patent a weaker protection of rights for all
others.

The problem for the United States is that small entity inventors are
the primary source of new job creation, while the big entity
inventors are shifting their jobs offshore. Of the 15 principal
advocates for this legislation, virtually all have half or more of
their employees offshore. Now, they are shifting their R&D
abroad. IBM, for example, has seven or its eight major R&D
centers outside the United States. Of its almost 400,000
employees, almost 300,000 are in other countries.

Not surprisingly, IBM has led the corporate efforts to harmonize

down U.S. patent standards.
 Tab 3

Global Patent Harmonization is Harming

U.S. Inventors, Venture-Investors, Start-Ups
and Innovative Small Businesses
 Harmonization and the Small Entity
Inventor – Long-Term Trends and Data

1. Percent of U.S. Patents Granted to U.S. and Foreign Individual

Inventors. America’s small entity inventors are the source of
start-ups, new businesses and thus one of the primary sources
of new job creation. Yet, we have gone from that cohert
receiving 20 plus percent of all patents in the 70s and 80s to
7.5 percent in 2009. As the Patent System becomes ever
more sluggish, unpredictable and expensive, we are closing
down innovation by our most innovative people. This is a
formula for systemic, long-term national decline.

2. Percent of Patents Granted to U.S.-Origin Individual

Inventors. Both the number and percent of patents granted to
U.S. inventors has dropped dramatically. If the number of
patents granted to foreign inventors is removed from the
calculation, then U.S. individual inventors received almost 25
percent of all U.S.-origin patents in 1990. In 2009, they got
barely more than 10 percent - a drop of 60 percent in 20
years.

3. Share of U.S. Patents Granted to Small Entities. The portion

of patents granted to small entity inventors (companies with
500 or fewer employees, universities, independent research
institutes and individuals) has dropped from the low 30 percent
range in the 1990s to 18 percent in 2009. A major structural
shift in an amazingly short period.

4. Patent Lawsuits as a Percent of Patents Granted. The

advocates of the patent reform legislation before the last three
Congress have grounded their case on the argument that the
U.S. is in a patent litigation crisis, with vast numbers of
 2

disruptive suits being filed. As this table and chart documents,

the ratio of patent lawsuits filed to the number of patents
issued has been a flatline 1.5 percent. There is no surge.

5. Patent Average Pendency. The average processing time of a

patent application from filing to grant has almost doubled in the
period 1989 - 2010. From 18.4 months to 35.3. For many
technologies, they will be obsolete by the time a patent is
granted. For small entity inventors, the long time lags mean
no funding is possible with a patent and thus no start-up --
thus discouraging innovation and job creating investment.

6. Patent Fee Diversion. Congress has diverted $810 million of

patent fees to the U.S. Treasury's general fund since 1992.
Thus, even as the number of patent applications has grown, a
portion of the fees paid by inventors to process those
applications has been diverted to non-USPTO activities, thus
expanding the pendency numbers.

7. Patents Published. Congress requires the USPTO to publish

patent applications at 18-months from filing. Previously, the
USPTO was required to keep applications secret and destroy
them if a patent was not granted. Under the new system, the
information in a patent application becomes prior art. Today,
almost half of all patent applications are denied. Thus, an
inventor has a 50/50 chance they will not get a patent and
their innovation secrets will be made available to anyone,
anywhere for free use. The exception is if an inventor agrees
to accept a U.S.-only patent - that is not seek a foreign patent
and thus give the innovation to the rest of the world for free if a
patent is awarded.

8. Patent Reexaminations. The patent reexamination process

has come to used as a litigation tactic. The number of re-
exams involved with litigation has risen from 30 percent in
2003 to 68 percent in 2010. The delays and costs of such
 3

reexaminations are used by infringers as a means to consume

patent owners assets and grind them down.

The data in these tables are markers that reveal a patent system
that is driving out of activity our most creative inventors. Full
funding, an elimination of post-grant abuses, and a return to the
pre-1999 secrecy policies will do much to solve these problems.
 Tab 4

U.S. Inventors, Technology-Driven

Businesses, Venture Investors and
Conservative Groups Oppose The America
Invents Act
March 3, 2011

The Honorable Patrick J. Leahy

Chairman, Committee on the Judiciary
United States Senate
224 Dirksen Senate Office Building
Washington, DC 20510

The Honorable Chuck Grassley

Ranking Member, Committee on the Judiciary
United States Senate
224 Dirksen Senate Office Building
Washington, D.C. 20510

Dear Chairman Leahy and Ranking Member Grassley:

The National Venture Capital Association (NVCA) appreciates your continued efforts to enact
comprehensive patent reform legislation that protects our country’s innovators. As you know,
the venture capital industry is the primary funding source for emerging high technology and
life-sciences companies. In 2010 alone the industry committed $21.8 billion to these start-ups
that remain the heart of innovation and the backbone of job creation in the United States.
Comprehensive patent reform promises to impact these companies like no other sector and we
are closely following developments in this area.

Last Congress, NVCA supported your efforts in engaging interested stakeholders in this debate
and moving S. 515, the Patent Reform Act of 2010. We believed this bill struck an appropriate
balance on several critical issues important to many diverse industries and companies of all
sizes. Endorsing and strengthening the current case law standard for determination of
damages was an important provision supporting strong intellectual property protections. This
balanced other provisions, such as first to file and post grant review, that will be more
burdensome to the entrepreneurial economy, but were strongly desired by large companies.
Moreover, the post grant review proposal was very finely crafted to prevent abuse. These
compromises were critical for innovation, job growth and a flourishing economy and served as
the basis for our support for S. 515.

Unfortunately we cannot offer the same support for S. 23 as currently proposed.

NVCA would not be able to support a final bill that does not include a clear statement of
Congressional support for the current case law standard on damages and weakens the post-
grant review safeguards against abuse contained in the compromise that was included in S. 515
during the last Congress.

These proposed changes will have a significant impact on the certainty of our patent system.
We need to ensure that all stakeholders have an opportunity to provide input in crafting
legislation that will achieve an appropriate balance, promote U.S. job growth, and advance U.S.
innovation. We look forward to working with you towards this important goal.

Sincerely,

Mark G. Heesen
President
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February 1, 2011

The Honorable John Boehner

The Honorable Harry Reid
The Honorable Mitch McConnell
The Honorable Nancy Pelosi

Dear Speaker Boehner, Senators Reid and McConnell, and Rep. Pelosi:

We are writing to ask that you prevent the passage in this Congress of patent legislation
that hampers U.S. competitiveness and threatens American jobs by undermining property rights.
With our economy in crisis and millions of Americans out of work, this is the wrong time to
jeopardize our recovery by passing legislation to remove incentives for innovation and
commercialization of new products and processes.

Now being discussed is so-called "patent reform" legislation, like that offered by Rep.
John Conyers and Senator Patrick Leahy in the 111th Congress, which would cripple most of
America's smaller inventors, research consortia and universities, and even the larger industrial
firms that depend on patents. Downgrading patent rights -- which are fundamental property
rights -- will hamper innovation and domestic manufacturing. Unfortunately, some Members of
Congress are poised to move ill-considered patent legislation through the House and Senate this
year. Diminishing patent rights would be dangerous to the future of our economy and our
country’s global leadership, and must be stopped.

The Federal Government does many things that exceed its constitutional authority and
hamper our free-enterprise system. In contrast, issuing patents is one of the few things
specifically mentioned in the Constitution. According to Article 1, Section 8: "The Congress
shall have Power . . . [t]o promote the Progress of Science and useful Arts, by securing for
limited Times to Authors and Inventors the exclusive Right to their respective Writings and
Discoveries." The Founders understood that protection of intellectual property was vital to
innovation and progress. President Washington urged the first Congress of the United States to
pass laws encouraging American innovation. James Madison wrote in the Federalist Papers,
"The utility of this power will scarcely be questioned." Yet, today it is being threatened in the
Senate and the House – at the behest of a minority of large technology companies.

Sadly, the Federal Government has fallen down in its patent responsibilities and has
become a bottleneck to genuine innovation. According to the United States Patent & Trademark
Office (USPTO), the average patent applicant must wait 25 months before his or her application
is first acted upon. The logical remedy to this problem is to fully fund the USPTO, allowing it to
set user fees and keep them to run USPTO efficiently and effectively, rather than letting them be
diverted to other parts of the government. In recent years, approximately $700 million originally
allocated to the USPTO has been used for general government spending, causing a huge backlog
of approximately 720,000 patent applications. This is the situation that must be reformed
immediately.

Instead, some in Congress – again following the lead of several large multinational
companies – want to make it easier to infringe patents, easier to challenge patent rights in
administrative proceedings and in the courts, and more expensive for inventors to defend their
patents. By creating a new, expensive procedure to challenge the validity of a patent throughout
its life, the benefits to patent-holders become far less certain. Incentives to seek patents are
severely weakened, and venture capitalists face much higher risks when backing new ideas. The
cumulative effect of such "reforms" would be to raise barriers to innovation and dis-incentivize
commercialization of those ideas. Changes along these lines will certainly not help us to remain
economically competitive in the world economy, which is why officials in China and India have
hailed the proposed "reforms" as helpful to their economic interests.

Additionally, some of these so-called reforms have been proposed in the name of
"harmonization" with foreign law. Frankly, this notion is misguided. Our competitors should
have to “harmonize up” to our superior intellectual property regime, rather than our having to
weaken our patent system and “harmonize down” to their levels. Does the United States really
need to be "harmonized" with a calcified European system or the impossibly unfair Japanese
system, not to mention the Chinese system, where intellectual property theft is a way of life?
Such "patent reform" will lead to the plundering of American intellectual property and the loss of
American factories and jobs to overseas competitors.

The proposed reforms really benefit large, established corporate market players at the
expense of U.S. economic growth. Start-up companies drive innovation and job creation. About
one-third of all patent applications are made by independent inventors, small companies,
universities, and nonprofit research groups. Some large companies, however, which ironically
benefitted greatly from the current patent system when they were start-ups, fear having their
market positions disrupted or constrained by new ideas outside their control. They want current
law rewritten to make challenges to patents easier and more frequent after they are granted.

This phony, market-distorting "patent reform" is bad for America. We ask that you stop
any such legislation from reaching the floor and protect the property rights enshrined in the
Constitution. Our nation’s economic future depends on your cooperation.

Sincerely,

Phyllis Schlafly Kevin L. Kearns

Eagle Forum US Business and Industry Council

Edwin Meese, III Morton Blackwell

Former Attorney General of the United Chairman, Weyrich Lunch
States
Colin A. Hanna, Maryland Taxpayers Association
Let Freedom Ring
Col. Charles Thomann (Ret.)
Larry Hart Patriotic Veterans, Inc.
American Conservative Union
Frank Gaffney
Dr. Richard Land Center for Security Policy
Southern Baptist Ethics and Religious
Liberty Convention Paul Caprio
Family PAC Federal
Jim Martin
60 Plus Gary Aldrich
Liberty Central
C. Preston Noell
Tradition, Family, Property William H. Shaker
RepublicanPAC.com
Larry Pratt
Gun Owners of America Jeff Gaynor
Americans for Sovereignty
Ron Pearson
Council for America Dr. John Holmes
Association of Christian Schools
Susan Carlson International
American Civil Rights Union
Suhail A. Khan
Jim Backlin Conservative Inclusion Coalition
Christian Coalition
Peter Knickerbocker
Kenneth R. Timmerman WeReadTheConstitution.com
Author and Former President,
 Tab 5

The American Invents Legislation is Deeply

Flawed
 Flawed Patent Legislation

The proposed patent bill is deeply flawed and in several ways. Specifically;

1. The shift from a first-to-invent to a first-inventor-to-file system will

effectively destroy the one-year grace period which inventors and
small business and venture investors depend upon to bring their
creations into being.

2. The shift of systems will dramatically increase the workload of patent

examiners by increasing the number of filed applications as inventors
rush to beat the clock. Canada experienced a 30 percent workload
increase after they made this shift in 1989.

3. Seven peer review law journals have published articles that take the
position that the U.S. Constitution bars the shift to a first-inventor-to-
file system.

A few words and paper on each of these points follow.

The Grace Period Changes in The America Invents Act Hurts

Inventors

The weak grace period of the America Invents Act creates an

impossible catch-22. Under patent reform, entrepreneurs won’t be
able to discuss their ideas with potential investors or other strategic
partners until after a patent application is filed because of the risk of
losing all patent rights. On the other hand, many entrepreneurs don't
have the money available to file patent applications until after they have
funding in hand. This circular dependency will make it impossible to
proceed.

Current law gives small companies a way out of this deadlock: they
take advantage of the grace period to discuss their ideas with investors
and partners while they work to get their company running, and file
patent applications once investors come on board. But the changes in
S.23 would deny any protection to companies that must seek outside
investors and partners unless the inventor can find the many thousands
of dollars to file a patent application first. That's simply unworkable.
 2000 PENNSYLVANIA AVE., NW MORR ISO N & FO ERS TER LLP

WASHINGTON, D.C. NE W YO RK, S A N FRA NC ISC O,

LOS A NGE LE S, PA LO A LT O,
20006-1888 SA N DI E GO, WAS H I NGT O N, D. C.

NOR THER N VIR GINIA, DENV ER,

TELEPHONE: 202.887.1500
SACRA M E NTO, WA LNU T CR E E K
FACSIMILE: 202.887.0763
TO K YO, LO NDO N, B EIJ I NG,
SHA NGHA I, HO NG KO NG,
WWW.MOFO.COM SI NGA P OR E, BR USS E LS

INITIAL SURVEY OF LAW REVIEW ARTICLES ADDRESSING

CONSTITUTIONALITY OF FIRST-TO-FILE PATENT SYSTEM
IN LAST 10 YEARS

FIRST-TO-FILE UNCONSTITUTIONAL
(7 total, 6 non-student notes)
Rebecca C.E. McFadyen, The "First-To-File" Patent System: Why Adoption Is NOT An Option!,
14 Rich. J.L. & Tech. 3 (2007)
However, an analysis of the framers' intent as well as statutory language of the early
patent acts demonstrate that the Constitution authorizes the patent to be awarded only to
the "first and true inventor." To hold otherwise poses a direct challenge to the
Constitution.

