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simply to consider, and describe, the irreparable harm to the patent holder, on a case-by-case basis?

No harm would come from asking courts to consider whether the patent holder is really suffering irreparable harm by virtue of the infringement, or whether money damages would make the patent holder whole. Many patent holders never bring products to market. This is because they are primarily research institutions, such as universities; business entities focused on invention rather than production; or holding companies whose only assets are patents. In all these cases, the patent holder derives revenue from the patent solely on the basis of license fees. Given this business reality, the patent holder would be made completely whole by money damages in the amount of a reasonable royalty. Courts can easily determine if the patent holder actually uses the patent, in which case it might be irreparably injured by infringement; or if the patent holder simply derives revenue from licensing, in which case money damages would provide an adequate remedy. There is absolutely no reason patent holders should not be held to the same standards for injunctive relief as any other plaintiff. Moreover, because patent holders do not need to meet this burden, they gain significant leverage in licensing negotiations, and receive fees far in excess of the economic contribution of the invention.

One proposal that seems to have broad support is the idea of creating an effective post grant review procedure. This would allow a third party to challenge a patent's validity at the Patent and Trademark Office after a patent has issued. Do you favor some form of post grant review, and do you have any specific concerns?

A post grant review procedure could improve patent quality while providing a relatively inexpensive alternative to infringement litigation. These benefits will be fully realized only if the post grant review procedure is properly designed. Three features are essential:

1) The burden of proof should be “a preponderance of the evidence” rather than “clear and convincing.” Within the Patent Office, determinations of an examiner should not receive a presumption of validity.

2) There needs to be a “second window" during which an opposer can file an opposition, in addition to the "first window" of several months after issuance. This second window should be a certain period of time after the opposer receives a demand letter from the patent holder. Such a second window is particularly critical to the financial services industry. Given the vagueness inherent in many software and business method patents, financial services companies have no effective way of knowing whether such patents issued by the PTO read on processes they practice. The first time they learn that they might be infringing is when they receive the demand letter. They should have the opportunity to use the post grant review procedure at that point, even if it is several years after the issuance of the patent.

3) A post grant review proceeding should not be stayed by the initiation of a patent infringement action in federal district court. Allowing such a stay would provide the

patent holder with the incentive to commence litigation, and would render the post grant review proceeding completely ineffective. Ideally, the filing of an opposition would stay infringement litigation in district court.

The Federal Trade Commission and the National Academies have both noted the pitfalls associated with “subjective” elements of patent litigation, and I mentioned in my statement the example of willful infringement: there is a disincentive for companies to engage in a comprehensive search of prior art because they may unwittingly expose themselves to higher damages. Is this a real problem? If so, should we eliminate these elements, or can their utility be preserved through modification?

The current standards for willfulness have the perverse incentive of encouraging businesses not to monitor the PTO’s issuance of patents for fear that awareness of a patent's existence may lead to treble damages. Additionally, they lead to a cottage industry of patent counsel issuing opinion letters, which benefits only the patent bar. Finally, the prospect of treble damages forces defendants to settle on terms overly generous to plaintiffs. For these reasons, the standards for willful infringement should be narrowed significantly to apply only to truly egregious conduct by the defendant, such as the infringer intentionally copying the patented invention with knowledge that it was patented.

Do any reforms obviate, or at least lessen, the need for any others? Would an effective post grant review system remove the need for changes to the standards for issuing injunctions? Would improved patent quality through reforms at PTO be more productive in reducing abusive litigation than some of the litigation reforms we discussed at the hearing?

Even if all the patent quality issues could be addressed, litigation reform would still be necessary. The existing system of remedies simply provides too much leverage to patent holders, who are able to pressure alleged infringers into paying license fees far in excess of the economic value of the patented invention. This is because the alleged infringers simply cannot run the risk of being enjoined from using the invention. This is particularly the case in the financial services industry. Because the systems for processing credit card payments or checks are large, complex, and undifferentiated, an injunction on one small part of the system can shut down the entire system. The problems with patent quality exacerbate this situation, because they force financial services institutions to take even weak or frivolous patent claims seriously.

If Congress were to enact changes to the standards for granting injunctive relief, what factors should shape any reform, and what should Congress seek to avoid?

Congress should just require the courts to consider the same factors they consider in every other area of the law: whether the plaintiff will suffer irreparable harm absent an junction; the balance of harm between the plaintiff and the defendant; and the public

interest. Furthermore, the plaintiff should bear the burden of proof; none of these factors should be presumed.

Some have suggested that quality concerns at PTO mean that the presumption that patents are valid is misplaced. I wonder if the proper approach would emphasize improving quality rather than changing the litigation standards. Would lowering the standard for challenging patents from “clear and convincing” evidence to a preponderance of the evidence run the risk of negative consequences? Would investors be less likely to invest in nascent technologies if a patent did not carry with it a strong presumption of validity?

