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A few years ago, I authored and we passed legislation to force companies signing noncompete agreements to disclose those agreements to the FTC. I think the FTC and the Department of Justice need to do more to encourage competition.

In a similar vein, I hope that the Senate Republican leadership will soon allow us to turn to the Stem Cell Research Enhancement Act, H.R. 810. This is a bill with 200 House sponsors, led by Congressman Castle and Congresswoman DeGette. It passed the House last month with 238 votes. The critically important research this legislation would authorize on embryonic stem cells, which would otherwise be discarded, holds great promise and hope for those with family members suffering from debilitating disease and injury.

More effective treatments for Parkinson's and Alzheimer's disease, for diabetes, for spinal cord injuries, and for many other diseases and conditions are all possibilities. This is vital work, critical research but its authorization by the Senate has been shunted aside by the Republican leadership.

Mr. Chairman, you and I have a lot of years invested in tackling some pretty tough issues, and in few areas do the issues get more complex than in patent litigation. The solutions will not be simple, but I am confident that you and I, working together and working with our colleagues in the House, can solve this puzzle and get it to the President's desk.

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Mark A. Lemley June 14, 2005 Senate testimony on patent reform

Patent Reform Legislation

Testimony of Mark A. Lemley, Stanford Law School before the Senate Committee on the

Judiciary mlemley@law.stanford.edu

June 14, 2005

Introduction and Executive Summary

Reforming the patent system is important. Patents are critical to innovation, and the patent system generally works well in encouraging invention. But the system also has problems, and is in need of an overhaul. In particular, improvements can be made in two main areas: streamlining the law by simplifying unnecessarily complex rules and harmonizing our laws with foreign laws to the extent possible; and (2) preventing abuses of the system by people who use patents not for their intended purpose of supporting innovation, but to hold up legitimate innovators.

Let me be clear at the outset that these are both important problems, and patent reform that addresses those problems will be an important step in encouraging innovation in the United States. It is particularly important that Congress act to prevent abuses of the patent system by socalled "patent trolls," who use the patent system not to develop and make products but to squeeze money out of those who do. While there are no reliable statistics on the extent of the troll problem, there is no question that it is a widespread and extremely serious problem in the semiconductor, computer, and telecommunications industries. Large, innovative companies such as Intel and Cisco never have a week go by without threats of suit from a non-manufacturing patent owner claiming rights in technology that the defendants did not copy from the patent owner – usually they've never even heard of the patent owner – but instead developed independently. While there is a legitimate role for small and individual inventors who patent their technologies and license their ideas to others, increasingly the patent owners are not contributing ideas at all, but popping up years or even decades later and trying to fit an old patent to a different purpose. Trolls do this because the law permits it, and because it gives them a chance to make a lot of money - under current law, far more money than their technology is worth.

Patent reform needs to deal with these abuses of the system without interfering with the normal, legitimate use of the system to protect and encourage innovation. Doing so requires careful balancing of the interests of patent owners, technology companies, and the public.

One fact that complicates patent reform efforts.is that the patent system works very differently in different industries. See Dan L. Burk & Mark A. Lemley, Policy Levers in Patent Law, Va. L. Rev. (2003). While innovators in the semiconductor, computer, Internet and telecommunication industries identify abusive patent litigation as the major problem they face, there is no similar problem in the medical device, biotechnology and pharmaceutical industries. Those industries have very different characteristics - pharmaceutical patents are more likely to

Mark A. Lemley June 14, 2005 Senate testimony on patent reform

cover a whole drug, rather than one of 5,000 different components of a semiconductor chip. So patent owners in the pharmaceutical industries don't have to worry about and endless stream of patent owners asserting rights in their drugs. Further, innovators in the biotechnology and pharmaceutical industries consider patent protection far more important to their R&D efforts than do the information technology industries. The challenge is to craft a unitary patent law that can accommodate the very different needs of each of these important industries.

