ACIS TESTIMONY AT PTO HEARING ON PATENT PROTECTION FOR SOFTWARE RELATED INVENTIONS I am Chris Byrne, Senior Intellectual Property Counsel for Storage Technology Corporation (StorageTek). I am testifying today on behalf of the American Committee for Interoperable Systems, or ACIS, to which StorageTek belongs. ACIS sincerely appreciates this opportunity to provide testimony. I will address Topic A, Questions 4(a) and 5: Does the present framework of patent, copyright, and trade secret law effectively promote innovation in the field of software? Do you believe a new form of protection for computer programs is needed? Because these questions are two sides of the same coin, I will respond to them together. ACIS members include numerous innovative high technology companies such as Sun Microsystems, NCR and Broderbund Software. My own company, StorageTek, is headquartered in Louisville, Colorado. We employ thousands of people worldwide and we had 1993 revenues of approximately $1.4 billion. StorageTek designs and manufactures high performance data storage and retrieval systems for mainframe, mid-range and networked desk-top computer systems. Our customers include many fortune 200 communication, transportation and financial companies. In fact, if you recently made a phone call, bought an airline ticket or bought or sold securities, chances are that records of your activity has been stored on one of our products, awaiting ready access and retrieval when necessary. Our competitors include IBM, Hitachi and Fujitsu. Like other ACIS members, we rely heavily upon our nation's intellectual property system to protect our most valuable assets: the innovations of our engineers, particularly our software engineers. Without adequate intellectual property protection, we could not protect and recover our substantial investment in research and development. For instance, at StorageTek alone last year we invested approximately 10% of our revenues in R&D; that's over $100 million dollars. Without that R&D investment, we simply cannot stay competitive and in business. Indeed, last November Vice President Gore himself toured our substantial R&D facilities and personally previewed key technology which we believe will facilitate his grand vision of the information superhighway. While all ACIS companies believe in strong intellectual property rights as the best way to protect our substantial R&D investments, we also believe in balance. We believe that overprotection is as threatening to innovation as underprotection. The need for this sophisticated balance is particularly important with respect to software, which is so pervasive in our economy and critical to its growth and our national leadership in high technology. ACIS believes that it would be a dangerous act of underprotection to deny patent protection to software subject matter per se. But it is an equally dangerous example of over protection to fail to expeditiously implement needed corrections in the way we currently do software patents, if not all our patents. Those needed corrections are well known and ACIS has gone on record in support of them. They include: _ Improving the software prior art database so that it is accurate, timely and includes both patent and non-patent prior art. The quality of the software patent database will be directly related to the quality of the software patentability examination by the PTO. _ Working to raising the skill level of the PTO examiners who are charged with the vital and difficult task of examining software patent applications. One way to accomplish this is with site visits by examiners. For instance, last year two groups of Examiners, one group from Art Unit 2308 led by Michael Fleming and another group from Art Unit 2507 led by Bruce Arnold, visited StrorageTek. They spent valuable time with our engineers and our patent committee learning how we do R&D and how we make our decisions about which inventions to seek to patent. We were very favorably impressed with the legal and technical expertise of the examiners, who too often are merely names at the end of an office action. To our mutual benefit, the examiners learned about the challenges we face in innovative R&D and we received a much better understanding of the difficult nature of the examiners' work. Such educational visits by examiners is one way to help raise skill levels. Implementing key procedural reforms to prevent applicants from secretly and indefinitely submerging their applications in the PTO until they are ready to ambush the public. Otherwise we need to speed the examination process and include accompanying public notice of possible patents. Many such procedural reforms are considered as a function of possible global harmonization of patent law, but such reform in this country should proceed with or without harmonization. But all the good work we undertake to improve software patents will be simply undermined if we do not address another balancing issue, and that is the proper balance between patent versus copyright protection of software. This is because copyright, if misapplied, can achieve patent-like protection for software functionality. This misapplication is particularly dangerous when we consider that there is no examination for copyright, as there is with patents; a copyright registration does not specify the boundary line of protected expression in a work whereas a patent is explicitly bounded by the terms of its claims; and copyright protection outlasts patent protection by at least a factor of four. This de facto patent protection under copyright is particularly pernicious with respect to interface specifications. Unlike novels and plays, which stand alone and do not need to interact with other works, computer programs never stand by themselves; they function only by interacting with a computer environment. If the developer of the environment can use copyright to prevent other developers from conforming to the system of rules governing interaction within the environment - to its interface specifications - the first developer can gain a patent-like monopoly without ever subjecting his system of rules to a patent examination. In the absence of competition, the first developer would have little incentive to develop more innovative and less costly products. Moreover, this result is particularly dangerous to a company such as mine. StorageTek designs and manufactures data storage peripherals which interface with the computers made by the dominant American, European and Japanese computer vendors. With de facto patent-like copyright control of their operating systems, these vendors have the potential to therefore control functional access to that interface and therefore exert market control over subject matter, i.e. the peripheral device, which is completely beyond the scope of the copyright itself. That is dangerous overprotection of software via copyright. StorageTek joined ACIS because of our concern that the courts and the U.S. government were losing sight of the importance of maintaining a balance between incentives and competition in the area of intellectual property protection of software, particularly copyright protection. From the outset, it was our belief that the proper application of traditional copyright principles such as the idea/expression dichotomy, merger, scenes a faire, and the fair use doctrine would yield the appropriate scope of protection for software. Recent court decisions have validated this. The Second, Ninth, and Federal Circuits have all found that copyright does not protect functional interface specifications. Further the Ninth and Federal Circuits have found the reverse engineering technique known as disassembly to be a fair use and proper means to achieve functional interoperability. In our view, the Altai, Sega, and Atari decisions are not radical departures from traditional principles; rather, they return copyright to its proper course. We expect that the First Circuit will soon be consistent and overturn Judge Keeton's decision in Lotus v. Borland. Despite this positive trend in the case law, however, we fear that the U.S. government has allowed its laudable goal to improve the balance of trade to inadvertently divert its attention from the ultimate goal of our patent and copyright system: promote the progress of science and the useful arts, as explicitly provided for in Article I, Section 8, Clause 8, of the United States Constitution. We applaud the manner and spirit of these hearings, therefore, as solid indication that the U.S. government clearly appreciates that more protection is not necessarily better. We are also encouraged that Assistant Attorney General Bingaman has established a task force to review and reformulate the Antitrust Division's policies on intellectual property and antitrust. We applaud her observation that the scope of copyright protection for computer software has important competitive implications. In summary, we see no need for a sui generis software protection law. Until recently, courts applied copyright in a manner that overprotected software, but the Altai, Atari, and Sega decisions corrected that aberration. Bad software patents also dangerously risk overprotecting software, but let's not throw out the baby with the bath water; let's move quickly to implement needed improvements in the way we do our software patents. Thank you for this opportunity to present this testimony and for your kind attention. I would be happy to answer any questions you may have. ******** Prepared Remarks of Douglas K. Brotz Adobe Systems Incorporated Presented at Public Hearings on Patent Protection for Software-Related Inventions Patent and Trademark Office, Department of Commerce January 26, 1994 Good morning Mr. Secretary and members of the panel. My name is Douglas Brotz. I am a Principal Scientist at Adobe Systems Incorporated, and I am representing the views of Adobe Systems as well as my own. Adobe Systems is a software company based in Mountain View, California. We are most well known for our PostScript¨ Language and Interpreter, which provide the foundation for desktop and electronic publishing. Although I am a computer scientist, I became involved in patents when Adobe was contacted by another company regarding AdobeÕs possible infringement of a patent. I am currently AdobeÕs technical advisor to our patent attorneys. Let me make my position on the patentability of software clear. I believe that software per se should not be allowed patent protection. I take this position as the creator of software and as the beneficiary of the rewards that innovative software can bring in the marketplace. I do not take this position because I or my company are eager to steal the ideas of others in our industry; Adobe has built its business by creating new markets with new software. We take this position because it is the best policy for maintaining a healthy software industry, where innovative companies can prosper. The problems inherent in certain aspects of the patent process for software-related inventions are well known. The difficulties of finding and citing prior art, the problems of obviousness, the difficulties of adequate specification for software are a few of these problems. However, I argue that software should not be patented not because it is difficult to do so, but because it is wrong to do so. The software marketplace requires constant innovation, regardless of whether computer programs can be patented. Indeed, the fundamental computer programs and concepts on which the entire industry is based were conceived in an era when software was considered to be unpatentable. For example, when we at Adobe founded a company on the concept of software to revolutionize the world of printing, we believed there was no possibility of patenting our work. That belief did not stop us from creating that software, nor did it deter the savvy venture capitalists who helped us with early investment. We have done very well despite our having no patents on our original work. On the other hand, the emergence in recent years of patents on software has hurt Adobe and the industry. A Òpatent litigation taxÓ is one impediment to our financial health that our industry can ill afford. Resources that could have been used to further innovation have been diverted to the patent problem. Engineers and scientists such as myself, who could have been creating new software, instead are working on analyzing patents, applying for patents and preparing defenses. Revenues are being sunk into legal costs instead of into research and development. It is clear to me that the constitutional mandate ÒTo promote progress in the useful artsÓ is not served by the issuance of patents on software. Let me illustrate this burden with figures. The case Information International, Inc. v. Adobe, et al. was filed five years ago. Last year, the trial court ruled for Adobe, finding no infringement. In December, the Appeals Court for the Federal Circuit unanimously affirmed that judgment. Yet, in that time, it has cost Adobe over $4.5 million in legal fees and expenses. I have spent over 3500 hours of my time (equivalent to almost two years of working time), and at least another thousand hours was spent by others at Adobe. Our Chairman of the Board spent a month at the trial. This type of company behavior would not be high on anyoneÕs list of ways to promote progress. This state of affairs might be acceptable if there were a corresponding benefit from patents in the software industry. However, I see none. Companies that have trumpeted their Òfundamental software patentsÓ are not leaders in software innovation. Conferring monopoly positions in an industry that was already the most innovative of any will promote stagnation rather than increased innovation. When companies turn from competing by offering the best products to earning money by the threat of patent litigation, we will see our best hope for job creation in this country disappear. An industry that still generates tremendous job growth through the startups of Òtwo guys in a garageÓ will not continue to grow when room for a third person, a patent attorney, needs to be made in that garage. There exists a perfectly adequate vehicle to protect creatorsÕ rights in this industryÑthe Copyright law. The nature of software is that it is a writing, an expression, of mathematical ideas. The Copyright law protects the expression, and it does so without requiring costly and time consuming proceedings. For people working in the fast paced software industry, the way a copyright is created is ideal. While feverishly working to meet deadlines, there is no need to explain what youÕve done to a government agency; the very act of writing the software confers the copyright on it. Furthermore, Copyright law confers the correct level of protection on computer software. Regardless of what current regulations may say, the fact is that all computer programs express mathematical algorithms. Every part of every computer program manipulates numbers with logic. Any software that performs any task does so through mathematics. It is inconsistent to hold that mathematical algorithms are unpatentable while granting patents on systems composed of software. If the Patent Office were truly following the law, it would recognize the inherent mathematical nature of software, and it would not grant patents to software-based inventions. In the last decade, the Patent Office has been granting patents on software and algorithms, regardless of the superficial attempts to cast claims as ÒsystemsÓ, ÒmethodsÓ, or ÒprocessesÓ. The Supreme Court did not say in Diamond v. Diehr that pure software inventions are patentable. By adopting this position in its recent practice, the Patent Office has made a dangerous step that could decimate the very industry it wishes to protect. Whenever the Patent Office grants a software patent, it grants a right to the patent holder to devastate innocent businesses. Due to the arcane nature of this technology, our courts find it very difficult to distinguish frivolous software patent lawsuits from legitimate ones. As a result, a frivolous plaintiff is in a very strong blackmailing position, where the defendant can look forward either to an extortionate settlement or enormous legal costs. An excellent remedy would be to change our law to allow a successful defendant to recoup legal costs in patent cases. Until that day arrives, at least our Patent Office can refrain from granting these dubious patents. We may hear today from proponents of software patents who will claim that these patents can protect the independent inventor. This belief is a delusion. The expensive patent process protects the large, methodical corporation that can afford to apply for scores of patents much more than it protects the poorly capitalized lone inventor. And, when that inventor tries to produce his invention, he may well find that those large corporations can ruin his own business with their large software patent portfolios. In summary, these are my main points. 