Today, House Judiciary Committee Ranking Member Jerrold Nadler (D-NY) delivered the following opening statement during a Courts, Intellectual Property, and the Internet Subcommittee hearing entitled, “Assessing the Effectiveness of the Transitional Program for Covered Business Method Patents”:

"Mr. Chairman, the United States leads the world in innovation because our strong patent system helps translate creativity into economic growth by enabling creators to protect and to exploit their inventions.  But maintaining a strong patent system also requires that only truly novel and useful inventions receive this protection.

"Over the last two decades, business method patents have posed a unique challenge to this vibrant patent system.  For a variety of reasons—including the difficulty in identifying prior art where business methods are concerned, the lack of clear guidelines for what was eligible to be patented, and an overburdened Patent and Trademark Office—a significant number of poor-quality business method patents began flooding the system starting in the late 1990s, when the courts first ruled that business methods could be patented.

"Many of these business method patents were overbroad or unclear, and they became prime targets for so-called “patent trolls”.  With these low-quality patents in hand, the patent trolls could extort financial settlements from defendants, who might reasonably conclude that it made financial sense to settle even a bogus claim, rather than to engage in costly litigation.  Although later court decisions and new Patent Office procedures limited the impact that future business method patents would have on the patent system, these improvements could not address the existing patents that were still wreaking havoc, particularly within the financial services sector. 

"It was against this backdrop that Congress created the Transitional Program for Covered Business Method Patents as part of the 2011 America Invents Act, which ushered in a host of reforms to strengthen the patent system and to promote innovation.  At the time that the CBM program was created, proponents argued that the financial services sector was being especially harmed by low-quality business method patents, and that the other post-grant review procedures established by the AIA were insufficient to address this category of patents.  Therefore, a special temporary program, expiring in 2020, was created specifically to weed out those financial services-related patents that, in hindsight, should never have been granted in the first place.

"By most accounts, the CBM program has successfully carried out its mandate of offering a cheaper and more efficient process than district court litigation to challenge this subset of business method patents, and to filter out the poor-quality patents.  This success has spurred some proponents to advocate for a long-term, or even a permanent, extension of the CBM program.  Some have even argued that CBM should be expanded to include other types of patents.

"Opponents of extending the program point out that the number of CBM challenges has declined significantly in recent years, and they argue that this is evidence that most of the weak patents have now been eliminated from the system.  They also note the value of uniformity within the patent system, which can be upset by carve-outs for certain industries and specific types of patents.

"While I have supported a limited extension of the CBM program in the past to ensure that the program can fully complete its job, I am skeptical of any effort to expand it beyond its limited scope, or to significantly lengthen the life of the program.  The CBM program was enacted, in part, on the promise that it would be temporary, and I have not seen evidence to date that a dramatic expansion is warranted.

"The GAO has written a thorough and detailed report evaluating the CBM program and I appreciate the opportunity to hear from Mr. Neumann today about its findings, and to hear the perspectives of our two stakeholder witnesses as well.  I thank the Chairman for holding this important hearing, and I yield back the balance of my time."

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