The patent system has played a uniquely important role in the development of American technology, and remains a major factor in our nation's economic vitality. Agriculture has prospered from inventions such as insecticides and food processing machinery. Modern electronic technology has brought us lasers, transistors and computers. Patented plastics, textiles and pharmaceuticals have created new markets and industries. The patent system has stimulated much of the necessary investment in research and development and the marketing of inventions which have brought, in turn, the development of entire industries and an unparalleled standard of living for the American public.

This Administration is keenly aware of the critical role of technology in promoting our national interests. President Nixon pointed out in his Special Message to the Congress on Science and Technology on March 16, 1972, that solutions to many of our pressing national needs depend on preserving the American pre-eminence in science and technology. The President declared:

"We know *** that a strong and reliable patent system is important to technological progress and industrial strength. The process of applying technology to achieve our national goals calls for a tremendous investment of money, energy and talent by our private enterprise system. If we expect industry to support this investment, we must make the most effective possible use of the incentives which are provided by our patent system."

The Administration recognizes that the patent system has served our nation well since the first patent law was enacted in 1790 and continues to play an important role today. Nevertheless, we recognize that certain revisions in the system will enable it to better fulfill its crucial role in promoting the development and commercialization of technology. Our objectives are twofold: strengthening the patent system and enhancing public confidence in the system. We anticipate that the Administration's bill will be forwarded to this Subcommittee in the near future. Our bill will be comprehensive and will contain a complete revision of the present patent code. In addition, the Administration's position with respect to legislation dealing with the very important patent-antitrust relationship will be communicated to the Congress.

Our bill is intended to confront the formidable challenges faced today by the patent system. Let me mention the most important of these. The task of the Patent Office in determining which inventions are patentable becomes more and more difficult as technology becomes increasingly complex, and technical and scientific information proliferates. At the same time, it is increasingly important that new technology be disclosed to the public as early as possible. There is also a critical need to provide a high degree of predictability as to the validity of issued patents and thereby reduce time-consuming, costly and unnecessary legal actions in enforcing patent rights.

In discussing the formidable challenge faced today by the patent system, I do not mean to imply that the patent system is not basically sound. The present structure of our patent laws was established in 1836 and there have been many changes in our society since that time. However, our patent system has served and continues to serve the nation well, providing the needed stimulus to scientific and technical development so necessary to the continuance of our position of leadership in the world.

Therefore, the bill which the Administration will soon forward will contain a number of improvements designed to strengthen the overall functioning of our patent system. Many of the changes which will be contained in the Administration bill have been found in earlier proposals for patent reform, many of which have been sponsored by the Chairman of the Subcommittee, Senator McClellan. Included among these changes will be proposals for measuring the term of a patent from its filing date, permitting assignees to file patent applications, and strengthening the requirements for inventors and their asignees to bring forward information concerning their inventions. In addition, the bill developed by the Administration will contain several new proposals such as a statutory statement of the duties imposed on patent applicants and their attorneys to clarify and bring a measure of order to the rather murky question of fraud on the Patent Office, a statutory procedure which patent applicants may utilize to avoid the question of double patenting, and a statutory proposal outlining situations in which patentees and those with whom they deal may agree to arbitration of existing disputes respecting the validity, infringement, and misuse of their patents. The bill developed by the Administration will contain a number of other proposals which I will not mention at this time, designed to

further improve the basically sound patent system that we have today, and especially to strengthen the basis for the presumption of patent validity in response to the criticisms frequently leveled at the system.

I will turn now to the five topics with which this hearing is concerned.

MODIFICATION OF PATENT EXAMINATION PROCEEDINGS TO PROVIDE PUBLIC
ADVERSARY HEARINGS

The consideration to be kept foremost in mind in any revision of the patent laws is that the procedures established must assure the issuance of valid patents. In designing any changes in our existing system, however, one must also be cognizant of the fact that the Patent Office presently conducts as full and as effective an examination proceeding as is possible on an ex parte basis. The effectiveness of this examination procedure is demonstrated by the fact that the Patent Office refuses to grant patents on more than 30 per cent of the applications which are filed. This fact can be better appreciated against the background of the prevailing practice in the United States with respect to the screening procedures to which applications are subjected prior to filing.

