You talk about an incredibly successful system in the University of California, Wisconsin, Stanford. There are a number of universities that now work that problem out very well. I think that universities can and will thrive in either environment. The Bayh-Dole Act is an example of how universities came into thrive where government couldn't thrive, where government couldn't really develop these patents. So the experiences I have had in working with universities and seeing that is that they adjust very rapidly and can thrive under either system.

Senator FEINSTEIN. But are you saying that they are better off under the "first to invent" rather than "the first to file?"

Mr. DUDAS. I am not saying that they would be better off under "first to invent," and I apologize. They probably would be better able to articulate, if they do feel that way, why they would feel that way. I find that the system is one that can adjust either way and I don't feel that a "first to invent" system-or at least it is not obvious to me why that would be a preferred method for universities. Senator FEINSTEIN. Could you tell me a little bit more about the backlog in the patent office and what other steps you would take to ensure that the patent office would be able to handle the new class of proceedings on top of its existing workload?

Mr. DUDAS. Yes, two questions. One was about the backlog and the second is how we can handle the hiring that we are doing now. Senator FEINSTEIN. The number in the backlog.

Mr. DUDAS. The number in the backlog, absolutely. In the last 20 years, the Patent and Trademark Office has broken a record every single year for more than 20 years in how many applications it has received. That is great news for our economy. It is great news for the United States because, of the American filers, that number has consistently gone up.

It is also great news for the USPTO, but it is a challenge as well. Despite the growing numbers of applications, certainly in the last several years and years before we did not hire in record numbers. We now have, because of the bill that was passed last year-I am

sorry.

Senator FEINSTEIN. I guess I am asking you what is the current backlog.

Mr. DUDAS. The current backlog is approximately 490,000 applications in the backlog.

Senator FEINSTEIN. That is a big backlog.

Mr. DUDAS. That is a very big backlog.

Senator FEINSTEIN. Is that the highest ever?

Mr. DUDAS. It is the highest ever, and it won't comfort you much to know that it will certainly grow over the next few years.

Senator FEINSTEIN. So what are you doing to have at it, so to speak?

Mr. DUDAS. What we are doing now is we are hiring more examiners now. We are going to start getting at that backlog. The reason that backlog will grow is because pendency is measured going backward, basically. If pendency is at 28 months, that means we are measuring a patent that comes out today and 28 months ago it was filed.

So we know you could hire 12,000 patent examiners now and it wouldn't affect where it goes in the next two years.

What you will see is three years down the line, four years down the line, the hiring we are doing will have an effect. We are hiring at record numbers now more patent examiners than we have ever hired before. Eight hundred and sixty patent examiners is what we plan to hire this year. We have already achieved 80 percent of the goal.

Senator FEINSTEIN. How many do you have now?

Mr. DUDAS. We are going from 3,600 to about 4,400, and there will be some attrition in there. We are hiring a quarter of our workforce.

Senator FEINSTEIN. I guess the second part-well, I guess the hiring is the answer to the second part of the question.

Thank you very much, Mr. Chairman.

Chairman HATCH. Well, thank you, Senator.

Could I just ask you for some help? We would like you to continue to work with us as we fashion patent reform legislation. We would like to have the best advice you can give us.

Secondly, Senator Lieberman and I will likely be shortly reintroducing our bioterrorism legislation. This bill has several IP provisions in it and I just want to know if Senator Lieberman and I can count on you to aid us and help us with that on this very important bipartisan bill.

Mr. DUDAS. Absolutely. Whatever we can do we will do, and thank you very much for having me.

Chairman HATCH. Thank you so much. We appreciate you taking time, we appreciate you being here and we look forward to working with you on these issues and we appreciate the good work you do. Mr. DUDAS. Thank you.

Chairman HATCH. Thanks so much.

Panel two will consist of Dr. Richard C. Levin, President of Yale University, from New Haven, Connecticut, and Co-Chair of the Committee on Intellectual Property Rights in the Knowledge-Based Economy, Board on Science, Technology and Economic Policy of the National Research Council, and Dr. Mark B. Myers, Visiting Executive Professor, Management Department, at the Wharton Business School at the University of Pennsylvania, in Philadelphia, Pennsylvania, and Co-Chair of the Committee on Intellectual Property Rights in the Knowledge-Based Economy, Board on Science, Technology, and Economic Policy, National Research Council.

