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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

that these decisions are not defensible as a matter of legal theory, but I think they are unsound as a matter of policy. An application should, it seems to me, be able to combine related discoveries to add up to a single claimed invention regardless of the precise informational relationship between the inventors.

The present requirement, which is unique to the United States, as far as I can tell has no significant advantage to anyone and has a disadvantage that it requires in many cases that the U.S. patent application be significantly narrower in scope than the equivalent foreign patent. This can frequently prove to be a very severe handicap to domestic business entities. In other words, your foreign application discloses or covers far more than the U.S. application, so that infringement of the U.S. patent-strike infringementcircumvention of the U.S. patent is facilitated by being within the scope of the foreign claims but yet being without the scope of the U.S. claim. And, to the best of my knowledge, it doesn't have any benefit to anybody; it is an anomaly of the U.S. law. I would strongly suggest that that be changed.

[The statement follows:]

STATEMENT OF HERBERT G. BURKARD, CORPORATE PATENT COUNSEL, RAYCHEM

CORP.

In connection with this Subcommittee's hearings on Bill S. 1215 and more particularly the patent system as it affects technological innovation by U.S. industry, Mr. Merrill asked me to address three questions:

I. Is the U.S. patent system meaningfully useful considering the attrition rate suffered by litigated patents?

II. What influences a patentee's decision to sue an infringer?

III. What changes would I recommend in our patent system to increase its usefulness to U.S. industry from the standpoint of encouraging the industrial innovation process?

I am Patent Counsel for Raychem Corporation of Menlo Park, California, which in 22 years has grown to sales of well over $300 million per year. I am therefore speaking from the standpoint of experience with a fast growing presently medium sized domestic corporation. We like to think of ourselves as innovative and technologically oriented.

Raychem's success springs largely from an ability to provide novel products which solve existing problems. Often they are products which, once on the market, can be copied quite easily by competitors, and which have world-wide application. So we rely heavily on the patent system, both in the United States and elewhere, to protect our investment in research and development. An important factor in Raychem's continuing growth is (and has always been) the quality and enforceability of its patent portfolio, which is a good deal larger than that of most companies of comparable size. Thus, we currently hold well over 200 U.S. patents and almost 1000 foreign patents, with similar numbers of pending applications. We have been (and are) involved in patent litigation, both as plaintiff and defendant, in the United States and in Europe.

I have given the information above as background to the remarks that follow, but the views I express below are my own and certainly not any expression of an official corporate position.

I

Abe Lincoln's famous remark "The patent system added the fuel of interest to the fire of genius" is still true today. The cost of innovation in the sense of product development and introduction is unfortunately increasing even faster than inflation and the market place is ever more competitive. Without the limited right of exclusivity offered by a patent, most companies could not risk undertaking extensive research programs. While certain processes or formulations can be maintained as a trade secret, this is not a generally available alternative. Slugging it out in the market place with competitors, especially lower production cost foreign competitiors

who have not incurred significant research and development costs, is bad business. In such an environment I feel innovation must inevitably suffer.

Given the failure rate of patentees in court, why does a company such as Raychem expend so much time, money and effort on its patent portfolio? First of all, the statistics are almost surely misleading. A variety of numbers has been bandied about but rates in excess of 50% are generally cited. The quoted failure rate is, of course, for patents litigated to final decision. Many patents are never challenged because there is no reasonable basis to doubt their validity. Conversely, many patentees are unwilling to bring suit either because they themselves seriously doubt validity or simply because the results could not be cost effective. Other patent suits are settled on the courthouse steps which doubtless also skews the quoted rate. In short, it seems probable that the patents fully litigated are in general those about which some reasonable doubt exists. Thus the 50% or more failure rate cited is dramatic but possibly not that terrifying or even surprising.

I think most corporations analyze their patents on an individual basis in the context of a particular potential litigation and therefore are probably not meaningfully influenced by general averages. This is certainly true of Raychem's manage

ment.

In my discussions with Mr. Merrill I indicated that a few years ago Raychem had been successful as a patentee Plaintiff against ITT in Boston. The patent in suit involved a high performance, light weight aircraft wire called "44" wire which at the time suit was brought had achieved outstanding worldwide acceptance in both the commercial and military context.

Although details of the suit are probably not appropriate for discussion Raychem's success in enforcing its patent is, I believe, significant in connection with three aspects of your present considerations.

First, on balance the patent system has a vigorous procompetitive impact. Had there not existed the opportunity for exclusivity in the commercial market Raychem could not have afforded to expend at an early stage in its existence (Raychem was only 7 years old when the patent application was filed) the sums necessary to develop 44 wire. "What if" speculation is probably fruitless but certainly even today 44 wire shows significant weight and performance advantages when compared to alternative wire constructions and is widely sold.

Second, disparity of size between litigants is clearly not an insurmountable barrier. At the time suit was commenced Raychem's sales were about 70 MM/year. I don't know ITT's size then or now but on a comparative or indeed an absolute basis it was certainly enormous.