Unlike the practice in foreign countries, pre-examination searches are conducted with respect to the large majority of applications filed in the United States so that, at the time of filing, these applications, and especially the claims contained in them have been reasonably limited to the applicant's contribution which was not previously in the public domain. Accordingly, it speaks exceedingly well for our present examination procedure that more than 30 per cent of applications filed are refused completely and that almost all of the remainder are significantly limited in scope.

Nonetheless, comments are increasingly directed at the ex parte nature of examination proceedings under present law. While this procedure respects the right of individual applicants to maintain their contributions in secrecy until such time as they are given an indication of the scope of the patent protection they might receive, members of the public are not permitted to participate in the examination proceedings. In fact, the principal source of invalidity has been the inability of the Patent Office to learn of information and facts which are peculiarly in the possession of the public. Therefore, increased public participation in the patenting process would help to ensure that all the pertinent prior art, including that which could not be discovered by a Patent Office search of reasonable magnitude, is considered before a patent is granted. This would have the effect of strengthening the validity of patents, reducing the workload on courts in judging patent cases, and promoting public faith in the worth of the patent system.

We have reviewed various proposals relating to public adversary proceedings. Both S. 1321 and the bill which the Administration intends to introduce contain procedures which would permit the public to assist the Patent Office in ensuring that only valid patents are permitted to issue. However, we believe that certain features of the proposals in S. 1321 permitting public participation would unduly burden the examining process and might not achieve the desired ends of providing stronger and more reliable patents. In addition, S. 1321 would also subject patent applicants to the prospect of harrassment.

Under S. 1321, all patent applications would be made available for public inspection promptly, subject only to the authority to keep them secret for a period of six months for purposes of national security review. Once examination of an application had commenced, any member of the public could participate or intervene in the examination proceeding and become a party of record in such proceeding. Following a decision by a primary examiner to grant a patent, any member of the public, whether or not previously a party to the examination proceeding, could request a reexamination, and the primary examiner would be required to render a second decision. Any party of record in any Patent Office proceeding, including a reexamination proceeding, could apply at any time to a primary examiner or other presiding official for subpoenas or other orders to take discovery, testimony or evidence.

In our view, the provisions of S. 1321 providing for adversary proceedings in the Patent Office present several significant problems. First, it should be noted that issues with respect to the patentability of applications are generally not fully developed until an examiner has completed his examination. Until this

stage of the Patent Office proceeding, potential opposers would have no firm basis for determining their interest in narrowing or defeating the claims in an application. Considering the time and money it would take an opposer to investigate whether the claims of a published application impinge on his commercial activities, and the time and expense to determine whether any grounds existed for opposing the application, it is unlikely that many members of the public would elect to oppose an application until the Patent Office had completed its investigation.

While there would be little benefit in opening patent applications to the public before the Patent Office investigation was completed, such a procedure would impinge upon the legitimate interests of inventors in being given some indication of the likelihood of receiving patent protection before having their inventions disclosed to the public. The fundamental notion of our patent system involves a contract theory under which an inventor is induced to disclose his invention in return for an exclusive right to practice that invention. If this principle were modified to require inventors to publicly disclose their inventions before the Patent Office made any investigation, some inventors might be deterred from filing patent applications, and elect to protect their inventions as trade secrets.

The very broad provisions of S. 1321 relating to reexamination present a possibility for harrassment of patent applicants by their competitors. The opportunity both to participate in the examination procedure and to obtain reexamination thereafter, and the opportunity to obtain broad discovery, could invite competitors of the patent applicant to abuse opposition proceedings. We believe that the objectives of section 135 of S. 1321 can be achieved with the somewhat more limited provision of the bill that will be recommended by the Administration.

