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in equity, whenever the plaintiff has sustained the allegations of his bill, pro

vided the patent has not then expired.9 This is not precisely today's law, however, and permanent injunctions do not issue as a matter of course. A permanent injunction is not issued if a case is exceptionali.e., if a sufficient reason exists for denying it. Permanent injunctions have been denied, for example, because the defendant agreed to eliminate the infringement within a period of time, or because of laches or estoppel, or, in rare cases, because of "public interest.” By introducing a standard that, “A court shall not grant an injunction . . . unless

the patentee is likely to suffer irreparable harm that cannot be remedied by payment of money damages, the proposed language in the Committee Print would make a drastic change in existing law. A permanent injunction would be denied unless there was a reason to grant itthe opposite of the law today, where it is granted unless there is a reason to deny it. Also, a major new hurdle would be introduced with the requirement for irreparable harm, which is a preliminary injunction concept. The likely effect of these two changes would be to make patent rights in the U.S., in many cases, subject to compulsory licensing, a common feature of patent systems abroad. In addition, the Committee Print as presently worded would make injunctions more difficult to obtain if a patent owner is not using the invention. By encouraging courts to consider the patent owner's use, this would essentially establish a requirement similar to “working requirements” found in patent laws abroad that provide weaker incentives for innovation. IPO has consistently been opposed to working requirements.

By removing the prospect of obtaining a permanent injunction in many cases, Section 7 would remove an injunction as the patent owner's leverage to encourage infringers to settle disputes by taking licenses. With reduced prospect of an injunction, voluntary license agreements would become more difficult to obtain and royalty rates would be more often determined by courts and less often by market forces.

Supporters of this particular injunction proposal cite with approval the fact that it would reduce the bargaining power of patent holders and make it less likely that companies would be forced to shut down product lines. The supporters feel they are being threatened with too many patents of questionable validity or scope. We understand the frustrations with the current patent litigation environment, but other approaches exist for reducing patent litigation and for avoiding becoming subject to a permanent injunction.

Permanent injunctions often are not issued because the parties can negotiate a settlement or else the accused infringer can redesign its product during the several years usually required to complete patent litigation. If a product cannot be redesigned to avoid a patent, it may be an indication the patent is for a fundamental invention and the infringer should be prepared to withdraw the product and expect to pay large compensation. Manufacturers can help themselves avoid patent infringement by monitoring and analyzing patents and patent applications as they are published by the PTO and by conducting product clearance patent searches before new products are put on the market. These practices are followed routinely in many industries.

The encouragement for courts to consider whether the patent owner produces the invention itself, in the second part of Section 7 of the Committee Print, is tantamount to a working requirement. This is inconsistent with the concept of patents as intellectual property rights. A working requirement would greatly diminish the value of patents and the incentives for innovation they provide, particularly for universities, which are not manufacturers, and for small businesses and inventors who may lack resources to have a patented product or service on the market before litigation.

We believe the proposed changes in the law on availability of injunctions, as worded in Section 7, would be a major blow to incentives for innovation provided by the American patent system and would result in a huge decline in the value of patents now in force. The role of the patent system in maintaining America's technological leadership would be diminished.

Before deciding whether to adopt this specific proposal on injunctions, we recommend that the Subcommittee obtain more information than we have been able to collect in advance of this hearing on the large number of cases in which patent injunctions have been granted and denied, and the effects on various industries of making injunctions more difficult to obtain.

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9 Robinson, The Law of Patents (1890), $$ 1170 and 1220.

