TOM LOPEZ INTERACTIVE MULTIMEDIA ASSOCIATION MR. LOPEZ: Thank you. Mr. Commissioner, my name is Tom Lopez. I'm Chairman of Mammoth Microproductions of Seattle, Washington, a multimedia development company. I'm also President of the In- teractive Multimedia Association. The Association's general counsel, Brian Cann, who also directs our Intellectual xerty Pro- ject, is with me today to help answer any questions that you may have. The Interactive Multimedia Association is a 290_member trade as- sociation headquartered in Annapolis. We are here today because the patent system has cast a cloud over our emerging industry, an ambitious and motivated industry which seeks to transform the way we play, learn, work, think and communicate. We're specifically concerned about the impact of patents on the flow of information and fundamental principles of free expression, on the impact of patents on enabling environments, in particular the development of the national information infrastructure, the need for a patent system that is publicly accountable and open to industry input specifically through pre_grant publication and peer review, knowledgeable and informed about its operation and its economic and social impact, and sensitive to competing values and poli- cies. We bring a unique perspective, because our membership spans the whole of the multimedia industry, from |e computer companies to small publishers and developers. This makes it impossible for the IMA to take positions on issues such as the merits and proper scope of software patents where we encompass many different views. However, we have historically been especially concerned with needs and perspectives of developers of multimedia also known as content_driven software. Multimedia developers provide the creative spark that is driving multimedia into homes, schools and businesses. Therefore, we do not address competition within the software industry, we address the impact of patents on con- tent, on the organization, expression and communication of infor- mation. Multimedia developers depend upon computers, networks and operat- ing systems, authoring tools and other software environments. They build on technological platforms developed by others. Like traditional publishers, they add value through research, selec- tion, organization and coordination, by aggregating rights, by creating original material and by essing whatever ideas they be- lieve will move the market, the body_politic or the soul. They use interactivity as their grammar. It is how computers speak to people, it is how people speak to computers. It is how people speak to other people through computers. Historically, copyright law has provided a level of protection to the software developer. Unlike copyright, patents control the private use of patented processes. Unlike copyright, independent creation is not a defense to patent infringement. Patents there- fore control not only original implementations, but also the users of such original implementations. Patents even control the use of products of the process. The extraordinary power of pa- tents resonates across an increasingly_integrated and interdepen- dent digital environment, putting everyone downstream of the underlying technology at risk. Content_integrators, publishers, distributors, even users. Indeed, typically end_users are the direct infringers. The upstream providers are technicallly con- tributory infringers. For example, in the recent case of the Optical Data patent, interactive method for the effective con- veyance of information in the form of visual images, the direct infringers were the hundreds of thousands of teachers in classroooms, and by extension the local school districts and all of us as taxpayers. The Computer and Business Equipment Manufacturers Association described this problem sixteen years ago in arguing against pa- tents for algorithms. Quote. The computer has become the engine which assists in running our society and in the future will as- sist man in numerous areas totally unrelated to the usual appli- cation of today's computers. These applications and computer uses should not be clouded by problems resulting from unwitting infringement by computer users. End quote. Looking at the list of speakers today, it is clear that users are not represented at this hearing except for multimedia developers. Multimedia developers are on the front lines of the user commun because they're developing content_driven product and services. To the extent that they are successful, they become targets for patentees. Content_oriented developers get protection from copy- right, not from patents. They need protection against patents. How do they get it? For the first time, errors and omissions insurance to cover pa- tent infringement is available from the American International Group for multimedia products. The cost is fifty thousand dollars per product, with a fifty thousand dollar deductible. That's a formidable barrier for an independent developer, a regressive tax on interactive expression. Such insurance, costly as it is, does not cover patents of which you are aware you may be infringing. This unfortunately is another good reason, along with the threat of triple damages for wilful infringement, to avoid reading pa- tents entirely, a sad comment on a system originally intended to spread technical knowledge. And while we are concerned with the impact of patents on publishi.......nd First Amendment values, we share with others a concern for the related problem of patents on broad abstract processes. Such patents are extremely difficult to interpret. They often purport to preempt basic functionality so as to pre- clude others from designing around the patent. Usually their claims are over_broad, but can be narrowed only at great expense to those who would challenge them. These abstract system_level patents threaten the development of common standards, specifications and architectures, including our Association's own work on cross_platform compatibility. They create information bottlenecks, or tollbooths, in the vision of a national information infrastructure. Mindful of the history of blocking patents in the development of the radio and the aircraft industries, we note that the highly complex and interrelated na- ture of the information infrastructure makes it very