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`ALDERSON REPORTING COMPANY
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`HJU104000
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`MARKUP OF H.R. 1249, THE AMERICA INVENTS ACT
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`Thursday, April 14, 2011
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`House of Representatives
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`Committee on the Judiciary
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`Washington, D.C.
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` The committee met, pursuant to call, at 10:35 a.m., in
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`Room 2141, Rayburn Office Building, Hon. Lamar Smith
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`[chairman of the committee] presiding.
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` Present: Representatives Smith, Sensenbrenner, Coble,
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`Gallegly, Goodlatte, Lungren, Chabot, Issa, Pence, Forbes,
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`King, Franks, Gohmert, Jordan, Poe, Chaffetz, Griffin,
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`Marino, Gowdy, Ross, Adams, Quayle, Conyers, Berman, Nadler,
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`Scott, Watt, Lofgren, Jackson Lee, Waters, Cohen, Johnson,
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`Pierluisi, Quigley, Chu, Deutch, Sanchez, and Wasserman
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`Schultz.
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` Staff present: Sean McLaughlin, Chief of Staff;
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`Allison Halatei, Deputy Chief of Staff/Parliamentarian;
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`Sarah Kish, Clerk; Perry Apelbaum, Minority Staff Director;
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`and Chrystal Sheppard.
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`Chairman Smith. [Presiding] The Judiciary Committee
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`will come to order.
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`Without objection, the chair is authorized to declare
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`recesses of the committee at any time.
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`The clerk will call the role to establish a quorum.
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`Ms. Kish. Mr. Smith?
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`Chairman Smith. Present
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`Ms. Kish. Mr. Sensenbrenner?
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`Mr. Sensenbrenner. Here.
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`Ms. Kish. Mr. Coble?
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`Mr. Gallegly?
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`Mr. Goodlatte?
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`Mr. Lungren?
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`Mr. Chabot?
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`Mr. Issa?
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`Mr. Pence?
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`Mr. Forbes?
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`Mr. King?
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`Mr. Franks?
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`Mr. Gohmert?
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`Mr. Gohmert. Here
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`Ms. Kish. Mr. Jordan?
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`Mr. Poe?
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`Mr. Chaffetz?
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`Mr. Griffin?
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`Mr. Marino?
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`Mr. Gowdy?
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`Mr. Ross?
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`Ms. Adams?
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`Mr. Quayle?
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`Mr. Conyers?
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`Mr. Berman?
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`Mr. Nadler?
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`Mr. Scott?
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`Mr. Watt?
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`Mr. Watt. Present.
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`Ms. Kish. Ms. Lofgren?
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`Ms. Lofgren. Present.
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`Ms. Kish. Ms. Jackson Lee?
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`Ms. Jackson Lee. Present.
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`Ms. Kish. Ms. Waters?
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`Mr. Cohen?
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`Mr. Johnson?
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`Mr. Pierluisi?
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`Mr. Quigley?
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`Mr. Quigley. Here.
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`Ms. Kish. Ms. Chu?
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`Ms. Chu. Present.
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`Ms. Kish. Mr. Deutch?
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`Ms. Sanchez?
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`Ms. Wasserman Schultz?
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`Chairman Smith. The gentleman from Arizona?
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`Mr. Quayle. Here.
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`Chairman Smith. The gentleman from Illinois? Oh,
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`have you recorded yourself? Okay.
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`Chairman Smith. How is the gentleman from Michigan
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`the gentlewoman from California recorded?
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`Ms. Kish. Not recorded, sir.
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`Chairman Smith. The gentlewoman from California?
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`Ms. Sanchez. Present.
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`Chairman Smith. And the gentleman from Michigan?
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`Mr. Conyers. Present.
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`Chairman Smith. Is present.
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`The clerk will report.
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`Ms. Kish. Mr. Chairman, 15 members responded present.
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`Chairman Smith. A working quorum is present and we
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`will proceed.
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`Pursuant to notice, I now call up H.R. 1249 for
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`purposes of markup. The clerk will report the bill.
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`Ms. Kish. “H.R. 1249, to amend Title 35, United
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`States Code, to provide for patent reform.”
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`Chairman Smith. Without objection, the bill will be
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`considered as read.
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`[The information follows:]
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`Chairman Smith. And I will begin by recognizing
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`myself for an opening statement and then the ranking member.
