25. David Rines. "Do We Need a Patent System", "J. Patent Office Society," Volume 51, No. 8, August, 1969.

26. See D. C. Richards and G. E. Lester, "A Patent Harvest", "1975 Patent Law Annual," pages 1 through 12, for several representative case histories.

27. "Report of the President's Commission on the Patent System", United States Government Printing Office, 1966.

28. E. A. Gee and C. Tyler, "Managing Innovation," pages 222 through 234. 29. Supra, Footnote (22).

30. Supra, Footnote (23).

31. Supra, Footnote (24).

32. Ibid.

SECTION 2

PROPOSALS WITH MAJOR IMPACT ON INNOVATION

This Section contains those proposals which the subcommittee feels would have a major impact on stimulating innovation. All members of the subcommittee urge prompt implementation of the substance of these proposals.

PROPOSAL I

Upgrade the Patent and Trademark Office

The subcommittee strongly recommends that the Patent and Trademark Office (PTO) be given sufficient funds and resources to thoroughly and carefully process patent applications so that the reliability of resulting patents is greatly improved and the enforceability of such patents is enhanced.

PTO patent examiners presently spend an average of 15 hours in examining each patent application, including reviewing and understanding the disclosure and the claims; conducting a search of the prior art, including U.S. and foreign patents and the literature; writing an action either allowing or rejecting some or all of the claims, and giving reasons why the claims are believed to be unpatentable; reviewing the response filed by the applicant or his attorney to such action; conducting a further search and either granting or refusing the patent. In the latter event, another action is prepared again setting forth the reasons for rejection so that the applicant can decide whether an appeal should be taken.

The most important part of the examination procedure is the search of the prior art by the examiner. This is done manually by him. Because of time pressures placed on the examiner and the inherent limitation of the examiner's search file, he cannot search all of the literature published throughout the world which may contain pertinent references.

Failure by the U.S. examiner to find and cite pertinent prior art results in the issuance of patents which contain claims that do not accurately define the scope of protection to which the invention is entitled, and thus are not given a high degree of acceptance in practice and are more vulnerable to attack in the courts. Infringers involved in patent litigation and who cite prior art not cited by the examiner (even art that is not more pertinent than the cited art) have greater success in convincing courts to invalidate the patents over such new prior art.

The PTO handles approximately 103,000 new patent applications per year with a staff of 3,000 people (approximately 1,000 examiners) and a budget of $93 million. By contrast, the European Patent Office (EPO) is projecting an annual load of 40,000 patent application filings with a staff of 3,000 people and a budget of $115 million. Such an EPO budget, if scaled up to handle the load handled by the PTO, would be two and a half times the current PTO budget.

In light of the foregoing, the subcommittee submits that the PTO should be given the funds and resources to improve its examination procedure and thereby to enhace the validity and enforceability of U.S. patents. Such improvement should include expansion of the PTO examining corps to permit more thorough searching of the prior art without increased application pendency. Emphasis should be placed on the quality of the patent examination and not on quantity of applications examined. The PTO should expand its quality control program to review a greater

If the PTO is given increased funding, consideration should be given to raising at least a portion of such funding through higher fees. The Government Accounting Office has proposed that the PTO recover in fees 55 percent of its costs (it now recovers 32 percent of its costs; see Chemical and Engineering News, November 27, 1978). The subcommittee feels, however, that excessively high fees could constitute a disincentive to innovate on the part of individual inventors and small firms. Any steps taken to raise additional income from PTO operations should, accordingly, give special consideration to providing relief for individuals and small firms.

sampling of allowed patent applications, thus ensuring more uniformity in the quality of the issued patents. furthermore, the PTO should improve the integrity and completeness of the PTO's primary search tools, i.e. the patent search file and its scientific library.

The subcommittee further recommends that the PTO develop, have developed or use an available computerized patent and prior art search system to better assure the finding and consideration of the closest prior art by the examiner. By developing such a system, eventually containing all U.S. and foreign patents and publications and constantly updating it as new references are received, the PTO not only will assure that substantially complete prior art searches can be done by examiners but, if such data base was made available to inventors and their patent attorneys, many patent applications would never be filed because of art located in such search. Those that were filed would more readily distinguish the invention over the closest prior art, leading to less protracted prosecution in the PTO. The value of such a data base to inventors and industry should not be overlooked. By locating and obtaining copies of references in a particular area, there would no longer be any occasion to reinvent the wheel and that time and energy could be spent in further innovations over those already known.

