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It may very well be that this sponsorship of competitive R. & D. out of fear that the competitor will develop a protected market advantage, is the most important service that the patent system renders to promoting progress of the useful arts.

Your question. What, if any, trends in the patenting process or patent litigation have diminished utility of patents?

Answer. This, or course, was the central theme of my written paper and oral testimony delivered to your sub-committee on July 27, 1979.

The increasing delays in Patent Office action, the unreliability of Patent Office actions due in part to underfunding of its search facility, the sharply increased delays in litigation time, the increased cost in litigation, and the increased uncertainty of the result of it all owing to such factors as some courts applying one standard of patentability while other courts apply different standards of patentability—these are the trends which have a tremendously debilitating effect upon the utility of patents to aid small business development and contribute to technology development, generally.

In a phrase, cost, time delay, uncertainty of result, and the view in some courts that only a once-in-a-generation-break-through is of patentable stature, are the four heavy burdens that the patent system carries, and all of them seem currently to be on the substantial rise.

By mentioning those four, I do not intend to belittle the significance of the circumstance that we also have several simply bad rules of law that need correction, such as that made by the Supreme Court in Lear Inc. v. Adkins,' and the Supreme Court's announcement that patents are not favored in public policy and therefore reasonable doubt in patent cases should always be resolved against the patentee whether on a lawful license issue or a validity of the patent issue, etc. It seems clear to me that the public interest is well served by resolution of those reasonable doubts in favor of those who indulge high risk investment in R. & D. The statute enacted by Congress connotes that enforcement of good patents is favored by public policy, but most courts no longer practice that theme.

Your question. Is the so-called "weakness” of American patents a serious deterrent to domestic invention, patenting, licensing and commercial exploitation, or, alternatively, an incentive to the transfer of technology abroad?

Answer. I consider that the weakness of the American patent system-I focus on "system” because it is the lawyers and the judicial address to the patents as well as the poorly examined patents themselves that give rise to the weakness-is a serious deterrent to domestic innovation, patenting, licensing and commercial exploitation.

I myself have sat with clients and have advised them that, in this area we cannot expect reasonable patent protection and therefore you should not spend your money doing research and development in this area or seeking to patent this subject matter, and without protection you are not sharp or strong enough to crack this market. I have advised that "your patents have issued but are so subject to question in the court that you should not afford the cost of licensing undertaking, because competitors will not honor the patent and we will spend all of the potential license income on negotiation and litigation". I myself have advised clients that this is a technology which we are better off to try to keep secret, than to patent, because we cannot trust the patent system to give us reasonable protection at reasonable costs within a reasonable time frame.

These advices are not the uniform rule but they are very common. Since I find myself giving that advice to one client or another every two months or so, I feel very strongly that the weakness of the system is a significant deterrent to domestic innovation.

The United States Patent System weakness has a more indirect effect upon the incentives to technology transfer abroad, but even there the connection is very real. Not uncommonly, a company is simply not equipped to build a factory and market abroad, but would like to sell its know-how and license its patents to a foreign manufacture to reach markets that owner simply cannot reach. One important fear that discourages licensing of such technology abroad, is fear that the licensee will then manufacture and export back to the United States in competition with the original technology owner's business, taking jobs away from American workers who would have manufactured every item but for its being bought from the foreign licensee, etc.

In this connection, recall also that the profit from manufacture and sale commonly exceeds greatly the income from license of the same sale. Accordingly, if we had strong domestic patents that the United States licensor could refrain from licensing to foreign manufacturers, the United States manufacturer might then license his

See my Texas Law Review article on the mischief of Lear Inc. v. Adkins at Vol. 48, No. 7, November 1970.

technology abroad with confidence that he would not be destroying his own profits and the jobs of his own workers by the foreign licensee taking over the licensor's market with imports into the United States.

By affording license-reach to the otherwise unserved foreign markets, these foreign licenses would also provide more return on the R. & D. investment, and thereby be an incentive for more research and development by the licensor to the benefit of the United States pool of technology and competitive posture with the rest of the world.

Your question. What should Congress do to strengthen the patent system?

Answer. In simplistic terms, do all of those things that are necessary to reach the seven performance specifications that I outlined in the paper I delivered to your Sub-Committee on July 27, that was drafted before I received your set of questions.