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`The foresight of the Founders in creating an
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`intellectual property system in the Constitution
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`demonstrates their understanding of how patent rights
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`benefit the American people. Technological innovation from
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`our intellectual property is linked to three-quarters of
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`America’s economic growth, and American IP industries
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`account for over one-half of all U.S. exports. These
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`industries also provide millions of Americans with well
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`paying jobs. Our patent laws, which provide a time-limited
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`monopoly to inventors in exchange for their creative talent,
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`helps create this prosperity.
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`The last major patent reform was nearly 60 years ago.
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`Since then, American inventors have helped put a man on the
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`moon, developed cell phones, and created the Internet. But
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`we cannot protect the technologies of today with the tools
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`of the past. The current patent system is outdated and
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`dragged down by frivolous lawsuits and uncertainty regarding
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`patent ownership. Unwarranted lawsuits that typically cost
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`$5 million to defend prevent legitimate inventors and
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`industrious companies from creating products and generating
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`jobs.
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`One problem with the patent system is the lack of
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`resources available to the PTO. The bill allows the
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`director to adjust the fee schedule with appropriate
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`congressional oversight and authorizes the agency to keep
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`all the revenue it raises. This will enable the PTO to
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`become more efficient and productive. Patent quality will
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`improve on the front end which will reduce litigation on the
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`back end.
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`Inventors, businesses, and other groups interested in
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`patent reform don’t agree on every issue that we have
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`debated for the past 6 years. Our patent system doesn’t
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`affect each individual or company in the same way because
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`they use the patent system in many different ways.
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`The patent system envisioned by our Founders focused
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`on granting a patent to be awarded to the first inventor to
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`register their invention as long as it was not in public use
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`when the inventor conceived of their invention. There are
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`some who look at this bill thinking that it will hurt small
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`business and independent inventors, but this bill was
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`designed to ensure that these inventors are able to compete
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`with the larger companies and globally which the current
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`system does not enable them to do. This bill includes new
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`programs at the PTO that will reduce litigation costs and
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`create true patent certainty.
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`We have also included, at Mr. Griffin’s suggestion, a
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`provision that makes the small business ombudsman at the PTO
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`permanent. That means that small business will always have
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`a champion at the PTO looking out for their interests and
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`helping them as they secure patents for their inventions.
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`This bill not only protects small business and
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`independent inventors, it creates jobs and even helps bring
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`manufacturing jobs back to the United States.
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`I also note that there are some members on the large
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`business side, particularly in the tech community, who still
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`want some more. I have been a consistent ally of theirs
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`since this project began 6 years ago. Given the political
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`context in which we must legislate, I think we have been
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`fair to tech industries and in fact fair to all sides.
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`For example, at their request, the bill doesn’t
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`address many litigation reform issues because the courts are
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`addressing these issues through decisions on damages, venue,
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`and other subjects. In a response to a request from tech
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`firms, this bill lengthens the filing deadlines for post-
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`grant opposition and inter partes reexam and enhances prior
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`user rights in ways that manage to preserve the support of
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`the other stakeholders.
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`It is impossible for any one group to get everything
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`they want. This bill represents a fair compromise, in my
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`judgment, and creates a better patent system than exists
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`today for inventors and innovative industries.
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`Now is the time to act and I urge my Judiciary
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`Committee colleagues to support the America Invents Act.
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`That concludes my opening statement. We will look to
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`the gentleman from Michigan, the ranking member of the full
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`committee, for his opening statement.
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`Mr. Conyers. Thank you, Chairman Smith and members of
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`the committee.
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`I want the record to show that I agree with much of
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`what you have said, particularly about the importance of
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`patent reform and how increasingly important it is to the
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`country. We are now turning into an information-based
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`economy, and intellectual property is key to the success of
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`that kind of economic system.
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`Now, we have been working on patent reform for 6
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`years, and it is important that we come here today with as
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`open minds to the issues that will be taken up as possible.
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`There have been a lot of work and innumerable meetings and
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`subgroup sessions and after-voting-hours activity devoted to
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`how we approach and deal with these issues.
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`I must say to my surprise we have made some progress
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`in this area -- in a number of areas on the bill in general.
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`But there is a concern that I would like to raise.
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`The director of the Patent and Trade Office’s
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`authority to set fees sunsets after 4 years. Now, no
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`business can do any long-term planning with such a
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`restriction. And so I would like every member of this
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`committee to apply their business experience to a
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`restriction such as that. The foundation of the Patent and
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`Trademark Office is crumbling. It is the front line in our
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`effort to improve patent quality, and one way to help secure
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`the foundation is to provide a mechanism for the Trade
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`Office to coordinate fees with the actual expenses that are
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`required to review the patents. So providing the office
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`with the authority to set fees and to take that authority
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`away after 4 years is self-defeating. The authority has
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`significant congressional and stakeholder oversight. So I
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`see no reason for that limitation.
