Text: S.Hrg. 114-603 — AN EXAMINATION OF CHANGES TO THE U.S. PATENT SYSTEM AND IMPACTS ON AMERICA'S SMALL BUSINESSES
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[Senate Hearing 114-603]
[From the U.S. Government Publishing Office]
S. Hrg. 114-603
AN EXAMINATION OF CHANGES TO THE U.S.
PATENT SYSTEM AND IMPACTS ON AMERICA'S
COMMITTEE ON SMALL BUSINESS
UNITED STATES SENATE
ONE HUNDRED FOURTEENTH CONGRESS
FEBRUARY 25, 2016
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COMMITTEE ON SMALL BUSINESS AND ENTREPRENEURSHIP
ONE HUNDRED FOURTEENTH CONGRESS
DAVID VITTER, Louisiana, Chairman
JEANNE SHAHEEN, New Hampshire, Ranking Member
JAMES E. RISCH, Idaho MARIA CANTWELL, Washington
MARCO RUBIO, Florida BENJAMIN L. CARDIN, Maryland
RAND PAUL, Kentucky HEIDI HEITKAMP, North Dakota
TIM SCOTT, South Carolina EDWARD J. MARKEY, Massachusetts
DEB FISCHER, Nebraska CORY A. BOOKER, New Jersey
CORY GARDNER, Colorado CHRISTOPHER A. COONS, Delaware
JONI ERNST, Iowa MAZIE K. HIRONO, Hawaii
KELLY AYOTTE, New Hampshire GARY C. PETERS, Michigan
MICHAEL B. ENZI, Wyoming
Zak Baig, Republican Staff Director
Robert Diznoff, Democratic Staff Director
C O N T E N T S
Vitter, Hon. David, Chairman, and a U.S. Senator from Louisiana.. 1
Shaheen, Hon. Jeanne, a U.S. Senator from New Hampshire.......... 3
Stoll, Robert, Former Commission of Patents, U.S. Patent and
Trademark Office, Partner and Co-chair of the Intellectual
Property Practice Group, Drinker Biddle & Reath, Washington, DC 7
O'Shaughnessy, Brian P., Chairman-elect, Licensing Executives
Society (USA and Canada), Inc., Attorney At Law & Shareholder,
RatnerPrestia, Washington, DC.................................. 13
Veloso, Neil, Executive Director, Technology Transfer, Johns
Hopkins Technology Ventures, Baltimore, MD..................... 25
Alphabetical Listing and Appendix Material Submitted
O'Shaughnessy, Brian P.
Prepared statement........................................... 15
Responses to Questions Submitted by Ranking Member Shaheen
and Senator Enzi........................................... 52
Shaheen, Hon. Jeanne
Prepared statement........................................... 5
Prepared statement........................................... 10
Responses to Questions Submitted by Ranking Member Shaheen... 48
Prepared statement........................................... 27
Vitter, Hon. David
Opening statement............................................ 1
AN EXAMINATION OF CHANGES TO THE U.S.
PATENT SYSTEM AND IMPACTS
ON AMERICA'S SMALL BUSINESSES
THURSDAY, FEBRUARY 25, 2016
United States Senate,
Committee on Small Business
The Committee met, pursuant to notice, at 10:01 a.m., in
Room 428A, Russell Senate Office Building, Hon. David Vitter,
Chairman of the Committee, presiding.
Present: Senators Vitter, Risch, Fischer, Gardner, Ernst,
Ayotte, Shaheen, Cantwell, Coons, Hirono, and Peters.
OPENING STATEMENT OF HON. DAVID VITTER, CHAIRMAN, AND A U.S.
SENATOR FROM LOUISIANA
Chairman Vitter. Good morning, everyone, and welcome, and
thanks to our witnesses in particular for taking the time to be
here today for this important topic. We look forward to your
Our conversation today will focus on whether the patent
litigation abuse problem demands a major rewrite of our patent
laws or if the changes taking place are having the desired
effects, specifically with regard to small businesses. The
closer the issue is examined, the more it becomes apparent to
me that small business, entrepreneurs, and universities are at
the heart of innovation in this country and protecting them
with a strong patent system certainly is important, including
to this Small Business Committee.
The U.S. patent system is really unique and it fuels our
economy. On the whole, it is far more prosperous and successful
than those of other countries. And small businesses provide 55
percent of all jobs and 66 percent of all net new jobs since
the 1970s. They also hold 16.5 times more patents per employee
than large firms. In the last 20 years, U.S. university
licensing activity has specifically contributed $181 billion to
the U.S. GDP, and so all those numbers speak for themselves.
Now, unfortunately, the rise of so-called patent trolls,
who acquire a patent solely for the purpose of making money
through royalty demands or lawsuits, have had a detrimental
effect on businesses, innovators, and universities alike. So,
reform there is needed. However, before Congress jumps to
overhaul the entire system, the extent and scope of necessary
reform, I think, really needs to be clarified.
So, today, we are here to revisit the question, how do we
address patent reform while protecting innovation and not
impose negative consequences on small businesses and
The first step is to examine exactly how recent changes,
court decisions, and other judicial conference changes have
impacted the situation, including our small businesses and
universities. Since Congress has last thoroughly considered
these issues and drafted legislation to address patent law,
there have been several major judicial and administrative
developments. As a result, patent lawsuit filings have already
dropped dramatically, 40 percent, from September 2013 to 2014.
But, that is still not good enough. Frivolous litigation is
never a good thing and these patent trolls need to be stopped.
The very threat of litigation from abusive patent trolls
diverts resources away from legitimate business activity.
The second step in addressing the faults in our current
patent is to take a look at the potential impacts of current
proposed changes. As Chair of this committee, I made it a
priority to open the lines of communication with small
businesses and universities to find out what specifically they
need in terms of reform so they can stop worrying about
potential litigation or changing rules and get back to
When I first took over this committee, one of my top
priorities was to ensure that small business voices would be
heard in Congress, including on patent reform. That is why in
March of last year, I held the first Small Business Committee
hearing on patent reform, the first since 1961, when, actually,
one of my predecessors in this seat from Louisiana, Senator
Russell Long, held a hearing on a related topic on patent
issues. At the hearing I called last year, 54 years since that
previous one, we heard from advocates of both sides of the
issues regarding specifics of legislation, and it was clearly
established that a balanced approach is the only solution that
would sustain and support America's innovative culture.
In the 11 months since that hearing, a considerable number
of changes have gone into effect and even more have been
proposed that would change the way small businesses engage in
the patent system. This committee has heard from folks across
the country who are being forced to divert critical resources
to defend themselves against vague claims of patent
infringement, and many of them go bankrupt in the process.
These patent trolls are creating a substantial drain on the
core of our economy, and this specific problem requires a
specific solution, including one that is delicate enough to
avoid disrupting the system as a whole.
Now, unfortunately, when dealing with bad actors, there is
rarely a one-shot solution. That is why it is not surprising to
see folks who support a comprehensive approach attempt to
inflate the perceived notion of litigation abuse by including
innocent, well-intended business lawsuits with those of trolls.
It is essential to remember that many legitimate owners of
intellectual property do not manufacture anything, but
nonetheless have legitimate claims of patent infringement
against other parties. A comprehensive overhaul of our patent
system would fail our innovators and allow large companies to
strong-arm smaller organizations, ultimately leading to a less
prosperous and successful system.
It is no secret that the ever-changing federal rule book is
one of the greatest obstacles for business growth and
innovation. Since the passage of the America Invents Act,
several reports have come out saying that the onslaught of
ongoing changes is making it more difficult for small
businesses to protect their patents. We have also witnessed
increasing abuse of new mechanisms that were aimed to aid in
the fight against the so-called trolls. There is evidence that
certain hedge fund managers are intentionally shorting stocks
and then challenging a company's patent at the Patent Trial and
Since our last meeting on this issue, new reports have
shown how the value of patents has dropped at a staggering rate
in the past four years, with some reports showing a decrease by
as much as 80 percent. The key, I think, is to strike a balance
between combating frivolous lawsuit claims from trolls and
maintaining a level playing field between small business
inventors and large companies.
