[Senate Hearing 109-984]
[From the U.S. Government Printing Office]


                                                        S. Hrg. 109-984
 
               PATENT LAW REFORM: INJUNCTIONS AND DAMAGES 

=======================================================================




                                HEARING

                               before the

                 SUBCOMMITTEE ON INTELLECTUAL PROPERTY

                                 of the

                       COMMITTEE ON THE JUDICIARY
                          UNITED STATES SENATE

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                             JUNE 14, 2005

                               __________

                          Serial No. J-109-27

                               __________

         Printed for the use of the Committee on the Judiciary

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                      COMMITTEE ON THE JUDICIARY

                 ARLEN SPECTER, Pennsylvania, Chairman
ORRIN G. HATCH, Utah                 PATRICK J. LEAHY, Vermont
CHARLES E. GRASSLEY, Iowa            EDWARD M. KENNEDY, Massachusetts
JON KYL, Arizona                     JOSEPH R. BIDEN, Jr., Delaware
MIKE DeWINE, Ohio                    HERBERT KOHL, Wisconsin
JEFF SESSIONS, Alabama               DIANNE FEINSTEIN, California
LINDSEY O. GRAHAM, South Carolina    RUSSELL D. FEINGOLD, Wisconsin
JOHN CORNYN, Texas                   CHARLES E. SCHUMER, New York
SAM BROWNBACK, Kansas                RICHARD J. DURBIN, Illinois
TOM COBURN, Oklahoma
                       David Brog, Staff Director
                     Michael O'Neill, Chief Counsel
      Bruce A. Cohen, Democratic Chief Counsel and Staff Director
                                 ------                                

                 Subcommittee on Intellectual Property

                     ORRIN G. HATCH, Utah, Chairman
JON KYL, Arizona                     PATRICK J. LEAHY, Vermont
MIKE DeWINE, Ohio                    EDWARD M. KENNEDY, Massachusetts
LINDSEY O. GRAHAM, South Carolina    JOSEPH R. BIDEN, Jr., Delaware
JOHN CORNYN, Texas                   DIANNE FEINSTEIN, California
SAM BROWNBACK, Kansas                HERBERT KOHL, Wisconsin
TOM COBURN, Oklahoma                 RICHARD J. DURBIN, Illinois
                  Bruce Artim, Majority Chief Counsel
                Bruce A. Cohen, Democratic Chief Counsel




















                            C O N T E N T S

                              ----------                              

                    STATEMENTS OF COMMITTEE MEMBERS

                                                                   Page

Hatch, Hon. Orrin G., a U.S. Senator from the State of Utah......     1
    prepared statement...........................................   106
Kennedy, Hon. Edward M., a U.S. Senator from the State of 
  Massachusetts..................................................     6
Leahy, Hon. Patrick J., a U.S. Senator from the State of Vermont.     4
    prepared statement...........................................   154

                               WITNESSES

Band, Jonathan, Attorney at Law, on behalf of Visa U.S.A. and the 
  Financial Services Roundtable, Washington, D.C.................     9
Fish, Chuck, Vice President and Chief Patent Counsel, Time 
  Warner, Inc., New York, New York...............................    15
Gulbrandsen, Carl E., Managing Director, Wisconsin Alumni 
  Research Foundation, Madison, Wisconsin........................     7
Hawley, J. Jeffrey, President, Intellectual Property Owners 
  Association, and Vice President and Director, Patent Legal 
  Staff, Eastman Kodak Company, Rochester, New York..............    17
Kushan, Jeffrey P., Sidley Austin Brown and Wood, LLP, 
  Washington, D.C................................................    13
Lemley, Mark A., Professor of Law, Stanford Law School, Stanford, 
  California.....................................................    11

                         QUESTIONS AND ANSWERS

Responses of Jonathan Band to questions submitted by Senator 
  Leahy..........................................................    30
Responses of Chuck Fish to questions submitted by Senator Leahy..    34
Responses of Carl E. Gulbrandsen to questions submitted by 
  Senator Leahy..................................................    37
Responses of J. Jeffrey Hawley to questions submitted by Senator 
  Leahy..........................................................    44
Responses of Jeffrey P. Kushan to questions submitted by Senator 
  Leahy..........................................................    48
Responses of Mark A. Lemley to questions submitted by Senator 
  Leahy..........................................................    59

                       SUBMISSIONS FOR THE RECORD

Band, Jonathan, Attorney at Law, on behalf of Visa U.S.A. and the 
  Financial Services Roundtable, Washington, D.C., prepared 
  statement......................................................    68
Fish, Chuck, Vice President and Chief Patent Counsel, Time 
  Warner, Inc., New York, New York, prepared statement...........    79
Gulbrandsen, Carl E., Managing Director, Wisconsin Alumni 
  Research Foundation, Madison, Wisconsin, prepared statement....    89
Hawley, J. Jeffrey, President, Intellectual Property Owners 
  Association, and Vice President and Director, Patent Legal 
  Staff, Eastman Kodak Company, Rochester, New York, prepared 
  statement......................................................   111
Kushan, Jeffrey P., Sidley Austin Brown and Wood, LLP, 
  Washington, D.C., prepared statement...........................   132
Lemley, Mark A., Professor of Law, Stanford Law School, Stanford, 
  California, prepared statement.................................   157


               PATENT LAW REFORM: INJUNCTIONS AND DAMAGES

                              ----------                              


                         TUESDAY, JUNE 14, 2005

                              United States Senate,
                     Subcommittee on Intellectual Property,
                                Committee on the Judiciary,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 2:35 p.m., in 
room SD-226, Dirksen Senate Office Building, Hon. Orrin G. 
Hatch, Chairman of the Subcommittee, presiding.
    Present: Senators Hatch, Leahy and Kennedy.

 OPENING STATEMENT OF HON. ORRIN G. HATCH, A U.S. SENATOR FROM 
                       THE STATE OF UTAH

    Chairman Hatch. We will call the meeting to order. We want 
to welcome you all to the Subcommittee's second hearing on 
patent law reform. Today, we are going to focus our attention 
on problems that have arisen under current law with respect to 
the circumstances under which injunctions are granted and 
damages are awarded in connection with patent litigation.
    Senator Leahy and I are interested in and prepared to work 
with all interested parties in identifying issues and 
formulating possible solutions to problems with the Patent 
Code. Like our colleagues in the House, Chairman Lamar Smith 
and ranking Democratic member Howard Berman, we are prepared to 
develop legislation remedies if such legislation is found to be 
necessary and if a sufficient consensus emerges.
    We are mindful that it is often difficult to fashion 
intellectual property legislation, but this is a high priority 
for the Subcommittee and I would appreciate any help that you 
can all give and that others who are watching or are concerned 
can give.
    The art of developing legislation involves making sure that 
all the legitimate points of view have been heard and 
considered before legislation is developed and moved through 
the Congress. This entails considerable discussion and, I might 
add, compromise by all affected parties.
    Those who would change current law have the burden of 
persuading those of us in Congress that their proposals respond 
to significant problems, and they have the duty of persuading 
us that the legislation they propose actually resolves the 
problems that have been identified. Ideally, any new 
legislative solutions would not create bigger problems than 
they solve, and this is a difficult but a doable challenge.
    Today, we will examine some of the key problems related to 
patent litigation. By all accounts, patent litigation has 
become a significant problem in some industries and for some 
types of parties. There are a number of factors in patent law 
that drive up the cost and uncertainty of litigation in ways 
that appear to many to be largely unjustified.
    However, some of the principal problems and costs 
associated with patent litigation are not uniform across 
industrial sectors, and this has led to substantial and 
sometimes vociferous disagreements about the nature of the 
underlying problems, and thus what the appropriate solutions 
might be.
    The most contentious and controversial of the proposals to 
decrease excessive patent litigation are based on the assertion 
that current law imposes disproportionate liability and 
business risk on legitimate enterprises. The argument is 
advanced by some patent-holders that some patent-holders who 
some less than affectionately characterize as patent ``trolls'' 
attempt to secure disproportionately high settlements from 
defendants that cannot afford to take an intolerably high risk 
of treble damage awards or massive lost profits if an 
injunction keeps their product off the market during and after 
litigation.
    We will hear from representatives of some of those in the 
high-tech, software and financial services industries that 
currently are targets of a significant number of lawsuits or 
threatened lawsuits that they say are of questionable validity.
    Additionally, the costs of allegedly abusive litigation 
tactics do not seem to be evenly spread across industries or 
parties. At the risk of oversimplifying a complex situation, 
some argue that the most significant costs are focused on 
industries and parties that have a combination of the following 
attributes: short product cycles, high patent density and 
inventions that are less susceptible to clear and discrete 
descriptions in patent claims. Additionally, the current 
remedial scheme seems to provide greater relative leverage 
against defendants in these types of industries.
    On the other side of the spectrum are industries that do 
not suffer as significantly from this type of litigation. 
Generally speaking, these industries are characterized by 
longer product cycles with fewer alterations in each cycle, a 
lower patent-per-product ratio and inventions susceptible to 
discrete description. The biotech and pharmaceutical industries 
are two of the best examples of industries on this end of the 
continuum.
    Some of the high-tech industries most affected by abusive 
litigation seek reforms that others such as the biotech sector 
argue would weaken the current remedies available to patent 
plaintiffs under current law. Thus, while the weaker would help 
defendants in some industries to fend off illegitimate suits, 
if not carefully crafted they could materially disadvantage 
legitimate plaintiffs in other industries who argue that the 
weaker remedies devalue their patent rights.
    Trying to achieve the right balance in this situation means 
wrestling with many devilish details. Two critical challenges 
we face revolve around the advisability of, one, altering the 
standard for obtaining injunctions and, number two, codifying a 
rule for the apportionment of damages.
    Altering the standard for determining whether injunctive 
relief should be granted in a patent infringement case has 
emerged as perhaps the most contentious issue in the patent 
reform debate. Large tech companies, many of which have 
products covered by thousands of patents, believe that some 
change in current law is necessary to prevent what they 
consider as something akin to legalized extortion by plaintiffs 
who use the threat of an injunction to obtain settlements that 
are allegedly disproportionate to the value of the patent that 
is infringed.
    Because the profitable life of many high-tech products is 
relatively short, an injunction that keeps these products off 
the market for a year or two can threaten the profitability or 
even the viability of a small or mid-size tech company, which 
arguably forces these companies to settle cases for much more 
than the claims are actually worth.
    To add to the difficulties, some believe there appear to be 
quite a few over-broad patents in these areas, resulting in a 
situation where an infringement suit might be successful even 
though it would have failed if the patent claims were written 
properly. The tech industry has dealt with this problem in part 
through cross-licensing to avoid the mutually-assured 
destruction that would accompany aggressive enforcement of all 
relevant patent rights.
    Cross-licensing only works as a solution if the other 
potential litigants face a comparable threat from the available 
remedies. Many tech companies argue that the main threat is not 
from other legitimate companies. It is from overly aggressive 
patent-holders and their attorneys who use the disproportionate 
threat of an injunction to extort large settlements based on 
nearly worthless patents.
    It is alleged that these types of patent-holders, commonly 
referred to patent trolls or licensing shops, have no interest 
in cross-licensing because, in the most extreme examples, they 
don't make or sell anything and therefore have no business risk 
from an injunction. They allegedly exist predominantly for the 
purpose of threatening litigation to obtain settlements.
    Interestingly, among the most vocal critics of the high-
tech sector's desire to amend the injunctive relief provisions 
in current law are the pharmaceutical and biotech industries, 
independent inventors and some business interests. Generally, 
the products patented by the drug companies and small inventors 
are discrete inventions covered by relatively few patents. They 
rely on the absolute exclusivity of their patent rights, often 
enforced by injunctions to ensure that they are able to 
commercialize their inventions and enjoy the fruits of their 
innovation.
    The small inventors, in particular, rely on injunctive 
relief to equalize the playing field when competing against 
larger, better-funded enterprises. We heard both Dean Kamen and 
William Parker, a constituent of Senator Leahy's, at our last 
Subcommittee hearing express their concerns about changing the 
current injunction law.
    This same type of debate is playing out with respect to the 
damage provisions of the Patent Code. I understand that this 
issue is most important to the software industry. They claim 
that under current law, a patent-holder who successfully sues a 
software company for infringement may be rewarded well beyond 
the actual value that the invention contributes to the product.
    The argument is that under some damages theories, the 
plaintiff can receive damages based on the value of the market 
for an entire product when the patented invention is only a 
small part of the actual product. For example, suppose damages 
were based on the market value for an entire car when the 
patent only covered the windshield wiper motor or some other 
component out of hundreds. Crafting language that 
satisfactorily codifies a proportional contribution measure of 
damages is just one of the many challenges that we legislators 
face.
    Our witnesses today will give their views on the adequacy 
of the current Patent Code with respect to injunctions and 
damages and other matters. While we may ask for their views of 
the pros and cons on certain language that has been proposed, I 
do not intend for this to be a public negotiating session. I do 
suspect, however, that Senator Leahy and I will join our 
colleagues in the House, including Chairman Smith and Ranking 
Member Berman, in encouraging the affected parties to continue 
to discuss these matters and negotiate solutions.
    I hope that the introduction of H.R. 2795 and a planned 
House IP Subcommittee markup will help move this process along 
in a constructive fashion. If there is to be legislation, it is 
imperative that we get it done right. This will take hard work 
and good faith among many interested parties.
    We are grateful to have all of you here today who are 
willing to testify and help us to understand these issues that 
are very complex and difficult to begin with. Today, we will 
learn more about the matters of concern from expert 
representatives of many key actors in the intellectual property 
community, and we welcome your testimony and are very grateful 
to you.
    [The prepared statement of Senator Hatch appears as a 
submission for the record.]
    With that, we will turn to Senator Leahy.

