From: srctran@world.std.com (Gregory Aharonian)
Subject: Patent Office Reform Panel Final Report PART2b
Message-ID: <C1xHrA.1u4@world.std.com>
Organization: The World Public Access UNIX, Brookline, MA
Date: Thu, 4 Feb 1993 14:33:10 GMT
Lines: 2373


    Last year, the Patent Office sponsored a committee to review current
patent practices in the United States.  Last fall they issued their final
report, which contains many interesting suggestions, including first to
file, software patents, excessive secrecy orders, international harmonization,
challenging patents, reexamination, excessive legal costs and other issues.

    In particular, I know that a few Congressmen are introducing legislation
this spring to switch the U.S. from first-to-invent to first-to-file.

    Also, it seems that the Patent Office library does not have any IEEE or
ACM publications, as incredible as that might seem (nor have they deemed to
buy a copy of my directory of much of the government's software, a great
prior art source).

    What follows is the text to their final report, split into five files.
A paper version of this text can be obtained from the Patent Office.  I
would like to thank Noah Friedman, Toni Emerson, Keith Berrier, Glenn Tenney,
Rahul Dhesi and Jude Wilkinson for all contributing ten dollars to help me
defray the cost of acquiring a $1.50 diskette from the Patent Office with
these files.

    Gregory Aharonian
    Source Translation & Optimization

==============================================================================

                                    PART TWO 

                            PATENT ENFORCEMENT ISSUES


V.  REDUCTION OF THE COST AND COMPLEXITY OF PATENT ENFORCEMENT

A.  Overview and Introduction

    The Commission recognizes that one of the most significant problems facing
the United States patent system is the spiraling cost and complexity
associated with enforcement of patent rights.  Patent litigation suffers from
many of the problems of excessive costs and delay which plague the modern
system of civil justice in the United States.  Yet, additional unique problems
exist for patent litigation, problems which are not shared by other forms of
civil litigation, and which have the potential to eradicate the basic
incentive provided by the patent system.

    In addressing this issue, the Commission looked at ongoing legislative
and judicial efforts to reform civil litigation in the United States, and
identified specific proposals from those efforts that would be particularly
beneficial in reducing cost and complexity of patent litigation.  The
Commission also considered the unique aspects of patent litigation, and
formulated proposals which address these unique aspects.  In both instances,
the Commission was cognizant of the problems associated with dramatic reform,
and therefore formulated three tiers of recommendations.  The first set of
recommendations propose reforms to practice which can be implemented without
legislative action.  The second set require more extensive action, including
legislative reform.  The final set are directives for further study on novel
approaches to resolution of patent disputes.

    Most of the recommendations of the Commission concentrate on procedural
reforms, rather than reform of substantive patent law.Reducing "transactional"
costs of modern civil litigation,  particularly through efficient and
straightforward procedures for enforcing patent rights, will provide the
most immediate tangible benefit for parties involved in patent-related
disputes.  Subsequent reform of substantive patent law principles, and
provision of alternative mechanisms for resolution of patent related
disputes can then follow to maximize benefits. 

1.  Litigation Problems as a Threat to the Patent System

    For over 200 years, the patent system has been hospitable to private
inventors and entrepreneurs of limited means, to businesses, both large
and small, and in more recent times, to universities.  This has been so
notwithstanding instances where owners of meritorious patents have been unable
to enforce their patent rights, or where commercial firms have been required
to pay tribute to patents of no merit, due to high transaction costs
associated with litigation.  In recent years, however, this situation has
changed substantially, due to the explosion in both the volume and cost of
modern civil litigation [1].  The protracted nature of modern complex civil
proceedings results in enormous costs, measured not only in dollar amounts,
but in lost opportunities and burdens on the day-to-day operations of
businesses, both small and large [2].

    Yet, the inherent value of granting a right to exclude others from making,
using or selling a patented invention, can only be realized if the patent
owner has effective and inexpensive access to an efficient judicial system.
This is due to the unique nature of the property right bestowed by the grant
of a patent.  The value of this right of exclusivity cannot be realized
without the exercise of the option of resort to the Federal judicial system
for enforcement of that right.  As such, the patent system has a particularly
close and dependent relationship with our system of civil justice.

