Peter Theis on Patent Law 'Harmonization'

Testimony of PETER F. THEIS Before The PUBLIC HEARINGS ON PATENT LAW HARMONIZATION

OCTOBER 28, 1993

TABLE OF CONTENTS

1. Personal Introduction
2. The Purpose of the Patent System
a) Beneficiaries Of The Patent System
b) Adversaries Of The Patent System
3. The Patent System Objectives
4. Costs of a Weak Patent System
a) Cost: Innovation Decreases
b) Cost: International Patent Rights Are Lost
c) Cost: Domestic Patent Rights Are Lost
d) Cost: Additional Inventions Are Lost
e) Cost: Inventions Become Trade Secrets
f) Cost: Resources Flee The Industry And The Country
5. The Inventor is Poorly Motivated
a) Motivation: Time From Invention To Reward Is Too Protracted
b) Motivation: Court Awards Do Not Flow To The Inventor
c) Motivation: Litigation Disrupts The Inventive Process
d) Motivation: Capital Flees an Inventor With A Patent
e) Motivation: Federal Procurement Promotes Infringement
f) Motivation: A Patentee Can Not Communicate His Invention
g) Motivation: Litigation Terminates Voluntary Licensing
h) Motivation: A Patentee's Strategy Is Not Protected
i) Motivation: The Infringer Controls The Patentee
6. Improving The Patent System
a) Recommendation: Increase Patent Certainty
b) Recommendation: Favor Voluntary Licensing Over Litigation
c) Recommendation: Encourage The Inventor To Pursue Inventing
d) Recommendation: Favor Invention Disclosure
e) Recommendation: Encourage Complete Patent Applications
f) Recommendation: Establish Statutory Guidelines For Notice Letters
g) Recommendation: Establish Statutory Guidelines For The On Sale Bar
h) Recommendation: Restrict The Declaratory Judgment Act
i) Recommendation: Let The Inventor Select The Forum And Opponent
j) Recommendation: Ban Industry Leagues
k) Recommendation: Harmonize International Patent Fees
l) Recommendation: Apply "Good Faith" Standards Consistently
7. Harmonization
8. Summary
9. Conclusion 


Testimony of PETER F. THEIS

PUBLIC HEARINGS ON PATENT LAW HARMONIZATION

October 28, 1993

Section 1 Personal Introduction

My name is Peter F. Theis and I am from McHenry, Illinois. My views are presented from the perspective of a CEO of several entrepreneurial companies, as a prolific inventor, and based on my experiences working with, licensing and litigating patents against large corporations.

I graduated from Yale University with a degree in Electrical Engineering, have a Masters Degree in Business Administration from the University of Chicago, and Doctorate in Law from the Chicago Kent College of Law, Illinois Institute of Technology. I am a member of the Illinois Bar and a non-practicing attorney.

I have well over twenty U.S. Patents issued, allowed or pending in fields such as voice processing, packaging, camping, telephone communications, turbines, and automobiles. Many of my patents have been developed into commercial products.

In 1968, after being engaged in the computer business for the first decade of the industry's infancy, my partner, Bob Morgan and I entered the telephone answering machine business. 1968 was the year the Carterfone decision enabled non-telephone company provided devices to be connected to the telephone line. In the early 1970s, I was a member of the FCC Answering Devices Subcommittee which helped pave the way for direct connection of telephone equipment to telephone lines.

Today, one of the companies I founded and of which I was President, Conversational Voice Technologies Corporation of Gurnee, Illinois, is a technological leader in voice processing services and is a licensee of my technologies.

In 1991 I founded Theis Research, Inc., also in Gurnee, Illinois, a company engaged in research, development, technology licensing, and consulting. I granted to the company an exclusive license to fifteen patents (our attached brochure explains the patents). A significant effort was made by Theis Research to license patented technologies to the telecommunication industry leaders on a business basis.

Octel Communications Corporation sued Theis Research in April, 1992, in San Jose, California for a Declaratory Judgment to have certain of the patents declared invalid, unenforceable, and not infringed by Octel. The California suit resulted from Theis Research's charge (not suit) of willful infringement against Ameritech made in Chicago, Illinois.

