(b) long delays and acute uncertainties in the quality of work of that agency resulting from two principal factors:

(i) chronic underfunding by Congress;

(ii) a confused state of the applicable law which varies from court to court making it impossible for the Patent Office to comply with all the variant law; (c) and finally some glaring examples of judicial over-kill of imagined horrors that have made rules of law which are counter-productive of innovation.

Let's start with a Patent Office example. Owing directly to chronic underfunding of the Patent and Trademark Office by Congress, aided in this error by OMB, the Patent and Trademark Office has no computerized search facility.

Further, the manual search shoes which contain the prior art references that lawyers and patent examiners search through when trying to find out whether an invention is new, are incomplete. People borrow references from them, and fail to return them properly. The search shoes, on average, are probably missing 8% or so of the references that are supposed to be there. In some of the technologies of high current interest, 28% of the references have been found to be missing.

So the lawyer spends $300 of his client's money on a prior art search-and fails to find an invalidating prior art reference--and spends $3,000 to file an application for patent for his client. The Patent Office examiner also searches, fails to find prior art references. He has inadequate time to evaluate those references he does find. And he allows the aplication to issue into a patent, in error, typically more than two years after the application was filed. On some few occasions 20 years after. And suit is filed against an infringer. The infringer spends $100,000 on a search and finds references not known to the applicant, his lawyer, or the examiner who allowed his patent.

If those only-now-found references invalidate the patent by proving it to be addressed to a not-new invention, all that effort and cost was wasted by the deficiency of the Patent Office search facility.

Worse yet: If bankers or investors committed capital based on the protection of the invention which was soberly promised in the patent issued by the Patent and Trademark Office under the great seal of the United States, they have been effectively swindled by that great seal of the United States.

Further, the substantive law of what is patenable is also acutely uncertain. Even when two courts have the same prior art references in front of them, some courts follow one standard of patentability while other courts follow a sharply different standard of patentability.

One result is that the Patent Office simply cannot comply with the variant standards.

Another result is that the lawyers who advise clients tend more in this area than perhaps any other to render inconsistent opinions to their clients. This produces litigation, also cost, delay and uncertainty which moves inventors from R&D and into real estate or other more stable investments.

Purely apart from different standards in different courts, the standards of patentability require extensive search for evidence, long and protracted pre-trial procedures, lengthy trials, protracted appeal procedures, high cost, heavy burdens, long delay, during which uncertainty prevails over business activity that must go on while the lawyers play their expensive games at the court house.

Typically it costs several hundred thousand dollars to litigate a patent infringement case to conclusion.

Typically, the time required to actually get an injunction-against-infringement issued and damages litigated and collected, is much more than eight years-in one recently decided case, over 20 years after the patent issues with its sober promise under the great seal of the United States of an exclusive right in the invention. Very often, particularly at the appeal level, after all that money, time and effort, the court holds the patent to have been improperly issued by the Patent Office in the first place.

Then there is the mischief of bad law, by judicial overkill of an unhappy situation. One example: For 100 years an accused infringer could at his option and as part of a compromise of the uncertainties of a patent's valid scope, settle his law suit by an agreement to pay a low royalty, and in exchange for the lowness of the royalty level, agree also not to contest in court the validity of the patent for the remainder of its normal term. After all, the Patent Office had examined the application to be sure it did not cover anything in the public domain, did not take anything away from the public, and did in fact disclose to the public something new and theretofore not obvious. And we could rely on that Patent Office determination at least for purposes of permitting parties to settle their law suits by license.

Indeed for 100 years the Supreme Court law on the point of licensee-estoppel implied at law an obligation that all licensees are estopped to contest in court the validity of the issued patents under which they are licensed, whether or not the license was in compromise settlement of a law suit. Among other values of this rule: it is an important inducement of the parties to settle their controversies.

But the Supreme Court not long ago changed that in Lear Inc. v. Adkins, 395 U.S. 653 (1969). The underlying theory of Lear Inc. v. Adkins was that so many bad patents are now issuing from the Patent and Trademark Office that we cannot trust the patents to be valid even though the Congress said that patents are to be "presumed valid." Moreover the party with proven economic interest in the subject matter, the infringer-licensee, must be induced to be a private policeman to rid the marketplace of the many invalid patents that have issued; so public policy is not only that he may not be estopped from contesting patent validity, he must be encouraged to do so.

