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nies from making a comprehensive search for prior art so they are not going to be penalized later on. We have to look at those issues.

We have to remember that we are ultimately talking about the products that would be available to consumers. The ongoing Blackberry dispute everybody is checking their pockets-that drives this home in a powerful way. I don't know who is right in it. I do know that I breathed a sigh of relief when I heard they had an agreement. Now, we understand the agreement may be unraveling. So a lot of us are going to be watching this case, particularly with a nervous tick in our thumbs. Some people, probably our spouses, our staff and others, wish that we wouldn't watch it so closely, but it could affect millions of people.

I hope the ruling in Merck v. Integra Lifesciences is going to provide a much needed boost to scientific research. I would like to see greater sharing of drug patents. I would like to see an end to the practices by which some companies delay competition through anticompetitive conduct.

A few years ago, I authored and we passed legislation to force companies signing non-compete agreements to disclose those agreements to the FTC. But I think the FTC now and the Department of Justice have to do a lot more to encourage competition. I hope that we will be able to soon turn to the Stem Cell Research Enhancement Act. It was passed by the House overwhelmingly, H.R. 810, with 200 House cosponsors. It passed with 238 votes. It is critically important to certainly those whose family members who are suffering from debilitating diseases—Parkinson's Alzheimer's, diabetes, spinal cord injuries. They are watching this. It has been shunted aside and many of us here want to move forward. Many in both parties want to move forward and I hope that the Republican leadership will allow us to.

So, Mr. Chairman, you and I have tackled complex issues like these before. Somehow, we have worked them out. We have worked together on them and we have gotten them on the President's desk and we have gotten them signed, and I think we can do it again.

Chairman HATCH. I do, too.
Senator LEAHY. I will put my whole statement in the record.

[The prepared statement of Senator Leahy appears as a submission for the record.]

Chairman HATCH. Well, thank you, Senator.
Senator Kennedy would like to make a brief statement.

Senator KENNEDY. Thank you very much, Mr. Chairman. We
want to hear from our witnesses and I appreciate your courtesy.

I represent a State that prides itself on innovation and creativity not only in the sciences, but also in the arts. Patents are enormously important in the biotech industry and the pharmaceutical industry and the life sciences industry, important in terms of our universities. Software is enormously important in my State. We want to make sure that the patent system is going to work for those who are creative and are innovative. About 50 percent of all the health patents are in my home State of Massachusetts, so this is enormously important.


There is also an appropriate role in terms of the software industry in terms of these issues in terms of injunctions, and I want to hear from our very distinguished panel today. I am certainly open to see that we make what changes and modifications might be useful and helpful, and be valuable in terms of advancing the common interest, which is progress in terms of the economy and progress in terms of innovation.

Mr. Solo of MIT recently pointed out that 50 percent of our growth as a Nation over the last 40 years has been innovation. And what we are talking about here is how we are going to recognize innovation and how we are going to give that protection and reward, but also as innovation is moving so rapidly in the software area how we are going to be sensitive to some of those issues as well.

This is an enormously complex issue which we don't visit very, very often, so we need a lot of help. We have got a very distinguished panel and I look forward to hearing from them.

I thank the Chair.
Chairman HATCH. Thank you, Senator Kennedy.

We are very pleased to have with us today a number of very important witnesses: Carl Gulbrandsen, Managing Director of the Wisconsin Alumni Research Foundation, or WARF, from Madison, Wisconsin; Jonathan Band, on behalf of Visa and the Financial Services Roundtable; Mark A. Lemley, a professor at the Stanford Law School, in Stanford, California; Jeffrey P. Kushan, who is a partner at Sidley Austin Brown and Wood here in Washington; Chuck Fish, Vice President and Chief Patent Counsel for Time Warner, Inc.; and J. Jeffrey Hawley, President of the Intellectual Property Owners Association, and Legal Division Vice President of Eastman Kodak Company.

