TESTIMONY of
Mr. Mark Kesslen
Managing Director and Associate General Counsel
J.P. Morgan Chase & Co.
“Patent Quality Improvement”
Before the
House Judiciary Committee
Subcommittee on Courts, the Internet, and Intellectual Property
2138 Rayburn House Office Building
July 24, 2003
10:00 a.m.
Chairman Smith, Ranking Member Berman and members of the Subcommittee, my name is Mark Kesslen and I am the lead intellectual property and technology attorney at J.P. Morgan Chase in New York. I am pleased to testify today on behalf of The Financial Services Roundtable and BITS, which are affiliated financial services trade associations.
The Financial Services Roundtable (www.fsround.org) represents 100 of the largest diversified financial services companies providing banking, insurance, and investment products and services to American businesses and consumers. Member companies participate through their chief executive officer and other senior executives nominated by the CEO. Roundtable member companies account directly million jobs.
BITS (www.bitsinfo.org) was created in 1996 to foster the growth and development of electronic financial services and e-commerce for the benefit of financial institutions and their customers. BITS provides intellectual capital and addresses emerging issues where financial services, technology and commerce intersect. BITS's Board of Directors is made up of the Chairmen and CEOs of twenty of the largest U.S. financial services companies, as well as representatives of the American Bankers Association and the Independent Community Bankers of America.
I was pleased to accept your invitation to testify as the current chairman of the Roundtable Patent and Intellectual Property Working Group and the BITS Patent Issues Working Group (the Working Group).
Mr. Chairman, patent attorneys in financial institutions are a well-kept secret. We work quietly behind the scenes to protect our companies’ individual intellectual capital from assault. In recent years, we have been kept busy fighting frivolous patent claims - often at significant expense to our companies - and we are concerned that this is a problem that is not going to go away unless Congress does something about it.
For this reason, our Working Group is grateful for this hearing and the opportunity to comment on steps that should be taken to modernize the patent laws.
Banks, broker-dealers and insurance companies, like other businesses in the United States, are threatened by a large and growing number of frivolous claims of patent infringement. Pending claims of infringement are a serious problem, but they are only the tip of the iceberg. Patent applications that involve financial services in some way have been filed in large numbers since 1997. Because it takes at least four years to get applications for patents of this type processed through the USPTO, the number of these patents now being issued is growing. We believe that this will lead to an increasing number of frivolous claims filed against financial firms in coming years.
There are steps that Congress can and should take to provide financial firms and other businesses additional safeguards against these frivolous claims, without impairing the important protections afforded to intellectual property under the patent law. We recommend four initial measures, which are discussed below:
· Improve the prior user rights defense;
· Modify the standard for injunctive relief;
· Clarify the damages rules; and
· Create an opposition proceeding.
I would like to provide you some additional detail regarding each of these measures.
Improve the Prior User Rights Defense
We believe that the prior user rights defense under 35 U.S.C. 273 is an important protection for financial institutions especially due to the recent growth in patent litigation. But in its current form, the prior user rights defense does not go far enough. It is too easy for a patent owner to circumvent the defense by claiming their invention is different from a pre-existing business method because it is, instead, a system or apparatus. The prior user rights defense should be modified to apply equally to any products or services covered by a patent. We also believe the level of proof required to successfully assert the prior user rights defense should be reduced from the “clear and convincing” standard to a “preponderance of the evidence” standard.
Modify the Standard for Injunctive Relief
In many countries, including Canada and most European countries, injunctive relief is not available for paper patents that have not been worked. That is, if the owner of a patent does not use the patent within a specified period of time, the owner loses the ability to obtain injunctive relief. This is appropriate because the patent law is intended to encourage and reward inventors and innovators by ensuring they receive the fruits of their efforts. It is not intended to enable them to prevent the use of new ideas by anyone at all.