    Recent cases involving multi-million dollar damages awards tend to
camouflage the problem of excessive costs in enforcing patent rights [3].
In such instances, legal fees in excess of even a million dollars appear
to be a reasonable expenditure based on the magnitude of the return.  But
viewing excessive costs of enforcing patent rights as an acceptable form
of "transaction" fee which merely reduces the patentee's net return is a
dangerous step to take.  Current levels of litigation costs can be easily
absorbed for only the most significant, and economically valuable patented
inventions. The vast majority of patented inventions that serve to promote
the technological advancement of our Nation, however, are not those of a
"pioneering" stature, but instead are incremental, useful improvements to
established technology.  As Judge Rich of the Court of Appeals for the
Federal Circuit aptly summarized,

     [i]n the very nature of things, progress is made as a result of the
     big and the little contributions, mostly the latter.  We get a telephone
     or a triode -- in modern jargon a "major scientific breakthrough" --
     only at rare intervals.  The seemingly little advances are the bread
     and butter of progress and sometimes turn out to be of much greater
     importance than at first thought.  The biggest contribution the patent
     system makes is to induce a steady flow of contributions and secure
     their continuous disclosure [4].

    Significant transaction costs threaten this steady flow of innovations,
and their voluntary disclosure, by making enforcement of patents to such
innovations impossible from a simple cost-benefit analysis.  Removing the
capacity of the innovators of such techniques and improvements to benefit
from use of their patent rights due to excessive "transaction" costs thus
threatens the basic incentive that the patent laws are intended to provide;
namely, the reward of exclusive rights in exchange for disclosure of the
innovation.

    Thus, there is an essential relationship between the value of patent
rights, and the cost of patent litigation.  Where the market value of a
patented invention is less than the cost of its enforcement, the patent has
essentially no economic value to its holder.  If the patent owner does not
have a strong financial posture, threatened litigation can be used as a
bargaining tool to decrease or even eliminate the potential value of a
patented invention to the patent owner.  Even where parties are equally
situated, excessive "transaction" costs in enforcing patent rights serve
only to lessen the value of patents to their holders, and thus, weaken the
incentive they are designed to provide.

    The Commission fears that, unless problems of cost and delay in patent
litigation are addressed now,  the central purpose of the patent system to
provide an effective incentive for development and commercialization of new
technology,  will be seriously eroded.  Such an erosion could well pose a
threat to the very existence of the patent system, and to the significant
contributions the patent system makes to the Nation's economic and competitive
status.

2.  Common Problems - General Civil Justice Reform Initiatives and Reform

    Many of the sources of delay and expense in patent litigation are not
unique, but rather are shared by other forms of complex civil litigation.
The Commission therefore believes that reform of the basic model of civil
litigation in the United States in a subject matter independent fashion will
provide the most effective first step in reducing the cost and complexity of
litigation related to patent enforcement.  Recognizing this, the Commission
has endeavored to study existing legislative, administrative, and private
initiatives to reform civil litigation [5].

    In 1990, Congress took a major step to address the problems of modern
civil litigation, when it passed the Civil Justice Reform Act.  This Act
provides a framework to effectuate reform by reducing the cost and delays
associated with modern civil litigation [6]. The specific goals of the Act are
to facilitate deliberate adjudication of civil cases on the merits, monitor
discovery, improve litigation management, and ensure a just, speedy, and
inexpensive resolution of civil disputes.  It seeks to achieve these goals
through use of mechanisms such as differential case management, judicial
monitoring and reporting requirements, and through additional judicial
resources.  The only mandatory requirement of the Act is implementation of
civil justice expense and delay reduction plans in each Federal district by
December of 1993.  The Act does not require implementation of a defined or
minimum set of specific procedures, but leaves this to be determined by
advisory groups appointed by the courts in each district.  Expense and
delay reduction plans thus will be developed and implemented on a
district-by-district basis.  Early adoption of cost control and reduction
plans is voluntary, except for certain courts which are designated as early
implementation district courts.

    The President's Council on Competitiveness also commissioned a study by a
Commission on Federal Civil Justice Reform, led by former Attorney General
Kenneth Starr.  The Commission's study of civil litigation, titled the Agenda
for Civil Justice Reform in America, set forth a series of measures designed
to reduce cost and delay in modern civil litigation [7]. The report is helpful
in both identifying  current problem areas, and in providing substantive
reform measures which would effectively reduce litigation costs in the United
States.  A bill based upon the report, entitled the Equal Access to Justice
Act of 1992, was recently introduced into both houses of Congress, and
incorporates a number of the recommendations of the Agenda for Civil
Justice Reform, including 

    -    implementation of the so-called "English Rule" of awarding costs
         and attorney fees to the losing party,

    -    a requirement for pre-filing notification by a potential plaintiff
         of the intent to file suit, and

    -    a "multi-door courthouse" system for promoting alternative dispute
         resolution through the framework of the Federal Judiciary [8].

    In addition to the bill, President Bush issued Executive Order 12778
of October 23, 1991, which directs Federal agencies to adopt many of the
suggestions made by the Agenda for Civil Justice Reform in conducting civil
litigation [9].