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`Now, the next issue I would like to raise is the
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`expansion of the transitional business method patent post-
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`grant provision from 4 years to 10 years. This provision, I
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`think after the discussion today, will show that it moves in
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`the wrong direction. And I remain concerned about the
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`retroactive application of the provision, and the manager's
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`amendment compounds the problem by putting patent owners
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`under a cloud of litigation for 6 additional years, even
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`those patent owners who have already gone through prior
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`reexamination or court proceedings and have been found to
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`have valid patents. And so representatives from
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`influential, nonfinancial services, and entities such as
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`Procter & Gamble have publicly stated that this is not a
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`good provision.
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`Mr. Chairman, could I receive an additional 1 minute?
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`Chairman Smith. Of course. The gentleman is
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`recognized for an additional minute.
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`Mr. Conyers. Thank you, sir.
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`Finally, the final thing that is of concern to me is
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`the creation of a 3-year safe harbor for companies accused
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`of falsely marking their products. This provision, prior to
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`the manager's amendment, already harmed settled expectation
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`because it applied retroactively. Providing a safe harbor
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`for expired patents only compounds the retroactivity problem
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`by ensuring that almost all ongoing litigation will be
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`eliminated by amendments.
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`And so I approach this hearing with some hopefulness.
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`For years, this committee, which is known for its diverse
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`points of view, has been able to resolve a number of major
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`issues across the years. And I think, Chairman Smith, with
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`your leadership and our cooperation, we can add to what has
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`been accomplished here. We have passed milestone
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`legislation out of Judiciary before: the Satellite Home
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`Viewer Act, the Digital Millennium Copyright Act, the PRO-IP
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`Act. And I hope today we will be able to add another such
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`important piece of legislation.
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`And I thank you for your generosity.
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`Chairman Smith. Thank you, Mr. Conyers for that
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`statement.
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`Our chairman of the IP Subcommittee is at another
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`markup and will be here shortly. Meanwhile, we will
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`recognize the ranking member of that IP Subcommittee, the
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`gentleman from North Carolina, Mr. Watt, for his statement.
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`Mr. Watt. Thank you, Mr. Chairman, and I thank the
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`chairman for taking me up on my suggestion 13 days ago to
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`convene various stakeholders in yet another attempt to
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`reconcile divisions that have persistently paralyzed
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`progress on getting a bill on patent reform. At his
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`request, representatives from several industries came
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`together and constructively hashed out some of the remaining
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`differences that they had.
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`Today we will have before us a manager's amendment
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`that moves in the right direction toward the appropriate
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`balance to ensure the health of our patent system. I
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`applaud Chairman Smith for his leadership, but we are not
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`there yet.
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`Like the stakeholders who answered our call for them
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`to convene, collaborate, and compromise, the members of this
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`committee must now forge ahead in meaningful partnership to
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`enact comprehensive patent reform. Thus far, the process
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`has not been perfect. Yet, many of the major chokepoints
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`that have strangled progress have been opened or at least
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`unstrangled, and there may be a path to getting a bill out
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`of our committee and moving the process forward.
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`Innovation and creativity are the cornerstones of
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`American enterprise. Our Nation’s economy is on the mend,
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`but we have an unique opportunity to breathe new life into
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`the economy and make it stronger.
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`During the course of this markup, we will, no doubt,
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`be summoned to the House floor to take some contentious
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`votes on the budget. There, as here, the end game is to put
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`in place effective reforms that will help America prosper
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`economically. Unfortunately there, the parties are still
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`screaming at each other with little hope for meaningful
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`compromise and opportunity to move forward. But here in
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`this room, I am hopeful that we can find common ground for
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`the American people and deliver a win that will foster
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`growth and create jobs by updating and modernizing our
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`ailing patent system.
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`Providing the PTO with resources it needs by
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`permanently ending the practice of fee diversion and
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`guaranteeing access to all of its user-generated fees has
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`almost universal support.
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`I believe the manager's amendment reflects a
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`reasonable accommodation on prior user rights. Providing a
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`defense for innovators to reduce a product to prior domestic
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`commercial use while maintaining the exclusionary rights
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`that inure to a subsequently filed patent is good policy,
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`and I am happy to see it in the bill. Virtually every other
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`country that operates under a first-to-file system
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`recognizes the benefits to the public from prior user
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`rights.
