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cal success and market success at least as uncertain as the weather.

If in that discouraging context the investor in innovation cannot be confident of the protection that his R. & D. buck will buy, if the investor in innovation likely must spend hundreds of thousands of dollars in litigation costs just to find out whether he's got title to the invention, if the investor cannot know for years and years whether anyone has title to the invention-that is, if the patent system functions as, in fact, it does now function to a very substantial degree, then there is no wonder that the investor is off spending his money somewhere else rather than in R. & D. and no wonder that we suffer a decline in innovation in our country.

Most commonly, therefore, the patent owner compromises against these pressures of cost, time, delay, and uncertainty, and he grants licenses rather than asking for the exclusive that the Constitution and the statute and the patent all guaranteed him. And he gets those licenses typically at royalties that are low enough to reflect the compromise of the circumstance that he cannot afford the costs in time and money of litigation.

So this uncertainty and this cost is a tool of extortion to bring the owner of the intellectual property of the patent of the technology to license at a low royalty fee. The promise of the system is in large part modified from the grant of the exclusive right that the Constitution and the statute speak of, to the right to solicit the license. This is the dominant function of the patent system today.

The system still functions and functions effectively to induce a substantial amount of progress of the useful arts. But it functions oh so inelegantly. The system plan is guaranteed exclusive property right in an invention not previously obvious to those of ordinary skill in art. That is, the system plan is a guaranteed property right as to inventions not currently within the reach of public enjoyment. That plan specs out as a powerful V-8 engine, a powerful powerplant for innovation.

Unfortunately, we are coughing along on only five cylinders. What a tremendous important blessing it is that we have the patent system; what a pity that we do not service it into full function.

So I say to you the increasing deficiencies in the patent system is one of the substantial contributors to the decline in innovation.

What are the performance specifications for a properly functioning patent system?

They may be expressed as seven in number. I won't take time for all of those seven. They are in the written paper. But let me mention a few.

First, a standard of patentability which will protect the regular new and nonobvious product that is not currently in public use and that an R. & D. invested buck normally will buy. In some courts, the patent law as they interpret it will protect only the once-in-ageneration invention.

Well, if we protect only the electric light and the laser and one other invention between the two, we will not be providing return on investment, on R. & D. investment, for the thousands of companies that we want to be spending research and development money day by day and week by week, month in and month out.

We must provide a protection for the kind of research and development that can ordinarily be produced by the ordinary research buck, or otherwise, we do not provide an inducement to invest in R. & D.

If we are only protecting that once-in-a-lifetime invention, we are giving a valuable award to the once-in-a-lifetime inventor. But we are not encouraging all of our industry to spend money in R. & D. by that kind of a standard of patentability which is applied by some of our courts.

The second of our performance specifications, the availability of a search of the prior art by, let us say, the attorney for the investor in innovation, wherein the innovation investor can 80 percent rely upon the attorney having found the best references.

Now an 80-percent reliability does not sound like too much, perhaps, but we don't get anything close to that now. The effort to have an 80-percent reliable search of the prior art that the attorney needs to have access to means that he needs to have access not just to a technology search facility but to an excellent technology search facility, one the likes of which you would have expected Vince Lombardi to produce if the patent system had been his game instead of football. And we don't have anything close to that.

And the personnel in the Patent Office have in significant degree learned to live with the bureaucratic system that is forced upon them and with the funding that has been forced upon them and they don't recognize, really they don't feel in terms of their stomach ulcers, the degree by which the present search facility is deficient.

Next, I will skip over to the fifth of my performance specifications.

The availability of a final determination of the right to an exclusive in the invention that is, the final determination of title, a judicial quieting of title, this invention I own. The availability of a final determination of title to the invention that can absolutely be relied upon, this means a substantially in rem judgment of a property right against all the world, just as my title to my car I can reasonably rely upon as against all the world.

Under the present system, the patent owner gets his patent and then litigates against the first infringer. And often, the second infringer. And often, the third infringer.

I, myself, have taken a patent back to the same court the third time. A patent owner is drained several hundred thousand dollars a crack at this repetitive litigation.

He needs to be able to say at some time, “I've got title, I really do.” So he can commit his investor's $30 million to a plant or whatever it may be.

He needs to be able to quiet that title for some reasonable sum of money like $100,000 and in a time period like 2 years. Isn't $100,000 enough to pay for an examination of title to your invention? A patent owner can't get that now, at least only rarely. He only rarely can. He needs to be able to get an examination of title that industry will honor for $100,000.

This is essentially not available to him now.

Isn't 2 years long enough to decide title to a property. No way to quiet title in 2 years now.

