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Prior user rights (relative to patents) : hearing before the Subcommittee on Intellectual Property and Judicial Administration of the Committee on the Judiciary, House of Representatives, One Hundred Third Congress, second session, September 13, 1994 online

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PRIOR USER RIGHTS pLATlVE TO PATENTS)



HEARING

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY
AND JUDICL^ ADMINISTRATION

OF THE

COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

£-

SEPTEMBER 13, 1994



Serial No. 88



GOVT.

BEPOSITOI








HAMPDEN LAW LIBRARY

Printed for the use of the Committee



APR 1 2003



BC5T0N PUBLIC LIBRARY
uOI/Fmment documents depa rtment



)n the Judiciary



8&-524 CC



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046811-6



PRIOR USER RIGHTS (RELATIVE TO PATENTS)



HEAKING



BEFORE THE



SUBCOMMITTEE ON INTELLECTUAL PROPERTY
AND JUDICAL ADMINISTRATION



OF THE



COMMITTEE ON THE JUDICIAEY
HOUSE OF REPRESENTATIVES

ONE HUNDRED THIRD CONGRESS

SECOND SESSION

£-

SEPTEMBER 13, 1994



Serial No. 88



GOVT.

DEPOSITOR




MAR ? 3 K






HAMPDEN LAW LIBRARY

Printed for the use of the Committee



APR \ 2093

BClSTQN PUBLIC LIBRARY

bOVI \Wm\ DOCUMENTS DEPARTMENT



)n the Judiciary



85-524 cc



U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 1995



For sale by the U.S. Government Printing Onice
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
ISBN 0-16-046811-6



COMMITTEE ON THE JUDICIARY



JACK BROOKS,



DON EDWARDS, California
JOHN CONYERS. JR., Michigan
ROMANO L. MAZZOLI, Kentucky
WILLIAM J. HUGHES, New Jersey
MIKE SYNAR, Oklahoma
PATRICIA SCHROEDER, Colorado
DAN GLICKMAN, Kansas
BARNEY FRANK, Massachusette
CHARLES E. SCHUMER, New York
HOWARD L. BERMAN, California
RICK BOUCHER, Virginia
JOHN BRYANT, Texas
GEORGE E. SANGMEISTER, Illinois
CRAIG A. WASHINGTON, Texas
JACK REED, Rhode Island
JERROLD NADLER, New York
ROBERT C. SCOTT, Virginia
DAVID MANN, Ohio
MELVIN L. WATT, North Carolina
XAVIER BECERRA, California



Texas, Chairman
HAMILTON FISH, JR., New York
CARLOS J. MOORHEAD, California
HENRY J. HYDE, Illinois
F. JAMES SENSENBRENNER, JR.,

Wisconsin
BILL McCOLLUM, Florida
GEORGE W. GEKAS, Pennsylvania
HOWARD COBLE, North Carolina
LAMAR S. SMITH, Texas
STEVEN SCHIFF, New Mexico
JIM RAMSTAD, Minnesota
ELTON GALLEGLY, California
CHARLES T. CANADY, Florida
BOB INGLIS, South Carolina
BOB GOODLATTE, Virginia



Jonathan R. YaROWSKY, General Counsel

Robert A. Lembo, Counsel/ Administrator

Alan F. Coffey, Jr., Minority Chief Counsel



Subcommittee on Intellectual Property and Judicial Administration



WILLIAM J. HUGHES, New Jersey, Chairman

DON EDWARDS, California

JOHN CONYERS, Jr., Michigan; — '«'"

RAMANO L. MAZZOLI, Kentucl^



CARLOS J. MOORHEAD, California,^
HOWARD COBiatr^orffiTarolina' <



MIKE SYNAR, Oklahoma
BARNEY FRANK, Massachusetta
HOWARD L. BERMAN, California
JACK REED, Rhode Island i

XAVIER BECERRA, California



HAMILTON FISH, Jr., New York
F. JAMES SENSENBRENNER, Jr.,

Wisconsia
BILL McCOLLUM, Florid?
STEVEN SCHIFF, New Mexico



C^:.



