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SIDLEY AUSTIN BROWN & WOOD

July 29, 2005
Page 9

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?

I believe that some of the concerns leading to a call for reforms to the injunctive relief standard can and will be addressed by other elements of the House bill. In particular, the reforms that remove the subjective elements of the patent law, coupled with creation of a viable postgrant review system, will substantially improve the patent system. In particular, such changes will make patent rights more objective, and outcomes in litigation concerning such patents more predictable.

I also believe measures that improve patent quality at the PTO will help reduce abusive and unwarranted litigation. Certainly, litigation over a patent that should not have been issued in the first place is a drain on resources and disrupts the conduct of legitimate businesses. Measures that enable both the patent owner and third parties to better predict whether a patent is valid and what it encompasses will help parties avoid litigation and resolve conflicts.

A post-grant review system will provide an important new option for addressing concerns about patent quality. The nature of the system will require certain industries to change existing practices to make effective use of the procedure. For example, certain industry groups have testified that they do not monitor patent grants, and cannot effectively determine if patents will be relevant to their product development plans. The latter problem they attribute to the often difficult to decipher claim coverage of the patents in question. Yet, in a number of situations that are motivating calls for reform, the post-grant system will have significant value. For example, one problem identified is that of a patent troll that keeps applications pending until products are launched by others. Once a company's product is on the market, the troll amends its claims to read on that product. In this situation, a post-grant system will have immense value, as the company will be able to immediately challenge the patent if it has been improperly issued.

Finally, reforms to the standards for determining damages and concerning willful infringement will significantly lessen the problems that motivate some to call for reform to the injunctive relief standards. As I noted in my testimony, this uncertainty over liability is a significant part of the problem that justifies patent reform. The reforms proposed in the House bill other than injunctive relief will change a number of elements in patent litigation that are being taken advantage of by patent trolls. In particular, they will reduce the risk of unpredictable damages and liability, and will recalibrate how courts and juries determine the financial exposure of a patent defendant. As such, the reforms will obviate the need for more drastic reforms.

SIDLEY AUSTIN BROWN & WOOD

July 29, 2005
Page 10

Question Seven

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?

As I indicated during the hearing, I believe Congress should avoid attempting to alter the standards governing injunctive relief. I believe such changes will create uncertainty in the patent law that will have significant downstream effects in the life sciences sector. I also believe the changes will not deliver the type of relief sought by the advocates of such changes. Unless the changes extinguish the possibility of being awarded injunctive relief -- which would be a fatal change from the life sciences perspective - such reforms would simply create more uncertainty in the outcomes of litigation.

Question Eight

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?

Patent applicants presently spend in excess of $1.7 billion annually in patent fees. These fees are supposed to fund the operations of the PTO, and to provide an examination system that is robust, comprehensive and sophisticated. The operations of the PTO certainly face challenges of a variety of forms, but ultimately, when a patent examiner reviews an application in light of the most relevant prior art, that patent examiner makes correct patentability determinations and issues a valid patent. The primary challenge in examination is not in the ability to make correct judgments, but in understanding the invention being claimed by an applicant and in finding and evaluating the most relevant prior art.

The presumption of validity that is awarded to patents that issue after a PTO examination is appropriate and logical to retain. From a procedural perspective, it is appropriate to but the burden on the patent challenger of establishing that the patent is invalid, rather than requiring a patent owner to prove that it is valid. The expensive, time-consuming and often multi-year examination that most patents are subjected would be hard to justify if the results of that examination were to be set aside whenever the patent was subjected to litigation. Thus, I believe it is entirely appropriate to make the challenger establish why the examiner made an error, rather than have the patent owner prove that the examiner did not make an error in granting the patent.

SIDLEY AUSTIN BROWN & WOOD

July 29, 2005
Page 11

The presumption of validity also serves an important role for the vast majority of patents that are never litigated. The presumption serves as a measure of confidence in the security of the patent. That, in turn, generates respect for issued patents, which enables investors to more confidently support development of new products and services based on the patented technology. Removing the presumption of validity would induce more parties to challenge patents, and would ultimately erode respect for the patent that is crucial to this investment decisional process.

I note that the presumption of validity has created practical problems in litigation for certain parties, especially when issues are presented to a jury. The use of the presumption of validity in court to suggest that information not actually considered by the PTO during original examination of the patent should somehow immunize the patent from any challenge can be a practical problem. However, many courts see through this tactic, and do not let the presumption operate as an actual barrier that to proving that a patent is invalid in view of prior art or other evidence not considered by the patent office. I do not, however, have a solution to this practical problem, as I do not believe the statutory presumption of validity should be altered.