John J. Okuley, Resolution of Inventorship Disputes: Avoiding Litigation Through Early

Evaluation, 18 Ohio St. J. on Disp. Resol. 915 (2003)
Though many commentators argue that the United States should adopt a first-to-file
system, the current interpretation of the United States Constitution and the patent statutes
is that patents are to be awarded to the first inventor.

Max Stul Oppenheimer, Harmonization Through Condemnation: Is New London The Key To
World Patent Harmony? 40 Vand. J. Transnat'l L. 445 (2007)
granting the patent to the first filer deprives the inventor of “the exclusive right”
guaranteed by the Constitution and is therefore unconstitutional.

Paul M. Schoenhard, Reconceptualizing Inventive Conception: Strengthening, Not Abandoning

the First-To-Invent System, 17 Fed. Cir. B.J. 567 (2008–2009)
By these terms, it is readily apparent that the IP Clause is not aimed at the securing of
rights to "disclosers" or "filers," but to inventors.

Adam Sedia, Legislative Update: Storming The Last Bastion: The Patent Reform Act Of 2007
And Its Assault On The Superior First-To-Invent Rule, 18 DePaul J. Art Tech. & Intell. Prop. L.
79 (2007-2008)
Based on historical understanding, outlined in Section II above, those who view the first-
to-file system as unconstitutional appear to have the better argument.

Karen E. Simon, Comment, The Patent Reform Act's First-to-File Standard: Needed Reform or
Constitutional Blunder?, 6 J. Marshall Rev. Intell. Prop. L. 129 (2006)
the first-to-file standard as proposed in H.R. 2795 is unconstitutional
Edwin Suominen, Re-Discovering Article 1, Section 8 -- The Formula for First-to-Invent, 83 J.
Pat. Off. Soc’y 641 (2001)
The plain language of the terms would thus seem to settle the issue, clearly prohibiting
any first-to-file system as unconstitutionally denying actual inventors the exclusive right
to their discoveries.

FIRST-TO-FILE MIGHT BE UNCONSTITUTIONAL

(2 total, 2 non-student notes)
Susanna Chenette, Note, Maintaining the Constitutionality of the Patent System, 35 Hastings
Const. L.Q. 221 (2008)
Therefore, because of the Supreme Court's broad interpretation of Congress' power under
the Act, a first-to-file system that grants patents to those other than the actual "inventor"
as stated by the Clause will likely survive a direct constitutionality attack. However, it is
nevertheless possible that a first-to-file system would not "promote the progress of
science and the useful arts" and therefore be unconstitutional.

Timothy R. Holbrook, The Treaty Power and the Patent Clause: Are There Limits on the United
States' Ability to Harmonize?, 22 Cardozo Arts & Ent. L.J. 1 (2004)
Given that historically the inventor has been viewed as first to create, then such tradition
may suggest a constitutionally rooted requirement that would preclude a first to file
system

FIRST-TO-FILE CONSTITUTIONAL
(None)
Section 2 of S. 23 will deny inventors U.S. patent protection that would not
be denied under foreign patent laws
By Ron D. Katznelson

The “First-to-file” element of S. 23 is a ‘red herring.’ Interferences are so rare and are irrelevant as
compared to the major pernicious components in Section 2 of S. 23 – the perverse weakening of the grace
period. However, the results are not merely a shift to a system used in other countries. It is a shift to a
patent system that is worse than any other.

In important circumstances, S. 23 would bar a patent in the U.S. that would not be barred in the rest of
the world. In a novel and perverse way found in no other country, S. 23 would weaken patent protection
only in America. Let’s keep it simple and limit the discussion to the loss of grace period due to the
"public use" and "on sale" bar language of S.23. It provides in pertinent part as follows:

“102 (a) NOVELTY; PRIOR ART.—A person shall be entitled to a patent unless—
“(1) the claimed invention was patented, described in a printed publication, or in public use, on sale, or
otherwise available to the public before the effective filing date of the claimed invention;”

In comparison, the "public use" and "on sale" bar under current law in 35 USC 102(b) is as follows:

“A person shall be entitled to a patent unless —

(b) the invention was patented or described in a printed publication in this or a foreign country or in
public use or on sale in this country, more than one year prior to the date of the application for patent
in the United States.

Current U.S. law provides an unconditional one-year grace period. Although under S. 23 there are
exceptions in proposed subsection 102(b) that excuse public disclosures by the inventor if made less than
a year before filing, they are irrelevant here, as no disclosure is involved in mere public use or sale. A
“disclosure” must enable those skilled in the art to practice the invention. Construing the term
“disclosure” in the exceptions of S. 23 differently - as including acts of public use and offers for sale from
which no proof can be adduced that the inventor in fact had “possession” of the claimed invention - would
contradict the fundamental constitutional directive for a patent grant. This is because under such
construction, the exceptions would enable parties to obtain patents for prophesized subject matter yet to
be invented. Hence, public use or sale, per se, cannot mean “disclosures” and therefore do not trigger S.
23’s exceptions which provide grace.

For these events, there is no grace period in S. 23. As such, this provision will kill startups’ ability to
launch their commercial existence. It upsets two centuries of expertise in founding, marketing, financing
and building new technology companies. Often, it is impossible to file an application that describes a
workable invention early before its public use or offer for sale. In many cases, the public-use is
necessarily the very first event that tests and validates an inventive solution worth protecting in a patent
application. In these cases, public-use is an integral part of the development process and the business
practice that facilitates development. In these cases, a patent would be barred under S. 23. But not so in
the rest of the world!

It is not required to file an application before such events in other countries. The rest of the world does
not bar a patent based on “public use” or “on sale” where no public disclosure of the invention is
involved. But S. 23 does. To add insult to injury, because S. 23 extends the bar by removing the existing

March 6, 2011
 USE OF THE AMERICAN GRACE PERIOD UNDER US
PATENT LAW R. Katznelson, Mar-6-2011

clause “in this country,” it will bar a patent in the U.S. on account of “public use” or “on sale” events
purported to occur anywhere in the world. It will be very difficult, if not impossible, for U.S.-based
small business to accomplish effective legal discovery of such events. Challenging factual assertions in
evidence and testimony taken abroad for a case before a U.S. court without our strong federal rules of
evidence and discovery will be problematic as foreign witnesses can testify with absolute immunity from
the pains and penalties of perjury. So, for example, if a foreign company wants to infringe and invalidate
a U.S. patent, it would merely need to present testimony and “evidence” of “public use” or “offer for sale”
in its own country of a product purported to embody the claimed invention. In no other nation are patents
vulnerable to such an attack.

Without knowledge of the consequences, do S. 23’s proponents seek to impose restraints on American
technology innovation practices which have not been imposed or experienced anywhere else in the world?
Currently, American patent law encourages invention and development to remain in America because our
“public use” or “on sale” bar are subject to the one-year grace. The rest of the world, in a perverse way,
has an indefinite grace period for filing an application after such public use or sale events, so long as there
is no public disclosure involved. Do S. 23’s proponents want patent protection under such circumstances
to exist only abroad but not in America? This would create a tilted playing field, where inventors find
that they are more likely to lose patent protection in the U.S. than elsewhere. It appears that S.23’s
drafters have concocted an orphan which resembles none of the existing patent systems - a system that
would singularly disadvantage inventors attempting to obtain patents in this country.

Examples of well-known entities’ use of the American grace period

The attached table includes historical examples showing events during the grace period that could risk
patent rights under S. 23. The hypothetical effects of “public use” and “on sale” events that did not bar a
patent under existing U.S. patent law and would actually bar a patent under S. 23 are shown in two cases
discussed below. The other cases involved detailed private disclosures that are well protected under
existing grace-period law but which would have not triggered the “disclosure” exception for grace under
S. 23 - therefore placing much higher risk of loss of patent rights.

The Wright Brothers

The Wright Brothers’ case is not uncommon. Their unpowered test flights in October 1902 in Kitty Hawk
constituted “public use” of their invention. It was “non-disclosing” public-use to most observers and only
“privately disclosing” use to Octave Chanute and Augustus Herring who were permitted to see the details
up close. These details included the mechanisms the Wrights devised to couple the strings that warp the
wings in opposite directions and the novel way for connecting those strings to simultaneously control the
vertical rudder to counteract the aerodynamic effect of the wing-warping (ailerons) for stability. These
were essential features of their patent claims and none were publically disclosed at the time of the flights.
Because the “public use” was by the patentee, the Wrights were subject to a grace period bar in the U.S,
which was two years at that time. They filed for their patent application on March 1903 in the U.S., and
on March 1904 in Europe, claiming the U.S. priority. S. 23’s provisions would have barred the patent for
the Wrights. In contrast, under prevailing U.S. patent law, public use prior to filing did not deny them the
U.S. patent. Similarly, there should have been no problems for them in Europe because there had been
no disclosing-use or public disclosure in Kitty Hawk, October 1902. A problem arose in France,
however, when the Wrights asserted their patent against French infringers and the Third Tribunal of The
Seine ruled that while the non-disclosing flights in Kitty Hawk may not have been a bar for a patent in
France, the early public disclosures made by Octave Chanute in Europe prior to the U.S. March 1903

2
 USE OF THE AMERICAN GRACE PERIOD UNDER US
PATENT LAW R. Katznelson, Mar-6-2011

filing barred their patent in France1. There were appeals, settlement attempts and lengthy proceedings
which lasted beyond 1920 – effectively denying the Wrights patent protection in France during the most
critical period.2

Chanute did not see the Wrights’ contributions in October 1902 in the same way as they did. His account
during his public disclosure in Europe led various defendants in infringement actions brought by the
Wrights to argue that the Wrights derived their invention from Chanute’s description of works made in
1892 in Egypt by Louis Pierre Mouillard. Wilbur Wright, was disgusted with these derivation allegations
and wrote an essay in the Aero Club of America Bulletin in 1912 to explain their absurdity.3 The facts in
this derivation allegation were mostly predicated on activities of two men who were dead by that time.

Under S. 23’s “exceptions due to derivation,” by reading Wilbur Wright’s account, one can appreciate the
nature of the challenge that the Wrights would have had in attempting to prove that Chanute’s public
disclosure in Europe was derived from them. The Wrights only had circumstantial evidence: They could
have shown that Chanute and Herring were with them in Kitty Hawk in October 1902 and that they were
also trying to fly their own glider, which did not work. There was no dispute that the Wrights had
implemented their invention while Chanute & Herring did not “reduce to practice” an idea that was
alleged to originate with Chanute. Chanute did not claim that he was entitled to any patent but merely
asserted that it was based on known principles that he had previously described to the Wrights from the
works of Mouillard. Making matters worse for such hypothetical derivation proceeding, defendants in
France and in the U.S., have alleged the opposite - that the Wrights derived the invention from Mouillard
as conveyed by Chanute. None of these challenges take place under existing U.S. law.

Hewlett-Packard

In the HP example, the variable frequency oscillator was demonstrated and offered for sale in the IRE
trade meeting. The claimed subject matter provided unprecedented frequency tuning range with
resonators that do not include bulky coils. Prior art systems did not permit a broad tuning range because
they resulted in large impedance variations of the resonator in the oscillator circuit, stopping oscillations
on frequencies that differed appreciably from the nominal center frequency. These details could not have
been learnt by those observing the sales demo. Under current law (and that effective in 1938), the
patentee would not be barred, and indeed was not barred, from obtaining a patent upon the application
filing before the end of the one-year grace period. Under S. 23, HP founders would not have been able to
obtain the patent because the offer for sale and public use were made before “the effective filing date of
the claimed invention.”

Conclusion

The unconditional American grace period has been the hallmark of a flexible and powerful legal system
that over the last two centuries enabled American innovators to obtain patent protection during the course
of their efforts to build their new business. America’s lead in innovation is a testament to the success of
the American grace period. It is as essential today as it was a century ago. Any effort to weaken the
grace period would harm America’s new Wright Brothers, new De Forest, new Carlson, or the new
Hewlett-Packard.

1
John R. McMahon, The Wright Brothers: Fathers of Flight. Little, Brown & Co. Boston (1930), p. 258.
2
Herbert A. Johnson, The Wright Patent Wars and Early American Aviation, 69 J. of Air Law and Commerce. (2004), p. 25.
3
Wilbur Wright, What Mouillard did, Aero Club of America Bulletin, Vol 1, April, 1912, pp. 3-4. Reproduced at
http://invention.psychology.msstate.edu/i/Wrights/library/Aero_Club.html .

