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I think among the things that could be raised in this regard, one should be in a position of having to make a prima facie showing that he has a good basis or grounds for opposition before instituting that proceeding and putting the applicant through that burden. He perhaps should be made to bear the cost of that proceeding if he is unsuccessful, perhaps even to pay the applicant's costs or some part of them, at least in aggravated cases.

So there must be sanctions to discourage the possible oppressive use of the system.

Finally, I believe that if you are going to continue to encourage small companies and individual applicants to come forward, that you should consider giving them available help when their economic condition suggests that they need it. This could either be in the way of some sort of partial subsidization of legal expense on the one hand; or possibly, if you have an Office of Public Counsel, making public counsel services available to him in his defense of opposition proceedings.

I think, too, among other testimony that I have heard this morning I have heard most people favoring the completion of ex parte examination and the finding of prima facie patentability before publication, and before throwing open the application for opposition.

It has been said that this is fair play because the applicant should have the option of either holding it to himself, or at least he should know what is going to be granted before he decides to publish and give up his secrecy option.

I think there is a better reason for doing this; that is, early publication prior to a patentability determination will result in a proliferation of contested proceedings in opposition.

Senator HART. Proliferation of what?

Mr. PEDERSON. Contested proceedings in opposition. If the burden is to oppose before there has been ex parte examination, before there has been a prima facie determination of patentability, one would pass that opportunity at his peril, and in many cases it would be opposed and inter-party proceedings instituted that otherwise would not be instituted because it would have fallen by the wayside in the ordinary course of ex parte examination.

The question of deferred examination is up for discussion. I favor deferred examination but only if S. 1321 were changed to eliminate the provision for extension of term in correspondence to the deferral period. I do not believe an applicant should be entitled to a term extension by mere dilatory action. I think 12 years from the filing date is too short a term. I think 18 or 20 years from the filing date is more in line with international practice and is reasonable. I think if you have deferred examination it should remain 18 or 20 years from the filing date.

The deferral option is for the benefit of the applicant, among others. It gives him an opportunity to avoid incurring further expense until he has some basis for deciding that he has got something worth pushing. I see no reason why he should be entitled to have his term extended for exercising that option.

The case that never gets examined will never have to be opposed either, if we do lay these open to opposition only after an ex parte determination so that 50, 59, or 60 percent of the applications fall

by the wayside in the deferred examination process. They will never be published, and they will never have to be opposed. I am sorrythey may be published, but they would never have to be opposed, because no patent grant will be published.

On the matter of maintenance fees, I think that it would be a snare and a delusion to think we are going to help our situation with respect to eliminating spurious patents by the use of maintenance fees. I have not heard that this is a major purpose of those fees this morning. It has been mentioned by many of its proponents at other times. But it will only eliminate deadwood; it will not eliminate anything but deadwood.

The elimination of deadwood is really not a problem, because deadwood does not cause court cases. It has been suggested that perhaps maintenance fees might be an alternate to increasing filing or issue fees. I have to agree with Mr. Hogan. I think that once it has been determined that we really have a patentable invention here, something which benefits the public, promotes progress in science and the useful arts serves the constitutional purpose of the public benefit, that now to impose an annual maintenance fee in order to maintain that privilege, or that grant given by the Government pursuant to the constitutional objectives, is incongruous.

And I would also endorse Mr. Hogan's position, if you have to increase anything, increase the final fee, the issue fee, at which time the decision has to be made whether the monopoly is sufficiently attractive to justify that added expense.

I think the office of public counsel and the creation of an independent agency status of the Patent Office is laudable. The purposes that they should serve have been expounded upon today. I do not think they would suffice, of themselves, to convey enough credibility to patents to convert a 75 percent mortality rate to the 75 percent or better survival rate that I think ought to be injected into patent reform.

Incidentally, I think that the provisions that have not been mentioned-enhanced library facilities, mechanized search, things of this sort-are also laudable objectives in that regard, but insufficient of themselves to do the job.

I would be happy, if the committee has any comment or questions

Senator Hart. There are a number of proposals intended to improve the system reflected in S. 1321 and other bills before us. We asked for comment on five specifics in the series of hearings that we are conducting today.

Would you care to make a judgment with respect to those five specifics, which is the most important in achieving an improvement ?

Mr. PEDERSON. Senator, I think an appropriate adversary system of some sort is the most important thing. It is the only way that we can bring industry members and competitors who are possessed of a knowledge of the state of the art that is needed on which to make a patentability judgment; they have to be brought into the picture.

Senator Hart. That seems to be, as I have read memoranda of court cases--that seems to be the most frequent basis for the court's criticism of the system, the vacuum.

Mr. Brennan?
Mr. BRENNAN. No questions.
Senator HART. Mr. Nash?
Mr. Nash. One brief question.

We have heard, you know, assessments this morning that, yes, there is a crisis because a lot of patents are getting knocked out by the courts. The numbers have run about 70 percent in the court of appeals, as Senator Hart mentioned. That is just about 1 percent of the total number of patents that are issued.

You are a general patent counsel for a major corporation. I am sure, you report to your executives, they like to plan and make business judgments based on assumptions as to whether their patents are good or not good.

Could you give us the parameters or the context in which to evaluate the significance of either the 1 percent of the patents being litigated, or 70 percent of those patents that are litigated being knocked out as invalid.

