Another benefit of the present arrangement from the standpoint of efficiency is the independent performance evaluation which the Patent Office receives as a component bureau within the Department of Commerce. Under this arrangement, Patent Office activities are constantly evaluated both by higher echelons in the Department and by analysts of the Office of Management and Budget. Thus, the Patent Office is continually called upon to evluate and define its goals, to offer coherent plans for achieving them, and to account for any failure to achieve these goals.

It is believed that the total effectiveness of the Patent Office is conducting its operations and representing the interests of the scientific, technical, and industrial communities, as well as the general public, is best served with the Office as part of the Department of Commerce.

By being in the mainstream of the Executive Branch, the Patent Office is also better able to represent the concerns and interests of patent owners, and to more effectively make available to the President the benefit of the complete views of the interested sectors. For example, three years ago the Patent Office was able to bring to the attention of the President its potential for contributing to his environmental quality policy. This permitted the President to direct the taking of the affirmative steps which the Patent Office had identified.

Perhaps a fundamental assumption underlying proposals that the Patent Office be an independent agency within the Executive Branch is that, as part of a larger organization, the Office is subject to undue influence and pressures from its parent agency. It is reasoned that if the Patent Office were a separate agency, this influence from above would be eliminated.

However, we are aware of no evidence in the history of the Patent Office which would suggest that any improper influence was exerted upon the Patent Office by officials in the Departments to which the Office has been attached. To the contrary, the Patent Office has enjoyed freedom and latitude in its operations.

In view of the many sound reasons for the Patent Office continuing to be an agency within the Department of Commerce, and the complete absence of any reasons or evidence suggesting that it be removed, the bill which the Administration will submit will continue the present relationship.

Thank you for the opportunity to present the views of the Department of Commerce.

STATEMENT OF KARL E. BAKKE, GENERAL COUNSEL, DEPARTMENT OF COMMERCE, ACCOMPANIED BY: RENE TEGTMEYER, ACTING COMMISSIONER OF PATENTS, AND MICHAEL KIRK, DIRECTOR OF THE OFFICE OF LEGISLATIVE AND INTERNATIONAL AFFAIRS (PATENT OFFICE)

Mr. BAKKE. Mr. Chairman, I appreciate the opportunity to appear before this subcommittee to explain the views of the Department of Commerce on the five patent topics that are the subjects of this hearing.

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. The patent system has stimulated much of the necessary investment in research and development and the marketing of inventions that 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 preeminence in science and technology.

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 our system will enable it better to 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 that system.

We anticipate that the administration's bill will be forwarded to the Congress 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 antitrust relationship will be communicated to the Congress.

Our bill is intended to confront the formidable challenges faced today by the patent system. In discussing the challenges faced today by that patent system, I do not mean to imply that the system itself is not basically sound. Our patent system has served and continues to serve the Nation well.

Therefore, the bill that 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 that 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 this subcommittee, Senator McClellan.

In addition, the bill developed by the administration will contain a number of new proposals designed further to improve the basic 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.

ADVERSARY PROCEEDINGS

The first of these is 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 possible on an ex parte basis.

Nonetheless, comments are increasingly directed at the ex parte nature of examination proceedings under present law. The principal source of invalidity has been the inability of the Patent Office to learn of information and facts that are peculiarly in the possession of the public. Therefore, increased public participation in the patenting process would help to insure that all the pertinent prior art, including material that could not be discovered by a Patent Office search of a 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.

Both S. 1321 and the bill that 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 be issued. In our view, however, 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 patentability are generally not fully developed until an examiner has completed his examination of an application. 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 exist 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 in any event.

Thus, there would be little benefit in opening patent applications to the public before the Patent Office investigation was completed, and such a procedure would impinge upon the legitimate business interests of inventors and those interests which they have in receiving some indication of the likely scope of 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 publicly to 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.

Also, 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 the opposition proceedings.

Finally, the adversary proceeding proposal in S. 1321 would require the addition of a significant amount of essentially worthless and duplicative literature to the Patent Office search file. Since all applications would be made public under S. 1321, the disclosures of these applications would necessarily be added to the examiner's search files. However, over 30 percent of all patent applications filed do not result in patents. Since between 25 and 50 percent 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 counterproductive.

The administration bill 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, on the other hand, of the public in the issuance of strong

and reliable patents. The administration proposal will provide for applications initially to be examined in secrecy. When an examiner determines that the claims in an application are allowable the application would then be published prior to the actual granting of the patent, to permit the public to assist the Patent Office through an opposition procedure.

Following publication, members of the public could follow either of two routes. First, a member of the public could cite patents, publications, or other documentary evidence relating to the application, together with a written explanation of its pertinency to the patentability of the application. Based upon this submission, the Commissioner would direct further examination of the application.

Under the second route, 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 a proceeding before the Board of Examiners-in-Chief. However, in proceedings in which the issuance of a patent was questioned only on the basis of prior patents, publications or other documentary evidence, parties would be permitted to take depositions, discovery or testimony and present oral testimony and 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 was issued.

We believe that the administration bill would provide a more efficient and orderly process than S. 1321, by requiring publication only of those applications which have been found allowable. Since the 30 percent 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 more readily determine whether they could justify the expenditure of time and effort to oppose.

Since patent applicants would not be required to disclose their inventions to the public until 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.

The administration proposal would also avoid increasing the size of search files through publication of the 30,000 applications per year that are denied by the Patent Office.

Accordingly, it is believed that the adversary proceedings provided in the administration bill will strengthen the basis for the presumption of validity of issued patents, but will avoid the accompanying undesirable side effects of the proposals in S. 1321 on this subject.

PUBLIC COUNSEL

The second issue is the matter of creation of the Office of Public Counsel. S. 1321 recognizes the public interest in the examination

and issuance of patents with the creation, in section 3(d), of a public counsel to assure, as an advocate, that high quality patents are issued by the Patent Office.

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. The value of a patent is ultimately determined by the marketplace, and is generally difficult to judge from reading the application. 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 under S. 1321. However, 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 as would be required by S. 1321.

We believe, nevertheless, 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 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 such officer when the examiner believed it desirable to have an adversary examination proceeding.

The officer would have the right to seek discovery of an applicant and would have other rights and powers of a party in a Patent Office proceeding. While it is expected that such intervention would only occur in a limited number of cases, this additional resource afforded the examiner should strengthen the examination process.

In addition, the Administration bill would provide that all appeals from decisions of examiners to the Board of Examiners-inChief would be defended by this officer. 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 and strengthen the existing authority of the Patent Office to investigate the conduct of patent applicants, attorneys, and unauthorized practitioners by providing this officer with subpoena power in regard to such investigations. While fraud on the Patent Office or improper conduct by 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 permit prompt and effective resolution of questions of improper behavior when raised.

DEFERRED EXAMINATION

The third subject to be addressed is the establishment of a system for deferred examination of patent applications. Deferred examina