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The rest of the behavior that we want to incentivize is perfectly adequately incentivized by the threat of a lawsuit alleging infringement and awarding actual damages. So we don't think that this is an area where we need that tripling of damages.

Ms. LOFGREN. Do the other witnesses agree or disagree?

Mr. HAWLEY. Congressman, if I may. The provision that is in the committee print is simply one that you were talking about here, and that is the notice requirement. It's simply one that establishes when the accused infringer has a duty of due care. And it doesn't automatically mean that if they eventually lose, they are going to have to pay treble damages because in most circumstances like that, they will ameliorate their liability by doing a duty of due care thorough investigation. And we think it's appropriate. Our members think it's appropriate. I'm sorry.

Ms. LOFGREN. I don't want to interrupt, but we only have a limited amount of time, and it seems to me I mean there are some academics that are making the assertion that the creation of the appellate system actually had a result that eliminated the balancing of equities. I don't know if that's true or not, but I think we've all learned that what intend and what actually happens isn't always the same. And the concern I think that's been expressed is not what you've said because there's nothing wrong with what you said, but that it really wouldn't work out in the way that you've outlined. And I don't know the answer, but we are going to have a second round, are we not, Mr. Chairman? No? All right. Then I will—my time has expired, but I would like if I could-and it could be later—Mr. Kushan, you did mention a concern about the definition or prior art in the draft, and I would like to know more about your concerns in that area and we don't have time here. But if you could elucidate that at a later date, I'm very interested in it.

Mr. SMITH. Okay. Thank you, Ms. Lofgren. The Gentleman from California, Mr. Issa, is recognized for his questions.

Mr. Issa. Thank you, Mr. Chairman. Boy, every question leads to another question.

From a practical matter, if we look at the treble damages question—and I'll take almost anyone's answer on this—but isn't there essentially a problem today that to get treble damages and more importantly to get your legal fees, which is the first step. You know, often they do not use a multiplier, but they at least you're able to recover legal expenses, which is also part of this willfulness.

Isn't there really conceptually a problem that it's a high burden, and seldom accomplished, and you don't know if you're going to get it 'til the end of the trial. So and this is for better or worse from my experience with 37 patents and way too much time both before the PTO and in legal proceedings. Don't we really have the question of notice, which obviously everyone runs to some attorney, who, for a price, delivers you an non-infringement opinion, and that sort of—that takes care of you as a practical matter until some future point.

At the present time, that future point is the end of the trial often or very late. As a practical notice if we instructed the courts to move their markman hearings up, to bifurcate and make those first "HA instead of last, even it was a preliminary, if that became the point :1 at which constructive notice is the point at which you could be eli

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gible to pay legal fees, the markman ruling is the point at which you're on notice as to what the patent means. And as an inventor, I have to tell you: I've sent out those letters and I've received those letters over the years, and nobody ever tells you what you're really infringing, because nobody wants to limit their claim, so no one gets specific, and you're right, though. If we pass the law as it is here, you'll simply have more clever letter writing.

So as we're trying to finalize this document, are those thresholds that you believe we should be working toward to try to get to an effective definition of when damages are more than ordinary and then before I let anyone answer on this, 'cause I know we're going to run out of time, as a matter of injunctive relief, my own experience, the judges don't grant it. What they do is they tell you they'll give you effectively the indubitable equivalent—and I can never pronounce that—I apologize, and then what they do is they don't have a bond.

So isn't a major part of the injunctive problem the fact that bonds are seldom ordered as a pre-judgment and injunctions are seldom ordered because you really got to do well on that preliminary injunction. You really have to have five guys you already stopped and went through the whole trial process or you don't get it. And so as a practical matter for inventors, they don't get equity unless the guy has money at the end of the road, because they don't get the injunction, because that's a tough standard, and we're not likely to change it enough, but they also don't get a bond until they have basically until it's going up on appeal. Then 60 days after the judgement is made final, they finally get a bond or a bankruptcy.

Is that an area that we should be working in, and I'd like your comments on it because those are two of the 20 things I've gotten written here that I think we haven't yet refined in our bill.

