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ETTER TO THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND CHAIRMAN, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY, FROM WILLIAM L. LAFUZE, PARTNER, VINSON & ELKINS, LLP, AND CHAIR, SECTION OF INTELLECTUAL PROPERTY LAW, AMERICAN BAR ASSOCIATION, ON BEHALF OF THE AMERICAN BAR ASSOCIATION AND THE ABA SECTION OF INTELLECTUAL PROPERTY LAW

May 4, 2005

The Honorable Lamar S. Smith
Chairman
Subcommittee on Courts, the Internet, and Intellectual Property
Committee on the Judiciary
United States House of Representatives
Washington, D.C. 20515

Dear Chairman Smith:

At the close of the April 20, 2005 hearing of the Subcommittee on patent quality improvement, Mr. Berman asked the witnesses to submit in writing their views on allowing third-party prior art to be submitted to PTO patent examiners during the examination process. I assume that the witness responses are to be submitted to you for inclusion in the record.

As Mr. Berman noted, the Committee Print contains no provisions on third-party submission of prior art. The Section of Intellectual Property Law has no formal position on such a proposal, but has the matter under active consideration and expects to develop a formal position by the end of this month.

Our initial reaction to such a proposal is positive. We believe that such a process could provide examiners with additional relevant information as to existing prior art, and improve the quality of examiner decisions. It is contemplated that the PTO will promulgate corresponding rules that would allow the submission of such prior art in a way that will not unreasonably delay the process of examination and issuance of worthy patents. I believe this view is widely supported in the organizations with which we are consulting pursuant to your request for industry and association collaboration with a view toward developing consensus on the patent reform issues under consideration.

We of course are aware that H.R. 5299, the “Patent Quality Assistance Act of 2004," which Mr. Berman introduced on October 8, 2004 for himself and Mr. Boucher, contains provisions authorizing third-party submission of prior art. We believe that the provisions of section 4 of that bill provide useful proposals for components of a program for pre-grant submission of prior art, including provisions on relevance and accuracy of the submissions, time limits for submission, and financing of the system.

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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REP-

RESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO J. JEFFREY
HAWLEY, LEGAL DIVISION VICE PRESIDENT AND DIRECTOR, PATENT LEGAL STAFF,
EASTMAN KODAK COMPANY, ON BEHALF OF INTELLECTUAL PROPERTY OWNERS AS-
SOCIATION (IPO)

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May 13, 2005

Directors
Mark I. Calcaterra
Daimie Clarysiter Cap.
Angelo N. Choctors

fitney Boweste.

WSOM J. Cougno
Ford Glutsal Technolusies, Inc.

Amothy anon

SAP, AG

Goreta V. Dahting
Avensis Promocevk as, Inc.

Q. Toda Dickinson
General Electric Co.
Lovedy Dolina

conocoPritlips
Konnath D. Erborg
Goneral Motors Corp.

fart Epponave
A KTOBft Corp.

Stephen 1. Fou
telet-food Co.

ScoD M Frank
eet South Corp

Andy Gibt
Porter Cafe.corn, Inc.

Michael L Glenn
Dour Chemical co
Sarnard. Groves, ar.
Easthan Chemico: Co.

Gary L Criswold
5A1 innovative Properties Co.

John M Gunther
EMC Corporation

Sock E. Hakan

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Represe ative Darrell Issa
211 Cannon House Office Building
Washington, DC 20515

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Dear Representative Issa:

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I am writing with IPO's reply to the three questions that you sent following the
hearing on April 20, 2005, at which our president, J. Jeffrey Hawley, testified. We
very much appreciate the opportunity we had to present our views to you, Chairmankoning Flo Phills lectore: N.V.
Smith, and the other members of the Subcommittee on Courts, the Internet, and
Intellectual Property.

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Question:

Many parties have stated that claims for willfulness and thereby treble
damages have become much too common within patent litigation. However,
there still remains uncertainty surrounding whether or not a litigant has a
right to receive treble damages at the outset of litigation. What would you
recommend to alleviate some of this uncertainty, if this is needed?

