PATENT LICENSING REFORM ACT OF 1988 HEARING BEFORE THE SUBCOMMITTEE ON COUETS, CIVIL LIBERTIES, AND THE ADMINISTRATION OF JUSTICE OF THE COMMITTEE ON THE JUDICIAEY HOUSE OF REPRESENTATIVES ONE HUNDREDTH CONGRESS SECOND SESSION ON H.R. 4086 PATENT LICENSING REFORM ACT OF 1988 MAY 11, 1988 Serial No. 103 fpj //*-' X'-'. <W -7 f/ij Vc X Printed for the use of the Committee on the Judiciary PATENT LICENSING REFORM ACT OF 1988 HEARING BEFORE THE SUBCOMMITTEE ON COUETS, CIVIL LIBERTIES, AND THE ADMINISTRATION OF JUSTICE OF THE COMMITTEE ON THE JUDICIAEY HOUSE OF REPRESENTATIVES ONE HUNDREDTH CONGRESS SECOND SESSION ON H.R. 4086 PATENT LICENSING REFORM ACT OF 1988 MAY 11, 1988 Serial No. 103 Printed for the use of the Committee on the Judiciary U S GOVERNMENT PRINTING OFFICE 87-714 ±5 WASHINGTON 1989 For sale by the Superintendent of Documents, Congressional Sales Office US Government Printing Office Washington DC 20402 COMMITTEE ON THE JUDICIARY PETER W RODINO, JR , New Jersey, Chairman JACK BROOKS, Texas HAMILTON FISH, JR , New York ROBERT W KASTENMEIER, Wisconsin CARLOS J MOORHEAD, California DON EDWARDS, California HENRY J HYDE, Illinois JOHN CONYERS, JR , Michigan DAN LUNGREN, California ROMANO L MAZZOLI, Kentucky F JAMES SENSENBRENNER, JR., WILLIAM J HUGHES, New Jersey Wisconsin MIKE SYNAR, Oklahoma BILL McCOLLUM, Florida PATRICIA SCHROEDER, Colorado E CLAY SHAW, JR., Florida DAN GLICKMAN, Kansas GEORGE W GEKAS, Pennsylvania BARNEY FRANK, Massachusetts MICHAEL DEWINE, Ohio GEO W CROCKETT, JR , Michigan WILLIAM E DANNEMEYER, California CHARLES E SCHUMER, New York PATRICK L SWINDALL Georgia BRUCE A MORRISON, Connecticut HOWARD COBLE, North Carolina EDWARD F FEIGHAN, Ohio D FRENCH SLAUGHTER, JR , Virginia LAWRENCE J SMITH, Florida LAMAR S SMITH, Texas HOWARD L BERMAN, California RICK BOUCHER, Virginia HARLEY 0 STAGGERS, JR , West Virginia JOHN BRYANT, Texas BENJAMIN L CARDIN, Maryland M ELAINE MIELKE, General Counsel ARTHUR P ENDRES, JR , Staff Director ALAN F COFFEY, JR , Associate Counsel SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES, AND THE ADMINISTRATION OF JUSTICE ROBERT W KASTENMEIER, Wisconsin, Chairman MIKE SYNAR, Oklahoma CARLOS J MOORHEAD, California PATRICIA SCHROEDER, Colorado HENRY J HYDE, Illinois GEO W CROCKETT JK , Michigan DAN LUNGREN, California BRUCE A MORRISON, Connecticut MICHAEL DEWINE, Pennsylvania HOWARD L BERMAN, California HOWARD COBLE, North Carolina RICK BOUCHER, Virginia D FRENCH SLAUGHTER JR, Virginia JOHN BRYANT, Texas BENJAMIN L CARDIN, Maryland MICHAEL J REMINGTON, Chief Counsel DAVID W BEIER, Counsel VIRGINIA E SLOAN, Counsel SUSAN L COSKEY, Counsel THOMAS E MOONEY, Associate Counsel JOSEPH V WOLFE, Associate Counsel (II) CONTENTS TEXT OF BILL HR 4086 2 OPENING STATEMENTS The Honorable Robert W Kastenmeier, a Representative in Congress from the State of Wisconsin, Chairman, Subcommittee on Courts, Civil Liberties and the Administration of Justice 8 The Honorable Carlos J Moorhead, a Representative in Congress from the State of California 46 WITNESSES Charles F Rule, Assistant Attorney General, Antitrust Division, U S Depart­ ment of Justice 11 Prepared statement 14 Rene D Tegtmeyer, Assistant Commissioner for Patents, Patent and Trade­ mark Office, US Department of Commerce 11 Prepared statement 33 Herbert F Schwartz, Esq, Managing Partner, Fish & Neave, New York, NY, Professor, School of Law, University of Pennsylvania 126 Prepared statement 128 Robert P Taylor, Esq, Partner, Pillsbury, Madison & Sutro, San Francisco, CA, on behalf of the American Bar Association 126 Prepared statement with attachments 140 Robert P Merges, Professor, School of Law, Columbia University 126 Prepared statement 170 ADDITIONAL MATERIALS Letter from Thomas M Boyd, Actmg Assistant Attorney General, Office of Legislative and Intergovernmental Affairs, U S Department of Justice, and Donald J Quigg, Assistant Secretary and Commissioner of Patents and Trademarks, Patent and Trademark Office, U S Department of Commerce, to the Honorable Robert W Kastenmeier (August 15, 1988), with attach­ ments 50 APPENDIX 134 Cong Rec H 698-99 (daily ed March 3, 1988) (statement of Rep Kasten­ meier) 199 Letter from Hartmut Johannes, Directorate General IV, Commission of the European Communities, Brussels, Belguim, to Chairman Kastenmeier (April 26, 1988), with attachments 201 Letter from Chairman Kastenmeier to Mr Rule (May 16, 1988), with attach­ ments 269 Statement from Thomas M Susman, Esq, Ropes & Gray, Washington, DC, on behalf of Digital Equipment Corporation 274 Report from Mr Susman, Congress Should Require a Violation of the Anti­ trust Laws Before a Tying Arrangement is Condemned as Patent Misuse" (October 6,1988) 287 Letter from Mr Susman to David W Beier, Counsel, Subcommittee on Courts, Civil Liberties, and