venture capital to individuals or small businesses or financial assistance to inventors. Certain areas in which the Government is already active have been identified as warranting special attention in the area of energy-related innovations and in the area of encouraging minority enterprises. insofar as this activity may have been successful, other areas should be identified. As the concept of such assistance is believed to provide societal advantages, it is recommended that this type of assistance be provided in those and additional identified areas.

C. Infringement of U.S. patents by the U.S. Government

Unfortunately, many agencies of the United States government appear to have a policy of doing as little as possible to resolve an administrative claim against them for patent infringement. A recommendations is that the Executive Branch of the United States government issue orders to all government agencies that any agency must render its final opinion on all claims for patent infringement no later than six months after the initial claim is filed. If such decision is not rendered at this time, it will be presumed that the patent is valid and infringed, and the agency cannot rebut this presumption.

D. Different classes or forms of patents

Incontestable patents

A trademark, after a certain period of use, can be regarded as incontestable, with certain exceptions, upon filing an appropriate affidavit.

One proposal considered by the subcommittee was that, five years after a patent has issued, it would be incontestable with respect to Section 103 (obviousness over the prior art) and, with respect to prior art, it could only be held invalid under Section 102-in effect, if the invention was, for all practical purposes, identically shown in the prior art. This would have the result that a patent could not be held invalid for obviousness over the prior art after a period of five years had passed after it was issued by the United States Patent and Trademark Office.

As Section 103 obviousness is probably the major ground for invalidity of patents, incontestable patents could significantly reduce the cost of litigation, although a patent could still be held invalid if it was clearly shown in the prior art as provided for by Section 102 and for the other reasons provided in Section 102 and other parts of the various patent statutes.

Another suggestion was that a patent could be held incontestable against all attacks, rather than only Section 103 attacks.

It would also be possible to make the patent incontestable if it has been used commercially for a certain number of years, such as five years, rather than have the period run from the issue date.

Any of these incontestable patents could reduce the cost of litigation and increase certainty as to the enforceability of patents.

Guaranteed patents

This new class of patents would be guaranteed by the United States government to the owner as to its validity. If some party wanted challenge validity, they would sue the United States government, not the owner. If a court declared the patent invalid, the owner would be paid by the government under the guarantee, up to some maximum established by law, and consistent with the value of the patent had its validity not been contested. Guaranteed patents would not obsolete the present patent form.

The PTO would make a more thorough examination, perhaps with two examiners, of any application for patent under the new form. Because of less-than-perfect human performance, and less than complete file information, some new-form patents could still issue which would later be declared invalid. but the owner would be protected against this type of error by the government. Without this protection, innovation is reduced because of the great exposure of personal finances and time and effort which the small business and individual inventor need to devote to commercialize the invention. Government guarantee of validity would facilitate financing. Guaranteed patents could be made available only to small businesses and independent inventors.

Elite or super patents

These patents would require the payment of a significant additional fee, such as $500, and a statement by the Applicant that a thorough prior art and validity search had been completed, within some specified period after the patent application was filed in the PTO. The results of this search, with comments, would be submitted to the PTO, and the PTO would then make a more comprehensive search and examination than usual. It is felt that the additional search and examination,

with the special made by the Applicant, would give the patent a stronger presumption of validity.

Petty patents

Petty patents would require novelty but not unobviousness; would be limited in scope of exact copies and close variations of the invention disclosed; and would run for less than ten years, preferably six to eight years. Petty patents could be examined on the same basis as regular applications, except that they would not be subject to the rejection for lack of obviousness under 35 U.S.C. 103. The PTO would charge a lower fee for petty patents.

E. Modification of patent term

Extend patent term in certain instances

It is well known that the present patent term (seventeen years from patent grant) often fails to coincide with commercialization. This fact suggested the following questions:

(1) Should some sort of a tribunal be empowered to hear the facts, and make binding decisions as to extensions of life beyond the seventeen years?

(2) Because of the formidable problems individuals often face in commercializing their inventions, should unassigned inventions (independent inventors) automatically be granted patent life greater than seventeen years after date of issue?

(3) Should the seventeen-year term start after some event other than the date of issue? For example, after the date of first significant sales, provided due diligence commensurate with capability has been used to bring it into production and marketing? Or after the date of first payments to the inventor for assignment or licensing of his invention?