Reply: Damages of any kind, of course, are not established until after infringement
is proven in a trial, which often includes litigation over the validity of the patent as
well. If damages are proven, the damages will cover the period of the infringing
activity. We favor treble damages as outlined in Mr. Hawley's statement of April
20 when the infringer has been given adequate and specific notice of infringement
and continues to infringe, subject to the requirements of the Committee Print. With
the changes in the Committee Print, the current law will provide greater certainty on
whether the patent owner should receive treble damages. If the patent owner has
given adequate notice of clear infringement of a clearly valid patent and is aware
that the infringer is continuing to deliberately infringe, the patent owner can expect
to receive treble damages.

Stephen D. Harper

Herkel curs
Welom 6. Moming
Cotexpliar Inc.

Kon Hobday
Check rue Corp.
Dennis R Hearter, Ir.

Moroanta Co.
Pirmo S. Johnson
Johnsen & Johnson
David Rappos

1674 Coro

Mark P. Kolon
JP Morgan Chase & Co.

Charles M Kindg

GlucoSusne
Nichod L. Grschner

ingen,

Noreen A Kal
Sun Microsystems, c.
Nichard Flamuth

Shel: Os CO

Ndchadl L. Lynch
MIC: Technogy, Inc.
Jonathan I. Meyer

Motorola, Ine

Showin W. Malo
Proste & Cartxe Co.
lagnunat & Hintsandram
fecgcle Technology. LLC

Claudio Monte

Hortel Networks
Dougies K Mormon

illy and Co.
Nchard K. Millipe
ExxonMob Corp.
Peter Nchardson

Picerine

Mark L Radgers
Ar Products & Chemicas, lr.c.

Nobut i. Schroede
Mas incorporated

Davla Simon

inta Coro
Frank . Srotas
BP America, Inc.
Aron W. Sragman

CASE COTO
Thiery Sueur

A Luuide
Chang 1 Tuboch
Coca-Col Co

John M Vauta
Briguelone Arvutoos

Holdings na

Michael Watika
Ei du Ponce Nemours and Co

Sohn Williamson
FF3 incaution Inc.
de Past Praca
General Counsel

Charlal Work
McDemon. W& Emery

Executive Director
Herbert Wamsley

Reply
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Question:

Judges currently have the option to conduct Markman hearings at various
stages of a trial. Should judges be required to hold these hearings at the
beginning of litigation so that parties have a better idea of the real claims and
their interpretation? Also, is it not true that the ability to design non-
infringing patents is dependant upon knowing the scope of claims?

1255 Twenty-Third Street, NW, Suite 200 Washington, DC 20037.1174
T: 202-466-2396 F: 202-466-2893 Einionpo.org <W: www.ipo.org

Intellectual Property Owners Association (IPO)

Reply: It is helpful to the parties to know the real claims and their interpretation at an early stage. Judges vary in their preferences as to when to conduct Markman hearings. Some judges feel it is better to wait until discovery is completed to interpret the claims so that they have the factual context of the case as background. In fact, the parties do not know the real interpretation of the claims in cases appealed to the U.S. Court of Appeals for the Federal Circuit until after appeal, and a significant number of claim interpretations are overruled on appeal.

When Markman hearings were created it was hoped that they would eliminate a great deal of litigation expense. To date that aim has not been realized. We still hope Markman hearings will evolve in a way that will bring greater efficiency to the judicial process. We believe it is better to leave the timing of Markman hearings to continued development by the courts and allow the courts to search for the best balance of early stage claim interpretation and other considerations. It is true that the ability to design non-infringing products and processes is dependent on knowing the scope of the claims. The incentive to design around a patented invention and create different and improved alternatives is one of the benefits of having a patent system. From this standpoint early clarification of the scope of claims is important.

Question:

One of the proposals within the broader patent reform debate is the establishment of a “Post Grant Review Process” at the PTO. The goal of this Post Grant system is to decrease the amount of litigation in the District Courts. However, some parties have expressed a desire for there to be some sort of trigger so that litigants may remove the review from the PTO to District Court. Is a trigger needed and how would you structure it if it is?

Reply: IPO favors establishing a post-grant review process for the reasons explained in Mr. Hawley's April 20 statement. We view it as a useful supplement to the patent examination process in the U.S. Patent and Trademark Office that will help increase confidence in the reliability of patents by uncovering possible reasons for patent invalidity that the PTO cannot learn of on its own. A post-grant review process should not interfere with the ability of patents owners to enforce their patents in district courts. We support a rule that if an infringement suits is brought against an accused infringer in district court before the filing of a post-grant review request by the accused infringer, then any post-grant review proceedings involving the patent should be stayed until the infringement suit is finally resolved. Others have suggested variations such as staying the post-grant review proceeding if an infringement suit is filed anytime during the first nine months after patent grant. We have not considered any broader trigger that might be made available to the patent owner to remove an action to district court, but we agree that the ability to enforce patents in district courts in a timely manner must be preserved.

