That statement might be modified slightly, but it is pretty generally the case. The statutory requirements are novelty and nonobviousness or inventiveness; but it comes pretty close to being the fact that the prospects of an able advocate obtaining a patent on a disclosure that is characterized by novelty only are pretty inviting. I would be willing to put my money on the patent attorney to succeed rather than to fail to succeed many more times than to fail. The German patent office confronts that approach with their reaction: "Everything that you say, counsel, about the red button and the remarkable accomplishments, and this thing being painted blue, might be true, but we are not going to give you a patent on it. It is beneath our standards." We can profit by emulating the attitude of the German patent office in that respect.

Now then, the public adversary hearing is going to bring out the views of industry on the patentability of certain patent applications. I would advocate that a patent application not be laid open for any kind of opposition or any kind of public adversary hearings until it is in an allowed state. I would advocate that the patent application not be published until it is in an allowed state, and that a considerable time elapse between the filing and the publication.

I would advocate that the reexamination be confined to simply the reference material and the arguments that were turned up on the applicant's prosecution without giving the adversary or the opponent an opportunity to appear, make a trial out of it, or make argu

ments.

I think that if we are going to make trials in the Patent Office, it would be too much of a burden on the inventor in the ordinary case. An exception might be made if, in the opinion of the public counsel, irregularities are appearing, or the importance of the case is such as to justify calling in the adversary and opening up a wholly adversary proceeding.

Now then, on this matter it is a serious defect of opposition proceedings that they are often brought as a matter of course in foreign countries. Some companies know that every time they file an application in certain foreign countries, the competitor will automatically oppose, whether in good faith or not. Certainly, it is not desirable to open up to that type of opposition.

The opportunity for the public to be heard, to submit data, to be considered ex parte by the examiner, that is fine. In an exceptional case, to have a public counsel call in the adversary to participate, so much the better.

Now then, the case for deferred examination has been argued against on the theory that we do not need it here. There is no need to defer anything. We are up to date. Well, what are we up to date with? We are up to date with a poor, with an inadequate quality of examination.

The foreign art has not adequately been looked into. It is not adequately classified. I was a patent examiner. I did not know the first thing about making a literature search until I got a Master's degree in history, years after I finished working in the Patent Office. The average examiner does not make a literature search; he does not

know how. So that the quality of the search in the Patent Office is not adequate.

Why is it inadequate? It is inadequate because the examiner is overburdened, and he is on a quota system, because he is examining the chaff as well as the wheat.

The value of deferred examination would be that it would put the wheat before the examiner for examination, and it would temporarily put the chaff in storage where it belongs.

As to maintenance fees I am afraid, gentlemen, I am dated; Congressional Medal of Honor winners do not pay costs of administration; Nobel Prize winners do not pay costs of administration. 'Even if the patent system is not serving its real objectives in an entirely approved way, it is serving them generally. A patent of real benefit to the economy justly deserves an award or prize. This country badly needs the Patent Office, whatever it costs. The costs are a drop in the bucket compared to the advantages that the patent system, even as it is now, is bringing.

Now, with a proper scheme of examination and a minimizing of the chaff that is cluttering up the courts in patent litigation and constituting a briar patch for productive industry, the cost of the Patent Office would be a very minute consideration compared to the benefits.

I would advocate, if money has to be derived any place, that it be derived from final fees because at that time the man has the prize in front of him, he has run the race; a few hundred dollars does not hurt him so badly.

The Patent Office should be an independent agency. Its function is one of those specifically enumerated in the Constitution. We have, I believe Commissioner Watson stated that we had something like 40 independent agencies.

Certainly the patent function in this day and age when we are being seriously threatened as to economic supremacy and technical leadership by the Soviets, and by Japan, and by West Germany, and others certainly, the performance of this function is one of the very highest dignity.

The Patent Office is not a place for a social experiment. It is not a place for pushing treaties before getting the patent system improved domestically. It is no place for rapid turnover. The patent system ought to be separated out from the Department of Commerce and put on its own. Certainly, the specifically enumerated constitutional function, from the very beginning, deserves no less.

Thank you very much, Senator Hart and the committee.

