Section 103, and to revert now to the antiquated doctrines of old combination and aggregation would undo all that progress.

For these and other reasons, I respectfully urge that Section 112 he carried over from the present statute unchanged at this time. To the best of my knowledge, there is no experience with similar legislation elsewhere. If experience under the new Patent Reform Act should reveal a need for extraodinary disclosure requirements, that can and should be taken up as a separate matter. Section 263 would require an employer of a patentee to share savings or royalties with the employee/inventor even though the invention was made with company facilities, on company time and at company expense as part of the employee/inventor's employment. There are several basic objections to this provision and also to the similar laws which have been enacted in Germany and elsewhere.

First and most important, such a requirement could, and would be expected, to result in a competitive disadvantage to the originating company, and would therefore tend to stifle corporate research and development. It would have this effect because the patent would be conclusively presumed to be valid for purposes of profit sharing with the employee/inventor, but the employer's competitors would be free to challenge validity and, in at least some cases, to copy the product without suffering any cost burden whatsoever on account of the patent.

Secondly, a provision of this sort is totally unfair to other employees whose extraordinary contributions to the company do not fall within the cateogry of patentable subject matter and would therefore not qualify for profit sharing or royalty sharing as an employee/inventor under this section. Employees in marketing, advertising, manufacturing, financial, legal, personnel, and other corporate functions are expected to make major contributions without profit sharing or royalty sharing, and I see no reasons for favoring the employee/inventor in this way.

Thirdly, a profit sharing requirement would not even reward the employee/inventor whose patentable contribution is not in the nature of cost saving but rather in providing improved performance at the same or even higher cost.

Finally, I can visualize no equitable way to allocate royalty sharing or profit sharing between several employee/inventors each of whom has originated a patent on some aspect of the product or its manufacture. A color television receiver, for example, may embody literally dozens of patented inventions each of which is addressed to some specific aspect of the receiver or to one of its components or sub-assemblies. Some of these patents are addressed to circuits or systems embodied in the product, others to construction of components, and yet others to manufacturing processes or improvements on such processes.

In closing, my commentary with respect to S.1321 would not be complete without noting that the draft bill contains no provision purporting to define licensing rights-nothing like the controversial Scott Amendments proposed in connection with predecessor bills. In my view, this is another commendable feature of the bill. Such proposals are founded on the premise that the patent system is primarily designed to reward the inventor, whereas the primary purpose of the patent system is to create a public benefit, namely to promote progress in science and the useful arts, and the inventor's reward is merely a means to that end. I see nothing about the patent property which should make it any more or less susceptible to misuse in violation of the anti-trust laws than other types of property. I therefore see no reason for attempting to carve categoric exemptions or immunities for patents from application of the antitrust laws by statutory enactment.

The 1966 Presidential Commission recommendation to enact licensing rights legislation was accompanied by the statement that "The Commission . . . . does not favor any proposal which would weaken the enforcement of the anti-trust laws or which would curtail in any way the power of the courts to deny relief to a patent owner misusing the patent he seeks to enforce." In other words, the recommendation was to clarify or codify existing law, not to reform or amend it. The difficulty which has been encountered in drafting acceptable statutory language to meet this objective was not visualized by the Commis sion, and I see nothing in its Report to suggest that the licensing rights question is not severable from the need for patent reform. The controversy over

licensing rights legislation has now delayed the much-needed patent reform for several years. In my view, it is a severable question and should be taken up separately without delaying the present bill.

To summarize my views concerning S. 1321, important revisions are needed and some provisions should be omitted altogether, but with appropriate changes it can be made a useful and effective patent reform measure.

STATEMENT OF JOHN J. PEDERSON, DIRECTOR OF PATENTS, ZENITH RADIO CORP.

Mr. PEDERSON. Mr. Chairman, my purpose in appearing is because of deep concern over the obvious need for a basic change and reform in our patent system. We all bemoan the vital statistics that we do have as to the mortality rate of patents in the court. I think from that it is fair to conclude that the patient is sick.

In partial response to a question asked of Mr. Hogan, I do not think you can extrapolate those figures and state the same percentage would apply to all patents. I do not think there is any way of guessing which way it would go.