3
 USE OF THE AMERICAN GRACE PERIOD UNDER US PATENT LAW R. Katznelson, Mar-6-2011

Key Grace Period Activities Prior to Notes and Public-use &

Related Patent Information
Patent Application Filing comments on on-sale effects
Entity City, US Pat.(s)
actual events as In
Name State Filing having been In rest
Third-Party Claiming U.S.A
Event Date Date Title(s) Priority of facilitated under of the
Involved Under
Filing Date existing U.S. law World
S23
Unpowered flight over
Publically
600 feet at Kitty Hawk,
accessible field- Attendees included
Wright Dayton, N.C. Incorporated all Patent Patent
trials and Octave Chanute and Oct-1902 Mar 23, 1903 Flying-Machine 821,393
Brothers Ohio inventive elements of barred allowed5
demonstrations Augustus Herring.4
the Wright Brothers’
PUBLIC USE
patent.
With confidence that his
Specific vacuum McCandless order
tube design with a would not lead to a
De Forest
New York, third grid electrode filing race he may lose, Patent Patent
Radio McCandless & Co.6 Nov-1906 29-Jan-1907 Space Telegraphy 879,532
N.Y. disclosed to a De Forest disclosed his allowed5 allowed5
Telephone Co.
subcontracting first triode invention,
shop for making it. launching the new field
called Electronics.
Provided the first
photocopy image ever
Private made, ensuring Carlson
demonstration. can prove he was the
Rochester, Inventor Carlson Patent Patent
Xerox Corp. Otto Kornei Oct-1938 4-Apr-1939 Electrophotography 2,297,691 first inventor of the 5 5
N.Y. demonstrated photocopier. Invention allowed allowed
workability of was eventually licensed
invention. to the Haloid Co., which
became Xerox Corp.7

Seen by Walt Disney

Studios’ sound engineer
Variable Bud Hawkins, who
IRE Trade meeting
Hewlett- Portland, Public/Trade Show Frequency Patent Patent
sales demonstration Nov 1938 11-Jul-1939 2,268,872 purchased eight of the
Packard Oregon ON SALE Oscillation barred allowed5
in Portland.8 oscillators. HP’s first
Generator product was used in the
soundtrack of Fantasia

4
John R. McMahon, The Wright Brothers: Fathers of Flight. Little, Brown & Co. Boston (1930), pp. 118-119.
5
Provided that no public disclosure of the claimed subject matter was made as a result of information leak or derivation from the inventor.
6
Gerald F. J. Tyne, Saga of the Vacuum Tube, Howard W. Sams & Co. (1977), p. 61.
7
Xerox Corp., The Story of Xerography. At http://www.xerox.com/downloads/usa/en/innovation/innovation_storyofxerography.pdf
8
Ed Sharpe, Hewlett-Packard. The Early Years. At http://www.smecc.org/hewlett-packard,_the_early_years.htm
4
 USE OF THE AMERICAN GRACE PERIOD UNDER US PATENT LAW R. Katznelson, Mar-6-2011

Key Grace Period Activities Prior to Notes and Public-use &

Related Patent Information
Patent Application Filing comments on on-sale effects
Entity City, US Pat.(s) actual events as In
Name State Filing Claiming having been In rest
Third-Party U.S.
Event Date Date Title(s) Priority of facilitated under of the
Involved Filing Under
existing U.S. law World
Date S23
Report to Hughes prior
Spread spectrum
to application filing
multiple access
showed feasibility of a
Hughes Aircraft Co. communication Patent Patent
mobile communication
Private disclosure Agreement to fund 1986 17-Oct-1986 system using 4,901,307 allowed allowed1
system based on 10 0
mobile CDMA study. satellite or
features later patented in
terrestrial repeaters
Qualcomm’s first
CDMA patent.9
Method and The early technical
apparatus for disclosure to strategic
controlling partner/customer PacTel
transmission power 5,056,109 secured its funding for
Qualcomm, San Diego, in a CDMA developing the
Inc. CA cellular mobile prototype system.
telephone system Qualcomm worked on
PacTel Cellular. Method and perfecting the prototype
Private disclosure system until the very Patent Patent
Agreement to fund system for
of the CDMA May-1989 7-Nov-1989 day of the San Diego allowed1 allowed1
development of providing a soft 0 0
cellular system CDMA demonstration,
prototype system11 handoff in 5,101,501
communications in which employed
a CDMA cellular PacTel’s base stations.
telephone system The systems’ extensive
inventive features were
Diversity receiver subsequently claimed in
in a CDMA three basic patent
5,109,390
cellular telephone applications. 12
system

9
Dave Mock, The Qualcomm equation: how a fledgling Telecom company forged a new path to big profits and market dominance. AMACOM, NY. (2005), pp. 37-39.
10
Provided that no public disclosure of the claimed subject matter was made as a result of a leak or derivation from the inventor.
11
Mock (2005), supra note 9. pp. 61-77.
12
Id. pp. 77-78.
5
February 28, 2011

The Honorable Dianne Feinstein

331 Hart Senate Office Building
Washington, DC 20510

How S.23 Severely Disrupts America’s Unique Process of Invention

Steve Perlman, President & CEO, Rearden, OnLive and MOVA

Dear Senator Feinstein:

I am an American inventor. I hold over 100 US patents with over 100 pending. My inventions are found
in most computers and mobile devices and many TV devices sold today as well as in the production of
major motion pictures with advanced visual effects, such as the latest Harry Potter movie.

The Patent Reform Act of 2011, S.23 is about to come to the Senate floor. While much has been said
through the four sessions of Congress the Bill has spanned, almost all discussion has been conceptual
with very few, if any, real world examples of how patents are actually used in the US for the invention
and development of the major innovations that form the backbone of US economic growth.

This letter provides real world examples of how patents are currently used in the development of actual
US inventions and how the core provisions of S.23 would disrupt this process, particularly for startups
and other small entities that are the primary drivers of innovation in the US.

In terms of background, my inventions include QuickTime, WebTV, MOVA Contour, and OnLive, and
span a wide range of fields, including video, audio, animation, special effects, 3D imaging, wireless,
alternative energy, semiconductors, optics, material science, mechanical systems and medtech devices.

In addition to founding 8 US-based startups backed by my patents, I was a Principal Scientist of Apple,
and a President of Microsoft. My work is found in all Macs, iPhones, iPods and iPads, most PCs, all of
Microsoft’s TV-based products and in many TVs, cable/satellite/IPTV set-top boxes, and video games.

My inventions have supported investment of hundreds of millions of dollars into my startups, have
resulted in billions of dollars of revenue and profits, and the creation of thousands of US jobs.

All of my companies have been pure “practicing entities”: my patents have been used purely to back the
products my companies have developed, never sold or licensed for royalties.

1
The Process of Invention in America Today

Most of you have seen movies with computer-generated faces, but it wasn’t until Brad Pitt’s reverse-
aging face in A Curious Case of Benjamin Button that you saw a computer-generated face that looked
completely real, winning the film an Academy Award® in Visual Effects (see attached Slide 1 showing the
technology in use and the end result of Brad’s computer-generated face at different ages). One of my
startups invented the technology, MOVA Contour, that made this possible. The invention process we
went through is uniquely American, and is the same process used for most of my inventions (as well as
for inventions of Edison and the Wright brothers, among others) that literally could not be accomplished
outside the US, given the patent laws of other countries. If S.23 becomes law in its current form, this
uniquely American invention process will cease to exist.

To understand why, I’ll walk you through Slide 2, showing the process we used to invent MOVA Contour.

A large part of invention is trying out a vast number of ideas (such as Edison with thousands of light bulb
filaments, or the Wright brothers with many wing shapes). When we set out to invent MOVA Contour,
we came up with dozens of approaches to precisely capture the human face in motion and explored
each of them until we ran into a dead end. Each of these initial inventions is shown as a black box on the
left side of slide 2. The tan line ending from each shows how far we explored each invention. A dot
shows where we hit a dead end.

In the upper left, you can see tan arrows where the 2 most promising approaches were combined and
then led to 7 more secondary inventions, which unfortunately all led to dead ends. But, one of them led
to a Key Insight, shown in a dashed green arrow, that led to the rethinking of another initial invention
(with a green arrow going to 5 boxes) into 5 more secondary inventions. One of these secondary
inventions combined with another initial invention led to the first practical prototype, shown as a green
circle with the word “Success!”.

At this point we had a working prototype that showed the basic idea worked, but not a practical
product. Another 7 inventions followed for Practical Refinements, of which one led to a commercial
product. For a Complete Practical System, 2 other adjunct inventions were needed (special lighting and
makeup), and each of these resulted from testing several inventions, and selecting one. This entire
process took about 5 years of intensely-focused R&D (this diagram shows only part of the work).

In total, about 100 inventions were conceived over the 5 years of development, but the only 6
inventions were actually used in the final system, filled in green, and those are the only inventions for
which we filed patents. The reason we did not have to file patents on the other 90+ inventions is
because the US is a “First-to-Invent” country and so long as we carefully document each invention, we
maintain priority to the date of conception. This gives us time to determine which inventions are needed
for the product, and it also gives us time to get a working prototype before we file patents so that we
have something to show when we seek venture funding to cover the cost of the filings (the US system
allows a 1-year grace period after disclosure to file a patent). Lastly, by only filing patents that matter,
we minimize distractions to our key engineers and scientists in working with patent attorneys.

2
If the US were not a “First-to-Invent” country, and instead was a “First-to-File” country, then the process
of invention would be completely different. To preserve defensible priority, every one of the 100
inventions would have to be filed as a patent immediately upon conception (which is why inventors
throughout the world refer to “First-to-File” as “Race-to-the-patent-office”). Also, before a disclosure to
investors (who rarely will file non-disclosure agreement) could be made, the patents would have to be
filed, so venture dollars could not be used to file the patents. And lastly, the key engineers and scientists
would be constantly working with patent attorneys to explain every idea they come up with as soon as it
is dreamed up and have far less time to do development.

It typically costs us $20,000-$30,000 to obtain a commercial-grade patent. As you can imagine, in a First-
to-File country, as a startup, we could only file patents on a small fraction of the inventions at the time
of conception.1 Further, in the case of MOVA Contour, the inventions that looked the most promising at
the outset turned out to be dead ends. Had we filed patents on them, it would have been wasted
money, while the inventions that mattered would not have been patented at all, potentially making it
impossible to fund the company. It is no surprise that the US is by far the leading nation in the world
when it comes to startups and, since its earliest days (when “First-to-Invent” was established), has been
known as a mecca for invention.

Like MOVA Contour, most of the products I’ve developed in my career simply could not have come into
existence in a “First-to-File” country. And even with the financial resources I have at this stage of my
career, it is still the case that the distraction to key engineers and scientists (myself included) in filing
vast numbers of shallow and largely pointless patents would dramatically reduce our productivity in
what are already intense multi-year developments, let alone further burdening the patent office.

S.23’s switch from “First-to-Invent” to “First-Inventor-to-File”

In dropping “First-to-Invent”, S.23 proposes the US switch to an obtuse “First-Inventor-To-File” concept

which is “First-to-File” muddled with an immensely complex set of priority rules unlike any patent
priority system ever used before in any country. It is far worse for small entities than conventional “First-
to-File” because of the highly complex and obscure priority rules. Switching to “First-to-File” would be
bad enough, as detailed above, but switching to a completely different system introduces immense
complexity and risk. It does nothing to “harmonize” with other countries, and most certainly does
nothing to reduce uncertainty of priority. Under “First-to-Invent” there are only about 200 “interference
hearings” a year to resolve priority disputes, out of hundreds of thousands of patents filed. In short,
“First-to-Invent” works exceptionally well in actual practice. Why risk changing it?

1
While the US provides a type of shallow interim filing called a “Provisional”, it is a common
misconception that such filings preserve priority at a lower cost. In our experience, we have always
easily overcome patents based on Provisionals. They weaken the eventual patent by tying the patent to
a muddy and/or vague disclosure. There is no avoiding the filing cost of an enforceable patent.

3
Even if the US were to adopt conventional “First-to-File”, it still would achieve little in harmonizing with
other countries. Each country or region has its own statutes regarding what constitutes priority, prior
art, what is patentable, etc. And, beyond that, by far the largest cost in foreign filings is language
translation since patents are so technical and precise.

If “First-(Inventor)-To-File” is made into law, it most certainly will face constitutional challenges. I’ve
provided legislative staffers with a detailed list of all scholarly articles on both sides of the issue going
back the last 20 years. The constitutionality of switching to First-to-File has been a popular subject of
analysis over the decades by constitutional scholars and the overwhelming consensus is that it is
unconstitutional, and among scholars in the last decade, this is almost a universal view. The first
Congressional Research Service (CRS) reports on the Patent Reform Act stated First-to-File was
constitutional, yet cited a reference that concluded the opposite, so over last 4 years, I’ve been pressing
them to provide some scholarly reference to support the report’s assertion of constitutionality. Finally,
last year they conceded there was no recent scholarly reference supporting constitutionality, so they
added a reference (footnote 87) to an authorless web page on a small law firm’s website supporting that
conclusion. This arbitrary, authorless web page is all that is supporting the constitutionality of First-
(Inventor)-to-File in any document before Congress. I urge you to take a look at the CRS report and
verify this for yourself.

Lastly, it is important to point out that under First-to-Invent, a company with extensive resources can
choose to practice First-to-File, by simply racing to the patent office as soon as every invention is
conceived, eliminating any need to keep records of invention conception. Meanwhile, a company with
limited resources can take still utilize First-to-Invent, only filing patents that matter after funding is
obtained.

Under First-(Inventor)-to-File, the reverse is not true: all parties, regardless of their resources, must
adhere to “race to the patent office”. This places small entities at an enormous disadvantage to large
entities. Indeed, it is a key reason why no other nation has anything close to the number of startups as
the US.

S.23 and the Massive Patent Backlog

The core issue facing the US patent system today is the USPTO’s massive patent backlog.

Consider a real world example: A key patent for one of my startups just issued in December of 2010. It
was filed in 2002, 8 years earlier. This patent was not even examined for 5 years. In the fast-moving
world of high-tech, few technologies are so fundamental that they are even relevant 8 years later, and
certainly it is impossible for small entities to utilize a patent for funding or closing key partnerships with
such long pendencies.

While S.23 has a provision for the USPTO to increase its fees, it has no provision for the USPTO to retain
its fees, which is the core issue. As recently as last October, Congress yet again took away the USPTO’s

4
surplus fees, leaving it yet again underfunded to address the backlog. Increasing the fees absent the
ability to retain them only serves to further burden inventors and small entitles.

When patents are delayed past their product’s marketable window, the patents are largely useless to
small entities, despite the enormous cost associated with filing them. One of the few ways to monetize
such patents is to sell them to patent aggregators (pejoratively called “patent trolls”) who then may use
the patents to retroactively sue companies who have introduced infringing products during the long
pendency.

Despite this massive backlog, S.23 proposes to add a Post-Grant Review period after a patent issues to
allow further challenges against that patent than those already allowed. Even setting aside the
significant problems for small entities that Post-Grant Review introduces, given the current
extraordinarily long pendencies facing small entities, we can’t afford any further delay to the certainty of
the enforceability of a patent. With a large percentage of my patents taking 5 to 10 years to issue, we
already have had to abandon several significant products because they were unfundable without the
certainty of an issued patent. Until the patent backlog is addressed, tacking on more time for potential
Post-Grant Review challenges will simply cause more products to be canceled and likely hand more
patents to patent aggregators. We can’t afford any provision that delays patent issuance at this until the
backlog is gone.

Patents Exist Primarily to Support Small Entities

If patents did not exist, established large entities would be the most able to survive, utilizing other forms
of market power to defend their incumbency. Small entities with disruptive technologies, on the other
hand, would simply not exist. Anything they would develop could be readily cloned by large entities,
who could easily out-market them, and so no investors would ever fund the small entities.

S.23 is a Bill whose provisions dramatically favor large entities over small entities. Already, given the
massive patent backlog, for many new products, the market window passes long before patents issue,
placing large entities at an enormous advantage over small entities. Giving large entities even further
advantage until the backlog is resolved will just make matters worse.