1. The software industry thrived without patents, creating its fundamental base in an era of no software patents. 2. Software patents harm the industry, with no corresponding benefit. 3. Software embodies mathematical algorithms. 4. The law (starting with the constitution) argues against patents for software-related inventions. 5. The proper form of protection for software is Copyright. As a postscript to the figures on the patent lawsuit I discussed before, the final figures are not in. Although Adobe has been successful twice already, the plaintiffs are asking for reconsideration of the unanimous appeal judgment against them. These kinds of festering sores are what our country can ill afford when we are trying to lead the world in creative industry. ALPHA Testimony on patent hearings January 26, 1994 or Will the Software Inventor be a Road Kill on the Information Superhighway Commissioner Lehman, I commend your holding hearings on software patents. Much has been said about software patents and it is useful to get the facts on the record and give people an opportunity to state their views. My name is Paul Heckel. I am the founder and president of two software companies and a founder and acting president of ALPHA a non profit organization of software patentholders. I have probably been the software developer who has been the most active proponent of software patents. Patent policy is too important to be left to the lawyers. Inventors must play an active role. ALPHA1 is an ad hoc organization of software patentholders and others interested in software patents. While we have only about 20 members, those members include a dozen software patentholders, two of whom were on the board of the Software Publishers Association and three of whose patents were maligned by the League for Programming Freedom in various publications. We also count among our members a former Commissioner of Patents and Trademarks. ALPHA suggests a beginning, as is an appropriate name for an organization of inventors. It is an acronym for Abraham Lincoln Patent Holders Association. ALPHA is named after Lincoln for three reasons. First, Lincoln was the only president to hold a patent; indeed, LincolnÕs last litigation in private practice was a patent case. Second, Lincoln was intrigued by technology and a champion of the small inventor. As president, he brought machine guns and breechloaders into use in the Civil War on his own initiative and he promoted the use of ironclad warships, breechloading cannon, incendiary weapons and aerial reconnaissanceÑmost of these coming from small inventors. Third, in trying to abolish slavery, Lincoln found himself countering arguments that outlawing slavery abridged oneÕs freedom to own slaves. The League for Programming Freedom by its very name similarly tries to justify appropriating the work of others by claiming a freedom. ALPHA strongly supports the broadest form of software patentability. Inventiveness should be judged by the content of the invention, not by the color of the technology. It supports improving the quality of the patent office examination of patents. It particularly supports increasing the professionalism of the corps of patent examiners by various means including increasing their pay. Being a patent examiner should be a high prestige job, not just a stepping stone to a legal practice. We generally support the positions of the American Bar Association, the Software Entrepreneurs Forum and the Intellectual Property Section of the California State Bar. I also speak on behalf of HyperRacks, a software company I founded. The United Inventors Association of the United States of America, an umbrella organization of inventors organizations supports our position. Since we expect many people to speak on behalf of software patents, we feel testimony based on the personal experience of our members would be more useful here. Three of the alpha members listed below had planned to try to testify here but just could not make the time. I mention this because many of the entrepreneurs who can most speak to the importance of patents find their businesses keep them much to busy to get involved in public policy issues which can have a major effect on them. The Morgans Mike and Susan Morgan founded SoftView and developed MacInTax and a forms generation product. They eventually sold the company to ChipSoft. The fact that they had applied for software patents made it easier to raise money. As Susan told me, ÒWhen the venture capitalists asked how we would protect ourselves against, say, Microsoft coming out with a competitive product and stealing our market, the fact that I said we had applied for patents put that problem to bed. It makes the VCs feel much more comfortable and thatÕs a big difference.Ó Mike and Susan have started their second software company and are applying for several patents. At this early stage they have already hired two programmers. Their business plan is to license technology to other companies and they expect it will be lot easier with patents. Tom Cannon Tom Cannon founded SuperVend to develop his invention: kiosks which let a user select greeting cards from a laser disk, add a personal message and print them out. This invention replaces the long racks of greeting cards, with kiosks having a much smaller footprint. As a result, this invention will likely be used in supermarkets and department stores and so threatens to disrupt the current marketing channels. This is an example of why established companies donÕt like innovation. Hallmark tried to take his invention by filing an interference based on a patent Hallmark had filed earlier, and what Tom feels is a much different, invention. Because Tom had received a patent and was advised he had a good interference case he was able to sell his company on an attractive basis. He is developing the technology further. Reed Hastings Reed Hasting founded Pure Software, a company to develop his invention which helps software developers detect errors so improve the quality of their programs. The result is highly reliable code. He started the business, became profitable and then raise $2,000,000 in investment from venture capitalists. He said patents were important in encouraging him to start his venture, and they helped convince venture capitalist to invest in his company. Recently he found out that one of the established companies in his market had incorporated ReedÕs invention into their product and he is having to face how to deal with those that would use technology he pioneered. Dr. Robert Markison Dr. Robert Markison is associated with the University of California at San Francisco as an associate clinical professor of surgery. His specialties are trauma and hand surgery. He is a leading expert on computer keyboard-caused repetitive strain injuryÑan affliction which may afflict 15 to 30% of keyboard users. He is also a member of the American Collage of Physician Inventors and holds several patents. Dr. Markison also uses copyright protection and when Oracle recently demonstrated its capabilities for the information superhighway they came to him and licensed his HyperCard-based application Salvaging a patient with a stab wound to the heart to demonstrate OracleÕs capabilities. Commissioner Lehman, Oracle has a product called Oracle Card which is generally considered to be similar to, if not a clone of, HyperCard the product my company sued Apple computer for patent infringement on, and on which Apple settled and took out a license. Oracle has not provided an effective response to my notifying them about my patent. Given that Oracle seems to respect copyrights. I am looking forward to their testimony on software patents. Commissioner Lehman, Dr. Markison has asked me to tell you that he Òhas seen first hand the emotional and financial damage done to independent inventors whose inventions are ripped off by big companies.Ó and that he fears Òmany small inventors will be road kills on the information superhighway.Ò Elon Gasper Elon Gasper invented the idea of talking tutorsÑ lip synched animationÑto help his daughter learn to read. He decided to develop his invention he sold his house, and with that money and much of the life savings of his relatives he founded a company, Bright Star. Over time he raised $3,500,000 in 3 rounds of venture financing. Recently, he sold out on a 5 year performance based payout. ElonÕs investors held up one round of financing until they got a notice of allowance on a pending patent. This suggests the importance of timely patent prosecution. Elon told me that without patents, or at least patents pending, he would never have started the company, nor would his investors have invested. Elon has licensed his patents for recurring revenue . Bright Star, a company that would not exist without its software patents, currently employs 33 people. His product have helped tens of thousands of children learn to read faster and better. Hal Nissley Hal Nissley invests in Silicon Valley startupsÑ often playing an active role such as being on the board. With his contacts he often brings other investors into his deals. Currently he is invested in four companies which have software patents or are in the process of getting them. He says patents are a major factor in any decision to invest, especially in software companies where an established company has major marketing and financial advantages over a startup. Paul Heckel In 1982 I founded a company, based on a new computer metaphor. The fact my idea was patentable gave me more confidence in starting the company and it helped me raise money from investors. I raised about $400,000 in two rounds, mostly from friends and former clients. We had four people on the payroll for a while and we brought two products to the market. While we were able to prove our concept and build a base of happy users, we never attained a positive cash flow largely because our initial marketing efforts were on a dieing computerÑthe Atari ST. Having been granted a patent by the U.S. government, I relied on these rights in shaping my business plan and making business decisions. But when I asserted my patents, I found out that big companies rarely respect patents unless you sue them. Patents, I found, were judged, not by the content of their inventiveness, but by the color of the patentholderÕs bank account. Apple Computer, to whom we had shown our product, came out with HyperCard. It incorporated many of our ideas and infringed our patent. We got a contingency fee lawyer to sue Apple for infringement. Ultimately, Apple settled with us, recognized our patents and took out a license. Later when IBM bundled a product that the world considers to be a HyperCard clone we tried to deal with IBM to little effect. The stories of my struggles getting Apple and IBM to recognize my patents is told in the second edition of my book.2 IBM claimed to have prior art on my patent and which the refused to show me. Why is there a double standard in that suspected infringers have no obligation to show prior art of which they are aware, but patent applicants are? IBM pressured my publisher not to publish my description of their treatment of an inventor, foreshadowing what I would find to be a recurring attempt to keep the pro-software patent side of the argument out of the general and trade press. I sent one patent back to the patent office for reexam and another for reissue after settling with Apple figuring when I got the patents back I would have a much clearer idea my coverage and would be able to restart my company. While the reexam came out three months ago, the reissue is still in process. It has been there almost four years. It took the United States less time to win World War II than it is taking the patent office to reissue my patent. I know of several other people who have had similar experiences. The problem seems to me to be systemic and requires changes to patent office procedures to ensure that the most critical patents get a higher priority for examination. This, I believe, requires changing the incentive structure for examiners. It appears to me that examiners want to do a good job, especially on critical patents, but the system penalizes them for putting in what they feel is the necessary time on such cases. It is difficult for me to make business decisions or raise money until I know the coverage of my patents, and I canÕt know that until the patent office issues a notice of allowance. The effect is that I have not been able to upgrade our product. This delay has been devastating to my company in that we have missed a window of opportunity to bring out an improved version of our product. Now rather than being a product development company as we would like to be, it looks like we will be a licensing company. I have twice been suffered what appears to me to be clear malpractice on the part of my attorneys. The first time was in my litigation against Apple which I describe in my book. 3 The second occurred when a patent lawyer I had just fired put attorney client confidential information on record at the patent office. I have twice been to court to observe patent lawsuits.4 In both cases the alleged infringer charged inequitable conduct and argued that the patent should be invalidated even though the fault was entirely the fault of the attorney. In the first case (as I point out later), the attorney seems to have lied on the stand to avoid a malpractice suit, and in the second case much of the testimony had to do with a malpractice case the patentholder filed against his former attorney and which was settled for $8 million. I expect most of the sloppy lawyering and malpractice goes undetected, or is not acted upon because clients are naive. I believe that this greatly damages the patent system as it means there are fewer successful innovators to act as role models to those who would innovate. After Apple issued a press release saying my patents were valid and Apple was taking out a license, I found myself and my patents maligned in the business and trade press. What I found most frustrating was that those in the press who attacked software patents refused to let a software developer present the pro-patent side. Many refused even to discuss the issue. The National Academies of Science and of Engineering published an article entitled Why Patents are bad for Software in their house organ, Issues in Science and Technology. It was coauthored by Mr.Stallman and was filled with misleading information, attacking several patent, including mine. The article drew a stinging letter from