and in a sense tossed it back to you, Senator Hatch, and others in the Congress for resolution.

We are concerned about access to research tools, but we have worked out ways of doing it. I mean, I would say that there are increasing numbers of agreements these days within universities, even since our committee completed the substance of its work more than a year-and-a-half ago. We are getting better at figuring out how to license these tools and to make our faculty compliant with taking licenses for the intellectual property they are using. On the other hand, it is important that we not inhibit fundamental research that is undertaken for non-commercial purposes.

Much more is proprietary now in the area of research tools than was the case even a decade ago. So to do even fundamental research in universities now, especially in the genomics area, requires significant numbers of licenses and agreements to be crafted. And we are worried about this, but as I say, it is not easy to craft good language.

In principle, what you would like to do is protect basic research that has no commercial purpose. But, of course, universities are engaged in commercial activity and we shouldn't have an unfair advantage in competition, so we should have to take the same kind of licenses the private sector takes. So you see the dilemma. There is no simple answer to this.

Chairman HATCH. Dr. Myers.

Mr. MYERS. As a study group, we did not come to one mind on this question. Part of it is it is a very complicated issue which people from the university community and industrial community have not yet reached common ground, and so it is clearly going to be the subject of more conversation.

I think, though, it is an extraordinarily important question for the following reason. One of my focuses is on international competitiveness, and particularly competitiveness in U.S. industry. As we have seen the transition of private research in the United States move less from basic science into more downstream-related activities, a great deal of the force of laboratories like Bell Laboratories in the past will be now present in our national research universities.

So our national research universities are going to be increasingly important agents in our competitiveness posture. We are not completely sure how that should be shaped in the future so that we do not harm or destroy what is great about the university research environment. But, clearly, in the kind of knowledge-based economy that we are in today, our national research universities will be key competitive factors of our future.

Chairman HATCH. Thank you.

Senator Feinstein.

Senator FEINSTEIN. No questions.

Chairman HATCH. Let me just ask one other question, then. It is my understanding that the PTO is currently engaged in international harmonization negotiations. Some have expressed concerns that if Congress pushes ahead with international harmonization of the patent system before these negotiations are concluded, it will undercut the United States' negotiating position. This seems

In your opinion, should Congress hold off on harmonization?

Mr. LEVIN. I would offer the point that I think it is in the unilateral advantage of U.S. companies to harmonize; that is to say, no, Congress should not hold off. The things we are proposing in many ways are simply going to be better for firms that are trying to do business around the world. It is going to simplify their lives to operate under one standard, such as the first inventor to file, and save lots of litigation costs right here in the United States. So we think you should go ahead.

Chairman HATCH. As you know, there is a hearty debate taking place over how to change the injunctive relief provisions of the Patent Code. Do either of you have any views on this matter?

Mr. LEVIN. The committee didn't take a position on this.

Do you have a personal view?

Mr. MYERS. No, I would rather not offer a personal position, but we did not discuss this subject.

Chairman HATCH. Let me thank you and the rest of your panel and staff and outside consultants and participants for all the hard work that you have done in producing the NAS report.

Can you give us a sense on what you believe are the highest priorities among the seven key recommendations in the NAS study? Let me just put it this way: If there was one thing that Congress could do to make the patent system better in the future, what, in your opinion, would that be? Similarly, if there were one thing that you could prevent from happening legislatively, what would that be? I would like to have your best advice on those two issues.

Mr. LEVIN. Well, I am very partial to the idea of the post-grant review system. In an environment where technology is changing very rapidly, such as the Internet business patents that were filed in the late 1990s, or at an earlier time genetic patents, having the capacity to quickly determine what kinds of patents are going to hold up, what kinds of patents are going to be valid, is going to create such a stronger environment of certainty for the industrial sector that you will see a more rapid pace of innovation.

People won't hold back in making investments because they are worried that they are infringing. On the other hand, people won't make wasteful investments that turn out to be invalid later. Having a timely way to really test an emerging area of law, which is always the case when there is a new technology—there are new questions to resolve is very, very important. I would say that is the most important of our recommendations.

