applicant requested immediate examination of his application, it would be examined for formal matters and then published. For up to 5 years thereafter, examination would be automatically deferred unless the applicant or any member of the public upon payment of the basic examination fee requested examination. If 5 years pass without any such request for examination, the application would be regarded as abandoned. Presumably as a further inducement to applicants to defer, section 153 (b) of S. 1321 provides that the term of a patent shall be extended by the amount of time examination was deferred.

The basic argument in favor of deferred examination is that the expense and burden of an examination proceeding, both on the applicant and the Patent Office, could be deferred, and perhaps avoided altogether, for alleged inventions whose commercial viability is not apparent at the time of filing. If the claimed subject matter later proves significant, examination can be had on the basis of the applicant's original filing date; if no significance appears, the applicant can let the application go abandoned after 5 years. In short, the applicant can wait to see whether examination is "worth the candle." In cases where he decides it is not, he may avoid the expense and the Office will never have to devote its examiners' time and effort. Theoretically, this permits the Office to devote more time to the examination of those applications of some commercial signifi

cance.

There are, however, costs to such a system, and the administration has decided-after careful study-not to include such a system in its reform bill. The Department of Commerce has already stated that, in its view, such a system would not in fact result in a significant savings of examination time. I cannot shed further light on their assessment of Office statistics, to which I defer here. I would, however, like to express the administration's concern about a system of deferred examination from the standpoint of competition policy.

Under S. 1321, and all other proposals we have seen for deferred examination, applications whose examination is deferred would be published. But current Patent Office experience indicates that only about 70 percent of all applications filed will ultimately issue as patents. Moreover, even those applications which do mature into patents are often amended, during the examination process, to narrow substantially the scope of the monopoly coverage. As a result of publication of deferred applications, however, competitors and potential entrants into a market would face in such applications a number of claims to monopoly power that, upon Office examination, could prove either totally unjustified, or overly broad. These businessmen would not know which claims were legitimate and which were spurious. There is the added danger, too, that applicants, realizing this, would have an incentive to draft claims far broader than those they could reasonably expect to issue from the Office after full examination.

We recognize that section 192 of S. 1321 would permit members of the public-particularly competitors of the applicant-to start the examination process, if they are willing to pay the basic examination fee. It is true that this permits competitors or potential new

entrants to trigger machinery that might eliminate or narrow these unjustified monopoly claims. However, given the delay inherent in any examination proceeding, we do not believe that this safeguard is adequate to obviate the "chilling effect" these deferred applications would have on legitimate research, potential investments, or other desirable competitive activity.

Now, I will deal with the question of maintenance fees. S. 1321 permits the Commissioner to prescribe regulations setting fees to be charged for the examination of patent applications, and other services of the Office. Section 41 (b) requires those fees to effect an overall recovery in the range of 65 to 75 percent of the costs of operation of the Office, with a maximum charge for simple patents of $100. Section 41(b) also permits fee exemptions in order to benefit and encourage individual inventors and small businessmen.

More significantly, however, S. 1321 provides for a system of annual, accelerated maintenance fees, starting at $1,000 per year beginning the fourth year after a patent issues. Section 41 (c) (2) provides that these maintenance fees may be deferred if the patentee establishes either that he has made a good faith effort commercially to work the subject matter patented but was unsuccessful due to circumstances beyond his control, or that he is otherwise unable to pay any such maintenance fee.

The administration agrees with the concept of giving the Commissioner discretion to set his fees so that the Patent Office recovers 65 to 75 percent of the costs of its operation. The Administration Reform Bill would, however, give the Commissioner more discretion to determine the appropriate rate schedule. He would be able to set the initial filing fee low enough as not to discourage applicants from coming to the Office, as long as the final examination and publishing fee he charged for issuing a patent would cover the desired range of cost recovery. Unlike S. 1321, there would be no set maximum fee, nor would the Commissioner be able to prescribe fee exemptions.