In an effort to support a targeted approach that takes into
account the ongoing changes to the patent system and patent
troll lawsuits, I have cosponsored Senator Coons' legislation,
the Strong Patents Act of 2015, which also has the support of
our fellow committee member Senator Hirono as well as Senators
Cotton and Durbin.
Patent reform is a key issue this year and I certainly look
forward to continuing to fight overly broad efforts to fix the
system and to discussing and developing effective balanced
Thanks again for being here, and now I will turn to our
Ranking Member, Senator Shaheen.
OPENING STATEMENT OF HON. JEANNE SHAHEEN, RANKING MEMBER, AND A
U.S. SENATOR FROM NEW HAMPSHIRE
Senator Shaheen. Well, thank you very much, Mr. Chairman,
and thank you to all of our witnesses who are here today.
As I think we would all agree, small businesses really are
the drivers of economic growth, especially when it comes to
technological innovation that keeps this country competitive.
And small firms employ nearly 40 percent of America's
scientists and engineers and they produce nearly 16 times more
patents than large businesses, which is really an astounding
statistic. They also produce patents that are of higher quality
and more than twice as likely to be cited in technical
literature. So, I think we would all agree that America's
entrepreneurs have a very big stake in our patent system.
Since the passage of the America Invents Act in 2011,
efforts have been underway to reform procedures at the U.S.
Patent and Trademark Office, and in today's hearing, we are
going to examine legislative efforts to further reform the
patent process. This process is ongoing and I am hopeful that
we will be able to come to some consensus that will address
concerns that we have heard from small businesses as well as
abuses that affect small businesses while they are trying to
protect their innovators.
I believe that--and I will make an editorial comment here--
I believe that one of the best ways for us to support small
business innovation is through reauthorizing and making
permanent the SBIR and STTR programs, and I very much
appreciate the opportunity to work with Chairman Vitter on this
issue and the fact that we have already had a hearing to look
I am going to abbreviate my remarks this morning and submit
my full statement for the record, but I want to close again by
thanking each of our witnesses and apologizing for the fact
that I am going to have to leave early to attend another
hearing. So, thank you all very much.
[The prepared statement of Senator Shaheen follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Thank you, Senator.
And now, as we normally do, we would invite any other
opening remarks for the record so we can go directly to our
witnesses, and we should also have plenty of time for questions
and comments after our witnesses' testimony. Let me introduce
all of them and then we will hear from them in turn.
Robert Stoll is a partner at Drinker Biddle. He serves on
the firm's patent team and is Co-Chair of the Intellectual
Property Practice Group. He formerly served as the Commissioner
for Patents at the U.S. Patent and Trademark Office, where he
was instrumental in the passage of the America Invents Act and
lauded for his efforts to reduce patent pendency and improve
Brian O'Shaughnessy is an attorney and head of the Life
Sciences Practice Group at the multinational intellectual
property firm RatnerPrestia, P.C. He is a registered patent
attorney with 30 years of experience in intellectual property
law and represents clients in disputed matters in U.S. Federal
Courts, the U.S. International Trade Commission, and in post-
grant proceedings before the U.S. Patent and Trademark Office.
And Neil Veloso is the Executive Director of Technology
Transfer for Johns Hopkins Technology Ventures, the
commercialization arm of the university. He leads a team that
works closely with researchers, physicians, and other inventors
to evaluate and protect intellectual property developed at the
Welcome to you all. Thanks to you all for being here. And
we will start with Mr. Stoll.
STATEMENT OF ROBERT L. STOLL, PARTNER AND CO-CHAIR,
INTELLECTUAL PROPERTY GROUP, DRINKER BIDDLE AND REATH,
WASHINGTON, DC, AND FORMER COMMISSIONER OF PATENTS, U.S. PATENT
AND TRADEMARK OFFICE
Mr. Stoll. Chairman Vitter, Ranking Member Shaheen, and
Members of the Committee on Small Business and
Entrepreneurship, it is my great pleasure to testify before you
today on issues related to our nation's patent system, which
fuels America's innovative spirit and serves as a major driver
of job creation and economic growth.
I am currently a partner and Co-Chair of the Intellectual
Property Group at Drinker Biddle and Reath, having retired from
my position as Commissioner for Patents at the United States
Patent and Trademark Office in December of 2011. I spent 29
years at the U.S. PTO, rising from a patent examiner to head
the office that handles U.S. legislation and international
intellectual property issues for the administration before
becoming Commissioner for Patents.
I share your passion for helping ensure that small and
independent inventors can benefit from the fruits of their
labor and their creative talents. Small businesses and
independent inventors are critical to revolutionary advancement
of American technology. They file over 20 percent of the
applications at the U.S. PTO and their patents are more likely
to encompass breakthrough inventions rather than incremental
change, as they have the incentive and the flexibility to take
risks that might be unacceptable for larger established
Small businesses and independent inventors are the
incubators of novel ideas and the source of inventive products
that they develop or which they license or sell to others. Many
large successful companies throughout our history have started
from meager beginnings. Hewlett-Packard began in a garage,
where its first product, an audio oscillator, was built. That
garage was used for many years as a research lab and is now a
private museum known as the birthplace of Silicon Valley.
Patents are a critical tool for small businesses to elbow
their way into the market. Anyone who has ever watched ``Shark
Tank'' is aware that one of the first questions an investor
asks is whether the inventor has patent protection. A well
functioning patent system is of particular importance to the
small businesses, which to succeed often need both venture
capital and the means to protect an innovative market niche.
Mr. Chairman, I applaud your leadership in introducing with
Senator Baldwin the Grace Period Restoration Act of 2015, a
bipartisan bill to protect American inventors and university
researchers. By restoring a more workable grace period, S. 926
will permit small inventors to obtain rights in the United
States if they fill shortly after a disclosure, and if other
countries model this, it can become part of our international
In both the Senate and the House, other work aimed at
making the U.S. patent system fairer and more efficient for all
stakeholders continues. Members of the House Judiciary
Committee, led by Chairman Goodlatte and Ranking Member
Conyers, have considered the Innovation Act and the Innovation
Protection Act, a measure that would preserve the resources
that the U.S. PTO needs to fulfill its mission.
At the same time, Chairman Grassley, Ranking Member Leahy,
and other Members of the Senate Judiciary have been working on
the bipartisan Patent Act. And Senator Coons has proposed
changes to the post-grant procedures at the U.S. PTO in the
In parallel to the legislative debate, the courts have
considered cases raising some of the very same issues Congress
is examining. Octane Fitness and Highmark were both handed down
by the Supreme Court last year and loosened the ``objectively
baseless'' standard to deal with harassing lawsuits to permit
judges to award attorneys' fees more liberally if, in their
judgment, the suit was frivolous. The Supreme Court is also
poised to hear cases contemplated by other legislative
proposals on the Hill. For example, Cuozzo addresses the
standard of claim construction at the U.S. PTO and the
reviewability of the institution of an inter partes review
procedure. This case and other patent cases have recently been
At the end of 2015, the courts instituted rules that
require more detailed pleadings and the U.S. PTO has taken more
quality initiatives to blunt the problems of having
improvidently granted patents used to harass small businesses.
Other Supreme Court decisions are further shaping the
patent landscape. Some have argued that the Court's decision
impacting subject matter eligibility in Myriad, Mayo, and Alice
have presented challenges for lower courts and for patent
holders. The Court intended these decisions to be narrowly
construed, but we are currently seeing about 70 percent of the
patent claims challenged under the subject matter eligibility
statute invalidated, with even higher percentages invalidated
in the U.S. PTO post-grant procedures.
