par with the practices of other major countries including those that are members of the European Patent Convention and Japan. REFORMS TO THE STANDARDS OF PATENTABILITY Sections 2 to 4 of the Committee Print would make substantial changes to por tions of title 35 that govern patent eligibility. In principle, Genentech supports the approach taken in these sections, with certain exceptions. Genentech supports reforms that would implement a "first inventor to file" stand ard in the U.S. patent system. Such a standard would address what many improperly perceive to be an assured right of a first inventor to obtain a patent. For rea sons articulated well by the National Academies of Science in their 2004 report on the patent system, the existing "first to invent" standard creates immense chal lenges for patent applicants and the public, in part, because it requires the incorporation of many subjective criteria for patentability into the patent system. It also necessitates inventorship contests, known as interference proceedings, which are expensive, complex and usually result in award of the patent to the first inventor to file an application. Given the low frequency of these types of conflicts, the expenses associated with them, and the immense record keeping requirements they implicate, there is no sound reason for not shifting to a first inventor to file standard. The reforms being proposed would retain a requirement that any applicant for a United States patent be filed by or on behalf of an inventor of the subject matter being claimed. This approach will ensure that the interests of inventors will be ef fectively protected. Genentech supports these types of safeguards in the patent system. With such a standard, however, conflicts may still arise over entitlement to a patent. Section two of the Committee Print would propose to address these conflicts through an interference proceeding. Such proceedings, as proposed under a modified section 135(a), would be based on "disputes" over who is an inventor. Genentech believes a more precise and specific standard, with specifically articulated outcomes of such a proceeding, is needed, rather than what has been proposed for section 135(a). In particular, a dispute over entitlement of a true inventor to a patent should be based on a proof of derivation of the invention by the first party to file from the inventor. The proceedings should result either in an entitlement to joint and several ownership of the patent in dispute, or in the award of a patent to the second inventor that files an application. Genentech is prepared to work with the Committee to devise an appropriately focused and limited procedure for resolving such disputes. The conversion to a first-inventor-to-file patent system necessitates reforms to sections 102 and 103 of the patent statute, among other provisions. The approach taken in section two of the Committee Print is a good start toward these reforms. A number of specific issues, however, are not satisfactorily addressed in the proposed legislation. • The revised law should confirm that subject matter in a published patent application or in a patent shall have prior art effect as from the actual or effective filing date of the patent or published application only if that subject matter has been described in a manner that complies with section 112, first paragraph. This will maintain the existing law that provides that the "secret" prior art effect of a patent or published patent application (i.e., for the period before the contents of the patent application are publicly known) is to be limited to that subject matter that has been described in a manner sufficient to justify the grant of a patent on that subject matter. Revisions to proposed section 102(d) of title 35 are required to give effect to this change. • The standard for public accessibility of information to qualify that information as prior art should be specifically exemplified using more objectively defined criteria. In particular, Genentech would support revision of proposed section 102(c) to incorporate more precise and objective language for the concepts of "reasonable and effective accessibility" of prior art. Genentech also believes it will be important to exemplify these concepts in the legislative history of the proposed legislation. • Genentech supports elimination of the "best mode" requirement of section 112, first paragraph. This measure has proven unnecessary and unhelpful in the patent system, particularly in view of the enhanced obligations on disclosure imposed by modern judicial interpretation of the requirements for written description and enablement under section 112. Genentech encourages the Congress to affirm the independent and distinct nature of these two remaining elements of section 112, first paragraph, as part of the legislative history explaining the reform that would be made to this provision of title 35. Certain changes being proposed, however, are unnecessary to implement a firstnventor-to-file system. For example, Genentech would oppose amendments to secion 101 of title 35, which are unnecessary to give effect to a first-inventor-to-file system. Genentech also encourages the Subcommittee to further evaluate all of the changes being proposed to ensure that the most efficient path is taken to implementing these reforms. Changes that are not necessary to give effect to the new standard should be avoided, particularly when they may disrupt long-established concepts and definitions. POST-GRANT OPPOSITION PROCEDURES As we have previously testified before this Subcommittee, Genentech strongly supports legislation that would create a cost-effective, vigorous and fair procedure to review the validity of issued patents. Our experiences teach us that claims of