Re Hart bill.

SCM® GLIDDEN-DURKEE,

DIVISION OF SCM CORPORATION,

Cleveland, Ohio, September 21, 1973.

Mr. J. HERMAN YOUNT, JR.,

Yount, Tarolli & Weinshenker,

Cleveland, Ohio

DEAR HERMAN: In addition to the sections you commented on, the twelveyear period for a patent monopoly measured from filing, the stiff proposed maintenance fees to arise promptly, and the employed inventor royalty section give me substantial concern.

In my personal experience, certain inventions which were looked upon as marginal but later blossomed into quite useful developments most likely never would have been filed on if short-term and/or high maintenance fees had been actualities. At least one other type of invention, a scientific breakthrough as of its time, also never would see the light of day under such proposed circumstances. A third type of invention which I have encountered from time to time is marginal because of being outside of the field in which the inventor (and often his backer) are working and familiar with. These also could be neglected and remain unpublished in the face of these proposed law features. A fourth type of invention that comes to mind, where the proposed short coverage period and prompt heavy taxation can be highly discouraging to their patenting, is an invention involving a pesticide, food material, or other substance requiring F & DA approval. Such approvals are normally quite protracted.

I have had personal experience in each one of the situations and can cite examples. My testimony is essentially as follows:

(a) The demand for isoparaffin alkylation to make 100-octane gasoline receded in the late 1940's to the extent that investment in improvement patents in this art became marginal for some years. By the late 1950's revival of this art occurred as automobile engines demanded higher octane fuels. As it actually happened, a variety of what for a time were considered marginal improvement inventions had been published. These were available for licensing, studying, teaching, and avoidance when the second flurry of activity occurred, instead of remaining proprietary and secret where they might have been neglected, re-researched, or generally unavailable.

(b) The invention represented by U.S. Patent 3,278,623 (issued October 11, 1966 on a filing of February 19, 1964) is an example of the scientific breakthrough invention type I spoke of above. It is a catalytic conversion process for changing the relatively abundant alphapinene (of restricted usefulness) into beta-pinene (a much more reactive material useful for making adhesives and many other materials). Alpha and beta-pinene are found in southeastern turpentine. Alpha-pinene, but little or no beta, is a prominent constituent of most of the rest of the world's turpentines.

A short production run on this invention about 1966 showed that the best inventive catalysts for this conversion are poisoned by even minute amounts of sulfur compounds prevalent in the feed (made from sulfate turpentine). The patent application matured reasonably rapidly into a patent (two years and eight months). At the time of filing in 1964, it was estimated that a truly economical feed desulfurization process would be available in the foreseeable future. Two further inventions later, and over nine years later, two other inventors made two further inventions which together constituted what appears to be a fairly economical feed desulfurization scheme, thus making the original breakthrough invention a component of a probably practical package. Had the inventor's corporate sponser been faced with a mere twelve-year patent life from 1964 and/or substantial maintenance fees arising fairly promptly, this sponsor most certainly would have elected to keep the basic process secret. As it happened eventually, the sponsor elected to abandon at least one of the foreign counterparts of the basic case in view of mounting taxes.

(c) My Company has invested substantial research funds in the ultraviolet curing (drying of paints for industrial coatings), occasionally, an unexpected experimental observation of an alert research man leads to an invention possibly useful in the making of an ink, a business which the Company is not in and which is significiantly different from paints and

protective coatings. A problem arises: should such an invention be filed on and patented fairly speculatively for what it may be worth, or should it be tucked away without development as merely an interesting digression from the main line of work. A short paetnt life and high taxes certainly would do nothing at all to stimulate the patenting and disclosure of such invention in the collateral and unfamiliar field where the Company neither operates nor had intended to investigate.