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The performance specification that will enable us to get a final examination of title for $100,000 in 2 years will require, among other things, a special set of rules for trial and for appeal of patent cases and the judiciary will howl over the idea of special treatment of patent cases. And lawyers including me will howl over the 2 years along with the courts because such rules will bind them greatly.

But it certainly is going to take some radical surgery in order for us to stop this sequence of half-million-dollar litigations and cut it down to one litigation at $100,000 cost in 2 years, or something on that order of magnitude.

From the point of view of the intelligent investor in innovation, each of the seven performance specifications, some of which I mentioned to you, is a very reasonable thing to ask for. But as of now, the system does not come close to providing him final title in 2 years' time for $100,000.

Now if you're going to invest in a piece of property, is it not reasonable for the investor to say, “I want to know within 2 years' time whether I have title and I don't want to pay more than $100,000 just to find out whether I've got title.”

But we don't have that kind of possibility now. We don't have close to that now. And I say to you, therefore, that it is little wonder that investors are moving their money from research and development into more safe investments.

In conclusion, I might say that I have read Mr. Manbeck's presentation and have reviewed the specific recommendations that he will be presenting to you and I will not try to preempt them by saying what I would recommend that preempts his remarks.

I would say that with one exception, which I regard as minor, I and the American Patent Law Association agree 100 percent with everything that he is going to recommend to you.

Perhaps it may be that some of his list of items which he recommends being made out of context of the inner workings of the judicial system which is one of the seats of shortcomings of our functioning system, may be working more or less on the tentacles of the problem-important work, but nevertheless, working on the tentacles and not getting fully at the jugular vein.

But in all events, I suggest to you that we are in critical need of a revision of the standard of patentability of section 103 to establish as a standard of patentability in all of the courts that which the Congress intended when it wrote the present section 103. But that is not being followed by many courts.

In order to get a uniform structure for the standard of patentability, the uniform practice where we can have reasonable reliability, we probably also need a change in court structure, which has been proposed, as you know, by bills currently pending-S. 677 and S. 678—to have a single court of patent appeals so that appeals from all patent cases from all over the Nation can go into one court. Thereby, perhaps we could have a uniform patent law rather than have different patent laws in different sections of the country, as we now have.

We also need an address to the patent statute's section 101: What subject matters are patentable. Are micro-organisms patentable? They are certainly useful arts. We benefit from them.

Isn't it clear that new technology should be as patentable as old ones?

The whole idea of the patent system was to afford us protection for new technology. But the Supreme Court says, “Well, if it is a new technology, we're not sure the Congress wanted to reach that far. So we will not permit the patentability of the new technology because we're not sure the Congress wanted to reach the new technology.”

Well, the whole idea of the patent system was to sponsor the new technology. So we need an address to section 101 of the patent statute, the definition of the scope of new technology that should be patentable.

Senator SCHMITT. You're saying that the Constitution reaches that far.

Mr. ARNOLD. The Constitution certainly reaches that far and the sociological functioning of the system reaches that far.

If we are to get the benefit of the system to function to induce the new technology, then we have to let the patent system reach that far. At least we will get an increased value if we let the patent system reach to all new technology.

Then we need correction of some miscellaneous substantive rules of law such as the one that I perceive to be in error, announced by the Supreme Court in Lear v. Atkins, which I won't take time to address.

We also need something in the nature of a speedy trial act for patent cases. The patent bar will howl, and for just cause, for good reason, to have a speedy trial act for patent cases. At the same time, it is necessary because we are not getting good justice for our clients under the present system and we're going to have to make some sacrifices in order to reach the goal of a quieted title to inventions in 2 years time.

We need the in rem judgments as to patent validity, which I've indicated to you, and there will be some howling over that, but I think we've got to have it.

We need-well, I guess I'd better stop there because I'm starting to encroach on Mr. Manbeck's statement. But I suggest to you that the patent system is in need of improvement and it would be my pleasure and the pleasure of the American Patent Law Association to help in any way we can to address the issue of improvements in the patent system.

Thank you. [The statement follows:]

STATEMENT OF Tom ARNOLD, PRESIDENT, AMERICAN PATENT Law ASSOCIATION Mr. Chairman, Senator Schmitt, and Members of the Subcommittee, I understand that the Subcommittee has dual concerns today. Firstly the merit of the bill S. 1215, the "Science and Technology Research and Development Utilization Policy Act”. And secondly, a broader interest in the effectiveness of the patent law and patent system as each now exists, and how this relates to the current state of industrial innovation in America.

As to S. 1215, the American Patent Law Association supports the bill and urges that it be enacted. S. 1215 will cause greater and faster commercialization of inventions resulting from research, development and experimentation funded with Federal monies, so that such advances can be of direct benefit to and be enjoyed by the American public.

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