infringement of invalid patents are increasing, and have the potential for causing significant, unwarranted business disruptions. A cost-effective procedure that allows for robust participation by third parties yet is appropriately limited to avoid prejudice and the problems of litigation before a Federal court, would provide immense : value for patent owners and the public alike. Genentech thus supports the effort of the Subcommittee to establish an effective and efficient post-grant opposition procedure, and to revise the inter partes reexamination authority to make that system viable. As Congress begins its deliberations on section 9 of the Committee Print, it should keep certain fundamental principles in mind. First, there is no right of a member of the public to retain and enforce an invalid patent. It also is not appropriate to permit entities to use the high cost and complexity of patent litigation to forestall discovery of the invalidity of a patent. Invalid patents impose an immense and unjustified cost on American businesses, including companies in the biotechnology industry. Second, we believe a properly designed system must incorporate safeguards to ensure that it will not be abused by third parties. As noted in our prior testimony, the devil is in the details. The challenge is for Congress to create a procedure that provides a rigorous and balanced inquiry into the validity of a patent, and to make that procedure feasible for the PTO to administer. A system that permits a third party to paralyze a patent by initiating an open-ended administrative proceeding would seriously undermine the incentives and purpose of our patent system. Likewise, a proceeding that becomes comparable in complexity, burden and cost to litigation in the Federal courts would yield no benefits. Finally, a patent review system administered by the PTO must remain focused on those issues that the PTO has special expertise in evaluating, and work within the practical constraints of an administrative proceeding that is designed to be efficient but thorough. In particular, the system should avoid having the PTO evaluate questions of compliance with the "best mode” requirement of 35 U.S.C. § 112, or compliance with the duty of disclosure under 37 CFR § 1.56. The system should also build on the recognition that the PTO can bring a special technical expertise to independently evaluate scientific and technical questions that bear on patentability. At the same time, the PTO is not well-equipped to manage contentious proceedings that will turn on critical evidentiary questions. As such, we encourage the Congress to incorporate safeguards that take account of these limitations, and to not create a system that the PTO is incapable of effectively managing, or which leads to unjustified costs. It is appropriate for this Congress to take up the task of devising and implementing an effective post-grant opposition system. Options that exist today-socalled ex parte and inter partes reexamination-do not present a viable alternative to litigation in the Federal courts, primarily because these procedures do not provide third parties with a fair and balanced degree of participation relative to patent owners. The fact that only a handful of patents have been the subject of inter partes reexamination proceedings, despite the existence of thousands of eligible patents, is a telling indication of the problems with the current system. The absence of a fair and efficient administrative procedure to review patent validity makes it possible for owners of invalid patents to use the often enormous expense of patent litigation to effectively shield invalid patents from challenge. An improperly granted patent that cannot be reviewed in a cost-effective manner creates unjustified burdens and risks for American companies, including those in the biotechnology industry. Genentech believes that the availability of an appropriately structured post-grant review system will enhance public confidence in the patent system, and provide the public with a much needed administrative alternative for resolving questions of patent validity. The recent reports from the Federal Trade Commission (FTC) and the National Academies of Science (NAS) reinforce this conclusion. Each organization recognizes that the PTO has a special expertise in evaluating certain patentability issues, such as anticipation, nonobviousness, enablement, written description and utility and that an administrative patent validity review proceeding can be conducted more rapidly than litigation in a Federal court. They correctly find that the public would significantly benefit from the availability of a procedure that does not present the burden, duration and associated expenses of patent litigation. These organizations also appreciate that any new system should not permit third parties to harass patent owners, or initiate groundless attacks on patents. Past Congressional efforts to establish a procedure by which the PTO can review the validity of an issued patent have been well-intentioned, but have not produced a procedure that is viable. The first such system adopted by Congress was the "ex parte" reexamination system, enacted in 1982. In the ex parte reexamination system. any person, including the patent owner, may commence a reexamination of any issued patent on the basis of a patent or a printed publication that raises a substantial new question of patentability. See, 35 U.S.C. $302. The ex parte reexamination procedure, like original examination, is a closed procedure-only the patent owner and the PTO participate substantively in the proceeding. As a result, most third parties avoid use of this procedure for commercially significant patents, since it does not afford those third parties a meaningful