This subcommittee also recommends legislation which would obligate the Treasury to earmark certain patent and trademark fees for use by the Patent and Trademark Office, such as H.R. 13628, introduced on July 27, 1978 by Representative Peter Rodino (D-NJ). Under the proposed legislation, certain patent and trademark fees would be credited to the PTO appropriation and would be used to pay the costs of PTO products (e.g., copies) and services (e.g., examination and registration). In the past, the fee monies have not been earmarked for PTO use.

The bill would also give the Commissioner greater authority to set the fees for PTO products and services. Under current law, many fees must be set by Congress.

Provide for reexamination of patents

PROPOSAL II

One of the fundamental problems of the existing patent system is that pertinent prior art is very often found after the patent has issued and has become commercially important. At this point in time, additional prior art, not considered by the PTO, is often found which creates uncertainty concerning the enforceability of the patent. Such uncertainty often deters the patent owner or licensee from commercializing the invention. Such uncertainty can also deter commercialization by an interested party who cannot quickly and cheaply assess the value of the patent. Litigation is slow and very expensive. Such uncertainty coupled with such expense can be utilized by infringers to avoid respecting the patent property, especially those owned by independent inventors and small businesses, which in turn reduced the value of patents as an incentive to innovate. Therefore, a need exists for a fast, inexpensive method for increasing the certainty as to the enforceability and scope of a patent.

Accordingly, the subcommittee proposes that the PTO initiate a system for the reexamination of U.S. patents by any party requesting such reexamination during the life of the patent. The reexamination system should provide for submission of written arguments by the patentee and other interested persons concerning patentability over prior patents or printed publications. Such reexamination should be handled on an expedited basis by the PTO so that a prompt decision can be rendered. If the claims are held to be patentable over the cited art, the presumption of validity of the patent is enhanced and patentees and interested parties would have a clearer idea about the strength of the patent, without resorting to litigation. In some instances, the reexamination procedure should help avoid litigation costs. If the patent claims where held to be invalid over the cited art, the patentee would have the right to amend his claims and to define his invention more accurately or assert his position to the Board of Appeals and, on appeal, to the Court of Čustoms and Patent Appeals or the U.S. District Court for the District of Columbia. This reexamination system would be available whether or not the patent to be reexamined was already involved in litigation. In such case, however, it would be solely within the court's discretion as to whether the litigation should be stayed pending the reexaminaiton, so as to avoid undue delays in obtaining a final court adjudication.

The importance of having prior art relied upon to invalidate a patent reviewed in the first instance by the PTO, when obtainable without delay of infringement litigation, cannot be too highly emphasized. Indeed, reliable statistics suggest that a significantly higher percentage of litigated patents are held invalid where prior art

relied on in court was not previously considered by the PTO than was the case where the prior art had been so considered.1

2

The subcommittee recommends enactment of suitable legislation to fully implement the reexamination system; in the interim, the subcommittee encourages the Commissioner to use his rule-making authority to institute reexamination to the fullest extent possible.

The net effect of this subcommittee's proposal for reexaminaiton would be to provide a simple, inexpensive method of greatly improving the quality and reliability of those U.S. patents which have demonstrated commercial value and to avoid expensive and wasteful procedures with resepct to non-commercial developments. It would also provide a system whereby competitors of the patentee can request a more accurate definition of the invention (claims) as guidance in their efforts to legitimately compete with the patentee."

PROPOSAL III

Provide a specilized appellate court for patent cases

This subcommittee favors a centralized national court with exclusive appellate jurisdiction (subject to Supreme Court review) over patent-related cases as a vehicle for insuring a more uniform interpretation of the patent laws and thus contributing meaningfully and positively to predicting the strength of patents.

The present judicial system for reviewing patent disputes has generated extensive differences in the various circuits' application of the patent law which has inordinately increased litigation expenses (by encouraging forum shopping) and made it extremely difficult for patent lawyers to advise their clients as to the likelihood of success in a given case.

It is the view of this subcommittee that the uniformity and reliability made possible by a centralized patent court would contribute meaningfully to decisions to file patent applications and to commercialize inventions, thereby improving industrial innovation in the United States. Consistent decisions in patent cases would greatly aid attorneys in advising their clients as to the strength of patents, thus reducing uncertainty was to the strength of patents.

