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For argument's sake, we will assume that either the Japanese are paying you well on a license or that you are independently wealthy, allowing you to have a limited choice. Either you go into business for yourself and compete with the infringer to try to at least salvage something out of the fact that you created a new product, or you go to court. If your product is successful, the big boys in the marketplace will put you out of business. If you have taken the latter choice to sue for damages, chances are your patent will be declared invalid.
This scenario I have just given you is real. It happens to just about every successful professional inventor. There are company managers at this hearing who have taken me to the point of the legal letter telling me that my patent is invalid and not infringed. I am now deciding whether to start another suit.
Such corporate attitude is to be expected, I suppose. Company managers know that the odds an inventor may be able to afford the costly litigation are less than 1 in 10. Even if a suit is brought by the inventor, the odds are four out of five that the courts will hold the patent invalid. When royalties are expected to exceed legal expenses, it makes good business sense to attack a patent.
I think it appropriate to contrast the U.S. antipatent philosophy with my experiences in the world market.
I advertise in a number of trade journals in Europe and Japan. I also annually attend a world technology show. Last February in Atlanta at the Tech-Ex show, Licensing Management Corp.'s booth had visitors literally three deep, from opening until closing time. Most of the inquiries were from Europe and Japan.
The licensing procedure is somewhat different in the international marketplace. First and foremost, they come to me as the result of advertising. I am not required to do telephone soliciting. Second, they do not require that I sign a nonconfidential disclosure statement. Quite to the contrary, they will sign my confidential disclosure statement indicating their willingness to keep my disclosure confidential; stipulating a time for a decision of the reviewed technology, and indicating a willingness to pay either under patent rights where they exist, or where no patent rights exist agreeing to pay for the transfer of know-how.
This substantially different attitude is obviously much more congenial to the inventor. This congeniality is further enhanced by the fact that although the majority of my income is derived from foreign licensing, I have never had to enforce a patent against a foreign infringer.
I leave it to you to conclude the reason as to why the attitude of foreign companies is so different. My licensees have told me that they recognize the clear value of invention from an economical point of view. They feel the United States has lived off the fat of its own technology for so long that we do not recognize that the consequence of the legal destruction of patents is a decline in innovation, a situation that is not within any nation's economic interests.
What all this means to the inventor is that he either quits inventing or he licenses foreign. It is not at all surprising that the balance of payments reflects the foreign sales advantage. You don't have to guess who the foreign licensees sell to. For example, how
many millions of dollars were paid overseas as the result of the import of cassette tape recorders?
To give you an idea, assuming that the royalties paid on my cassette recorder patents were one-tenth of 1 percent of wholesale price, they would amount to well into six figures annually. Or, more recently, I received a patent on the drive used in most video cassette recorders. Nearly 600,000 were imported into the United States in 1978 alone, and market projections place annual sales to be over 1 million units. At an average wholesale price of $500, one invention from one inventor could cut-or add, depending on who licensed it-$500 million a year from our gross national product.
Gentlemen, I would love to sell in my own country because I believe we need it. I hope you will make every effort to take the steps needed to improve the patent system in the United States so that American companies and investors can take advantage of American know-how and creativity.
Senator SCHMITT. Thank you, sir.
STATEMENT OF HERBERT G. BURKARD, CORPORATE PATENT
COUNSEL, RAYCHEM CORP. Mr. BURKARD. I would like to apologize for being the only individual who was so ill-mannered as to use 13-inch paper. I hope you will put that down to the fact that we out West are slow to adopt new things.
I would like to address only two things in the course of my testimony, to avoid prolonging it unnecessarily.
By way of background, my corporation is a young corporation. We are 22 years old and in that time we have come from ground zero to well over $300 million. So, my experience is with what I think it is fair to characterize as a fast-growing but presently medium-sized corporation. We like to think of ourselves as innovative and technologically oriented. For example, we spend between 6 and 7 percent of our annual sales dollar on R. & D. effort. We think our success springs largely from our ability to provide novel solutions to existing problems. Certainly, most of Raychem's products are products which, once marketed, could be readily copied. We therefore rely heavily on the patent system, both in the United States and worldwide.