OTHER PROPOSALS IN COMMITTEE PRINT

Definition of Prior Art

Section 3 of the Committee Print revises the definition of “prior art.” 10 These changes accommodate the first-inventor-to-file system. Certain changes are required in the definition of prior art for a first-to-file system. The Committee Print makes additional changes in the definition of prior art that are not necessary for a firstto-file system but which are designed to clarify and improve the law. IPO supports these changes as part of the switch to a first-to-file system. Filing of Patent Applications by Assignees

Section 4 of the Committee Print permits a party to whom the inventor has assigned or is under an obligation to assign the invention (i.e., the real party in interest) to file the patent application on behalf of the inventor.11 The Committee Print provides that if a patent is granted to the real party at interest, the inventor will be given such notice as the USPTO Director considers to be sufficient. IPO supports assignee filing as a useful simplification in the procedure for filing applications. Elimination of Best Mode Requirement

Section 4 of the Committee Print amends the patent code to eliminate the requirement that an inventor must set forth the best mode contemplated of carrying out the invention.12 The 2004 National Academy of Sciences report identified this change in law as one of three changes that might be made to eliminate subjective elements in patent litigation and thereby reduce the cost of litigation and increase the predictability of litigation outcomes. 13 IPO supports the change. Duty of Candor

Section 5 of the Committee Print codifies a duty of candor owed to the PTO by patent applicants and other parties. 14 IPO is still studying the need for legislation on this subject. The NAS report recommended duty of candor legislation as a way to limit the subjective elements of patent litigation. The duty of candor today is defined by PTO rules and court decisions It is important to have a strong duty of candor that requires patent applicants to submit relevant prior art they know about to the PTO. Prior art submissions are essential to help insure the quality of granted patents. We would not favor any legislation that would cause fewer relevant prior art references to be submitted. If legislation would clarify the duty of candor and make patent applicants more comfortable in volunteering explanations and opinions about submitted prior art that applicants are reluctant to express today because of fear of being charged with fraud, legislation could be useful. Damages When Invention Incorporated Into Larger Product or Method

Section 6 of the Committee Print provides that when an invention is incorporated into a known method or apparatus any award of damages will be based only on such portion of the total value of the method or apparatus as is attributable to the invention. 15 The proposal appears to be directed at the so-called "entire market value” rule that has been applied by courts in cases where the patented feature is the entire basis for customer demand for the apparatus or method. Although the proposal states a principle that produces the fairest result when less than the total value of the metliod or apparatus is attributable to the invention, the proposal as drafted could produce unfair results or would not apply in some situations. In some cases the patented feature is the entire basis for customer demand for the apparatus or method. Some inventions involve eliminating a component from an apparatus or method. Some inventions combine two known inventions with the combination producing a new result. Continuation Applications

Section 8 of the Committee Print prohibits presentation of a patent claim that is broader than claims presented at a specified earlier time in the patent application or a predecessor application. 16 IPO agrees with the 2003 Federal Trade Commission Report stating that legitimate uses exist for amending claims in continuing applications, thus any proposal to address opportunistic broadening of claims should pro

10 Committee Print, pp. 3–6, amending 35 U.S.C. 102.
11 Committee Print, p.9.
12 Committee Print, p.10.

13“A Patent System for the 21st Century,” National Research Council of the National Academies (2004) at 99.

14 Committee Print, pp.10–29.
15 Committee Print, p.31.
16 Committee Print, p.32.

tect such legitimate uses. IPO members have expressed some support for placing limits on enlarging claims in continuation applications, because continuation applications have been used to manipulate the patent system in certain cases. Applicants have kept so-called “submarine” patent applications alive in the PTO for many years and reshaped the claims as products or processes of others in an industry evolved. Concerns about submarine patent applications have subsided as a result of (1) the change of the patent term in 1995, so that it expires 20 years after the filing of the first application, (2) court decisions on “prosecution laches,” and (3) publication of most patent applications 18 months after filing starting in 2000. Some concerns about submarine applications still exist. The issues with the proposal in the Committee Print seem to be whether it would be effective, because it might be circumvented by presenting unreasonably broad claims at the outset in every case, and whether the time periods for enlarging claims are too short, given that applicants have legitimate needs to amend and enlarge their claims in some circumstances. Publication of All Patent Applications After 18 Months