The litigation initiated by Octel has now expanded to include willful infringement charges of six patents against Bell Atlantic, Pacific Telesys, Northern Telecom, Octel, Tigon Corporation, Boston Technologies, and Digital Sound Corporation. AT&T is also involved. Trial as to Octel, Northern Telecom and Boston Technologies is scheduled for January, 1994.

The attorneys fees and expenses for this litigation, I would anticipate, will be well into eight figures. Literally dozens of small businesses could have been started for the same investment. A minuscule portion of those fees would have paid for broad international protection for my patents, implemented all of them, and financed additional applications for ideas not yet disclosed.

Because of ongoing litigation, which, in one form or another, may continue the rest of my life, I must restrict my comments about the patent system lest they be mischaracterized and taken out of context by opposing litigants. I no longer have the same freedom of communications as I enjoyed prior to litigation.

Section 2 The Purpose Of The Patent System

The issue being addressed is whether to maintain the current First to Invent procedure, or adapt the First to File rule. The importance of maintaining the First to Invent concept is self-evident, and obvious if we step back and consider, in a broad context, the objectives of the patent law. Equally clear will be how destructive the alternative First to File rule would be.

My comments are founded on the objectives of the patent system. I will review the failings of the current modus operandi, and suggest improvements to the patent system based on my experiences. A conclusion favoring First to Invent is based on these insights.

a) Beneficiaries Of The Patent System

Many will erroneously suggest that the principal beneficiary of an effective patent system is the inventor, or the inventor's company.

Such is not the case. The beneficiary of the patent law is the public! The public in industrialized societies has recognized for hundreds of years that to receive the benefit of new technologies, the inventor must be motivated to perform incredible development work, to incur a high risk investment, and to spend what is often a lifetime of effort in order to bring a new idea or product to market to benefit the public.

There are not many inventor entrepreneurs. A company can't go to the employment agency to hire "an inventor" as they would an engineer or accountant. Yet the contribution of the inventor to society and to its standard of living is extremely disproportionate to their numbers. The very reason the public grants a patent is to motivate those limited number of inventors to pursue their inventions, regardless of the odds.

Inventorship is a very fragile career. Ordinary people who become inventors often oppose conventional wisdom. Their ideas, which have public value, can be lost to the public because of discouragement, disparagement, insecurity, finances, and disinterest, to mention just a few of the possibilities.

Changes to the law, therefore, should be made with the ultimate objective of motivating those limited numbers of inventors to do whatever is necessary to make available to the public new and useful products or processes. Our patent law is not a patentee benevolent law. It is a public benevolent law!

It follows that anything done to diminish that motivation, diminishes the public benefit. The proposed First to File law diminishes that motivation substantially.

b) Adversaries Of The Patent System

It must be recognized that new technology challenges and frequently destroys the status quo. It can destroy the value of an entrenched investment and power base. The telephone displaced the telegraph, airplanes displaced the trans-Atlantic passenger liners. Even today, Marconi's wireless invention is challenging the wire telephone industry. Since before the days of Galileo, (who, incidentally, also held a patent) existing powers have sought to destroy or control new technologies lest they themselves be pushed into oblivion.

Such is the nature of mankind as evidenced by history. No law will change that. The law must recognize and take this unfortunate characteristic of human nature into consideration. In considering the proposed patent law revisions, it is particularly important that it be recognized that existing powers will seek to suppress both new technology, and the inventor if either threatens their business interests. Financial strength is the principal weapon of the entrenched power base.

Prior user rights provisions such as proposed specifically benefit and protect the existing powers should alternative efforts to suppress an invention or inventor fail. The large, well funded corporation can dabble in all fields, adding little to none. By being able to claim prior user rights, the corporation can cherry pick those inventions which achieve commercial success. The large corporation can then step into the market at the time of their choosing, and introduce second generation products at lower cost than the inventor entrepreneur because it doesn't have either the original development investment, or the cost of failed attempts - the unripened cherries. The real inventor's investment in pioneering development and bringing the invention to the public attention will be lost. Would you, the reader, invest in a company pioneering an invention if a major corporation could scoop the company after the product became a success, claiming prior user rights? Clearly, a rational investor would not invest in a product development under such uncertain conditions.