    The patent bar is also active in studying and analyzing civil justice
reform, in the specific context of patent litigation.  Several excellent
reports on the costs and problems of modern patent litigation have been
produced by associations such as the Patent, Trademark and Copyright Law
Section of the American Bar Association (ABA/PTC), and the American
Intellectual Property Law Association (AIPLA).  These reports have been an
important source for both the identification of problems of modern patent
litigation, and for information and solutions to these problems.

    Finally, an invaluable source of information is the public, either through
the commentary received in response to the Commission's invitation for public
comments [10], or via commentaries in the legal and technical literature and
in the press.  This source has provided perspectives and suggestions as to
how best to reduce the cost and complexity of patent litigation, and civil
litigation generally, in the United States. 

3.  Overview of Problems in Modern Patent Litigation

   To accurately assess the status of modern patent litigation, the Commission
analyzed enforcement of patent rights from two perspectives; interpretation
and application of substantive patent law to define rights of patent owners
and parties charged with infringement, and the procedural system of resolving
disputes related to patent rights. 

    The former area has seen dramatic improvement since the implementation of
the Court of Appeals for the Federal Circuit in 1982[11]. Prior to the Federal
Circuit, there were numerous problems in the enforcement of patent rights
caused by different interpretations of substantive patent law among the
various districts.  Forum shopping was rampant, the presumption of validity
of patents was seriously eroded, and the divergence among districts in
application of the standards of validity and infringement led to a tremendous
uncertainty in patent rights. Since its inception, the Federal Circuit has
greatly assisted in bringing about uniformity, consistency and certainty to
the patent law, and this has led to a stabilization of problems in the
application of the substantive patent law [12].  For this reason, the
Commission has provided relatively few recommendations calling for changes
to the application and interpretation of the patent laws.

    While great progress has been made toward stabilization of the substantive
patent laws, the opposite has occurred as to the process of defining and
interpreting patent rights.  There has been a large increase in the number of
criminal cases filed and heard in Federal courts, and a noticeable rise in the
volume of Federal civil litigation.  These two forces have placed tremendous
burdens on the Federal courts, which in turn has led to increased delays and
spiraling costs in litigation.  Unfortunately, the delays and complexity of
modern patent litigation have provided overaggressive lawyers with an ample
assortment of opportunities to stall, delay and harass.  The net of these
factors is that patent litigation has become an increasingly inefficient,
ineffective and undesirable means of resolving patent-related disputes.

(a)  Discovery Problems

    The problems in modern civil litigation have led to many studies and
calls for reform, some of which were mentioned earlier.  The implementation
of any effective cost and delay reform program, however, first requires
identification of the factors which increase cost and complexity.  Not
surprisingly, there is a substantial correlation between the perceived problem
areas for patent litigation and complex civil litigation in general. The most
significant single problem area, without a doubt, is uncontrolled or abusive
discovery practice.

    Excessive and uncontrolled discovery is cited in nearly every study of
civil litigation as being the dominant factor adversely influencing modern
civil litigation.  For example, Congress cited a "compelling need for judicial
officers to control discovery and its attendant costs" pursuant to enacting
the Civil Justice Reform Act [13].  Lawyers who overdiscover cases rather
than focusing on controlling issues, and who use discovery as an adversarial
tool or tactic, were the most frequently cited cause for increased transaction
costs.  The Agenda for Civil Justice Reform indicates that over 80% of the
time and cost of a typical lawsuit stems from the pretrial examination of
facts through discovery.  More shocking is their finding that fully 77% of
the litigators in one large U.S. city acknowledged that they used discovery
as an economic weapon against their opponent. 

    This view of discovery is also shared among members of the patent bar, the
patent user community and the public in general.  For example, in a recent
AIPLA report, discovery problems led a list of factors which representatives
of the patent bar, corporate patent counsel, and the bench viewed as imposing
an adverse influence on litigation cost and complexity [14].  A report of a
survey of corporate patent counsel showed that lack of control over discovery
by both in-house and retained counsel and the court was viewed as a major, if
not the predominant, problem affecting cost and delay in litigation [15].
Comments from the public uniformly labeled discovery abuse by overzealous and
unrestrained lawyers as being the primary factor leading to increased costs
for litigation[16].  Many comments suggested that adoption of strict controls
over discovery would be the most dramatic single step that could be taken to
reduce litigation costs.  In fact, one commentator recently suggested that
discovery be eliminated altogether; this after indicating that discovery is
in the process of overwhelming civil litigation [17].

    A quote from a recent article criticizing the modern discovery practice
effectively illustrates the nature of the discovery problem.
        Some have suggested cynically that lawyers have glommed onto
        discovery because it has become the ideal way to rack up
        billable hours -- with legions of leveraged associates reinventing
        new forms of multipart interrogatories, and document requests
        spewing forth from word processors like the multi-headed Hydra
        of mythology.  As soon as one discovery head is cut off, two
        more appear in its place.