This subcommittee favors the general concept of a special national court to hear patent appeals, such as the court_proposed by the Department of Justice which would be formed by merging the Court of Customs and Patent Appeals with the Court of Claims, plus a few new judges. The new court would retain the present jurisdictions of these courts and acquire additional jurisidiction_now exercised by Circuit Courts of Appeal over patent, civil tax and other cases. In the view of the proponents of the DoJ plan, the new court would overcome many of the perceived deficiencies of a specialized patent court while, inter alia, providing advantages such as the following: "This proposal would also resolve the myriad evils caused by fragmented review in tax, patent, and environmental litigation. The rampant lack of uniformity between the Tax Court, the district courts, the Court of Claims, and the regional courts of appeals would be cured. The forum-shopping common to all three areas of litigation would be cured. Business planning would be made easier as more stable law is introduced in all three critical areas. Concentration of this litigation would help develop expertise in handling the cases. The background and training of most of the members of the CCPA, some of the members of the Court of Claims, some of the Trial Commissioners, and the CCPA's technical advisors would materially aid the resolution of patent and environmental cases, but the court having 15 members would not be dominated by specialized judges."

"4

For the foregoing reasons, this subcommittee supports the concept of a national court having exclusive patent jurisdiction.

1See Koenig, "Patent Invalidity-A Statistical and Substantive Analysis" (Clark Boardman Co., Ltd. 1976).

2 Such as H.R. 14632, 94th Congress, January 30, 1976, as modified by Resolutions, Two and Three of the August, 1977 annual meeting of the Patent, Trademark And Copyright Law Section of the American Bar Association, the effect of which is to (1) give the courts discretion to stay litigation for determination of the issue by the PTO, and (2) provide third parties who have initiated a reexamination proceeding to have an opportunity to submit a written response to the statements filed by the patentee.

See Appendix H.

The DoJ has modified the proposal, so that the new court would not have jurisdiction over environmental litigation.

PROPOSAL IV

Reduce cost of patent litigation

One of the major problems which, to some, makes the patent system not nearly as effective as it should be is the cost and time involved in resolving patent infringement disputes through litigation. This is particularly serious for the indiviudal inventor and small company because they can neither spend the time nor the substantial expense, which frequently exceeds $250,000 per party in a patent infringement suit.

In order to encourage innovation through the patent system, ways must be found to reduce the cost of patent litigation, and a decision on patent disputes must be available within a reasonable time.

The subcommittee recommends that the Supreme Court, through the Judicial Conference, require each federal court to exercise a high degree of control over the conduct of patent litigation, with particular concern for the time and expense of discovery. The subcommittee specifically recommends the approach to patent litigation proposed by Howard T. Markey, Chief Judge, United States Court of Customs and Patent Appeals. Those proposals are reproduced in Appendix E.

PROPOSAL V

Transfer commerical rights to Government-supported research to private sector

The United States patent system is designed to stimulate the progress of the useful arts by encouraging the public disclosure of new technology and making available to the public new products and processes utilizing this technology. It is not necessary to go through the expensive, time-consuming procedure of obtaining a patent to fulfill the function of disclosing information to the public. This can be accomplished by a simple publication. On the other hand, the patent grant has played an important part in commercializing inventions, making new products available to the public. The Federal Government does not normally participate in this function.

The theory of the patent grant is to give the inventor or his assignee the exclusive rights to his invention for a period of time so that he can invest the time and money necessary, commercialize the invention and develop a market for the product or process incorporating the invention. Since the government is not in the business of developing inventions for commercial use, it has no need to own patents. On the other hand, the government is a substantial user of products and services and in that context needs, or at least can benefit from, a license to use patents.

Experience has shown that the government, as a purchaser or consumer of goods and services, is not in a position to take advantage of its ownership of patents to promote enterprise. Private companies, on the other hand, who are in a position to utilize the patent grant are ordinarily unwilling to take a nonexclusive license under a government-owned patent and commit the necessary funds to develop the invention, since it has no protection from competition. This is a major reason that over 90 percent of all government patents are not used. Another important reason is that the government obtains patents on technology which, in the opinion of the private sector, does not provide an attractive business opportunity.

