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Mr. Brennan?
Mr. BRENNAN. No questions.
Senator HART. Mr. Nash?
Mr. Nash. One brief question.

We have heard, you know, assessments this morning that, yes, there is a crisis because a lot of patents are getting knocked out by the courts. The numbers have run about 70 percent in the court of appeals, as Senator Hart mentioned. That is just about 1 percent of the total number of patents that are issued.

You are a general patent counsel for a major corporation. I am sure, you report to your executives, they like to plan and make business judgments based on assumptions as to whether their patents are good or not good.

Could you give us the parameters or the context in which to evaluate the significance of either the 1 percent of the patents being litigated, or 70 percent of those patents that are litigated being knocked out as invalid.

Mr. PEDERSON. That is a very complex question. I would be happy to comment on it to the best of my ability. There is an implied premise in your question that I think perhaps ought to be attacked first.

That is, there seems to be a popular supposition that businessmen make business determinations based upon the consideration as to whether their patent is going to be allowed or not as a primary input. That is true in some cases, but that is far from universally true, at least in our industry. I cannot speak for all industries.

Here again, I must impose a qualification. At least within our industry, once an invention or development has been made and we have found it looks commercially attractive, we want to introduce it in our product. We are much happier if we can get strong patent coverage on it than if we cannot. But the fact that we cannot will not deter us from coming out with a new feature that we think is good. This is one point that I would like to clarify at the outset.

People in our industry do not set up research and development programs based entirely, or even primarily, on expectations of strong patent coverage. We do the best we can with what eventuates from the programs that look attractive on their own merit.

There is something drastically wrong with a system that says 75 percent of the patents that go to court are no good. I think industry is alarmed about this. I do not feel from my management, however, a direct sense of urgency that says to me, we are concerned that 75 percent of the patents are invalid.

There are not concerned. They do not extrapolate or extend these statistics to their holdings or to our holdings. They expect us to do better than that, and we have delivered on that expectation in the past, at least in those cases that have been tested. We run aftersearches that are better than the Patent Oflice searches, because they encompass large areas of prior art that the examiner did not have available. We amend voluntarily to distinguish from prior art that the examiners did not bring forward.

We know we cannot rely upon the Patent Office process, not because of any lack of dedication on the part of the examining corps, but simply because the system has these idiosyncrasies. As a result-I think if everyone took the pains we take, I think the statistics would be better, too.

Mr. NASH. As I understand it-and I would like the record to reflect it if it is correct-in terms of patent infringement suits, you have been successful in your patent litigations?

Mr. PEDERSON. We have been successful on both sides of patent litigation, asserting our own and defending against others. We have also been very quick to recognize good patents. Our policy is to recognize and respect good patents and to have no truck at all with bad patents.

We were Major Armstrong's first licensee, for example, on FM radio, paying millions of dollars in royalties, which many years later were ultimately forced upon some of our competitors by litigation brought by his estate after his death. But we signed up.

Mr. Parker has an inter-carrier sound patent in the television business. We signed up and paid royalties. When someone has a patent that we generally consider to measure up to the standards of patentability established by the law, we respect it. But if a patent is invalid, we will not have any part of it. We cannot afford it.

Mr. Nash. My last question is, would you be able to hazard a guess for us as to whether you would extrapolate out the percentage of invalid patents to those that are not litigated?

You must look at the official gazette as a patent lawyer and see what comes up. Do you think that we would have an invalidity rate of 70 percent if we, God forbid, litigated all patents ?

Mr. PEDERSON. I do not think we can give any expectation regarding the number. A large percentage would be involved. I would agree with Mr. Hogan that a majority of these patents are not commercially significant patents, so their validity becomes moot in large measure.

I do not know any basis where you could extrapolate the figures, though, and say that as applied to the larger universe, the percentage would be the same.

Mr. Nasu. Thank you.
Senator Hart. Mr. Pederson, thank you very much.
Mr. PEDERSON. Thank you, sir.

Senator Hart. We will adjourn until tomorrow morning at 9:30, rather than 10 o'clock, in this room.

[Whereupon, at 3:35 p.m., the subcommittee was recessed, to reconvene Wednesday, September 12, at 9:30 a.m.]