Patent Commissioner Manbeck, but Issues would not print a response from me or any software developer. The League for Programming Freedom has repeatedly framed the issues as patent lawyers like software patents and software developers do not. The only people I saw publicly defending software patents were patent lawyers, lending credence to Mr StallmanÕs view. I felt patents were particularly valuable for software developers and U.S. competitiveness and felt that it was important for software developers to make the case for software patents. One of my concerns was that small innovative software developersÑthe most creative part of the communityÑwould not use patents and the result would hurt the software industry and U.S. competitiveness. And so I founded ALPHA to counteract the misinformation on software patents. The description surrounding my patent in the Issues and other articles authored by Mr. Stallman or The League for Programming Freedom were at best grossly misleading. Suspecting that the other patents might have been mischaracterized, I contacted the named inventors. Shortly thereafter, the Association for Computing Machinery published another of Mr. StallmanÕs attacks on software patents. But the ACM, unlike organizations like the Licensing Executives Society5 and the National Academies of Science and Technology, agreed to let a software developer defend software patents. I wrote a twenty-page article, Debunking the Software Patent Myths.6 The ACM also ran several followup letters on both sides of the question in following issues. I want to commend the ACM for presenting both sides of the software patent issue. In a similar vein, I would like to commend Commisioner Lehman for holding these hearings and letting everyone present their views, the facts, and the analyses on which they are based. Over time I have begun to understand how the system works. Most big companies are in favor of software patents in the same way people are in favor of trash incinerators. Not in my back yard. As a result, people who villify software patentsÑ or any patentsÑserve the interests of companies that use patents. In a sense it discourages competitors from building the equivalent of a trash incinerator in their back yard. As a result the established companies might take a formal position in favor of software patents, but it is not in their interest to fight for them in public. Why educate your competitors? When I investigated the patents The League for Programming Freedom attacked, I found the very patents he chose to argue against software patents, provide devastating evidence against his case. I refer to my Computer Lawyer7 article which is mainly an abridgement of my ACM article. The League for Programming Freedom referred to 9 patents. While 9 is a small number, it is enough for a rough analysis. This is what I found: 1. All 9 patents protected commercial products. 2. Software patent are stimulating new business formation. Four of the nine patents were held by companies that were started to exploit the patented technology. A fifth patent was filed by a company that had been in business for only a few years. This is a startling figure. Commissioner Lehman, doesnÕt this strongly suggest software patents stimulate new entrepreneurial businesses? 3. Software patents stimulate the commercial introduction of fundamental advances by small entities. Three of the patents held by small companies introduced technologies that have since been widely adopted. 4. Where similar-size companies had a dispute, they settled differences quickly without litigation. 5. Patent piracy by large entities appears to be common and small entities have a tough time getting their rights respected. Four of the five small companies had had to sue to enforce their patent rights. The one case were infringement was resolved without a lawsuit was where both companies were small. I suggest this is a major problem. Patents are not respected in practiceÑat least big companies donÕt respect the patents of small companies. Since I wrote this article I have talked to several inventors in many different technologies who have had to enforce their patents against larger entities and their experience only serves to reinforce this finding. 6. Small entities using patents are exceptionally cost-effective in encouraging innovationÑ especially compared to federal funding. This last point is illustrated by the following table. Innovation Commercial Efficacy Cost Cost-effectiveness Source Products (Patents Asserted) (000,000/yr) Large entity 4 2 $30,000 33,333 Small entity 5 5 $10,000 250,000 Federally funded 0 1 (assumed) $487,000,000 1.03 If someone invents something, gets a patent on it, starts a company to exploit the invention, and asserts his patent against someone he believes is infringing, such a person is doing what U.S policy is trying to encourage. I suggest the number of such instances is a measure of efficacy of innovation. Consider the cost of innovation from the taxpayers perspective. 2 million dollars were allocated from the public treasury to fund the patent office in 1989 and this was used to calculate the costs of small and large entity patenting. We also used the amount of money funded for Computer Science R & D in 1989 as the cost of federally funded innovation. We can calculate measures of effectiveness and find that from the taxpayers point of view large entities are 33,000 times as cost effective as federally funded research, and small entities are 250,000 times as cost-effective as federally funded research. Might I suggest we evaluate federal funding of the PTO and research on the same basis of cost effectiveness to the taxpayers. In considering funding of the information superhighway, I suggest you consider the great contribution the patent system can make because of the great cost effectiveness of entrepreneurial inventors. StallmanÕs data is sparse; the underlying model, crude; and the calculations, rough. I think we would all welcome a more sophisticated analysis based on a larger data base of patents. However, this data present strong prima facie evidence that patenting is an extremely cost effective way for encouraging innovation in software. Remember, I did not select the sample to analyze. The League for Programming Freedom did. These results are based on their sample. Commissioner Lehman, based on StallmanÕs data, I suggest it would be good public policy to completely fund the small entity patent office from the general fund, say by allocating a 1/2% override on all federally funded R & D. As the Commissioner may remember I testified at the harmonization hearings. The thrust of my testimony their was the importance of the entrepreneurial inventor and thus patents to what I called the ecology of innovation. Having talked with about 20 non-software inventors who had tried to enforce their patents, I have an experience base to say that innovation works similarly in software as in other areas. The Spreadsheet Patent The story of one of our members, Remy Landau, again demonstrates the problems of how the patent system works in practice. Remy Landau and his partner Rene Pardo invented what the League for Programming Freedom called the automatic recalculation patent for spreadsheets. This invention has been held up by the League and the press as Òwell knownÓ, ÒobviousÓ and is frequently cited as an example of a bad patent. In my opinion Pardo and Landau made the major invention behind the computer spreadsheet. It is an invention which is behind the success of Lotus and other software companies. It is the source of Mitch KaporÕs net worth of over 100 million dollars. It is responsible for much of AppleÕs early success which provided the profits they used to fund the Macintosh development. Pardo and Landau made their invention and filed for patents on it in 1970Ñ24 years agoÑ and have yet to receive dime one for their invention. VisiCalc was introduced in 1978. Pardo and Landau made their invention in 1970. The Pardo/Landau patent does not refer to display devices, nor does it use the term Òspreadsheet.Ó Their invention is an improvement on BASIC a terminal based computer language. Anyone who reads the patent can see that their invention was to take the BASIC statement numbers, split them in two parts, and use the two parts as indices into an array of formulas. They taught how such an array of formulas could be used to solve business problems by letting the user place the formulas in the position where they made visual sense. They taught that the computer should determine the order of recalculation rather than demanding the user do it as is done in BASIC. They started a business, hired people, raised investment funds, developed a software product to run on timesharing computers, brought their product to market, and developed a user base. It seems clear to me that they are to the modern spreadsheet what the Wright Brothers were to the airplane. The patent system has treated them poorly. They got a notice of allowance of their U.S. patent, but shortly thereafter the Benson decision came down and the Patent Office withdrew their patent prior to issue. It did nothing on the application for years while resisted issuing patents on software inventions. Pardo and Landau appealed pro se to the CCPA. That means they were not represented by lawyers; the appeals court ruled in their favor in the decision In re Pardo is a landmark case on software patentability. You should know the current patent mass is largely due to IBM whose internal policy was that software should not be patentable, who headed a government commission to make it not patentable, and who filed an Amicus brief in the Benson decision against patentability. I mention it here because that action on IBMÕs part case a ten year delay in the issuing of the Pardo/Landau patent8. The Pardo and Landau patent issued in 1983, 10 years after the Canadian patent. Commissioner Lehman, should it take 13 years to issue a patent? Pardo and Landau unsuccessfully tried to get Lotus and other companies to respect their patent. So in 1989 they did a deal with a third party to fund the litigation. When I talked to Remy Landau shortly after the newspapers had announced the lawsuit and the columnists had attacked the patent, I was surprised to have him tell me no one from the American press had contacted him. Finance is the area that has been most effected by computer spreadsheets. The invention may have been obvious to The League for Programming Freedom in the late 1980Õs with the advantage of hindsight, but it was not obvious to my former Professor of Finance who taught Finance at the time of the invention. William F. Sharpe, told me that when he first used VisiCale he was impressed with the concept behind it. He said he did not find it obvious. He has used spreadsheets extensively since he discovered them. Indeed, Professor Sharpe is quite knowledgeable about computers having used timesharing systems since the early 1960Õs when he was at RAND. He wrote several publications including a book on BASIC and he ran the Stanford GSB Computer Center in the early Ô70s. He is, I might add, a Nobel Laureate in Economics. Pardo and Landau are in litigation against Lotus. In July of last year I went to hear the first phase of the trial. I was shocked at what I was to see in the courtroom. I heard a patent attorney in my opinion commit perjury and testify against his client to save himself from a malpractice suit. Pardo and Landau find that the are being accused of fraud. This is a standard tactic big company infringers use when the donÕt have a case on the merits. The issue was this: Did the inventors intend to mislead the patent office when they had affidavits filed saying the invention was enabled? Lotus says that the affidavits should have stated the affiant had a post financial association with the inventors. The only association the affiants had with the inventors was prior to filing the affidavits. Only one fellow worked for PardoÕs fledgling company for 6-8 weeks a year or two earlier. Lotus says the inventors intended to deceive the patent office by not mentioning the prior association in the affidavits. If the inventors had intended to mislead the patent office on a material matter then they committed fraud. I donÕt believe the issue was very material, Examiners tell me they donÕt place a great deal of reliance of affidavits anyway, and there seems little doubt but that the invention was enabled. In short, Lotus was nitpicking the patent prosecution. The inventors testified that they though the affiant were disinterested because they had no current interest in their invention. The inventorsÕ patent lawyer testified in open court under oath that he helped the affiants prepare the affidavits, did not verify their lack of association with the inventors, but relied on his having told the inventors to get affiants who had no such association. I didnÕt find his testimony credible. In their closing arguments, the inventorsÕ attorney called the patent attorney a ÒliarÓ and even the Lotus lawyer acknowledged discrepancies between deposition and court testimony. In my opinion the patent lawyer perjured himself on the stand in open court and testified against his clients so as to protect himself from a malpractice suit. I have talked to enough inventors to know that patent attorney malpractice is not unusual in either patent prosecution or litigation. I only marvel at what I was to see in open court. Although the trial was in July, the decision has yet to come down. I fully realize the difficulty patent attorneys face in patent prosecution and the multiple opportunities for errors. However, I believe clear and willful actions should be be treated severely. Commissioner Lehman, having talked to may people, lawyers and inventors alike, I have concluded that not only is poor quality work by patent lawyers common, but the lawyers often act to cover up their errors and so do more damage to the interest of their clients. I suggest such actions by patent lawyers damages U.S. patent system and should be punished so as to send a clear signal to the patent community. It is particularly damaging to small inventors who, unlike big companies, do not have the sophistication to judge the quality of their lawyers work until it is too late. When Judge Sotomeyer hands down her decision, I respectfully request you review that decision to see if it is appropriate to suspend Mr. Rhodes from practice under 35 USC 32. Twenty-four years ago Pardo and Landau made one of the major computer software inventions. Their invention has been one of the driving forces of the personal computer industry. They were responsible for a landmark computer software decisions, In re Pardo which the pursued pro se. And while many people have become multimillionaires on the Pardo/Landau invention, Pardo and Landau have yet to receive dime one for their contribution. My discussions with many inventors whose inventions have been ripped off shows that this case may be extreme but that it is not unusual. Commisioner Lehman, is this image we want to project of what happens to inventors who try to benefit society by inventing something? Few things are as strongly based in our history as the patent system. James Madison proposed the patent clause in the Constitution. George Washington walked the first patent law through Congress, Thomas Jefferson acted as the first patent commissioner. Franklin and Jefferson were amateur inventors. Lincoln was an inventor and an active proponent of patents and invention. Did these founders of our country intend that the inventor have the rights to his invention as the Constitution says? Or did they intend that the benefit go to the inventorsÕ widow and children? Or to Lawyers? Did our founding fathers intend to put up such a thicket of laws and regulations that patent attorneys would be forced to perjure themselves and testify or act against their clientsÕ interests to avoid a malpractice suit? Recommendations: If I might make some specific recommendations: 1. Either get rid of patents entirely or make them meaningful legal instruments in the hands of small inventors. We should not continue to perpetuate a system that encourages naive inventors to spend their time and money, to get money from friends and relatives, and to bring their inventions to market motivated by being given patents rights, if those rights are not meaningful. We need legislation and court decisions that will cause companies analyzing infringement to reach the same conclusion when they do an economic analysis as the they do when they do a moral and legal analysis. 