Section 3 The Patent System Objectives

Does the U.S. patent system accomplish its objectives? Three questions will spotlight the unfortunate answer:

A. Would you knowingly take cars from a dealer's showroom without payment?

B. Would you knowingly reproduce and sell copies of a copyrighted newspaper without a license?

C. Would you knowingly make, use, or sell a product patented by another without a license?

Most people would answer the first two questions with an unqualified NO. Appropriating property and written materials is against the law and against common morality. Just look at the notice and warning statement next time you rent a video movie!

The answer to the third question manifests the failure of the U.S. Patent system. Responses generally would include "It is all right as long as we do not get caught", "We can beat them in Court", "We'll see if they will defend their patent turf" or "We'll just ignore the inventor."

In fact, corporations take pride in litigating to show that, through litigation, "the inventor could not sustain his patent" against insurmountable legal costs and obstacles and extended years of litigation. Legal issues argued are often not whether the other party was the inventor, but whether, because of the inventor's independence, he followed legal procedures - legal procedures that are sufficiently vague and subjective that neither patent lawyers nor the courts are consistent in their opinions. Victory is dependent on the primitive concept of who has the largest army of soldiers/lawyers. Victory is dependent on whether a larger hourly fee can purchase brighter lawyers. Victory is dependent on the continued experience of the infringer beating down the inventor. The inventor has only one chance and there is no opportunity for gaining experience.

The inventor who doesn't protect his invention in court is disdained by the very industry that builds on his invention. When an inventor seeks to protect his patent rights in court, his inventions are discredited as "obvious", "primitive", "you can't patent that", "we are more sophisticated" and the inventor is publicly called a fraud, "not the real inventor" "holding up the industry" "deceiving the patent office" and generally considered a despicable character. This is the notoriety that greets an assertive inventor.

The patent system is not working as well as it could. If changes in the patent law are being considered, they should strengthen the system, and not denigrate it as the First to File amendment would do.

One of the tragic consequences of the failings of the patent system is that no one ever recognizes what has been invented, but not pursued. Consider what the world would have lost if Edison had given up after his first patent, or if Cole Porter's first song had been taken without compensation and he had given up writing anything more. The public is consoled only by its ignorance of what it has lost.

Section 4 Costs of a Weak Patent System

The patent system was substantially strengthened in the early '80s when the CAFC was created to increase the certainty of the patent law. In some of the most successful industries, such as chemicals, pharmaceuticals, and bio-tech, it has fostered a licensing industry, where licensing agreements are negotiated by businessmen, not lawyers. It has fostered a world wide trade in technology. The industry of patent licensing is only possible where the patent laws and corporate morality give a patent a high degree of certainty of being upheld.

a) Cost: Innovation Decreases

Innovation decreases with a weak patent system. Because innovation feeds other innovation, a single invention can result in multiples of additional inventions by others. The rate of inventive loss as a patent system weakens is, therefore, geometric.

High levels of research and development are only possible where the fruits of an investment can be protected at a cost an enterprise can afford. As the cost of protecting patent rights increases, the value of developing new ideas is diminished. Development of an increasingly greater number of new ideas becomes economically unfeasible. Management makes a choice between developing a new technology on one hand and additional marketing of existing technologies on the other.

If the fruits of research and development investment can not be protected, the only logical decision is to spend available dollars on marketing existing products, and leave the research and development to the competitor. The competitor will reach the same conclusion. Everyone will wait to cherry pick the lucrative idea, but the crop of cherries will get smaller and smaller.

b) Cost: International Patent Rights Are Lost

International patent protection is not sought, or defended, because the inventor is forced to spend his funds to fight other Americans in court. Moneys used in litigation could be better used to protect domestic technology from being appropriated for the international marketplace.

