STATEMENT OF
MICHAEL K. KIRK
EXECUTIVE DIRECTOR
AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION
Before the
SUBCOMMITTEE ON COURTS AND INTELLECTUAL PROPERTY
COMMITTEE ON THE JUDICIARY
UNITED STATES HOUSE OF REPRESENTATIVES
On
COMMITTEE PRINT, the
"AMERICAN INVENTORS PROTECTION ACT"
And
H.R. 1225, the "UNITED STATES PATENT AND TRADEMARK OFFICE REAUTHORIZATION ACT, FISCAL YEAR 2000"
March 25, 1999
Mr. Chairman:
I appreciate the opportunity to appear before the Subcommittee today on behalf of the American Intellectual Property Law Association (AIPLA) to present the position of the Association on the Committee Print entitled, the "American Inventors Protection Act" and on H.R. 1225, the "United States Patent and Trademark Office Reauthorization Act, Fiscal Year 2000."
The American Intellectual Property Law Association is a nearly 10,000 member, national bar association constituted primarily of lawyers in private and corporate practice, in government service, and in the academic community. The AIPLA represents a wide and diverse spectrum of individuals, companies and institutions involved directly or indirectly in the practice of patent, trademark, copyright and unfair competition law, as well as other fields of law affecting intellectual property. Our members represent both owners and users of intellectual property.
Introduction
The American Inventors Protection Act (Committee Print) represents years of efforts by this Subcommittee and by American businesses and inventors to improve and strengthen our Nation's patent system. Although we would have preferred H.R. 400 as reported by the Judiciary Committee in the 105th Congress, the Committee Print would make a number of desirable changes in the functioning of the patent system and the AIPLA supports it.
H.R. 1225, the United States Patent and Trademark Office Reauthorization Act, Fiscal Year 2000, is intended to prevent the imposition of an unnecessary and inappropriate surcharge on patent and trademark fees to pay certain post-retirement health and life insurance benefits of PTO employees. Once again, Mr. Chairman, you are taking the lead in protecting America's inventors against the continuing efforts of the Executive Branch to use PTO user fees as a petty cash account to permit the funding of other government programs. The AIPLA thanks you and expresses its strong support for your efforts.
Committee Print
The Committee Print represents the efforts of this Subcommittee going back more than three Congresses to streamline and strengthen the United States Patent System. The various titles of this bill, either individually or collectively, have been the subject of more than a dozen hearings with several dozens of witnesses. During this process, the Subcommittee listened to both proponents and opponents and made numerous changes in the legislation to accommodate the concerns expressed. The AIPLA believes you had it right in the version of H.R. 400 that was favorably reported by the Judiciary Committee in the last Congress, but we understand and appreciate the untiring efforts you have made to craft a measure which addresses the legitimate concerns of the various interests and which was politically viable. While we think that many of the compromises were unnecessary and, quite candidly, in some cases unwise, we recognize your efforts and support the Committee Print that is before us today.
Title I - Inventors' Rights Act
Title I is taken from Title IV of H.R. 400. It is intended to deter the fraudulent invention promotion services which we see advertised in the back of magazines and on late-night TV. Unscrupulous invention promotion organizations have long been the bane of unsuspecting inventors in the United States. It has been estimated that such unscrupulous invention developers receive more than $100 million annually from first-time inventors seeking assistance in the marketing and protection of their inventions. Title I seeks to combat the predatory practices of such firms through a combination of -
The AIPLA strongly endorses the enactment of federal legislation to curtail the operations of such unscrupulous organizations.
Title I would add a new Chapter 5 to Title 35 of the United States Code. Proposed new section 52 would require each invention promoter to state, in a written document to be given to each customer, the usual business practices of the promoter, including information regarding the usual terms of its contracts and the fees that it charges. Proposed new section 53 would require that every contract for such services have a cover sheet listing the total number of inventions evaluated by the firm during the preceding five years, together with the number of inventions which received positive evaluations and the number which received negative evaluations. The cover sheet would also require the invention promoter to list the total number of customers with which it had contracts in the previous five years and the total number of customers known to have received, by virtue of the invention promoter's performance, an amount of money in excess of the amount the customer paid to the invention promoter. We believe that disclosure of the acceptance rate by invention promoters of the inventions evaluated as well as the number of times inventors have realized a positive balance of cash flow from such transactions would be useful to inform prospective clients.
Proposed section 55 specifies certain mandatory contract terms. Each contract for invention promotion services must include the terms and conditions of payment, a description of the services which the promoter undertakes to perform, a statement of whether the promoter will construct or distribute prototypes of the invention and, if any representation of projected earnings has been given, a statement of that projection along with a description of the data upon which it is based.