Accordingly the law now is thus: A patent owner may select the time to bring suit against the plagiarist to be before the market bloom for his invention, and may select the forum of his litigation to be in his own home town, and bring his infringement suit against the trespasser upon his patent property. Public policy heretofore favored settlement of law suits, and patent owners and infringers bargained for a royalty rate that reflected the compromise between them of any uncertainty of the patent as they saw it. But under Lear if there is a settlement by license wherein the infringer promised to pay a compromise low royalty, the nonlicensed-infringer gets disposal of the patent owner's suit, and may then initiate his own law suit. I.e., the alleged settlement does not finally settle anything for the licensee is not bound.

Worse: the trespassing infringer may now select the forum of his choice and a time of his choice to sue to invalidate the licensed patent and thereby be relieved of his duty to pay even the low royalty he promised as his part of the compromise. Moreover, by the act of taking the license at a low royalty, the trespassing infringer assures himself of a limit on his damages for his deliberate infringement and assures himself by his license and litigation of an immunity from injunction at what may have otherwise been a most unhappy time-if enjoined at all it will be years down the road after the market bloom is likely passed.

A big infringer may, and in my practice has, driven the patentee from the market and bankrupted him during the litigation. Absolutely nothing a court can do at so late a date, can effect any sort of justice-or encouragement of this inventor back into innovation endeavor.

In short, the trespassing infringer gets varied and important considerations from the patent owner and is not bound by the contract he signed; but the patent owner may get little or nothing but is bound by the license contract. This severely biases against settlements and contributes to the overload of our courts with patent cases. More important: this is one of the many sponges that absorbs the capital and interest that we need to have invested in innovation patents sufficiently well examined in the Patent Office, that we can trust them.

The system cries out for parties to infringement actions to finally settle their law suits and for law to hold them both to their bargain, whereby if the infringer agrees to pay the royalty he does pay the royalty. For now we have the law of patents actually and absolutely inducing fraud in the inducement of license contracts, fraud by infringers against patent owners, and the Supreme Court is calling it "public policy".

-Absolute lunacy, begot by a Supreme Court overkill of essentially a non-prob

lem.

The mischief of invalid licensed-patents even under present Patent Office performance is de minimis by comparison with the mischief of the rule of Lear. Why? Because the clearly invalid patents are to a substantial degree self-purging from the system. Few to none of the clearly invalid patents are ever licensed for sums equivalent to litigation costs; if a patent is licensed for enough money to induce the hideous expense of patent litigation, it is not unreasonable for society to depend upon statutory presumption that the patent has some substance and is valid for purposes of supporting the contract of the parties.

Also there is the confusion of the law as to what is a lawful license of a patent. And what is a misuse of patent. A Department of Justice official has said of this area of law: There are no per se legalities. There are no safe harbors for the licensor. Carrying on his theme I add: There are only illegal licenses, and uncertain licenses that somebody may urge in court later to be an illegal license with a chance of winning his point, thereby to render the licensed patent unenforceable.

I've been told of a Continuing Legal Education program of a few years back, where the instructor presented something like six common every-day licensing issues to his class of practicing lawyers and asked their opinions as to legality. The greatest uniformity of opinion he got on any of them, was something like 70% to 30%, most of the questions begetting more uncertainty than that.

Do you think that degree of uncertainty in the law of what patent license is lawful bothers a businessman about to invest in patents?

Sure, a lot of money has been made on many patents and in recent years, too. Inventions you know about like: Land's Polaroid instant snap shot camera, now in litigation with Kodak. Carlson's Xerographic plain paper copiers, often in litigation. Ballas' Weed Eater Lawn Trimmer, now in litigation with many infringers.

And hundreds of inventions you don't know about, like Self's severe service chemical refinery valves, now in litigation. Mobil's catalyst which gives 20 percent more gaoline per barrel of crude oil, also litigated. Mobil v. Grace, 367 F. Supp. 207 (D.C. Conn. 1973).

But all these folks have spent over half a million dollars each, some of them millions in patent litigation costs. As to some of them the validity of their patents is not yet finally decided by the courts.

Innovation is a high risk investment with cost overruns on the technical side as certain as death and taxes, and technical and market success as unpredictable as the weather.

If in that discouraging context the investor in innovation cannot be confident of protection of what his R&D buck will buy ***

If the investor in innovation likely must spend hundreds of thousands of dollars in litigation costs *

If it cannot be known for years and years whether a given invention is protected

That is, if the patent system functions as often it now in fact does function, then there is no wonder that investment in innovation is on the decline.