Hayden W. CaiEGdRY, GoanseJ

EDWy^lD O'CONNEtL, Assistant Counsel

WlUiAM F. PatrY, Assistant Co unsel

JaRILYN Dupont, Assistant XTSVytSeT"
Thomas E. Mooney, Minority Counsel

JOS^^ V. VfottB, Minority Counsel

(II)




CONTENTS



HEARING DATE



Page

September 13, 1994 1

OPENING STATEMENT

Hughes, Hon. William J., a Representative in Congress from the State of
New Jersey, and chairman. Subcommittee on Intellectual F*roperty and
Judicial Administration 1

WITNESSES

Budinger, William D., chairman and chief executive officer, Rodel, Inc.,

Newark, DE 56

Holleyman, Robert, president. Business Software Alliance 46

Lehman, Bruce A., Assistant Secretary of Conrmierce and Commissioner of

Patents and Trademarks, U.S. Department of Commerce 5

Merges, Robert P., professor of law, Boston University School of Law, Boston,

MA 28

Moy, R. Carl, associate professor, William Mitchell College of Law, St. Paul,

MN 79

Newman, Arnold L., president, Synexus Corp., West Bethesda, MD 103

Willey, Teri F., associate director, Purdue Research Foundation, Office of

Technology Transfer, West Lafayette, IN 94

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Budinger, William D., chairman and chief executive officer, Rodel, Inc.,
Newark, DE: I*repared statement 57

HoUeyman, Robert, president. Business Software Alliance: Prepared state-
ment 48

Lehman, Bruce A., Assistant Secretary of Commerce and Commissioner of
Patents and Trademarks, U.S. Department of Commerce: Prepared state-
ment 9

Merges, Robert P., professor of law, Boston University School of Law, Boston,

MA: Prepared statement • 32

Moorhead, Carlos J., a Representative in Congress from the State of Califor-
nia: Opening statement 3

Moy, R. Carl, associate professor, William Mitchell College of Law, St. Paul,
MN: Prepared statement 83

Newman, Arnold L., president, i^ynexus Corp., West Bethesda, MD: Prepared
statement 105

Willey, Teri F., associate director, F*urdue Research Foundation, Office of
Technology Transfer, West Lafayette, IN: Prepared statement 97

APPENDIXES

Appendix 1.— H.R. 4978, a bill to amend title 35, United States Code, to
narmonize the United States patent system with foreign patent systems,
ch. 28. sec. 1, §273, 102d Cong., 2d sess 123

Appendix 2.— S. 2272, a bill to amend chapter 28 of title 35, United States
Code, to provide a defense to patent infringement based on prior use
by certain persons, and for other purposes 126

Appendix 3. - -Statement of Software Industiy Coalition 131

(III)



IV

Page

Appendix 4.— Letter from Harold C. Wegner, professor of law and director
of the Intellectual Property Law Program, National Law Center, the George
Washington University, to Hon. William J. Hughes, chairman. Subcommit-
tee on Intellectual Property and Judicial Administration, September 13,
1994 135

Appendix si—Letter from Thomas E. Snuth, section chair. Section of Intellec-
tual Property Law, American Bar Association, to Hon. William J. Hughes,

chairman, September 21, 1994 .-v V » V^' ":" ^^^

Appendix 6.— Letter from Roger S. Smith, president, Intellectual Property

Clwners, to Hon. William J. Hughes, chairman, September 23, 1994 146

Apoendix 7. — The Advisory Commission on Patent Law Reform, an excerpt

from a report to the Secretary of Commerce, August 1992 152

Appendix 8.— Duration of Patents; Maintenance Fees; Provisional Protection
of Applicant; Prior Users' Rights, an extraction fh)m the World Intellectual
ftDperty Organization, Committee of Experts on the Harmonization of Cer-
tain Provisions in Laws for the Protection of Inventions, Fourth Session,
Geneva, November 2-6, 1987, HUCE/IV/INF/2 REV., May 30, 1988 160



PRIOR USER RIGHTS (RELATIVE TO

PATENTS)



TUESDAY, SEPTEMBER 13, 1994

House of Representatives,
Subcommittee on Intellectual Property

AND Judicial Administration,
Committee on the Judiciary,

Washington, DC.

