should not be allowed to later claim broader or different inventions after watching the activities of others.

A second problem area relates to significant judge-made advantages for patent plaintiffs. When plaintiffs prevail, courts virtually automatically enter an immediate injunction shutting down a defendant's business, even though the applicable statute plainly requires that principles of equity be weighed first. Courts simply short-cut the analysis by presuming that the plaintiff will suffer irreparable harm if an injunction does not issue. But many patent plaintiffs are in the business of only collecting royalties and money damages are sufficient to fix any harm. To ensure the proper balancing, the patent injunction statute should be amended to instruct courts to weigh all the equities before issuing an injunction.

A final area of problems relates to excessive damage awards. Patent opportunists use system claims and court-sanctioned damage theories to claim damages on entire products even when only a small part is the actual invention. Accordingly, the patent damages statute should be amended so that damages are limited to the proportion of the value directly attributable to the invention rather than the larger system in which it resides.

Additionally, defendants almost always are faced with allegations of willful infringement and the threat of triple damages. But since enhanced damages are punitive in nature, they should only be available upon an express finding that the defendant's conduct was egregious or reprehensible.

In conclusion, targeted manufacturers often face a Hobson's choice: daunting litigation costs, slanted evidentiary standards, exorbitant damage awards and virtually certain injunction relief on the one hand, and predatory licensing demands on the other. Patent reform legislation is essential to restore fairness and to protect the integrity of the patent system.

Thank you again for the opportunity to provide some perspectives on patents.

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

Chairman HATCH. Well, thank you, Mr. Poppen.

We will turn to you, Mr. Simon, and take your testimony.

STATEMENT OF DAVID SIMON, CHIEF PATENT COUNSEL,

INTEL CORPORATION, SANTA CLARA, CALIFORNIA

Mr. SIMON. Thank you, Mr. Chairman. My name is David Simon. I am the Chief Patent Counsel of Intel Corporation and I am here to testify on behalf of the Business Software Alliance. Our group contains not only some of the largest patent-holders in the United States, but we also contain many small patent-holders, and I am here to talk about the imbalances that arise from complex products that contain often billions of components or billions of lines of code that are alleged to be touched upon by thousands of patents.

It is our belief the patent system needs some adjustment to meet the needs of our industry. In addition to being overwhelmed by new applications, which have caused a five-fold increase in backlog in patents, the PTO also faces a deluge of continuation applications. I believe it is about 25 percent, according to Director Dudas.

Patentees file these continuation applications even up to a decade after the original filing date, filing to stretch their disclosures to claim evolving technology or standards. They then tax the industry with what can only be viewed as inventive patents. Then, once issued, the procedures by which the PTO can review the validity of these patents are inadequate.

Ex parte reexamination has proven futile over 85 percent of the time. Why? Because after filing the request, the requester is no longer participating in the process. The patentee will then narrow the claims, while avoiding the prior art sitting there with the requester's product trying to make sure that the claims cover that. We firmly believe that a robust inter partes opposition procedure needs to be there so the patent office can deal with the mistakes that overtaxed examiners will unfortunately make, particularly if, as Director Dudas said, we are going to have 25 percent new staff. Specifically, inter partes reexamination should be fixed by removing the time limitation on patents that may be reexamined and by fixing the collateral estoppel provision in Section 315(c) of Title 35. In addition, we firmly believe in a meaningful post-grant opposition procedure. We do not believe that a nine-month window, however, is sufficient, as advocated by others. We think that there needs to be a second window because, unfortunately, with the speed with which our technology moves, it could be years before we realize that a patent that issued years ago might be significant or not.

While we support the efforts to improve the patent office's internal procedures, we also believe that it is important to fix major problems that have cropped up in litigation.

First, the law of triple damages and willful infringement needs to be fixed. We believe these are punitive damages and they should be reserved, according to the standards set forth by the Supreme Court, for cases of reprehensible conduct, such as intentional copying of a patent without a good-faith belief that the patent is inviolate.

