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in the design patent field. We were rather disconcerted by the way the Patent Office has been dealing with plant patents. We thought that it was an inappropriate area for the Patent Office to deal with. We realized a substitute, more directly relevant, was in order, but we did not go into what that should

be. Chairman KASTENMEIER. As far as the duration of the patent is concerned, I think the committee understands why 20 years was settled on. This really isn't a determination that the present duration should be changed but rather that it should be made consistent with the new system. My question is this, was there much thought given as to whether the term should be lengthened or shortened.

Mr. RIFKIND. There was a great deal of discussion. There was considerable debate about whether we should go for the European idea of a petty patent which would be a short duration patent for ideas of modest scope. All of that was explored. Either we did not reach a conclusion thereon or the conclusion is the one that is reflected. We took 17 years as the present system; if you add 3 years for the period of prosecution, it is 20 years. Twenty years happens to be the patent duration in most European countries. We thought there were so many advantages in adopting it, especially the motivation it provided was adrantageous that way, that we adopted the 20-year term.

Chairman KASTENMEIER. Recommendation XXIV of the Commission's Report would create civil commissioners to preside over pretrial proceedings. From your own substantial experience at both the bench and the bar, and in view of your own aversion to special courts, are your persuaded that the public interest requires that the patent field be singled out for this special treatment?

Mr. RIFKIND. Well let me give you a two-pronged answer. There was so much pressure for the doing of something which would moderate the cost of patent litigation, that we had to respond to it. Personally, I felt that anybody—and I expressed myself to the effect—who can invent a method by which to reduce the cost of patent litigation ought to get a patent. Such a remedy would be universally applicable to all litigation. My experience is that all litigation has become enormously burdensome and expensive; indeed some of the very advantageous liberation of the rules which has been developed during the past generation and which has served a very great purpose in improving the quality of our judgments has enormously increased the expense of obtaining those judgments. This is a recommendation with respect to patent practice which is equally easily available for every other field, and indeed occasionally, of course, courts do appoint masters to preside at pretrial proceedings. We could not make a recommendation universally applicable because we thought that would be beyond the proper scope of our assignment. So we did recommend that for patent litigation there be Commissioners who would preside at these pretrial hearings and thereby shorten them, furnish rulings more quickly and so shorten the extraordinary lengths to which they now go.

Chairman KASTENMEIER. Judge Rifkind, recommendation No. XXII of the Commission's report, would have written into the statute a formulation of the so-called rules of reason as a guide in determining issues of patent abuse. The bill before us does not follow this recommendation. Would you comment upon that exclusion?

Mr. RIFKIND. This is one of the areas with respect to which I said that I had very small, if any, expertise. My own private view, and perhaps I am being disloyal to my Commission, that this is an area which requires attention but that we did not have the time to go into it in sufficient depth for us really to make a first-rate recommendation. I think having it here is good, because it draws attention to it. Not having it in the bill is also good because at this time it is not ripe, in my judgment, for translation into legislative form. You have two systems, the patent system and the antitrust system, which are compatible if carefully put together and yet they appear to have points of conflict. It is true that in recent years every time you want to enforce a patent, you are confronted with an antitrust counterclaim; it has become additionally expensive by reason thereof. You have got to get expensive counsel, because not many lawyers go into that field. It needs attention, Mr. Chairman, serious attention, but we did not have on our Commission a representative from the Department of Justice or the antitrust division as we did from other agencies. So that we really did not have the opportunity, in our debate, to clash ideas with those whose function it is to serve the antitrust policy of the United States. There was a lot of feeling about this and the Commission did vote it but I think it is really an invitation for further study rather than capable of being translated into immediate legislative policy.

Chairman KASTENMEIER. Thank you.
Mr. Edwards?

Mr. EDWARDS. Judge Rifkind, I found your testimony very enlightening and, better still, enlightened, and I thank you for coming. I have one short question, Mr. Chairman. If the bill is passed, generally in its present form, do you think its effect would be to improve the competitive situation of the little man as against the large corporation?

