front of efforts to strengthen and improve the operation of the USPTO. Granting patents that cannot withstand the rigors of a court challenge does not serve the interests of the USPTO user community. It is costly and wasteful of valuable resources that could be put to better use in other endeavors. Moreover, the existence of patents that confer unwarranted rights of exclusivity may deter lawful technical and marketing activity by others. On the other hand, the ability to protect investments in research through the grant of strong patent rights is equally critical. AIPLA believes that efforts to strengthen and improve USPTO operations should therefore be governed in every instance by a concern, first and foremost, for improving quality of the rights granted under patents and trademark registrations.

In the original 21st Century Strategic Plan released by the USPTO in June 2002, and in the revised 21st Century Strategic Plan released in February of this year, there were several proposals that were aimed directly or indirectly at improving patent quality. AIPLA joined with other user groups to support these proposals in a letter to OMB:

1) Expanding the "second set of eyes" review concept, successfully used with business method patent applications, to other technology areas;

2) Enhancing the reviewable record by increasing the amount of information included in patent application files regarding applicant/examiner interviews;

3) Creating a competitive compensation package for Supervisory Primary Examiners to attract and retain the best employees for these jobs;

4) Developing tests to determine the suitability of candidates for the position of examiner;

5) Establishing “training art units" for new examiners in high volume hiring

areas;

6) Developing a testing process to certify examiners for promotions;

7) Making greater use of Search Reports prepared under the Patent Cooperation Treaty and by other qualified patent offices; and,

8) Expanding patent application work product reviews, including work product reviews of primary examiners.

AIPLA believes there is more that can be done to improve patent quality. First and foremost, enactment of H.R. 1561, with the amendment added during the Subcommittee's markup that would allow the USPTO to retain and use all of its fee revenue, would constitute a major step in that direction. The ability to retain and use all of its fee revenues would obviate the need for the USPTO to outsource patent searches to private search contractors to reduce patent pendency. Even if such outsourcing does reduce pendency, its long term impact on patent quality is unknown. If the USPTO is permitted to retain and use all of its fee revenues, it could, over time, hire and train the number of patent examiners needed to conduct the quality searches and examinations necessary to grant the quality patents sought by

users.

This is not a criticism of the Office. It has been forced to seek ways to improve its operations precisely because it has not been allowed to retain and use all of its fee revenues. If H.R. 1561, as amended by the Subcommittee becomes law, the USPTO will have the resources it has said it needs to do the job properly.

PATENT QUALITY PROPOSALS

Today's hearing focuses on six possible initiatives to enhance patent quality. AIPLA addresses these six initiatives on the basis of a draft bill shared with us by the Subcommittee staff which outlines the six initiatives in five sections of the draft bill. Some of these initiatives are similar to proposals we have reviewed in the past, while others are new. Although we do not embrace all of the concepts presented in the draft bill, we do appreciate the Subcommittee's efforts to improve the patent system and the opportunity to engage in this dialogue.

Third-Party Submission of Art During Examination

Section 2 of the draft legislation would permit any party to submit prior art, including "evidence of knowledge or use, or public use or sale,” during the examination process for use by examiners in making patentability determinations under sections 102 and 103. The Office would have to consider such submissions if they are in writing, accompanied by a prescribed fee, set forth the “teaching and applicability" of such references and the basis on which they are offered, and include a sworn declaration as to relevance and accuracy.

We are sympathetic to the motivation underlining this proposal. Getting the most relevant information regarding the patentability of each invention before examiners

is essential for issuing valid patents. However, the limited benefits of allowing pregrant submissions of prior art are far outweighed by the problems it could create for applicants and the burdens it would place on the USPTO. Few members of the public would monitor published applications for the purpose of ensuring that the best prior art was considered by the examiner. Even the opportunity to do so will diminish over time as the USPTO begins to reach its goal of 18-month average pendency. The proposal would, however, allow any member of the public, wishing to prevent a competitor from receiving a patent in a timely manner, to delay the issuance of a patent by submitting such prior art in a piece-meal fashion. As long as the conditions set forth are satisfied, the Office would be required to continue the examination and consider the submission. Small businesses and independent inventors could be particularly harmed by their inability to promptly receive a patent needed to raise venture capital or to enjoin a competitor's activity.