Senator HART. Thank you, Mr. Hogan. That was very interesting. One of the items that was not enumerated in the list of five-and I am probably breaking the rule by asking about it. I should have remembered this morning to ask others about it when we talked about reforming the patent system, the need for which you very effectively underscored.

What is your reaction to specifying antitrust ground rules for licensing patents as part of patent reform? Forget for a minute the political problems that this creates. Think of it as a question that asks for an answer based on the question alone, and without any

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consideration as to whether it hangs up the forum here or does not hang it up ideally.

Do you see the relationship between reforming the patent system with respect to issuing patents and spelling out the antitrust rules for the licensing of patents as one and the same?

Mr. HOGAN. No, sir. I cannot see any relationship between the two problems whatsoever. It seems to me that our problem now is to get good inventions, better inventions technologically and work our way out of a mess with the ecology, out of a lack of adequate growth, out of our inflation. It is to get these inventions now. I do not know anybody with a good invention who has a present antitrust problem. Senator HART. This morning we played around with figures, and certain witnesses suggested 100,000 patents are issued, 70-odd percent of those challenged are found to be faulty, but only one percent of the 100,000 are challenged. What is the conclusion?

Do you want to put any figure on how much of the 99 percent would be weeds if litigated?

Mr. HOGAN. Senator, I would venture that-it would be difficult to say. I would venture that most of the 99 percent are not used. The patent that is challenged in court is likely to be-well, not necessarily. I was going to say that it was likely to be weaker than the mean. I am not so sure of that because the patent that is challenged in court may involve large sums, and when large sums are at stake it is worth the defendant's while to resist and to subject it as it were to the ordeal by experts that some patent cases are becoming.

I would find it difficult to project that average, the statistical average of patents held invalid, over into the mass of patents, as far as validity is concerned.

Now, I daresay that the mass of patents are not used, so that the question of validity is not likely to come up. Many are obsolete; sometimes they are abandoned. Sometimes the inventor does not have the business acumen to develop them. For a variety of reasons they simply die.

I am inclined to think that most of them lack an adequate citation of prior art, and most of them are vulnerable to attack in the courts. So vulnerable that defendants I daresay in most cases can make a bona fide case. I will go that far. I say most of them are vulnerable; probably the majority are vulnerable to a bona fide attack in the

courts.

Senator HART. Mr. Brennan.

Mr. BRENNAN. I would like to pursue the chairman's first question, which makes us both guilty of going outside of the ground rules.

The current exercise in reforming the patent system began with the report of President Johnson's Commission on the Patent System. Is it not correct that the proposal to clarify the law with respect to patent licensing was contained in the report of the President's Commission?

HOGAN. I am not certain of that. I think it was, Counselor 1. I am not sure whether that is the case or not.

ving that the subject matter-the amendments were in " of the Commission?

Mr. BRENNAN. I am saying that one of the recommendations of the President's Commission, No. 22, recommended that the Congress, by statute, should clarify the law with respect to patent licensing. And if that statement is correct, then the two issues have been linked together since inception or conception.

Mr. HOGAN. Mr. Brennan, the President's Commission made so many mistakes, I would not arrive at any solid conclusion on that basis.

Mr. BRENNAN. I am not debating with you the recommendations. I am only asking you a factual question as to what was the recommendation.

I would suggest, Mr. Chairman, it might be useful to have inserted at this point, if it is agreeable to you, that excerpt from the report of the President's Commission.

Senator HART. We will let the recommendation No. 22 and the accompanying explanation be printed at this point.

[The information referred to follows:]

XXII. The licensable nature of the rights granted by a patent should be clarified by specifically stating in the patent statute that: (1) applications for patents, patents, or any interests therein may be licensed in the whole, or in any specified part, of the field of use to which the subject matter of the claims of the patent are directly applicable, and (2) a patent owner shall not be deemed guilty of patent misuse merely because he agreed to a contractual provision or imposed a condition on a licensee, which has (a) a direct relation to the disclosure and claims of the patent, and (b) the performance of which is reasonable under the circumstances to secure to the patent owner the full benefit of his invention and patent grant. This recommendation is intended to make clear that the "rule of reason" shall constitute the guideline for determining patent misuse.