opportunity to participate in the proceeding. In 1999, Congress created an enhanced version of reexamination, termed "inter partes" reexamination. The inter partes reexamination procedure does provide more of an opportunity for third parties to participate in the proceeding. However, due to the limitations built into the system, this "enhanced" version of reexamination has fallen short of expectations. The limited number of inter partes reexamination requests that have been commenced-despite the fact that hundreds of thousands of otherwise eligible patents have issued since enactment of the legislation-suggests that the design of this procedure will continue to limit its use by the members of the public. The most significant deficiencies of the inter partes reexamination system can be summarized as follows. • It is not possible to use the procedure to review patentability issues that are most commonly encountered in biotechnology patents and applications; namely, compliance with 35 U.S.C. S§ 101, and 112, first paragraph. It has been our experience that issues of compliance with the written description and enablement provisions of 35 U.S.C. § 112, first paragraph, and the utility requirement of § 101, frequently are significant inquiries affecting the validity of many biotechnology patents and patent applications. Not permitting these grounds to be raised in a post-grant review procedure renders the system far inferior as an alternative to litigation in a Federal court. • The law imposes two distinct "statutory estoppels" that in combination make the procedure unattractive as an alternative to litigation in a Federal court. The first, found in 35 U.S.C. §315(c), prohibits a requestor from raising in a Federal court any issues of validity that "could have been raised" at the time of the request for reexamination in view of art known to the requestor. This broad estoppel attaches by the mere filing of a request for inter partes reexamination. The second "estoppel" is found in an uncodified section of the AIPA (84607 of the Intellectual Property and Communications Omnibus Reform Act of 1999, as enacted by § 1000(a)(9) of Public Law 106-113), and is designed to prohibit a third party who participates in a reexamination proceeding from later contesting the legitimacy of any "facts" determined in the proceeding. These statutory estoppel provisions impose an unacceptable price on use of the inter partes reexamination procedure in almost all situations. • The inter partes reexamination system does not permit third parties to use certain evidentiary procedures that would ensure that the procedure is sufficiently rigorous. For example, it is not possible to cross-examine expert witnesses used in the proceeding or direct questions to the opposing party. Finally, the system cannot be used to review issues of validity involving patents issued on applications filed before November 29, 1999. We note that this limitation, in particular, has rendered the system of marginal value to many companies in the biotechnology industry, in part because there still remain a significant number of biotechnology patent applications pending before the PTO that were filed before this date. These limitations in the inter partes reexamination system have made the procedure of marginal value to the public. It simply is not an effective alternative to expensive, unpredictable and protracted litigation in the Federal courts. Genentech thus encourages the Congress to pass legislation now to create a viaple, cost-effective, and fairly balanced post-grant administrative patent review procedure. The approach set forth in section nine of the Committee is a good starting point, but several important variables need to be revised to make that system acceptable. • Threshold Showing to Initiate Procedure-Genentech believes that an opposition system should require any party wishing to commence a proceeding to provide a cogent and well-supported showing that at least one claim in the patent is invalid, and require the PTO to make an independent determination that the showing meets a threshold level of question as to the validity of one or more claims in the patent. If the initial showing is not sufficient, the Office should not commence the proceeding. Genentech is flexible as to the specific standard employed to make this assessment. One possible standard is that the claim is "prima facie" invalid—meaning that, assuming the cited evidence is accepted as true, the claim would be invalid. Other standards could be employed as an alternative to the prima facie standard. The approach taken in the legislation, however, is not viable. It would permit an opposer to commence an opposition upon any showing. The burden would then fall to the patent owner to prove that the opposition proceeding is groundless. Genentech believes this "initial proof" requirement is an important part of any post-grant review procedure that could result in invalidation of one or more claims of a patent. Without this initial determination, patent owners could be subjected to groundless challenges to their patents. • Estoppel. Participation in a post-grant review system must not create any barrier for the participants to litigate patent validity on issues that were not actually raised and addressed in the post-grant review proceeding before the PTO. While Genentech believes Congress should not include express estoppel provisions in the post-grant review legislation, if included, those provisions should not be comparable to the codified and uncodified estoppel provisions applicable to inter partes reexamination proceedings. Instead, they should apply only to those issues actually addressed in the opposition proceeding, and which were necessary to the final determination of the