Certain principles would seem fundamental in any system relating to the extension of patent term:

(1) No extension of term would be warranted if a patentee had not made diligent efforts to commercially develop the invention.

(2) Delay in commercial development should be measured from the time the inventor had adequate evidence of the commercial embodiment of his invention. (3) The patentee should be compensated with patent term extension equivalent to the period of delay and the period of extension should not be dependent upon the extent to which the patentee had or had not profited from his invention during the patent term.

It is clear that the equities determining whether extension should be granted would require review by some tribunal. Such review could occur either:

(1) By the patentee filing, at any time during the life of the patent but no later than some fixed period prior to normal expiration, a petition with a competent tribunal for extension of the patent expiration date. This petition would cite facts satisfying the statutory criteria for extension. Publication of the petition would be made and opposition to the extension could be entertained by the tribunal; or (2) The date of an objective act on the part of patentee (such as first commercial sale) would be the date from which the patent term of seventeen years is measured. Notification of such act would be given by the patentee to a tribunal, and this notification would be published. The extension of the patent could be opposed by the filing of a petition by a party in interest to foreclose the extension.

Patent term to run twenty years from earliest effective U.S. filing date

The term of a U.S. patent now extends for a period of seventeen years from the date of issuance. Measuring the term from this date sometimes results in patents which expire long after filing, for example, when the patent application is involved in an interference or lengthy appeal.1 Setting the patent term to run twenty years from filing would prevent late issuing patents from disrupting industry, but could be inequitable to patentees whose patents had not issued promptly.

1 See Forbes, September 15, 1977, page 204:

"Last month the U.S. Patent Office threw a stunner into the laser industry. After years of temporizing, it granted key patents potentially covering 90 percent of the lasers in this country to a physicist named R. Gordon Gould. Not that the industry had never heard of Gould. His claims had been around for years, and Refac Technology Development Corp. of New York, which finally pressed the claims, was not the first patent licenser Gould had approached to represent him.

"What exasperates the laser-makers, beyond a potential liability for Gould patent infringement, is the fact that they thought they were already paying royalties (2 percent) to the owner of the basic laser patents through Research Corp., another licensing firm."

F. Ideas for reducing the cost of litigation

I. Expert Panel to Decide Patent Litigation

(1) A complaint is filed in Federal District Court by a patent owner or by a possible infringer under the usual declaratory judgment procedure.

(2) Within ten days of the time the complaint is responded to by the defendant, the plaintiff and defendant must each select a patent lawyer who has been registered to practice before the United States Patent and Trademark Office for a period of no less than ten years and who must have never represented, or been an employee of, the party selecting him, nor can he have ever been associated in patent practice with counsel of the party selecting him.

(3) Within ten days after both patent lawyers are selected, they in turn must select a third patent lawyer, making a panel of three.

(4) Patent lawyers, whether in private practice or employed by corporations, universities, government agencies, etc., should be willing, if they believe that the patent system is of value to the public, to give some reasonable amount of time, on a pro bono basis with their actual out-of-pocket expenses being paid, to sit on such three-lawyer panels, once within each three-year period.

(5) There will be no discovery by either side and the three-lawyer panel has the power of subpoena and discovery if necessary. However, the lawyers for each side would formally or informally suggest areas which should be looked into. The panel will, on its own initiative, look into any of these areas and any other areas they wish, and may obtain answers from individuals, corporations or from counsel on each side, subject of course to the usual attorney-client privileges, work product, etc. They may, in effect, ask questions similar to interrogatories, may receive testimony from individuals and should act on their own initiative to uncover whatever facts they feel are necessary to perform their function as set forth below.

(6) Within four months from the time the last lawyer is selected (one-month warning period and three months in which to perform their duties, although it is contemplated that only a certain number of days within this period would be necessary), the three-lawyer panel will render an opinion on the following items: (a) Patentability under Section 101 (invention was patented or described in a printed publication before the invention date, etc.).

(b) Section 103 (obvious over the prior art of Section 102).

(c) Section 112 (adequate description and specific claims).

(d) Section 185 (patenting the invention overseas without the appropriate "export" license required in Section 185).