Several years ago, the Federal Council for Science and Technology supported the most thorough study ever conducted on the issue of governement patents, commonly referred to as the Harbridge House Report. The following findings were included in the report:

"Government ownership of patents with an offer of free public use does not alone result in commercialization of research results.

"A low, overall commerical utilization rate of government-generated inventions has been achieved; that rate doubled, however, when contractors with commercial background positions were allowed to keep exclusive commercial rights to the inventions.

"Windfall profits' do not result from contractors retaining title to such inventions. "Little or no anti-competitive effect resulted from contractor ownership of inventions because contractors normally licensed such technology, and where they did not, alternative technologies were available."

The idea that what the government pays for belongs to the people is not only appealing, it is true. The question is: What instrumentalities can be brought to bear to maximize the possiblities that the people will indeed have available the fruits of their government's expenditures? Nonexclusive licenses to undeveloped inventions, offered by the government or anyone, have few takers, where as patent ownership or exclusive licenses of sufficient duration are much more likely to attract the

money and talent needed to make and market real products to meet consumer needs.

If the results of federally sponsored R&D do not reach the consumer in the form of tangible benefits, the government has not completed its job and has not been a good steward of the taxpayer' money. The right to exclude others conferred by a patent, or an exclusive license under a patent, may be the only incentive great enough to induce the investment needed for development and marketing of products. Such commercial utilization of the results of government-sponsored research would insure that the public would receive its benefits in the way of products and services, more jobs, more income, etc. The cost of government funding will be recovered from the taxes paid by the workers and their companies.

Therefore, all the members of this subcommittee recommend transferring the patent rights on the results of government-sponsored research to the private sector for commercialization. In the case of university or private contractor work sponsored by the government, the members of this subcommittee recommend that title to the patents should go to the university or private contractor, but some members feel the government should have "march-in-rights" (i.e., when the invention is not being used and it appears that there is a public need to use the invention, the government would have the right to transfer patent rights to those in the private sector willing to use the invention). With respect to inventions made by government employees at government expense, the subcommittee members are divided about equally between those who feel that the government employee should have title to the invention, and those who feel that such inventions should be transferred to an independent, non-governmental organization, perhaps modeled after the Connecticut Product Development Corporation,' or auctioned to the private sector or transferred to the private sector in some other manner. In all cases, the government would retain a nonexclusive license to use and have made for its use inventions founded in whole or in part by governmental expense.

At the present time, the government has a portfolio of 25,000 to 30,000 unexpired patents. These include patents arising as a result of research and development work in government laboratories by government employees, and also from work done by non-government employees wherein the government retained title because it funded the work. In fiscal 1976, 2,646 patents issued to the government, of which 1,824 were for inventions by government employees.

Considerable sums of money are involved in government patent ownership, the patent budgets of the various government agencies including funding for patent attorneys, supporting staff and equipment being in the millions of dollars.

Our information indicates that the United States government has been filing in excess of 3,000 United States patent applications per year, which amounts to approximately 3 percent of the total workload in the United States Patent and Trademark Office. A decision not to file patent applications on behalf of the government would result in the PTO having available 3 percent of its total capability that could be directed to reducing the backlog in the PTO and handling special problems that have been created by the new reissue program and the anticipated reexamination procedures. In addition, this decision would save the time of government patent attorneys who normally prepare and prosecute the patent applications and the cost of having patent applications prepared by attorneys in private practice. Time and money thus saved could be utilized to provide needed services in other areas of the government.

According to this subcommittee's proposals, the decision to file a patent application would be made by the university or contractor; in the case of inventions made by government employees at government expense, the decision to file would be made by the employee, if he were to retain title, or by the independent nongovernmental organization (suggested above), which would obtain title to the patent. The subcommittee recognizes the argument that the government applies for patents to preserve its right to institute an interference with patent applications from the private sector. However, such interferences are a very rare occurrence under present practices. Furthermore, establishment of prior invention by the government would generally constitute a defense in an infringement suit on the basis of prior invention. Prior invention may not be an adequate defense in instances where the government has not reduced the invention to practice, or has, for good reasons, kept the invention secret; special legislation may be required to provide adequate protection to permit royalty-free government use in such instances.

1 111 Lafayette Street, Hartford, Conn. 06106. See Appendix F.