RICHARD LeFAIVRE APPLE COMPUTER, AND, COMPUTER AND BUSINESS EQUIPMENT MANUFACTURING ASSOCIATION MR. LeFAIVRE: Thank you, good morning. My name is Rick LeFaivre from Apple Computer and today I'm actually wearing four hats, first as a computer scientist with twenty_five years' of experi- ence in software technology as a researcher, a professor and an Ldirector, second as Vice_President of Advanced Technology at Ap- ple Computer. My organization is responsible for a large percen- tage of the patents that are granted to Apple, and the protection of the innovation that we do is very important to me. In partic- ular over the years we've seen a marked shift in our innovation focus from hardware to software, and so I'm very interested in the topic of these hearings in particular. Third, I'm the founding member of the Executive Committee of the Software Patent Institute. As you may be aware the SPI was found- ed to provide training in software technology and access to prior art, to help insure that those software patents that are granted are of high quality, and we're working very closely with Gerry Goldberg in that task. I should point out that the Software Pa- tent Institute has chosen to take a neutral stance on the broad issue of the patentability of software so the views I'm about to express do not necessarily reflect those of the SPI. Finally and most importPy I will be testifying today on behalf of the Computer Business and Manufacturer's Association CBMA, and let me give you a little background of this group. CBMA is a trade association whose members represent the leading edge of high technology companies in the computer business equipment and telecommunications industries in the U.S. In 1992 CBMA's twenty_six members had a combined estimated sales of more than two hundred seventy billion dollars, which represents about four and a half percent of the U.S. gross national product. CBMA member companies employed approximately a million workers in the U.S. in this past year. The computer industry performs about twenty percent of the total private_sector R&D investment in the U.S. That figure is about five times the investment of the aerospace industry, three times the investment of the health care industry, and four times that of the chemical industry. This investment allows our members to rapidly advance the capabilities of their products and to get ac- cess Tand compete successfully in, a very tough international marketplace. It also results in significant numbers of jobs just within R&D alone. I'm here today because patent protection for new computer functions is absolutely crucial to all our members. Software_related inventions fit within our present patent system and patents issued under a sound application examination process support the Constitutional mandate of promoting the useful arts and sciences. CBMA members file for and obtain patents for software_related inventions. They also enter into agreements to utilize such patents held by others. Because our companies typi- cally have broad product lines, they address patent issues in many areas of technology. They see no reason to treat software_related patents differently from patents related to oth- er technologies. In the first question set forth in the hearing notice, there are a number of subparts relating to claim subject matter and claim formats. CBMA's response to this question is simply that ifX claim is drawn to the solution of a real_world commercial prob- lem, and the claim functional steps or elements as a whole meet the strict legal requirement to be new, nonobvious and useful, then a patent should issue. The function claimed, not the for- mat, is what is important. It shouldn't matter whether new, nonobvious and useful process steps are claimed in the context of a program or a disk or claimed in a hardware or method format, or in the context of a semiconductor chip. Software_related inven- tions are valuable to the purchaser not for what they communi- cate, but for the functions they perform. The functions are what are important and what should be assessed for novelty and nonob- viousness. Relative to Question 2, our members have integrated their software_related patents into their overall patent portfolios and practices so that separating out their impact is quite difficult. However, this integration itself demonstrate that these patents are just like all others. They are sought when the inven hiso her employer believe that the investment in obtaining the patent will be returned. Conversely, CBMA members often must respect the software_related patents of others, which they do in the same manner as further technologies. Regarding Question 3, the standard for patent eligibility for software_related inventions should be maintained at the same lev- el as for all other technologies. An alteration in that standard would negatively impact investment in our industry. If the stan- dard were to be restricted severely it would disarm CBMA member companies in their dealings with foreign competitors because licenses under U.S. patents are used to negotiate access to foreign markets and foreign technology. Obtaining patents for software_related inventions in our principal competitor countries is generally equivalent to that of the U.S. Software_related technology will be one of the leading technolo- gies of the 21st Century. Discrimination against this technology would set a terrible example sure to be ra`y adopted by the developing world. To now have the leading country in software creation and patents declare that such inventions are excluded from