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My last points relates to the matters of deferred examination. I have read and heard the administration's views for opposing it. It seems to me and I would like your reaction to this—that assuming that we do just as badly as the Dutch do, as you have explained it, and we only eliminate 35 percent of the applications that are filed, my arithmetic tells me that that will eliminate 40,000 applications from having to be reviewed by United States patent examiners.

Do you consider that insignificant?

Mr. TEGTMEYER. First of all, in our direct testimony, we point out another distinction between the Dutch experience and our own. That is the fact that 85 percent of the applications filed in the Netherlands are of foreign origin. The situation in the United States is quite different, and the tendency among applicants that come from foreign countries to a country with deferred examination would be to request examination in fewer cases than would the domestics of that country. Particularly that would be the situation in this country. Mr. Nash. I appreciate that.

You may recall your response to Senator Hart's letter setting forth the United States' experience with foreign applications. My arithmetic indicates that in 1963, foreign applications accounted for about 17 percent of U.S. patents issued. In 1972 they accounted for 30 percent. By sheer numbers, foreign applicants have increased their number of U.S. patents granted over 300 percent since 1963, and the patents issued to U.S. applicants have gone up only 40 percent.

Now, I do not know whether that curve will continue or not.

If Europe is becoming as industrialized as we think, and Japan is as industrialized as we think, I think in a 10-year period we are going to have quite a different situation with regard to foreign patents.

If that were true, would that change your views on the need for the deferred examination system?

Mr. TEGTMEYER. There were other considerations referred to as far as deferred examination. That is the cost of printing, the cost of handling the applications, and the like. I would hope that we would never reach the situation where 85 percent of our patent applications come from abroad. It would be rather sad tale if that were the case. We feel that a strong patent system will help insure the fact that that will not occur.

We agree with your statistics. I think it is reflective probably of the fact that since World War II there has been a resurgence in European countries. They are coming into their own. It is reflective of the fact also that international trade has increased, and there is naturally additional filings between countries, more so than there was in the past. Mr. Nash. Thank you. No further questions, Mr. Chairman. Senator HART. Mr. Brennan? Mr. BRENNAN. No further questions. Senator Hart. Gentlemen, thank you very much.

[The following letter was ordered printed at this point in the record].


Washington, D.C., October 12, 1973. Senator PHILIP A. HART, U.S. Senate, Washington, D.C.

DEAR SENATOR HART: I am writing in reply to your letter of September 12, 1973, requesting certain information for the record of your hearings on revision of the patent laws.

For fiscal year 1973, the Patent Office collected $26,119,000 in fees. Expenditures for the same year amounted to $64,536,000. The fee recovery rate, therefore, was approximately 40 percent.

The number of patent applications filed during fiscal year 1973 was 101,395. This number includes applications for plant and reissue patents, but does not include design patent applications. The total filing fees paid during the same period for these applications was 9,431,753. The average filing fee, therefore, was approximately $93.

During fiscal year 1973, 69.328 patents were issued ; including plant patents and reissue patents but not design patents. The total issue fees paid for these patents was 9,496,493, and the average fee paid was approximately $137.

Our initial, rough estimates are that the Administration's patent revision bill will increase expenses about $5 million annually, and that the average filing and issuance fee under the Administration's bill will total between $450 and $500. We would expect to divide this total in the same proportion as exists today between filing and issue fees. I would emphasize that our cost estimates must be considered as no more than a rough approximation, due to many unpredictable factors. For example, we have estimated that approximately 10 percent of issuing patents will be involved in opposition proceedings. This estimate may or may not be realistic, but only actual experience could provide a more precise figure.

I trust this letter provides the information you desire. I would be pleased to furnish further information or answer any questions you may have. Sincerely,


General Counsel. Mr. BRENNAN. The Department of Justice.

Senator Hart. Let me welcome a friend, a very prestigious professor of law at the University of Michigan.

Professor, if you will identify your associates.

Mr. KAUPER. For the record I will also identify myself, Senator. My name is Thomas E. Kauper, Assistant Attorney General of the Antitrust Division, United States Department of Justice.

I am accompanied on my left by Richard Sayler, special assistant to me; on my right Mr. Richard Stern, who is the chief of our Patent Section.



Mr. KAUPER. My prepared statement does not lend itself too well to summary

I appreciate the opportunity to appear before you today to discuss the important subject of general reform and revision of the patent laws, title 35, United States Code. S. 1321, the Patent Reform Act of 1973 introduced by Senator Hart is another important effort at such general reform, a subject which has been under study in both Houses of Congress since 1967.

Since February of this year, an administration task force has devoted intensive study to this whole subject. The task force had the active support and participation of a number of knowledgeable personnel in the Departments of Commerce and Justice. It considered the whole range of issues and positions raised by the recommendations of the Presidential Commission on Patent Reform; S. 1042 of the 90th Congress—the proposed Patent Reform Act of 1967; S. 643 of the 92d Congress; S. 643, committee print-the result of this subcommittee's last round of hearings and markup of that bill; the Patent Law Modernization Billa November 1972, draft bill distributed by appropriate committees of the American Bar Association and the American Patent Law Association; and S. 1321—the reform bill presently pending before Congress. Of course, during the working sessions representatives of both departments made numerous suggestions of their own.

As a result of this exhaustive review of the existing law and previous reform efforts, the administration has drafted a reform bill that reflects the task force's consensus on the range of issues presented by a complete revision of title 35. The administration's bill will soon be submitted to the Congress.

In addition, the task force is presently reviewing the application of the antitrust laws to patent licensing practices, an issue previously the subject of hearings before this subcommittee. An administration position has not yet been reached on this subject, but one will be determined in the very near future. When that question is settled, whatever legislation is believed necessary, if any, will be forwarded to the Congress along with the patent law reform proposals we have already prepared.