Proposed section 56 (b) would establish a cause of action against an invention promoter by any customer who is injured by a false or fraudulent statement or omission of material fact by the promoter. The recovery may be the greater of $5,000 or the amount of actual damages sustained. Reasonable costs and attorney's fees may also be recovered from the promoter. The willful misrepresentation of such information is made a misdemeanor subject to a fine of up to $10,000 for each offense by proposed section 58. While the AIPLA agrees with the establishment of the new criminal sanctions, we strongly endorse the creation of a private right of action, especially with statutory damages and the availability of reasonable costs and attorney's fees. Federal, state, and local enforcement agencies too frequently do not have the resources to prosecute unscrupulous invention promotion firms. Not only would the creation of such a private cause of action address this reality, but the availability of statutory damages along with costs and attorney's fees would increase the likelihood that injured inventors could actually recover sufficient damages to justify their bringing such actions.
The AIPLA believes that federal legislation regulating the conduct of invention promotion organizations is long overdue. Each year literally thousands of unsuspecting, first-time inventors are defrauded by unscrupulous invention promotion firms throughout the United States. Unfortunately, insufficient efforts have been directed toward stopping the activities of these organizations due to the scarcity of resources in the various agencies having enforcement powers. We are extremely pleased to see this title included in the Committee Print and we look forward to its prompt enactment.
Title II - First to Invent Defense Act
Title II of the Committee Print protects American jobs and workers and provides a leveling of the playing field for American innovators with respect to their foreign competition. Section 202 of Title II would add a new section 273 to Title 35 which provides a carefully crafted defense to a charge of patent infringement for a person who has made a good faith, commercial use of the subject matter of a patent prior to the earliest effective filing date of that patent.
There are a number of reasons why it is not feasible or even possible to patent every invention which could be patented. First and foremost are costs. The costs of seeking and obtaining patent protection in the United States are high. These costs, as well as the costs of enforcing patents in this country, have become so high that U.S. companies, regardless of size, must carefully prioritize which inventions they seek to patent. These costs fall even more heavily on smaller U.S. firms, and especially on independent inventor-innovators, who are frequently limited to patenting only their most important inventions.
The even higher costs of patenting in foreign countries exacerbates the dilemma faced by U.S. companies who develop and manufacture high technology products. The costs of obtaining and maintaining one patent for its 20-year life through the European Patent Office for each of its 18 members are well over $100,000. U.S. companies also face the additional costs of patent protection in Japan, Canada, Australia and the big emerging markets such as China, South Korea, Mexico, Brazil and Argentina.
The failure of U.S. manufacturers to patent their inventions in other countries because of these high costs constitutes a free gift of technology for all of those inventions -- the vast majority -- whose sale fully discloses to competitors how to make the inventions and compete with the innovator in foreign markets.
Industrial process technology presents another difficult dilemma for its creators. Identifying a competitor's use of a patented process can be extremely difficult in the United States and virtually impossible in foreign countries. Even if obtaining patents in the United States and abroad were economically feasible, the patent's disclosure of the process presents a significant risk to the patentee in the United States and foreign markets. Especially in the case of products made abroad and imported into the United States, it is very difficult to prove that the products were made by a particular process that infringes a patent in the United States or the country of origin.
For these and other practical reasons, many U.S. companies, and especially smaller U.S. companies, are forced to forego patenting of many inventions. In the case of industrial process technology and certain manufacturing equipment, these companies seek to protect their technology under trade secret laws. Because patents may not completely protect such technology, and because infringement by others which occurs within the confines of their own factories is virtually undetectable, disclosing such technology through patents is not the best way to protect it. Practicing the technology in secret is more effective. This creates the possibility that a second, later U.S. or foreign inventor may obtain a U.S. patent on technology already being commercially used, but which has not been publicly disclosed. This later inventing U.S. or foreign holder of a U.S. patent could then obtain an injunction and prevent the U.S. manufacturer from further use of the invention, even though the U.S. manufacturer had made the benefits of the invention available to the American public though its commercial trade secret use of the invention.
A personal defense against the possibility of an infringement suit by a second inventor offers relief to U.S. manufacturers who, for the reasons mentioned, cannot afford to patent every marginally valuable invention. It also protects those who do not wish to disclose an industrial process in a patent, the enforcement of which is problematic. A prior use defense would allow American manufacturers to commit resources to the commercialization of such inventions without patenting, but with security that a later inventor could not subsequently disrupt their operations.
