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an inventor to exclude others from practicing an invention for a limited period of time. Noither tho patent law nor the Constitution limit the right to exclude based on who tho inventor is or how the inventor intends to practice the invention.

Some of the greatest innovators of our timo are individual ("small") inventors. Often these inventors may not have the resources necessary to bring their ideas to the commercial market. Nonetheless, our patent system provides such inventors the incentive to publicly disclose their innovations through the patent process in return for the opportunity to find succoss by licensing their rights to third parties. Some parties arguo, howover, that such inventors should not be entitlod to anforce their rights if they themselves do not attempt to commercialize their technologies. This approach, in my opinion, is shortsighted as it is likely to stifle innovation by removing the very incentive under which small inventors publicly disclose their inventions. Why should a small inventor bo prejudiced because he or she is unable to or cannot afford to commercialize his or her invention?

If the concern is to limit the ability for parties to extract monies on those inventions for which they themselves did not contribute significant intellectual capital, but moreover piggybackod on the innovations of others, the best approach to solving this problem is to provide the resources to the PTO in order to ensure that those persons claiming ownership of certain inventions are truly the innovators behind those inventions. If one is truly the innovator behind an invention, he or she should be ablo to exercise their Constitutional right to exclude others from practicing that invention. The other alternative is to allow those entities who can afford to commercialize new technologios to improperly take the ideas of others and to profit from those ideas to no benefit to the true inventor, which is contrary to the very law under which the United States has become a leader in technology development.

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. La's assume that statement is correch Please explain what harm could come from asking courts simply to consider, and describe, the irreparable harm to the patent kolder, on a case-by-case basis?

I agree that a presumption in favor of granting an injunction to a patont owner who shows infringement is both sound public policy and an appropriate interpretation of equitable principles. The U.S. Constitution envisions "exclusive rights" and the patent law specifically provides for the right to exclude others from practicing an invention. This right is not limited to only those situations in which the inventor provides a good reason to exclude. My concern is that by requiring an explanation as to irreparable harm, the ability of an inventor to exercise her Constitutional right to pick and choose who she wishes to exclude from practicing her invention will be limited.

Congress has already recognized the need for certain exceptions to this fundamental right when the health and safety of the public or the security of the United States is in jeopardy. To expand this exception to include when a commercial cntity just simply wishes to practice the invention seems to be an improper extension of these excoptions. It would be tantamount to compulsory licensing. Currently, a presumption places a burden on an infringer to produce evidence to convince a federal judge that the infringor will be irreparably harmed in such a manner that the presumption should be overcome. By changing this prosumption and asking the courts to build a record that a patent holder will be irreparably harmed in order to carn the right to exclude, the basic right of the patent holder - to exclude - would be undone.

This issue is of special import to universities, which by their nature would have difficulty in demonstrating irreparable harm. If a university invention is infringed, a university cannot effectively provide evidence that its business is in jeopardy because of the infringement. However, as a property

ownor with and interest in the manner in which its property is used, the university may very well suffer real harm. An examplo of such university interests comes from the foundor of our organization, Professor Harry Steenbock, who invented a fondamental technology which increases the vitamin D content of food. Bocause of Prof. Steenbock's personal views on the dangers of tobacco uso – and this was in the 1920s when an appreciation for the dangers of tobacco was not widely shared - his technology was intentionally not licensed to the tobacco industry. Because the mission of a university includes othical, social and moral paramotors, tho question of the appropriato use of technology is never merely an economic one. But demonstrating irreparable harm for purposes of injunctive relief could be roduced to soloły economic damages if such a new standard was statutorily required, thus particularly hurting the interests of universitics.

The Federal Trade Commission and the National Academics have both noted the pitfalls associated with "subjective" elements of palens litigation, and I mentioned in my statement the example of wiltful 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 dements, or can their willity be preserved through modification?

In my opinion, minimizing the subjective elements of patent litigation would help manage some of the costs of patent litigation. However, I also feel that certain subjective elements are nocessary to maintain the integrity of the system. We should be wary of crafting legislation that will reward or shelter the bad actor from further liability for intentional bad acts. Unfortunately, to determine the intent of a bad actor requires a subjective determination as to whether or not the actor knew that his or her actions were improper at the time they occurred.

I also believe that it is important to preserve from modification those subjective elements that are necessary to ensure that players in the patent arena continue to act in good faith in conformity with standards set by law. The alternative would be to allow bad actors to act improperly with no risk of augmented liability. For example, by removing the penalties associated with willful infringement, any incentive for a willful infringer to avoid infringement, as the worst case scenario, would be diminished. This coupled with the proposed changes to injunctive relief would nearly eliminate any incentive for licensing.

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?

The ability to improve patent quality will most certainly obviate many of the proposed reforms. Most of the proposed reforms are directed to minimizing the effects of improperly issued patents. For example, proposed reforms to injunctive relief are directed to minimizing the effect of an improperly issued patent to preclude an alleged infringer from otherwise acting properly. Reforms to continuation practice aro directed to minimizing tho ability of patents to be improperly extended to inventions not described in the original patent application. Reforms to eliminate so-called "patent trolls" are arguably intended to minimize the ability of individuals to obtain monies for those inventions to which they did not provide any significant intellectual capital.

In each of these instancos, improved patent quality would obviate the need for reforms. With respect to injunctive relief, the questions of incquity would not exist if the parties were confident that the patent in question was truly valid and infringed. A post-grant review procedure, if properly tailored, may obviato the nced for injunctive relief reform. Reforms to cominuation practice would also likely be obviated if resources were afforded to allow the PTO to fully examine and consider the scope of the written

specification and whether the claimed inventions were described la those applications from which priority is claimed. Finally, improved patent quality may eliminato concerns regarding patont trolls as further assurance would be provided that the laventors of such patents are truly entitled to the rights afforded by the patent law.

