WILLIAM RYAN INTELLECTUAL PROPERTY OWNERS, INC. MR. RYAN: Good morning, Commissioner LEHMAN, and members of the Panel. My name is William Ryan, I'm a general attorney at AT&T. I'm here, however, as you say, representing the Intellectual Pro- perty Owners. They are a nonprofit association located in Wash- ington whose members are companies, including AT&T, other com- panies as w as universities and individuals who own and are in- terested in patents, trademarks, copyrights and trade secrets. IPO presents these remarks in support of the continued strong pa- tent protection for computer program_related subject matter. There can be little doubt that the computer software industry is an important and growing economic force in this economy, in fact for year 1992 it was estimated that just the packaged software industry accounted for some seventeen billion dollars in revenue, and importantly about half of that was from sales oversees. How- ever, the amount of revenue in the software industry is not lim- ited just to the packaged software. There is indeed a great deal of other software that goes on that is less visible but nonethe- less very very important. I make reference to control software for manufacturing systems, for controlling the telephone network, for the ubiquitous microwave ovens and the VCRs and intelligent_talk telephones and many many other applications. The sales and revenue$r devices or the software component of these devices and systems by many estimates well_exceeds a hun- dred billion dollars a year. Even one level higher in the scheme of things, the services provided by both the equipment and many of the underlying processes, again referring to such things as the financial systems, the telephone network and the entertain- ment business, are increasingly based on software infrastructure underpinning it. Therefore, the effect on the economy of deci- sions made relating to software have implications much beyond the kinds of software sales that might be accomplished in local over_the_counter sales. We don't come by this cheaply, though. Software research and development is very expensive. Among the hundred top packaged software companies it's been estimated that an average of seven- teen percent of revenues flows through to support continued R&D. And many companies not traditionally thought of as software com- panies __ and again only by example I'll refer to AT&T, we have an R&D (et of approximately three billion dollars per year, and some sixty percent of that is devoted to software efforts, and we are not exactly thought of as a software company. With this kind of economic importance at stake, it's clear that the managers of our business have to seek ways in which these large investments can be protected. One way that it's been adopt- ed of course is the well_known copyright as it has been applied for example to the mass_market software, and it's been done very successfully by and large. Less publicized though is the need to protect and the vulnerability in fact of the other software in- vestments, some of which I referred to before, the large systems software and the embedded software in many, many applications. So then the question is asked, Why isn't copyright protection sufficient to protect the software investment? Well, it should be clear from the very words of the Act itself that the copyright is intended to protect the expression. It does in no event pro- tect the systems,, methods, and other aspects of functionality within the software. Importantly too, copyright suffers from a limitation that it is not as precisely defined as patents, although the arcane language we practitioners use to define our inventions in patents is sometimes criticized, nevertheless it is precise, and with copyright protection there is no such preci- sion. It's a very much looser judgment that business people have to make as to where the boundary is for their protection. Moreover, the Supreme Court has made it very clear that patents are the preferred mode for protecting the functionality, the im- plementations of ideas as against the expression of the ideas, which the Copyright Law can protect. We think that computer program_related subject matter is, and has been, protected well in the past, by patents. Many people think that software protection for software commenced only perhaps in 1980 or '81 with the Diehr decision, but that is not true. We have been filing applications in the computer_relate0dustries for decades, going back at least until the 1950s. And it's proved very effective. One of the questions in the Notice of Hearing was, what experiences have we had, and by and large the experience has been good. We've been treating software inventions for some time in precisely the same way as we protect and treat inventions in other areas. In fact, in many ways it's hard to tell whether an invention is a software inven- tion or not. I'll deal with that just a little bit later. Why are the patents for software_related inventions particularly important? Well, they're not particularly important for software any more than any other inventions, for example, investors seek- ing to sponsor a start_up organization or a new enterprise within a larger company would like to have some certitude about what it is that they can hope to have some protection for and where their investment, how their investments can be protected. Also, importantly, is the disclosure aspects of patents. One of the functions serve4 patents is to disclose to the public. Be- fore an allusion was mentioned to the secrecy that often attends patents. Well, in