A prior use defense will also prove very useful in connection with computer program related inventions. The traditional practice of the Patent and Trademark Office had been very restrictive with regard to the granting of patents on computer program-related inventions. The 1996 Proposed Examination Guidelines for Computer-Implemented Inventions adopted by the Patent and Trademark Office recognized that judicial decisions required that this restrictive practice be liberalized. These guidelines foreshadowed the decision of the Court of Appeals for the Federal Circuit in State Street Bank & Trust Co. v. Signature Financial Group, Inc., 149 F.3d 1368 (1998) which held that a computer program for calculating mutual fund values was patentable subject matter under 35 USC 101. This decision put to rest the notion that "methods of doing business" were not patentable subject matter. Thus, many businesses that eschewed seeking patents for similar subject matter may now find that the techniques they have used as trade secrets in their daily operations are being patented by others, putting them at considerable risk. Moreover, as more individuals seek patents on their computer programs, there is also the possibility that patents will be granted on programs which have been used by others in years past simply because such prior programs are not readily available to the Patent and Trademark Office for citation in the examination process. Accordingly, the prior use defense of Title II should prove invaluable, especially during such transitions in patentable subject matter.
It is important to note that foreign inventors and manufacturers, though confronted with the same practical problems as their American counterparts, do not face the possibility that a later inventor can obtain a patent and disrupt their home-based manufacturing operations. This is because virtually all industrialized countries protect their domestic manufacturers with a prior use defense (See Keith M. Kupferschmid, Prior User Rights: The Inventor's Lottery Ticket, 21 AIPLA Quarterly Journal No. 3, (1993). Thus, while a Japanese or German company with a U.S. patent could preclude the use of an industrial process or a machine used internally by a U.S. company as a trade secret for years before the patent application for the process or machine was even filed, the reverse is not the case. American inventors holding patents in any of our major trading partners could not preclude use of the patented invention by a company which had begun its use of the invention before the American inventor filed a patent application. When 45 % of all U.S. patents are being granted to foreign firms, this unbalanced playing field is, of itself, a strong economic argument in support of Title II. The laws of the United States should protect American jobs and businesses.
Moreover, it must be remembered that, for the great majority of inventions, effective protection can only be realized through the patent system. While protection under trade secret laws is available for certain manufacturing processes and equipment, most inventions can be reverse engineered and copied once they are placed on the market or are otherwise publicly disclosed. Moreover, because trade secret laws generally provide limited protection in comparison to patent law, protection under trade secret laws will rarely be chosen where effective patent protection is available.
The AIPLA support of Title II is predicated on the fact that it provides a carefully crafted, limited prior use defense. The limitations of Title II ensure that U.S. patentees will continue to enjoy their full, exclusive patent rights except in certain rare situations where an earlier-started, domestic commercial use will be allowed to continue under restricted circumstances. We have every confidence that the prior use defense will be rarely used based on experience in other countries having prior use provisions which are more readily available than those which would be established under Title II (See Lise Osterborg, Towards a Harmonized Prior User Right Within a Common Market System, 12 Intl. Review Indus. Prop. and Copyright 447 (1981). However, it is not the frequency of use, but the protection against changes in the law through judicial opinions and the elimination of the need to patent every invention that are important.
There are a number of limitations on the establishment of a prior use defense contained in section 273. First, the burden of proving that a person is entitled to the defense is always on the person asserting the defense (273(b)(4)). Moreover, the prior use defense established by Title II is not a general license under all of the claims of the patent in issue: it is a defense only to the claim or claims in the patent which the person asserting the defense had commercially used.
The prior use defense could not be licensed, assigned or transferred to a third party except in connection with the good faith assignment or transfer of the entire portion of the business to which the defense relates (273(b)(6)). Finally, under section 273(b)(3)(B), a person may not assert a prior user defense based on information that was derived from the patentee or those in privity with the patentee.
The scope of proposed new section 273 has even been further restricted from the text offered in H.R. 400, which text was already quite restricted as previously indicated. Section 273, as proposed in H.R. 400, would also have established a personal defense where a person had undertaken "effective and serious preparation" to achieve commercialization of an invention that could not be commercialized without a significant investment of time, money and effort. This feature would have avoided the possibility that a domestic manufacturing firm would spend large sums of money in preparation for commercialization only to be blocked before actual commercialization could be achieved. In an effort to accommodate the concerns of opponents of this provision in H.R. 400, it has been dropped from section 273 in the Committee Print.
Another limitation has been added to section 273 of the Committee Print to clarify the types of inventions which will qualify for the defense. We interpret section 273(b)(3)(A) to mean that only those patentable inventions which can be commercially used as trade secrets can give rise to a prior use defense.
