JAMES CHIDDIX TIME WARNER CABLE MR. CHIDDIX: Good afternoon. My name is Jim Chiddix. I'm Senior Vice_President for Engineering and Technology at Time Warner Ca- ble. Time Warner Cable is the second_largest cable operator in the United States. COMMISSIONER LEHMAN: Can I ask, are you headquartered in New York or here? MR. CHIDDIX: Actually in Stamford, Connecticut. COMMISSIONER LEHMAN: Oh, really. MR. CHIDDIX: We serve more than seven million subscribers in thirty_six states. Our parent company, Time_Warner, is the larg- est owner and distributor of copyrighted material in the world, and intellectual property rights are something for which we have great respect. Two years ago we built the first one hundred and fifty_channel cable system in Queens, New York, and that remains the most ad- vanced cable system in the world today. Currently we're building the country's first electronic superhighway, which we call the full_service network, in Orlando, Florida, and there we'll offer a host of high_speed two_way interHve services including video on demand, interactive shopping, and distance learning. Time Warner Cable plans to spend more than five billion dollars over the next five years to deploy full_service networks in the majority of our service areas across the country. The Administration and members of Congress have indicated that building such networks is a national priority. In our experience, however, the current patent system is working against the development of an advanced communications infrastructure. Ever since we announced our full_service network plans, we and our suppliers have received a number of inquiries from individuals and companies who purport to have patent rights that cover basic but to us obvious elements of the information superhighway as well as traditional cable systems. I'd like to describe for you two of these patents. The point is not whether these patents are valid or invalid, or whether any particular use is infringing or not infringing, although we firm- ly believe that nothing weL doing infringes on any valid patent. They do serve to illustrate the current patent system is out of balance and that rather than promoting the progress of science and useful arts, that system is stifling such progress. My first example involves the Cutler patent. The Cutler patent purports to cover many uses of optical fiber to transmit televi- sion signals to receivers in the home. This patent was granted in 1979 and will expire in 1996. The use of fiber, of course, is basic to the electronic superhighway and has also been used for many years in traditional cable systems. Indeed, Time Warner Ca- ble has been a pioneer in the deployment of broad_band optical fiber in cable systems. The inventor of the Cutler patent did not invent optical fiber. Rather he merely filed a patent for using fiber to transport video signals to the home. The patent statute says that patents are not to be granted if the subject matter as a whole would have been obvious at the time the invention was made to a person hav- ing oPary skill in the art to which subject matter pertains. I'm not a lawyer, but it seems to me that the idea of using optical fiber to transport video signals to television sets is not only obvious, but also inherent in the fiber optic medium itself, which was conceived as an information conduit. If such a patent were valid, I would think it would also have been possible to ob- tain patents after the invention of television for using the medium to transmit drama, sports or news programming. These, however, are merely self_evident uses that are inherent in the medium of television, just like video transport is inherent in the medium of optical fiber. My second example involves the Starside patents which purport to cover a wide variety of features used in connection with elec- tronic program guides. Electronic program guides are on_screen guides that provide program listings for channels that are broad- cast or provided by a cable system. Starside is a number of pa- tents, but the features I discuss here are puTtedly covered by a patent granted in 1987 and another that is currently pending be- fore the Patent Office. Pursuant to this patented application, Starside apparently claims and seeks protection for the following electronic program guide features. First, the ability to move a cursor of automatically_varying size about on an onscreen program guide, to highlight a particular program on the schedule and then press a button on a remote control to tune the channel on which that pro- gram is being transmitted. Second, the ability to combine two or more criteria, such as sports and football, to obtain a listing of the times and channels on which programmings filling those criteria will be telecast. Again, to me these features seem obvious and inherent in the technology that provides them. Daily newspapers have long provid- ed channel listings, often using a grid format that shows what programs are on what channel at what time. In addition, indivi- dual broadcast channels and cable systems have long_telecast on_sXn programming schedules. When a television viewer uses such a schedule he finds a program of interest, identifies the chan- nel, and punches the number into the remote. The Starside system merely does this tuning process automatically through a straight- forward transfer of the process to a computer. Similarly, when I want to watch football games on television, I simply scan the program schedule for such