Mr. President, it is my privilege today to introduce legislation that attempts to right wrongs and help those who have suffered. I can think of few Americans who have suffered more than those brave World War II veterans who were subjected…
Mr. President, it is my privilege today to introduce legislation that attempts to right wrongs and help those who have suffered.
I can think of few Americans who have suffered more than those brave World War II veterans who were subjected to slave labor conditions by Japanese industries during that difficult conflict. This legislation would provide long overdue compensation to our brave veterans who were forced into slave labor by our enemies.
Some might ask: why don't these veterans seek a remedy from the courts? The answer is that they have. Unfortunately, due to decisions that were made during the Cold War, our government relinquished the right of these veterans to successfully seek redress of their grievances on this matter in our nation's courts.
Regrettably, the Japanese Government has also declined to provide compensation.
Today, many of these American POWs are now in their eighties and nineties. Every day, more and more of these veterans pass away without ever realizing that their country truly cares for them and wants to right the wrongs of the past. If those who remain are to receive compensation, they must receive it now or this injustice will never be righted.
Remember, many of these men are the survivors of the Bataan Death March, which occurred in April of 1942 when the 70,000 Allied troops that comprised the defense of Bataan peninsula were ordered to surrender. Corregidor would fall a month later, but for the soldiers of Bataan the infamous Death March from the peninsula to holding camps throughout the Philippines was about to begin. During this march of 85 miles approximately 10,000 Allied forces were killed.
American POWs in the Pacific theater are also the survivors of the ``Hell Ships'' where servicemembers were placed in cargo ships destined for Japanese industrial sites. These ships were usually incredibly overcrowded and American POWs were subject to the horrific sanitary and living conditions.
After all this, when American servicemembers arrived at their destination, the majority were treated as slave labor, they faced fierce corporal punishment for minor infractions, and unnecessary starvation and cruel work environments.
It is important to note that this bill, which I am honored to say is cosponsored by Senator Bingaman and Senator Biden, is not to embarrass or to ridicule the people of Japan; far from it. For over 60 years, Japan has been one of our great allies. As the ranking member on the Senate Intelligence Committee, I well know the invaluable support and assistance that Japan has rendered in the global war on terrorism, including committing hundreds of ground troops to assist in the development of Iraq's infrastructure. I know that all Americans are grateful for this assistance.
Mr. President, it is time to do the right thing and provide these veterans with the minimal level of compensation they deserve. I believe that this limited compensation is a debt of honor that we should not withhold.
Mr. President, I rise today to introduce with Senator Leahy the Patent Reform Act of 2006.
This bill addresses many of the issues and problems that my colleague, Senator Leahy, and I have identified through a series of hearings and discussions with stakeholders. We also had the benefit of knowing the priorities identified by Chairman Lamar Smith and Ranking Democratic Member Berman, who have introduced an analogous bill in the House.
I would like to thank the Senator Leahy for all of his hard work and assistance in developing this bill and for his willingness to reach a compromise on those issues where our policy views conflicted.
This bill is not perfect, and is not the bill that either I or my esteemed cosponsor would have introduced independently, but I believe that it fairly reflects a compromise between my priorities and the priorities of Senator Leahy.
We have also attempted to achieve some balance between the priorities identified by the various industries and stakeholders that we consulted while formulating our policy views in this area.
I am sure that further refinements will be made to this bill during the legislative process, so I would encourage those who are either pleased or displeased by any of the aspects of the bill to continue working with us to resolve any outstanding issues.
This bill addresses many of the problems with the substantive, procedural, and administrative aspects of the patent system, which governs how entities here in the United States apply for, receive, and eventually make use of patents covering everything from computer chips to pharmaceuticals to medical devices to--I am told--at least one variety of crustless peanut butter and jelly sandwich.
As the Founding Fathers made clear in Article 1, section 8 of the Constitution, Congress is charged with ``promot[ing] the Progress of Science
and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.''
There is a growing consensus among those who use the patent system that significant reform is needed.
While there appears to be a high degree of consensus on some issues relating to patent reform--such as the advisability of creating a new post-grant review process, there are significant disagreements about other changes to the patent system and about how best to streamline patent litigation.
By all accounts, patent litigation has become a significant problem in some industries. There are a number of factors in patent law that drive up the cost and uncertainty of litigation in ways that are unjustified. However, some of the principal problems and costs associated with patent litigation are not uniform across industrial sectors. This has led to substantial and sometimes vociferous disagreements about the nature of the underlying problems and, thus, what the appropriate solutions might be. We have done our best to resolve these disagreements based on our judgment about what is likely to preserve a balance between patent holders and alleged infringers in these actions.