(d) Inventions made personnel of My Company in 1968 and 1969 in the pesticide field are still being field tested today. The patent applications, based on favorable screening test are subject to option agreements in case they work out well. In two to five more years from now we should know whether the optionees think they have a competitive commercial item, are willing to undertake the cost of registration of them, then will pay us 5% royalty on sales if patents are secured. Unpatented technology here will bring us very little if any revenue and then only if no unlicensed competitors appear. Most of the twelve-years of proposed patent protection will have been washed out before a sale is made.

An interesting related problem in connection with the inventions cited in (b), above, is how to award these inventors the 2% royalty of profit or savings called for in the present bill. The ultimate practicality of the breakthrough basic process, still regarded as an unusual thermodynamic anomaly, depends upon the other two inventions relating to feed desulfurizing. One of these other two is an ingenious scheme of multiple distillations to cut out sulfur bearing components cheaply and grossly, but not completely. The other takes the semi-refined product of the process and puts it into substantially finished useful condition, but itself would be too expensive if one had to operate on feed not so pretreated.

The three inventors above during this development time were paid in salary and fringe benefits at least $750,000. Admittedly more than half of their time was on other assorted projects in this ten years. Laboratory and pilot plant facilities were supplied, along with the time and support of chemists, engineers, analysts and technicians. It is highly unlikely that such an expensive and protracted research and development program would have been started, let alone maintained, on such a speculative project had only a few years of exclusivity been available, particularly with the added reduction to possible profit represented by royalties payable to three inventors. It would be much cheaper to have some third party invent and develop such process, then license it at 6% royalty based on sales for the few years of patent life. Such royalty is fairly high in the chemicals business and is easily measured by accountants; profits and savings are far more intricate measurements; and allocation of credit for the ultimate marketability of an invention is truly a bucket of

worms.

Industrial situations like this are not usual. I would foresee the net longterm effect of the proposal for specialty ascertained royalty compensation to employees who are hired to invent to be diminution in the number of such employees, their supporting facilities and supporting staff maintained. I sincerely question whether the progress of science and the useful arts is promoted rather than retarded by such a feature.

I encounter from time to time genuine disputes about inventorship or co-inventorship within a particular laboratory. I encourage laboratory personnel to talk with each other freely and get aid, assistance, and inspiration, as well as criticism, from their co-workers on various projects. Would secrecy and/or acrimony tend to develop between co-workers from a special royalty stimulation attach to the lucky winner? I think there is a substantial possibility.

All of these inventors owe some part of their success to the analytical chemists and other toilers who have devised and routinely turn out analytical results and ingenious solutions to daily tasks so that their inventors get clues initially and know where they are going subsequently. Perhaps the analyst should be compensated specially because of his lack of opportunity to make profitable inventions. I can't favor much "bootlegging" of analytical chemists' time in the direction of more glamorous projects, let alone endorse a provision which would tend to enhance it.

Sincerely,

MERTON H. DOUTHITT,
Patent Counsel.

STATEMENT ON PATENT LAW REVISION AS SET FORTH IN S. 1321 SUBMITTED BY THE BAR ASSOCIATION OF THE DISTRICT OF COLUMBIA

I. INTRODUCTION

The Bar Association of the District of Columbia presents the following statement to the Senate Judiciary Committee, Subcommittee on Patents, Trademarks and Copyrights. This statement on Patent Law Revision as set forth in S. 1321 has been prepared by the Patent, Trademark & Copyright Law Section of the Association.

With the history of the earlier patent revision bills, the statements on S. 1321 recently made by others to the Subcommittee, and the testimony at the hearings held September 11, 12, and 14, 1973 in mind, the following comments are offered on S. 1321. It is asked that this statement be printed in the record. There are in the Association about 370 members specializing in patent, trademark, copyright, trade secret, and in patent and trademark licensing law. A questionnaire was circulated on the five (5) items, noticed for hearing in the Congressional Record, to each member of the Patent, Trademark & Copyright Law Section of the Association. This statement contains the votes received in response to the questionnaire, as well as general statements based on comments received in conjunction with the votes on the questionnaire and a study of statements and testimony offered the Subcommittee at the hearings.