Mr. RIFKIND. I think it would. I think there are a number of provisions here which would serve the interest of the small businessman and the independent inventor. I'll go so far as to suggest to you Mr. Edwards, that if you think about it deeply enough you will come to the conclusion that it is possible that the really great aggregations, the Du Pont's, the IBM's dont' need patent protection. They are running so far ahead that they can take advantage of their very momentum to have competitive advantage. The patent system is essentially desirable from the point of view of the small businessman.

Mr. EDWARDS. Thank you.
Chairman KASTENMEIER. Mr. Hutchinson?

Mr. HUTCHINSON. Judge, I too want to state to you that I appreciate very much your discussion this morning. As you know, no member of this committee, at this time at least, claims to have any expertise in this field of patents. We are here to become informed. Your statements have been very helpful to me. Mr. RIFKIND. Thank

you. Mr. HUTHINSON. I do have a couple of questions which probably will simply exhibit my present general ignorance on the subject. You talked about under the present system there are a good many patent applications which remain hidden in the pipelines for 2 or 3 years and nobody knows much about them. But all of my life I have seen things on which

there has been a little notice“U.S. Pat. pending.” Now I take it that this is a situation where someone files an application for a patent?

Mr. RIFKIND. That's right. The patent has not been granted but he publishes to the world that he has made an application for the patent.

Mr. HUTCHINSON. There must be other situations though where the inventor chooses not to utilize his patent until it is granted. Is that the situation ?

Mr. Rifkind. The fact is a simple one. You may have filed an application for a patent, then actually manufacture and put such a notice on your product. To that extent it becomes disclosed. During that period anybody could use it without liability but at least he knows that when the patent is issued he is in trouble.

Mr. HUTCHINSON. Oh, he could use it.

Mr. RIFKIND. Oh, yes; without liability. Under the present law that is my understanding of it. But a great many applications, the great bulk of the applications remain in the dark, unpublished in this pipeline because either the owner of that invention has not found the finances to exploit it or it isn't ripe yet for public exploration; or for whatever reason the inventor wants to defer its exploitation.

Mr. HUTCHINSON. Or he doesn't want to disclose it?

Mr. RIFKIND. Yes; or he does not want to disclose it. I would say, and I am guessing now, that numerically the number of those that actually exploit are but a small fraction of all the applications which are in the pipeline.

Mr. HUTCHINSON. Thank you Judge. Now the only other question I have, if you haven't already answered it, is this: As between these two available routes of appeal up through the Court of Patent Appeals or up through the district court, did the Commission discover relatively which court is more frequently used? Do most of these things go up in one court or the other?

Mr. RIFKIND. Mr. Hutchinson, I have only hearsay. I can only tell you the hearsay I have heard. I have never appeared in the Court of Patent Appeals; I don't think I have. The impression that I have got from speaking to the professionals that appeared before the Commission is that, generally speaking, the disappointed inventor will get a warmer reception in the Court of Patent Appeals than he would in the district court. That may be all wrong. I am not an authority for that proposition, but I got that impression from listening to the discussions at the Commission.

Mr. HUTCHINSON. As to the challenger of a patent, the man who says your patent is no good, I am going to sue you, what about him?

Mr. RIFKIND. He doesn't go there at all.

Mr. HUTCHINSON. Oh, he has to go to the district court. He can't go into the Court of Patent Appeals?

Mr. RIFKIND. Oh, no. He has to go through one of the district courts of the United States.

Mr. HUTCHINSON. Thank you, Judge.

Chairman KASTEN MEIER. If there are no other questions, the committee again desires to express its thanks to you for coming, Judge Rifkind.

Now the committee would like to call Mr. Philip F. Zeidman, General Counsel of the Small Business Administration.

Mr. Zeidman, we understand Eugene Davidson, Assistant General Counsel, is also here. Gentlemen, welcome to the committee. The committee has your statement, Mr. Zeidman, and if you would like to read it, you may proceed.



Mr. ZEIDMAN. Very well, Mr. Chairman.

Mr. Chairman and members of the committee, I appreciate the opportunity to apepar before you today on behalf of the Small Business Administration, in support of H.R. 5924, the Patent Reform Act of 1967. The bill would make extensive modifications in the U.S. patent system in order to improve the effectiveness of its operation in today's rapidly changing technology.