For a small entrepreneurial firm, domestic survival is the highest priority. If funds can not be acquired by licensing domestically, or are spent in litigation, prosecuting international patents becomes impossible.

c) Cost: Domestic Patent Rights Are Lost

When foreign companies license American technology, those license fees fund American inventors litigation against American companies. And the American companies, when the litigation is finished, will pay higher royalties than the foreign firm did for its early voluntary license. If an American patent is defeated by an American infringer, a foreign competitor gains a royalty free license for the American turf, without incurring any expense or disruption, thanks to his American competitor funding the litigation.

d) Cost: Additional Inventions Are Lost

The inventor is the leading expert at the time of his invention. A weak patent system does not motivate him to make further inventions and to develop his ideas. The inventor entrepreneur who lacks the necessary funds can not develop additional inventions when his past technologies are being taken without compensation. When subsequent inventions are not disclosed, the public does not benefit from the foremost expert in the field at the time, the original inventor. Additional expertise is not created by others building on the invention.

e) Cost: Inventions Become Trade Secrets

If the public patent disclosures can't be protected because of prohibitive cost, there is no logical reason to obtain a patent. Ideas will be kept as trade secrets. The public will be denied access to the know-how. The proposed revision of the patent law with its prior user rights, promotes the incentive to maintain ideas as trade secrets. As a result, others can not independently build on those undisclosed ideas. The public has no opportunity to improve on those ideas. One of the principal patent objectives, technology disclosure, is lost.

As Norbert Wiener said in his book, Invention, The Care and Feeding of Ideas, "The primitive manner of holding an invention for exploitation is for the inventor to exploit it as a secret, or to hand his secret over for a price to his master or another craftsman. The patent originally came into existence as a method of combating this secrecy." (Chapter 10, Page 127). Thus, any change that fosters trade secrets at the expense of patents is a step backward in civilized history.

f) Cost: Resources Flee The Industry And The Country

Inventors leave their field of expertise when their ideas can't be protected and they can't be compensated. They go where they will have success and be compensated. Ultimately the industry languishes.

Internationally savvy inventors do not disclose their ideas in countries where patent rights can not be protected.

Section 5 The Inventor Is Poorly Motivated

a) Motivation: Time From Invention To Reward Is Too Protracted.

The time lag Between when the inventor makes his invention, receives his patent, successfully commercializes his patent, and is rewarded is too protracted if the compensation is received through litigation.

When the inventor entrepreneur finally receives a monetary award through the courts, he is too old, too discouraged, and too cynical, because of litigation, unending discovery and disparagement, to motivate him to do more. He has passed his prime. The fun of inventing does not leave of its own accord, it is beaten out of him. The monetary compensation is not received when the inventor has the enthusiasm, youth, focus, intensity, need and driving force to rapidly expand his technology base.

Voluntary licensing could decrease the time lag by years!

b) Motivation: Court Awards Do Not Flow To The Inventor

The inventor is not the principal beneficiary of court awards in most cases. Even a 40% contingent fee with the inventor paying all expenses doesn't encourage many lawyers to enter the patent litigation arena. The inventor has an almost impossible task financing a million dollar or more war chest for experts, travel, and other litigation expenses. Often the inventor gives up substantial, if not the entire equity in the patent to obtain such funds (if he can obtain the financing at all).

Who benefits from the court award? The portion the inventor gets after attorney's fees, expenses, the cost of raising capital, taxes must then must be reinvested to defend the next Declaratory Judgment Action, or protect voluntary licensees from non royalty paying competitive infringers. The inventor that has really been through it emotionally, financially, socially, and has risked everything over a lifetime, often is not the principal beneficiary of the court award. He may wind up the one person holding an empty bag.

c) Motivation: Litigation Disrupts The Inventive Process

To the inventor entrepreneur, litigation is a strange and foreign universe. The world of physical logic disappears and is replaced by esoteric hyper arguments haggling over the meaning of individual words and legal details. This is a foreign language to the inventor, particularly the inventor with an engineering or scientific background. The inventor looks to the future in a speculative framework, concentrating on perfecting an idea in a physical and commercial world. The lawyer is looking backward in time, referencing his work to a known procedure (court decisions), and practicing the non-physical art of debating why someone did or didn't do something in years long past.