But worse than anything, S.23 undermines the uniquely American process of invention. It casually
sweeps aside established paradigms that have successfully fueled the engine of innovation in America
since its founding, and demonstrably fuels it today. We don’t want American invention to be like that of
other countries. We want America to continue to be the world’s mecca for invention.

After 4 sessions of Congress considering the Patent Reform Act, not a single practicing inventor has ever
been allowed to testify before the Senate, and only one inventor has testified before the House (and he
strongly opposed the Bill). It should come as no surprise S.23 is so disconnected from the reality
American Invention.

5
I urge you to oppose S.23. Focus instead on a much simpler Bill that would allow the USPTO to keep its
fees and bring the massive patent backlog under control. After the patent system is functioning normally
again, we can sit down and determine what changes would make it better. It is essential that practicing
inventors from small entities are a part of this process.

Thank you.

Yours sincerely,

/Steve Perlman/

Steve Perlman
President & CEO
OnLive, Inc., MOVA LLC Rearden LLC
181 Lytton Avenue 355 Bryant Street, Suite 110
Palo Alto, CA 94301 San Francisco, CA 94107
(415) 947-5501

www.onlive.com, www.mova.com, www.rearden.com

6
7
8
Steve Perlman, OnLive founder, president & CEO, is an entrepreneur and inventor
devoted to pioneering Internet, entertainment, multimedia, consumer electronics and
communications technologies and services. Best known for the development of
QuickTime®, WebTV® and Mova® Contour™ facial capture technologies, he has
over 30 years of technology development experience, over 20 years of start-up
experience and a track record of bringing media-rich products and services quickly to
market. In addition to having founded and operated multiple startup companies,
Steve has been a Microsoft division president and a principal scientist at Apple
Computer.

Steve’s technology work is built into all iPhones, video iPods, Macs and most PCs,
and has been deployed by DirecTV, Dish, Comcast, Time Warner, Charter and
Adelphia cable TV and satellite TV networks. Consumer products incorporating
Steve’s work have also been retailed by Sony, Philips, RCA, Panasonic, Mitsubishi,
Samsung, Fujitsu, Motorola, Scientific Atlanta, Sega and Nintendo.

Steve’s recently patented facial motion capture technology, Mova Contour, was used
for the production of the Academy Award®-winning photoreal computer-generated
face of Brad Pitt in “The Curious Case of Benjamin Button” (2008), and of Edward
Norton and Tim Roth in “The Incredible Hulk” (2008).

Steve holds over 100 US patents, and has more than 100 additional patents pending.

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 Tab 6

The Wall Street and Bankers’ Patent Relief

Provision
 A Unique Patent Law Exemption for Wall Street and Banks

Just as the full Senate began to consider S. 23, The America Invents Act,
Senator Schumer (D-NY) and Senator Kyl (R-AZ) introduced a special
provision inside the Manager’s amendment that would allow financial
service companies to challenge the validity of patents that that was the basis
of lawsuits against them for infringement. The law, moreover, was
retroactive.

This is special interest legislation in substance and the way its advocates
introduced it. The implications of this last-minute addition are explained in
the attached paper.
 The Wall Street and Bankers’ Patent Relief Provision

Section 18 of S. 23 Overview

Section 18 of Senate Bill 23 is the latest example of the financial services industry
seeking a bailout at the expense of the American taxpayer. Even worse, this time the
bailout targets our job-creating inventors, and does so based on inaccurate information
and assumptions. Section 18 seeks to do something exceedingly rare – retroactively
change the rules by which inventors can maintain patent protection – and it does so in
violation of the TRIPS treaty, weakening America’s intellectual property system overall
and threatening our own companies’ international patent protections. This special
interest bailout should be eliminated from any House version of patent legislation.

Passage of Section 18 of S. 23 was urged on numerous faulty premises. Financial

services representatives promulgated these faulty premises in their letter supporting this
provision, arguing – but providing no evidence at all – that “problems with low quality
business method patents are well-documented and beyond dispute.” However, the PTO
itself has never made any such indications. These faulty premises were continued in
Senate Judiciary Committee hearings, where Senators called the Federal Circuit’s 1998
State Street decision “a serious error,” claiming that it opened the door to a flood of
“invalid business method patents” that had not been proper prior to State Street. These
statements are not true; in fact, PTO representatives have testified in years past that the
State Street decision did not change any laws on patentability whatsoever. Furthermore,
the Senate Judiciary Committee put forth no evidence justifying its claims that “business
method patents are a plague on the financial sector.” Notably, even if these false claims
were 100% accurate, the drafters of Section 18 went far beyond business method patents.
By its very definition, Section 18 also applies to patents on “appartus[es]” – i.e., systems
and devices, as opposed to methods. The Senate provided no justification whatsoever for
extending the already broad reach of this Section beyond business methods.

Worse yet, Section 18 seeks to apply retroactively – i.e., to any patent already
issued before the effective date of the legislation – but only for patents in the financial
services industry. Tens of thousands of patents have been issued that could conceivably
fall within the scope of Section 18 as drafted, but those patents were issued and/or
reexamined at the PTO under one set of definitive rules. Now, Congress is seeking to
change the rules for determining the validity of patents, and to apply this change
retroactively, but only for financial services patents.

This “singling out” of financial services patents is the most troublesome aspect of
Section 18, as it likely violates the TRIPS treaty. Property rights in intellectual property
have been a lynchpin of U.S. trade policy, giving the U.S. the moral authority and
bargaining power to bring most other countries a great distance in trade negotiations
towards enforcing property rights around the world during the extensive negotiations
over the Trade Related Aspects of Intellectual Property treaty (TRIPS). When word gets
out that the U.S. discriminates in favor of certain industries in crafting its intellectual
property laws, our international competitors will pounce. Countries like Argentina,
Brazil, China and India have long been pushing for compulsory licenses for drug patents
and easy piracy for copyrights in the software and entertainment industries. These
countries often seize upon TRIPS Article 31, which refers to cases “of a national
emergency or other circumstances of extreme urgency” to argue in favor of stripping
away patent rights in particular cases. The major argument the U.S. has used in response
is that we enforce our intellectual property rights evenly and without discrimination based
on certain industries or businesses. Retroactively changing the rules on patent validity to
benefit financial services companies would help our major opponents in international
trade do the same for intellectual property rights in their countries worldwide. This
would severely damage the important interests of the many components of the U.S.
economy that rely heavily on international enforcement of intellectual property rights.

Section 18 is special interest legislation in its truest form. It singles out one
industry, seeks to change the rules to protect that industry, and then apply that rule
change retroactively. This type of retroactive bailout risks our nation’s reputation for
protection of intellectual property, and also threatens all of our industries’ foreign patent
protections under the TRIPS treaty. No evidence exists from the PTO or any other
patent-intensive body that justifies the statements used by the financial services industry
in urging passage of this special interest amendment. This financial services industry
bailout should be stripped from the pending patent legislation.
 Tab 7

Chinese and Indian Patent Authorities Claim

the Patent Bill Will Make Infringing U.S.
Patents Easier and Cheaper
economictimes.indiatimes.com
Local cos can eye patents in US

NEW DELHI: A Crucial bill making its way through the US Congress is set to give a new
inexpensive option for Indian drug makers to attack the patents that give monopoly rights to
top-selling MNC brands in the largest pharmaceutical market.

The bill passed by the judiciary committees of the House and the Senate last week, for a
sweeping overhaul of the US patent system, allows an interested party to invalidate patents
outside a court of law. They could approach the US Patent and Trademark Office (USPTO) for
this after the patent is issued.

?The patent reform is beneficial to Indian companies as they are usually not patent holders and
are often excluded from the US market by the threat from weak patents,? said US-based
intellectual property law firm Darby & Darby PC?s Washington DC Office managing principal Dr
Raj S Dave.

There will be two windows for filing petition for cancellation of a patent. The first is within 12
months of issue or reissue of the patent. The second window is available if the continued
existence of patent claim is likely to cause the petitioner significant economic harm and the
petitioner has received a notice from the patentee alleging infringement, said Dr Dave in reply to
an ET questionnaire. It allows one to challenge a patent anytime during its life at a fraction of
the cost of litigation.

?This provision will subject many existing US patents to an immediate threat of invalidation as
it makes easier to show the obviousness of the invention. Seeking invalidation of patent is likely
to be a part of the patent strategy that Indian generics companies may follow in the US.
Companies could either make use of this provision or opt for the existing process of litigation or
a mix of both depending on legal advice on a case to case basis,? said Indian Pharmaceutical
Alliance secretary general DG Shah. Now, requesting marketing approval for a patented drug?s
generic copy leads to the innovator suing the applicant.

There are some major differences between moving the patent office for revoking a patent and
filing for marketing approval and risking litigation. If the patent is invalidated at the patent
office, the market for the drug is open to all generics makers unlike in the second case, where
the successful generics company gets a six month market monopoly. Since only the first
company to successfully file para four application is entitled to the six month market monopoly,
companies may not wait for the patent office?s decision.

?The provision has to be used judiciously,? says Ranbaxy executive director corporate affairs and
global corporate communications Ramesh L Adige. ?The documents and arguments a petitioner
relies on for invalidation at the patent office cannot be relied upon in a court of law, as the law
stands today. Therefore, losing the case at the patent office means the company needs fresh
ground to challenge the patent elsewhere,? he told ET. He added that the reforms are still some
way off as they need to be voted in the full house and senate.

The reforms will give more flexibility and freedom for adopting the appropriate patent challenge
strategy on a case to case basis, said Anoop Narayanan of Mumbai-based law firm Majmudar &
Co.
MONDAY, MARCH 14, 2011 e-paper | TODAY'S NEWSPAPER | Search
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Mumbai: Indian pharmaceutical firms, which 0 0
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Series manufacture of off-patent, or generic, drugs, are Like
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biggest drug market.

That is, if a US plan to reform patent laws by including provisions

for what is called post-grant opposition to patents and limiting
avenues for extending patent protection for medicine companies
becomes law.

The immediate impact of the law change will be to ease challenges

Reviews on drug patents and also lower legal costs in such challenges.

Mint 50 The changes anticipated in the Patent Reforms Act, which has Glenmark Pharma tanks 7% on early
Environment already been passed by the US House of Representatives in trade
February, would allow opposing a patent after its grant in the US, Lincoln Pharma gets patent nod for
Elections 2009 as is possible in countries such as the UK, Germany and India, nasal spray
Book Reviews along with a general tightening of patentability rules in the US. IBM gets 5,896 US patents in 2010;
Profiles highest for 18th yr in a row
It would also, to a large extent, halt the tactics of research-based
Intel settles patent dispute with NVidia;
Blogs drug giants in the US to include all possible claims in the patent to pay $1.5 bn
application by modifying it several times during the life of a patent
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through what is known as “ever-greening”. in Nov quarter
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With the reforms, the US patent office sought to limit the number of Biocon’s oral insulin fails experiment
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times to two that a patent applicant can file “continuations” of Sanofi’s shares slip as reveals Genzyme
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patent holder can keep updating its patent claims through such Merck KGaA focuses on diabetes in
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filings. The draft law is now under consideration of the US Senate. India, lines up five products
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The patent reforms in the US are aimed at eliminating frivolous
Wall Street Journal patents as also invalidating several existing patents that have
Tools received such protection through “continuation” filings based on
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With the provision of post-grant opposition, generics companies will

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infringing the patent—both expensive options.
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Once the opponent to the patent wins the post-grant opposition, mailed
then the inventor’s position will be substantially weakened as a
technical body (the US Patent and Trademarks Office, in this Tax treatment of losses on sale
instance) has already overturned the patent claim, said Gopakumar of shares
The powers of thought
Nair, chief executive of Gopakumar Nair Associates, a Mumbai
Radiation leaking from Japan’s
intellectual property advisory firm.
quake-hit nuclear plant
Nuclear power after the quake
“The three major changes expected in the US patent rule are the
Japan tries to avert nuclear
ones already incorporated in Indian patent rules. Though the Indian meltdown; likely death toll at
rules were widely criticized by the US in the past, it wants to follow 10,000
us now,” notes Yusuf Hamid, chairman of Cipla Ltd, ranked among Quake-hit Japan nuclear plant
India’s top three drug makers by revenue. faces new threat
Kingfisher Airlines reconfigures
According to him, the post-grant opposition will allow opponents of fleet to carry more seats
a patent an opportunity to argue their case in the patent office,
though applying for re-examination of a patent is currently allowed
in the US.

According to Shamnad Basheer, a patent expert at the Oxford

University’s Intellectual Property Centre, the changes to the US
patent rules will widen the scope of the current “re-examination”
procedure.

Since this is cheaper than litigation, it is expected that a number of

Indian generics will prefer this remedy. And, if the patent is
cancelled, any generic firm can enter the market immediately after
getting approval from the industry regulator.

In contrast, currently generic firms have to file what are called Para
IV filings, under the Drug Price Competition and Patent Term
Sites
Restoration Act, informally known as the Hatch-Waxman Act, which
Hindustan Times allows the challenger to find loopholes in patents.
Hindustan
Online Classifieds In the filing, patents are circumvented by either finding a fault in it
Fever 104
Shine: Jobs in India or proving that the generic equivalent is “non-infringing”. Typically,
Movie reviews this process which ends up in courts, lasts for less than a year but
ratings can be very expensive.
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“Post-grant opposition in the US will be good as it provides an
alternative forum, other than expensive litigation, to tackle patents
given to dubious inventions,” said drug maker Ranbaxy Laboratories
Ltd’s executive director Ramesh Adige. “Overall, (the US reform) 
does bring a global standard to patent litigation.”

The reforms in the US patent law was triggered by the US Supreme

Court, for raising “patentability” standards. While reacting to the
very liberal test for determining “non obviousness” or “inventive
step” by a lower court last year, the court had asked to raise the
threshold for patentability. Under the apex court’s direction, the
lower courts have already begun to apply tighter standards while
taking decisions on patent litigation, say experts.

Another recommendation by the court was that an injunction in a

patent case should not be automatic but should instead depend on
the facts of the case. Subsequently, in several electronics and
information technology cases, the courts have not granted
injunctions but only damages. “If applied to pharma, this would
greatly favour the generic companies,” said Basheer.

