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validity. An early determination of scope and validity by a court would cut down substantially on litigation costs and the encourage parties to settle to their claims early.

3) 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?

Answer: Post grant processes as have been proposed in the
Committee Print are aimed at providing parties with an alternative to
costly litigation. Such a process would enable a party to challenge a
patent in a faster and more effective way, while protecting the
inventor from undue litigation. The process is a complement to
litigation, and not a substitute. Inevitably there will be situations when
fair resolution of a dispute requires court action.

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ESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, TO JEFFREY P. KUSHAN, ESQ., SIDLEY AUSTIN BROWN AND WOOD, LLP, ON BEHALF OF GENETECH

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I am writing to respond to questions you posed to Genentech, Inc., following the April 20 hearing of the House Subcommittee on Courts, the Internet and Intellectual Property on certain patent reform issues. Genentech very much appreciates your interest and leadership on patent reform issues. And, as a California-based company, we are very much interested in working with you to ensure that Congress makes effective and desired reforms to the patent system.

In testimony before the Subcommittee, I indicated that Genentech supports reforms to several areas of the patent system. The Committee Print addresses many of these topics. We are concerned, however, with certain provisions in the Committee Print. For example, we do not believe it is desirable or appropriate to alter the standards that govern the right of a patent owner to obtain a permanent injunction once that patent owner has proven its patent to be valid and infringed. We also do not believe the approach in the Committee Print to limiting the presentation of “broader" claims in prosecution of patent applications is viable. Certainly, we are open to reforms that improve the operation of the patent system, and in particular how the PTO conducts examination of patents. In this respect, we note that several reforms can and should be pursued to change how the PTO does its work that are not included in the Committee Print. I would encourage you to review Genentech's testimony before the Subcommittee for a fuller explanation of such reforms.

You have presented three questions to Genentech for response for the record, which are reproduced below in bold text. Our response follows each question.

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

SIDLEY AUSTIN BROWN & WOOD

May 9, 2005
Page 2

right to receive treble damages at the outset of litigation. What would you
recommend to alleviate some of this uncertainty, if this is needed?

As others have testified, parties often pursue claims of willful infringement to increase the financial stakes and therefore the risk to a party accused of infringement. These claims are made before there is any judicial determination that the asserted patent is valid and infringed, and without any actual evidence that the party acted in willful disregard of the patent. As others have stated, willfulness claims are often pursued as tactical choices designed to increase discovery burdens and the complexity of the litigation.

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The current standards that govern willful infringement make it diffi to predict what actions will be found by a jury to constitute willful infringement. Among other things, this creates greater uncertainty, which undermines the ability of companies to assess the risk of an accusation of infringement.

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Genentech believes several reforms can be pursued that will improve the state of the law governing willful infringement. One reform would be to preclude a court from taking up the question of willful infringement until it had first found there to be infringement of a valid patent. This is a logical reform that would help reduce the coercive effect of a claim of willful infringement and avoid the often prejudicial effect of having a jury consider willfulness before there has been a finding of infringement of the patent.

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A second reform would be to create defenses to claims of willful infringement that do not rest exclusively on the contents of opinions of counsel about the patent being assorted. In this respect, we believe the law should permit a party to preclude a finding of willful infringement by presenting evidence that it had sought to avoid infringement, including by altering its product or other activities to “design around" the asserted patent. This should be an alternative – not a replacement - to the defense of reasonable reliance upon an opinion of a patent lawyer that the patent in question was invalid, unenforceable or would not be infringed. These defenses should be incorporated explicitly into the patent statute, and we believe doing so is consistent with the ruling by the Court of Appeals for the Federal Circuit last year in Knorr-Bremse Systeme Fuer Nurzfahrzeuge GmbH v. Dana Corp. 383 F.3d 1337, 1342 (Fed. Cir.2004), that willfulness must be determined by a "totality of the circumstances” analysis.

A third reform would limit the ability of a patent owner to obtain discovery of the contents of opinions of counsel, at least until a determination of infringement had been made. Current law puts a difficult choice before an accused infringer that had obtained advice of counsel once it had learned of the existence of a patent. Specifically, if the accused infringer wishes to use such legal advice to refute a claim of willful infringement, it must waive the attorney-client privilege attached to that advice. An accused infringer should not have to make such a significant and consequential election until there has been a judicial determination that the asserted patent is indeed valid and infringed. Reforms along these lines would reduce the proliferation and exploitation of unwarranted willfulness claims, while preserving the ability of patent owners to obtain enhanced damages for truly egregious conduct. We would encourage

SIDLEY AUSTIN BROWN & WOOD

May 9, 2005
Page 3

you and the other members of the Committee to pursue these additional reforms beyond the proposals in the Committee Print.

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 dependent upon knowing the scope of claims? The role of Markman hearings is significant in most patent cases. The results of the bearing frequently are dispositive as to the critical questions of validity and infringement of the patent. While it is desirable to obtain a clear understanding of the claims as soon as possible in the proceeding, it is just as important to ensure that all relevant evidence is produced that can influence the court's determination of the meaning of the claims. Thus, while Genentech generally agrees that Markman hearings should be conducted expeditiously, it does not believe it would be appropriate or advisable to incorporate into the patent statute a specific mandate for courts to conduct these hearings at a fixed point in time in the litigation.

Genentech agrees with your observation that the ability of the public to know the scope of the patent claims is very important. In this respect, we would support reforms that improve the examination process so that patent claims are issued that are clear and can be understood from a complete record of the examination of the patent.

3)

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?

Genentech strongly supports establishment of a viable and fair post-grant review procedure that would be administered by a new “Opposition Division” within the Patent and Trademark Office. The Committee Print advances a proposal to establish such a system, but this proposal needs several reforms to make it viable as well as equitable.

One important change concerns the threshold showing that an opposer must make to commence an opposition proceeding. The Committee Print presently would permit any third party to commence an opposition proceeding on any type of showing. The burden would then fall to the patent owner to justify termination of the proceeding. We believe it is more appropriate and balanced to require an opposer to present reasoned arguments and evidence that raise a substantial new question of patentability of at least one claim in the patent, and to have the PTO independently confirm the sufficiency of this showing before an opposition proceeding is commenced,

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Page 4

A number of other changes to this section of the Committee Print, in our view, are necessary, which are summarized in our testimony before the Committee.

The question you pose relates to the ability of a patent owner to effectively enforce its patent rights once the patent issues from the PTO. We believe a patent owner should not be impeded in its ability to commence an action for infringement of the patent, even if an opposition proceeding has been commenced. We support incorporating into the post-grant review system a provision that if a patent owner brings an infringement action during the pendency of an opposition proceeding, the patent owner may request and district court judge in his or her discretion may order a stay of the opposition proceeding while the litigation proceeds. At the same time, we do not believe that the commencement of an opposition proceeding should be a basis for delaying or staying the infringement action.

In conclusion, we very much appreciate the opportunity to share our views with you, and thank you for your efforts to improve the patent system.

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