PERSPECTIVES ON PATENTS

MONDAY, APRIL 25, 2005

UNITED STATES SENATE,

SUBCOMMITTEE ON INTELLECTUAL PROPERTY,

COMMITTEE ON THE JUDICIARY,

Washington, D.C.

The Subcommittee met, pursuant to notice, at 1:37 p.m., in Room SD-226, Dirksen Senate Office Building, Hon. Orrin G. Hatch, Chairman of the Subcommittee, presiding.

Present: Senators Hatch, Cornyn, Leahy and Feinstein.

OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S.
SENATOR FROM THE STATE OF UTAH

Chairman HATCH. Good afternoon. Today, I am pleased to chair the first hearing of the newly created Intellectual Property Subcommittee of the Senate Judiciary Committee. I commend Senator Specter for his support in establishing the IP Subcommittee. I also want to thank Senator Leahy for agreeing to serve as the ranking Democratic member on this important Subcommittee.

We have always worked together in a bipartisan fashion on intellectual property issues, and many others as well. For example, Senator Leahy and I, along with all Judiciary Committee members, joined together on legislation last year designed to curtail the diversion of patent fees from PTO. I have every hope and expectation that this Subcommittee will attempt to continue to address IP issues on a bipartisan basis.

To Senators Cornyn and Feinstein, I am grateful for all their work last Congress and appreciate the work that they do especially in securing passage of an important bill that passed the House last Tuesday, S. 167, the Family Entertainment and Copyright Act of 2005. I am pleased that this important piece of intellectual property legislation has finally been sent to the President.

That bill contains several provisions, including the anticamcording protections that Senators Cornyn and Feinstein championed in the Senate. The bill also authorizes the National Film Preservation Board, a matter of great interest to Senator Leahy, myself and many others.

Additionally, the bill contains a provision protecting certain technologies that help parents shield their families from material in motion pictures that may be too graphic for young family members. This has been a matter of some interest in my home State of Utah and I am pleased that it has finally passed both Houses of Congress. I commend Chairman Lamar Smith and Jim Sensenbrenner

and ranking Democratic members Howard Berman and John Conyers for their contributions in bringing this bill through the House. Today, we will move to the patent side of the intellectual property arena. This is the first in a series of hearings that we plan to hold on patent reform to discuss in a fairly comprehensive manner some of the proposed changes to the substantive procedural and administrative aspects of the system that governs how entities here in the United States apply for, receive, and eventually make use of patents covering everything from computer chips to pharmaceuticals, to medical devices, to, I am told, at least one variety of crustless peanut and jelly sandwiches.

As the Founding Fathers made clear in Article I, Section 8, of the Constitution, Congress is charged with promoting the progress of science and useful arts by securing, for limited times to authors and inventors, the exclusive right to their respective writings and discoveries. It is my hope that today's hearing will help further that charge by encouraging an active debate on patent reform.

There is a growing consensus among those who use the patent system that reform is needed. For example, at least two of the organizations represented here today-the Business Software Alliance and the American Intellectual Property Law Associationhave taken the initiative to develop discussion drafts of patent legislation, many key provisions of which have been incorporated in Chairman Smith's committee print over in the House.

I have also received a number of other suggestions, some of them fairly broad, some very narrow, from a variety of individuals and businesses around the country on changes they would like to see made to the current patent system. Both Senator Leahy and I always welcome constructive suggestions throughout the legislative process.

There appears to be a high degree of agreement on some issues relating to patent reform, such as the advisability of creating a new post-grant review process. There are other areas such as modifying the role of injunctive relief in patent litigation where, at least based on the testimony before us, significant differences remain. I hope that today's hearing will help to further the important debate regarding patent reform.

Now, in order to better understand the current state of affairs of U.S. patents and the climate from which these reform proposals have emerged, we will first hear from Jon Dudas, Under Secretary for Intellectual Property and Director of the United States Patent and Trademark Office.