The subcommittee met, pursuant to notice, at 2:20 p.m., in room
2237, Rayburn House Office Building, Hon. William J. Hughes
(chairman of the subcommittee) presiding.

Present: Representatives William J. Hughes, Romano L. Mazzoli,
Jack Reed, Carlos J. Moorhead, and Howard Coble.

Also present: Hayden Gregory, counsel; Jarilyn Dupont, assistant
counsel; Phyllis Henderson, secretary; and Joseph Wolfe, minority
counsel.

OPENING STATEMENT OF CHAIRMAN HUGHES

Mr. Hughes. The Subcommittee on Intellectual Property and
Judicial Administration will come to order.

Good afternoon and welcome to today's subcommittee hearing.
Today we are hearing testimony on an issue that has significant
implications for patent owners and American industiy. Prior user
rights is not a new issue, having been previously considered by the
subcommittee during the 102d Congress in the context of patent
harmonization.

Where the patent laws of a country recognize what we call prior
user rights, someone who has made and put into use an invention
may continue to make and use that invention, even though that
person did not obtain a patent and even though, later, someone
else did patent that product or process.

Most foreign countries recognize some form of prior user rights.
The United States does not,vat least not directly. Because the rec-
ognition of such rights provides additional protection for domestic
industry against foreign patent owners, U.S. industry is, it is ar-
gued, at a competitive disadvantage.

Under our laws, prior use does have legal consequences, but not
in the sense of creating affirmative rights. Use prior to another's
invention can have the effect of defeating the other person's ability
to obtain a patent. However, such use must be an open and public
use. U.S. inventors who have relied upon trade secret protection
are finding that their inventions are being patented by foreign com-
petitors, not only in foreign countries but in the United States as
well.

(1)



Prior user rights, as evidenced by past debates, is not a simple
issue nor one that lacks controversy. The arguments on both sides
are compelling and deserve a full review by this committee. The re-
view involves not just whether there should be additional protec-
tion of domestic industry but a policy debate about the scope of
rights for patent owners and the potential impact on American pat-
ent owners.

The questions raised become more critical in light of the past
practices of certain industries that could not obtain patent protec-
tion for its products because of the state of our law at the time.
This is particularly true of the domestic software industry, one of
the strongest in the world. Unable to patent, other means oi protec-
tion were utilized. Whether this protection still suffices and pre-
vents encroachment of product rights is an issue to resolve.

U.S. domestic industry should not be put at a competitive dis-
advantage to foreign industry. We need to review our policy to de-
termine if our industry is not on an equal footing with forei^ com-
petitors. If it is not, we then need to determine me best policy that
will address the inequity. I believe this oversight hearing will an-
swer many of these questions and it promises to be a very interest-
ing hearing.

The Chair recognizes the gentleman from North Carolina, the
distinguished ranking Republican on this subcommittee.

Mr. Coble. Thank you, Mr. Chairman. I have no opening state-
ment but I would like to submit for the record the statement of Mr.
Moorhead, the gentleman from California.

Mr. Hughes. Without objection, it shall be received.

[The opening statement of Mr. Moorhead follows:]



OPENING STATEMENT OF THE HONORABLE

CARLOS J. MOORHEAD

ON PRIOR USER RIGHTS

SEPTEMBER 13. 1994



Thank you Mr. Chairman. I would like to take this

OPPORTUNITY TO COMMEND OUR LEADOFF WITNESS THIS
AFTERNOON THE COMMISSIONER OF PATENTS, FOR HIS
LEADERSHIP AND THE GOOD JOB HE IS DOING IN THAT

OFFICE. Although I believe our patent system is the

BEST IN THE WORLD AND IT HAS PLAYED AN IMPORTANT ROLE
IN MAKING THIS COUNTRY WHAT IT IS TODAY, OUR SYSTEM IS
NOT PERFECT AND WE MUST CONTINUOUSLY MAKE ADJUSTMENTS
TO THIS SYSTEM IN ORDER TO KEEP ON TOP OF AN EVER
CHANGING WORLD. I BELIEVE THE COMMISSIONER IS DOING
THIS BY MAKING US FOCUS ON SOME NEW IDEAS THAT COULD
SUBSTANTIALLY IMPROVE OUR PATENT SYSTEM. PRIOR USE
RIGHTS MAY BE ONE OF THESE IDEAS.

