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NTP is in the business of licensing patents. We would pursue an injunction that would prevent the (defendant) from continuing to sell Blackberrys. That's RIM's

(the defendant's] nightmare.? Now, if NTP is in the business of licensing, it wants money. An injunction really does NTP no good because NTP is not going to make money by RÍM not selling Blackberry PDA's and not running its network. Rather, NTP was using the threat of the injunction to maximize the settlement. Is this the result that caused the founding fathers to provide for patents in the Constitution? Intel believes this result would have baffled the founding fathers.

Unfortunately, there is little hope of change with the current situation without legislative intervention. Until now, courts have almost always sided with the patent trolls in granting permanent injunctions. The Federal Circuit has stated that the denials of permanent injunctions are “rare.”8 Virtually all of the recent reported cases where a district court failed to issue an immediate permanent injunction at the conclusion of a patent case involved medical products. Even in these circumstances, the courts often imposed the injunction six to twelve months after the end of the trial.' Intel believes it is a gross distortion of the patent system to permit trolls to use the threat of injunctions to try to maximize their monetary claim, particularly as many of these claims are based upon improvidently granted patents bought in bankruptcy.

Therefore, Intel strongly urges this Subcommittee to give legitimate companies the tools to fight back against patent trolls by modifying section 283 of Title 35 on Patents to require that courts will fully consider the equities when deciding whether to grant a permanent injunction at the conclusion of the patent case. The Semiconductor Industry Association's proposal, which Intel wholeheartedly supports, is to add the following language to section 283:

A court shall not grant an injunction under this section unless it finds that the patentee is likely to suffer irreparable harm that cannot be remedied by payment of money damages. In making or rejecting such a finding, the court shall not presume the existence of irreparable harm, but rather the court shall consider and weigh evidence, if any, tending to establish or negate any equitable factor

relevant to a determination of the existence of irreparable harm. In addition to making this amendment to reduce the odds that litigation concerning improvidently granted patents clog the courts, Intel understands that the Subcommittee is exploring third party and applicant submission of prior art, estoppel and inter partes reexamination, the application of section 112 during reexamination and declaratory relief and offers to license.

Intel believes that the proposal to permit third parties to submit prior art in opposition to published patent applications is laudable. Getting better prior art before the Patent Office would improve patent quality and it is in the effected parties' best interest to ensure that the Patent Office does a good job. Third party prior art submissions that were only submitted for the purpose of delay should prove apparent to examiners and a reasonable fee to submit the art would remove most frivolous submissions. We believe with minor rewriting of the rules regarding patent protests that this can be affected.

Intel understands that requiring a prior art search by patent applicants has also been proposed; however, Intel believes this is a superfluous and a needless expense that will prove counterproductive. I estimate that this would add at least $500 to the applicants' costs for filing, and in Intel's case, this would add over $1 million to our costs each year. Further, applicants would merely submit all of the results of their search to avoid any question of inequitable conduct. As a result, the Patent and Trademark Office would be burdened with irrelevant prior art and it would be harder for the examiners to separate the wheat from the chaff. In addition, the Patent Office could not rely on the applicant's search anyway and would redo it. Intel firmly believes that giving the exar ners the resources to do their job and compensating them adequately as proposed in Judge Rogan's Strategic Plan is a far better way to improve the quality of the prior art cited against patent applications.

http://www.forbes.com/2002/11/21/cz-um-1121rim-print.html

8 Rite Hite Corp. v. Kelley Co., 56 F.3d 1538, 1547 (Fed. Ĉir. 1995) (finding that patentees failure to market the patented invention is not sufficient to support the denial of a permanent injunction).

9See, e.g., Schneider (Europe) AG v. Scimed Life Sys., 852 F. Supp. 813 (D. Minn. 1994); Pall v. Micron Separations, Inc., 792 F. Supp. 1298 (D. Mass 1992); Moxness Prods. v. Xomed, Inc., 7 U.S.P.Q.2d 1877 (M.D. Fla. 1986); Shiley Inc. v. Bentley Labs, Inc., 601 F. Supp. 964 (C.D. Cal. 1985).