many ways the contrary is true. Patents them- selves of course contain disclosure, but also in an organization like mine again, we encourage publication of technical ideas, in fact last year we published some forty_four hundred technical ar- ticles. Many of these would not have been published if we could not also have concurrently filed patent applications so that the publication of the technical papers would not compromise the value of our inventions included in the disclosures. Patents are important in many other ways, one of which is the __ they provide a vehicle for developing of the ubiquitous alliances that are present in the software and hardware industries. They provide a medium, in fact, for people to come together and ex- change value so that they can work together to get a cooperative result. Often this helps people and companies get into new mark- ets and establish business8hat would not otherwise exist. Again, some people have said that software inventions should be treated differently. We think not. In some respects, in fact to treat the software industry as an industry raises more questions than it answers. As I mentioned before it's much of an enabling technology in many domains, in telecommunications, in entertain- ment, in finance, in manufacturing and process control, software is often a common denominator. And the earlier_mentioned nation- al information infrastructure, the highway likewise is largely a software development, and it's been going on for some time. Some people suggest that a solution is that we should have a new statute, one especially tailored to software problems. We think not. These sui generis proposals have arisen in the past and have been bandied about for some time and in one case applied to a different subject, the Chip Protection Act is an example. We think these raise more problems than they solve as well. We think the existing scheme is whole and is fair and appropriate. If we were to adopt the sui generis scheme we'd have to live through many of the uncertainties that we've had in both the copyright and patent realm for these last twenty years. We may have to live through the same issues tried from a different per- spective. Moreover, the many other of our industrialized coun- tries, the European countries for example and Japan, have statu- tory schemes that are roughly equivalent to our present protec- tion for software_related inventions. Patents are available there to about the same extent they are here. The recently_enacted NAFTA and GATT treaties also have dictates in them that would suggest that we cannot get too far out of whack. We must have a level of protection consistent with what is currently provided by the patent statute. The questions posed in the Notice of Hearing, in some cases have been dealt with; in other cases they deal with details of claim formats, which I'm not prepared to deal with now, but which we will respond to in@ extended remarks. In concluding then, we'd like to say that consistent with the findings of the final report of the Advisory Commission on Patent Law Reform, to the Secretary in 1992, the current statutory re- gime for the protection of rights, both copyrights and patents and other matters as well, is adequate; it is working and it is working well, but not perfectly. If the experience of the last ten years teaches us anything, it is that we can't predict with any certainty what directions the information processing industry will follow in response to new technology and new global politi- cal and business trends. This vast changing environment requires the U.S. patent laws and implementing procedures to be technolog- ically neutral and flexible enough to avoid major discontinui- ties. Thank you. COMMISSIONER LEHMAN: Thank you. I have a question, and that is that, you mentioned that the exclusivity provided by the patent system encourages you to publish because obviously you can make the informationDilable and then you can be certain you'll be pro- tected, and of course that's been a traditional trade_off in the patent system; you disclose, and you get protection. One of the suggestions which was made by Mr. Clark at the very beginning of the hearing and that's floating out there is that in this particular area where it's very hard to keep up with the technology, where a lot of the prior art is not easily findable, is that we have some kind of prepublication prior to the issuance of the patent. That, if we were to do that, that obviously to some degree abrogates that traditional deal, because certainly you know that you might get the patent but you're not certain that you're going to get it prior to the disclosure, and I'm wondering if you have a reaction to that. MR. RYAN: Well, that's a risk that the parties would have to take, of course, knowing when they file their application that there's a possibility they will have in effect given away the genesis of the invention and for one reason or anotheHe not able to get a patent. That's a risk the filing party would have to take. COMMISSIONER LEHMAN: Do you think that the advantages though of prepublication would outweigh the negatives of that risk? MR. RYAN: It would have to be evaluated on an individual basis, but I think in many cases that's the case. We publish much more broadly in the technical literature than we do in the patent literature. COMMISSIONER LEHMAN: Thank you very much. Next I'd like to call Richard LeFaivre, the Vice_President of the Advanced Technology Group of Apple Computer who will be representing the Computer and Business Equipment Manufacturing Association CBMA.