The time requirements of litigation on an inventor are very substantial. Often the requirements are unscheduled, or the schedules are changed with little notice. The financial resources are difficult or impossible to plan. As a result, litigation disrupts and delays development of ideas already disclosed, not to mention prosecution of new inventions. Litigation is threatening to the inventor, chilling his creative abilities.

d) Motivation: Capital Flees An Inventor With A Patent

Capital does not seek out businesses with a patent portfolio. A company with a capital base of a million dollars for production, inventory, etc. (and that is a large initial capitalization for a small firm) can see this entire amount consumed with one patent suit, a suit the company may not even commence. Litigation can consume the available time of principal officers and employees of the company. A Declaratory Judgment action can be used by a larger company to drive a small company out of business because management of the smaller company doesn't have time to both manage the business and litigate.

Under the current patent law, an inventor entrepreneur with a patent portfolio is set up for disaster because he can't afford to defend it. Both the capital markets and the larger competitors know this. The public, whom the patent law is designed to benefit, will then be denied, by the infringer, the advanced technology.

e) Motivation: Federal Procurement Promotes Infringement

The Federal government fosters infringement. Our government procurement process bids patented technology without notifying bidders that the product or process being bid is patent protected. This government activity invites others to infringe. As a result, a knowledgeable inventor does not go to the government with a new idea, even if it is patented.

The government procurement process could be used to promote voluntary licensing by bidders.

f) Motivation: A Patentee Can Not Communicate His Invention

The theoretical advantage of disclosure that a patent gives to an inventor, as contrasted with maintaining a concept secret, is that the invention can be communicated freely. The inventor should have the freedom to discuss the idea with a potential licensee or place a product on the market with a degree of comfort that it is patent protected and will not be stolen. The patent should convey the necessary protection to foster communication of ideas. Freedom of communication of ideas is a fundamental objective of the patent system.

Unfortunately, this is not how the system is works, and I know first hand. For example, visiting a company in another state to explain or develop interest in a new technology can subject the inventor to litigation in that state's jurisdiction. The company can sue for a Declaratory Judgment on its home turf, and have a substantial benefit as to costs, expenses, and the home town jury.

g) Motivation: Litigation Terminates Voluntary Licensing.

Licensing activities as to all parties are substantially terminated when one infringing party brings suit. Subsequent licensing is based on threat of suit, rather than the transfer of technology.

Because of litigation, the inventor can not promote his technologies as it may prejudice the court in that litigation. Anything the inventor does or says can be twisted and used against him by the infringer. The inventor has thus been barred from communicating with the outside world in his field of expertise. If his funds are limited, he is barred from even visiting a potential licensee for fear of receiving a second Declaratory Judgment suit. He could be put out of business with a second suit.

h) Motivation: A Patentee's Strategy Is Not Protected

Once litigation starts, licensing is done in a fish bowl because all licensing negotiations become discoverable in that litigation. Business plans, discussions with experts, everything effectively becomes known to the opposition, the infringers: memos, thoughts, planning, alternatives, finances. Everything! Infringers can be a licensee's major competitor and find out in discovery everything about the licensing negotiations and strategies.

Because there is so much strategy involved in effective licensing, and confidences are shared between the parties, licensing activity is substantially impeded where the patentee's and licensee's innermost negotiating considerations are subject to discovery.

i) Motivation: The Infringer Controls The Patentee

Voluntary licensing as to all potential licensees is substantially hampered, and perhaps virtually impossible, once any one single party begins litigation. It becomes difficult or impossible for the patentee to arrange strategic alliances, and to negotiate win-win licensing deals because of the inability to freely communicate with prospective licensees. A single infringer has controlling power over the inventor!

Section 6 Improving The Patent System

a) Recommendation: Increase Patent Certainty

The patent system objectives can be better met by increasing the certainty of the validity and enforceability of patents.

The alternative, increased uncertainty, is correlated with additional legal expenses, increased litigation time, and the increased risk of having a patent asset invalidated. Large corporations operating in disregard of the patent system specifically want patent uncertainty. The greater the uncertainty, the greater the probably that the inventor can be depleted of financial or emotional resources, if not the first time around, then through repeated and subsequent efforts.

