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trial. An opposition and reexamination procedure would enable a potential infringer to get his best non-antitrust shot(s) considered by the Patent Office which should certainly result in less full scale litigation of surviving patents.

(c) There are undeniably certain potential disadvantages to this proposal. First, there is the possibility for bullying the little patentee. I think this possibility exists but certainly no more so and possibly less so than under the present system where elaborate pre-trial discovery etc. can prove very arduous for the small patentee. The same avenues of redress are available. Conversely, the small party confronted with a patent he believes invalid on prior art or prior use grounds could get a determination on the merits of his position relatively expeditiously and inexpensively without having to take the risk of infringing and then waiting to be sued.

2. The First Applicant To File Claiming A Given Invention Gets The Patent.-The U.S. and Canada are now virtually unique in having a so-called interference practice-in effect a trial by the patent office of who conceived of the invention first, who first actually carried out the invention and whether there was "due diligence" during the intervening period. Under this procedure the first inventor can in some cases knock out an existing earlier filed application or issued patent and get a patent in his name for the same invention. The interference procedure is long and horribly complex in many cases. While as a lawyer I greatly enjoyed interference practice I think the disadvantages of the system far outweigh the advantages. Abolition would:

(a) encourage prompt filing and presumably earlier issuance-a benefit to the public, and

(b) preclude situations such as the polypropylene multiparty interference where foreign patents had actually expired while the equivalent U.S. were applications still pending. Many companies were reluctant to invest in further developing the technology because of uncertainty as to who would ultimately prevail.

3. Patent Term Runs From Date Of Filing.-U.S. practice presently provides for a patent term running from the date of issue. This encourages or at least does not prejudice delay in prosecution. I recommend a patent term of the greater of 10 years from issue or 20 years from filing. This should certainly permit adequate time to commercially exploit an invention but yet not encourage undue delay.

4. Combination Of Inventors Should Be Permitted.-We must 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 although they may not directly interface. U.S. Law provides that an application must name the inventor(s) of the entire invention only and can claim only what a single inventive entity has invented. A recent series of casers have held that the claimed invention must be patentable over purely internal corporate prior art known to the inventor. While legally defensible these decision seem unsound as a matter of policy. Any application should be allowed to combine all related discoveries to add up to single claimed invention regardless of the precise informational relationship between the inventors. The present requirement, which is unique to the U.S., appears to have no significant advantages to anyone and in many cases results in a U.S. patent being narrower in scope than the equivalent foreign patent. This can prove a severe handicap to domestic business entities.

Senator SCHMITT. Thank you very much.
Mr. Lodge.

STATEMENT OF GERALD A. LODGE, CHAIRMAN, INNOVEN

CAPITAL CORP.

Mr. LODGE. Senator, I also wish to apologize in that I don't have 13-inch paper. I don't have any paper. I was invited only recently and I did not have the time to prepare a written statement, for which I apologize.

Senator SCHMITT. We will see how good you are at dictation. Mr. LODGE. I also must confess that having listened to the testimony this morning that I feel a little bit like the lamb among the wolves in that I am far from an expert on the specific subjects that are being discussed today.

My background is really as a businessman and that is the perspective that I bring to this testimony. Perhaps it would be useful

for you to hear about my background and how it might apply, and therefore you might be able to put my testimony in perspective.

I spent about 15 years in the investment banking business, primarily in investment research and corporate finance, financing typically smaller or medium size companies. Since 1972, I've been the chief executive officer of an entity called the Innoven Capital Corp. This is a venture capital investment firm with assets of approximately $20 million. The business of my firm is to provide growth capital for small emerging companies. Since formation, we have made 14 such investments. Thirteen of the fourteen companies have significant technological content in their product line. Some examples are large scientific computers, radiation processing equipment, pollution control equipment, telecommunication equipment, medical therapeutics and recombinant DNA.

The ownership interest that my organization has in these companies ranges from 4 percent to 85 percent. Therefore, as I said earlier my testimony is based on my experience as a director and owner and investor/entrepreneur. I represent Innoven as an owner; I sit on four boards of directors of our portfolio companies; additionally I sit on two other boards of public companies, one having revenues of approximately $80 million, another one having revenues of approximately $2.4 billion.