We believe a better and more equitable approach is to allow courts to grant an injunction on a patent only if the patentee is likely to suffer immediate and irreparable harm that cannot be remedied by the payment of money damages alone. If an inventor can demonstrate a likelihood of irreparable harm, injunctive relief ought to be available. But if that isn’t the case, then for the good of society, they should not be allowed to stand in the way of utilization of their invention. Of course, the inventor should be entitled to license fees and thus be rewarded for their efforts. The result will be the payment of reasonable royalties, rather than disproportionately costly settlements in the face of threatened injunctive relief.
Clarify the Damages Rules
We believe that the patent law is subject to abuse by patent holders who go fishing for infringers. This is sometimes referred to as the “37-cent notice” issue. By simply sending a letter, at the cost of nothing more than a 37-cent stamp, a patent holder can set in motion a very costly process for the alleged infringer. The recipient of the letter has to undertake an investigation, incurring the cost of personnel time and legal counsel, both of which can be substantial. Failure to conduct the necessary due diligence could later subject the alleged infringer to treble damages. The accusing patent holder incurs no risk or cost, other than the cost of a stamp.
We believe that the patent law should be modified to provide that enhanced patent infringement damages may not be awarded: (1) on the basis of the mere knowledge of a patent or its contents by the defendant prior to suit, or (2) for any infringement occurring prior to the defendant’s receipt of written notice from the plaintiff of a charge of infringement, which identifies the specific patent, claims, and alleged infringing products or services at issue and which is sufficient to give the defendant an objectively reasonable apprehension of suit on the patent. Notwithstanding those limits, we believe that a patent infringer should be subject to payment of enhanced damages if: (a) the infringer deliberately copied the patented subject matter; or (b) the patent was asserted against the infringer in a previous U.S. judicial proceeding, and the subsequent infringement is not more than colorably different from the conduct asserted to be infringing in the previous proceeding.
We also believe that the current marking statute inappropriately measures damages that can be awarded to holders of paper patents under which no articles are manufactured or patents possessing only method claims. The holders of these patents whether or not the infringer knew of the existence of the patent may sue an alleged infringer and collect the full base amount of monetary damages. By contrast, the holder of a product patent may be denied monetary damages for infringement occurring prior to the lawsuit, if the product had not been marked. It would be fair and appropriate to treat holders of patents covering intangibles in a similar manner by starting the clock for actual damages for paper and process patents based upon the same standard as enhanced damages set forth above.
Create an Opposition Proceeding
The USPTO has proposed a post-grant review of patent claims in their 21st Century Strategic Plan that was released in 2002. We strongly support this concept. The procedure, as proposed, would allow the public to petition the USPTO to cancel one or more claims in a patent within one year of issuance, and would allow anyone who is threatened with a patent infringement action to petition the USPTO for review within four months. Under this proposed procedure, the patentability of issued claims would be reviewed by Administrative Patent Judges of the Board of Appeals of the USPTO. To be fair, we believe these proceedings should include a readily available, reasonably prompt and cost effective way to determine patentability without imposing unreasonable burdens on patentees. This procedure would enable companies to manage the risk of claims against them based on bad patents, without incurring the high cost of litigation or facing the need to settle to avoid that cost.
Conclusion
BITS and The Financial Services Roundtable are strong believers in the US patent process as fundamental to a healthy US economy and robust free enterprise system. With increases in both patent requests and claims of infringement, there is a need for Congressional debate and frank discussion with members of the financial services industry and the patent community at large. Given the importance of the patent process, the USPTO should be fully funded and given adequate resources to perform its duties. Current efforts to craft legislation are to be commended, especially where the focus is on improvements to the patent process. Concepts such as opposition proceedings and reexamination improvements are constructive. Because of increases in frivolous claims of patent infringement, consideration should also be given to appropriate defenses and other tools for litigation risk management. Among those we recommend for consideration and implementation are: modifying the prior user rights defense; modifying the standard for injunctive relief; and addressing the notice issue. Numerous other improvements of the patent process can be imagined and the financial services industry will continue to make suggestions along with other businesses that are more traditional participants in the patent process.