Intel also believes that strengthening inter partes reexamination is highly appropriate. First, Intel believes that expanding the authority of the Patent and Trademark Office to address the enabling disclosure, written description and other requirements in 35 U.S.C. $ 112 would be appropriate. Such technical issues are often best resolved before patent examiners who have technical expertise rather than before district court judges and juries.

Nonetheless, inter partes patent reexamination before the Patent Office has a major drawback: the res judicata effect of the reexamination for “issues that could have been raised before the Patent Office" as provided currently in section 315(c) of Title 35 is too broad. This language, which largely tracks the language in the Restatement Second of Judgments, has enormous breadth. It leaves anyone submitting an inter partes request at the mercy of a subsequent decision that newly uncovered prior art could have been found earlier and therefore should have been submitted in the reexamination. Intel does not believe that the breadth of res judicata in case law should be imported into reexamination. The impact and burdens of litigation that led to the doctrine of res judicata are far greater than those arising from patent reexamination procedure. Therefore Intel requests that this language be deleted from section 315(c). Otherwise, few companies will be willing to use inter partes reexamination.

Intel also believes that addressing willful infringement would be helpful and reverse a fundamental flaw in current U.S. law. The original, constitutional premise and social contract behind patents is inventors will disclose their inventions to the public in return for the public getting the benefit of their patent's teaching. 10 In exchange, the inventor gets her patent. 11 The idea is that scientists would be able to study patents to create future inventions.

However, the case law on willful infringement prevents such studying. An award of enhanced damages following a finding of willful infringement can result from a single engineer in a company simply reviewing another company's patents. This studying of patents that even the Supreme Court has lauded i2 should not trigger the enhanced damages that can be awarded for willful infringement. Indeed, many companies forbid their engineers from studying third party patents to avoid the charge of willful infringement. If a patentee wants to recover enhanced damages as permitted by a finding of willful infringement, the patentee should be required to provide the potential defendant with a detailed notice of the patent infringement. That notice should be at least sufficiently detailed to enable the defendant to bring a declaratory relief action. This is the position of the Intellectual Property Owners Association.

However, Intel believes that Congress should take a further step and also require the patent owner to set forth which claims it believes are infringed by which product and why. Many corporate patent counsel receive at least weekly letters from third parties regarding patents. That letter may be enough notice to trigger a willful infringement charge. Paying $40,000 per patent for an opinion of counsel to be used to rebut the charge of willful infringement is not cost effective given the volume of such notices. Nor is filing declaratory infringement actions an appropriate remedy since these “notices letters” are far too commonplace. Imposing on the patentee the minor burden of adding a few paragraphs to a letter explaining why the patentee believes infringement exists puts the burden in the appropriate place if the patentee wants it damages multiplied by two or three due to a finding of willful infringement. These paragraphs should specify which claims are infringed by which products and why. This would avoid the added burden of enhanced damages being awarded for improvidently granted patents.

In conclusion, Intel believes that the initiatives that I have outlined along with implementing Judge Rogan's Strategic Plan would greatly enhance patent quality. I would like to thank the Subcommittee for this opportunity to testify.

Mr. SMITH. Thank you, Mr. Simon.
Professor Thomas.

10 See, e.g., Kewanee Oil. Co. v. Bicron Corp., 416 U.S. 470, 481 (1974).

11 See Kurt M. Saunders, Patent Non-use and the Role of the Public Interest as a Deterrent to Technology Suppression, 15 Harvard Journal of Law & Technology 1, 62 (1998).

12 Id.

STATEMENT OF JOHN R. THOMAS, PROFESSOR OF LAW,

GEORGETOWN UNIVERSITY Mr. THOMAS. Thank you, Mr. Chairman. I am pleased to have the opportunity to testify today. I appear here in my personal capacity as a concerned observer of the patent system.

The Subcommittee has wisely identified the most pressing issue in contemporary patent administration. Persistent accounts suggest that patent quality stands at levels that are not socially optimal.

The PTO has proposed a number of reforms to patent acquisition procedures to address the issue. But given the PTO's limited rulemaking authority, legislative reforms may be the best option.