I WOULD LIKE TO COMMEND OUR CHAIRMAN, MY GOOD
FRIEND FROM NeW JeRSEY FOR SCHEDULING THESE HEARINGS
ON THIS IMPORTANT ISSU^ EVEN THOUGH IT's LATE IN THE

SESSION. Last Congress, he and I introduced H.R.



2

4978, THE SO-CALLED ''HARMONIZATION BlLL^, NOT BECAUSE
WE WERE PROMOTING OR EVEN SUPPORTING ANY OF THE IDEAS
CONTAINED THEREIN, BUT RATHER WE FELT THAT IT IS
IMPORTANT TO DISCUSS AND DEBATE POSSIBLE IMPROVEMENTS
IN OUR PATENT SYSTEM. I MIGHT ADD THAT THE
COMMISSIONER HAS AGAIN TAKEN THE LEAD IN THIS
DIFFICULT AND CONTROVERSIAL AREA AND HAS HELD HEARINGS
AT DIFFERENT PLACES IN THE COUNTRY. ThIS MAY BE
UNPRECEDENTED AT THE PATENT OFFICE.

The bill the Chairman and I introduced last
Congress did contain a section establishing a prior

user right and I AM LOOKING FORWARD TO HEARING
TESTIMONY ON THIS ISSUE.

Thank you Mr. Chairman.



Mr. Hughes. The gentleman from Kentucky has left us.

Our first witness is Bruce Lehman, Assistant Secretary of Com-
merce and the Commissioner of Patents and Trademarks since
August 1993.

Prior to his confirmation, Bruce Lehman was a partner in the
law firm of Swidler & Berlin. In that capacity, he represented a
number of clients in matters involving intellectual property law is-
sues and worked closely with the subcommittee. He also served as
chief counsel to this subcommittee for about 9 years.

He served as a member of the Advisory Committee on Intellec-
tual ProperW at the U.S. Department of State and has been a
member of tne U.S. delegations to diplomatic meetings and con-
ferences in the field of intellectual property. Mr. Lehman graduated
from the University of Wisconsin in 1967 and from the University
of Wisconsin School of Law in 1970.

Bruce, we welcome you here today to the subcommittee. You are
no stranger to the committee. We have your written statement and
without objection, it will be made a part of the record in full. We
hope you will summarize, but you may proceed as you see fit. Wel-
come.

STATEMENT OF BRUCE A. LEHMAN, ASSISTANT SECRETARY
OF COMMERCE AND COMMISSIONER OF PATENTS AND
TRADEMARKS, U.S. DEPARTMENT OF COMMERCE

Mr. Lehman. Thank you very much, Mr. Chairman. It is always
a pleasure to be back here, and I would like to shorten my state-
ment considerably, if that is OK, and present the full statement for
the record.

We are really here today to talk about a patent system that ben-
efits American industry. That is really the purpose of it. The pur-
pose, our purpose is to talk about equity in the patent system. And
I think because of that, it is important when we are speaking of
prior user rights to focus on the fact that what we are talking
about is a defense to a charge of patent infringement. So a prior
user right is more a defense than a right.

If asserted successfully, the prior user defense would enable a
prior user to continue use of an invention despite the fact that an-
other holds a patent covering that invention. And generally speak-
ing a prior user defense would only be available to a party who
commercializes or makes a significant effort to commercialize, but
has not patented the invention that is independently developed and
subsequently patented by another.

