Mr. Chairman and Members of the Subcommittee:

Good afternoon. I appreciate this opportunity to speak to you today.

My name is Kina Lamblin and I am Vice President and General Counsel of VISX, Incorporated. VISX is a worldwide leader in the development of refractive laser technology used to correct nearsightedness, farsightedness and astigmatism. The founders of our company invented laser vision correction. Our shareholders invested more than $100 million dollars to conduct research, development and clinical safety and efficacy studies to ensure that this breakthrough technology would be made available to people everywhere. As the inventor of laser vision correction with a tremendous investment in the industry, VISX continues to create improvements in all aspects of the procedure. As a result, we hold more than 50 United States patents and have 48 patent applications pending in the United States Patent and Trademark Office (the "USPTO").

I would like to present three matters for your consideration today. The first is the importance of allowing the USPTO to use all filing fees paid by patent applicants to hire, train and retain a sufficient number of patent examiners to process patent applications within a reasonable amount of time. The second is a proposal to allow appeals of Federal Trade Commission decisions involving patents to be heard by the United States Court of Appeals for the Federal Circuit. The third is the disturbing trend in recent decisions of the U.S. International Trade Commission against holders of United States patents and the effect of those decisions on the competitiveness of U.S. companies in the global marketplace.

As general counsel to a company that interacts regularly with the USPTO, I have observed extensive delays at each step of the patenting process. In view of the expected level of funding, the USPTO business plan predicts that the average pendency of patent applications of 25 months in fiscal year 2000 will increase to approximately 32 months by fiscal year 2005. Given the importance of intellectual property to U.S. inventors and technology companies, this is an alarming trend. I strongly urge Congress to ensure that the USPTO be able to maintain or, even better, decrease the average pendency of patent applications. Providing adequate funding to this organization is the crucial first step in achieving this goal. With adequate funding, the USPTO will have the opportunity to attract, train and retain additional qualified patent examiners. Also, computerization of the prosecution process, if properly funded, promises to significantly decrease pendency, increase accuracy, and provide better and more timely access to USPTO documents such as file histories.

Of the 10 patents that were issued to VISX in 1998 and 1999, the average time between filing and issuance was 30 months or 2½ years. This is five months longer that the average pendency publicized on the USPTO website, but whether it is 25 months or 30 months, greater than two years is a very long time for inventors and U.S. companies to wait to receive patent protection for their inventions, the very inventions that are driving the unprecedented strength of our economy.

The fact is that many patents take much longer to prosecute. For example, one of the 10 patents issued to VISX in 1998 and 1999 had been pending for 52 months. We have encountered frequent delays of more than one year after responding to USPTO actions. For example, last month we received an office action two years after submitting a response in one pending patent application.

Patent reexaminations provide another illustration. When Congress authorized the reexamination of patents in 1980 it specified that "all reexamination procedures under this section . . . will be conducted with special dispatch within the [Patent and Trademark] Office." 35 U.S.C. Section 305. One important VISX patent has been in reexamination for 26 months as of today. After the reexamination was declared, more than one year passed before even the first office action was issued by the USPTO. While waiting for over two years for the completion of this reexamination, VISX has effectively been deprived of the use of a valuable patent asset.

A working patent system is fundamental to United States innovation and technological leadership. Without it, there is little incentive to make the enormous investments needed to bring exciting new technologies to market, especially those medical technologies that require extensive safety and efficacy clinical trials for FDA approval. I understand that hundreds of millions of dollars have been taken from the USPTO’s revenues to fund other government programs. I urge you to ensure that the USPTO be allowed to use all of the patent prosecution and maintenance fees paid by inventors and companies to fund important improvements in its operations, namely, (a) attracting, training and retaining additional qualified patent examiners so that more time can be devoted to processing each patent application with less delay due to severe backlogs, and (b) implementing and supporting a properly funded "paperless" patent prosecution system.

In March 1998 the Federal Trade Commission ("FTC) filed an action against VISX challenging the enforceability of certain VISX patents. The FTC focussed on one patent that was at the same time the subject of a reexamination proceeding in the USPTO. While this struck us as a wasteful duplication of scarce government resources, as well as a tremendous burden for an emerging growth company, we had no choice but to defend out intellectual property against the claims of the FTC.

After an extensive investigation and a six-week trial, in June 1999 the FTC’s administrative law judge issued an order dismissing the FTC’s complaint against VISX. Notwithstanding the judge’s thorough 145-page opinion ruling in VISX’s favor, the FTC staff attorneys elected to appeal the decision to the full Commission.

Under present law, a respondent cannot appeal a cease and desist order of the FTC to the United States Court of Appeals for the Federal Circuit, even if the order is based on patent law issues that are governed by Federal Circuit law.

Congress created the Federal Circuit in 1982 to eliminate uncertainty in patent law that developed through inconsistent decisions from the regional courts of appeals. In the years prior to the creation of the Federal Circuit, inconsistencies in patent law made it difficult for businesses to assess the value of patents. The effect, Congress found, was to chill innovation and investment in technology, with consequent adverse effects for the economy as a whole.