In light of the clear need for a prior use defense to place American businesses on a more equal footing with their foreign competitors, the AIPLA supports enactment of Title II, even with these new limitations to its scope.
Title III - Patent Term Guarantee Act
Section 301 of Title III would amend the provisions of section 154(b) of title 35 which authorize the Director (formerly Commissioner) to extend the term of patents in certain circumstances. It would add two new patent term guarantees to the three existing possibilities for a term extension to compensate for delays in the patent issuance process. One new provision, first included in H.R. 400, would extend the term of a patent up to ten years for administrative delays by the PTO. A second new provision, also found in H.R. 400, would guarantee any diligent applicant a day for day extension for any period longer than three years that the PTO took to issue a patent. It would also extend the maximum period of extension from five to ten years for delays experienced by virtue of successful appellate reviews and would provide for unlimited extensions for delays experienced as a result of interferences and secrecy orders.
The AIPLA strongly supports retaining a patent term of twenty years from filing and endorses the refinements made by Title III. A return to the old law with a patent term measured from grant, as some advocated in the past, would be especially harmful to small, entrepreneurial businesses. A system which allows an inventor to file a broad, conceptual patent application, secretly track the commercial developments of others for years, and then permit a patent to issue purporting to monopolize a mature industry, can seriously disrupt the commercial activities of established corporations. However, when the victim is a small, entrepreneurial enterprise which is struggling to develop its product line and secure markets while repaying venture capitalists, the result can be catastrophic.
In response to concerns by some that the Patent and Trademark Office might be hesitant to admit that it was the cause of an administrative delay, amended section 154(b)(1)(A) sets forth objective criteria for determining when an administrative delay has occurred. These criteria - a "time clock" as some prefer to call it - provide that the Patent and Trademark Office must take certain specified steps within set time limits and that failure to do so constitutes an administrative delay which will result in an extension of the patent for each day the Office was late in taking the step in question. Thus, a first action or notice of allowance must be mailed within 14 months of filing; a response to an applicant's reply must be given within 4 months of the date of receipt of that reply; action following a decision of the Board of Patent Appeals and Interferences or a Federal Court must be taken within 4 months of the date of decision; and a patent must be issued no later than 4 months after the date on which the issue fee was paid.
The guarantee that no diligent patent applicant would receive less than a seventeen year term was added to accommodate those who still feared that, despite their best efforts, they would fail to receive a patent in three years and that the other safety nets would not provide relief. We believe that it is a useful addition because it puts to rest once and for all any question of whether a diligent patent applicant will be able to receive at least seventeen years of exclusive patent rights and yet it will not be subject to the abuses possible with a term measured from grant. There is, Mr. Chairman, simply no valid basis to argue for a return to the previous law and the problems associated with it. One last word on Title III is in order. Section 303 permits an applicant, upon payment of a fee, to continue the examination of an application under final rejection. It does not, as some have asserted, permit third parties to intervene or participate in the initial examination process. Instead, it allows the applicant to speed-up the examination process by avoiding the filing of a continuing application.
Title IV - Publication of Foreign Filed Applications Act
Section 402 of Title IV of the Committee Print would amend section 122 of Title 35 to provide, with three exceptions, for the publication of each pending application promptly after the expiration of 18 months from its earliest effective filing date. The three exceptions are:
1) if the application is subject to a secrecy order,
2) if the application is no longer pending in the PTO, or
3) if the applicant indicates to the PTO that the invention disclosed in the application will not be the subject of an application that will be filed abroad in a country, or through a treaty, that will result in the application being published at 18 months.
The third exception is a very significant change from H.R. 400 as the Subcommittee reported it in the 105th Congress. It reflects the amendment adopted on the House floor. The AIPLA has long favored 18-month publication of U.S. patent applications and would prefer not to have a carve-out for applicants only seeking patents in the United States.
Early publication will allow inventors to put others on notice that they have staked out an area of technology, warning them to "keep off." In turn, this no trespassing sign will allow other U.S. inventors to avoid duplicative research and optimize investment decisions in pursuing technological development. Moreover, the inventor who gives this warning through publication is fully protected by provisional rights against anyone foolhardy enough to ignore this warning. The publication of pending patent applications is also a cost effective means of ensuring that United States' inventors will have prompt access - in the English language - to a comprehensive technological database similar to that which foreign inventors in our major trading partners already receive in their language from their regional and national patent offices.