I should point out that over half our sales are outside the United States. We have approximately 200 U.S. patents and approximately 1,000 foreign patents issued, and approximately equivalent numbers pending. Approximately half my patent staff is located overseas, so for whatever it is worth, I have a reasonable familiarity with both foreign as well as U.S. patent systems.
I should also point out that my opinions are not a statement of corporate policy. They are my own thoughts on the matter.
As some of you may be aware, we are located in an area of the United States that is called Silicon Valley. I think that has some relevance to a point raised by one of the other witnesses in connection with S. 1215, although, in general, I am not prepared to comment extensively on this bill. That was the question of what influence the present system, whereby Government-sponsored research requires the granting of Government rights in patents, has. A large number of companies in Silicon Valley don't even consider doing sponsored research, for precisely this reason: They just simply refuse to get into, if you will, the hassle. It is not a matter of corporate policy on Raychem's part, but I should note parenthetically that we do no sponsored research. I think most of our technology is less likely to be of immediate interest to the Government, but, certainly, in the Silicon Valley area a relatively large percentage of the firms simply do not become involved in it, precisely because of that reason.
I am, I think, less qualified to suggest what changes, if any, would alter this situation, but I think it is the situation, and that it is of some significance.
The other point I would like to comment on is some changes which I feel would be appropriate in the patent system. I recognize that a number of my suggestions are contrary to a number of the suggestions made by previous distinguished witnesses, but I suppose it is for you gentlemen to resolve, what is the choice to be made.
In patents, as in many other areas, a major problem for industry is uncertainty. Businessmen want-and I think it is in the public interest for the various corporate staff people, including patent lawyers, to be able to give them definitive answers. I feel that the changes I am proposing in the patent law will facilitate the giving of definitive answers to businessmen.
The changes I am proposing I don't think are fundamental changes in the patent system. I think the present system is a good one, and I believe that the proposed changes will enhance the value of the patent system to U.S. industry.
I should note that the changes I propose would, I think, tend to bring the U.S. system more into conformity with the system practiced in most European countries. I think this is incidental. It is not that the foreign patent system is necessarily better, but I think in an international context a greater degree of uniformity is desirable.
The first suggestion I would make is for the provision of an opposition and reexamination system in the United States. Several questions were asked with respect to why patents experience a greater degree of respect and are less litigation-prone in a number of European countries. I think one of the major reasons is, as was indicated, the greater comprehensiveness, if you will, of the examination conducted in the European patent offices.
However, I think another major factor which bears on this is the opposition system which exists in the examples cited-Sweden and Germany, and also in Holland and in Japan for example. The system there is that after the patent office is prepared to allow an application, it is then published, and for 90 days, or 60 days in the case of Japan, essentially anyone can submit arguments to the patent office as to why the claims the patent office has indicated it is willing to allow are in whole or in part invalid or overbroad.
In effect, then, the patent applicant and the opposers argue further in an interparties situation before the patent office, and until the patent office is finally prepared to accept or reject a set of claims. The patent which then issues, I would submit, is, just as a
matter of simple logic, far more entitled to be considered valid. It has had its trial by combat, as it were.
No such system prevails in the United States. There have been suggestions made that the U.S. Patent Office adopt a system where the Patent Office examiner would serve as an advocate for the other side, and there would be a separate section of the Patent Office which would in effect serve as a judge or tribunal to decide the dispute between the applicant and the examiner.
I don't think there is anything wrong with that, but I think an opposition system is much better.
First of all, you have, in many cases, real parties in interest contesting the patent. Second of all, in many cases, the opposer is intimately familiar with the precise area of technology to which the application pertains. He therefore is frequently able to immediately focus on the most relevant art. Patents which emerge from this system are given greater validity before the courts, and are entitled to it.