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`Significant progress has been made on inter partes
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`reexamination and I trust that moving forward we will strike
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`the right balance there as well.
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`Preservation of the grace period, the establishment of
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`a new, robust post-grant review process, submission of third
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`party prior art, and a supplemental examination proceeding
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`are other core features of the measure before us.
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`I reiterate that the underlying bill, the manager's
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`amendment, and what we have and will agree to today haven’t
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`gotten us across the finish line yet, but we are closer to
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`enacting meaningful, comprehensive patent reform than we
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`have ever been. We must act responsibly to finish the job.
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`I look forward to a productive markup and yield back the
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`balance of my time.
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`Mr. Conyers. Mr. Chairman?
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`Chairman Smith. Just a minute. I want to thank Mr.
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`Watt for his statement. For what purposes does the ranking
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`member wish to be heard?
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`Mr. Conyers. An inquiry, please. If it pleases the
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`chairman, we would like to bring forward the business method
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`amendment before the manager's amendment, which has at least
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`a half a dozen amendments, and we would like to get that out
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`of the way first. If it doesn’t displease the chairman, I
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`would like to offer that amendment if I could.
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`Chairman Smith. I appreciate the gentleman’s request.
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`Normally we would have amendments to the manager's amendment
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`and then take up amendments to the underlying bill, and that
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`is the normal --
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`Mr. Conyers. Well, that is why I am asking for your
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`consent to do it differently.
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`Chairman Smith. We are checking now with the
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`parliamentarian to see if what the gentleman has requested
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`is possible under the rules, and we will suspend for about
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`15 seconds like we are checking that answer.
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`Mr. Sensenbrenner. Mr. Chairman, I have a couple of
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`parliamentary inquiries as well.
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`Chairman Smith. Let me dispose of this one first, Mr.
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`Sensenbrenner, and then we will get to yours.
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`[Pause.]
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`Chairman Smith. Mr. Conyers, I am advised by the
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`parliamentarian that we have to take up my manager's
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`amendment first or it may not be in order. So we will need
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`to go through the manager's amendment and dispense with
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`those amendments, and then your amendment will be the first
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`amendment up after we dispose of the amendments to the
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`manager's amendment.
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`Mr. Watt. Will the chairman yield?
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`Chairman Smith. I had an inquiry from the gentleman
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`from Wisconsin. Is this on the same subject?
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`Mr. Watt. Well, I thought it might help if the
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`chairman would talk some about the process. I thought we
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`had understood that all amendments would be in order. And
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`if the chairman explains that, it might clarify some issues
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`Mr. Sensenbrenner is raising.
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`Chairman Smith. If the gentleman will yield. The
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`fact that we are taking up the manager's amendment initially
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`does not preclude anyone from offering an amendment. There
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`are going to be two opportunities to offer an amendment.
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`One will be when we are dealing with the manager's
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`amendment, and one will be subsequent to that. And those
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`amendments will be to the underlying bill. There is no
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`intention to shut off any debate or the opportunity for
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`anybody to offer an amendment, if anybody is concerned about
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`that.
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`Mr. Sensenbrenner. Mr. Chairman?
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`Chairman Smith. The gentleman from Wisconsin, Mr.
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`Sensenbrenner, is recognized --
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`Mr. Sensenbrenner. Mr. Chairman, I have two
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`parliamentary inquiries at minimum.
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`Chairman Smith. The gentleman will state his first
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`parliamentary inquiry.
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`Mr. Sensenbrenner. Well, the first parliamentary
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`inquiry is that many of the amendments that have been
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`drafted to the manager's amendment have also been drafted to
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`the underlying bill. Does this mean that we will have to
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`debate the amendments that are similar or identical two
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`times rather than one, particularly if the manager's
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`amendment is voted down?
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`Chairman Smith. I am advised that if the gentleman
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`offers an amendment to the manager's amendment and it is
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`defeated, he can then offer that same amendment in
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`consideration of the underlying bill. That is at his
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`discretion.
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`Mr. Sensenbrenner. A further parliamentary inquiry.
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`Does this mean that if the amendment to the manager's
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`amendment is defeated, then the amendment can be offered to
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`the underlying bill, or it means that if the manager's
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`amendment is defeated, the amendment can be offered to the
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`underlying bill?
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`Chairman Smith. I am told that if the portion of the
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`manager's amendment that was amended successfully -- that
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`can not be amended again under the underlying bill.