And it is important to understand what we are dealing with here
is a situation where you have come up with the technology your-
self, have not filed for a patent, and then someone later comes up
with the same thing and then patents the invention. Under the leg-
islation we are talking about today, you would have a defense
against infringement from that party.

Success in today's highly competitive manufacturing industries
depend, to a large degree, on not simply whether but how one pro-
duces products. And so informal innovations are developed and im-
plemented on the factory floor all of the time that can play a sig-
nificant role in determining the success of an individual business.
In today's competitive world, this is happening every day on the



factory shop floor, and these informal innovations are often rel-
atively simple incremental improvements of existing products or
processes. For example, slightly changed reactions m a chemical
manufacturing process.

Despite their stature, these advances oftentimes can provide a
company with an identifiable commercial advantage over competi-
tors and when this happens this presents a dilemma for companies
that manufacture products in the United States, particularly small-
and medium-sized manufacturers that do not have big staffs of
lawyers to help them out.

It is simply not feasible for those companies to patent every sin-
gle innovation as it comes along. Keeping in mind that sometimes
this is a question of whether an innovation is patentable in the
first place. This can require a 100-page legal brief. And a lot of our
small businesses and medium-sized companies just do not have
those resources.

So in many cases a company may be uncertain as to whether the
invention will meet the statutory requirements of patentability.
And even if they decided to spend a lot of money, they may con-
clude as a matter of business judgment that it is not, the patent
is not a cost-effective mechanism for protecting this particular in-
novation or this particular invention, particularly where, as is com-
mon for informal inventions in the area of manufacturing proc-
esses, it can be difficult to discover and prove infringement.

Any of these considerations can lead a company to quite a rea-
sonable and commercially sound decision not to seek patent protec-
tion on a particular invention, and yet such a decision under our
current patent system can expose that company to a significant
risk if the invention is later developed and patented by another
person. Remember, later developed and patented by another per-
son.

Our patent laws were not designed to force American companies
to seek patent protection for every invention that they develop, and
that is an important point for us to focus on. You know, the pur-
pose of the patent system, in fact, is not even necessarily to pro-
mote patenting, it is to promote progress in the science and useful
arts. It is to stimulate innovation. So if that innovation can be
stimulated or is stimulated even without patenting, we are still
successful. We have still achieved our purpose and in some cases
it might even be better rather than having to siphon off valuable
resources to legal costs and other things.

So the patent system is really one facet of a larger system that
is designed to encourage not only technological innovation but also
the realization of the benefits of innovation, which ultimately are
new products and services delivered into our marketplace.

In many cases the commercially sound strategy for a manufac-
turer is to forgo patent protection, and then perhaps rely on trade
secrecy to protect the invention. This, however, opens the door to
a later inventor who may independently develop and patent the in-
vention, who maybe made a different decision about patenting.
This can have serious consequences for the party that opted out of
the patent system.

We have concluded, aft^r studying this bill, that the larger goal
of realizing the benefits of innovation and encouraging people to



make that constant innovation on the factory floor without running
up to the General Counsel's Office every 5 minutes is best served
by policies that provide American companies with maximum flexi-
bility in developing commercially sound strategies for managing in-
novation.

There really are three good reasons for this prior user defense,
and I would just like to summarize those and then open myself up
to questions, if it is OK with you, Mr. Chairman.

The first is that the prior user defense will help parties more
fairly and efficiently resolve disputes that can arise when one party
uses an innovation that is later patented by another. Successful as-
sertion of a prior user defense will not invalidate the patent and
can be based on a more objective evidentiary showing than is need-
ed to invalidate a patent under the current law because of prior in-
vention.

Second, a prior user defense will eliminate the disparate treat-
ment of American and foreign manufacturers that you referred to
in vour opening statement.

And, finally, a prior user defense could help resolve concerns that
have been expressed in the soft^ware industry, which you also re-
ferred to in your opening statement, regarding prior use of poorly
documented techniques that are later patented by another. And
this particular subject matter is one that, when it was first pre-
sented to me, I have to tell you, I had some questions about, but
the more I thought about it, the more I realized that there was
great merit in this proposal.