Section 9 of the Committee Print requires publication of all patent applications 18 months after filing. 17 The American Inventors Protection Act exempted applications from publication if the applicant requested an exemption because a corresponding application was not being filed in another country. Most countries publish all applications. We understand that about ten percent of applications filed in the USPTO are not being published. IPO supports publication of all applications in order to provide more information to the public at an earlier date and increase certainty about the scope of patent rights being sought. Prior User Rights

Section 9 of the Committee Print also amends the section on prior user rights in the American Inventors Protection Act by (1) deleting limitation to “methods of doing or conducting businesses,” (2) deleting requirement for reduction to practice “at least one year before the effective filing date,” and (3) extending rights to “substantial preparation for commercial use.” 18 IPO supports these changes to provide prior user rights for innovators in all fields of technology and to make prior user rights more effective. Prior user rights strike a balance between the interests of the first-inventor-to-file a patent application and another party who provided a benefit to the public by commercializing the invention early but chose to rely on trade secrets, which may be more effective for protecting inventions that can be used in secret, such as manufacturing processes. Combinations of Components Outside U.S.

Section 10 of the Committee Print amends Section 271(f) to provide that an item supplied from the U.S. is not a “component" for purposes of patent infringement under that section unless it is a tangible item that is itself combined physically with other components to create a patented combination. 19 Several IPO members have suggested that the recent Eolas and AT&T cases involving Section 271(f) may have been wrongly decided. IPO is studying the issue and has not yet taken a position. If the cases were wrongly decided, other options may exist in addition to the proposal in the Committee Print. IPO traditionally has not favored legislation that would create different rules for different categories of inventions, such as products and processes. We suggest studying the option of outright repeal of Section 271(f), which was enacted in 1984 in response to a single Supreme Court decision and may not be important in today's global economy. Also, if the cases were wrongly decided, organizations in the patent community can be expected to file amicus briefs to seek clarification of the scope of existing Section 271(f). We cannot take a position on this proposal without further study.

Thank you again for the opportunity to discuss the Committee Print. We believe the Subcommittee has a good start toward a comprehensive patent law reform bill that would improve patent quality, increase certainty as to the scope of legal rights, and reduce litigation burdens.

We look forward to working with the Subcommittee as it develops formal legislation on patent law reform.

17 Committee Print, p.33. A few applications are not published because of their importance to national security, and those application would continue to be withheld from publication.

18 Committee Print, p.34 19 Committee Print, p.49

APPENDIX

IPO Resolution on Establishing a Post-Grant Opposition System

As revised at the 11/09/2004 Board Meeting and

approved by the IPO Board of Directors

RESOLVED, that the Intellectual Property Owners Association supports amendment of the patent laws to establish post-grant opposition proceedings in which patentability of issued claims can be reviewed by Administrative Patent Judges of the Board of Patent Appeals and Interferences of the United States Patent and Trademark Office, provided such proceedings include the following attributes: 1. [Time for Filing)–Any request for a post-grant opposition must be made no

later than 9 months after the date of the patent grant; 2. [Grounds)—Any ground of patentability, with the exception of “best mode” (35

U.S.C. $ 112, 1) and derivation (35 U.S.C. § 102(f)), may be raised in the request, but no issues of priority of invention (35 U.S.C. § 102(ğ)) nor enforceability shall

be considered; 3. [Threshold Showing)—Any party requesting initiation of an opposition pro

ceeding shall be required to make a threshold showing of unpatentability of at least one claim of the patent before the patent owner is required to respond to

the opposition; 4. [Discovery)-Discovery from a party to an opposition shall be limited to cross

examination of declarants; 5. [Additional Evidence)-Following initiation of a post-grant opposition pro

ceeding, the party requesting the proceeding shall not be permitted to advance

a new ground of unpatentability in the opposition proceeding; 6. [Claim Amendments]—The patent owner shall have the right to amend its

claims in its response to the initial request and after any new prior art is pre

sented by an opponent after filing its initial request; 7. (Other USPTO Proceedings)—No party to the opposition proceeding shall be

prevented by the opposition proceeding from filing other concurrent or subse

quent proceedings in the United States Patent and Trademark Office; 8. [Standard of Proof]—The standard of proof to be applied for determining