The effects of these decisions as they are being applied by
the lower courts are limiting the availability of patents in
core technologies--areas of computer implemented programs,
diagnostic methods, and personalized medicine--and thereby
limiting the ability of innovators to provide value to
customers, build their businesses, and grow. These cutting-edge
fields are the very technologies in which the United States
leads the world.
The Supreme Court will have several opportunities to
clarify the impact of their decisions as more cases having real
world impacts work their way through the system. It is
important for America that we get this right.
As a result of the recent patent subject matter eligibility
cases in the U.S., if a claim is drawn to a law of nature, a
natural phenomenon, or an abstract idea, it is not patentable
subject matter if elements of the claim do not, quote, ``add
substantially more.'' In Europe, the claims must have a
technical character. And in China, claims must have a technical
feature distinctive from the prior arts. So, these countries
have broader subject matter eligibilities than we currently do.
As changes occur through the courts and the administration
action, we can now take time to study the development of case
law and rules and analyze how they are affecting the system.
Much work has already gone into exploring legislative solution
and the Members of the Senate and House are to be commended for
their efforts. Hearings like this one provide the opportunity
to collect more information and will lead to legislation that
will further improve the patent system and lead to more job
creation and economic growth.
Thank you very much.
[The prepared statement of Mr. Stoll follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Thank you very much.
And now we will turn to Mr. O'Shaughnessy.
STATEMENT OF BRIAN P. O'SHAUGHNESSY, ATTORNEY AT LAW AND
SHAREHOLDER, RATNERPRESTIA, WASHINGTON, DC, AND CHAIRMAN-ELECT,
LICENSING EXECUTIVES SOCIETY (USA AND CANADA), INC.
Mr. O'Shaughnessy. Thank you. Chairman Vitter, Ranking
Member Shaheen, and committee Members, I am grateful for the
opportunity to be here today and to offer these remarks.
My name is Brian O'Shaughnessy and I am Chairman-Elect of
the Licensing Executives Society, USA and Canada. LES is a
nonprofit, nonpartisan professional society devoted to bringing
the fruits of innovation to market. The Society recognizes the
important role that effective intellectual property regimes
play in growing economies and improving the human condition. We
applaud the important work of this committee in the IP arena.
I have been practicing intellectual property law as a
registered patent attorney for 30 years. I am here today to
discuss the profound effects of recent changes on our patent
system, particularly on small business.
Our patent system is the great equalizer. Properly
balanced, it enables the nimble innovator, regardless of size
or resources, to disrupt markets and bring forth new ideas and
products, and we the public benefit both from the disclosure of
those ideas and the products they produce.
Patent rights are, first and foremost, property rights.
Those who would deprive inventors of their property right
derogate principles upon which this country was built. The
spirit of invention is intrinsically American and is seen in
how we reward it. The patent system safeguards the labor and
the investment of the industrious.
The patent right plays a vital role in specialization. By
turning inventions into tradable assets, inventors are free to
do what they do best. They can license their invention to
others for manufacturing and distribution and they can go back
to the lab and do more inventing.
Today, however, innovators face many challenges. With the
global economic downturn, the birthrate of U.S. start-ups is
below the death rate for the first time in 40 years. Economic
uncertainty is especially harmful to small businesses. But,
economic cycles, admittedly, are beyond our control. So, we
must address those challenges that are not.
The America Invents Act, though well intentioned, has been
catastrophic for entrepreneurial innovators. The AIA is eroding
confidence in patents and reducing their commercial value.
Accused infringers are turning to new procedures at the PTO
which are invalidating patents at an alarming rate. These
proceedings offer an enormous advantage for the market-dominant
player. It gets the PTO to reopen prosecution of a patent and
then it plays out the clock with serial proceedings, both in
the PTO and then back in the courts, to bleed the patentee dry.
The little guy does not stand a chance.
With the AIA, patent enforcement is down and patent
valuations are near 20-year lows. As a result, investment in
technology-oriented businesses, both new and old, is down.
Equally of concern, businesses of all sizes are turning to
trade secret protection. This deprives the public of the
benefit of disclosure of inventions that comes with a patent
and it drives innovation underground. If inventors do not file
for patents, the common store of knowledge suffers.
As the knowledge-based economy grows in importance, we
should be striving for increased, not decreased, reliance on
the patent system. This can only be achieved by sustaining
patents as a durable, meaningful, and transparent property
But now, pending legislation could strike a further blow to
American innovation. Both S. 1137 and H.R. 9 purportedly
address abusive practices in patent litigation. However, both
impose burdens on patentees that do not exist for other
property owners. Small businesses are especially dependent on
their IP assets and, thus, are especially vulnerable to these
These bills are untimely and unnecessary. The problems
exploited in patent litigation abuse have recently been
addressed. Patent pleading requirements are now consistent with
other civil cases and the scope of discovery has been
restricted. Moreover, the Supreme Court has made it easier to
get attorney fees for bad faith patent enforcement. As
expected, the incidence of fee awards has increased and even
the most pro-patent courts are granting substantial awards for
bad faith patent enforcement and abusive litigation is on the
Admittedly, even with these constructive improvements,
abuses will remain. And, so, LES is spearheading a standards
initiative, bringing together the IP community, licensors and
licensees, as well as financiers, consultants, valuation
experts, and any other interested parties to create an open and
transparent system of standards of best practices and ethical
behavior for IP transactions. Courts will now have an effective
tool for assessing abusive behavior. LES believes that industry
self-regulation is preferable to the blunt instrument of
I thank you for the opportunity to be here today and I look
forward to your questions.
[The prepared statement of Mr. O'Shaughnessy follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Thank you very much.
And now, we will turn to Mr. Veloso.
STATEMENT OF NEIL VELOSO, EXECUTIVE DIRECTOR, TECHNOLOGY
TRANSFER, JOHNS HOPKINS TECHNOLOGY VENTURES, BALTIMORE, MD
Mr. Veloso. Chairman Vitter, Ranking Member Shaheen,
Members of the Senate committee, thank you for this opportunity
to testify on this important topic.
My name is Neil Veloso. I am Executive Director of Johns
Hopkins Technology Ventures and we are the technology transfer,
business development, and new company formation arm of the
Ever since the passage of the Bayh-Dole Act in 1980,
patenting and technology transfer has joined teaching and
publication as another means by which knowledge at the
university can be brought out to the public. Innovation,
research, and discovery are the life blood of my institution,
Johns Hopkins, and it is interwoven in the fabric of the
university. This is manifested in the work of Johns Hopkins
Technology Ventures. Last year, we have seen 500 invention
disclosures from our faculty, students, and staff. We executed
171 license agreements with established companies, but also
with new companies, as well.
As part of that, Tech Ventures started over 16 new start-up
companies around Hopkins Technology, and this is in line with
the effect that universities and their research have had in the
formation of start-ups. In fiscal year 2014, there were 853 new
start-up companies that were based on university technology.
Our commitment to technology transfer involves not only a
focus on licensing, but also on the incubation, formation, and
developments of start-up companies, as well. Recently, our
start-up companies have had good response from the market.
Within the past five years, Johns Hopkins start-up companies
have raised over a quarter-billion dollars in follow-on
For Johns Hopkins, its licensees and start-up companies, a
well functioning, robust patent system is a key to our
innovation ecosystem. As the university makes decisions on
patenting, we need to balance the costs and time commitment
involved in obtaining those patents and pursuing those
applications versus spending those resources on new inventions
that may come in.
In that respect, a patent system that is efficient and cost
effective for patent seekers like Johns Hopkins makes our
group, Technology Ventures, more efficient for our inventors,
After that licensing transaction takes place, Johns Hopkins
uses its patents to grant rights to its licensees. As I said,
these can involve start-up companies. We grant them the right
to make, have made, use, or sell products based around Hopkins
technology. We grant them the ability to sub-license that
technology to others. And, also, we grant them the ability to
Now, in that light, the work of this committee as it
examines changes to the patent system will have effects not
only to the university, but to its start-up companies, as well.
