United States Patent and Trademark Office Public Hearing on Use of the Patent System to Protect Software-Related Inventions Transcript of Proceedings Thursday, February 10, 1994 9:00 a.m. to 5:00 p.m. Friday, February 11, 1994 9:00 a.m. to 12:30 p.m. Before Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Location: The Marriott Crystal Forum 1999 Jefferson Davis Highway Arlington, Virginia Table of Participants Before: Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks United States Patent and Trademark Office The Panel: Lawrence Goffney Assistant Commissioner for Patents-Designate United States Patent and Trademark Office Micheal K. Kirk Assistant Commissioner for External Affairs United States Patent and Trademark Office Jeffrey P. Kushan Attorney-Advisor United States Patent and Trademark Office Michael Fleming Supervisory Patent Examiner United States Patent and Trademark Office Transcription Services by: AMERICAN REPORTERS NATIONWIDE (800) 929-0130 WASHINGTON METRO (703) 644-7636 FAX (703) 866-7049 Witnesses February 10, 1994 PAUL ROBINSON Tansin A. Darcos & Company KEITH STEPHENS Taligent, Inc. MARK TRAPHAGEN Software Publishers Association ROB LIPPINCOTT Interactive Multimedia Association E. ROBERT YOCHES JEFFREY A. BERKOWITZ Finnegan, Henderson, Farabow, Garrett & Dunner STEPHEN L. NOE Caterpillar, Inc. Intellectual Property Owners, Inc. JOHN J. HORN Allen-Bradley RICHARD NYDEGGER Workman, Nydegger & Jensen ALLAN RATNER Philadelphia Patent Law Association Ratner & Prestia DIANNE CALLAN Lotus Development Corporation Business Software Alliance R. DUFF THOMPSON WordPerfect Corporation RON REILING Digital Equipment Corporation RICHARD JORDAN Thinking Machines Corporation A. JASON MIRABITO Boston Patent Law Association JONATHAN BAND Morrison & Foerster LEONARD CHARLES SUCHYTA Bellcore, Bell Communications Research VERN BLANCHARD American Multisystems EDDIE CURRY IMAGESOFT, INC. February 11, 1994 D.C. TOEDT Arnold, White and Durkee JOSEPH HOFSTADER League for Programming Freedom TIMOTHY SCANLON JOHN J. HORN Allen-Bradley R. LEWIS GABLE Welsh & Katz JOHN E. DeWALD The Prudential Insurance Company of America DAVID L. CLARK Aquilino & Welsh, P.C. ALLEN M. LO Finnegan, Henderson, Farabow, Garrett & Dunner SAMUAL ODDI Northern Illinois University College of Law BERNARD GALLER University of Michigan Software Patent Institute GREGORY AHARONIAN Source Translation and Optimization PROCEEDINGS MORNING SESSION (9:11 a.m.) COMMISSIONER LEHMAN;: Good morning. My name is Bruce Lehman and I am the Assistant Secretary of Commerce, and Commissioner of Patents and Trademarks. Welcome to our second round of hearings on the use of the patent system to protect software-related inventions. Two weeks ago we held two days of hearings in San Jose, California, the capital of the Silicon Valley. Those hearings focused on the patent system and how it was being used in the field of software. This round of hearings will focus on the standards of patentability and the examination process, as well as the treatment of the visual aspects of software under our design and utility patent systems. The common goal for all of our hearings is to find out how the patent system is working for this field of technology and to get your suggestions for making it work better. President Clinton has made the development of and competitiveness of high tech industries in the United States a cornerstone of his economic program. Promoting these industries will lead to high tech, high wage jobs for Americans and will ensure continued American competitiveness in the industries of the future. Our Secretary of Commerce, Ron Brown, has assembled an excellent team to work on initiatives toward that end and I am pleased to be a part of that Commerce Department technology team. The software industry is already meeting the President's goals for creating competitive high tech domestic industry. So we've got a good thing going already. Statistics show that since 1987 employment in the software industry has risen at an annual rate of over 6.5 percent and now employs well over 400,000 people. In 1992 revenue from the sales of programming services, pre-packaged software and computer integrated design was over $50 billion. U.S. software firms dominate the world's software markets, holding over 75 percent of the market for pre-packaged software. It is interesting that up until the middle of this century the wealth and economic strength of the United States came primarily from the exploitation of our natural resources and we had a lot of them in those days. In the 21st Century, our economic strength will come from tapping our most treasured resource, the wealth of the human mind, and we will be concentrating on conserving our natural resources. To do this, however, we must encourage innovation and provide our innovators with the legal protections they need to successfully exploit their innovations. This is especially true in the intensively competitive and fast-paced computer and software industry. Indeed, innovation is the life blood of this industry. It is what separates successful firms from unsuccessful ones. Innovation, however, is a fragile commodity. Without effective legal protection our software industry would not enjoy the dominance it now does in the global market, nor would consumers enjoy the high quality and extremely usable software products that are available on the market today. Our intellectual property systems were established over 200 years ago to promote and protect innovation in all fields of technology. If these systems are functioning properly, they will provide an appropriate level of protection and encourage innovation. From what we have heard recently, this may not be the case for our patent system in the field of software-related inventions. This is why we are seeking public input -- to identify the problems that exist and to hear suggestions on how to address them. Two weeks ago we held the first round of hearings, as I mentioned earlier, in San Jose, California. No clear consensus emerged from those hearings, but many suggestions were made regarding how the patent system could be improved for the software industry. Some people testified that the patent system was not working at all, that it neither encouraged nor assisted software development. Others suggested that companies only sought patents for defensive purposes. If true, this runs counter to one of the primary reasons for the patent system, which is to encourage innovation. On the other hand, several people testified that the patent system was essential for successful software development efforts. We heard large and small companies tell us that without patents they would not be able to attract or effectively protect investments in developing new software-related technology. I think we also were hearing that the industry might be on the verge of a shift to more patent dependency and more usefulness in the patent system. However, even people who generally supported the patent system commented on the need to improve the quality of issued patents. Some people expressed skepticism over the ability of the PTO to accurately gauge software innovation. Others commented that the Patent and Trademark Office does not have access to enough prior art or that adequate collections of prior art simply do not exist. We are committed to addressing these concerns and to taking whatever measures are necessary to ensure the proper function of the patent system. I would like to say, just yesterday, I know, the Chairman of our House Subcommittee, Chairman William Hughes, discussed these hearings and he indicated his willingness to work in partnership with us, to the extent that legislation is required to assure the proper functioning of that system. My goal is to ensure that patents will be instruments that you can take to the bank literally. From what we heard in San Jose this may not be the case for patents in the field of software-related inventions. We intend to address these concerns through three levels of action. First, we will improve our examining operation to ensure high quality examination. Second, we will pursue appropriate legislative reform to ensure the efficient functioning of the patent system. And finally, we intend to work with the Judiciary to improve the interpretation of patent rights in the context of enforcement. Many useful suggestions were made in San Jose two weeks ago and I expect to hear many more in the next two days -- today and tomorrow. For example, many people stressed the need for reform of the reexamination process. We recognize the need for making reexamination a more attractive option for those having reasons to question the validity of any particular patent and are presently studying a number of suggestions and proposals in that area. Many people pointed out in San Jose that the obviousness standard, as interpreted by our examiners and by the court, seems to be inconsistent with the realities of the industry. We recognize that an effectively functioning patent system requires a standard of nonobviousness that is rigorous and reflective of industry norms. However, we also recognize that the courts are the primary source of guidance on the basic question of obviousness. As such, we intend to work with the courts to ensure that the obviousness standard is applied rigorously, not only in the context of examination, but also when patents are enforced. I mentioned that was part of our three-part program. Several suggestions were made regarding the improvement of our operations. I would like to note that we are already responding to some of these suggestions. For example, many people have called for the PTO to improve its ability to find and retrieve prior art. One step we've taken towards this goal is the creation of our electronic information center in Group 2300. This facility will provide an easily accessible structure through which we can improve our collections of and access to the prior art. However, extensive work with industry and other groups is beginning to pay off in the form of specific commitments to providing information, like in-house textbooks, old software user manuals and access to information on early programming techniques. We also heard that we need to attract and retain more qualified examiners by providing more competitive salaries and improving the stature of the examiner position. Toward this end, we have just changed our standards so that we will hire for the first time computer scientists as examiners. We are also in the process of expanding our examiner enrichment program to provide our examiners with greater exposure to other aspects of the Patent and Trademark Office and technical programs in other government agencies. That is just the beginning. We have a real quality of life improvement program underway here for our patent examiners that hopefully will translate into better quality of examination. Another specific area targeted by people testifying in San Jose was the need to improve the administrative processing of patent applications. People stressed the importance not only of insuring the timely consideration of patent applications but the timely processing at every stage of the patent application process. This falls squarely within our new focus on customer service. One example of a program that we are studying now is the pre-examination interview. We are conducting a trial program to evaluate whether this step can help reduce the delays and assist pro se inventors. Before we hear from our first witness, I would like to introduce you to some of the members of our own panel, people who are here from the Patent and Trademark Office. First, I would like to introduce on my left Michael Kirk. Mike is our Assistant Commissioner for External Affairs. Presently he's in charge of our Office of Legislation in International Affairs. But President Clinton has nominated him to become Deputy Commissioner. Under our new reorganization that we are implementing in the Patent and Trademark Office, he will be in charge of -- basically the policy czar for the Patent and Trademark Office and will have reporting to him not only the Office of Legislature and International Affairs, which he now runs in the Office of Public Affairs, but also the Solicitor's Office, the Board of Appeals and our quality review operations so that we can bring all of these together into a single unified policy entity that will help work on policy aspects of these problems and provide better service to all the people who look to us in the Patent and Trademark Office for leadership. On my immediate right is Lawrence Goffney, our Assistant Commissioner for Patents-Designate, who the President has nominated to run our patent operation, by far the largest, over half of the whole Patent and Trademark Office, with over 5,000 employees. And, of course, Group 2300 and this particular subject matter falls directly under Larry Goffney's jurisdiction. The other fellow sitting here at the table with us is Jeff Kushan, an attorney in our Office of Legislation, International Affairs, who many of you may have talked with. He's the point man for day-to-day contact on this particular issue. And anybody who has any questions or follow-up on this can get ahold of him, and his number is 703-305-9300. I also would like to introduce somebody who is not sitting at the table, but who is absolutely a lynch pin to this whole effort, and that is Jerry Goldberg --- Jerry wants to stand up -- who is our Group Director for Group 2300. Finally, even though he is not sitting there right now, I would like to note that Mike Fleming was in Group 2300. There he is right there. Mike is going to be, anybody that has any scheduling issues or questions or whatever, whether a hearing is going on -- if you might, stand up again, Mike, so they can make certain they know where you are. Are you going to sit there or over there? He's going to sit right over here in the corner. You should just approach Mike and he'll see that you get taken care of. People who will be testifying over the next two days should have received a schedule indicating the approximate time they have been assigned to give their remarks. A final list is available at the entrance to the room. I expect most of you have already picked it up. I would encourage all the people scheduled to testify to be here at least 20 minutes before your assigned time slot. The reason for that is because we've already had a couple of people because of this weather who can't come. So obviously if we have a person who can't come, that's going to move us up a little bit. That's been our experience so far with these hearings, these and other similar hearings. So please be here at least 20 minutes before your assigned time slot. Each person will have eleven minutes to speak. The computer monitor right there in front of the podium will display a green screen for nine minutes. Then it will turn yellow. And when the screen turns red we would very much like you to have concluded your comments by that time. I encourage everybody to do that because it's really only fair to all the other witnesses. And generally speaking, these hearings have been pretty good at that. I hate to have to gavel people to a halt. So if you'd really cooperate with that, I'd really appreciate it. I think eleven minutes is a pretty good amount of time. I want to emphasize that, you know, these eleven minutes aren't your only chance to -- they may be your only chance in the spotlight with an audience, but they are not your only chance to communicate with us. You know, this isn't the court where this is your oral argument and that's it. We certainly welcome further written comments. Certainly at the Patent and Trademark