Who is smart enough to have earned and saved some venture capital to invest, and simultaneously so stupid as to spend it on R&D, or on development of an invention, when it will cost him literally hundreds of thousands of dollars and eight or ten years of time, just to find out whether or not he owns the intellectual product which is R&D money paid for? Would you? If you would, there are many opportunities available for you to spend your money in innovation.

In a very real sense, the patent promise of an exclusive property right in an invention, is a euphemism. Euphemism for what? Euphemism for a ticket to the court house, which authorizes the patent owner to pay several hundred thousand dollars and having so paid, after some years to ask the court whether the patent owner is entitled to the exclusive right which the Constitution, statute and patent all promised him. Though he paid his money, and waited years for leave to put the question, the patent owner is not entitled to an answer to his question to the court often for still more years.

So most commonly he compromises. Often he gives up his claim and right to an exclusive, by the grant of licenses at royalties often low enough to reflect his compromise of those hideous litigation costs, delays and uncertainties.

As too often modified by cost, delay and legal uncertainty, the system still works and works importantly to provide a very substantial service in inducing innovation. But it works oh so inelegantly.

The system plan-a guaranteed exclusive property right in any invention not previously obvious to those of ordinary skill in the art, i.e., any invention not previously available for public enjoyment-specs out to be as a powerful V-8 engine, a real power plant for innovation. But it is coughing along on only five cylinders, in this time where our need for an efficiently functioning patent system of incentives to innovate, is more important than ever in our history.

What a tremendous important blessing that we have the patent system. What a pity that we do not service it into full function.

Yes, one of the significant factors in the decline of innovation, is the imperfection not in the plan of the patent system, but in its de facto implementation by our Patent Office and our courts.

Who is to blame?

There is enough blame to go around. Certainly the Congress. Absolutely the courts. Assuredly the Department of Commerce. Positively the Patent and Trademark Office. Equally the lawyers who often draft unclear patents, or who by pursuit of a well presented lawsuit in context of uncertain law-so made by the courts and left uncorrected by the Congress-may litigate the cost of justice up to levels multiples higher than the value of the justice they pursue.-Each of these has

mightily burdened the patent system plan with costs in time, money and uncertainity that deplete and absorb unacceptably large portions of the motivation for innovation which the system should be providing-and this at a time when for other reasons our nation most critically needs the most efficient system obtainable.

Performance specifications for the patent system

The performance specifications of a patent system that will sharply increase the incentives for R&D and innovation, may be written as seven in number:

(1) A standard of patentability which will protect the regular new and nonobvious product not currently in public use, that an R&D invested buck normally will buy.

If as in some courts the patent law protects only the once-in-a-life-time-breakthrough-invention, it will provide month-in and month-out no Return on Investment, no ROI on R&D investment. Providing no ROI on innovation investment, it provides no incentive to innovate.

The standard of what inventions are patentable as intended in the present statute, it well balanced to secure innovation-inducing protection while not permitting anybody to take from the public domain by his patent anything that the public theretofore had a realistic access to. Unfortunately the present statute on this point suffers minor technical defects of verbiage, and is not followed by at least many courts, anyway.

(2) The availability of a search of the prior art, by an attorney for an inventor in innovation, which the innovation inventor can 80 percent rely upon.

That inherently means that the attorney needs access not just to a technology search facility, but to an excellent search facility. One like you would have expected Vince Lombardi to produce, if the patent system had been his game instead of football.

No such facility now exists in this country. The present Patent and Trademark Office search facility is in critical need of many major improvements, including integrity checks of the search shoes, computerized search capability, etc., etc.

(3) The availability of an opinion by an attorney which an investor in innovatin can 80 percent rely upon.

This requires not only a good search, but a pattern of statutory language and of judicial structure and attitude for application of the statute by which the uniformity of judgment by patent examiners, judges, and lawyers alike, can be sharply increased.

The know-how to realize much of this goal is available. The will to make the sacrifices necessary to achieve it, is not.

(4) The availability of an action on an application for patent by the Patent and Trademark Office, which the innovation inventors can 75 percent or so rely upon.

That is, 75 percent of issued patents sustainable in the courts. The requirements to realize this goal are of course the same as for (3) above.

