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UW CHANGES IN U.S. PATENT AND THEIR IMPU- CATIONS FOR ENERGY AND ENVIRONMENT RESEARCH AND DEVELOPMENT Y4,SCI 2:104/58 Changes in U.S. Patent Lau and Thei... HEARING f BEFORE THE SUBCOMMITTEE ON ENERGY AND ENVIRONMENT OF THE COMMITTEE ON SCIENCE HOUSE OF REPRESENTATIVES U.S. ONE HUNDRED FOURTH CONGRESS SECOND SESSION MAY 2, 1996 [No. 58] Printed for the use of the Committee on Science OEf-asnORV i JA^ 2 <) 1937 U.S. GOVERNMENT PRINTING OFFICE 27-33ICC WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice,Washington,DC 20402 ISBN 0-16-053617-0 27-331 96-1 WN \ CHANGES IN U.S. PATENT AND THEIR IMPLI- ' CATIONS FOR ENERGY AND ENVIRONMENT RESEARCH AND DEVELOPMENT Y4.SCI 2:104/58 Changes in U.S. Patent Lau and Thei... HEARING BEFORE THE SUBCOMMITTEE ON ENERGY AND ENVIRONMENT OF THE COMMITTEE ON SCIENCE HOUSE OF REPRESENTATIVES U.S. ONE HUNDRED FOURTH CONGRESS SECOND SESSION MAY 2, 1996 [No. 58] Printed for the use of the Committee on Science OEf'asiiORy JAN 2 h 1997 C'^C t TOI\!PaBilCLlP^^'^ U.S. GOVERNMENT PRINTING OFFICE 27-331CC WASHINGTON 1996 : ForsalebytheU.S.GovernmentPrintingOffice SuperintendentofDocuments,CongressionalSalesOffice.Washington,DC 20402 ISBN 0-16-053617-0 27-331 96-1 COMMITTEE ON SCIENCE ROBERT S. WALKER, Pennsylvania, Chairman F. JAMES SENSENBRENNER, Jr., GEORGE E. BROWN, Jr., California RMM* Wisconsin HAROLD L. VOLKMER, Missouri SHERWOOD L. BOEHLERT, New York RALPH M. HALL, Texas HARRIS W. FAWELL, Illinois BART GORDON, Tennessee CONSTANCE A. MORELLA, Maryland JAMES A. TRAFICANT, Jr., Ohio CURT WELDON, Pennsylvania JOHN S. TANNER, Tennessee DANA ROHRABACHER, California TIM ROEMER, Indiana STEVEN H. SCHIFF, New Mexico ROBERT E. (Bud) CRAMER, Jr., Alabama JOE BARTON, Texas JAMES A. BARCIA, Michigan KEN CALVERT, California PAUL McHALE, Pennsylvania BILL BAKER, California JANE HARMAN, California ROSCOE G. BARTLETT, Maryland EDDIE BERNICE JOHNSON, Texas VERNON J. EHLERS, Michigan** DAVID MINGE, Minnesota ZACH WAMP, Tennessee JOHN W. OLVER, Massachusetts DAVE WELDON, Florida ALCEE L. HASTINGS, Florida LINDSEY 0. GRAHAM, South Carolina LYNN N. RIVERS, Michigan MATT SALMON, Arizona KAREN McCarthy, Missouri THOMAS M. DAVIS, Virginia MIKE WARD, Kentucky STEVE STOCKMAN, Texas ZOE LOFGREN, California GIL GUTKNECHT, Minnesota LLOYD DOGGETT, Texas ANDREA H. SEASTRAND, Cahfomia MICHAEL F. DOYLE, Pennsylvania TODD TIAHRT, Kansas SHEILA JACKSON LEE, Texas STEVE LARGENT, Oklahoma WILLIAM P. LUTHER, Minnesota VAN HILLEARY, Tennessee BARBARA CUBIN, Wyoming MARK ADAM FOLEY, Florida SUE MYRICK, North Carolina David D. Clement, ChiefofStaffand ChiefCounsel Barry Beringer, General Counsel TiSH Schwartz, ChiefClerk andAdministrator Robert E. Palmer, Democratic StaffDirector Subcommittee on Energy and Environment DANA ROHRABACHER, Cahfomia, Chairman HARRIS W. FAWELL, Illinois TIM ROEMER, Indiana CURT WELDON, Pennsylvania DAVID MINGE, Minnesota ROSCOE G. BARTLETT, Maryland JOHN W. OLVER, Massachusetts ZACH WAMP, Tennessee MIKE WARD, Kentucky LINDSEY O. GRAHAM, South Carolina MICHAEL F. DOYLE, Pennsylvania MATT SALMON, Arizona JAMES A. BARCIA, Michigan THOMAS M. DAVIS, Virginia PAUL McHALE, Pennsylvania STEVE LARGENT, Oklahoma EDDIE BERNICE JOHNSON, Texas BARBARA CUBIN, Wyoming LYNN N. RIVERS, Michigan MARK ADAM FOLEY, Florida KAREN McCarthy, Missouri STEVEN H. SCHIFF, New Mexico HAROLD L. VOLKMER, Missouri BILL BAKER, California SHEILA JACKSON LEE, Texas VERNON J. EHLERS, Michigan STEVE STOCKMAN, Texas RankingMinorityMember •*ViceChairman (II) CONTENTS WITNESSES Page May 2, 1996: Honorable Bruce A. Lehman, Commissioner ofPatents and Trademarks .. 7 Terry E. Bibbens, Entrepreneur in Residence, Office of Advocacy, Small Business Administration 33 Professor James P. Chandler, President, The National Intellectual Prop- erty Law Institute 126 Michael K. Kirk, Executive Director, The American Intellectual Property LawAssociation 128 Ms. Diane Gardner, PatentAgent, Molecular Biosystems, Inc 151 Roger L. May, ChiefPatent Counsel, Ford MotorCompany 170 William D. Budinger, Chairman and CEO, Rodel, Inc 181 Salvatore J. Monte, President and CEO, Kenrich Petrochemicals 196 (III) . CHANGES IN U.S. PATENT LAW AND THEIR IMPLICATIONS FOR ENERGY AND ENVIRON- MENT RESEARCH AND DEVELOPMENT WEDNESDAY, MAY 2, 1996 U.S. House of Representatives, Committee on Science, Subcommittee on Energy and Environment, Washington, DC. The Subcommittee convened at 10:10 a.m. in Room 2318 of the Rayburn House Office Building, the Honorable Dana Rohrabacher, Chairman ofthe Subcommittee, presiding. Present. Representatives Rohrabacher, Roemer, Rivers, Davis, Foley, Ehlers, Jackson Lee, Brown and [Menendez] Chairman ROHRABACHER. This hearing of the Energy and Envi- ronment Subcommittee will come to order. Today we are going to look at the recent changes and proposed changes in U.S. patent law and their effect on the future of energy and environmental research and the development of said research in this country. The ability of individuals to secure their intellectual property rights is fundamental to Americans, just as is securing their politi- cal, personal and property rights. That is why our Founding Fa- thers included patent protection in our