Office we like to be accessible even on a day-to-day oral basis. I've just introduced a bunch of people to you -- Jerry Goldberg and Jeff Kushan. I would also like to introduce Charlie Vanhorn who is sitting over there. Charlie is our Chief Patent Policy guru in the Patent Corps. I know many of you already know these people. I'm sure that over the next weeks and months they look forward to having a dialogue, continued dialogue, on these issues. If you check the Federal Register Notice of December 20, 1993, you will find all the information about how to send us more comments if you want. That notice is not only available printed in the Federal Register, but it's also been widely circulated through the Internet and it can be retrieved from our FTP site, which is COMMENTS.USPTO.GOV. Transcripts for these hearings will be available after February 21 and paper copies will be available from our office for $30.00 and transcripts will also be available for free through our FTP site on the Internet. Once again, we welcome everybody to our hearings today. I'm really gratified at the turnout that we've been having. We had a very large audience in San Jose. We get a normal 60 people who testified and I'd say that we had at any given time at least 100 people in the room, and probably at the maximum we had 300 or 400 and a lot of them stuck with us. So there's obviously interest in the industry in this. We're gratified about that. We also understand that that imposes on us an obligation to really make these hearings meaningful and to follow up in the ways that we've already started, that I've outlined to you in my own opening remarks. So with that I'd like to call our first witness to come up and share his thoughts with us, and that's Paul Robinson, who is the Manager of Data Processing and Chief Programmer of Tansin A. Darcos. PRESENTATION BY PAUL ROBINSON; TANSIN A. DARCOS & COMPANY MR. ROBINSON;: Good morning, Assistant Secretary Lehman, Mr. Kushan, the staff here, members of the audience, people reading this report in the future and anyone else I've forgotten. My name is Paul Robinson. I am Chief Programmer for Tansin A. Darcos & Company, a software development firm which specializes in text processing applications. I also do work on commercial philosophy and metaphysics of computer systems. My special interest and my personal hobby is collecting compiler and other program sources. My reasons for this are that these all solve problems. By reading the manner and method other people solved other problems it gives me insight into how to solve mine. This is a common practice in the computer world in order to, as the expression goes, not reinvent the wheel. I assume this is common in other industries. In fact, this is most likely the reason that we have the patent system. Someone is granted the exclusive right over commercial use of their invention for a limited term in exchange for telling the world about it. For most computers, every application, such as word processing or spreadsheets, has at least two and possibly three or more different applications fighting for market share. The fights in this industry are usually referred to by the expression dinosaur mating dances, as huge companies fight for market share by releasing new programs to introduce new features that the companies believe the customers want. Version 3 of Turbo Pascal was an excellent language compiler and less than 40K. Version 4 would fit on one 360K diskette. Today, Turbo Pascal Windows Version 1.5 takes 14,000K of disk space. The program that is most probably the premier application for graphics design is Corel Draw, which has so much material it is being released on not one, but two 500 megabyte CD ROM diskettes. But there are probably still niches for smaller companies to move into. With the rapid changes in the marketplace it is necessary to be ready to have new programs and new releases of old programs out to encourage people to move to the next release. In some cases, companies make more money from upgrades and need to do so to stay alive. These kind of cycles mean new releases have to out very quickly, in a matter of weeks to months. With this kind of rapid development cycle, delays in a release of a program could be fatal and the time available to create the work is sometimes barely enough. Until recently, the only legal issue that anyone had to worry about was copyright infringement. This could be avoided by creating new work from scratch. Now we have another issue altogether. A programmer can independently create something without ever knowing about any other developments, and yet be sabotaged by the discovery that the method they have used is patented. This is a standard problem that all industries have had to face and it is part and parcel of living in an industrial society. But there is another problem. A computer program is the written instructions by a human being to tell a computer how to perform a particular task. As such, there are only two parameters -- the input supply to the program and the expected output. Everything else is literally a figment of someone's imagination. This bears clarification. A computer program is the means of manipulating the internal data passed through a computer system. There is no requirement that the manipulations have any correspondence to the real world. In this, the real world, doing anything requires the expensive movement of people and goods from one point to another, the possible refinement of materials into other materials and the expenditure of energy and resources. Doing anything in a computer is merely the essentially cost-free movement of electron paths from one direction to another. It brings forth the approbation of the concepts of the math, man and manual camped into reality, a world in which anything is possible. We can see this in the current discussions going on about violent computer games where someone goes about maiming, shredding and killing their opponents in graphic detail. Then when the game is over, nothing in the real world has changed except the clock. One of my favorites happens to be the game Doom, where the weapon of choice is a 12-gauge shotgun, but a chain saw does a nice job on people near you. We have seen it in motion pictures, such as Total Recall, where if one is acting within a part of a computer program you cannot be certain what is real and what is fantasy. The movie Brainstorm had simulations of sexual contact, apparently indistinguishable from reality. There are things that can be done within a computer program that cannot be done in the real world or would have undesirable consequences. As such, we should ask whether the patent rules which are designed to apply to real world conditions where doing something requires the expenditure of energy and resources should apply where the known rules of the universe do not apply. Because the entire design starts from scratch, the designer doesn't just get to play God, he is God. Despite the ease under which someone can do something, we still live under real world constraints. Once a design choice is made, it is very expensive in time and effort to change it. Worst, because most programs have interactions that cover every part, a change to one part can cause unexpected and even undesirable side effects in unknown and unexpected places. Computer programs may be the stuff that dreams are made of, as Shakespeare has used. But once placed in a concrete form, as written in software instructions, it's just as expensive to repair or change as if it were carved out of real materials. It may be necessary to change the rules on patents to comply with conditions that exist for computer programs. I can think of a couple of suggestions. There has been talk of instituting first-to-file in order to "harmonize" with the systems in other countries. I think that this is not a good choice. Most countries have fewer patents and provide protection which is much narrower than our system does. This would also mean that if someone does invent a new and useful technique for use in a computer application would be unable to collect any royalties from someone else who is using the same invention who thought of it after they did, but started using it before they filed. The two really large problems that exist in our system are probably two-part -- the secrecy under which patent applications are filed and the problems if a program uses parts of several patents which might not be discovered until later. As I mentioned earlier, computer programs are created out of the figment of someone's imagination, then mass copied the way an original painting can be reproduced by lithograph. A single large application might have a dozen people working on it or thousands of people working on it, and upwards of 50 different features, and might have upwards of 200 or more different parts. Any one of those might be infringing on zero, one or more patents, depending on what the claims are. I doubt seriously that all but the largest corporations have the resources to do 200 patent searches on a single software application, which would be prohibitive for a small company because it is likely that a large program could infringe dozens of patents due to the continued development of ever larger applications that do multiple simultaneous functions. But more than that, you can't do patent searches on works which are under application form until after the patent has been issued. And more importantly, with more than 1200 patents issued every week, checking them all for possible interconnection would make it impossible to do any serious work, although that might provide somebody with an idea for a magazine. Seventy years ago fears that the major piano manufacturer would tie up the entire song market and create other companies from creating player piano roles caused Congress to institute compulsory licensing. This may be an idea whose time has come again. Therefore, it might be considered to make two possible changes to the patent law with respect to computer programs. Perhaps to implement a standard compulsory license, perhaps 10 percent of the manufacturer's suggested list price, and to eliminate secrecy provisions in the filing of patent applications. Either of these could certainly help the situation. Eliminating secrecy and publishing applications once filed would let people know about pending applications. They could endeavor to avoid infringements in advance. It might also allow them to file inferences early if it turns out that they invented the concept earlier while it is still cheap to do so; and would allow people to be aware of what is being developed, which would comply with Article I, Section VIII of the Constitution where patent protection was designed to "encourage the improvement of the useful arts." The other option of setting a standard royalty, via compulsory license, would eliminate the worries of someone infringing upon an existing patent or multiple patents or one that is filed after their work is created. It would also grant to inventors an income stream from those who use their inventions which started before they filed their application, but after they reduced the invention to practice. It would also limit liability and exposure to sustainable limits. As it stands, if someone develops a program that infringes upon 40 patents and they each want a 3 percent royalty, it isn't hard to see that 120 percent of the program's income is not going to be possible. Thank you. Any questions? COMMISSIONER LEHMAN;: Thank you very much, Mr. Robinson. You obviously put a lot of thought into that statement and had some very interesting ideas. Thank you very much. I'd like to next call on Keith Stephens, corporate counsel to Taligent, Inc. PRESENTATION BY KEITH STEPHENS TALIGENT, INC. MR. STEPHENS;: Mr. Commissioner, my name is Keith Stephens. I'm corporate counsel of Taligent and I will be testifying today on behalf of Taligent, Inc. I'm a computer scientist and engineer by training and have earned my living as a systems engineer, as an inventor and subsequently as a marketing rep before I saw the light, went back to law school, took the patent agent's exam and became an attorney. Currently I'm employed by Taligent to protect their intellectual property. Taligent is a joint venture, similar to many other small innovative companies in the Silicon Valley. It's increasingly important for small ventures o be able to protect their intellectual property. Today I would like to talk about transforming the legal chaos associated with software-related inventions into a system with much better legal certainty by continuing to refine the examination process, and issuing quality patents allowing software investors to obtain a better return on their investment, and encouraging investment in American software technology. Can I have my second slide? I have three major points. First, it's important for the Patent Office to hire the best people. Second, to provide them with the best tools. And third, to tune the examination process. The Patent Office needs to hire computer science majors and I applaud your efforts in that area. However, they need to get computer science majors with industry experience. This will give them a historical perspective on the prior art. In addition, they need to continue the efforts that Jerry Goldberg and Group 2300 have made in bringing industry experts into the Patent Office to teach classes on particular technologies that they come into contact with. We sent Mike Pitel, who was a university professor at Chicago. He came and taught a class on object oriented programming, not just a class to introduce them to the technology, but also to teach the history of object oriented programming and give them a perspective so that they would be in a better position to examine our patents. We also worked closely with Groups 2300, 2500 and 2600 to bring a set of examiners out to the Silicon Valley to introduce them firsthand to technology experts. However, as Tom Kronium pointed out in the Silicon Valley, this is a two-edged sword. As Gary Shaw quipped, this provided him with new and innovative ways to reject our claims. Now in addition I'd like to encourage examiner/attorney communication. It's so important for examiners to up front understand exactly what the invention is that I would like to encourage them to be more open in contacting attorneys so that they can find out from their first source exactly what the invention is. Corporate America doesn't work in a vacuum. Corporate America -- it's always the case that we consult experts within and without before we make any kind of a decision. Similarly, as an attorney, when I receive an invention disclosure I don't just snap to a decision on that disclosure. I'll consult the experts within our company as well as ask general questions to maintain confidentiality of what the state of the art is outside. And finally, I'll also, if I know someone in the Patent Office that's an expert in the area, contact them and ask them what they know about it. Similarly, I would encourage the Patent Office to create a human database of experts, both inside and outside of the Patent Office, and communicate with them through phone, Internet, querying a wider audience to determine exactly what the prior art is. This could be done through a contractual basis or just generally by contacts and asking open-ended questions. But I would also encourage them to continue the confidential status of patents until they issue. Secondly, I think it's important to give the best tools to the examiners. It's very encouraging to see examiners starting to get access to Internet. Electronic mail is a tool that everyone in the industry uses as a common practice. I would even