JOE CLARK CHAIRMAN AND CEO, VIDEODISCOVX MR. CLARK: Thank you very much, Commissioner LEHMAN. My clock says 9:28, and that's what it says on the sheet, so I congratulate you the good timing of your re- marks, and I'll try to do the same. I really appreciate the opportunity to come and talk to this group. I have a publishing company in Seattle, Washington that publishes multimedia products for science education, and we're pretty well_known at this time throughout the country, and we're totally frustrated by our experiences with the patent system. And so what I would like to do during my time is kind of share with you personal experiences that we had in order to illustrate some of the problems that I think are inherent in the current pa- tenting process, and then I'd like to recommend two or three dif- ferent solutions. Now, you've sort of preempted my remarks, and I'm really appreci- ative of it. It's the first time that I've heard that the Patent Office was drafting legislation that would take care of most of these, but there's one part of it that 0 to try to deal with and maybe ask you a question about. On the plane on the way down I thought it was in some way almost poetic that I was headed down to California. I was a little bit anxious about earthquake country, you know, in fact I didn't sleep very well last night. But I thought about the earthquake thing as not being too dissimilar from the situation we find our- selves in with the patent system, that is to say, in the last year and a half we've heard some rumblings coming from the Patent Office with patents like the Grass Valley patent and the Optical Data patent and then the Compton patent which sort of got a 7.3 on the Richter scale as far as I could figure out, and my big worry is that there's no end in sight, that is to say, given the secrecy in the Patent Office, we don't know what to expect tomor- row, next week, next month, and so on. In my case, I experienced a situation where a patent was called to my attention that literally could drive me out of business. I started VideoDiscovery in`3. I worked very hard for ten years to get it to the point it is at, with sixty people, and for somebody to have a patent that was a club that could just close down my operation didn't set well with me. I didn't know much about the patent system until about a year ago when I got a letter from my competitor that called attention to the award of two patents, and they indicated that they thought we might be infringing on their patents and suggested that I contact their technical person to see about licensing the technology. Well, they had two patents. One of them was for a method of in- struction that we lovingly call the Socratic Method, and the oth- er patent was for a method to customize a curriculum, using a computer to do it, and we thought that that had been a process that had been going on for a long, long time. So my immediate reaction was confusion. In the first place I couldn't believe that anybody would patent these things. If I could have the Number 3 slide, please. I just want to describe this dpatent for you. The patent on the Socratic Method, as I say __ this is not the way it's described, it's described as a method of instruction __ was composed of a trilog, and the trilog had three components. One was a random_accessible reservoir of information like a video disk player __ could have been a CD_ROM or a hard disk, I guess, or maybe a textbook, a teacher was the second component, and the students were the third component. The way this system worked was that the teacher was given instruc- tions where to go on the random_accessible reservoir of informa- tion, withdrew the information, passed it on to the students, the students responded, and then they would go back to this system. Now, they got a patent for this. I couldn't believe it. And my first reaction was anger, disgust, you know, disbelief, and so on. More recently I've modified my position where I believe that the, the Patent Office is indeed not the culprit, but the victim in a system. Any system that operates in secrecy like that whhthey can't confide or consult with the members of an emerging industry, for which there's no prior art, no experience, no in- formed judgment on the part of the examiners, is ultimately a victim to this thing where they have to __ they, they can't dis- tinguish obvious from unique and are almost obliged to issue the patent. So the point there is that I think that if we would remove the veil of secrecy, which I hope is part of the legislation package, and I'm not sure that is attached to, you know, ultimately or necessarily to first_to_file process, so I'd like a clarification about that, but that is really critical, to support change in our industry. At one point it was the computer industry, it was the biotechnology industry, it was the software industry, the mul- timedia industry, what's going to happen next week, next month and so on, but whatever the new, emerging industry is, unless that law is changed so that there's some better process, we're going to face the same kind of dilemma. Let me come back to lhistory on my case. As soon as we got that indication, as a small company I did not have many attractive al- ternatives. One was litigation, which was very very expensive, and I could literally not afford that, and the other one was the reexamination process. In talking to no less than ten patent at- torneys over the course of last year, I never got one that recom- mended reexamination process, and so I'm very happy that the Pa- tent Office recognizes the problem with that and is going to in- clude more third_party involvement in that reexamination process. But that was one of my recommendations. As it happens, when we filed in Court in August to ask the Court to find these patents invalid based on the obviousness of the pa- tent and the existence of prior art, the other party had sixty days to respond; and on the sixtieth day they decided to donate the Socratic Method back to the public where it belongs. The second patent, however, they asked for reexamination in the Pa- tent Office. That puts us in a terrible pospn. We know that the inventor has a tremendous advantage through the reexamination process as it exists. We also have some trumps, some prior art that we know that will knock that out, and we don't know whether to provide it to the Patent Office or to save it for litigation if it emerges from the Patent Office. So you can kind of see our dilemma on that thing. So a recommendation that I would have is to change the process so it's published prior to award. That would solve the problem and serve existing, you know, changes and so on (sic). Second recom- mendation would be improve the examination process. I think that that's being considered, and so on. But a compromise position, and something that I would like to see for immediate relief __ I'm talking we need Federal aid now, an immediate relief to get us out from under this anxiety, is either a hiatus on any more patents coming out for multimedia __ that would be preferable __ if you can't do that, then I'd like to see the Commissioner em- powered to constte a commission and do peer review of any patents that have come up. The Commissioner would identify new emerging industries, all right? And when they saw that, because there's no prior art, because there's no experience with the examiners and so on, that they work with the industry leaders in that par- ticular industry, to develop the prior art collection, to set the guidelines for what's patentable, to review patents as they come out. So I hope that you can sympathize with the position of a small business person who has gone through the fear and the anxiety of having something like that ripped out from under them. I feel I've been extremely lucky to get my resources together and to be able to operate in this system. Thanks very much for your attention; I'd be happy to answer ques- tions. COMMISSIONER LEHMAN: Thank you very much, Mr. Clark. In terms of this reexamination process that you're concerned with right now, I think one of the problems that we have in reexamination right now is that generally sxing we limit the prior_art references in a reexamination to those that are submitted by the person who is seeking reexamination, and that creates a problem for third par- ties. MR. CLARK: Aha! COMMISSIONER LEHMAN: So in this situation it sounds to me like the patentee kind of got the leg up on you by being the first to request reexamination. Is that problem. MR. CLARK: Yeah, I don't disagree. Yeah. I don't disagree that I was outmaneuvered, you know, but __ yeah, you're right. You're right. COMMISSIONER LEHMAN: I really appreciate that. Does anybody have any other comments? If not, thank you very much for coming down here and sharing these thoughts with us. MR. CLARK: Thank you. COMMISSIONER LEHMAN: Next I'd like to call Mr. Ryal Poppa, the Chairman and CEO of Storage Tek.