2. We need to drastically reduce the amount of time it takes to get a patent issued and to do reissues and reexaminations. No one benefits from the uncertainty of what is protected by a patent. 3. Currently if an attorney commits malpractice, the inventor must file a malpractice lawsuit to collect damagesÑusually years after the patent was filed. Change the law to prevent the invalidation of patents because of the the actions of the attorneys in prosecuting the patent. If infringers are to benefit in not having to recognize a patent because of errors of the prosecuting attorney, then their remedy should be to recover damages from the attorney who erred in prosecuting the patent. 4. I urge you to find some way to change the general climate so inventors are seen as heros and not as villains. The culture which has led to these hearings seems to be one which denies real inventors both credit and financial reward for their inventions. 5. Require that suspected infringers bring prior art of which they are aware to the attention of the patent office. Eliminate the double standard for producing prior art. 6. We should codify the rules of engagement in potential patent disputes so as to make level the playing field between large and small, and rich and poor. As I see it, the current rules encourage game playing and often end up by exploding into wasteful litigation due to a slight miscalculation on one side. The rules should be designed to encourage the disclosure of all relevant facts by all parties and encourage settlement early on. They should also be designed to encourage the principles to deal directly with each with the assistance of, rather than through their attorneys. 6. Improve the quality of the patent examiners corps by upgrading status and pay. 7. I suggest affirmative action in favor of software company patentholders to rectify the wrongs afflicted by past prejudice. I suggest that the patent office review the Amicus briefs filed by IBM, CBEMA and others in the Benson and similar cases to identify those companies who spoke against the patentability of software. Just as we we have affirmative action to rectify the wrongs of past racial prejudice, we should have affirmative action to rectify the wrongs of prejudice against software inventors. I suggest that the identified companies (a) be given lower priority by the patent office in examining their patents; (b) not be allowed to assert their patents against small software companies; and(c) not be allowed to use non-patent prior art to invalidate issued patents asserted against them. Should not those who caused the current software patent mess be the ones to suffer from the problems caused by that mess? In Conclusion Commisioner Lehman, I think I have been able to show ample evidence that the patent system does encourage people to start companies and introduce innovative products. Unfortunately, I think it shows that many of those so encouraged have been naive to the realities of patent enforcement. I suggest we will have even more innovation if the system would operate so as to better enforce patents even when held by those who can ill afford to litigate. Commissioner Lehman, some people have felt that you are would not be a good commissioner because you are a copyright lawyer rather than a patent lawyer. I admit to having been one of them. But I am of a different view now. You have an advantage over patent lawyers. You can look at the patent process from the perspective of a copyright lawyer and how much more successful the copyright is in ensuring rights holders can enforce their rights independent of their financial worth. While inadequate patent protection has caused us to lose many of our innovations to foreigners, our stronger copyright protection has been a huge moneymaker for the United States especially in the film industry. Why are there criminal laws against copyright infringement but not against patent infringement? Why is it that when a possible infringer considers whether to respect a patent he asks not about the content of the patent, but the color of the inventorÕs financial worth? My recommendation to you is that you seek to get for patentholders the respect that copyright holders have, and seek to get for patent infringers the disrespect that copyright infringers have. If you in your term of office you can bring the patent system to the level of the copyright system as it works in practice, you tenure as Commissioner, your place in history will be assured. TESTIMONY ON PATENT PROTECTION FOR SOFTWARE RELATED INVENTIONS I am Jonathan Band, a partner in the Intellectual Property Group of the Washington, D.C. office of Morrison & Foerster. The views I express here today are my own. I attended the PTO hearings two weeks ago in San Jose, and I would like to share with you three observations based not on the testimony -- which you heard -- but on my conversations with many of the Silicon Valley spectators. This is, if you will, a report from the peanut gallery. First, using Ron Laurie's perceptive classification, a small but not insignificant minority of the audience fell into the "software patents are bad" category, while a majority fell into the "bad software patents are bad" category. My further discussions with the "software patents are bad" adherents revealed that they were confused and frustrated by the case law on the patentability of software related inventions, and that they had no confidence in the ability of the PTO to search the prior art. This suggests that if the PTO successfully addresses the concerns of the "bad software patents are bad" people, many of "software patents are bad" people will be satisfied as well. Second, and following from the first point, I detected a strong mandate for serious procedural reforms that would improve the quality of software patents and eliminate submarine patents. The PTO has already announced that it will introduce legislation establishing a 20 year term from filing and reforming the reexamination process. These proposals met with near universal support in San Jose. There was also strong support for pre- grant publication of applications and reform of the continuation and division practice. The PTO should give these and the many other amendments suggested close consideration. As the PTO reviews these proposals, it should place the interests of the inventing community ahead of those of the patent bar, the primary beneficiaries of the current obfuscation and litigation. Reform of the patent system to make it simpler and more predictable while eliminating the game-playing and the lawsuits would be a lasting legacy of the Clinton Administration in the technological history of our nation. Speaking of game-playing and the patent bar, the current hopelessly confusing state of the case law on the patentability of software related inventions means that the success of a software patent application turns more on the cleverness of the patent lawyer than on the quality of the invention. This, of course, is backwards. The PTO should establish a commission consisting of programmers, law professors, practitioners, and jurists to establish some order in this area. My third observation on the San Jose hearings is that there is an underlying concern in the inventing community that in the past decade the pendulum may have swung from too little intellectual property protection to too much I.P. protection. As Judge Kozinski of the Ninth Circuit has observed, "overprotecting intellectual property is as harmful as underprotecting it." Judge Kozinski further notes that "creativity is impossible without a rich public domain." For this reason, the intellectual property laws are full of what Judge Kozinski calls "careful balances between what's set aside for the owner and what's left in the public domain for the rest of us." Because patents and copyrights are monopolies created by the intellectual property laws, regulation of those monopolies is the responsibility primarily of the intellectual property laws, and only secondarily of the antitrust laws. Given the PTO Commissioner's emerging role as the Administration's intellectual property policy advisor, the PTO must be vigilant about maintaining the balance between protection and competition. Thank you for your attention. TESTIMONY OF JEFFREY A. BERKOWITZ, FINNEGAN, HENDERSON ET AL. Good afternoon Mr. Commissioner and other distinguished members of today's panel. I am Jeffrey Berkowitz, an associate with the intellectual property firm of Finnegan, Henderson, Farabow, Garrett and Dunner in its Washington, D.C. offices. This afternoon I would like to address the tenth question listed in Topic B of the Notice for today's hearing. My comments are my own and not necessarily those of my law firm. In question number ten the PTO asks for comments on how the PTO should handle the submission of computer program code listings. Specifically, the PTO seeks comments on the following four items: (1) Should the PTO require submission of program code listings? (2) Should the PTO require submission of code listings in machine readable format only? (3) Should program code listings be included in patent documents or should they be made available only through a publicly accessible database? (4) What hardships would patent applicants face if these requirements were imposed? In my opinion, the PTO should not require submission of program code listings. The following discussion concerning my opinions on the first item of question ten necessarily provides my opinion on the remaining items. Currently, applicants may file program code listings with the PTO, and I emphasis the word "may". Because these listings, particularly when in machine readable format, can take hundreds of pages, it is clear that the PTO must deal with substantial financial, printing, and logistical problems when an applicant chooses to submit a program listing. In an effort to deal with these problems, the PTO promulgated 37 C.F.R. ¤ 1.96, under which program listings must be included in the application itself, either in the specification or as part of the drawings, if the listing is under 11 pages in length. If the listing is 11 or more pages in length, then the listing may be submitted in the form of a "microfiche appendix," which will not be part of the printed patent but will become available to the public once the patent is issued. Some applicants choose to submit program code listings (regardless of the number of pages) to ensure that their applications comply with the statutory requirements of ¤ 112, first paragraph. However, if a programmer of ordinary skill in the art could write a program (without undue experimentation) from the disclosure of a program-less application (that is, an application for a software-related invention absent a program listing), and if such a listing is not required to satisfy other statutory requirements (for example, the best mode requirement of ¤ 112, second paragraph), then the applicant would not need to file a program code listing for the invention. Based on this reasoning, many applicants typically choose not to file program code listings. A requirement for program listings would prevent applicants from filing applications until product development is complete, which would further delay the process of filing applications, examining applications, and issuing patents for software-related inventions. In many of the software-related patent applications that I have written and prosecuted, inventors have not yet completed development of their software-related inventions to be patented prior to filing the application. Thus, there is no final program listing to be submitted with the application. This should not prevent the applicant from filing an application on his or her invention. In this regard it is important to note that, in other technologies applicants can and do file patent applications without having completed product development. Applicants also choose not to file program code listings because filing the listings would make the entire program available to the public which, in some cases, may divulge important trade secrets or other information the applicant may not need to specifically divulge in order to secure patent protection. Even if applicants choose to submit machine readable listings, such listings may be reverse engineered. As long as a programmer of ordinary skill in the art could write a program (without undue experimentation) from the disclosure of a program-less application, and if such a listing is not required to satisfy other statutory requirements, then the applicant should not have to file a program code listing for the invention and divulge important trade secrets. Furthermore, a requirement for the submission of program code listings, regardless of the form of the listings, will only further increase the PTO's burden in connection with both the examination of software-related inventions as well as the practical aspects related to storing program code listings and making the listings available to the public. Examiners do not have time to study program listings regardless of the form in which they are submitted to the PTO. Nor does the PTO have resources to waste in storing program code listings and making them available to the public. Some of the hardships associated with a mandatory requirement for submission of program listings are apparent from the above discussion. There are also a number of problems associated with the current microfiche appendix requirements that are worth mentioning. First is the availability and cost associated with the microfiche appendix requirements outlined above. When an applicant chooses to submit a program listing of 11 or more pages he or she must locate a company that provides the microfiche services, a task that is not so easy, and spend additional money to have the listing put on microfiche, a cost that may be high depending upon the length of the program listing. Instead, if the PTO believes that it is necessary to require appendices for program listings, I suggest that the PTO consider more practical approaches such as submission of program listings on a CD-ROM or other mass storage device and in a format that may be used by Examiners to inspect efficiently and effectively the program listings. I believe these other approaches are less expensive and more accessible to inventors of software-related inventions than the archaic microfiche appendices instituted in the current rules. Finally, I am also concerned that requiring submission of program code listings would surely lead to litigants unnecessarily raising issues concerning a program listing should the PTO adopt a submission requirement. This, however, is beyond the scope of these hearings. Thank you for your time today to present my views. TESTIMONY OF ROBERT H. KOHN BORLAND INTERNATIONAL, INC. U.S. Patent & Trademark Office Hearings on Patenting of Software-Related Inventions January 26-27, 1994 San Jose, California Thank