Chairman HATCH. Thank you.

Mr. MYERS. I would agree with that. I think that I would put it under patent quality. I think patent quality is extremely important, and I think the post-grant review enables that. I would have to slip in, if you would allow me, that international harmonization, as rapidly as we can move there, is a very close second.

Chairman HATCH. Well, thank you very much. We really appreciate you both taking time from your busy lives to come down here and help us try to understand this a little bit better. Thank you very much.

Mr. LEVIN. It is an honor to help. Thank you.

Mr. MYERS. Thank you.

Chairman HATCH. It is an honor to have you here.

We will turn to our third panel now: William Parker, of Diffraction, Limited, in Waitsfield, Vermont; Dean Kamen, President of DEKA Research and Development Corporation, in Manchester, New Hampshire; David Simon, Chief Patent Counsel for Intel Corporation, in Santa Clara, California; Robert A. Armitage, Senior Vice President and General Counsel for Eli Lilly and Company, in Indianapolis, Indiana; Joel Poppen, Deputy General Counsel of Micron Technology, Inc., in Boise, Idaho; and Michael K. Kirk, Executive Director of the American Intellectual Property Law Association here in Washington, D.C.

Mr. Parker, we will begin with you.

STATEMENT OF WILLIAM PARKER, CHIEF EXECUTIVE OFFICER AND DIRECTOR OF RESEARCH, DIFFRACTION, LTD., WAITSFIELD, VERMONT

Mr. PARKER. Mr. Chairman, Ranking Member Leahy-I guess he stepped out of the room-and members of the Subcommittee, my name is Bill Parker and I am Chief Executive Officer and Director of Research for Diffraction, Ltd., a technology and intellectual property-based small business in Vermont. Thank you very much for inviting me to testify today on this most important topic.

In my testimony, I hope to present some of the views of individual inventors and other small entities on needed changes to the United States patent system. As evidenced by the substantial numbers of innovations and patents that spring from small businesses around this great country and the jobs that these innovations create or maintain, these small-scale operations have a significant role to play in the United States economy.

My company, Diffraction, Ltd., is not just small, it is a micro business. This panel's members are by and large from large entities or represent groups of patent-holders. I will try to make this presentation as focused as possible on a few issues of patent reform as they affect individuals and small businesses.

Like many small technology-based businesses, our company was founded by an inventor and patent-holder. In our case, it was my wife Julie. After earning a graduate degree from MIT, having little or no business background, she decided to start her own company to further develop and capitalize on her skills, talents, inventions and discoveries.

She thought it was useful to have a partner in this endeavor, and that is where I came in. As an inventor from childhood with some reasonable commercial successes, I had collected a considerable range of experience learning about the things one did and did not do to capitalize on one's creativity. Fifteen years later, we have three little inventors at home and a company with a staff of 20 innovators. We have produced a number of commercially-viable developments and patents in holography, optics, micro electronics and nanotechnology. We recently launched an effort to develop innovations that may help win the war against terrorism, work supported with Federal government contracts as well as private funds.

It is important to note that we believe our intellectual property in the long term will have value than our tangible output will in the short term. Said a different way, the product of our minds

probably has more value than the things we can make with our hands.

When we have done our inventing job well, we may need to depend on others to take our innovation to the market. Like other inventors that choose the licensing route over manufacturing, we then ask for a royalty payment as a return on our investment in the innovation.

That the United States is moving toward an economy where money generated from intellectual property is a significant element of the GDP is undeniable. That we are doing everything we can as a country to protect our IP is questionable. The future world market will need new rules regarding the ownership of ideas, rules that need to be fair and balanced. We would like to offer an image to the Subcommittee of a day when the U.S. has little to offer other than intellectual property, a few raw materials and some farm produce. This is a scary scenario if we are not prepared or able to protect our most important assets.