Constitution. Ben Franklin, Thomas Jefferson and so many others of our Founding Fathers were after technologists as well as believers in human liberty. For most of the time since the Constitution was ratified LF.S. inventors and investors were protected by a guaranteed patent term of 17 years from time of issue. Last year 134 years of patent law was thrown out as a result of the GATT implementation legislation, although GATT itself required no change in the patent law. We now have an uncertain patent term, and that is an uncertain term that starts from 20 years from filing. By this misuse of GATT, and Mr. Lehman will be refuting a lot of the things that I say here, or will be attempting to, and I will welcome his testimony, but by what I believe is a misuse of the GATT fast track process, a change ofvital importance to our nation was enacted into law without so much as an up or down vote by Congress in that specific issue. We now have a patent law that I believe reduces the rights of certain individual Americans and in the long run threatens our nation's competitiveness and our prosperity. The United States has always had the strongest patent system in the world and is now the world's leading producer of innovative breakthrough ideas and (1) technology. That's why we have a $20 biUion balance of payments surplus in royalties and licensing fees. The primary beneficiaries of this change that was made in the patent law I believe are large, foreign and multinational corpora- tions. They are the users, not the creators of intellectual property. Let us remember that Japan has pressed us for years to conform to their laws, which is what the change brought about in the GATT legislation accomplishes. Following this change the U.S. Patent Office made another agreement with the Japanese Patent Office. This will mean that the United States must change our law again, this time to require U.S. patent applications to be published after 18 months, whether or not the patent has been issued. Well, it doesn't take a rocket scientist to know that this is an open invitation for the theft of America's most creative ideas, the theft of America's ideas about technology, the theft of America's ideas that would innovate our own business structures and make us more competitive. These two changes combined, both eliminating the patent term certain of 17 years and combining that with publication of patent applications even before they are issued, I believe spells disaster for this country. At this hearing we will look at the implications of these changes and what they have for the future of U.S. research and development, especially in the areas ofenergy and the environment. As we have heard in the past, the Department of Energy, through its technology transfer programs with the labs, has become increasingly involved in the patent process. The Morella bill re- cently signed into law is designed to make it easier for inventors at government facilities to patent their work. Environment Protection Agency's new technology initiative also underscores the importance of patent law changes to future research and development in the environmental area. To explore these issues we have with us the Commissioner of Patents and Trademarks, and the Entrepreneur in Residence at the Small Business Administration who hold very different views on this issue. Later we will hear from people in business who are directly involved in the patent process. my Before I introduce this first panel, I will recognize colleague from Indiana, the distinguished Ranking Minority Member, and I appreciate him being here with us today, Mr. Roemer, for his opening remarks. Mr. Roemer. Thank you, Mr. Chairman. I also want to recognize Mr. Menendez from the State of New Jersey, who I know you will probably graciously recognize to make an opening statement as well, too. Mr. Chairman, I want to take just a brief moment to commend you and congratulate you for your hard work on this issue. You have called and you have talked to and you have spent a consider amount ofyour time over the course ofseveral months, ifnot years, working on this issue, and I know this is very important to you and your constituents and your interests in the health and the viability ofthis country. So I want to congratulate you for having this hearing. This issue is of considerable importance to the scientific commu- nity as well as large and small U.S. businesses. Unquestionably, our patent system has allowed our nation to be a leader in scientific and technological enterprises, such as telecommunications, supercomputers and biotechnology. Regardless of our position on the implementing legislation ac- compan3dng the general agreement on trade and tariffs, we should be mindftil of how changes to our patent policy will affect fairness and competitiveness. The public has a compelling interest in maintaining and protect- ing an inventor's intellectual property right with respect to patents, cop5rrights, trademarks as well as trade secrets. By appropriately rewarding inventors we will ensure that they will continue to have the incentive and available resources they need to create new inventions and bring them into the market- place. Mr. Chairman, we have an obligation to reward