“At first sight, these bills seem to be pro-generic. Since several bills
are awaiting deliberation, we would need to see the fineprint and
the final form (in which) these bills are cleared,” said a senior
 patent executive, who preferred anonymity, at Sun Pharmaceutical
Industries Ltd, one of the active Indian companies in the US
generics market.

The US patent reforms, if passed by the Senate, will also have

provision for compensatory damages, among the most controversial
provisions in the Act, and being opposed by big drug companies.
Currently, in most of the cases involving patent infringement, the
court grants damages based on what is called the “entire market
value” rule.

Under current rules, if a challenger is found guilty of infringement,

it is liable to pay as much as three times the sales of the drug
under dispute for the period the generic variant was in the market.
This poses a big risk for generic challengers.

The amendments will value such fines based on the value addition
that the patent owner can demonstrate in its product over other
existing drugs.

It is unclear when the Senate will vote on the proposed legislation.

Tags - Find More Articles On:

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 Tab 8

Litigation Abuse of the Post-Grant System

by “Patent Assassins”
 Post Grant Abuse
The U.S. Patent System currently has two post-grant review systems – Ex
Parte and Inter Partes. Patent infringers are severely abusing each by using
patent challenges as a litigation tactic.

In the ex-parte process, an infringer or competitor can anonymously

challenge a patent’s validity. After filing the challenge, the USPTO assumes
the cost of pursing the examination. The patent owner must pay the costs of
defending their issued patent. One company with an advanced technology
has had that portfolio of patents challenged 17 times. It has won 13
challenges with four yet to be decided. The cost to the patent owner has
been more than $10 million so far.

This legislation makes no changes in ex parte processes. This abuse will

only worsen. What follows is the ad by a California law firm that explains
how for a fee they will use these post-grant processes to make infringement
unaccountable.

This legislation adds a third, a European-style post grant challenge process.

More than 5 percent of all issued patents granted in Europe are challenged
via this process mostly for strategic and competitive reasons. The same is
likely if Congress makes this change in U.S. patent law. The burden on the
USPTO will be increased and under present and projected funding, this will
further clog the U.S. patent system.
Important Changes in the USPTO Reexamination Process
Warrant a Second Look from Innovative Companies Today
A Guide to How SoCal IP’s Patent Assassins Can Leverage Reexamination to
Minimize Patent Infringement Risk

www.patentassassins.com

© 2008 SoCal IP Law Group LLP

I. Reexamination Procedure
How Do Reexams Work?
In a reexamination (reexam), the U.S. Patent & Trademark Office (USPTO) decides whether it erred
in granting the subject patent. Reexamination is a post-grant procedure–it’s used against issued
patents only, not pending applications. It’s similar to opposition procedures available in some foreign
countries, but reexaminations cost less and can be anonymous. In general, there are six steps in the
reexam process:

1. Request for Reexamination. The reexam request must identify some prior art and ask the USPTO to
hold the patent invalid based upon that prior art.

2. First Response. Within three months after the request is filed, the USPTO then decides whether or
not to grant the request.

3. Opening Statements. If the USPTO grants the request, the patent owner has two months to file an
opening statement.

4. Examination. The heart of the reexamination process is the examination of the patent.

5. Disposition. Eventually, the substance of the reexamination concludes at the desk of the examiner.

6. Reexamination Certificate. When the examiner completes his or her work, the USPTO issues a Notice
of Intent to Issue Reexamination Certificate (NIIRC).

Why Reexams?

Reexam vs. Litigation
The reexam procedure was designed to cost less and work faster than litigation. Besides cost and
speed, reexams also differ from litigation in the legal standards of patentability and in the right of the
patent challenger to participate in the process.

Figure 1a
Reexamination Litigation
Typical Cost $10,000 to $50,000 $1,000,000 to $5,000,000

Typical Speed 6–18 months 2–5 years

Legal Standard of Invalidity
Issues That Can Be Raised
Low: 51% of the strength of the
evidence
Invalidity based upon very limited
grounds
High: clear and convincing
evidence; almost like “beyond
a reasonable doubt”
Any validity issue, noninfringement,
equitable defenses, and anti-trust.

Right to Participate Limited Full

Claim Interpretation Broadest reasonable Claims may be interpreted narrowly

interpretation
Expertise of Decision Maker USPTO is expert in patent law
and technology
Availability of Discovery None
to preserve their validity
Judges typically have no training
in patent law and frequently fear
technology
Full

© 2008 SoCal IP Law Group LLP 1

Reexams Deserve a New Look
Perhaps the most significant legal change in patent law in 20 years was the U.S. Supreme Court’s
decision in KSR v. Teleflex in April 2007. In KSR, the Supreme Court replaced decades of precedent
with a new, lower standard for showing that a patent’s claims are obvious and therefore invalid.
The KSR decision impacts reexams in two ways:

1. First, because of the new obviousness rule in KSR, it is easier to show that claims are invalid. This
alone creates a higher chance of success of invalidating a patent in a reexam.

2. Second, many patents granted pre-KSR have questionable validity in the post-KSR world. Pre-KSR,
the USPTO applied only the “TSM” test for obviousness. Pre-KSR, the USPTO rejected a lot of
patent applications as obvious, and the applicants often overcame the rejections; thus, many pre-
KSR patents granted have an unmet question of validity according to the new KSR obviousness rule.

The latter point becomes even more powerful in view of some newer USPTO procedures. Under an
old rule, if a prior art reference was considered during original examination, it could not be consid-
ered by the USPTO in a reexam. This rule was later eliminated by Congress, though many people do
not know this. Post-KSR, grounds for reexam often immediately exist if the patent was granted pre-
KSR. Thus, because of the KSR obviousness rule, a reexam can be filed and can succeed using the
exact same prior art references considered during original examination.

II. The Patent Assassins’ Approach

The reexamination procedure of the U.S. patent system has tremendous power in the right hands.
The Patent Assassins of SoCal IP Law Group LLP are trained and experienced in reexams. The Patent
Assassins work covertly, quickly, and with precision. This White Paper explains how the Patent Assas-
sins use reexams to effectively and inexpensively reduce certain corporate risks. In short, reexams are
a powerful tool that provide the protection of litigation at 10% of the cost and in a third of the time.
Better still, the Patent Assassins use reexams when litigation is impossible—to reduce or defer royalty
costs without retribution.

SoCal IP’s Patent Assassins have special training, weapons, and tactics. Because of changes in law and
procedure and by carefully studying how reexams have succeeded and failed in the past, the Patent
Assassins deliver a higher success rate than has been seen in the past.

Using reexam as a tool to achieve the client’s business goals, the Patent Assassins have developed
three missions: Knock-Out, Flanking Attack, and Traffic Jam. In these missions, the goal is to either:
(a) invalidate or limit the patent claims, (b) obtain an official and favorable claim interpretation, or
(c) freeze the patent.

Mission: Knock-Out
In a Knock-Out Mission, the Patent Assassins, with their unique flair and precision, invalidate or limit the
claims of a problem patent. Knock-Out Missions can prevent or kill litigation, influence license negotia-
tions, eliminate royalty obligations, and clear out some patent “dead wood” when going to market with
a new product. A Knock Out Mission typically has a positive impact in a few months and becomes final
in one to two years. If litigation has arisen or is imminent, the Knock-Out Mission can stop the case
cold and also insulate you from a preliminary injunction.

© 2008 SoCal IP Law Group LLP 2

The Knock-Out Mission can be anonymous, and the Patent Assassins can create a simulated swell of
opposition to the patent. This can hide your identity and even draw the patent owner’s ire toward your
competitors.

Ideally, all of the problem patent’s claims are Knocked Out. Even if some claims survive, they are usu-
ally defanged. Indeed, just getting the claims limited is usually enough to score a TKO.

Even if some claims escape total Knock Out, they are usually so different from the original claims that
they are legally “new.” In that case your past liability melts away, and there is no infringement until
the reexam is completed. This resets the damages clock and often guts the patent owner’s economic
motivation. Because the claims are narrower, there are more opportunities to escape them too. More-
over, you will see the amended claims many months before the reexam ends–plenty of time for product
changes that dodge the amended claims. The patent owner’s arguments to the USPTO often also help
you because what the patent owner says is legally binding against the patent owner.

Mission: Flanking Attack

A special, secret weapon of the Patent Assassins, the Flanking Attack Mission results in a favorable
(narrow) claim interpretation. Although this result may be obtained in a Knock-Out Mission, the Flank-
ing Attack does it in a lightning fast three months.

The Flanking Attack Mission uses a little-appreciated quirk of the reexam process. The patent owner
rarely recognizes the goal of the Flanking Attack and cannot appeal from it.

The Flanking Attack Mission works best when you are “practicing the prior art.” The process involves
the Patent Assassins filing an anonymous reexam request and the USPTO denying the request. This
sounds simple, but it requires a special subtlety and awareness.

Mission: Traffic Jam

British statesman and Prime Minister William E. Gladstone said, “Justice delayed is justice denied.” The
Patent Assassins turn this truth on its head in the Traffic Jam Mission. By creating uncertainty about a
problem patent and tying it up in a long reexam process, the Patent Assassins effectively nullify the
problem patent.

Sometimes the Traffic Jam Mission involves a series of petitions for reexam. Though the USPTO’s rules
aim for a speedy resolution, the Patent Assassins have an arsenal of tactics that can keep a problem
patent in reexam for a long, long time.

Because of the uncertainty created, Traffic Jam Missions are excellent during license negotiations.
You can argue against paying royalties until the reexam is complete or for lower rates until the
uncertainty ends.

Traffic Jam Missions also work well in litigation. A judge can “stay” a patent lawsuit pending the out-
come of a reexam. If the reexam is filed early, the judge is more likely to stay the case, delaying any
ruling regarding the patent at issue.

© 2008 SoCal IP Law Group LLP 3

About Us
The Patent Assassins of SoCal IP Law Group LLP are trained and experienced in reexaminations.
They use reexaminations to effectively, inexpensively, and quickly reduce certain corporate risks.
Reexaminations are a powerful tool that can provide the protection of litigation at 10% of the cost
and in a third of the time. Better still, the Patent Assassins use reexaminations when litigation is
impossible—to reduce or defer royalty costs without retribution.

SoCal IP Law Group LLP handles intellectual property matters for high-technology and high-growth
companies. This work involves patents, trademarks, copyrights, trade secrets, licenses, and IP-related
business transactions. Although most of our work is with companies in the $10M to $2B range, our
clients also include small companies and start-ups. We have chosen to limit our practice to intellectual
property law and therefore have developed considerable expertise and a reputation for excellence in
our field.

Steven C. Sereboff, Esq. Mark A. Goldstein, Esq.

310 N. Westlake Boulevard, Suite 120 310 N. Westlake Boulevard, Suite 120
Westlake Village, California 91362 Westlake Village, California 91362
Tel: +1 (805) 230-1350 (x220) Tel: +1 (805) 230-1350 (x240)
ssereboff@socalip.com mgoldstein@socalip.com

www.patentassassins.com

© 2008 SoCal IP Law Group LLP 4

 Tab 9

Patent Spin
 Patent Spin
The Word Lover’s Guide defines political “spin” as:

spin
v. To convey information or cast another person's remarks or
actions in a biased or slanted way so as to favorably influence
public opinion; information provided in such a fashion.

The debate over patent reform has involved much spin by the advocates of
harmonization. The principal of these are:

Spin Number One -- The U.S. Patent System is antiquated because it has
not had a major reform since 1952 – almost 60 years.

False.

In fact, the U.S. Congress, Executive Branch and Supreme Court have regularly updated
patent policy to bring it into line with an increasingly global economy. Since 1952, the
U.S. Congress has amended the Patent Act at least 42 times, several of which involved
major changes such as establishing the U.S. Court of Appeals for the Federal Circuit.

In addition, the U.S. has entered seven significant international patent-

related agreements since 1952, including the convention establishing the
World Intellectual Property Organization in 1967 and TRIPS (Trade-Related
Aspects of Intellectual Property Rights) at the World Trade Organization in
1994.

Since 1952, the U.S. Supreme Court has issued 35 major patent decisions,
many of which came between 2005 and 2007.

Professor Dennis Crouch of the University of Missouri School of Law

testified before the House Judiciary’s Subcommittee on Intellectual
Property, Competition and the Internet on March 10, 2011. He identified the
substantive changes in patent law made by the courts in recent years. He
noted:

Over the past six years, the Supreme Court granted certiorari and issued a
number of important patent decisions that:
 • · Make it easier to invalidate (or reject) a patent on obviousness grounds, KSR Int'l
Co. v. Teleflex Inc., 550 U.S. 398 (2007) (eliminating technical hurdles for
proving an invention obvious and instead applying a “common sense” analysis for
assessing patentability);

• · Make it more difficult for a patent holding company to obtain injunctive relief to
stop ongoing infringement, eBay Inc. v. MercExchange, L.L.C., 547 U.S. 388
(2006) (holding that even an adjudged infringer should not be automatically
enjoined from continuing to infringe; rather an injunction should only issue after
consideration of the traditional four-factor test for equitable injunctive relief);

• · Make it easier for a manufacturer to obtain a declaratory judgment of non-

infringement, MedImmune, Inc. v. Genentech, Inc., 549 U.S. 118 (2007) (holding
that declaratory judgment (“DJ”) jurisdiction may exist even if the patent holder
could not have sued the DJ plaintiff for infringement; apprehension that patentee
will sue for infringement is not a necessary element for Article III jurisdiction);

• · Solidify our understanding of the scope of patentable subject matter available for
business method patents, Bilski v. Kappos, 130 S. Ct. 3218 (2010) (invalidating
Bilski’s claimed invention – a method of hedging against the occurrence of bad
weather – as an unpatentable abstract idea);

• · Limit the doctrine of export infringement under 35 U.S.C. § 271(f), Microsoft

Corp. v. AT&T Corp., 550 U.S. 437 (2007) (holding that Microsoft could not be
held liable for exporting software code because the exported source code does not
qualify as a “component” under the statute); and

• .· Provide roadmaps for stronger patent licensing agreements, see Quanta

Computer, Inc. v. LG Elecs., Inc., 553 U.S. 617 (2008) (patent “exhausted” under
first sale doctrine because patentee did not restrict licensee’s sales to third party
purchasers) and Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006)
(holding that in antitrust tying cases,  courts  should  not  presume  that  a  patent  
confers  market  power).  
 