From the viewpoint of a start-up company with a fixed
budget, with a strict mandate, and with a very daunting task of
taking early stage technology out to the market, having an
efficient patent system, something that can protect their
rights and allow them to stay within their goals and within
their budget, going and make them more successful.
In closing, I would say that an approach improving targeted
legislation developed in the context of the changing landscape
created by judicial and administrative actions can most
effectively combat abusive patent practices and maintain the
capacity of our vigorous patent system.
Thank you very much.
[The prepared statement of Mr. Veloso follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Vitter. Great. Thank you all very, very much for
being here, for your testimony.
Now, we will open it up for questions. I will start and we
will proceed to our other Members here.
Mr. Stoll, you mentioned near the beginning of your
testimony the great classic American success story of Hewlett-
Packard starting in a garage, which was obviously decades ago.
Do you think that sort of birth of enormous technology and not
only a company, but eventually a whole new sector of our
economy, is harder or easier to happen today as compared to
when it happened decades ago?
Mr. Stoll. I believe it is probably a little harder today
than it was then, but I still think it is very possible. I
think that you cannot bat down the entrepreneurial personality
of the inventor. I think they will continue to invent. They
will continue to try. I do think that it is harder for them to
enforce their patents and to elbow their way into an already
existing area. So, I think it is harder, but I still think it
is something that we must advocate for, because it is the
driver of job creation and economic growth in the United
States. It is the next Facebook, the next Microsoft, the cure
Chairman Vitter. Right.
Mr. Stoll. So, we must support them.
Chairman Vitter. Right. Well, I certainly agree with that,
and I certainly agree with your confidence in the spirit of the
inventor and the entrepreneur. Unfortunately, given a lot of
factors, I think it is much harder these days, not just a
Do the other two witnesses have any gut reaction to that
Mr. O'Shaughnessy. Yes, if I may. I tend to agree with you,
Chairman. I think that the problems that exist today are multi-
variant. There are many different angles that are creating
problems, not the least of which is global competition and, of
course, the global economic downturn. So, as I commented, I
think that we need to provide every opportunity that we can to
the small developer, small innovator who needs every chance to
get ahead. The system right now really is tilted toward the
well entrenched. I think we need to reverse that. We need to
give the small entrepreneur an opportunity to get ahead, and we
can do that effectively with the right patent policy. But that
is going to require some adjustment.
I think that the trade secrets protection bill is a very
good bill. I think it is a good step in the right direction. It
is an important part of any IP portfolio. But, it will not do
everything that is needed.
Chairman Vitter. Okay. Mr. Veloso.
Mr. Veloso. Yes. For the inventor at a university, doing
work in a lab, who creates these discoveries for a university
technology transfer office for a licensee at a start-up
company, you know, patent litigation, patent enforcement is
maybe down on the list in terms of their goals. Really, it is
really prefaced on the idea of getting that technology out
there from the lab to the marketplace. So, having an efficient
system, removing roadblocks, these hurdles, I think, can make
it more efficient for that transfer of discovery to take place.
Chairman Vitter. And again, over time, now compared to
decades ago, the Hewlett-Packard story, do you think it is
easier or harder or the same to do that?
Mr. Veloso. I think with things like IPRs, the rise of
these patent trolls, it has become more difficult. However,
given the increasing prominence, staffing, professionalism of
university tech transfer offices, you know, awareness of this
type of transaction, there are more mechanisms in place to ease
that transfer of technology. But, definitely, the issues that
are being raised here can stop that momentum.
Chairman Vitter. I guess what I am getting at is my
perception of the long-term trend is a trend in favor over
several decades of the big guys, a trend against the small
start-up innovator, entrepreneur. Do you agree that that is the
long-term trend we have seen in the last several decades or
Mr. O'Shaughnessy. I would invite your attention to the
Founding Fathers and their approach. When the U.S. patent
system was first envisioned, it was unlike any other patent
system in the world. It was deliberately structured to give the
exclusive right to inventors, not to corporations, not to
members at court. It was different from the British system. It
was dedicated specifically to promoting the progress of the
useful arts. The initial fee structure was very deliberately
set at a very, very low rate, because the Founding Fathers
understood that it was important for innovation to take hold
and for America to become an important player on the world
industrial stage. And they recognized that this could only be
done by promoting the progress of the useful arts by promoting
And I think we have gotten away from that. The system as it
exists today really does favor the well entrenched, the people
who already have a market advantage. What we need to be doing
is giving a market advantage to the young, nimble innovator who
is just starting up, trying to get into the marketplace, trying
to deal with situations where the economy is very tight, the
investment opportunities are very limited. But if you do not
have investment opportunities in today's world, you are just
not going to succeed. You are not going to manage to get over
the valley of death, as it is referred to.
And, so, the patent system is the only resource that they
have to produce something that can be seen as a tradable asset,
something that they can show to investors and say, I have
something. And even if my company fails, I have got something
that can be sold later on down the pike to somebody else. So,
this asset will endure, even though my company fails. That has
tremendous value to investors.
Chairman Vitter. Let me ask one more related question, then
I will go to my colleagues. Considering this long-term trend,
do each of you think passing something broad, very
comprehensive, quote-unquote, ``broad based,'' like the Patent
Act, would reverse that trend or continue or accelerate it?
Mr. Stoll. I think it is just necessary in the climate that
it be a large package, and that is because, first of all, we
have got constituency groups supporting different pieces of it
and each of them wants something included in this package. I
think we need to recognize that. And I also think that the
provisions relate to each other. What we are trying to do is to
create an operable system with less problems for the small and
medium-sized inventor, so that we need to take a look at
different aspects of the system and make sure they work
harmoniously together to advocate for just those types of
For those two reasons, I do think a package is necessary,
but I also think we need to look very carefully and very finely
at the provisions to make sure we are not harming people that
we are intending to hurt by unintended consequences.
Chairman Vitter. Well, let me be clear. I am not talking
about any package. I am talking about the general model of
Mr. Stoll. And I am talking the same, yeah, a large
Chairman Vitter. Mr. O'Shaughnessy and Mr. Veloso.
Mr. O'Shaughnessy. I must respectfully disagree. I think
that the STRONG Patents Act, for example, is the proper
approach at this time. The changes that we have seen through
the AIA have been enormous. We are still very much in the dark
as to what the AIA is going to do to our patent system. We
probably will not know that really well for at least five to
ten years. To now implement an even further and equally broad
approach of legislative change, I think, would be an enormous
What we should be doing right now is very, very carefully
focused, tailored legislation that perturbs the system to only
the most modest levels at this point in time, because
investment requires certainty, requires predictability. And
right now, we have, bless us, very little predictability in the
Chairman Vitter. Mr. Veloso.
Mr. Veloso. I agree. Targeted legislation really done after
close examination would be the best way to go. Speaking from
the aperture of a university patent holder licensor, or from a
small company or start-up licensee, a broad overhaul would have
these unintended consequences that could adversely affect their
ability to carry out their mission and do their business.
Chairman Vitter. Okay. Thank you.
Senator Hirono. Thank you very much, Mr. Chairman, and I
thank the panelists for your testimony.
I was a member of the U.S. House when we were debating AIA
and I had serious concerns then about the impact of AIA,
particularly on small inventors, and I was one of the handful
of House Members who voted against that bill.
I have continuing concerns about the changes that we are
contemplating to patent law because I do think that, as Mr.
Stoll has said, we have to get this right, and this is a very
specialized area of the law. This is why we have lawyers who
totally specialize on patent law. I do not happen to be one of
them, but I certainly listen to the concerns that have been
expressed, not only by the three of you as to what we are doing
with patent legislation, but with many others. So, I share your
concerns about getting this right.
