United States Patent and Trademark Office Public Hearing on Use of the Patent System to Protect Software-Related Inventions Transcript of Proceedings Wednesday, January 26, 1994 Thursday, January 27, 1994 9:00 a.m. to 5:00 p.m. Before Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Location: San Jose Convention Center 408 Almaden Avenue San Jose, California 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: Ginger Lew General Counsel-Designate United States Department of Commerce 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 Recording Technicians: Karl Henderscheid Support Office Services 52 Second Street, Third Floor San Francisco, CA 94104 (415) 391-4578 Trascriber: Milton Hare Rogershare Transcribers 541 Maud Avenue San Leandro, CA 94577 Witnesses January 26, 1994 Mr. Clark VideoDiscovery Mr. Poppa StorageTek Mr. Ryan Intellectual Property Owners, Inc. Mr. LeFaivre Apple Computer Computer and Business Equipment Manufacturing Association Mr. Lopez Interactive Multimedia Association Mr. Heckel Abraham Lincoln Patent Holders Association Mr. Kohn Borland International, Inc. Mr. Brotz Adobe Systems Incorporated Mr. Troesch Fish and Richardson Mr. Sabath World Intellectual Property and Trade Forum Mr. Benman Benman & Collins Mr. Baker Oracle Corporation Mr. Silverman Intel Corporation Ms. Caldwell Software Entepreneurs Forum Mr. Chiddix Time Warner Cable Mr. Fernandez Fenwick and West Mr. Antoniak Solar Systems Software Prof. Hollaar University of Utah Mr. Henry Wolf, Greenfield & Sacks, P.C Boston Patent Law Association Mr. Cassamassima Exxon Production Research Company Mr. May Iconik Corporation Mr. Brown Mr. Irlam League for Programming Freedom Mr. Yoches Finnegan, Henderson, Farabow, Garrett & Dunner Mr. Shay Morrison & Foerster January 27, 1994 Mr. Fiddler Wind River Systems Mr. Warren Autodesk, Inc. Ms. O'Hare Mr. Glenn Intellectual Property Section of the State Bar of California Mr. Lippe Synopsys Mr. Boyle Multimedia Development Group Mr. Laurie Weil, Gotshal & Manges Mr. Patch Sun Microsystems, Inc. Mr. Byrne American Committee for Interoperable Systems Mr. Gimlan Fliesler, Dubb, Meyer & Lovejoy Mr. Cronan Taligent, Inc. Mr. Neukom Microsoft Corporation Mr. Morgan The Prudential Insurance Company of America Mr. Stallman Mr. Casey Silicon Graphics, Inc. Mr. Sterne Sterne, Kessler, Goldstein and Fox Mr. Siber IBM Corporation Mr. Lachuck Poms, Smith, Lande & Rose Mr. Aharonian Source Translation and Optimization Mr. Cole Mr. Graham International Federation of Industrial Property Attorneys Mr. Lemon Network Computing Devices Mr. Schlafly Real Software Mr. Brand Reasonings Systems, Inc. Mr. Judd Mentrix Corporation Mr. Higgins Cooley, Godward, Castro, Huddleson & Tatum Mr. Grace Tetrasoft International __o0o__ JEFF KUSHAN: We're ready to begin the hearings today. We're very pleased to be out here on the West Coast. What I'd like to do is introduce the Vice_Mayor of San Jose, Blanc Alvarado, so we could begin the program. __o0o__ VICE_MAYOR BLANCO ALVARADO VICE_MAYOR, CITY OF SAN JOSE, CALIFORNIA VICE_MAYOR ALVARADO: Well, good morning to all of you. It's wonderful to see as many of you here today. Hopefully more people will come in during the course of the hearings, because indeed what is happening here in our city today is very very important not only to the software industry, but certainly to the nation and to the country as a whole. Commissioner LEHMAN, distinguished officials from the Patent and Trademark Office, ladies and gentlemen, I am Blanc Alvarado, Vice_Mayor, City of San Jose and it is my pleasure to welcome you to our city known as the capitol of Silicon Valley for hearings on patents for software_related inventions. As you all know, for the past decade the computer software industry has evolved into one of the nation's fastest_growing industries, and today U.S. software firms lead the world in innovation and market share. Silicon Valley firms develop one_fourth of the world's software, and to maintain leadership in this vital industry, a commitment to innovation on the part of each and every one of us is essential. It is quite a privilege for San Jose to host the first landmark public hearing on patent protection held outside of Washington, D.C. This is the first in a series of public hearings which will result with your input and good advice in a revamping and updating of a system that at best I would say is somewhat out of date. We commend the Patent and Trademark Office for recognizing Silicon Valley's critical role in the world software industry, and I would also like to recognize the efforts of our own Office of Economic Development in bringing these hearings to San Jose. The dialogue that will take place today and tomorrow and throughout the public hearings in other parts of the country is as you know extremely important to the software industry, to our regional economy, and certainly to the nation's economy. We wish each and every one of you a very very successful public hearing, and we encourage you to speak candidly, to give us your best advice so that those that are here from the Patent Office will be able to take your recommendations, your input in the most serious step further up ahead, to look at how the system for patenting inventions can be improved. We wish you success, encourage you to stay for the two days, and also encourage you to invite other people who are not here presently to attend as well. Thank you very much for being here. COMMISSIONER LEHMAN: Thank you very much. __o0o__ COMMISSIONER BRUCE LEHMAN COMMISSIONER OF PATENTS AND TRADEMARKS COMMISSIONER LEHMAN: On behalf of President Clinton and Secretary of Commerce Ron Brown and all of us at the Department of Commerce and the Patent and Trademark Office, I'd like to thank the Vice_Mayor and the City of San Jose for providing this great spot to have these hearings and providing the technical and physical assistance that we really needed to come here from the political and legal capitol of the United States to the technological capitol of the United States which really is right here in Silicon Valley. And I think it emphasizes what we would like to think is a growing cooperation between the political capitol and this technological capitol, and particularly the President's commitment to work with California to make certain that California can be everything that it possibly can be. President Clinton has made the development and competitiveness of America's high_tech industries the cornerstone of his economic program, and he talked about that last night in his State of the Union Address. Promoting these industries will lead to the highway to high_tech jobs for Americans, more high_wage, high_tech jobs, and will insure continued competitiveness for our industries into the future. In fact, you know, we're not far from the mountains of the Gold Rush. In the Nineteenth Century it was the wealth in the ground that created the wealth of California and the nation. As we move into the 21st Century, it's the wealth of the human mind which is going to be our most precious natural resource. That wealth doesn't mean a whole lot if it doesn't have a conception of a modern up_to_date legal system which defines the rights that individuals have in their creations. That system needs constant revising and constant modification, and that's why we're here, right here in the heart of Silicon Valley, where we see a tremendous potential for pursuit of the Clinton Administration's goals. Much recent concern has been expressed over the patent system to protect software_related inventions. These concerns range from claims that the patent system is incompatible with software development to skepticism over the ability of the Patent and Trademark Office to accurately gauge innovations in this field of technology. However, to date, there has not been a forum in which those having concerns could air them with the hope that they would be heard, evaluated, and used to develop future policy. These hearings are intended to provide that forum. We're really quite serious about having this opportunity to really hear from people in the business about what they think about the current state of the intellectual property system, what they think needs to be done to improve it. Before we begin I'd like to provide you with a little information about the Patent and Trademark Office, our operations and our plans for the future. The Patent and Trademark Office is an agency of the Department of Commerce. It's a very old agency; it was founded in 1790. It's one of the first agencies of the Federal Government. It's a part of the team that the President has assembled to promote technological innovation and exploitation to increase our exports and to enhance the overall competitiveness of U.S. industry. The Commerce Department is also leading the Administration's initiative to accelerate the development of our nationwide electronic superhighway. The President also talked about that last night in his State of the Union Address. This Information Superhighway, and of course Silicon Valley and the intellectual property system is very much a part of that, will be the basis for our information_based high_tech economy of the 21st Century. Our office plays an integral role in this team, and Secretary of Commerce Ron Brown has given us the following mission: First, we're to administer the laws relating to trademarks in order to promote industrial and technological progress in the United States and strengthen our national economy. Secondly, we are to develop and advise the Secretary and the President on intellectual property policy, including copyright matters, and of course that's part of what we're here about today. And finally, in cooperation with other trade agencies of the government, the International Trade Administration in the Department of Commerce, we are to advise the Secretary and other agencies of the Government such as the United States Trade Representative on the trade_related aspects of intellectual property, and we just finished, as you probably know, a very successful effort that culminated in Geneva last month to provide a new trading regime for the world which will very much benefit high_tech industries, particularly the computer software industry. The new focus of the President and the Secretary of Commerce on technology_based economic growth makes this a very exciting time for me to be leading the Patent and Trademark Office as its commissioner. It also places a serious obligation on us, however, to ensure the proper functioning of the patent system, especially in the rapidly_developing areas of technology. We have devoted a substantial amount of effort and resources to improving quality of examination for our software_related inventions, though I must say there are some inherent problems there which are very difficult to address, and just to point out what one of them is, particularly in this area of computer software_related inventions is that a lot of what is known in this area is in the area of trade secrecy. It's not written down anyplace. It's not even in prior patent applications, and so we have a very difficult time sometimes making determinations __ what is the existing state of technology? And as most of you who are here know, that's a critical requirement in order to be able to issue a patent, to know what is in fact new, what is a new innovation that should warrant protection. Our Computer Systems and Applications Examining Group headed by Gerry Goldberg, who is here with us today, has been at the center of this effort. This group currently employs over a hundred and sixty examiners who bring with them a wide range of expertise and experience. We use stringent hiring standards to ensure that our examiners come into our office with the proper background, and then provide training from experts in the field to ensure that they keep abreast, not only of the state_of_the_art technology, but also of current legal standards. These examiners are responsible for the examination of a steadily_increasing number of patent applications being filed by inventors in this field. In 1991 we had 6,600 applications. In 1992 we had 7,500, and last year we had over 8,300. That's out of a total of about 190,000 patent applications in all fields of technology in our office. We have also worked hard to remain receptive to public and industry concerns, and I think this can be seen through our extensive efforts to improve our prior art collections, conduct training for our examiners and recently to respond to intense industry concern over the issue of patents. We will soon forward to Congress a legislative package. We'll make our reexamination process more open to third_party participation. These changes will make reexamination a more attractive option for those having reasons to question the validity of any particular patent. We will also be changing the patent term to run from twenty years from the date of filing rather than seventeen years from the date of grant. This is a change that is good for the United States. We believe that it will prevent the disruptive effect of patents that are issued long after they have been filed, due to administrative delays in the processing of the patent applications, delays that are often deliberately arranged, sometimes by patent applicants who want to extend ultimately the reach of their patent further than it ought to go. We recognized this benefit when we agreed to a change recently in the GATT_TRIPS context where we agreed to an international standard of twenty years from filing as the standard that all countries would attempt to achieve. But as an extra bonus, by making this change, we have been able to convince __ and I just back from Tokyo last week __ we've been able to convince the government of Japan to loosen their rules regarding filing patent applications. This will greatly assist U.S. inventors in their efforts to gain patent protection in Japan. And I should add that intellectual property protection in foreign markets like Japan is a very vital part of our effort to encourage and promote U.S. exports, because what we have to promote is often the technology itself, which is not going to be very valuable unless it's protected by an internationally_recognized regime of intellectual property laws. Finally, our hearings today, I would like to think, emphasize our desire to remain receptive to the needs of our users and our public. Of course we, I think, will find out in the next few hours that sometimes those recommendations that we get from users in the public aren't always in harmony; I'm sure that we're going to hear differences of opinion, and we are going to have the task of sorting through those differences and coming up with a policy that works. I'd like to just make an observation about the nature of the intellectual property system before we proceed, and that is that I don't think there's any question about it, that intellectual property protection, patents and copyrights, have been a major part of the economic growth of America from the very beginning. When I walk into my office every