ciples to the determination of whether it is appropriate for the injunction to be granted. From our perspective, you have to look at the situation. If you have somebody who has developed something, pushed it, worked hard on it and is seeking an injunction, that might be the appropriate thing for a court do in the circumstances. On the other hand, if you have somebody who went into bankruptcy court and paid $50,000 to buy a patent and then is turning around and using it for a litigation business, that might be a case where a court would say maybe I shouldn't be granting an injunction. We think it should be dealt with on equitable principles. That is what the statute says and we think that that is the best solution for the problem. Senator LEAHY. You said also in your testimony that software companies have to develop their products around other inventions that may be of dubious quality so you don't have litigation. Can you give me some examples of what you believe to be non-obvious software patents that have been asserted and forced software makers to react in that way? Mr. SIMON. Well, other than the over a thousand that we own personally Senator LEAHY. I have heard the anecdotal, but can you think of some specifics? Mr. SIMON. Software patents that are non-obvious? Senator LEAHY. That have been asserted and then forced software makers to do this working around inventions of dubious quality. Mr. SIMON. Well, the problem is my colleagues at other software companies don't disclose those issues to me, generally speaking, or to the extent they do, we are doing it under a non-disclosure agreement. For what we do at Intel, we would have the same problem. It is an issue. We do look at it. We do try to avoid infringement. Senator LEAHY. What you are saying is you are not about to give an example here in this room? Mr. SIMON. That is correct, Senator. Senator LEAHY. Well, just say so. Orrin and I are reasonable people. We never frighten people, I don't think. Mr. Armitage said that the Congress shouldn't change the burden of proof at trial for proving a patent is invalid. Mr. Poppen in his written testimony disagrees. He says that the preponderance of evidence is the standard in granting a patent and why shouldn't the same standard be applied in a patent challenge? Mr. ARMITAGE. I am glad you asked me that question. Senator LEAHY. I thought you might be. If it is a preponderance of the evidence-in my old business as a prosecutor, you had to prove it beyond a reasonable doubt, but what is wrong with preponderance of the evidence being the standard all the way through? Mr. ARMITAGE. Well, we are fair-minded in the pharma-biotech industry and we don't ask for beyond a reasonable doubt. We are willing to settle for clear and convincing evidence. Senator LEAHY. Even though that is more than the original— Senator LEAHY. It is more than what was required before to get the patent. Mr. ARMITAGE. No, no. I mean, the current standard and the standard traditionally applied to patents in litigation has been clear and convincing evidence to invalidate a patent. Senator LEAHY. I understand, but it took preponderance of the evidence to grant the patent. Mr. ARMITAGE. Right. Senator LEAHY. But you want more at a trial to prove the patent is invalid. Mr. ARMITAGE. That is correct, and the reason for that-and maybe I will give you a couple of answers, but one has to go the pharmaceutical and biotechnology industry and I will just take the situation where we are going to buy some technology from a small company and they have invested a huge amount of money. We may invest another $2 or $300 million and then we may invest twice that much money in order to educate and develop physicians and educate a market so there is a market for that product. We want to do that all that today fundamentally, as Senator Hatch well knows, on the strength of the patents that we have. And if it is tossing a coin in court as to whether that patent might or might not be held valid, it makes a much more risky investment. It makes our partners' portion of that much less valuable, and our willingness to pay and our willingness to invest that much less. So there are industries for which patents are so important that it is absolutely critical, if they have gone through a rigorous process in the patent office and been found valid, that we have a patent that can be respected, not that intimidates, but can be respected. Let me just say, as we talk about crafting a post-grant opposition system, we are talking about many proposals, notably the proposal of AIPLA. Also, the American Bar Association's IPL section has a proposal that would say that in the post-grant opposition proceeding it would be only a preponderance of the evidence that the opposer would need to show. Now, particularly if Congress were to take that step and not only have the patent office do a quality, rigorous examination, but allow an opposer to come in early within a nine-month window under a preponderance of the evidence standard, then it is absolutely to me categorically clear that a patent owner going through the trauma of examination and the rigors of an opposition ought to be able to bank on that patent in the courts and ought to have someone, if they wish to come later and challenge, come with clear and convincing evidence as to why that property right should be taken away. Senator LEAHY. I think I understand your answer. I am going to submit questions to Mr. Kirk, but I suspect Mr. Poppen may want to say something. Mr. POPPEN. I will be very brief. I think from our perspective if you talk about preponderance of evidence, it is a little different than saying flipping a coin. The reason for that is the realities of litigation are