The one topic that I have heard unanimous perspectives on from every company in the life sciences sector is that disturbing the jurisprudence in the area of permanent injunctions is to be not pursued. This is an unequivocal message that comes about from the effect that patent exclusivity has on the financial thought process of this industry.

One of the things that should be emphasized is that there is a lot of sympathy for the concerns of unpredictable patent litigation and the consequences of patent infringement. But when you look at the patent jurisprudence, what you see embedded consistently in many, many years or jurisprudence is the understanding that because of the nature of the patent right-it is an exclusive right; there is no physical property-you have to take an extraordinarily sensitive perspective on preserving the ability of the patent owner to prevent the unauthorized use of the patented technology.

The discussions that have been going on about recalibrating the standard are terrifying in the sense that you are going to create more jurisprudence and there is going to be a period of uncertainty during which people who invest very early on in the drug development process will not know what the standards will be 10 years from now. If you change the standards in that fashion, you are going to force the capital that comes in and is so critical to earlystage development of a company away from the sector. That is the risk that is of concern in most of the discussions I have been part of.

One of the other things I would like to emphasize is that this type of change does not give clear, unequivocal relief to those people who are concerned with the environment of the litigation today. The uncertainty will continue. The uncertainty is going to be more pronounced as you go forward, and I don't think any of these proposals is going to be able to give any patent defendant comfort in knowing that they are not going to be shut down with a patent at the end of the litigation.

The emphasis that I think needs to be put on patent reform is in changing the equation of patent litigation, and the comments that have been made so far reiterate this point. There is a lot of gaming in the system that is available today. There are immense costs. There is a lot of opportunity for abuse. If you but down on a number of these different areas of abuse and risk, then you will see a great sigh of relief in the business community of the U.S. because the risks become less unclear.

I just will end by noting that things like the change to willful infringement standards-that is a very good thing to pursue and will address some of the concerns that people have. But going down the path of recalibrating what the entitlement to injunctive relief is or should be will just create more confusion and we think should be avoided.

Chairman HATCH. Well, thank you.

Mr. Fish.

Mr. FISH. Well, Senator, if it was an option, what Time Warner suggest that you do is just get out a highlighter or an underliner, and if you started with the current statute and you underlined "may grant injunctions" and you underlined "in accordance with

the principles of equity" and you underlined "as the court deems reasonable," we would be fine with the law.

The problem is, as we see it, that the Federal Circuit has done just the opposite of that. They have turned that "may" into a "shall." They have turned that "in accordance with the principles of equity" into a meaningless shell. I mean, they have taken the Supreme Court law and just gutted it. The Federal Circuit now in this area, for whatever reason, has decided that all the things that courts of equity traditionally did district courts shall not do. So they have changed the statute that way.

And then, finally, there is not to be any discussion of what is or isn't reasonable. Obviously, courts usually believe that they are reasonable, so perhaps that is not a real protection. But the historic protections of equity showing that money damages are actually inadequate, showing that irreparable harm will, in fact, occur, showing that the balance of the private interest versus the public interest favors the granting of an injunction-that is the cornerstone of our law, I mean, for hundreds of years, and before it was in the United States in the United Kingdom. That is the way that equitable remedies operated.

Now, it is interesting to hear people say, for example, that university programs will fall apart if strong injunctions such as now exist under the Federal Circuit are not granted. I mean, go back and look. When WARF lost the case in 1945, the Ninth Circuit said we know you have a valid patent on a method of making margarine that increases vitamin D and keeps people who have rickets from getting vitamin D. It is not an appropriate injunction in this case. It is about health, it is about the public is at war, it is about poor people who can't get it. It doesn't cut it that way. You know what? WARF has gotten a lot more competitive and come up with great inventions since 1945, and so what they are predicting will happen, I think, history gives the lie to.

So of these choices, Time Warner would say that a change that brings the law back to where it was before the Federal Circuit went too far would be an appropriate change. Any change that went further than that would be inappropriate because injunctions are an important piece of relief, and we agree with our friends, for example, in the pharmaceutical industry about that. But it is just that it has gotten a little bit too far.