Office. • Time Limits to Initiate and Conclude Proceeding. A third party should be allowed to initiate a post-grant review proceeding provided it has made an appropriate preliminary showing only within a fixed period following issuance of the patent. In our view, the optimal period is nine months. Genentech believes a limited authority to commence an opposition proceeding if the patent owner consents may also merit consideration, if sufficient safeguards against "coerced" consent can be devised. To be viable, the post-grant proceeding must be concluded within a reasonable period, namely, 12 to 18 months. The legislation should confirm that this deadline will be respected by the PTO. • Applicable to Any Patent that Can Be Enforced. The system should permit review of any patent that is capable of being enforced, subject to the threshold showings and limitations noted above. • Limited Additional Evidentiary Procedures. Genentech believes a viable postgrant review procedure should permit use of evidentiary procedures that will provide a more rigorous review of issues pertinent to the validity of a patent than are permitted under the current inter partes reexamination authority. At the same time, we recognize that if all the evidentiary procedures available in litigation before a Federal Court were allowed to be used in a postgrant review procedure, no benefits would be realized from using the PTObased procedure. As a result, Genentech believes it would be appropriate to make available only certain limited additional procedures in a post-grant review procedure; namely, the right to cross-examine a witness who offers testimony in the proceeding, and, if the presiding authority finds it appropriate, limited requests for admissions and an opportunity for an oral hearing. Other measures, however, should be expressly prohibited in the law. In particular, parties to a post-grant proceeding should not be subject to document production, or forced to produce fact witnesses for depositions. Such restrictions_are appropriate and will not undermine the effectiveness of the procedure. Proposed section 328 should thus be amended to foreclose discovery other than those types enumerated above. • Prohibit inequitable conduct challenges based on actions of parties during post-grant proceedings. The inequitable conduct doctrine operates to ensure that patent applicants during ex parte examination of their applications are held to a higher standard of dealing with the PTO. A party that does not meet his or her duty of disclosure to the Office can cause that party's patent to be held unenforceable. The reason for this enhanced duty of disclosure is that the ex parte examination procedure is closed and the public cannot participate. Unlike ex parte examination, however, post-grant review procedures being proposed in section 9 of the Committee Print would be public and would include the active participation of one or more parties opposed to the patent owner. These factors eliminate the need for any enhanced disclosure standards comparable those imposed during original examination. Moreover, there is no comparable sanction that can be imposed on third parties in such a proceeding (ie., those parties will be free to litigate infringement, enforcement and invalidity in the future largely unfettered by their participation in the proceeding). In view of this, Genentech believes the legislation should impose identical obligations and responsibilities on parties to an opposition proceeding. This means, in part, that the legislation should include a provision which holds that a patent may not be held unenforceable due to those events that arise during the opposition proceeding. Such a provision should also confirm that if the PTO finds that one party has made a misrepresentation, it should have the authority to take actions to sanction that party appropriately. Where such misrepresentations are discovered after the patent emerges from the proceeding, courts may give due consideration to the actions of the party, but should not be allowed to hold the patent unenforceable. Genentech stands ready to work with the Committee to improve section 9 of the Committee Print to create a well-structured and effective post-grant opposition procedure. CONCLUSION Genentech thanks the subcommittee for the opportunity to present its views on the topic of patent reform. As a significant user of the patent system, Genentech believes it is desirable to pursue legislative reform to improve this critically important system. We encourage Congress to work with all sectors of the patent community to ensure that the best package of reforms can be pursued and enacted into law. Mr. SMITH. Thank you, Mr. Kushan. TESTIMONY OF 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 Mr. LAFUZE. Thank you, Chairman Smith and Members of the Subcommittee, and thank you for this opportunity to testify on behalf of the American Bar Association and that Association's Section of Intellectual Property Law. I currently serve as the chair of the ABA Section of Intellectual Property Law. The views that I'm going to express here today on awarding a patent to the first inventor to file have been adopted as ABA policy, and, therefore, represent the views of the entire 400,000 member Association. Views expressed on other issues have not been approved by the ABA and are, therefore, those of the Section of Intellectual Property standing alone. At the outset, it's important that you note that our members represent a diverse cross section of interests. Our members are attorneys who represent universities, individual inventors, small businesses, and large businesses. Our members are hired to assert patents against infringers. Our members are hired to defend infringers against such claims. |