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Chief Patent Counsel
Mr. Chairman and members of the Subcommittee, my name is David Simon and I am Chief Patent Counsel for Intel Corporation. I appear today representing the Business Software Alliance (BSA) , which welcomes the opportunity to appear before you on this important topic. We commend you for holding these hearings and for your commitment to improving our patent system.
The incentives provided by the patent law are indispensable to the current and future strength of the technology industry. Patents play an essential role in how software and computer companies do research and how they develop products and services. More fundamentally, patents are at the core of our economy's ability to successfully innovate, and have been since 1789.
Given the importance of patents, we believe that periodic updating of the law is not only a good idea, but also essential to ensuring that patents remain an indispensable contributor to technological progress.
Let me state at the outset that the patent law is not broken. The law is fundamentally sound and works well. Professors Lerner and Jaffe in their recent book characterized the patent system as sand in the gears rather than fuel in the tank of innovation. BSA disagrees with this assessment. I would like to point out that, with one exception, all of the U.S.-based top ten issuers of U.S. patents are members of our organization. The one exception -- Micron Technology -- is also here today as a witness. Thus, as the largest US based customers of the Patent & Trademark Office, we have strong, first-hand knowledge of a system that continues to yield substantial incentives. As with all good things, however, we believe that critical improvements are needed to make the law work better in light of new developments in the marketplace and technological progress, including its application by the courts, and the patent examination process.
We approach patent reform from a pragmatic, problem-solving perspective. While any number of improvements can be made in the law, our attention is focused on those areas of the law and practice that present specific challenges for our companies' day-to-day businesses. In my testimony today, I would like to focus on three matters: 1) why patents are important to technology companies; 2) some of the problems our industry has identified within the current patent regime; and 3) certain areas where we feel improvements are timely.
Patents are Important to Technology and Innovation
As we enter the 21st Century, the principle embraced by our forefathers in Article 1, Section 8 of the Constitution remains sound and perhaps takes on even greater importance than in previous times. Intellectual property is a source of economic value to society, individuals, companies and governments alike.
While copyrights have been and will remain a principal way that technology companies protect their intellectual property, I will limit my comments today to patents.
The increased importance of patents to technology companies has resulted from a mix of legal and marketplace developments. The 1981 Supreme Court decision, Diamond v. Diehr, signaled a turning point in the patentability of computer-implemented inventions. In that case, the Supreme Court held that a process that transforms materials physically under the control of a computer program was patentable. The Court's decision clarified earlier rulings that had been interpreted to suggest that software programs would rarely qualify for patentability. Subsequent decisions from lower courts have further clarified the law in this area. As a result, U.S. patent applications from inventors in the software sector have been increasing steadily.
An equally important factor is the impact of marketplace trends. In today's diverse technology marketplace, heterogeneity has become an important element of technology and network effectiveness. Unlike the early days of computing, when consumers tended to purchase their hardware and software from a single firm, consumers now often piece together systems based on products sourced from different suppliers. The ability of these different systems to work together is essential. Patents enable computer and software companies to share technologies, integrate systems and meet consumer's needs, while ensuring a return for these companies' inventions.
Today, patents are a key part of virtually every software and computer company's intellectual property strategy. The reasons are simple.
Improvements Are Timely
This problem is greatly exacerbated by the very large number of patents in the software and computer industry. Software and semiconductor patents have been issued in recent years at a rate between three and five times as fast as patents issued in other industries, for example pharmaceuticals and biotechnology. At the same time, the backlog of unexamined patents by the PTO has increased substantially.
We approach patent reform from this context -- very rapidly expanding universe of relevant patents and the continuing explosion of patent applications -- and we believe that patent reform legislation should have two primary objectives:
To ensure patent quality, policymakers should focus on three key areas:
Adequate Training and Funding.
BSA encourages Congress to ensure that the U.S. Patent and Trademark Office has the resources it needs to conduct patent examinations that are efficient, expedient and of the highest quality. Enactment by the 108th Congress of legislation to provide modest and necessary increases in PTO fees has enabled the agency to begin to provide additional staff and training in certain software-related technology disciplines. These efforts would be greatly complemented by permanently ending the practice of diverting patent application fees to the general treasury. Allowing the Patent and Trademark Office to retain the fees that it generates would help ensure that the Office is able to provide high-quality examinations and to fund further improvements. We also applaud the PTO's strategic plan, which will also lead to improvements.
By way of example, our industry frequently adopts standards that have to pick between various different techniques to permit interoperability or exchange of information. At that point, a patent that previously was unimportant can become critical to an entire industry when a patentee tries to take advantage of the uncertainties on claim interpretation and interprets its patent for the first time to cover that standard. This could be years after such an obscure patent has issued. Thus, it is important that the period for oppositions in our industry last much longer than the 9 months many others have suggested.
To address this imbalance, we recommend changes to the effect that information and references deemed to be considered during examination shall be only those where the Director explicitly indicates the scope and relevance to the examination of such information and references. Moreover, we believe that the evidentiary rule should be "preponderance of the evidence" for challenging the validity of a patent based in whole or in part on information or references not considered during examination.