Chairman HATCH. Well, thank you.

Mr. Hawley.

Mr. HAWLEY. Yes, thank you, Mr. Chairman. I am a little confused here. As another witness pointed out, the actual proposed language in the bill-and I will read it because there are several parts of it that are important—is it adds to the current statute by adding, in determining equity the court shall consider the fairness of the remedy in light of all the facts and the relevant interests of the party associated with the invention. So that is the language that is currently being considered in the other chamber.

But I would like to comment on what is labeled here as the House Subcommittee discussion draft of April 14. This is language that dates back probably to around 2000, 2001, and it has been debated in a number of different forums since then and it was actu

ally the language that was found in the Committee print before H.R. 2795 was introduced last week.

We testified with regard to that in our written statement that the problem that IPO had with that in a board debate in 2001 was, first of all, it changed the burden of proof. Under current law, if you have been found to have infringed a valid patent, you have to establish why an injunction should not issue. If you read the language here, the court shall not grant an injunction unless the patentee proves irreparable harm. So it changes the burden of proof. Secondly-and this is important and you have heard this train of thought throughout this testimony here today-it finds that the patentee is likely to suffer irreparable harm that cannot be remedied by money damages. Most of our members find that to be similar to, if not identical to, the preliminary injunction standard. So you are applying a preliminary injunction standard to a situation where the defendant has been found to infringe a valid patent. Finally, there was other language in here that caught a lot of fire, and that was including the extent to which the patentee makes use of the invention. And you have heard discussion about that. So those were the criticisms that were leveled against the House Subcommittee discussion draft and have been leveled against this language since about 2001.

The language that is, in fact, in 2795 avoids those three problems. It does not shift the balance of proof, it does not establish a preliminary injunction standard, and it does not specifically mention the patentee's use of the invention. But I would also point out-and this builds on something Senator Leahy said-2795 also does not have any public interest aspect to it yet.

I note that the words for the chart labeled "Injunction Proposal," supported by high-tech, does have the public interest in it, and I would say that many of our members feel that that is a very important aspect that needs to be reflected.

Chairman HATCH. Thank you.

Senator Leahy.

Senator LEAHY. Thank you, Mr. Chairman.

Mr. Band-and actually it was referred to by others-was talking about the 37-cent notice, where a patent holder can go fishing for infringers by sending a letter to large companies alleging patent infringement. Notice doesn't need to be specific-Mr. Fish, you talked about this, too, and others--but it can subject a defendant to enhanced damages.

Several of you said that we ought to include a requirement that a plaintiff initially supply a defendant with a notice of infringement sufficiently detailed so as to allow the defendant to seek declaratory judgment.

Does anybody disagree with that? Mr. Gulbrandsen, do you disagree with that, that the plaintiff initially supply a defendant with a notice of infringement sufficiently detailed so that the defendant could seek a declaratory judgment?

Mr. GULBRANDSEN. Senator Leahy, I think that, first of all, encourages litigation. It doesn't encourage settlement. Frankly, WARF would not a send a letter like that because we don't want to be subjected to a lawsuit in California or New York, and we would like to sit down at the table

Senator LEAHY. Do you think it would be better to have a nonspecific notice?

Mr. GULBRANDSEN. I think that it is fair to provide a notice, but I don't think it should be a notice that is sufficient to require a default.

Senator LEAHY. Mr. Band.

Mr. BAND. I agree with you completely. I mean, I think we need to have very specific notice because otherwise you are dealing with a situation that Mr. Fish described. You really don't know what to do. Do you investigate? Do you not investigate? Do you spend a lot of money? Do you just settle?

Senator LEAHY. Professor Lemley.

Mr. LEMLEY. Absolutely, the change is warranted. It just seems unreasonable to think that you can put someone on notice for willfulness purposes, put them to the $75,000 or $100,000 expense of getting an opinion letter with a threat that is sufficiently vague that it is not even sufficient to create declaratory judgment jurisdiction.

Senator LEAHY. Mr. Kushan.