(e) Fraud on the Patent Office in procuring the patent.

(f) Substantial public use.

(g) Adequately disclosed prior public use.

(h) Possibly other areas.

(7) When all information regarded as necessary by the panel is obtained, copies of it would be forwarded to the Board of Appeals of the United States Patent and Trademark Office.

(8) Both the Board of Appeals and the patent lawyer panel would prepare a written opinion with neither having the benefit of the other's opinion.

(9) If both opinions agreed in substance (the patent is valid and infringed, invalid, not infringed, etc), that would be regarded as a final decision which could only be appealed to the special Appellate Court proposed herein (see Proposal III, Section 2). (10) If the patent suit, as is often the case today, involved other issues such as antitrust, etc., the case could be forwarded to the United States District Court which would be bound by the two opinions if the two opinions agreed with each other. If they did not agree, the District Court could use them for what they were worth. Advantages. Costs would be comparatively low because there would be no money paid to the lawyer panel nor to the Patent Office Board of Appeals, the only costs being providing secretarial and clerical services to the patent lawyer panel. It is felt that if the patent lawyer panel were actually on a pro bono basis, they would be able to complete their investigation and reach their decisions very quickly and get back to their normal practice.

II. Amend Sections 102a and b to provide that prior use mentioned in these two sections would have to be a substantial amount, such as selling price of the products involved being at least $10,000, or the products being sold in a quantity of at least 1,000 units. Public use by the inventor, on the other hand, would continue as present law provides.

Much patent litigation is involved with wide-ranging discovery in an attempt to find prior public use by others. In many lawsuits, days of depositions are taken in an attempt to find or prove an early public use by others which may have involved

very small numbers of items or very small amounts of money and which was completely unnoticed by society until a defendant in a patent suit tried to discover

it.

If the public use was smaller than the amount mentioned above, it did not contribute to society and was unnoticed. On the other hand, if the use had to be at least this amount to be an effective public use bar, it should be much easier and cheaper to discover and the time and cost of patent litigation would be reduced substantially.

III. Revise Sections 102a and b so that any use not obvious to the public on inspection or analysis of the product sold or available to the public is not a bar to patentability.

It can be argued that the prior user who did not disclose the invention to the public, even though the end product of his invention was made available to the public, should not be entitled to prevent another who did disclose his invention to the public from obtaining a patent.

Such a change in the law could significantly reduce discovery in a lawsuit and thus reduce the cost. Possibly the prior practitioner of this public use should be permitted to be able to continue to use the invention.

IV. Certain Patent Infringement Cases Be Given Priority in the Courts

In patent infringement cases where the patent owner is either an individual, a small business, a university or a non-profit organization, the infringement case would be given priority in the federal courts immediately behind that of the criminal cases so that a decision could be reached as early as possible. While it would be preferred that all patent cases be decided promptly, it is thought that this is one situation where it can be reasonably argued that, in lieu of having all patent cases decided promptly by possibly adopting one of the other proposals, it would be preferable to the present system to have at least some patent cases decided promptÎy. It is felt that, on the basis of fairness, the ones in the above categories should be those selected. If the cases can be promptly decided, the time involved and probably the actual cost of litigation would be reduced and innovation would be encouraged.

V. All Patent Trials in Federal Courts Can Only Be Before a Judge Who is a Patent Expert

The cost of litigation might be reduced by the appointment of more judges with technical backgrounds and adoption of a procedure that allows for assignment of technically qualified judges for those patent cases where a judge with a technical background would materially assist in expeditiously and correctly disposing of complex litigation. See the October, 1978 issue of Judicature, which includes an article by Mr. Shapiro, Chairman of duPont, urging assignment of judges with special qualifications to handle complex cases dealing with the subject matter in which the judge is specially qualified.

G. Impact of antitrust laws on innovation

Any narrowing of the rights granted by the patent has a detrimental effect on the innovation process, because it discourages investors. Such restrictions include limitations on transferring the rights in a patent by assignment or licensing, as well as enforcement of the patent.

Patents can and have been misused through licensing practices. However, the constant attacks on licensing practices by government agencies and the courts has the net effect of eroding the value of the patent grant and hence the willingness of investors to rely on patents to justify investments in the innovation process.