The current gamesmanship of letters or the gamesmanship of artfully drawn letters that are advocated by some other organizations has little to do with ferreting out reprehensible conduct. Instead, it creates hardships, including forcing a defendant to choose between defending against triple damages, on the one hand, or on the other hand waiving its attorney-client privilege. These hardships are used by clever litigants seeking only to maximize the settlement value of their cases.

Second, the BSA supports adding certainty to the measure of damages on complex products. Today, when a small feature of a multi-faceted product is alleged to infringe a patent, the patentee will often claim that they are entitled to the entire market value of the good rather than the value of their little patented feature. We believe that reform is needed to rein in these excessive damages.

In addition, the BSA supports clarifying the jurisprudence regarding injunctions. The law today directs the courts to balance equities before issuing an injunction. Nonetheless, essentially the only reason that courts frequently will cite for not granting an injunction is in the face of a national health emergency. That inter

pretation of the public interest risks turning equity into a needle's eye which is very difficult to meet.

All of these issues have led to a new business model of acquiring control of patents from distressed companies and then suing American manufacturers in plaintiff-friendly jurisdictions, with the threat of inevitable permanent injunctions and high damages at the end of the case to extort settlements.

The defendant is thus threatened with having its entire business shut down, and no matter how convinced we may be on the merits of our position, we cannot simply afford to take even a 10-percent chance of losing and having billions of dollars of business or factories worth billions of dollars being shut down.

We are aware of the concerns of some that this would undermine the exclusive rights of inventors, but there are persons who abuse these exclusive rights that run contrary to the equitable principles set out in Section 283 and to the fundamental goals of the patent system. What we are saying is that Congress needs to address these abuses by ensuring that equities are fully taken into account by the courts and the public will continue to see the system as fair and balanced.

Thank you.

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

Chairman HATCH. Thank you, Mr. Simon.

Mr. Kamen, we will turn to you.

STATEMENT OF DEAN KAMEN, PRESIDENT, DEKA RESEARCH & DEVELOPMENT CORP., MANCHESTER, NEW HAMPSHIRE Mr. KAMEN. Good afternoon, Mr. Chairman and the other members of the Subcommittee. I appreciate having the opportunity to speak from the perspective of a small inventor.

By way of introduction, I really am a small inventor. I started my first business inventing in the basement of my parents' house. I was building audio-visual systems and then started building medical systems products for my older brother, who was then in medical school. At the time I started my first business, we actually did it all. We conceived it, we designed it, we developed it, we manufactured it, we marketed it, sold it, serviced it.

As our medical products company grew, we learned a bunch of things, one of which was all of that takes a lot of work. After about a decade of doing that, I sold that business to a major medical products company in this country and decided that we should focus on what we really do well, which is conceive of solutions, design them, develop them, make sure they work, and then try to align ourselves with large companies that have the reach and the scale in terms of manufacturing, distribution, sales and support so that our technology could get out to the people that need it.

I started a company to do that 20-some-odd years ago, and over that period of time we have built home dialysis equipment which is used all over the world, stents and many other kinds of products. I think that system works for everybody. We can focus on what we do very well. Our corporate partners can get these products much more quickly and much more cost-effectively to people around the

The only bug in all of that is we turn these things over and even though my company now has 180 people working in it, since we don't have a brand name, we don't have distribution, we don't have manufacturing, what we bring to the table is the solutions to these problems broadly represented in patents. It is what we have. We are an intellectual property company. Almost our entire revenue stream is derived from the royalties we get by licensing our partners to be able to make these products. I really think it is a winwin-win, and it is what the Founders had in mind. Patents were there to encourage people to take risks to invent things. We focus on doing precisely that.

Since I only have about two minutes, I guess I would like to restrict my remarks then to two issues. One which is sort of down in the weeds-and I know a little bit about it because I have been recently made a member of PPAC, the Public Patent Advisory Committee, in which I have had an opportunity to see the patent office from the inside.