One of the things tnat helped me in making that decision was
that we have tried to be innovative in our own Office. We have
been going out and having extensive hearings and talking to mem-
bers of the public, people that use our Office, because we do not
have to be guided by the bells and business on the House floor, of
course. We can sit there all day and we do not have to limit the
number of witnesses. And so anybody that wants to come and talk
to us can. A little like the city councils or State legislatures, where
you sort of sit there all night.

And we have done that. We have had extensive hearings in a
number of different industries and one was in the sofl:ware indus-
try. We went out to California, and over and over again we heard
this refrain, that people in the software industry do not want to
have to, "call up legal before they can enter key strokes on to their
computer." And a lot of that^ concern was driven by the fact that
there just might be some patent out there or that somehow or other
is going to come bite them in the rear.

And, really, that is what the prior user defense is all about. It
enables people to engage in their business and if they make a deci-
sion not to patent, and then later on some independent inventor
comes along, and we are generally not going to be speaking about
the breakthrough inventions or anything like that, at least they
have a right to continue to use that technology.

Now, that right is not going to be able to be transferable to some-
body else, unless of course you transfer the assets of the whole
company. But at least they are not going to be tied down by exten-
sive litigation. That innovative process that occurs on a day-to-day
basis is not going to be chilled by legal, as we were told that it



8

sometimes is, when we were out in California. And I think that the
innovative process in America is going to be better off for it.

And keep in mind that the purpose of the patent system is really
so that people can get a patent document from our Office that they
can take to the bank to get financing, to get stock equity, and so
on that is going to enable them to do business.

Sometimes for particularly minor inventions it is not necessary
to go through all of that. You do not need that incentive. And so
if tne patent system is too hard on these people and too strict you
may actually have the effect of depressing innovation rather than
encouraging this kind of incremental innovation on the line, on the
factory floor that really the patent system is all about.

So that briefly summarizes, Mr. Chairman, why we have come to
the conclusion that we recommend the enactment of prior user leg-
islation.

Mr. Hughes. Thank you, Bruce.

[The prepared statement of Mr. Lehman follows:]



STATEMENT OF BRUCE A. LEHMAN

ASSISTANT SECRETARY OF COMMERCE

AND

COMMISSIONER OF PATENTS AND TRADEMARKS

BEFORE THE

SUBCOMMITTEE ON INTELLECTUAL PROPERTY

AND JUDICIAL ADMINISTRATION

OF THE

COMMTITEE ON THE JUDICL\RY

UNITED STATES HOUSE OF REPRESENTATIVES

SEPTEMBER 13, 1994

Mr. Chairman and Members of the Subcommittee:

I am pleased to appear today to testify in support of the concept of prior user rights.
Let me begin by noting that "prior user rights" is not a wholly accurate phrase. What
we are really speaking of when we refer to a prior user right is a defense to a charge of
patent infringement. If asserted successfully, the "prior use" defense would enable a
prior user to continue to use an invention despite the fact that another holds a patent
covering that invention. And, generally speaking, a prior use defense would be
available only to a party who commercializes or makes a significant effort to
commercialize, but does not patent, an invention that is independently developed and
subsequently patented by another.

Success in today's highly competitive -manufacturing industries depends to a large
degree on not simply whether, but how one produces one's products. "Informal"
innovations developed and implemehted on the factory floor can play a significant
role in determining this success. These informal irmovations are often relatively



10



-2



simple, incremental improvements of existing products or processes - for example,
slightly changed reaction conditions in a chemical manufacturing process. Despite
their stature, these advances can provide a company with an identifiable commercial
advantage over its competitors.


1 3 4 5 6 7 8 9 10 11 12 13 14 15

Online LibraryUnited States. Congress. House. Committee on the JPrior user rights (relative to patents) : hearing before the Subcommittee on Intellectual Property and Judicial Administration of the Committee on the Judiciary, House of Representatives, One Hundred Third Congress, second session, September 13, 1994 → online text (page 1 of 15)