[Congressional Record: November 18, 1999 (Senate)]
[Page S14836-S14837]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]
[DOCID:cr18no99-180]


  INTELLECTUAL PROPERTY AND COMMUNICATIONS OMNIBUS REFORM ACT OF 1999

  Mr. SCHUMER. Mr. President, I rise today in support of the revised
``Intellectual Property and Communications Omnibus Reform Act of 1999''
(H.R. 1554). As a Member of the Judiciary Committee, I am particularly
pleased that this legislation includes as Title IV, the ``American
Inventors Protection Act of 1999.'' This important patent reform
measure includes a series of initiatives intended to protect the rights
of inventors, enhance patent protections and reduce patent litigation.
  Perhaps most importantly, subtitle C of title IV contains the so-
called ``First Inventor Defense.'' This defense provides a first
inventor (or ``prior user'') with a defense in patent infringement
lawsuits, whenever an inventor of a business method (i.e., a practice
process or system) uses the invention but does not patent it.
Currently, patent law does not provide original inventors with any
protections when a subsequent user, who patents the method at a later
date, files a lawsuit for infringement against the real creator of the
invention.
  The first inventor defense will provide the financial services
industry with important, needed protections in the face of the
uncertainty presented by the Federal Circuit's decision in the State
Street case. State Street Bank and Trust Company v. Signature Financial
Group, Inc. 149 F.3d 1368 (Fed. Cir., 1998). In State Street, the Court
did away with the so-called ``business methods'' exception to statutory
patentable subject matter. Consequently, this decision has raised
questions about what types of business methods may now be eligible for
patent protection. In the financial services sector, this has prompted
serious legal and practical concerns. It has created doubt regarding
whether or not particular business methods used by the industry--
including processes, practices, and systems--might now suddenly become
subject to new claims under the patent law. In terms of everyday
business practice, these types of activities were considered to be
protected as trade secrets and were not viewed as patentable material.
  The first inventor defense strikes a fair balance between patent and
trade secret law. Specifically, this provision creates a defense for
inventors who (1) acting in good faith have reduced the subject matter
to practice in the United States at least one year prior to the patent
filing date (``effective filing date'') of another (typically later)
inventor; and (2) commercially used the subject matter in the United
States before the filing date of the patent. Commercial use does not
require that the

[[Page S14837]]

particular invention be made known to the public or be used in the
public marketplace--it includes wholly internal commercial uses as
well.
  As used in this legislation, the term ``method'' is intended to be
construed broadly. The term ``method'' is defined as meaning ``a method
of doing or conducting business.'' Thus, ``method'' includes any
internal method of doing business, a method used in the course of doing
or conducting business, or a method for conducting business in the
public marketplace. It includes a practice, process, activity, or
system that is used in the design, formulation, testing, or manufacture
of any product or service. The defense will be applicable against
method claims, as well as the claims involving machines or articles the
manufacturer used to practice such methods (i.e., apparatus claims).
New technologies are being developed every day, which include
technology that employs both methods of doing business and physical
apparatus designed to carry out a method of doing business. The first
inventor defense is intended to protect both method claims and
apparatus claims.
  When viewed specifically from the standpoint of the financial
services industry, the term ``method'' includes financial instruments,
financial products, financial transactions, the ordering of financial
information, and any system or process that transmits or transforms
information with respect to investments or other types of financial
transactions. In this context, it is important to point out the
beneficial effects that such methods have brought to our society. These
include the encouragement of home ownership, the broadened availability
of capital for small businesses, and the development of a variety of
pension and investment opportunities for millions of Americans.
  As the joint explanatory statement of the Conference Committee on
H.R. 1554 notes, the provision ``focuses on methods for doing and
conducting business, including methods used in connection with internal
commercial operations as well as those used in connection with the sale
or transfer of useful end results--whether in the form of physical
products, or in the form of services, or in the form of some other
useful results; for example, results produced to the manipulation of
data or other imports to produce a useful result.'' H. Rept. 106-  , p.
31.
  The language of the provision states that the defense is not
available if the person has actually abandoned commercial use of the
subject matter. As used in the legislation, abandonment refers to the
cessation of use with no intent to resume. Intervals of non-use between
such periodic or cyclical activities such as seasonable factors or
reasonable intervals between contracts, however, should not be
considered to be abandonment.
  As noted earlier, in the wake of State Street, thousands of methods
and processes that have been and are used internally are now subject to
the possibility of being claimed as patented inventions. Previously,
the businesses that developed and used such methods and processes
thought that secrecy was the only protection available. As the
conference report on H.R. 1554 states: ``(U)nder established law, any
of these inventions which have been in commercial use--public or
secret--for more than one year cannot now be the subject of a valid
U.S. patent.'' H. Rept. 106-  , p. 31.
  Mr. President, patent law should encourage innovation, not create
barriers to the development of innovative financial products, credit
vehicles, and e-commerce generally. The patent law was never intended
to prevent people from doing what they are already doing. While I am
very pleased that the first inventors defense is included in H.R. 1554,
it should be viewed as just the first step in defining the appropriate
limits and boundaries of the State Street decision. This legal defense
will provide important protections for companies against unfair and
unjustified patent infringement actions. But, at the same time, I
believe that it is time for Congress to take a closer look at the
potentially broad and, perhaps, adverse consequences of the State
Street decision. I hope that beginning early next year the Judiciary
Committee will hold hearings on the State Street issue, so Senators can
carefully evaluate its economic and competitive consequences.

  Mr. TORRICELLI. My colleague is correct. The State Street decision
may have unintended consequences for the financial services community.
By explicitly holding that business methods are patentable, financial
service companies are finding that the techniques and ideas, that were
in wide use, are being patented by others.
  The Prior Inventor Defense of H.R. 1554 is an important step towards
protecting the financial services industry. By protecting early
developers and users of a business method, the defense allows U.S.
companies to commit resources to the commercialization of their
inventions with confidence that a subsequent patent holder will prevail
in a patent infringement suit. Without this defense, financial services
companies face unfair patent-infringement suits over the use of
techniques and ideas (methods) they developed and have used for years.
  While I support the Prior Inventor Defense, as a member of the
Judiciary Committee, I hope we will revisit this issue next year. More
must be done to address the boundaries of the State Street decision
with the realities of the constantly changing and developing financial
services industry.
  I look forward to working with Senator Schumer and my colleagues on
the committee on this important issue.

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