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of an invention introduced into a complex manufacturing and marketing operation is difficult to assess, but assessment is not impossible. Such a system in Germany has operated to benefit substantially many deserving inventors without unduly handicapping industry.

Conclusions.-Our hope is that this committee and the Congress will proceed with deliberate speed to enact changes in the patent laws to correct the present deplorable state of affairs relating to the interests of the inventor and small business. Without reform, there will be increasing deterioration of incentive. It is incentive that triggers the flow of creation and enriches our Nation and its people.

Chairman KASTENMEIER. Thank you, Mr. Cappello, for your very enlightening and effective presentation. It stands in some respect in contrast with Judge Rifkind's analysis yesterday, particularly with respect to the comparative aspects of the district court and specialized patent courts. I would first like to ask you something of your organization, the National Small Business Association, something about its membership and its aims and objectives. Can you tell us about that?

Mr. CAPPELLO. Well, I do not have a great deal of detailed information on the internal organization of the association since I am only a consultant. We represent basically about 35,000 small businessmen, many of whom are creative small businessmen engaged in manufacture, invention, and so forth.

Chairman KASTENMEIER. Essentially this is not an organization of retail businesses?

Mr. CAPPELLO. We have a number of retail businesses. We represent the broad spectrum of small business, as far as I can determine. I might state, parenthetically, that we recognize that there are many diverse interests in the small business community, particularly in the area of patent exploitation and patents in general. Many small busiriessmen, of course, have no use for patents. Our position is based on what we regard as the fundamental justification for the patent system and the national interest in connection with patents. Therefore, we do not speak for people who might wish to be allowed to infringe any and all patents or who might desire to have the patent system eliminated entirely. We do not believe this is socially or economically a desirable situation.

Chairman KASTENMEIER. I note that you will present in due course to the committee some proposed statutory language as amendments to the bill. I appreciate that you might not have that language today. Many of those interested in this field are not necessarily prepared to give final or definitive suggestions as to what changes they might recommend in the bill. I hope that at an early date you will make available to the committee these recommendations.

Mr. CAPPELLO. We recognize the committee does desire specific language. Because of the complexity of the bill, the amount of time that we have had did not permit us to submit our recommendations as to the language of the amendments at this time. But we will attempt to provide that for the committee.

Chairman KASTENMEIER. As I understand it, you do favor the firstto-file concept but you state that it is necessary to have a personal grace period. Is it your position that that grace period be in lieu of the proposed preliminary application?

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Mr. CAPPELLO. We think it could operate in either fashion, but we believe that the personal grace period could serve to eliminate, on the part of most of the small applicants, requirement for filing a preliminary application. With the personal grace period the smaller inventor, small businessman within the 1-year period would be able to present a final, complete application which would serve as the first-tofile


Chairman KASTENMEIER. In the example that you cited of your own company, would the 1-year period have been sufficient?

Mr. CAPPELLO. I think it would have, sir, if we had had the opportunity to have filed a continuation-in-part application, and the other means which we now have to amend the orginal application. I think that anything that would cut down the ability of the small inventor or the small business to amend his complete application would be very unfortunate. It would tend to produce filings which are incomplete and probably would not stand the test of litigation, and claims which would really not cover the entire scope of the invention.

Chairman KASTENMEIER. Let me ask a slightly different question. At least one witness yesterday suggested that a standardized simple preliminary application could be worked out. However, I gather it is your position that the language of the bill would not permit such a simple procedure; is that correct?

Mr. CAPPELLO. 'Yes. I think this language requires a complete application to be filed and I believe it requires the work of a patent attorney to file such a preliminary application. I can't see that the

preliminary and complete application could significantly differ.

Chairman KASTENMEIER. If it does require a patent attorney, that would discourage capricious preliminary application filing, would it not?

Mr. CAPPELLO. Well I think that the people who wish to incorporate prior art into the patent system by filing preliminary applications which have no real merit would be discouraged by a high fee. I think a $10 fee would encourage anyone and everyone to file applications regardless of whether they intended to apply ultimately for a patent. I think people refer to these as trash filings and I believe an appropriate fee level would tend to reduce this.