Because the First to File amendment contains an exemption for prior user rights which may be unknown to the inventor, or may be conjured up as an afterthought by the infringer, there is increased uncertainty for the patentee. First to File goes the wrong way!

Because the First to File amendment promotes hurried, incomplete, inadequate and multiple disclosures, there is increased uncertainty for the patentee. First to File goes the wrong way!

b) Recommendation: Favor Voluntary Licensing Over Litigation

The public interest is best served by bringing parties to the bargaining table as a first step. Litigation should only be a last resort. Needless to say, this is the opposite of the current system.

To encourage licensing, even after litigation against an infringer has been commenced, licensing negotiations should have privilege similar to the attorney client privilege and not be discoverable by an infringing litigant, absent a clear showing of fraud. The inventor should be able to do his own negotiations. He should be able to be his own salesperson. Once litigation has started, the inventor can know the industry, know his patents, can be the "businessman" in the equation, but the attorney, who may neither understand the industry or the patent portfolio, becomes the required licensing agent.

A legitimate licensee businessman (not the licensees attorney) often would prefer not to deal through a third party, i.e., a lawyer. However, prudence requires that inventor's personal involvement in negotiations be avoided because of ongoing litigation. The businessman licensee, interested in technology transfer, can not relate to the constraints placed on an inventor engaged in or fearful of litigation.

c) Recommendation: Encourage the Inventor To Pursue Inventing

From the time an inventor conceives of an idea, to the time the idea is operational can span several years. An invention starts out with a lot of thought and research. The question "Why hasn't someone else thought of this if it is such a good idea?" need be answered by the inventor. All the alternatives as to why it will not work need be evaluated. Financing needs to be arranged. The first physical iteration of the idea probably will not work. There is always "one more bug". The inventor entrepreneur is working on a shoestring, possibly has another job that must be maintained, and is risking all. He will not be rushing to the Patent Office as fast as the large corporation that subsequently hears of the idea, possibly because the inventor is seeking to determine if there is commercial value to his idea, a fact that may be already recognized by the large corporation because they are in the business.

If the inventor is the party to be motivated, the First to File law motivates the wrong party. In fact, it benefits the copyist. First to File benefits the party with the existing lawyerly knowledge of the patent laws and overwhelming financial resources at the expense of the inventor entrepreneur.

d) Recommendation: Favor Invention Disclosure

The First to File statute, as proposed, benefits the party that maintains trade secrets, at the expense of the inventor that has made full disclosure. Others can not build additional inventions based on a trade secret because it has not been disclosed. On a patent they can.

Note: If there is a concern for the infringer who has used the invention commercially but as a trade secret prior to the patent being issued, then that could be resolved through a mandatory license for a prior user with royalty payments.

e) Recommendation: Encourage Complete Patent Applications

The patent law should not encourage the expense or the burden to the Patent Office or the inventor of applications that will not work, are incomplete, or inoperative. Nor should the patent law encourage litigation as to which disclosure does work. The First to File law has both disadvantages. The First to File is a paperwork nightmare, and a lawyer's dream come true.

Note: A possible compromise between the First to File and the First to Invent is for the inventor to have recorded with his patent filing documents showing the conception date and the circumstance of the invention. This adds certainty to any patent issued. f) Recommendation: Establish Statutory Guidelines For Notice Letters

The specific wording of notice letters should be established by statute. My experience has been that there is uncertainty as to what is considered i) an offer to license, ii) a threat of suit for infringement, iii) the requirements needed to trigger a declaratory judgment, and iv) the requirements to stop the laches clock. The rules should be clarified by statute.

g) Recommendation: Establish Statutory Guidelines For The On Sale Bar

The statutory bar needs further definition by statute.

It needs to be recognized in interpreting the "offer for sale" language that a patent is a commercial concept. A patented idea can not be developed by the inventor entrepreneur in a commercial vacuum. A large firm can do substantial testing of an invention without ever going outside its own organization. The inventor entrepreneur must go outside his garage to find the requirements of the industry. He has to address the problems of whether there will be a market, whether it will work sufficiently well to be placed in commerce, whether the price is sufficiently low for the idea to have merit, where to obtain financing, and most important, if the invention is developed, whether a buyer can be found to enable him to continue with his endeavors.