        When the other side responds in kind by launching its retaliatory
        first, second and third waves, the lawyers then can generate
        even more billables by dispatching another team to sift through
        every nook and cranny of the client's files.  The object is to
        find the smoking gun the other side just knows has to be there.

        Of course, all the while, both sides have to fight about the
        scope of discovery, privilege, protective orders, the length
        (and place) of depositions, and so on -- generating even more
        revenue [18].

   This view of the suffocating and hostile arena of modern discovery practice
perhaps unfairly targets attorneys and their practice of discovery.  The
problem, however, is not simply that attorneys are vigorously defending the
interests of their clients.  The blame for this problem area extends also to
clients who urge or consent to this war-like perspective of modern civil
litigation.  Finally, the failure of the judiciary to consistently and
aggressively suppress such practices perpetuates the problems.  Thus, any
solution to the problems of discovery must involve all three elements; namely,
clients, attorneys and the judiciary.

(b)  Lack of Control Over Litigation Proceedings

    Delays and interruptions in each stage of the litigation process, either
as a result of inadequate judicial case management, crowded criminal dockets,
or through intentional or inadvertent actions of counsel, contributes
substantially to the cost and complexity of patent enforcement.   Delays in
reaching trial, for example, can lead to more opportunities for unnecessary
and expensive discovery.  Forced rescheduling of trial dates to accommodate
criminal actions leads to enormous expenses due to the unnecessary
re-preparation of witnesses, counsel and parties.  Inadequate judicial
control over the different stages of litigation, especially the pre-trial
discovery stage, can lead to extended delays between the filing and resolution
of an action and can allow parties to run up enormous costs in preparation
for trial.

    Problems related to scheduling and control of litigation proceedings are
also not unique to patent litigation.  For example, the Brookings Institute in
a report entitled "Justice for All" pointed out that a substantial proportion
of the lawyers and Federal judges interviewed indicated that the inability of
judges to adequately manage and control their cases, especially during the
discovery stage, is a significant cause of delay and expense [19].  This,
however, was not the sole problem.  The report indicates that a substantial
number of lawyers and judges also consider the failure of judges to hold early
substantive conferences, to use the rules and discretion with which they are
empowered, and to set early, firm trial dates creates unnecessary costs and
contributes to delays.   The concern over efficiency of the trial process is
also reflected in the Agenda for Civil Justice Reform, which stresses the need
for more efficient litigation.   

   The AIPLA reports also rank inadequate control over litigation as a primary
factor in increased costs and delays in patent enforcement. The Myrick report,
for example, compiled a list of the most significant factors which lead to
cost increases and delay.  These factors include:

    -    inadequate judicial case management, including failure of courts
         to control the discovery process, to impose sanctions or protective
         orders, to manage cases within the rules and within court discretion,
         and to hold substantive conferences at an early stage;

    -    the court's failure to schedule early, firm trial dates, and to
         promptly decide motions and render opinions, and

    -    clogged dockets, backlogs of cases, and interruptions from
         criminal dockets due to the requirements of the Speedy Trial Act. 

   Thus, the reports stress the need for more aggressive control by the courts
over litigation, as well as substantive reforms to avoid delays in beginning
and concluding litigation proceedings. 

(c)  Problems Unique to Patent Litigation

   As noted above, many of the problems encountered in enforcing patent rights
are not unique to patent litigation. Positive, substantive changes to the
basic model of civil litigation will have a correspondingly positive impact
on patent litigation. 

   However, there are features unique to patent litigation which have a direct
bearing on costs and complexity.  These include the quality of the patent
itself and certain provisions of substantive law.  The extent to which a
patent owner or accused infringer is willing to commit resources to engage
in litigation depends not only on the merits of the claimed invention but also
on the quality of the patent.  The Commission believes that patent enforcement
can be improved by increasing the quality of patent examination at the USPTO.
Increased quality of examination will strengthen the presumption of validity,
which in turn will decrease the number of unwarranted challenges to patent
validity.  This will also increase the confidence of the courts in applying
the statutory presumption of validity. 

    Therefore, the Commission firmly believes that it is essential that the
USPTO continually strive to improve the quality of its examination process and
that it be provided with the resources to do so.  The Commission endorses
USPTO's efforts to improve patent quality through examiner training courses,
improvements in searching facilities, and other such programs.

   There are several provisions, however, in the patent law which, in the view
of the Commission, impose disproportionately large costs on the patent
enforcement process compared to their punitive benefit.