As we approach the issue of patent quality, it is important to remember that patents are more important by any conceivable measure today than they were a generation ago. Also, the PTO finds itself

in an extremely difficult working environment. In this milieu, the imposition of modest increases in the responsibilities of patent applicants strikes many observers as a sound policy choice. Many of the proposals the Subcommittee considers today would do just that, and I believe they are worthy of extended consideration.

One of the proposals would ask applicants to perform a prior art search, and also to explain in some level of detail the references that they submit. I think this is a good idea, because it is a desirable reform in an era of diminishing PTO resources, and it comports with existing patent policies.

When I teach patent law, one of the messages to the students is libraries, not laboratories. We want technologists to look to existing proprietary technologies and the prior art, rather than engage in duplicative R&D that is more expensive. Having applicants perform a mandatory prior art search comports with this goal, because they should know what is out there.

Patent applicants already have to include such a statement when they submit foreign language references for which no translation is available. So this measure is really more of an extension of existing duties than a full fledged radical reform. Individuals have to perform due diligence when they file lawsuits, when they file SEC statements, when they ask the Government for other privileges. Why should the duty for patent applicants be any different?

Statements of relevance might also discourage the current counterproductive strategy of some patent applicants, in which they submit hundreds of references to the examiner, and leave the Patent Office to figure them out. I also believe that the increased receptivity of third party submissions will allow the U.S. PTO to take advantage of the increased knowledge of the public.

Also, there is wide agreement that inter partes reexamination has not successfully shifted patent challenges from the courts to the U.S. PTO. As originally enacted, its appeal provisions were too limited, its substantive scope too narrow, and its estoppel provisions excessive. Previous legislation has solved the problem of the appeal provision. Many commentators believe it is time to enhance the substantive scope of reexam, and also to limit the estoppel effects.

This proposal would do those things. I would encourage the Subcommittee to expand the substantive basis for ex parte reexamination to mirror that of inter parte reexamination. I am aware of such concerns about strategic behavior that some commentators believe would apply if this provision was enacted, but I would observe that many foreign patent offices have had similar provisions in place for years and these concerns have not been realized.

Now, the current proposal also states that any communication by a patent owner sufficient to create liability for a willful infringement would also create declaratory judgment jurisdiction. The apparent policy goal of this proposal was quite sound. Patent proprietors should not be able to cause concern over enhanced damages, without allowing the patent to be immediately challenged in court. However, declaratory judgment jurisdiction rests upon a constitutional basis, the requirement of a case or controversy. That is something this Subcommittee can legislate around very easily.

So if you want to pursue the policy goal, I would encourage taking the opposite tack, stating that unless the patentee makes a charge of infringement sufficient to invoke declaratory judgment jurisdiction, that then there can be no liability for willful infringement. I somewhat believe this is a second best solution, with the optimal solution being getting rid of any enhanced damages in the patent law.

I encourage the Subcommittee to continue thinking creatively about solutions to the patent quality problem. I believe that the extent of current patent quality problems as well as the increasingly difficult circumstances that the U.S. PTO finds itself today merit the establishment of an Office of Patent Quality Review. This office could develop measures of patent quality, both in terms of the process, the examination process, and the product, issue patents. I believe that such an office should not exist within the U.S. PTO, or even within the Department of Commerce but rather the Federal Trade Commission, an agency with experience and expertise in competition law and consumer affairs.

Thank you.

[The prepared statement of Mr. Thomas follows:)

PREPARED STATEMENT OF JOHN R. THOMAS I am honored to have this opportunity to appear before the Subcommittee. I testify today on my own behalf as a concerned observer of the patent system.

The Subcommittee has appropriately identified patent quality as a crucial issue of contemporary patent administration. Government, industry, academia and the patent bar alike have long insisted that the USPTO approve only those patent applications that describe and claim a patentable advance. Quality patents are, in short, valid patents. Such patents may be reliably enforced in court, consistently expected to surmount validity challenges, and dependably employed as a technology transfer tool. Quality patets fortify private rights by making their proprietary uses, and therefore their value, more predictable. They also clarify the extent to which others may approach the protected invention without infringing. These traits in turn strengthen the incentives of private actors to engage in value-maximizing activities such as innovation or commercial transactions.