If the investor can 75 percent rely upon the patent allowed by the Patent and Trademark Office, so will most infringers. Thereby, few patent infringement suits will go to court. The exclusive right will thereby commonly be available for the $3,000 or $4,000 of a Patent Office Examination, instead of, as now, the $300,000 or $400,000 of a very uncertain court re-examination.

(5) The availability of a final determination of the right to an exclusive, a property right, in an invention. One which can be absolutely relied upon. I.e., a substantially in rem judgment of a property right against all the world, just as my title to my car or house is determined substantially good against all the world.

The Supreme Court has made the present law, by which a single judgment by a single court of invalidity of a patent, is an in rem judgment of invalidity in spite of prior judgments of "valid"; but a judgment of validity is not binding upon other infringers. So a series of infringers are permitted each to have his day in court after court after court until the plagiarist-infringers have financially exhausted the patent owner, or until any one of them has won a judgment of invalidity in any single court among the many having different views of the law, a judgement which opens the invention up to most if not all the world in spite of many other courts' prior determinations that the patent was valid.

This fifth performance spec of any efficiently functioning patent system, compels a compromise of this favoritism toward the plurality of infringers in the wars of the patent court room.

(6) Such "final determination" to be available within two years from a request for such a final determination after threat of commencement of infringement.

This performance specification is obtainable only with some radical surgery to the Court system and improved timeliness of Congressional support of growing needs of the court system, including some sort of "speedy trial act" for patent cases. As of now, courts very frequently take over a year to decide a patent case after the trial is concluded, and commonly take several years to reach trial.

If as now, the exclusive right which is promised by law, is in fact commonly not obtainable during any of the eight years of primary market development and license negotiation concerning the invention, then the statutory promise of the exclusive is a fraud upon those who rely upon it, and is a tremendously reduced inducement to innovation.

(7) Such "final determination" of title to an invention, to be available for $100,000 or so.

This performance specification will require a special set of rules for the trial and appeal of patent cases.

It will also require a sacrifice of the pursuit of perfect-justice-but-only-at-unaffordable-costs in favor of an acknowledged less-perfect litigation, at a price innovation investors can more commonly afford to pay. The perfect justice we now pursue at unacceptable cost is in truth not attainable even at unlimited costs; less costly litigation need not necessarily reduce justice by any significant amount.

From the point of view of the intelligent investor in innovation, each of those performance specifications is a reasonable thing to ask for.

If realized they would assuredly beget undreamed of investment in innovationinvestment of sweat, intellect and capital now more commonly put into safer investments like real estate.

But under our present system, the investor in innovation enjoys none of those performance specifications of the patent system.

Little wonder that the incentives of the patent system for innovation, in this time of special national need, are a dilute 40 to 60 percent possibly, of what they very easily could be.

Little wonder that our nation's technology leadership of the world is slipping from our grasp.

That bothers me.

APPENDIX

The recommendations of the American Patent Law Association for amendments to S. 1215 follow:

SECTION 201 (c) (7)

The purpose of Section 201 is to effectuate the commercialization of patented inventions owned by the Federal Government by authorizing the Secretary of Commerce to affirmatively attempt to license such patents. The purpose is desirable, but the means of achieving the goal and particularly subsections 201(c) (4), (6), and (7) give us pause.

These three subsections authorize and direct the Secretary to "evaluate" the "commercial potential" of inventions, to "make market surveys", "acquire technical information", and to "demonstrate the practicability of the inventions". Such activities will require substantial funding to carry out. Furthermore, even if this effort were undertaken, we seriously question its effectiveness in achieving the purpose of Section 201.

Rather, we recommend creating a program to effectively publicize just what inventions the government own. The Commerce Department is a logical location for the program. Perhaps the Small Business Administration could assist in delivering this information to its constituency. If the private sector is meaningfully informed of what the Government has, the forces of the free enterprise system will work a real-world evaluation of the inventions more effectively and efficiently than can be accomplished by the Secretary of Commerce.

If the present approach of S. 1215_must be retained, we especially find the provision of 201(c)(7) which directs the Secretary to "acquire technical information" to be troublesome.

The parameters of the authority of the Secretary to make demands for information is not made clear. It is possible, and indeed likely, that the Secretary will demand information that the government contractor considers secret or proprietary in nature. How will such disputes be resolved and how will the contractor be compensated for property taken in this manner by Government authority? If the authority to "acquire technical information" could be interpreted to mean from government contractors, over their objections, and without reasonable compensation we urge that it be eliminated from the bill.