    Certain problem areas of modern civil litigation have a particularly
detrimental effect during patent litigation.  For example, uncontrolled
discovery can pose an especially heavy burden on both the patentee and the
accused infringer.  Interruptions in the work schedules of key scientific or
research staff can cause significant delays in a product development cycle,
and can lead to economic harm unrelated to the patent dispute.  Where there
is intense competition in the field between the two parties, litigation, and
in particular discovery, can be exploited as a potent economic weapon.
Another problem is the inadequate or ineffective use of protective orders,
as well as sanctions for violation of such orders, which can lead to
disclosure of sensitive information useful to one's opponent outside of
the context of the litigation.

   Also, because patent enforcement actions frequently raise complex technical
or scientific issues, there is frequently a heavy reliance on testimony of
expert witnesses.  Inadequate control over expert witnesses in patent
litigation can lead to a disproportionately greater risk for abuse because
of this reliance.  When an expert witness is  permitted to act as an advocate,
the process of fact-finding becomes distorted.  Furthermore, conflicts in
testimony from experts from either side of the dispute increase the complexity
of the already complicated issues involved in the patent enforcement action.

    Finally, patent rights are uniquely susceptible to abuse, due to the
availability and increasing reliance upon injunctive relief.  Here, the mere
threat of an injunction can be used as an economic weapon against a party
unable to afford either the time or the cost to defend against a patent
infringement suit.  Similarly, where a start-up company has obtained a patent
and intends to rely on those rights to establish itself in the market, the
threat of a long, drawn-out and expensive patent fight can force that party
to effectively relinquish the advantage it has earned through procurement o
the patent grant. 

B.  Summary of Public Comments

    There was nearly a universal consensus among the public comments that the
costs, delays and complexity associated with modern patent enforcement are
excessive [20].    Numerous comments stressed the need for a means for
resolving patent-related disputes in a cost-effective manner, noting that
patent rights become basically worthless if the costs of enforcing such
rights outweigh their commercial value.

    While echoing the concern over the costs of patent litigation, many
respondents, however, noted that problems in enforcing patent litigation are
not unique, but are common to nearly all forms of complex civil litigation.
As such, these comments suggested reform in a subject matter independent
fashion.  Several comments also suggested that existing judicial reform
measures, such as the Civil Justice Reform Act, once implemented, will
sufficiently address many of the problems associated with patent litigation. 

   The most frequently cited source of excessive cost and complexity in patent
litigation was discovery, specifically, abuse of the discovery process by
overzealous, uncontrolled trial counsel, and lack of judicial oversight and
control over discovery requests.  While many suggestions were offered to
address problems related to discovery practice, the most frequent was for
strict control of, and limitations on, discovery practice to control costs
of litigation.   Specific suggestions included:

    -    require greater judicial control over discovery proceedings,
         either by the judge hearing the case, or through use of a
         magistrate or "special" master;

    -    require parties seeking unnecessary discovery to pay all costs
         associated with the discovery request;

    -    require "standardized" forms of interrogatories and requests for
         admissions on key issues ("core issues") pertaining to validity,
         infringement, and damages, coupled with judicial enforcement to
         ensure complete and candid responses;

    -    encourage more efficient resolutions of discovery disputes;

    -    encourage greater use of sanctions for abuse of discovery practice;

    -    require mandated admissions and answers, and a severely limited
         motion practice;

    -    require more concrete pleadings;

    -    impose an inflexible discovery period in every case;

    -    restrict the ability of parties to defer responding to discovery
         requests through pro forma initial responses followed by
         supplemented responses at a much later date; and

    -    enact a "small claims" procedure which would have as a main
         element a significantly limited  discovery practice.

    The second general problem area pointed out in the public comments is the
failure or inability of judges to control discovery and trial proceedings.
Two sources were cited for this problem.  The first was the scheduling
burdens created by heavy criminal dockets by the Speedy Trial Act and an
ever-increasing jurisdiction of Federal courts over criminal activity.  The
second was the failure of certain judges to use their authority to manage and
control cases.   For example, one response stated that the Federal Rules of
Civil Procedure provide enough authority for a court to adequately control
parties through use of sanctions, but is not exploited by many judges in their
handling of patent-related cases.  Some indicated that these problems were
largely due to judges and trial counsel inexperienced in handling the
complicated legal and technical issues endemic to patent litigation.

    Several problems were cited as being caused by this lack of control.  For
example, several individuals suggested that inadequate control over litigation
enables parties to file unwarranted requests and motions designed to delay the
proceedings and harass the other party.   Others suggested that interruptions
and delays in long, complex litigation significantly increase the costs of
litigation because witnesses, counsel and parties must constantly reschedule
their appearances, re-prepare testimony, and repeatedly refresh their
familiarity with all the issues in the case.

