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tion and your patent in the right setting for a proper calculation other than as cast in this standard, you are not going to disrupt the law and you are going to protect the interests of patent owners.

It is just making sure that we don't create more confusion in the standards that govern damages determinations.

Senator LEAHY. Mr. Fish.

Mr. FISH. Senator, I think I would answer you this way. There are two ways that the problem can arise. One is the one that we have been talking about. You have a patent to a narrow feature or a narrow piece of a much more complicated system, and then the question becomes what portion of the total revenue should be attributed to that one thing. That is an apportionment problem, and I would agree that there are cases that can be proved that that one little thing is the majority of the driver for the demand. That is what the entire market value rule attempts to do. What it unfortunately does in practice is that it says open the flood gates and look at all the revenue; patent plaintiffs, your lawyers should be used for malpractice if they can't think of creative ways to get at everything.

The second way that the problem comes up, Senator—and it is the reason that Time Warner says we should look at the damages calculation as starting with what is the value and then moving on—the second way that it comes up is just by claiming the invention differently, so that instead of claiming the motor on the intermittent windshield wiper, you claim a car that as a motor that has an intermittent windshield wiper. Then there is no problem of entire market value rule. There is direct infringement, and your argue is, look, the car is worth this many thousand dollars and that is what the claim covers.

So you can get to the problem either way, and the way that we would suggest to fix it is to get courts to start the damages analysis at the right place, which is if it is a combination invention, what is the value. And then there are all sorts of models and there are all sorts of smart economists and there are all sorts of smart lawyers. And we believe that with their discretion properly guided, the district courts will probably do it right, and the Federal Circuit probably will, too.

Senator LEAHY. Mr. Hawley.

Mr. HAWLEY. We went into this in our written statement, and just to review that, this is a very recent proposal, by the way. It came out of some discussions over the past few months.

Senator LEAHY. I know. That is why we are asking.

Mr. HAWLEY. Yes, I know, I know. We have not yet taken a position on this one, but it clearly needs

Senator LEAHY. Do you want to go out on a limb?
Mr. HAWLEY. I have learned not to do that, Senator.

Senator LEAHY. Most of us in elective office wish we had learned that a long, long time ago.

Mr. HAWLEY. I am also in elective office, not nearly like yours, but I still feel the heat from time to time.

I would just point out, as I think Mr. Kushan mentioned, and others, this is one factor that is lifted out of Georgia-Pacific v. U.S. Plywood Corporation, a 1970 district court case, admittedly, but it is factor number 13 out of 15 of the factors that the court considered. So we are a little concerned that focusing on just that factor is going to have unintended consequences.

We need to better understand what the cases are that give rise to the need for this above and beyond the Georgia-Pacific considerations. Unfortunately, I can't help much today in taking a strong position.

Senator LEAHY. I understand, but I wanted to throw it out because it is obviously going to be one of the things we are going to be discussing when we go forward on legislation. Certainly, if you and your organization come to a very specific recommendation, I would like to have it.

I have some other questions which I will submit. I will pare them down based on some of the answers to Chairman Hatch and some of the answers to me, but I will be sending each of you some questions. I wish you could take time to respond. I will try not to make them overly onerous, but this is an important subject. It is a dry subject.

I mean, tomorrow morning we will have a hearing in this same room on detainees at Guantanamo and there will be all kinds of people watching. That is a very important thing, but this is also extremely, extremely important. Neither Senator Hatch nor I have approached it in a partisan way. We are trying to work out the best way. Nobody likes to make changes in the patent law willy-nilly, because you want to have a degree of continuity there, and predictability.

But I find some alarming situations in this area; one, I think an overworked PTO, and then I think some of the things that go through there and it is simply because the people are overworked. We had a hearing on that and talked to them about ways we might change that, ways we might make it better.

I am also, though, concerned by a growing industry in this country that doesn't invent anything, but simply tries to get involved in litigation on patents. The more complex inventions are, of course, the more potential patents there are. I don't want to interfere with people's rights, but also when you see an inventor has a great idea and wants to go forward-and as we know, in this country a lot of our best inventions have come from small inventors, and they are suddenly forced out by the threat of litigation which really doesn't have a great deal to do with the ultimate product. So we are trying to find out way through that.

Senator Hatch, I am delighted you had this hearing and I appreciate it.

Chairman HATCH. Well, thank you, and thank you for your good questions.

I will submit questions for the record, too, but let me just ask one last question. Some have suggested a venue limitation as a partial solution to the current patent litigation problems.

Would a limitation on venue be effective to prevent forum-shopping, and if so, what would be a reasonable limitation? If you could just answer it real quickly, if it is possible, we will finish with that question.

Mr. GULBRANDSEN. Are you suggesting a specialized district court for patents?

Chairman HATCH. Well, not necessarily, but rather than just have venue broad-based across the country, limit it to certain particulars.

Mr. GULBRANDSEN. I would favor a venue as long as it could be done as fast as we can do it in Madison, Wisconsin, which is less than a year.

Chairman HATCH. I think we would all favor that.
Yes, Mr. Band.

Mr. BAND. Yes, we think that doing something with venue would be helpful. The venue would be limited to the jurisdiction where the company is headquartered or is incorporated, something like that, to prevent forum-shopping.