The administration bill also proposes a system of maintenance fee payments after a patent issues. Our bill is similar in principle to S. 1321 on this score, but different in form and timing. Our proposal is to require that the patentee, during the life of his patent, file two statements with the Office indicating whether or not he or any person in privity with him is commercializing the subject matter of any claim or claims of his patent, or whether good faith efforts are being directed toward such commercialization. The required statement also must explain and describe the acts and steps which have actually been undertaken in respect of such actual or attempted commercialization. The first of these statements must be filed 10 years after the beginning of the patent term, and the second 15 years from the beginning of the term.

If the subject matter is not being so commercialized by the patentee or a licensee, however, the administration bill provides that the patent shall lapse unless the patentee pays a fee of at least $1,000 and $2,500, respectively, at the 10th and 15th years. The fee is not due every year, as in S. 1321. But unless the patented subject matter was being commercialized in the manner provided by the statute, the patent would lapse if the patentee did not pay the fee, which could not be waived or deferred.

We believe that this proposal will encourage patentees to examine carefully the question of whether patents which they have secured are serving any economic purpose, and to do so at least two occasions during the 20-year patent term. If in fact patents are not being used by their owners or by licensees thereof, substantial fees such as those proposed in the administration bill should encourage early dedication of the subject matter to the public. Thus, such patents would be removed from the economy as potential clogs on commerce. This result can only be viewed as procompetitive. Again, while there are similarities here to the proposals contained in S. 1321, an annual fee might impose substantial administrative and financial burdens on both the Patent Office and patentees. In addition, there is some danger that fees that are imposed too early in the patent term would have the effect of penalizing the patentee-who may be an individual or a small business without extensive financial resources-that has disclosed a truly significant inventive advance, an invention far enough ahead of its time that real commercialization takes a number of years to achieve. Even a chance to defer maintenance fees is not a completely adequate solution, for the preparation and the processing of such requests impose additional burdens on both patentees and the Patent Office. Accordingly, the Administration's proposal as to such fees again seeks a means of minimizing burdens and risks attending such fees while furthering the desirable goal of clearing the books of unused patents prior to the time their full terms would run.

Lastly, let me address the question of establishing the Patent Office as an independent agency. S. 1321, in section 2, would make the Patent Office an independent agency rather than continuing it as part of the Department of Commerce.

The administration opposes such a change in administrative structure, primarily on the basis of the arguments advanced earlier by the Department of Commerce. I would add to that, however, an observation. The administration reform bill contains some language designed to insure that Office decisions will continue to be made, as they have always been made in the past, solely on the basis of a reasoned application of law to particular facts. Thus, the administration bill provides that the Patent Office is subject to the Administrative Procedure Act, 5 U.S.C. sections 551-559, 701-706, and contains statutory language that would provide that the Office "shall function independently of the Department of Commerce in the exercise of discretion concerning its adjudicatory functions."

Thank you very much, Mr. Chairman, for the opportunity to express our views on these five subjects, as I am sure you are aware, most issues connected with patent reform cannot be considered in a vacuum. As my testimony today indicates, almost every issue relates to one or more other questions and one must always keep in focus the totality of the reform proposal being advanced. Let me conclude by stating that the remainder of our views on S. 1321 will be apparent when the administration reform bill is submitted to the Congress. I hope this discussion of some comparisons between that bill and S. 1321 has been helpful to this subcommittee.

Senator HART. Thank you, Professor.

As I followed your testimony, I realized how correct you were when you said it was a statement that was not susceptible to summary. It was an effectively prepared presentation.

The elements of the administration bill that you describe in response to the five subject areas that we specifically asked about all seem to be in the direction of solid reform. We disagree, as you indicated, on particulars, but the direction is the same.

What about some of the things that apparently are omitted-at least you have omitted them in the presentation? I am going to enumerate six areas and inquire whether these proposals were considered and rejected or whether they were simply not considered. It may be necessary that you respond for the record later. Perhaps you can respond to some or all now.

Did the administration consider changing the standard of invention fixed in section 103?