Third, I would like to strongly urge that the present court system be maintained as opposed to a special patent court at either the trial or appellate level. The patent in suit was of a basically chemical nature. Our trial was held before Mr. Justice Tauro who characterzed himself as knowing no chemistry. That may or may not have been true but there is absolutely no doubt whatsoever on my part that by the end of the trial he had a comprehensive understanding of the complex legal and technical issues involved. I think few patent trial lawyers believe that they win or lose cases because the trial judge didn't understand the issues.

Although frequently complex, patent litigation is no more so than many other types for which specialized courts are not being seriously considered. The major disadvantage of specialized courts at either the trial or appellant level is that they tend to stultify new approaches, or adaption and development of the law to meet changed conditions. Such development and adaptability is one of the most significant advantages of the American legal system. The only arguments which seem to me cogent favoring such a single court system are possibly greater technical expertise on the part of the judges and greater uniformity of applied legal standards. As I have already indicated, I feel the former point is a solution to a non-existent problem and certainly could never be more than marginally significant give the great scope of technology encompassed by patents. The second supposed benefit is certainly a two edged sword and in any event is probably illusory since I believe that at the appellate level approximately three-fourths of the lower court decisions are affirmed regardless of whether the patent is upheld or not.

II

The decision to bring (or not) suit for infringement ordinarily follows a reasonably logical sequence of determinations, or at least educated guesses. The patentee must: 1. Determine with as much certainty as possible if the patent is infringed. In some cases mere examination of the competitive product provides the definitive answer. In other cases, e.g. a process patent, even sophisticated chemical analysis does not provide a conclusive answer, which must await pre-trail discovery.

2. Decide if some compromise satisfactory to the patentee, e.g. a license agreement, is possible. In many cases the infringer will not take a license or the licensor may not wish to license at a rate the infringer is willing to pay. Delay in enforcement can cause problems such as laches, statute of limitations or lead other potential infringers to conclude that the patent can safely be ignored.

3. Estimate if the cost of suit, which is always higher than expected, is likely to exceed the reasonably anticipated benefits of a favorable decision from the standpoint of an exclusive position for the patentee, past damages, higher license fees, and/or the deterrence of other would be infringers. In general, patent litigation costs are higher than those of other civil litigation because of the extensive documentation, frequent geographical separation of litigants e.g. our suit was in Boston, and great variety of available defenses.

4. Decide if the patent is valid, i.e. does it meet the 35 USC statutory requirements of patentability: to wit, is it new, useful, and unobvious and is the invention properly disclosed and claimed. These requirements are, I'm sure, familiar to all of you and certainly an exhaustive validity analysis is, or always should be, a condition precedent to bringing suit.

5. Decide is the patent enforceable? i.e. even if statutorily valid has the patentee estopped himself by inequitable conduct either during prosecution or after issuance. Pre-issuance misconduct can, of course, be either affirmative such as misrepresentation to the Examiner or negative in the sense of withholding information relevant to patentability. Post-issuance misconduct (patent misuse) includes a variety of unfair trade practices such as tying, block booking, price or territorial fixing with other licensees or the like. Although misuse can be purged, the existence of such behavior can frequently make suit inadvisable.

The critical factor to bear in mind is that with respect to points 4 and 5 all of these defenses are at least analytically available to the defendant and the patentee must prevail on all of them. Given the fact of in rem invalidity it is clear that suit for infringement should never be undertaken without the most detailed and carefully considered analysis.

III

In patents, as in may other areas, a major problem for industry is uncertainty. Businessmen want, and it is in the public interest for patent lawyers to be able to give, definitive answers. The changes I am proposing in our patent law will in general facilitate such definitive answers. While these changes are significant from a procedural patent law standpoint they certainly do not amount to a change in the fundamental theory of our patent system. I think our present system is a good one and the proposed changes are basically designed to enhance the value of our patent system of U.S. industry. Parenthetically, I should note that the proposed changes would tend to bring the U.S. system more closely into line with that of virtually all other major industrial nations.

1. Opposition and Reexamination.-To increase the certainity of validity of a patent and reduce the court burden, I favor an opposition/reexamination system. An opposition system entails the publication by the Patent Office of an application together with the claims the Patent Office is prepared to allow. Any interested party is given a brief period, say 90 days, to cite to the Patent Office reasons why the claims are over broad or invalide either as they stand or in toto. The applicant and opposer(s) then argue their case before the Patent Office until a final decision is reached. An opposed patent which nontheless issues should enjoy a far greater presumption of validity than one which has issued unopposed. This is certainly true in existing opposition system countries e.g. Germany, Japan and Holland. In effect the searching facilities of the Patent Office have been augmented by a substantial number of people, many of whom are intimately familiar with the subject matter of an application.

By reexamination I mean a modification of the present reissue practice where an outside party as well as the inventor could cite prior art or other grounds of invalidity (not including those of the anti-trust or misuse type) to the Patent Office and request a reexamination by it of an issued patent. The applicant would of course be allowed to argue in return as in the case of an opposition. What would be the effect of this change?

(a) Clearly it would increase the burden on the Patent Office. Conversely, it would reduce the court burden and the Patent Office can in general more easily consider many of the technical issues which consume so much court time.

(b) The vast majority of patents are today held invalid on grounds never considered by the Patent Office in the initial prosecution. Either new references, undisclosed public use or some fraud or misuse type misconduct knocks the patent out at

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