In addition, early publication will assist the Patent and Trademark Office in its examination of patent applications by more effectively placing relevant prior art before examiners. Potential interferences can be identified and provoked by applicants at an early date, avoiding situations where later filed applications issue before earlier filed applications for the same invention. Inventors and companies will be able to receive more complete and accurate patentability assessments in non-infringement opinions since potentially adverse patent rights can be more readily identified and monitored.
Finally, 18-month publication will complement our 20 years-from-filing-patent-term and serve to completely eliminate the adverse consequences of an application that is allowed to languish in secrecy for years in the Patent and Trademark Office before issuing as a patent - to the surprise of an industry built on what had been thought to be public domain technology. Not only will U.S. companies know at a relatively early stage what technology may be the subject of a patent, but they also know when the term of the patent covering that technology will end.
Notwithstanding the strong arguments favoring publication of all U.S. patent applications, the reality is that the House of Representatives and the Senate Judiciary Committee are not prepared to take this step at this time. Arguments that early publication would disadvantage American inventors by disclosing their inventions before patent grant have carried the day. The AIPLA regrets this reality and believes that it will preclude the United States from receiving the full measure of benefits of 18-month publication - but we accept this change and believe that Title IV still provides significant benefits as outlined previously and should be enacted.
The provisional rights protection mentioned earlier is set forth in Section 404 of the Committee Print which adds a new subsection 154(d) to Title 35. Under this new subsection, an inventor, following the grant of his or her patent, would be entitled to a reasonable royalty from anyone who, with actual notice of the published patent application, made, used, offered for sale, sold, or imported into the United States the claimed invention during the period from publication of the application until grant of a patent. This is an important new right for inventors. Today, an inventor has no protection for the use of his or her invention until patent grant. Any inventor marketing an invention after filing a patent application has no protection against a copier until patent grant. This provision eliminates this problem. Inventors seeking to license their inventions could request publication upon filing and be fully protected against the loss of revenue while they sought licensees.
Under subparagraph (2) of new subsection 154(d), a reasonable royalty would be available where an infringed claim of the issued patent is substantially identical to at least one claim in the published application. We believe that the "substantial identity" requirement strikes an appropriate balance; the person seeking to obtain royalties for the use of an invention in a published application should have the obligation of informing the public what he or she believes is the patentable invention. It has been suggested that infringement of a claim of the published application and a claim of the patent would suffice. This more relaxed standard would place an unacceptable burden on the public. It would allow an applicant to include a single, extremely broad claim -- even a clearly unpatentable claim -- in the published application and then leave it to the applicant's competitors to a) imagine what the applicant might ultimately claim and b) conduct their own private examination to determine whether any such imagined claim that the competitor might infringe would be valid. This would unfairly shift the applicant's responsibility of identifying patentable subject matter to the public, resulting in wasteful and speculative effort. An applicant can adequately protect his or her interests by including an array of claims in an application, ranging from very broad to very specific, so that the published application could provide proper notice to the public by setting forth the information needed to evaluate applicant's claims and to avoid infringing activity.
Two additional amendments have been incorporated into the Committee Print to respond to concerns that were expressed about the publication provisions in H.R. 400. First, while it was acknowledged that provisional rights would compensate inventors for the use of their inventions between publication and grant, there was a desire that injunctive rights also be provided. Proposed new subsection 154(d)(5) answers that desire by permitting the piecemeal granting of a patent for a published application. Under this new provision, as soon as one claim of a published application is allowed, an applicant can request the patent be granted. The remaining claims would be added to the patent as they are approved, but, importantly, the inventor would have an early-granted patent which could be used to enjoin further use of the protected invention.
Another new protection is added by proposed new subsection 122(c ). Under current law, there is a procedure under which a third party can file a protest to the issuance of a patent during the examination of an application. To address concerns that publication would increase the instances in which third parties must file such protests, subsection 122(c ) precludes any protest or other form of pre-issuance opposition to the grant of a patent unless the applicant consents.
Accordingly, it is clear that, even with the unfortunate carve-out for publication of applications filed only in the United States, there are still advantages for the public and for inventors in the early publication provisions of Title IV.
Title V - Patent Litigation Reduction Act
The AIPLA strongly supports the amendments which would be made by Title V to permit the public to have limited participation in the reexamination process. The reexamination procedure which the Committee Print would establish will provide a relatively inexpensive alternative to costly district court litigation for patent owners and members of the public to determine the proper scope and coverage of patents. This would be achieved by permitting limited and tightly-controlled participation of the public in the reexamination process.