In my letter of invitation you asked for my opinion or comments on a series of questions and what I would like to do is attempt to give you my thoughts. Other people have commented much more eloquently on the specifics of these than I could, but perhaps it might be useful for me to reinforce some of their ideas from my persective.

The question of the utility of patents to someone in our position: in other words, a sponsor of a small technological company, we, as investors, are skeptical as to the value of patents. If someone arrives in our office with an issued patent that would be one factor that we might consider out of many, but we certainly would not want to bet everything that we have on the value of the patent. It turns out that every single company we have invested in has either a pending or issued patent so that the managements of the companies seem to have some faith in the patent system.

I make my comment as a value judgment, in other words, based on the management time and the dollar costs, the question is do you get the equivalent amount of protection or is there an economic utility balance there? We tend to counsel our managements to not patent their devices, where possible, but rather to rely on keeping the process or the product or the elements of the product a proprietary secret and then to attempt to exploit it very rapidly and gain a timely market posture—rather than to go spend the time and money to patent it.

There was another question relating to the circumstances where a patent might be essential in the commercialization of innovative technologies. In reviewing our portfolio, I would say that 3 of the 14 companies would not be in existence without the benefit of a strong patent portfolio.

I make no judgment on the other ones, but clearly those three would not have survived. It is difficult to articulate the exact circumstances that what makes a product or a market product

combination such that you need that protection. Clearly, some of the characteristics would be that you cannot protect it on a proprietary secret basis. It may be that it takes you a long time to bring the product to market and that a premature disclosure would allow a competitor to bring that product to the market almost as soon as you can and then prevent you from therefore exploiting your advantage.

Another reason might be a significant capital expenditure in certain kinds of plant or equipment as discussed by your GE witness. All of those kinds of considerations would suggest that a development would not be exploited without adequate patent protection.

Another question was: what trends in the patenting process have diminished the value of patents. I don't want to be presumptuous here. As I said earlier, I'm not a patent lawyer, I'm not a lawyer, even. Our view——

Senator SCHMITT. You don't have to apologize for that fact.

Mr. LODGE. My view is that the most serious problem we have is that we have had doubts about the integrity of the patent office search. We have had three specific instances wherein we have had competent searches fail to surface an important issued patent. In some cases we have been directed by a company concerning the patent and we have been unable to find it. This is very disconcerting, when you are considering the investment of substantial amounts of money, when you can't even verify that someone does or does not have an issued patent in an area of interest to you. Another thing that has bothered us is that we have noted over the years that the opinions that we have gotten from patent counsels regarding the validity of a patent, either our own patent or someone else's patent, including the extent of the claims in those patents, have gotten less and less certain.

In other words, it is almost worthless to get an opinion because the hedges are so great. In other words, this tends to reinforce the increasing amount of uncertainty surrounding the entire business of patents because patent counsels are unwilling to give us clearcut opinions.

Senator SCHMITT. This is your own counsel?

Mr. LODGE. These are counsels that we have hired.

Senator SCHMITT. Do you have a patent counsel in your own organization?

Mr. LODGE. No, we do not. We hire outside patent counsel. Another perception that I have is that the patenting process takes more time and costs more money than necessary because of a perceived failure that I have seen in the examining process. It appears to the layman that the examiner could be better trained. It would be nice if he had some understanding of technology. It would be nice if he were required to update himself. It would be nice if there were a certain minimum level of proficiency.

As a result, it takes a great deal of time to explain to the examiner what it is that you are talking about.

I've been asked to comment as to what Congress should do to strengthen the patent system. I have a rather simplistic view of that. I think that clearly the number of examiners should be increased; clearly the quality of the examiners should be upgraded

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through better selection, improved training, mimimum proficiency, et cetera. I am aware of a variety of data retrieval systems available that would drastically improve the integrity of the patent file using current state of the art. I would think that is a clear cut priority.

And lastly I would like to emphasize the points made by some of the earlier witnesses that there should be some attempt to improve the environment as far as litigation is concerned. As a representative of the small company fraternity, we have been on the other end of the legal harassment, such things as excessive discovery et cetera, that just literally snows the small management with inadequate staffs.