We certainly welcome you, Under Secretary Dudas, back to this hearing room and look forward to hearing your testimony.

Under Secretary Dudas will help describe the growing importance of patent protection in the increasingly interdependent global

economy.

The United States has consistently led the world in many critical areas of technology development, such as the computer hardware and software, telecommunications and biotechnology industries. To remain in the forefront of developing and translating new ideas into tangible goods and services for the benefit of Americans and other consumers around the world, there must be in place an equi

table and efficient patent review and protection system both here and abroad.

We should all take pride in the fact that the United States Patent and Trademark Office is widely recognized as one of the leading IP organizations in the world today. Thousands of dedicated professionals at PTO are responsible for this success, but the agency faces great challenges in accommodating the ever-increasing number and complexity of patent applications being filed each year. As Under Secretary Dudas will detail, U.S. patent applications have doubled since 1992, and last year the PTO issued more patents, some 173,000 patents, than it did during the first 40 years of the agency's existence.

We will also hear today where PTO stands in the implementation of its 21st Century Strategic Plan. In addition, we will have an opportunity to discuss how PTO is responding to the key recommendations contained in the September 2004 Department of Commerce Inspector General's report entitled "USPTO Should Reassess How Examiner Goals, Performance Appraisal Plans and the Awards System Stimulate and Reward Examiner Production."

As well, we plan to explore the degree to which Under Secretary Dudas agrees or disagrees with the recommendations made by the National Research Council of the National Academy of Sciences in its major study, "A Patent System for the 21st Century."

We are pleased to have the distinguished Co-Chairs of this report on our second panel today-Dr. Mark Myers, of the Wharton School of the University of Pennsylvania, and Dr. Richard Levin, President of Yale University. We welcome them to the Subcommittee, as well.

On our third panel we will have a collection of inventors and protectors of intellectual property. This panel includes two inventorsWilliam Parker, of Waitsfield, Vermont, and Dean Kamen, who was recently inducted into the National Inventors Hall of Fame. I am pleased to have these two independent inventors before us today because it helps to emphasize that although we lawyers have a modest role to play, the real purpose of intellectual property is to help ensure that the interests of innovators and consumers are both well served.

We will also hear from David Simon, Chief Patent Counsel of Intel, and Bob Armitage, General Patent Counsel of Eli Lilly. Bob is a veteran of testifying before the Judiciary Committee due to his work on improving the Schumer-McCain amendments to the Hatch-Waxman Act that were part of the 2003 modernization bill. We are also particularly pleased to have with us Joel Poppen, Deputy General Counsel of Micron Technology. While Micron is based in Boise, I understand that they have some outstanding employees and facilities in Utah. Of course, I understand that. I have been there.

[Laughter.]

Chairman HATCH. I have enjoyed working with Micron on a number of trade issues to ensure that U.S. computer chip makers are treated fairly in Asia and around the world.

Last, and by no means least, we have Mike Kirk, Executive Director of the American Intellectual Property Law Association. Dat

ing back to his days at PTO, Mike has long been a calm, clear and reasonable voice in all intellectual property legislation.

I would also like to recognize that there are a number of distinguished authorities on patent law present today that we were not able to invite to testify today. Particularly, I would like to note the presence of Herb Walmsley, of the Intellectual Property Owners Association, as well as representatives from a variety of intellectual property groups here in Washington.

It is my hope that today's hearing will help the members of this Committee better understand what works well and what should be improved in our current patent system. Before we attempt to fashion any legislative fixes to the patent system, it is essential that we carefully identify the problems we are attempting to solve.

We have learned time and time again-the Digital Millennium Copyright Act and the American Inventors Protection Act come to mind that it can take a lot of time-consuming and hard work to forge successful consensus on IP legislation. I stand ready to roll up my sleeves and work with my colleagues in the Congress and other affected parties on intellectual property issues.