Where a reexamination proceeding is initiated upon the request of a third party, amended section 305 would give a third party requester one opportunity to file written comments on each response by the patent owner. Amended section 306 would allow either the patent owner or a third party requester to appeal the final decision of an examiner in a reexamination to the Board of Patent Appeals and Interferences (BPAI), and allow each to be a party in an appeal taken by the other to the BPAI. Similarly, it would allow either the patent owner or third party requester to appeal a final decision of the BPAI to the Court of Appeals for the Federal Circuit (CAFC) and, again, each could be a party in an appeal taken by the other.
We have now had nearly 18 years of experience with the existing reexamination system contained in sections 301-307 of Title 35. Its purpose was to provide an avenue for patent owners and third parties to bring to the attention of the Patent and Trademark Office pertinent patents and printed materials which an examiner might not have uncovered during the course of patent examination. It was believed that reexamination would provide an efficient, effective, and relatively inexpensive technique for the Office to consider whether an issued patent should be narrowed, or whether it should not have been issued at all. It was perceived that the reexamination process would thus benefit patent owners, the public, and lessen the burdens on the federal court system.
During the debate on the establishment of the patent reexamination system in the United States, attention was focused on achieving the right balance between, on the one hand, permitting third parties to come forward with evidence and participate in proceedings and, on the other hand, providing patent owners with a means to evaluate the validity of issued patents quickly and inexpensively without undue harassment. In hindsight and with 18 years of experience, we believe that the procedure is not performing as effectively as was envisioned and that a better balance needs to be struck between third party participation in the reexamination and patentees receiving a prompt and inexpensive reexamination. The AIPLA believes that Title V strikes the needed balance between these competing goals far better than existing law.
While making the reexamination procedure fairer and thus enhancing its prospects for achieving its goals as an effective but inexpensive alternative to litigation, the Committee Print retains the existing safeguards against harassment and adds several more. The Committee Print retains the all important threshold criteria which must be satisfied before a reexamination is initiated: the Director must find that the request for reexamination raises a "substantial new question of patentability" affecting a claim of a patent. Absent such a finding, no reexamination can be initiated. Moreover, the Director's finding in this regard is final and nonappealable. Patentees cannot be harassed by repeated requests for reexamination citing patents and publications which are merely cumulative to those cited and considered by the examiner during the initial examination.
H.R. 400, as introduced, added a number of additional safeguards and several more have been added during consideration of Title V by the House and Senate Judiciary Committees during the last two years. The Committee Print would amend section 301 of Title 35 so that individuals citing prior art could no longer have their identities excluded from a patent file and remain anonymous. Amended section 302 would require a third party requester to identify the real party in interest. Once reexamination has been ordered, section 308 precludes a third party requestor from filing a subsequent request for reexamination until the earlier reexamination is terminated, unless authorized by the Director. Also under new section 308, if a third party requestor is sued for patent infringement and fails to prove an assertion of invalidity, or if a reexamination proceeding instituted by the requestor is favorable to the patentability of any claim in the patent, that third party cannot thereafter request reexamination on the basis of issues which were or which could have been raised. Finally, if a third party appeals a final decision of the BPAI to the CAFC or participates in such an appeal, that third party would be estopped from later asserting - in any forum - the invalidity of any claim found patentable by the CAFC on any ground the third party raised or could have raised.
With the improvements made by Title V, patent reexamination proceedings will provide members of the public with a more effective administrative procedure to test the scope and validity of patents. These changes will be especially beneficial for small businesses which simply cannot afford to engage in protracted litigation to challenge patent validity in Federal district courts against well-financed patent owners. At the same time, the numerous safeguards that have been added ensure that the procedures cannot be abused: the safeguards will protect small firm patent owners from efforts by well-financed predators to use the improved reexamination procedures as a vehicle for harassment. The system will be fairer to both parties and its use should increase, reducing the burden on the courts.
Notwithstanding the desirability of improved reexamination procedures, the House adopted an amendment which deleted the corresponding Title from H.R. 400 during the floor debate in the 105th Congress. Without Title V, the existing disincentives for third parties to use the inexpensive administrative proceedings in the Patent and Trademark Office to challenge patent validity will remain. A third party that uncovers a patent or publication missed by the examiner during the initial examination will simply hold on to it for use in federal court as a defense to a claim of patent infringement. The patentee will lose the opportunity to learn, in an administrative proceeding, that its patent claims are invalid or perhaps too broad. Instead of having the opportunity of narrowing his or her claims and having them upheld by the Office, a patentee would much more likely be confronted with such references for the first time in federal court where the patentee will spend hundreds of thousands of dollars only to have the patent found invalid. This will clearly impact independent inventors and small businesses most adversely. However, as noted above, the Committee Print contains numerous additional safeguards that we believe are fully responsive to the concerns which were expressed on the House floor during debate on H.R. 400. These additional safeguards will ensure that the procedures will not be abused and that reexamination can achieve its purpose of offering an effective, inexpensive alternative to litigation. We urge adoption of Title V.