  STATEMENT OF HON. PATRICK J. LEAHY, A U.S. SENATOR FROM THE 
                        STATE OF VERMONT

    Senator Leahy. Thank you, Mr. Chairman, and I agree in 
welcoming the folks here today. Many of you, whether on the 
panel or in the audience, are not strangers to this Committee 
room. In fact, some of you, I think, have your mail forwarded 
here; you spend enough time here. We consider that a compliment 
to the Judiciary Committee.
    We have a very complex case ahead of us. We are trying to 
retain the best aspects of a system that has really brought 
about the innovative spirit of our country. At the same time, 
we have to make some changes and try not to inadvertently 
hamper those entrepreneurial accomplishments. So I have been 
working with Senator Hatch, and I will continue to, on this 
important initiative.
    I am grateful for all the work that our friends in the 
other body have done. I hope we will have a day soon when we 
can introduce related legislation in the Senate. If past 
experience is a useful predictor, then I think Senator Hatch 
and I can come up with legislation that will reach the 
President's desk and can be signed by him.
    At this Subcommittee in April, as the Chairman mentioned, 
we heard a great deal about patent quality and about reforms 
that may be necessary to ensure that the Patent and Trademark 
Office issues patents for work that is truly innovative. Now, 
we have got to focus from the work rooms of the PTO to the 
courtrooms across America.
    We found three possible areas of reform: one, the use of 
injunctive relief and damages in patent infringement cases; 
secondly, the possibility of administrative processes rather 
than litigation to resolve certain issues; and, finally, the 
role of subjective elements in patent litigation. We have to be 
thorough in considering all of these issues, but I am 
particularly interested today in hearing about injunctions and 
damages. Those seem to be the kind of hot buttons as we try to 
draft legislation.
    I would like to thank our witnesses for taking time. I am 
particularly interested in hearing from you all on the subject 
of injunctive relief. In issuing injunctions, courts are 
instructed to balance the equities in a given case, evaluating 
the harm to one party if an injunction is issued versus the 
harm to the other party if it is not issued. At the same time, 
they have to consider the public interest.
    Some argue that under the current legal standards, 
plaintiffs are granted injunctions in nearly all cases. In such 
cases where a defendant is faced with a virtual certainty that 
production and marketing will grind to a halt, weak cases end 
up being leveraged into lucrative licensing agreements. On the 
other hand, we are all aware of the fact that there are cases 
where injunctive relief has to be available. Otherwise, you are 
going to have irreparable harm. Now, there is not consensus, I 
must say, on how to solve this. I think everybody agrees it has 
to be solved. They just don't know how to do it.
    We have to talk about apportionment damages. I have heard 
from some that a verdict of infringement can result in an award 
of damages out of proportion to the actual role the infringed 
item plays. I think damages awarded should relate to the value 
of the infringement. That is a lot easier to say up here than 
if you are a judge or a jury making that determination. So I 
would like to hear some discussion on that.
    Another reform we heard mentioned touched on at this 
panel's last hearing is the use of administrative procedures to 
reduce the quantity of litigation, yet also improves patent 
quality. Now, on that one, there seems to be general support 
for the idea. Several have spoken of the desirability of 
creating a post-grant review that would allow a third party to 
challenge a patent's validity within the PTO without having to 
go into the courtroom.
    Finally, I have heard considerable support for some 
proposals to modify the subjective elements of patent 
litigation, the finding of willfulness to infringe by the 
determination of inequitable conduct and whatever that entails. 
Now, if you want to investigate those elements, it could be 
very costly. It would require the determination of a party's 
state of mind at the time a patent application was filed.
    For example, the willful infringement standard. You can get 
treble damages for this if a defendant was aware of a 
plaintiff's patent. That may have the unintended effect of 
discouraging companies from making a comprehensive search for 
prior art so they are not going to be penalized later on. We 
have to look at those issues.
    We have to remember that we are ultimately talking about 
the products that would be available to consumers. The ongoing 
Blackberry dispute--everybody is checking their pockets--that 
drives this home in a powerful way. I don't know who is right 
in it. I do know that I breathed a sigh of relief when I heard 
they had an agreement. Now, we understand the agreement may be 
unraveling. So a lot of us are going to be watching this case, 
particularly with a nervous tick in our thumbs. Some people, 
probably our spouses, our staff and others, wish that we 
wouldn't watch it so closely, but it could affect millions of 
people.
    I hope the ruling in Merck v. Integra Lifesciences is going 
to provide a much needed boost to scientific research. I would 
like to see greater sharing of drug patents. I would like to 
see an end to the practices by which some companies delay 
competition through anti-competitive conduct.
    A few years ago, I authored and we passed legislation to 
force companies signing non-compete agreements to disclose 
those agreements to the FTC. But I think the FTC now and the 
Department of Justice have to do a lot more to encourage 
competition. I hope that we will be able to soon turn to the 
Stem Cell Research Enhancement Act. It was passed by the House 
overwhelmingly, H.R. 810, with 200 House cosponsors. It passed 
with 238 votes. It is critically important to certainly those 
whose family members who are suffering from debilitating 
diseases--Parkinson's Alzheimer's, diabetes, spinal cord 
injuries. They are watching this. It has been shunted aside and 
many of us here want to move forward. Many in both parties want 
to move forward and I hope that the Republican leadership will 
allow us to.
    So, Mr. Chairman, you and I have tackled complex issues 
like these before. Somehow, we have worked them out. We have 
worked together on them and we have gotten them on the 
President's desk and we have gotten them signed, and I think we 
can do it again.
    Chairman Hatch. I do, too.
    Senator Leahy. I will put my whole statement in the record.
    [The prepared statement of Senator Leahy appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you, Senator.
    Senator Kennedy would like to make a brief statement.

