problem of Government infringement upon private patents which has been our primary problem all along.

Mr. EDWARDS. Thank you, Mr. Cappello. Thank you, Mr. Chairman. Chairman KASTENMEIER. Mr. Poff?

Mr. POFF. May I say I appreciate the testimony of the witness. You have offered us a variety of recommendations which I think the subcommittee might appropriately consider. May I ask you first to turn to page 5 of your testimony and I will ask you first if you are familiar with the testimony which preceded yours?

Mr. CAPPELLO. Yes.

Mr. POFF. You know then that I address myself to the precise question to which you refer in connection with section 120 (a) (2). Obviously, I have somewhat the same fears you have. And I request that some clarification of the purport, import, and intent of that language be furnished to this subcommittee. I realize that you have likely not had an opportunity to prepare it-the alternative language, but if you have, would you suggest what it might be at this time?

Mr. CAPPELLO. Well, we felt that "every feature recited in the claims therefor" should be eliminated, and that some language similar to "reasonably related to the claims in the completed application" be substituted. In other words, the disclosures made need to be reasonably related to the claims which are ultimately presented in the complete application.

Mr. POFF. Do you expect that you will have precise language to suggest?

Mr. CAPPELLO. Yes.

Mr. POFF. On page 5, you also identified your organization with the personal grace period of not less than 6 months and preferably a year. A related suggestion was offered by an earlier witness, I believe the President's science adviser, relative to the so-called shop right. Do you have an attitude about that?

Mr. CAPPELLO. I don't think we have formulated a strong position. either way. We feel that basically our interest would be served by the personal grace period and I just don't have an answer for that. Did either of you gentlemen have a feeling about that? (Addressing himself to his two colleagues.)

Mr. PERRY. A shop right is usually one in which, as I understand the term, an invention is made and thereafter the invention may be used whether it is patented or not.

Mr. CAPPELLO. May I say something further on that, Mr. Poff? I believe that this really strikes at the concept of first to file and we have discussed this at some length with our members, and we believe the first-to-file concept is salutary; that is, the first person who gets to the Patent Office with a reasonable disclosure should have the right to the invention.

Mr. PoFF. Then small business finds no justification for the shop right as a personal defense?

Mr. CAPPELLO. I think that would be our position. If a person sleeps on his rights he should not have shop rights, even though he may be a coinventor. We prefer the element of certainty, as far as the small business community goes, to personal or equitable consideration that may be involved. We are primarily interested in a patent which has value on its face, which will justify our going into business and knowing that we have something that we can rely on.

Mr. POFF. In other words your concern is with the quality and validity of the patent. I am not quite certain that I understand the colloquy which has just taken place concerning the $10 filing fee. I am not quite sure that I understand why an increase in the fee would tend to discourage trash filings by large corporations more than by small corporations.

Mr. CAPPELLO. I think your point is well taken Mr. Poff. I don't think it necessarily will. But I think that obviously a fee as low as $10 would encourage anything and everything to be thrown into the hopper. I am not so sure that even $50 or $100 would discourage a large corporation, but to the extent that anyone is discouraged by fees that are more reasonable in the light of the purposes to be accomplished, I think it would be a salutary thing.

Chairman KASTENMEIER. If the gentlemen would yield-in other words you seek to raise the quality of the preliminary application, you want to see a good quality first application to be made? Mr. CAPPELLO. That is correct Mr. Chairman.

Mr. POFF. On page 9 you discuss your recommendation for changing in the bill with reference to appellate procedure. You refer to the same subject in a somewhat different context later in your testimony. May I inquire if you intend that the appeal to the Court of Customs and Patent Appeals as that appeals is discussed on page 9 means an appeal on the record only?

Mr. CAPPELLO. Our concept is that regardless of whether the appeal is taken from a trial patent court-whether this be a panel of U.S. district court judges, or a separate patent trial court, or, from the administrative proceedings in the Patent Office that the Court of Customs and Patent Appeals, sitting in patent matters, should exercise the function that a true appellate tribunal does exercise. That is to review the record of proceedings and not take additional testimony. If the appellate tribunal needs additional testimony that has not been properly obtained, then the case should be remanded with specific instructions to the trial court, or to the administrative tribunal, to provide that type of testimony.