I guess—since you've been the—Mr. Punitive and Treble Damages. Mr. HAWLEY. I don't know where to start.

First of all, with respect—there was a comment that you made that I think is illustrative of the problem that we see with the injunctive provision is that you almost automatically thought of the preliminary injunction standards of—and that was what clicked on

Mr. ISSA. Well, because if you don't win at preliminary injunction, you normally don't get an injunction from the judge until the end of the trial.

Mr. HAWLEY. That's true. You don't get an injunction until the end of the trial, but you do get damages up to the point of an injunction.

Mr. ISSA. By the way, just for you edification, I am a little skewed. I worked for 20 years in consumer electronics. Only once did I ever have a lawsuit against somebody that at the end of the day really had to pay. You know, the fact is that in that industry most often you're infringers have a strong tendency to be people with very shallow pockets.

Mr. HAWLEY. Agreed. But to get to your point on willful infringement. The real issue that the committee print addresses is, in my view, and the view of many of my colleagues, is really, as I said

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earlier an anti-troll provision. It really eliminates the growing practice of sending out form letters; and, thereby putting hundreds of people on "willful infringement notice.” Our members are not upset about having a duty of due care in appropriate circumstances. We think that that's that willful—that infringers should not be willful, and if they're properly put on notice with the patent number and the product that's involved, we think that's fair.

The problem we have with the form letter is that there is no product. You could take Kodak out of the letter, put Motorola in, and the letter wouldn't change at all. So we are then faced with the prospect of having to go figure out whether—what products they're talking about and that's not always a trivial exercise.

So it's really an anti-troll provision because it's going to cut out a lot of the extraneous legal work that is a result of people protecting themselves from the prospect of treble damages when they get these form letters.

The provision in the committee print also addresses the issue that we've heard in the National Academy of Sciences report and elsewhere where people are intentionally telling their employees not to read patents because they're afraid that the mere fact of reading them will result in a finding of wilful infringement. Under the committee print, you have to have actual notice. You have to copy or you have to have in order for willfulness to kick in. So people should no longer be concerned about reading patents.

Mr. ISSA. Anyone else? With the Chairman's indulgence?
Mr. SMITH. Mr. Lutton. Go ahead.

Mr. LUTTON. Okay. I think we agree with your suggestion that both in the area of triple damage and in the area of injunction, there's a difference between what the law says and what actually happens. And that's one of the reasons why we view both of these provisions as really going to managing risk. And for us, for every lawsuit we're involved in that goes to final judgement, which, leaving my company aside, but for every lawsuit that goes to final judgment, there is 25 more that don't go to final judgment; that get adjudicated or settled ahead of time, and for every one of those, there's 25 letters that were written that never made it to a lawsuit at all.

And so we're really seeing a huge stacking of his risk and everyone of those carries with it the potential threat of an injunction; the potential threat of triple damages, which are not decided until the very end of the road. And so these provisions by bringing some certainty back into how those laws are supposed to be applied and the conditions in which they're going to apply will help eliminate the current conundrum that we're in of all the decisions are decided at the very end and they're all very draconian, and you can't really make any reasonable judgments about which cases should be settled and which ones should go forward because they're all threatening a terrible dramatic remedy. So that's our issue.

Mr. Issa. Mr. Chairman, recognizing we're out of time and there's no second round, I would only ask that we be able to submit additional questions to the panel and receive back answers in writing.

Mr. SMITH. Okay. And without objection, all Members have that right.

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Mr. Issa, thank you for your questions, and it occurs to me you may be the only actual inventor who is a Member of his Subcommittee.

Mr. ISSA. Well, actually only Roscoe Bartlett and myself are inventors, patented inventors in the whole Congress.

Mr. SMITH. Is that right?

Mr. ISSA. And I can't figure out why in the world he's not on this Committee.

Mr. SMITH. And you're glad you are.

Mr. Issa. It's a conspiracy. Yes, we do have inventors of conspiracy.

Mr. SMITH. The Gentleman from Virginia, Mr. Boucher, is recognized for his questions.

Mr. BOUCHER. Well, thank you very much, Mr. Chairman. I want to apologize first for being tardy at this hearing today. We have the Energy Bill on the floor, and I've been tied up with that for the better part of the afternoon.

