All businesses, small and large, will benefit. All industries, directly or indirectly affected by patents, including finance, automotive manufacturing, high-tech, and pharmaceuticals, will profit.

The bill before us is a good first cut of what we envisioned when this process commenced. No doubt, it will undergo changes as we proceed to markup. In this regard, I encourage the industry working groups to continue negotiating. If interested parties keep talking and remain committed to a holistic approach in which the greater good prevails, then we can and will produce a patent bill that benefits all Americans.

That said, I will note that the bill makes the following substantive changes from the Committee Print. First, in response to criticism of the apportionment of damages section of the print, the bill contains language from case law that more clearly distinguishes between an inventive contribution and other features.

Second, the bill replaces the print text governing injunctive relief which does not allow a court to presume the existence of irreparable harm. Instead, the new language supplements the existing statute on injunctive relief by compelling a court to consider the fairness of the remedy in light of all the facts and the relevant interests of the parties associated with the invention. The provision also makes it easier for a judge to stay an injunction pending appeal.

Third, the bill addresses the issue of continuations, by authorizing the PTO director to limit by regulation the circumstances in which an applicant may file a continuation and still be entitled to the priority date of the parent application.

Fourth, the bill includes a second window for proceedings under the post-grant opposition system. This additional review must be initiated within 6 months from the date on which a notice of infringement is received.

Finally, section 10 of the bill allows third-party submission of prior art within 6 months after the date of publication of the patent application. The third party must articulate the relevance of each submission, and pay an accompanying fee to defray PTO expenses and discourage frivolous submissions.

The other provisions in the bill largely mirror those in the print, with the exception of clarifying technical and conforming changes. We intend to mark up this bill by the end of the month, so it is incumbent upon Subcommittee Members, industry stakeholders, the PTO, and other interested parties, to work hard and in good faith between now and June 30th.

That concludes my opening statement. But before I recognize the Ranking Member, Mr. Berman, I do want to say in recognizing him that this is truly a bipartisan bill. It started off as a Smith-Berman bill. It is now a "Smith-Berman-Goodlatte-Boucher-Lofgren-Darrell Issa and, I hope, Bill Jenkins bill." We have a nice bipartisan bill going forward.

And this isn't the first Smith-Berman bill; nor will it be the last Smith-Berman bill. There will probably not be a Smith-Berman immigration bill, but there will be many more IP bills. And that's one of the advantages and satisfactions of this particular IP Subcommittee.

So in saying so, let me thank Mr. Berman again for his co-sponsorship and for his input along the process, and will now recognize him for his opening statement.

Mr. BERMAN. Well, thank you, Mr. Chairman. And I have hopes that, with the passage of time, you will see the error of your ways, and there will be a joint Smith-Berman bill on immigration. [Laughter.]

Thanks for scheduling the hearing on this Patent Act of 2005. Thank you for your leadership in putting what I think is a credible and good bipartisan package of provisions together in this legislation, and for focusing both the Subcommittee and the interested parties and the public on an intention to move legislation expeditiously.

A number of groups have worked diligently to arrive at a consensus on reforms necessary to improve existing patent laws. There seems to be agreement that any legislation should focus on three broad subjects: the decrease in patent quality; the increase in litigation abuses; and the need to harmonize U.S. patent laws with the patent laws of foreign countries.

The Chairman and I and our staffs have carefully considered the copious comments on the Committee Print, and have carefully crafted H.R. 2795 to respond to the concerns.

I initially became interested in patent reform primarily because of the multitude of questionable-quality patents that were being issued. High-quality patents are essential to a healthy patent system. Poor-quality patents tend to spawn litigation; which in turn creates uncertainty in markets that depend on patent rights. As a result, investors hesitate to invest; innovators hesitate to invent.

That is why I'm pleased that there is strong support for a key quality provision in the bill allowing third parties to submit prior art to examiners within a limited time frame. With section 10, we have taken an important first step in addressing the problem of poor patent quality, by enabling examiners to have more information from additional sources. During the question-and-answer portion of the hearing, I intend to explore the merits of the additional quality measures, such as the second window in the post-grant opposition procedure.