morning, I see the patent model of Thomas Edison's light bulb sitting there, greeting me as I walk in the door, and out of that, great industries have been built. I see mid_Nineteenth Century inventions, inventors like Eli Whitney. That innovation is increasing in the United States, and it's always been protected by the patent system and encouraged by the patent system. The purpose of the patent system is to incent innovation, not to disincent it. And patent law is a very delicate instrument. If it doesn't work right, if the threshold of patentability is too low, there's too much confusion in the system, it may actually end up disincenting innovation rather than incenting it. The best kinds of patent systems is a patent system that is clear, that everyone understands, that requires very little litigation to use it, and it is our concern that we're not quite seeing that kind of a patent system, particularly in the software_related inventions area, that has caused us to be here in Silicon Valley today, and we're going to do everything that we can possibly do to try to make this the best system that we can. Finally, before we call our first witnesses, I'd like to introduce the people who are here with me at this table this morning, and I'd like to start at my far right with Michael Kirk. Mike is currently our Assistant Commissioner of Patents for External Affairs. He has been responsible for some time for all of the policy and legislation in international matters in the office. President Clinton has nominated him to be the Deputy Commissioner of Patents, and as such he's going to lead an effort to deal with these policy problems and make our intellectual property system all that it can be. Next I'd like to introduce Ginger Lew, to my immediate right. Ginger Lew is our new General Counsel for the entire Department of Commerce. She works directly for Secretary of Commerce Ron Brown. Ginger is from the Bay Area. She was a practicing lawyer out here, has worked in this area of law herself, and I think is an illustration of the kind of technology_oriented, California_oriented people that we have in our administration who I think are going to be very receptive to the concerns of people out here. Next I'd like to introduce Larry Goffney. Larry is our new Assistant Commissioner for Patents. His responsibility will be to supervise the patent examining corps. He'll have about three thousand people working for him, including all the examiners and support staff who examine the software_related inventions. Larry has taught law around the United States, he has a an engineering and a law degree, he was a patent lawyer and a partner in a very prominent law firm before coming to our office, and we're very excited about the prospects that he brings to our office and his understanding of these issues. And finally you have already been introduced to Jeff Kushan who is on the staff of our Office of Legislation and International Affairs who has been the sparkplug who's really pulled all of this together, and I know that this room I think seats about a thousand people, so __ I think the Vice_Mayor was a little concerned that we didn't have a good turnout, but I think that when you think of how many people the room seats that we're having a pretty good turnout, so it indicates that Jeff has done his job of getting the message out so that all of you know that we're here to listen to your concerns. The people who will be testifying over the next two days should have received a schedule indicating the approximate time that they have been assigned to give their remarks. A final list is available at the entrance to the room. I imagine most of you got it, and I would encourage all of the people who are scheduled to testify here to be here at least twenty minutes before your assigned time slot. We're going to try to keep to this schedule as much as we can, but hopefully you'll give us a little bit of leeway either way. Each person will have eleven minutes to speak, and the computer monitor in front of this podium here, this computer monitor that you see sitting in front of Jeff, will display a green screen for nine minutes, and then it will turn yellow during your last two minutes, so that you'll know that you'll have to start wrapping up, and then when the screen turns red the time will be up. I would encourage everybody to try to cooperate with us and stick to these time limits so that we can be fair to everybody. Unfortunately if one person goes over too much then that really is at the expense of others, and we're not going to have a very balanced hearing. I think eleven minutes ought to be pretty good time for people to get most of their comments in, but of course we're not limited to these oral comments, and I would encourage anyone who has further additional written comments to give them to us and anybody who's not here, anybody that anybody here knows is not here who has views about this should certainly feel free to send in their written comments and they can consult the Federal Register notice which was published on December 20th, 1993 for more information about this. We may have copies of that out here for those of you who don't have it, and Jeff can certainly get that for you if we don't. The notice has been widely circulated through the Internet, and it can be retrieved at our ftp site, which is comments.uspto.gov. The transcripts for these hearings will be available after February 7th, 1994, and paper copies will be available from our office for a charge of $30.00. I'm sorry we have to charge that, but it's unfair to ask our patent applicants to pay that fee, so there will be a $30.00 fee which is basically our charge of reproducing them, and the transcripts will also be available through our ftp site that I just gave to you. Once again I'd like to welcome everybody here today. It's a real pleasure for us to be out here, and I think this is going to be a very productive exercise, that we are going to in fact learn much information that will help us turn those dials of law and policy in Washington so that they're totally finally tuned, and we can provide all of you out here we're looking to to create the wealth of America for the next century, with the kind of intellectual property system that you need to do your job properly. In calling our first witness, I'd like to say even though everybody has eleven minutes to speak you don't need to use all the eleven minutes, don't feel that you have to do that. To the extent that you leave us a little more time, we might be able to ask a question or two if we feel motivated to do that. So with that explanation, I'd like to call on our first witness, who is Joe Clark, the Chairman and CEO of VideoDiscovery, and welcome, Mr. Clark. __o0o__ JOE CLARK CHAIRMAN AND CEO, VIDEODISCOVERY MR. CLARK: Thank you very much, Commissioner LEHMAN. My clock says 9:28, and that's what it says on the sheet, so I congratulate you the good timing of your remarks, and I'll try to do the same. I really appreciate the opportunity to come and talk to this group. I have a publishing company in Seattle, Washington that publishes multimedia products for science education, and we're pretty well_known at this time throughout the country, and we're totally frustrated by our experiences with the patent system. And so what I would like to do during my time is kind of share with you personal experiences that we had in order to illustrate some of the problems that I think are inherent in the current patenting process, and then I'd like to recommend two or three different solutions. Now, you've sort of preempted my remarks, and I'm really appreciative of it. It's the first time that I've heard that the Patent Office was drafting legislation that would take care of most of these, but there's one part of it that I want to try to deal with and maybe ask you a question about. On the plane on the way down I thought it was in some way almost poetic that I was headed down to California. I was a little bit anxious about earthquake country, you know, in fact I didn't sleep very well last night. But I thought about the earthquake thing as not being too dissimilar from the situation we find ourselves in with the patent system, that is to say, in the last year and a half we've heard some rumblings coming from the Patent Office with patents like the Grass Valley patent and the Optical Data patent and then the Compton patent which sort of got a 7.3 on the Richter scale as far as I could figure out, and my big worry is that there's no end in sight, that is to say, given the secrecy in the Patent Office, we don't know what to expect tomorrow, next week, next month, and so on. In my case, I experienced a situation where a patent was called to my attention that literally could drive me out of business. I started VideoDiscovery in 1983. I worked very hard for ten years to get it to the point it is at, with sixty people, and for somebody to have a patent that was a club that could just close down my operation didn't set well with me. I didn't know much about the patent system until about a year ago when I got a letter from my competitor that called attention to the award of two patents, and they indicated that they thought we might be infringing on their patents and suggested that I contact their technical person to see about licensing the technology. Well, they had two patents. One of them was for a method of instruction that we lovingly call the Socratic Method, and the other patent was for a method to customize a curriculum, using a computer to do it, and we thought that that had been a process that had been going on for a long, long time. So my immediate reaction was confusion. In the first place I couldn't believe that anybody would patent these things. If I could have the Number 3 slide, please. I just want to describe this one patent for you. The patent on the Socratic Method, as I say __ this is not the way it's described, it's described as a method of instruction __ was composed of a trilog, and the trilog had three components. One was a random_accessible reservoir of information like a video disk player __ could have been a CD_ROM or a hard disk, I guess, or maybe a textbook, a teacher was the second component, and the students were the third component. The way this system worked was that the teacher was given instructions where to go on the random_accessible reservoir of information, withdrew the information, passed it on to the students, the students responded, and then they would go back to this system. Now, they got a patent for this. I couldn't believe it. And my first reaction was anger, disgust, you know, disbelief, and so on. More recently I've modified my position where I believe that the, the Patent Office is indeed not the culprit, but the victim in a system. Any system that operates in secrecy like that where they can't confide or consult with the members of an emerging industry, for which there's no prior art, no experience, no informed judgment on the part of the examiners, is ultimately a victim to this thing where they have to __ they, they can't distinguish obvious from unique and are almost obliged to issue the patent. So the point there is that I think that if we would remove the veil of secrecy, which I hope is part of the legislation package, and I'm not sure that is attached to, you know, ultimately or necessarily to first_to_file process, so I'd like a clarification about that, but that is really critical, to support change in our industry. At one point it was the computer industry, it was the biotechnology industry, it was the software industry, the multimedia industry, what's going to happen next week, next month and so on, but whatever the new, emerging industry is, unless that law is changed so that there's some better process, we're going to face the same kind of dilemma. Let me come back to the history on my case. As soon as we got that indication, as a small company I did not have many attractive alternatives. One was litigation, which was very very expensive, and I could literally not afford that, and the other one was the reexamination process. In talking to no less than ten patent attorneys over the course of last year, I never got one that recommended reexamination process, and so I'm very happy that the Patent Office recognizes the problem with that and is going to include more third_party involvement in that reexamination process. But that was one of my recommendations. As it happens, when we filed in Court in August to ask the Court to find these patents invalid based on the obviousness of the patent and the existence of prior art, the other party had sixty days to respond; and on the sixtieth day they decided to donate the Socratic Method back to the public where it belongs. The second patent, however, they asked for reexamination in the Patent Office. That puts us in a terrible position. We know that the inventor has a tremendous advantage through the reexamination process as it exists. We also have some trumps, some prior art that we know that will knock that out, and we don't know whether to provide it to the Patent Office or to save it for litigation if it emerges from the Patent Office. So you can kind of see our dilemma on that thing. So a recommendation that I would have is to change the process so it's published prior to award. That would solve the problem and serve existing, you know, changes and so on (sic). Second recommendation would be improve the examination process. I think that that's being considered, and so on. But a compromise position, and something that I would like to see for immediate relief __ I'm talking we need Federal aid now, an immediate relief to get us out from under this anxiety, is either a hiatus on any more patents coming out for multimedia __ that would be preferable __ if you can't do that, then I'd like to see the Commissioner empowered to constitute a commission and do peer review of any patents that have come up. The Commissioner would identify new emerging industries, all right? And when they saw that, because there's no prior art, because there's no experience with the examiners and so on, that they work with the industry leaders in that particular industry, to develop the prior art collection, to set the guidelines for what's patentable, to review patents as they come out. So I hope that you can sympathize with the position of a small business person who has gone through the fear and the anxiety of having something like that ripped out from under them. I feel I've been extremely lucky to get my resources together and to be able to operate in this system. Thanks very much for your attention; I'd be happy to answer questions. COMMISSIONER LEHMAN: Thank you very much, Mr. Clark. In terms of this reexamination process that you're concerned with right now, I think one of the problems that we have in reexamination right now is that generally speaking we limit the prior_art references in a reexamination to those that are submitted by the person who is seeking reexamination, and that creates a problem for third parties. MR. CLARK: Aha! COMMISSIONER LEHMAN: So in this situation it sounds to me like the patentee kind of got the leg up on you by being the first to request reexamination. Is that problem. MR. CLARK: Yeah, I don't disagree. Yeah. I don't disagree that I was outmaneuvered, you know, but __ yeah, you're right. You're right. COMMISSIONER LEHMAN: I really appreciate that. Does anybody have any other comments? If not, thank you very much for coming down here and sharing these thoughts with us. MR. CLARK: Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Ryal Poppa, the Chairman and CEO of Storage Tek. __o0o__ RYAL POPPA STORAGE TEK MR. POPPA: Good morning, and thank you very much. I'm going to be answering principally the Question 4 on whether the circumstance or the framework of the current patent law preserves competition. Quick background on Storage Tek, we are a twenty_five_year_old company, start_up, much like you see here in the Valley. We do about one and a half billion, have ten thousand employees. We belong to many organizations, the CCIA, Computer and Communications Industry Association; ESIS and ASIS, the European and the American Committees on Interoperable Systems; AEA, American Electronics Association; and the IEEE, the Institute of Electronic and Electrical Engineers. All of these are very pro_competitive in their attitudes, and that's the principal reason we belong to them. For the record, we have over three hundred programmers cranking out programs all the time, we have lots of patents and we have the same risk everybody else does. In the industry though we do build principally data storage devices that are attached to all the major mainframe manufacturers of the world, eighteen at this time, and many networks. We do support patents in every sense, as applied to the area of software, with one exception. We believe we have to have continued decompilation rights to maintain interoperability when needed. Modern APIs or mandatory APIs would do the job __ application program interface __ but frankly most companies do not want to do this, but that would be a solution in addition to decompilation. In supporting the thesis of "pro competition" I want to give three illustrations. One is old Ma Bell; we all know what it was like in the old days, very bureaucratic, very successful, it was the stock of widows and orphans, but it was a stifling, stultifying, noncompetitive environment. The new Bell of course is growing, marvelously. It is competitive. The competitive juices are flowing. And think of all the new services in the last twenty years that we have become accustomed to. Auto_answer, FAX, networks, fiber_optics, cellular, ISDN, et cetera, et cetera. New companies; MCI, the WilTel's, the Sprints, et cetera, and new related industries defined by companies such as Novell with software, and NSC for high_speed data transmission, McCaw for cellular, Hayes for modems and the list goes on and on and on as you well know. But this flowed out of a pro_competitive stance, a break_up of a company, and it led ultimately to [DarvdaNet], InterNet, and the information highway. That was the genesis of that kind of program. Today we've globalized that communications capability all over the world and we continue to do so by freeing our telecommmunications capability. A second illustration is, in my principal industry, computers, leader of the industry, IBM, fell upon hard times. We all are aware of that. They are correcting that problem and will clearly return to health. But they fell into a pattern of being in the sixties and seventies highly competitive, and then they went into a protect mode, where they were trying to hold onto their base, hold onto their customers, and as a consequence, they fell behind, they became anticompetitive, and as a consequence, they began to lose the competitive juice, and even today some of the comments made by their own officers saying that we have lost the will to compete. They're getting it back, they will return, but it was because they lost their desire to win. Part of that was the intense, massive fight over copyrights and patents, protecting in the court, fighting in the courts rather than fighting in the customer arena to save the customers and keeping them happy. No new ideas were allowed in the seventies and eighties. Where did the PC come from? or the mini? or the workstation? Not out of the big companies. They came out of the start_ups, where they could get the proper patent and copyright protection. But oftentimes decompilation is part of that because you have to maintain interoperability __ very fundamental issue. I sincerely hope that Lou Gershner understands that there's a smothering effect of too extensive use of patents and copyrights. It destroys the design capability of the company because they don't look to get their products to market quickly, they design poor patents and protection, and therefore it doesn't really work to their great benefit. In the last six years, we along with many of our colleagues, have opposed the forces in Europe that have been seeking to use copyright and patent protection to limit competition, and as you well know, the EC finally came down on the point that decompilation is legal, desirable, when necessary for interoperability, and that's the only thing we look for __ no piracy, no cloning, no copying, no replacement of the program, but interoperability. That must be preserved. The last example is the information highway. This is not an economic debate in the way it was between Bell and IBM, but rather it is a competition of ideas, of interchange, of the exchange of relationships over the Internet, as you __ if you follow it and see what goes on, it is used in many, many ways. I would add a challenge to you, because of that Internet. Looking for data the way you are, and in your opening statement you said you're actively looking for ideas from our society, put out on the Internet a question. Should decompilation be allowed for the purpose of interoperability, but clearly not for piracy, cloning or replacement of the basic software? I think you'll get a very strong eighty_to_ninety_percent positive response that it should be. The reasons are you have organizations like the IEEE with two hundred and forty thousand members who have voted and publicly stated they support decompilation when required. The same with ASIS, the same with CCIA. In the case of CCIA we have sixty_seven companies __ I happen to be Chairman of that __ most of the RBOCS, all but one, AT&T, Univac, Amdahl, Storage Tek, and we have approximately a million employees represented, and they would vote for decompilation and maintaining it as a, a necessary option. Remember the alternative is a mandatory API. That could be something that could be legislated, but if not __ COMMISSIONER LEHMAN: Could you explain that? MR. POPPA: Applications Program Interface? COMMISSIONER LEHMAN: Right. Well, API, but what would be a mandatory API? MR. POPPA: Well, literally in law saying that a second vendor or a third vendor would have rights of access to the base code so that they could understand it, so that they could build their code to interact with it and interoperate with it. Today most companies are locking that up on an object_code_only basis, and not allowing us to see it. COMMISSIONER LEHMAN: To some degree this is an antitrust issue, and my colleague, Ann Binghamen, who is the Assistant Attorney General for Antitrust over in the Justice Department has indicated that she's going to put together a task force to start working on these problems, and it may well be that this sort of mandatory API idea should be explored in that context. In a sense that's more of a, I think, an antitrust kind of a solution to this problem as opposed to an intellectual property solution. MR. POPPA: We think that's a good alternative. We would also hope that within the structure of the PTO we could get a clear distinction, as they have done in the EC, but I don't think they did it as clearly as they should. They left it a little unclear, such that some people are going to be able to say, Well, Gee, for interoperability I can really replace the program. We are not in any way supporting that position; only that we should be able to access the program so that we can look at it and make sure that we can make our programs talk to each other. Nothing beyond that. My last point, and it's really a picture worth a thousand words: a terminal device we're all well_familiar with. It is a very standard device, but it also comes with an information network, with a very standard interface. It's a telephone. But when you take patents and copyrights and you tighten them down such that you could not in any way see the inside of the machine, what we do is we cover up the access port, we take the network, we cut off this end so you can't see the interface, and we say, Now, Mr. Engineer, make them interact. And that doesn't make any sense, because it isn't just a telephone, it's a computer with three million instructions in it, and this network has on the line hundreds of terminals with other millions of instructions, and therefore decompilation and interactivity must be maintained. Please. Thank you very much. COMMISSIONER LEHMAN: Thank you very much. Do any of my colleagues have anything they want to add? Thank you very much. Thanks for coming over. MR. POPPA: You bet. COMMISSIONER LEHMAN: Next I'd like to call William Ryan who is representing the Intellectual Property Owners Incorporated, but is directly with AT&T. __o0o__ 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 Property Owners. They are a nonprofit association located in Washington whose members are companies, including AT&T, other companies as well as universities and individuals who own and are interested in patents, trademarks, copyrights and trade secrets. IPO presents these remarks in support of the continued strong patent 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. However, the amount of revenue in the software industry is not limited just to the packaged software. There is indeed a great deal of other software that goes on that is less visible but nonetheless 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 revenues for devices or the software component of these devices and systems by many estimates well_exceeds a hundred 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 entertainment business, are increasingly based on software infrastructure underpinning it. Therefore, the effect on the economy of decisions 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 seventeen percent of revenues flows through to support continued R&D. And many companies not traditionally thought of as software companies __ and again only by example I'll refer to AT&T, we have an R&D budget 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 adopted 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 investments, 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 protect the systems, the 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 precision. 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 implementations 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_related industries 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 invention 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 seeking 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 served by patents is to disclose to the public. Before an allusion was mentioned to the secrecy that often attends patents. Well, in many ways the contrary is true. Patents themselves 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 articles. 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 exchange value so that they can work together to get a cooperative result. Often this helps people and companies get into new markets and establish businesses that 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 entertainment, in finance, in manufacturing and process control, software is often a common denominator. And the earlier_mentioned national 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 workable 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 perspective. Moreover, the many other of our industrialized countries, the European countries for example and Japan, have statutory schemes that are roughly equivalent to our present protection 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 our 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 regime 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 political and business trends. This vast changing environment requires the U.S. patent laws and implementing procedures to be technologically neutral and flexible enough to avoid major discontinuities. Thank you. __o0o__ 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 information available and then you can be certain you'll be protected, 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 another are 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. __o0o__ RICHARD LeFAIVRE APPLE COMPUTER, AND, COMPUTER AND BUSINESS EQUIPMENT MANUFACTURING ASSOCIATION MR. LeFAIVRE: Thank you, good morning. My name is Rick LeFaivre from Apple Computer and today I'm actually wearing four hats, first as a computer scientist with twenty_five years' of experience in software technology as a researcher, a professor and an R&D director, second as Vice_President of Advanced Technology at Apple Computer. My organization is responsible for a large percentage of the patents that are granted to Apple, and the protection of the innovation that we do is very important to me. In particular over the years we've seen a marked shift in our innovation focus from hardware to software, and so I'm very interested in the topic of these hearings in particular. Third, I'm the founding member of the Executive Committee of the Software Patent Institute. As you may be aware the SPI was founded to provide training in software technology and access to prior art, to help insure that those software patents that are granted are of high quality, and we're working very closely with Gerry Goldberg in that task. I should point out that the Software Patent Institute has chosen to take a neutral stance on the broad issue of the patentability of software so the views I'm about to express do not necessarily reflect those of the SPI. Finally and most importantly I will be testifying today on behalf of the Computer Business and Manufacturer's Association CBMA, and let me give you a little background of this group. CBMA is a trade association whose members represent the leading edge of high technology companies in the computer business equipment and telecommunications industries in the U.S. In 1992 CBMA's twenty_six members had a combined estimated sales of more than two hundred seventy billion dollars, which represents about four and a half percent of the U.S. gross national product. CBMA member companies employed approximately a million workers in the U.S. in this past year. The computer industry performs about twenty percent of the total private_sector R&D investment in the U.S. That figure is about five times