We welcome both of you here today and look forward to hearing what you have to say. We will start with you, Dr. Levin, first, and then we will go to Dr. Myers.

STATEMENT OF RICHARD D. LEVIN, PRESIDENT, YALE UNIVERSITY, NEW HAVEN, CONNECTICUT, AND CO-CHAIR, COMMITTEE ON INTELLECTUAL PROPERTY RIGHTS IN THE KNOWLEDGE-BASED ECONOMY, BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, NATIONAL RESEARCH COUNCIL

Mr. LEVIN. Chairman Hatch, Senator Leahy, Senator Feinstein, thank you for offering me the opportunity to discuss the National Research Council's recommendations for improving the patent system in the United States. Patents play a crucial role in promoting the technological innovation that is the most important underpin

ning of economic growth. I am grateful to the Subcommittee on Intellectual Property for scheduling this hearing.

The project undertaken by the National Research Council was the most comprehensive review of the patent system in decades. Our committee was perhaps the first to bring together practicing patent lawyers, judges, academic lawyers and economists, business leaders, technologists and inventors.

We started with highly divergent views, but over the course of our deliberations our views converged and we reached consensus on several important recommendations. We concluded that, on the whole, the patent system is working well and does not need fundamental revision. Yet, we did note some causes for concern.

The sheer volume of patent applications, especially those involving new areas of technology, overwhelms the examination corps in ways that affect the quality and timeliness of decisions. In addition, it has become more expensive to acquire patents, to obtain licenses to patented technologies, and especially to enforce and challenge patents through litigation.

Our recommendations are set forth in greater detail in an accompanying written statement coauthored with Dr. Myers. But, here, I would like to emphasize three main themes.

First, we believe the Congress and the PTO should take steps to ensure the quality of patents that are issued. The single most important step would be the establishment of a simple administrative procedure for opposing a patent after it has been granted, a postgrant review system. The process should be timely and efficient so that uncertainty can be resolved quickly without either inhibiting socially productive investment by competitors in situations where the patent proves to be invalid or, on the other hand, encouraging wasteful investment when the patent proves to be valid.

A new post-grant review system is needed because the existing inter partes reexamination procedure only permits challenges to be lodged on narrow grounds. It is rarely used and has not proven to be effective. The only way to challenge patent through the courts today is to infringe it and to draw either an infringement suit or a demand to take a license. This is an unnecessarily expensive method to resolve doubts about a patent's validity, and disputes take many, many years to resolve.

Patent quality can also be improved by the assiduous application of the non-obviousness standard by the Patent and Trademark Office. The PTO needs to develop new approaches to gathering information about the state of the art in emerging areas of technology, relying on outside experts when patent examiners lack expertise. The committee commends the PTO for the development of guidelines in emerging technology areas such as genomics and business methods. It is important to offer such guidance promptly as new technologies emerge. The committee also recommends that the Congress provide more resources for the PTO to hire needed examiners to improve its information systems and to fund a post-grant opposition procedure.

A second theme beyond that of patent validity is the harmonization of the United States patent system with the European and Japanese systems. Differences among the world's major patent regimes entails wasteful duplication of effort by both inventors and

governments. The committee believes that gains in efficiency from harmonization would be considerable.

The United States is now the only country that gives priority to the first person to reduce an invention to practice. Elsewhere, it is the first inventor to file who is given priority. The latter test is objective. What date did you file with the patent office? The former requires years of discovery, reams of depositions and hours of trial testimony. Moreover, the U.S. is the only country in the world that requires the patent-holder to prove that he or she has disclosed the best mode of practicing a patent. This, too, is costly and time-consuming to prove. Harmonization with global practice makes sense. Finally, the committee recommended that the Congress mitigate other subjective elements in the law that contribute to the extraordinary expense of patent litigation. For example, Congress would be well advised to eliminate or modify the standards governing inequitable conduct. There should be penalties for misconduct by patent applicants, but misconduct should not automatically invalidate a patent.

