500 approved patents every single day. I think that could be a matter of concern.

When you have non-innovative inventions that are patented, some patent-holders fear they will spend more time litigating than they do innovating as a result of predatory tactics. It is a real problem. We should explore ways to alter the patent examination process in order to allow for patent challenges before you tie it all up just with costs of litigation. I am especially interested in the suggestion that we find ways to allow outsiders with prior art to present information in the examination stage.

At the same time, we are hearing calls to reform the very way in which these cases are being litigated. One criticism I have heard is that the standards which courts use to determine whether a patent violation is willful have been applied in a way that encourages patent-holders to wear blinders to what others invent.

We have also heard about abusive litigation practices of "patent trolls," described to me as companies that neither invent new or produce anything at all, but simply acquire patent rights and then push the bounds of their patent, suing patent-holders who actually do innovate. I am interested in hearing more about these concerns, as well as proposed solutions. I want to encourage those people who actually do innovate, and they ought to be able to get the benefit of their innovation. I don't want somebody who is just going to leach on their innovations.

So these are just a few of the things we have before us. I can think of no better issue to start off with. The House finally granted final passage of the Family Entertainment and Copyright Act. I know looking around this table, Senator Hatch, Senator Cornyn, Senator Feinstein and myself sponsored that. We approved it last year and again this year, in February of this year. Chairman Hatch and I worked cooperatively on that legislative package last year, with the result that it has now been enacted by the Congress. It is an example, as the Chairman was saying, of bipartisan legislation.

I have more which I will put in the record because I find with the beauty of spring and pollen, my voice is gone. Thank you, Mr. Chairman.

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

Chairman HATCH. Thank you, Senator.

Senator Cornyn, would you care to make any comment? Then I will call on Senator Feinstein, since this is our first meeting.

STATEMENT OF HON. JOHN CORNYN, A U.S. SENATOR FROM THE STATE OF TEXAS

Senator CORNYN. Mr. Chairman, I don't have anything extended, but I did want to congratulate you as the new Chairman of this brand new Subcommittee for convening this hearing and the series of hearings on patent reform.

Of course, as Senator Leahy said, intellectual property protection has been something that the Judiciary Committee has been concerned about. Senator Feinstein and I, along with Senator Leahy and you, had a chance to work on some important legislation that

It is important for America to maintain our edge as the innovator in the world in a global economy that we do provide a means by which innovation can be fostered, but also, once people invest their intellectual capital and their hard-earned money into a product, that it be protected. This is a matter that remains a tremendous challenge around the world.

I am delighted to be on the Subcommittee with you. Unfortunately, I won't be able to stay long because I am going to be working on another subject near and dear to your heart, Mr. Chairman, and that is asbestos. But I do want to congratulate you for holding the hearing, and thanks to all of our witnesses for contributing their insight and expertise in tackling some of the tremendous challenges we have before us.

Thank you.

Chairman HATCH. Thank you, Senator.

Senator Feinstein, and then we will go the witnesses.

STATEMENT OF HON. DIANNE FEINSTEIN, A U.S. SENATOR FROM THE STATE OF CALIFORNIA

Senator FEINSTEIN. Thanks very much, Mr. Chairman. I would like to echo those words. Patent and copyright protection is a very big deal to California, and that is really why I am here.

It is interesting to harken back on an early patent, and that was a patent which was issued to Levi Strauss for jeans in 1873. I believe at that time, it was a 17-year patent. It is now a 20-year patent from date of application, or 17 years. So there are a lot of questions about these patents. Is 17 years fair? Should it have been longer?

I mean, when Levi Strauss came forward in those early Gold Rush days, it was a very big deal to come up with a fabric like jean fabric because the pants of the miners were wearing out too fast. Yet, as soon as that patent expires, you see Levi-type jeans everywhere. In this day of high costs, high labor costs, high every kind of cost, I have begun to wonder whether the time for the patent is really an adequate time.

So I look forward very much to hearing your comments, Mr. Dudas, on that subject.

May I put my full remarks in the record, please?

Chairman HATCH. You certainly can.

Senator FEINSTEIN. Thank you very much, Mr. Chairman.

Chairman HATCH. I appreciate that, Senator Feinstein.

We will turn to you, Mr. Dudas. We are honored to have you here and we appreciate the work you are doing in the Patent Office, among other things.

STATEMENT OF JON W. DUDAS, UNDER SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY, AND DIRECTOR, U.S. PATENT AND TRADEMARK OFFICE, DEPARTMENT OF COMMERCE, WASHINGTON, D.C.

Mr. DUDAS. Thank you, Mr. Chairman. Thank you, Ranking Member Leahy and members of the Subcommittee. It is an honor for me to testify here today at the first hearing of this Sub

I would like to note that it is an appropriate time to reflect on the incredible success of innovation and of our patent system in the United States. It was 215 years ago this month that our young Nation adopted our first patent statute. There is a lot of talk about history. It was 215 years ago this month, on April 5, 1790, that your predecessors in the Senate passed the final version of the statute and President George Washington signed it into law on April 10.

The benefits of our patent system have always been obvious to Americans. You are all familiar with Article I, section 8, clause 8 of the Constitution granting Congress the power "to promote the progress of science and the useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries."

James Madison wrote in one of the Federalist Papers, "The utility of this power will scarcely be questioned." He was right. That clause was adopted into the Constitution without a single dissenting vote. It was adopted without even any recorded debate.

History has repeatedly affirmed the wisdom of these decisions of our Nation's Founders. The tremendous ingenuity of American inventors, coupled with an intellectual property system that encourages and rewards innovation, has propelled the growth of our Nation from a small agrarian society to the world's preeminent technological and economic superpower.