As you know, the bill is largely the product of the recommendations of the President's Commission on the Patent System, which was appointed to study ways to strengthen and improve the system in light of modern needs. President Johnson noted when he transmitted this measure to the Congress, that its primary aims are, first, to raise the quality and reliability of U.S. patents; second, to reduce the time and expense of obtaining and protecting a patent; and third, to speed public disclosure of scientific and technological information.

While the Small Business Administration is by no means appearing in the role of a patent law expert, it seems clear to us that H.R. 5924 would be very helpful in achieving these beneficial purposes. The Small Business Administration was represented on the President's Commission, first, by Administrator Eugene P. Foley, and subsequently by our present Administrator, Bernard L. Boutin and in both cases by the agency's designee, Assistant General Counsel Eugene J. Davidson, who accompanies me here today. The Small Business Administration generally endorses the findings and recommendations of the Commission incorporated in the bill. I am aware that previous witnesses have explained the measure in detail and have emphasized its importance to the improved operation of our patent system and generally to healthy economic progress and growth. SBA's special interest and focus is on the importance of the bill to small business, and my discussion is, therefore, directed to the major effects of the measure on small concerns.

Turning first to the general question of the importance of the patent system to small business. It might initially be wondered what benefits small business can receive today from the patent system. One often hears it said that important inventions must be the product of large and wealthy enterprises, that small business does not have the capital or know-how to develop and market new inventions, and that when a small firm does get a patent, it cannot afford to enforce it against infringers.

Before discussing these matters regarding patent development by small firms, it should be noted that even when small business is not the patent holder, important benefits can flow to it from the patent system. Among these are the general growth of the economy which derives from technological improvements; the more direct benefits which small concerns may obtain as suppliers, customers, or licensees of pat

ent holders; and the opportunities for alert small firms to utilize the information disclosed by patents in connection with their own innovation and invention outside the bounds of the patent.

The contention that only large firms can invent in today's complex and rapidly changing technology is not supported by the data and by the studies that have been made on this point. For example, and I give only a very few examples, a January 1967 report to the Secretary of Commerce by an advisory panel on invention and innovation concluded that "independent inventors and small firms are responsible for an important part of our inventive progress” and that "small technologically based companies are responsible for a remarkable percentage of the important inventions and innovations of this century." The panel based its conclusion on a number of studies, including perhaps, most prominently, the significant and interesting book by Prof. J. Jewkes, D. Sawers, and R. Stillerman, “The Sources of Invention.” That book showed that out of 61 important inventions and innovations of the 20th century, over half of them stemmed from independent inventors or small firms. Among these products of the ingenuity of small firms and independent inventors are the mercury dry cell, air conditioning, power steering, FM radio, vacuum tubes, penicillin and streptomycin, and DDT.

Another report, in the April 1966 Digest of the Patent, Trademark, and Copyright Research Institute of the George Washington University, notes that the number of independent inventors was estimated at 225,000, and that even in large companies in various industries about two-thirds of the recently issued patents were contributed by single inventors. Such data, and SBA's own experience, strongly support the conclusion that small concerns can continue to be an important source of inventions.

While of course patents alone are not enough for a small concern to be successful-sufficient capital and good management are always necessary-and I should add at this point that SBA's own program takes these needs into consideration in the case of small businesses seeking or holding patents—this does not mean that inventions cannot be developed and marketed by small firms. Patent protection is frequently a major element enabling small firms to raise equity and debt financing, and capable management is often available in these small concerns. Moreover, it appears that a small business which is heavily dependent on the successful exploitation of one or a few patents in many cases would be more likely to vigorously pursue their development and market potential than a large firm which may have numerous other business opportunities and may therefore choose not to develop certain of its inventions. Many instances of successful economic implementation of their patents by small businesses have come to the attention of the SBA. Outstanding examples of small firms which have grown into large public corporations through the development of an invention include the Xerox Co. and the Polaroid Co. It is clear then that patents are a valuable incentive and asset to many small firms. I was particularly interested in Judge Rifkind's comment that in his judgment and final analysis the patent system is more important to small firms and the independent inventor than to large national complexes.

90-355—68-pt. 1-13

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