the investment of the aerospace industry, three times the investment of the health care industry, and four times that of the chemical industry. This investment allows our members to rapidly advance the capabilities of their products and to get access to, and compete successfully in, a very tough international marketplace. It also results in significant numbers of jobs just within R&D alone. I'm here today because patent protection for new computer functions is absolutely crucial to all our members. Software_related inventions fit within our present patent system and patents issued under a sound application examination process support the Constitutional mandate of promoting the useful arts and sciences. CBMA members file for and obtain patents for software_related inventions. They also enter into agreements to utilize such patents held by others. Because our companies typically have broad product lines, they address patent issues in many areas of technology. They see no reason to treat software_related patents differently from patents related to other technologies. In the first question set forth in the hearing notice, there are a number of subparts relating to claim subject matter and claim formats. CBMA's response to this question is simply that if the claim is drawn to the solution of a real_world commercial problem, and the claim functional steps or elements as a whole meet the strict legal requirement to be new, nonobvious and useful, then a patent should issue. The function claimed, not the format, is what is important. It shouldn't matter whether new, nonobvious and useful process steps are claimed in the context of a program or a disk or claimed in a hardware or method format, or in the context of a semiconductor chip. Software_related inventions are valuable to the purchaser not for what they communicate, but for the functions they perform. The functions are what are important and what should be assessed for novelty and nonobviousness. Relative to Question 2, our members have integrated their software_related patents into their overall patent portfolios and practices so that separating out their impact is quite difficult. However, this integration itself demonstrate that these patents are just like all others. They are sought when the inventor or his or her employer believe that the investment in obtaining the patent will be returned. Conversely, CBMA members often must respect the software_related patents of others, which they do in the same manner as further technologies. Regarding Question 3, the standard for patent eligibility for software_related inventions should be maintained at the same level as for all other technologies. An alteration in that standard would negatively impact investment in our industry. If the standard were to be restricted severely it would disarm CBMA member companies in their dealings with foreign competitors because licenses under U.S. patents are used to negotiate access to foreign markets and foreign technology. Obtaining patents for software_related inventions in our principal competitor countries is generally equivalent to that of the U.S. Software_related technology will be one of the leading technologies of the 21st Century. Discrimination against this technology would set a terrible example sure to be rapidly adopted by the developing world. To now have the leading country in software creation and patents declare that such inventions are excluded from the statute, despite falling within the terms of statutory subject matter, or are to be treated differently from patents involving other technologies, would reverse much of the hard_fought progress that has been made over the last decade in improving intellectual property protection throughout the world. Relative to Question 4, patents provide the relatively broad protection necessary to bring in risk capital for new and useful inventive functions that are generally defined in terms of processes or methods of operation. This protection should be afforded only after a detailed examination to insure that the claimed functions are truly novel and nonobvious. This, by the way, is one of the places where the SPI is trying to work with the Patent Office to make that process more efficient. In contrast, copyright protects only the expression contained in the computer program, as it does for other literary works. High_level functional processes are expressly excluded from protection by statute. Thirdly, trade secrets provide the necessary protection to facilitate the disclosure of confidential software_related designs to employees, joint venture partners and others within the structure supporting that confidentiality. Thus, each protects different aspects of the intellectual property. The inventor, who may not wish to or be able to author a complete software product, deserves protection. The author of a program deserves protection from piracy and plagiarism. Those with confidential information, willing and able to keep it confidential, should be able to protect that value against those from which it has a fiduciary relationship. Finally, with regard to Question 5, CBMA supports continued reliance on the tested, well_developed protection of patents, copyrights and trade secrets. We strongly support continued improvement in the patenting process for software_related inventions. But nothing suggests the need to treat software differently. A new and untested regime would fail to provide inventors and authors with any certainty of protection for an extended period of time while judicial precedent was developed to determine the scope of the law. Additionally, international protection for our software research and development is critical. There is no certainty that a new protection system could be implemented worldwide, whether through multi_ or bilateral negotiations. The hard_fought protections in the GATT, TRIPS and NAFTA treaties regarding literary work protection for programs and the issuance of patents without discrimination based on technology were just obtained last year. It is inconceivable that such protections would now be abrogated with the ink hardly dry on these provisions by the adoption of a sui generis protection. In closing, our message to you is this: Don't cut back on patent protection for software_related inventions because some invalid patents may have been issued. The current reexamination process and the Federal Court system do provide mechanisms for the removal of these mistakes. We believe that further training for examiners, and access to a larger library of prior art can and will reduce the possibility of future mistakes. Overall, the system is working and should be improved, not abandoned. If the standard for patentability is changed for software_related inventions, or if patent protection is dropped in favor of some new form of protection, it will severely and negatively impact CBMA members, our industry and the country. Thank you for letting me submit these remarks and we look forward to continuing to work with the Patent Office on these issues. COMMISSIONER LEHMAN: Thank you very much. I have one question if you have a moment, and that is that, there's obviously a difference of opinion about the application of the patent system to the software industry that is represented in the room, we've already heard it this morning and I think we're going to hear more testimony about it. Apple certainly is a company, and I gather that CBMA is a company now that very much favors patent protection for software, and Apple's certainly a very important, successful part of American enterprise today. One question that I have is that obviously the purpose of patents is to incent people to invent and to make investments. And can you point in your own experience to an example where that has happened? Has the patent system actually been a factor in a decision to go into a new technology, the fact that it might be patentable? Has it been a factor in getting financing from capital markets? MR. LeFAIVRE: Yeah, that's a good question. Apple thinks a lot about patentability of any technology, software or any other, in looking at some of our innovations. We do feel that there has been a lot of investment made in technologies that, to be quite honest have been appropriated, copied, whatever, by other companies, that have not helped our situation in the marketplace, I think it's fair to say, and so we certainly are interested in trying to evaluate the patent potential of different technologies as we develop them, so I wouldn't point to any particular issues or topics, but yes, we certainly take that into effect when we're looking at technology investments. COMMISSIONER LEHMAN: So that is an important part of Apple's decision_making process. MR. LeFAIVRE: Yes. I think that's probably true for all companies now. COMMISSIONER LEHMAN: Thank you very much. MR. LeFAIVRE: Okay? Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Tom Lopez who is President of the Interactive Multimedia Association. __o0o__ TOM LOPEZ INTERACTIVE MULTIMEDIA ASSOCIATION MR. LOPEZ: Thank you. Mr. Commissioner, my name is Tom Lopez. I'm Chairman of Mammoth Microproductions of Seattle, Washington, a multimedia development company. I'm also President of the Interactive Multimedia Association. The Association's general counsel, Brian Cann, who also directs our Intellectual Property Project, is with me today to help answer any questions that you may have. The Interactive Multimedia Association is a 290_member trade association headquartered in Annapolis. We are here today because the patent system has cast a cloud over our emerging industry, an ambitious and motivated industry which seeks to transform the way we play, learn, work, think and communicate. We're specifically concerned about the impact of patents on the flow of information and fundamental principles of free expression, on the impact of patents on enabling environments, in particular the development of the national information infrastructure, the need for a patent system that is publicly accountable and open to industry input specifically through pre_grant publication and peer review, knowledgeable and informed about its operation and its economic and social impact, and sensitive to competing values and policies. We bring a unique perspective, because our membership spans the whole of the multimedia industry, from large computer companies to small publishers and developers. This makes it impossible for the IMA to take positions on issues such as the merits and proper scope of software patents where we encompass many different views. However, we have historically been especially concerned with needs and perspectives of developers of multimedia also known as content_driven software. Multimedia developers provide the creative spark that is driving multimedia into homes, schools and businesses. Therefore, we do not address competition within the software industry, we address the impact of patents on content, on the organization, expression and communication of information. Multimedia developers depend upon computers, networks and operating systems, authoring tools and other software environments. They build on technological platforms developed by others. Like traditional publishers, they add value through research, selection, organization and coordination, by aggregating rights, by creating original material and by expressing whatever ideas they believe will move the market, the body_politic or the soul. They use interactivity as their grammar. It is how computers speak to people, it is how people speak to computers. It is how people speak to other people through computers. Historically, copyright law has provided a level of protection to the software developer. Unlike copyright, patents control the private use of patented processes. Unlike copyright, independent creation is not a defense to patent infringement. Patents therefore control not only original implementations, but also the users of such original implementations. Patents even control the use of products of the process. The extraordinary power of patents resonates across an increasingly_integrated and interdependent digital environment, putting everyone downstream of the underlying technology at risk. Content_integrators, publishers, distributors, even users. Indeed, typically end_users are the direct infringers. The upstream providers are technically only contributory infringers. For example, in the recent case of the Optical Data patent, interactive method for the effective conveyance of information in the form of visual images, the direct infringers were the hundreds of thousands of teachers in classroooms, and by extension the local school districts and all of us as taxpayers. The Computer and Business Equipment Manufacturers Association described this problem sixteen years ago in arguing against patents for algorithms. Quote. The computer has become the engine which assists in running our society and in the future will assist man in numerous areas totally unrelated to the usual application of today's computers. These applications and computer uses should not be clouded by problems resulting from unwitting infringement by computer users. End quote. Looking at the list of speakers today, it is clear that users are not represented at this hearing except for multimedia developers. Multimedia developers are on the front lines of the user community, because they're developing content_driven product and services. To the extent that they are successful, they become targets for patentees. Content_oriented developers get protection from copyright, not from patents. They need protection against patents. How do they get it? For the first time, errors and omissions insurance to cover patent infringement is available from the American International Group for multimedia products. The cost is fifty thousand dollars per product, with a fifty thousand dollar deductible. That's a formidable barrier for an independent developer, a regressive tax on interactive expression. Such insurance, costly as it is, does not cover patents of which you are aware you may be infringing. This unfortunately is another good reason, along with the threat of triple damages for wilful infringement, to avoid reading patents entirely, a sad comment on a system originally intended to spread technical knowledge. And while we are concerned with the impact of patents on publishing and First Amendment values, we share with others a concern for the related problem of patents on broad abstract processes. Such patents are extremely difficult to interpret. They often purport to preempt basic functionality so as to preclude others from designing around the patent. Usually their claims are over_broad, but can be narrowed only at great expense to those who would challenge them. These abstract system_level patents threaten the development of common standards, specifications and architectures, including our Association's own work on cross_platform compatibility. They create information bottlenecks, or tollbooths, in the vision of a national information infrastructure. Mindful