    The suggestions offered to combat these problems included:

    -    encourage or mandate greater control over all phases of the
         litigation and over the parties by the judiciary;

    -    require Federal judges to decide fully submitted matters within
         a stated and fixed time period;

    -    impose a strict, non-extendible timetable (e.g. between six and
         eighteen months) for trial and entry of judgment, similar to ITC
         proceedings (one party predicted that such a timetable would
         encourage use of alternative dispute resolution (ADR) to resolve
         patent disputes);

    -    provide better training of judges and counsel, with respect
         to management of complex litigation;

    -    make the criteria for obtaining punitive damages more severe;

    -    limit the number of witnesses which can be called at trial;

    -    eliminate the option of a jury trial for patent validity cases;

    -    encourage courts to approach summary judgment motions more
         aggressively; and

    -    encourage use of judge-party conferences after pleading and basic
         discovery to focus litigation on only essential issues.

    Factors other than problems in discovery and control over litigation were
cited as well.  For example, some argued that the availability of certain
defenses to patent infringement such as the "best mode" requirement and
non-objective standards for evaluating inequitable conduct only serve to
increase litigation cost and complexity without providing benefits
commensurate with their costs in practice.   Some of the suggestions offered
to generally improve patent litigation included:

    -    remove patent validity issues from judicial consideration by
         creating an administrative panel located in the USPTO with
         exclusive jurisdiction to hear patent validity questions, staff
         the panel with knowledgeable and experienced people, permit the
         panel to issue decisions on validity, infringement and/or damages
         issues,  permit the entire range of patent defenses to be raised,
         and prohibit live testimony;

    -    eliminate or reform the non-substantive mechanisms for invalidating
         patents (e.g. "best mode" requirement, formalities of the
         oath/declaration, duty of candor requirements), as such procedures
         do not clearly enhance the quality of the public disclosure made
         through the patent, and typically do not have counterparts in
         foreign patent enforcement systems;

    -    create a special branch in the Federal district court system,
         which would be staffed by judges experienced in patent litigation,
         would not have criminal dockets, and would provide only bench trials;

    -    appoint a special "patent" expert magistrate or judge to each
         Federal district court to assist or handle patent-related litigation;

    -    reduce the number of trial courts with patent jurisdiction rather
         than create specialized patent courts;

    -    permit the use of "express mail" filings in district courts, and
         permit parties to be represented by non-local counsel which have
         been admitted to practice in another Federal district, to reduce
         the need for "local" counsel; and,

    -    reform current reexamination proceedings, and/or provide for
         pre- or post-grant oppositions.

    The responses showed mixed support for the concept of a "small claims"
patent proceeding or court.  Some respondents argued that such a proceeding
would be unnecessary once adequate reforms to the basic civil litigation model
were effected.   Others added that a small claims proceeding which excluded
the option of injunctive relief would not be widely used due to the frequent
requirement for this form of relief as part of a patent enforcement strategy.
Others suggested that specialized patent courts, rather than a "small claims"
court, should be pursued.  Finally, one response commented that a small claims
proceeding would only serve to tie up the currently overcrowded Federal
district court dockets, and would introduce additional complicated procedures
and issues into the already complex and confusing current nature of patent
litigation.

     On the other hand, several responses indicated support for a simple,
straightforward, and low-cost procedure to enforce patents.  The responses
supporting such a proceeding believed it would provide a viable alternative
to full scale patent litigation, provided that parties of unequal bargaining
strength could be compelled to use the "small claims" format,  that there
would be a severely limited discovery practice, that a realistic upper limit
on the amount and form of damages, and that the costs associated with such
a proceeding were kept at a minimum.

    A summary of the elements recommended for inclusion in a small claims
patent court or proceeding included:

    -    restrict the issues and defenses which could be raised during such
         a proceeding;

    -    avoid introduction of procedures which unfairly favor a claimant;

    -    require strictly controlled discovery, by requiring particularized
         pleadings, standardized discovery requests, tightly controlled
         discovery deadlines, and early identification of witnesses;

    -    allow the procedure to be compulsory at the option of a small
         claimant;

    -    if injunctive relief is permitted, only allow such relief in the
         form of a post-trial, and not pretrial, injunction;

    -    permit awards of attorneys fees and increased damages where
         appropriate;

    -    restrict issues to the main claims and compulsory counterclaims; and

    -    provide a direct appeal to the Court of Appeals for the Federal
         Circuit.