During this time, the Federal Circuit has also actively addressed patent
reform issues with decisions that:
 

• Attempt  to  implement  venue  reform  in  a  way  that  limits  unreasonable  forum  
shopping,  In  re  TS  Tech  United  States  Corp.,  551  F.3d  1315  (Fed.  Cir.  2009)  (on  
writ  of  mandamus,  ordering  case  transferred  out  of  venue  that  had  no  
meaningful  ties  to  the  patent  infringement  case);  
 
• Rationalize  patent  damage  awards,  Uniloc  USA,  Inc.  v.  Microsoft  Corp.,  ___  F.3d  
___,  2011  U.S.  App.  LEXIS  11  (Fed.  Cir.  2011)  (holding  that  the  25%  Rule  for  
 calculating  patent  damages  is  “fundamentally  flawed”  and  that  total  product  
revenue  cannot  be  considered  in  the  reasonable  royalty  analysis  unless  the  
Entire  Market  Value  Rule  applies.)  and  Lucent  Techs.,  Inc.  v.  Gateway,  Inc.,  580  
F.3d  1301,  1324  (Fed.  Cir.  2009)  (requiring  a  proof  that  purported  “comparable”  
licenses  used  for  calculating  a  royalty  rate  are,  in  fact,  comparable);  Wordtech  
Systems,  Inc.  v.  Integrated  Networks  Solutions,  Inc.,  609  F.3d  1308  (Fed.  Cir.  
2010).  
 
• Limit  enhanced  damages,  In  re  Seagate,  497  F.  3d  1360  (Fed.  Cir.  2007)  (limiting  
the  potential  for  treble  damages  to  cases  where  the  adjudged  infringer’s  actions  
were  at  least  “objectively  reckless”);  
 
• Expand  the  false  marking  doctrine,  Forest  Group  Inc.  v.  Bon  Tool  Co.,  590  F.3d  
1295  (Fed.  Cir.  2009);  
 
• Limit  inequitable  conduct  pleadings,  Exergen  Corporation  v.  Wal-­‐Mart  Stores,  Inc.,  
575  F.3d  1312  (Fed.  Cir.  2009)  (requiring  that  inequitable  conduct  pleadings  
include  “specific  who,  what,  when,  where,  and  how  of  [any]  material  
misrepresentation  or  omission”);  and  
 
• Reject  Patent  Office  substantive  rulemaking  authority,  Tafas  v.  Doll,  559  F.3d  1345  
(Fed.  Cir.  2009).7

Spin Number Two – The U.S. is in the midst of a patent litigation crisis.

False.

The table at Tab #, Number 4 documents the number of lawsuits filed per
number of patents granted. The ratio has remained a constant 1.5 percent for
more than 30 years. There is no surge of patent lawsuits.

Spin Number Three - The Courts are awarding excessive damages to

plaintiffs in patent infringement cases.

False.

Several recent studies have examined the question and conclude that patent
damage awards are not “excessive. The 271 Plant Blog summarizes a recent
study that empirically analyzed damage awards from 1996-2008 and came to
that conclusion. The Blog and summary are attached.
Spin Number Four – Inventors, venture investors, and technology-based
small companies will be helped by The America Invents Act.

False.

The trade associations that represent those groups strongly disagree and
document how innovation by their members will be harmed, if not
destroyed. See letters in Tab 4 from inventors, businesses, and the National
Venture Capital Association.

Spin Number Five – The United States is the only nation that does not use
a first-to-file system of patent grants and needs to catch up and be like the
rest of the world.

False.

The U.S. patent system is far superior to all others. They should harmonize
up to our standard and we should not harmonize down to theirs.

Europe is in a quiet panic because their societies are laggard innovators. A

recent article concludes that young people are not pursuing innovation and
start-ups. An obvious reason is that they do not have the incentives that the
U.S. Patent System provides. The solution is for Europe to harmonize up to
existing U.S. patent standards. Article attached.
 Committee  on  the  Judiciary  
United  States  House  of  Representatives  
Subcommittee  on  Intellectual  Property,  Competition  and  the  Internet  
 
Hearing  
 
 ͞ZĞǀŝĞǁŽĨZĞĐĞŶƚ:ƵĚŝĐŝĂůĞĐŝƐŝŽŶƐŽŶWĂƚĞŶƚ>Ăǁ͟  
 
Prepared  Statement  of  
Dennis  Crouch*  
 
March  10,  2011  
Washington,  DC  
 
Contents  
   
I.   Introduction:  .........................................................................................................................................  2  
II.   The  Rapid  Developments  in  Patent  Case  Law  over  the  Past  Several  Years:  .........................................  2  
III.   Administrative  and  Practice  Changes  that  have  Arisen  Over  the  Past  Several  Years:  ......................  7  
IV.   Identifying  Elements  of  the  Reform  Measures  that  have  not  been  Implemented:  .......................  11  
 

 
 
 
                                                                                                                     
*
 Associate  Professor  of  Law,  University  of  Missouri  School  of  Law;  J.D.,  University  of  Chicago  School  of  
Law;  B.S.E.,  Princeton  University  (Department  of  Mechanical  and  Aerospace  Engineering).      
 
My  academic  research  interests  focus  on  patent  law,  intellectual  property  law  and  internet  law.  In  
addition  to  traditional  academic  publications,  I  also  author  the  Patently-­‐O  Patent  Law  Blog  that  has  a  
daily  circulation  of  over  30,000  and  is  regularly  read  by  most  US  patent  law  practitioners.    Prior  to  
joining  the  University  of  Missouri  faculty,  I  was  a  visiting  professor  at  Boston  University  School  of  Law  
and  worked  as  a  patent  attorney  at  a  major  intellectual  property  law  firm  in  Chicago  where  I  
represented  inventors  pursuing  patent  protection  as  well  as  clients  litigating  claims  of  patent  
infringement.  Before  entering  law  school,  I  served  as  a  United  States  Peace  Corps  Volunteer  in  rural  
Ghana,  West  Africa;  worked  as  a  manufacturing  engineer  in  upstate  New  York;  and  conducted  research  
on  microgravity  combustion  with  NASA.    I  am  not  a  registered  lobbyist,  I  do  not  represent  any  clients,  
and  I  do  not  own  stock  in  any  particular  company  with  a  vested  interest  in  patent  rights  (beyond  broad-­‐
based  mutual  funds).    
 
This  testimony  is  not  intended  to  serve  as  a  comprehensive  analysis,  but  rather  as  an  introduction  to  
many  of  the  important  changes  that  have  occured  in  patent  law  over  the  past  several  years.    
 
1.  
 
 I. Introduction:    
 
We  are  likely  nearing  a  turning  point  in  a  decade-­‐long  process  of  patent  reform.    Although  there  
is  still  clearly  a  strong  demand  for  legislative  measures,  much  has  changed  since  the  landmark  
FTC  and  NAS  point-­‐by-­‐point  criticisms  of  the  patent  law  system  were  released  in  2003  and  2004  
respectively.1  Likewise,  much  has  changed  in  the  six  years  since  the  Patent  Reform  Act  of  2005  
was   introduced   in   the   House   of   Representatives.2     Perhaps   in   response   to   these   external  
pressures,  the  Federal  Courts  have  taken  a  more  active  role  in  shaping  patent  policy   from  the  
bench   and   have   particularly   addressed   many   of   the   concerns   raised   by   the   various   patent  
reform  initiatives.    
 
II. The  Rapid  Developments  in  Patent  Case  Law  over  the  Past  Several  Years:    
 
In   most   areas   of   law,   court-­‐developed   doctrines   mature   quite   slowly.     Over   the   past   decade,  
however,   patent   law   has   been   a   dramatic   counter-­‐example.     The   courts   have   substantially  
altered  many  longstanding  patent  doctrines  in  the  course  of  a  few  short  years. 3    Several  factors  
combine  to  explain  this  phenomenon.    First,  unlike  most  other  federal  legal  questions  appealed  
to   regional   Circuit   Courts   of   Appeal,   virtually   all   patent   law   related   appeals   from   across   the  
country  are  heard  by  the   Court  of  Appeals  for  the  Federal  Circuit  (ƚŚĞ͞Federal  Circuit͟).    The  
national   reach   of   the   Federal   Circuit   means   that   a   ruling   by   the   court   has   an   automatic  
nationwide   impact   in   much  the   same   way   that  decisions   by   the   United  States   Supreme   Court  
have   a   nationwide   impact.     However,   unlike   the   Supreme   Court,   the   Federal   Circuit   hears  
hundreds  of  patent  cases  each  year.    Over  the  past  ten  years,  the  funneling  of  patent  appeals  to  
the   Federal   Circuit   has   resulted   in   the   court   hearing   over   four   thousand   patent   infringement  
appeals   in   addition   to   its   review   of   patent   decisions   from   the   United   States   Patent   and  
dƌĂĚĞŵĂƌŬ KĨĨŝĐĞ ;ƚŚĞ ͞Patent   Office͟Ϳ   and   the   International   Trade   Commission.4     The   large  
number   of   cases   provides   the   court   with   the   opportunity  to   rapidly   shift   the   law,   even   when  
each  case  presents  only  an  incremental  change.  In  addition  to  the  means  to  effect  change,  it  is  
apparent  that  both  the  Federal  Circuit  and  the  Supreme  Court  have  taken  an  interest  in  shaping  

                                                                                                                     
1
 Federal  Trade  Commission,  To  Promote  Innovation:  The  Proper  Balance  of  Competition  and  Patent  Law  
and  Policy,  A  Report  by  the  Federal  Trade  Commission,  October  2003;  Nat'l  Res.  Council  of  the  Nat'l  
Acads.,  A  Patent  System  for  the  21st  Century  (Stephen  A.  Merrill  et  al.  eds.,  National  Academies  Press).  
 
2
 Patent  Act  of  2005,  H.R.2795.    
 
3
 See  William  C.  Rooklidge  &  Alyson  G.  Barker,  Reform  of  a  Fast-­‐Moving  Target:  The  Development  of  
Patent  Law  Since  fee  2004  National  Academies  Report,  91  J.  Pat.  &  Trademark  Off.  Soc'y  153  (2009).    

 
4
 Federal  Circuit  Statistics,  Filings  of  Patent  Infringement  Appeals  from  the  U.S.  District  Courts  at  
http://www.cafc.uscourts.gov.      
 
2.  
 
patent  law  policy.5    Finally,  unlike  many  Federal  statutes,  the  Patent  Act  as  codified  in  Title  35  of  
the   United   States   Code   is   a   relatively   sparse   statute   that   leaves   tremendous   leeway   for  
interpretation.    
 
Over  the  past  six  years,  the  Supreme  Court  granted  certiorari  and  issued  a  number  of  important  
patent  decisions  that:  
 
x Make  it  easier  to  invalidate  (or  reject)  a  patent  on  obviousness  grounds,  KSR  Int'l  Co.  v.  
Teleflex  Inc.,  550  U.S.  398  (2007)  (eliminating  technical  hurdles  for  proving  an  invention  
ŽďǀŝŽƵƐĂŶĚŝŶƐƚĞĂĚĂƉƉůLJŝŶŐĂ͞ĐŽŵŵŽŶƐĞŶƐĞ͟ĂŶĂůLJƐis  for  assessing  patentability);  
 
x Make   it   more   difficult  for   a   patent   holding   company  to   obtain   injunctive   relief  to   stop  
ongoing   infringement,   eBay   Inc.   v.   MercExchange,   L.L.C.,   547   U.S.   388   (2006)   (holding  
that   even   an   adjudged   infringer   should   not   be   automatically   enjoined  from   continuing  
to  infringe;  rather  an  injunction  should  only  issue  after  consideration  of  the  traditional  
four-­‐factor  test  for  equitable  injunctive  relief);  
 
x Make   it   easier   for   a   manufacturer   to   obtain   a   declaratory   judgment   of   non-­‐
infringement,   MedImmune,   Inc.   v.   Genentech,   Inc.,   549   U.S.   118   (2007)   (holding   that  
declaratory   judgment   ;͞:͟Ϳ jurisdiction   may   exist   even   if   the   patent   holder   could   not  
have   sued   the   DJ   plaintiff   for   infringement;   apprehension   that   patentee   will   sue   for  
infringement  is  not  a  necessary  element  for  Article  III  jurisdiction);  
 
x Solidify   our   understanding   of   the   scope   of   patentable   subject   matter   available   for  
business   method   patents,   Bilski   v.   Kappos,   130   S.   Ct.   3218   (2010)   (invalidating   ŝůƐŬŝ͛Ɛ
claimed  invention  ʹ  a  method  of  hedging  against  the  occurrence  of  bad  weather  ʹ  as  an  
unpatentable  abstract  idea);    
 
x Limit   the   doctrine   of   export   infringement   under   35   U.S.C.   §   271(f),   Microsoft   Corp.   v.  
AT&T   Corp.,   550   U.S.   437   (2007)   (holding   that   Microsoft   could   not   be   held   liable   for  
exporting   software   code   because   the   exported   source   code   does   not   qualify   as   a  
͞ĐŽŵƉŽŶĞŶƚ͟under  the  statute);  and    
 

                                                                                                                     
5
 Polk  Wagner  &  Lee  Petherbridge,  Is  the  Federal  Circuit  Succeeding?  An  Empirical  Assessment  of  Judicial  
Performance͕ϭϱϮh͘WĂ͘>͘ZĞǀ͘ϭϭϬϱ;ϮϬϬϰͿ;͞ƐŝŶĐĞŝƚƐinception,  the  [Federal  Circuit]Ͷwith  some  
assistance  from  the  Supreme  CourtͶhas  moved  aggressively  in  support  of  its  widely  perceived  
ŵĂŶĚĂƚĞ͟Ϳ͖WĂƵůZ͘DŝĐŚĞů͕Assuring  Consistency  and  Uniformity  of  Precedent  and  Legal  Doctrine  in  the  
Areas  of  Subject  Matter  Jurisdiction  Entrusted  Exclusively  to  the  U.S.  Courts  of  Appeals  for  the  Federal  
Circuit:  A  View  from  the  Top,  58  AM.  U.  L.  REV.  699,  702  (2009);  Craig  Allen  Nard  &  John  F.  Duffy,  
Rethinking  Patent  Law's  Uniformity  Principle,  101  Nw.  U.  L.  Rev.  1619  (2007);  Dan  L.  Burk  &  Mark  A.  
Lemley,  The  Patent  Crisis  and  How  the  Courts  Can  Solve  It  (2009)  

3.  
 
 x Provide  roadmaps  for  stronger  patent  licensing  agreements,  see  Quanta  Computer,  Inc.  
v.   LG   Elecs.͕ /ŶĐ͕͘ ϱϱϯ h͘^͘ ϲϭϳ ;ϮϬϬϴͿ ;ƉĂƚĞŶƚ ͞ĞdžŚĂƵƐƚĞĚ͟ ƵŶĚĞƌ ĨŝƌƐƚ ƐĂůĞ ĚŽĐƚƌŝŶĞ
ďĞĐĂƵƐĞƉĂƚĞŶƚĞĞĚŝĚŶŽƚƌĞƐƚƌŝĐƚůŝĐĞŶƐĞĞ͛ƐƐĂůĞƐƚŽƚŚŝƌĚƉĂƌty  purchasers)  and  Ill.  Tool  
Works   Inc.   v.   Indep.   Ink,   Inc.,   547   U.S.   28   (2006)   (holding   that   in   antitrust   tying   cases,  
courts  should  not  presume  that  a  patent  confers  market  power).  
 
