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are not insensitive to the concerns about litigation problems, and we're willing to work with the Committee to explore options to address the abuse that is possible through that litigation environment that exists today.

And finally, I'll just indicate we do support moving to a first invent system, and we're willing to work with the Committee to improve the language to do that in the committee print. Thank you. [The prepared statement of Mr. Kushan follows:)

PREPARED STATEMENT OF JEFFREY P. KUSHAN
Mr. Chairman and distinguished Members of the Subcommittee,

My name is Jeff Kushan. I am a partner in the Washington office of the law firm of Sidley Austin Brown and Wood, LLP. I am also a registered patent attorney, and specialize in the areas of biotechnology, pharmaceuticals and software-related inventions.

Today, I have the privilege of offering testimony on behalf of Genentech, Inc. Genentech was the first biotechnology company, founded in 1976, in South San Francisco, California. Genentech's mission is to be the leading biotechnology company, using human genetic information to discover, develop, manufacture and commercialize biotherapeutics that address significant unmet medical needs. Genentech presently markets 13 products, with more than 30 more in development.

Genentech very much appreciates the opportunity to provide testimony to the Subcommittee today on the topic of patent law reform. We commend you, Mr. Chairman, for your initiative in opening this legislative dialogue on the topic of patent law reform. We also want to recognize the past efforts of your colleagues on this topic, including Mr. Berman and Ms. Lofgren.

Genentech is a company that was founded on innovation. It should come as no surprise that patent protection and the health of the patent system are thus crucially important to Genentech. The availability of patent protection for its inventions is an important consideration to Genentech in its research and product development activities. Assured patent exclusivity encourages the investment of hundreds of millions of dollars each year on efforts to research and develop new biotherapeutics.

Genentech also recognizes that the patent system faces several serious challenges.

First, the Patent and Trademark Office (PTO) faces serious challenges in performing its statutory function of issuing valid patents in a timely fashion. The primary cause of this problem is the ongoing problem of fee diversion. The unpredictable nature of patent fee diversion has made it difficult for the PTO to engage in the long-term restructuring of its operations that is necessary to make the patent examination process more reliable and efficient. We cannot stress more emphatically that the most important legislative deliverable for Congress in the effort to improve the patent system is to ensure predictable and adequate funding for PTO operations.

Second, the current model used by the PTO in conducting examination of patent applications needs to be seriously reevaluated. Presently, every application that is filed today is placed into the queue for examination. This requires the PTO to budget for and engage in an unnecessary examination of many thousands of patent applications. The United States is unique in the world in this respect-every other major office conducts examination of applications only upon request and payment of a fee. Exacerbating this problem is the approach the PTO employs in “restricting” patent applications. The PTO requires applicants to file additional patent applications when it believes a first application has claimed more than one patentably distinct invention. The PTO examiners, however, use an exceedingly narrow and strict standard for restriction, which has led to a multiplicity of unnecessary filings in the biotechnology area. These extra applications make coherent and efficient examination of inventions very difficult, and contribute to an artificial backlog of unexamined applications. Restructuring the patent examination process to address these two problems would result in examiners having more time to examine each invention, and would thus significantly improve patent quality. We encourage Congress to pursue such legislation in conjunction with the current legislative effort.

Finally, the process of resolving disputes over patents through litigation in the Federal Courts produces a high degree of uncertainty for businesses such as Genentech. Although the Court of Appeals for the Federal Circuit has done much over the years to clarify the requirements and standards for patentable inventions, there still remains a significant amount of uncertainty in how those requirements and standards will be applied to biotechnology inventions by trial courts and juries. As a result, it remains difficult to predict if a patent will be held valid, if it will be infringed or if it will be held unenforceable. Similarly, it is often impossible

to predict what damages a company will face if it is found to infringe a patent. The uncertainty in today's patent litigation environment, unfortunately, is being exploited by certain patent owners to distort the value of their patent rights and undermine the legitimate use of patents. Reforms to the patent system—both as to the standards governing patent validity and as to outcomes and consequences in litigation-are necessary and timely.

Your hearing today provides a timely opportunity to engage on the issue of legis. lative reform to our patent system. We welcome your initiative in starting this discussion, and believe it will yield fruitful results.

The draft committee print proposes reforms across a broad spectrum of elements of the patent system. Our comments today will focus on those areas of greatest importance to Genentech; namely, proposed reforms to the rights and remedies provided with the grant of a patent, standards governing patentability, reforms to the inequitable conduct doctrine, and post-grant opposition procedures.

In general, Genentech supports reforms in many of the areas addressed in the Committee Print. However, certain proposals, particularly those that could operate to deprive the owner of a valid U.S. patent of its ability to prevent the unauthorized use of a patented invention, would seriously alter the nature of the patent right. Genentech opposes reforms of this nature, as they would undermine the foundation upon which many of this company's business decisions have been based; namely, the guarantee of exclusivity.