Jr. PEDERSON. That is a very complex question. I would be happy to comment on it to the best of my ability. There is an implied premise in your question that I think perhaps ought to be attacked first.

That is, there seems to be a popular supposition that businessmen make business determinations based upon the consideration as to whether their patent is going to be allowed or not as a primary input. That is true in some cases, but that is far from universally true, at least in our industry. I cannot speak for all industries.

Here again, I must impose a qualification. At least within our industry, once an invention or development has been made and we have found it looks commercially attractive, we want to introduce it in our product. We are much happier if we can get strong patent coverage on it than if we cannot. But the fact that we cannot will not deter us from coming out with a new feature that we think is good. This is one point that I would like to clarify at the outset.

People in our industry do not set up research and development programs based entirely, or even primarily, on expectations of strong patent coverage. We do the best we can with what eventuates from the programs that look attractive on their own merit.

There is something drastically wrong with a system that says 75 percent of the patents that go to court are no good. I think industry is alarmed about this. I do not feel from my management, however, a direct sense of urgency that says to me, we are concerned that 75 percent of the patents are invalid.

There are not concerned. They do not extrapolate or extend these statistics to their holdings or to our holdings. They expect us to do better than that, and we have delivered on that expectation in the past, at least in those cases that have been tested. We run aftersearches that are better than the Patent Ollice searches, because they encompass large areas of prior art that the examiner did not have available. We amend voluntarily to distinguish froin prior art that the examiners did not bring forward.

We know we cannot rely upon the Patent Office process, not because of any lack of dedication on the part of the examining corps, but simply because the system has these idiosyncrasies. As a result-I think if everyone took the pains we take, I think the statistics would be better, too.

Mr. Nash. As I understand it—and I would like the record to reflect it if it is correct-in terms of patent infringement suits, you have been successful in your patent litigations?

Mr. PEDERSON. We have been successful on both sides of patent litigation, asserting our own and defending against others. We have also been very quick to recognize good patents. Our policy is to recognize and respect good patents and to have no truck at aïl with bad patents.

We were Major Armstrong's first licensee, for example, on FM radio, paying millions of dollars in royalties, which many years later were ultimately forced upon some of our competitors by litigation brought by his estate after his death. But we signed up.

Mr. Parker has an inter-carrier sound patent in the television business. We signed up and paid royalties. When someone has a patent that we generally consider to measure up to the standards of patentability established by the law, we respect it. But if a patent is invalid, we will not have any part of it. We cannot afford it.

Mr. Nash. My last question is, would you be able to hazard a guess for us as to whether you would extrapolate out the percentage of invalid patents to those that are not litigated ?

You must look at the official gazette as a patent lawyer and see what comes up. Do you think that we would have an invalidity rate of 70 percent if we, God forbid, litigated all patents?

Mr. PEDERSON. I do not think we can give any expectation regarding the number. A large percentage would be involved. I would agree with Mr. Hogan that a majority of these patents are not commercially significant patents, so their validity becomes moot in large



I do not know any basis where you could extrapolate the figures, though, and say that as applied to the larger universe, the percentage would be the same.

Mr. Nash. Thank you.
Senator Hart. Mr. Pederson, thank you very much.
Mr. PEDERSON. Thank you, sir.

Senator Hart. We will adjourn until tomorrow morning at 9:30, rather than 10 o'clock, in this room.

[Whereupon, at 3:35 p.m., the subcommittee was recessed, to reconvene Wednesday, September 12, at 9:30 a.m.]




Washington, D.C. The committee met, pursuant to recess, at 9:30 a.m., in room 1114, Dirksen Senate Office Building, Senator Philip A. Hart presiding.

Present: Senator Hart (presiding).

Also present: Thomas C. Brennan, chief counsel and Dennis Unkovic, assistant counsel, Subcommittee on Patents, Trademarks, and Copyrights; Bernard Nash, assistant counsel, Antitrust and Monopoly Subcommittee.

Senator HART. The committee will be in order.

Mr. BRENNAN. Mr. Chairman, the first witnesses this morning appear on behalf of the Department of Commerce.

Mr. Bakke, would you identify yourself and your associates for the record please.

Mr. BAKKE. Good morning, Mr. Chairman. My name is Karl Bakke. I am General Counsel of the Department of Commerce. Accompanying me this morning, on my right, is Rene Tegtmeyer, Acting Commissioner of Patents, and on his right, Michael Kirk, Director of the Patent Office's Office of Legislative and International Affairs.

Mr. BRENNAN. Do you have a prepared statement that you wish to have printed in full at this point in the record, Mr. Bakke?

Mr. BAKKE. That is correct, Mr. Brennan.

I would like merely to summarize the remarks contained in my prepared statement.

Mr. BRENNAN. Fine.
[The prepared statement of Karl E. Bakke follows:]

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I appreciate the opportunity to appear before this Subcommittee to explain the views of the Department of Commerce on the five patent topics which are the subjects of these hearings.

Our patent system began with the Constitutional recognition that substantial rewards and protection would encourage scientific research and the development of new inventions. These rewards and rights also provide the substantial financial investments needed to bring new inventions to the marketplace for the ultimate benefit of the consumer.

(157) 23-932-74--11

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