There is also substantial consensus regarding a number of basic, structural changes to the patent system. The most significant of these involves moving from our current first-to-invent system to something approximating a first-to-file rule in determining which of two conflicting inventors has the right to obtain a patent.
While there is general agreement regarding some of the changes necessary to move toward a first-to-file system, there are some disagreements that remain unresolved by the current language of this bill. Although we have done our best to preserve many of the principles defining what constitutes ``prior art'' under current law, patent experts continue to disagree over whether we have achieved this goal.
Additionally, shortly before introduction, a concern emerged that we had not adequately preserved the changes enacted by the Cooperative Research and Technology Enhancement Act--CREATE Act, P.L. 108-453-- involving some types of double patenting. Since Senator Leahy and I were original cosponsors of that law, I can assure you that we will be receptive to concerns in this regard and try to fix them.
With that preface, I would like to discuss several of the more significant changes made to the current patent system by this bill.
Sections 1 and 2 of the bill contain the short title, table of contents, and other similar provisions. Sections 3 and 4 contain amendments to implement the first-to-file rule and other changes to the manner in which patent applications are filed with the Patent and Trademark Office and the process governing the examination of applications. Much of this language is similar to language in previous bills. However, as I have mentioned, several significant issues remain unresolved, and we will continue to work with stakeholders and other members to ensure an appropriate resolution.
Section 5 changes the remedies available to plaintiffs in patent infringement suits, as well as the available defenses to patent infringement. The two most substantial changes involve limitations on the availability of enhanced damages upon a showing of ``willful'' infringement by a plaintiff and a parallel limitation on the availability of unenforceability under the doctrine of ``inequitable conduct.'' Willfulness and inequitable conduct were two of the three major subjective elements that were identified in a major report on the current patent system by the National Research Council of the National Academy of Sciences. The report, entitled ``A Patent System for the 21st Century,'' recommended limiting both willfulness and the inequitable conduct defense to streamline patent litigation. We were unable to reach agreement on repealing the ``best mode'' requirement, which was the third subjective element identified both in the report and by various stakeholders, but I am hopeful that we will continue to work toward a mutually-acceptable compromise on that issue.
Section 5 also contains a provision expanding ``prior user rights.'' These prior user rights are, in reality, a defense to infringement liability for those making or preparing to make commercial use of an invention prior to a patent being issued. Prior to a patent's issuance, such a user often has no way of knowing that he is--or will be-- infringing a patent. In some cases, the user has independently invented the subject matter in question, in which case it would be inequitable to subject him or her to infringement liability. Currently, the prior user defense is available only with respect to method patents. The bill expands the prior user defense to all categories of patents and makes related changes to this defense.
Additionally, Section 5 contains two of the more controversial provisions in the bill. The first is a rough codification of an ``apportionment'' rule for calculation of damages. There is an existing, uncodified rule for such apportionment that exists in case law. However, codifying the rule will increase its clarity and mandate its application in all appropriate cases.
The second controversial provision in this section is a mandatory fee shifting provision. The language of this provision requires courts to award attorneys' fees to a prevailing party in cases where the non- prevailing party's legal position was not substantially justified. This language is similar to the test used in the Equal Access to Justice Act. This provision is intended to discourage litigation in those cases where a plaintiff's or defendant's case is so weak as to be objectively unreasonable.
Finally, this section also contains a repeal of Section 271(f) of Title 35. Under current law, either a foreign or domestic patent holder may be able to obtain damages based on foreign uses of domestically- manufactured components of an infringing article. In essence, current law provides for the extraterritorial application of domestic law in a manner that benefits foreign manufacturers and patentees in some situations.
Section 6 contains procedures for instituting a new type of post- grant review preceding that will allow the validity of a patent to be challenged in an administrative proceeding conducted by the Patent and Trademark Office rather than in court litigation.
Under current law, there are narrow reexamination procedures by which the PTO may reconsider a patent's validity at the request of an interested party. However, current reexamination proceedings are very limited and do not allow for a full consideration of a patent's validity. As a result, even when reexamination is available, potential litigants generally wait to challenge a patent's validity until an infringement suit has been brought despite the higher costs and prolonged uncertainty of doing so.
I believe that by adopting a more robust post-grant review proceeding we are providing a more efficient means of challenging a patent's validity in an administrative proceeding. This is necessary to address systemic problems in our patent system, making post-grant review an essential component of any meaningful reform legislation. While there appears to be substantial agreement regarding the need for a more meaningful post-issuance review, there are strong disagreements over its specific attributes and scope.