Washington, D.C. The committee met, pursuant to recess, at 9:30 a.m., in room 1114, Dirksen Senate Office Building, Senator Philip A. Hart presiding.

Present: Senator Hart (presiding).

Also present: Thomas C. Brennan, chief counsel and Dennis Unkovic, assistant counsel, Subcommittee on Patents, Trademarks, and ('opyrights; Bernard Nash, assistant counsel, Antitrust and Monopoly Subcommittee.

Senator Hart. The committee will be in order.

Mr. BRENNAN. Mr. Chairman, the first witnesses this morning appear on behalf of the Department of Commerce.

Mr. Bakke, would you identify yourself and your associates for the record please.

Mr. BAKKE. Good morning, Mr. Chairman.

My name is Karl Bakke. I am General Counsel of the Department of Commerce. Accompanying me this morning, on my right, is Rene Tegtmeyer, Acting Commissioner of Patents, and on his right, Michael Kirk, Director of the Patent Office's Office of Legislative and International Affairs.

Mr. BRENNAN. Do you have a prepared statement that you wish to have printed in full at this point in the record, Mr. Bakke?

Mr. Bakke. That is correct, Mr. Brennan.

I would like merely to summarize the remarks contained in my prepared statement.

Mr. BRENNAN. Fine.
[The prepared statement of Karl E. Bakke follows:]

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I appreciate the opportunity to appear before this Subcommittee to explain the views of the Department of Commerce on the five patent topics which are the subjects of these hearings.

Our patent system began with the Constitutional recognition that substantial rewards and protection would encourage scientific research and the development of new inventions. These rewards and rights also provide the substantial financial investments needed to bring new inventions to the marketplace for the ultimate benefit of the consumer.



The patent system has played a uniquely important role in the development of American technology, and remains a major factor in our nation's economic vitality. Agriculture has prospered from inventions such as insecticides and food processing machinery. Modern electronic technology has brought us lasers, transistors and computers. Patented plastics, textiles and pharmaceuticals have created new markets and industries. The patent system has stimulated much of the necessary investment in research and development and the marketing of inventions which have brought, in turn, the development of entire industries and an unparalleled standard of living for the American public.

This Administration is keenly aware of the critical role of technology in promoting our national interests. President Nixon pointed out in his Special Mes. sage to the Congress on Science and Technology on March 16, 1972, that solutions to many of our pressing national needs depend on preserving the American pre-eminence in science and technology. The President declared :

"We know * * * that a strong and reliable patent system is important to technological progress and industrial strength. The process of applying technology to achieve our national goals calls for a tremendous investment of money, energy and talent by our private enterprise system. If we expect industry to support this investment, we must make the most effective possibile use of the incentives which are provided by our patent system."

The Administration recognizes that the patent system has served our nation well since the first patent law was enacted in 1790 and continues to play an important role today. Nevertheless, we recognize that certain revisions in the system will enable it to better fulfill its crucial role in promoting the development and commercialization of technology. Our objectives are twofold: strengthening the patent system and enhancing public confidence in the system. We anticipate that the Administration's bill will be forwarded to this Subcommittee in the near future. Our bill will be comprehensive and will contain a complete revision of the present patent code. In addition, the Administration's position with respect to legislation dealing with the very important patent-antitrust relationship will be communicated to the Congress.

Our bill is intended to confront the formidable challenges faced today by the patent system. Let me mention the most important of these. The task of the Patent Oflice in determining which inventions are patentable becomes more and more difficult as technology becomes increasingly complex, and technical and scientific information proliferates. At the same time, it is increasingly important that new technology be disclosed to the public as early as possible. There is also a critical need to provide a high degree of predictability as to the validity of issued patents and thereby reduce time-consuming, costly and unnecessary legal actions in enforcing patent rights.

In discussing the formidable challenge faced today by the patent system, I do not mean to imply that the patent system is not basically sound. The present structure of our patent laws was established in 1836 and there have been many changes in our society since that time. However, our patent system bas served and continues to serve the nation well, providing the needed stimulus to scientific and technical development so necessary to the continuance of our position of leadership in the world.

