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serall inventors who don't have the capacity or resources to out the arguments about, you know, who was first in the expe way that it has to be fought out today.

ś first-to-file. in our view. would not favor the big guys. It w prast be a simpler, more efficient way to resolve disputes abou

Wr. BERMAX I agree.

Mr. SMITH. Thank you. Mr. Berman. The gentleman from onia Mr. Goodlatte, is recognized for his questions.

Mr.GOODLATTE. Well, thank you, Mr. Chairman, and thank fix these continuing hearings on this legislation, which I think erybody here on the Committee that is here today is very, very terested in and we applaud you for your leadership on it. An. want to welcome all these panel members, particularly Secrets Dudas.

Mr. Secretary. I wonder if you could comment on whether or a post-grant opposition proceeding would help ensure the quality patents.

Mr. DUDAS. I think a post-grant opposition proceeding would g a great length to ensure quality of patent applications. What yo tear today is people find that reexamination is too limited. It is to Emited Litigation is considered too costly, too lengthy, too uncertain. Post-grant opposition allows you to go before the Office. You have the expertise there. It's something that's been in our Strategic Plan for almost 3 years now and has been widely accepted in the studies that have been done and the private-sector industry groups se as well. I think post-grant opposition is probably the most important element for increasing quality for the system as a whole.

Mr. GOODLATTE. Mr. Myhrvold mentions in his testimony the problems that patent backlogs cost for inventors. I am wondering if, again, you would comment on this. How would this post-grant opposition proposal impact patent pendency? How could Congress help minimize the effect that proceeding might have on patent pendency, if you are going to tell me that it could slow it down?

Mr. DUDAS. It wouldn't naturally slow it down. It could possibly slow down production because of the resources we put into that. The most important thing at that point, as we've said in our Strategic Plan all along, is for any new initiatives that we have in place, we will need to be able to have appropriate funding to go along with that. But there's not a natural policy reason why it would slow down pendency within the Office.

Mr. GOODLATTE. So you wouldn't predict that simply implementing that policy would have a resultant drag on the productivity of your Agency?

Mr. DUDAS. Not if it came with resources to fund ** at's correct.

Mr. LEVIN. May I add an observation?
Mr. GOODLATTE. Sure.
Mr. LEVIN. It might actually speed

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Mr. SMITH. The gentleman is recognized for an

additio minute.

Mr. GOODLATTE. I thank the Chairman.

Mr. BARTHOLOMEW. The injunctive requirement as it was pi posed in the Committee Print does not abolish the right to injur tive relief. And as we interpret it, it primarily applies to a perm nent injunction rather than a preliminary injunction. First of a the injunctive relief is definitely available where working occur that is, where the patentee makes use of his invention. And w would favor extending that to allowing the patentee, such as small entity, to be able to—or any entity, for that matter, to b able to work the invention through licensing to others that ma have manufacturing capacity or other expertise that the small enti ty does not have.

Further, in looking at the language of the Committee Print, it looks like that a totality of the circumstances test may apply to considering the working requirement. That is, the working require. ment might be one factor in the overall determination on whether to grant or deny injunctive relief, but that other factors that relate to determining whether there is harm would also apply.

Thank you.
Mr. GOODLATTE. Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Mr. Goodlatte.

The gentlewoman from California, Ms. Lofgren, is recognized for her questions.

Ms. LOFGREN. Thank you, Mr. Chairman. And thanks to all the panelists for your thoughtful testimony and also the more expansive written testimony.

This is, for me, a great process because we are hearing a series of knowledgeable people. And I think the Chairman has made clear, we have a working draft. It doesn't have anyone's name on it yet because we want to invite suggestions and end up with the best product that really supports innovation and is fair. So that is the spirit that I am going into this inquiry, and your comments help a great deal.

Dr. Levin, your comment regarding the reasonable belief issue, all of a sudden I realized I think you are right on that. That is just going to invite a lot more litigation. I personally think that is a very helpful observation.

Dr. Myhrvold, your comments and testimony, because it is somewhat at odds with the rest of the panelists, does draw attention. In your written testimony, on page 11, you talk and draw our at

200 tention to what you describe as a gaping loophole for software on 271(f). Can you expound on what your concern is there?

Mr. MYHRVOLD. Okay. Section 271(f) of the law covers what-basically; I'm going to simplify it because both I'm not a lawyer and we want to treat this at a high level. It covers infringement on exports. If you have a patent, you're owed a royalty, it's considered an infringement, you're owed a royalty on both sales in the U.S. and exports. 271(f) covers what happens-a definition of this export 1.M thing, broadly. And the Committee Print introduces a very short amendment. It says a component, under this term, shall be a tangible item, and it shall be combined with other components. Now, M what that means is that any intangible thing is now not considered

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i infringement for export under 271(f). Practically speaking, what is means is all export of all software products would not be covred.