PROPOSED REFORMS TO THE STANDARDS GOVERNING INJUNCTIVE RELIEF Section seven of the Committee Print would fundamentally alter the nature of a United States patent by altering the standards governing entitlement to permanent injunctive relief under section 283. While Genentech is sympathetic to the problems associated with the unpredictability of patent litigation, it cannot support legislation that would call into question the basic premise under current law that infringement of a valid patent can be enjoined.

Section 7 begins by incorporating into section in express terms the standard governing entitlement of any litigant to injunctive relief. However, section seven then would prohibit a court from presuming that there will be irreparable harm to the patent owner as a consequence of a finding of infringement of the patent. The proposed legislation also directs courts to consider evidence that would support or negate any of the equitable factors governing the award of injunctive relief, including whether or not the patent owner makes use of the invention.

Section seven of the Committee Print thus would overrule the well-established and long-standing precedent that the owner of a patent is presumed to be irreparably harmed by an infringement of a valid United States patent. The existing presumption is based on sound public policy reasons, and we see no justification for altering this existing precedent. The reason is simple--the value of a patent derives from its status as a property right. There is nothing more essential to the character of the patent as a property right than its capacity to prevent unauthorized use of the patented invention.

More than a century ago, our courts recognized that the capacity of a patent to prevent the unauthorized use of the patented invention was the fundamental attribute that gives the patent its economic value. This premise has been repeatedly affirmed by courts since that time. See, for example, Polymer Technologies, Inc v. Bridwell, 103 F.3d 970 (Fed. Cir. 1996) (“The right to exclude others from a specific market, no matter how large or small that market, is an essential element of the patent right”). The recognition that the right to exclude is the essential attribute of the patent right gave rise to the legal presumption that is a foundation of the U.S. patent system; namely, that the owner of a valid United States patent is irreparably harmed by an infringement of that valid patent, in the absence of any further evidence. There is no sound reason for not continuing to rely on this premise. Genentech also sees no reason why the burden should not be placed on the shoulders of the infringer of a valid United States patent to show why that infringer should not be enjoined from its continued infringement of the patent.

The specific issue implicated by the proposed modifications to section 283 is who bears the burden of putting forward evidence to establish that an injunction is appropriate once the patent has been fully adjudicated and found to be valid and infringed. The standard thus speaks to valid patents, not to patents that are of questionable validity. It also concerns the question of permanent injunctive relief, not preliminary injunctions that may be awarded pending resolution of the litigation over whether the patent is valid or infringed. As a standard governing the burdens

'hat are to be applied with respect to valid and infringed patents, it is appropriate o maintain the standard in the form it exists today, Genentech believes the law ippropriately places the burden on the shoulders of the infringer to establish why in injunction should not be granted. Whether that infringer is able to do so or not will turn on the facts and circumstances of each case.

Genentech is not insensitive to the concerns expressed by many over the disruption of ongoing business activities as a consequence of the grant of a permanent injunction. Genentech certainly has its fair share of defensive patent litigation. The question of permanent injunctive relief, however, is one that is best left to the courts upon the body of precedent that exists today. Genentech remains open, of course, to measures that remove some of the uncertainty of patent litigation, or which address the truly unique situations faced by those who advocate for change of the law.

In this respect, Genentech encourages the Congress to focus on the specific and unique concerns being expressed that have led to this proposal. For example, one scenario that has been identified is the potential grant of a permanent injunction in favor of a patent owner that has taken no steps to bring a competing product to market, or who has extensively licensed the patent on a non-exclusive basis to other parties, and who can be fully compensated through money damages. Genentech believes courts presently do consider such factors in determining whether

to award a permanent injunction. Similarly, some concerns arise from the situation * of a company facing the requirement to immediately comply with an injunction

issued by a District court. In many instances, courts will stay the effect of the injunction pending appeal of the judgment on validity or infringement, which provides the infringer the time needed to alter its product or take other steps.

The most significant concern, however, appears to be the use by a party that is not in the market of the accused infringer of the threat of an injunction solely for the purpose of increasing the risk of liability to a manufacturer, and to increase the amount of a potential settlement. In that setting, significant questions of validity or enforceability of the patent often exist. These problems have led to more refined jurisprudence addressing issues such as prosecution laches, enhanced obligations for written description and the like. Certainly, if a patent owner elects to seek injunctive relief against an accused infringer, and causes harm by such an assertion, that party should face some consequences if the patent is shown to be invalid, unenforceable or not infringed. One approach may be to simply alter the amount of discretion given to courts to award fees and costs incurred in defending against such a claim, and to ensure that such liability extends to all parties that stand to gain economically from the infringement action. Congress also may wish to consider legislative solutions that specifically address the unique circumstances faced by specific industries, but which will leave intact the well-established body of law that ensures that a patent owner can rely on the presumption of irreparable harm stemming from proven infringement of a valid U.S. patent to establish entitlement to permanent injunctive relief. Genentech believes such approaches may prove to be a more fruitful avenue in deliberations for reform than the approach taken in section seven of the Committee Print.