    Finally, many individuals indicated support for increased use of ADR
mechanisms.  Many comments pointed out that the benefits of alternative
dispute resolution procedures, such as speeding resolution of a dispute
settlement, simplifying the process of resolution, and providing greater
control over the procedure and effects of the resolution.  Other responses,
however, pointed out problems associated with either the alternative dispute
resolution process, or its lack of use.  For example, some comments suggested
that there is no significant cost savings or reduction in complexity of issues
or of a proceeding when arbitration is used.  Others pointed out that
arbitration will not be sought voluntarily except when both sides to a dispute
are forced into a mutually undesirable situation.  Reasons offered for the
failure of parties to pursue the use of alternative dispute resolution means
included a lack of formal authority, or of participation by business
principals which causes problems during negotiation, a lack of adequately
skilled arbitrators, and the inability of small entities to force larger
entities into using alternative dispute resolution. 

    Suggestions offered to encourage greater use of alternative dispute
resolution mechanisms included:

    -    allow judicial discretion to assign costs of trial to a party
         which refuses to employ ADR, and then loses on the merits;

    -    encourage, as appropriate, the practice of having judicial
         officers point out the benefits of an alternative dispute
         resolution proceeding early in the litigation;

    -    impose strict requirements on litigation as a means of providing
         an incentive to use extrajudicial procedures to resolve patent
         disputes;

    -    combat the lack of expertise of the bar in use of alternative
         dispute resolution procedures through education and promotion; and

    -    provide experts from the Patent and Trademark Office to mediate
         disputes related to validity.

    The responses as a whole were very helpful, both with respect to
identifying problem areas and in providing possible solutions.

C.  Recommendations and Discussion

    The tenor of nearly every recent study of civil litigation stresses the
need for some change of the existing system, whether that change takes the
form of formal revisions to the Rules of Civil Procedure, creation of
specialized procedures or courts, or simply urging courts to take a more
aggressive role in controlling litigation.   Whether one views the basis for
change as a necessary means for controlling modern civil litigation, or
as a means for ensuring that the value of the patent grant as an incentive
continues, change, per se, is not objectionable, provided it reduces the
transactional costs  associated with modern civil litigation.  As both the
Brookings Report and the Myrick Report noted, there is no inherent advantage
to either defendants or plaintiffs through changes in procedure which are
effective in reducing these "transaction" costs.   Thus, the Commission
presents a series of specific recommendations designed to change the way
modern patent litigation is conducted, so as to reduce the transactional
costs associated with the litigation. 

Recommendation V-A

(i)   Encourage implementation by the district courts of differentiated
      case management plans for cases raising issues of patent validity
      or infringement, where that plan includes:
      (a)   the early setting of a firm trial date;
      (b)   use of a discovery case management system that requires the
            court, either through direct intervention of the trial judge,
            use of a magistrate, or through appointment of a "special master"
            pursuant to Rule 52 of the Federal Rules of Civil Procedure,
            to exhibit careful and deliberate monitoring over discovery so
            as to encourage the limiting of issues by the parties, the range
            of issues discoverable, and the number and extent of discovery
            requests;
      (c)   strict deadlines for filing, hearing and deciding
            discovery-related motions;
      (d)   use of a mandatory disclosure procedure for core information
            having the following elements:
            (1)   an automatic protective order that will cover any
                  information provided under the core disclosure requirements
                  which the parties designate, and which the court shall
                  issue prior to the disclosure of such designated core
                  information;
            (2)   a short time frame to comply with the mandated disclosure
                  requirement;
            (3)   the use of Rule 11 sanctions for non-compliance with the
                  mandated disclosure provisions;
            (4)   a pretrial conference to define the remaining scope of
                  discovery, to finalize the pleadings, and to limit issues
                  pending in the action to take place shortly after the
                  mandated disclosure has been completed;

            where the information to be disclosed by each party is established
            by the Court according to preestablished guidelines and shall not
            be subject to change through actions of the parties or the court;

      (e)   use of a mandatory mediation conference to resolve some or all
            issues pending in the action, conducted not by the trial judge
            but by a  person trained in the conduct of mediation, to be
            held at a time before the final pre-trial conference.

(ii)  Provide formal recommendations to the advisory groups of each district
      on key provisions for inclusion in the district's civil justice expense
      and delay reduction plan.

(iii) Implement changes to practice in a uniform and consistent manner among
      the Federal district courts.


    The first element of the Commission's plan for reform of patent litigation
is based upon a central theory of the Civil Justice Reform Act, namely,
differential case management [21].  Differential case management procedures
will permit courts to fashion flexible, content-oriented procedures for
handling specific classes of  litigation, such as patent litigation.
Importantly, courts can implement case management plans to address problems
commonly encountered in patent litigation by exploiting existing provisions
of the Federal Rules of Civil Procedure.   Through such plans, immediate
benefits in reducing costs and complexity associated with patent enforcement
can be realized [22].