Conversely, one could even conceive of circumstances under which a patent applicant might submit relevant prior art directly or through an intermediary for the purpose of delaying the issuance of the applicant's patent, especially considering that publication at 18-months is optional and patent term is restored for pendency exceeding three years.

Moreover, such submissions would increase the workload on an already overloaded examining staff. Examiners would be required to consider new categories of prior art. The legislation expands the prior art to be evaluated by examiners to include evidence of "knowledge," "use," "public use," (is the former "use" non-public?) and "sale." The legislation does not provide standards for the evidence other than requiring that it be in written form; nor does it address how an applicant might overcome such submissions. In addition to the extra burden on examiners, there would also be a considerable training challenge imposed on the USPTO to prepare its 3500 patent examiners to be able to evaluate and handle such submissions.

It should be noted that Japan had a pre-grant opposition procedure for a number of years. The General Accounting Office reported to Congress in July of 1993 that 45 percent of the U.S. companies responding to their survey said that at least one of their Japanese patent applications had been opposed in Japan within the previous five years. Of those, 71 percent had 1 to 5 opponents, 15 percent had 6 to 10 opponents, 9 percent had 11 to 50 opponents, and 2 percent had more than 50 opponents. Delays in receiving patents, especially for important inventions, were rampant. There were examples, under this pre-grant procedure where applicants actually had their patents issued after their term of protection had expired. Following years of urging by the United States Government and industry groups, the Japanese finally agreed to end the practice in 1996. For the United States to now embrace such a procedure would set a most unfortunate precedent.

Mandatory Prior Art Search by Applicants

Section 3 of the draft legislation would require all applicants to conduct a preliminary search for prior art and include the documentation of such a search in their patent applications. The documentation must include an explanation of the method of conducting the search, the databases searched, the results of the search, a statement of the "teaching and applicability" of each reference, and any other documentation requested by the Office that is reasonably necessary to examine an application. The applicant would also be required to submit a sworn declaration attesting to the relevance and applicability of each reference and the accuracy of the documentation. Any person who intentionally fails to submit the required documentation will be considered to have fraudulently withheld information.

Again, the goal of this provision is laudatory: to develop a more complete record of prior art so that examiners can conduct more thorough examinations to strengthen the resulting patents. While an admirable goal, we do not believe that the provision would guarantee information that is appreciably better or more complete than is presently available through examiners' searches coupled with the requirements of 1.56 of the Rules of Practice in Patent Cases (Rule 56). The proposed search would, however, impose a significant burden on applicants, add to the mountains of paper presently flooding the Office, and add to the workload of examiners who would have to review such submissions.

By requiring each applicant to conduct a preliminary search, all applicants, even those whose knowledge of the prior art in his or her field is as good as, or better than, any data base, would nonetheless be required to conduct such a search and include the required documentation in his or her application. Intentional failure to comply would result in the applicant being considered to have committed fraud on the Office. Moreover, the documentation would have to include a statement of the teachings of each reference, not just those relevant and material to the patentability of the invention. These requirements would substantially increase the costs to appli

cants of preparing patent applications and to the Office for reviewing applications with questionable benefit for patent quality.

The provision offers no guidance regarding the scope of the search, merely requiring that "a preliminary search" be conducted. Examiners would be well advised to be chary about relying too heavily on searches whose quality is unknown. And while the applicant must attest to the accuracy of the documentation, that merely addresses the accuracy of the reported search results, not its comprehensiveness.

