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“PATENT LAW REFORM: PATENT INJUNCTIONS AND DAMAGES”

Tuesday, June 14, 2005

2:30 p.m.

Intellectual Property Owners Association (IPO)

Mr. Chairman and Members of the Subcommittee:

My name is J. Jeffrey Hawley. I am Legal Division Vice President and Director, Patent

Legal Staff, for Eastman Kodak Co. in Rochester, New York. I am speaking today on behalf of

Intellectual Property Owners Association (IPO), of which I am the current elected President.

IPO is a trade association representing companies and individuals in all industries and

fields of technology who own or are interested in intellectual property rights. Our members

include a broad spectrum of more than 100 large and medium-size corporate members and a

number of small business and individual inventor members. IPO members file about 30 percent

of the patent applications that are filed in the United States Patent and Trademark Office (PTO)

by U.S. nationals. In addition to our legislative interests, we comment frequently on PTO rules

changes and file amicus briefs in cases of interest to us and are active in international patent

activities. We have more than 900 people volunteering in 32 standing committees studying

trends in IP law.

We appreciate the opportunity to discuss current proposals for improving the patent

system, emphasizing proposals on injunctions, damages and related topics. IPO endorses a

majority of the current patent reform proposals and is studying others. I will give an overview

and then summarize our reaction to several proposals.

OVERVIEW OF PATENT LITIGATION AND PTO ISSUES

Patent Litigation Increasing

Our members almost universally believe the patent system needs improvement. Our

members are being faced with increasing accusations of infringement. Often, the patent involved

is of questionable validity and is being aggressively interpreted. Hildebrandt International's

Intellectual Property Owners Association (IPO)

2004 Law Department Survey reported that the companies surveyed spent 32 percent more on

outside counsel for intellectual property litigation in 2003 than in the previous year. They spent

only one percent more for outside counsel on non-IP litigation. One-third of respondents in the

2003 “IPO Survey on Strategic Management of Intellectual Property” reported that dealing with

"nuisance” IP litigation from non-competitors consumed significant amounts of their company's

time and resources.'

As reported by the Administrative Office of the U.S. Courts, the number of patent suits

filed per year rose nearly 80 percent during the ten year period ending in 2004.? This is a

substantial increase even considering that the number of patent applications filed per year

increased substantially during the same period. The increase in the number of patent suits during

the ten-year period was significantly higher than the increase in the number of copyright and

trademark suits. These trends are shown in Appendix A and Appendix B to this statement.

Many people believe a substantial portion of the rise in litigation costs can be attributed

in large part to organizations that have engaged in abusive practices including threatening

frivolous lawsuits. Patent litigation issues also can be traced to problems that have been

experienced by the PTO.

1

Cockburn and Henderson, “The 2003 IPO Survey on Strategic Management of Intellectual Property," October 2003 (Presented at IPO conference in Washington, DC on Nov. 10, 2003. Copies available from IPO).

2

Data derived from the Annual Reports of the Administrative Office of the U.S. Courts from 1997 2004. Over the most recent 10-year period (1995 to 2004), filings at U.S. District Courts in patent suits increased by 78.5 percent. Total original filings in the U.S. District Courts in civil cases during this same period increased only 13.9 percent. See Appendix A. Data source: http://www.uscourts.gov/judbususc/judbus.html

3

See generally materials from IPO conference “Patent Trolls and Patent Property Rights" held in
Washington, DC on March 14, 2005 (Materials available from IPO).

Intellectual Property Owners Association (IPO)

PTO Experiencing Problems

IPO was one of the first organizations to say the PTO is in a “crisis.” For several years

we have expressed concerns about the quality of patents granted by the PTO and the growing

length of time required to grant or deny a patent. In 2002 we endorsed the PTO's 21" Century

Strategic Plan, which is directed at improving PTO operations and is now being implemented.

The 2003 report by the Federal Trade Commission (FTC) and the 2004 report by the National

Academy of Sciences (NAS) have recommended a number of changes to improve the PTO and

the patent system generally, and we support many of their recommendations.

The diversion of more than three-quarters of a billion dollars in PTO user fees since

1992 has been a major factor in the PTO crisis.* If the PTO had had the opportunity to spend the

diverted funds, which were paid by our members and other PTO users for services they expected

to receive, today's picture would be very different. We are optimistic that the situation at the

PTO can be improved. Director Jon W. Dudas is acting aggressively with the aid of more than

$200 million annually in additional funding provided by last December's patent fee increase to

address the office's problems. The PTO is hiring more patent examiners and making efforts to

improve employee recruiting and training, recertify examiner skills, and improve patent

procedures. We are cautiously optimistic that no more user fees will be diverted in the short

term. The threat of fee diversion remains, however, and IPO supports legislation recently

reintroduced in this Congress to end fee diversion permanently.

No silver bullet exists, of course, that can turn the PTO around overnight. The patent

quality problem is complex and not amenable to any single solution. The time required to grant

For more information on the amount of user fees diverted from the PTO, see chart at http://www.ipo.org/feediversion.

Intellectual Property Owners Association (IPO)

or deny a patent will continue to increase for some years despite stepped-up patent examiner

hiring, because new examiners must undergo an extensive training program to become

productive and because training large numbers of new examiners takes experienced examiners

off the production line. We are in an environment in which confidence in the validity of patents

will continue to be lower than desirable for the foreseeable future, and the time required to grant

or deny a patent will be far longer than the traditional goal that IPO continues to support - an

average of 18 months after filing the initial application until patent grant or denial. Problems

with patent quality and long PTO delays create uncertainty about legal rights in technology.

Uncertainty breeds litigation and discourages investment by patent owners and their competitors

in research, development of new technology, and commercialization of new products needed to

maintain the country's technological and economic strength. Uncertainty also results in high

legal fees necessary to study and evaluate the increasing number of patents that are brought to

the attention of our members – even if no litigation results. A speaker at a recent IPO meeting

put it well: “The present patent system has created a market in uncertainty."

Our members are also faced with high international patent costs. Under the existing

system, U.S. applicants must file separate patent applications in each country where protection is

needed. Unfortunately, patent harmonization is slow in coming and each country has unique

requirements. In addition, patent offices around the world are wasting large sums by duplicating

each others' efforts in patent searching and examination. Because of the lack of harmonization,

this process is costly and inefficient. It is particularly onerous for small entities and individual

inventors.

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