of the history of blocking patents in the development of the radio and the aircraft industries, we note that the highly complex and interrelated nature of the information infrastructure makes it very vulnerable. Broad patents are especially suspect in the case of software where functions can be implemented in a wide variety of ways and where independent creation is commonplace. This problem, along with the threat that patents still pending may be inadvertently incorporated in standards or infrastructional systems, would be greatly alleviated by pre_grant publication. The secrecy of the present application process is an anachronism, and a primary cause of the present uncertainty and insecurity. We plan to address this issue further in the February hearings on examination processes. We're grateful to the Commissioner for holding this public hearing and dealing openly with the issues as a matter of public policy. We're also pleased to see a serious effort to develop patent policy within the larger context of economic development and the Administration's vision of a national information infrastructure. We would like to close by expressing our support for a strong patent system. By that of course we do not mean a system that in the name of incenting novelty oozes uncontrollably into every corner of human life. We mean a system that knows its limits, that functions spectacularly within those limits and that does not debase the concept of intellectual property by incenting gaming and speculation. We mean a system that works in the real world, that acknowledges its regulatory nature and is tailored to the economic characteristics of the operating environment. We mean a system that operates proudly in public view, that is understood and acclaimed not only by patentees, their agents and their attorneys, but by the tens of millions who also contribute to our economy and society and face tough competition unarmed by patent monopolies. Thank you very much. COMMISSIONER LEHMAN: Thanks. You said that you felt that with the exception of the Interactive Multimedia Association that we didn't have on our witness list real representatives of users of the system. Who are we missing? Who would you count in that category of users? MR. LOPEZ: For instance, teachers who use the products of multimedia developers, people who are users in the home who I think would be very upset to find out that they perhaps are infringing on patents without knowing about it. COMMISSIONER LEHMAN: How might they be infringing on, on __ MR. LOPEZ: If they are actually the people who are taking the actions which would be against the patent, as teachers would be in using the products that would violate the Optical Data patent as an example. COMMISSIONER LEHMAN: Thank you. I also wanted to ask, just to clarify your position a little bit more, is your position that you would not be in favor of such a drastic step as doing away with patentability of software_related inventions. MR. LOPEZ: No. COMMISSIONER LEHMAN: So you really feel what we need to do is to reform the system to make certain that, that we have a clearer scope of patentability and that we have better procedures, primarily pre_grant publication for making sure we capture the prior art. MR. LOPEZ: Exactly. I think as Mr. Clark has indicated in his testimony, one of the greatest problems for multimedia developers today is the uncertainty that exists, and when this uncertainty exists it inhibits the investment and the __ not only of intellectual energy, but also of capital. COMMISSIONER LEHMAN: My colleague, Ginger Lew, who's our General Counsel for the Department of Commerce and on Assistant Secretary of Commerce has a question. GENERAL COUNSEL LEW: In Mr. Poppa's testimony he mentioned the possibility for the need of mandatory API __ ADI, and I wanted to know if the Association had any position on that. MR. LOPEZ: The question is does the Association have any position on mandatory APIs regulated by law? Brian. UNMIKED VOICE: No. MR. LOPEZ: No, we do not at this point. COMMISSIONER LEHMAN: One comment I'd just like to __ maybe it's more of a comment; we have a little more time here, and you may have a response to it. We haven't focused very much on that, and I don't think our questions did, but a previous witness I believe it was indicated that they thought it was very important to have the Courts to flesh out the patent system. There are elements in patent law at the moment, for example, the fact that, even assuming we spruce up our examination process, right now you can go to the Court of Appeals through the Federal Circuit, and basically get de novo review of our Patent Office decisions. The Court can second_guess the patent examiner, judges who are not even remotely experts in a given technology. Secondly, we have a number of legal doctrines, like the Doctrine of Equivalence, which some have argued cloud the certainty in the patent system, and I'm wondering if you have any comment about the impact of those on your industry. Do those kinds of problems that occur in enforcing __ understanding how the Courts will interpret a patent, do they create uncertainty that creates problems for you? MR. KAHIN: We really haven't addressed the problems, the technical problems you've described, at that level. I think the concern in the judicial evaluation is more focused on a very high presumption of validity of the patent examiner's determination, and __ that carries over into the judicial system. So that once that determination of nonobviousness based on the referenced prior art is made, it can't be overcome except by clear and convincing evidence. So that that high presumption is a disincentive to challenging the patent in Court. COMMISSIONER LEHMAN: Actually I think the situation is a little different than that. I think we have maybe a little bit the opposite problem with the Court of Appeals. The Court of Appeals for the 12th Circuit has de novo right to review the patent and I'm not sure that they always do use that clear and convincing evidence standard that you discussed. MR. KAHIN: But it's very expensive to get that far, to get to the Court of Appeals for the Federal Circuit. Most of our members have enough trouble getting to a patent attorney, let alone filing suit in a District Court. COMMISSIONER LEHMAN: Thank you very much. MR. KAHIN: Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Paul Heckel, Acting President of Abraham Lincoln Patent Holders Association who is from Hyperracks, Incorporated. __o0o__ PAUL HECKEL ABRAHAM LINCOLN PATENT HOLDERS ASSOCIATION MR. HECKEL: Thank you. If somebody can display these slides? COMMISSIONER LEHMAN: Charlie Van Horn from our office will. MR. HECKEL: Thank you. COMMISSIONER LEHMAN: I think you testified at our hearings on harmonization. MR. HECKEL: Yes, I did. And __ COMMISSIONER LEHMAN: By the way, for those of you who don't know, Secretary Brown issued a statement yesterday, or on Monday, I guess this is Wednesday already, in which he indicated that we would not at this time proceed with international negotiations which would require the United States to change to a first_to_file system. I think it's important to bring this out at this point because these, this process of obtaining public input does make a difference. There are some people who don't think it makes a difference, but we had hearings on the question of patent harmonization, and we heard public testimony, Mr. Heckel testified, he had a very strong position on that, which I recall was somewhat consistent with the position that the Secretary has taken here on our recommendation, and so we have changed our policy, and so these hearings can make a big difference. I should add, just as a footnote on that, that that doesn't necessarily mean that we won't at some point reconsider the question of a change in our system, but we concluded on the basis of those hearings that we had that we weren't really getting a good deal, that we weren't getting harmonization, and that the disadvantages to the U.S. creative community were not outweighed by the comparable advantages that we would receive as the proposed harmonization treaty was presently constituted. So this is a serious exercise, and thanks for joining us again, Mr. Heckel. MR. HECKEL: Thank you, Commissioner LEHMAN, and I was there, and I felt at the time that it was very useful to get input from a lot of different people, and I feel that it's very good that you hold these hearings too. I think an awful lot of what has been spoken is really not supported by the facts, and I think it's useful for people to come there and to provide a reasonable basis for their opinions, because I think a lot of the time it doesn't stand. Well, I'm Paul Heckel, and I'm here basically as Acting President of an organization called ALPHA, which is an organization of software patent holders. We only have about twenty members, but fourteen of our members are patent holders. I think ten or twelve of those actually had founded companies based on their patents. Two of our members were on the board of directors of the Software Publishers Association. Three of our members had their patents attacked by the League for Programming Freedom in several of their publications, me being one of those people. In fact, it was those attacks that really started to bring me in, to get interested in the issue, and as I suspect the Commissioner may know, I wrote two articles, one on the Communications of the ACM and one in Computer Lawyer on the software patent issue to try to bring out some of those facts and I'll bring out some of those facts later. Clearly ALPHA strongly supports software patentability in pretty much all the forms that are there. We've also had an opportunity to look at the statements of the American Bar Association, the Software Entrepreneurs Forum and the Intellectual Property Section of the California State Bar and we concur in their positions as well. Basically we feel we should have software patents. Inventiveness should be judged by the content of the invention and not by the color of the technology, as a variant on Martin Luther King's famous quote. We believe, by the way, that the quality of the examiner's position should be a more high_status position. We believe that trying to increase the pay and increase the professionalism of examiners is desirable. We all want a system which will make it clearer and less uncertain for everybody. Nobody, patent_holder or potential infringer alike, gets any advantage out of infringement. Now I want to talk a little bit about some of our members because I know you're interested in personal experience. For example, Mike and Susan Morgan found a company called MacInTax, developed a couple of products. Because they had patents on them they told me that, as Susan told me, she said, with her venture capitalists, when the venture capitalists asked us how we could protect ourselves against say Microsoft coming out with a competitive product and stealing our market, the fact that we had applied for patents put the problem to bed. It made the VCs feel much more comfortable, and that's a big difference. They have since sold out, they started another company. Reed Hastings is another person. He founded a company here in Silicon Valley called Purer Software. He started, he made it profitable, he raised a couple million dollars from venture capitalists, the fact that he had patents made that possible; certainly it helped him a great deal. Currently he's facing a potential litigation problem with one of __ somebody in his market said, "Why don't we add his patented feature to our product?" and so he's having to deal with those problems. Another is Dr. Marcusson who is a patent_holder and a physician. His __ when Oracle recently announced its product for the Information Superhighway they used something that he had designed for teaching medicine. It was called "Salvaging a Patient with a Stab Wound to the Heart. It was running on a Hypercard_like environment. He's had a lot of experience with inventors. He's a specialist in repetitive_strain injury, so he's familiar with that controversy which is going on. But what he has said is that, "I have seen first_hand emotional and financial damage done to independent inventors whose inventions are ripped off by big companies," and he said he "fears that many small inventors will be the roadkill for the Information Superhighway," which is the talk that I take, and having heard the previous talk I'm concerned that if their position is taken that it could very well happen that way. Hal Nesley is actually an investor, but he's invested in four start_ups which have software involved, one has a patent, the other three are in the process of getting patents. So those are some examples. In my own case, I started a company relying on patents. It gave me more confidence to start the company since I had the patent or was going to get the patent, I thought, and it gave my investors confidence. They told me it was one of the reasons they decided to put money into it. We brought products to market, as did the other people that I have been talking about, and we then found out we were infringed by Apple, we got in some litigation and I've described it in my book that some people here I'm sure are aware of, and we settled and they took out a license. Then we got involved with IBM; that situation still is not clarified. But I guess I'd like to go into what I really found out when I examined the patents that Mr. Stahlman attacked in some of his articles. And I particularly refer to the ACM article. If we can have that slide now. I went and I called. They gave an example of nine patents, and I went and I called the patent_holders on each of those nine patents. I found out some interesting things. I want to refer specifically to it. That chart is in Computer Lawyer, and this afternoon I'll have copies of Computer Lawyer out there for people to look at so they can see the chart. But based on that chart we have some conclusions. One. All nine patents protected commercial products. Every one that they brought up that they said is an example of a bad patent and absurd patent. Two. Software stimulated new business formation. Four of those nine patents were held by companies that were started precisely to develop the technology that was in the patents, and a fifth company had only been in business for two years when it filed the patent. So five of the nine companies really were independent small start_up phase companies that were using patents. Okay? I think that that's strong evidence, based on a sample selected by the people who are condemning patents that software does stimulate new businesses. Second, I would argue that they stimulate the introduction of fundamental technology. I think three of those patents introduce technology that was fundamental, at least in the sense that it was widely seen throughout the industry, and I'll talk about one of those later. By the way, I've talked to several inventors in different technologies, and I referred to a lot of that in my Harmonization testimony, and I