Because patents are so important to a large group of stakeholders, and those stakeholders have such diverse interests, it may not be possible to get universal agreement on all aspects of a comprehensive reform bill. A workable bill will necessarily involve compromises, and won't leave everyone happy. That is not a reason to abandon the effort. Rather, it suggests the need to take measured steps towards reforming the system.

To date, the only patent reform legislation introduced in this Congress is H.R. 2795 (Rep. Smith). As a result, I will organize my specific thoughts on particular proposed reforms around that bill. H.R. 2795 is an important step improving the patent system. In general, I am in favor of virtually all of the reforms in the bill. I do have a few suggestions for improvement, however. What follows is a section-by-section analysis.

Mark A. Lemley June 14, 2005 Senate testimony on patent reform

Section 3: First Inventor to File

Summary: This is an important change, and this section of H.R. 2975 needs no revision. However, the section works only if the bill continues to include the provisions of section 9 requiring publication of all patent applications and expansion of prior user rights. If those provisions are not included, Congress should oppose the move to first inventor to file.

[graphic]

The move to a first-inventor-to-file system is an important step for several reasons. First, it simplifies the complex of rules for deciding whether a patent applicant is the first inventor. One way a focus on the filing date simplifies things is to eliminate the need to determine when an invention occurred in the vast majority of cases, an inquiry that has proven difficult. But the changes to section 102 also get rid of three other confusing rules that add uncertainty to the patent system: the "secret prior art" rules governing commercial but nonpublic use, and that differ depending on whether the user the patentee or not; the "experimental use" exemption based on a totality of the circumstances analysis; and the perplexing definition of when an invention is on sale. All these rules have created inconsistent judicial guidance and made it hard to know when an inventor was entitled to a patent.

Second, first inventor to file recognizes the international nature of today's markets. The current statute defines prior art differently depending on whether a sale or a conference occurs in the U.S., Canada or Europe. Eliminating this distinction makes sense in the modern world. Because the rest of the world already uses filing rather than invention date to measure priority, first inventor to file will take an important step towards global harmonization, permitting U.S. inventors to more easily seek patent protection not just in the U.S. but in other countries as well.

In the past, small inventors have expressed concern that a first to file system will disadvantage them because large companies have the resources to file patents more quickly. More recent evidence demonstrates that that is not true. It is large inventors, not small inventors, who most benefit from the complex and expensive interference system that determines who was first to invent. And large inventors challenge the patents of small inventors in an interference proceeding more often than the reverse. Eliminating interferences will help, not hurt, small inventors.

Further, H.R. 2795 contains an important deviation from a pure first-to-file system: it gives inventors who sell, use or publish their invention a year to get a patent application on file. This is a reasonable grace period. A small inventor concerned about losing a race to the patent office can publish the invention on a Web site. Doing so will prevent anyone else from getting a patent, while giving the inventor a year to find a patent attorney and file a patent application. Given the existence of simple provisional applications, that is a reasonable accommodation.

Mark A. Lemley June 14, 2005 Senate testimony on patent reform

Section 4: Elimination of Subjective Elements of Patent Law

Summary: H.R. 2795 needs no revision.

The National Academy of Sciences recommended the elimination of unnecessary mental states in patent law. This would simplify patent litigation, reducing its uncertainty and hopefully its cost.

The most important change in this section is the elimination of the best mode requirement. That requirement invalidates patents when the inventor has not disclosed her preferred way of implementing the invention, even if she has given enough information to enable scientists in the field to make and use the invention. The best mode requirement does serve a purpose -- it prevents inventors from obtaining the benefits of a patent without giving the public the full benefit of disclosure. But on balance, the benefits of the doctrine aren't worth the costs. Because the best mode doctrine is based on the beliefs and intent of the actual inventor, the doctrine serves as a "gotcha" that can invalidate novel and nonobvious patents regardless of the good faith of the company that owns them. Indeed, the doctrine has been responsible for more than 10% of all the patents invalidated in court during the 1990s. John R. Allison & Mark A. Lemley, Empirical Evidence on the Validity of Litigated Patents, 26 AIPLA Q.J. 185 (1998). The enablement and written description requirements, properly applied, can require sufficient disclosure to benefit the public.

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