The bill is by no means a perfect solution, but I believe many of my additional concerns will be addressed as the bill goes through Committee. For example, the PTO has voiced some concerns about its ability to administer the provision on the duty of candor. If the agency tasked with managing the procedure believes it will have trouble doing so, it's worth taking a second look at the consequences of the language.

Furthermore, I think the harmonization provisions need to be fleshed out a bit more to address the concerns of small inventors and universities; which I hope at least one of the witnesses will speak to today.

As we move forward in this process, I hope we'll continue to seek a consensus on the best way to reform our patent system. I look forward to hearing from the parties interested in patent reform over the next few weeks, in order to rectify any unintended consequences presented by the text of the bill. Overall, I believe that our bill has addressed a number of pressing issues and will cer

tainly create a healthier, more effective patent system. Thank you, Mr. Chairman.

Mr. SMITH. Thank you, Mr. Berman. And without objection, other Members' opening statements will be made a part of the record. And I'd like to invite our witnesses to stand and be sworn in. [Witnesses sworn.]

Mr. SMITH. Our first witness is Gary Griswold, President and Chief Intellectual Property Counsel of 3M Innovative Properties Company, who will be testifying on behalf of the American Intellectual Property Law Association, or AIPLA. He has practiced intellectual property for 27 years at 3M and Dupont, and has served as a past president at both AIPLA and the Intellectual Property Owners Association. Mr. Griswold received a B.S. in chemical engineering from Iowa State University, an M.S. in industrial administration from Purdue University, and a J.D. from the University of Maryland.

Our next witness is Carl E. Gulbrandsen, Managing Director of the Wisconsin Alumni Research Foundation, or WARF, which is the patent management organization for the University of Wisconsin at Madison. Mr. Gulbrandsen received his B.A. from Saint Olaf College in Northfield, Minnesota. He also earned a doctorate in physiology from the University of Wisconsin, Madison; and a law degree from the University of Wisconsin Law School.

Our next witness is Josh Lerner, the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in the Finance and Entrepreneurial Management Units. His research focuses on the structure of venture capital organizations and their role in transforming scientific discoveries into commercial products. He also examines the impact of intellectual property protection, especially patents, on the competitive strategies of firms in high-tech industries. I have found very helpful his most recent book, co-written with Adam Jaffe, entitled "Innovation and Its Discontents."

Our final witness is Dan Ravicher, Executive Director of the Public Patent Foundation, or PUBPAT, in New York. PUBPAT is a not-for-profit legal services organization that was formed to represent the public interest "against harms caused by wrongly issued patents and unsound patent policy." Mr. Ravicher received his bachelor's degree in materials science from the University of South Florida, and his law degree from the University of Virginia.

Welcome to you all. We have your complete written statements, which will be made a part of the record, without objection. And please, as you all know, limit yourselves to 5 minutes on your opening remarks.

And Mr. Griswold, we'll begin with you.

TESTIMONY OF GARY L. GRISWOLD, PRESIDENT AND CHIEF INTELLECTUAL PROPERTY COUNSEL, 3M INNOVATIVE PROPERTIES COMPANY, ON BEHALF OF THE AMERICAN INTELLECTUAL PROPERTY LAW ASSOCIATION

Mr. GRISWOLD. Thank you. Chairman Smith, Ranking Member Berman, Members of the Subcommittee, I am pleased to have the opportunity to present the views of AIPLA on H.R. 2795, the "Patent Act of 2005."

Like one-third of the AIPLA's active members, I come from the corporate world where I am currently president and chief IP counsel of 3M Innovative Properties Company, a subsidiary of 3M, a company that sells over 50,000 different products, from pharmaceuticals to electronics to consumer products.

A special AIPLA legislative strategies committee, established in the fall of 2003, was charged with devising a coordinated set of reforms to enhance the quality, speed, and efficiency of the patent system.

The committee recommended that the patent laws be amended to: adopt a first-inventor-to-file system, with an objective definition of "prior art;" limit or eliminate the subjective elements in patent litigation; complete the desirable legislative enhancements originally proposed in the American Inventors Protection Act; and adopt a fair and balanced post-grant opposition system that takes advantage of the elimination of the subjective elements in patentability criteria that accompany adoption of the first-inventor-to-file principle.

