AMERICA INVENTS ACT
`
`HEARING
`BEFORE THE
`SUBCOMMITTEE ON
`INTELLECTUAL PROPERTY,
`COMPETITION, AND THE INTERNET
`OF THE
`COMMITTEE ON THE JUDICIARY
`HOUSE OF REPRESENTATIVES
`ONE HUNDRED TWELFTH CONGRESS
`
`FIRST SESSION
`
`ON
`H.R. 1249
`
`MARCH 30, 2011
`
`Serial No. 112–35
`
`Printed for the use of the Committee on the Judiciary
`
`(
`
`Available via the World Wide Web: http://judiciary.house.gov
`
`65–487 PDF
`
`U.S. GOVERNMENT PRINTING OFFICE
`WASHINGTON :
`2011
`
`For sale by the Superintendent of Documents, U.S. Government Printing Office
`Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800
`Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001
`
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`

`

`COMMITTEE ON THE JUDICIARY
`
`LAMAR SMITH, Texas, Chairman
`JOHN CONYERS, JR., Michigan
`F. JAMES SENSENBRENNER, JR.,
`HOWARD L. BERMAN, California
`Wisconsin
`JERROLD NADLER, New York
`HOWARD COBLE, North Carolina
`ROBERT C. ‘‘BOBBY’’ SCOTT, Virginia
`ELTON GALLEGLY, California
`MELVIN L. WATT, North Carolina
`BOB GOODLATTE, Virginia
`ZOE LOFGREN, California
`DANIEL E. LUNGREN, California
`SHEILA JACKSON LEE, Texas
`STEVE CHABOT, Ohio
`MAXINE WATERS, California
`DARRELL E. ISSA, California
`STEVE COHEN, Tennessee
`MIKE PENCE, Indiana
`HENRY C. ‘‘HANK’’ JOHNSON, JR.,
`J. RANDY FORBES, Virginia
`Georgia
`STEVE KING, Iowa
`PEDRO R. PIERLUISI, Puerto Rico
`TRENT FRANKS, Arizona
`MIKE QUIGLEY, Illinois
`LOUIE GOHMERT, Texas
`JUDY CHU, California
`JIM JORDAN, Ohio
`TED DEUTCH, Florida
`TED POE, Texas
`LINDA T. SA´ NCHEZ, California
`JASON CHAFFETZ, Utah
`DEBBIE WASSERMAN SCHULTZ, Florida
`TOM REED, New York
`TIM GRIFFIN, Arkansas
`TOM MARINO, Pennsylvania
`TREY GOWDY, South Carolina
`DENNIS ROSS, Florida
`SANDY ADAMS, Florida
`BEN QUAYLE, Arizona
`
`SEAN MCLAUGHLIN, Majority Chief of Staff and General Counsel
`PERRY APELBAUM, Minority Staff Director and Chief Counsel
`
`SUBCOMMITTEE ON INTELLECTUAL PROPERTY, COMPETITION, AND THE INTERNET
`
`BOB GOODLATTE, Virginia, Chairman
`BEN QUAYLE, Arizona, Vice-Chairman
`F. JAMES SENSENBRENNER, JR.,
`MELVIN L. WATT, North Carolina
`JOHN CONYERS, JR., Michigan
`Wisconsin
`HOWARD L. BERMAN, California
`HOWARD COBLE, North Carolina
`JUDY CHU, California
`STEVE CHABOT, Ohio
`TED DEUTCH, Florida
`DARRELL E. ISSA, California
`LINDA T. SA´ NCHEZ, California
`MIKE PENCE, Indiana
`DEBBIE WASSERMAN SCHULTZ, Florida
`JIM JORDAN, Ohio
`JERROLD NADLER, New York
`TED POE, Texas
`ZOE LOFGREN, California
`JASON CHAFFETZ, Utah
`SHEILA JACKSON LEE, Texas
`TOM REED, New York
`MAXINE WATERS, California
`TIM GRIFFIN, Arkansas
`TOM MARINO, Pennsylvania
`SANDY ADAMS, Florida
`
`BLAINE MERRITT, Chief Counsel
`STEPHANIE MOORE, Minority Counsel
`
`(II)
`
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`56
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`poration, donating approximately $100 million to charitable organi-
`zations every year.
`Steve Miller has had a successful career as in-house counsel with
`P&G for over 25 years. He is now vice president and general coun-
`sel on intellectual property, where he oversees approximately 150
`patent and trademark attorneys worldwide and advises P&G’s sen-
`ior management on IP issues.
`Mr. Miller has also authored numerous P&G patents and patent
`applications and has also been involved in a number of license
`agreements, acquisitions, interferences, arbitrations, and litigation
`both in the U.S. and abroad.
`Mr. Miller is also the current president of the Intellectual Prop-
`erty Owners Association Education Foundation, on the Board of Di-
`rectors and past president of the Intellectual Property Association,
`and on the Board of Directors for the National Inventors Hall of
`Fame.
`I know we look forward to learning more as we hear from Mr.
`Miller on patent reform this afternoon and the other witnesses as
`well.
