WILLIAM RYAN

INTELLECTUAL PROPERTY OWNERS, INC.

MR. RYAN:  Good morning, Commissioner LEHMAN, and members of  the
Panel.  My  name is William Ryan, I'm a general attorney at AT&T.
I'm here, however, as you say, representing the Intellectual Pro-
perty  Owners.  They are a nonprofit association located in Wash-
ington whose members are companies, including  AT&T,  other  com-
panies  as  w as universities and individuals who own and are in-
terested in patents, trademarks, copyrights  and  trade  secrets.
IPO presents these remarks in support of the continued strong pa-
tent protection for computer program_related subject matter.

There can be little doubt that the computer software industry  is
an  important and growing economic force in this economy, in fact
for year 1992 it was estimated that just  the  packaged  software
industry accounted for some seventeen billion dollars in revenue,
and importantly about half of that was from sales oversees.  How-
ever,  the amount of revenue in the software industry is not lim-
ited just to the packaged software.  There is indeed a great deal
of  other software that goes on that is less visible but nonethe-
less very very important.  I make reference to  control  software
for manufacturing systems, for controlling the telephone network,
for  the  ubiquitous   microwave   ovens   and   the   VCRs   and
intelligent_talk telephones and many many other applications.

The sales and revenue$r devices  or  the  software  component  of
these  devices  and systems by many estimates well_exceeds a hun-
dred billion dollars a year. Even one level higher in the  scheme
of  things,  the services provided by both the equipment and many
of the underlying processes, again referring to  such  things  as
the  financial  systems, the telephone network and the entertain-
ment business, are increasingly based on software  infrastructure
underpinning  it.   Therefore, the effect on the economy of deci-
sions made relating to software have implications much beyond the
kinds  of  software  sales  that  might  be accomplished in local
over_the_counter sales.

We don't come by this  cheaply,  though.  Software  research  and
development  is  very  expensive.  Among the hundred top packaged
software companies it's been estimated that an average of  seven-
teen  percent of revenues flows through to support continued R&D.
And many companies not traditionally thought of as software  com-
panies  __  and again only by example I'll refer to AT&T, we have
an R&D (et of approximately three billion dollars per  year,  and
some sixty percent of that is devoted to software efforts, and we
are not exactly thought of as a software company.

With this kind of economic importance at stake, it's  clear  that
the  managers  of  our  business have to seek ways in which these
large investments can be protected. One way that it's been adopt-
ed  of  course is the well_known copyright as it has been applied
for example to the mass_market software, and it's been done  very
successfully by and large.  Less publicized though is the need to
protect and the vulnerability in fact of the other  software  in-
vestments,  some of which I referred to before, the large systems
software and the embedded software in many, many applications.

So then the question is asked,  Why  isn't  copyright  protection
sufficient  to  protect the software investment?  Well, it should
be clear from the very words of the Act itself that the copyright
is  intended  to protect the expression. It does in no event pro-
tect the systems,, methods, and other  aspects  of  functionality
within  the  software.  Importantly too, copyright suffers from a
limitation that it  is  not  as  precisely  defined  as  patents,
although  the  arcane language we practitioners use to define our
inventions in patents is sometimes criticized, nevertheless it is
precise,  and  with  copyright protection there is no such preci-
sion.  It's a very much looser judgment that business people have
to make as to where the boundary is for their protection.

Moreover, the Supreme Court has made it very clear  that  patents
are  the preferred mode for protecting the functionality, the im-
plementations of ideas as against the expression  of  the  ideas,
which  the  Copyright  Law  can  protect.  We think that computer
program_related subject matter is, and has been,  protected  well
in the past, by patents.

Many people think that software protection for software commenced
only  perhaps in 1980 or '81 with the Diehr decision, but that is
not   true.   We   have   been   filing   applications   in   the
computer_relate0dustries  for  decades, going back at least until
the 1950s.  And it's proved very effective.  One of the questions
in  the  Notice of Hearing was, what experiences have we had, and
by and large the experience has been good.  We've  been  treating
software inventions for some time in precisely the same way as we
protect and treat inventions in other areas.  In  fact,  in  many
ways  it's hard to tell whether an invention is a software inven-
tion or not. I'll deal with that just a little bit later.

Why are the patents for software_related inventions  particularly
important?  Well, they're not particularly important for software
any more than any other inventions, for example, investors  seek-
ing to sponsor a start_up organization or a new enterprise within
a larger company would like to have some certitude about what  it
is that they can hope to have some protection for and where their
investment, how their investments can be protected.