Mr. POFF. In other words, you are proposing that the de novo proceeding in the U.S. District Court of the District of Columbia be eliminated?

Mr. CAPPELLO. I would like to add something further to that if I may. We believe that the Court of Customs and Patent Appeals as presently constituted does not provide the high quality of decisions which they would if they were a true appelate body. This gives some people cause for concern because some of the decisions that are reached now are not on the equivalent level to those achieved in the U.S. court of appeals. Obviously the Court of Customs and Patent Appeals does not have this function now. I believe that if it is given a true appellate function on the first appellate level for patent appeals, the quality of the decisions and the stature of the court will automatically be upgraded. We will get better decisions, we will get uniform decisions, and we will get quick decisions.

Mr. POFF. Your proposal will also eliminate the additional appellate step to the U.S. court of appeals, would it not? Mr. CAPPELLO. Yes it would.

Mr. POFF. And the appeal would lie directly to the Supreme Court? Mr. CAPPELLO. That is right.

Mr. POFF. And your concern is that the judges that hear such cases will have some expertise in the field. Yet your proposal does not allow for the possibility that the Associate Justices and the Chief Justice of the Supreme Court may not have such expertise.

Mr. CAPPELLO. Of course, this is the area that Judge Rifkind was addressing yesterday. I think the U.S. Supreme Court is the appropriate area for broad social and economic policy to be incorporated into the decision process. This is why I am not so much concerned with the incorporation of general knowledge into the patent appeals system at the first level. I think their problem is to decide technical problems. Appeals to the Supreme Court are not very likely in patent cases, but that Court would take those cases where there are broad social and economic purposes to be served.

Mr. POFF. On page 10 discussing the award of damages by the court you suggest language which would allow the court to award costs when it "determined that the bringing or defense of the suit was undertaken not in good faith or without probable cause," I think it might be easy in some cases to decide that a case was not brought in good faith or was brought without probable cause. I would think it would be more difficult to make such a decision with respect to the defense of a suit. When a person is sued, he usually responds. Do you think that your language might encourage a defendant who was impecunious to sit on his defense, a defense he might otherwise litigate, if he thought that the judge might assume that his defense was not in good faith and that he would thereby be saddled with additional court costs and costly attorney fees.

Mr. CAPPELLO. I don't really believe so. I think you hit the nail on the head when you say a defendant will inevitably defend a suit and in this case it would be almost impossible to show that his defense was not a meritorious defense. I do believe that there may be some cases, but if I know the courts I think that their exercise of discretion in this area is going to be a rather limited one. And that is one of the reasons why I feel it is important that the legislative history indicate very clearly the purpose of the Congress in enacting this type of legislation. Because if it does not, the judge is inevitably going to say "No, we are not going to allow attorney fees and court costs in these cases." I think that is one of the problems with the language we have now. The words "in exceptional cases" lead to that conclusion, and no court costs and no attorney fees are allowed.

Mr. POFF. Do you think that the purpose you seek might be served as well by comments in the committee report as by language in the

statute.

Mr. CAPPELLO. I would prefer both, frankly, Mr. Poff.

Mr. POFF. You have had some experience before the courts before, haven't you?

On page 13, you recommend the inclusion of the Commission's recommendation No. XXII. In testimony before the subcommittee earlier the man responsible for the enforcement of the antitrust laws spoke otherwise about recommendation XXII. I understand you are speaking for small business interests. Would you care to be more

specific about why you think recommendation XXII would promote the interests of small business concerns?

Mr. CAPPELLO. I think that it will promote the interests of small business concerns primarily because their legitimate activity in licensing, cross-licensing, mergers, the whole gamut of tying arrangements, if I may use that term, the whole gamut of tying arrangements between small businesses, does not have the odor that it does with large business. And I think that it is necessary in some cases to encourage small businesses to do this sort of thing. As a matter of fact I believe that the Small Business Act contains a specific exemption from the antitrust laws which was designed to encouraged this, but it has never been implemented, to my knowledge. So to the extent that the law can be clarified to say where there are no improper antitrust connotations to this type of activity, many small businesses, who may now be reluctant to tie themselves to other businesses, because of the antitrust implications, will be encouraged to do it. And I might state also, that we believe that the bulk of antitrust enforcement by the Justice Department and by the Federal Trade Commission in connection with, not necessarily patents, but mergers and other similar types of activities, the bulk of these activities are directed against small and medium businesses, who really don't effect that restraint. of commerce which the antitrust laws are directed against.