Submissions By Public Of Prior Art With Commentary
While we favor harmonization, we are concerned about dramatic changes suggested by some other organizations. First, the U.S. Government is involved in negotiations on patent harmonization and we believe that it would be ill advised for premature action to handcuff the government's negotiating flexibility. Second, the proposals that we have seen go far beyond harmonization and, instead, eliminate longstanding statutory bars, such as the on sale bar and public use bar in current section 102(b). Third, the proposed amendment would limit the public knowledge to a new test where the knowledge is "reasonably effectively accessible," while interjecting into prior art analysis the written description requirements. Given that much of the public knowledge in our industry is often demonstrated by reference to parts of software with millions of components, this would lead to a dramatic scaling back of the scope of prior art in the software and computing industries.
Abuses of Continuation Practice
Disincentives to Domestic R&D
Inter Partes Reexamination
Reduce the Disruptions Caused by Litigation
Three aspects of current law and jurisprudence require Congressional attention.
First, the way the courts have assessed damages poses serious disruptions. Under today's law, punitive triple damages are imposed if the party infringed willfully. Mere knowledge that the infringed patent exists can support a finding of "willfulness," and liability for triple damages. Contrary to what would appear to be controlling Supreme Court precedent, no requirement of bad faith or egregious conduct is required for the imposition of what are properly viewed as punitive rather than compensatory damages. This creates two serious problems. Because mere knowledge of a patent can create this liability, some have indicated that they do not read their competitors patents out of concern for such potential treble damage liability. The FTC concluded that, among other things, failure to read competitors' patents can jeopardize plans for a non-infringing business or research and encourage wasteful duplication of effort. Second, once a party is put on notice that it may be infringing, the usual practice is to seek an opinion letter from counsel. This has turned into a cottage industry for lawyers, at the expense of patent holders and accused infringers, which in fact does little to advance justice. Third, the threat of damages, based on a very low threshold, creates an enormous point of leverage for companies to settle cases, even when the underlying patent does not merit settlement. We believe that Congress should change these provisions to make it clear that punitive triple damages should be imposed only when there is evidence of, as the Supreme Court recently stated, egregious conduct. All other proposals that we have seen will just result in letters that provide somewhat more specific notice to the accused party, with no reduction in the litigation over this issue.
A second element of damages is also in need of attention by Congress. Today, when a small component of a large and successful product is found infringing, the damages that are assessed may be based not on the value of the infringing component, but on the value of the product as a whole. This has led to a number of situations of gross unfairness. We believe reform is needed to make sure courts calculate damages on the value of the component (the spell checker and not the spreadsheet, the cup holder and not the car) rather than on the value of the larger product.
Third, the way in which the courts have interpreted the law in granting injunctions has also led to disruptions for computer and software companies -- notwithstanding clear statutory language that injunctions are to be granted based on a weighing of the equities. The patent law specifically requires a balancing of "equities" before granting injunctions as a remedy, but the courts are interpreting this requirement very narrowly. The jurisprudence in this area over the past 50 years, clearly different from the way the patent law was interpreted for the first 150 years, has evolved in ways that no longer fully balances those equities. Most recently, in the eBay opinion issued just weeks ago, the CAFC ruled that the sole reason for not granting an injunction is a national health emergency. That interpretation of the "public interest" ignores a great breath and body of law, and turns the concept of equity into a pinhole that no case involving computers and software can possibly thread.
The net result is substantial disruption in the marketplace. In part, this is a consequence of the fact that injunctions are granted with respect to an entire product incorporating the infringing invention, not just the element. We have had three major cases in just the past several weeks. The Sony PlayStation console was enjoined because a joy stick was infringing; Rim's Blackberry was enjoined because a synchronizing component was infringing (this case has now been settled.); and finally, eBay's business is now at risk because it may incorporate an infringing element. As our colleague from General Motors noted, we now have a case of someone wanting to enjoin the sale of pick-up trucks because they contain a built in beer cooler that is claimed to be infringing.
Today, too many plaintiffs are gaming the system to force very large settlements by filing suits in plaintiff-friendly jurisdictions like the Eastern District of Texas. Their leverage is the threat of obtaining monetary damages that are disproportionately large, or of obtaining triple damages where there has been no evidence of conduct warranting a punitive measure of damages, or of obtaining injunctions that could shut down major production enterprises. This presents a U.S. based company with a Hobson's choice of deciding whether to settle the matter at a hold-up price or run the risk of having its products shut down. These practices have to be addressed by creating disincentives to filing these types of "gaming the system" suits.
We recognize that not all industries that rely on patents face these threats. We are mindful of the concerns of some groups that these solutions to litigation issues not disrupt monetary and injunctive relief for appropriate cases. We agree with this concern. Any solution must address the problem narrowly, without creating unintended disruptions in other areas. And, of course, any solution must also be consistent with international norms and obligations.