To the extent that examiners would be required to sort through and review the documentation submitted, the preliminary search would impose a burden of dubious benefit on the PTO, an office already plagued by enormous backlogs. The likely result would be increased pendency of applications with no appreciable improvement in the quality of patents granted.

These comments should not be understood as suggesting that the proposal should be further refined to impose even greater burdens on patent applicants. As previously noted, applicants are already required to submit relevant materials to the USPTO. Rule 56 currently imposes on an applicant a duty to disclose to the Office any information known to that applicant to be material to patentability. Information that is material to patentability includes any information that establishes, by itself or in combination with other information, a prima facie case that a claim is unpatentable. Importantly, information that is not material to patentability need not be submitted to the USPTO. In addition, where bad faith or intentional failure to disclose such material information to the USPTO becomes known to the USPTO before issue, no patent will be granted.

Another troubling aspect of this proposal is its potential to increase the costs of litigation. One can imagine endless discovery of the added documentation portions of patents by litigants in efforts to elevate marginal information into material information or to contest the sworn statement that such information is relevant. Of course, some discovery and "fishing expeditions" of this nature occur today, but the increased obligations that this proposal would place on applicants would surely increase such activity as well as the costs of patent litigation.

Inter Partes Reexamination

Section 4 of the draft legislation would make two changes to Chapter 31, Optional Inter Partes Reexamination Procedures. First, it amends Section 315(c) of title 35 to remove the estoppel effect of an order for reexamination in any later assertion of invalidity arising under 28 U.S.C. 1338 on any grounds a third-party requester "could have raised" in the inter partes reexamination proceeding.

The goal of the estoppel provision in section 315(c) is to prevent third-parties from having the proverbial "two bites of the apple;" being able to challenge validity during an inter partes reexamination and again during subsequent litigation on the same grounds. It seeks to strike an appropriate balance between the interests of the public and the interests of patentees. The public has an interest in being allowed to challenge overly-broad or invalid patents. Patentees have an interest in not being subjected to harassment from serial challenges to their patents on the basis of information which was available to a third-party challenger at the time that an inter partes reexamination request was filed. To protect the public's interest, section 315(c) would not estop an assertion of invalidity based on newly-discovered information unavailable to a third-party requestor at the time of the inter partes reexamination proceedings.

AIPLA believes that the balance struck in the existing section 315(c) is appropriate and opposes the proposed amendment. We see no justification for a third party, who is aware of information, or who reasonably could have become aware of such information, not to base a reexamination request on all such information. This balance was struck to ensure that patentees of limited means would not be subject to harassment from serial challenges of a third party requestor based on information that the requestor could have submitted initially, and we believe it is a correct balance.

The estoppel provision may not be the principal reason for the limited number of inter partes reexamination requests which have been filed to date. Only those patents issuing on applications filed after the effective date of the American Inventors Protection Act, November 29, 1999, are subject to it. Given the long and growing pendency of patent applications filed after that date, it is no surprise that to date few requests have been filed. In addition, until 35 U.S.C. 141 was amended just this past November 2nd, a third-party requestor could not appeal an adverse determination of patentability by the Board of Patent Appeals and Interferences to the Court of Appeals for the Federal Circuit. The fact that only the patentee was permitted to appeal an adverse decision to the Court was a powerful deterrent to using the inter partes reexamination procedure. Further, unlike ex parte reexamination, the

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real party in interest must be identified. This was again a safeguard inserted into the inter partes reexamination procedure to protect patentees from serial challenges from a single, unknown, third-party. The downside of this safeguard is that third parties are reluctant to file inter partes reexamination requests out of concern that, if they are not successful, they have identified themselves as possible infringers. Again, this was the result of a careful balancing of interests by Congress when it established inter partes reexamination. Finally, there is a reluctance to request an inter partes reexamination where the grounds for asserting invalidity are limited to patents and printed publications. If the reexamination request is unsuccessful, the utility of those references could be compromised in subsequent litigation where other grounds can be raised.