unpatentability of a claim during a post-grant opposition proceeding shall be the

clear and convincing evidence standard; 9. [Estoppel]-A judgment in favor of patentability of any claim in the opposition

proceeding shall estop the opposer from challenging validity of that claim in other proceedings on the basis of evidence and prior art presented during the

opposition proceeding; 10. [Duty of Disclosure)—The patent owner's duty of disclosure during the opposi

tion shall be no greater than that applicable to a party in litigation before a

Federal court; 11. [Length]-The opposition proceeding shall conclude within 12 months of the ex

piration of the 9-month post-grant request period and any patent claim surviving the opposition proceeding unamended shall be subject to day-for-day patent term adjustment for any period of pendency of the proceeding beyond the

12 months, excluding delays caused by the patent owner; 12. [Identity of Opposer)-Any party requesting initiation of a post-grant opposition

proceeding must disclose its identity to the patent owner in the opposition pro

ceeding; 13. [Infringement Suit]—In the event an infringement action is brought against an

accused infringer prior to the filing of a post grant opposition request by the accused infringer, then any opposition proceedings involving the patent shall be

stayed until the infringement action is finally resolved; 14. (Appeal]—Judicial review of a post-grant opposition proceeding shall be exclu

sively by way of appeal to the Court of Appeals for the Federal Circuit; 15. [Consolidation)-Multiple oppositions against a single patent shall be consoli

dated into a single opposition action following the expiration of the nine-month

filing period; and, 16. (Right to Hearing)-Parties to an opposition shall have the right to a hearing

before the decision of USPTO on the opposition is reached. Mr. SMITH. Thank you, Mr. Hawley.

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Mr. Lutton.

TESTIMONY OF RICHARD J. LUTTON, JR., CHIEF PATENT

COUNSEL, APPLE, ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE

Mr. LUTTON. Thank you. Mr. Chairman and Members of the Subcommittee, I'm Richard Lutton, Chief Patent Counsel for Apple. I'm pleased to have the opportunity to present BSA's views on patent quality and improvement.

We commend you for holding these hearings and for your contin ued commitment to improving our patent system.

We believe the committee print correctly identifies the most im portant areas where reform is timely, and we commend you for it.

The IT industry, like so many others, is encountering the enormous costs of dealing with poor quality patents. We are also faced with a growing cottage industry of patent assertions, orchestrated by entities with no business other than acquiring and asserting patents.

Increasingly, they use the uncertainties of the civil litigation system as their primary bargaining chip. The result is that bad patents can cause a substantial litigation risks and costs. Defendants in these suits now must spend an average of $5 million defending themselves and in some courts, the average is more like $8 million.

So what can we do?

Some witnesses will tell you that patent reform is sufficient or that harmonization should be your goal. While my written testimony details our support for these goals, we believe more is required.

BSA believes the issues of the patent system cannot be addressed by changes at the PTO alone. We're extremely grateful to see the committee print recognizes the disruptive effects that unwarranted litigation can have on the patent system as a whole, and we support the approach the committee print has taken with regard to monetary and injunctive remedies.

I'd like to address three specific provisions.

First, the law of triple damages for willful infringement. We believe these punitive triple damages should be reserved for cases of reprehensible conduct, such as copying a patent.

The current gamesmanship of artfully drafted notice letters and opinion writing has little to do with ferreting out cases of truly reprehensible conduct. Instead, it creates hardships, including forcing a defendant to chose between defending against triple damages and, on the other hand, preserving the attorney-client privilege.

These hardships are used increasingly as a leverage point by plaintiffs seeking only to maximize settlement value of a case. Thus, we suggest that that prong of the willfulness test should be deleted from the draft provision.

Second, BSA strongly supports the committee print's proposals to add certainty to the measure of damages on complex products. Today, when a small feature of a multifaceted product is alleged to infringe a patent, the patentee is often—often claims damages on some percentage of the value of the entire product rather than only the infringing feature.

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