Senator Hart. Professor, at that point, because you stated it so clearly, I renew the suggestion that I made to the representatives of the Department of Commerce. If the administration has drafted a reform bill, as you advise us is the case, it would be helpful to have it.

Mr. KAUPER. Mr. Chairman, I was here during your statement to Mr. Bakke. I am fully aware of your views on this. We are endeavoring to get this bill to the committee as rapidly as possible within the confines of establishing the administration position.

Senator HART. You have got the administration position established and a reform bill drafted. Number 2, the administration position on antitrust is still in the cooker.

It would be helpful.
Mr. KAUPER. I appreciate that, Mr. Chairman.

The chairman of this subcommittee, in his August 6, 1973, letter to the Department of Justice indicated that these hearings were to include five subjects. I will discuss each of the subjects listed in that letter in turn. The positions that I will set forth are based on the task force's work and reflect the positions taken in the administration reform bill.

Number 1 is modification of patent examination proceedings to provide public adversary hearings. S. 1321 contains a number of provisions designed to provide public adversary hearings within the Patent Office. Section 122 provides that, prior to the first examination of an application for patent, the Commissioner shall index, make publicly available and publish the application. Under section 135(a), any person may then notify the Commissioner of any information which may have a bearing on the patentability of any claim of the application. Thereupon, such person may participate as a party, in an adverse role to that of the applicant, throughout the examination proceeding. Section 23 of S. 1321 affords the opposer, as a party, the right to discovery governed by the Federal Rules of Civil Procedure in any such proceeding. The Patent Office is given subpoena power to enforce discovery orders.

The administration is in full agreement that, before a patent issues, there should be an opportunity for interested members of the public to appear before the Patent Office in opposition to its issuance. The primary reason why such a proceeding is desirable is that it tends to assure that more relevant information concerning patentability will be considered by the Office prior to the time of issuance. Under the present system, a number of patents that the Office issues are later invalidated in court because the patentee's adversary in such subsequent litigation produces highly relevant information that was never considered by the Patent Office. It has been frequently asserted that in excess of 70 percent of the patents litigated in recent years have been held invalid. While this statistic can be misused, it is still alarming. A more recent study demonstrates that in more than three-fourths of these cases the Federal courts have relied largely on prior art or other information not cited to or considered by the Patent Office when rendering decisions as to invalidity. This strongly suggests that the primary goal of patent reform should be to get as much information concerning patentability from all sources

- from the applicant himself, from the Office search files, and from members of the public-before the Office prior to issuance. The costs of failure to make such changes are immense, and should not be measured merely in terms of a high mortality rate for issued patents that are litigated in court.

As the Supreme Court has observed, patent litigation is particularly complex and expensive. As a result, many alleged infringers may of necessity prefer to take licenses under patents-even ones of dubious validity-than to pay the costs of litigating. The availability of an opposition proceeding prior to issuance, however, provides another meaningful and perhaps considerably more attractive alternative-presenting information concerning patentability to the Office. The Office would then be able to apply its expertise at the time when it can be most useful.

The opposition proceeding provided in the administration reform bill would take place after the Patent Office had fully reviewed the application, perhaps rejecting some of the original claims and narrowing others. At such time, a "notice of allowability" as to the application would issue to the applicant. Thereafter, the patent application and the Patent Office file concerning its prosecution

would be made publicly available, and the Office would publish this fact. From that time, a 3-month period will be provided during which any person who wishes to oppose issuance may request further examination of the published application on the basis of information he submits to the Office, without revealing his identity to the patent applicant. If the information submitted consists of patents, publications, or other documents or information in tangible form related to the state of the art, the Commissioner is then required to direct such further examination, by a primary examiner other than the one who originally examined the application.

If the opposing party so elects, however, he may identify himself and participate in a public opposition proceeding conducted by the Board of Examiners-in-Chief. The Board could refuse to conduct such a proceeding only if it found that the opposing party had offered no information which could form the basis for the Office to determine that a claim in the application is not allowable, a standard similar to that employed in ruling on summary judgment motions under the Federal Rules of Civil Procedure.

In an opposition proceeding before the Board of Examiners-inChief, the opposing party would be entitled to submit written briefs, present oral argument to the Board, take discovery in accordance with the Federal Rules of Civil Procedure, present oral testimony, and cross-examine witnesses. Two types of proceeding before the Board are contemplated—first, one involving the interpretation of only documentary evidence as to the state of the art, as would be disclosed, for example, in prior patents and magazine articles; second, all others, including proceedings involving fact questions as to conduct, prior public use or sale, prior inventorship, and the like, In the former type of proceeding, discovery, presentation of oral testimony, and cross-examination would all be somewhat more limited than in S. 1321, but these rights would be unconditionally available to opposing parties in the latter type of proceeding. Even in the former type of case, however, these rights would be available upon a showing of good cause to the Board.

The administration bill also provides that opposition proceedings before the Board of Examiners-in-Chief are open to the public. Finally, any party to such an opposition proceeding may take an appeal from the Board's decision pursuant to the provisions of the chapter of the administration's reform bill governing judicial review of Patent Office decisions.

The administration's proposal does not permit the public to participate in an adversary role throughout the examination process, as proposed in S. 1321. There are several reasons for this difference. The first is traditional. One of the rationales used to explain the patent system is the "contract theory"—the idea that the Government induces the inventor to disclose his inventive advance in science by promising him a limited monopoly in exchange for full disclosure thereof the public. Since the first patent statute, however, disclosure to the public has occurred only after the Government has issued a patent. Obviously, all proposals for opposition proceedings prior to issuance require a change in this practice, if they are to work. The question is how much of a change is necessary in order to

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