 STATEMENT OF HON. EDWARD M. KENNEDY, A U.S. SENATOR FROM THE 
                     STATE OF MASSACHUSETTS

    Senator Kennedy. Thank you very much, Mr. Chairman. We want 
to hear from our witnesses and I appreciate your courtesy.
    I represent a State that prides itself on innovation and 
creativity not only in the sciences, but also in the arts. 
Patents are enormously important in the biotech industry and 
the pharmaceutical industry and the life sciences industry, 
important in terms of our universities. Software is enormously 
important in my State. We want to make sure that the patent 
system is going to work for those who are creative and are 
innovative. About 50 percent of all the health patents are in 
my home State of Massachusetts, so this is enormously 
important.
    There is also an appropriate role in terms of the software 
industry in terms of these issues in terms of injunctions, and 
I want to hear from our very distinguished panel today. I am 
certainly open to see that we make what changes and 
modifications might be useful and helpful, and be valuable in 
terms of advancing the common interest, which is progress in 
terms of the economy and progress in terms of innovation.
     Mr. Solo of MIT recently pointed out that 50 percent of 
our growth as a Nation over the last 40 years has been 
innovation. And what we are talking about here is how we are 
going to recognize innovation and how we are going to give that 
protection and reward, but also as innovation is moving so 
rapidly in the software area how we are going to be sensitive 
to some of those issues as well.
    This is an enormously complex issue which we don't visit 
very, very often, so we need a lot of help. We have got a very 
distinguished panel and I look forward to hearing from them.
    I thank the Chair.
    Chairman Hatch. Thank you, Senator Kennedy.
    We are very pleased to have with us today a number of very 
important witnesses: Carl Gulbrandsen, Managing Director of the 
Wisconsin Alumni Research Foundation, or WARF, from Madison, 
Wisconsin; Jonathan Band, on behalf of Visa and the Financial 
Services Roundtable; Mark A. Lemley, a professor at the 
Stanford Law School, in Stanford, California; Jeffrey P. 
Kushan, who is a partner at Sidley Austin Brown and Wood here 
in Washington; Chuck Fish, Vice President and Chief Patent 
Counsel for Time Warner, Inc.; and J. Jeffrey Hawley, President 
of the Intellectual Property Owners Association, and Legal 
Division Vice President of Eastman Kodak Company.
    We feel very honored to have you quality people here to 
help guide us and help us to try and find some solutions here. 
We will begin with you, Mr. Gulbrandsen.

STATEMENT OF CARL E. GULBRANDSEN, MANAGING DIRECTOR, WISCONSIN 
         ALUMNI RESEARCH FOUNDATION, MADISON, WISCONSIN

    Mr. Gulbrandsen. Mr. Chairman, thank you for the 
opportunity to testify before your Subcommittee on the 
important topic of patent law reform, injunctions and damages. 
My name is Carl E. Gulbrandsen. I am the Managing Director of 
the Wisconsin Alumni Research Foundation, known as WARF. I am 
making my statement today on behalf of WARF. I am also 
authorized to state that Research Corporation Technologies of 
Tucson, Arizona, also known as RCT, supports the stances that 
are taken in my written and oral statements. RCT Corporation 
focuses on technology investments with origins from 
universities and research institutes.
    WARF was founded in 1925 and was one of the first 
organizations to engage in university technology transfer. In 
March of this year, WARF received the National Medal of 
Technology, the highest award that can be conferred by the 
President of the United States on individuals and organizations 
making lasting contributions to the country's well-being. This 
award recognized the importance of technology transfer.
    The Senate Judiciary Committee played an instrumental role 
in the drafting of the Bayh-Dole Act and its cardinal principle 
that the American public benefits from public policy that 
permits universities and small businesses to elect ownership in 
innovations made using Federal funds.
    For the Bayh-Dole Act to continue to be successful in 
stimulating further innovations, patents must provide 
significant disincentives to would-be infringers. If patent law 
is strong, then technology transfer can flourish, resulting in 
profound and positive impact on the health, safety and welfare 
of our country and worldwide. If patent law is weakened, then 
technology transfer suffers, as do U.S. universities, companies 
that depend on university research, and the public.
    In 1980 when the Bayh-Dole Act passed, approximately 25 
U.S. universities had technology transfer offices. No uniform 
Federal patent policy existed and federally-funded discoveries 
were rarely patented and commercialized. Today, more than 230 
U.S. universities have technology transfer offices, and 
universities are recipients of approximately 4 percent of U.S. 
patents issued.
    Today's list of university inventions is indeed impressive. 
The list includes Leustatin, a chemotherapy drug from the 
Brigham Young University; a lithography system to enable the 
manufacturing of nano devices from the University of Texas-
Austin; and an effective aneurysm treatment from the University 
of California at Los Angeles.
    In the past two decades, intellectual property assets have 
become vital to the performance of the U.S. economy. Since 
1992, the volume of patent applications in the PTO has more 
than doubled to 400,000 applications annually. In 2005, the PTO 
issued more patents than it did during the first four decades 
of American history, although because of recent administrative 
and fiscal strains, the backlog of patent applications has 
grown to 500,000 and continues to grow.
    In the eyes of many, patent quality has suffered. As a 
member of Patent Public Advisory Council, I believe that poor-
quality patents are the exception rather than the rule, but 
even the exception should not be tolerated. The first line of 
defense against poor-quality patents and slow decisionmaking is 
to provide the PTO with the fiscal resources that it needs to 
hire and train skilled examiners and implement effective 
electronic processing capabilities. There is nothing in the 
current proposals that assist the PTO with these critical 
steps.
    Based on our initial analysis of a plethora of patent 
reform proposals on the table, WARF is able to express support 
for some. However, several of the reform proposals represent a 
step backwards for university patenting and commercialization 
efforts. Candidly, these proposals can be described as anti-
patent under the label of litigation reform. Many of them fall 
into the category of diminishing enforcement rights and 
remedies of patent-holders and have little bearing on improving 
patent quality. I believe that their passage would thwart the 
tremendous success that universities have experienced in 
innovation. Economic development, small businesses and jobs 
could be jeopardized in every State in the Union.
    WARF therefore objects to four provisions currently being 
discussed. First, with respect to injunctive relief, current 
proposals tilt the playing field in favor of infringers. 
Currently, a presumption in favor of injunctive relief is built 
into our patent process. This is for good reason. Injunctions 
respect the constitutional right of patent owners to exclude 
others from using his or her patented invention.
    Second, WARF opposes the expansion of prior user rights. 
Expanded prior user rights would encourage innovations to be 
kept as trade secrets, a practice which is contrary to the 
fundamental premise of the U.S. patent system which rewards and 
encourages disclosures.
    Third, WARF opposes limiting continuation practice and 
believes such a change in the law would negatively impact 
universities unless changes were specifically tailored to 
address abusive practices.
    Fourth, the adoption of a first to file system that is 
intended to bring us closer to the rest of the world 
disadvantages the vast majority of universities and independent 
inventors. If we must harmonize to the world's patent laws, my 
written statement makes suggestions that should be incorporated 
in any harmonizing patent legislation in order to protect 
universities and independent inventors.
    Mr. Chairman, thank you for your leadership, time and 
attention. If there are any questions, I would be pleased to 
answer them.
    [The prepared statement of Mr. Gulbrandsen appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Gulbrandsen.
    Mr. Band.

  STATEMENT OF JONATHAN BAND ON BEHALF OF VISA U.S.A. AND THE 
        FINANCIAL SERVICES ROUNDTABLE, WASHINGTON, D.C.

    Mr. Band. Chairman Hatch, Ranking Member Leahy and Senator 
Kennedy, I am pleased to testify today on behalf of Visa U.S.A. 
and the Financial Services Roundtable.
    The financial services community is intensely interested in 
patent quality and litigation issues, and is grateful that you 
are considering these matters. Since the subject of today's 
hearing is injunctions and damages, I will focus my testimony 
on these topics. However, our views on remedies can be 
understood only against the background of the serious patent 
quality problem.
    Regardless of which features contribute to a lack of patent 
quality, businesses of all shapes and sizes, including 
financial institutions, are threatened by a large and growing 
number of frivolous claims of patent infringement. Claims of 
infringement are a serious problem already, but they are only 
the tip of the iceberg because of the time lag and the issuance 
of patents related to business methods.
    Since the State Street Bank decision in 1998, the number of 
patent applications involving financial services has surged. 
Because it typically takes more than 3 years to obtain a 
business method patent, the risk of increased litigation for 
financial services has now arrived.
    While the Patent Act's provisions concerning remedies would 
need adjustment even if the Patent Office granted only valid 
patents, the patent quality problem makes the need for 
litigation reform all the more compelling. The possibility of a 
broad injunction and treble damages means that a financial 
services institution must take even the most frivolous patent 
infringement claim seriously.
    The current rules regarding injunctions and damages place 
all the leverage in the hands of the patent owner even if the 
patent is extremely weak. Because the systems for processing 
credit cards or checks are large, complex and undifferentiated, 
an injunction on one small part of the system can shut down the 
entire system. If Congress does not correct the remedies under 
the patent law, the surge in the number of patents relating to 
financial services will lead to financial services institutions 
paying out ever larger license fees to holders of suspect 
patents, to the detriment of our customers.
    There are steps Congress can and should take to provide 
financial firms and other businesses with safeguards against 
these frivolous claims without impairing the important 
protections afforded under the patent law. Specifically, 
Congress should modify the standards for injunctive relief and 
clarify the damage rules with respect to willfulness and 
apportionment.
    In most cases, the prevailing plaintiff bears the burden of 
showing that it is entitled to injunctive relief because money 
damages are insufficient. In patent cases, however, if the 
patent owner shows that the patent is valid and infringed, the 
court presumes that the patent owner is irreparably harmed by 
the infringement. In theory, the defendant has the opportunity 
to rebut this presumption, but as a practical matter courts 
treat the presumption as virtually irrebuttable.
    The threat of a permanent injunction, even in the absence 
of any real irreparable harm, significantly increases the risk 
to the defendant of going to trial to prove invalidity or non-
infringement. Accordingly, this presumption forces defendants 
to settle prematurely even in cases with weak patents held by 
patent trolls.
    The Patent Act should be amended to provide that a court 
can grant an injunction only if the patentee demonstrates that 
it is likely to suffer immediate and irreparable harm that 
cannot be remedied by the payment of money damages alone. The 
House IP Subcommittee's Committee print contains such language. 
Unfortunately, the bill actually introduced, H.R. 2795, does 
not go as far as the Committee print in this respect. It 
implies that the defendant bears the burden concerning 
irreparable harm, rather than the plaintiff. Still, the 
language in H.R. 2795 is an improvement over the status quo 
because it makes clear that the presumption of irreparable harm 
is rebuttable.
    The patent law should also be modified to provide that a 
court can treble the damages only if the infringer engaged in 
egregious conduct, such as deliberately copying the patented 
subject matter with knowledge that it was patented. The Patent 
Act should make clear that treble damages should not be 
available if the infringer had a good-faith belief that the 
patent was invalid or unenforceable. H.R. 2795 contains 
provisions along these lines concerning willful infringement.
    Another area of concern is the apportionment of damages 
when a patent covers a small component of a larger product. The 
Act should direct the court to award damages only to the 
portion of the product covered by the patent and not the entire 
product. We are pleased that H.R. 2795 has appropriate language 
concerning apportionment.
    In conclusion, both Visa U.S.A. and the Financial Services 
Roundtable believe that the U.S. patent process is fundamental 
to a healthy U.S. economy. At the same time, if the problems 
with patent quality and remedies are not addressed, legitimate 
U.S. businesses will be flooded by a tidal wave of frivolous 
litigation.
    We appreciate the process you have started, and I would be 
happy to answer any questions you may have.
    [The prepared statement of Mr. Band appears as a submission 
for the record.]
    Chairman Hatch. Well, thank you very much.
    Mr. Lemley, we will turn to you.