you, Commissioner Lehman, for the opportunity to testify. A. Background of the Witness I am Robert H. Kohn, Vice President of Corporate Affairs of Borland International, Inc., a leading developer and marketer of desktop and client/server computer software, including dBASE, Quattro Pro, Paradox, Interbase, and Borland C++. I have worked in the entertainment and computer software industries my entire career. My experience in the software industry includes many types of application and utility software for both mainframe and desktop computers. After a brief period in private practice and as Associate Editor of the Entertainment Law Reporter, I joined the legal department of Ashton-Tate Corporation in 1983. Until its acquisition by Borland in 1991, Ashton-Tate was one of the largest software companies in the world. In 1985, I left Ashton- Tate to become associate general counsel to Candle Corporation, a leading supplier of IBM mainframe software. And in 1987, I joined Borland as General Counsel. I want to emphasize that I am sensitive to the need for intellectual property protection on both a professional and personal level. My professional career has focused on protecting the valuable intellectual property assets of software companies. I am also an author myself, having recently written a reference book on music licensing that was published by Prentice Hall. So I can certainly appreciate the need to protect intellectual property. I am testifying today in my capacity as Vice President and General Counsel of Borland, a publicly traded, Silicon Valley company. B. Enforcement vs. Scope of Protection: The Important Role of Competition in Promoting Innovation On behalf of Borland, I want to comment specifically on Question 4 in the Hearing Notice and, if time permits, more generally on questions regarding the scope of protection for visual aspects of software programs. Question 4 asks whether the present framework of patent, copyright and trade secret law: (a) Effectively promotes innovation in the field of software? and (b) Provides the appropriate level of protection for software-related inventions? Like all other software companies, Borland invests heavily in both the creation and acquisition of new software products. And, like other companies, Borland needs strong governmental enforcement of existing intellectual property rights, especially in foreign markets, in order to protect its investment. But it is particularly unproductive, at these hearings and at other forums for public debate of these issues, to hear two extreme views espoused: one group, generally small inventors, argues for no protection or, perhaps, at best, very weak protection. A second group, generally large companies, addresses the issue of scope rather than enforcement, arguing that broader protection for software is necessary and, indeed, the broader the protection the better. We believe that much of the polarization you have heard, and will hear, is the result of a confusion over what is being debated. Protectionist interests, in particular, confuse enforcement of what is an undisputed intellectual property right with the underlying scope of intellectual property protection. We in the industry all understand that software, as a product, is particularly susceptible to unauthorized duplication. We therefore need strong enforcement of existing intellectual property rights to make sure that we are protected against the piratical copying of our software. But issues concerning the enforcement of intellectual property rights must not be confused with issues concerning the scope of intellectual property protection. It is too easy to wrap oneself in the proverbial American Flag of anti- piracy and anti-counterfeiting enforcement. There is no dispute that strong anti-piracy enforcement is required to promote the resources necessary for research and innovation. But it does not follow that, because strong enforcement of intellectual property promotes innovation, a broader scope of intellectual property protection will also. We should understand that many of those who very responsibly argue for limitations on the scope of intellectual property protection are not trying to defend pirates. They are, rather, trying to strike a medium under which the proper scope of intellectual property protection, as established by Congress and the courts, is respected and strongly enforced by the administrative branch of government. This distinction between the enforcement of existing rights and a broadening of the underlying scope of protection was recently addressed at the 1993 Berkeley Roundtable on the International Economy, in which the Vice President, the Commerce Secretary and the Commissioner all participated. The report of the roundtable on "Maintaining Leadership in Software" states the distinction between enforcement and scope very clearly: "Industry representatives argued that the importance of protecting intellectual property from theft by commercial counterfeiters and unscrupulous users must be distinguished from issues concerning the proper scope of intellectual property protection. The government's role in deterring theft by commercial counterfeiters and unscrupulous users, through the improvement of intellectual property laws and simplifying enforcement of those laws, particularly overseas, should continue. But the government should carefully weigh the important balance between providing incentives through protection of intellectual property and promoting innovation through industrial competition when considering issues such as reverse engineering, free use of command structures and other elements required to promote interoperability among computer software." (emphasis in original) Unfortunately, Question 4 in the Hearing Notice, in our view, heightens rather than diminishes the confusion and polarization. Question 4 seems to be based on a premise that strong protection for existing intellectual property rights necessarily implies a greater scope of intellectual property protection, and, further, that a greater scope of protection implies a greater amount of innovation. Implicitly, Question 4 neglects the important role that competition plays in encouraging innovation. We believe that the implication inherent in Question 4 should be the subject of much greater scrutiny and analysis. Within the industry we all, or at least most of us, agree that greater enforcement of existing intellectual property rights is necessary. What has fractionalized the industry is the attempt by some to use the need for greater enforcement to attempt to expand the scope of underlying intellectual property rights, particularly within the copyright area. As the Commissioner is aware, just two weeks ago the Head of the Antitrust Division, Assistant Attorney General Anne Bingaman, gave a major speech on the occasion of the 60th Anniversary of the founding of the Antitrust Division. The Assistant Attorney General recognized the polarization within the industry that has been caused by attempts to increase the scope of intellectual property protection: "The substantive reach of the exclusive rights granted under the intellectual property laws also has been a matter of particular concern and ferment in the software industry. The courts and the agencies have been faced with difficult decisions about the scope of both patents and copyrights in this field, as is clear to anyone who has paid attention to the long series of important court decisions on computer software copyrights, including Whelan, Altai, and the recent decisions in Lotus v. Borland, now under review in the First Circuit. The scope of copyright protection for computer software has, we believe, important competitive implications, as well as important implications for incentives to innovate." We were particularly heartened to hear the Assistant Attorney General most eloquently state her concern about attempts to increase the underlying scope of intellectual property protection. Again please permit me to quote what she had to say: "Given my strong belief in competition, I think courts should be hesitant to read the statutory grant provisions expansively, but should recognize the anticompetititve potential of restrictive practices at or beyond the borders of the clearly conveyed statutory rights." While the Assistant Attorney General was directly addressing only the courts, we believe the same cautions should apply to the administrative branch of government as well. C. Protection of "Control Mechanisms" and "Visuals" Many of the questions to be addressed at these Hearings deal with the visual aspects of a computer's screen display. In evaluating the proper scope of protection for the visual aspects of computer programs, we believe that the Patent and Trademark Office would do well to consider the analytical framework employed by the engineers and computer scientists (as opposed to the lawyers and judges) in the software industry. As the Commissioner is aware, much of the original and seminal work in graphical user interface analysis and design was done at Xerox Corporation in the 1970's. The research at Xerox spawned a wealth of user interfaces, far beyond just those in Xerox's products -- Apple's Macintosh and LISA, Hewlett-Packard's New Wave, Microsoft's Windows, X Windows, and IBM's Office Vision and OS/2, to name but a few. Much of the research at Xerox was published in scholarly papers for distribution both inside and outside of Xerox. The most famous of those papers entitled "A Methodology for User Interface Design," was published by Xerox Palo Alto Research Center in January of 1977. Because of the enormous importance of that paper, I am going to attach it to Borland's written comments and I ask that you consider is as part of these proceedings. The Xerox research produced a methodology of interface design that is based upon what the Xerox researchers called a "taxonomy" or classification for user interface analysis. This taxonomy is designed to permit analysis and evaluation of what each aspect or component of a user interface does. The taxonomy was created for software analysis and not for any legal purpose. But remarkably, it dovetails seamlessly with the overall intellectual property scheme of patents, copyrights and trade secrets established by Congress. As the Xerox research concluded, every user interface has three separable components: (1) the user's conceptual model, (2) the "control mechanism" or "command invocation" of the product, and (3) the "visuals" (or "information display"). The user's conceptual model is the abstraction selected by the software developer which users can relate to the task they are trying to perform. For example, the "spreadsheet metaphor" is the conceptual model that underlies Borland Quattro Pro line of products. Under our intellectual property scheme, the "conceptual model" of a particular piece of software would not be protectable at all (except, of course, insofar as it may be protected as a trade secret or under the terms of a contract or confidential relationship). The "command invocation" or "control mechanism" of a user interface is the mechanism that extracts the functionality built into the software. It is a set of actions and results defined in particular relationships to one another. Menu items and keystrokes are part of the control mechanism and were clearly identified as such by the Xerox research published in the mid-1970's. Indeed, the control mechanism component was originally called the "Command Language." Under the intellectual property scheme established by Congress, the "control mechanism" of a software product falls within the ambit of the patent law, specifically, utility patents. In order to secure utility patent protection over a "control mechanism" an inventor should be required to satisfy the statutory requirements of novelty, advancement over the prior art, and so forth. This would be true even if the control mechanism was a sequence of steps in a visual display. For example, if the user entered a database by first clicking on the picture of a door to simulate knocking, and then clicking on the picture of the doorknob to simulate turning it, the sequence of steps would be part of the control mechanism - and must satisfy the rigors of patent examination if it is to be protected. If the command mechanism does not meet the rigors of patent protection, it should not be protected by any other form of intellectual property protection, such as copyright. Finally, in Xerox's terminology, there are the program's "visuals." For example, the screen displays of many sophisticated user interfaces have a truly separable visual or expressive component -- images that can be manipulated through animation techniques. The Congressional scheme provides for protection of these "visuals." Under both the statute and the case law, the visual display of a computer program may be protected under the copyright law if, and only to the extent that, its artistic features can be identified separately from, and are capable of existing independently of, the utilitarian aspects of the software program. Note that the definition of computer program under the copyright law is "a set of statements or instructions to be used directly in a computer in order to bring about a certain result." The screen display is a "certain result" of the "set of statements or instructions" that comprise the underlying computer program and must independently qualify as a work of authorship. We understand that there has traditionally been a role for design patents which overlaps with the role of copyrights, and that role, insofar as it relates to computer programs, has not been well articulated. The Patent & Trademark Office has requested comments on the applicability of design patents to computer software and we are in the process of formulating our views for a possible submission on the subject at a future hearing. Thank you for the opportunity to appear today and I would be happy to answer any questions from the panel. STATEMENT OF THE BUSINESS SOFTWARE ALLIANCE Before the Commissioner of Patents and Trademarks February 10, 1994 I. Introduction Mr. Secretary: My name is Dianne Callan. I am the Deputy General Counsel of Lotus Development Corporation of Cambridge, Massachusetts. I am appearing here today on behalf of the Business Software Alliance ("BSA"). On behalf of the BSA, I would like to thank you for convening this hearing to consider the many issues associated with the patenting of software-related inventions. We appreciate having the opportunity to participate in this hearing. The BSA was organized in 1988 to promote the continued growth of the software industry through its public policy, education and enforcement programs in the United States and more than 50 other countries throughout North America, Europe, Asia and Latin America. BSA members are actively involved in nearly all aspects of microcomputer software development, including, for example, the production of operating systems, application programs, and networking software. Current BSA members participating in this statement include: Aldus Corporation, Apple Computer, Inc., Autodesk, Inc., Intergraph Corporation, Lotus Development Corporation, Microsoft Corporation, Novell, Inc., and WordPerfect Corporation. II. The Software Industry's Contribution to the U.S. Economy In the last five years, every governmental, academic and industry study of technologies that are key to America's future has identified the vital role to be played by the software industry. Software is characterized by both rapid technological innovation and widespread use in downstream markets. Software innovation improves the competitiveness of other industries which utilize software products to make themselves more innovate and competitive. The benefits of continuous