But in any event there is need for this change and a need for reform; and it is time that we do it.

In my view the problem with the patent system has been inherent in the fact that all the patentability proceedings are and historically have been ex parte administrative proceedings; and what we need is an adversary system.

Now, I do not mean to imply that the Patent Office's examining corps is not an able and dedicated group of people. I think they are, and much has been done in recent years to upgrade their professional status and professional ability. There has been the institution of the Patent Office Academy. There are many more career examiners today proportionately than there were when I started in the practice 25 years ago; and they are doing well.

The problem we have is not the problem of professional accountability and dedication. It is a problem of difficulty with the system. The system is not well tailored to produce good patents and reject inferior patents.

As a practical matter, nobody can run a search on the basis of the amount of time allocable to an individual patent application to determine all the relevant prior art, even from among the library of prior art that is available to be researched.

But even of greater significance is the fact that there are entire categories of what often turns out to be the most relevant prior art, namely copending patent applications which represent the most recent innovation in the field to which the application we are talking about is directed. And they are not accessible to the examiner or to the applicant, and there is no way that they can be found as a part of an ex parte examination practice.

In an adversary proceeding, the applicant in these relevant copending applications could bring them forward as grounds for opposition.

A Patent Office examiner cannot identify them. He is prevented by statute. The applicant cannot have access in any kind of search. He cannot find them. And so, he is helpless to ascertain at the time he files his application what the real state of the prior art is.

I might also say in recent years the Patent Office has, I think, been pennywise and pound-foolish, probably in response to budgetary restraints, in curtailing search facilities; for example, it is no longer possible to run a decent search of the foreign patent literature in the U.S. Patent Office. It used to be that they had a library of classified foreign patents classified by subject matter. You could do a search and find out what the state of the art was. Today that library is nonexistent as a public facility, I assume because of unavailability of space and budgetary allocation. Examiners cannot

search it either.

So that we in industry when we want to run a search of the foreign art have to go overseas. There are search agencies in Japan, the Hague in Holland and other places that perform these services on retainer.

So on the basis of fundamentals it seems to me that if we are to have an effective system, an adversary system, we must bring forward those that have knowledge of the prior art, that is, industry members, competitors. We must find some way to bring that knowledge to bear in the patent application proceedings.

But unless we do something to urge them and make them come forward during the application proceedings, I fear that many of them, if not most, will just sit back and say, "I would rather reserve my defenses until such time that I go to court." And they may never have to defend the patent, in which case they save a lot of trouble. Somebody else may have to defend it, and they may be saved a lot of trouble.

So it one has an option-and section 138 (b) in S. 1321 would give him that option as I read it-he very well might not come forward, and spurious patents will continue to be issued.

We have to put teeth into the system. We cannot make patents easier to get and harder to bust at the same time. If we are going to make them harder to bust, we have to make them harder to get. If we make them harder to get, we are going to have to have some consequences for people who are in a position to take part in these proceedings and refrain from doing so.

There are many things that can be done in that regard, ranging all the way from incontestability-that many people would find too harsh, probably most-to personal estoppels to raise defenses in court proceedings that could have been brought before the Patent Office.

My purpose is not necessarily to come up with an ultimate prescription, but to say in principle that some consequence is needed some definite specific strengthening in the presumption of validity. Something that makes patents tangibly less susceptible to attack in the courts should result from these adversary proceedings for those that survive.

I also am mindful that historically in European countries that have opposition proceedings, there is oppressive use of oppositions to suppress competitive patents, keep them from issuing, delay issuance, perhaps encourage them to drop their applications because of economic considerations; so I believe that there should be effective sanctions against such abuses.

I think among the things that could be raised in this regard, one should be in a position of having to make a prima facie showing that he has a good basis or grounds for opposition before instituting that proceeding and putting the applicant through that burden. He perhaps should be made to bear the cost of that proceeding if he is unsuccessful, perhaps even to pay the applicant's costs or some part of them, at least in aggravated cases.

So there must be sanctions to discourage the possible oppressive use of the system.