  STATEMENT OF MARK A. LEMLEY, PROFESSOR OF LAW, STANFORD LAW 
                  SCHOOL, STANFORD, CALIFORNIA

    Mr. Lemley. Thank you, Mr. Chairman. You have started to 
hear and will continue to hear very different things about 
various proposals in patent reform. That is not because one 
side is right and the other side is wrong. It is not because 
somebody is telling the truth and somebody else is lying. It is 
because different industries experience the patent system very 
differently, and I think you are going to hear that here today.
    That is not a reason to avoid patent reform. Patent reform 
is extremely important and I think, done right, is going to 
substantially improve innovation in this country. Rather, it is 
a reason to make sure that the patent reform is measured and is 
tailored to the particular problems that were identified.
    Now, there are two basic prongs to patent reform that 
people seem to be talking about and that H.R. 2795 discusses. 
One is a set that involves what I would call simplification, 
including harmonization with the rest of the world, changes 
like first to file, removing best mode and things of that 
nature. Consensus is too strong a word to use in anything 
related to patent law, I have discovered, but there seems 
actually to be widespread agreement that most of these 
proposals are, in fact, a good thing.
    The second set of proposals has to do with ending the 
problem of litigation abuse, and it is there I want to focus my 
remarks. Litigation abuse is a problem. It is a problem 
primarily in industries whose products aggregate large numbers 
of potentially patentable components together. It is not a 
problem particularly in the pharmaceutical industry or the 
biotechnology industry. It is very much a problem in the 
software and the hardware and the Internet and the 
telecommunications and the semiconductor industries.
    The problem is that it is actually relatively easy to get a 
patent in the United States and you can use various systems in 
the Patent Office to obtain patents that cover more than, in 
fact, you invented. One of the most problematic is the rather 
remarkable fact that under U.S. continuation practice, it is 
impossible for the Patent Office ever to finally reject a 
patent application. The applicant can always come back an 
unlimited number of times and tailor their patent coverage to 
what it is that their competitors are doing in the marketplace.
    They can then use that patent to obtain substantially 
greater revenues than are warranted by the invention that they 
actually contributed to society. That results from the damages 
rules that we have established today and the injunctive relief 
rules we have established today.
    Because of the entire market value rule, you get to go to a 
jury and say all I want is a percentage of the sales of Intel's 
micro processor. And Intel does not currently have the 
opportunity to defend by pointing out that there are 5,000 or 
10,000 other inventions aggregated into that micro processor.
    There has been reference to the presumptive entitlement to 
injunctive relief, but as it has been applied by the courts, it 
is not presumptive; it is automatic. As a general matter, that 
is a good thing, but in certain circumstances, in certain 
cases, people can use the threat of an injunction against a 
large product that incorporates thousands of different 
inventions based on ownership of one single invention to extort 
money from legitimate innovators to get not just the reward 
they ought to be entitled to, the value they added to the 
patent system, but to get much greater reward.
    So it is quite common in my litigation experience in the IT 
industry to see cases settle for more money than the patentee 
could have won had they won the case at trial. That is a rather 
remarkable phenomenon, but I think it is driven by the fact 
that the company is at risk not just of having to change one 
small component of its product, but of being enjoined from 
making that product at all until it can go back and retool its 
factory. Finally, the possibility of willful infringement, 
which is asserted in 92 percent of all cases, allows the 
possibility of trebling these damages.
    Now, we shouldn't get rid of any of these doctrines. They 
are legitimate reasons to use continuation applications. There 
are legitimate reasons why we presume entitlement to injunctive 
relief in most cases, and there are legitimate reasons for the 
entire market value rule. But I think what we need to do is to 
try to focus legislative reform on the specific sectors that 
present the problem and the specific issues that present the 
problem.
    So in damages, for example, and also in injunctive relief 
it is possible to target legislation so that it is the act of 
asserting a damages claim or seeking injunctive relief for a 
product much larger than the small invention that you created 
that is the problem. That relieves pharmaceutical or 
biotechnology companies from having to worry about losing their 
entitlement to injunctive relief in the ordinary case or not 
getting adequate damages.
    Similarly, while we shouldn't abolish continuation 
applications, it is important that we try to prohibit their 
abuse. I think that the solution here is not say no one can 
agree and therefore we go home. It is possible with a group 
this diverse that people aren't going to agree on everything, 
but reasonable compromises and tailored or measured solutions, 
I think, will improve the patent system in a significant way.
    [The prepared statement of Mr. Lemley appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you very much, Mr. Lemley.
    Mr. Kushan.

 STATEMENT OF JEFFREY P. KUSHAN, SIDLEY AUSTIN BROWN AND WOOD, 
                     LLP, WASHINGTON, D.C.

    Mr. Kushan. Thank you, Mr. Chairman. My name is Jeff 
Kushan. I am a partner with the law firm of Sidley Austin Brown 
and Wood. I represent clients in the pharmaceutical and biotech 
sectors in patent procurement litigation and policy matters. I 
have been asked to testify today to provide the perspectives of 
companies in these sectors on patent reform. However, the views 
I am offering today are my own and not necessarily shared by my 
clients.
    Your hearing today is focused on questions that are at the 
heart of the movement for patent law reform. The primary 
motivating factor for reform is the inability of companies to 
predict outcomes when they become involved in patent 
litigation. In simple terms, they can't predict if the patent 
in litigation will be held valid, enforceable and infringed, 
and what the consequences of that infringement will be.
    The concerns are not simply those of patent defendants. 
Patent owners have concerns about the lack of predictability in 
the patent system. Any company that has spent millions of 
dollars on drug development and bringing that product to market 
is going to experience great stress if they can't predict that 
that patent is going to be effective when it is enforced. One 
reason there is uncertainty is that subjective criteria are 
embedded in the patent standards. Reforms that eliminate or 
constrain these subjective criteria will increase clarity and 
certainty in the patent law.
    A second significant source of the problem is the 
environment in which patent disputes are resolved--district 
court litigation. Plain construction findings of infringement 
and the consequences of infringement have all become 
unpredictable with variables in litigation. Reforms that make 
those determinations less unpredictable will significantly 
improve the patent system.
    I think a significant motivation for patent reform has 
already been touched on by a couple of the witnesses, and that 
is the scenario of the non-manufacturing patent owner. I think 
when you look at the task of enacting patent reform, you have 
to be very careful because it is very difficult to 
differentiate in the statute a good patent owner from a bad 
patent owner.
    For example, most biotech companies and nearly all 
universities fit the definition of a patent owner that is not 
manufacturing a product, yet is aggressively enforcing its 
patent rights. These patent owners have a legitimate right to 
enforce their valid patents. They often seek injunctive relief 
and significant damages to protect the future commercial value 
of their patent rights.
    That future value depends on their ability to exclusively 
license the patent to a commercial partner that can take an 
early-stage invention and develop it into a useful new product 
or service. If these early-stage patent owners cannot ensure 
market exclusivity, the value of their patents will be severely 
reduced. More importantly, the interest in developing an 
invention and a new drug will be severely reduced. This has 
extremely negative consequences for patients hoping for new 
cures. Certainly, one cannot uniformly label these patent 
owners bad actors.
    The path forward on reform must be one that creates a 
patent system in which the validity and scope of patent rights 
can be clearly appreciated and in which disputes can be 
resolved in a more transparent and predictable manner. This 
should be your ultimate litmus test when you go to evaluate 
different individual elements of patent reform.
    In the House, Chairman Smith has introduced a bill that 
reflects a good balance of reform measures, but which includes 
several non-starters to the life sciences sector. I would like 
to briefly address some of these elements.
    One proposal would change the standard that courts use to 
evaluate requests for permanent injunctions once a patent owner 
has proven its patent valid and infringed. The House bill would 
amend the patent statute to provide that courts should consider 
the fairness of the injunction in light of all the facts and 
relevant interests of the parties associated with the 
invention.
    The motivation for this amendment seems to be the belief 
that this change will create more jurisprudence in the field of 
patent injunctions, and that this new patent jurisprudence will 
identify more instances where injunctions will not be awarded 
by district courts. I believe this type of change will prove 
extremely harmful to the life sciences sector and should not be 
pursued.
    Companies in this sector count on patent exclusivity to 
make critical business decisions, and those decisions are made 
very early in the product development process that routinely 
exceeds a decade. The upstream impact of this type of change 
will be severe and longstanding. Decisions on funding early-
stage development ventures are based on the very simple belief 
that if a product actually reaches the market, the venture that 
brought that product to market will be able to use the patent 
to prevent copies of that product from being marketed for some 
period of time. If that assurance of market exclusivity is put 
into question, capital will move elsewhere.
    I also believe this type of reform measure will not deliver 
the predictability and certainty its proponents seek. The 
current patent injunction standards are grounded on the same 
injunctive relief principles used by courts in other legal 
disputes. It is true that patent injunctions are routinely 
granted once the patent owner has proven its patent valid and 
infringed, but this is simply the application of the general 
injunctive relief principles to patent infringement situations.
    Courts for more than a century have recognized that patent 
infringement causes a unique type of harm to the patent 
property. In the injunction context, this means that the patent 
owner can usually prove irreparable harm that cannot be 
adequately compensated by money damages. In my view, changes to 
these types of standards will simply create more uncertainty 
and undermine the efforts of all parties to get effective 
patent reform passed.
    A number of other variables in the patent reform package do 
merit careful consideration. The one area that I would like to 
touch on very briefly is the post-grant opposition procedure. 
One of the things that needs to be addressed in that proposal 
is to articulate a better standard to start those proceedings 
and to make sure that there is only a single window provided 
for reviewing patentability after the patent is granted.
    If you will permit me ten more seconds, I will just confirm 
that one of the concerns that people have expressed about 
opening up a second window is that the post-grant procedure is 
inherently designed to be a limited procedure, with limited 
discovery and a very constrained proceeding. Having that 
proceeding adjudicate patents that people have spent a lot of 
money on creates a significant risk for the life sciences 
sector.
    I encourage you to look carefully at these proposals and 
create a balanced package that a lot of industries can move 
forward on and support.
    Thank you, Mr. Chairman.
    [The prepared statement of Mr. Kushan appears as a 
submission for the record.]
    Chairman Hatch. Thank you, Mr. Kushan.
    Mr. Fish.