venture to say that had Internet been available that the multimedia technology, state of the art, would have made it in the Patent Office in a much more timely manner. Secondly, commercial databases such as those in the Group 2300, Orbit, Dialogue and Lexus should be used as a regular basis amongst examiners. But in addition the Patent Office should pursue getting industry databases from such companies as AT&T and IBM, so that they can effectively search the technical disclosure bulletins of these companies. The result will be quality patents and a confidence in the appropriate claim scopes issuing in the patents. Third, I'd like to talk about tuning the examination process. It's very important to standardize the examination process and encourage examiners to take advantage of contacting attorneys using the databases to find out what the state of the art is in the area and inquiring of experts, both within and without at the Patent Office to make their determination as to novelty and obviousness. Then in addition it would be very good to have a common format of acceptable standards to file patent applications so that we could electronically file patents. This standard could be such as WordPerfect or a word standard document that we could transmit electronically to the PTO and eliminate a lot of the paper shuffle associated with patent applications and speed up the processing of these applications. Then, too, I would encourage the improvement of practical application of the law in the Patent Office. Hiring people with industry experience is naturally going to elevate the current obviousness standard and the novelty standard once people have a knowledge of what the prior art really teaches. And then I would encourage the Patent Office to modify their examination process, to remove the bias currently associated with the reexamination process, to encourage us to utilize the reexamination process as opposed to using a more costly approach of going to the CAFC or other Federal District Court type of an approach. These changes, which are slight modifications to the current examination process, will result in much better patents being issued. So in summary, I would encourage communication with attorneys in the Patent Office, better communication with the outside world. I would encourage the utilization of a human database through a setup so that the PTO could have access to better prior art. And then I would encourage the best possible tools being provided to the Patent Office so that they'd be in a better position to know what the prior art is and to also assess what is truly new technology versus just reinventing the wheel. And finally, tuning the process associated with examination of processing patent applications. This will eliminate the current chaos associated with software-related inventions, improve the legal certainty associated with issued patents, and make the PTO much prouder of their work product. Let's remember who created the patent system and let his words control. Thomas Jefferson said, "Where a new invention promises to be useful, it should be tried and afforded the best possible protection to allow progress in the technology and to allow the fruit of the labor to be realized by the inventor of the technology." This will encourage investment in software, will result in more software-related high pay, high tech jobs and finally, will increase American competitiveness in a global economy. Thank you. COMMISSIONER LEHMAN;: Thank you very much, Mr. Stephens. I didn't hear in your list of proposed reforms, which actually Mr. Robinson suggested, and that was the idea of some kind of disclosure prior to publication of the patent, of the information in the patent application. Pre-publication as a technique to make certain that we let the world know what's going on and make sure we get the prior art. What would be your view about that? MR. STEPHENS;: My view on that is I don't think that pre-publication is necessary to reach your common goal that I think everyone here will agree with, is to issue the best quality patents with claims of the scope that the inventor is entitled to. That can better be achieved by providing the appropriate tools to examiners and providing them access to the experts in the area, even possibly putting together a contractual relationship between the Patent Office and various human experts that are available in industry, so that the confidentiality of the application will not be compromised. But the information will be available to examiners to make sure that the issuance of the patent has the appropriate claims or the appropriate scope of claims. COMMISSIONER LEHMAN;: Thank you very much. Does anyone else have any questions? (No audible response.) COMMISSIONER LEHMAN;: Next I'd like to call Mark Traphagen, counsel to the Software Publishers Association. PRESENTATION BY MARK TRAPHAGEN SOFTWARE PUBLISHERS ASSOCIATION MR. TRAPHAGEN;: Good morning, Mr. Commissioner, members of the panel, and those of you in the audience. Thank you for the opportunity to appear today to speak about patent protection for software-related inventions. My name is Mark Traphagen and I am counsel for the Software Publishers Association. Patents for software-related inventions have been highlighted by the media in recent months. For example, last year the U.S. Patent and Trademark Office granted a patent to Compton's New Media of Carlsbad, California for a system of retrieving information for multimedia works. Now Compton's New Media is a member company and SPA has no position on the merits of this patent which is now being reexamined. But it is worth noting that Compton's New Media is not alone in seeking patent protection for software, as several other companies have been reported in the trade press to own patents for software with important applications in multimedia. And since 1987 more than 10,000 patents have been issued on nearly 35,000 applications filed in classes 364 and 395. In 1992 alone almost 2,000 patents were issued on 8,000 applications filed. And lest one think the patent applications for software patents are a phenomenon unique to the United States, the Japanese Patent Office issued as many as 12,000 such patents in 1990. Since it was founded in 1984, SPA's been a leader in advancing the interests of its members, primarily through copyright law. And copyright law has been popular, more popular than patents, among software developers and publishers because its protection is relatively inexpensive and free of formalities. Copyright law alone, however, cannot protect all of the aspects of intellectual property and software technology because it is limited to creative expression in code, screen displays and other graphic output. In particular, Section 102(b) of the Copyright Act provides that "in no case does copyright protection for an original work of authorship extend to any idea, procedure, process, system, method of operation, concept, principle or discovery regardless of the form in which is described, explained, illustrated or embodied in such work." Now it's precisely these functional aspects of software technology that are sought to be protected by patent law. While like copyright law, patent law does not protect ideas in themselves, it does protect the machines, methods, processes, and apparatus that implement these novel ideas. This protection is extended, however, only to innovations that satisfy the statutory requirements of novelty and nonobviousness. SPA has over 1100 members and represents not only large, well-known software publishers and developers, but hundreds of smaller companies and organizations as well. SPA members include not only those organizations that have sought patent protection already, but also those who will do so in the future and those whose products are potentially affected by patents held by others. SPA called on the elected Board members of its consumer, education and multimedia sections to join a software patent working group and assist SPA's government affairs committee in formulating our position on patent protection for software-related inventions. The success of the patent system in encouraging technological and commercial progress in other fields suggests that it would be prudent to try improving the patent examination process before changing the statutory underpinnings of the law. Whether patent owner or patent user, many agree that the patent examination process can be procedurally improved. SPA applauds the efforts the U.S. PTO has made to make these improvements, including those announced by you today, Mr. Commissioner, and those that Jerry Goldberg, the Director of Group 2300 and I have discussed earlier by telephone. SPA supports these efforts to improve the patent examination process and commits itself to the following three-step process to help the U.S. PTO continue to solve these problems. First of all, SPA will continue to support the efforts of the Software Patent Institute, a nonprofit organization developing a software technology prior art database. You will be hearing later on in the day from a Mr. Galler, who I've worked with before on this issue and who is Chair of the Software Patent Institute. Second, SPA will call on its broad membership to contribute nonproprietary information about software products to the Software Patent Institute. And third, SPA will provide educational and training opportunities in the field of software technology to U.S. PTO examiners. Many difficulties or many objections to the current system of patent protection for software-related inventions stem from difficulties in uncovering prior art. Typical complaints focus on the unavailability of pertinent prior art and an expanded prior art collection would help the U.S. PTO make more informed judgments about whether a particular invention meets the statutory tests of novelty and nonobviousness. These difficulties are not unique to software technology, but developing a comprehensive prior art database has proven more difficult for software than other disciplines, such as biotechnology. In the early days of the software industry, patent protection was not as widely used as it has been for other technologies. The primary focus instead was on copyright protection for creative expression and trade secret protection for other aspects of the technology. As a result, much pertinent prior art may not reside in prior patents but in publications and limited circulation documents such as technical manuals. The difficulty has been compounded by related problems, in particular inconsistent terminology in the technology. The first step in SPA's program will be to continue to support the effort to build a non-patent prior art database in the field of software technology. The SPA is an Executive Committee member of the Software Patent Institute, which has been recognized for its efforts to provide the best available prior art in the software technology field for use by the PTO and the public. Up until now the PTO has lacked such a source to fill this need. The Institute is compiling a database of software technologies from descriptions of software techniques and processes contributed by the software industry, government, and academia. The Institute's work is now producing results that promise to improve the ability of patent examiners to conduct research into non-patent prior art. On January 15th the Institute made its prior art database available on-line and has demonstrated it to the U.S. PTO and the American Intellectual Property Law Association. As the second step in its program SPA will call on its membership to contribute nonproprietary information about software prior art to the Institute. SPA is in an excellent position to assist this effort because it is the principal trade association of the personal computer software industry. SPA has over 1100 members in North America and Europe, ranging from large well-known companies to hundreds of smaller companies, all of which develop and market consumer, business and education software. Their cumulative knowledge is unsurpassed and should reinforce the already significant resources incorporated into the Institute's database. The third step in SPA's program will help address concerns about the level of skill of patent examiners handling applications for software-related inventions. SPA would like to assist the U.S. PTO in educational and training programs designed to keep software patent examiners conversant in this rapidly developing technology. To begin this effort, SPA will extend scholarships for U.S. PTO patent examiners to attend the SPA Spring Symposium and other conferences. These conferences feature many seminars devoted to emerging technologies. The upcoming seminar in particular includes seminars on risk unix systems, wireless and interactive networks, and I think typically the role of patents in software development. The SPA program would compliment the academic training now being offered by the Software Patent Institute and other groups. Mr. Goldberg, the Director of Group 2300, has been very receptive to this initiative and in return has invited SPA's software patent working group on a tour of the PTO. I am pleased to say that we will be glad to accept. In closing, the most important concern about patents for software-related inventions for SPA members whether they be patent owners or patent users is the integrity of patent examination. SPA is hopeful, as others have been, that the current problems of patent protection for software-related inventions can be addressed by improving U.S. PTO's access to non-patent prior art and information about ongoing developments in software technology. We look forward to a continuing relationship and a free flow of information between the U.S. PTO and our members. Once again, Mr. Commissioner and members of the panel, thank you for giving SPA the opportunity to testify on this important issue. I will be happy to answer any questions you may have. COMMISSIONER LEHMAN;: Thank you very much, Mr. Traphagen. Does anybody have any questions on the panel? (No audible response.) COMMISSIONER LEHMAN;: If not, thank you very much for your sharing with us. Next I would like to ask Rob Lippincott, Executive Vice President of the Interactive Multimedia Association to come forward. PRESENTATION BY ROB LIPPINCOTT INTERACTIVE MULTIMEDIA ASSOCIATION MR. LIPPINCOTT;: Good morning, Mr. Commissioner, members of the panel, ladies and gentlemen. My name is Rob Lippincott. I'm Vice President for Content at Ziff/Davis Interactive, which is an on-line information services provider and multimedia publisher. I also serve as Executive Vice President of the Interactive Multimedia Association. The Association's General Counsel, Brian Kahen, who also directs our intellectual property project is here with me today to answer any questions you may have. As a traditional magazine and newsletter publisher, Ziff/Davis has built a business on the value added by the work of editors and writers doing research, selecting, highlighting, linking information, by aggregating rights, by creating original material, and by expressing the opinions which they believe will influence the market, change the flow of business or touch human souls. As multimedia information publishers we have come to view interactivity as perhaps the fundamental principle of the new media. It is how editors and developers use computers to speak to people. It's how people use computers to get the information they need, and it's how people speak to other people through computers. It's how communities grow and how markets are formed, perhaps most importantly. Interactivity, per se, cannot be considered a patentable process. It's how we communicate. It's this