`And I thank the Chairman greatly for yielding.
`Mr. GOODLATTE. I thank the gentleman.
`Welcome to all of our witnesses, and we will begin with Mr. Bart-
`lett.
`TESTIMONY OF THE HONORABLE STEVE BARTLETT, PRESI-
`DENT AND CHIEF EXECUTIVE OFFICER, THE FINANCIAL
`SERVICES ROUNDTABLE
`Mr. BARTLETT. Thank you, Mr. Chairman.
`Mr. Chairman, Ranking Member Watt, Mr. Coble, Mr. Chabot,
`it’s good to be here.
`This is a very important piece of legislation. It’s a legislation that
`in some ways is long overdue. I commend the Committee and the
`present draft, and we’re here—I’m here to support the present
`draft language of the House version in its current form.
`I’m here to speak on behalf of the Financial Services Roundtable,
`as you noted, Mr. Chairman. But I should note up front that the
`roundtable has worked closely with other groups—the American
`Bankers Association, the Clearing House, credit unions, the ICBA,
`the community bankers, NAFCU, SIFMA, and others—to address
`this problem of nonpracticing entities that we believe exploit flaws
`in the current patent system.
`My testimony today is consistent with the views of these other
`trades. These nonpracticing entities, Mr. Chairman, or NPEs, as
`they’re called, have built an industry based on filing onerous law-
`suits involving low-quality business method patents with the expec-
`tation of securing large settlements. These are widely described as
`meritless lawsuits and settlements—and the settlements then help
`to distort the marketplace.
`Fundamental to the operation of the financial services sector is
`the interoperability of complex financial systems that facilitate the
`movement of data relating to every type of financial transaction. So
`it is this network of financial technology infrastructure that is so
`fundamental that it has been designated as a critical national in-
`frastructure by the Department of Defense.
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`So given the importance of the financial services sector to the
`Nation’s economy and infrastructure, it’s important that the patent
`system work for everyone, and currently, it does not.
`So, instead, the confluence of interoperability, forum shopping,
`and a lack of quality prior art, particularly in the area of business
`method patents, has conspired to leave financial firms, from the
`smallest community banks or local credit union or insurance agent
`to the largest global company, mired in what we believe are
`meritless litigation over patents of dubious quality. This litigation
`has a direct impact on consumers, as capital that could otherwise
`be deployed for business lending in our communities is tied up with
`court costs and settlements.
`Historically, Mr. Chairman, business methods had not been pat-
`ented in any significant quantity. This was profoundly changed in
`1998 by the State Street decision. So between 1997 and 1998, new
`applications for business method patents tripled and have tripled
`again. So by the end of 2009, some 11,000 new applications for pat-
`ents on business methods were being filed each and every year,
`with 40,000 pending in 2010.
`According to a study by Harvard University, the proliferation of
`business method patents has resulted in a flood of patent litigation
`in the financial services industry, occurring at a rate of 39 times
`greater than the patents as a whole. Now, Mr. Chairman, other
`than NPEs, there’s no reasonable explanation for a 39 times great-
`er rate of patent litigation in the financial services industry.
`These nonpracticing entities then are increasingly exploiting the
`current system to hold hostage entire classes of industry players in
`a single lawsuit, and thus, interoperability comes into play. Neither
`90—nearly 90 percent of infringement cases against the top 20
`banks, just as one data point, name multiple financial services
`companies as defendants, often including 20, 40, or even 60 institu-
`tions in a single action.
`Now business method patents are not bad, per se, but they do
`lend themselves to abuse, given the current system. I could cite a
`number of examples. You’ve probably heard multiple examples.
`One case, scores of banks and insurance companies were sued in
`the Eastern District of Texas for infringing on a business method
`patent related to marketing. The patents in this suit covered the
`printing of marketing materials at the bottom of the back of billing
`statements instead of on a separate statement stuffer. Now it’s dif-
`ficult to see anything novel or nonobvious in where you print the
`statement information that would have merited a patent with a 20-
`year property right.
`The cost to all the sectors of the financial services industry and
`our customers continue to grow at an alarming rate. So, therefore,
`we support the House draft establishing an opposition proceeding
`at the PTO to review qualified business method patents against a
`best prior art.
`Under this draft legislation, the PTO would determine whether
`a patent is qualified, would undertake a review for a maximum of
`no more than 1 year, and then, critically, examine the patent
`against the best available prior art, including the evidence of prior
`use, sale, or offer for sale.
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`The House bill improves the language related to a stay also of
`district court litigation by requiring the Federal Circuit to review
`the decision of the lower court de novo. It’s our belief that this stay
`should be mandatory, but short of it being mandatory, this de novo
`language is essential to ensure that neither plaintiffs nor depend-
`ents—nor defendants bear the cost of parallel proceedings.
`Mr. Chairman, with this provision included, we support the draft
`bill before the Committee. We would, as an industry, strongly op-
`pose any efforts to weaken it.
`I thank you, Mr. Chairman.
`[The prepared statement of Mr. Bartlett follows:]
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