   STATEMENT OF CHUCK FISH, VICE PRESIDENT AND CHIEF PATENT 
         COUNSEL, TIME WARNER, INC., NEW YORK, NEW YORK

    Mr. Fish. Thank you, Mr. Chairman, Senator Leahy. My name 
is Chuck Fish. I am Vice President and Chief Patent Counsel at 
Time Warner. I am happy to be able to come and talk to you 
today.
    As a large and diverse media company, Time Warner has an 
enormous interest in the maintenance of strong intellectual 
property protections in all contexts in the country. We believe 
that creators and innovators must have the fruits of their 
intellectual endeavors protected, lest this country lose its 
edge in exporting valuable products like, for example, Time 
Warner's entertainment products.
    But our commitment to intellectual property protection, and 
in particular today to a strong and enforceable patent system, 
is wholly compatible with repairing a remedy system that has 
begun to reward not innovation, but the hiring of aggressive 
and tenacious lawyers. Indeed, it is critical today that the 
remedial aspects of patent law and their judicial application 
strike the right balance in dealing with the marketplaces we 
face.
    Like most of the people sitting in front of you, I don't 
think that you can solve the problem just in the area of 
litigation reforms, and so my written testimony talks about 
other things that Time Warner thinks are important. But if you 
do focus on the areas of litigation reform and what we say are 
litigation abuses, or rising indications of litigation abuse, 
we think there is a group of actions which the Congress could 
take which would actually improve the laws and would actually 
be fair for everyone who is involved. My written testimony 
gives you some details.
    In general, Time Warner sees that abuse of patent 
litigation appears to be on the rise. We see the establishment 
of business models that essentially insist on investing in 
patents that no one had any intent in using just as a ticket to 
litigation. We believe that patent litigation has truly left 
the mainstream of American business litigation and it ought to 
be returned back to that mainstream.
    So a few highlights, if I might. First, Time Warner 
believes that Congress should require meaningful proof before 
awarding increased damages in patent suits. This is basically 
the willfulness area that a lot of people have talked to you 
about. Problems with willfulness include, as you mentioned, 
Senator Hatch, that it is a subjective standard. But there are 
also worse than that. As Professor Lemley mentioned, the 
proportion of patent cases in which willfulness is pled is 
truly outrageous and it leads to a distortion of the litigation 
system. Indeed, as Judge Dyk noted in his partial concurrence 
in the Knorr-Bremse case, the current standard is quite frankly 
inappropriate in view of the settled law of punitive damages.
    So for these reasons, Time Warner believes the Patent Act 
should be amended so that the purpose behind increased damages, 
which is a valid purpose to punish those who have acted with 
disregard for the law, is actually the predicate for the 
finding of willful damages.
    Secondly, Time Warner believes that patent damages should 
be conformed to the reality in the marketplace today that there 
are multiple, or indeed sometimes hundreds of patents covering 
products. This is the issue that people have been calling the 
apportionment issue.
    Essentially, Time Warner supports reforming damages law by 
explicitly directing courts to begin their damages inquiry for 
combination inventions by focusing on the incremental value 
attributed to the patentable invention. You will realize that 
today that is not the case at all. In fact, the leading way of 
determining what patent damages ought to be today goes back to 
a district court case in 1970 which was compiling a number of 
factors from the years before that.
    Essentially, it is our position that the patent law is 
mired in a 19th century view of the world in which there are 
only one or two or three patents covering an invention, and in 
which it is perfectly okay to take 15 or 20 factors and look at 
them and decide what should be going on here; that that is an 
appropriate amount of discretion.
    But that is not an appropriate amount of discretion. It is 
not an appropriate starting place. Rather, it is a ticket for 
the creativity of aggressive lawyers to look at any potentially 
relevant revenue as being part of a damages base. That is what 
we see happening in the damages area. That is why we think that 
apportionment is important.
    The third area that we would highlight is that Congress 
should fix the patent injunction imbalance. I know there will 
be disagreement and hopefully some heated discussion about that 
topic today. But Time Warner's view is that essentially the 
problem here isn't the availability of injunctions. The problem 
is the way that the rules determining what should happen for 
injunctions have been applied by the Federal Circuit. The basic 
question, we believe, should be why has discretion been removed 
from the Federal courts, not why is it people who are proposing 
change are proposing that change.
    In conclusion, thank you very much for the opportunity to 
talk to you today.
    Chairman Hatch. Thank you. We miss Sean Bentley up here 
arguing with us on these matters. We hope he is doing well.
    Mr. Fish. Yes. Actually, I spoke to him today, Senator, and 
he is doing well, I hope.
    Chairman Hatch. Well, give him our regards, will you? He 
worked a long time on this Committee and helped a lot of us on 
both sides of the table.
    [The prepared statement of Mr. Fish appears as a submission 
for the record.]
    Chairman Hatch. Mr. Hawley, we will conclude with you.

    STATEMENT OF J. JEFFREY HAWLEY, PRESIDENT, INTELLECTUAL 
 PROPERTY OWNERS ASSOCIATION, AND VICE PRESIDENT AND DIRECTOR, 
 PATENT LEGAL STAFF, EASTMAN KODAK COMPANY, ROCHESTER, NEW YORK