Finally, the adversary procedure contained in S. 1321 would result in a significant addition of essentially worthless and duplicative literature to the Patent Office search file, thus increasing the time it would take for patent examiners and the public to review the files. Since all applications would be made public under S. 1321 within six months of filing, the disclosures of these applications would be added to the examiner's search file. However, over 30 per cent (34 per cent in 1972) of all patent applications filed do not result in patents, usually because the inventions disclosed and claimed are not new, or only represent obvious modifications of work done by others. Examiners would be forced to sift through this duplicative material in conducting their searches. Since between 25 per cent and 50 per cent of an examiner's time is given to searching the files of prior patents and publications, the increase in search time that would result from adding published, unpatentable patent applications to the files would be most disfunctional.

The Administration bill is directed toward the same goal as S. 1321, but seeks to strike a balance between the interest of the inventor in not disclosing his invention until he is given some indication of the scope of coverage he might receive, and the interest of the public in the issuance of strong and reliable patents. The proposal that will be made by the Administration would retain the essence of existing law by providing that applications would initially be examined in secrecy. When an examiner determined that the claims in an application were allowable, the application would be published prior to the actual granting of a patient, to permit the public to assist the Patent Office through an opposition procedure.

Following publication, members of the public would have one of two routes available to them. First, within three months after publication of the application, a member of the public could cite patents, publications or other documentary evidence relating to the application, together with a written explanation of their pertinency to the patentability of the application. Based on this submission, the Commissioner would direct further examination of the application. Under the second route, members of the public would be permitted to participate in an opposition proceeding before the Board of Examiners-in-Chief. Under this option, both the applicant and the opposing member of the public would be entitled to submit written briefs, present oral argument, take depositions, discovery or testimony, and present oral testimony and cross-examine witnesses in the proceeding before the Board. However, in proceedings in which the issuance of a patent was only on the basis of prior patents, publications or other documentary evidence, parties would be permitted to take depo

sitions, discovery or testimony and present oral testimony and cross-examine witnesses only upon a showing of good cause.

Applicants whose applications are subjected to this opposition procedure would have interim rights available for the unauthorized use of their inventions prior to the time a patent issued.

We believe the Administration bill would provide a more efficient and orderly process than S. 1321 by requiring that only those applications be published which have been found allowable by the Patent Office examiner. Since the 30 per cent of applications not allowed by the examiner would not have to be considered for opposition, the time and expense both for interested members of the public and for the Patent Office would be reduced. With a clear definition of the subject matter before them, interested members of the public could readily determine whether the subject matter was such as to justify the expenditure of time and effort to find additional prior art not cited by the Patent Office examiner.

Since patent applicants would not be required to disclose their inventions to the public until after they received an indication from the Patent Office that their applications contained patentable subject matter, they would not be encouraged to opt for trade secret protection to avoid the risk of disclosing their inventions without obtaining a patent.

In addition, while opposers would be given adequate procedures to fully contest patentability of an application during an opposition proceeding, the Administration proposal includes limitations which are believed to reduce the possibility of harrassment. These limitations include the good cause requirement for obtaining discovery and the like when the opposition is based only on documentary evidence relating to the state of the art, and the fact that the public cannot participate during the initial examination before the Patent Office examiner. The Administration proposal would also avoid increasing the size of the search files through publication of the 30,000 applications per year that are denied by the Patent Office.

Accordingly, it is believed that the Administration bill will achieve the goal of S. 1321 of strengthening the basis for the presumption of validity of issued patents by affording the public an opportunity to participate in an adversary proceeding, but will avoid the accompanying undesirable side effects of section 135 of S. 1321.

CREATION OF THE OFFICE OF PUBLIC COUNSEL

A strong public interest exists, of course, in the issuance of patents on inventions which satisfy the statutory criteria. Problems are wrought upon society both by the issuance of invalid patents and by the refusal to issue patents on deserving inventions which in fact satisfy the statutory criteria.

S. 1321 recognizes the public interest in the examination and issuance of patents with the creation in section 3(d) of an Assistant Commissioner for Appeals, Litigation and Public Counsel, referred to in the bill as the Public Counsel. The Public Counsel would carry out a number of functions, many of which do not exist under present law. He would be charged with the duty of assuring as an advocate through the adversary process, that high quality patents are issued by the Patent Office. To accomplish this goal, he would be empowered to intervene and participate at any time in any Patent Office proceeding or any appeal from a Patent Office proceeding when, in his judgment, it was in the public interest. In addition, the Public Counsel would be charged with defending appeals from a primary examiner before the Board of Examiners-in-Chief and appeals from the Board before the Court. Under S. 1321 the Public Counsel is also given broad power to issue subpoenas or orders in connection with matters under investigation by him.