To merely itemize a few future particulars:

Re-draft Section 103 in more positive terminology to tell the courts what you are going to tell them, what you are telling them, and what you have told them, so that they will more uniformally follow the standard of patentability that was intended when 35 U.S.C. 103 was first enacted in 1952.

Establish a court structure by which all appeals from patent application and patent infringement trials are handled by a single court of patent appeals which will thereby come to have a uniform set of patent law, by contrast with the widely divergent patent law of the many courts of appeal that now hear patent cases.

Provide affirmatively in Section 101 of present title 35 that new technologies, such as micro-organisms, are as much within the “useful arts” as old technologies, and that the whole concept of the patent system is to help foster new technologies, thereby to reverse the Supereme Court's philosophy that it will not extend the patent system to new technologies unless and until Congress specifically so writes.

Provide for the 17- or 20-year copywrite protection of electronic "chips" and computer programs as well as patent protection of both, these being among our most vital new technologies are in need for different reasons of each of these two varieties of concurrent, moderate term protection.

Establish some effective program for speeding trial of patent cases wherein they may be finally disposed of within two years, including appeals.

Establish a mechanism for inviting participants in an industry into a first patent litigation following which an In Rem judgment of patent validity is granted so that the patent owner does not have to re-litigate his patent again and again against every potential infringer that comes down the pike.

Provide special rules for litigation of patent cases that will aid both a more speedy trial and a less expensive trial.

Provide statutorily for the legality of arbitration of patent cases (by present court decision patent subject matter may not be arbitrated) in order that parties may get a cheaper and more prompt disposal of their controversies than the present typical many years and many hundreds of thousands of dollars.

Improve the Patent and Trademark Office function by computerized search facilities; integrity checks of the search shoes; indexing of technical literature as well as patents in the search data base; providing for reexamination on request (though with no delay of litigation for the re-examination); increasing time allotted to each examination; shortening response time by the PTO to applications for patent and amendments thereto, to 30 days, issuing patents with any allowed claims within 18 months even though other claims remain pending in examination.

I should emphasize that a number of my proposals have never been submitted to the American Patent Law Association and do not have their endorsement, although assuredly the association champions the goals which give rise to even those proposals which do not have APLA endorsement.

The accomplishment of the performance specifications mentioned in my presentation to you on July 27, or of the individual specifics outlined above, is not nearly as easy as might appear, for a number of reasons. Even the Bar, itself will be sharply divided on whether we should give up what it perceived to be the quality of justice given up in order to get a lower cost and more timely decision-this though the businessman's focus tells us that somehow we must find a lower cost and more prompt decision making process. The courts will howl over special rules for one class of case or another and certainly can be expected to smart under a compulsion that they decide a patent case after trial before sitting on other cases--as of now, it is at least as common as not that a court takes a full year to render an opinion in a patent case, after the trial is concluded.

I could write a full book on those things that need to be done statutorily to make a major move toward each of the performance specifications, and included in that

book will be several chapters of adverse reactions that can be expected from the Bar and from members of Congress and/or the Administration.

I mention this problem because a small timid approach will fail to accomplish the seven performance specifications which seem so eminently reasonable, even loose and not-adequately-tight from the point of view of the investor in innovation. The job of accomplishing something even close to those performance specifications will be difficult as a matter of statutory concept, and hideously more difficult as a matter of political reality, but it is oh so tremendously important.

Hopefully you will find that this letter rounds out the presentation that I presented to you on July 27.

You know that if I can, I and the American Patent Law Association will be glad to offer additional help. Yours truly,



New York, N. Y., August 14, 1979. Senator ADLAI STEVENSON, Old Senate Office Building, Washington, D.C.

DEAR SENATOR STEVENSON: I was pleased to have had the opportunity to add my voice to those distinguished witnesses testifying at the July 27th Subcommittee on Science, Technology and Space hearing.

I believe that our patent system is based on sound principles, although it is in poor health at the moment. Our patent system's ills are reflected in how we, as a nation, are able to invent and to innovate creating progress and prosperity. The present decline in innovation is indicative of an ailment not requiring radical surgery. Though the disease is serious, I believe a few simple but potent changes will bring back its former vitality.