II. GENERAL COMMENTS

There are several important points to be considered prior to addressing the specific results of the questionnaire.

A. The public should be heard on all provisions of proposed legislation S. 1321 contains a number of provisions which are beneficial, e.g., the estab lishment of the Patent Office as an independent agency. It also contains provisions which are entirely new, yet have not been set for hearing or for comments by the interested public. Legislation by the Congress of the United States ought not to be adopted until the public has had opportunity to be heard on all its provisions.

It appears from testimony by representatives of the Administration at the recently concluded hearings that the Administration is readying a bill. The chairman of the hearings announced that markup will begin October 1 and that a bill is expected to be finished in the Senate this session. The proposed Administration bill has not been made available to the representatives of the public, the trade associations, or to the Bar generally.

It seems quite reasonable to afford, to those most intimately interested in the patent law, as representatives of the inventor community, the investor community, and the public at large, an opportunity to study in depth and to comment on a bill which apparently so significantly departs from earlier bills. The Association takes the position that time is required to study and comment appropriately on the Administration bill and on the sections of S. 1321 on which no hearings have been held.

B. The patent system should be improved without drastic changes which will destroy the patent incentive

It was asserted at the hearing and in earlier entries into the Congressional Record that the examiners are convinced to allow patents by highly skilled attorneys and that this results in the allowance of increasing numbers of invalid patents. There is no evidence that the proportion of invalid patents being issued has increased.

It is not proper to scale up the meager statistics of the relatively few cases which reach the courts. The vast majority of patents are honored through licensing. Only the questionable ones are litigated and they represent a small percentage as compared to those that are honored. We don't believe such meager statistics warrant the drastic changes suggested.

In the past few years, owing to stability of the examining staff in the Patent Office, particularly due to its more effective quarters and increase in responsibility and salary of the examiners, the Patent Office has been able to retain its good examiners. These examiners, on a time basis alone, have become more familiar with the art, and in every way more capable of disposing of cases in less time. Skill in any art speeds up the artisan's ability to

produce. The Patent Office examiners are specialists and are now more competent to pass on patentability in view of the stability of the staff.

There was talk at the hearings of pressure of a disposal quota system upon the examiners. Generally, a society lives by its productivity. All enterprises to be successful must have goals. The Congress has goals for itself. Of course, such goals need to be reasonably attainable. It is human to become lax and to produce at a comparatively low rate in the absence of goals to be reached or at least striven for. There must be a measure of productivity in any system. The inquiry should be directed to the reasonableness and fairness of any quota or disposal arrangement of the system. Credit should be given to an examiner based on a balance of quality and quantity. Quality supervision in the Patent Office as in any other operation serves to hold accountable any examiner who does not do an adequate job. Our country should have the best. However, it cannot afford the luxury of an unattainable perfect system. It seems that the greatest need and possibly one going a long way toward curing the ills of the system is to make the best art better available to the examiner who then will know what it is and will be able to use his skills, as "a specialist", to apply that art properly to the proposed claims.

The few cases of asserted abuse of the patent system do not merit the very drastic changes proposed in S. 1321 which administratively will run into prohibitive costs and delays and which will derogate from the United States Patent System.

C. The users of the patent system seek valid patents

There was also testimony at the hearing to the effect that industry actually wanted a low standard of patentability so that it could obtain many patents readily. This is as far from the actual fact is a statement could be. In fact, most organizations, far from filing to obtain invalid patents, actually do not file on all the cases they believe to be patentable because of the cost involved. The lawyers acting on behalf of their principals in industry are interested in obtaining valid and enforceable patents. Litigation is costly and they are not interested in obtaining unenforceable patents which will not stand up in court. D. Any patent law revision bill should include licensing clarification and stabilization provisions

In response to a question asked at the hearing, this Association favors including patent licensing provisions in any patent law revision bill. The licensing of patents is just as much in need of clarification and stabilization as the Patent Office operation is in need of restructuring.