So that means if you're a valid patent holder, you have a royalty agreement with a software company, you wouldn't get paid for all Deir exports, which for most software companies in the United States is more than half their income. Not just software. Actually, because it says "tangible item,” anything involving Internet protocols or any other sort of tangible purely electronic commerce, or an invention that has as a piece of it-you know, an airplane navigation system, including the airplane, but if the software was downloaded across the Internet, then it wouldn't apply.

And so my issue here is we can't define the only valuable items as tangible.

Ms. LOFGREN. President Levin or other panelists, do you concur or do you disagree with that?

Mr. LEVIN. I really hadn't focused on this provision and it wasn't something we covered in our report, so I would leave it to others to determine.

Mr. DUDAS. This is something that we were looking at. I can't give you a firm position. I can tell you it's also something that's being reviewed in the courts and that's one of the things we're looking at.

Ms. LOFGREN. I wonder if it would be fair to ask each of you to take a look at it and share whatever thoughts you might have subsequent to this hearing. I don't know what I think about it. I just was interested by the testimony and wanted to pursue it.

On the whole issue of the permanent injunctions, Dr. Myhrvold, obviously you are talking about the small inventor, but a lot of the disputes aren't between the small guy and the big guy, they are between the big guy and the big guy. And some of what, in terms ofthere is no way to really do a survey of what is happening in the 97 percent of litigation that has been settled, because it has been settled and oftentimes it is a confidential settlement. So it is very difficult. Ultimately, we are relying on anecdotes, which is not a good practice, but it is the only thing we can do because it is all we have.

So just as a matter of law and principle, how do you—if you were designing this, how would you allow a court to establish the equities where you have, for example, a product that has perhaps a multiplicity of patented materials owned by or licensed by a variety of individuals and corporations, challenged by someone who has a small component, who has the ability, really, to extort a huge amount of money for what is really a small part, versus all the other owners of intellectual property there. I mean, I am not saying there shouldn't be a remedy, but if-how would you—what tools would you give a court to draw if you were God? [Laughter.]

Mr. SMITH. Without objection, the gentlewoman is recognized for an additional minute. Perhaps more.

Mr. MYHRVOLD. So I can be God, but only for an additional minute. Ms. LOFGREN. Only for 60 seconds. So don't waste it. Mr. MYHRVOLD. You know, it's a great question. I'm going to have to get back to you in detail. I think, you know, to—I think

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It's a difficult issue. Today courts do have discretion and courts went will often exercise it. And so the whole question here is do we know roce that the judiciary is abusing or not properly on those things or not.

Ms. LOFGREN. Well, it is not a matter of abuse but it is how you set the standard both in statute but also in the law as applied and interpreted by the judicial branch.

Mr. MYHRVOLD. You know, for example, I'd be really interested to find out how often does this case occur. You're absolutely right. A lot of patent disputes are one big company suing another big company and all their suppliers. So maybe this is a much smaller case, or much larger case, than we're talking about.

Ms. LOFGREN. Thank you, Mr. Chairman.
Mr. SMITH. Thank you, Ms. Lofgren.

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

Mr. BOUCHER. Well, thank you very much, Mr. Chairman, and I want to commend you at the outset for calling the Committee's attention to a very clear need, and that is to improve patent quality through the passage of legislation. And I want to commend you for putting before the Committee a very constructive draft of a new law, which contains many features that I find to be attractive. And I am glad to hear our panelists today point to some of those very constructive features.

ital Mr. Berman and I have been for the last 4 years having discussions about approaches that we could take in order to improve pat

that ent quality. Four years ago, we drafted a bill, introduced it. It contains a number of the concepts that are now reflected in the bill introduced by Chairman Smith, or the bill circulated by Chairman Smith. There are a number of things that we looked at at that time beat that, however, are not reflected in this draft. Let me just point to the one of those in particular and get your opinion about whether we are right about this, whether Mr. Berman and I were right in pro

pos: posing this. The overall goal here is to improve patent quality. That inevi

en tably means we need to bring more pertinent information to the attention of the patent examiner and to the post-grant proceeding, to the Patent Office generally, so that mistakes can be corrected before the patent leaves the Office. One of the things that I think would really help to improve the quality of the initial patent exam would be a clear opportunity, with well-defined parameters, for third parties to make submissions of prior art that they happen to have within their possession. And Mr. Berman and I had recommended that.

Now, that clear procedure is not contained within the draft we are currently considering. So the first question I have is what is your opinion of having a clearly defined procedure that would encourage submissions of prior art by third parties? And if you have suggestions for the parameters of such a process, please share that with us also. Mr. Dudas?

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