MR. HENRY:  Thank you, Mr. Commissioner and  distinguished  panel
members.  I'd like to begin my comments just by stating who I am.
I'm a patent attorney in a large intellectual property firm,  ap-
proximately  forty_five  professionals,  about  half of whom deal
with the computer industry, hardware and software.  We have  con-
siderable  experience  ur  client's  experiences  on all sides of
these matters.

To back into my remarks, I am a strong  advocate  of  the  patent
system and I have seen it work time and again in the software in-
dustry as well as other industries. I have  seen  no  fundamental
differences  in the software industry other than tentativeness in
applying the existing rules, and the problems that other speakers
have addressed with respect to the ability of examiners to get at
the prior art, which is indeed a serious problem.   I  don't  be-
lieve  the  software  industry  operates under substantially dif-
ferent economic principals than any other industry, or  that  the
people in that industry are driven by a different human nature.

Professor Hollaar addressed many of the points, made many of  the
recommendations  that  I  would  like to make to this body, and I
certainly endorse what he said. I'd like to,  before  proceeding,
go  one  step  further and address a topic or two that he did not
address, and specifically the issue of reexamination  as  a  cure
for  defve  examination  in  the first place.  If one looks at the
statistical studies that have been done of reexamination, and one
takes into account the kind of anecdotal experiences that we have
had, reexamination is tilted in favor of supporting  the  conclu-
sions  originally reached by the Patent and Trademark Office, not
through any intentional bias, but that's what the statistics  in-
dicate; and number two, it is severely limited and was intention-
ally limited when it was fashioned, limited to  consideration  of
patents  and  printed publications. The problems of examiners not
understanding what they're looking at not addressed,  the  oppor-
tunities   for  testimony  are  not  provided.   If  one  has  an
initially_weak examination and it is then reinforced by a faulted
reexamination  system,  we've  compounded the problem; we haven't
addressed the problem.  Though it takes money principally to free
up  manpower  to  hold hearings and to broaden proceedings, I be-
lieve that there is no cure for the problem other than the money,
the time ahe increased training.

In written remarks we will address the overall legal and theoret-
ical issues raised in your Notice. I'd like to take a few minutes
to talk about some practical, anecdotal experience.

COMMISSIONER LEHMAN:  Can I ask a  question?   You  know,  you're
talking  about the money that would be involved and the change of
procedure that would permit us and maybe  encourage  us  to  take
oral  testimony  and  to get at nonwritten prior art, but to some
degree __ life is not, you know, totally fair, but  to  some  de-
gree, and I assume that would partly be on the motion of the par-
ties seeking reexamination if you wanted  to  have  reexamination
just on the basis if you couldn't afford, for example, to support
coming to Washington, getting witnesses there and so  on  and  so
forth, you could still go forward with the written record. I mean
it's not automatically implying a greater burden, financial  bur-
den for everybody.

MR. HENRY:  Certainly the requester could go on a written  record
if  the  requester  so  desired.may well be that the Commissioner
should consider some way of developing a fund wherein if the exa-
mining group thought it would be appropriate to have a hearing of
some sort, and the requester is not able to  bear  that  expense,
that  there  may be other resources brought to bear to be able to
fly appropriate witnesses in.  Because I think faith in the  sys-
tem  is something that's extremely important and right now that's
what's lacking.  It's lacking in part because of media  attention
on  a  few  glaring  mishaps in the system, they're not the rule,
they are the exception, but it so happens that the exception gets
the attention.

To turn to some of the times we've seen the system work, I'll try
to  give a synopsis of a few experiences, hopefully without iden-
tifying the companies. In our first case I have a client that's a
small  software  company  on  the West Coasts, initially financed
through the founder's own resources.  This is a utility  type  of
software,  improving  hardware performance and reliability.  They
filedatent application; a hardware company that they were working
with  decided  to flex its muscles a bit and threatened to design
their own product, notwithstanding the patent application.   How-
ever, once we had an indication of reasonable allowable claims we
were able to negotiate them back into the fold.

A few months later, despite the success of the product, as we all
know,  it's  extremely expensive to get software into the market-
place and marketing expenses were just eating  up  the  company's

The company went to look for investors. Every single investor re-
fused  to get actively involved until knowing that there would be
strong patent  protection,  because  the  one  thing  that  makes
software  unique  is  how  easy it is to copy.  And I'm not using
copy necessarily in the copyright sense,  but  analyzing  it  and
taking what's there.

This was a situation where fortunately the system and some public
servants  in  the  patent and trademark office, very sensitive to
issues such as  this,  responded  and  dealt  expeditiouslth  the
response  we  had  filed to an outstanding action, and indeed al-
lowed very broad claims, and our client is at this point  closing
the financing which was the difference between life and death for
the company.

We represent university clients also. Universities will generally
not  be able to license their technology unless they have chances
of protecting it.  They are not known to be litigious; it is  out
of  respect for the patent system and access to future technology
generally that a licensee signs up.  We've seen a number  of  in-
stances  where software developed at universities was licensed by
the very developers who knew  the  potential,  went  out,  formed
their  own  companies,  and  that  was  a revenue stream that was
formed back to universities; and that revenue stream is very  im-

We have investors come to us, any number of  times,  thinking  of
investing in software_related companies, and their question again
is, "Is this protectable?  If I'm going to put in my millions and
millions  of  dollars and all ofeffort, will someone else be able
to come along and walk off with it?"

In those situations where our own investigations of prior art  or
the  Patent  Office investigations of prior art make it question-
able that strong protection is available, generally an investment
is not made. Where, however, it appears that protection is avail-
able, an investment often is made.  We don't  want  investors  to
start  getting  gun_shy  about  investing because subsequently we
find out that the examination __ search process in particular  __
is  defective.   The best thing we can do at this point is every-
thing reasonably possible to beef up that process.

That will have carryover effect, as Professor Hollaar  mentioned,
with  respect  to  the  copyright system. The copyright system is
drawing a great deal of fire because of the look and feel and its
progeny  and uncertainty.  Investors and business people look for
certainty, and it's our job to move the system in  the  direction
where they feel a lot more comfortable with it.

Thank you.

CO SIONER LEHMAN:  Thank you very much.

Basically it's been your testimony, and it's very strong, that in
your experience representing clients you've seen a number of very
specific examples where investment in innovation would  not  have
occurred had it not been for the patent incentive.

MR. HENRY:  Absolutely.

COMMISSIONER LEHMAN:  Thank you very much.

Next I'd like to call Sal Cassamassima, General  Counsel  of  the
Exxon Production Research Company.

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