ROBERT GREEN STERNE, ESQ. STERNE, KESSLER, GOLDSTEIN & FOX MR. STERN: Good afternoon. I am Robert Greene Sterne. And my testimony represents my own views as an attorney in private practice with over 15 years of experience representing almost exclusively U.S. companies in high technology electronic and computer technology. Based on my experience in the trenches, I believe that U.S. companies of all sizes, particularly startups and those creating leading edge technologies are served best by an intellectual property system that provides a broad scope of protection and strong enforcement remedies. Having heard much of the testimony in these hearings, I would like to state that I agree with those speakers who have stated that technological innovation is fostered by a broad scope of intellectual property protection and by strong enforcement of such exclusive rights. I don't want to replow this ground today. Rather I would like to focus on a few points which I believe need further discussion so as to round out the record of these hearings. First, from a purely selfish professional viewpoint, and I say this purely __ patent attorneys benefit financially from the uncertainty that exists concerning patent eligibility for emerging electronic technology, and from the complexity that the present patent rules create. So I ask you all to please make the system more precise and simpler for everyone. Second, the panel seems to find war stories helpful. Let me give you one that I am involved in concerning a startup that is in the process of raising 100 million dollars. Patent applications are being written and product clearance studies are being done which are absolutely critical to this financing. The venture capital people would not feel comfortable in investing their money if they did not believe that they were free of infringement and had an excellent chance of obtaining broad patent protection for their innovation. Now, this is not an isolated event. More and more, the financial community is requiring that the intellectual property portfolio of a startup electronic company be sufficient to provide a proprietary position and be free of infringement problems in order for necessary capital to be raised. As you know, startups and companies in emerging areas of electronic technology, Mr. Commissioner, create a disproportionate number of new jobs in this economy. We need to protect this process through a strong intellectual property system which will encourage investment and the creation of real wealth. My experience is that without strong intellectual property, the business community will invest in less risky ventures outside of high technology electronics. Third, the case law and the Patent Office position concerning so called "mathematical algorithms" which, if found, create nonstatutory subject matter status for otherwise inventive electronic technology, frankly, is illogical and pernicious. No one, and I repeat no one, in my opinion, either inside or outside the Patent Office can draw the bright lines that the rest of the public believes should be capable of being drawn concerning patent eligibility as it relates to mathematical algorithms. This uncertainty is unnecessary and totally unsatisfactory. For example, when I debated your solicitor on this subject before the Maryland Patent Law Association last October, he stated that the law of mathematical algorithms was so complex that even he had to review the cases each time he had to deal with the issue. This uncertainty hurts innovation in this country. On a substantive level, the alleged distinction between patentable algorithm inventions and unpatentable mathematical algorithm inventions makes no sense in reality, Every physical system, I repeat, every physical system and process can be represented mathematically. In fact, that is how physical systems and processes are modeled today in all industries using computer_aided design and manufacturing tools. To say that a product or process made by man is not statutory merely because the label "mathematical algorithm" is stuck to it, begs the question completely. Furthermore, all one has to do is pick up any two technical dictionaries and one will find that there is no agreement as to what the term "algorithm" and what the term "mathematical algorithm" each means. So in addition to not reflecting what happens in the technical world, there is the added problem that there is no definitional certainty concerning algorithm and mathematical algorithm. The Patent Office has a duty to discharge its constitutional mandate of promoting progress in the useful arts by making sure that the definition for statutory subject matter for electronic technology encompass anything and everything under the sun made by man in this technical area. Otherwise, critical emerging areas of technology, such as digital signal processing, voice recognition, computer graphics, compilers, multimedia, virtual reality, handwriting analysis, encrypted communications, and information retrieval, just to name a few, will be denied patent protection despite their innovation, because a patent examiner or an infringer will be able to stick the label "mathematical algorithm" on the otherwise patentable invention. You, Mr. Commissioner, must be make sure that the people reporting to you seek broad interpretation of patentable subject matter in this electronics area like that being given in the biotechnology and other emerging areas of technology. Fourth, I often say that electronics is applied functionality in the electronic domain. Implementation of this functionality is merely a design choice in most cases in terms of hardware or software. The choice of how to implement this inventive functionality depends on many factors, but it is the functionality that is the invention, and one should never forget that. We should stop the endless debate of saying that hardware inventions should be treated differently by the Patent Office than software inventions. The alleged inventive distinction between hardware and software is ludicrous to those in the electronics industry. Furthermore, we have the same definitional problem that we had with algorithm and mathematical algorithm. No one can agree upon the definition of what is hardware and what is software. The reason for this is simple. As the technology evolves, the blurred boundary between hardware and software implementation changes and shifts. Fifth, opponents of so called "software patents" argue that the patent of software operates to remove well_known software inventions from the public domain because the Patent Office does not have an adequate database to properly examine them. The PTO needs to continue to enhance its database in this area of technology as well as in all emerging areas of technology such as biotechnology, but denying patent protection for software inventions due solely to the database inadequacies is akin to throwing the baby out with the bath water. The examination process needs to be improved rather than restricting statutory subject matter for computer_related inventions. Now, I would like to offer you a ready_made solution which is Rule 56. Under Rule 56, applicants must provide the Patent Office with the best art of which they are aware. Often, this art submitted under Rule 56 includes nonpatent literature. This nonpatent literature in most cases is better than the patents contained in the Patent database, because patents by definition are several years behind the technical literature. Thus, the Patent Office can significantly enhance its search database by feeding in the technical literature obtained under Rule 56. Six, you inquired in Part A about claim formats, and I will address this in detail in my written submissions. Let me make just two high level comments: First, claiming should be flexible. The goal should be to define the invention so as to fully protect the inventor while providing the precision that the public so critically needs in determining whether or not they are infringing. The present rigidity often exhibited by the Patent Office in terms of specialized claim formats in emerging electronic areas prevents one or both of these goals from being met. Let's stop putting form over substance, and let's start putting effective claim drafting back into the picture. Let me give you just one example: The so_called computer program product claim is critically needed so as to allow the patentee to charge the infringer with direct infringement where only software is being sold on media or being transmitted electronically over networks such as the electronic superhighway. The Patent Office should be seeking ways to have these types of claims made permissible, rather than engaging in a bureaucratic exercise that is tantamount to a war of delay and attrition in denying these types of claims. Seventh, your twenty_year term proposal is excellent. But it must be accompanied with a rock_solid commitment from the Patent Office to significantly lower the pendency period of patent applications. Leading edge electronic companies in this valley and elsewhere now operate on product development cycles at 6 to 9 months. That is the time it takes from coming up with an idea to releasing a product into the marketplace. Our firm routinely prepares over 200 U.S. patent applications on complex electronics each year. And we know from experience that it takes two to three years to typically get these applications through the Patent Office. Mr. Commissioner, that's too long. I predict that if we cannot get pendency period down, the electronics industry will pull away from the patent system because it will take too long for them to get protection. Finally, the patent system is of enormous benefit to the electronics industry in encouraging and protecting innovation. I think that the system needs to be worked on and improved, but I think overall everything is working out well. It's just that we need to make the system in terms of eligibility more precise. Thank you very much. COMMISSIONER LEHMAN: Thank you very much. Next I'd like to call forward Victor Siber, Counsel to the IBM Corporation.