III. THE QUESTIONNAIRE

The five (5) points set for hearing and on which a questionnaire was sent to members of the Patent, Trademark & Copyright Section of the Association are now discussed.

A. Greater advocacy proceedings are favored

The question submitted to the Section reads:

"Are you in favor of greater advocacy proceedings in the U.S. Patent Office with the opportunity of the public to participate in the examination?"

The Section members were in favor of greater advocacy proceedings including public participation in the process. The approval of the question is an in principle approval and not necessarily approval of any particular provision of S. 1321.

Although "greater advocacy" is favored, many feel that the public should not take any part in the prosecution of applications prior to allowance of the application or prior to the allowance of at least some claims by the Patent Office.

Those in favor believe that validity would be improved if better art were before the examiner. This would strengthen the system, increase the confidence of the judiciary in patents, and give a better image to patents. It is recognized that increased costs, greater delays, discouragement of filing of patent applications, complication of matters in the Patent Office, and harrassment of applicants could also result. Some of these detriments might be unavoidable with new advocacy proceedings. However, proper safeguards should be taken to minimize such detriments.

B. Public counsel in the patent office is not favored

The second question referred to the membership reads:

"Are you in favor of a public counsel participating in an examination proceeding?"

There was a strong disfavor voiced to the establishment of a public counsel as provided in S. 1321.

Apparently public counsel is sought to be provided by S. 1321 simply because of the allegation that "hordes" of invalid patents are being currently issued. There is no basis for such an allegation.

The establishment of public counsel as provided in S. 1321 would not help get the best art before the examiner, but rather will cause delays and will be costly, establishing more bureauracy and expenses which will freeze out the smaller or independent inventors and businesses.

The examiner is a "specialist" in a much better position to evaluate pertinent prior art than a generalist from any public counsel office.

Importantly, unless each application is reviewed by public counsel in an identical manner and to the same extent, it will be argued that a given patent is not entitled to a high presumption of validity because the patent wasn't examined by the public counsel. Obviously public counsel could not review every application.

The Department of Justice spokesman stated at the hearing that Court decisions strongly suggests that the "primary goal" of patent reform should be to get as much information as possible before the Patent Office from all sources -the applicant himself, the office search files, and members of the public. A public counsel will not help achieve this goal.

C. Deferred examination is favored

The question put to the Section reads:

"Are you in favor of deferred examination before expiration of five (5) years from the filing date?"

This question was answered affirmatively by a majority. Reasons given in support were it would: (1) save applicants money; (2) reduce the Patent Office workload; and (3) give an applicant more time to evaluate his invention prior to spending money for examination.

Also noted in many answers was the problem that there would be a long period of uncertainty during which the public would not know the scope which would ultimately be accorded the published application.

D. Maintenance fees are not favored

The question put to the Section reads:

"Are you in favor of maintenance fees?"

There was a strong objection to maintenance fees in general. The extent of the fees provided for in the S. 1321 provision is considered prohibitive and confiscatory. Further, this provision would create a tremendous administrative burden for the Patent Office in deciding the myriad of petitions for pauper's or special treatment. At the same time the public would be uncertain as to the status of many patents.

The cost of developing and commercializing inventions is already a great enough burden to impose upon the inventing, developing and investing community. If over a period of many years one develops a sizable number of patents directed to the area of his invention, considerable costs could result from maintenance fees which could seriously inhibit further commercialization efforts. It seems more logical that such monies be utilized by the private enterprise system to further its efforts to commercialize the invention.

Often the only basis an inventor has to obtain funding for the development of his invention is his unexpired patents. If the patents lapse for want of maintenance fees, there will be no financing and important developments will be lost.

E. Establishing the patent owce as an independent agency is favored The question submitted reads:

"Are you in favor of the Patent Office being an independent agency?" The Section members voted in favor of establishing an independent Patent Office. Reasons given were (1) that Patent Office policy should be established by people experienced in the patent field, (2) there would be more independence of thought and action, (3) there would be more effective administration