Riley & Associates, Inc. 1323 West Cook Road - Grand Blanc, Michigan 48439 Phone (810) 655-8830 - Fax (810) 655-8832 Internet rjriley@sun.tir.com 9-16-95. Stephen G. Kunin Deputy Assistant Commissioner for Patent Policy and, Projects Washington, DC 20231 (703) 305-8850 Fax (703) 305-8825 Subject: The following is my testimony concerning HR.1659 The Patent and Trademark Office is asking to have it's status changed to a corporation. I have serious reservations about this. PTO upper management has consistently operated against the interests of independent and small business inventors for a number of years. The PTO and their allies have systematically attempted to keep persons who oppose their agenda from participating in the democratic process by severely limiting the number of persons who are allowed to give oral testimony. They have used every bureaucratic trick possible to accomplish this including scheduling some hearings with only one weeks notice. Our PTO has systematically slandered several of our countries most prolific inventors in an attempt to shift blame for their failure to prosecute all patents in a reasonable time frame. The PTO's claims that these inventors intentionally delay their patents to create "Submarine patents" have not been backed with proof. In America a person is innocent until proven guilty but PTO management has intentionally tarnished a number of inventors reputations with out presenting any credible evidence to back up those claims. Many inventors and patent attorneys have been intimidated against speaking out against the PTO by the threat of delays in patent actions or other retaliation. The words: abuses have been perpetuated by the PTO and none of the proposed changes address the PTO's abuses. The PTO is a bureaucracy whose upper management is willing to compromise the source of our prosperity to cover-up it's own failures, justify burdensome fees to increase its size and budget, and to give it more power over its clients. I believe that the upper management of our PTO has systematically and intentionally misled Congress us to the causes and nature of problem in our patent system. It appears that some PTO management have lied in both their testimony and in routine contacts with both the media and Congress. Making the PTO a Private corporation will lead to even less accountability then we have now. I urge that Congress not compound existing problems by changing the status Of our Patent and Trademark Office. Further, I hope that Congress will investigate the problems and make changes in PTO management to stop our patent system from being dismantled. I am attaching an article that examines in moderate detail the practical implications of changes that are being advocated by those who want to copy inventions without compensating the inventor. They are for capitalism when they are selling products but feel inventors work should be socialized. If we allow that to happen independent innovation will cease in America. Please consider that America's prosperity has been driven by innovation. Our culture is unique in that it produces more independent thinkers and inventors then any other country. American innovation is no different than other natural resources such as minerals or oil, we must preserve Innovations benefits for the benefit of our citizens. Sincerely, Ronald J. Riley President PATENT & TRADEMARK OFFICE AND MULTINATIONALS HAVE SIMILAR GOALS AMERICAN PATENT SYSTEM ABOUT TO BE CRIPPLED As an inventor, I must speak out about multi-pronged attacks against our patent system by foreign paid lobbyists and multinational corporations. Americas founding fathers recognized that innovation is crucial to a free enterprise system. Foreign governments and multinational corporations have found allies in Patent and Trademark Office, both are spending large sums of money to change American patent law. Japan is one of the leaders but by no means is it the only foreign government trying to influence our lawmakers to make changes that are not in America's best interest. It is important that we not compromise our country's prosperity by allowing foreign interests to weaken our patent laws. A bargain was made during the "Mutual Understanding" of January 1994 between the US and Japan to make a number of changes to our patent system. Some of those changes have been buried in GATT. This deal is a result of a trade with Japanese negotiators who offered the right to file American patents in English and a limited right to correct translation errors in exchange for the 20 year from date of filing language. Results of deals with Japan over many years should have taught the United States that we never get what we bargained for. I see no benefit for Americans in this deal. Most American invcntors can not afford to file foreign patents. American inventors who do file foreign patents find that it is almost impossible to enforce them. Jack Kilby is one recent example of Japan's unfair treatment of American inventors. He invented the monolithic integrated circuit The Japanese patent office held up the issuance of his patent for 29 years and after its release Japanese courts ruled that the patent does not apply to current chip design. The Japanese have been studying America's educational system for years attempting to understand what makes Americans