the Administration of Justice (September 28, 1988), with attachment 299 <ui) IV Page Report from Mr Susman and Wendy R Gerlach, Ropes & Gray, "The Need for Legislative Reform of the Law of Patent Misuse'^ (May 11, 1987) 309 Letter from Edward A Schwartz, Vice President, General Counsel and Secre­ tary, Digital Equipment Corporation, Maynard, MA, to Chairman Kasten- meier (October 26,1986) 316 Letter from John W Schlicher, Esq, Townsend and Townsend, to Chairman Kastenmeier (September 14, 1988), with attachment 317 Letter from William C Rooklidge, Esq, Knobbe, Martens, Olson & Bear, Newport Beach, CA, to Mr Susman (June 13, 1988), with attachment 339 Letter from Michael W Blommer, Executive Director, American Intellectual Property Law Association, Arlington, VA, to Mr Beier (August 14, 1987), with attachments 353 Letter from Andrew A Procassini, President, Semiconductor Industry Asso­ ciation, Cupertino, CA, to Michael J Remington, Chief Counsel, Subcom­ mittee on Courts, Civil Liberties, and the Administration of Justice (Octo­ ber 27, 1987), with attachment 367 Letter from Professor Merges to Chairman Kastenmeier (December 15, 1987), with attachment 370 Letter from Professor Merges to Chairman Kastenmeier (November 16, 1987), with attachment 379 Letter from Lois D Rice, Senior Vice President, Government Affairs, Control Data, Washington, DC , to Chairman Kastenmeier (December 16,1987) 388 Letter from John E Peters, Vice President, Corporate Counsel and Secretary, Block Drug Company Inc , Jersey City, NJ, to Chairman Kastenmeier (Octo­ ber 20,1987) 390 Letter from S Allen Heimnger, President, Industrial Research Institute, Inc , to the Honorable Peter W Rodino, Jr, Chairman, Committee on the Judici­ ary (March 28, 1988), with attachments 392 Letter from Stephen S Willoughby, Chairman, Council of Scientific Society Presidents, Washington, DC, to Chairman Rodino (February 10, 1988) 405 PATENT LICENSING REFORM ACT OF 1988 WEDNESDAY, MAY 11, 1988 HOUSE OF REPRESENTATIVES SUBCOMMITTEE ON COURTS, CIVIL LIBERTIES, AND THE ADMINISTRATION OF JUSTICE, COMMITTEE ON THE JUDICIARY, Washington, DC The subcommittee met, pursuant to notice, at 2 p m, in room 2226, Rayburn House Office Building, the Honorable Robert W Kastenmeier (chairman of the subcommittee) presiding Members present Representatives Kastenmeier, Cardin, Moor- head, DeWine, and Coble Staff present David W Beier, counsel, Thomas E Mooney, asso­ ciate counsel, and Veronica L Ehgan, clerk Mr KASTENMEIER The committee will come to order This afternoon the subcommittee will be conducting the first of a series of hearings on patent misuse, especially on H R 4086 and earlier Senate legislation [A copy of H R 4086 follows ] (l) 2 100TH CONGRESS 2D SESSION H. R. 4086 • To amend title 35, United States Code, to set forth the basis for determining whether a person has engaged in conduct constituting misuse or illegal extension of a patent, and for other purposes W THE HOUSE OF REPRESENTATIVES MARCH 3, 1988 Mr KASTBNMEIBB introduced the following bill, which was referred to the Committee on the Judiciary A BILL To amend title 35, United States Code, to set forth the basis for determining whether a person has engaged m conduct con­ stituting misuse or illegal extension of a patent, and for other purposes 1 Be it enacted by the Senate and House of Representa- 2 tives of the United States of America in Congress assembled, 3 SECTION 1 SHORT TITLE 4 This Act may be cited as the "Patent Licensmg Reform 5 Act of 1988" 3 2 1 SEC 2 DETERMINATION OF PATENT MISUSE OR ILLEGAL EX- 2 TENSION OF A PATENT 3 Section 271 of title 35, Umted States Code, is amended 4 by stnkmg out subsection (d) and inserting m lieu thereof the 5 following 6 "(d)(1) Any patent owner who engages m conduct con- 7 stituting misuse or illegal extension of the patent shall be 8 denied relief under this title for infringement of the patent 9 until such misuse or illegal extension terminates and the con- 10 sequences of such misuse or illegal extension have dissipated 11 "(2) For purposes of this title, the term 'misuse or llle- 12 gal extension' of a patent means, except as provided in para- 13 graph (3), includes— 14 "(A) tying the sale of a patented product to an 15 unpatented staple or the production of an unpatented 16 product to the use of a patented process, except to the 17 extent that the patent owner does not have market 18 power, 19 "(B) unreasonably imposing as a condition of 20 granting a license for a patent that the licensee may 21 not produce or sell competing goods, 22 "(C) unreasonably imposing as a condition of 23 granting a license under one patent that the licensee 24 accept another license under a different patent, 25 "(D) unreasonably entering into a royalty agree- 26 ment that provides for payments