perspective that I find shared by the majority of my fellow IMA members and from which I offer the following testimony on their behalf. The IMA, the Interactive Multimedia Association, is a U.S. based trade association with more than 280 member companies and organizations, representing all of the areas of the multimedia industry. Its mission is to promote the development of interactive multimedia applications and to reduce existing barriers to the widespread use of multimedia technology. Multimedia draws on traditional content industries -- movies, television and music, as well as traditional publishing -- which have been and which promise to be powerful export industries for the United States. These are creative industries which function very effectively and comfortably to date, largely dependent on the copyright law for intellectual property protection. And as my colleague Tom Lopez testified in San Jose, a number of the creative people in our emerging industry feel rather threatened by abstract process patents which they believe give patentees leverage over content developers and publishers. Our concern is not software patents in general, but patents which constrain and control human expression and the flow of information. Under the European patent convention, patents are not granted for "schemes, rules and methods for performing mental acts, playing games or doing business, programs for computers or presentations of information." While we have similar judicially created exceptions in our law, in certain instances they have been eroded if not eliminated. The result is that we have a patent system that has in certain instances stretched the system beyond its resources and capabilities some might argue, to in fact regulate those abstract functions. From the perspective of a number of our members, our multimedia developers and producers, the patent system is a one-size-fits-all system for creating property rights that is indifferent to its impact on the industries it seeks to regulate, directly or indirectly. Software is treated in much the same way as chemical compounds, but it has persistent problems in the examination process. Broad patents, especially patents that preempt functions that cannot be designed around, should not be granted without an extraordinary level of quality control, preferably in the form of peer review, much as has been spoken of earlier today. Whatever the practical limitations on the knowledge and expertise of examiners, they ought to be able to identify such broad claims and route the applications accordingly. Broad patents are inherently regulatory in nature. It is imperative that the claims be precise and that the examination be thorough. Such patents must be widely acknowledged and respected within the field and the industries that they affect. Pre-grant publication for both broad and narrow patents is an absolute necessity in the software area because the patent database is so limited. In Europe and Japan and virtually everywhere else in the world patent applications are published before the patent is granted. Many of the patents that trouble the multimedia industry because of their breadth would never stand up to pre-grant publication. In 1966 the President's Commission on the Patent System recommended against granting patents for computer programs for practical reasons. "The Patent Office now cannot examine applications for programs because of the lack of a classification scheme and the requisite search files. Even if these are available, reliable searches would not be feasible or economic because of the tremendous volume of prior art being generated." Twenty-eight years later, and a significant twenty-eight years in our industry, the situation remains largely the same because the search files have never been completely developed and the volume of prior art has naturally grown exponentially. However, the U.S. PTO began to grant patents on software processes liberally without addressing the practical problems. Pre-grant publication is an alternative, which could in due course elicit sufficient prior art to make such a database feasible. Furthermore, we have the beginnings of an information infrastructure that can make pre-grant publication inexpensive and effective. The patent system should be an integral part of this infrastructure. The problems with subject matter and those of examination tend to go hand-in-hand. While we applaud the fact that last month the PTO finally began hiring examiners with degrees in computer science, this didn't happen until 12 years after the PTO liberalized its policy on software. With the PTO granting patents on multimedia designs, business methods and educational methods by rights it should admit MBAs and Masters in instruction design as patent examiners. Given past experience, we would not expect this to happen any time soon. But the notion suggested in question two that an examiner trained in electrical engineering can deduce the level of ordinary skill in these arts from reading a few journals and patents is clearly insupportable. The relevant art or arts should be identified by the applicant. The examiner should be identified with a cited art and their final signature should, in fact, affirm that they are skilled in those arts. There are a number of other considerations we don't have time to note here, but will do so in writing. We will do so with the understanding that other industries may feel differently about the operation of the patent system. Other industries may feel the opportunity to maintain trade secret protection outweighs the need for a better examination process. We respect their views because we feel that the system should be tailored to promote innovation, not simply to validate preconceived rights through the threat of exorbitantly expensive lawsuits. As the Commissioner has suggested in San Jose, there is a dearth of economic analysis of the patent system, but there are costs that are real, and for multimedia designers, frightening. Stanford Professor John Barton estimates the average cost of patent litigation at $500,000 per claim per side. The cost of insurance against an inadvertent patent infringement is a minimum of $50,000 per multimedia product with a $50,000 deductible. That's a marketplace measure of the tax that the patent system places on our industry. This figure is likely to be five or ten times the cost of conventional errors and omissions insurance which covers most other liabilities. This figure functions as one benchmark that multimedia developers will look to to gauge the Patent and Trademark Office and the administration and their efforts to protect the expression in the multimedia age. We look forward to working with the Patent and Trademark Office to perfect the process that we must support as an industry. Thank you, Mr. Commissioner and members of the panel, for this opportunity to express the concerns of multimedia developers and publishers. COMMISSIONER LEHMAN;: Thank you very much, Mr. Lippincott. We appreciate your comments. They were so thorough that I don't have any questions. You answered all of them. MR. LIPPINCOTT;: All right. COMMISSIONER LEHMAN;: Next, I'd like to ask Mr. Robert Yoches from Finnegan, Henderson, Farabow, Garrett & Dunner to come forward. PRESENTATION BY E. ROBERT YOCHES FINNEGAN, HENDERSON, FARABOW, GARRETT & DUNNER MR. YOCHES;: Thank you, Mr. Commissioner. My name is Bob Yoches and I am with Finnegan, Henderson, Farabow, Garrett & Dunner; and I am presenting my own views today, not the views of the firm, and not the views of the clients of the firm. What I would like to address specifically are Questions three through six of topic B. However, the testimony I give may apply to other topics as well. Questions three through six really address the issue of whether the examination standard for patents on software-related inventions should differ from patents on other technologies. I don't believe it should. The primary reason is, I don't think it's possible and I don't think it's warranted. I don't think it's possible because as many other witnesses in San Jose testified, it is difficult, if not impossible, but certainly impractical to distinguish between software-related inventions and inventions based on other technologies. Certainly the history of software has arisen many times as an evolution from hardware to firmware and finally to software. Moreover, we found, and many witnesses have testified, that software is ubiquitous. It is in many different technologies and it is in many different aspects of the life. It is no longer a separate and identifiable part of the technology that can be treated differently. More to the point though, if some distinction were made, I fear that what would result is some sort of game playing. In the Patent Office we saw this in the 1970s where clever patent agents and patent attorneys tried to get around the reluctance of the Office to grant software-related patents by changing the specification and claims to make it look not like a computer, even though that's what the invention was. Another problem that I see arising from having different standards for examining patent applications for certain inventions is in the area of litigation. Because I think if you have a higher standard for examining applications for software-related technology that what you'll do is cheapen the patents on the other technology, because there isn't a patent lawyer around who when attacking a patent on a non-software-related technology won't point out to the jury or judge that this patent didn't receive the special treatment that the Patent Office gives to computer patents. Attorneys representing patentees that have a patent based on the software-related technology will argue just the opposite, that this patent received that special attention that the Patent Office has reserved for computer related inventions. The other practical problem I see in having different standards for examination is one in the Patent Office, and that is a training problem. I don't need to tell you how difficult it is to train the examiners with regard to issues of 102 and 103 and obviousness and novelty. If they have to learn not one, but two different standards, and if they also have to use their judgment of when to apply the one standard as opposed to the other standard, I think that the training costs and the quality of examination will drop. There is, however, I think a larger problem in even asking the question of having different standards and that's a philosophical problem, because the questions are based on the underlying assumption that there's something wrong with software-related patents that issue from the Patent Office now. I don't know that that's been shown. Certainly there's no question but software is a different technology than other technologies, but you could make the same argument about any technology. I don't think that there's been a demonstration, other than by some anecdotal indications that the software patents are any better or worse than patents related to any other technology. In fact, to the contrary, I have found that especially in Group 2300 with Director Goldberg, that there's been an increased effort and an intense effort to improve the examination process. In fact, as you may know, the AIPLA and the Patent Office held a joint program last fall, a program we hope to continue, where there was an open dialogue between the Office and between the practitioners to try to improve communications and improve the examination process. More to the point, however, changing the standard for examining patents will not really address the problems which have been raised. Those are the lack of prior art and the inability to retain examiners. And now to the specific questions. Question three asks whether the Patent Office should impose a special duty, a higher duty, on applicants having a software-related invention to disclose information. I'm not quite sure what's being indicated there because the current duty is quite high. I assume that the additional duty would require some sort of a search. However, most of the places that patent attorneys search are the same places that the patent examiners would search. So I don't know that you'd get a better examination process. What you would get, however, is a lot more charges of fraud on the Patent Office because information that should have been discovered wasn't discovered and given to the Patent Office. And as the Federal Circuit has already noted, charges of inequitable conduct and fraud are a plague on the patent system. Question four asks whether the standards of novelty and obviousness accurately reflect the inventive activity in that area. I think they have to. The standards which the Patent Office is supposed to apply are independent of a particular technology and they involve what the state of the art is and they involve what the level of ordinary skill in that art is. And the way those standards are supposed to reflect the particular technology, it's just supposed to be applied to that technology. So the state of the art and the computer technology will track whatever those changes are and the level of skill will also track those changes. Question five asks whether we should implement, I suspect, a per se rule, that if the underlying process is known that merely implementing on a computer is not patentable. Again, I don't think so. I think that the present legal standard which asks the Patent Office and asks the courts to look at the claim as a whole is the proper one because I can imagine situations where either because of difficulties and practicalities or because of common knowledge in the art, it was not thought possible or a good idea to implement a certain process on a computer. Although I can't give you a specific example from real life, one that came to mind on my way over here is the idea of a product I had just seen, which is supposed to improve the grammar and the style of writing. Now certainly English teachers have been doing this for years. It's a known process of how to improve grammar and style. But implementing it on a computer, I suspect, is pretty difficult. Although there is a product out there and maybe it's prior art now, I don't think that we should have a per se rule saying that type of product does not merit patent protection. Finally, Question six addresses the general question of whether the PTO should change its examination procedures for novelty and obviousness in this area, and there are three subparts. The first asks whether the Patent Office should require applicants to conduct a search and distinguish their inventions from the prior art in the search. Now the Patent Office already has a procedure for doing this if you want to get expedited examination. What I think will happen is two things. One is, if this rule existed right now I would pay the extra fee, which is not too much, and get the expedited examination. I don't know whether the Patent Office examination though of software-related patents would improve, because again the searches that are conducted generally are from the same database as the examiners use. Question B asks whether the Office should impose a special requirement on applicants to show that their inventions are distinct over the prior art independent of their computer implementation. I have addressed that before. The invention is the invention as a whole and, indeed, part of the invention may rely on how it was implemented by a computer. Question C asks whether the PTO should be allowed to establish that a software-related invention is not novel or obvious using a lower standard, in other words, not a prime facie case. I'm a little confused here because I don't know what could