But my absence here doesn't reflect a lack of interest in this subject. I happen to think that patent reform is perhaps the.single most important thing that we accomplish in the course of this entire Congress. And I want to commend the various externally interested parties that have come forward and strongly urged the Congress to move forward aggressively on patent reform.

Mr. Berman and I have been discussing this matter for the better part of the last 4 years. We have now structured two separate bills recommending various aspect of steps that could be taken to improve patent quality, and we think generally beneficiate the patent system overall, to the advantage of all parties concerned.

And I want to commend today Chairman Smith for the staff draft or his draft that—I don't want to say it's just the staff-it's Mr. Smith's draft that he has put together. It's a very thoughtful document, and I think it reflects well the debate and the general discussions we've had ongoing for the past some time.

I'm going to take just a few minutes to ask you to comment on several matters.

I have the general sense that the current system insulates the patent examiner; it makes it very difficult for him to acquire information about prior art. It discourages the submission of that information by third parties. It contains a post-grant opposition proceeding which is essentially meaningless. It's a proceeding on the record, decided on briefs. There's no opportunity for the summonsing of witnesses, the cross examination of those witnesses. No live argument before someone who can decide whether the patent was properly awarded or not.

And then at the end of that relatively meaningless and nonparticipatory process, estoppel applies. And so if you have elected to take part in it, you're sort of bound by that judgement. You're precluded from raising the issues in court that could have been raised in the course of that post-grant opposition that you've participated in.

So little wonder that it's not used today. People who have real objections don't see this as a meaningful process.

The injunction that issues when there's a preliminary finding of patent infringement that basically stops the business activity for whoever the defendant is in that case is also extraordinarily problematic and really interrupts legitimate business activity at the present time.

And I'm wondering in addition to questioning you on the adequacy of the staff bill with regard to these two matters, whether there is anything in your opinion that the bill does not contain that should be a part of it in this overall effort to enhance patent quality.

So my question for those who would care to answer: Do you find the post-grant opposition proceeding that is in the bill to be helpful? Are there aspects of it that you would like to see us improve beyond the provisions you see in the bill? It does, as I understand it, allow for witnesses, allow for argument, and it turns into a real adjudicatory proceeding within the Patent Office the post-grant that today is basically meaningless and the injunction provisions would require an actual showing of irreparable harm, so it would tend to mimic what we are familiar with in terms of injunctions apart from the patent process. That strikes me as helpful. And I would be interested in your reaction to those key provisions and your suggestion for anything else that ought to be in the bill. Who wants to go first?

Mr. HAWLEY. I'm never shy. I'll go first.
Mr. BOUCHER. Good. Thank you.

Mr. HAWLEY. I think what you're referring to is the reexamination provisions that came in with the AIPA bill, and this committee print address two of the issues with that that I think will be helpful.

The first is to eliminate the estoppel effect of the process in the Patent Office and the second is to open it up to more patents. There was a rather severe limitation on the issue date for patents that could be reexamined. There have only been 75 reexaminations, and most people that I've talked to the estoppel provisions are the ones—is the reason that is most often given, and this bill I think takes care of that.

Mr. BOUCHER. Let me just ask if you think the process that is outlined in the bill for that reexamination, what I'm referring to as post-grant opposition, is adequate or do we need to amplify that process, that post-grant process?

Mr. HAWLEY. No. Our position is that the post-grant opposition that is proposed for the first time in this committee print, in conjunction with the improvements to the reexamination provisions, are a good collection of tools for the patentee to use.

We believe that the post-grant opposition procedure that is in the bill, as I've said in my written submission, we agree with virtually every provision that is in there. We think it will be a good system. It will certainly not be a silver bullet. It will not solve all the problems of the world, but it will be a process that we believe people will use and that it will—it is well balanced. To amplify a little bit on Bill LaFuze's comments, it's a streamlined system. It's designed to be finished in a year. It's designed so that that can be accomplished. So it's not a revocation proceedings, which he addressed. So we do think it's a good provision and we support it.

Mr. BOUCHER. And the injunction provision in the bill?


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