that the plaintiff, whether it is Micron or Intel or anyone else for that matter, has the opportunity to hold up a patent with a ribbon on it and say this was blessed by the patent of They also enjoy a presumption of validity. When you think about the realities of the patent office and the process, including the process that you mentioned that it issues based on a preponderance of evidence, what we are really saying is no matter what you do in the patent office, they will never be perfect. To give a patent owner the advantage in litigation of being able to say it is presumed valid-all we are saying is the defendants really ought to be able to then take on the validity of that patent in a fair way. The reality is, as Mr. Simon mentioned, there are jurisdictions where jurors have a hard time taking on the patent office because based on the presumption and the level of proofs, they have a very difficult time thinking that the patent office ever makes a mistake with respect to a patent, including in situations. where they don't have all the art in front of them. So the idea of a change in standard is really to give some fairness to the fight over whether the patent ought to be valid or not. Thank you. Senator LEAHY. Thank you, Mr. Chairman. I will submit the rest of my questions for the record. And, of course, everybody is going to have a chance to add in anything they want to, having heard everybody else's testimony. But I applaud you for having this hearing, Mr. Chairman. I think it is a good idea. Chairman HATCH. Well, thank you, Senator Leahy. We will keep the record open for questions until the end of this week, and we hope you will assist here because this is important stuff and we don't want to make any mistakes, or at least we don't want to make the usual mistakes. We will put it that way. But we can use a lot of help here and we surely think it is time to resolve some of these problems, and hopefully with your help we will be able to do so. We are very grateful to have all of you here to take this kind of time to spend with us, and we will do our very best to try and sift through all of these problems and come up with patent reform that will be hopefully beneficial to everybody concerned. With that, I am going to come down and say hello to all of you, but we will adjourn until further notice. [Whereupon, at 3:53 p.m., the Subcommittee was adjourned.] SUBMISSIONS FOR THE RECORD Lilly Answers That Matter. Statement of Robert A. Armitage Senior Vice President and General Counsel Eli Lilly and Company, Indianapolis, Indiana Before The United States Senate On "The Patent System Today and Tomorrow" Monday Chairman Hatch, Ranking Member Leahy, and Members of the Subcommittee: Mr. Chairman and Ranking Member Leahy, my name is Robert Armitage. I currently serve as Senior Vice President and General Counsel for Eli Lilly and Company, Indianapolis, Indiana. Prior to joining Eli Lilly and Company I was a partner at Vinson & Elkins, where I was engaged in practicing intellectual property law. During the past three decades, I have represented individuals and organizations of all types and sizes seeking to defend and enforce patents, as well as challenge and defeat patents. I have also been involved in the work of a number of bar and industry trade associations, where I have played an active role in addressing patent reform issues. It is an honor for me to again appear before this committee to plead the case for major patent reforms to our patent system. I intend to begin this afternoon with an explanation of just how vital the effective functioning of the patent system is to the pharmaceutical and biotechnology industries. I am, of course, aware that such an effort is entirely unnecessary. Mr. Chairman, more than 20 years ago, you led the effort to write the entire rulebook on how patents should work for the innovative pharma business. Those efforts provided the legal framework for the incredible pharmaceutical innovations of the past two decades. That rulebook, which is universally known as the Hatch-Waxman Act, has permitted the patent system to well serve both the pharmaceutical industry and the American public. In addition, I would be most remiss if I did not further note your instrumental efforts in the fine tuning of the Hatch-Waxman rules that took place two years ago as part of the Medicare Modernization Act. The needed improvements to and clarifications of the Hatch-Waxman law that Congress enacted in 2003 now to serve the interests of both innovators and generic drug makers alike. Let me begin, therefore, by briefly reiterating what you yourself have often observed. The investments that drive innovation in biomedical research exist today largely because the patent system operates to provide reliable and effective protection for that innovation. The patent system provides the legal framework that drives the ability of the pharma and biotech industries to invest in basic research, discover potential new drugs, develop them into safe and effective medicines, and, once approved for marketing, educate physicians on their uses and advantages. Often, a multi-decade, multi-billion dollar investment is required to translate an idea into a medicine that proves successful in the marketplace. As you are aware, only a tiny percentage of new ideas ever become medicines and most new medicines never pay back the costs of the research needed to get them to market. The patent system today affords broad and effective protection to all types of pharma and biotech inventions. It is the lifeblood for those making pharma R&D investments. The costs of the patent system today, although far from trivial, pale in comparison to its benefits for the industry and the public. |