those whose in- telligence and skillful application of imagination and innovation provide new, useful and breakthrough products. These inventors represent the backbone ofour nation's economic strength. Providing inventors the right to profit from their creations is an incentive that generates the development of other useful products and will encourage the advancement of new drugs, new tech- nologies and new life-saving devices. We need to ensure that changes to the patent system are formulated within a constitutional framework and do not adversely affect fairness and competitiveness. I agree with Chairman Rohrabacher that changes to patent law should only be made where there is a well-defined problem to cure and where the remedies selected cure the problem without damp- ening the inventive spirit. More important, such changes should not detract from private research and development or our technology transfer efforts from the federal laboratories. Our distinguished panel of witnesses will address the impact of the changes to U.S. patent policy which took effect last year as a result of the GATT implementing legislation and how these changes affect future energy and environmental technology development by small entity inventors. We will also focus on how such changes would affect our efforts to gain a larger share of energy and environmental technology markets. Again, Mr. Chairman, I want to commend and thank you for your hard work and leadership in addressing this important issue. I look forward to working with you and with other Members ofthe House of Representatives as we continue to deliberate U.S. patent policy. Chairman Rohrabacher. Mr. Menendez, would you like to have an opening statement? Mr. Menendez. Thank you, Mr. Chairman. Good morning to you and to the Ranking Member. I am grateful for the opportunity to join with the Subcommittee, ofwhich I am not a Member, as you hear testimony from a variety of groups regarding the impact of changes in U.S. patent policy, in some respects brought about by the Uruguay Round Agreements Act. If I could, Mr. Chairman, I would ask unanimous consent to in- clude an extension ofremarks. Chairman Rohrabacher. Without objection. Mr. Menendez. Thank you. As you know, U.S. law governing patent rights was changed to conform to the requirements of the TRIPS agreement, and while TRIPS represents a major advance in the worldwide protection ofintellectual property, it has substantive deficiencies. Our trading partners have addressed the general question of TRIPS conformity, but some it seems failed to enforce the requisite changes in their own domestic laws and regulations. The adverse implications for U.S. patent holders of these failures to conform to TRIPS are significant in terms oflost profits and lost jobs, and the ones hurt the most are small businesses. Such is the case with a constituent of mine, Mr. Chairman, who will address you today, Mr. Salvatore Monte. As Mr. Monte will tell you, he has documented violations by Japan oftrademark territory and patent flooding costing him millions ofdollars. Yet he has been unable to recoup any ofhis losses from Japan And why is this? Japan's use of narrow patent interpretations and patent flooding to gain competitiveness has long been recog- nized. It seems strange that a modern, industrialized nation like Japan has only four patent examiners. Yet WTO/GATT does not ex- plicitly deal with the techniques employed by Japan, and perhaps this is where our patent policy hasn't changed enough. We must find a way to enable the WTO to live up to its billing as the guarantor of open markets and fair treatment. We must be WTO aggressive in using the for enforcement and dispute settle- ment procedures. America's competitive edge rests ultimately on its creativity and resourcefulness such as found in the small businesses like Mr. Monte's. Mr. Monte's testimony I think will be very insightful for the Committee, Mr. Chairman, and I appreciate the courtesy that both you and the Ranking Member have extended to me. [The prepared statement ofMr. Menendez follows:] REMARKS BYTHE HON. ROBERT MENENDEZ ON INTERNATIONAL TRADE AND PATENTAND ROYALTYENFORCEMENT In the din ofthe battle over balancing the budget, reality can be lost in the shout- ing. Ifone accepts as an article offaith that it is ofutmost importance that the federal budget must be balanced, then it must follow that the monumental trade defi- cits must perforce ofthe exact same logic have the same priority. Upholding the standard offree markets and free trade is not license to do noth- ing. The price offreedom is not without cost for either personal liberties or economic freedom. It is a Constitutional right under the First Amendment that our citizens may petition the Grovernment for redress of grievances. It is also a Constitutional prerogative under Article 1, Section 8, Clause 8 "To promote the progress ofscience and useful arts, by securing for limited times to authors and inventors, the exclusive right oftheir respective writings and discoveries." With this as a backdrop, I would like to explore a problem that a constituent of mine, Salvatore Monte has raised. Mr. Monte's problems involve fundamental questions about the role of our federal