Therefore, the bill which the Administration will soon forward will contain a number of improvements designed to strengthen the overall functioning of our patent system. Many of the changes which will be contained in the Administration bill have been found in earlier proposals for patent reform, many of which have been sponsored by the Chairman of the Subcommittee, Senator McClellan. Included among these changes will be proposals for measuring the term of a patent from its filing date, permitting assignees to file patent appli. cations, and strengthening the requirements for inventors and their asignees to bring forward information concerning their inventions. In addition, the bill developed by the Administration will contain several new proposals such as a statutory statement of the duties imposed on patent applicants and their attorners to clarify and bring a measure of order to the rather murky question of fraud on the Patent Office, a statutory procedure which patent applicants mar utilize to avoid the question of double patenting, and a statutory proposal outlining situations in which patentees and those with whom they deal may agree to arbitration of existing disputes respecting the validity, infringement, and misuse of their patents. The bill developed by the Administration will contain a number of other proposals which I will not mention at this time, designed to

farther improve the basically sound patent system that we have today, and especially to strengthen the basis for the presumption of patent validity in response to the criticisms frequently leveled at the system.

I will turn now to the five topics with which this hearing is concerned.



The consideration to be kept foremost in mind in any revision of the patent laws is that the procedures established must assure the issuance of valid patents. In designing any changes in our existing system, however, one must also be cognizant of the fact that the Patent Office presently conducts as full and as effective an examination proceeding as is possible on an ex parte basis. The effectiveness of this examination procedure is demonstrated by the fact that the Patent Office refuses to grant patents on more than 30 per cent of the applications which are filed. This fact can be better appreciated against the background of the prevailing practice in the United States with respect to the screening procedures to which applications are subjected prior to filing.

Unlike the practice in foreign countries, pre-examination searches are conducted with respect to the large majority of applications filed in the United States so that, at the time of filing, these applications, and especially the claims contained in them have been reasonably limited to the applicant's contribution which was not previously in the public domain. Accordingly, it speaks exceedingly well for our present examination procedure that more than 30 per cent of applications filed are refused completely and that almost all of the remainder are significantly limited in scope.

Nonetheless, comments are increasingly directed at the ex parte nature of examination proceedings under present law. While this procedure respects the right of individual applicants to maintain their contributions in secrecy until such time as they are given an indication of the scope of the patent protection they might receive, members of the public are not permitted to participate in the examination proceedings. In fact, the principal source of invalidity has been the inability of the Patent Office to learn of information and facts which are peculiarly in the possession of the public. Therefore, increased public participation in the patenting process would help to ensure that all the pertinent prior art, including that which could not be discovered by a Patent Office search of reasonable magnitude, is considered before a patent is granted. This would have the effect of strengthening the validity of patents, reducing the workload on courts in judging patent cases, and promoting public faith in the worth of the patent system.

We have reviewed various proposals relating to public adversary proceedings. Both S. 1321 and the bill which the Administration intends to introduce contain procedures which would permit the public to assist the Patent Office in ensuring that only valid patents are permitted to issue. However, we believe that certain features of the proposals in S. 1321 permitting public participation would unduly burden the examining process and might not achieve the desired ends of providing stronger and more reliable patents. In addition, S. 1321 would also subject patent applicants to the prospect of harrassment.

Under S. 1321, all patent applications would be made available for public inspection promptly, subject only to the authority to keep them secret for a period of six months for purposes of national security review. Once examination of an application had commenced, any member of the public could participate or intervene in the examination proceeding and become a party of record in such proceeding. Following a decision by a primary examiner to grant a patent, any member of the public, whether or not previously a party to the examination proceeding, could request a reexamination, and the primary examiner would be required to render a second decision. Any party of record in any Patent Office proceeding, including a reexamination proceeding, could apply at any time to a primary examiner or other presiding official for subpoenas or other orders to take discovery, testimony or evidence.

In our view, the provisions of S. 1321 providing for adversary proceedings in the Patent Office present several significant problems. First, it should be noted that issues with respect to the patentability of applications are generally not fully developed until an examiner has completed his examination. Until this

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