so much more creative than the Japanese. American's make many breakthrough inventions. Japanese inventions are usually incremental or small improvements in existing technology. Japan has demonstrated the ability to successfidly commercialize concepts that the U.S. and other western cultures create with breakthrough inventions. So, their solution to the problem is to weaken our patent laws so they can take advantage of our creativity. There is a concerted attempt to weaken US patents by multinational companies and by foreign governments. The Japanese are especially active in this attack. A recent article in Japan Times Weekly tilted. "Intellectual property rights accord with U.S. said necessary" made it clear that changes to the U.S. patent system are important to "facilitate transfers of technology and related investments from advanced economics to the Asian nations, which would help their economic dcvelopment". The 20 year change that has been hidden in GATT enabling legislation is very detrimental to small business and individual inventors. There may also be other harmful provisions In GATT-TRIPS that have escaped notice. The document is over thirty pages. CHANUES UNDER GATT Change of patent law from 17 years from date of issuance to 20 years from date of filing. The net effect of this change is to shorten the usable life of a patent. That is especially true of the most significant patents that often take a decade or more to issue. The twenty year language is also included in 1994 S. 1954, H.R. 4307, S. 2369, and H.R. 5110. Currently foreign proof of inventorship within the United States is not allowed except where a patent has been published. GATT changed our laws (Section 104) to allow worldwide proof of inventorship. Ibis is going to create many more interference's which will be extremely difficult to investigate. It will be much easier for multinational companies to avoid compensating American Inventors by citing obscure evidence. It also opens the door for large scale fraud by Multinationals which will be next to impossible to prove. OTHER PENDING CHANGES Other changcs to our patent law have also been proposed in several other pending bills. These changes in their totality will cause far greater damage then the threat represented by each alone. Publish the patent application 18 months after filing. This will encourage interference with a patent by giving potential infringers access to the information before the patent issues and will make it much easier for an infringcr to fraudulently claim prior user rights. 1994 S. 1854, H.R. 4307, 1995 H.R. 1733. "Prior User Rights" which says that anyone who claims that they have secretly developed an idea can use it royalty free. This will prevent someone who obtains a patent covering the idea from collecting royalties from any prior user. Since there is no requirement that they publish to establish the right this will encourage large scale fraud by infringers who want to establish their right to use the idea to avoid compensating the Inventor. 1994 S. 2272. A bill is pending that would allow third parties an active roll in reexamination of patents. Currently a third party can request a reexamination but only the inventor and patent examiner are activc in the Process. This change would allow third parties an active roll. Large businesses could mount a series of attacks through fourth parties and tie the invention up for many years, 1994 S. 2341, 1995 H.R. 1732. All of the changes cited tilt the playing field in favor Of those who copy. The Japanese have always been very good at copying and I believe that is why they are lobbying so hard for these changes. The United States has always been good at making major technological breakthroughs and breakthrough Patents Protection is going to be disproportionately weakened. These changes will favor those who make small incremental improvements in technology at the expense of those who make more significant breakthroughs. Tbey will favor large companies over startup companies and favor companies with short term management goals over companies that plan for long term goals. One example of how insidious the foreign interference is how they managed to get the patent offices backing for changes that will undermine the patent system. Proponents of weakening our patent system argue that it is being abused by inventors. They usually site "submarine patents" as an example of misuse. The term submarine patent first appeared in a Japanese publication and it is used to describe a patent which is issued after a long delay in the patent office that catches everyone in industry by surprise. Some pawns claim that inventors intentionally delay their patents. There are no proven cases of intentional delay being used to create a submarine patent. There is considerable evidence that delayed patents are the fault of inefficient bureaucrats at the patent office. When they were confronted by powerfull interests over the problems created by patents that were issued after lengthy delays of up to forty years they picked individual inventors to be the scapegoat. The patent office is specifically mandated to aid individuals who are filing for patents. The patent office's claim that submarine patents are caused by individual inventors is proof that they are not adequately aiding