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RESPONSE TO QUESTIONS SUBMITTED BY THE HONORABLE DARRELL ISSA, A REPRESENTATIVE CONGRESS FROM THE STATE OF CALIFORNIA, TO 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:

This letter is submitted in response to written questions submitted to me by
Congressman Darrell Issa on April 29, 2005, with respect to the Subcommittee
Hearing on April 20, 2005 on patent quality improvement.

At the outset, let me again express the appreciation of the American Bar Association and its Section of Intellectual Property Law (the “Section") for the opportunity to testify and to provide assistance with respect to the efforts to reform and improve our patent laws. And also, let me express our appreciation to you for your work on this very important project that will spur innovation, improve the patent system, and ultimately, benefit mankind.

The views expressed herein in response to Mr. Issa's questions have not been approved by the ABA House of Delegates or Board of Governors, and therefore are those of the Section of Intellectual Property Law alone.

Our responses are set forth after the questions posed by Mr. Issa which appear below:

1) 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?

RESPONSE: The Section agrees that claims for willfulness in an effort by a patent owner to collect enhanced damages from an infringer are so commonplace in patent litigation as to make patent litigation unnecessarily costly, protracted, and complicated. The current practice of using an attorney opinion as defensive evidence to a charge of willfulness has created serious problems as to the scope of waiver of privilege, particularly as to advice given to an accused infringer by its trial counsel. The Section has a specific

recommendation to solve this problem---delay discovery and trial with respect to willful infringement until after, and if, there is first a finding of infringement. The Section contemplates that the discovery of willfulness would follow a trial on other liability issues within 30-60 days. Trial on the willfulness issue would be set promptly after such 30-60 day period. Since liability is found in only about 60% of cases tried, the discovery and trial on willfulness would be totally eliminated in about 40% of all cases. For cases in which liability is found, discovery and trial of the willfulness issue would occur without waiver of privilege as to trial counsel in most cases, even when the attorney-client privilege of opinion counsel on which the accused infringer relies is intentionally waived. For more information, see the Section's witness statement, pp. 29-31. The Section continues to give attention to these issues, both internally and with other interested organizations, and expects to offer additional recommendations in the near future.

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?

RESPONSE: The Section currently has no position on this issue, but offers a few comments that may be helpful. Many practitioners believe that Markman hearings should be held, and rulings given, relatively early in the pre-trial process. The entry of a Markman order by which the district judge construes the patent claims may often resolve one of the most important issues in dispute, and encourage summary judgment or settlement. It is true that the ability to design with certainty around a patented invention requires a determination of the meaning of the claims, and therefore, the scope of the patent. The scope is often determined by the district judge, but claim interpretations by district courts are often reversed on appeal by the United States Court of Appeals for the Federal Circuit. Thus, even if Markman rulings are encouraged early in the pre-trial stage of a case in district court, the final ruling on claim construction does not occur until an appellate decision is rendered.

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?

RESPONSE: The Section has no formal position on the question posed. However, we note that one goal of Post Grant Review is to decrease the amount of litigation in the courts. Another is to provide a quick and relatively inexpensive alternative to correct mistakes made by the PTO, and defects in patents, by instituting an opposition proceeding within 12 months or less after issuance of a

patent. Invalid patents, even those not in litigation, frustrate the patent system because they are presumed valid until declared invalid by the PTO or a court. The proposal for a post grant opposition proceeding would allow third parties to take validity issues back to the PTO within this limited time in an attempt to strike patents even when they are not otherwise in litigation.

The Section stands ready to be of assistance to the Subcommittee in any way possible as you consider patent quality improvement issues.

Very truly yours,

William Fitze

William L. LaFuze
Chair, Section of Intellectual Property Law
American Bar Association

cc: Members of the Subcommittee

PREPARED STATEMENT OF THE HONORABLE HOWARD L. BERMAN, A REPRESENTATIV IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER,

SUB COMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY.

Thank you for scheduling this hearing to continue our discussion on patent re form. Last week we heard differing opinions about which sections of the patent law should be reformed, and how those reforms should be accomplished. Some of the witnesses stressed changes in litigation rules for patent cases, while others focused on the need to harmonize. U.S. patent laws with foreign patent law. However, all of the witnesses seemed to agree that bolstering the level of patent quality is integral to a workable patent system.

The foundation of the patent system is the idea that the Patent and Trademark Office grants high quality patents. However, over the past few years, a larger number of questionable patents have been issued, leading to increased litigation and uncertainty in markets that are heavily dependent on patent rights. There are many possible reasons for the questionable quality-lack of funding resulting from fee diversion, lack of appropriate resources or training materials, an increase in the backlog of patent applications, or even exposure to new patentable subject matter, such as business method patents. While the PTO has made great strides in addressing this problem, more needs to be done to restore confidence in the patent system. Congress has an important role to play in helping bring about that change.

The Committee print has provided a useful set of guidelines that identify some of the key areas in need of reform. In fact, many of the provisions are almost identical to the ones Mr. Boucher and I proposed last year. However, an issue we addressed with our third party prior art submission provision, and which deservesgreater attention in the committee print or any future legislation, is how to address quality on the front end of the examination process.

I anticipate a spirited discussion today on the merits of some of the proposals in the Committee Print. As I did last week, I submit a challenge to those critical of certain provisions—if you have a problem with a proposal, help us craft a better so

" lution. Because we are planning to introduce a patent bill in the near future, I hope the many interested groups. can work together to help us formulate some answers to the problems facing the patent system

today. I continue to look forward to working with the Chairman to draft effective patent legislation."

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MEMORANDUM TO THE HONORABLE LAMAR SMITH, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF TEXAS, AND CHAIRMAN, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY AND THE HONORABLE HOWARD BERMAN, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA, AND RANKING MEMBER, SUBCOMMITTEE ON COURTS, THE INTERNET, AND INTELLECTUAL PROPERTY FROM DARIN E. BARTHOLOMEW, SENIOR ATTORNEY, PATENT DEPARTMENT, JOHN DEERE & COMPANY

MEMORANDUM TO: CHAIRMAN LAMAR SMITH

RANKING MEMBER HOWARD BERMAN

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The proposed change to section 271(f) appears to be an attempt to (1) exempt intangible items (e.g., possible software or embedded software) from contributory infringement as set forth in section 271(f) and (2) require an actual combination of components for tangible items to show contributory infringement under section 271(f). With respect to above item 1, under the Committee Print language the sale of a specially designed intangible component (e.g., software) in the U.S. for assembly or use in a patented combination or process in a foreign country would no longer constitute contributory infringement under section 271(f). With respect to above item (2), case law has interpreted section 271(f)(2) as merely requiring a showing that an infringer shipped components with the intent that the components be combined, without requiring an actual physical combination. Waymark Corp. v. Porta Systems Corp., 245 F.3d 1364, 1368 (Fed Cir. 2001.) However, the Committee Print apparently would require a physical combination to show infringement. The proposed change to 271 in the Committee Print may be an attempt to over-rule cases such as Eolas Technologies, Inc. v. Microsoft Corp or Imagexpo L.L.C. v. Microsoft Corp, where Microsoft was held liable for patent damages for copies of software distributed outside the U.S. that were copied from a master software version shipped from the U.S.

We are concerned that the changes to section 271 in the Committee Print could be too broad and have unintended consequences.

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