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`Mr. Sensenbrenner. A further parliamentary inquiry.
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`Chairman Smith. The gentleman will proceed.
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`Mr. Sensenbrenner. Since the manager's amendment is
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`being offered as an amendment and not as an amendment in the
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`nature of a substitute, that would make any amendments to
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`the amendment to the manager's amendment a third degree
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`amendment and consequently out of order. Am I correct in
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`that?
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`Chairman Smith. The gentleman is correct. Third
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`degree amendments are not in order.
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`Mr. Sensenbrenner. Then, Mr. Chairman, I would ask
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`unanimous consent, notwithstanding any rule to the contrary,
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`that there can be third degree amendments offered to the
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`amendment to the manager's amendment.
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`HJU104000 PAGE 21
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`Chairman Smith. And I would object to that unanimous
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`consent request.
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`Mr. Watt. Mr. Chairman? Reserving the right to
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`object, without objecting --
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`Chairman Smith. The gentleman from North Carolina.
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`Mr. Watt. I honestly had understood that that was the
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`procedure that you had agreed to. As I understood it, that
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`the process by which you were offering the manager's
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`amendment, being a little bit our of kilter, I thought you
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`had agree to basically do what Representative Sensenbrenner
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`has just suggested.
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`Chairman Smith. Let me restate what I understand to
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`be the case. All members are able to offer second degree
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`amendments but third degree amendments are out of order.
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`Members have an opportunity to amend the manager's amendment
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`if those amendments are germane, and then we will have
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`another opportunity to offer amendments to the underlying
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`bill when we dispense with the amendments to the manager's
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`amendment.
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`Mr. Watt. Further reserving the right to object, Mr.
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`Chairman. Well, I yield back.
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`Chairman Smith. The gentleman from New York, Mr.
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`Nadler, is recognized.
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`Mr. Nadler. A parliamentary inquiry. Was I correct
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`in understanding the previous parliamentary inquiry response
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`that if an amendment was offered successfully to the
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`manager's amendment, that if the manager's amendment was
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`then defeated, the amendment that had been offered to the
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`manager's amendment could not then be offered to the
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`underlying bill?
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`Chairman Smith. No. The gentleman did not understand
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`correctly. If an amendment is offered to the manager's
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`amendment and defeated, that amendment --
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`Mr. Nadler. No, no. If the amendment is offered to
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`the manager's amendment and is successful, but the manager's
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`amendment is then defeated, could the amendment then be
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`offered to the main bill?
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`Chairman Smith. The answer is yes.
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`Mr. Nadler. Thank you.
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`Mr. Sensenbrenner. Mr. Chairman, a further
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`parliamentary inquiry.
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`Chairman Smith. The gentleman from Wisconsin is
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`recognized.
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`Mr. Sensenbrenner. Does the chair’s prior response to
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`my parliamentary inquiry mean that if during debate on an
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`amendment to the manager's amendment, there is an agreement
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`that the manager's amendment can be modified or amended in
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`order to lessen the controversy of it, there is no way that
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`such amendment can be offered?
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`Chairman Smith. To address the gentleman’s inquiry, I
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`can entertain those amendments on a case-by-case basis and I
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`will be happy to do so.
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`Mr. Sensenbrenner. Mr. Chairman, I would once again
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`state my unanimous consent request that notwithstanding any
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`rule to the contrary, that third degree amendments may be
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`offered to amendments to the manager's amendment.
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`Chairman Smith. I do object to that unanimous consent
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`request. As I explained, we will take them up on a case-by-
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`case basis.
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`466
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`Ms. Lofgren. A parliamentary inquiry, Mr. Chairman?
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`Chairman Smith. The gentlewoman from California, Ms.
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`Lofgren.
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`Ms. Lofgren. I am seeking to understand this because
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`this is not the way we usually proceed, and I am sure that
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`the chairman wishes to have as free an exchange as possible
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`because we have worked on a bipartisan basis and the
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`HJU104000 PAGE 24
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`divisions are really not along party lines on these issues.
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`We really have been working on this since 1997. Even though
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`I think Mr. Sensenbrenner is offering some amendments I
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`don't agree with, but I would hope that he would be given
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`the opportunity to pursue them. I think that we will have a
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`477
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`greater degree of success here as a committee if we allow
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`that to occur.
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`479
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`And here is the question. Mr. Sensenbrenner, for
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`example, has an amendment number 4 to the manager's
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`amendment. I would not support number 4, but should his
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`482
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`amendment number 6 prevail on the underlying bill, I would.