Inventors as mandated by law. There is a great deal of evidence that the PTO is in fact the cause of excessive patent delays. When an examiner receives an unusually complex or in some cases a poorly drafted patent (as can happen with pro se applications) they tend to work on it after they have processed other patents to keep their productivity evaluations favorable. The patent may go one or more years between office actions and I have heard of four and five years in extreme cases. The examiner may leave the PTO, causing the file to be passed to another examiner. The new examiner is faced with even more work to become familiar with the patent and sticks the file on the bottom of their pile. The application languishes and soon ten or twenty years, or in the worst case forty years have elapsed. This is not inventors fault and the solution is to enforce the mandate that the PTO prosecute all patents, especially pro se patents in a timely manner. Another aspact of this problem is allowance of claims. Currently the inventor or their representative and the examiner interact to determine appropriate claim language. The examiner has an incentive to complete the patent because they look bad if the case drags on. The inventor has an incentive because they rarely derive income from a patent before it issues. Many persons who have a vested interest in a weaker patent system have claimed that inventors have a motive to delay patents until a technology is well established. It is illogical to believe that an inventor would intentionally delay his patent for forty years. Compounded interest on money earned earlier far exceeds the potential for a bigger market which is cited as a motive to delay patents and the fact is that an inventor would have to be clairvoyant to see twenty, thirty, or forty years ahead. Prolific inventors would be foolish to defer income when cash flow stops them from filing additional patents, patents whose financial return is likely to far exceed the value of compounded interest on invested funds. It follows that prolific inventors want income as soon as possible on existing patents to fund developing their most current ideas. The 20 year from filing provision is a PTO bureaucrats dream because it gives them a huge lever to make an inventor accept whatever the PTO dictates. The five year extension they have offered is a Band-Aid applied to a change that is not justified by the evidence or in Americas interests. Obtaining the extension is dependent on the whims of a bureaucrat. The PTO gets more power and eliminates industry criticism over delayed patents. Administrative solutions such as the five year extension are not acceptable, I would entertain the possibility of other Administrative solutions to our concerns such as replacement of several of the PTOs upper Administrators. I suggest the following issues must be examined as a group while carefully considering what the practical implications are. 1) 20 year from filing. 2) World wide proof of inventorship, section 104. 3) 18 month publication. 4) Prior user rights. There are often huge disparities between theory and real world application of principals. Look at capitalism verses socialism. One encourages hard work and the other doesn't. Multinationals will use the proposed changes to crush small business and independent inventors. 18 month disclosure will be used by dishonest entities to erode the patent term by third parties challenging pending patents, claiming prior user rights, and use of fraudulent evidence from difficult to investigate foreign sources. It will make our patent system subject to "flooding" as is common in Japan. Flooding is where hundreds of narrow and often questionable improvement patents are filed concerning a fundamental patent to limit the ability of the original inventor to collect royalties. Important patents that are not stopped outright will be tied up with interference's and other delaying tactics that will eat up half or more of the 20 term. Patents will be unenforceable for anyone except the largest companies. Inventors such as I will abandon innovation. America's declining standard of living will accelerate. I suspect that America will stop being the beneficiary of the brain drain and that we could even end up being an exporter. The PTO has repeatedly claimed that the vast majority of inventors will enjoy a longer term of patent protection. This is another example of the PTO misrepresenting the facts. They claim the average pendency is 19.5 months based on the most current continuation. Their statistics do not take into account the previous applications that led to the last application from which the patent issues. USTR and the PTO both claim the proposed changes address abuses of our patent system. The worst abuses have been perpetuated by the PTO and none of the proposed changes address abuses of the system that have been perpetuated by the PTO. The PTO is a bureaucracy whose upper management is willing to compromise the source of our prosperity to cover-up it's own failures justify burdensome fees to increase its size and budget and to give it more power. The end result of the patent offices attempt to lay blame for submarine patents on inventors is that they have been maneuvered by the foreign multinationals into a position where they had to