PROPOSED REFORMS TO THE STANDARD FOR WILLFUL INFRINGEMENT In contrast to its views on proposals that would alter the standard for injunctive relief, Genentech does support reforms to the law governing the doctrine of willful infringement. The Committee Print proposes to alter the standard by identifying three specific types of actions as being indicative of situations of “willful” infringement of a patent that are sufficient to justify the award of enhanced damages.

Genentech believes that the articulation of the three scenarios found in the legisle lation is a sound basis for proceeding. Genentech, however, believes that these sce了。

narios should be the only situations that warrant a finding of “willful” infringement. Part of the problem with the existing standard is that it is difficult to ascertain what will constitute willful infringement under present law. Making a more specific and explicit definition of those acts that will constitute willful infringement will help address part of the problem. Genentech also supports the approach in proposed legislation that precludes a court from drawing an inference of willful infringement

from the absence of opinion of counsel, and that willful infringement may not be ho

established solely upon proof of knowledge of the patent by the defendant prior to suit.

The changes proposed by section six of the Committee Print, however, do not go far enough. A significant problem with the existing willful infringement doctrine is that parties often claim willful infringement simply as a litigation tactic. The claim then manifests itself in demands for production of opinions of counsel as to the validity or infringement of the patent, and efforts to place into evidence information

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that is unnecessary and irrelevant to the question of infringement. Genentech believes that in addition to establishing more objectively defined standards for willful infringement, three additional measures are needed.

First, the law should preclude a court from addressing the question of willful infringement until after a party had been found to have infringed the patent. Taking up the question of willfulness only after a party has been found in a final unappealable judgment to have infringed the patent will go far in helping to curb some of the abuses that exist in today's modern litigation environment. Second, the question of willfulness should be addressed only by the court, and not by a jury. Finally, the law should preclude a party from attempting to obtain discovery of opinions of counsel incidental to a claim of willful infringement until after the court has first determined that infringement was established. With these additional changes, Genentech can support the reforms to willful infringement being proposed in section 6 of the Committee Print.

REFORMS TO PRECLUDE LATE CLAIMING OF INVENTIONS Section 8 of the Committee Print would treat as unpatentable certain types of claims that are presented at a certain point in time. The legislation appears to be focused on the problem of parties that present broad claims long after an initial application has been filed, with the intent of capturing the intervening market entry by a competitor who believed that there would not be a patent obstacle. While Genentech is sympathetic to some of the concerns raised with respect to late-pre; sented claims, it does not believe the proposed legislation will provide a practical solution, and instead will create significant problems for legitimate patent applicants.

Genentech notes that under existing PTO practices, biotechnology patent applicants are often subjected to extensive restriction requirements. This means that for each invention that is pursued in a first application, Genentech often must file dozens of additional applications to obtain meaningful and sufficient claim coverage. Under existing law (35 U.S.C. 121), Genentech has the right to defer the filing of these additional applications. If the law required the immediate filing of dozens of voluntary divisional applications, as proposed in the Committee Print as a solution to the late-claiming problem, it would place unjustified additional expenses on biotechnology applicants such as Genentech. More significantly, in many cases, new questions of law or practice arise during the examination of an application. These new standards not only cause applications to undergo a protracted examination process, they also clarify what types of claims a patent applicant may pursue.

The proposed solution also suffers from the practical problem of determining when a claim is “broader" than a claim that was published, issued or presented in a priority application. In most instances, claims will be both broader and narrower than previously presented claims. Forcing the patent examiner, and then the courts, to determine if sets of claims are broader or narrower than earlier filed claims will present immense challenges. Moreover, while many other provisions in the legislation would go far in eliminating uncertainty in the standards governing patentability, this measure would have precisely the opposite effect.

For these reasons, Genentech generally opposes the approach reflected in section 8 of the Committee Print, and encourages the Committee to explore other ways of curbing the problem of late claiming. Genentech also notes that courts are taking steps to address late-claiming situations. See, e.g., Symbol Technologies v. Lemelson, 277 F.3d 1361, 161 Ed. Law Rep. 57, 61 U.S.P.Q.2d 1515 (Fed. Cir. 2002).

REFORMS TO THE STANDARDS GOVERNING ENFORCEABILITY OF PATENTS Section five of the Committee Print proposes to reform the doctrine governing inequitable conduct. Genentech strongly supports legislative reforms in this area.