In contrast, poor patent quality is said to hold deleterious consequences. Large numbers of improvidently granted patents may create in terrorem effects on entrepreneurship, ranging from holdup licensing to patent thickets. They also create duplicative, deal-killing transaction costs, as potential contracting parties must revisit the work of the USPTO in order to assess the validity of issued patents. Poor patent quality may also encourage activity that is not socially productive. Attracted by large damages awards and a porous USPTO, rent-seeking entrepreneurs may be attracted to form speculative patent acquisition and enforcement ventures. Industry participants may also be forced to expend considerable sums on patent acquisition and enforcement. The net results appear to be reduced rates of innovation, decreased patent-based transactions, and higher prices for goods and services.

Unfortunately, despite extraordinary efforts by the USPTO to improve patent quality, the problem remains. Persistent accounts suggest that patent quality remains at less than optimal levels. Many of the causes of this state of affairs are beyond the control of the USPTO. Strict Federal Circuit standards for rejecting applications, soaring application rates, lean fiscal policies and an increasingly ambitious range of patentable subject matter are among the difficulties faced by the USPTO in achieving a rigorous level of review. Legislative reforms may to a long way towards increasing the stringency of USPTO review, to the ultimate benefit of industry and consumer alike.

In my view, the two most profitable mechanisms for improving patent quality involve: (1) a modest expansion of the responsibilities of patent applicants; and (2) increased engagement of members of the public. First, as the grant of a patent provides innovators with a powerful commercial tool, many of us believe that applicants should bear commensurate responsibilities. Second, the USPTO should be better able to employ "private patent examiners” to assist in examination tasks. Because the reforms considered today work towards these goals, I favor their serious consideration.

Promotion of Third Party Submissions and Inter Partes Reexamination. I believe that increased receptivity to third party submissions will allow the USPTO to take advantage of the knowledge of interested members of the public, and therefore support this proposal wholeheartedly. As well, there is widespread agreement that inter partes reexamination has not successfully shifted patent challenges from the courts to the USPTO. As originally enacted, its appeal provisions were too limited, its substantive scope too narrow, and its estoppel provisions excessive. Previous legislation has solved the problem of its appeal provisions; I agree that it is time both to include § 112 as a basis for provoking an inter partes reexamination, as well as to limit the potential estoppel effects of invoking this proceeding. I would also encourage the Subcommittee to consider expanding the substantive basis for ex parte reexamination to mirror that of inter partes reexamination.

Mandatory Prior Art Searches. A compelled applicant prior art search is not only a desirable reform in an era of diminishing USPTO resources, but one that comports with existing patent policies. The patent system aspires to send technologists to “libraries, not laboratories:” firms are encouraged to consult the prior art and patent literature before completing expensive R&D in order to see whether a desired technology already exists. A mandatory prior art search fully comports with this goal. Patent applicants already include such statements when submitting foreign language references for which a complete translation is unavailable, so this proposal is not so much a sweeping reform but an expansion of existing duties. Statements of relevance must also discourage the current, counterproductive strategy of some patent applicants, in which they submit hundreds of references and leave the USPTO examiner to sort them out.

Preliminary Injunctions. I encourage clarification of this proposal. The four traditional preliminary injunction standards are:

(1) whether the plaintiff will probably succeed on the merits; (2) whether irreparable harm to the plaintiff would result if the injunction is

not granted; (3) the balance of harms between the plaintiff and defendant if the injunction

is allowed; and (4) whether the injunction will have an impact on the public interest. The current proposal would compel consideration of five additional factors, which currently are probably subsumed within the second, “irreparable harm” factor, and the fourth, “public interest” factors. It is not entirely clear whether this legislation would create a nine-factor test or simply flesh out the second and fourth factors. Although lists of factors in the law tend not to specify the exact relationship between the different factors—they are more a list of ingredients than a recipe the fact that these factors are stated separately suggests that they are of equal dignity and worthy of equal consideration.

Declaratory Relief and Offers to License. The current proposal states that any communication by a patent owner sufficient to create liability for willful infringement would also create declaratory judgment jurisdiction. The apparent policy goal of this proposal is quite sound: patent proprietors should not be able to cause concern over enhanced damages without allowing the patent to be immediately chal

137 C.F.R. $ 1.98(a)(3Xiii).

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