researchers who pushed biotech forward. The endless cycle of academic research,

technology transfer, collaborative research, and commercialization of cures by the private sector continue today into a golden age of drug discovery. Now is not the time for radical

change.

If there are any questions, I will be pleased to answer them. Thank you.

: private

or radical

Mr. LERNER. Mr. Chairman, thank you tify here. More generally, I think the C gratulated for undertaking this series portant process of patent system reform.

In our recent book, "Innovation and It of Brandeis University, and I argued patent system today is systematic and two decades, the U.S. has strengthened ening the standards for granting patents While unpremeditated, these two poli perfect storm, a complex and intensify that increasingly makes the patent syste a spur to innovation.

The incentives that the existing syste ticipants, whether inventors, competitor invest in abusing the system, rather th and husband information for strategic a er than bringing it forward to facilitate really invented what.

Adam Jaffe and I argue that we really tion that much of the information to de cation should be approved is in the hand plicant, rather than in the hands of the I

A review process with multiple potent balances the need to bring in information reality that most patents are unimporta barriers to invoking review and the thor creasing at higher levels, would natura most potentially important applications.

Most patents would never receive any basic examinations. But for those applica parties would have an incentive and opp information in their possession before th have more resources to help it make the that really matter.

Breaking the vicious cycle of bad exa tions is the key to reform of the patent i are always going to be mistakes, and court system operate efficiently to rectify tecting the holders of valid patents.

Today, the legal playing field is sign patentees. Many observers highlight the crucial problem. The evidence in a pater nical, and the average juror has little Having decisions made by people who c evidence increases the uncertainty surro

The combination of this uncertainty v of validity-the rule that patents must b

less proven otherwise is a big reason why accused infringers often settle rather than fight, even when they think that they are right.

The right to a jury of one's peers is a venerated concept in AngloAmerican law, but there is ample scope to encourage judges to use pre-trial rulings and reports of special masters commissioned by the court to resolve more of the mostly technical issues that determine the outcome of patent litigation.

While litigation will always be uncertain, it has been structured so that complex technical issues are addressed in a way to it should be structured in a way that complex technical issues are addressed in a way to elucidate rather than obscure them.

Thus, I very much applaud the Committee for its work. The Patent Reform Act of 2005 contains many good ideas, such as the longoverdue shift to a first-to-file system, a reduction in the reliance on the arcane institution of patent interferences, a raising of the bar for injunctive relief, the expansion of prior user rights, universal publication of patent awards, and an improvement in the ability of other firms to challenge patents after grant.

At the same time, I would urge, as the above remarks suggest, consideration of further steps to facilitate pre-grant challenges to patent applications and steps to reduce the reliance on juries in patent cases.

Thank you very much.

[The prepared statement of Mr. Lerner follows:]

PREPARED STATEMENT OF JOSH LERNER

This Committee is to be congratulated for initiating a series of thoughtful discussions of patent system reform. The importance of this discussion to the American inventors, corporations, and our society as a whole cannot be overemphasized.

To be sure, the past decade has seen periodic uproars over patents. Amazon's "one click" patent for online shopping, RiceTec's patent on the basamati rice grown for centuries in Asia, PriceLine's reverse auction patents, and Acadia Research's patents on digital transmission of audio and video are examples of patents that have triggered controversy and litigation.

But while these troubling patents have been well publicized, the wrong lessons have all too often been drawn from these controversies. Commentators have tended to focus on the incompetence of the patent office in allowing "bad patents." Other observers have concluded that the patent system is not working with respect to a particular area of technology. Concerns about software awards led, for instance, Jeff Bezos of Amazon to propose a new patent type for software in 2000 and demonstrators to take to the streets of Brussels earlier this year.

In our recent book, Innovation and Its Discontents, Adam Jaffe of Brandeis University and I argue instead that the problem is systemic and fundamental. In the past two decades, the United States has strengthened patent rights while weakening the standards for granting patents. While unpremeditated, these two policy changes have created a "perfect storm": a complex and intensifying combination of factors that increasingly makes the patent system a hindrance rather than a spur to innovation.

Congress set us on this road in 1982 when it created a centralized appellate court for patent cases called the Court of Appeals for the Federal Circuit. The courtwhich advocates argued would simply ensure judicial consistency-has expanded the realm of what can be patented, lowered the standards for receiving awards, made it more likely that a challenged patent will stand up to legal scrutiny, and given patentholders more potent legal remedies.

A decade later, Congress turned the Patent and Trademark Office (PTO) into a "profit center". The office has been pushed to return "excess" revenue to the Federal treasury. This shift led to pressures to grant more patents, difficulties in attracting and retaining skilled examiners, and a torrent of low quality awards. These have ranged from the profoundly troubling cases above to absurdities such as awards for wristwatches (pawwatches?) for dogs, a method of swinging on a swing ("invented" by a five year old), and peanut butter and jelly sandwiches.

But railing against the incompetence or absurdity of the PTO misses the basic point, which is that the incentives of the existing system induce all participants— inventors, competitors and potential litigators to invest in abusing the system rather than innovating, and to hide and husband information for strategic and litigious purposes rather than bringing it forward to facilitate determination of who really invented what. Reform of the system must change these incentives by:

• Creating workable opportunities for knowledgeable competitors to challenge the novelty of inventions before a patent is granted;

• Providing graduated application reviews, so important patents are scrutinized carefully but time is not wasted on applications that don't matter; and

• Leveling the playing field between litigants so that frivolous patent holders cannot intimidate true innovators into paying protection money in the form of patent royalties.