be a lower standard. The prime facie case merely asks the examiner to do two things. One is to find art that shows each one of the claim elements; and, two, show that there's some motivation for combining those elements. I suspect the lower standard could either be removing the criteria for motivation or allowing the examiner to reject applications based on his or her gut feel. In my experience, both occur right now. Whether they should or they shouldn't is another issue. But I don't think it's appropriate that, again, you should be applying different standards here. I don't believe that the result will be any better patents. It will just be a longer and more drawn out examination process. My conclusion is this. I believe that if you adopt more stringent or even different examination standards for a certain class of inventions, whether it be software-related or others, that you'll be opening up a Pandora's Box that will create many more problems than it's intended to solve. Thank you. COMMISSIONER LEHMAN;: Thank you very much, Mr. Yoches. Next I'd like to ask Stephen Noe, counsel to Caterpillar, Inc., representing Intellectual Property Owners, Inc. to come forward and share. PRESENTATION BY STEPHEN L. NOE CATERPILLAR, INC. MR. NOE;: Thank you. I am Stephen Noe, but I am sort of Stephen Noe as well, Intellectual Property Council for Caterpillar, that well-known earth moving and computer company in Peoria, Illinois. Today I'm representing the Intellectual Property Owners, a nonprofit association whose members include companies, universities, individuals who own and are interested in intellectual properties. My testimony has been approved by the Board of Directors for IPO for presentation as an IPO position as well. Caterpillar is a member organization of the IPO and is truly an interested party in its own right, as both a producer and major user of computer software. Today's hearing -- I have to thank Mr. Yoches for shortening my necessary presentation. But I want to amplify some of the things he said. Today's hearing presupposes the continued availability of patent projection for the computer software implemented inventions, a position strongly endorsed by the IPO and focuses on the examination of those applications. However, implicit in this series of hearings is the suggestion that software is somehow different from other technologies and must be treated in some special way. I disagree. Considering some of the remarks made at the recent hearings in San Jose and even some this morning, just agreeing on what is and what is not software-related technology may be an exercise for Humpty Dumpty from Alice in Wonderland where a word means just what I choose it to mean. Nothing more nor less. For purposes of my testimony I'll use software or software-related technology in the broad sense, to include discreet software products like word processors or speaker timing computers, highly complex custom software that controls manufacturing systems and imbedded software that controls engines, anti-lock braking systems, perhaps your microwave oven. One can readily come up with other examples, some of which may look and feel more or less what we think of as software traditionally, but all of which lie along a continuum of software-related technology. Whether an automobile engine is controlled by a camshaft or a microprocessor it makes little difference to the driver of that automobile who only cares that the engine run well and reliably. Patent policy should not be the factor that forces a manufacturer to choose which tool to use to control that engine. The IPO supports treating software-related technology like any other technology within the scope of the patent system. Continued patent protection of software-related technology is important to the United States' industrial competitiveness. The PTO should process applications for patents on software no differently than applications in any other technology, either in examination procedure or in the way the statutory tests are applied. In particular, the IPO rejects the proposal that software-related patent application should be subject to special tests or standards governing novelty, nonobviousness or disclosure. The first noticed question related to the adequacy of prior art. Patents and more significantly printed publications do provide a sufficient and representative collection of prior art to assess novelty and obviousness. Examiners access to and understanding of the printed publications is the issue, not the existence of the publications. Several avenues are available to and should be used by the PTO to improve its access to and its ability to apply software-related prior art. These include supplementing its own collections with non-patent references, reclassifying and computerizing those collections as necessary, encouraging the development of readily accessible prior art collections outside the Office, collections such as that we have heard discussed this morning being put together by the Software Patent Institute in Ann Arbor, Michigan, training its existing examiners in the technical programming skills necessary to understand and properly apply the prior art references that they do find, and hiring as fully qualified examiners computer scientists or others who are trained in software technology. A number of these activities are currently being implemented and the IPO applauds and encourages these efforts. Jerry Goldberg has been especially active in this area and I've spoken with Jerry many times about this. The hearing notice also asks if a special duty of disclosure should apply to applicants for software-related inventions. Such a burden would be neither fair nor workable. Even knowing when the duty applies would be difficult and subject to interpretation. There simply is no bright line separating software-related inventions from other inventions. Instead, there is a continuum of software-relatedness, which encompasses products of all descriptions. Developers who implement their inventions using software should not be penalized for doing so by the patent system. The notice then moves to focus on the PTO examination procedures, the area that Bob Yoches specifically addressed. Once again, there simply should be no special standards or tests applied to or duties imposed upon applicants in software-related applications. The difficulties in examining these applications result from examiners unfamiliar with the technology attempting to examine applications using incomplete prior art collections. These difficulties can and should be corrected by supplementing the art collections and improving the expertise. A mandatory duty to search for, disclose and discuss prior art in software-related applications would be a powerful incentive to characterize inventions as other than software-related in an attempt to avoid the burdens and disadvantages of that duty. Examiners will try to impose the requirement; applicants will try to avoid it; and the quality of examination and classification will suffer. One item of software-related technology the PTO should follow closely and make early use of is the national information infrastructure of the high speed data highway. I noticed in Commissioner Lehman's comments that this has begun. The Internet is being used by the PTO already. A major problem underlying the difficulty in examining software-related patent applications is information related. The PTO does not have sufficient access to the best prior art information and the public has no convenient access to the PTO search files. The proposed data highway could close this information gap, providing a common resource to searchers, both within and outside of the PTO. As Mr. Lippincott pointed out earlier this morning, this technology could even offer a cost effective way to implement early publication of pending applications, allowing interested parties to review the applications and provide relative art. This approach would take advantage of the knowledge of those most informed in the field of software technology and most concerned about the issuance of software-related patents. What difficulties the applicants face in complying with existing disclosure requirements? The best mode requirement in U.S. law used to be a non-issue. The best mode issue seldom arose in patent contests. However, recent judicial opinions have caused quite a stir in this area and patent practitioners have responded as they believe necessary to protect their clients. Some in an abundance of caution feel the need to submit program source or object code listings. The PTO cannot unilaterally resolve this matter. Resolution must await legislative or judicial clarification. However, the Office could begin accepting code listings on standard machine readable media containing printable files. The PTO should not, however, require patent applicants to confirm to any standardized disclosure format for such applications. No one format can be the best for all the wide range of software-related technology. What would simplify examination in the Office might well complicate others' understanding of the resulting patent or complicate litigation relating to that patent. The issues commented on here today are important ones for all of American industry, because software permeates every facet of technology today. Industry needs the assurance of patent protection for innovative developments, software-related or otherwise, to maintain and improve technological leadership. Software-related technology is not inherently different from any other new technology that the patent system has faced and adapted to in the past and will be called upon to deal with in the future. The problem that exists today lies not with the technology, but with the initial PTO reluctance to meet it head on. The PTO resisted until the courts insisted. Had the patent system and the technology grown side-by-side as is the usual case, there would be no hearings today. Now the PTO is a bit behind the curve, but progress is being made. This is the time to accelerate, support and encourage the adaptation to this technology, not to make a special case of it. Who can say what the next generation of innovation will bring. What will be the software issue of the future? With appropriate training, tools, and hiring practices the PTO can examine software-related applications just as capably as anything else and the patent law can remain technology neutral as it must. Thank you. COMMISSIONER LEHMAN: Thank you very much, Mr. Noe. What is IPO's position with regard to the issue of pre-publication? MR. NOE: I feel it supports the concept of pre-publication provided that it's done with sufficient safeguards to the applicant. For example, the applicant should have the opportunity to withdraw the application prior to publication if that is to come to be. COMMISSIONER LEHMAN;: Thank you very much. I'd just like to observe that there already are differences in examination procedures among different examining groups and different technologies, certainly in Group 1800 which does biotechnology and we do a lot of searches of DNA sequences. We have an examination technique and procedure really that is quite different. So we can distinguish between the technologies without necessarily changing legal standards among the technologies. Next, I'd like to call John Horn, Patent Counsel for Allen-Bradley Corporation. Are you representing Allen-Bradley or yourself, Mr. Horn? PRESENTATION BY JOHN HORN ALLEN-BRADLEY MR. HORN;: I'm representing Allen-Bradley this morning, sir. Good morning, my name is John Horn. I'm Patent Counsel for Allen-Bradley Company, which is a manufacturer of industrial automation equipment, such as programmable logic controllers and including an increasing number of software products. Allen-Bradley has observed a strong trend in the industrial control business towards replacing functions accomplished by hardware with software. Industrial control hardware and industrial control software can and frequently do have very similar functionalities. Consequently, patent claims can closely correspond between hardware and software based inventions. In view of the above, we believe new software based functions should be patentable in the same way as new hardware based inventions are patentable. However, we also believe that it is important that patent examiners should look to hardware based prior art and that previously existing hardware based functionality should always be viewed as highly relevant to the allowability of software based claims. Novelty should it not be predicated on the coding of functions previously implemented in hardware. Although new functions which may be enabled by software's special capabilities should be patentable when they rise to the level of being novel and non-obvious improvements on previous hardware based techniques. It appears to us that inventions and patent claims focusing on the software art form itself, such as programming techniques, may at least temporarily require some new procedures for identifying prior art. Allen-Bradley supports the idea of establishing new mechanisms for identifying prior art pertinent to software inventions in order to assist in getting the best prior art into the hands of the examining corps. However, Allen-Bradley also believes that software inventions should be treated in like fashion to inventions in other technological fields and higher standards for patentability of software inventions should not be adopted. Software would appear to us to be a new and distinct type of technological art form. As such, it may have some growing pains at the Patent Office and elsewhere. Nevertheless, software inventions need protection to promote creativity and protect the investments of innovative developers. Consequently, we would like to encourage the Patent Office as well to recognize software as independently capable of having patentable elements, such as specialized data structures, when such elements are novel and non-obvious. Separately, Allen-Bradley does not believe computer program code listings are an effective way to describe software inventions. In general, such listings we have found to be arcane and too difficult to decipher to enable most software inventions to be understood and used. Thank you. Allen-Bradley looks forward to working with the Patent Office in trying to improve the patenting process. COMMISSIONER LEHMAN;: Thank you very much, Mr. Horn. Next, I'd like to call forward Mr. Richard Nydegger for the Digital Equipment Corporation. He's going to be replacing Ron Ryland who was scheduled to represent Digital this morning. You need to correct your representational status here, Mr. Nydegger. MR. NYDEGGER;: Yes, I will. Thank you. PRESENTATION BY RICHARD NYDEGGER WORKMAN, NYDEGGER & JENSEN MR. NYDEGGER;: Good morning, Mr. Commissioner, members of the panel, and fellow participants. My name is Rick Nydegger. I am a patent attorney and I practice with the law firm of Workman, Nydegger & Jensen in Salt Lake City, which specializes in intellectual property law. I'm also an Adjunct Professor of Law at the University of Utah, College of Law and I am a past-Chair of the Electronic and Computer Law Committee of the American Intellectual Property Law Association. I currently serve on the Board of that Association. The views which I express today, however, are my own views and I appreciate this opportunity to participate in this proceeding and to add my comments to the record of these hearings. First, I wish to make a few introductory comments, which I will then follow with specific comments in response to the subject of this hearing, namely standards and practices used in examination of patent applications for software-related