While sympathizing with the objectives underlying the proposal for a Public Counsel, the Department of Commerce questions the effectiveness of a Public Counsel as proposed in S. 1321. As a practical matter, the Public Counsel could not intervene and participate in any significant number of the 115,000 patent applications examined by the Patent Office each year nor could he oppose a very substantial number of the 75,000 patents issued annually. He would have no rational basis on which to select those cases in which intervention or opposition would be most desirable. The value of a patent is determined by the marketplace and is generally difficult to judge from reading the application. The importance of an individual case does not depend upon the resources of

the patent applicant or the field of subject matter involved. Therefore, the Public Counsel's decision on the cases in which he would participate would likely be no more than a random selection.

Members of the public in a particular industry who are able to determine that a particular invention is significant and wish to oppose it would be permitted to do so under both the Administration bill and S. 1321. If the opposer has a real interest in the subject matter, it is likely that he would want to present his case directly, and not through a Public Counsel. Accordingly, the Department of Commerce questions the value of the Public Counsel in this facet of his role as ombudsman.

We believe, however, that certain of the functions proposed for the Public Counsel would be practical and would strengthen the tools of the examiner and improve the examination procedure. Accordingly, the Administration bill will contain provisions to ensure the performance of these functions.

Under section 3 of the Administration bill, the Commissioner of Patents would be required to designate an officer of the Patent Office to perform certain limited functions to aid examiners and reinforce the ex parte examination proceeding. The bill would empower a primary examiner to request assistance from the officer with respect to the examination of a particular application when the examiner believed it desirable to transform the proceeding into an adversary one. The officer would interevene and participate in the examination proceeding if he considered it in the public interest to do so. The officer would have the right to seek discovery of an applicant and would have other rights and powers of a party in Patent Office proceedings. While it is expected that such intervention would occur only in a few situations, it is believed that this additional resource afforded the examiner would strengthen the examination process.

In addition, the Administration bill would provide that all appeals from decisions of examiners to the Board of Examiners-in-Chief would be defended by the officer established under section 3 of the bill rather than by the examiner. This would improve the adversary proceeding before the Board by having the examiner's position presented by another person.

Finally, the Administration bill would codify the existing authority of the Patent Office to investigate the conduct of patent applicants, attorneys and those engaging in unauthorized practice before the Office. The existing authority to investigate such matters would be strengthened by providing the officer established by section 3 of the bill with subpoena power with regard to such investigations. While fraud on the Patent Office or improper conduct on the part of an attorney or agent registered to practice before the Office is, insofar as we know, a rare occurrence, the added authority in the Administration bill should go far to dispel any questions of imporper behavior in such situations.

ESTABLISHMENT OF A SYSTEM FOR DEFERRED EXAMINATION OF PATENT
APPLICATIONS

Deferred examination of patent applications has been suggested periodically at least since the early 1960's as a means for overcoming the backlogs faced by patent offices around the world. The Netherlands, in 1964, became the first country to adopt a deferred examination system. Since that time, deferred examination was adopted in West Germany, Japan, Hungary and Australia.

The rationale for deferred examination is that since not all applications for patents are of the same value, it is not good economic practice for a patent office to devote substantial efforts to applications having little value when it could rely upon the selection of the more important applications by an applicant and his competitors who are in the best position to make such selections. Such a system reduces the number of applications requiring examination because some applicants who chose to defer the examination of their applications later conclude that their inventions do not warrant examination and permit them to become abandoned. On the assumption that the deferred applications which are later abandoned involve inventions of lesser value, a deferred examination system permits a patent office to concentrate its resources on the more valuable inventions. Of course, if the examination of an application is merely deferred, no savings are realized.

S. 1321 provides for a deferred examination system. Under this system, examination of an application will be deferred unless the applicant requests