Mr. Veloso, representing the university research community,
one of the suggestions made as we were dealing with the patent
bill when I used to serve on the Judiciary Committee was, well,
why do we not just carve out the university research community
from having to live with some of the contemplated changes.
Would you support the legislation if the university research
community was left alone?
Mr. Veloso. Senator, I am unfamiliar with that particular
carve-out for universities. Certainly, as Johns Hopkins is one
of the largest----
Senator Hirono. Well, it was contemplated. You know, as we
try to garner support for various pieces of legislation, people
who come forward and express concerns about the provisions of
the legislation, sometimes it will be suggested, well, we will
just take care of you folks by leaving you alone, and it was
certainly discussed that we should hold harmless, basically,
the university community, and whether or not that actually made
it as a change to the legislation.
But, a contemplated process or a strategy of that sort,
would you support, in light of our concerns about supporting
innovation in our country?
Mr. Veloso. I think holding university patent holders on
the same level as any other patent holder, be it the individual
inventor or a large corporation, is a fair thing to do. You
know, should any changes be proposed, particularly as it would
affect a university, I think it is worth further examination.
Senator Hirono. Does anybody else want to comment about
Mr. Stoll. I am against carve-outs because I do not think
they are good for the system. I think what we need to do is to
look at provisions and make sure they are good for everyone. I
think that is a very strong concern.
I am--I have even got questions with respect to focusing on
trolls. I do not know who a troll is anymore. Is it an
operating company that does not use a series of patents and
does not--developing them? Is it, you know, is it a university,
as it is sometimes called? So, I think what we need to do is to
look to get rid of parts of the system that are problematic,
but problematic for anyone. I do not--I think we need to look
at it in a comprehensive manner.
Senator Hirono. Do you wish to comment, Mr. O'Shaughnessy?
Mr. O'Shaughnessy. I absolutely agree. LES has a great many
university members and I think most of them would agree with me
that no man is an island and no member of the IP community is
an island. We cannot divorce one sector of that community from
the other. And, I certainly agree with Mr. Stoll that the
system has to work for everybody equally. The moment we indulge
in carve-outs, then we get into a great deal of difficulty and
gamesmanship involving definitions and what constitutes a
university or an institute of higher education or a troll or
what have you. I just do not think that is a healthy way to go.
Senator Hirono. So, I recognize that other countries have
patent laws, China, there were other countries cited. So, do
they look at what we are doing with our patent laws, and does
it have--if we make certain changes to our patent laws that
could disadvantage innovation in our country, is that something
that countries such as China and Japan or any other countries,
is that what they--do they look at what we are doing and does
it--do we also have to pay attention to what the effect of
changes we make to our patent laws would have on an
international global marketplace?
Mr. Stoll. Absolutely, they look to what we do, and we need
to be very careful what we do, because they will do it in a
manner that advantages their own domestic folks and harm
American industry. So, whenever we take action, they do not
necessarily take the exact same action, but they are looking
very closely at what we are doing and they are looking at how
they could still meet their treaty obligations under TRIPS, but
try to do it in a manner that advantages the domestic industry
over United States industries.
Senator Hirono. And the other two. You do not have to. I am
already finished with my time, but would you agree with that
concern, the two of you?
Mr. O'Shaughnessy. Yes, absolutely.
Senator Hirono. Thank you.
Mr. Veloso. I agree, as well.
Senator Hirono. Thank you, Mr. Chairman.
Chairman Vitter. Thank you.
Senator Gardner. Thank you, Mr. Chairman, for holding this
hearing today, and thank you to the witnesses for joining us,
as well, and sharing your expertise.
Colorado, since the recession, just ended 71 percent growth
in employment in Colorado. Our growth rate has been--excuse me,
unemployment and our growth rate since the recession. About 25
percent of Coloradans who are employed own their own business
in Colorado, and if you look at the number of start-ups in the
last three years or so, about 17 percent of employees in
Colorado are in a start-up business that has only been around
for three years or less. So, it is a very innovative state and
we are excited about the new Patent Office that has opened up
in Denver. Obviously, with the great research universities that
we have, start-up culture that we have in Colorado, it is an
ideal place to have a conversation about what we can be doing
even better in terms of patent, patent protections, and the
innovative economy that we want to drive to in the next
But, I want to start with Mr. O'Shaughnessy talking a
little bit about some of the challenges we see in current
patent issues, talking specifically a little bit about venue
when it comes to patents. I would just love to get your advice
and your take on this.
Five dozen Colorado businesses have been sued in the
Eastern District of Texas, a single district that is now home
to 44 percent of all patent lawsuits in this country. And, so,
my question is, why are small businesses in Colorado and across
the country being sued in Texas over these patent issues?
Mr. O'Shaughnessy. Well, unfortunately, I think, it is the
nature of our system that district courts have a certain amount
of latitude in terms of how cases are decided, and as it turns
out, the Eastern District of Texas seems to be a particularly
pro-patent court that those who are engaging in patent abuse
find to be a favorable venue. The venue provisions of our
federal law and our patent law, in particular, give a fair bit
of discretion to the patentee. There has been some proposals to
change that, as well, and I think that might be a targeted
approach that might be worthwhile.
But, you know, I think that the changes that are taking
place in precedent, in particular, and by that I am referring
to the changes in the ability to get attorney fee awards, has
changed the attitude even in the Eastern District of Texas.
Judge Gilstrap has just recently made an enormous award and
with a single swipe of his pen dispensed with 160 patent cases.
And, obviously, that was an abusive litigation situation. Judge
Gilstrap, I think, did the right thing. He identified abusive
behavior. He assessed the individuals in front of him, the
parties, assessed the merits of the case, and he awarded
attorneys' fees. I think that that is the track that we are on.
We are moving in the right direction.
Senator Gardner. In 2015, we saw, and perhaps you discussed
this earlier, the greatest number of patent disputes in
history. Nearly two-thirds of patent litigation last year came
from non-practicing entities more commonly referred to as
trolls. According to research, over half of the victims of
frivolous lawsuits made less than $10 million in annual
revenue. What can or should we do to protect small businesses
in Colorado and elsewhere from unnecessary costly lawsuits?
Mr. O'Shaughnessy. Well, I think that we should let the
precedent take hold. We should let judges do what judges do
best, and that is assess the behavior of the people in front of
them. Now, the numbers that you are citing, I think, are
largely attributable to the changes of the AIA, which require
patent assertion entities, or trolls, or whatever you choose to
call them, to bring lawsuits only against a single party. What
used to be a single lawsuit which might have involved 10 or 15
or 20 defendants, now they have to bring 10 or 15 or 20
different lawsuits. So, that has increased the number of
So, I think that there is a little bit of misperception
when we cite mere numbers of lawsuits. What I think we really
need to look at is what is going on with innovation and whether
or not our patent system is actually furthering innovation and
meaningful patents are getting to the courthouse and getting
Senator Gardner. Mr. Stoll, Mr. Veloso, on either of those
questions, would you like to comment?
Mr. Stoll. Yes. I believe that the Patent and Trademark
Office does a great job, but I think they need full access to
their funds and more training and more time for the examiners
to do a better job on the applications coming out the door. If
the quality of the patent is improved and if there are well-
bounded and clear claims, then there is a legitimate case when
you are bringing it against someone else. So, I think that
improving and providing for the Patent and Trademark Office,
which is trying to do a great job, will reduce the number of
And I agree with Mr. O'Shaughnessy that frivolous cases
should be penalized and attorneys fees, and I think there are
many other little pieces that can be added to the system that
improve the life of the small inventor.
Senator Gardner. Mr. Veloso, I have run out of time, so,
Mr. Chairman, is it okay if he----
Chairman Vitter. Sure. Go ahead.
Mr. Veloso. I agree. Frivolous lawsuits really take away
from the mission of these small start-up companies with very
fixed budgets and a strict goal.