Congress’ solution to this problem was to establish a new court of appeals with jurisdiction over all patent appeals to create greater uniformity in patent law. In furtherance of its role in achieving uniformity in patent law, the Federal Circuit has determined that the law of the Federal Circuit controls the determination of hybrid issues of patent law and non-patent law.

Matters currently pending before the FTC include cases that fall squarely within the scope of what the Federal Circuit has determined are controlled by Federal Circuit law. Absent a change in the avenues for judicial review of FTC orders, however, the Federal Circuit is virtually the only federal court of appeals to which the appeal cannot be taken. This anomalous result easily can be avoided by amending the Federal Circuit’s jurisdictional statute (28 U.S.C. §1295) to allow an appeal to the Federal Circuit from orders containing findings of fact or conclusions of law that raise a substantial question of patent law.

I propose that the following language be added to the statute that describes the jurisdiction of the Federal Circuit (28 U.S.C. §1295):

(d) Any person, partnership, or corporation required by an order of the Federal Trade Commission to cease and desist from using any method of competition or act or practice may obtain a review of such order in the Court of Appeals for the Federal Circuit if any factual findings or conclusions of law supporting the order raise a substantial issue of patent law, by filing in the Court of Appeals, within sixty days from the date of the service of such order, a written petition praying that the order of the Federal Trade Commission be set aside.

This change would neither enlarge nor diminish the power or jurisdiction of the FTC. At the same time, it retains the discretion that parties currently have to select a regional forum if they determine that it is appropriate.

Because the FTC has not issued an order based on issues of patent law since the creation of the Federal Circuit in 1982, Congress has not previously had the opportunity to address this issue. Now, however, the issue is a timely one. Not only is there a case currently pending before the FTC that raises patent issues falling within the unique expertise of Federal Circuit, but the FTC has announced its intention to focus significant agency resources on competition issues relating to the enforcement of intellectual property. The problem is therefore likely to be a recurring one, absent appropriate legislative action.

The third and final matter I wish to bring to your attention is the recent trend in International Trade Commission (ITC) decisions in patent cases and the effect those decisions may have on U.S. intellectual property and technology-intensive industries.

Under Section 337 of the Tariff Act of 1930 (as amended), Congress defined as an unlawful trade practice the importation of products that infringe U.S. patents. Congress entrusted the ITC with the authority to enforce this law by barring the importation of infringing foreign products. Given the importance of intellectual property to the U.S. economy, it is essential that the Commission give a full and fair hearing to complaints against importation of foreign products that are alleged to infringe U.S. patent rights.

Since 1998, U.S. patent holders have encountered an alarming trend of unfavorable results when petitioning the ITC to stop importation of infringing foreign products. From 1995 to 1997, the ITC found infringement of a valid U.S. patent in 70% of its decisions. In contrast, in 1998 and 1999, infringement was found in only 20% of ITC cases. In the remaining 80% of cases, many U.S. patent holders seeking protection have had their patents found invalid and unenforceable by the ITC’s administrative law judges (ALJs).

While each case involves its own facts, this trend is all the more alarming given that review of the ALJ decisions by the full Commission is discretionary and is not granted in the large majority of cases. The recent trend in ITC decisions is cause for concern regarding possible errors made by individual ALJs who do not have the technical or patent law training or experience to make complex patent infringement and validity decisions. Any such errors will have an enormous effect on U.S. intellectual property rights and growth industries.

Again, VISX’s experience is illustrative. In January 1999, the ITC initiated an investigation of the importation and sale by Nidek Co. Ltd. of Japan of excimer laser systems used for laser vision correction on the basis that those activities infringed certain VISX patents. A hearing was held in August and the ALJ rendered an Initial Determination in December in which she construed the patents so narrowly that she not only found that Nidek had not infringed them, but also that VISX’s own laser system did not come within the scope of their claims. She went further to rule that one of the founders of VISX was not the sole inventor of his patent and that, for that reason, the patent was not valid or enforceable. The day after the Initial Determination was issued, December 7, the value of VISX’s stock fell more than 40% (nearly $2.5 billion dollars) and has continued to decline since then.

On Monday of this week, the Commission issued a Notice that it had adopted portions of the ALJ’s Initial Determination, ruling that the Nidek laser system does not infringe the VISX patent at issue and that VISX itself does not practice the patent. With regard to the validity and enforceability of the patent (including the inventorship issue), the Commission did not affirm the Initial Determination, but instead took no position.

With this decision in the VISX case, the Commission has continued a record of deferring to its ALJs in their findings of no violation of Section 337 of the Tariff Act (that is, rulings against U.S. patent holders in favor of importers of foreign products). As an interesting point of comparison, since its creation in 1982 through 1998 the Federal Circuit has reversed rulings that favored defendants in patent cases approximately 25% of the time, finding that despite a lower court’s ruling to the contrary, infringement of a valid patent had in fact occurred.

Given the enormous degree of deference shown to its ALJs by the ITC, it is critically important that ALJs who hear Section 337 cases have the background necessary to make proper judgments regarding the complex legal and technical issues of patent infringement and validity. I ask that the Commission amend the law governing the appointment of ALJs to the ITC to require that those judges who will preside over Section 337 cases have significant training and experience in patent law.

Thank you for your consideration of these matters that I believe are of critical importance to continued U.S. innovation and technological leadership.