    Mr. Hawley. Yes, thank you, Mr. Chairman. It is probably 
appropriate for a broad-based organization like IPO to speak 
last today because you have already heard from all my 
constituencies on all sides of the issue.
    Chairman Hatch. It kind of puts you in a tough position, 
doesn't it?
    Mr. Hawley. Well, no. I am used to it.
    We really deeply appreciate the opportunity today to 
testify and we hope to be able to articulate the perspective of 
a broad-based organization whose focus is on that of the 
intellectual property owner.
    I think it is worth emphasizing, as several of the 
witnesses have already, that the patent system of the United 
States has served the country extremely well over 200 years. 
The outcome of the Federal Trade Commission and the National 
Academy of Sciences and other studies could have come out 
differently, but they didn't. They validated the extreme value 
of the patent system for our country, but did recommend some 
changes.
    IPO was one of the first organizations to point out, for 
example, that the U.S. Patent Office was in crisis. More and 
more often, we are seeing articles in the popular press 
criticizing some aspect of our intellectual property system. 
And as a result of a wide variety of issues, many of which you 
articulated yourself and you have heard again here today, 
including the emergence of a cottage industry that has sprung 
up to take advantage of uncertainties in the system, litigation 
costs are increasing rapidly.
    IPO strongly supports the vast majority of the current 
proposals that improve the PTO processing efficiency, improve 
the quality of issued patents and reduce litigation costs. In 
particular, we clearly support first inventor to file, assignee 
filing, 18-month publication for all applications; a post-grant 
opposition system, as well as many other reforms.
    In the context of this hearing which is focused on 
litigation, I think it is important to realize that if you are 
able to increase particularly the quality of the patents coming 
out of the Patent Office, that will go a long way toward 
alleviating the litigation burden. But that all pre-supposes 
adequate funding for the Patent Office, and down the road that 
again would mean less abusive litigation as patent quality 
increases. For example, when we are all satisfied with the 
post-grant opposition language and we breathe a sigh of relief, 
let's not forget that the Patent Office needs the resources to 
do the job correctly.
    Reducing the abuse of the patent system is very important 
to our members, and you have heard from several of them today 
already. Every hour that is spent by patent litigators 
defending against questionable patents being asserted by patent 
system abusers means that $500 is not being spent on new 
innovation and new product development.
    We have been specifically asked today to speak about 
damages, so I want to talk about willful infringement. The 
concept of treble damages was put into our law in 1793, at a 
time when many infringers took a cavalier attitude toward 
patents. The same is not true today. Patents are frequently 
held valid and infringed, and large damage awards are common, 
particularly in comparison to damage awards typically granted 
in other countries.
    In the current environment, the threat of treble damages 
tips the balance too far in favor of those patent owners who 
seek to game the system. As you have heard probably several 
times, some companies are actually instructing their engineers 
not to read patents and the cottage industry that I referred to 
uses the threat of willful infringement to extract an amount in 
settlement disproportionate to any contribution they have made.
    Mr. Chairman, imagine yourself as the patent counsel for a 
large company and a form letter arrives in your in-basket 
accusing you of infringement of xyz patent. The cost to 
investigate will be $50,000. If there is a hint of doubt, you 
will have to buy another $50,000 legal opinion. Lo and behold, 
the form letter contains an offer. For a mere $75,000, you can 
buy a license. In this situation, if the patent owner can 
collect $75,000 from 100 companies, he has netted $7.5 million. 
The law with respect to willful infringement needs to be 
rebalanced. IPO strongly supports the language in the bill 
recently introduced in the House.
    Mr. Chairman, a little anecdote. When I was growing up, my 
father was a property law professor at New York University Law 
School. After practicing chemical engineering for a number of 
years, Kodak gave me the opportunity to become a patent 
attorney. So not knowing what I was getting into, I called my 
father and I said, dad, what is patent law? And in retrospect, 
the answer should have been predictable. He said to me--and I 
remember the conversation vividly to this day--patent law is 
just a special form of property law.
    The right to prevent trespass is fundamental to property 
concepts. It is not surprising that proposals to tinker with 
the right to injunction in patent cases has evoked vigorous 
debate. Any language altering an injunction needs to be 
thoroughly justified.
    Again, Mr. Chairman, IPO is grateful for the opportunity to 
express our views. Our members are optimistic that much of the 
needed reform will come out of the 109th Congress.
    Thank you.
    [The prepared statement of Mr. Hawley appears as a 
submission for the record.]
    Chairman Hatch. Well, thank you. We appreciate all of your 
testimony.
    We have four charts that can help us in our discussion here 
today. We might want to get those put up there, but let me 
start by helping us to get to the nub of the injunction 
question, with the proviso that I am not asking any of you to 
negotiate in public or to reveal any bottom lines here. We want 
you to just help us.
    I would like to ask each of you--and we will start with Mr. 
Gulbrandsen and just go across the table--to give your general 
views of the current law with respect to injunctions and to 
tell us from your perspective what the pros and cons are of 
current law and what are the pros and cons of some of the 
proposals that exist to change current law. We would like to 
have the best you can give.
    We will start with current law, the House Subcommittee 
discussion draft, the injunction proposals supported by the 
high-tech industry and, of course, the injunction language of 
H.R. 2795. So these may be of some help to you, we hope, but 
let's see if you can be of some help to us.
    Mr. Gulbrandsen.
    Mr. Gulbrandsen. Mr. Chairman, I speak from the perspective 
of the independent patent owners and university patent owners, 
individuals that start companies with technology out of 
universities, individuals that depend on investor dollars to 
start those companies. The current patent law is well-suited to 
our ability to start companies out of universities. Investors 
who are putting the money at risk in those companies are 
assured that if the technology is patented, they will have the 
power of staying for the long term with that investment and 
enforcing it against others that might trespass on it and 
hopefully recover their investment with a nice return. If you 
start tinkering with that law, those investors are going to be 
less anxious to take the risk on university technology and our 
start-up programs are going to suffer.
    Chairman Hatch. Mr. Band.
    Mr. Band. Well, the wording of the existing law, the 
current law, is fine as far as it goes. The question is how has 
it been interpreted. And you could say, well, the principles of 
equity--I mean, what else should govern the issuance of 
injunctions? But the problem is the way that has been 
interpreted by the courts is that there is a presumption in 
favor of an injunction and there is a presumption of 
irreparable injury, and, second, that that presumption is as a 
practical matter irrebuttable. So the words are fine, but the 
problem is how the Federal Circuit, in particular, has been 
interpreting these words. That is why we feel there needs to be 
something more specific.
    Now, of all these alternatives, I suppose the preferred 
alternative for the financial services industry would be the 
House Subcommittee draft because that makes clear two things. 
First of all, it makes clear that you can only have an 
injunction if the patent-holder bears the burden of showing 
that there would be irreparable harm if there isn't an 
injunction issued. So that is why that is the best language 
from our point of view.
    It does two things. First, it says that there is no 
presumption in favor of the plaintiff. And second of all, it 
makes it clear that you have to look at all the factors and 
determine that, in fact, money damages alone would not be 
sufficient to take care of the problem.
    The language proposed by the high-tech industry is very 
similar to the language included ultimately in H.R. 2795. It is 
better than the existing law in terms of giving some guidance, 
but it isn't quite as good as the Committee print language in 
that it doesn't clearly eliminate the presumption that exists 
now under current law.
    Chairman Hatch. Mr. Lemley.
    Mr. Lemley. Thank you, Mr. Chairman. Just so the record is 
absolutely clear, I think actually that the language of H.R. 
2795 is somewhat different than the one that is in the poster. 
In particular, the language takes the last sentence of the 
injunction proposal supported by high-tech and uses it in place 
of any of the discussion of irreparable harm.
    Now, let's be clear in terms of what is desirable. If you 
look at section 283, section 283 actually grants by its literal 
terms pretty broad power to courts to consider whether or not 
an injunction is appropriate. The courts may grant injunctions 
in accordance with the principles of equity on such terms as 
the court deems reasonable. The problem, as Mr. Band says, is 
that the Federal Circuit has essentially forbidden to the 
district courts the exercise of that equitable power that the 
statute gave them.
    I think the goal of 2795 and the fairness language is 
basically to reiterate what section 283 already says to say we 
meant it when we said you have got to use principles of equity 
here and consider all of the relevant factors. My only concern 
with that language is not actually what will happen in the 
district courts in the United States. I think it is quite 
reasonable to think that district court judges will do a good 
job, will understand the importance of injunctive relief as the 
baseline in the patent system.
    My fear with the fairness language is more what might 
happen abroad, and in particular the risk that some developing 
countries might use the existence of this particular term 
``fairness'' as invitation to deny patent protection to 
pharmaceutical companies in drug patents. That is a worry.
    So I would prefer language somewhat more tailored actually 
to the problem of abuse of the patent system, somewhat tailored 
to the problem of a patent owner who asserts a patent and 
demands an injunction not just covering the particular 
component that they have invented, but covering the larger 
product. In my written testimony, there is language that would 
accomplish that end. So I think the idea behind the high-tech 
proposal, the fairness proposal, is the right one, but we may 
need to work on the language to make sure we don't create a 
problem.
    Chairman Hatch. Thank you.
    Mr. Kushan, if you would care to comment.
    Mr. Kushan. Sure. Thank you, Mr. Chairman. Depending on my 
comments, I may be your favorite or most hated witness. The 
standard that is articulated and embedded in the jurisprudence 
as it exists today is the standard that virtually every--
    Senator Leahy. Some people find it possible to be both at 
the same hearing, so here is your opportunity.
    [Laughter.]
    Mr. Kushan. I may achieve that, too.
    The one topic that I have heard unanimous perspectives on 
from every company in the life sciences sector is that 
disturbing the jurisprudence in the area of permanent 
injunctions is to be not pursued. This is an unequivocal 
message that comes about from the effect that patent 
exclusivity has on the financial thought process of this 
industry.
    One of the things that should be emphasized is that there 
is a lot of sympathy for the concerns of unpredictable patent 
litigation and the consequences of patent infringement. But 
when you look at the patent jurisprudence, what you see 
embedded consistently in many, many years or jurisprudence is 
the understanding that because of the nature of the patent 
right--it is an exclusive right; there is no physical 
property--you have to take an extraordinarily sensitive 
perspective on preserving the ability of the patent owner to 
prevent the unauthorized use of the patented technology.
    The discussions that have been going on about recalibrating 
the standard are terrifying in the sense that you are going to 
create more jurisprudence and there is going to be a period of 
uncertainty during which people who invest very early on in the 