During   this   time,   the   Federal   Circuit   has   also   actively   addressed   patent   reform   issues   with  
decisions  that:    
 
x Attempt  to  implement  venue  reform  in  a  way  that  limits  unreasonable  forum  shopping,  
In  re  TS  Tech  United  States  Corp.,  551  F.3d  1315  (Fed.  Cir.  2009)  (on  writ  of  mandamus,  
ordering   case   transferred   out   of   venue   that   had   no   meaningful   ties   to   the   patent  
infringement  case);6    
 
x Rationalize   patent   damage   awards,   Uniloc   USA,   Inc.   v.   Microsoft   Corp.,   ___   F.3d   ___,  
2011  U.S.  App.  LEXIS  11  (Fed.  Cir.  2011)  (holding  that  the  25%  Rule  for  calculating  patent  
ĚĂŵĂŐĞƐ ŝƐ ͞ĨƵŶĚĂŵĞŶƚĂůůLJ ĨůĂǁĞĚ͟ ĂŶĚ ƚŚĂƚ ƚŽƚĂů ƉƌŽĚƵĐƚ ƌĞǀĞŶƵĞ ĐĂŶŶŽƚ ďĞ
considered   in   the   reasonable   royalty   analysis   unless   the   Entire   Market   Value   Rule  
applies.)   and   Lucent   Techs.,   Inc.   v.   Gateway,   Inc.,   580   F.3d  1301,  1324   (Fed.   Cir.   2009)  
(requiring   a   ƉƌŽŽĨ ƚŚĂƚ ƉƵƌƉŽƌƚĞĚ ͞ĐŽŵƉĂƌĂďůĞ͟ ůŝĐĞŶƐĞƐ ƵƐĞĚ ĨŽƌ ĐĂůĐƵůĂƚŝŶŐ Ă ƌŽLJĂůƚLJ
rate  are,  in  fact,  comparable);  Wordtech  Systems,  Inc.  v.  Integrated  Networks  Solutions,  
Inc.,  609  F.3d  1308  (Fed.  Cir.  2010).  
 
x Limit   enhanced   damages,   In   re   Seagate,   497   F.   3d   1360   (Fed.   Cir.   2007)   (limiting   the  
potential   for   treble   damages   to   cases   where   thĞ ĂĚũƵĚŐĞĚ ŝŶĨƌŝŶŐĞƌ͛Ɛ ĂĐƚŝŽŶƐ ǁĞƌĞ Ăƚ
ůĞĂƐƚ͞ŽďũĞĐƚŝǀĞůLJƌĞĐŬůĞƐƐ͟Ϳ  (see  Chart  1);  
 
x Expand  the  false  marking  doctrine,  Forest  Group  Inc.  v.  Bon  Tool  Co.,  590  F.3d  1295  (Fed.  
Cir.  2009);    
 
x Limit   inequitable   conduct   pleadings,   Exergen   Corporation   v.   Wal-­‐Mart   Stores,   Inc.,   575  
&͘ϯĚϭϯϭϮ;&ĞĚ͘ŝƌ͘ϮϬϬϵͿ;ƌĞƋƵŝƌŝŶŐƚŚĂƚŝŶĞƋƵŝƚĂďůĞĐŽŶĚƵĐƚƉůĞĂĚŝŶŐƐŝŶĐůƵĚĞ͞ƐƉĞĐŝĨŝĐ
who,   what,   when,   where,   and   how   of   [any]   material   ŵŝƐƌĞƉƌĞƐĞŶƚĂƚŝŽŶ Žƌ ŽŵŝƐƐŝŽŶ͟Ϳ͖
and    
 

                                                                                                                     
6
 The  TS  Tech  decision  appears  to  have  had  a  major  impact  on  patent  venue  jurisprudence.  In  the  two  
years  since  the  case  was  decided,  its  analysis  has  been  followed  by  almost  four  dozen  different  courts.    
See,  for  example,  Promote  Innovation  LLC  v.  Leviton  Mfg.  Co.,  2011  U.S.  Dist.  LEXIS  16294  (E.D.  Tex.  Feb.  
ϭϳ͕ϮϬϭϭͿ;ŐƌĂŶƚŝŶŐĂĐĐƵƐĞĚŝŶĨƌŝŶŐĞƌ͛ƐŵŽƚŝŽŶƚŽƚƌĂŶƐĨĞƌǀĞŶƵĞĨƌŽŵƚŚĞĂƐƚĞƌŶŝƐƚƌŝĐƚŽĨdĞdžĂƐƚŽƚŚĞ
Eastern  District  of  New  York).  
   
4.  
 
 x Reject  Patent  Office  substantive  rulemaking  authority,  Tafas  v.  Doll,  559  F.3d  1345  (Fed.  
Cir.  2009).7      
 
 
 
 

 
 

 
Chart  1  
 
 

                                                                                                                     
7
 The  Tafas  decision  was  vacated  pending  rehearing  en  banc  and  eventually  dropped  after  the  USPTO  
retracted  its  planned  implementation  of  rules  that  would  limit  both  the  number  of  claims  that  an  
applicant  could  file  per  patent  application  and  the  number  of  continuation  applications  an  applicant  
could  file  based  on  a  single  invention  disclosure.  See  also,  Arti  K.  Rai,  Growing  Pains  in  the  Administrative  
State:  The  Patent  Office's  Troubled  Quest  for  Managerial  Control,  157  U.  PA.  L.  REV.  2051  (2009).    
5.  
 
As   we   sit   here   today,   the   courts   also   have   a   number   of   important   cases   pending   resolution.  
Among  others,  these  include:    
 
x A   challenge   to   the   presumption   of   validity   associated   with   issued   patents,   Microsoft  
Corp.  v.  I4I  Ltd.  P'ship,  131  S.  Ct.  647  (2010)  (certiorari  granted  on  the  issue  of  whether  
the  presumption  of  validity  associated  with  an  issued  patent  must  always  be  overcome  
with  clear  and  convincing  evidence);    
 
x A  challenge  to  the  patentability  of  genetic  material,  See  Ass'n  for  Molecular  Pathology  v.  
United   States   PTO,   2010   U.S.   Dist.   LEXIS   35418   (S.D.N.Y.   2010)   (holding   BRCA   gene  
patents  invalid  for  being  directed  to  a  law  of  nature);  
 
x A   Constitutional   challenge   to   the   False   Marking   provisions   of   the   Patent   Act,   Unique  
Prod.  Solutions,  Ltd.  v.  Hy-­‐Grade  Valve,  Inc.,  2011  U.S.  Dist.  LEXIS  18237  (N.D.  Ohio  2011)  
(holding  the  False  Marking  statute  unconstitutional)  and  United  States  ex  rel.  FLFMC,  LLC  
v.   Wham-­‐O,   Inc.,   Fed.   Cir.   App.   No.   2011-­‐1067   (pending   appeal   challenging  
Constitutionality  of  the  statute);8    
 
x A   question   regarding   the   mens   rea   requirement   for   inducing   infringement   under   35  
U.S.C.  §  271(b),  Global-­‐Tech  Appliances,  Inc.  v.  SEB  S.A.,  131  S.  Ct.  458  (2010)  (grant  of  
certiorari);    
 
x A  major  challenge  to  the  implementation  of  the  judge  made  law  of  inequitable  conduct,  
TheraSense,  Inc.  v.  Becton,  Dickinson  &  Co.,  374  Fed.  Appx.  35  (Fed.  Cir.  April  26,  2010)  
(en  banc  order  requesting  briefing);  and  
 
x A  challenge  to  patent  ownership  rights  under  the  Bayh-­‐Dole  Act,  Bd.  of  Trs.  of  the  Leland  
Stanford  Junior  Univ.  v.  Roche  Molecular  Sys.,  131  S.  Ct.  502  (2010)  (grant  of  certiorari).  
     
For   better   or   worse,   the   courts   have   substantially   shifted   the   playing   field   over   the   past   six  
years.   And,   the   cases   currently   pending   and   in   the   pipeline   appear   poised   to   continue   this  
process.    Of  course,  the  courts  have  limited  power  and  cannot  make  statutory  amendments  or  
offer  funding  to  the  Patent  Office.    It  is  safe  to  say,  however,  that  the  courts  have  addressed  (or  
are   addressing)   virtually   all   of   the   legitimately   raised   patent   reform   issues   that   fall   squarely  
within  their  purview.    Within  this  dynamic,  an  important  ongoing  role  of  Congress  is  at  least  to  
ensure  that  the  courts  are  making  the  right  policy  choices.    
 
 
 
 
                                                                                                                     
8
 Over  1,000  false  marking  claims  were  filed  in  2009  and  2010.    False  Patent  Marking  at  
http://www.falsemarking.net/cases.php.    
 
6.  
 
 III. Administrative  and  Practice  Changes  that  have  Arisen  Over  the  Past  Several  Years:  
 
Patent  Office  Backlog:  A  key  issue  of  patent  law  policy  that  has  not  been  adequately  addressed  
in  the  past  six  years  is  the  growing  backlog  of  patent  applications  pending  at  the  Patent  Office.    
Although  the  current  Patent  Office  management  team  is  quite  focused  on  reducing  the  backlog,  
their  efforts  have  not  been  overwhelmingly  successful  to-­‐date.    As  seen  in  Chart  2  (below),  the  
overall  backlog  of  patent  applications  pending  at  the  USPTO  has  increased  more  than  30%  since  
2005.    The  forced  delay  is  troubling  for  patent  applicants  because  the  exclusive  patent  right  is  
only  enforceable  once  the  patent  issues,  and  typically  only  against  post-­‐issuance  infringement.    
The   multi-­‐year   prosecution   delay   is   also   troubling   for   potential   competitors   and   customers  
because   the   patent   right   may   eventually   spring-­‐forth   to   re-­‐capture   exclusive   rights   that   had  
been  in  public  use  for  years.    
 
 

Chart  2:  Backlog  of  Pending  Patent  Applications  

 1,200,000

 1,000,000

 800,000

 600,000

 400,000

 200,000

 -­‐
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
End  of  Fiscal  year  
 
 
 
 
 
 

7.  
 
Even   more   dramatic,   is   the   twenty   seven   fold   (~2700%)   increase   in   the   backlog   of   cases  
awaiting  decision  at  the  Board  of  Patent  Appeals  and  Interferences  (BPAI).  (Chart  3).    The  long  
and   growing   backlog   of   appeals   more   than   doubles   the   expected   duration   of   the   patent  
prosecution   process   for   the   almost   50%   of   patent   applicants   that   achieve   at   least   a   partial  
victory  on  appeal.    
 
 

Chart  3:  Backlog  of  Patent  Prosecution  Appeals  Pending  

Resolution  (Ex  parte  Cases  Only)  
 20,000

 15,000

 10,000

 5,000

 -­‐
Mar  05 Mar  06 Mar  07 Mar  08 Mar  09 Mar  10 Mar  11
 
 
These  backlogs  likely  cannot  be  directly  corrected  by  the  courts.  Instead,  every  effort  must  be  
made  to  ensure  that  the  Patent  Office  is  enabled  and  encouraged  to  right  its  own  ship.    In  the  
short  term,  the  Patent  Office  will  need  to  hire  more  examiners;  re-­‐work  its  failing  information  
technology  system;  and  apply  effective  negotiation  theories  to  the  examination  process.    In  the  
longer   term,   world   patent   offices   must   work-­‐share   when   examining   duplicate   patent  
applications  that  have  been  filed  in  multiple  countries.9    In  addition,  there  are  some  relatively  
easy   steps   that   can   be   taken   to   help   ensure   that   patent   applications   are   filed   in   a   way   that  
make   them   easier   to   examine.     This   may   include   (1)   requiring   applicants   to   better   delineate  
their  invention  and  its  purposes  and  (2)  more  rigorously  enforcing  the  requirement  that  claims  
be  clearly  drafted  in  a  way  that  relates  to  the  invention  as  disclosed.      
 

                                                                                                                     
9
 See  Rai,  Growing  Pains  at  note  6.  
 
8.  
 
Obviousness  and  the  Backlog:  The  bulk  of  time  spent  in  the  patent  examination  process  and  in  
appeals  to  the  BPAI  revolves   around  the  issue  of  obviousness.10    In  other  words,  the  backlogs  
can  be  largely  attributed  to  time  spent  arguing  the  difficult  issue  of  obviousness.  Unfortunately,  
nothing   in   the   proposed   legislation   does   anything   directly   to   alleviate   this   burden.     Although  
the   process   of   examining   patents   for   obviousness   may   seem   to   be   one   best   left   to   the  
administrative  agency,  the  Patent  Office  is  bound  to  follow  the  examination  processes  laid  out  
by   the   courts   in   KSR   v.  Teleflex11  and   Graham   v.   John   Deere   Co.12     Because  so   much   time  and  
energy   is   spent   on   this   issue   during   the   examination   process,   it   may   be   one   where   increased  
substantive  rulemaking  authority  would   allow  the  Patent  Office  to  create  a  more  manageable  
approach  to  the  statutory  question.      
 