programs. It would be a simple but somewhat time_consuming task to write out a list of such pro- grams, but again, preparing lists from data based on multiple criteria is a simple, straightforward and obvious computer appli- cation. Under existing law, patents for what I've just described may be valid or invalid. As I said at the beginning of my remarks, how- ever, in either case, such patents present impediments to pro- gress. If such patents are found to be valid, surely the patent system has gone too far in providing protection for what would seem obvious to a layperson, let alone to a person have ordinary ski the art. The result of awarding such patents at best results in added costs for no added value, if a license is obtained, and at worst prevents consumers from fully realizing the benefits of technology if a license cannot be obtained at a reasonable price. If such patents would ultimately be found to be invalid, however, the patent system would still not be working properly. Some of the Starside patents are currently being challenged in court. Business, however, cannot come to a halt in the meantime. Also, litigation is costly, slow, and never free from risk. Rather than expend time and money on litigation, many prudent business people will choose to avoid the problem. Indeed, one of our suppliers of set_top boxes has informed us that rather than challenge the Starside patents, they will instead defeature the boxes they are making for one of our cable systems, removing ability of those boxes to provide some of the features that Star- side claims are covered by its patents. This is not an uncommon o`rational decision. This supplier will be spending many mil- lions of dollars to manufacture these new boxes. Even though they believe that Starside patents are not valid, it is simply not worth the risk and the cost of fighting them in court. Of course our supplier can always attempt to obtain a license for these features, but again this would result in added cost for what in our view provides no real added value. So in our view, the present system of patent protections is not optimally promoting innovation in the field of software_related inventions. Rather, the current system is in some important in- stances stifling innovation, increasing costs and leading to de- featuring rather than fostering the development of new and better products and services. However, it is not the framework of the system that is the problem. The statutory tests of obviousness, and the person of ordinary skills standard, in themselves strike the proper balance. What is needed then is not a new framework for patent protectiond software_related inventions, but a more rigorous application of the present standards. For one thing, obviousness should include routine applications of a given technology regardless of whether there is prior art showing that particular application. For another, any invention that merely transfers a series of routine tasks to a computer should also be viewed as obvious. As your Notice for these hearings states, the computer software industry has evolved into a critical component of the U.S. econo- my. Indeed, the importance of this component is growing greatly every day as the computer, cable and telephone industries contin- ue to converge. If the United States is going to continue to be a the forefront of these crucial industries, it is imperative that the patent system be restored to its proper balance so that it can properly foster rather than frustrate innovation. Thank you. COMMISSIONER LEHMAN: Thank you very much, Mr. Chiddix. Time_Warner's certainly a company, unlike some of the other peo- ple whhve testified, who is well_able to use every legal tech- nique at its disposal to protect its rights, and does so if it has difficulties. I'm, I __ it's interesting to me that you haven't __ you have never apparently used the reexamination sys- tem to attack some of these patents that you disagree with. Is that because you did not feel the problem was in the prior art that was examined, that it was more the legal standard that was applied by the patent examiner, or is there some other reason why you failed to use the existing examination system? MR. CHIDDIX: These are both very current cases, and I'm not sure that all avenues have been explored. The obviousness argument is one though that even reexamination may not be fully armed to deal with. COMMISSIONER LEHMAN: I take it you don't share the view of some of the witnesses that we should completely eliminate software pa- tents, rather, we should tighten up on the legal standard of pa- tentability for software patents. MR. CHIDDIX: Yes. That's correct. ClSSIONER LEHMAN: Thank you very much. Are there any other ques- tions? If not, thank you very much. Next I'd like to ask Wallace Judd, the President of Mentrix Cor- poration to come forward if he would please. Is he not here? In that case I think we'll move on to Robert May, Ikonic Corporation. Is he here? Okay, well, then we're __ this is why we ask people to be here at least twenty minutes ahead of time, the scheduled time, because we can see what happens. The next person on my list is Pete Antoniak of Solar Systems Software. He's not here? Mr. Antoniak is not here? Is Professor Hollaar here? Good. Since you had to come all the way from Utah, you're __ MR. HOLLAAR: Early. COMMISSIONER LEHMAN: You're early. So you'd help us out and maybe some of these other people will arrive. Thank you very much, Professor, for joining us.