Senator Gardner. Thank you, Mr. Chairman.
Chairman Vitter. Thank you.
Senator Coons. Thank you, Chairman Vitter, for convening
yet another vital and important hearing of this Small Business
Committee, as you said in your introduction, the first in
decades to--the one you convened last year was the first in a
half-century to tackle this important issue of the impact of
intellectual property and, in particular, patents on small
business. I thought it was the best, and, sadly, also the only
balanced hearing on the question of patents, patent reform, and
small business that we had last year, and I am grateful that
you continue your energy and engagement. We have a fantastic
panel today, so forgive me for a moment if I comment on the
range of things you have already touched on.
Mr. O'Shaughnessy, you commented on how the patent system
is the great equalizer, but it only remains the great equalizer
if it is strong, if it is possible for this constitutionally
created property right to be asserted successfully by those who
are legitimate inventors and entrepreneurs. And, as I think we
all know, patents strike a delicate balance between
incentivizing innovation and promoting collaboration. Several
of you spoke about the transition to trade secrets away from
patents because of some of the, I think, very disturbing trends
in PTR IPR.
Some in Congress have come to the conclusion that a
particular aspect of our current patent system, abusive demand
letters, that does need curbing, demands a fundamental overhaul
of the entire system, and I think, as you know, through the
Strong Patents Act, which Chairman Vitter and I have
cosponsored and which I am very grateful for the persistent
support and advocacy of Senator Hirono, proposes a different
path forward, one that is more balanced.
It ensures that we streamline pleading requirements, which
is a progress that has already been made, that empowers the FTC
to go after those who send deceptive demand letters and tackle
some of the abuses of the post-grant system at the PTO. As was
commented before by Mr. Stoll, when a hedge fund can erase
millions of dollars in investor capital by simply filing a
post-grant challenge solely for the purpose of profiting from
shorting the stock, it is time for Congress to act.
My bill would also end fee diversion from the Patent and
Trademark Office, something I have passionately advocated for
for many years.
My home State of Delaware has a long history of paving the
way for inventors to transform ideas into patents and then into
practice, and from garage tinkerers to major multi-national
companies, we have to have a system that is just the sort of
great equalizer about which you have spoken.
So, I look forward to continuing to work with my colleagues
on a bipartisan basis to enact meaningful and targeted reforms
to our patent system that will retain its strength and
greatness without destroying some of its most fundamental
So, let me just ask three questions, if I might. Mr. Stoll,
in your testimony, you note the strikingly high percentage of
claims that are now being invalidated in front of the PTO in
post-grant procedures. Can you explain to the committee why
this is particularly problematic to small businesses.
And then, second, I am going to ask Mr. O'Shaughnessy, if
you might, to also comment on how the dangers of overly broad
patent reform affect start-ups and small businesses at a higher
rate and how these post-grant review processes at the PTAB, at
the Patent Trial and Appeal Board, also really are posing a
significant threat to small and start-up businesses?
Mr. Stoll. Yes. I do believe that there needs to be some
sort of reform, whether that be legislative or initiated at the
Patent and Trademark Office, because a disproportionate number
of patents coming out of the Patent Office are being
invalidated at the PTAB. So, I think that there are some
significant problems for patent holders and it does seem to be
tilted against them. And maybe we need to rightsize this ship a
The PTO has the capability of allowing for more liberal
amendment of the patent when it is before them again to be able
to avoid some problems that were unforseen at that time. I
think that is something that the PTO can do right now and
should be doing right now.
I think there are many other provisions that need to be
looked at very carefully to make sure that the impact is such
that we level the playing field again. It seems to--I mean,
there have been judges--Judge Rader called it the killing
fields of patents at the PTAB. I think it is getting better. I
think they are looking at their procedure. I think they were
very concerned with the statutory obligation to conclude the
system within one year, with an unusual extension of six months
in unusual cases. But I think they are now looking at the
different pieces of it and trying to be fairer and I think
things are moving in the right direction.
Senator Coons. I have limited time. If I could just ask Mr.
O'Shaughnessy and Mr. Veloso to focus on the question of the
potential danger to universities and tech transfer, to small
businesses and start-ups, of over-broad patent reform as
proposed by litigation that is currently in front--excuse me,
legislation that is currently in front of the Senate and House.
Mr. O'Shaughnessy. Well, I would certainly agree with Mr.
Stoll. I think the Patent Office does a very good job. I think
the IPR process is being implemented in a way that is
counterproductive for small companies now. One of their
principal assets is their intellectual property portfolio. Even
though it is duly issued by the Patent Office, it has that
stamp of approval, the Patent Office is presumed to have done
its job, now a third party can come along, throw that patent
back into an IPR proceeding. It goes back to the same standard
of review that it got before it was even issued and the patent
owner now has to fight that battle and then go back to court,
if necessary, and it bleeds the patentee.
Senator Coons. Can I focus you on the risks to small
businesses of over-broad patent reform legislation?
Mr. Veloso. Sure. You know, for universities and even
start-up companies, especially start-up companies, you simply
do not have the resources, extensive litigation budgets,
expertise, personnel to combat these effects of over-broad
patent reform. Things like fee shifting, joinder, you know,
that would be just areas of which, at least from the
universities' perspective, we are not equipped to handle.
Senator Coons. Mr. Chairman, I see I am over time, but if
you will just allow me one quick comment.
Chairman Vitter. Sure.
Senator Coons. This was an amazing panel. There are many
Senators who are quite busy with other hearings, as you saw me
run out and run back. Your testimony about how changes are
occurring at the Supreme Court, in filing standards, in the
practice at PTO, in the management of cases by lower courts,
all suggest, you unanimously testified, that we should not rush
forward with over-broad patent reform. I think that is a very
important point. I appreciate your making that before this
Thank you, Mr. Chairman.
Chairman Vitter. Thank you.
And next is Senator Ayotte.
Senator Ayotte. Thank you, Chairman.
I wanted to follow up on the questions that Senator Coons
had asked. In New Hampshire, we are very proud to be home of a
great inventor, Dean Kamen, who not only invented the Segway,
but the infusion pump and many other products that he is
working on that are incredible, life saving, and
transformative. And, you know, he and I have had a lot of
discussions about the pending legislation around here, and what
I worry about, when you talk about the implications of over-
broad patent reform, one of the things that distinguishes us
from other countries is really our strong patent system. This
is why this is the place for innovators and inventors like Dean
And, so, not only the cost, as you think about the cost on
a university, I mean, the university is actually a larger
institution. Johns Hopkins is a larger institution that can
defend against litigation. You have said, well, we cannot
defend against it because we do not have all these resources if
you cannot--if your patent is challenged and it is an over-
broad ability to challenge it.
So, how about somebody like Dean, because, you know, Dean
is obviously quite an individual now who started first robotics
and--but when he started out, he was just like so many
brilliant people in our country with a great idea that,
obviously, was able to seek a patent for it and then many other
patents after that. So, what happens to that brilliant American
idea if we think about that and they are not a part of a big
entity? Help us understand the implications of over-broad
patent reform to that and to the innovators of the world and to
the innovators in America.
Mr. Veloso. Yes, definitely. You know, to the extent that a
university faces these challenges and a small start-up would be
effective, as well, definitely, the individual inventor, the
Dean Kamens or even those, you know, tinkering in their garage
right now, you know, simply would not have the resources,
expertise, capability to face that. To the extent that these
challenges could discourage further innovation, that would be a
very bad thing.
Senator Ayotte. And also, as you think about it, does it
not advantage the bigger entities? So, could it not force
people like Dean to have to go to a bigger entity, who actually
may not have the same interest for some competitive reason to
develop new products or life saving products? So, in some ways,
do we not end up with more of a sort of benefiting the big
entities versus the little guys in all of this if we are over-
broad in what we do? Does anyone want to comment on that?