found out in many ways that the problems faced by software developers or software inventors are very similar to the problems faced by inventors in other technologies. They're made more severe by the prior art problem and the newness of the technology, but fundamentally they're very very similar problems, and the way the trade system treats them is very similar. My last point is an interesting one. Can I see the next slide, please? Small entities are exceptionally cost_effective in encouraging innovation, especially compared to Federal funding, and I will give you the example. It might be a little hard to see there, but if you look down the first column we have the number of commercial products. The first item is four for large entities. Next is five for small entities, and below that we have zero for Federally_funded. None of the nine patents cited a product that had a Federal patent behind it, and as you know, if you develop something under Federal law funding, you can get patents on it, you do have rights to use those patents in the commercial marketplace. Now I looked at what I call the efficacy of the invention, and I used the fact that somebody has asserted a patent as a measure of efficacy, because a lot of patents aren't asserted, and I found two of the large company patents were submitted, and all five of the small_entity patents were asserted. So I use that as a measure of effectiveness, because we're going to look at taxpayer cost effectiveness. Now if you look at Federally_funded we gave one there just so you don't have a number of zeroes, so the numbers work out in some sense. Now we looked at the cost, and in 1989 the Federal funding of the Patent office was two million dollars, and so we allocated those costs and we got thirty, fifty thousand __ I can't quite read those numbers there, for those numbers, and then we divided to get the efficacy. By the way, the Federal funding of computer science in that year was four hundred and eighty_seven million dollars. So if we look at the cost_effectiveness of it, and the large entities had a cost_effectiveness thirty_three thousand, the small entities had a cost_effectiveness of two hundred and fifty thousand and Federally_funded had a cost_effectiveness of one point o three. Which says that a dollar spent in the tax __ to help the Patent Office really brings back more innovation. Now clearly if the Patent Office was clearly funded, the numbers would probably knock down to something like thirty_three and two hundred and fifty, which is still a very large number compared to one. Now I fully recognize that this is only nine numbers. It's a very small sample, but remember, these numbers were picked by Mr. Stahlman and the League for Programming Freedom to say that it's bad for innovation, and there's a very very strong prima facie argument that it does encourage innovation. So those were the results of those numbers. I want to talk now about a specific patent, which is the spreadsheet patent that I'm sure a lot of people have heard about. It's been described as the automatic recalculation patent, and when first suit was filed on it in 1989 it was attacked widely in the press as obvious and it was well_known in the prior art and stuff like that. By the way, I called the inventor, I got a copy of the patent, and I said, Who's talked to you? Nobody in the American press had even called this person although widely his patent was attacked in the press, and it was clearly easy to find him as all you had to was get a copy of the patent. So it doesn't give me a great deal of confidence when I hear these press stories about these horrible patents. So since then I've learned a certain amount about the patent. In my opinion, that patent is to the modern computer spreadsheet what the Wright Brothers' invention was to the airplane. It might not have had a visual display; they used a teletype terminal. They started out with a concept of Basic, and instead of executing the statements in the numbered order, they said, Why not take the statement numbers, break them in two, use both halves as indexes into an array, and then calculate the formulas in the order which is natural, and use it to solve business problems. That seems quite clear from reading the patent. They developed a product, they brought a product into the marketplace, and they had real users; okay? But they had a problem with the patent system. By the way, they filed the patent in 1970, twenty_four years ago, they have yet to see dime one for an invention which is in many ways responsible for the success of Apple, because VisiCalc helps out Apple Computers, the success of Lotus. They have yet to receive dime one. This is what happened to them. They got a Notice of Allowance from the Patent Office. Then the Benson decision came down, and then the Patent Office took their patent away from them, because of the Benson decision. They then appealed it, pro se, through the Courts, and got a decision at the CCPA called in re parto, which says that just because the inventiveness is in an algorithm or in the software does not mean it's not patentable __ that's an important decision as I'm sure everybody involved with software patent knows, it was done pro se without an attorney by those inventors. Now they are in trial, and in July I went to hear a one_day __ COMMISSIONER LEHMAN: Yeah, I think, Mr. Heckel, I think we're going to have to __ MR. HECKEL: Turn me off? COMMISSIONER LEHMAN: Yes. MR. HECKEL: Okay, I'm sorry, can I just briefly __ COMMISSIONER LEHMAN: Is our machine on? I'm not sure if it's working right. VOICE: It was on but we gave you a few more minutes because we tied up in the beginning. MR. HECKEL: I'm sorry. I just want to say that I saw in Court their patent attorney in my opinion perjure himself on the stand to testify against his clients, to save himself from a malpractice suit. I saw that in July. The decision hasn't come down. I hope when the decision comes down you read it, Commissioner, Examiner, and look at that patent lawyer and consider whether or not this is what you want to have representing clients out there in the field. Thank you very much, Commissioner. COMMISSIONER LEHMAN: Thank you very much, Mr. Heckel. You know, we do have a procedure in the Patent Office for hearing complaints against people for not carrying out their professional responsibilities, so it's certainly available to people if they wish to use it. Next I'd like to call Mr. Robert Kohn, the Vice_President and General Counsel of Borland International. __o0o__ ROBERT H. KOHN BORLAND INTERNATIONAL, INC. MR. KOHN: Thank you, Commissioner LEHMAN, for the opportunity to testify today. I'm Bob Kohn, Vice_President of Corporate Affairs of Borland International, a leading developer and marketer of desktop and client_server computer software including D_Base, QuattroPro, Paradox, InterBase and Borland C++. I worked in the entertainment and computer software industries my entire career. My experience in the software industry includes many types of application, utility software for both mainframe and desktop computers. After a brief period of private practice and as Associate Editor of the Entertainment Law Reporter, I joined the legal department of Ashton_Tate Corporation in 1983. Until its acquisition by Borland in 1991, Ashton_Tate was one of the world's largest computer software companies. In 1985 I left Ashton_Tate to become Associate General Counsel to Kandell Corporation, a leading supplier of IBM mainframe software, and in 1987 I joined Borland as General Counsel. I want to emphasize that I am sensitive to the need for the intellectual property protection on both a professional and personal level. My professional career is focused on protecting the valuable intellectual property assets of software companies. I'm also an author myself, having recently written a reference book on music licensing that was published by Prentice_Hall. To call order 1_800_223_0231. So I can certainly appreciate the need to protect intellectual property. And I hope I've made my point. If you need the number again I'll have it available. COMMISSIONER LEHMAN: Be careful, you know, works of the United States Government are not copyrightable, so if you get your stuff involved with ours you might have a problem. MR. KOHN: I'll try not to read my __ I'll try not to read my book into the record. I'm testifying today in my capacity as Vice_President and General Counsel of Borland, a publicly_traded Silicon Valley company. On behalf of Borland I want to comment specifically on Question 4 in the Hearing Notice, and if time permits more generally on questions regarding the scope of protection for visual aspects of software programs. Question 4 asks whether the present framework of patent, copyright, trademark and trade secret law effectively promotes innovation in the field of software. Like all other software companies, Borland invests heavily in both the creation and acquisition of new software products, and like other companies Borland needs strong government enforcement of existing intellectual property rights, especially in foreign markets, in order to protect its investments. But it is particularly unproductive at these hearings and at other forms for public debate on these issues to hear two extreme views espouse. One group, generally small companies, argue for no protection or perhaps at best very weak protection. A second group, generally very large companies, addresses the issue of scope rather than enforcement, arguing that broader protection for software is necessary, and indeed the broader the protection the better. We believe that much of the polarization you have heard and will hear is the result of a confusion of what is being debated. Protectionist interests in particular confuse enforcement of what is an undisputed intellectual property right with the underlying scope of intellectual property protection. We in the industry all understand that software as a product is particularly susceptible to unauthorized duplication. We therefore need strong enforcement of existing intellectual property rights to make sure that we are protected against the pirating of our software. But issues concerning the enforcement of intellectual property rights must not be confused with issues concerning the scope of intellectual property protection. It is too easy to wrap oneself in the proverbial American flag of antipiracy and anticonterfeiting enforcement. There is no dispute that strong antipiracy enforcement is required to promote the resources necessary for research and innovation. But it does not follow that because strong enforcement of intellectual property promotes innovation, a broader scope of intellectual property protection will also. We should understand that many of those who very responsibly argue for limitations on the scope of intellectual property protection are not trying to defend pirates. They are, rather, trying to make a medium under which the proper scope of intellectual property protection as established by Congress and the Courts is respected and strongly enforced by the Administrative Branch of government. This distinction between the enforcement of existing rights and a broadening of the underlying scope of protection was recently addressed at the 1993 Berkeley Roundtable on the International Economy in which the Vice_President, the Commerce Secretary and the Commissioner all participated. The Report of the Roundtable on Maintaining Leadership in Software states the distinction between enforcement and scope very clearly. I'll include a block quote in my written testimony which begins with the following sentence: "Industry representatives argue that the importance of protecting intellectual property from theft by commercial counterfeiters and unscrupulous users must be distinguished from issues concerning the proper scope of intellectual property protection." Unfortunately Question 4 in the Hearing Notice, in our view, heightens rather than diminishes the confusion and polarization. Question 4 seems to be based on a premise that strong protection for existing intellectual property rights necessarily implies a greater scope of intellectual property protection, and further that a greater scope of intellectual property implies a greater amount of innovation. Implicitly, Question 4 neglects the important role that competition plays in encouraging innovation. We believe that the implication inherent in Question 4 should be the subject of much greater scrutiny and analysis. Within the industry we all, or at least most of us, agree that greater enforcement of intellectual property is necessary. What has fractionalized the industry is the attempt by some to use the need for greater enforcement to attempt to expand the scope of underlying intellectual property rights, particularly within the copyright area. As the Commissioner is aware, just two weeks ago the head of the Antitrust Division of the Department of Justice, Assistant Attorney General Ann Binghamen gave a major speech on the occasion of the sixtieth anniversary of the founding of the Antitrust Division. The Assistant Attorney General recognized the polarization within the industry that has been caused by attempts to increase the scope of intellectual property protection. She said, "The substantive reach of the exclusive rights granted under the intellectual property laws also has been a matter of particular concern and ferment in the software industry. The Courts and the agencies have been faced with difficult decisions about the scope of both patents and copyrights in this field, as is clear to anyone who has paid attention to the long series of important court decisions on computer software copyrights, including Whelan, Altai, and the recent decisions in Lotus v. Borland, now under review in the 1st Circuit. The scope of copyright protection for computer software has we believe important competitive implications as well as important implications for the incentives to innovate." We are particularly heartened to hear Assistant Attorney General most eloquently state her concern about attempts to increase the underlying scope of intellectual property protection. Again, please permit me to quote what she had to say. "Given my strong belief in competition, I think the courts should be hesitant to read the statutory grant provisions expansively, but should recognize the anticompetitive potential of restrictive practices at or beyond the borders of clearly_conveyed statutory rights." While the Assistant Attorney General was directly addressing only the courts, we believe the same cautions should apply to the Administrative Branch of government as well. Many questions to be addressed at these hearings deal with the visual aspects of computer screen displays. In evaluating the proper scope for protection for the individual aspects of computer programs, we believe that the Patent and Trademark Office would do well to consider the analytical framework employed by the engineers and computer scientists as opposed to the lawyers and judges in the software industry. As the Commissioner