Under the current court decisions, a patent awarded to the inventor entrepreneur would be barred because of efforts to find a partner prior to attempting to physically develop his invention. Trial balloons bar an invention unless the time from the trial balloon to filing is less that a year. Significant inventions can not be developed in a year. The On Sale Bar as to methods claims is one area where case law is particularly deficient. The law needs to accommodate the real world. The inventive process can not be isolated from the real, non-lawyer world of commerce and technology.

h) Recommendation: Restrict The Declaratory Judgment Act

The patentee must be encouraged to promote his invention as a matter of public policy. He must be encouraged to call, correspond, and visit facilities of potential licensees. He must be encouraged to communicate his patented ideas. This is a principal intent of the patent system, and anything that stands in the way of that objective is harmful to the public interest.

Currently, the Declaratory Judgment Act may be misused by large corporate infringers to defeat licensing efforts and destroy the inventor entrepreneur by burying him financially before he can gather financial strength through successful licensing. The inventor may not recover from the shock of being sued, much less retain appropriate counsel and build his financial resources in adequate time.

The Declaratory Judgment Act should be amended as to patents so that the inventor's licensing and development efforts can be protected against bad faith Declaratory Judgment suits. This could be accomplished by requiring that all facts supporting the Declaratory Judgment suit be submitted with the complaint. The defendant inventor can move for summary judgment on those facts alone, without discovery. Other alternatives to a mandatory counterclaim should be available.

If the inventor wins a patent infringement case against an infringer who started the litigation with a Declaratory Judgment suit, all awards to the inventor should automatically be doubled (This sanctions the infringer who fails to be very certain of his case before filing a Declaratory Judgment suit).

i) Recommendation: Let The Inventor Select The Forum And Opponent

Under current law, the preemptive strike of a Declaratory Judgment suit costs the inventor his right to select the forum court, and the litigant. That is a principal justification for why the priority of the inventor, as a practical matter, must be to sue first, and license second.

The Declaratory Judgment suit forces the inventor to invest in expensive due diligence analysis to support a mandatory counterclaim against a party not of his own choosing or lose his patent rights. The Declaratory Judgment plaintiff may not be the one against whom the inventor has the best case, the one that will be most determinative as to the validity of the patents, or against whom the inventor can have the largest recovery.

The inventor should be permitted to bring an infringement suit against the major beneficiary of the invention. A large corporation can be the major beneficiary of infringement, but purchase items competitively from a less lucrative manufacturer.

j) Recommendation: Ban Industry Leagues

Ganging up on a patentee should be banned. Ganging up is currently done i) through industry trade associations funding litigation, ii) having a large common supplier to an industry bringing suit, iii) consolidating litigation to include the major suppliers either through intervention or Declaratory Judgment suits thereby sharing expenses, or iv) "informal means" including sharing resources.

The ban should include situations where a larger corporation funds litigation by a small company against an inventor (particularly through a Declaratory Judgment suit). It can test the litigation waters with its toes without getting wet. If the inventor wins, the award received may not adequately compensate for the litigation costs and time involved. The large corporation is thus insulated from a large award. k) Recommendation: Harmonize International Patent Fees

The trade in international technology licensing, the "knowledge" business, is growing rapidly. American inventors patent in the United States, but can't afford international patent prosecution and maintenance. This country is giving away its technology every time an invention is published in a United States Patent, and a patent is not prosecuted internationally.

On the other hand, the international firms can prosecute patents in the United States relatively inexpensively, and thereby have preferential rights in this country.

It currently costs about $30,000 in filing fees to file a patent application in Canada, Japan, Germany and the United Kingdom. Maintenance fees are additional, and they are exorbitant - in the thousands of dollars. Further, a single invention can be divided into multiple patents, each costing $30,000.

International patent prosecution and maintenance fees should be reciprocal. If another country charges a U.S. resident $15,000 for an application and $1,000 a year for maintenance, that is the fee the U.S. Patent Office should charge residents of that country for a U.S. patent.

l) Recommendation: Apply "Good Faith" Standards Consistently

There should be the same good faith standards for both the patentee and the infringer. Currently a patentee has to maintain a high standard, and the infringer a low-to not existent standard.