Our proposed reforms starts with the recognition that much of the information needed to decide if a given application should be approved is in the hands of competitors of the applicant, rather than the PTO. A review process with multiple potential review levels efficiently balances the need to bring in outside information with the reality that most patents are unimportant. Multilevel review, with the barriers to invoking review and the thoroughness of that review both increasing at higher levels, would naturally focus attention on the most potentially important applications. Most patents would never receive anything other than the most basic examinations. But for those applications that really mattered, parties would have an incentive and opportunities to bring information in their possession before the PTO, and the PTO would have more resources to help it make the right decision in the cases that really matter.

If bad patents with important consequences were weeded out by the PTO, the incentive to file frivolous applications in the first place would be reduced. This would break the current vicious cycle in which inventors are induced to make marginal applications by their likelihood of success, and the resulting flood of applications overwhelms the patent office and makes it harder to separate the wheat from the chaff.

Breaking the vicious cycle of bad examination and bad applications is the key to reform of the patent process. But there are always going to be mistakes, and so it is important that the court system operate efficiently to rectify those mistakes, while protecting holders of valid patents. Today, the legal playing field is significantly tilted in favor of patentees.

Many observers highlight the right to a jury trial as a critical problem. The evidence in a patent case can be highly technical, and the average juror has little competence to evaluate it. Having decisions made by people who can't really understand the evidence increases the uncertainty surrounding the outcome. The combination of this uncertainty with the legal presumption of validity-the rule that patents must be presumed legitimate unless proven otherwise-is a big reason why accused infringers often settle rather than fight even when they think they are right.

The right to a jury of one's peers is a venerated concept in Anglo-American law. But there is ample scope for judges to use pretrial rulings and reports of special "Masters" commissioned by the Court to resolve more of the most technical issues that determine the outcome of patent litigation. While litigation will always be uncertain, it has to be structured so that complex technical issues are addressed in a way designed to elucidate rather than obscure them.

Thus, we applaud the committee for its work. The Patent Reform Act of 2005 contains many good ideas, such as a long-overdue shift to a "first-to-file" system, a reduction in the reliance on the arcane institution of patent interferences, a raising of the bar for injunctive relief, nearly universal publication of patent awards, and improvements of the ability of other firms to challenge patents after grant. At the same time, we would urge consideration of steps to allow pre-grant oppositions, and to reduce the reliance on juries in patent cases, two issues not considered by the bill.

The protection for true innovators created by a workable patent system is vital to technological change and economic growth. The problems in the existing U.S. patent system are structural, and the solutions need to be fundamental. As much as the Patent Office needs to do a better job, it can only do so if the system is modified so that all parties have incentives to help the PTO do its job, and the Court system provides a balanced, reliable backstop when mistakes are made.

Mr. SMITH. Thank you, Professor Lerner.

Mr. Ravicher.

TESTIMONY OF DANIEL B. RAVICHER, EXECUTIVE DIRECTOR, PUBLIC PATENT FOUNDATION

Mr. RAVICHER. Chairman Smith, Ranking Member Berman, and Members of the Subcommittee, patent reform is not about weakening the patent system. It's about strengthening the patent system so that it rewards innovation, not manipulation.

I am Executive Director of the Public Patent Foundation, a notfor-profit legal services organization founded in 2003 to represent the public's interests in the patent system; and most particularly, the public's interests against the harms caused by wrongly issued patents and unsound patent policy.

PUBPAT provides the general public and specific persons or entities otherwise deprived of access to the patent system with representation, advocacy, and education. Our work is funded by grants from the Rockefeller Foundation, the Echoing Green Foundation, the Rudolph Steiner Foundation, and the Open Society Institute, and by private donations from the public.

Before commenting on the Patent Act of 2005, a very important point about the process by which patent policy is formed should be made. Despite what many people believe, the patent system has extremely far-reaching effects on all Americans. Although the public does indeed benefit from a properly functioning patent system, since patents are Government-sanctioned, absolute restraints on freedom and competition, the public can also be severely harmed by errors within the patent system.

Unfortunately, it is too often the case that not all of the interests affected by the patent system are adequately represented in patent policy discussions. Specifically, the interests of the non-patent-holding public are almost always absent from any meaningful participation in decision-making about the patent system, despite the fact that they bear the brunt of its burdens.

Patent policy should be made with consideration of all the public's interests, not just the specific interests of the PTO, patent holders, patent practitioners, and large commercial actors. As such, I am pleased to have been invited to represent those interests today, and I strongly urge you to continue to ensure that all affected interests are always adequately represented in patent policy discussions in the future.

There are several ways to strengthen the patent system so that it benefits all Americans, and the Patent Act of 2005 addresses many of them. Two of the most important issues addressed by the bill are injunctions and post-grant opposition.

When discussing injunctions, we should keep in mind that the patent system's ultimate purpose is to deliver advances in technology to the American people; not simply line the pockets of patent holders. Although these ends are typically aligned, there does come a point at which over-rewarding patent holders can in fact retard technological development. This is why the patent right is limited, such as by a finite term.

Similarly, if a patent holder is not making its invention available to the American public, courts should not issue an injunction against another party that desires to do so, if they can compensate the patent holder fairly for the advance that has been made.