drug development process will not know what the standards will 
be 10 years from now. If you change the standards in that 
fashion, you are going to force the capital that comes in and 
is so critical to early-stage development of a company away 
from the sector. That is the risk that is of concern in most of 
the discussions I have been part of.
    One of the other things I would like to emphasize is that 
this type of change does not give clear, unequivocal relief to 
those people who are concerned with the environment of the 
litigation today. The uncertainty will continue. The 
uncertainty is going to be more pronounced as you go forward, 
and I don't think any of these proposals is going to be able to 
give any patent defendant comfort in knowing that they are not 
going to be shut down with a patent at the end of the 
litigation.
    The emphasis that I think needs to be put on patent reform 
is in changing the equation of patent litigation, and the 
comments that have been made so far reiterate this point. There 
is a lot of gaming in the system that is available today. There 
are immense costs. There is a lot of opportunity for abuse. If 
you but down on a number of these different areas of abuse and 
risk, then you will see a great sigh of relief in the business 
community of the U.S. because the risks become less unclear.
    I just will end by noting that things like the change to 
willful infringement standards--that is a very good thing to 
pursue and will address some of the concerns that people have. 
But going down the path of recalibrating what the entitlement 
to injunctive relief is or should be will just create more 
confusion and we think should be avoided.
    Chairman Hatch. Well, thank you.
    Mr. Fish.
    Mr. Fish. Well, Senator, if it was an option, what Time 
Warner suggest that you do is just get out a highlighter or an 
underliner, and if you started with the current statute and you 
underlined ``may grant injunctions'' and you underlined ``in 
accordance with the principles of equity'' and you underlined 
``as the court deems reasonable,'' we would be fine with the 
law.
    The problem is, as we see it, that the Federal Circuit has 
done just the opposite of that. They have turned that ``may'' 
into a ``shall.'' They have turned that ``in accordance with 
the principles of equity'' into a meaningless shell. I mean, 
they have taken the Supreme Court law and just gutted it. The 
Federal Circuit now in this area, for whatever reason, has 
decided that all the things that courts of equity traditionally 
did district courts shall not do. So they have changed the 
statute that way.
    And then, finally, there is not to be any discussion of 
what is or isn't reasonable. Obviously, courts usually believe 
that they are reasonable, so perhaps that is not a real 
protection. But the historic protections of equity showing that 
money damages are actually inadequate, showing that irreparable 
harm will, in fact, occur, showing that the balance of the 
private interest versus the public interest favors the granting 
of an injunction--that is the cornerstone of our law, I mean, 
for hundreds of years, and before it was in the United States 
in the United Kingdom. That is the way that equitable remedies 
operated.
    Now, it is interesting to hear people say, for example, 
that university programs will fall apart if strong injunctions 
such as now exist under the Federal Circuit are not granted. I 
mean, go back and look. When WARF lost the case in 1945, the 
Ninth Circuit said we know you have a valid patent on a method 
of making margarine that increases vitamin D and keeps people 
who have rickets from getting vitamin D. It is not an 
appropriate injunction in this case. It is about health, it is 
about the public is at war, it is about poor people who can't 
get it. It doesn't cut it that way. You know what? WARF has 
gotten a lot more competitive and come up with great inventions 
since 1945, and so what they are predicting will happen, I 
think, history gives the lie to.
    So of these choices, Time Warner would say that a change 
that brings the law back to where it was before the Federal 
Circuit went too far would be an appropriate change. Any change 
that went further than that would be inappropriate because 
injunctions are an important piece of relief, and we agree with 
our friends, for example, in the pharmaceutical industry about 
that. But it is just that it has gotten a little bit too far.
    Chairman Hatch. Well, thank you.
    Mr. Hawley.
    Mr. Hawley. Yes, thank you, Mr. Chairman. I am a little 
confused here. As another witness pointed out, the actual 
proposed language in the bill--and I will read it because there 
are several parts of it that are important--is it adds to the 
current statute by adding, in determining equity the court 
shall consider the fairness of the remedy in light of all the 
facts and the relevant interests of the party associated with 
the invention. So that is the language that is currently being 
considered in the other chamber.
    But I would like to comment on what is labeled here as the 
House Subcommittee discussion draft of April 14. This is 
language that dates back probably to around 2000, 2001, and it 
has been debated in a number of different forums since then and 
it was actually the language that was found in the Committee 
print before H.R. 2795 was introduced last week.
    We testified with regard to that in our written statement 
that the problem that IPO had with that in a board debate in 
2001 was, first of all, it changed the burden of proof. Under 
current law, if you have been found to have infringed a valid 
patent, you have to establish why an injunction should not 
issue. If you read the language here, the court shall not grant 
an injunction unless the patentee proves irreparable harm. So 
it changes the burden of proof.
    Secondly--and this is important and you have heard this 
train of thought throughout this testimony here today--it finds 
that the patentee is likely to suffer irreparable harm that 
cannot be remedied by money damages. Most of our members find 
that to be similar to, if not identical to, the preliminary 
injunction standard. So you are applying a preliminary 
injunction standard to a situation where the defendant has been 
found to infringe a valid patent.
    Finally, there was other language in here that caught a lot 
of fire, and that was including the extent to which the 
patentee makes use of the invention. And you have heard 
discussion about that. So those were the criticisms that were 
leveled against the House Subcommittee discussion draft and 
have been leveled against this language since about 2001.
    The language that is, in fact, in 2795 avoids those three 
problems. It does not shift the balance of proof, it does not 
establish a preliminary injunction standard, and it does not 
specifically mention the patentee's use of the invention. But I 
would also point out--and this builds on something Senator 
Leahy said--2795 also does not have any public interest aspect 
to it yet.
    I note that the words for the chart labeled ``Injunction 
Proposal,'' supported by high-tech, does have the public 
interest in it, and I would say that many of our members feel 
that that is a very important aspect that needs to be 
reflected.
    Chairman Hatch. Thank you.
    Senator Leahy.
    Senator Leahy. Thank you, Mr. Chairman.
    Mr. Band--and actually it was referred to by others--was 
talking about the 37-cent notice, where a patent holder can go 
fishing for infringers by sending a letter to large companies 
alleging patent infringement. Notice doesn't need to be 
specific--Mr. Fish, you talked about this, too, and others--but 
it can subject a defendant to enhanced damages.
    Several of you said that we ought to include a requirement 
that a plaintiff initially supply a defendant with a notice of 
infringement sufficiently detailed so as to allow the defendant 
to seek declaratory judgment.
    Does anybody disagree with that? Mr. Gulbrandsen, do you 
disagree with that, that the plaintiff initially supply a 
defendant with a notice of infringement sufficiently detailed 
so that the defendant could seek a declaratory judgment?
    Mr. Gulbrandsen. Senator Leahy, I think that, first of all, 
encourages litigation. It doesn't encourage settlement. 
Frankly, WARF would not a send a letter like that because we 
don't want to be subjected to a lawsuit in California or New 
York, and we would like to sit down at the table--
    Senator Leahy. Do you think it would be better to have a 
non-specific notice?
    Mr. Gulbrandsen. I think that it is fair to provide a 
notice, but I don't think it should be a notice that is 
sufficient to require a default.
    Senator Leahy. Mr. Band.
    Mr. Band. I agree with you completely. I mean, I think we 
need to have very specific notice because otherwise you are 
dealing with a situation that Mr. Fish described. You really 
don't know what to do. Do you investigate? Do you not 
investigate? Do you spend a lot of money? Do you just settle?
    Senator Leahy. Professor Lemley.
    Mr. Lemley. Absolutely, the change is warranted. It just 
seems unreasonable to think that you can put someone on notice 
for willfulness purposes, put them to the $75,000 or $100,000 
expense of getting an opinion letter with a threat that is 
sufficiently vague that it is not even sufficient to create 
declaratory judgment jurisdiction.
    Senator Leahy. Mr. Kushan.
    Mr. Kushan. I think the standard would enhance the 
environment significantly. I think you also have to address the 
concern a lot of companies have about just perpetuating the 
patent opinion industry, and one of the things that isn't 
addressed in legislation is the idea that if an infringer makes 
a good-faith effort to avoid infringement, not going to an 
attorney, but actually trying to modify their product to avoid 
infringement, that should be a defense, as well as and as 
legitimate as the attorney opinion.
    Senator Leahy. Mr. Fish.
    Mr. Fish. Senator, I think that sort of notice would be one 
situation in which it would be reasonable to conclude that 
somebody who had ignored that ought to risk increased damages. 
So, yes, I think that sort of notice would be good for that 
reason.
    Senator Leahy. Mr. Hawley.
    Mr. Hawley. I am delighted to hear the support for all of 
that.
    Senator Leahy. It is not uniform, but go ahead.
    Mr. Hawley. Well, it is closer than most times.
    Senator Leahy. I don't want to leave Mr. Gulbrandsen out on 
this.
    Mr. Hawley. I understand. I didn't say unanimous support. I 
am delighted to hear the amount of support.
    The scheme that you mentioned is something that was debated 
over several IPO board meetings about 2 years ago, and the 
characteristics that are now in the proposal reflect a careful 
balancing during those debates. We would strongly support 
particularly the notice requirement so that--we just put the 
Chairman in the seat of a patent counsel and we placed him in 
limbo and that is just not a fair thing to do, and so by giving 
adequate notice and by giving a parallel ability for the 
defendant to defend themselves, we think that is a good 
balance.
    Senator Leahy. We have also heard a lot about apportionment 
of damages. That complaint seems straightforward enough. When 
the infringed patent is just part of a larger product, the 
damages awarded should be proportional to the role that 
infringed patent plays in the larger product.
    Mr. Gulbrandsen, correct me if I am misstating your 
position. You say that requiring judges to calibrate damages by 
weighing the portion of a product or process infringed as 
against the whole unnecessarily ties the hands of Federal 
judges.
    Is that your position, basically?
    Mr. Gulbrandsen. What I mean is that--
    Senator Leahy. That is a quote from your statement.
    Mr. Gulbrandsen. What I mean is that I think the present 
standards in the common law with respect to determining damages 
allow the court to weigh all of the factors. And in some 
instances, the improvement may be a small improvement, but it 
may be a critical improvement that really built the whole 
market for that particular product. So I think it would be 
unfair to prohibit the judges from weighing what value it 
really brought and look at the whole market condition.
    Senator Leahy. I am trying to figure out how damages should 
be calculated in a case where there is a single contested 
patent, but it is within a more complex product.
    Mr. Gulbrandsen has been very clear in his feelings. Mr. 
Band, do you have a feeling?
    Mr. Band. Absolutely. I think apportionment is essential. 
For example, the credit card system is a very complicated, 
integrated system which has many, many different components, 
lots of software, lots of hardware, lots of business methods, 
all wrapped into one integrated system.
    If you have, let's say, a patent ultimately reading on one 
little piece of this entire system, what is the right measure 
of damages? It should be that little system. It shouldn't be a 