Section 282 provides that a party accused of infringement may raise a defense that the patent is unenforceable. Unenforceability is a defense distinct from invalidity of the patent or from non-infringement. It operates to preclude the patent owner from enforcing a patent that is otherwise meritorious-meaning that the invention claimed in the patent is novel, not obvious, useful, and adequately described. It has evolved over the years from several equitable doctrines, the most dominant of which is the assertion by a defendant that the patent is unenforceable because the patent owner committed a fraud on the PTO in the process of obtaining the patent. From this legitimate foundation, the doctrine of "inequitable conduct” has arisen and flourished to an inappropriate degree.

As several courts have observed, claims of inequitable conduct have become what is justifiably labeled as a “plague” on modern patent litigation. Inequitable conduct is routinely raised in patent cases, and often is based on the flimsiest of assertions.

The reason is simple—by pursuing this defense, a patent on an invention that is otherwise meritorious can be nullified by making it impossible to enforce.

The inequitable conduct doctrine, however, has created significant problems for patent applicants and for the PTO during the examination of applications. The most significant is that communications between the patent applicant and the patent examiner are now a contorted and restricted dialogue, primarily because of the risk that these communications made honestly and in good faith will be turned into a story of inequitable conduct when the patents are put into litigation in the future. Concerns about creating a foundation for a claim of inequitable conduct may cause applicants to be overly inclusive in citing information to the PTO. This often results in situations where the patent examiner is given an immense amount of information solely for the purpose of foreclosing a claim that the applicant was concealing information from the examiner, thereby imposing unnecessary burdens on the patent examination process. Moreover, applicants can be put into a “Catch 22” situation in that they can later be accused of burying” a reference if they cite many references to the PTO to satisfy their Rule 56 obligation as defined by the courts.

Plainly, reforms to this doctrine are necessary. In general terms, Genentech would support reforms that provide that a party could not raise an assertion of inequitable conduct in respect of a patent unless at least one claim of the patent were shown to be invalid on the basis of the disputed prior art or information. Such a change would establish a more objective threshold finding of significance for the disputed subject matter and would supplant the existing “materiality" standard. Genentech would also support retaining the requirement in present law that there be a distinct finding of a specific intent of the applicant to mislead the PTO. Such reforms would change how parties could raise inequitable conduct assertions in litigation, and would reduce the opportunistic uses of such pleadings in litigation.

Genentech also would support enactment of measures to ensure that patent applicants are forthcoming during the original examination of patent applications. For example, Genentech would support measures that provide the PTO or the courts with some authority to sanction parties which it had determined had engaged in misleading or inappropriate conduct before the PTO. The sanction of unenforceability of the patent is not the only type of sanction that can be employed to ensure that parties act with good faith and candor in the PTO. The approach taken in the Committee Print reflects the type of authority that may prove useful in this regard, although Genentech believes the present language of section 6 can be substantially improved.

Genentech also believes that a more transparent examination process can also be pursued in conjunction with these reforms. Genentech notes that the United States patent system is structured to deliver reliable results in a cost-effective and timely manner. Examination is conducted on an "ex parte” basis—meaning that the PTO and the patent applicant are the only participants in the examination process. The advent of publication of patent applications prior to grant from the 1999 American Inventors Protection Act (AIPA) has shed some light onto ongoing examinations, but, fundamentally, the patent examination process remains closed to substantive participation by parties other than the patent applicant.

Practical considerations mandate that this model continue. The PTO, given its resource constraints, simply cannot administer a system that permits third parties to intervene in the examination of pending applications. Experiences in other countries that do permit substantive intervention in the examination of applications are uniformly negative. These experiences show that in many instances, third parties intervene to simply delay the issuance of a patent, which disrupts business expectations of patent applicants and consumes limited patent office resources. Allowing that type of public intervention in the examination of pending U.S. applications would create immense practical problems, given the volume of applications now pending before the PTO, and the limited amount of examination resources that are available.

However, there is no good basis for not publishing all applications 18 months after they have been filed. Publication provides access to the public of the contents of the application during the examination process. Genentech thus would support amendments that would mandate 18-month publication of all applications, and which enable third parties to submit information, accompanied with a brief explanation of the relevance of the information, on issues implicated during the examination of the application. Of course, that right to submit information must not entitle the third party to disrupt the examination process, or to formally oppose the grant of the patent. Genentech believes that such safeguards as 18-month publication of all applications and limited third-party submissions during ex parte examination, combined with the opportunity of more third-party involvement during post-grant opposition proceedings, warrant revisions to the inequitable conduct standards that give rise to so many baseless claims today. Such reforms also would place the U.S. more on

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