One area where I hope we can join together on a broad bipartisan basis is working to help curtail international piracy of U.S. intellectual property. We must be vigilant in our trade negotiations to make sure that our trading partners do not merely talk the talk. They must walk the walk on enforcing intellectual property laws. Not to put too fine a point on it, many of us in Congress are watching USTR closely to see what the agency will do in relation to IP theft in the next special 301 round with respect to such countries as China and Russia. While there may-I emphasize the word "may"-be a case to support Russia's entry into the WTO, Russia should not be permitted to become the new China when it comes to only half-heartedly enforcing laws that some experts believe are only half-baked to begin with intended to protect against the piracy of intellectual property. The Subcommittee plans to hold a hearing on piracy of intellectual property in the week following the next re

cess.

Let me close by saying that I think the fact that 13 of the very busy 18 members of the full Judiciary Committee have made it a priority in their already overcrowded schedules to join this new Subcommittee speaks volumes about how important we on both sides of the aisle view intellectual property matters to the continued success and growth of the American economy and, of course, the quality of life of U.S. citizens and people all over the world.

[The prepared statement of Senator Hatch appears as a submission for the record.]

So I look forward to today's hearing and the future work of this new Subcommittee, and I will turn to the Vice Chairman of this Subcommittee, Senator Leahy.

STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE STATE OF VERMONT

Senator LEAHY. Thank you, Mr. Chairman. I applaud you for holding this hearing. Today, the Intellectual Property Subcommittee does begin its public examination of all the issues-and there are a lot of them-facing the patent system.

We can sit here and enjoy the fact that the spirit of American innovation has made the United States the world's leader in intellectual property-something we would like to maintain throughout my children's and grandchildren's lives. But the expressions of American innovation in the patented goods and processes are only as good as the system that fosters and protects such innovation.

I share the growing concern about our patent system's ability to address many of the challenges it faces. I looked forward to hearing from Mr. Dudas at a hearing last Thursday, but that hearing was canceled at the last minute. I am grateful that you were able to rearrange your schedule to be here with us this afternoon.

We have all worked with Mr. Dudas, first, to get him confirmed, and that was a bipartisan effort. Both Republicans and Democrats on this Committee worked on it. Before, of course, we worked with him when he staffed the Republican leadership in the House and on their Judiciary Committee. I am looking forward to continuing our collaboration. You have a very exciting time ahead of you—exciting and probably daunting as we come into the 21st century.

I am also pleased that Professor Richard Levin of Yale University is here, and Professor Mark Myers from the Wharton School of Business. They are the authors of the acclaimed National Academy of Sciences report on patent reform. Their continued assistance is going to be very useful.

The size of the project we are undertaking seems to be reflected by the number of witnesses we have here, and I want to thank them all because they are the people who live with this every single day.

If I might, Mr. Chairman, I would like to draw attention to one of those witnesses, for it is particularly fitting that in discussing creativity and innovation, we have someone who knows and understands both and just happens to be a Vermonter. I want to thank Bill Parker for traveling to Washington today to share his thoughts with us as an inventor and a spokesperson for inventors.

Of course, he is part of our wonderful tradition in our little State, exemplified by the fact that the first U.S. patent issued and signed by George Washington went to a Vermonter. I just thought I would throw that in, and we have been doing it ever since. I think in at least one year, on a per-capita basis we had the most patents in the country.

In 2002, the House and Senate directed the Patent and Trademark Office to develop a five-year plan designed to modernize and expedite, and parts of that plan are being implemented. Last year, I supported a compromise in the Appropriations Committee that will, for one year, prevent PTO user fees from being diverted to other Government programs. So I am interested in hearing more from our witnesses about the implementation of the PTO's plan. I am also interested in discussing the proposal we have all been hearing that suggests improvements in the quality of the patents the PTO is issuing.

You have a herculean task. The volume of patent applications has increased three-fold since the 1980s. Just to put this in perspective, the PTO receives more than 350,000 patent applications every year. They approved 187,000 in 2004 alone. That is roughly