Mr. POFF. As I understood your recommendation if the committee grants standby authority for deferred examination you would favor additional language which would require the Patent Office to submit its plan to the Congress and the Congress to pass a resolution approving the implementation of the standby authority; is that correct? Mr. CAPPELLO. That is correct, Mr. Poff.

Mr. POFF. Do you have any language to implement that recommendation?

Mr. CAPPELLO. We will attempt to submit such language. We believe this is one area that should be presented to the Congress for a determination once we have had some sort of experience with these deferred filings. We believe the determination should be made at that time by the Congress based on the record which the Patent Office is able to produce.

Mr. POFF. You oppose the recommendation that the Patent Office be granted authority to fix fees. What fears prompt your position on that point?

Mr. CAPPELLO. The general fear that we expressed in our testimony, that the interest of small business inevitably will be disregarded, because this is the easiest thing to do. Now we have in the Congress a forum where, if we are hurting very badly, we can get a little attention. But I don't think this is particularly true of the administrative agencies.

Mr. POFF. Does the Patent Office today in the present law have some discretion in the fixing of small fees of an administrative nature? Mr. CAPPELLO. I don't believe I can answer that question, Mr. Poff. Mr. POFF. One final question, you've made a series of recommendations for changes in the bill, recommendations which in whole or in part are at odds with the recommendations of the Commission. You have not undertaken to assign any priorities to your recommendations.

And my question is, Is there one recommendation without the approval of which you would feel obliged to oppose the bill?

Mr. CAPPELLO. So much of the structure that is proposed by the bill is interrelated; so many of the provisions are interrelated, I could not address myself to such a specific proposal. I think the whole structure has to be examined. I think it has to be made a workable whole and I think no particular provision is good or bad without reference to practically every other provision in the legislation. So I could not give you an affirmative answer to that, Mr. Poff.

Mr. POFF. Well, I don't want to harass you, but I'd just like to pursue the point a little further. Do you regard one of your recommendations more vital than another?

Mr. CAPPELLO. I would say that if we had a vital recommendation it would be the recommendation that a personal grace period be provided.

Mr. POFF. I yield to my colleague.

Chairman KASTEN MEIER. The gentleman from Michigan, Mr. Hutchinson.

Mr. HUTCHINSON. Mr. Cappello, I'd like to discuss a minute this concept of a personal grace period, as it fits into the idea of the firstto-file system. Now I understand you to say your association favors the first-to-file concept but you also want this grace period. Now do I understand correctly that by a grace period you mean a period of time, perhaps as much as a year during which an inventor might be protected in his rights without filing any kind of an application with the Patent Office but during that time he could try out his invention, perfect it, find out just what he had, and so on, and the actual fact that something had been invented by him might be while unpublished-might be known throughout industry. During that period of time this would be a grace period but on the other hand all of the impetus of this bill would favor the man who was first to file. I can't make those two concepts fit together because I would think that this man doing all of this 1-year period, he would realize that no matter what, he would have to get in there ahead of somebody else who filed ahead of him. Now do I have a misconception?

Mr. PERRY. I think basically, Mr. Hutchinson, that the first-to-file concept, on behalf of the Commission and ourselves, is to promote the inventor and actually getting this information to the Patent Office as expeditiously as possible. Basically, the Patent Office exists to give the American citizen the benefit of the latest technical advancements. Today we have instances where inventors intentionally withhold information that in many instances is vital to the American public. He does this most generally because we are now in an era where again our technological advancements have been so rapid. If I can use a hypothetical example, a number of years ago we had what we refer to as dynamite, several years later we had TNT, today we have hydrogen bombs. Each of these three things will do one thing; each will destroy. And if you were today to dump all of the information relating to these different commodities, with no priority existing, into the hands of competent inventors, the people working on dynamite obviously would have this product available rapidly because it is not too complex. TNT would follow quickly. But if you consider the