The flexibility and strength of our system have helped entire industries to flourish rather than perish. Everyone has benefitted from the innovative products encouraged by that system. And all of this technology finds its way into the public domain within 20 years, freely available to any and all, going to your thought, Senator Feinstein.

The success of this system has not been limited to the United States. It has been the basis for economic development in nations. throughout the world. Unfortunately, a growing chorus of critics is questioning whether the fundamental patent system that has been so critical to the growth of innovation and economic success in the United States and other nations will enhance or hinder the development in their own nations.

Many of the nations questioning the efficacy of this intellectual property system have become hotbeds for the manufacture and export of counterfeit goods, with more than 90 percent of goods in some industries being counterfeited and pirated. Quite frankly, in many cases that thought process occurs in reverse. Many nations that have expanded economic development by allowing their citizens to counterfeit and pirate others' intellectual property have then come to question a system that encourages and rewards innovation and discourages copying and free-riding.

I believe it is our responsibility not only to do everything we can to perfect the patent system in the United States-something you are clearly doing by holding this hearing today-but we must also actively educate the rest of the world that it is fundamentally the right system.

Having the fundamentally right system, however, is not enough. I will be the first to acknowledge that even the best system in the world can and should improve. As you know, the genesis of the

USPTO's 21st Century Strategic Plan was the result of directives from the President and the Congress that the USPTO improve. We are implementing a multitude of improvements and are building on these initiatives, and there is more that we plan to do.

To remain the best patent examination system in the world, the USPTO is focused on improved quality and productivity. To ensure the timely granting of patent rights, we must reduce our backlog of patent applications. Earlier this year, the USPTO announced several initiatives to improve quality and efficiency. They include increasing our transparency, improved our ex parte reexamination, and saving applicants tens of millions of dollars by revamping our process of appeal brief submissions.

The USPTO is a collection of 7,000 people, including scientists, engineers and Ph.D.s, many of whom spend their time considering how we might improve our system. A multitude of others are reflecting upon our system as well, and many of them have been or will be at your doorsteps to suggest changes.

We are hearing legislative proposals in three general categories operational issues and administrative issues, litigation reform, and convergence of international laws and best practices. In my view, each of these discussions must center on how the patent system encourages innovation and how well it serves the public at large.

We and you, I believe, must look at these issues from every angle. We must look at them from the perspective of the independent inventor who may be the next Thomas Edison, to the perspective of a large and successful company that believes its innovations are being tied frivolously in unnecessary legal knots. We must look at these proposals from the perspective of an economic superpower negotiating treaties to create a better intellectual property system throughout the world, to the perspective of an American patent examiner who is striving to improve high-quality and timely examinations.

I will certainly not shy away from focusing on how we can improve our processes at the USPTO. We have spent the last three years working to do just that, and I am thankful for all of the work you have done on this Committee in passing legislation that will give us many of the tools that we need to improve. And there is definitely more that we can do.

Although Washington is a place where it is easy to identify problems and give excuses, it is my responsibility to identify opportunities and deliver results. I fully appreciate that you will hold the USPTO and me accountable, and I am confident that we will deliver you results.

As you reflect upon the proposals you will hear, I urge that you not focus exclusively on litigation-an occurrence at the end of the process-nor exclusively on how the USPTO handles an application-the middle of the process. Those are areas that must be reviewed, and must be reviewed vigorously, but patent quality begins with the application and it begins with the applicant.

When we have shown the light on the USPTO, we have found areas where we can improve and we will continue to implement those improvements. But I can tell you that the challenge I hear most often from our examiners in the office is the problem quality.

I do not purport to have all of the answers at this time. However, I can assure you that we are reviewing this issue within the USPTO and will welcome the opportunity to share what we learn with you and how we believe we can appropriately address the issue of application quality.

Let me assure you we are committed to adopting practices and policies at the USPTO that promote the innovation and dissemination of new technologies. While we work to improve our systems by internal reform at the USPTO, we realize that measures within your domain will make invaluable contributions to our system. In this regard, the USPTO and the entire administration look forward to continuing to work with you as you consider legislation to ensure that the U.S. patent continues to lead the world.

Thank you.

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

Chairman HATCH. Thank you, Mr. Dudas.

Now, there appears to be a growing consensus that the U.S. should abandon its long-held policy which rewards the first to invent in favor of the international system of first inventor to file. For example, the NAS report is supportive of this concept.

I understand that former Commissioner Mossinghoff and colleagues have produced empirical evidence that our existing system actually works to the detriment of small independent inventors. I also understand that under this new system, you can't just be the first to the PTO; you must still be a genuine inventor, not necessarily the first inventor. Nevertheless, it may be counterintuitive to some that the "first to invent" policy should be discarded, since it is based on the principle "first in time, first in right."

I would like to know what the administration's position is on this particular issue. If there is no final position at this time, please take the opportunity to explain to the Subcommittee and the public what this issue is all about and what the tradeoffs really are.

Mr. DUDAS. Absolutely. Thank you, Mr. Chairman. Well, there is growing, broad support among private sector groups and internationally moving toward adoption of a first inventor to file standard. It is perceived of by offices throughout the world as an international best practice.

As you point out, advocates point to the fact that it is a simpler method. There are downsides to our current interference practice which make it very difficult to enter into the subjective elements of finding out who was the first to invent, the kinds of questions you need to ask there.

I believe that "first to invent"-many believe that it is philosophically more consistent with the basis of our patent system. Senator Feinstein brought up that the basis of our patent system is to disclose. Ultimately, it is to disclose innovation; it is to make things available. If you choose to use the patent, you choose to invent and protect, and that is a way to incentivize you to invent because you get that protection. You can also go the trade secret route, where you will hide what you have. You will keep secret what you have, but you don't have the protection of the law. What our system should do is encourage people to disclose.