Mr. O'Shaughnessy. Yes, absolutely. I think, once again, we
are talking of a property right. Property rights often endure
over generations. If property rights are not predictable,
reliable, and durable, then investors will not invest and the
little guys have a very difficult time weaving their way
through a minefield that is constantly changing. And, so, I
think predictability is the key here, and when we change the
system and then a couple of years later change the system
again, we are making it very, very difficult for the small
entrepreneur to figure out how to get ahead.
Mr. Stoll. I do not necessarily think that this is a big
entity versus small entity type of thing. I really believe that
the larger companies recognize that the independent inventors
are more flexible and more willing to take risks and can
develop really breakthrough technology. And I think that they
want them to continue to do that so that they can either
license or buy it or--so, I think that everyone is interested
in making sure that we do not have overly broad patent
protection, I mean, patent problems. And, I think, Dean himself
is pretty large at this point with his many different----
Senator Ayotte. Well, he has gotten large----
Mr. Stoll. Yes, he has.
Senator Ayotte [continuing]. But had he not had the
opportunity to start out with who he was, I mean, he is the
American dream, right?
Mr. Stoll. Yes.
Senator Ayotte. He is the guy who starts out in his garage
and now he is big, for sure. But, you know, he feels very
passionate about making sure that the next and current
generation of Dean Kamens and those who are the dreamers and
the inventors have their property rights protected so that they
can have opportunity to thrive.
As I think about this, though, as we look at some of the
things that are being floated around here, is there not a much
more narrow way to get at these issues, you know, the bogus
litigation issues that actually impact all, that concern all of
us, you know, patent trolls, and it seems to me--do you all
think that there is a much narrower way for us to get at that
than some of the proposals that are out there right now?
Mr. O'Shaughnessy. Well, yes. I think, as I said, the
STRONG Patents Act, I think, is a very good start. If we are
going to go anywhere with legislation right now, that is the
place to go. It has got very narrow provisions that are focused
at the actual problems that are being exploited by those who
abuse the patent litigation system. And it has been, as far as
I understand it, has been compiled and drafted with input from
the user community, and I think it is a good, prudent, narrow,
tailored way to go. But, the broad overreaching approach at
this time, where there is so much uncertainty in the patent
world, is not a prudent way to proceed.
Senator Ayotte. Well, I want to thank all of you for being
here. I appreciate it, and I thank the Chairman for having this
Chairman Vitter. Thank you.
And next is Senator Cantwell.
Senator Cantwell. Thank you, Mr. Chairman, and thank you
for having this important hearing, and thank you to our
I think somebody might have touched on this earlier, about
resources, but I just want to clarify. We still take money out
of the Patent Offices, right, for other aspects of the budget?
Mr. Stoll. It is looking that way. The money is
appropriated back to the Patent and Trademark Office. All the
funds do come from user fees.
Senator Cantwell. But they are not all used by the Patent
Mr. Stoll. I am very--well, there is a revolving fund at
the moment, but I am very concerned that the PTO have access to
all of its fees all of the time. And, you know, there are no
assurances in the future----
Senator Cantwell. Yes.
Mr. Stoll [continuing]. That they will be getting all of
Senator Cantwell. Hear, hear. Hear, hear. We live in an
information age. This is about the age of creativity. This is
about how fast we can move. And if we cannot move because we do
not have the legal side down, then we are going to constrain
ourselves. So, it is time to make sure the Patent Office keeps
its fees. Okay.
Second, the America Invests Act. I was not a supporter for
a couple of different reasons. I am not a first to file person.
I am--first of all, I want the money to stay in the Patent
Office. I want people who are the inventors of patents to have
good legal frameworks behind it. I do not want big corporations
coming in and having a more predominant foot approach to
stepping on the small inventors. What problems have we seen or
challenges have we seen since the implementation of the America
Mr. O'Shaughnessy. Well, not to be glib, but one of the
things I observe about the America Invents Act is that in an
attempt to harmonize with the rest of the world, which is the
first to file system, whereas we were the first to invent
system, we went to a system that nobody else in the world has
ever used in history, and much of the uncertainty that derives
of the AIA is the attempt to make that system work, both in
terms of harmony with other systems and with the legacy of our
And, so, now we are struggling with implementing the AIA,
with new standards, new principles, new philosophies of
intellectual property law that never existed anywhere else. It
is going to take a long time. So, let us not perturb the system
Senator Cantwell. Well, could we do something to alleviate
that? I mean, I applaud the Chairman for having this hearing,
because much of this discussion has taken place, say, for
example, in the Judiciary Committee, which I think has been a
little more captured by the larger business interests than the
small business inventor side of the equation. So, are there
things that we could do to help in streamlining this
Mr. Stoll. I would agree with Mr. O'Shaughnessy. We are not
currently a first to file system. It is basically a first to
file or disclose system. So, I think what we need--and then
there is a question, is, how close the disclosure has to be to
the end patent claim that you have not even written at the time
you are disclosing.
So, I think what we need to do is take a look at those
provisions and see if we cannot find a mechanism to make the
university folks happy with collaborating again and disclosing
again, and I think that is something that they would greatly
Senator Cantwell. Yes, Mr. Veloso.
Mr. Veloso. We definitely see that from the university
perspective. It is at this juncture where the need to publish
for the university comes in contact with this desire to file
patents. To the extent that the two begin to become in conflict
with one another, I think that is where this sort of
reconciliation from first to file and first to invent needs to
Senator Cantwell. And how would you do that?
Mr. Veloso. I do not know right at this time.
Senator Cantwell. Mr. O'Shaughnessy, do you have any
thoughts on that?
Mr. O'Shaughnessy. Well, unfortunately, I think the die is
Senator Cantwell. I do not--I do not know that it is. I
think this panel is illuminating, just in the question--as I
said, the Chair had this hearing, which I think is very
important. I think the side of the story that did not get told
is the side of the small inventor, and I think a lot of my
colleagues rushed to assume that when you are talking about
technology, that if it is an Oracle or someone else that--and I
mean the company--says, you know, or an IBM or something, that
that is the understanding of technology on Capitol Hill. It is
not. Technology is not owned by them, and, in fact, oftentimes
they are the very people who want to hold down or take
advantage of the small inventor because they think it is
annoying to pay them a royalty.
Well, we had a very delicate balance and we have upset that
balance, and we have done so at the precipice of this
information age, where we want a thousand flowers to bloom. So,
I just hope that we will not think of it as the die is cast,
but, like, be vigilant, as the Chairman is, about this issue of
small business impact on patents so that we can get it right,
because we do not want to discourage innovation. We want to
encourage it. We want people to have access to capital. We want
their patents protected. We want this to move forward. And we
want you to have the money to run the Patent Office.
Thank you, Mr. Chairman.
Chairman Vitter. Thank you.
We have some time, so I am going to have another round, at
least for myself, with a question and comment, and then I will
invite any others who would like to participate.
One of the most frightening statistics and facts I have
seen in all this discussion is the significant decline in the
value of patents, and that has got to mean something, and that
has got to mean something bad that is related to what we are
talking about. There is some dispute about what that decline
is. How significant is that decline, number one? Number two,
what is going on?
Mr. Stoll. Well, at least one of the issues relates to the
narrowing--the recent narrowing by the Supreme Court on patent
subject matter eligibility, which would affect personalized
methods, diagnostics, and software, the ability to patent and
protect computer implemented programs. So, what we are seeing,
many of these inventions are developed by small and independent
inventors, but there is no certainty with respect to whether or
not they are going to be able to protect those claims and they
are having trouble attracting entrepreneurial investors to
develop the product because those investors are not certain
that they are going to--that those inventors are going to have
valid patents. So, it is really causing a significant problem
in these, particularly the emerging technology areas, where we,
as the United States, are really doing phenomenal things.