For example, for an inventor to file an infringement suit, due diligence is required that reviews the file wrapper, and analyzes the infringing equipment. There must be a good faith showing of infringement. On the other hand, an infringer can file for a Declaratory Judgment without even having to review the file wrapper or having a good faith belief based on due diligence that the charges in the complaint are true. That double standard benefits the infringer.

In another example, the patentee is required to reveal to the patent office any prior art information that would invalidate his patent. The patentee can not seek to license a patent for which he believes there is invalidating prior art. Conversely, an infringer can argue that an inventor's patent is invalid because of prior art, without disclosing the prior art either to the inventor, or to the patent office. If a party knows of invalidating prior art, he should have an affirmative duty to reveal it immediately to the patentee so that the patentee will not continue to seek licensees or litigate the patent. Failure to disclose invalidating prior art by any party, particularly before engaging in litigation, should enjoy the same level of sanctions. There should not be a different standard for the patentee than for the infringer.

Section 7 Harmonization

It should be apparent that there can never be such a thing as "harmonization" as long as codified patent laws, court decisions and practices differ from country to country. This will always be the case. This "harmonization" proposal, therefore, has nothing to do with "harmonization" but is in reality tweaking a very small element in the broad picture.

The focus of the Patent Office should not be towards a major modification of the U.S. patent system to conform to a small isolated element of patent law as practiced by other nations, but rather to address the issue of how the U.S. Patent system can be made more effective and less litigious to all parties, including the foreign inventor.

The proposed amendment to the patent law has little to do with harmonization as long as other major industrialized countries maintain preferential pricing for filing and litigating patents.

As long as the inventor entrepreneur and small business can not afford to prosecute patents internationally, while foreign firms can file in the U.S. for a minimal rate, there can be no harmonization. We are promoting the loss of our technological base internationally, while maximizing the advantage of international firms in our country.

Section 8 Summary

In the introduction, I asserted that if the reader reflected on the objective of the patent law, the decision against a First to File law and in favor of the current First to Invent would be obvious. Since the following truths are beyond controversy:

a) The patent system is for the benefit of the public.

b) The objective is to motivate the inventor.

c) The inventor is best motivated if rewards are received as a direct result of his efforts (not by outside efforts, such as litigation), with a high degree of certainty to support the risk of the investment, and with financial recovery as close in time as possible to commercial exploitation.

d) Voluntary licensing is favored over litigation.

It must follow that the First to File proposal is against public policy because:

a) It increases the uncertainties for an inventor, the licensees and the infringer.

b) It promotes litigation over disclosure adequacy and, in the case of multiple filing dates, which disclosure was the first operative disclosure.

c) It encourages a race to the patent office with partial, inoperative and frivolous disclosures.

d) It favors the procedural dogma of the race to the patent office over the substantive reality of developing something that works.

e) It promotes keeping new inventions partially or wholly secret, and burying valuable inventions that challenge the state of the art.

f) It discourages invention because it creates an environment that is foreign and distasteful to the inventor and the inventive process.

A much more reasonable, non-destructive alternative is available if certainty as to the date of acquiring legally protected rights is the objective. The conception date could be disclosed at the time the application is filed. That would resolve the interference issue without litigation and without the First to File law. Section 9 Conclusion

The international patent situation is inherently not harmonious. A substantial change in U.S. patent system that is detrimental to the U.S. Patent system and public policy will not significantly make the system more harmonious.

It is the current litigious system in the United States that is out of harmony with the industrial world. That should be our first priority as to harmonization.

I have proposed several recommendations that provide improved definition, certainty and motivation for invention, research, development, and promotion of inventive ideas.

For the above reasons, logic and public policy demand that the First to Invent should be retained. The First to File proposal is the wrong alternative taking the U.S. Patent system the wrong way, and backward in time.

Peter Theis is President of Theis Research in Gurnee, IL.



info@thehooktek.com <==Click here to send EMail.

Back Page <==Click here to go to THE HOOK's Articles Page.

Page last updated 9/16/97