is aware, much of the original and seminal work in graphical user interface analysis and design was done at Xerox Corporation in the 1970s. The research at Xerox formed a wealth of user interfaces far beyond just those of Xerox's products. Apple's MacIntosh and Lisa, Hewlett_Packard's New Wave, Microsoft's Windows, X_Windows, IBM's Office Vision and OS/2 to name just a few. Much of the research at Xerox was published in scholarly papers for distribution both inside and outside of Xerox. The most famous of those papers, entitled "A Methodology for User Interface Design," was published by Xerox Palo Alto Research Center in January of 1977. Because of the enormous importance of this paper, I'm going to attach it to Borland's written comments and ask that you consider it as part of these proceedings. The Xerox research produced a methodology of interface design that is based upon what Xerox researchers called a taxonomy or classification for user interface analysis. This taxonomy is designed to permit analysis and evaluation of what each aspect or component of a user interface does. The taxonomy was created for software analysis and not for any legal purpose, but remarkably it dovetailed seamlessly with the overall intellectual property scheme of patents, copyrights and trade secrets established by Congress. As the Xerox research concluded, every user interface has three separable components; one, the user's conceptual model; two, the control mechanism or command invocation of the product; and three, the visuals, or the information display. The user's conceptual model is the abstraction selected by the software developer which users can relate to the task they are trying to perform. For example, the spreadsheet metaphor is the conceptual model that underlies Borland's QuattroPro line of products. Under our intellectual property scheme, the conceptual model of a particular piece of software would not be protectable at all except of course insofar as it may be protected by trade secret or under the terms of a contract or confidential relationship. The command invocation or control mechanism of the user interface is the mechanism that extracts the functionality built into the software. It is a set of actions and results defined in particular relationships to one another. Menu items and keystrokes are part of the control mechanism and were clearly identified as such by the Xerox research published in the mid_seventies. Indeed, the control component was originally called the command language. Under the intellectual property scheme established by Congress, the control mechanism of the software product falls within the ambit of patent law, specifically utility patents. In order to secure utility patent protection over a control mechanism, an inventor should be required to satisfy the statutory requirements of novelty, advancement over the prior art and so forth. For example, if the user entered a database by first clicking on the picture of the door to simulate knocking, and then clicking on the picture of the door_knob to simulate turning it, the sequence of steps would be part of the control mechanism and must satisfy the rigors of patent examination if it is to be protected. If the command mechanism does not meet the rigors of patent protection, it should not be protected by any other form of intellectual property protection such as copyright. Finally, in Xerox's terminology, there are programs of visuals. The screen displays of many sophisticated user interfaces have a truly separable visual or expressive component. Images that can be manipulated through animation techniques. The Congressional scheme provides for protection of these visuals, and under both statute and the case law, the visual display of the computer program may be protected by copyright law if and only to the extent its artistic features can be identified separately from and are capable of existing independently of the utilitarian aspects of the software program. Note that the definition of computer program under copyright law is a set of statements or instructions to be used directly in a computer in order to bring about a certain result. The screen display is a certain result of the set of statements or instructions that comprise the underlying computer program and must therefore independently qualify as a work of authorship. Those are my two paragraphs. Thank you for the opportunity to appear here today and I would be happy to answer your questions. COMMISSIONER LEHMAN: Thank you very much, Mr. Kohn. I just note you refer to Question 4 in our Federal Register Notice which states that __ which asks the question, Does the present framework of patent, copyright and trade secret law, A, effectively promote innovation in the field of software, and, B, provide the appropriate level of protection for software_related inventions. I don't read those as implying that we should raise the level of protection; in fact I read those as an open_ended question as, What is the appropriate level? and that may well be a lower level. It may be no level at all, and I think the questions we've asked would suggest that we do have an open mind about that. MR. KOHN: I'm glad to hear that the Commission has an open mind about these issues. I think that, looking at the background section of the hearings, I don't have it in front of me, specifically emphasizes the innovation that's promoted by protecting intellectual property, and the point that I made is that there is absolutely no reference whatsoever to the importance of competition in promoting innovation, and you mentioned earlier, to an earlier witness, that __ you suggest that the competition issues might be more appropriately addressed under Antitrust provisions, but it is an intellectual property issue, and that's precisely what Ann Binghamen had said in her speech. It is an intellectual property program, we are after all talking about government_granted monopolies. COMMISSIONER LEHMAN: Thank you very much. I'd like to take a five_minute recess before we reconvene for the rest of the morning's hearings, and our next witness, when we come back will be, I believe, Douglas Brotz from Adobe Systems. (Recess) COMMISSIONER LEHMAN: Next I'd like to call Douglas K. Brotz who is the Principal Scientist of Adobe Systems, Incorporated right here in the Valley. __o0o__ DOUGLAS BROTZ ADOBE SYSTEMS, INC. MR. BROTZ: Good morning, Mr. Secretary and members of the Panel. My name is Douglas Brotz. I'm Principal Scientist at Adobe Systems, Incorporated, and I am representing the views of Adobe Systems as well as my own. Adobe is a software company based in Mountain View, California. We are most well_known for our PostScript language and interpreter which provides foundation for desktop and electronic publishing. Although I am a computer scientist, I became involved in patents when Adobe was contacted by another company regarding Adobe's possible infringement of a patent. I'm currently Adobe's technical advisor to our patent attorneys. Let me make my position on the patentability of software clear. I believe that software per se should not be allowed patent protection. I take this position as the creator of software and as the beneficiary of the rewards that innovative software can bring in the marketplace. I do not take this position because I or my company are eager to steal the ideas of others in our industry. Adobe has built its business by creating new markets with new software. We take this position because it is the best policy for maintaining a healthy software industry, where innovation can prosper. The problems inherent in certain aspects of the patent process for software_related inventions are well_known, the difficulties of finding and citing prior art, the problems of obviousness, the difficulties of adequate specifications for software are a few of those problems. However, I argue that software should not be patented, not because it is difficult to do so, but because it is wrong to do so. The software marketplace requires constant innovation regardless of whether the computer programs can be patented or not. Indeed, the fundamental computer programs and concepts on which the entire industry is based were conceived in an era when software was considered to be unpatentable. For example, when we at Adobe founded a company on the concept of software to revolutionize the world of printing, we believed that there was no possibility of patenting our work. That belief did not stop us from creating that software, nor did it deter the savvy venture capitalists who helped us with the early investment. We have done very well despite our having no patents on our original work. On the other hand, the emergence in recent years of patents on software has hurt Adobe and the industry. A "patent litigation tax" is one impediment to our financial health that our industry can ill_afford. Resources that could have been used to further innovation have been diverted to the patent problem. Engineers and scientists such as myself who could have been creating new software instead are working on analyzing patents, applying for patents and preparing defenses. Revenues are being sunk into legal costs instead of into research and development. It is clear to me that the Constitutional mandate to promote progress in the useful arts is not served by the issuance of patents on software. Let me illustrate this burden with some figures. The case Information International Incorporated v. Adobe, et al., was filed five years ago. Last year the trial court ruled for Adobe, finding no infringement. In December the Appeals Court for the Federal Circuit unanimously affirmed that judgment. Yet, in that time, it has cost Adobe over four and a half million dollars in legal fees and expenses. I myself have spent over three thousand five hundred hours of my time __ that's equivalent to almost two years of working time __ and at least another thousand hours was spent by others at Adobe. The Chairman of the Board spent a month at the trial. This type of company behavior would not be high on anyone's list of ways to promote progress. This state of affairs might be acceptable if there were a corresponding benefit for patents in the software industry. However, I see none. Companies that have trumpeted their fundamental software patents are not leaders in software innovation. Conferring monopoly positions in an industry that was already the most innovative of all will promote stagnation rather than increased innovation. When companies turn from competing by offering the best products to earning money by the threat of patent litigation, we will see our best hope for job creation in this country disappear. An industry that still generates tremendous job growth through the start_ups of two guys in a garage will not continue to grow when a room for a third person, a patent attorney, needs to be made in that garage. There does exist a perfectly adequate vehicle to protect creator's rights in this industry, the Copyright Law. The nature of software is that it is a writing, an expression of mathematical ideas. The copyright law protects this expression, and it does so without requiring costly and time_consuming proceedings. For people working in the fast_paced software industry, the way a copyright is created is idea. While feverishly working to meet deadlines, there is no need to explain what you've done to a government agency. The very act of writing the software confers the copyright on it. Furthermore, the copyright law confers the correct level of protection on computer software. Regardless of what current regulations may say, the fact is that all computer programs express mathematical algorithms. Every part of every computer program manipulates numbers with logic. Any software that performs any task does so through mathematics. It is inconsistent to hold that mathematic algorithms are unpatentable while granting patents on systems composed of software. If the Patent Office were truly following the law it would recognize the inherent mathematical nature of software and it would not grant patents to software_based inventions. In the last decade the Patent Office has been granting patents on software and algorithms regardless of superficial attempts to cast claims as systems methods or processes. The Supreme Court did not say in Diamond v. Diehr that pure software inventions are patentable. By adopting this position in its recent practice, the Patent Office has made a dangerous step that could decimate the very industry it wishes to protect. Whenever the Patent Office grants a software patent, it grants a right to the patent_holder to devastate innocent businesses. Due to the arcane nature of this technology, our courts find it very difficult to distinguish frivolous software patent lawsuits from legitimate ones. As a result, a frivolous plaintiff is in a very strong blackmailing position, where a defendant can look forward either to an extortionate settlement or enormous legal costs. An excellent remedy would be to change our law to allow a successful defendant to recoup legal costs in patent cases. Until that day arrives, at least our Patent Office can refrain from granting these dubious patents. We have heard today from proponents of software patents who will claim that these patents can protect the independent inventor. This belief is a delusion. The expensive patent process protects large, methodical corporations that can afford to apply for scores of patents much more than it protects the poorly_capitalized lone inventor, and when that inventor tries to produce his invention he may well find that those large corporations can ruin his own business with their large software patent portfolios. In summary, these are my main points: The software industry thrived without patents, creating its fundamental base in an era of no software patents; software patents harm the industry, with no corresponding benefit; software embodies mathematical algorithms; the law, starting with the Constitution, argues against patents for software_related inventions; and last, the proper form of protection for software is copyright. As a postscript to the figures on the patent lawsuit that I discussed before, the final figure is actually not in. Although Adobe has been successful twice already, the plaintiffs are asking for reconsideration of the unanimous appeal judgment against them. These kinds of festering sores are what our country can ill_afford when we are trying to lead the world in creative industry. Thank you. COMMISSIONER LEHMAN: Thank you very much, Dr. Brotz. You've indicated that you think that the copyright system works very well to protect software. An earlier witness, Mr. Kohn from Borland, indicated that he felt that there were serious problems with the existing copyright system, and in particular he felt that it shouldn't protect screen displays, for example. Other witnesses have indicated that they're very concerned about, I believe, the witness from Storage Technology indicated that he was very concerned about the decompilation issue. He very much