The serious problems within our patent system are attributable, in varying degrees, to a single source-chronic underfunding of the Patent and Trademark Office (PTO). Insufficient support by Congress of the PTO causes inadequate searches with a substantial incidence of prior art not being reviewed by the PTO. These inadequate searches cause a definite court hostility to patents indicated by a de facto overruling of the statutory presumption of validity and increased uncertainty in the patent system. Uncertainty within the patent system is inversely related to the amount of venture capital that investors are willing to risk. The resulting limitation of invested venture capital causes a lack of developmental products and a decline in the United States commerce.

In order to reverse this destruction of innovation, I recommend that the funding mechanism of the PTO be added to in the following manner:

The Internal Revenue Code should be amended to provide for additional funding of the Patent and Trademark Office from taxes of those utilizing the office. Inventors, companies and all parties reaping royalty benefits would, on a separate, supplemental tax form, enter information concerning the income from licensing and sales of patents and trademarks. A percentage of the income tax normally paid on

be broken down to provide information of value regarding exclusive licenses, nonexclusive licenses, sales, income on patents held within and without the United States, as well as foreign and domestic trademark licensing. This provision for funding in combination with the information obtained by the required form could have many advantages over the present system. For example, it would provide an income mechanism which would finance the PTO in proportion to the benefits contributed by those intellectual property systems provided for the public; it would provide, that funds come on a direct basis from the system; the financial structure would remove the PTO, to some extent, from Congressional politics. (In the past, the PTO, without a large special interest group to influence legislation, has been a victim of budget cuts that have impaired its proper administrative function.) Funding would be self-adjusting, thereby accounting for inflation and be somewhat dependent upon the quality of the administrative office functions. Information provided on the tax forms would allow for accurate feedback on the vitality of the patent system and of the economic benefits of the system. Additionally, reliable information concerning the dependence on foreign technology relative to the U.S. system will be provided. Also the supplemental funding would enable the Patent and Trademark Office to modernize and strengthen its search and examination procedures; the modernization techniques would result in a higher degree of reliance on the conclusions of the administrative office. In addition to providing direct payment of taxes incurred on intellectual property income, I recommend that the application fee for original and reissue patents be raised and that a cost-of-living index be provided allowing the Commissioner to raise certain fees in accordance with inflation changes.

The changes in funding should bring a halt to the continued anti-patent trend of case law development. This anti-patent philosophy has been largely, though not entirely, due to lack of judicial confidence in the underfunded Patent and Trademark Office search procedure. While the above system provides sufficient financial support and should prevent the recurrence of new judicially created doctrines that hamper innovation, it is necessary to rectify those doctrines that are presently taking their toll on the system.

I therefore recommend that Title 35 of the United States Code, Section 103, be amended to explicitly state that a primary factor in the test of obviousness should be a showing of commercial success.

In addition, I recommend, in order to reduce the prohibitive cost of defending title to a patent, a mandatory reissue and reexamination procedure be instituted whereby all patent validity issues will be resolved by recourse to the administrative expert in the PTO, with appeal to the Court of Customs and Patent Appeals (CCPA). An amendment to Title 28 of the United States Code should provide that District Court jurisdiction in patent cases be limited. Jurisdiction should be exercised only after the PTO has been consulted in a reexamination procedure to determine the validity of the patent in light of all assertions against the patent. The PTO reexamination proceeding would have the full participation of both parties as adversaries. Both sides would be allowed discovery. The patent adversary would have the right to cite other prior art as invalidating the patent. However, his evidence should prove invalidity by a recognized standard (for example, beyond a reasonable doubt or clear and cogent evidence), in order to outweigh the PTO's original determination. Once the PTO, within this reexamination proceeding, has determined the validity of the patent, its decision would be reviewable by the CCPA within a specified time. If the patent was determined valid and an appeal was not taken, the issue of validity is resolved and will serve as res judicata for all other judicial determinations. The suit would then be brought in the District Court to determine infringement.

I also recommend that appellate jurisdiction from all patents be limited to the CCPA. Disputes involving technical matters such as infringement and interferences would be appealable then only to the “expert” court subject to ultimate appeal to the United States Supreme Court. The channeling of technical cases to an established appellate court with special expertise along with the removal of validity questions for appeal would rid the patent system of the rampant forum shopping and uncertainty which presently pervades its entire body.

I have taken the liberty of sending copies of this letter to other parties interested in the actions taken so far by the Senate. I invite each party receiving a copy to comment on my proposals.