Some of the reforms proposed to improve patent quality could in fact have the opposite effect as they would increase the burdens placed upon an alroady stretched PTO. The addition of a so-called second window of roviow and the inclusion of PTO assessment of tho duty of candor me examplos of pew procedures that would add to PTO responsibilities without any specific mechanism to provide the resources necessary to carry out such functions. Providing appropriato resources to the PTO to perform its basic function of patent examination is a remedy that may mitigate the need for many more cumbersome reforms,

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?

I do not boliove Congress should enact changes to the standards for granting injunctive relief, but should focus more on improving patent quality. If changes were enacted, however, they should be directed to questioos regarding the likelihood of the patents being held invalid or not infringed as opposed to the barm caused to the patent holder.

Some have suggested the quality concerns al 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?

As stated above, WARF bolioves that the best approach for addressing litigation concerns is to improve patent quality. To reduce the standard for challenging patents would suggest that Congress has very little faith in the patent system and PTO, and that the determination of patentability is best suited for the courts. However, the courts are not likely a better substitute for the PTO and its multitado of examiners having well-established scientific backgrounds and the expertise necessary to address patent matters. What the system really needs is more time and better resources to be provided to the PTO so that it may conduct proper examinations.

The primary question is whether or not reform should focus on fixing the causes associated with today's concerns (in reduced patent quality) or minimizing the effect of such causes (i.c., uncertain infringement determinations). Legitimate steps taken to improve patent quality can only bave a positive effect on the patent system and the confidence of both the public and investors on the rights afforded to innovative technologies and will undoubtedly address many of the litigation concerns. Meanwhile, focusing on minimizing the effects caused by reduced patent quality is not going to improve patent quality, but is more likely to have the negative effect of reducing the confidence that both patent holders and investors hold in the patent system and the rights afforded by an issued patent. This confidence level is likely to be further reduced by reducing the evidence standard for patent validity determinations.

Reducing investor confidence in the ability of patents to withstand validity challenges is likely to have a dangerous impact on the interest in investing in nascent technologies, such as biotechnology and nanotechnology. Universities and small businesses both rely beavily upon the willingness of investors to javost in early-stage technologies. It is already very difficult to attract investments in an unproven technology, but at least some comfort exists in the fact that, if successful, investors will bepofit from a period of exclusivity to facilitate a return on their investments. If that period of exchusivity is put into question, the potential for positivo return is jeopardized and investment will no longer be attractive.

IPO Responses to Questions Submitted by Senator Patrick Leahy
“Patent Law Reform: Injunctions and Damages»

June 14, 2005

Questions for Mr. J. Jeffery Hawley

1. There seems to be broad general support for an effective post grant review system that would allow someone to challenge a patent's validity after a patent has issued. One of the principles IPO lays out in its “Resolution on Establishing a Post-Grant Opposition System” is that if such a system were created the identity of the opposer must be revealed. What is the reasoning behind this requirement?

Reply: The position that the identity of the opposer must be revealed was adopted
by the IPO Board of Directors. The members are manufacturing companies.
They thought that if a competing manufacturer opposed their patent, they would
want to know that company's identity. This information could be of strategic
value to the patent owner. When Congress established the existing inter partes
reexamination proceedings in the American Inventors Protection Act in 1999, it
required the requester of reexamination to “include the identity of the real party in
interest.” 35 U.S.C. 311(6/1).

2. 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?

Reply. Before any legislation is enacted changing the standards for granting
injunctive relief, Congress should answer a number of questions including: Has
the Court of Appeals for the Federal Circuit in fact departed from the scope of
section 283, which had its origins in legislation beginning in 1819? If such
legislation were to be enacted, Congress should not shift the burden to the patent
owner on the issue of whether a permanent injunction should be granted, adopt for
permanent injunctions the irreparable harm standard used in preliminary
injunction determinations, or discriminate against patent owners who are not
manufacturers. The public interest should continue to be of paramount
importance, and not just the relative interests of the parties. This would be
consistent with the recent Supreme Court decision in Kelo v. City of New
London.

3. "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?

Reply. No generally-accepted definition exists for "patent troll.” In March 2005 IPO held a national conference in Washington, DC entitled “Patent Trolls and Patent Property Rights.” Conference papers are available from [PO. The conference demonstrated that the term "patent troll" has more than one meaning and opinions differ about the extent of the problem. It is a legitimate function for patent owners to license their technology to others, even if they themselves are not using the technology. The prospect of an injunction issuing is important leverage for patent owners in obtaining agreements with licensees, who otherwise might choose to infringe the patent and pay a royalty established later by a court. The challenge is to discourage frivolous or abusive suits while not discouraging legitimate licensing activity.

4. 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 irreparablé harm to the patent holder, on a case-by-case basis?

Reply: Obviously, there is considerable debate regarding whether the statement is correct. Assuming for the sake of argument that it is correct, balancing harm to the patent owner and harm to the defendant should not be the standard for whether to award permanent injunctions. Such a standard would be inconsistent with property rights concepts. Exceptions to property rights have been properly found to be based on public interest and not the narrow economic interest of a proven infringer who has exhausted opportunities for appeal. Asking the courts to consider irreparable harm to the patent owner greatly reduces the value of the patent to the owner, remembering that validity and infringement have already been found.

5. 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?

Reply: IPO favors a post-grant review procedure with features along the lines of those listed in Appendix C to my prepared statement. We favor permitting challenges to a patent during a relatively short period after patent grant. We do not support permitting challenges during a “second window" later in the patent life. As presently proposed, this procedure for a "final check” on the Patent Office determination is designed for a short review process and may not be appropriate for a complete, court-monitored validity determination.

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