believed that one should be able in effect to copy software in the decompilation process in order to produce interoperable works. I'm wondering, since you really believe that we should focus on copyright, if you have views on either of those two issues. MR. BROTZ: Yes. I certainly do. I agree with Mr. Kohn that we should not confuse strong enforcement of copyright rights with broadened scope of copyright rights. I agree that some plaintiffs have tried to stretch the scope of copyright beyond where it ought to go. I firmly support his position, in fact, that copyright law should protect us against piracy and the kinds of threats that copyright law was intended to protect us against. In answer to your other question about decompilation and interoperability considerations, I believe that the evidence always cited for the importance of interoperability is that companies that do not provide for interoperability fall of their own weight. I do not see that as an argument for insisting that companies therefore make themselves interoperable. If strong rights are granted to all aspects of the written computer software, then a company could choose what level of protection it wanted and how far to assert its rights and whether they wanted to open their interface or not. If they make a wise decision and offer enough interoperability, they'll do well; if they make an unwise decision, they won't, and it's up to them to decide whether they want to succeed or not. COMMISSIONER LEHMAN: In other words, your view is that the licensing system deals with this problem, that if people don't adopt intelligent licensing processes, then they will suffer the economic consequences which will be negative and will encourage basically licensing that creates more open systems. MR. BROTZ: That's right. And I would oppose having a law that straitjackets the way in which these kinds of licenses or accesses must be made. COMMISSIONER LEHMAN: Thank you very much. Does anybody else have any questions? Thank you. Next I'd like to call Hans Troesch, partner in the law firm of Fish and Richardson. __o0o__ HANS TROESCH FISH AND RICHARDSON MR. TROESCH: Good morning, Mr. Commissioner, distinguished Panel. My name is Hans Troesch. I'm here speaking on my own behalf. My partners have reminded me of that. Many years ago I earned a Masters Degree in Computer Science at the University of Michigan, and for close to ten years, regardless of my various and more fancy job titles, I considered myself principally to be a computer programmer. Today I'm an attorney and a member of the patent bar. I practice patent, copyright and trade secrets law, as we already mentioned, with the law firm of Fish and Richardson. I'm here today because I would like to offer my own views on a few of the questions that the Patent Office has invited the public to address at these hearings. As a preliminary matter, I must confess my own deep concerns about the present fate of software inventions in the Patent Office. I believe that the logical, almost musical nature of software technology provides unique opportunities for advocacy and for confusion in a system that is based on a more structural, may I say more sculptural view of the world, but that is a topic for another day. Today I will merely state my hope and belief that the Patent Office will rise to the challenge of finding and keeping qualified examiners, securing access to the vast body of software_related prior art that is not of record in the Patent Office, and of developing delimiting doctrines of novelty, obviousness and enablement in ways appropriate to the peculiarly flexible genius of software technology. I would like to address Question 1 at this point in the Office Notice, and to state my view that a computer program, that is to say, a set of instructions that is executable on a computer, to achieve a result, should be considered a machine within the meaning of Section 101 of the Patent Statute, and should therefore be eligible for patent protection, without resort to the additional and often redundant limitations to computer processors, read_only memories or data input_output devices. On the issue of eligibility for patent protection, I dare say such a change in the form of the law would not greatly expand the scope of protection available to inventors, at least not to those inventors who can afford the kind of legal talent testifying at these hearings. Those of us who know what we are doing can get computer program machines covered. The process we have to go through may be painful to watch, may be expensive, but we can do it. For that reason I would promote my suggestion principally as one that will improve the quality of the analysis of software_related ventures, and the doctrine under which those inventions are examined. On the issue of infringement we would have to be a bit more subtle. If we allow claims to be made to computer programs per se we must be careful not to create a risk of infringement by traditional print media and their successors in electronic publishing. The publication for human readers, whether or not on paper, for the patent_protected computer program, should not by itself be any kind of infringement of the patent. I would like to turn now to one of the specific questions raised for today's hearing. What aspect of a mathematical algorithm implemented on the general_purpose computer should or should not be protectable through the patent system? I believe that a machine made up of computer program instructions that usefully transforms data or information should be protectable under the patent laws in all its novel and nonobvious aspects. Given the importance of information processing to our economy, it would be perverse for us to continue to deny direct protection to a technology that is so important to our information processing prosperity. This leads me unavoidably to the question of what is novel and unobvious in a computer program. I believe that our greatest challenge lies in these two questions, regardless of how we answer the question previously posed. For myself, I would not consider novel and nonobvious merely to transpose to a computer something previously known to be done by hand, or in one person's head, or collectively by a group of people. But if the method for transforming information is truly new, then the doctrines that limit or preclude protection solely because the method is a computer program seems unwarranted. It has been suggested that allowing mathematical algorithms to be protected would remove laws of nature from the public domain and give an unwarranted universal scope of protection to a patented technique. Personally I find those rationales peculiar. Taking the computer programmer's informal definition that an algorithm is a predetermined set of steps to perform a function, and that a mathematical algorithm is one that operates on mathematical objects, such as numbers, triangles, continuously differentiable functions, then granting protection for a new, previously_unknown and nonobvious set of steps withdraws nothing from the public. And if the patent reaches over a broad range of applications, that would merely correspond to the broad usefulness of the new algorithm. In any other technology this would be grounds for praising the inventor, not for denying protection. I would submit to you that if someone were to object to a patent on the transistor on the ground that it would have too many uses, you would find that objection incomprehensible. One final point that might be kept in mind before whence it comes to an alarm about the potential breadth of claims to mathematical algorithms; a naked mathematical algorithm claim would seem to be the ultimate engineering claims, and therefore particularly susceptible to being rejected or invalidated, because any prior art that shows the algorithm steps being applied in any context would invalidate the claim. Personally I would be surprised if any patent practitioner would ever rely solely on a naked algorithm to protect his client's interests. The Patent Office also poses the variant of this question, limiting it to the implementation of the algorithm to a special purpose rather than a general purpose computer. If the problem is bad patents, this does not seem to be a solution. If one begins with a computer program that should be unpatentable because it is not new, or because it is obvious, one should not in my view be able to achieve patentability merely by attaching to the program the input_output devices that are conventional for the process that the computer performs. In other words, one should not be able to save an old or obvious bread_baking program merely by attaching a digital thermometer to it. Conversely, if the program is new and not obvious, then the conventional addition of necessary computer hardware and other devices is redundant to the claim, at least insofar as patentability is concerned. Such additional limitations would not in fact limit the scope of protection available to the inventor, unless parenthetically the claims are poorly drafted. But such a redundant edition of apparatus to the program claim does create a potentially substantial distraction for the patent examiner who, in the terms of my example, in searching the art of digital thermometers, may completely miss the point about bread_baking. Finally, I would like to say a word about whether we should replace patents with a new form of protection for computer software. My one_word answer is no. Patent law can deliver predictability, definiteness and uniformity. Under copyright law we cannot protect your ideas, at least not without doing some violence to traditional copyright principles, and we are subject to forum shopping in thirteen circuit courts of appeal. Under trade secrets law, we can protect our ideas, but are subject to the law as developed in any of fifty different state courts and their Federal counterparts. We're never quite sure what the protected ideas are and are at risk of having someone rediscover or reverse_engineer our inventions out from under us. But under the patent laws we can get warning about what is protected expressed with reasonable clarity and applied with national uniformity. It would be unfortunate if such a sound concept were to be crippled because we were too slow in learning to apply its fundamental principles to the challenges of software_related inventions. Thank you. COMMISSIONER LEHMAN: Thank you very much, Mr. Troesch. That was very helpful. The next person on our list is Brett Glass, but we're not sure that Brett Glass is here. If you are, will you please stand up and identify yourself and come forward? If not, we will move on to Robert Sabath, President of the World Intellectual Property and Trade Forum. __o0o__ ROBERT SABATH WORLD INTELLECTUAL PROPERTY AND TRADE FORUM MR. SABATH: Mr. Commissioner, distinguished Panel. My name is Robert Sabath. I speak today in both my capacity as President of the World Intellectual Property and Trade Forum and as a solo practitioner in the patent field. I'm also on the Executive Committee of the California State Bar's Intellectual Property Section, but as you know, Mary O'Hara and Michael Glenn will testify at these hearings on behalf of the State Bar. Additionally I speak as Legal Issues Editor of QuickTime Forum, a multimedia developer's publication. The primary topic today is the use of the patent system for the protection of software_related inventions. The central objective of my remarks is to encourage greater flexibility within the framework of the law in promoting the patenting of software_related inventions as well as pure software inventions. Patents themselves are the best prior art against subsequent applications for a patent grant. Anything that artificially limits the development of the body of prior art relied upon by the patent and trademark office has the effect of slowing the progress of technology in critical fields. Software is clearly a key and strategic industry for the United States. It's no secret that software itself in the development of the industry were not caused by the patent incentives, but still, the patent system is part of the incentive structure which is necessary to the continued development of many software firms. Moreover, the efforts of the United States Government to promote U.S. trade interests abroad and even to advocate changes in the intellectual property laws of other countries are severely undermined if the U.S. intellectual property laws and regulations fail to encourage successes of key U.S. industries at home. One such key industry is clearly software. I do ask for your indulgence, Honorable Commissioner, in addressing a slightly broader question than the primary topic indicated above. As a sole practitioner I've come close to the plight of the solo inventor affected by the substantially increased PTO fees promulgated by prior administrations. Particularly the maintenance fees are believed to be a disincentive which may dissuade individuals from even initiating the process of obtaining patent protection. But the cost of patenting which is born today by inventors and companies is softened by the Silicon Valley spirit of self_help which has characterized the American spirit since the days of George Washington and Thomas Jefferson. An example of this self_help is the Sunnyvale Patent Information Clearinghouse. Self_help, and necessity, have additionally spawned in Silicon Valley a substantial venture capital community which is selectively supportive of the efforts of individual inventors. This spirit of self_help is additionally shown by many local firms and companies which have opened offices in Washington, D.C., and its surrounding communities of Virginia and Maryland. We do salute you, Mr. Commissioner, and distinguished Panel for coming here to California. We clearly need your help, not just with regard to improving the laws and the regulatory environment as it relates to patents, but also with regard to the infrastructure in which patent and invention processes play themselves out in the United States. The U.S. Government has facilities, buildings and courthouses throughout the nation. These facilities and buildings have many purposes. Federal courthouses now hear patent lawsuits in San Jose as well as in San Francisco, and in cities throughout the country. It is clear that our country has developed elaborate mechanisms for facilitating and resolving disputes between litigants and patent lawsuits. However, we have done pitifully little at the Federal level to enable the solo inventor to search for prior art and effectively to limit the scope of claims to his fields or her fields of rightful entitlement. Mr. Commissioner, accordingly we're very happy to have you here today in this convention center. We believe as a minimum the West Coast deserves a branch of the USPTO having at least search facilities to support the software, the semiconductor and the electronics industries that have developed the infrastructure of the American West so extensively. Perhaps the availability of public search rooms for inventors