Mr. KAUPER. I think, Mr. Chairman, it would be fair to say that consideration has been given to making a change to that, and no changes have been made.

Senator HART. The second, changing the standard of novelty in section 102.

Mr. KAUPER. My understanding, Mr. Chairman-and I think as with virtually all of the provisions of almost all these proposed bills mentioned at the outset of my statement-full consideration was given to changing these provisions as well. Basically, we are retaining the existing provisions.

Senator HART. That answer would apply, then, to changing the standard of utility under section 101, an proposed by the APLA?

Mr. KAUPER. I think the administration bill-and I must say, sometimes I am a little confused on some of these-but we have decided against any proposals to significantly change the law on utility. There have been a number of proposals made dealing with such things as utility in research, that sort of thing. They are not part of it.

Senator HART. The fourth, changing the presumption of validity. That is section 282 in the proposal.

Mr. KAUPER. The present law on that, we believe, is effective, and we have considered a number of proposals with respect to that provision. No changes have been made, Mr. Chairman.

Senator HART. Fifth, the creation of a specialized patent court, apart from the normal judicial system and the inter-relationship of the Administrative Proceedings Act.

Mr. KAUPER. I think, Mr. Chairman, there is no such provision. I think, in respect to a specialized court, that this is an idea that I am sure you are aware is involved in other matters with which we have some involvement. My general feeling has always been that I prefer generalists on matters such as this. There is no such provision for a specialized patent court in the administration bill.

Senator HART. I instinctively have this feeling that generalists are better, until I found myself chairing a patent hearing. Then, I am

not so sure.

Mr. KAUPER. Being on this side, it does shake my confidence in that statement a little. I think I would have to agree, Mr. Chairman.

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Senator HART. Sixth, did you intend to change existing law by adopting a proposal for assignee filing?

Mr. KAUPER. A wide variety of assignee filing provisions was considered. Basically speaking, the administration bill does permit an assignee to file papers, subject to the protections for the individual inventor. It does not, however, change the existing substantive law with respect to joint inventorship or identifying inventive contributions by different individuals.

Senator HART. There is no need to review with you the up-anddownhill business of the antitrust treatment and the subcommittee and committee's action last year and the year before last.

Let us find out, to the extent that you are free here, your own feeling, the Department's feeling, the administration's feeling, on this matter. Professor Turner and Judge McClaren, your predecessors, opposed the inclusion of antitrust licensing provisions in the patent reform legislation. Then Commissioner of Patents, Commissioner Brenner, opposed the inclusion of such a provisions in 1967 and 1968.

Since then, I believe, the Patent Office has changed its position. I would like to know the present views of the Anti-Trust Division on the need for such antitrust provisions.

Mr. KAUPER. Mr. Chairman, I do not believe it would be appropriate at this time for me to answer that. An administration position is being developed with respect to that issue and will be resolved, I hope, very shortly. At that point, I would be perfectly happy to discuss that decision and its merits or lack of merits. I think it important that we proceed with formulating the administration position.

We have a request, as I recall, from the chairman of this subcommittee for an administration position on this issue. And in an attempt to comply with that, I think we had better keep on the tract that we are presently on.

While I would be more than happy to discuss this with you in any forum you may like once the decision is made, I think I should wait until that time.

Senator HART. This may, at least, signal the delay that would be involved if there are antitrust provisions. I think we would have to take you up on your offer to come in and talk about it.

Mr. KUAPER. I would assume so, Mr. Chairman.

Senator HART. I should indicate that a vote has been scheduled in the Senate to begin about noon, but I would anticipate that we will be able to conclude before a recess.

This is not the most important thing in all the testimony given us, but why do you say that the administration bill is going to have the patentability brief requirement expire after 5 years?

Mr. KAUPER. I think there has been a feeling that this is simply a way to re-evaluate its effectiveness and whether there are other means of securing the same information.

There seems to be some confusion in the actual meaning of the statement, as to whether it actually expires within 5 years. The Commissioner is given some options after 5 years. What it is designed to do, without going into details of it, because there might