inventions. Much has been written and said by way of criticism about overly broad patents having been granted by the PTO for software-related inventions. However, it should be remembered that these types of problems are not unique to software-related inventions alone, but have existed and will exist in connection with any type of new and rapidly emerging technology. Indeed, in the celebrated Telegraph case that was decided by the Supreme Court in 1854, the eighth claim in Samuel Morris' patent on the telegraph was ultimately invalidated as being overly broad, although granted initially by the Patent Office. However, equally important though often overlooked is the fact that the first seven claims in Mr. Morris' patent were upheld, thus providing broad protection for a new technology which spawned a whole new industry. In a similar fashion, in 1888 Alexander Graham Bell's patent for the telephone was also challenged as being overly broad. Claim five of Bell's patent was contained in a mere five lines which simply read, "The method of and apparatus for transmitting vocal or other sounds telegraphically as herein described by causing electrical emulations, similar and formal vibrations of the air accompanying the vocal or other sounds." Yet in upholding that claim the Supreme Court said, "It may be that electricity cannot be used at all for the transmission of speech except in the way Bell has discovered it. And that, therefore, practically his patent gives him this exclusive use for that purpose. But that does not make his claim one for the use of electricity distinct from the particular process with which it is connected in his patent. It will, if true, show more clearly the great importance of his discovery, but it will not invalidate his patent." Those skilled in the art of prosecuting patent applications for software-related inventions will readily appreciate the similarities between the claims and the issues raised in the telegraph and telephone cases and the issues raised by the claims in many software-related inventions. I cite these historical examples merely to point out that criticism and charges of overly broad patents that are issued by the Patent Office are not something new, particularly when dealing with fundamentally new and rapidly changing technologies. Yet the fact remains that in both these cases, as in many others, protection under the patent system was broadly afforded to these emerging technologies on which entire industries were ultimately founded. That's not to say that the U.S. patent system as it presently exists is without problems that need to be carefully examined. Indeed, I strongly support the increased efforts being made by the Patent Office, including these hearings, to become more customer oriented and to create a stronger sense of partnership with American inventors at all levels. However, when examining the problems that may exist under the patent system there is a need for temperance and we should be slow to illuminate or narrowly circumscribe protection for any new or emerging technology simply because the newness of that technology makes it difficult to search, difficult to disclose or difficult to apply statutory standards of eligibility or patentability. With these remarks in mind, I turn to some particular comments on examination standards and practices that will, it is hoped, suggest possible ways to strengthen the patent system and the way in which the patent system can serve to both reward and foster innovation as well as to continue to strengthen our country's economy and the ability to compete in an increasingly competitive global marketplace. Specifically, I wish to direct my remaining comments to four areas. One, improving access to relevant prior art; two, improving the experience, training and retention of qualified examiners; three, reducing the present emphasis on pendency time and adopting early publication procedures; and four, expanding third party participation in reexamination and opposition proceedings. On point number one, improving access to relevant prior art, for pure software systems such as application programs, computer operating systems, network operating systems, database management systems to name just a few, access to prior art other than patents or printed publications is needed because many such pure software techniques have not been documented or published in traditional ways. Much is already being done to rectify those problems. Efforts such as the APS classified search and retrieval system, private efforts such as those that Dr. Bernard Galler with respect to the Software Patent Institute and others are commendable and are helping to develop an adequate prior art database. The PTO has and should continue to request voluntary submission of product descriptions, user manuals, administrator guides and programming guides and soft copy from software developers for addition to the PTO's library. The current reclassification efforts with respect to software-related inventions have been successful. And Director Jerry Goldberg and his team in Group 2300 of the PTO have been doing an excellent job of reclassifying software-related technology within the Patent Office. In addition to the extent that such a source has not already been considered, a classification system which takes into account classifications proposed by the IEEE and the ACM might be considered. These classification systems represent industry efforts to classify software-related technology. Continued effort in all of these areas is needed. Another way to provide patent examiners with access to the most complete up-to-date prior art is to solicit the assistance of those most interested in seeing to it that patents with overbroad claims do not issue, by providing for publication prior to grant and by providing an opportunity for interested parties to submit relevant prior art before issuance. This is discussed further in point three below. On point number two, improving the experience, training and retention of qualified examiners, patent examiners who are not well qualified or trained or who lack adequate resources will not be able to adequately assess an invention's patentability. Thus, patent examiners need to have proper background in the software-related arts and every effort needs to be made to retain well-qualified and experienced examiners. One way to ensure that patent examiners have proper training in the field of software-related technology is to recognize computer science as a science for the purpose of serving as a patent examiner. I was pleased to hear that things are moving in that direction currently. Another important step toward improving the examining corps' performance level in the field of software-related technology is to improve the retention rate of examiners. On-the-job training builds examiner confidence and examiners should be encouraged to stay on the job. I believe the PTO should consider conducting a comprehensive study to find ways of increasing the retention rate of well-qualified, trained and experienced examiners and to provide adequate resources in terms of physical support facilities and personnel to permit efficient and thorough examination to be carried out. On point number three, reducing the present emphasis on pendency time and adopting early publication procedures, the PTO should decrease the present emphasis on pendency time concurrent with adopting early publication procedures. The current emphasis by the PTO on pendency time is, I believe, misplaced since a patent is an important means for disclosing details concerning new technology. The important question is not pendency time, but rather time to publication. This concept is recognized in the patent laws of most major industrial countries which provide for publication of an application 18 months after the priority date. Delays in publication can mean that the technology disclosed in a patent is not available to the public in a timely fashion, which may delay further development of the technology and may also lead to problems with so-called submarine patents. The present emphasis on reducing pendency time by the PTO has a number of undesirable consequences on the examination process. For example, if a patent issues within the approximately 18 month pendency time as now suggested by the PTO, prior art from foreign patent tribunals is most likely not available for consideration by the U.S. examiner. Having this prior art is particularly important in the software-related arts and would further help to protect against issuance of overly broad patents. It would make for a more complete examination and higher degree of confidence in the validity of an issued patent for such inventions. It is thus suggested that consideration be given by the PTO to publishing applications 18 months from the priority date. This publication should be contingent upon providing a search report prior to publication to permit the applicant to amend or withdraw the application prior to publication. Following publication the applicant should be entitled to recover damages for use of the invention after publication but prior to issuance in the event of infringement. Examination could then take place in a more contemplated environment. It should be noted that early publication can also operate as an early notification to others working in the field of the potential issuance of the patent, allowing them to factor that into their business decisions and thus minimizing the problems with submarine patents as noted above. On point number four, expanding third party participation in reexamination proceedings, the PTO should consider changing the current procedures governing reexamination. The problem of patents that are issued with overbroad claims could be reduced by changing the current procedures governing reexamination. Third parties are reluctant to institute reexamination because of the essentially ex parte nature of such proceedings. The PTO should expand the ability of third party petitioners to participate in reexamination after the petition for reexamination is granted. If such a reform were made, the use of reexamination would increase and the reliance on the courts would decrease. In conclusion, Mr. Commissioner, I believe that the above-proposed changes would serve to greatly strengthen the U.S. patent system in ways that would appropriately further the progress in science and useful arts as contemplated under the Constitution and in ways that would continue to help U.S. industry to effectively compete by protecting the investment of U.S. companies in important new technologies of the type typified by the software and electronics industries. Thank you. COMMISSIONER LEHMAN;: Thank you very much, Mr. Nydegger, for those thoughts and for coming all the way from Utah to be with us. I'd like to mention a couple of housekeeping items at this point. I'd like to remind the speakers that if they have prepared remarks it would really be helpful to us. If you haven't already given them to us, if you would give them either to Jeff Kushan right here or Mike Fleming who is circulating around here someplace, who I introduced before. Also, for any members of the press or media who are here interested in this, I'd like to note that Ruth Ford is our Director of Media Relations. I don't think she's here in the room right now, but will be very happy to help you with anything you need. And you can reach her at the Commissioner's office at 703-305-8600. Next, I'd like to ask Allan Ratner, the President of the Philadelphia Patent Law Association from Ratner & Prestia to come forward. PRESENTATION BY ALLAN RATNER PHILADELPHIA PATENT LAW ASSOCIATION Mr. RATNER;. I'm Allan Ratner of Valley Forge, Pennsylvania. I'm representing Ratner & Prestia. We're a firm of 13 attorneys, 7 of whom specialize and mainly work in software, computers and sophisticated electronics. I'm also representing the Philadelphia Patent Law Association. That's a 400 member association with members in New Jersey, Pennsylvania and Delaware. I'm familiar with the views of our membership and I state for the record that at this time these remarks are being considered by the Association and will be soon acted upon by the Board. I personally have been prosecuting and licensing software-related inventions for more than 25 years and have seen the continuous growth of the law and the practice and changes in the law and the PTO practice as time goes on. I've seen this positive evolution continuing to better protect the public interest and better protect the burgeoning technology, the software technology. My remarks -- in considering protection for software it's important to view the industries impacted by any potential changes in the patent law. First, what products fall under the umbrella of software-related inventions. The request for comment refers to the software industry and programming services, prepackaged software and computer integrated design. However, there is no single software industry. Certainly there is a large expanding prepackaged software industry and the U.S. patent system should reflect policies that encourage and protect innovation within this industry. But equally important are those many industries that produce machinery and electronic systems in which imbedded microprocessors and microcontrollers use control functions. In 1992 a single U.S. manufacturer sold nearly 250 microcontroller chips, each of which is used to provide control functions in a hardware system. The list of products controlled using these imbedded chips is virtually endless. The following is a brief list, intended only to show diversity. Every one of these systems is controlled to some extent by software executed in the imbedded microprocessor or microcontroller. Every one of them is a software-related invention. We have telephone CT scanners; MRI systems for imaging the human body; televisions and TV converter boxes; electronic test signal generators; automobile subsystems, including ignition systems, anti-lock brakes, traction control, airbags; chemical process control equipment; agricultural equipment; microwave ovens; facsimile machines; sewing machines; dishwashers; signal processing equipment; camcorders; automatic bank teller machines. We have clients in many of these fields -- small clients, emerging companies, mid-sized companies and large companies -- all of which use patents to protect their technology. The trend toward increased use of software in imbedded chips is expected to continue as the cost of chips decreases. The decision to use chips is a design choice and is determined by such factors as cost, design delays, comparing software against the same functions in hardware, such as ASICS. They also consider whether the functions of the product will change frequently, in which case software reduces life cycle development costs. Thus, it is impossible to define a single software industry. Admittedly, at one end of the spectrum there are application software developers who have low capital costs and who are able to bring their products to market rapidly. Nonetheless, at the other end, U.S. auto manufacturers, for example, rely on software to improve the comfort and safety of their cars. Few industries have higher capital costs than the auto industry and delays in bringing new products to market are common. For example, testing of airbags in an actual car is neither fast nor expensive and, of course, software controls the operation of the airbag. There are countless other industries that rely on software-related inventions which do not have low capital costs or short development cycles and any attempt to define a software industry is bound to fail. Furthermore, the industries that use imbedded microprocessors and controllers are in need of the protections offered by the patent system that are not available through other forms of IP protection. Defining separate standards for patenting hardware and software is likely to result in inadequate protection for software-related inventions that do not fit neatly into the precise pigeon holes of hardware systems and software systems. Although it is more common to see hardware circuitry replaced by software implementations, this is not a one-way street. As computer aided design techniques improve, a growing number of hardware designs are created by implementing functions in software from which designs for dedicated hardware are automatically generated. Given the ability to implement many algorithms in either hardware or software elements that are functionally equivalent, there is no compelling reason for penalizing an inventor that selects one implementation over another. On the contrary, the inventor who identifies that a software implementation is better, i.e. less expensive or faster to bring to the marketplace, has given something more valuable to society than the inventor that discloses a functional equivalent -- but more expensive -- hardware embodiment. The fact that the inventor has disclosed a software embodiment of the invention that is easier to implement increases the value to the public and the inventor should be rewarded. 