I again wish to thank the Committee for providing me the opportunity to share my views on patent reform. I believe that reforms to the patent system can and should be undertaken. I urge the Congress to focus on those reforms that are viable and serve the interests of all sectors of the patent user community and the public. I would be pleased to provide any further comments or respond to additional questions.

Sincerely,

Thishan

Jefstey P. Kushan

July 15, 2005

Senator Orrin G. Hatch
Senator Patrick Leahy
Senate Judiciary Committee
ATTENTION: Dave Jones
202 Hart Senate Office Building
Washington, DC 20510

Dear Senators Hatch and Leahy:

Thank you for the opportunity to testify on the important issue of patent reform last month, and to respond in this letter to Senator Leahy's questions. I have reproduced his questions along with my responses below.

You stated in your testimony that a second window for post grant opposition that could occur at any time during the life of a patent is essential to effective post grant review. Some argue that this would create too much uncertainty for patent holders. Why would an initial period after the patent has issued - 9 or 12 months be insufficient?

The addition of the second, 6-month window has been controversial in some circumstances, but it is critical to the success of the post-grant opposition procedure. Because of the long timelines associated with many patents, and the fact that patent trolls often wait for years after patents issue before asserting them, limiting opposers to a 9-month window after the patent issued would render post-grant opposition ineffective for the majority of patents. An example is pharmaceutical patents. Because of the long FDA approval process, potential generic manufacturers will likely bave no idea at the time a patent issues whether the drug it covers will survive clinical trials and be approved for sale. By the time they know which patents are actually important, it would be too late to oppose them. This problem may extend to other industries as well. Submarine patentees and other trolls often sit on patent rights for many years before asserting them against manufacturers. In order to take advantage of the bill's opposition procedure, those manufacturers would have to guess which of the millions of patents in force might become important a decade from now. Since only 1% of patents are ever litigated, forcing them to make such a guess would make the system worthless to most of the people who would use it.

H.R. 2795 solves this problem appropriately, by including a second window for defendants who were not on notice of the patent when it issued. This gives a short period in which to oppose patents once they are brought to a company's attention, without permitting undue delay. I recognize that this second window creates some uncertainty in the rights of patent owners; that's why I think it should be a limited one. But it is important that competitors have an

Senator Orrin G. Hatch
Senator Patrick Leahy
July 15, 2005
Page 2

opportunity to use post-grant opposition to test patents that come “out of the woodwork” and would not have been identified for opposition during the initial window.

As the name implies, "patent trolls" are usually portrayed in a negative light. Do they serve a positive role -- are innovators better able to focus on inventing when they sell their rights to third parties? Even if they do not work the patent, are they still encouraging innovation?

Defining a "patent troll” is hard. It is important to resist the temptation to assume that anyone who isn't actually making products is interfering with rather than promoting innovation. Individuals and small companies often innovate in fields in which the costs of manufacturing entry are too high. Rather than make their own products, they license their ideas to established companies who implement them. We should not change the patent system in a way that discourages this important innovation. At the same time, many patent lawsuits are filed not by truly innovative small companies whose ideas have been copied by others, but by companies that persuaded the Patent Office to give them rights that are broader than what they deserve, or who buy up patents from others and overclaim their scope, imposing an implicit tax on consumers and thwarting truly innovative companies who do or would pioncer these fields. Thus, I believe the right approach is not to try to define a troll and punish or eliminate them, but to give courts the tools to limit abuse of the patent system when it does occur.

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?

I agree that a presumption in favor of injunctive relief is appropriate, and that injunctions will be the proper remedy in the overwhelming majority of patent cases. To begin, an injunction is warranted if the patentee practices the patent. Even if they don't, if the patentee sells a competing product in the marketplace, they should be entitled to an injunction to prevent their own invention in the hands of an infringer) from competing with themselves. Similarly, if they assign or exclusively license the patent to someone who competes in the marketplace, they should also be entitled to injunctive relief. And even if the patentee hasn't done these things in the past, if they begin to do so in the future they should have a right to injunctive relief. Patentees also ought to be entitled to an injunction in cases of willful infringement, even if they are not participating in the market and have no plans to do so. Infringers shouldn't be able to intentionally take the patented technology knowing they will only have to pay a royalty. Even if none of these things are true, some injunctions won't lead to a risk of holdup, and so even patentees who don't mect any of the criteria listed above should be entitled to an injunction in ordinary circumstances.

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