The situation specifically in Germany, I think, can be oversimplified in terms of why patent validity is more likely to be sustained there. No. 1, you have two separate trials. The trial of infringement is held in a separate regular court, if you will. The only thing that the patent court decides is the question of validity. I am not certain on this, but I believe the statistics in Germany is that only one out of four patents is held invalid, and a somewhat lesser percentage are held partly invalid. So, the batting average for validity in Germany is well over 50 percent that is cited here.
We hear numbers in the United States of 50 percent invalidity or even 70 percent. My colleague here indicated four out of five. I don't know what the exact number is.
The only comment I care to make in that connection is: Bear in mind that, I believe, one-tenth of 1 percent of the issued U.S. patents are litigated. On any other statistical basis, that is a ridiculous sampling to make any kind of an analysis from.
I think businessmen, in general, are correctly aware of the fact that a patent does not mean that you have a valid patent. On the other hand, I think they are not deterred by abstract statistics. I think they tend-and certainly should—to get their legal counselors to advise them as to their analysis of the patent in question. I don't think they are meaningfully influenced by statistics in general, and I think certainly being influenced by the statistics is foolhardy.
The effect of an opposition and reexamination-by reexamination, I mean that after the patent is issued, someone could come back and effectively request the Patent Office to reconsider that patent on the grounds of newly cited art or theoretically on the basis of the fact that the Patent Office had misunderstood what had been applied.
There are disadvantages to this system: No. 1, it would increase the burden and hence the operating cost of the Patent Office; there is no question.
I think the advantage is that it would reduce the burden on the courts. The vast majority of the patents which are held invalid today are held invalid on grounds not considered by the Patent Office.
I think to a certain extent the question revolves around where you want to allocate your funds. I think many of the issues which, of necessity today, are handled in the courtroom in litigation would be more expeditiously handled in the Patent Office.
There exists a possibility of using an opposition or reexamination procedure to bully a small inventor, yes. On the other hand, the present litigation situation has been, I think correctly, pointed out as being extremely arduous for a small corporation, certainly for a small inventor. The reexamination or opposition, I think, to a certain extent would provide a cheaper forum for the small corporation or inventor to get a determination on the merits of his position, and undoubtedly much more expeditiously than the present court procedure.
I recognize that related proposals have been made in bills S. 2255 and S. 214, and that very serious cost-effectiveness questions have been raised about this proposal. I am not prepared to say whether it is cost effective or not. It certainly would be expensive. I think it would be preferable, on balance, but I can't honestly give any numbers.
My second proposal is that the first to file claiming a given invention gets the patent. That has been addressed quite extensively by previous witnesses. I don't think I can add anything useful to their arguments, except that it would, at the very least, encourage prompt filing and presumably earlier issuance, which is a clear benefit to the public.
This is certainly contrary to the position taken by the APLA and by the patent section of the ABA. As has been indicated, there has been a fair dichotomy of opinion with respect to this, even within the profession.
The third suggestion is that the patent term run from the date of filing; more particularly, that a patent term would be 10 years from the date of issue or 20 years from the date of filing, whichever is longer. This is virtually the universal system outside of thewell, that is a little strong, but certainly in most major industrial countries outside the United States and Canada, a patent term does not run from the date of issuance. The date of issuance starting the term encourages or, at the very least, does not prejudice delay in prosecution.
I certainly think a 10- to 20-year period would permit adequate time to commercially exploit the vast majority of inventions, and certainly discourage undue delay or, at the very least, not encourage it.
Last but not least, I would suggest that another anomaly in the U.S. law should be eliminated; that is that the combination of inventors on an application should be permitted. I think we should recognize that the vast majority of inventing is done in a corporate or similar environment, where a number of research and development groups work in interrelated areas, even though they may not directly interface. U.S. law, in effect, provides that an application must name only the inventor or inventors of the entire invention claimed, and that the patent application can claim only what a single inventive entity has invented.
A recent series of cases has held that the claimed invention must be patentable over known, purely internal, prior art. I can't say