35 U.S.C. 112 requires that the inventor disclose the best mode. Ever increasingly, the best mode for many machines and systems include software elements. A software solution to a control function may be the preferred mode. 112 requires disclosure of that software embodiment. Without protection for the inventive concepts that are in software, there would be little incentive for inventors to disclosure software-related inventions in the United States industries. Thus, the fundamental constitutional mandate for promoting progress in the useful arts would not be met. In this way the contributions of software engineers, control engineers and systems analysts have been rewarded and encouraged. Coming out to Part B, they seem to reflect a response to a number of criticisms, many of which reflect the public's misunderstanding with respect to standards applied in the examination of software-related inventions. Both the PTO and the Patent Bar should emphasize that hardware and software-related inventions have been and continue to be subject to the same standards with respect to novelty and unobviousness during examination. It has never passed muster to take a known system or a known process and without more implement that system or process in software. A conventional hardware system by itself ported over into software is still a conventional system. There is no public policy reason to define a higher standard of patentability for a software-related invention than for any other invention. Now some patents covering software-related inventions have been questioned because the Code is written following well-known programming skills. This is not and should not be the standard for patentability used by examiners. The relevant field of the invention is usually never computer programming itself, even for inventions in software application programs. The field may be systems engineering; operating systems; networks; database architecture; electronic design; automatic control system design; electromechanical system design; chemical process engineering or others. The inventor very often is the system architect, the person who conceives of the system and its concepts. The programmer acts as a technician under the inventor's direction -- a technician. A valid concern has been raised that examiners do not have access to a comprehensive base of prior art. One approach to solving this problem is to improve the access to materials within the PTO's library, which presently is quite extensive, as well as improving access to on-line prior art databases that increase the examiner's productivity. These techniques are being implemented and more funds should be put into them. Perhaps the single most effective method of providing a more comprehensive base of prior art to the examiner is to enlist the assistance of other parties who have a stake in the outcome if a patent is issued. These parties include both third parties and the applicants themselves. With respect to third parties, the current patent law presents obstacles for third parties who would otherwise be inclined to submit prior art. With adequate safeguards -- that's important, with adequate safeguards -- early publication of all patent applications may be one way to enable third parties to submit prior art during the pendency of applications. This particular way has problems but that is being considered. Increased third party participation in post issuance reexamination proceedings may also encourage the submission of prior art by third parties. Thank you. COMMISSIONER LEHMAN;: Thank you very much, Mr. Ratner, for those really thoughtful comments. Next, I'd like to ask Dianne Callan, Deputy General Counsel of the Lotus Development Corporation to come forward. She will talking with us on behalf of the Business Software Alliance. PRESENTATION BY DIANNE CALLAN LOTUS DEVELOPMENT CORPORATION MS. CALLAN;: Good morning, Mr. Secretary. My name is Diane Callan and I am Deputy General Counsel of Lotus Development Corporation. I am speaking to you this morning on behalf of the Business Software Alliance. On behalf of the BSA I would like to thank you for convening this hearing to consider these important issues and we appreciate the opportunity to speak to you. 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 in more than 50 countries throughout North America, Europe, Asia and Latin America. BSA members are actively involved in nearly all aspects of microcomputer software development, including production of operating systems, application software and networking software. The current BSA members who are participating in this statement include ALDUS Corporation, Apple Computer, Inc., Autodesk, Inc., Intergraph Corporation, Lotus Development Corporation, Microsoft Corporation, Novell, Inc. and WordPerfect Corporation. In the last five years every government, academic and industry study of technologies that are key to America's futures have 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 them more innovative and more 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." Based on government and industry information, the study reviewed the economic contribution made to the American economy by U.S. core software industry. By core software we mean prepackaged software, custom computer programming services and computer integrated design. The Economists' study found that the core industry is the fastest growing industry in the United States, is now larger than all but five manufacturing industries, is contributing to the economy of virtually every state in the nation, and 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 continue to evolve. The BSA has several views which we would like to share at this hearing. First of all, we believe that 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 to steal or duplicate. Moreover, the real value of the software and the principal assets of a software company are not its tangible factories or raw material inventories. Apart from its employees, buildings and computer equipment, the assets of a software company are intellectual property, the technology embodied in the computer programs that are their products. Second, 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 continue to be issued, which do not appear to meet the statutory mandates of novelty and nonobviousness. 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 cost to society without providing commensurate benefits. Let me emphasize that members of the BSA have widely divergent views as to the values of patents being granted for software-related inventions. However, all the 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. The BSA respectfully suggests several changes to improve the effectiveness of the system. First, the patent system should run for a fixed time from the filing date. 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 that the sudden appearance of a patent years after the technology to which it relates has been developed and commercialized is an important problem for the industry. 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 years 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 issued promptly and would in any case reduce the likelihood of the stealth patent that suddenly appears 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. Our second suggestion is that the examination process should be improved as to the content of the prior art database, the accessibility of this database to the examiners and the training and treatment of the examiners. Most of the prior art regularly available to the PTO examiners comprises collections of patents and publications. However, especially in the field of software-related patents, much of the relevant 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 the examiners of software-related patents. Groups such as the Software Patent Institute have undertaken to compile databases with these types of software-related patent prior art. It is important, especially in this area, that the PTO expand the universe of the prior art on which it relies and to improve access to that 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 these databases. Our third suggestion is that applicants should be encouraged to conduct a patentability search before filing and to present the results of that search to the PTO before the application is examined. 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, we think that the applicant should be encouraged to conduct a reasonable prior art search and to present those results. Our fourth suggestion is that an opposition procedure should be established with provisions that ensure expedited results. 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 the 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 the claims as they are expected to issue. Our position, however, is premised on some assumptions. First of all, the fact that a period for filing an opposition has expired without any oppositions having been made would not in any way affect the presumption of the validity of the patent. Second, that any opposition activity or proceeding would take place in an expedited manner, so that the opposition process cannot be used, as in some countries, including Japan, to unduly delay the issuance of the patent. And finally, any opposition proceedings would include appropriate procedural safeguards to limit the potential abuses of the process. The last suggestion that we would like to present today is that the examination procedures should be strengthened and expanded substantively to include non-prior art validity issues. The current examination process, as was discussed earlier, 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-parte proceeding, allowing opponents to a patent to feel more comfortable in relying on the procedure to efficiently resolve their concerns in what may be the most efficient forum. Further, the scope of the 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 nondisclosure of material prior art during the prosecution of an application. The BSA acknowledges and supports the Patent Office's intent to forward to Congress legislation making reexamination a more attractive vehicle for challenging a patent's validity. We appreciate the opportunity of speaking to you. COMMISSIONER LEHMAN;: Thank you very much, Ms. Callan, for sharing that with us. It was a sufficiently complete statement that I really think I understand it and don't really have any questions where you stand. Before I call our next witness, I just want to say that since we're running a little bit ahead, we may be able to get through to shorten our afternoon session if we can call some of the people who are scheduled to appear this afternoon. I have a list of some people -- Richard Jordan, Jonathan Band, Vern Blanchard, and Jeffrey Berkowitz. If any of you are here, what I'm going to do is, after the next witness I'm going to at least call one or two of you. And if you're able to, then we can, you know, get your testimony included in the morning session. With that I'd like to call next R. Duff Thompson, who's the Executive Vice President and General Counsel of the WordPerfect Corporation. PRESENTATION BY R. DUFF THOMPSON WORDPERFECT CORPORATION MR. THOMPSON;: Thank you, Mr. Secretary. My name is Duff Thompson. I am speaking to you today on behalf of WordPerfect Corporation, for which I serve as the Executive Vice President and General Counsel. WordPerfect appreciates the opportunity to participate in this hearing regarding the patent process. We certainly applaud the efforts of the Commissioner and others to bring these issues to light. WordPerfect Corporation is a Utah company employing approximately 5,000 people worldwide. It is the leading supplier of word processing software in the world and other key business applications. WordPerfect is a member of the Business Software Alliance, as has been mentioned, and we support the positions that Ms. Callan has just expressed. On behalf of WordPerfect, however, I want to emphasize certain points she has made and to add a couple of others. First, WordPerfect Corporation believes with the Business Software Alliance that strong intellectual property protection is essential to the U.S. software industry to continue to grow and provide jobs and export revenues for this country. Because of the ease of copying, software piracy is endemic, not only in this country but around the world. Software companies need vigorous intellectual property protection to secure the fruits of their labors. Second, like the Business Software Alliance, WordPerfect Corporation does not believe that a suigeneris form of protection for software-related inventions is a viable solution to the problems that exist with the current legal regimes, including patents. Recent experiences of two types highlight the reasons for these concerns. First, the 1976 amendments to the Copyright Act, an existing statute I might add, took well over a decade to become enacted. Given the number and diversity of views on technical, financial and legal matters relating to software protection and software patents, it seems likely that a new statute could easily be a decade in the making. During that time we would still have to get along with the system we now have. And as we know, a decade in the software industry is virtually an eternity. Moreover, even if a suigeneris act were enacted, it would necessarily introduce enormous uncertainties into the subject until years of case law development had clarified the many inevitable issues. We have lots of uncertain areas now within the existing legal framework, but those uncertainties would seem very small indeed compared to the issues that a clean slate approach to this subject would introduce. WordPerfect in sum believes that the existing statute, regulations and case law are capable of providing an adequate framework for assessing the patentability of software-related inventions. WordPerfect also believes, however, that two major deficiencies in the application process which have led to enormous expenditures of nonproductive effort and money by software companies need to be addressed. Time and again software companies have had to respond to patents that should not have been issued because they are, in fact, obvious over very close but non-cited prior art, and to