One of my issues then would be to say we have got to make sure the quality of patents is kept high. We have heard different people talk about staggering numbers, Jon Dudas pointing out that they are 400,000-some-odd behind, so to speak, in pendency. But, frankly, a problem like that for most private companies would be an embarrassment of riches. The whole world is now seeing the importance of patents. There is enormous growth and demand for these patents.

That is a problem a lot of companies would like to have, but the way a company would resolve that is they would quickly grow, put resources to it and hopefully not allow the quality of that company's products to suffer as they dealt with this great growth opportunity.

I would urge you-and I heard you say that in your opening remarks-to make sure, for instance, that there is no diversion of fees away from the patent office, not at a critical time like this, but to do everything you possibly can to make sure that the quality of patents is kept high, because if there is no quality there, there is nothing there. When you hold up that patent that you have worked for years and spent millions of dollars to develop, it is in everybody's best interest that it is a quality product.

My second issue is speaking not as somebody who knows the inside, but just as a citizen, an inventor, not a lawyer, on this issue of dramatically weakening the value of patents by removing the presumption of injunctive relief. The idea that my patent gives me exclusive rights to my own property is pretty clear.

I mean, the Constitution, as has already been pointed out, doesn't say I have the right to my idea. I don't need the Constitution to give me the right to think. What it gives me is the exclusive right to my idea so that after I show the world what it is, they still, for a limited period of time, need to come to an agreement with me to exploit it. If we eliminate my capability to give an exclusive right to my invention to my partners, it will be very difficult to get investors or large corporations to invest the time and money, many times millions of dollars, in developing new products if they are being asked to uniquely invest in these ideas, but in the end they

If we take away the right to prevent other people from exploiting our technology, a patent would be nothing but an empty promise, and I hope that that doesn't happen because I think we all know that intellectual property and investment in it are what drive this economy. And in the next century, they will be the primary driver of the economy of the United States.

Thank you.

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

Chairman HATCH. Thank you.

Mr. Armitage, welcome back to the Committee. We are glad to have you here.

STATEMENT OF ROBERT A. ARMITAGE, SENIOR VICE PRESIDENT AND GENERAL COUNSEL, ELI LILLY AND COMPANY, INDIANAPOLIS, INDIANA

Mr. ARMITAGE. Chairman Hatch, I am delighted to be back. Senator Leahy, thank you very much for allowing me to appear here today.

Dean Kamen gave a very impassioned speech and relatively preempts the first part of what I was going to say. We had a chance to talk very briefly before the hearing began and I discovered that he and I are partners, unbeknownst to me.

One of his pumps was a pump that is used in one of our hightech insulin devices, and the ability to marry a high-technology delivery system with a high-technology insulin product literally changed the lives of patients who use our drug. I know this because one of my first experiences as a Lilly employee was practically being tackled by one of our patients at an evening reception telling me how much her life had changed.

So, Mr. Kamen, thank you.

I want to address perhaps three areas. I would like to talk a little bit about what I think the highest priorities are for patent reform. One area is I would like to provide a cautionary flag on a reform that I really do believe is important and desirable, and then there really is one area where I need to ask the Committee to proceed with great caution before making a change to the patent system.

Because this last area is the one of most importance to the pharma-biotechnology industry, I would like to begin with it first, and that deals with the issues of injunctions and damages. As you have heard, Congress is being asked to consider whether to deny an injunction to the owner of a valid patent who can't make an affirmative showing that he has been irreparably harmed. Also, the proponents, BSA, of this proposal have paired it with a second one that would impact the provisions in the patent statute that guarantee the patent owner the right to adequate compensation when a valid patent has been infringed.

Lilly would urge Congress to take these two proposals off the patent reform table. Congress simply should not compromise on the principle that absent some overarching public interest, demonstrating ownership of a valid patent property right should be the only showing needed to stop someone from trespassing on that right. In a similar vein, no owner of a valid patent should be de