software innovation permeate much of the american economy. In march of last year, the BSA released a study prepared by Economists, Inc. entitled The U.S. Software Industry: Economic Contribution in the U.S. and World Markets.9 Based on government and industry information the study reviewed the economic contribution made to the American economy by the U.S. "core" software industry: prepackaged software; custom computer programming services; and computer integrated design. The Economists, Inc. study found that the "core" software industry: (1) Is the fastest growing industry in the United States; (2) Is now larger than all but five manufacturing industries; (3) Is contributing to the economy of virtually every state in the nation; and (4) Is achieving tremendous success in the international marketplace. Notwithstanding this impressive record, the software industry's role in the growth of the nation's economy will be even more critical in the future as new and more advanced technologies continued to evolve. III. Views of the BSA The BSA has several views on the subject of the hearings: ¡ Strong intellectual property protection is essential to the continued health and growth of the software industry. Software is difficult and expensive to create yet easy and inexpensive to duplicate or steal. Moreover, the real value of software, and the principal assets of software companies, are not tangible factories or raw material inventories. Apart from employees, buildings and computer equipment, the assets of software companies are intellectual property, the technology embodied in the computer programs that are their products. ¡ The BSA does not believe that a new form of protection for software-related inventions is necessary or desirable. ¡ There is, however, an urgent need to improve the operation of the United States patent system as it pertains to software-related inventions. Patents continued to be issued which do not appear to meet the statutory mandates of novelty and non- obviousness, and these patents impose a substantial cost on the software industry and on society as a whole. Those aspects of the patent system that permit long gestation periods for patents also cause economic costs to society without providing commensurate benefits. Members of the BSA have widely divergent views as to the value of patents being granted on software- related inventions. However, all members recognize that the current patent system does not adequately deal with such patents. Therefore, these comments, which are the minimum common points agreed upon by the participating BSA members, primarily suggest procedural changes to the operation of the patent system, to improve its effectiveness regarding the protection of software-related inventions. IV. Discussion The BSA respectfully suggests that the following changes would improve the effectiveness of the patent system: ¡ The patent term should run for a fixed time from the filing date. ¡ The examination process should be improved: á as to the content of the prior art database, á as to the accessibility of that prior art database to the examiners, and á as to the training and treatment of the examiners. ¡ Applicants should be encouraged to conduct a patentability search before filing and to present the prior art located in the search to the PTO before the application is examined. ¡ An opposition procedure should be established, with provisions that ensure expedited results. ¡ Reexamination proceedings should be strengthened procedurally and expanded substantively to include non-prior art validity issues. I would like briefly to explain why the BSA believes each of these changes would improve the system. A. Term Change An important problem with the patent system is the issuance of patents after inordinately long application periods, brought about by continuation and continuation-in-part applications and, occasionally, interference proceedings. Whatever the cause, the result is the sudden appearance of a patent years after the technology to which it relates has been developed and commercialized. At that point, design-around possibilities may no longer be feasible and the patent consequently can assume an enormously enhanced power to disrupt long-established expectations, for a full 17 year term from the issue date. The BSA supports the Commissioner's intention to establish a fixed term from the original filing date, as that would give the patent owner a strong incentive to have her patent issue promptly, and would in any case reduce the likelihood of the "stealth" patent that suddenly appears after having lain hidden in the PTO for 15 or more years. Furthermore, the spur to an applicant to timely present all claims and applications stemming from a single disclosure would promote additional efficiencies in the examination process. The BSA is gratified to learn that the PTO will support legislation embodying this concept. B. Strengthened Examination Most of the prior art regularly available to PTO examiners comprises collections of patents and publications. However, especially in the field of software-related patents, much of the relevant prior art exists not as patents or publications, but rather as companies' internal technical manuals, reference works, bulletins and other similar documents. Thus, often the most relevant prior art is not readily available to examiners of software-related applications. Groups such as the Software Patent Institute have undertaken to compile databases with these types of software- related prior art. It is important, especially in this area, that the PTO expand the universe of prior art on which it typically relies, and improve its access to the universe. The BSA hereby offers to provide ongoing assistance in establishing and providing content for suitable databases as well as examiner training and software tools for searches in those databases. C. Pre-Examination Search Because of the quantity of prior art relating to software-related inventions, as well as the diversity of the nature and location of such prior art, the BSA urges that an applicant should be encouraged to conduct a reasonable prior art search, and to present the results of the search to the PTO within a short time after filing the application. D. Publication of Applications for Opposition A third party may often be aware of prior art not readily accessible to the PTO and may also be the entity with the greatest interest in preventing the issuance of a patent covering what is in the prior art. The BSA believes that providing an opportunity for submissions during prosecution (as is done in the EPO after publication of the application and EPO search report) would facilitate a more complete view by the examiner of the relevant prior art. In addition, once claims are allowed, an opposition period of sufficient duration to permit reasoned investigations pertaining to those claims would provide the public with a timely and efficient opportunity to submit relevant information pertaining to claims as they are expected to be issued. (Our position is premised on the assumptions that: 1)Êthe fact that the period for filing an opposition to a patent expires, without any opposition actually being filed, would not in any way affect the presumption of validity of an issued patent; 2)Êany opposition activity or proceeding would take place in an expedited manner, so that the opposition process cannot be used, as it is in some countries, including Japan, to unduly delay the issuance of the patent, to the disadvantage of the patent owner; and 3) any opposition activity or proceedings would include appropriate procedural safeguards to limit potential abuses of the process.) E. Expanded Reexamination The current reexamination process is generally not viewed as a viable option by opponents to a patent due to the largely ex parte nature of the process. The BSA urges that reexamination be modified to provide more of an inter partes proceeding, allowing opponents to a patent to feel more comfortable in relying on this procedure to efficiently resolve their concerns in what may be the most efficient forum. Further, the scope of reexamination proceedings should be expanded to additionally cover all prior art categories, as well as non-prior art validity and enforceability issues, for example, inequitable conduct regarding an applicant's non- disclosure of material prior art during prosecution of an application.10 BSA acknowledges and supports the Patent Office's intent to forward legislation to Congress making reexamination a more attractive vehicle for challenging a patent's validity. We appreciate having the opportunity to present these remarks. [Intellectual Property Section, California State Bar] PRESENTATION AT PUBLIC HEARINGS ON THE PATENT OFFICE 27 January 1994 San Jose, California The Honorable Commissioner Lehman and Mr. Kushan, my name is Mary O'Hare. I am the chair of the Executive Committee of the Intellectual Property Section of the State Bar of California. The Section is voluntary, comprised of more than 3700 attorneys practicing in the intellectual property fields of copyrights, trademarks, trade secrets, and patents. Our members are from large and small firms, corporations and nonprofit organizations, representing, for the context of this hearing, individuals, those nonprofit organizations, small businesses, and large corporations. We are proud that our organization was one of the first to have Commissioner Lehman as its keynote speaker this past fall and we thank the Commissioner and the Patent Office for holding these hearings in California. All too often in the past, California and the needs of California attorneys and their clients-- more than twenty-six hundred miles and three time zones away from the Patent Office--have been felt to be out of sight and out of mind. Nonetheless, California has been the center of the United States' cultural and technical renaissance of the late twentieth century--a renaissance that, perhaps now more than ever, is a key to CaliforniaÕs vitality. California's two largest Industries-entertainment and technology--are also the United States' two largest export engines. We of the Intellectual Property Section hope that these hearings signal the Patent Office's willingness to have easy and open access to the Patent Office for California practitioners--a privilege until recently primarily enjoyed by the Washington, D. C. patent bar. While I am chair of the Intellectual Property Section, my intellectual property expertise has been gained in the context of a motion picture entertainment practice. Honorable Mr. Commissioner, the tragic earthquake in Southern California may have rattled our homes, our offices, and our psyche, but let me assure you that Californians are not so rattled as to ignore the importance of your presence here -- or to presume to have a motion picture attorney address you on matters concerning the Patent Office. It therefore pleases me to introduce Michael Glenn, an officer of the Executive Committee of the Section and a patent attorney in the Silicon Valley who has represented both individual inventors and large corporations before the Patent Office, especially with regard to complex electronic inventions, including semiconductor, computer and software inventions for the past 14 years. Mr. Glenn recently published an analysis of the current state of the patent law regarding software inventions, "Software, Patents, Allapat and All That", in the SectionÕs publication, NEW MATTER. Mr. Glenn will present the statement of the Section. * * * * * * TodayÕs Hearings have been convened to receive comments from the public on patent protection for software inventions. Rather than respond to the specific questions raised in the Notice of these Hearings, we will address the important, broader issues that form the context in which the issue of patent protection for software inventions arises. These issues include: 1) the expertise and ability of the Examining Corps, especially with regard to the difficult task of applying complex legal principles to emerging and sophisticated technologies; 2) the availability of task appropriate tools and resources to the Examining Corps; 3) the need to make Patent Office services and resources readily available to the public; and 4) the understanding that the U.S. Constitution, in providing the Congress with Òthe power to promote the progress of science and useful arts by securing for limited time to authors and inventors the exclusive right to their respective writings and discoveries,Ó did not limit the types of discoveries for which a grant of exclusive rights would be secured. Preliminarily it must be observed that patent myths abound, and the Patent Office should use its best efforts to dispel these myths. These Hearings are one excellent way to raise the general level of public understanding of the U.S. patent system. However, the primary job of the Patent Office is to examine patent applications. A quality examination and precise application of the patent laws by the Patent Office are necessary to assure that the interests of both the public and the inventor are properly served. First, while recent efforts to improve the quality of Patent Office services, especially the quality of the Examining Corps and, as a result, the quality of patent examination and of patents issued by the Patent Office have not gone unnoticed, more needs to be done. Because the process of examining a patent application necessarily demands both a high level of technical expertise and a thorough understanding of the legal standards that are applied during the examination, the Patent Office must continue to attract and retain Examiners who not only have the technical knowledge necessary to understand the invention, but who also understand the legal framework within which the Patent Office functions. To this end, ability and merit should be the most important standards by which Examiners are hired, promoted, and retained. Secondly,we encourage the Patent Office to do more with regard to improving the quality of the patent examination process. For example, in many technical areas, a search of issued United States patents alone cannot reveal the most relevant prior art. In rapidly developing technologies, such as computer software and biotechnology, where the enforceability and availability of intellectual property rights in the past have been uncertain, the most relevant art may be found in industry journals, and in proceedings of professional societies and institutes. The Examining Corps should be encouraged to search all relevant information sources. Intensive training in using these information sources should be provided to the Examining Corps, such that the most relevant prior art is applied by the Examiners to every patent application filed with the Patent Office. Thirdly, since the Patent Office is also a tremendous depository of knowledge, we encourage the Patent Office to explore the possibility of giving the public throughout the United States free or inexpensive access to the Patent Office database through an on-line source, such as the Internet. At present, the few public patent depositories scattered across the U.S. are underfunded, understaffed, and resource constrained. For example, on-line searching is not available at the Sunnyvale patent depository here in Silicon Valley; and those wishing to perform a computerized search of the now available CD-ROM database there are limited to only twenty minutes of use. The Patent Office search room in Washington, D.C. is not accessible for the public at large, attorneys, and inventors who live, work, and invent in California. Ready public access to such publicly owned information would allow inventors to make informed decisions about whether or not they should pursue patent protection, would allow those seeking to enter a new market to review the patent literature before entering upon a course of action that could lead to a wasteful, potentially disastrous patent infringement law suit, and would allow those seeking to license technology to have access to the marketplace of ideas contained in the Patent Office database and be better able to establish a fair value for such technology. As important, the public would become more familiar with, and better educated concerning the patent system. Fourth, from time to time an issue may arise when a recently issued patent is publicized as part of a marketing campaign by a successful patent applicant, or as part of an ideological debate concerning the applicability of the patent laws to the technology protected or the breadth of coverage afforded the invention by the patentÕs claims. As a result, a discussion ensues concerning the wisdom of extending patent protection to new and emerging technologies. We caution the Patent Office not to allow the mere existence of public debate alone to provide a rationale for establishing separate rules for such technologies. This discussion is not new. In the days of the Wright brothers there was the fear that the future development of aviation would be seriously impeded if Wilbur and Orville should be allowed a basic patent on their invention. As we all know, this was not the case. As Wilbur Wright put it, Ò[w]hen a couple of flying machine inventors fish, metaphorically speaking, in waters where hundreds had previously fished...and spending years of time and thousands of dollars, finally succeed in making a catch, there are people who think it a pity that the courts should give orders that the rights of the inventors shall be respected and that those who wish to enjoy the feast shall contribute something to pay the fishers.