We feel very honored to have you quality people here to help guide us and help us to try and find some solutions here. We will begin with you, Mr. Gulbrandsen. STATEMENT OF CARL E. GULBRANDSEN, MANAGING DIREC


Mr. GULBRANDSEN. Mr. Chairman, thank you for the opportunity to testify before your Subcommittee on the important topic of patent law reform, injunctions and damages. My name is Carl E. Gulbrandsen. I am the Managing Director of the Wisconsin Alumni Research Foundation, known as WARF. I am making my statement today on behalf of WARF. I am also authorized to state that Research Corporation Technologies of Tucson, Arizona, also known as RCT, supports the stances that are taken in my written and oral statements. RCT Corporation focuses on technology investments with origins from universities and research institutes.

WARF was founded in 1925 and was one of the first organizations to engage in university technology transfer. In March of this year, WARF received the National Medal of Technology, the highest award that can be conferred by the President of the United States on individuals and organizations making lasting contributions to the country's well-being. This award recognized the importance of technology transfer.

The Senate Judiciary Committee played an instrumental role in the drafting of the Bayh-Dole Act and its cardinal principle that the American public benefits from public policy that permits universities and small businesses to elect ownership in innovations made using Federal funds.

For the Bayh-Dole Act to continue to be successful in stimulating further innovations, patents must provide significant disincentives to would-be infringers. If patent law is strong, then technology transfer can flourish, resulting in profound and positive impact on the health, safety and welfare of our country and worldwide. If patent law is weakened, then technology transfer suffers, as do U.S. universities, companies that depend on university research, and the public.

In 1980 when the Bayh-Dole Act passed, approximately 25 U.S. universities had technology transfer offices. No uniform Federal patent policy existed and federally-funded discoveries were rarely patented and commercialized. Today, more than 230 U.S. universities have technology transfer offices, and universities are recipients of approximately 4 percent of U.S. patents issued.

Today's list of university inventions is indeed impressive. The list includes Leustatin, a chemotherapy drug from the Brigham Young University; a lithography system to enable the manufacturing of nano devices from the University of Texas-Austin; and an effective aneurysm treatment from the University of California at Los Angeles.

In the past two decades, intellectual property assets have become vital to the performance of the U.S. economy. Since 1992, the volume of patent applications in the PTO has more than doubled to 400,000 applications annually. In 2005, the PTO issued more patents than it did during the first four decades of American history, although because of recent administrative and fiscal strains, the backlog of patent applications has grown to 500,000 and continues to grow.

In the eyes of many, patent quality has suffered. As a member of Patent Public Advisory Council, I believe that poor-quality patents are the exception rather than the rule, but even the exception should not be tolerated. The first line of defense against poor-quality patents and slow decisionmaking is to provide the PTO with the fiscal resources that it needs to hire and train skilled examiners and implement effective electronic processing capabilities. There is nothing in the current proposals that assist the PTO with these critical steps.

Based on our initial analysis of a plethora of patent reform proposals on the table, WARF is able to express support for some. However, several of the reform proposals represent a step backwards for university patenting and commercialization efforts. Candidly, these proposals can be described as anti-patent under the label of litigation reform. Many of them fall into the category of diminishing enforcement rights and remedies of patent-holders and have little bearing on improving patent quality. I believe that their passage would thwart the tremendous success that universities have experienced in innovation. Economic development, small businesses and jobs could be jeopardized in every State in the Union.

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WARF therefore objects to four provisions currently being discussed. First, with respect to injunctive relief, current proposals tilt the playing field in favor of infringers. Currently, a presumption in favor of injunctive relief is built into our patent process. This is for good reason. Injunctions respect the constitutional right of patent owners to exclude others from using his or her patented invention.

Second, WARF opposes the expansion of prior user rights. Expanded prior user rights would encourage innovations to be kept as trade secrets, a practice which is contrary to the fundamental premise of the U.S. patent system which rewards and encourages disclosures.

Third, WARF opposes limiting continuation practice and believes such a change in the law would negatively impact universities unless changes were specifically tailored to address abusive practices.