Also, importantly, is the disclosure aspects of patents.  One  of
the  functions  serve4 patents is to disclose to the public.  Be-
fore an allusion was mentioned to the secrecy that often  attends
patents.  Well, in many ways the contrary is true.  Patents them-
selves of course contain disclosure, but also in an  organization
like  mine again, we encourage publication of technical ideas, in
fact last year we published some forty_four hundred technical ar-
ticles.   Many of these would not have been published if we could
not also have concurrently filed patent applications so that  the
publication  of  the  technical  papers  would not compromise the
value of our inventions included in the disclosures.

Patents are important in many other ways, one of which is the  __
they provide a vehicle for developing of the ubiquitous alliances
that are present in the software and  hardware  industries.  They
provide  a  medium,  in fact, for people to come together and ex-
change value so that they can work together to get a  cooperative
result.  Often this helps people and companies get into new mark-
ets and establish business8hat would not otherwise exist.

Again, some people have said that software inventions  should  be
treated  differently. We think not.  In some respects, in fact to
treat the software industry as an industry raises more  questions
than  it answers.  As I mentioned before it's much of an enabling
technology in many domains, in telecommunications, in  entertain-
ment,  in finance, in manufacturing and process control, software
is often a common denominator.  And the earlier_mentioned nation-
al  information infrastructure, the highway likewise is largely a
software development, and it's been going on for some time.

Some people suggest that a solution is that we should have a  new
statute,  one  especially tailored to software problems. We think
not. These sui generis proposals have arisen in the past and have
been  bandied  about  for  some time and in one case applied to a
different subject, the Chip Protection Act  is  an  example.   We
think  these  raise  more  problems  than they solve as well.  We
think the existing scheme is whole and is fair  and  appropriate.
If  we  were  to  adopt  the sui generis scheme we'd have to live
through many of the uncertainties that  we've  had  in  both  the
copyright  and  patent  realm for these last twenty years. We may
have to live through the same issues tried from a different  per-
spective.   Moreover,  the many other of our industrialized coun-
tries, the European countries for example and Japan, have  statu-
tory  schemes  that are roughly equivalent to our present protec-
tion for  software_related  inventions.   Patents  are  available
there to about the same extent they are here.

The recently_enacted NAFTA and GATT treaties also  have  dictates
in  them  that  would  suggest  that we cannot get too far out of
whack. We must have a level of protection consistent with what is
currently provided by the patent statute.

The questions posed in the Notice of Hearing, in some cases  have
been  dealt  with; in other cases they deal with details of claim
formats, which I'm not prepared to deal with now,  but  which  we
will respond to in@ extended remarks.

In concluding then, we'd like to say  that  consistent  with  the
findings of the final report of the Advisory Commission on Patent
Law Reform, to the Secretary in 1992, the current  statutory  re-
gime  for  the  protection of rights, both copyrights and patents
and other matters as well, is adequate; it is working and  it  is
working  well,  but  not perfectly. If the experience of the last
ten years teaches us anything, it is that we can't  predict  with
any certainty what directions the information processing industry
will follow in response to new technology and new global  politi-
cal and business trends.  This vast changing environment requires
the U.S. patent laws and implementing procedures to be technolog-
ically  neutral  and  flexible enough to avoid major discontinui-
ties.

Thank you.

COMMISSIONER LEHMAN:  Thank you. I have a question, and  that  is
that,  you  mentioned that the exclusivity provided by the patent
system encourages you to publish because obviously you  can  make
the informationDilable and then you can be certain you'll be pro-
tected, and of course that's been a traditional trade_off in  the
patent system; you disclose, and you get protection.

One of the suggestions which was made by Mr. Clark  at  the  very
beginning of the hearing and that's floating out there is that in
this particular area where it's very hard to  keep  up  with  the
technology,  where a lot of the prior art is not easily findable,
is that we have some kind of prepublication prior to the issuance
of  the  patent.  That,  if we were to do that, that obviously to
some degree abrogates that traditional  deal,  because  certainly
you  know  that  you  might get the patent but you're not certain
that you're going to get it prior  to  the  disclosure,  and  I'm
wondering if you have a reaction to that.

MR. RYAN:  Well, that's a risk that the  parties  would  have  to
take,  of  course,  knowing when they file their application that
there's a possibility they will have in  effect  given  away  the
genesis  of the invention and for one reason or anotheHe not able
to get a patent. That's a risk the filing  party  would  have  to
take.

COMMISSIONER LEHMAN:  Do you think that the advantages though  of
prepublication would outweigh the negatives of that risk?

MR. RYAN:  It would have to be evaluated on an individual  basis,
but  I  think in many cases that's the case. We publish much more
broadly in the technical literature than  we  do  in  the  patent
literature.

COMMISSIONER LEHMAN:  Thank you very much.

Next I'd like to call Richard LeFaivre, the Vice_President of the
Advanced   Technology   Group  of  Apple  Computer  who  will  be
representing the Computer and  Business  Equipment  Manufacturing
Association CBMA.

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