Opening Remarks of Bruce A. Lehman Assistant Secretary of Commerce and Commissioner of Patents and Trademarks Public Hearings on Patent Protection for Software-Related Inventions February 10, 1994 Good morning. My name is Bruce Lehman. I'm the Assistant Secretary of Commerce and Commissioner of Patents and Trademarks. Welcome to our second round of hearings on the use of the patent system to protect software-related inventions. Two weeks ago we held two days of hearings in San Jose, California -- the capitol of Silicon Valley. Those hearings focused on the patent system and how it was being used in the field of software. This round of hearings will focus on the standards of patentability and the examination process, as well as the treatment of visual aspects of software under our design and utility patent systems. The common goal for all of our hearings is to find out how the patent system is working for this field of technology, and to get your suggestions for making it work better. President Clinton has made the development and competitiveness of high-tech industries in the United States a cornerstone of his economic program. Promoting these industries will lead to high-tech, high-wage jobs for Americans, and will ensure continued American competitiveness in the industries of the future. Our Secretary of Commerce, Ron Brown, has assembled an excellent team to work on initiatives toward this end, and I am pleased to be part of that team. The software industry is already meeting the President's goals for creating competitive high-tech domestic industries. Statistics show that since 1987, employment in the software industry has risen at an annual rate of over 6.5%, and now employs well over 400,000 people. In 1992, revenue from sales of programming services, prepackaged software and computer-integrated design was over $ 50 billion. U.S. software firms dominate the world's software markets, holding over 75% of the market for prepackaged software. It is interesting that up until the middle of this century, the wealth and economic strength of the United States came primarily from exploitation of our natural resources. In the 21st century, our economic strength will come from tapping our most treasured resource -- the wealth of the human mind. To do this, however, we must encourage innovation and provide our innovators the legal protection they need to successfully exploit their innovations. This is especially true in the intensely competitive and fast-paced software industry. Indeed, innovation is the lifeblood of this industry. It is what separates successful software firms from unsuccessful ones. Innovation, however, is a fragile commodity. Without effective legal protection, our software industry would not enjoy the dominance it now does in the global market, nor would consumers enjoy the high-quality and extremely usable software products that are available on the market today. Our intellectual property systems were established over two hundred years ago to promote and protect innovation in all fields of technology. If these systems are functioning properly, they will provide an appropriate level of protection and encourage innovation. From what we have heard recently, this may not be the case for our patent system in the field of software-related inventions. This is why we are seeking public input -- to identify the problems that exist and to hear suggestions on how to address them. Two weeks ago, we held the first round of hearings in San Jose, California. No clear consensus emerged from those hearings but many suggestions were made regarding how the patent system could be improved for the software industry. Some people testified that the patent system was not working at all; that it neither encouraged nor assisted software development. Others suggested that companies only sought patents for "defensive" purposes. If true, this runs counter to one the primary reasons for the patent system, which is to encourage innovation. On the other hand, several people testified that the patent system was essential for successful software development efforts. We heard large and small companies tell us that without patents, they would not be able to attract or effectively protect investments in developing new software-related technology. However, even people who generally supported the patent system commented on the need to improve the quality of issued patents. Some people expressed skepticism over the ability of the PTO to accurately gauge software innovation. Others commented that the PTO does not have access to enough prior art or that adequate collections of software prior art simply do not exist. We are committed to addressing these concerns and to taking whatever measures are necessary to ensure the proper functioning of the patent system. My goal is to ensure that patents will be instruments that you can take to the bank -- literally. From what we heard in San Jose, this may not be the case for patents in the field of software-related inventions. We intend to address these concerns through three levels of action. First, we will improve our examining operation to ensure a high quality examination. Second, we will pursue appropriate legislative reform to ensure the efficient functioning of the patent system. And finally, we intend to work with the Judiciary to improve the interpretation of patent rights in the context of enforcement. Many useful suggestions were made in San Jose two weeks ago. I expect to hear many more in the next two days. For example, many people stressed the need for reform of the reexamination process. We recognize the need for making reexamination a more attractive option for those having reasons to question the validity of any particular patent and are presently studying a number of specific proposals. Many people pointed out that the obviousness standard as interpreted by our examiners and by the courts seems to be inconsistent with the realities of the industry. We recognize that an effectively functioning patent system requires a standard of non-obviousness that is rigorous and reflective of industry norms. However, we also recognize that the courts are the primary source of guidance on the basic question of "obviousness". As such, we intend to work with the courts to ensure that the obviousness standard is applied rigorously, not only in the context of examination but also when patents are enforced. Several suggestions were made regarding the improvement of our operations. I'd like to note that we are already responding to some of these suggestions. For example, many people called for the PTO to improve its ability to find and retrieve prior art. One step we have taken toward this goal is the creation of our Electronic Information Center in Group 2300. This facility will provide an easily accessible structure through which we can improve our collections of and access to the prior art. Our extensive work with industry and other groups is beginning to pay off in the form of specific commitments to providing information like in-house textbooks, old software user manuals and access to information on early programming techniques. We also heard that we need to attract and retain more qualified examiners, by providing more competitive salaries, and improving the stature of the examiner position. Toward this end, we have just changed our standards so that we will hire computer scientists as examiners. We are also in the process of expanding our examiner enrichment program to provide our examiners with greater exposure to other aspects of the PTO and technical programs in other agencies. Another specific area targeted by people testifying in San Jose was the need to improve the administrative processing of patent applications. People stressed the importance of not only ensuring the timely consideration of patent applications, but the timely processing at every stage of the patent application process. This falls squarely within our new focus on "customer service." One example of a program that we are studying now is the pre-examination interview. We are conducting a trial program to evaluate whether this step can help reduce the delays and assist pro se inventors. Before we hear from our first witness, I would like to introduce some of the members of our delegation and review our groundrules for testimony. We have brought quite a few people out here for these hearings. Sitting up here with me are: Ginger Lew, General Counsel-Designate for the Department of Commerce; Lawrence Goffney, our Assistant Commissioner for Patents-Designate; Michael Kirk, our Assistant Commissioner for External Affairs; Jeff Kushan, an attorney in our Office of Legislation and International Affairs. I encourage those not presenting testimony today to respond to our call for written comments. You can consult the Federal Register notice, published on December 20,1993, for more information. The notice has been widely circulated through the Internet, and can be retrieved from our ftp site, comments.uspto.gov. Transcripts for these hearings will be available after February 21,1994. Paper copies will be available from the PTO for a charge of $30.00. The transcripts will also be available through our ftp site. Once again, welcome to our hearings today.