Fourth, the adoption of a first to file system that is intended to bring us closer to the rest of the world disadvantages the vast majority of universities and independent inventors. If we must harmonize to the world's patent laws, my written statement makes suggestions that should be incorporated in any harmonizing patent legislation in order to protect universities and independent inventors.

Mr. Chairman, thank you for your leadership, time and attention. If there are any questions, I would be pleased to answer them.

[The prepared statement of Mr. Gulbrandsen appears as a submission for the record.]

Chairman HATCH. Thank you, Mr. Gulbrandsen.



Mr. BAND. Chairman Hatch, Ranking Member Leahy and Senator Kennedy, I am pleased to testify today on behalf of Visa U.S.A. and the Financial Services Roundtable.

The financial services community is intensely interested in patent quality and litigation issues, and is grateful that you are considering these matters. Since the subject of today's hearing is injunctions and damages, I will focus my testimony on these topics. However, our views on remedies can be understood only against the background of the serious patent quality problem.

Regardless of which features contribute to a lack of patent quality, businesses of all shapes and sizes, including financial institutions, are threatened by a large and growing number of frivolous claims of patent infringement. Claims of infringement are a serious problem already, but they are only the tip of the iceberg because of the time lag and the issuance of patents related to business methods.

Since the State Street Bank decision in 1998, the number of patent applications involving financial services has surged. Because it typically takes more than 3 years to obtain a business method patent, the risk of increased litigation for financial services has now arrived.

While the Patent Act's provisions concerning remedies would need adjustment even if the Patent Office granted only valid patents, the patent quality problem makes the need for litigation reform all the more compelling. The possibility of a broad injunction and treble damages means that a financial services institution must take even the most frivolous patent infringement claim seriously.

The current rules regarding injunctions and damages place all the leverage in the hands of the patent owner even if the patent is extremely weak. Because the systems for processing credit cards or checks are large, complex and undifferentiated, an injunction on one small part of the system can shut down the entire system. If Congress does not correct the remedies under the patent law, the surge in the number of patents relating to financial services will lead to financial services institutions paying out ever larger license fees to holders of suspect patents, to the detriment of our customers.

There are steps Congress can and should take to provide financial firms and other businesses with safeguards against these frivolous claims without impairing the important protections afforded under the patent law. Specifically, Congress should modify the standards for injunctive relief and clarify the damage rules with respect to willfulness and apportionment.

In most cases, the prevailing plaintiff bears the burden of showing that it is entitled to injunctive relief because money damages are insufficient. In patent cases, however, if the patent owner shows that the patent is valid and infringed, the court presumes that the patent owner is irreparably harmed by the infringement. In theory, the defendant has the opportunity to rebut this presumption, but as a practical matter courts treat the presumption as virtually irrebuttable.

The threat of a permanent injunction, even in the absence of any real irreparable harm, significantly increases the risk to the defendant of going to trial to prove invalidity or non-infringement. Accordingly, this presumption forces defendants to settle prematurely even in cases with weak patents held by patent trolls.

The Patent Act should be amended to provide that a court can grant an injunction only if the patentee demonstrates that it is likely to suffer immediate and irreparable harm that cannot be remedied by the payment of money damages alone. The House IP Subcommittee's Committee print contains such language. Unfortunately, the bill actually introduced, H.R. 2795, does not go as far as the Committee print in this respect. It implies that the defendant bears the burden concerning irreparable harm, rather than the plaintiff. Still, the language in H.R. 2795 is an improvement over the status quo because it makes clear that the presumption of irreparable harm is rebuttable.

The patent law should also be modified to provide that a court can treble the damages only if the infringer engaged in egregious conduct, such as deliberately copying the patented subject matter with knowledge that it was patented. The Patent Act should make clear that treble damages should not be available if the infringer had a good-faith belief that the patent was invalid or unenforceable. H.R. 2795 contains provisions along these lines concerning willful infringement.

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