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

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 he,gs on the  question  of  patent
harmonization,  and  we heard public testimony, Mr. Heckel testi-
fied, he had a very strong position on that, which I  recall  was
somewhat consistent with the position that the Secretary has tak-
en 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 ques-
tion 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  disad-
vantages  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 ....0t 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

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 in-
terested in the issue, and as I suspect the4missioner 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

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 Sec-
tion 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 profes-
sionalism of examiners is desirable.  We all want a system  which
will  make  it  clearer8  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  MacIn-
Tax,  developed a couple of products. Because they had patents on
them they told me that, as Susan told me, she said, with her ven-
ture  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 capi-
talists,  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 Infor-
mation 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  en-
vironment.   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," wh@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 com-
pany 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 si-
tuation still is not clarified.

But I guess I'd like t..D into what I really found out when I ex-
amined  the patents that Mr. Stahlman attacked in some of his ar-
ticles. 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 forma-
tion.   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 fivH the nine companies real-
ly  were independent small start_up phase companies that were us-
ing 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  techno-
logies.   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
Lery similar.

My last point is an interesting one. Can I see  the  next  slide,
please?   Small  entities are exceptionally cost_effective in en-
couraging 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 enti-
ties.  Next is five for small entities, and below  that  we  have
zero for Federally_funded.  None of the nine patents cited a pro-
duct 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

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 wPasserted. So I use that as  a  measure
of  effectiveness,  because  we're going to look at taxpayer cost

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

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.
NTlearly 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

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 wide-
ly 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 X 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 termi-
nal.  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 prob-
lems.   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
pateystem.   By  the  way,  they  filed  the  patent   in   1970,
twenty_four  years  ago, they have yet to see dime one for an in-
vention which is in many ways responsible for the success of  Ap-
ple,  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 in-
ventors.   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?


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  malprac-
tice  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 com-
plaints against people for not carrying  out  their  professional
responsibilities, so it's certainly available to peopld they wish
to use it.

Next I'd like to call Mr. Robert  Kohn,  the  Vice_President  and
General Counsel of Borland International.

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