I suggest that a member of each Congressional staff interested in the subject matter be delegated to work with representatives of the American Patent Law Association and the Patent, Trademark and Copyright Research Foundation (PTC) to review all of the proposals submitted. After reviewing these proposals, I believe that this joint effort of the APLA, the PTC and the various Congressional staffs could then appropriately draft a bill to finally resolve the unfortunate circumstances that have caused innovation to decline in the United States. Sincerely yours,



Washington, D.C., August 17, 1979. HON. ADLAI STEVENSON, Chairman, Subcommittee on Science, Technology, and Space, Committee on Com

merce, Science, and Transportation, U.S. Senate, Washington, D.C. DEAR SENATOR STEVENSON: The American Chemical Society appreciates this opportunity to comment on S. 1215, the "Science and Technology Research and Development Utilization Policy Act.” Primarily through its Joint Board-Council Committee on Patent Matters and Related Legislation, the Society monitors legislation and federal agency regulations relating to ownership of inventions and patents as well as policies and procedures pertaining thereto. The comments which follow are forwarded to you with the approval of our Board of Directors

It is the position of the Society that technological innovation underlies and supports modern society. Strong and continuous efforts to enhance and expand technological innovation result in high standards of living as exemplified by the history of the United States. Every effort should be made to encourage and strengthen technological innovation so that these standards are maintained and expanded. Continued innovation must be a national policy if we are to find solutions to ever more complex social, economic, and environmental problems.

Any national policy to encourage innovation must make it as easy and attractive as possible to invent, to perform research and development on inventive ideas, to demonstrate the commercial feasibility of these ideas, and to diffuse new products and processes embodying the ideas throughout the marketplace for the benefit of the general public.

In the real world, implementation of these steps is hindered by many factors technological, economic, environmental, and the mere resistance of humans to change, to mention only a few.

One important factor which encourages innovation is a strong patent system. In the United States we have been fortunate that our forefathers laid the foundation for such a system in our Constitution. Over the years the U.S. patent system has been a strong positive influence in the economy of the country.

Nevertheless, certain good features inherent in the patent system may have become eroded through court actions or been made less effective through the enactment of legislation or by administrative actions within the federal government. An important area where administrative action may have been inhibitory results from a lack of uniformity of patent policy between federal agencies. The Society is pleased to note that S. 1215 recognizes that a uniform policy is necessary for the most effective management and use of the results of federally-assisted research and development.

The ACS is pleased that the bill authorizes the Secretary of Commerce to develop, coordinate, and implement this uniform policy through a centralized office. However, the Society recommends that this office should not be a component of an existing government agency, but rather a separate, semi-autonomous organization. Furthermore, such an organization should have a minimum internal staff which would have decision making power, but be primarily a clearinghouse and communication link between all federal contracting agencies and private contractors, This centralized office also should have, when necessary, the flexibility and authority to cut across agency lines; for example, when litigation is required. Having such an organization under the Secretary of Commerce could lead to difficult conflict of interest situations, and to undue inhibition or restriction of the centralized office's flexibility and authority; especially since the Patent and Trademark Office and the National Technical Information Service also come under Commerce's jurisdiction.

There are limitations to the activities and efficacy of any centralized government office faced with the very large responsibility of disseminating government technology. The effectiveness of such an office can be enhanced if the office maintains a policy of liberally contracting for services in the private sector. In addition, the office should do all in its power to aid, instruct, and encourage nonprofit research organizations to set up appropriate patent administration activities. Obviously, if the nonprofit organization maintains a patent administration office, the government does not have to become involved in the dissemination of the technology, thereby relieving the central office of some of its responsibilities.

It is noted that the authority for this office is to expire 7 years from the effective date of the Act, unless renewed by Congressical action. This time space is too brief to expect definitive and unequivocal results to become apparent. Ten to fifteen years for its initial lifespan would be more realistic.

Section 202 of S. 1215, relating to the development and implementation of a technology utilization program, would be impractical, expensive, and not cost-effective. Similar programs currently are being conducted by the National Aeronautics and Space Administration with few really positive results as compared to the number of government inventions available for public use. The Society suggests that this proposed program be dropped at this time.

Retention of a nonexclusive, royalty-free license by the contractor in those cases where the Government obtains title to an invention seems inadvisable. Such a license may inhibit the widespread use of the invention, since other companies would be unwilling to undertake development of the invention with a royalty-free license in the hands of a possible competitor. The Society believes a fairer arrangement would be to make the non-exclusive license royalty-bearing, rather than royalty-free.

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