Ó With regard to enforceability of patent rights for new and emerging technologies, the Patent Office must show leadership. The statutory mandate of the Patent Office is clear - novel and unobvious inventions that comprise patentable subject matter must be granted a patent. As a general principle, patentable subject matter cannot be limited to known technologies, but, as stated by the Supreme Court in the Chakrabarty case, must also encompass Òanything under the sun that is made by man.Ó Otherwise, only old technologies will be found to comprise patentable subject matter, at which point the patent system will lose all meaning. It is the ownership of inventions that spurs innovation, not just in the promise of exclusivity afforded by a patent grant, but more significantly in the incentive to avoid a patent by inventing around the patented invention. Finally, while the patentability of software inventions has long been an interesting topic of discussion, first in the courts and the Patent Office, and now in the press, much of the discussion may be caused by misunderstanding and confusion. We suggest that some of the misunderstanding stems from the confidential nature of the examination process. In many areas it is not possible to perform an infringement search to clear a new product because the most relevant patents are still pending in the Patent Office, and not available to the public. The Patent Office could explore opportunities for involving the public in the examination process to avoid any surprise attendant with the grant ofbroad reaching patents. For example, the Patent Office may want to consider the pre-grant publication of patent applications and/or pre- grant public opposition proceedings. We applaud the Patent Office decision to reexamine a recently issued patent on its own initiative in light of new art discovered after issuance of the patent. As an organization we have no opinion regarding the outcome of the reexamination. We only applaud this bold and welcome policy on the part of the Patent Office to pursue excellence. The ultimate outcome of such actions will be to improve the stature and regard with which a United States patent is held. This, in turn, will provide more certainty concerning the validity of an issued patent. Reducing the likelihood of a successful attack on the validity of a patent should encourage early settlements of patent disputes and strengthen American industry by strengthening the incentive to innovate, rather than to litigate. In closing, the Patent Office must continue to serve the needs of a broad range of applicants, from independent inventors to multinational corporations, while taking into account the effects of a fast changing global economy. Patents not only protect inventions, but they also protect employment and national wealth. The United States is a technology leader because of the incentives it provides to those persons who take the effort and risk involved in bringing new inventions to the marketplace. Of all the nations of the world, the United States has the only significant software industry, the only significant biotech industry, and the only significant microprocessor industry, to name a few. These industries form a mighty technology river that has human creative energy as its source. The American experience shows us that industry requires this creative energy to thrive and that such creative energy requires incentive. The role of the Patent Office is paramount because the Patent Office is charged by law with providing incentives for this creative energy by protecting patentable inventions. We pledge that if you involve CaliforniaÕs inventors and pracitioners in the on-going discussion of Patent Offfice procedure and policy your job will be easier and, we can together insure that the patent system and the Patent Office fulfills the Constitutional proviso of promoting the progress of science and the useful arts, all to the economic benefit of the citizens of California and the rest of the United States. Thank you. Statement of Dr. Richard LeFaivre on Behalf of the Computer and Business Equipment Manufacturing Association and Apple Computer, Inc. Hearing on Patent Protection for Software Related Inventions January 26, 1994 San Jose, California Good morning. My name is Dr. Richard LeFaivre from Apple Computer. I am here today wearing four hats: First, as a computer scientist with 25 years of experience in software technology as a researcher, professor, and R&D Director. Second, as Vice President of Advanced Technology at Apple Computer. My organization is responsible for a large percentage of the patents granted to Apple, and the protection of the innovation we do is very important to me. In particular, we have seen a marked shift in our innovation focus from hardware to software over the years, so I am very interested in the topic of these hearings. Third, I am a founding member of the Executive Committee of the Software Patent Institute. As you may be aware, the SPI was founded to provide training in software technology and access to prior art, to help ensure that those software patents that are issued are of high quality. I should point out that the Software Patent Institute has chosen to take a neutral stance on the broad issue of the patentability of software, and that the views I am about to express do not necessarily reflect the views of the SPI. Finally, and most importantly, I will be testifying today on behalf of the Computer and Business Equipment Manufacturers Association (CBEMA). Interest of CBEMA CBEMA is a trade association whose members represent the leading edge of high technology companies in the computer, business equipment and telecommunications industries in the U.S. In 1992, CBEMA's 26 members had combined estimated sales of more than $270 billion dollars, representing about 4 1/2% of the U.S. gross national product. CBEMA member companies employed approximately one million workers in the U.S. last year. The computer industry performs approximately 20% of the total private sector R&D investment in the U.S. That figure is five times the investment of the aerospace industry, three times the investment of the health care industry, and four times that of the chemical industry. This investment allows our members to rapidly advance the capabilities of their products, and to gain access to, and compete successfully in, a tough international marketplace. It also results in significant numbers of jobs just within the R&D function. I am here today because patent protection for new computer functions is crucial to all of our members. Software-related inventions fit within our present patent system, and patents issued under a sound application examination process support the Constitutional mandate of promoting the useful arts and sciences. CBEMA members file for, and obtain patents for, software-related inventions; they also enter into agreements to utilize such patents held by others. Because our companies typically have broad product lines, they address patent issues in many areas of technology. They see no reason to treat software- related patents differently from patents related to other technologies. Question 1: Format and Claim Drafting Should not Determine Patentability of Software-Related Inventions In the first question set forth in the hearing notice there are a number of subparts relating to claim subject matter and claim formats. CBEMA'S response to this question is simply that if the claim is drawn to the solution of a real- world commercial problem, and the claimed functional steps or elements, as a whole, meet the strict legal requirement to be new, non-obvious and useful, then a patent should issue. The function claimed, not the format, is important. It should not matter whether new, non-obvious and useful process steps are claimed in the context of a program or a disk, or claimed in a hardware or method format, or in the context of a semiconductor chip. Software-related inventions are valuable to the purchaser, not for what they communicate, but for the functions they perform. The functions are what are important and what should be assessed for novelty and non- obviousness. Question 2: Software-related Patents Have Had an Overall Positive Impact Relative to question two, our members have integrated their software-related patents into their overall patent portfolios and practices, so that separating out their impact is difficult. However, this integration itself demonstrates that these patents are just like all others. They are sought when the inventor or his or her employer believe that the investment in obtaining the patent will be returned. Conversely, CBEMA members often must respect the software-related patents of others, which they do in the same manner as for other technologies. Question 3: The Standards for Software-Related Inventions Should be The Same as Those for Other Technologies Regarding question three, the standard for patent eligibility for software-related inventions should be maintained at the same level as for all other technologies. An alteration in that standard would negatively impact investment in our industry. If the standard were to be restricted severely, it would disarm CBEMA member companies in their dealings with foreign competitors because licenses under U.S. patents are used to negotiate access to foreign markets and foreign technology. Obtaining patents for software-related inventions in our principle competitor countries is generally equivalent to that in the United States. Software-related technology will be one of the leading technologies of the 21st century. Discrimination against this technology would set a terrible example sure to be rapidly adopted by the developing world. To now have the leading country in software creation and patents declare that such inventions are excluded from the statute, despite falling within the terms of statutory subject matter, or are to be treated differently from patents involving other technologies, would reverse much of the hard fought progress that has been made over the last decade in improving intellectual property protection throughout the world. Question 4: The Combination of Patent, Copyright, and Trade Secret Laws Are Needed To Provide the Appropriate Level of Protection for Software Technology Relative to question four, patents provide the relatively broad protection necessary to bring in risk capital for new and useful inventive functions that are generally defined in terms of processes or methods of operation. This protection should be afforded only after a detailed examination to ensure that the claimed functions are truly novel and non-obvious. In contrast, copyright protects only the expression contained in the computer program, as it does for other literary works. High level functional processes are expressly excluded from protection by statute. Trade secret laws provide the necessary protection to facilitate the disclosure of confidential software-related designs to employees, joint venture partners and others within a structure supporting that confidentiality. Thus, each protects different aspects of the intellectual property. The inventor, who may not wish or be able to author a complete software product, deserves protection. The author of a program deserves protection from piracy and plagiarism. Those with valuable confidential information, willing and able to keep it confidential should be able to protect that value against those with which it has a fiduciary relationship. Question 5: Creation of a Sui Generis Regime of Protection to Replace the Current Patent and Copyright Regimes Would be a Legal and Economic Disaster Finally, with regard to question 5, CBEMA supports continued reliance on the tested, well-developed protection of patents, copyrights and trade secrets. We strongly support continued improvement in the patenting process for software- related inventions. Nothing suggests the need to treat software differently. A new and untested regime would fail to provide inventors and authors with any certainty of protection for an extended period of time while judicial precedent was developed to determine the scope of the law. Additionally, international protection for our software research and development is critical. There is no certainty that a new protection system could be implemented worldwide, whether through multilateral or bilateral negotiations. The hard- fought protections in the GATT/TRIPs and NAFTA Treaties regarding literary work protection for programs and the issuance of patents without discrimination based on technology were just obtained last year. It is inconceivable that such protections would now be abrogated with the ink hardly dry on those provisions by the adoption of sui generis protection. Treat Software-Related Inventions Like other Inventions In closing, our message to you is this: Don't cut back on patent protection for software-related inventions because some invalid patents may have been issued. The current re-examination process and the Federal court system provide mechanisms for the removal of these mistakes. We believe that further training for Examiners, and access to a larger library of prior art can and will reduce the possibility of future mistakes. Overall, the system is working -- and should be improved, not abandoned. If the standard for patentability is changed for software-related inventions, or if patent protection is dropped in favor of some new form of protection, it will severely and negatively impact CBEMA members, our industry, and the country. Thank you for permitting us to submit these remarks and for your consideration of them. We look forward to working with you to improve the United States Patent system in the future. Computer and Business Equipment Manufacturing Association Member Companies 3M AMP Incorporated Apple Computer, Inc. AT&T Bell & Howell Bull HN Information Systems, Inc. Compaq Computer Corporation Dictaphone Corporation