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`483
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`Chairman Smith. Would the gentlewoman yield for a
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`minute? I expect, if such amendments are offered, to be
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`generous in recognizing those individuals, but as a rule,
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`third degree amendments are not in order and frankly are
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`sometimes dilatory, and I want to be able to maintain the
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`process.
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`489
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`490
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`The gentleman from North Carolina is recognized again.
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`Mr. Watt. Mr. Chairman, I want to reiterate. I don't
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`491
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`think anybody is doing this for dilatory purposes. I think
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`we would be better served to have a freer discussion of
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`these issues if we just agreed to the unanimous consent
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`Page 24 of 221
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`HJU104000 PAGE 25
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`request. I thought that is what the chairman had indicated
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`he was planning to do, and I will state that on the record
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`496
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`again. We had this discussion yesterday. I thought we had
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`gone beyond this point and that we were going to be able to
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`498
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`allow everybody who has been involved in this, everybody
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`499
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`being of good will, there being no partisan gamesmanship
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`500
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`going on, and very little likelihood of anybody abusing this
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`501
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`for dilatory purposes, to allow amendments to be offered
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`502
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`freely so that the committee could work --
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`503
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`Chairman Smith. I thank the gentleman for his
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`504
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`comments. My guess is that the gentleman is going to be
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`505
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`very satisfied with the way we proceed, and I would expect
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`506
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`to be able to entertain those amendments.
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`507
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`In fact, we will proceed now, and I will recognize
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`myself for a manager's amendment to the underlying bill.
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`509
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`The clerk will report the amendment.
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`510
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`Ms. Kish. “Amendment to H.R. 1249, offered by Mr.
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`Smith of Texas. Page 2, insert the following before line 1
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`and redesignate succeeding sections and reference thereto
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`513
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`accordingly.”
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`514
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`Chairman Smith. Without objection, the amendment is
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`considered as read.
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`Page 25 of 221
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`HJU104000 PAGE 26
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`517
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`[The information follows:]
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`HJU104000 PAGE 27
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`Chairman Smith. And I will recognize myself for
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`purposes of explaining the amendment.
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`520
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`The manager's amendment was developed based on
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`521
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`discussions with a cross-range of industry stakeholders.
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`522
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`The amendment also reflects personal requests made by
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`523
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`individual members.
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`524
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`Mr. Watts. Mr. Chairman, I am having trouble hearing
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`525
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`down on this end for some reason.
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`526
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`Chairman Smith. Let me have a mic check and I know we
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`527
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`are working on it.
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`528
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`The manager's amendment was developed based on
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`529
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`discussions --
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`530
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`531
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`[Pause.]
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`Chairman Smith. The manager's amendment was developed
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`532
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`based on discussions with a cross-range of industry
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`533
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`stakeholders. The amendment also reflects personal requests
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`534
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`made by individual members.
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`535
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`The main provisions include the following: a
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`536
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`clarification that the 1-year grace period protects any
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`537
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`disclosure to the public by the inventor; a GAO study about
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`538
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`patent litigation; a narrowing of the prior use defense by
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`539
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`limiting it to process patents, restricting its application
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`Page 27 of 221
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`HJU104000 PAGE 28
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`540
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`to the United States, and eliminating possible conflict
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`541
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`between an inventor’s use of the grace period and the
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`542
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`potential for prior use rights arising from the grace period
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`543
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`publication; an extension of the inter partes reexamination
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`544
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`time line from 9 months after service of a complaint to 12
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`545
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`months while raising the threshold to a reasonable
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`546
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`likelihood that the petitioner would prevail; a provision
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`547
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`that sunsets the PTO director’s authority to adjust the fee
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`548
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`schedule after 4 years so that Congress can evaluate it; a
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`549
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`clarification that a petitioner may file a written response
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`550
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`during an inter partes proceeding; deletion of the venue,
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`551
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`cost-shifting, and mandatory de novo review provisions that
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`552
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`apply to litigation of because method patents in U.S.
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`553
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`district court; and creation of a joinder provision that
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`554
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`authorizes a Federal court to stay a patent infringement
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`555
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`action brought against the non-manufacturing party under
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`556
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`prescribed conditions.
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`557
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`I urge members to support the amendment which
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`558
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`accommodates input from many members of the committee, as
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`559
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`well as various stakeholders, and improves the bill.
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`560
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`I will now recognize members who have amendments to
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`561
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`the manager's amendment, and once again, once we ge