Given these disincentives for using inter partes reexamination proceedings, it is not surprising that few requests have been filed. The fact that 14 requests have been filed in the first 6 months of this year (as compared to two in 2001 and six in 2002) suggests that more time is needed before the impact of the estoppel and other provisions can be fully evaluated.

Section 4 of the draft legislation also expands the grounds upon which an assertion of invalidity can be made during an inter partes reexamination proceeding by amending section 311 of title 35 to include any requirement under section 112. As previously noted, requestors are currently limited to challenging the validity of claims on the basis of patents or printed publications.

AIPLA has previously testified in support of allowing third parties to challenge patents in post-grant opposition proceedings on the basis of section 112, paragraphs 1 (except "best mode") and 2. With the exception of best mode (for the reason that examiners have no way of investigating this anachronistic requirement), examiners currently scrutinize applications for the requirements of paragraphs 1 and 2 of section 112 during the initial examination as a matter of routine. Allowing challenges on the basis of paragraphs 1 (excluding best mode) and 2 of section 112 would be a constructive amendment to section 311.

AIPLA does not believe that patents should be challenged in the USPTO in inter partes reexaminations on the basis that a patentee did not disclose the best mode contemplated by the inventor for carrying out his or her invention. This is not the best mode ultimately developed by an inventor for practicing the invention. This is the best mode contemplated by an inventor for carrying out the invention at the time the application was filed. This issue includes consideration of the applicant's intent, which is the subject of a great deal of discovery by defendants in patent litigation, usually accomplishing little more than increasing the costs of litigation. To allow this ground to be raised in inter partes reexamination would immeasurably complicate the procedure and frustrate the goal of reexamination of providing a relatively quick and inexpensive alternative to litigation.

We do not believe the remaining paragraphs of section 112 dealing with claim form (independent, dependent, and multiple dependent) and means-plus-function claims are appropriate grounds to be raised in an inter partes reexamination proceeding. Paragraphs 3, 4, and 5, which address claim form and how dependent and multiple dependent claims may be written and construed, are more procedural than substantive and are not appropriate grounds for challenging validity.

Section 112, paragraph 6, allows an applicant to express an element in a claim for a combination as a means or step for performing a specified function without the recital of structure in the claim. To determine what the claim covers, one is directed to look to the disclosure in the specification to determine the corresponding structure, material, or acts which limit the claimed invention. Paragraph 6 thus presents an alternative form of claiming and instructions for ascertaining what such a claim includes and excludes. It is more directed to allowing applicants flexibility in claiming their inventions and to enabling the public to determine whether a given product or process infringes the claim than to providing a ground for challenging validity. Accordingly, we do not believe paragraph 6 is an appropriate basis for challenge in an inter partes reexamination proceeding.

Injunctions

Section 5 of the bill would amend section 283 of title 35 to add five specific factors that a court should consider in determining whether to grant a preliminary injunction against a person marketing a product alleged to infringe a patent. The court is to consider:

1) whether the party seeking the injunction is marketing a product covered by the patent,

2) whether the party is engaging in activities to begin marketing such a prod

uct,

3) whether there are alternatives to the product,

4) the adverse effects of removing the product from the market, and

5) the extent to which the party seeking the injunction will suffer harm that cannot be remedied by the payment of damages.

Section 283 of title 35 currently reads as follows:

"§ 283. Injunction

"The several courts having jurisdiction of cases under this title may grant injunctions in accordance with the principles of equity to prevent the violation of any right secured by patent, on such terms as the court deems reasonable." To obtain a preliminary injunction, a party must establish (1) a reasonable likelihood of success on the merits; (2) irreparable harm; (3) the balance of hardships tipping in its favor; and (4) the impact of the injunction on the public interest. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384, 2 USPQ2d 1926 (Fed. Cir. 1987); Hybritech Inc. v. Abbott Lab., 849 F.2d 1446, 7 USPQ2d 1191 (Fed Cir. 1988); Reebok International, Ltd. v. J. Baker, Inc., 32 F. 3d 1552 (Fed Cir. 1994). The trial court must engage in an evaluation and balancing of these factors and the circumstances surrounding each. Illinois Tool Works, Inc. v. Grip-Pak, Inc., 906 F. 2d 679 (Fed. Cir. 1990); Polymer Technologies, Inc. v. Bridwell, 103 F. 3d 970 (Fed. Cir. 1996).