Digital Equipment Corporation Eastman Kodak Company Fujitsu America, Inc. Hewlett-Packard Company Hitachi Computer Products (America), Inc. Honeywell Keyboard Division IBM Corporation Information Handling Services Lexmark International, Inc. Mitsubishi Electric America, Inc. Multigraphics, A Division of AM International, Inc. NCR Corporation Panasonic Communications and Systems Company Smith Corona Corporation Sony Corporation of America Tandem Computers Incorporated Tektronix, Inc. Xerox Corporation Biography Dr. Richard LeFaivre Vice President, Advanced Technology Group, Apple Computer, Inc. Rick LeFaivre is Vice President of the Advanced Technology Group of Apple Computer, Inc. He is responsible for AppleÕs future technology directions in such areas as advanced systems (system software, hardware architectures, information architectures, media architectures), communication technologies (wireless, broadband, ubiquitous computing, interactive TV), user interaction technologies (speech, pen, graphics, imaging, video), and user solutions (intelligent systems, authoring tools, learning environments). He also oversees AppleÕs Corporate Library, External Research portfolio, and the Apple research centers in Paris and Singapore. He joined Apple in March of 1991. Previously, Dr. LeFaivre was Director of Windows and Graphics Systems at Sun Microsystems, responsible for both technology and product development of SunÕs windowing and graphics subsystems. Prior to joining Sun in 1989, he spent eleven years at Tektronix, Inc. as Director of computing and visual systems research in TekÕs central research labs, and from 1974 to 1978 he was a professor in the Computer Science Department at Rutgers, the State University of New Jersey. Dr. LeFaivre received his B.A. in mathematics from the University of Missouri-Columbia, and his M.S. and Ph.D. in computer science from the University of Wisconsin-Madison. TESTIMONY OF JAMES A CHIDDIX BEFORE THE PATENT & TRADEMARK OFFICE HEARINGS ON PATENT PROTECTION FOR SOFTWARE RELATED INVENTIONS January 26, 1994 Let's start at the beginning. The Constitution says that patents are to be granted in order "To promote the Progress of Science and useful Arts". Time Warner Cable, for which I am Senior Vice President, Engineering and Technology, is the second-largest cable operator in the United States, serving more than 7Êmillion subscribers in 36 states. Two years ago, we built the first 150- channel cable system in Queens, New York, which remains the most advanced cable system in the world today. Currently we are building the country's first electronic superhighway, what we call the "Full Service Network", in Orlando, Florida, which will offer a host of two-way interactive services, including video on demand, interactive shopping and distance learning. Time Warner Cable plans to spend more than $5 billion over the next five years to deploy Full Service Networks in the majority of our service areas across the country. The Administration and members of Congress have indicated that building such networks is a national priority. In our experience, however, the current patent system is, to some extent, working against the development of an advanced communications infrastructure. Ever since we announced our Full Service Network plans, we and our suppliers have received a number of inquiries from individuals and companies who purport to have patent rights that cover basic, but to us, obvious, elements of the information superhighway as well as of traditional cable systems. I would like to describe for you two of these patents. The point is not whether these patents are valid or invalid, or whether any particular use is infringing or non-infringing--although we firmly believe that nothing we are doing infringes any valid patent. The point is that, either way, while none of these patents stand as a significant impediment to our deployment of Full Service Networks, they do serve to illustrate that the current patent system is out of balance and that, rather than promoting the progress of science and useful arts, that system is, in many ways, stifling such progress. The Cutler Patent (U.S. PatentÊ4,135,202) The Cutler patent purports to cover many uses of optical fiber to transmit television signals to receivers in the home. This patent was granted in 1979 and will expire in 1996. The use of fiber, of course, is basic to the electronic superhighway and has also been used for many years in traditional cable systems. Indeed, Time Warner Cable has been a pioneer in the deployment of optical fiber in cable systems. The "inventor" of the Cutler patent did not invent optical fiber. Rather, he merely filed a patent for using fiber to transport video signals to the home. The patent statute says that patents are not to be granted if "the subject matter as a whole would have been obvious at the time the invention was made to a person having ordinary skill in the art to which such subject matter pertains" (35ÊU.S.C.ʤ 103). I am not a lawyer, but it seems to me that the idea of using optical fiber to transport video signals to television sets is not only obvious, but also inherent in the fiber optic medium itself. If such a patent were valid, I would think it would also have been possible to obtain patents after the invention of television for using that medium to transmit drama, sports or news programming. These, however, are merely self-evident uses that are inherent in the medium of television--just like video transport is inherent in the medium of optical fiber. The StarSight Patents and Patent Application (U.S.ÊPatent 4,706,121, PCT Patent Application No.Ê92/04801) The StarSight patents purport to cover a wide variety of features used in connection with Electronic Program Guides ("EPGs"). EPGs are on- screen guides that provide program listings for channels that are broadcast or provided by a cable system. They do not directly involve Full Service Networks, but, rather, are used to provide schedules for traditional, analog channels. StarSight has a number of patents, but the features I discuss here are purportedly covered by a patent granted in 1987 and another that is currently pending before the patent office. Pursuant to this patent and application, StarSight apparently claims or seeks protection for the following EPG features; -- The ability to move a cursor of automatically- varying size about on an on-screen program guide to highlight a particular program on the schedule and then to press a button on a remote control device to tune to the channel on which that program is being transmitted. -- The ability to combine two or more criteria such as "sports" and "football" to obtain a listing of the times and channels on which programs fitting those criteria will be telecast. Again, to me, these features seem obvious and inherent in the technology that provides them. Daily newspapers have long provided channel listings, often using a grid format that shows what programs are on what channel at what time. In addition, individual broadcast channels and cable systems have long telecast on-screen programming schedules. When a television viewer uses such a schedule, she or he finds a program of interest, identifies the channel, and punches the number into the remote. The StarSight system merely does this tuning process automatically through a straightforward transfer of the process to a computer. Similarly, when I want to watch football games on television, I simply scan the program schedule for such programs. It would be a simple, but somewhat time-consuming task, to write out a list of such programs. But again, preparing lists from data based on multiple criteria is a simple, straightforward and obvious computer application. Under existing law, patents for what I have just described may be valid or invalid. As I said at the beginning of my remarks, however, in either case such patents present impediments to progress. If such patents are found to be valid, surely the patent system has gone too far in providing protection for what would seem obvious to a lay person, let alone to "a person having ordinary skill in the art". The result of awarding such patents at best results in added costs for no added value--if a license is obtained--and at worst, prevents consumers from fully realizing the benefits of the technology--if a license cannot be obtained at an affordable price. If such patents would ultimately be found to be invalid, however, the patent system would still not be working properly. Some of the StarSight patents are currently being challenged in court. Business, however, cannot come to a halt in the meantime. Also, litigation is costly, slow and never free from risk. Rather than expend time and money on litigation, many prudent business people will choose to avoid the problem. Indeed, one of our suppliers of set-top boxes has informed us that, rather than challenge the StarSight patents, they will instead "de-feature" the boxes they are making for one of our cable systems, removing the ability of those boxes to provide some of the features that StarSight claims are covered by its patents. This is not an uncommon or irrational decision. This supplier will be spending many millions of dollars to manufacture these new boxes. Even though they believe the StarSight patents are not valid, it is simply not worth the risk and the cost of fighting them in court. Of course, our supplier could always attempt to obtain a license for these features. But again, this would result in added cost for what in our view provides no real value. So, in our view, the present system of patent protection is not optimally promoting innovation in the field of software-related inventions. Rather, the current system is in some important instances stifling innovation, increasing costs and leading to "de-featuring" rather than fostering the development of new and better products and services. However, it is not the framework of the system that is the problem. The statutory test of obviousness--and the person-of-ordinary-skill standard--in themselves strike the proper balance. What is needed then is not a new framework for patent protection for software-related inventions but a more rigorous application of the present standards. For one thing, obviousness should include routine applications of a given technology, regardless of whether there is prior art showing that particular application. For another, any "invention" that merely transfers a series of routine tasks to a computer should also be viewed as obvious. As your notice for these hearings states, "the computer software industry has evolved into a critical component of the U.S. economy." Indeed, the importance of this component is growing greatly every day as the computer, cable and telephone industries continue to converge. If the United States is going to continue to be at the forefront of these crucial industries, it is imperative that the patent system be restored to its proper balance, so that it can properly foster, rather than frustrate, innovation. TESTIMONY OF D. JOSEPH CLARK, PH.D. CHAIRMAN & CEO VIDEODISCOVERY, INC. PATENT & TRADEMARK OFFICE PUBLIC HEARING SAN JOSE, CALIFORNIA JANUARY 26, 1994 INTRODUCTION Good morning. My name is Joe Clark and I am the Founder, the Chairman and CEO of Videodiscovery in Seattle, Washington. Videodiscovery is a small but well-known publisher of multimedia products for science education K-college. I started Videodiscovery in my basement in 1983 with very little money and business experience. The company has grown to over 60 people in the course of 10 years in spite of original obstacles. Thank you for offering me the opportunity to share with you some of my thoughts regarding the patent process and ways in which it could be improved. First, I would like to provide a little background information. My doctorate is in microbiology and my research experience of nearly 20 years is in the field of molecular genetics. I was a faculty member at the University of Washington in Seattle for 12 years prior to starting Videodiscovery. In 1981 I received a grant from the Department of Education to produce a videodisc for biology education. I became interested in videodisc technology in 1978 and feel that I helped pioneer the multimedia industry. My focus has always been on education. PATENT CASE HISTORY I started to learn about the US Patent system on January 23, 1993 when I received a letter from Optical Data Corporation calling attention to the award of two patents. This letter not only directed our attention to the awarding of two patents, but also stated that as a publisher with videodisc products in our curriculum programs, Videodiscovery probably may be infringing on these patents. Seven other publishers of multimedia products in education received similar letters, including Scholastic, Inc., Encyclopaedia Britannica, Scott Foresman, Prentice Hall, Decision Development Corporation, South-Western Publishing, and Holt, Rinehart, Winston. I can assure you that among this group there was uniform disbelief and anger that the U.S. Patent & Trademark Office (PTO) would have the audacity to provide anyone with a patent on what I would call the "Socratic Method." 1. The first patent, Number 5,120,230, was issued on June 9, 1992. Entitled "Interactive Method for the Effective Conveyance of Information in the Form of Visual Images," this patent covers an instructional methodology that involves an interactive trilogue between the teacher, class, and video display device. 2. The second patent, Number 5,173,051, was issued on December 22, 1992. Entitled "Curriculum Planning and Publishing Method," this patent covers a lesson creation methodology to use software to develop customized curricula. In defense of the PTO, the first patent, (Number 5,120,230) was rejected twice because of the obviousness of the invention, but persistence on the part of the applicant paid off and the patent was finally awarded in June of 1992. At that time in early 1993, I was in contact with all of the parties who had received the letter from the patent holder. I found a consensus that the patents were invalid on the basis of prior art and the obviousness of the claims, and that the patents would have a negative impact on the development of the electronic publishing industry. Through this process, I started to find out more about the patent process and the options available to Videodiscovery to get the two patents invalidated. As a small company, Videodiscovery initially felt it was unable to challenge the validity of the patents. I was advised by my attorney that litigation would cost a minimum of $200,000 and possibly up to $300,000. Since the patent holder was a direct competitor, and we had been put on notice, I felt we had no choice but to address the problem. On August 12, 1993, Videodiscovery filed a complaint against the patent holder in Federal Court requesting a declaratory judgment finding the two patents invalid based on the obviousness of the patents and the existence of numerous examples of prior art. On October 28, 1993, the last day their answer to our complaint was due in court, they elected to dedicate one of the patents, No. 5,120,230, on a "Method of Instruction," to the public domain. In a surprise move, they also asked that the PTO re- examine the second patent. Currently, the case is pending. VIDEODISCOVERY'S EXPERIENCE ILLUSTRATES PROBLEMS WITH PROCESS Let me read the abstract to you and describe in a few words Patent No. 55,120,230: "Interactive Method for the Effective Conveyance of Information in the Form of Visual Images" An interactive method of effectively and efficiently conveying information which makes use of videodisc technology, along with associated printed material. Video images are stored on a videodisc, which images can be r