Intellectual Property Owners Association (IPO)

Reply: It is helpful to the parties to know the real claims and their interpretation at an early stage. Judges vary in their preferences as to when to conduct Markman hearings. Some judges feel it is better to wait until discovery is completed to interpret the claims so that they have the factual context of the case as background. In fact, the parties do not know the real interpretation of the claims in cases appealed to the U.S. Court of Appeals for the Federal Circuit until after appeal, and a significant number of claim interpretations are overruled on appeal.

When Markman hearings were created it was hoped that they would eliminate a great deal of litigation expense. To date that aim has not been realized. We still hope Markman hearings will evolve in a way that will bring greater efficiency to the judicial process. We believe it is better to leave the timing of Markman hearings to continued development by the courts and allow the courts to search for the best balance of early stage claim interpretation and other considerations. It is true that the ability to design non-infringing products and processes is dependent on knowing the scope of the claims. The incentive to design around a patented invention and create different and improved alternatives is one of the benefits of having a patent system. From this standpoint early clarification of the scope of claims is important.

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One of the proposals within the broader patent reform debate is the
establishment of a “Post Grant Review Process” at the PTO. The goal of
this Post Grant system is to decrease the amount of litigation in the District
Courts. However, some parties have expressed a desire for there to be some
sort of trigger so that litigants may remove the review from the PTO to
District Court. Is a trigger needed and how would you structure it if it is?

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Reply: IPO favors establishing a post-grant review process for the reasons
explained in Mr. Hawley's April 20 statement. We view it as a useful supplement to
the patent examination process in the U.S. Patent and Trademark Office that will
help increase confidence in the reliability of patents by uncovering possible reasons
for patent invalidity that the PTO cannot learn of on its own. A post-grant review
process should not interfere with the ability of patents owners to enforce their
patents in district courts. We support a rule that if an infringement suits is brought
against an accused infringer in district court before the filing of a post-grant review
request by the accused infringer, then any post-grant review proceedings involving
the patent should be stayed until the infringement suit is finally resolved. Others
have suggested variations such as staying the post-grant review proceeding if an
infringement suit is filed anytime during the first nine months after patent grant.
We have not considered any broader trigger that might be made available to the
patent owner to remove an action to district court, but we agree that the ability to
enforce patents in district courts in a timely manner must be preserved.

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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO RICHARD J. LUTTON, JR., CHIEF PATENT COUNSEL, APPLE, ON BEHALF OF THE BUSINESS SOFTWARE ALLIANCE (BSA)

Questions for the record - Patent Reform hearing on April 20, 2004

Congressman Darrell Issa

1) Many parties have stated that claims for willfulness and thereby

treble damages have become much too common within patent litigation. However, there still remains uncertainty surrounding whether or not a litigant has a right to receive treble damages at the outset of litigation. What would you recommend to alleviate some of this uncertainty, if this is needed?

Answer:

We agree that the threat of treble damages, based on mere knowledge that the infringing patent existed, presents a serious problem. Because mere knowledge now creates the basis for willfulness, too many time inventors are deterred from doing proper searches of prior art. The net result is that not enough information is provided to the examiner, who is them compelled to determine whether to grant the patent on an incomplete record: In addition, it has now become common for a person when notified to a potential infringement to seek a letter from counsel stating no infringement is likely. This is expensive and does little to advance the goal of ensuring quality patents and deterring frivolous litigation.

We believe the best way to address this problem is to change the law
the law to state clearly that punitive treble damages, like other
punitive damages, should be awarded only when it is demonstrate
that the infringer acted in bad faith, for example by slavishly copying a
patented invention or by ignoring a court order.

2) Judges currently have the option to conduct Markman hearings

at various stages of a trial. Should judges be required to hold these hearings at the beginning of litigation so that parties have a better idea of the real claims and their interpretation? Also, is it not true that the ability to design non-infringing patents is dependant upon knowing the scope of claims?

Answer: A key factor is determining whether an allegation of infringement is meritorious is knowing the scope of the patent and its

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