There is no doubt, in the opinion of the Commission, of the importance to the U.S. economy of both the U.S. patent system and the antitrust laws. Each is essential and each serves its own purpose within the framework of our economic structure. However, conflicts between the two have arisen. But this does not mean that the two systems are mutually exclusive, that a strong patent system is a threat to the antitrust laws, or that the latter cannot be effectively enforced so long as a patent system grants limited monopolies.

On the contrary, the two systems are fully compatible, one checking and preventing undesirable monopolistic power and the other encouraging and promoting certain limited beneficial monopolies. In this way, each may easily achieve its objectives in a strong economy.

The Commission, therefore, does not favor any proposal which would weaken the enforcement of the antitrust 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. However, uncertainty exists as to the precise nature of the patent right and there is no clear definition of the patent misuse rule. This has produced confusion in the public mind and a reluctance by patent owners and others to enter into contracts or other arrangements pertaining to patents or related licenses.

No useful purpose would be served by codifying the many decisions dealing with patent misuse into a set of rules or definitions permitting or denying enforeability of patents in given circumstances. The risk of unenforceability is too great and such a codification is wholly unnecessary. All that the Commission believes to be required is explicit statutory language defining, for the purpose of assignments and licenses, the nature of the patent grant heretofore recognized under the patent statute or by decisional law. This is, the right to exclude others from making, using and selling the patented invention.

The mere exercise, conveyance or license of these conferred rights should not in itself constitute misuse of a patent. A patent owner should not be denied relief against infringers because he either refused to grant a license or because he has exercised, transferred or licensed any of the conferred patent rights

himself. This should not include immunity of even these conferred patent rights from the antitrust laws when the patent owner becomes involved in a conspiracy to restrain or monopolize commerce, or when the patent is itself used as an instrument for unreasonably restraining trade.

There are also a number of conditions and provisions long associated with the transfer or license of rights under patents which must be distinguished from the exclusive right to make, use and sell conferred by the patent grant. Among these are improvement grant-backs, cross licenses, package licenses, patent pools, no contest clauses, and many others which are simply matters of private contract, ancillary to the conveyance or license of a patent right. As such, these conditions and provisions must be judged, along with other purely commercial practices, under the antitrust laws and the patent misuse doctrine. The Commission does not recommend immunization of any of these other provisions or conditions from either the antitrust laws or the application of the misuse rule.

This recommendation also makes it clear that a patent may not be used to control commerce in subject matter beyond the scope of the patent. For example, it could not be considered "reasonably necessary" to secure full benefit to the owner of a machine patent that he attempt to control any of the commerce in an unpatented raw material to be used in the machine. Neither could it be held that such an attempt had a direct relation to the machine claims in his patent. By the same standards, the patent owner could not control commerce in one of the unpatented elements of his combination invention where his claims are to the whole combination.

Mr. BRENNAN. I want to compliment you for an extremely effective presentation. I think it is one of the best I have heard over a period of time.

Mr. HOGAN. Thank you, sir.

Mr. BRENNAN. In your prepared statement you indicate there is criteria that ought to be employed by the Office of Patent Counsel in deciding what cases they ought to explore.

Do you contemplate having this criteria set forth in the statute, or would this be left to the discretion of the Office of Public Counsel? Mr. HOGAN. Counselor, I would despair-Senator and Counselor, I would despair of the possibility of perfection in this. I would advocate setting down some criteria, yes.

It seems to me that in some of the constitutions of some of the States there are set forth criteria defining cases of great public interest, cases that their supreme courts, courts of last resort, should consider on certiorari. They indicate that it is practical for legislative draftsmen to think up worthwhile criteria.

I think that is an excellent thought, that the criteria be set forth in the statute; that it should be the exceptional case for public counsel to get into.

Mr. BRENNAN. Thank you.

Mr. HOGAN. Analogous to the certiorari process; analogous to the censor-I do not like to use this word--but under the Chinese emperors they had a censor. His job was to see what was going on wrong in the government.

This public counsel has to be a most discreet, judicious person and must conduct his office in a most discreet way. I like the thought that has been expressed and would certainly advocate that statutory criteria be employed to define this discretion; also that he be totally independent of the Commissioner and the Solicitor; he is a watch

dog.

Senator HART. It is not just patents; it is everything. When you have an idea that it would make good sense to have someone playing