So, I think that something--hopefully, the courts, the
Supreme Court has a couple of opportunities coming up, one with
Ariosa v. Sequenom and another with Planet Blue, to revisit
some of these standards, and hopefully, they will recognize the
impact on our inventors and do something that is more
rationalized so that we are no longer the narrowest subject
matter eligibility country in the world.
Chairman Vitter. Anyone else?
Mr. Veloso. Yes. We have seen this devaluation of patents,
particularly on the diagnostic side, just given the recent
decisions that Mr. Stoll mentioned. You know, for universities,
academic medical centers, being able to license diagnostic
technologies to companies is a very key part of our technology
transfer function. Now, we have seen a shift away from
diagnostic licensing into other areas.
Chairman Vitter. Okay.
Mr. O'Shaughnessy. Yes. I think the--thank you, Mr.
Chairman. The valuation problem is driven primarily by two
things, in my view, and one is, as Mr. Stoll mentioned, the
eligibility requirements. We have dramatically reduced our
patent eligibility standards and the rest of the world is
enlarging theirs. At the same time, durability and the
sustainability, the reliability, and the enforceability of
patents has gone down, and the ability to drag a patent out of
the realm of issued and valid patents and bring it back into
the Patent Office has called into question their durability and
their enforceability. So, if we had broad legislation that made
it much more difficult to enforce our patents, that would drive
patent valuation down even further.
Chairman Vitter. Okay. Let me end with a, I guess, an
editorial comment. I am really concerned about the long-term
trends we are seeing, and the last thing I want to do is add to
or accelerate that. I think we need to be reversing that.
And to me, it is part of an even broader trend in American
society in favor of bigger and bigger and bigger--big
government, big business, mega-banks, mega-entities, and
against the smaller outsider innovator. To me, that is a very
un-American trend. I think the Founders would be--and maybe
are--rolling in their graves. And one way they actually
expressed that very specifically is what we are talking about,
patents. That is in the Constitution. I mean, that is a
pretty--when you think about it, that is a very real world term
and set of issues that was put in a very elevated document, and
it is because it is, as Mr. O'Shaughnessy pointed out, a
fundamental property right and very central to their notion of
innovation and opportunity, which is ultimately freedom,
concepts about freedom.
So, I really hope all of us, including all of the Congress,
does get this right and acts in a targeted way through measures
like Senator Coons' measure, which I am a cosponsor of, to
reverse this long-term trend, certainly not to continue or
With that, I would be happy--Senator Hirono, if you would
like a second round.
Senator Hirono. Yes, I would, very briefly.
Thank you very much for mentioning that. We are actually
narrowing the subject matter eligibility for awarding of
patents and at the same time contemplating legislation that
would make it much harder to defend the patents that are
issued. So, a lot of the eligibility, subject matter
eligibility narrowing is happening in the courts and in the
Patent Office itself, correct?
Mr. O'Shaughnessy. That is right.
Senator Hirono. Is there something that we can be looking
at legislatively to express our concerns about this particular
Mr. Stoll. I think by holding hearings, just like this, to
question the issues. I am sure that the Justices notice that
there is an interest in the Senate and in the House on these
issues. So, I think that that helps draw attention to it.
I believe there are cases that are coming up through the
court system right now that are getting ripe for the Supreme
Court to look at this again and maybe have more of a bent
towards the importance to our economy and job creation that
their decisions in this particular area are affecting. And,
maybe if they do not, at that point, we may need to be
discussing actual legislation relating to 35 U.S.C. 101 to make
it clear that it is the intent of the Congress that we not so
narrow the subject matter eligibility issues.
But, I think you are seeing stuff starting to happen in the
courts. The Patent and Trademark Office is doing several
iterations of their guidelines on these decisions. They are in
and of themselves, and actually stated in the decisions, to be
narrowly construed. The problem is that some of the lower
courts are applying them in manners that are causing a lot of
very important inventions not to have patent protection.
Senator Hirono. Does anyone else want to comment briefly?
Mr. O'Shaughnessy. It is difficult for me in the context of
this hearing to assess whether or not legislation could solve
the problem. I do believe that the Patent Office, for example,
is over-interpreting the Supreme Court precedent. Justice
Thomas in the Myriad decision bent over backwards, it seems to
me, to say, do not over-interpret this decision. This is
defined and limited to human DNA and whether or not unperturbed
human DNA should be patentable. Consequently, however, I think
the Patent Office has gone way beyond that with their
I am not sure that legislation is the way to approach it,
but I agree with Mr. Stoll that hearings and communications
with the PTO are a very effective and important way to proceed.
Mr. Veloso. I agree, giving voice to the effects of that.
You know, as I mentioned, particularly on the diagnostic side,
we are seeing companies who are being affected because their
core intellectual property has been devalued. We are seeing
small--we are seeing less small start-ups in the diagnostic
realm because of this uncertainty around the patent position.
And, my fear would be that this would trickle down to the
individual inventor, to the researcher, who would decide not to
pursue an area because they just see this uncertainty ahead.
Senator Hirono. One more question for Mr. O'Shaughnessy.
You said that you have an LES standards initiative to bring
together the various parties and interests. What is the time
frame for your initiative----
Mr. O'Shaughnessy. Well----
Senator Hirono [continuing]. To come up with some
suggestions? Sorry for interrupting.
Mr. O'Shaughnessy. Thank you, Senator. The LES standards
initiative really is still a bit in its early stages. We are
recruiting members. We are being very diligent about trying to
get all voices from all quarters of the IP community, as I
said, including financiers, valuation experts, even entities
that might be considered pure patent assertion entities. We
feel that this has to be an open and inclusive procedure. But,
we want to create a body of standards that are not just
guidelines, are not just codes of conduct. These will be
standards that organizations will agree to abide by, just as
they do with the ISO standards that are commonly used in
The time line, I cannot say that we have a firm time line.
Our objective is to start moving and drafting meaningful
standards certainly by the end of this year.
Senator Hirono. Thank you. Thank you, Mr. Chairman.
Chairman Vitter. Okay. Senator Cantwell.
Senator Cantwell. Just one question as it relates to the
inter partes review process and biotech. Do you think we need
to make changes there? We have had, like, 70 percent of these
patent cases overturned, and is there something that you would
suggest would be a better review of biotech patents?
Mr. O'Shaughnessy. Yes. I certainly think that we need to
change that standard to make it equivalent to what is used in
the district courts. These are issued patents that we are
talking about. They are entitled to a presumption of validity.
We should assume the Patent Office has done its job. And once
the patent issues, it is entitled to a statutory presumption of
validity. We open up the door for somebody to drag it back into
the Patent Office and reopen prosection. This is enormously
unfair to every patent owner, not just the small entity, not
just biotech. It is everybody. And, unfortunately, I think,
because of their vulnerabilities, small businesses are
especially susceptible to these proceedings. But, I think it
casts a pall upon the entire system.
Senator Cantwell. Why is this happening? I mean, obviously,
because we have this inter partes review process and we need to
change it, correct? Is that----
Mr. O'Shaughnessy. That is right.
Senator Cantwell. Thank you.
Mr. O'Shaughnessy. It is an artifact of the AIA.
Senator Cantwell. Thank you. Thank you, Mr. Chairman.
Chairman Vitter. Okay. Thank you.
Thanks to all of you very much. I think this conversation
was really, really productive and important. Like Senator Coons
and some others, I have been frustrated with the broader
discussion, and we are both on the Judiciary Committee. I think
the discussion over there has been very imbalanced, quite
frankly, and I have been frustrated by that. I think we have
had a very balanced discussion, including today, in Small
Business, and we do need to get this right. This is really
important. It is--again, I point to it being in the
Constitution in terms of its significance and the significance
even the Founders understood, and it is important for our
economy and for our future. So, thank you all for being an
important part of this discussion.
With that, the hearing is adjourned.
[Whereupon, at 11:20 a.m., the committee was adjourned.]
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