royalty based on the entire system. You can also see the 
problem with an injunction that goes--even though what is 
enjoined is just that one little piece, because it is an 
integrated system, it causes the whole system to fail. So that 
is why these issues are very, very closely linked with one 
another.
    Senator Leahy. Professor Lemley.
    Mr. Lemley. Yes, I agree that this is a very important 
reform. The problem is quite simple. In theory, we take care of 
this by adjusting the royalty percentage. But in practice, 
never happens. No jury gets to hear about all the other 4,999 
patents that went into this micro processor. I think it is 
perfectly appropriate, as Mr. Gulbrandsen says, that in 
circumstances where your component, even though it is only one 
component, is the critical one that you get substantial damages 
that result from that.
    But H.R. 2795 would permit that. All it says is that the 
court shall consider, if relevant and among other factors, 
whether there are a bunch of other components contributing to 
the success of the product. And if we are trying to get damages 
right, if we are trying to say what you are entitled to is a 
function of your contribution to this product, that is the 
logical thing to do.
    Senator Leahy. Mr. Kushan.
    Mr. Kushan. This standard is lifted pretty much out of the 
prevailing law and it is not necessarily a revolution to 
incorporate it into the statute. I think as we have already 
heard from Mr. Gulbrandsen and from Mark here, as long as you 
have access to address other damages scenarios that allow you 
to put your invention and your patent in the right setting for 
a proper calculation other than as cast in this standard, you 
are not going to disrupt the law and you are going to protect 
the interests of patent owners.
    It is just making sure that we don't create more confusion 
in the standards that govern damages determinations.
    Senator Leahy. Mr. Fish.
    Mr. Fish. Senator, I think I would answer you this way. 
There are two ways that the problem can arise. One is the one 
that we have been talking about. You have a patent to a narrow 
feature or a narrow piece of a much more complicated system, 
and then the question becomes what portion of the total revenue 
should be attributed to that one thing. That is an 
apportionment problem, and I would agree that there are cases 
that can be proved that that one little thing is the majority 
of the driver for the demand. That is what the entire market 
value rule attempts to do. What it unfortunately does in 
practice is that it says open the flood gates and look at all 
the revenue; patent plaintiffs, your lawyers should be used for 
malpractice if they can't think of creative ways to get at 
everything.
    The second way that the problem comes up, Senator--and it 
is the reason that Time Warner says we should look at the 
damages calculation as starting with what is the value and then 
moving on--the second way that it comes up is just by claiming 
the invention differently, so that instead of claiming the 
motor on the intermittent windshield wiper, you claim a car 
that as a motor that has an intermittent windshield wiper. Then 
there is no problem of entire market value rule. There is 
direct infringement, and your argue is, look, the car is worth 
this many thousand dollars and that is what the claim covers.
    So you can get to the problem either way, and the way that 
we would suggest to fix it is to get courts to start the 
damages analysis at the right place, which is if it is a 
combination invention, what is the value. And then there are 
all sorts of models and there are all sorts of smart economists 
and there are all sorts of smart lawyers. And we believe that 
with their discretion properly guided, the district courts will 
probably do it right, and the Federal Circuit probably will, 
too.
    Senator Leahy. Mr. Hawley.
    Mr. Hawley. We went into this in our written statement, and 
just to review that, this is a very recent proposal, by the 
way. It came out of some discussions over the past few months.
    Senator Leahy. I know. That is why we are asking.
    Mr. Hawley. Yes, I know, I know. We have not yet taken a 
position on this one, but it clearly needs--
    Senator Leahy. Do you want to go out on a limb?
    Mr. Hawley. I have learned not to do that, Senator.
    Senator Leahy. Most of us in elective office wish we had 
learned that a long, long time ago.
    Mr. Hawley. I am also in elective office, not nearly like 
yours, but I still feel the heat from time to time.
    I would just point out, as I think Mr. Kushan mentioned, 
and others, this is one factor that is lifted out of Georgia-
Pacific v. U.S. Plywood Corporation, a 1970 district court 
case, admittedly, but it is factor number 13 out of 15 of the 
factors that the court considered. So we are a little concerned 
that focusing on just that factor is going to have unintended 
consequences.
    We need to better understand what the cases are that give 
rise to the need for this above and beyond the Georgia-Pacific 
considerations. Unfortunately, I can't help much today in 
taking a strong position.
    Senator Leahy. I understand, but I wanted to throw it out 
because it is obviously going to be one of the things we are 
going to be discussing when we go forward on legislation. 
Certainly, if you and your organization come to a very specific 
recommendation, I would like to have it.
    I have some other questions which I will submit. I will 
pare them down based on some of the answers to Chairman Hatch 
and some of the answers to me, but I will be sending each of 
you some questions. I wish you could take time to respond. I 
will try not to make them overly onerous, but this is an 
important subject. It is a dry subject.
    I mean, tomorrow morning we will have a hearing in this 
same room on detainees at Guantanamo and there will be all 
kinds of people watching. That is a very important thing, but 
this is also extremely, extremely important. Neither Senator 
Hatch nor I have approached it in a partisan way. We are trying 
to work out the best way. Nobody likes to make changes in the 
patent law willy-nilly, because you want to have a degree of 
continuity there, and predictability.
    But I find some alarming situations in this area; one, I 
think an overworked PTO, and then I think some of the things 
that go through there and it is simply because the people are 
overworked. We had a hearing on that and talked to them about 
ways we might change that, ways we might make it better.
    I am also, though, concerned by a growing industry in this 
country that doesn't invent anything, but simply tries to get 
involved in litigation on patents. The more complex inventions 
are, of course, the more potential patents there are. I don't 
want to interfere with people's rights, but also when you see 
an inventor has a great idea and wants to go forward--and as we 
know, in this country a lot of our best inventions have come 
from small inventors, and they are suddenly forced out by the 
threat of litigation which really doesn't have a great deal to 
do with the ultimate product. So we are trying to find out way 
through that.
    Senator Hatch, I am delighted you had this hearing and I 
appreciate it.
    Chairman Hatch. Well, thank you, and thank you for your 
good questions.
    I will submit questions for the record, too, but let me 
just ask one last question. Some have suggested a venue 
limitation as a partial solution to the current patent 
litigation problems.
    Would a limitation on venue be effective to prevent forum-
shopping, and if so, what would be a reasonable limitation? If 
you could just answer it real quickly, if it is possible, we 
will finish with that question.
    Mr. Gulbrandsen. Are you suggesting a specialized district 
court for patents?
    Chairman Hatch. Well, not necessarily, but rather than just 
have venue broad-based across the country, limit it to certain 
particulars.
    Mr. Gulbrandsen. I would favor a venue as long as it could 
be done as fast as we can do it in Madison, Wisconsin, which is 
less than a year.
    Chairman Hatch. I think we would all favor that.
    Yes, Mr. Band.
    Mr. Band. Yes, we think that doing something with venue 
would be helpful. The venue would be limited to the 
jurisdiction where the company is headquartered or is 
incorporated, something like that, to prevent forum-shopping.
    But another way of solving this venue problem could even be 
achieved through allowing interlocutory appeals after Markman 
hearings. That could have the same effect of reducing the 
adverse problems of having cases litigated all around the 
country because you could get the claim construction into the 
Federal Circuit at an early stage and thereby keep some of the 
issues out of the jury's hands later on.
    Chairman Hatch. Okay, thanks.
    Professor Lemley.
    Mr. Lemley. I think it would probably be a desirable 
change. The current favored district is the Eastern District of 
Texas where patent plaintiffs like to bring their lawsuits 
because no jury so far has ever invalidated a patent in the 
Eastern District of Texas. There is obviously forum-shopping 
that is going on.
    I think it would be attractive to limit it to something on 
the order of where the plaintiff or the defendant reside or 
have their principal place of business or are incorporated if 
they are corporations. It is not a complete solution. It is not 
going to make the ``troll'' problem go away, but it may reduce 
one component of it.
    Chairman Hatch. Make it more fair.
    Mr. Lemley. Absolutely.
    Chairman Hatch. Well, give us some ideas on that. We would 
love to have them.
    Mr. Kushan.
    Mr. Kushan. On this one, I don't have much to say. I think 
there is a lot of concern about the Eastern District of Texas 
scenario, as Mr. Lemley has pointed out. But on a proposal like 
this, it is not so clearly a plus or minus on the overall 
equation in patent litigation reform that you can say it will 
be good or bad. Obviously, we will have to look and see what 
kind of proposals come forward on it.
    Chairman Hatch. Thank you.
    Mr. Fish.
    Mr. Fish. Senator, there are certainly people who say it 
would be helpful. I think Time Warner's position would be we 
are not clear why it is another area where there has to be a 
patent-specific rule, especially since there has been forum-
shopping for venues in patent cases since we have had them. So 
although it might be helpful, I think some of the other areas 
might be more helpful.
    Chairman Hatch. Mr. Hawley.
    Mr. Hawley. Yes. Mr. Chairman, I am happy to report that we 
have had a few days to discuss this one, certainly not with our 
full board and so it is not possible for us to give you a 
strong indication. But in informal discussions with the 
leadership, they haven't dismissed it out of hand, which is a 
good sign. So we will be definitely working on this proposal 
with all of our litigator friends and our organization, and we 
are going to be vigorously looking at alternatives that might 
help with the abusers of the system.
    Chairman Hatch. Without asking you to answer it today, I am 
intrigued by the idea of allowing an interlocutory appeal with 
Markman claim construction determinations combined with the 
bifurcation of the trial process that delays the determination 
of willfulness. It seems to me that an interlocutory appeal of 
the claim construction might provide some efficiencies in 
litigation, and I would like you to write to us and tell us 
what are the benefits to this and are there any significant 
downsides. We are looking at that fairly carefully as well.
    This has been a particularly prescient panel. I really 
appreciate all the efforts that you have made to be here and it 
has been very helpful to us here today. I am very grateful to 
all of you. Just help us to get it right, because we don't want 
to hurt anybody, but we would like to have something that would 
get rid of some of the inefficiencies, inadequacies, wrongful 
things that occur in these areas, and help us to find some ways 
of doing justice, which is, after all, what we are all about.
    We don't have any desire to pick one side or the other, or 
any one of the multiplicity of sides, but we do have a desire 
to get the very best possible legislation we can to be able to 
resolve at least a maximum number of problems. So we would 
appreciate any advice you could give us on this beyond this 
hearing and we will keep the record open for any further advice 
that you care to send us. We will keep the record open for a 
week for anybody who wants to ask additional questions in 
writing.
    We are grateful to you all. We know it has been a pain to 
be here, but you are doing the work of the Lord and we 
appreciate you being here. Thanks so much.
    With that, we will recess until further notice.
    [Whereupon, at 4:07 p.m., the Subcommittee was adjourned.]
    [Questions and answers and submissions for the record 
follow.]

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