    Development and implementation of specific differential case management
plans has been entrusted to Civil Justice Reform Act advisory groups in each
district.  As such, the Commission favors promoting certain procedures which
it believes will provide the basis for effective patent case management
scheme.  The recommendations on this point are thus largely directed at these
advisory groups with the hope that they will consider the model scheme in
formulating their final civil justice cost and delay reduction plan.  The
Commission believes it is imperative that these groups take into account the
special needs of patent litigation in formulating their litigation cost and
delay reduction programs.

    It is important to stress, in view of the desire for uniform national
policy on patent law, that adoption of civil cost and delay reduction plans
which address the unique problems of patent litigation should take place in
a uniform manner nationwide.  While justifications exist for variations in
local rules, such variations should be restricted to those matters for which
there is a clear local need.  Inconsistencies in rules of practice between
the different Federal district courts introduces unnecessary transactional
costs through the need for local counsel and additional training of retained
counsel.  As such, the Commission encourages the various Federal district
courts, and the Federal Judicial Center, to implement rule changes in a
uniform, and consistent manner.

    With the goals of increased control over proceedings, and decreased costs
and delays, the Commission identified certain procedures which should serve as
the basis for voluntarily adopted plans for management of patent litigation.

1.  Useful Elements of a Patent Litigation Case Management Program

    The findings and recommendations of the Commission represent a compilation
of changes which can provide immediate benefits in reducing costs and delay
in patent litigation.  The list of procedures and practices is not intended
to be exhaustive, nor is it intended to restrict discretion of the court in
conducting litigation proceedings.  The recommendations instead serve as a
basic template which can be adopted by a court desiring to reduce the cost
and delays in patent litigation through use of a differential case management
plan. 

    An underlying basis for the recommended elements of a differentiated case
management plan for patent litigation is active and controlled judicial
involvement in the proceeding.  To effectuate this increased control, courts
are encouraged to utilize pre-trial conferences [23], as well as increase the
use of magistrates or "special masters" to oversee and control certain stages
of the litigation proceeding [24].  Each conference would provide the court
with an opportunity to encourage parties to limit issues in dispute, limit
the range of necessary discovery, and implement key scheduling dates. Through
these measures courts could increase control over the litigation proceedings.

    In addition to the general role of increased judicial participation and
control over proceedings, the Commission identified several specific
procedures which courts should employ to exert control over the proceedings,
and to streamline and reduce the time and costs involved.

(a)  Early Setting of a Firm Trial Date

   An oft-cited problem of modern civil litigation is the inability of parties
to obtain a fixed, firm trial date early in the proceedings.  Setting a firm
trial date can have a "galvanizing effect on the attorneys and parties alike;
establishing the date promptly and firmly reduces the occasions for delay and
gamesmanship" [25]. As many of the public comments noted, the failure to
reach trial as scheduled requires each party to engage in duplicative and
unnecessary preparation, which only adds to the overall cost of the
litigation.  The Commission believes, therefore, that shortly after the
commencement of an action, the court should set a firm trial date which
ensures that trial will commence between 12 and 18 months after filing of the
complaint [26].  This policy should be strictly enforced in all but the most
exceptional cases.

    A firm trial date will be particularly effective in reducing the incentive
for intentional delays where such delays are used primarily as a litigation
tactic.  Requiring parties to work within an inflexible time frame prior to
trial will also force parties to narrow issues in dispute, and will provide
an incentive to use alternative, non)judicial means for resolving such
disputes.   A firm trial date should, therefore, impose less of a burden on
the parties involved.

    The Commission recognizes that judicial adherence to the practice of
setting a "firm" or "inflexible" trial date may be difficult due to the impact
of heavy criminal dockets.  Judicial discretion in scheduling is confined by
the limits of the Speedy Trial Act, which restricts the discretion of courts
to postpone or delay criminal trials by giving criminal cases precedence over
civil cases [27].  Absent legislative reform of the impact or implementation
of the Speedy Trial Act, the prospect of minimizing interruptions and forced
rescheduling of fixed trial dates due to pressures from criminal dockets may
seem limited.  Yet it is imperative that some action be taken, and the most
effective means short of legislative reform is through judicial action in
case management and scheduling.  Thus, while the Commission is cognizant of
the scheduling pressures in the district courts, it remains convinced that
action to set and adhere to a firm trial date is not only essential, but
will assist in reducing burdens on judicial resources.

(b)  Use of a Discovery Case Management System

    The Commission urges courts to take greater control over discovery by
implementing effective discovery case management practices.  Maintaining
effective control over discovery may be the most direct means courts can
use to control costs and avoid delays during the early stages of patent
litigation.  This extra effort on the part of the judiciary to control and
monitor litigation is an essential component of the Commission's plan for
patent litigation management. 

    The Commission is cognizant, however, of the existing burdens on judicial
resources, and is not intent on adding to those burdens.  Yet, effective and
early involv