vulnerable. Broad patents are especially suspect in the case of software where functions can be implemented in a widriety of ways and where independent creation is commonplace. This problem, along with the threat that patents still pending may be inadvertently incorporated in standards or infrastruction- al systems, would be greatly alleviated by pre_grant publication. The secrecy of the present application process is an anachronism, and a primary cause of the present uncertainty and insecurity. We plan to address this issue further in the February hearings on examination processes. We're grateful to the Commissioner for holding this public hear- ing and dealing openly with the issues as a matter of public pol- icy. We're also pleased to see a serious effort to develop patent policy within the larger context of economic development and the Administration's vision of a national information infrastructure. We would like to close by expressing our support for a strong pa- tent system. By that of course we do not mean a system that in the name of incenting novelty oozes uncontrollably into every corner of human life. We ma system that knows its limits, that functions spectacularly within those limits and that does not de- base the concept of intellectual property by incenting gaming and speculation. We mean a system that works in the real world, that acknowledges its regulatory nature and is tailored to the econom- ic characteristics of the operating environment. We mean a sys- tem that operates proudly in public view, that is understood and acclaimed not only by patentees, their agents and their attor- neys, but by the tens of millions who also contribute to our economy and society and face tough competition unarmed by patent monopolies. Thank you very much. COMMISSIONER LEHMAN: Thanks. You said that you felt that with the exception of the Interactive Multimedia Association that we didn't have on our witness list real representatives of users of the system. Who are we missing? Who would you count in that category of users? MR. LOPEZ: For instance, teachers who use the products of mul- timedia developers, people who are .......s in the home who I think would be very upset to find out that they perhaps are infr- inging on patents without knowing about it. COMMISSIONER LEHMAN: How might they be infringing on, on __ MR. LOPEZ: If they are actually the people who are taking the actions which would be against the patent, as teachers would be in using the products that would violate the Optical Data patent as an example. COMMISSIONER LEHMAN: Thank you. I also wanted to ask, just to clarify your position a little bit more, is your position that you would not be in favor of such a drastic step as doing away with patentability of software_related inventions. MR. LOPEZ: No. COMMISSIONER LEHMAN: So you really feel what we need to do is to reform the system to make certain that, that we have a clearer scope of patentability and that we have better procedures, pri- marily pre_grant publication for making sure we capture the prior art. MR. LOPEZ: Exactly. I think as Mr. Clark has indicated in his testimony, one of the greatest prob...... for multimedia develop- ers today is the uncertainty that exists, and when this uncer- tainty exists it inhibits the investment and the __ not only of intellectual energy, but also of capital. COMMISSIONER LEHMAN: My colleague, Ginger Lew, who's our General Counsel for the Department of Commerce and on Assistant Secretary of Commerce has a question. GENERAL COUNSEL LEW: In Mr. Poppa's testimony he mentioned the possibility for the need of mandatory API __ ADI, and I wanted to know if the Association had any position on that. MR. LOPEZ: The question is does the Association have any posi- tion on mandatory APIs regulated by law? Brian. UNMIKED VOICE: No. MR. LOPEZ: No, we do not at this point. COMMISSIONER LEHMAN: One comment I'd just like to __ maybe it's more of a comment; we have a little more time here, and you may have a response to it. We haven't focused very much on that, and I don't think our questions did, but a previous witness I believe it was indicated that they thought it was very impo t to have the Courts to flesh out the patent system. There are elements in pa- tent law at the moment, for example, the fact that, even assuming we spruce up our examination process, right now you can go to the Court of Appeals through the Federal Circuit, and basically get de novo review of our Patent Office decisions. The Court can second_guess the patent examiner, judges who are not even remote- ly experts in a given technology. Secondly, we have a number of legal doctrines, like the Doctrine of Equivalence, which some have argued cloud the certainty in the patent system, and I'm wondering if you have any comment about the impact of those on your industry. Do those kinds of problems that occur in enforcing __ understanding how the Courts will in- terpret a patent, do they create uncertainty that creates prob- lems for you? MR. KAHIN: We really haven't addressed the problems, the techni- cal problems you've described, at that level. I think the concern in the judicial evaluation is more focused on a very hig$esumption of validity of the patent examiner's determination, and __ that carries over into the judicial system. So that once that determination of nonobviousness based on the referenced pri- or art is made, it can't be overcome except by clear and convinc- ing evidence. So that that high presumption is a disincentive to challenging the patent in Court. COMMISSIONER LEHMAN: Actually I think the situation is a little different than that. I think we have maybe a little bit the oppo- site problem with the Court of Appeals. The Court of Appeals for the 12th Circuit has de novo right to review the patent and I'm not sure that they always do use that clear and convincing evi- dence standard that you discussed. MR. KAHIN: But it's very expensive to get that far, to get to the Court of Appeals for the Federal Circuit. Most of our members have enough trouble getting to a patent attorney, let alone fil- ing suit in a District Court. COMMISSIONER LEHMAN: Thank you very much. MR. KAHIN: Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Paul Heckel, Acting President of Abraham Lincoln Patent Holders Association who is from Hyperracks, Incorporated.