A "clear showing" of patent validity and infringement will create a presumption of irreparable harm. Where validity and infringement have been clearly established, immediate irreparable harm is presumed. Smith International, Inc. v. Hughes Tool Company, 718 F. 2d 1573 (Fed. Cir. 1983). Some courts have even found that, where there is a strong showing of patent validity, an invasion of the inventor's right to exclude under the patent should be sufficient irreparable harm for an injunction without a showing that the infringer is financially irresponsible. Smith International, Inc. v. Hughes Tool Company, 718 F. 2d 1573 (Fed. Cir. 1983); Zenith Laboratories, Inc. v. Eli Lilly and Co., 460 F. Supp. 812 (D.N.J. 1978).

However, like any presumption, a presumption of irreparable harm may be overcome by facts in the record. Rosemount, Inc. v. United States Int'l Trade Comm'n, 910 F. 2d 819 (Fed Cir. 1990); Progressive Games v. Shuffle Master, 69 F. Supp 2d 1276; 1999 U.S. District Lexis 20783. Even when irreparable injury is presumed and not rebutted, it is still necessary for a court to consider the balance of hardships on the parties. H.H. Robertson, Co. v. United Steel Deck, Inc., 820 F.2d 384 (Fed. Cir. 1987); Datascope Corp. v. Kontron Inc., 786 F. 2d 398 (Fed. Cir. 1986).

As the question of whether to grant an injunction is founded on principles of equity, a court has the discretion to weigh the relevant hardships on the parties. The court's consideration could include any number of factors, including the effect on the patentee's market share, business reputation and goodwill, as well as the parties' relevant size. Bell & Howell Document Management Prods. Co. v. Altek Systems, 132 F.3d 701 (Fed. Cir 1997); Illinois Tool Works, Inc. v. Grip-Pak, Inc., 906 F. 2d 679 (Fed. Cir. 1990); Progressive Games v. Shuffle Master, 69 F. Supp 2d 1276; 1999 U.S. District Lexis 20783. In determining whether the likelihood of irreparable harm is sufficient to warrant a grant of a preliminary injunction, courts have considered whether a party makes, or plans to make, the patented product. Roper Corp. v. Litton Systems, Inc., 757 F. 2d 1266 (Fed. Cir. 1985).

Given these well developed judicial doctrines regarding the equitable factors a court should take into account when determining whether to grant a preliminary injunction, AIPLA believes amending the current statute to include these five specific factors in section 283 is unnecessary at best, and could be detrimental to the proper functioning of the patent system. Trial courts already have the power to evaluate these and many other equitable considerations in determining whether a preliminary injunction should be granted. Courts do not routinely issue a preliminary injunction to stop an alleged patent infringement. An accused infringer may present evidence that the various factors do not call for the grant of a preliminary injunction.

The proposed amendment is heavily weighted to make the court's determination of whether to grant a preliminary injunction turn on whether the patent is being "worked," that is, whether the protected invention is being commercialized. As noted above, the question of whether a patentee makes or plans to make a patented invention is already a factor courts may consider in weighing whether to grant a preliminary injunction, but it is one of many factors and not the predominant factor. To focus on whether a patent is being worked would have a number of negative consequences for America's innovative community.

The United States patent system is founded on Article 1, Section 8, Clause 8 of the Constitution that grants Congress the power "To promote the progress of . . .