On the quality of patents-this is the number one issue, I think, for all inventors-the patent process must be flawless for a patent to be above question, and it must be above question to have any real value. As the art becomes more involved and specialized, it is increasingly more difficult to factor out mistakes of omission. Better access to prior art is part of the solution, but more is needed in the examination process to prevent a poor outcome despite a significant amount of time and money being spent.

Redirecting PTO fees is not part of the solution. Money not spent by the PTO to ensure quality is often spent instead by the patentholders and their challengers in legal actions. Tremendous amounts of money are spent in challenges, when a fraction of that could have been spent better to prevent the problem at its source. There is a need for skilled examiners in emerging technology areas, keeping in mind that experts in their specific art are, in fact, their customers. From biotechnology to nanotechnology and software and micro electronics, as well as other cutting-edge fields, the experts are the ones making the inventions, not the ones determining if they are, in fact, inventions.

On first to file versus first to invent, it sounds like a good approach in many ways for individual inventors, for harmonization and for the system in general. But, in fact, it poses a few big problems for small entities. It would be very difficult, but not impossible, to change the system and not disadvantage small inventors. Due to the high cost of building prototypes or doing laboratory work, it takes a small inventor a reasonable amount of time to go from idea to reduction to practice. The ability to submit continuances in part and amend claims are the other tools available to small inventors.

We would like to see ways to encourage the creativity and capabilities of our country's small inventors, but reduce their cost in obtaining patents, while still giving them protection in the world market. As far as injunctive relief, we don't believe that all inventors are opportunists or patent predators, even though a lot of talked is aimed at protecting big businesses from the actions of a few opportunists who try to use the system against itself.

In conclusion, I speak for many of my colleagues and small entities when I thank the Subcommittee for this opportunity to be able at the table for this hearing. We only ask for more chances to provide views to Congress on this important topic and for more presence on advisory boards during the patent reform debate.

I personally thank you for the opportunity to be here before you today, Mr. Chairman, and I offer my continuing efforts to find or invent ways to make our patent system work for the 21st century and beyond.

Thank you.

[The prepared statement of Mr. Parker appears as a submission for the record.]

Chairman HATCH. Thank you, Mr. Parker.

We will just go across the table.

Mr. Poppen, we will take you next.

STATEMENT OF JOEL L. POPPEN, DEPUTY GENERAL COUNSEL, MICRON TECHNOLOGY, INC., BOISE, IDAHO Mr. POPPEN. Chairman Hatch, Senator Leahy and members of the Subcommittee, I am the Deputy General Counsel for Micron Technology. Thank you for allowing me to testify today on the very important issue of patent reform. Since my submitted testimony covers a number of issues in some detail, I will focus on just a couple of major points today.

Micron is one of the world's leading providers of advanced semiconductor products. Our products are used in today's most advanced computing, networking, communications and imager products. Micron's investment in R&D has led to over 12,000 U.S. patents, and in the past five years Micron has been among the top ten recipients of U.S. patents. Accordingly, Micron is a significant stakeholder in the patent system and has a keen interest in its improvement.

In recent years, opportunists have exploited the patent system to attack those who innovate and manufacture products. According to studies, this trend has led to a 60-percent increase in patent suits in the last decade and staggering costs. As authors Jaffe and Lerner note in a recent book, quote, "Burgeoning patent litigation is increasingly making lawyers the key players in competitive struggles rather than entrepreneurs and researchers. As the patent system becomes a distraction from innovation rather than a source of incentive, the engine of technological progress and economic growth begins to labor," close quote.

To curb the growing abuse of the patent system, to realign the intended incentives and to restore fairness for everyone, the patent system should be reformed through targeted legislation.

First, manufacturers increasingly are coming under attack from those who are inventing patents rather than patenting inventions. These inventors of patents use continuation practices in the patent office to tailor patent claims over time to cover the activities of others. Later, they surprise manufacturers who are locked into technologies with unanticipated patent claims and steep royalty demands. To redress the patent problem, patent applicants should be required to file their broadest claims very early in the process and