back measures that are contrary to America's interests. I am not sure at this time rather the patent office has been duped into backing destruction of innovation or if other incentives have been offered by multinationals to key persons. While inventors still face many obstacles in defending their intellectual property rights, they have made progress during the past ten years. That progress is alarming to those multinational businesses and foreign governments that had become accustomed to unlawfully appropriating individual's and small business's intellectual property. They are spending large sums of money attempting to gut our patent system so that they can take the benefits of American ingenuity and the jobs for their profit. This is not an abstract problem that only affects inventors. The issue affects every citizen of our country. Loss of the economic benefits of Yankee ingenuity will cost Americans decent paying jobs and will doom our children to a much lower standard of living. America's economic might is a direct result of our producing more inventors per capita then any other country in the world. Our culture is known for producing independent thinkers. Other cultures bove studied our educational system in the hope of learning how to produce inventors. A healthy economy is dependent on a diverse mix of both startup companies and large businesses. lf we allow laws to be changed that benefit large companies at the expense of small companies who are the source of 75% of innovation we will have far fewer startups and fewer inventions. Large companies have become very short sighted in the last ten to fifteen years. Their quest for ever higher short term gains has radically altered business practices. All of us have known persons who have been displaced from jobs by down-sizing. Many people are not aware that Research and Development staff persons are being let go in greater numbers then many other groups. This iss a result of large companies only finding small improvements that will give them an immediate return on their investment. These trends are causing many inventors to form small companies to develop ideas for which large companies are not willing to make a long term investment to commercialize. The problem is that the large companies want to be able to take advantage of the small companies work without fairly compensating them. Everyone understands that a farmer who consumes his seed corn is foolish. Small companies seed the market. If multinational companies are successful in crippling the patent system all Americans will suffer a decreased standard of living. I have been an Inventor for ten years, the last five full time. I am appalled by the actions of the current Administration and the Patent amd Trademark Office (PTO). The PTO is a classic example of a bureaucracy that is out of touch with the realities of the marketplace and the needs of inventors. Their actions during the last few years have been extremely damaging to Innovators. The PTO has been convinced by lobbyists that are paid by multinational corporations and foreign governments to back measures that will allow the foreign interests to take our inventions and the jobs and profits that those inventions represent. Both the Alliance for American Innovation located in Washington, DC, founded by Steven Shore and Intellectual Property Creators. organized by Paul Heckel and located in Los Altos, CA. are vigorously opposing the Japanese led attack on our patent system. Those changes are being promoted by multi-national corporations, foreign governments, and their lobbyists or agents. Membership of the Intellectual Property Creators coalition includes fifteen members of the National inventors Hall of Fame, seven members of the American College of Physician Inventors Hall of Fame, and three Nobel Laureates. Several members of the coalition have attended GATT hearings and numerous members, including myself have lobbied in Washington against changes to American patent law that will damage American innovation. I urge all inventors to contact both the Alliance for American Innovation and Intellectual Property Creators. Please start encouraging family, friends, and business associates to call and write their representatives. It is especially important that inventors and companies that depend on innovation personally contact their representatives. All concerned parties should write President Clinton and their congressional representatives to support proposed Rohrabacher bill HR 359 and Dole bill S. 284, as they are designed to repair the damage caused by the unnecessary provisions in GATT's enabling legislation that harm our ability to create desperately needed new jobs. Ronald J. Riley, President Riley & Associates Grand Blanc, Michigan Word count=2643 Steven Shore Alliance for American Innovation 1100 Connecticut Ave. NW, Suite 1200 Suite 404 Washington, DC 20036-4101 Voice (202) 293-1414 Fax (202) 467-5591 Paul Heckel Intellectual Property Creators 146 Main Street Los Altos, ca. 94022 Voice (415) 948-8350 Fax (415) 948-7319 Ronald J. Riley is president of Riley and Associates, Inc., a Grand Blanc, Michigan based company and is an inventor that specializes in industrial controls and product development. He is President of the advisory boards of the Alliance for American Innovation.