Finally, I believe that if you are going to continue to encourage small companies and individual applicants to come forward, that you should consider giving them available help when their economic condition suggests that they need it. This could either be in the way of some sort of partial subsidization of legal expense on the one hand; or possibly, if you have an Office of Public Counsel, making public counsel services available to him in his defense of opposition proceedings.

I think, too, among other testimony that I have heard this morning I have heard most people favoring the completion of ex parte examination and the finding of prima facie patentability before publication, and before throwing open the application for opposition.

It has been said that this is fair play because the applicant should have the option of either holding it to himself, or at least he should know what is going to be granted before he decides to publish and give up his secrecy option.

I think there is a better reason for doing this; that is, early publication prior to a patentability determination will result in a proliferation of contested proceedings in opposition.

Senator HART. Proliferation of what?

Mr. PEDERSON. Contested proceedings in opposition. If the burden is to oppose before there has been ex parte examination, before there has been a prima facie determination of patentability, one would pass that opportunity at his peril, and in many cases it would be opposed and inter-party proceedings instituted that otherwise would not be instituted because it would have fallen by the wayside in the ordinary course of ex parte examination.

The question of deferred examination is up for discussion. I favor deferred examination but only if S. 1321 were changed to eliminate the provision for extension of term in correspondence to the deferral period. I do not believe an applicant should be entitled to a term extension by mere dilatory action. I think 12 years from the filing date is too short a term. I think 18 or 20 years from the filing date is more in line with international practice and is reasonable. I think if you have deferred examination it should remain 18 or 20 years from the filing date.

The deferral option is for the benefit of the applicant, among others. It gives him an opportunity to avoid incurring further expense until he has some basis for deciding that he has got something worth pushing. I see no reason why he should be entitled to have his term extended for exercising that option.

The case that never gets examined will never have to be opposed either, if we do lay these open to opposition only after an ex parte determination so that 50, 59, or 60 percent of the applications fall

by the wayside in the deferred examination process. They will never be published, and they will never have to be opposed. I am sorrythey may be published, but they would never have to be opposed, because no patent grant will be published.

On the matter of maintenance fees, I think that it would be a snare and a delusion to think we are going to help our situation with respect to eliminating spurious patents by the use of maintenance fees. I have not heard that this is a major purpose of those fees this morning. It has been mentioned by many of its proponents at other times. But it will only eliminate deadwood; it will not eliminate anything but deadwood.

The elimination of deadwood is really not a problem, because deadwood does not cause court cases. It has been suggested that perhaps maintenance fees might be an alternate to increasing filing or issue fees. I have to agree with Mr. Hogan. I think that once it has been determined that we really have a patentable invention here. something which benefits the public, promotes progress in science and the useful arts serves the constitutional purpose of the public benefit, that now to impose an annual maintenance fee in order to maintain that privilege, or that grant given by the Government pursuant to the constitutional objectives, is incongruous.

And I would also endorse Mr. Hogan's position, if you have to increase anything, increase the final fee, the issue fee, at which time the decision has to be made whether the monopoly is sufficiently attractive to justify that added expense.

I think the office of public counsel and the creation of an independent agency status of the Patent Office is laudable. The purposes that they should serve have been expounded upon today. I do not think they would suffice, of themselves, to convey enough credibility to patents to convert a 75 percent mortality rate to the 75 percent or better survival rate that I think ought to be injected into patent reform.

Incidentally, I think that the provisions that have not been mentioned-enhanced library facilities, mechanized search, things of this sort-are also laudable objectives in that regard, but insufficient of themselves to do the job.

I would be happy, if the committee has any comment or questions

Senator HART. There are a number of proposals intended to improve the system reflected in S. 1321 and other bills before us. We asked for comment on five specifics in the series of hearings that we are conducting today.

Would you care to make a judgment with respect to those five specifics, which is the most important in achieving an improvement?

Mr. PEDERSON. Senator, I think an appropriate adversary system of some sort is the most important thing. It is the only way that we can bring industry members and competitors who are possessed of a knowledge of the state of the art that is needed on which to make a patentability judgment; they have to be brought into the picture. Senator HART. That seems to be, as I have read memoranda of

s that seems to be the most frequent basis for the court's of the system, the vacuum.