Page images
PDF
EPUB

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 normal

ly 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.

SECTION 201 (c) (9) This subsection authorizes the Secretary to retain the income from the Government licensing program to use to further the purposes of the Act.

We are sympathetic to the view that such authority will give financial flexibility and freedom to the Administrator of this new program. Such authority may well be desirable in an established Executive branch program where the services provided, the cost, and the income can be ascertained with relative certainty. However, in this new program, we believe that annual authorization and appropriation functions by the Congress would have a continual and effective “oversight" effect on the operation, and particularly the financial operation, of this new program.

Therefore, we recommend that in subsection 201(c)9) on line 9, the word "Provided” and all that follows in that subsection be struck out. The monies collected by the Secretary should be directly deposited in the general fund of the United States Treasury.

SECTION 302 (b) We support the clearly intended purpose of this Section. However, we believe the Section as intended could be made more effective and clear by the addition of the following sentence to be inserted as a new last sentence of 302(b):

"Contractor's license to practice the invention, or to have it practiced on contractor's behalf, shall include the right to grant sublicenses of the same scope to subsidiaries and affiliates within the corporate structure of contractor's organization, and to existing licensees whom contractor is legally obligated to sublicense or assure freedom from infringement liability.”

SECTION 304 We offer the following two amendments which are clarifying in nature and which we believe comport with the intent of the Section.

(1) On page 15, line 18, strike out "or" and add, “and has refused to offer a license to the invention to responsible applicants upon terms reasonable under the circumstances."

(2) After subsection (a), renumber (b) as "(c)” and insert the following new subsection:

"(b) A contractor whose title to an invention has been affected pursuant to the exercise of authority granted in (a) shall retain an irrevocable non-exclusive and royalty free license under such invention if such contractor is using or has made substantial investment leading to the use of the invention.'

SECTION 305 (a) (2) This subsection as drafted in certain narrow circumstances could act as a serious barrier to the development and commercialization of practical and useful inventions, and thus be counterproductive to achieving the purposes of the Act. Our fear goes to products invented or improved, the nature of which limit the potential buyers to governmental entities; for example, highway safety devices and equipment. If the statute provides that the potential purchasers of these new products are reserved a paid up license to make, use, and sell the invention, there will be a serious chilling effect on inducing a private manufacturer to invest capital to develop the product to the point of commercialization.

We recommend that the contractor have the right to petition the government agency to withhold this grant of rights to State or municipal governments, "if the agency determines that such a grant would substantially interfere with the commercialization of the patented invention.” While this standard is more narrow than "not in the public interest” currently in S. 1215, we think it more precisely identifies the public interest in the context of the bill and, therefore, in the few meritorious cases which are likely to arise, would be more attainable.

Senator STEVENSON. Thank you, sir.
Mr. Manbeck?

STATEMENT OF H. F. MANBECK, JR., GENERAL PATENT

COUNSEL, GENERAL ELECTRIC CO. Mr. MANBECK. Thank you, Senator.

My name is Harry Manbeck. I am general patent counsel of General Electric Co.

My purpose in testifying here today is to present some thoughts and recommendations on needed improvements in the patent system.

The changes which I will suggest were developed as part of a study on technology policy currently being conducted by the Committee for Economic Development.

The Committee for Economic Development, a nonprofit organization, is composed of 200 trustees, including many corporate executives and university presidents, and its study is intended to determine what policy changes are needed to stimulate technical progress in the United States.

The patent working group, chartered as a part of this study, was given the opportunity to consider the effect of the patent system in the innovation process and what changes should be made in the system to enable it to support innovation more effectively.

The report of the working group has been submitted and accepted in principle, and a copy of it is being furnished for the hearing record. I should emphasize, however, that at this time the report has not yet received final approval from CED.

The overall summary chapter of the CED study, which includes much more than patents, tax policy, regulatory policy, et cetera, has been presented to the executive branch of the Government.

We had a meeting on Wednesday of this week in Dr. Press' office with a number of people. So the same recommendations have been made on the executive side, too.

The first conclusion reached by our group is that the patent system unquestionably serves as a stimulus to industrial innovation. The protection provided by patents encourages the investment of funds, not only in research and development, but also in facilities to commercialize the R. & D. output.

Now I will depart from my prepared text here just to emphasize the two-step process we're talking about. Mr. Arnold spoke particularly of funds for research and development but it is much more than that.

It is the commitment often of much, much larger funds, millions to hundreds of millions of dollars to put in a plant to bring out new products, to put new processes in place that we're talking about, that the patent system supports.

If businessmen were to lose confidence in this protection, many innovative products might never be developed or reach that marketplace. To maintain that confidence, we propose a number of changes in the patent system which should increase its effectiveness and strengthen its supportive role in the innovative process.

These changes relate primarily to two key areas of improvement. The first area involves the resolution of disputes over issued patents while the second area lies in the timing of the patent grant and thereby its reliability in business planning.

Turning first to the resolution of disputes, it is believed that the cost and time currently required to resolve contested situations seriously detract from the prompt and effective functioning of the system.

When patents relate to commercially important products or processes, differences often arise between competitors as to the validity and scope of the patent coverage.

« PreviousContinue »