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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 promptly. 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) Únpatented 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-to file.


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 and effort in research and for the commercialization of inventions so that society can enjoy their benefits, but also to encourage the disclosure of inventive technology

The grant of a lmited exclusionary right by the enabling Federal patent statute in return for the prompt disclosure of newly created technology provides the basis for these incentives. Without these incentives, innovative research and development would not be supported with the degree of enthusiasm and willingness to invest risk capital that has been the American tradition. Moreover, the inventions produced by R&D might otherwise be kept secret to an extent which would inhibit technological progress. The exclusionary right granted under a well-examined patent does not take from the public anything that previously existed; rather, the patent right stimulates the creation, early disclosure, and utilization of new technology thus adding to the store of human knowledge. The exclusionary right often stimulates others to “invent around,” resulting in further technical progress.

Our patent system has a number of features of significant merit which should be preserved and strengthened:

1. The basic requirements of a patent-novelty, utility, unobviousness, best mode, and enabling disclouse-are reasonably well developed in the statutes and patent jurisprudence. I.R.I. advises against attempts to legislate detailed changes or additions to these requirements or to introduce standards of judgment and disclosure that would be stricter than the American inventor, executive, or patent lawyer can reasonably understand and manage. Such attempts would result in unnecessary and undesirable uncertainty.

2. The U.S. Patent and Trademark Office generally performs well in its examination of patent applications, but there is room for improvement. It is staffed with many competent and dedicated professional employees of high integrity. I.R.I. encourages improvement in funding, training, and management of the examining corps and, especially, their adminstrative support.

3. The examination of patent applications should be as comprehensive and thorough as practicable so that issued patents will be respected by competitors of the patent owner and by the courts. Such respect is an essential part of the patent incentive for industry. This thorough examination need not be exhaustive, but should be reasonably prompt, however. Early issuance of worthwhile patents adds to the certainty of businessmen when considering the investment of risk capital to make the New technology available to the public; they want to know if they can plan on patents of their own and whether patents of others will cause problems. Early disclosure also helps keep the published technologies current with the actual state of advance. The balance between thorough and prompt examination should be weighted in favor of thoroughness.

4. Awarding a patent to the first-to-invent rather than the first-to-file is deemed by the I.R.I. to have continuing justification. It respects the value of the indiviudal in American tradition and avoids inequities which can result from a “race to the Patent Office"; thorough and thoughtful reduction-to-practice of meritorious technology should continue to be encouraged.

5. I.R.I strongly endorses the present one-year grace period between certain events such as first sale or publication and the application filing date. This likewise facilitates thoughtful and thorough refinement of invention; it encourages prompt patent disclosure but with greater completeness than occurs under the abrupt requirements of those foreign countries which require absolute novelty without a grace period.

The U.S. patent system, despite its basic soundness and almost 200 years of valued existence, is not without areas where improvement could be made. I.R.I. encourages attention to the following areas, on a tailored basis, point by point, to avoid confused, poorly drafted, or overly detailed patent law revisions.

1. We recognize the generally sound examining skills of the Patent Office and the basic honesty and sincerity of patent applicants, patent owners, and patent lawyers. We also recognize, however, the inability of the Patent Office to examine applications as comprehensively as the public and courts might desire, even with the frequent assistance of the patent applicant in supplying prior art and other information to help the examination process. Without judging the merit of the criticisms, we beliveve that the examination procedure is criticized because it is necessarily conducted in secret to protect the invention before it is deemed patentable.

Therefore, the I.R.I. endorses the concept of permitting useful, reasonable, and timely post-issuance participation by the public in the examination of the invention and the propriety of the patent grant.

Such participation should occur after the patent has issued to preserve the rights of the inventor. Participation should only be permitted in a manner which strengthens the presumption of validity and adds confidence in the overall examination system; it should not unduly increase the expense and difficulty of getting a patent, and should not detract from the certainty desired by the patent owner for making a commercialization investment. The reissue practice, introduced by former Commissioner Dann, is a sound step toward this public participation, but could be improved by rule changes or legislation which would permit reasonably simple and prompt reexamination of an issued patent by permitting any person to cite prior art and possibly other re-examination considerations. I.R.I. does not favor re-examination adversary proceedings of the type employed in German oppositions or U.S. patent litigation. Such proceedings would unduly erode the U.S. patent system by favoring those patent applicants with resources and by introducing unacceptable delay and unmanageable uncertainty.

2. The I.R.I. believes that the term of a patent should be changed from the present 17 years from issuance to a term of 20 years from date of the first filing. If examination is expeditious and there is no interference, the current 17 years is satisfactory. However, there continue to be a number of patents, particularly commercially important ones, which have lengthy and complex prosecution of as much as 5 to 10 years because of refilings, appeals, or interferences. This can result in patent terms which expire as long as 22 to 27 years after initial filing. A carefully conditioned term ending 20 years after first filing will provide greater equity and certainty for patent owners and their competitors.

3. Enforceability of a patent is an integral part of the patent system because assertion in litigation is the ultimate test of the basic exclusionary property right of the patent. Many patents are afforded their deserved respect without the necessity of litigation. This respect will be broadened if overall patent quality is improved by better examination. There has, however, historically been a need to litigate patents which involve honest differences of opinion on validity and scope between the patentee and alleged infringer. Unfortunately, such litigation has become complex, lengthy, and expensive, in a large measure because of the scope of discovery; this presents difficulties for both the patent owner and accused infringer. Litigation problems have unduly discouraged patent owners, particularly those with limited financial resources from asserting their patents because a validity determination by a court is expensive and uncertain; and if the patent is upheld, the damages may not be enough to pay for the litigation. This reluctance to assert has encouraged infringement of patents which should otherwise be respected. Litigation expense may intimidate a patent owner into accepting unfavorable settlements. Conversely, a patent owner may intimidate a weak infringer with the expense of litigation. Compounding these problems is the variance in the opinions in the Federal courts regarding patentability standards. Patent owners and infringers jockey to get into courts which favor their own interests. This further adds to the expense and uncertainty of owning patents and making investments in reliance on patents.

The I.R.İ. supports legislative and judicial efforts to decrease the expense, uncertainty, and inequities experienced by patent owners and those accused infringers having honest differences of opinion on the validity and scope of a patent. We believe that it would be worthwile to give careful consideration to a single court of appeals for patent litigation which would speed up patent litigation and make it more uniform and certain. If such a court could institute discovery reform, litigation expenses could be reduced. This concept of a Patent Appeals Court has been controversial because of a prediction that the patent court would be rigid, technical, inflexible, and unable to handle issues ancillary to patent validity and infringement, such as unfair competition and antitrust issues. Even if this prediction were accurate, we submit that the reduction in expense, time, and uncertainty would significantly offset any shortcomings of the specialized court.

153 percent of the I.R.I. membership were in favor of limiting re-examination to published prior art; 42 percent were not in favor (see Patent Survey Results, attached).

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