Foreign   Inventor   Influence   on   the   US   Patent   System:   Through   a   number   of   reciprocal  
international   agreements   such   as   Paris   Convention,   the   US   has   promised   citizens   of   other  
countries  access  to  the  US  patent  system.13    Under  these  agreements,  an  innovative  Japanese  
company   seeking   exclusive   rights   in   the   US   market   could   obtain   US   patent   protection   and  
enforce  those  rights  in  US  courts  against  US  competitors.    Despite  this  offer  of  rights,  the  bulk  
of  issued  US  patent  have  always  been  based  on  US  originated  inventions.    This  practical  statistic  
meant  that,  historically,  US  patent  reform  primarily  impacted  US  companies  and  US  inventors.    
Over  the  past  six  years,  the  statistic  changed,  and  for  the  first  time  in  history,  the  majority  of  US  
patents  are  now  being  issued  on  foreign-­‐originated  inventions.  (Chart  4).    
 

                                                                                                                     
10
 Dennis  Crouch,  Understanding  the  Role  of  the  Board  of  Patent  Appeals:  Ex  Parte  Rejection  Rates  on  
Appeal,  University  of  Missouri  School  of  Law  Legal  Studies  Research  Paper  No.  2009-­‐16  (2009)  at  
http://ssrn.com/abstract=1423922.  (90%  of  BPAI  appeals  involve  a  question  of  obviousness).    
 
11
 550  U.S.  398  (2007).    
 
12
 383  U.S.  1  (1966)  (setting  out  the  process  of  the  obviousness  inquiry  as  used  in  both  courts  and  the  
Patent  Office).  
 
13
   Paris  Convention  for  the  Protection  of  Industrial  Property,  art.  2.  
9.  
 
 Chart  4:  Percentage  of  US  Patents  that  are  of  US  Origin  
90%

80%

70%

60%

50%

40%

30%

20%

10%

0%
1960 1970 1980 1990 2000 2010
Year  Patent  Granted  
 
 
For  some,  this  decline  in  US-­‐centric  dominance  of  the  US  patent  system  will  serve  as  a  sign  that  
US   innovation   could   use   additional   encouragement.     In   addition,   however,   the   decline   may  
signal  a  need  to  change  our  outlook  on  the  role  of  patent  rights  in  US  policy.  Certainly,  the  offer  
of   patent   rights   encourages   innovation   and   disclosure   of   new   inventions.     However,   this  
incentive  is  felt  around  the  world  ʹ  encouraging  companies  in  Australia  or  Germany  to  innovate  
in   their   home   countries   in   order   to   capture   an   exclusive   slice   of   the   US   market.14     In   this  
framework,   patent   reform   is   much   more   than   a   domestic   policy   issue.   Rather,   it   becomes   an  
issue  of  rooted  in  international  trade  and  international  relations.    This  is  not  a  new  concept,  but  
one  that  should  be  kept  in  mind  as  the  legislation  moves  forward.  
 
Rise  in  Patent  Reexamination  Filings:  The  US  has  two  primary  post-­‐grant  opposition  processes  
already  in  place:  (1)  inter  partes  reexamination  and  (2)  third-­‐party  requested  (or  prompted)  ex  
parte  reexamination.    Prior  to  2005,  it  appeared  that  many  potential  defendants  and  accused  
infringers   were   reluctant   to   use   the   post-­‐grant   opposition   processes.     That   reluctance   has  
largely   evaporated   ʹ   ŝŶ ƉĂƌƚ ďĞĐĂƵƐĞ ŽĨ ƚŚĞ h^WdK͛Ɛ ƐƵĐĐĞƐƐĨƵů ŝŵƉůĞŵĞŶƚĂƚŝŽŶ ŽĨ Ă ĞŶƚƌĂů
Reexamination  Unit  (CRU)  composed  of  elite  and  highly  trained  patent  examiners  in  sufficient  

                                                                                                                     
14
 See  Commonwealth  Sci.  &  Indus.  Research  Organisation  v.  Buffalo  Tech.,  542  F.3d  1363  (Fed.  Cir.  
2008)  (Australian  government  entity  suing  on  its  US  software  related  patent  in  the  Eastern  District  of  
Texas).    
 
10.  
 
quantity   to  have   a  high  response   rate.15     In  addition,   patent   law  professionals   have   seen  that  
reexamination   can   be   an   effective   and   relatively   inexpensive   alternative   to   litigation.     At   this  
point,   high-­‐dollar   patent   infringement   lawsuits   are   usually   associated   with   a   parallel  
reexamination   of   the   patents   in-­‐suit   ʹ   so   long   as   the   defendant   has   a   credible   obviousness  
argument   based   on   published   materials.     Table   1,   shows   the   rise   in   popularity   of  
reexaminations  over  the  past  few  years.    
 
FY2000-­‐ FY2006-­‐ Percent  Change  in  Number  of  
Table  116  
2004   2010   Reexamination  Requests  
Inter  Partes  Reexamination  
53   903   1704%  
Requests  
Ex  Parte  Reexamination  
1,719   3,272   190%  
Requests  
 
A   notable   limitation   of   the   current   reexamination   system   is   that   reexaminations   are   only  
allowed   to   consider   certain   invalidity   arguments   (obviousness   and   anticipation)   and   apply   a  
limited   set   of   prior   art   (patents   and   printed   publications).     Many   countries   offer   broader  
latitude   in   their   opposition   proceedings,   although   some   of   those   countries   completely   divide  
duties   between   the   administrative   agency   (handling   invalidity   issues)   and   the   court   (handling  
infringement).17    The  dramatic  shift  in  usage  of  available  post  grant  options  gives  me  pause  to  
consider   whether   the   proposed   reforms   in   2005   offered   a   permanent   solution   to   what   was  
merely  a  temporary  problem.  
 
IV. Identifying  Elements  of  the  Reform  Measures  that  have  not  been  Implemented:    
 
A  more  straightforward  approach  to  issues  now  before  the  Committee  is  to  identify  elements  of  
prior  patent  reform  measures  that  have  not  been  addressed  by  the  courts.  These  include:    
 
(1) ĂƐŝŶŐƚŚĞh^WdK͛ƐĂďŝůŝƚLJƚŽƐĞƚĨĞĞƐĨŽƌŝƚƐƐĞƌǀŝĐĞƐĂŶĚƚŽƌĞƚĂŝŶĂůůĨĞĞƐĐŽůůĞĐƚĞĚ͖  
(2) Moving  from  a  ͞Ĩŝƌst-­‐to-­‐ŝŶǀĞŶƚ͟system  to  a  ͞ĨŝƌƐƚ-­‐to-­‐ĨŝůĞ͟  system;  
(3) Expanding  prior-­‐user  rights;  
(4) Requiring  that  all  patent  applications  be  published  by  the  USPTO;      
(5) Allowing  pre-­‐issuance  protests  (or  prior  art  submissions)  by  third  parties;  

                                                                                                                     
15
 Gregory  Novak,  Concurrent  Reexaminations  as  a  Strategic  Patent  Litigation  Defense  Tool,  1020  PLI/Pat  
ϳϵϳ;ϮϬϭϬͿ;͞ƐŝŶĐĞƚŚĞŝŶĐĞƉƚŝŽŶŽĨƚŚĞĞŶƚƌĂůZĞĞdžĂŵŝŶĂƚŝŽŶhŶŝƚ;ZhͿ͕ƌĞĞdžĂŵŝŶĂƚŝŽŶƉƌŽĐĞĞĚŝŶŐƐ
are  producing  favorable  results  [for  the  third-­‐party]  in  a  more  timely  manner͟Ϳ͘  
 
16
 Derived  from  USPTO  Inter  Partes  and  Ex  Parte  Reexamination  Data  (December  31,  2010)  at  
http://www.uspto.gov/patents/stats/Reexamination_Information.jsp.  
 
17
 To  my  knowledge,  no  one  has  studied  the  potential  impact  of  increasing  the  scope  of  US  
reexamination  practice  or  adding  a  broader  layer  of  post  grant  opposition.  
11.  
 
 (6) Expanding   the   scope   of   post-­‐grant   reexamination   or   adding   an   additional   post-­‐grant  
opposition  proceedings;  
(7) Eliminating  ƚŚĞ͞ďĞƐƚŵŽĚĞ͟ƌĞƋƵŝƌĞŵĞŶƚ;  and    
(8) ĂƐŝŶŐƚŚĞƌƵůĞƐĨŽƌĂƐƐŝŐŶĞĞƐƵďŵŝƐƐŝŽŶŽĨƉĂƚĞŶƚĨŝůŝŶŐƐǁŝƚŚŽƵƚƚŚĞŝŶǀĞŶƚŽƌ͛ƐĞdžƉƌĞƐƐ
permission.  
 
Each  of  these  reform  measures  have  their  own  potential  benefits  and  detriments  that  vary  
according  to  the  implementation  approach  chosen.    
 
Thank  you  for  this  opportunity  to  present  my  remarks.    
 
Dennis  Crouch  
March  10,  2011  
 
 

12.  
 
 The 271 Patent Blog
By Peter Zura

USPTO BPAI Federal Circuit EPO

Peter Zura's 271 Patent Blog

Tuesday, February 22, 2011

Are Patent Damages "Excessive?" New Study Suggests

That They Aren't
As part of the ongoing debate over patent reform, Michael Mazzeo, Jonathan
Hillel and Samantha Zyontz set out to empirically analyze damage awards from
1995 to 2008 and establish if a systematic or pervasive problem of "excessive"
damages exist.

From the Abstract:

In their arguments for patent reform, proponents have cited cases Subscribe to the 271 Blog Using FeedBlitz
with very large damage award amounts as evidence of pervasive
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“excessive” damages. This paper uses economic value of patents
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as a benchmark for comparison to conduct a systematic empirical
analysis of patent damage awards to get a more complete
understanding of the scope of the potential problem of “excessive” BlogRoll
damage awards. We build a dataset consisting of information about
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damage awards in a comprehensive list of 340 cases decided in US
AwakenIP
federal courts between 1995 and 2008, supplemented with
BP/G Radio Intellectual Property Podcast
information about the litigants, their lawsuits and the economic
Chicago IP Litigation Blog
value of the patents-at-issue. Our findings demonstrate that the
Daily Dose of IP
largest awards dominating the conversation come from
Delaware IP Law Blog
isolated cases: damage awards in the largest eight cases
Director's Forum: David Kappos' Public Blog
represent over 47% of total damages in our database. We build Duncan Bucknell's site updates
an econometric model based on our supplementary data that Eastern District of Texas Federal Court
explains nearly 75% of the variation in observed damage Practice
award amounts, suggesting the awards are highly predictable Gray On Claims
and correlated with economic value of patents. We argue that IAM Magazine Blog
the empirical results do not establish an argument for Intellectual Property Expert Group (ipeg)
substantial patent reform based on a pervasive problem with Intellectual Property Intelligence Blog

“excessive” damages. Intellectual Property Research

Intellectual Property Watch
IP Asset Maximizer Blog
Some interesting findings: IP Dragon
IP Insider
- The number of cases with patent damage awards have increased recently, but IP Litigation Blog
are still quite small - between 2006 and 2008, there were less than 50 cases IPBiz
each year awarding damages; in 2002 there were slightly more than 30 and in IPcentral Weblog
1997 there were about 17 cases. According to the authors, "the small number of IPKat
patent infringement cases in which damages are awarded may give reason to IPWatchdog.com
question the hyperbolic claims by some that patent litigation damages have ITC Law Blog
significant deleterious effects on research and development activities in the Just a Patent Examiner
United States." Orange Book Blog
Patent Arcade
- Median damages between 1995 and 2008 have held relatively steady, with Patent Baristas
occasional ups-and-downs - in 2003, the median damage award peaked at Patent Circle
$10.41M; in 2007 it sank to a low of $1.11M. Patent Docs
Patent Prospector
- Once again, juries continue to be associated with larger damages awards. Patently-O
Patents Post Grant Blog
- The Federal Circuit has been more active in reviewing patent damage awards. Patents4Life
None of the eight largest damage awards have gone unchallenged. While 2 of PATracer
the cases are still ongoing, none of the other six awards have stood. Philip Brooks' Patent Infringement Updates
PHOSITA
This excellent paper goes through previous studies on patent damages, Promote the Progress
recent patent damages case law (yes, even the Uniloc v. Microsoft decision, Securing Innovation
which abolished the 25% rule), and even reviews the different legislative SPICY IP
proposals for limiting reasonable royalties, and is a must-read for anyone The Invent Blog®
involved or interested in patent reform. While the document is still in draft The Patent Librarian's Notebook
form, the authors are welcoming comments. The Prior Art
Washington State Patent Law Blog
Read/download a copy of the study here (link)
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Posted by Two-Seventy-One Patent Blog at 10:07 PM
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damages or of what royalty would be reasonable under the circumstances.
12:32 AM Posts

Comments
Anonymous said...
 All of the supposed reasons for what large infringers like to call patent
"reform" are over hyped. What their proposed changes will do is make it
harder for their small and start-up competitors to protect their creations
and wrest away large firms' market share. The truth be told, the present
senate bill has nothing to do with "reform" and is all about legalizing theft,
killing competition and new US jobs.
Just because they call it “reform” doesn’t mean it is. Patent reform is a
fraud on America.
Please see http://truereform.piausa.org/ for a different/opposing view on
patent reform.
10:34 AM
Anonymous said...
I've been researching about patent infringement litigation and I came across
a few profiles for IPD Analytics LLC - ever hear of them? Here's one of the
profiles if you're interested: http://www.superpages.com/bp/Miami-
FL/IPD-Analytics-LLC-L2177355300.htm
10:43 AM
About Me
Peter Zura
Chicago, Illinois, United States
Peter is a patent attorney practicing with a general-
practice firm in the Chicago area. He handles a
diverse intellectual property practice in the electrical,
computer and software fields for leading technology
companies located throughout the world, as well as
for local and national start-ups and business ventures.
He works closely with established and emerging-
growth companies to implement successful patenting
and litigation strategies. He is also a former patent
examiner with the USPTO, and sincerely hopes you
won't hold that against him.
View my complete profile

Patent Litigation said...

Here is a similar story

The U.S. Senate aims to begin consideration next month of a bipartisan bill
to revamp the U.S. patent system and reduce the likelihood of what critics
see as excessive damage awards, Senate Majority Leader Harry Reid said.
1:39 AM

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