But another way of solving this venue problem could even be achieved through allowing interlocutory appeals after Markman hearings. That could have the same effect of reducing the adverse problems of having cases litigated all around the country because you could get the claim construction into the Federal Circuit at an early stage and thereby keep some of the issues out of the jury's hands later on.

Chairman HATCH. Okay, thanks. Professor Lemley. Mr. LEMLEY. I think it would probably be a desirable change. The current favored district is the Eastern District of Texas where patent plaintiffs like to bring their lawsuits because no jury so far has ever invalidated a patent in the Eastern District of Texas. There is obviously forum-shopping that is going on.

I think it would be attractive to limit it to something on the order of where the plaintiff or the defendant reside or have their principal place of business or are incorporated if they are corporations. It is not a complete solution. It is not going to make the “troll” problem go away, but it may reduce one component of it.

Chairman HATCH. Make it more fair.
Mr. LEMLEY. Absolutely.

Chairman HATCH. Well, give us some ideas on that. We would love to have them.

Mr. Kushan.

Mr. KUSHAN. On this one, I don't have much to say. I think there is a lot of concern about the Eastern District of Texas scenario, as Mr. Lemley has pointed out. But on a proposal like this, it is not so clearly a plus or minus on the overall equation in patent litigation reform that you can say it will be good or bad. Obviously, we will have to look and see what kind of proposals come forward on it.

Chairman HATCH. Thank you.
Mr. Fish.

Mr. FISH. Senator, there are certainly people who say it would be helpful. I think Time Warner's position would be we are not clear why it is another area where there has to be a patent-specific rule, especially since there has been forum-shopping for venues in patent cases since we have had them. So although it might be helpful, I think some of the other areas might be more helpful.

Chairman HATCH. Mr. Hawley.

Mr. HAWLEY. Yes. Mr. Chairman, I am happy to report that we have had a few days to discuss this one, certainly not with our full board and so it is not possible for us to give you a strong indication. But in informal discussions with the leadership, they haven't dismissed it out of hand, which is a good sign. So we will be definitely working on this proposal with all of our litigator friends and our organization, and we are going to be vigorously looking at alternatives that might help with the abusers of the system.

Chairman HATCH. Without asking you to answer it today, I am intrigued by the idea of allowing an interlocutory appeal with Markman claim construction determinations combined with the bifurcation of the trial process that delays the determination of willfulness. It seems to me that an interlocutory appeal of the claim construction might provide some efficiencies in litigation, and I would like you to write to us and tell us what are the benefits to this and are there any significant downsides. We are looking at that fairly carefully as well.

This has been a particularly prescient panel. I really appreciate all the efforts that you have made to be here and it has been very helpful to us here today. I am very grateful to all of you. Just help us to get it right, because we don't want to hurt anybody, but we would like to have something that would get rid of some of the inefficiencies, inadequacies, wrongful things that occur in these areas, and help us to find some ways of doing justice, which is, after all, what we are all about.

We don't have any desire to pick one side or the other, or any one of the multiplicity of sides, but we do have a desire to get the very best possible legislation we can to be able to resolve at least a maximum number of problems. So we would appreciate any advice you could give us on this beyond this hearing and we will keep the record open for any further advice that you care to send us. We will keep the record open for a week for anybody who wants to ask additional questions in writing.

We are grateful to you all. We know it has been a pain to be here, but you are doing the work of the Lord and we appreciate you being here. Thanks so much.

With that, we will recess until further notice. [Whereupon, at 4:07 p.m., the Subcommittee was adjourned.) (Questions and answers and submissions for the record follow.] QUESTIONS AND ANSWERS



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Responses to Questions Submitted by Senator Patrick Leahy

in Connection to June 21, 2005 Hearing on
“Patent Law Reform: Injunctions and Damages”

“Patent trolls" extract value from the patents they own, not by working them or licensing them, but by using them as settlement leverage in lawsuits. Mr. Lemley noted in bis written testimony that threats of litigation by patent trolls are prevalent, and he promised forthcoming research that will quantify and describe more about this problem. Can you provide us with any more concrete details about bow much of a problem patent trolls are when it comes to seeking (and winning) injunctions on patents?

DataTreasury Corporation, which describes itself as a company “built around the patents” for image capture, centralized processing, and electronic storage of document and check information, recently settled patent infringement claims against JPMorgan Chase and Bank One. These patents cover a technology that implements a process financial institutions must comply with under the Check Clearing for the 21st Century Act. I have no doubt that the threat of injunctive relief was a major factor in these financial institutions deciding to settle rather than litigate to a final judgment after trial.

Shortly after the entry of these two consent judgments, DataTreasury filed four more patent infringement suits against Bank of America, Citigroup, Wachovia, and Wells Fargo. DataTreasury filed these complaints in the Eastern District of Texas, even though DataTreasury is based in Long Island and none of the defendant financial institutions are domiciled in the Eastern District of Texas. I assume that the threat of injunctive relief, which would paralyze these institutions' operations, will influence their litigation strategy.

The DataTreasury patents are just the most recent and most visible example of a growing problem confronted by the financial services industry.

Some of the parties to this debate declare that a presumption in favor of granting an injunction to a patent owner who shows infringement is both a sound public policy and an appropriate interpretation of equitable principles. Let's assume that statement is correct. Please explain what harm could come from asking courts

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