patents that issued a decade or more after the initial application was filed during which time entire related industries have developed, unaware of what I have called buried land mines. These consequences must be avoided if the health, growth and worldwide competitiveness of the United States software industry is to continue. First on the issue of the obviousness of some of the patents. Too many software-related patents have issued despite the existence of very close prior art, art which was not found during the examination process. Mr. Secretary, you, yourself, have highlighted what has become the most glaring example of this type of patent in the Compton New Media patent issued in August of '93. You ordered a reexamination of this patent because it cased a "great deal of angst in the industry." The PTO to its credit departed from normal procedure when it decided to consider additional prior art from the public during the reexamination of the Compton patent. This action clearly demonstrates the PTO's recognition of the underlying problem, that much of the prior art in the area of software-related inventions is not embodied in patents while existing searching techniques focus on patents. Clearly, the archive of prior art in relevant areas needs to be significantly improved. And the PTO's ability to access that prior art must be greatly enhanced. In speaking for the BSA, Diane Callan mentioned the possibility of industry assistance to the PTO in setting up databases for prior art with respect to software-related inventions, in providing necessary software tools to ensure meaningful access to those databases and in assisting with training of examiners in these areas. I'm here today to tell you the WordPerfect Corporation is also ready to participate in that enterprise. We are ready to do our part in helping the PTO improve the examination process. I encourage all similarly situated software vendors to participate in a like manner. In addition, WordPerfect believes that giving third parties the right to file oppositions to allowed applications would further benefit the PTO and the public. Oppositions would in essence deputize the concerned public. They would enable people with the best knowledge of the subject matter to submit prior art which was not located by the examiner. In this way the PTO would be assisted, often by experts in the field, in identifying the most relevant prior art. At the same time the interested public has the opportunity to prevent the issuance of an undeserved patent that would otherwise become a scarecrow in the art. Again, consistent with the BSA statement, WordPerfect's support for the availability of an opposition proceeding is based on the expectation that first the failure of a party to file an opposition would not in any way affect the presumption of validity of an issued patent, either as to that party or generally; and second, any opposition that is filed would be completed in a relatively short period, so as not to unduly delay the issuance of the patent. Second, on the land mines issue a very small proportion of patents carry a substantially and unfairly disproportionate weight upon being granted. These are often patents that are issued 10, 20 or even more years after the initial application was filed. Often such patents rest buried in prosecution or the public, not knowing about them, develops whole industries related to their subject matter. Such patents often don't really issue so much as blow up in the unsuspecting public's collective faces. Enormous royalties are often demanded by their owners who have been watching the industry develop, and in many cases drafted claims to read on the products and processes of those industries, taking advantage of accidental disclosures in their applications that can be stretched and tortured to support claims they never considered making until others made the inventions. The patents then go into expensive and protracted litigation. Two examples make this point. The first is, in 1990 Gilbert Hyatt's patent for a computer on a chip issued. The original application had been filed in 1970 when most of today's computer companies were not yet even contemplated. Yet industry analysts have estimated that Hyatt's patent portfolio may be well worth over $100 million during its 17-year life. A second example, Jerome Lemelson owns a number of these long hidden patents. For example, his Patent Number 753 covering a bar code scanner issued on July 7, 1992 from a continuation application filed in 1989. However, the original application was filed in December of 1954 and was followed by 11 continuation, division and continuation in part applications. In 1992 alone Lemelson's attorney, who according to the American Lawyer Magazine earned more that year than all the combined partners of Krabath, Swain & Moore and Winston & Strong combined -- I assume to the chagrin of the partners at Krabath, Swain & Moore and Winston & Strong -- negotiated over $400 million in settlements regarding Lemelson's patents. A racketeering and anti-trust suit filed against Lemelson cites Lemelson's attorney as having written that "Some of Lemelson's pending patent applications were being refined to encompass explicitly the processes that manufacturers were already using in their factories." Even Judge J. Plager, Circuit Judge of the U.S. Court of Appeals for the Federal Circuit acknowledged this problem in a recent interview by the Journal of Proprietary Rights. As you may know, Judge Plager did not have a patent law background prior to taking the bench on the Federal Circuit. Even so, during the interview on May 12, 1993 Judge Plager supported the idea of switching to a fixed patent term from the date of filing, noting that even in the short time that he had been on the court, which is approximately two plus years, he had picked up "some of the things that go on, the delays that are built into or allowed by the system, all of the things that you can do to game the system." Thus, WordPerfect wholeheartedly welcomes the PTO's inquiry into legislation which would change the life of a patent to one that expires after a fixed period of time from the original filing date of an application or its earliest parent. Similarly, WordPerfect urges the PTO to support the publication of all pending applications a fixed time after their filing dates. In these ways, most of the buried land mines would be disarmed or at least have their explosive power lessened, enabling the public to travel a safer landscape of software development. Finally, WordPerfect requests that the PTO consider one additional item not mentioned in the BSA presentation. That is the vast extension of patent claims by unreasonable application of the doctrine of equivalence to cover software-related inventions which are vastly different in spirit and content from the invention disclosed in the patent. WordPerfect recognizes that the doctrine of equivalence has a place in patent law and that there are times when the choice between implementing an invention in hardware or software is determined by a variety of factors which do not alter the basic nature of the apparatus or process in question. However, in other cases the basic nature of the invention as described in a "hardware" patent is qualitatively different from a software implementation. In those cases I suggest the doctrine of equivalence has been applied beyond any reasonable scope. Thank you for the opportunity to present these remarks. COMMISSIONER LEHMAN;: Thank you very much, Mr. Thompson. I'd like to ask you a question or two if you don't mind. First, a fairly short one, and I think you've obviously given us the answer, but just to put it on the record, when we were in San Jose, one of the witnesses presented a chart and it showed all of the patent applications that had been filed by various computer software companies. As might be expected, it showed that we had, you know, the largest number in companies like IBM, General Electric, Digital Equipment and so on. The point was made that some of the most rapidly growing and innovative companies in the business in the last ten years have filed very few applications. You got down to Microsoft and -- I don't know -- there were maybe 13, I think, or 15 applications and the Lotus Development Corporation had about 7; WordPerfect had none. And this was used to indicate that -- basically as a result, I think the message was that certainly the microcomputer industry could do just fine without any patent protection at all. And yet I don't hear you saying that. Is it your view that the industry has matured to the point that, you know, patents should be a part of the options available to you now, even though you have not -- obviously, any applications that you may have pending are confidential -- but you haven't had any issued? MR. THOMPSON;: We actually have had three issued. I am not sure where that information came from. COMMISSIONER LEHMAN;: I guess the information we got then was incorrect. MR. THOMPSON;: Yes. We actually have had a number issued and we have a number in process. This is a difficult question, Mr. Secretary, because we're asking really at the base root whether or not we believe patents are a helpful aspect of this industry. I think that it's been the position of the owners and most of the employees of WordPerfect Corporation for a number of years that patents are not good news for the software industry. However, I believe the time for making that argument passed many years ago and we are now at a point where we simply have to say, if they are part of the landscape how can we best ensure that they become a workable part of our business plan. I have to say that WordPerfect Corporation has been surprised. There is a certain lag effect in the patent process, isn't there? There's not a real hurry up and let's start getting our patent portfolio in shape. There's a certain lag effect here and it takes a period of years for companies to develop process and methodology to see that patents are made a part of the everyday development process. And certainly that's the case of WordPerfect Corporation. Three years ago WordPerfect Corporation essentially had one patent application in process. Today we have many. We are considering hiring in-house patent counsel. We consider it an unfortunate circumstance, but a necessary circumstance. COMMISSIONER LEHMAN;: I gather then that the reason that you're filing patent applications is by in large from a defensive point of view? MR. THOMPSON;: Absolutely right. COMMISSIONER LEHMAN;: Some of the other witnesses in San Jose indicated the same thing. The next question I wanted to ask concerns, you referred to the Commissioner's order of reexamination in the Compton's Multimedia case. Again in San Jose we heard a number of situations listed, a number of patents which had been issued, which some of the witnesses there, at least one or two, thought were similarly questionable. Obviously, one of the things that we could conceivably do is to make better use of that, of our own powers to order reexamination and perhaps make a review of some of the patents that are -- where there is some question about whether or not we have gotten all the prior art. What would you view about that be? Would you encourage or discourage us from using that Commissioner ordered reexamination? MR. THOMPSON;: I think that's a healthy thing for the industry and certainly the most efficient thing that can be done at this point in time. As you may know, WordPerfect and other companies are being threatened, a number of claims of infringement on patents that we believe simply should not have been issued and the prior art searches that we have done, I think, would be very useful for the PTO. COMMISSIONER LEHMAN;: But I gather that in those cases you haven't chosen to use the reexamination procedure yourself. MR. THOMPSON;: Not yet, no. COMMISSIONER LEHMAN;: And I asked also about that in San Jose and I'm -- just in the interest of time; I don't want to spend an hour on cross examination here, so I'll lead the witness a little bit -- the answer that we got as to why companies who feel that they have prior art that clearly might invalidate some of these patents, they don't want to bring that to our attention by requesting reexamination themselves is because they think that the present procedure basically is not their best shot for utilizing that prior art and they don't want to disclose it in that kind of a forum. They'd rather save it for the infringement law suit itself. Do you find that figures into your strategy about whether or not to use reexamine? MR. THOMPSON;: I think that's right. I believe if we had a better sense of the reexamination process and certainly had the sense that it was an expedited process, one which could bootstrap us ahead of where we would be through the private negotiations in the litigation that would be something we'd be very attracted to. COMMISSIONER LEHMAN;: Well, unless any of my colleagues have any questions, thank you very much. MR. THOMPSON;: Thank you. COMMISSIONER LEHMAN;: As I indicated, we are running a little bit ahead of time and it would be very helpful to us in getting through our afternoon more quickly if we could fit in at least one or two of the afternoon people. So I've indicated that Richard Jordan -- is Richard Jordan here? MR. JORDAN;: Yes, I am, sir. COMMISSIONER LEHMAN;: Great. Would you mind coming forward? Presumably you'll be as prepared now as this afternoon. Richard Jordan, Patent Counsel to Thinking Machines Corporation. I hope you'll notice this new level of customer service that we have here. MR. JORDAN;: Thank you very much. It's very much appreciated. COMMISSIONER LEHMAN;: We're on the Internet. We've got all our hearings printed up. We've got refreshments in the lobby. We haven't yet gotten them for free, but we're working on that. PRESENTATION BY RICHARD JORDAN THINKING MACHINES CORPORATION MR. JORDAN;: Mr. Commissioner, ladies and gentlemen, my name is Richard Jordan. I'm Patent Counsel with Thinking Machines Corporation. By way of background, Thinking Machines Corporation was founded in 1983 to develop, manufacture and sell massively parallel super computer systems. Thinking Machines products are an outgrowth of research undertaken principally by its chief scientist, Danny Hillis while he was a graduate student at MIT. Since Thinking Machines announced its first product, the Connection Machine, Model CM-1 super computer in 1986 the company has had excellent revenue growth and revenue from massively parallel super computers is believed to be the largest of any company. However, it should be noted that its revenue is much less than that of a number of other companies in the computer industry, both domestic and foreign, including companies in the traditional super computer field as well as those principally known for selling computers and more conventional architectures, many of which I should say are developing products that are competitive with Thinking Machines. Over the past several years the computing power of massively parallel computing technology has been emphasized by a number of awards relating to Thinking Machines' technology. Since 1990 the IEEE, the Institute of Electrical and Electronics Engineers, has given its Gordon Novell Award for computing speed to several teams, including Thinking Machines employees for programs processed on a connection machine super computer and for compiler technology. The importance of massively parallel computing technology has also been recognized by articles in journals such as the Scientific American and newspapers such as the New York Times and the Wall Street Journal. A connection machine computer achieves its compu