Title VI - Patent and Trademark Office Efficiency Act
Title VI seeks to address a number of the problems confronting the PTO by establishing it as an independent agency with greater operational flexibility and independence to more effectively and efficiently serve the patent and trademark communities. While the PTO would be under the policy direction of the Secretary of Commerce, it would not be subject to direction or supervision by the Commerce Department for purposes of internal management, i.e., it would be insulated from micro-management by mid-level bureaucrats in the Department of Commerce.
This arrangement differs substantially from the provisions of both H.R. 400 and S. 507 in the 105th Congress which would have transformed the PTO into a wholly-owned government corporation subject to Chapter 91 of Title 31 of the United States Code. The government corporation concept had been proposed following two in-depth studies by the National Academy for Public Administration - studies which found that the activities of the PTO made it an ideal candidate to become a government corporation. Unfortunately, the government corporation proposal was the target of a great deal of unfounded criticism in the 105th Congress which had little substance. In proposing to make the PTO an independent agency, however, the Committee Print does carry forward many of the operational authorities contained in H.R. 400 and S. 507. For example, the PTO would be permitted to enter into supply contracts without regard to the Federal Property and Administrative Services Act of 1949, to competitively procure printing services without regard to title 44, and to recruit sufficient numbers of patent and trademark examiners to promptly process the incoming applications without being subject to the personnel limitations which hurt the PTO's pendency reduction efforts in the past.
The IP policy function currently exercised by the Commissioner would remain with the Director and not be assigned to a new position of Under Secretary for Intellectual Property Policy as in H.R. 400 as approved by the House in the 105th Congress. In the Committee Print, the Director would be appointed by the President, and the Director would appoint a Commissioner for Patents and a Commissioner for Trademarks. One of the particularly salutary features of H.R. 400 would be carried forward in the Committee Print: the Director would be required to develop an annual performance agreement with the Secretary, incorporating measurable organization and individual goals for the key operational areas of the PTO. Based upon the Director's success in achieving the agreed-upon goals, the Director would be eligible for an annual bonus of up to 50 percent of the Director's salary, which could result in a total compensation of approximately $189,000. The incorporation of a performance plan for the Director along with a requirement in amended section 2(b)(F) to establish regulations that provide for development of a performance-based process with standards for evaluating cost-effectiveness are applauded by the AIPLA. As you are aware, Mr. Chairman, the AIPLA has been spearheading an international effort in which you have been participating aimed at reducing the costs of patenting. Other industrial property offices have been doing a better job on this front than the United States Patent and Trademark Office. The only cost reduction progress made to date by the United States was due to your efforts in pushing through H.R. 3723 in the last Congress. The Committee Print moves the PTO toward the type of performance-based organization championed by the Vice President which would put the PTO's performance - quality as well as costs - in the spotlight. This is a desirable direction.
Section 614 of the Committee Print also increases oversight of the PTO by establishing a 9-member Patent and Trademark Office Public Advisory Committee. The composition of the Advisory Committee will be proportional to the number of patent applications filed by domestic small and large entities. This was requested by the Technology Chairs of the White House Small Business Conference as one of their conditions for supporting the substance of this legislation in the 105th Congress. The Advisory Committee will review the policies, goals, performance, budget and user fees of the PTO and report annually on these matters to the President and the respective Judiciary Committees of Congress. This will enhance the oversight of the PTO and should go far toward assisting the Director in managing the Office.
Again, we understand that political realities sometimes preclude achieving what the AIPLA and others believe would have been a preferable structural reform. Nevertheless, we believe that the insulation of the PTO from meddling by mid-level bureaucrats in the Commerce Department, the increased operational flexibilities, and the enhanced oversight which would be achieved through the Committee Print are desirable improvements and should be adopted.
Title VII - Miscellaneous Patent Provisions
Title VII contains, as its title implies, a number of miscellaneous refinements to the patent law which have been suggested over the years. Section 701 of Title VII amends section 111(b)(5) of Title 35 to enhance the attractiveness of provisional applications by permitting applicants to convert a provisional application into a non-provisional application notwithstanding the absence of a claim. This is a desirable change to the patent law. It would, in essence, allow applicants to expeditiously file a non-provisional application through a simple conversion of a provisional application, without burdening the applicant by requiring the filing of what would essentially be a duplicate of the provisional application. This is a user friendly change which the AIPLA heartily endorses.