Chairman KASTENMEIER. Yet, paradoxically, Mr. Cappello, you seem to recommend what is really the old maintenance fee system, which would defer some fees over the life of the patent.

Mr. CAPPELLO. Well, I am not talking about the deferment of fees; I am not talking about a particular level of fees. I am talking about the concept of spreading out the cost of the fees and the cost of running the Patent Office over those who are most able to bear the cost; that is those who are receiving an economic return from the patents which they are exploiting. I think one of the big shortcomings from the standpoint of a small man is that the fee structure may be too high (even that contemplated now for filings) and that the small patent owner who may have one, ten, or a hundred patents does not receive any substantial return from this stable of patents compared with the large patent holder who may have a thousand or more patents. Those people whose businesses are basically patent-oriented and who have a large number of patents should bear a large proportion of the total costs of the Patent Office.

Chairman KASTENMEIER. Just one other question, on the thousand dollar limitation on page 10 on the amount of recovery of costs and attorney's fees, is it your position that small business competitively would do better if the penalty the large corporations would have to pay would be more than minimal ?

Mr. CAPPELLO. That's exactly it, Mr. Chairman. We think the small company that goes into litigation in any area in connection with patents has a pretty good idea its patents are sound, or they are not going to engage in it. With the larger companies and their larger resources, $1,000 does not mean very much to them. They can litigate you to death. The $1,000 maximum is practically no maximum as far as they are concerned. The worst that could happen to a small business if he gets tagged with large litigation fees is that he will go out of business. He would probably be out of business anyway.

Chairman KASTENMEIER. H.R. 2898 which you recommend is now before the Government Operations Committee of the House of Representatives and isn't before this committee. Nevertheless, I think it is obviously relevant that you should draw our attention to it.

I appreciate your testimony Mr. Cappello. Mr. Edwards ?

Mr. EDWARDS. Thank you Mr. Chairman. Mr. Cappello, the chairman mentioned that you feel that a $10 preliminary filing fee is too low; do you have a figure in mind?

Mr. ČAPPELLO. I do not have any particular figure in mind. I merely suggested that this was a low figure. The $10 fee is the figure that I believe Commissioner Brenner suggested would be the fee the Patent Office would contemplate imposing on these filings. I don't think that we are in a position to suggest what an appropriate level would be. All we are saying is that the level should be directed toward reducing spurious filings and toward encouraging legitimate filings, and this level is obviously too low. I don't know what the appropriate level would be. I think this is something that should be considered and that the Patent Office will have to manipulate this within their authority and see that the interest of the public is served thereby.

Mr. EDWARDS. On page 12 of your statement you mentioned that your association had some fears that this bill may lead eventually to the corrosion of the rights of the smalls. Do you feel that the small business community was fairly represented on the Commission?

Mr. CAPPELLO. The small business community was represented basically by the Small Business Administration. There were other personsthere were attorneys and other businessmen—who had had experience with small business problems and who should have been aware of our problems in this area. I think a great deal of compromise was achieved in coming forth with as good a report as was produced. I don't think that the report is primarily directed toward the interests of the small business community. I think it is a balanced approach to the problem. Our comments in general, I think, reflect this. They reflect certain additional things that need to be done for the small business community. I am personally acquainted with at least two of the people who served on this panel and I am sure they did the best they could to get the small business community's point of view across. But I think in the interest of compromise, perhaps some of the small business interests were lost and, in particular, I might point to this

problem of Government infringement upon private patents which has been our primary problem all along,

Mr. EDWARDS. Thank you, Mr. Cappello. Thank you, Mr. Chairman. Chairman KASTENMEIER. Mr. Poff ? Mr. POFF. May I say I appreciate the testimony of the witness. You have offered us a variety of recommendations which I think the subcommittee might appropriately consider. May I ask you first to turn to page 5 of your testimony and I will ask you first if you are familiar with the testimony which preceded yours?


Mr. Poff. You know then that I address myself to the precise question to which you refer in connection with section 120(a) (2). Obviously, I have somewhat the same fears you have. And I request that some clarification of the purport, import, and intent of that language be furnished to this subcommittee. I realize that you have likely not had an opportunity to prepare it—the alternative language, but if you have, would you suggest what it might be at this time?