Mr. KUSHAN. I think the standard would enhance the environment significantly. I think you also have to address the concern a lot of companies have about just perpetuating the patent opinion industry, and one of the things that isn't addressed in legislation is the idea that if an infringer makes a good-faith effort to avoid infringement, not going to an attorney, but actually trying to modify their product to avoid infringement, that should be a defense, as well as and as legitimate as the attorney opinion.

Senator LEAHY. Mr. Fish.

Mr. FISH. Senator, I think that sort of notice would be one situation in which it would be reasonable to conclude that somebody who had ignored that ought to risk increased damages. So, yes, I think that sort of notice would be good for that reason.

Senator LEAHY. Mr. Hawley.

Mr. HAWLEY. I am delighted to hear the support for all of that. Senator LEAHY. It is not uniform, but go ahead.

Mr. HAWLEY. Well, it is closer than most times.

Senator LEAHY. I don't want to leave Mr. Gulbrandsen out on this.

Mr. HAWLEY. I understand. I didn't say unanimous support. I am delighted to hear the amount of support.

The scheme that you mentioned is something that was debated over several IPO board meetings about 2 years ago, and the characteristics that are now in the proposal reflect a careful balancing during those debates. We would strongly support particularly the notice requirement so that-we just put the Chairman in the seat of a patent counsel and we placed him in limbo and that is just not a fair thing to do, and so by giving adequate notice and by giving a parallel ability for the defendant to defend themselves, we think that is a good balance.

Senator LEAHY. We have also heard a lot about apportionment of damages. That complaint seems straightforward enough. When the infringed patent is just part of a larger product, the damages awarded should be proportional to the role that infringed patent plays in the larger product.

Mr. Gulbrandsen, correct me if I am misstating your position. You say that requiring judges to calibrate damages by weighing the portion of a product or process infringed as against the whole unnecessarily ties the hands of Federal judges.

Is that your position, basically?

Mr. GULBRANDSEN. What I mean is that—

Senator LEAHY. That is a quote from your statement.

Mr. GULBRANDSEN. What I mean is that I think the present standards in the common law with respect to determining damages allow the court to weigh all of the factors. And in some instances, the improvement may be a small improvement, but it may be a critical improvement that really built the whole market for that particular product. So I think it would be unfair to prohibit the judges from weighing what value it really brought and look at the whole market condition.

Senator LEAHY. I am trying to figure out how damages should be calculated in a case where there is a single contested patent, but it is within a more complex product.

Mr. Gulbrandsen has been very clear in his feelings. Mr. Band, do you have a feeling?

Mr. BAND. Absolutely. I think apportionment is essential. For example, the credit card system is a very complicated, integrated system which has many, many different components, lots of software, lots of hardware, lots of business methods, all wrapped into one integrated system.

If you have, let's say, a patent ultimately reading on one little piece of this entire system, what is the right measure of damages? It should be that little system. It shouldn't be a royalty based on the entire system. You can also see the problem with an injunction that goes even though what is enjoined is just that one little piece, because it is an integrated system, it causes the whole system to fail. So that is why these issues are very, very closely linked with one another.

Senator LEAHY. Professor Lemley.

Mr. LEMLEY. Yes, I agree that this is a very important reform. The problem is quite simple. In theory, we take care of this by adjusting the royalty percentage. But in practice, never happens. No jury gets to hear about all the other 4,999 patents that went into this micro processor. I think it is perfectly appropriate, as Mr. Gulbrandsen says, that in circumstances where your component, even though it is only one component, is the critical one that you get substantial damages that result from that.

But H.R. 2795 would permit that. All it says is that the court shall consider, if relevant and among other factors, whether there are a bunch of other components contributing to the success of the product. And if we are trying to get damages right, if we are trying to say what you are entitled to is a function of your contribution to this product, that is the logical thing to do.

Senator LEAHY. Mr. Kushan.

Mr. KUSHAN. This standard is lifted pretty much out of the prevailing law and it is not necessarily a revolution to incorporate it into the statute. think as we have already heard from Mr. Gulbrandsen and from Mark here, as long as you have access to address other damages scenarios that allow you to put your inven