Section 706 adopts another amendment requested by the Technology Chairs of the White House Small Business Conference. The provision would amend section 102(g) of Title 35 to eliminate the possibility of that section being interpreted as not precluding the issuance of a patent to a second inventor where the invention was first made by another inventor in a WTO member country.
Section 707 eliminates the problem which can arise when from team research when a patent application covering a portion of the research team's results creates prior art against a later filed patent application covering another portion of the team's results. To avoid that problem today, the earlier and later patent applications must combined into a single patent application. The exclusion from prior art of prior inventions arising from team research was the subject of a 1984 amendment to the patent law, but that amendment does not apply when the prior invention is made the subject of a patent application. Section 707 corrects this deficiency, thereby eliminating the need for elaborate and expensive patent procurement strategies that are now required to accomplish the same result.
H.R. 1225, the United States Patent and Trademark Office
Reauthorization Act, Fiscal Year 2000
The Patent and Trademark Office has been a target of opportunity for both the President and the Congress since the enactment of the Omnibus Budget Reconciliation Act of 1990 which imposed a surcharge on patent fees. In this decade, the PTO will have collected over $300 million in patent fees which have been used to support other unrelated government programs. Even when the surcharge was set to expire at the end of Fiscal Year 1998, the addiction to using PTO fees as a "petty cash account" for funding other government programs was so ingrained that the President requested Congress to increase the base statutory patent fees to a level that would permit diversion. Thanks to you and the members of your Subcommittee, Mr. Chairman, you resisted that request and actually reduced patent fees for the first time in our Nation's history.
Addictions are not easy to cure, however. In the Fiscal Year 2000 Budget, the PTO is once again being singled out for special treatment. Specifically, the President's Budget proposes that the PTO impose a surcharge on patent and trademark fees to raise $20 million to pay for the accrued personnel costs associated with post-retirement health and life insurance benefits of PTO employees. For reasons which I will explain, the AIPLA strongly opposes the imposition of any surcharge on patent and trademark fees under the current circumstances in which the PTO finds itself. Accordingly, we whole-heartedly endorse H.R. 1225 which would withhold from the Commissioner any authorization to impose a surcharge on patent and trademark fees.
For FY 2000, the President's Budget requests Congress to appropriate (in lay terms, allow the PTO to spend from fees it has collected and will collect) $902 million for the operations of the PTO. The monies will be derived from $116 million in PTO fee revenues that will be collected but not spent in the current fiscal year and the balance from PTO fee revenues collected in FY 2000. However, the PTO currently estimates that it will collect $946 million in FY 2000, so that, with the $116 million, it will have a total of $1,062 million - $160 million more than it currently states it can productively spend in FY 2000. Accordingly, the President's Budget proposes that the $160 million in excess fees be "carried over" to FY 2001, much the same way that the $116 million will be carried over from this fiscal year to FY 2000. It is in this context, a situation where the PTO will collect $160 million more than it needs in FY 2000, that the President's budget proposes that the PTO collect an additional $20 million to fund post-retirement health and life insurance benefits. Clearly, H.R. 1225 takes the correct path: there should be no $20 million surcharge while there is a $160 million surplus of PTO revenue in FY 2000; the $20 million should be taken from the surplus.
Finally, one word of caution. If the PTO is not authorized to impose a surcharge on patent and trademark fees to raise the desired $20 million, there could be an effort to raise the funds to pay the post-retirement benefits by reducing the PTO's operating budget by $20 million. If this possibility gains any momentum in the appropriations process, the AIPLA would strongly urge that H.R. 1225 be amended to totally block the transfer of any funds from the PTO to pay for such health and life insurance benefits. The PTO must be adequately funded to carry out its important role of stimulating the American high technology and business communities through the timely grant and registration of reliable patents and trademarks. It is time to stop abusing the PTO and its users as sources for special financial contributions, i.e., taxes, not requested of other fee-funded government agencies.
Conclusion
The Committee Print would provide sorely needed improvements in America's patent laws and in the functioning of its patent system. It is important that this legislation be enacted promptly. The United States faces intense economic competition, especially in the technology arena, with all of our major trading partners. Our success in this competition may depend on whether, relative to our trading partners, we find the means to best stimulate innovation and best protect the creativity of our citizens. The changes that the Committee Print would make in the U.S. patent laws will go far toward assuring that the U.S. creative community can continue its leading role in creating, developing, and commercializing cutting edge products and services. H.R. 1225 will stop the Administration from abusing the funding authority of the PTO and set the proper tone for the international effort to reduce patenting costs. The AIPLA supports both measures and urges that they be favorably reported and promptly sent to the full House for a vote.