Mr. CAPPELLO. Well, we felt that “every feature recited in the claims therefor” should be eliminated, and that some language similar to “reasonably related to the claims in the completed application” be substituted. In other words, the disclosures made need to be reasonably related to the claims which are ultimately presented in the complete application.

Mr. Poff. Do you expect that you will have precise language to suggest ?


Mr. POFF. On page 5, you also identified your organization with the personal grace period of not less than 6 months and preferably a year. A related suggestion was offered by an earlier witness, I believe the President's science adviser, relative to the so-called shop right. Do you have an attitude about that?

Mr. CAPPELLO. I don't think we have formulated a strong position either way. We feel that basically our interest would be served by the personal grace period and I just don't have an answer for that. Did either of you gentlemen have a feeling about that? (Addressing himself to his two colleagues.)

Mr. PERRY. A shop right is usually one in which, as I understand the term, an invention is made and thereafter the invention may be used whether it is patented or not.

Mr. CAPPELLO. May I say something further on that, Mr. Poff? I believe that this really strikes at the concept of first to file and we have discussed this at some length with our members, and we believe the first-to-file concept is salutary; that is, the first person who gets to the Patent Office with a reasonable disclosure should have the right to the invention.

Mr. Porf. Then small business finds no justification for the shop right as a personal defense?

Mr. CAPPELLO. I think that would be our position. If a person sleeps on his rights he should not have shop rights, even though he may be a coinventor. We prefer the element of certainty, as far as the small business community goes, to personal or equitable consideration that may be involved. We are primarily interested in a patent which has value on its face, which will justify our going into business and knowing that we have something that we can rely on.

Mr. Poff. In other words your concern is with the quality and validity of the patent. I am not quite certain that I understand the colloquy which has just taken place concerning the $10 filing fee. I am not quite sure that I understand why an increase in the fee would tend to discourage trash filings by large corporations more than by small corporations.

Mr. CAPPELLO. I think your point is well taken Mr. Poff. I don't think it necessarily will. But I think that obviously a fee as low as $10 would encourage anything and everything to be thrown into the hopper. I am not so sure that even $50 or $100 would discourage a large corporation, but to the extent that anyone is discouraged by fees that are more reasonable in the light of the purposes to be accomplished, I think it would be a salutary thing.

Chairman KASTENMEIER. If the gentlemen would yield—in other words you seek to raise the quality of the preliminary application, you want to see a good quality first application to be made?

Mr. CAPPELLO. That is correct Mr. Chairman.

Mr. Poff. On page 9 you discuss your recommendation for changing in the bill with reference to appellate procedure. You refer to the same subject in a somewhat different context later in your testimony. May I inquire if you intend that the appeal to the Court of Customs and Patent Appeals as that appeals is discussed on page 9 means an appeal on the record only?

Mr. CAPPELLO. Our concept is that regardless of whether the appeal is taken from a trial patent court—whether this be a panel of U.S. district court judges, or a separate patent trial court, or, from the administrative proceedings in the Patent Office—that the Court of Customs and Patent Appeals, sitting in patent matters, should exercise the function that a true appellate tribunal does exercise. That is to review the record of proceedings and not take additional testimony. If the appellate tribunal needs additional testimony that has not been properly obtained, then the case should be remanded with specific instructions to the trial court, or to the administrative tribunal, to provide that type of testimony.

Mr. Poff. In other words, you are proposing that the de novo proceeding in the U.S. District Court of the District of Columbia be eliminated ?

Mr. CAPPELLO. I would like to add something further to that if I may. We believe that the Court of Customs and Patent Appeals as presently constituted does not provide the high quality of decisions which they would if they were a true appelate body. This gives some people cause for concern because some of the decisions that are reached now are not on the equivalent level to those achieved in the U.S. court of appeals. Obviously the Court of Customs and Patent Appeals does not have this function now. I believe that if it is given a true appellate function on the first appellate level for patent appeals, the quality of the decisions and the stature of the court will automatically be upgraded. We will get better decisions, we will get uniform decisions, and we will get quick decisions.

Mr. POFF. Your proposal will also eliminate the additional appellate step to the U.S. court of appeals, would it not?

Mr. CAPPELLO. Yes it would.

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