the statute, despite falling within the terms of statutory subject matter, or are to be treated differently from patents in- volving other technologies, would reverse much of the hard_fought progress that has been made over the last decade in improving in- tellectual property protection throughout the world. Relative to Question 4, patents provide the relatively broad pro- tection necessary to bring in risk capital for new and useful in- ventive functions that are generally defined in terms of processes or methods of operation. This protection should be af- forded only after a detailed examination to insure that the claimed functions are truly novel and nonobvious. This, by the way, is one of the places where the SPI is trying to work with the Patent Office to make that process more efficient. In con- trast, copyright protects only the expression contained in the compudprogram, as it does for other literary works. High_level functional processes are expressly excluded from protection by statute. Thirdly, trade secrets provide the necessary protection to facilitate the disclosure of confidential software_related designs to employees, joint venture partners and others within the structure supporting that confidentiality. Thus, each protects different aspects of the intellectual proper- ty. The inventor, who may not wish to or be able to author a com- plete software product, deserves protection. The author of a pro- gram deserves protection from piracy and plagiarism. Those with confidential information, willing and able to keep it confiden- tial, should be able to protect that value against those from which it has a fiduciary relationship. Finally, with regard to Question 5, CBMA supports continued reli- ance on the tested, well_developed protection of patents, copy- rights and trade secrets. We strongly support continued improve- ment in the patenting process for software_related hntions. But nothing suggests the need to treat software differently. A new and untested regime would fail to provide inventors and authors with any certainty of protection for an extended period of time while judicial precedent was developed to determine the scope of the law. Additionally, international protection for our software research and development is critical. There is no certainty that a new protection system could be implemented worldwide, whether through multi_ or bilateral negotiations. The hard_fought protections in the GATT, TRIPS and NAFTA treaties regarding literary work pro- tection for programs and the issuance of patents without discrim- ination based on technology were just obtained last year. It is inconceivable that such protections would now be abrogated with the ink hardly dry on these provisions by the adoption of a sui generis protection. In closing, our message to you is this: Don't cut back on patent protection for software_related inventions because some invalid patents mayle been issued. The current reexamination process and the Federal Court system do provide mechanisms for the removal of these mistakes. We believe that further training for examiners, and access to a larger library of prior art can and will reduce the possibility of future mistakes. Overall, the system is work- ing and should be improved, not abandoned. If the standard for patentability is changed for software_related inventions, or if patent protection is dropped in favor of some new form of protec- tion, it will severely and negatively impact CBMA members, our industry and the country. Thank you for letting me submit these remarks and we look forward to continuing to work with the Patent Office on these issues. COMMISSIONER LEHMAN: Thank you very much. I have one question if you have a moment, and that is that, there's obviously a differ- ence of opinion about the application of the patent system to the software industry that is represented in the room, we've already heard it this morning and I think we'poing to hear more testimony about it. Apple certainly is a company, and I gather that CBMA is a company now that very much favors patent protection for software, and Apple's certainly a very important, successful part of American enterprise today. One question that I have is that obviously the purpose of patents is to incent people to invent and to make investments. And can you point in your own experience to an example where that has happened? Has the patent system actually been a factor in a de- cision to go into a new technology, the fact that it might be pa- tentable? Has it been a factor in getting financing from capital markets? MR. LeFAIVRE: Yeah, that's a good question. Apple thinks a lot about patentability of any technology, software or any other, in looking at some of our innovations. We do feel that there has been a lot of investment made in technologies that, to be quite honest have been appropriated, copied, whatever, by other com- panies, that have not helped our situation in the marketplatI think it's fair to say, and so we certainly are interested in trying to evaluate the patent potential of different technologies as we develop them, so I wouldn't point to any particular issues or topics, but yes, we certainly take that into effect when we're looking at technology investments. COMMISSIONER LEHMAN: So that is an important part of Apple's decision_making process. MR. LeFAIVRE: Yes. I think that's probably true for all com- panies now. COMMISSIONER LEHMAN: Thank you very much. MR. LeFAIVRE: Okay? Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Tom Lopez who is President of the Interactive Multimedia Association.