Such restrictions could be removed by adopting the following recommendation, made by the Report of the President's Commission on the Patent System, 1966, which reads as follows: "The licensable nature of the rights granted by a patent should be clarified by specifically stating in the patent statute that: (1) applications for patents, or any interests therein may be licensed in the whole, or in any specified part, of the field of use to which the subject matter of the claims of the patent are directly applicable, and (2) a patent owner shall not be deemed guilty of patent misuse merely because he agreed to a contractual provision or imposed a condition on a licensee, which has (a) a direct relation to the disclosure and claims of the patent, and (b) the performance of which is reasonable under the circumstances to secure to the patent owner the full benefit of his invention and patent grant. This recommendation is intended to make clear that the "rule of reason" shall constitute the guideline for determining patent misuse.

Also, passage of the "Scott" amendments, which modify existing case law pertaining to licenses and misuse of patents, would limit the extent to which Department

of Justice attorneys could effectively make new law in this area by merely giving speeches.

Another means by which the Administration could keep the Department of Justice from inhibiting innovation would be to issue an Executive Order requiring that the Department of Justice, Antitrust Division, conduct an "innovation impact study" and a "competitive impact study" before bringing any action against a patentee alleging antitrust violations. Such an Executive Order could require that the Department of Justice find affirmatively that if it prevails in the case that competition would be increased and that innovation would either be increased or not deterred.

A thorough study, such as by a Presidential Commission, including not mere theorizing and suppositions, but also factual economic data and market analysis, would lead to an assessment of the extent of the decline of innovation due to the antitrust interference with the leveraging powers of the patentee. Such a study could well suggest appropriate remedies.

The subcommittee heard several expressions of concern over Department of Justice attitudes toward joint ventures in R&D projects. Antitrust liability in such a case would be predicated on the theory that joint activity by two parties, who might possibly engage in the same activity individually, excludes competition by having one party in the field instead of two. Alternative attacks might be directed against the pooling and cross-licensing of patents resulting from such joint ventures. Although the Department of Justice almost invariably approves plans for such joint ventures when presented to it in advance, the situation might be clarified by the addition of the following sentence to 35 U.S.C. § 262: "The legality of joint ownership of patents under the antitrust laws shall be determined by the rule of reason.' The proposed amendment would be intended as a codification of existing case law, and not a major change. However, it would provide a statutory basis for arguing the legality of any particular joint venture.

H. Miscellaneous

(1) Negotiations conducted by the U.S. Government Relating to International Technology Transfer

The United States government should consider making it mandatory on all their international negotiating meetings at the United Nations and at other places to include people from the private sector who are expert in the matters being discussed. This should not be taken as a recommendation that a delegate should be appointed to make sure a large corporation's interests are taken care of. The value of an expert from the private sector is that such an expert can point out to the United States delegates and, sometimes more importantly, to delegates from other countries, the practical results and impact of a particular proposal which may have exactly the opposite end effect that it appears to have on its face.

(2) Unpatented technology is important to protect from misappropriation in order that those who invest in research and development may obtain a proper return on that investment. It follows from this that mechanisms should be developed by which such unpatented technology is not misappropriated from its proprietor through the activity of governmental regulation and other disclosures to the government, coupled with requests by competitiors for information under FOIA-a source of industrial espionage which is now commonly in use.

(3) Make it a crime for anyone to knowingly infringe a valid patent.

(4) Change to a first-to-file system, so that the first applicant to file on an invention would be entitled to the patent. Our current patent laws award the patent to the first-to-invent (provided certain conditions are met), rather than the first-tofile.

POSITION STATEMENT ON THE U.S. PATENT SYSTEM

INDUSTRIAL RESEARCH INSTITUTE

The Industrial Research Institute (I.R.I.) affirms the basic concepts of the U.S. pantent system as originally premised in the Constitution and as they exist today. We believe that the fundamental merits of the patent system are as sound today as they were in the period of industrial growth and respect for patents in the nineteenth century and in the first half of the twentieth century. The Federal patent law still responds to the Constitutional objective "to promote the progress of. useful arts by securing for limited times to . . . inventors, the exclusive rights to their... discoveries." Continued industrial success of the U.S. requires the incentives of the patent system, not only to encourage the necessary investment of capital