Second, although it has been adequately covered, I think it should again be mentioned that it is very disconcerting to find that different Federal courts given almost the same facts, will arrive at different decisions. I think that for business planning purposes one ought to be able to evaluate the merits of an invention. A patent counsel ought to be able to evaluate the merits of an invention, allow you to plan appropriately, take whatever risks are required in the marketplace, but hopefully not take the risk that you have been wrong in evaluating the validity of your patent. The only way that can happen, it seems to me, is that the courts are uniform in their application of the law.

I would just like to make one last general statement. Upon reflecting on this point, which I have not been reflecting on very often, as to the merits or the value of the patent system, it appears to me that the dollars spent in improving the patent system have a lot of leverage. In other words, I think that there will be a significant number of R. & D. dollars that will be unloosened and there will be a significant number of other dollars such as capital investment, plant and equipment, missionary marketing, et cetera, all hinged upon an improved patent portfolio.

And therefore I think the Congress would be well to spend the money in the event you do want to improve the innovative posture of the United States. I just have a few comments on S. 1215. In general, I endorse the aims of the bill. I think that if enacted it will have a substantial positive impact. As a director of a company, in some cases I have ordered management to avoid any Government contract for fear that they will taint their technology. Clearly, this offers an avenue where appropriate contractors who might be the most suitable to do a particular research contract will now feel they can do it without losing their technology.

I would suggest one modification. As to the rights of the Government, when a particular type of research contract is awarded, I would make the distinction between basic research and applied research. I think that the Government should retain title to any process or body or knowledge that is developed that could be defined as basic research.

I clearly, as I said earlier, am in favor of a contractor getting title to anything that would be applied, in other words a specific product or a process leading to a specific series of products. What I am trying to avoid is the patenting of science. I think it is in the Government's interest that universities and nonprofit institutions are funded and that they conduct investigations into basic science.

I think it is in our country's interest that those results be promptly published so that everyone can read the results and we can get the cross-industry communication that I think causes the technology to advance. I think if the Government does not retain title and allow the private contractors to do so, it is possible that publishing will diminish. I am not very optimistic about the ability of universities to commercially exploit it, and therefore I feel that it would not be in the country's interest to do that.

That is all I have, sir.

Senator SCHMITT. Thank you. Mr. Rabinow?

STATEMENT OF JACOB RABINOW, CONSULTANT, NATIONAL BUREAU OF STANDARDS, DEPARTMENT OF COMMERCE Mr. RABINOW. I'm an electrical engineer and I have been inventing for some 60 years. I started when I was very young. About half my working life was spent in the Government and half in industry. I now hold 215 U.S. patents and about 100 in foreign countries which are essentially duplicates. My work now is as a part-time consultant at the Bureau of Standards and everything I say here is strictly my own. The Bureau makes sure that I say this. Senator SCHMITT. That is standard.

Mr. RABINOW. Yes, because they know that I don't always agree with official policy.

I was asked to comment first about the bill and then patents in general. One trouble with being the last speaker is that much of what you wanted to say has been said and said very well. One of the great advantages, however, is with the many things that were said with which I disagree very violently—and it gives me a chance to rebut.

I think that S. 1215 is very good. I think it is time the Goverment came to grips with this. I think it is flexible enough and you have to be flexible; for example, if the Government has patent rights on a nuclear submarine it has to treat them differently from patents on magnetic particle clutches. That is something that Admiral Rickover should well note. I think that the flexibility is good.

I think that the implication that the Government could collect, royalties is nonsense. It was said well enough earlier today that collecting royalties is a bureaucratic process. You have to have contracts, you have to check books, you have to have very involved legal procedures.

On the other hand, it is not as difficult in a technical sense, as was said earlier. For example, I would have no difficulty writing a contract on a blade of the third stage of a compressor in a turbine of an engine. I've done this for the clutch of an automatic transmission. There are formulas, there are logical ways of doing it; that is not the problem.

The problem is the general nuisance of checking books and checking production figures. In general, when our Government is a 50-percent partner-actually the State also collects a piece, there are taxes on employees, there are taxes on dividends-so the Government is much more than a 50-percent partner and I will make a deal with anyone who wants one of my patents that I would take 50 percent of the profits in exchange for royalties, any time.

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