Similarly, the doctrine of willful infringement should be modified because willfulness is subjective and costly to prove, and the doctrine creates a perverse incentive for inventors to avoid the study of prior art, lest they fail to cite a patent that turns out to be relevant.

In this brief overview, I have not mentioned all the recommendations of the committee which are explained more thoroughly in our written testimony and, of course, in our full report. My colleagues and I on the committee recognize that some of our proposals will engender controversy, but we believe that is imperative that the United States take the steps necessary to ensure the quality of patents, to harmonize patent systems and to reduce the cost of patent litigation.

I would be pleased to answer any questions. Thank you.
Chairman HATCH. Thank you so much.

Dr. Myers, we will take your testimony.

STATEMENT OF MARK B. MYERS, VISITING EXECUTIVE PROFESSOR, MANAGEMENT DEPARTMENT, WHARTON BUSINESS SCHOOL, UNIVERSITY OF PENNSYLVANIA, PHILADELPHIA, PENNSYLVANIA, AND CO-CHAIR, COMMITTEE ON INTELLECTUAL PROPERTY IN THE KNOWLEDGE-BASED ECONOMY, BOARD ON SCIENCE, TECHNOLOGY, AND ECONOMIC POLICY, NATIONAL RESEARCH COUNCIL

Mr. MYERS. Chairman Hatch, Senator Leahy and Senator Feinstein, I join my colleague, President Levin, in thanking you for the opportunity to discuss the recommendations of the National Academy of Sciences concerning the patent system.

Rather than speak from my experience now at the university, I would like to speak from my experience of a career of 37 years that I spent in industrial research and development at both large and small entrepreneurial firms. In the last ten years of my career, I was head of Xerox's corporate research, where I was involved in the process of creation of intellectual property which offered key options for economic growth of the firm. In the creation of new firms,

patents were an imperative to attract the investment necessary to fuel early growth.

Over these many years of experience and practice, there were two very important innovative trends that really had major impact on the ability to establish a firm competitiveness. One is the everaccelerating pace of innovation. Time frames once measured in decades are now measured in years, years are now measured in months, and months are measured in days. A second major trend has been the globalization of markets and technology sourcing. The innovation process is unconstrained in time, place and movement. These trends place new requirements on our patent system. If it is going to continue to enable innovation, as it has so ably done in the past, the quality of patents and issues of potential infringement must be determined earlier in the innovation process. We need common standards of right to use of technology across global markets. Uncertainties with respect to these rights of use create negative incentives for innovation investment. The recommendations of this report speak directly to the needs of patent quality, earlier validity determination, as well as moving us along toward international harmonization.

I would like to join now President Levin and accept questions from the panel.

[The statement of Messrs. Levin and Myers appears as a submission for the record.]

Chairman HATCH. Thank you very much.

Dr. Levin, I am tempted to ask you a question on the minds of many parents, what role will the new essay on the SAT play in college admissions, but I won't ask you that.

Both of you come from leading academic institutions. The NAS report contains a lengthy discussion of the extent to which universities should be liable in patent infringement cases. I will stipulate that probably no party enjoys patent litigation, certainly not universities.

I am struck, however, by the examples that you gave on pages 74 to 76 of your report. This includes several extremely important university-assigned and licensed biotechnology inventions, such as the Harvard mouse and the University of Wisconsin stem cell lines. The Federal Circuit, in Madley v. Duke, distinguished between research, quote, "solely for amusement to satisfy idle curiosity or for the strictly philosophical inquiry is protected," but that "organized scientific research with commercial dimensions is not protected from infringement liability."

Given the manifest commercial character of some universitybased science, why should this type of research be shielded? Your report notes that, quote, "University administrators and legal counsel were uncertain what precautions to take to avoid infringement." Now, as members of the NAS study and key university leaders, can you update us on the developments in this area since the report was written and tell us the extent to which you believe that immunity should be granted to university research and why?

Mr. LEVIN. Well, the committee did not in the end recommend a blanket exemption for university research. We actually looked at the possibility of crafting several types of narrow research exemptions and actually noted strengths and weaknesses of each of them,