AIPLA would like to highlight, however, the most fundamental problem in need of a solution: adequate and stable funding for the PTO. Both the National Academies of Science and the Federal Trade Commission, following their thorough reviews of the patent system, agree with AIPLA on this crucial point. The reforms in H.R. 2795 will require the PTO to play a greater role in the patent system, a role it cannot play unless it's adequately funded.

Most provisions of H.R. 2795 contribute to improvements in the quality, speed, and efficiency of the patent system. These include new section 8 that authorizes the director to regulate the filing of continuing applications, while ensuring that applicants can obtain adequate protection for their inventions; and new section 10, which will provide the public with an opportunity to submit information to the office to improve the initial examination.

These provisions, coupled with the provisions carried over from the Committee Print that implemented the recommendations of our special committee, will materially improve patent quality and simplify litigation.

Other provisions which have found their way into H.R. 2795 do not address these fundamental goals. Here, I am speaking of modification of the fundamental exclusivity of the patent right, and the transformation of post-grant procedure into a patent revocation procedure. Neither of these proposals will improve the quality, speed, and efficiency of the patent system.

Of greatest concern to AIPLA is the proposal in section 7 to modify the existing rules of granting permanent injunction for a valid and infringed patent. AIPLA strongly opposes this provision. It will devalue the property right of patentees by undercutting their traditional right to injunctive relief against adjudged infringers.

Its impact will be especially harsh on independent inventors, who already face great difficulty in commercializing their patented inventions. It will be likewise equally harsh on universities, who are precluded in many, if not most, cases from directly commercializing their inventions and who must therefore rely on licensing and selling them.

It will also set an extremely unfortunate precedent internationally for the United States, by suggesting to other nations that there need be no patent exclusivity for all inventions; that other nations can also pick and choose the patented inventions for which they grant exclusivity.

This Subcommittee recently held hearings on the enforcement problems that the U.S. right-holders are experiencing in Russia and China. One can only imagine what might be considered a "fair remedy in light of the relevant interests of the parties" in those countries. The danger of this provision seems inordinately high, in view of the other possibilities of addressing the problems it is intended to solve. AIPLA strongly urges that this provision be dropped.

As I noted at the outset, AIPLA is a strong proponent of an effective and balanced post-grant procedure to allow the public to promptly correct mistakes made in the PTO in issuing patents. We strongly believe, however, that there should be only one window for requesting an opposition, and that the window should be 9 months after the patent is issued, to encourage the public to act promptly. After the initial 9-month period has passed and no opposition has been filed, patentees should enjoy a "quiet title" without a fear of later administrative challenges, except for inter partes reexamination procedure, which this bill has made more attractive.

This brings me to the second window proposed in the new section of H.R. 2795, which would permit an individual to file an opposition not later than 6 months after receiving notice from the patent holder alleging infringement.

AIPLA opposes a second window for bringing an opposition for the life of the patent. The post-grant procedure was conceived and designed as an early check on PTO quality. This proposed second window will remove the incentive to challenge patents during the first window, allowing improvidently granted patents to escape this important early quality-enhancing function and impede competition.

A second window would increase the risks faced by patent holders, and dampen the enthusiasm for companies and venture capitalists to invest in the development and commercialization of patented technologies.

Finally, a second window would, in effect, create a "patent revocation" system that does not fit the design of the post-grant system. It would require a significant restructuring of the provisions on discovery, claim amendment, burden of proof, estoppel, etc. For all these reasons, AIPLA strongly urges that the second window be dropped.

Thank you for the opportunity to present my views, our views, and I'd be pleased to answer any questions.

[The prepared statement of Mr. Griswold follows:]

Mr. Chairman:

PREPARED STATEMENT OF GARY GRISWOLD

I am pleased to have the opportunity to present the views of the American Intellectual Property Law Association (AIPLA) on H.R. 2795, entitled the "Patent Act of 2005." AIPLA congratulates you for your efforts to identify important issues affecting the U.S. patent system and to search for appropriate reforms to increase its effectiveness.