Given the poor quality of patents issued by the PTO, the current presumption of validity often is not warranted. But eliminating the presumption would not, by itself, lead to improved patent quality, nor would it necessarily reduce the amount of litigation. Perhaps a better approach would be to consider improvements to the non-obviousness standard. The standard in Section 103(a), denying a patent to subject matter that “as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which said subject matter pertains,” is being applied too loosely by the PTO. It may not be advisable to return to the pre-1952 Act, “flash of genius” standard; however, Congress should seriously consider elevating the standard from “a person having ordinary skill in the art” to “a person of recognized skill in the art.” This would provide the PTO with a clear signal that an invention must represent a significant step forward in the art in order to merit patent protection.

With regard to whether investment in nascent technologies would be harmed by a modified presumption of validity, venture capitalists invest based on people, their ability to execute, and the perceived opportunity. The standard of review for issued patents should have little impact on investment.

Questions for Mr. Chuck Fish

Question: Some have suggested that quality concerns at PTO mean that the presumption that patents are valid is misplaced. I wonder if the proper approach would emphasize improving quality rather than changing the litigation standards. Would lowering the standard for challenging patents from "clear and convincing" evidence to a preponderance of the evidence run the risk of negative consequences? Would investors be less likely to invest in nascent technologies if a patent did not carry with it a strong presumption of validity?

Answer: Patent quality is undoubtedly part of the problem, and emphasizing improving quality (as the PTO has been trying to do) should be part of the solution congress adopts. However, the link between the presumption of validity (which is grounded in a generalized presumption of administrative correctness not unique to patent law) and the clear and convincing evidence standard applied by courts today is also very problematic. First, the existing standard is utterly unjustified in situations involving prior art unknown to the patent examiner when the patent was granted. Secondly, use of the judge-made clear and convincing evidentiary standard when considering patent invalidity is a relative novelty in the patent law and is poorly grounded in general civil litigation practice and property law. Finally, though valid patent property rights certainly should be protected and respected, invalid rights should be cleared away as efficiently as possible if the patent system is to operate to support innovation.

Question: "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 his 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 how much of a problem patent trolls are when it comes to seeking (and winning) injunctions on patents?

Answer: While it is certainly our experience that entities who seek speculative gains through patent enforcement have increased their activity dramatically in the last ten years, we do not believe that labeling certain plaintiffs or patent owners “trolls" or "non-practicing entities" is a productive exercise. Rather, we believe, the patent system (including patent litigation and remedies) should be re-balanced to ensure that it is fair to both patentees and accused infringers.

Question: 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 simply to consider, and describe, the irreparable harm to the patent holder, on a case-by-case basis?

Answer: In our view, none at all. We believe, in fact, that several varieties of harm to the public interest could be avoided by having courts in patent cases consider and award equitable remedies as they do in other civil cases. We also believe that court's focusing on irreparable harm to the specific patent holder before them, on a case-by-case basis, would actually serve to better fit injunctive relief to that case.

Question: One proposal that seems to have broad support is the idea of creating an effective post grant review procedure. This would allow a third party to challenge a patent's validity at the Patent and Trademark Office after a patent has issued. Do you favor some form of post grant review, and do you have any specific concerns?

Answer: We strongly favor the creation of an effective and efficient post grant review system. Our first concern is that whatever system is established not allow harassment of patent owners or place undue cost or burden on patent owners potentially unable to bear additional costs, such as small inventors and universities. Our second concern is that the post grant review system not be hobbled (as are existing re-exam systems) by limiting types of prior art available to be used or imposing draconian estoppel rules. Finally, we think it is important that the system be expeditious - including perhaps a maximum time to decision, extendable by the ALJ conducting review only for good cause.

Question: The Federal Trade Commission and the National Academies have both noted the pitfalls associated with "subjective" elements of patent litigation, and I mentioned in my statement the example of willful infringement: there is a disincentive for companies to engage in a comprehensive search of prior art because they may unwittingly expose themselves to higher damages. Is this a real problem? If so, should we eliminate these elements, or can their utility be preserved through modification?

Answer: We believe that both the FTC and National Academies are largely correct, and that several perverse disincentives to innovation exist in today's patent system. However, all subjective elements cannot be removed from the patent system. Intent and/or degree of culpability cannot, in our view, be removed from punitive damages provisions (aka willful infringement) or scenarios sounding in fraud or misrepresentation (like inequitable conduct or patent misuse). These features of the law are important to its balance and fairness. They are also

some ext necessarily subjective. The best mode requirement similarly implicates

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