During hearings conducted in the Subcommittee on Intellectual Property and during meetings with stakeholders, we encountered widely disparate proposals and suggestions regarding post-grant review from stakeholders, academics, and lawmakers. At one end of the spectrum are proposals that would create a low-cost, streamlined proceeding by simply expanding the current inter partes reexamination. At the other end of the spectrum are those that would like to see the creation of specialized patent courts that would partially supplant Federal court litigation. With this bill, we have introduced a proposal that falls somewhere in between these two extremes.
This bill institutes a robust post-grant opposition system. The new procedures for post-grant cancellation proceedings create a new system for challenging the validity of problematic or suspect patents, which will allow those who are concerned about infringing such a patent to test its validity in an administrative proceeding instead of waiting to assert invalidity as a defense in an infringement action. The
new procedures are tiered in such a way as to encourage challenges to occur within the first year after a patent's issuance. After the one- year ``first window,'' challenges may still be brought by those who are able to demonstrate a substantial economic stake in the outcome of the proceeding. To deter piecemeal litigation, if a party institutes a proceeding after the first year, any challenge to patentability available to that party with respect to the patent must be either raised or waived. Thus, a challenger who participates in a proceeding outside the first year is estopped from raising any grounds relating to patentability that were or could have been raised in the previous challenge.
In addition to the new post-grant review proceedings, language in section 9 of this bill makes substantial improvements to the existing inter partes reexamination proceeding that are based on recommendations from the PTO and stakeholders. The most significant change to the reexamination proceedings is the modification of the estoppel effect of such proceedings. Currently, participants in an inter partes reexamination are barred from subsequently raising any grounds they ``raised or could have raised.'' Thus, parties who wish to challenge a patent more than a year after its issuance will have the option of bringing a narrow challenge that will not subject them to full estoppel as an alternative to bringing a full post-grant opposition proceeding or reserving their arguments for court. This approach provides a range of alternatives to legitimate challengers, while still providing balanced protections against harassing or abusive litigation for the patentee.
Section 8 would amend the current statutory provision that determines the appropriate venue for patent litigation. The intent of the venue language is to serve as a starting point for discussions as to what restrictions--if any--are appropriate on the venue in which patent cases may be brought. Section 8 also contains a provision allowing for interlocutory appeals of decisions involving the claim construction of a patent. Again, this language is intended to generate discussion about the current interplay between the Federal district and appellate courts. As both academics and the patent bar have noted, the resolution of the legal questions involving claim construction appear to be taking up a greater and greater portion of the docket of the Federal circuit court of appeals.
Given the high percentage of reversals on claims construction issues, some experts believe that an interlocutory appeal of Markman decisions might allow parties to resolve disputes as to claim construction more decisively prior to proceeding to a full trial. Alternatively, other experts believe that a return to the treatment of claims construction as a mixed question of law and fact might induce more deferential review by the appellate court. Still others have suggested that increased expertise among the district court judges trying patent cases might result in a lower reversal rate. In that regard, I should note that Congressman Issa has a bill authorizing a pilot project that appears to be a promising approach to increasing the expertise of Federal judges who handle patent cases, and I am considering introducing a similar bill here in the Senate. While I am not wedded to any particular approach or combination of approaches, I believe this is an issue that should receive serious attention and consideration by Congress.
Section 9 of the bill includes additional statutory changes that either implement or complement provisions found elsewhere in the bill. It also includes expanded authority for the PTO to conduct substantive rulemaking, as well as the changes to the inter partes reexamination procedures that I mentioned previously.
Section 10 includes a generic effective date provision. Obviously, I will need to modify the effective dates of the various provisions in the bill once we have been able to assess the difficulty of implementing various provisions in this bill.
In closing, I would like to thank my cosponsor, the senior Senator from Vermont, for all the work he has put into this bill and to compliment his intellectual property counsel, Susan Davies, for her efforts as well. I am committed to moving this legislation forward and hope that my colleagues will join me in my efforts to refine and enact this important bill.
Mr. President, on behalf of myself and my friend and colleague, Senator Lincoln, I rise today to introduce the S Corporation Reform Act of 2006.
The bill we are introducing today is a continuation of a bipartisan effort that began in the Senate over a decade ago when former Senators Pryor and Danforth, me and six other Senators, introduced the S Corporation Reform Act of 1993. We recognized then, as we do today, that S corporations are a vital and growing part of our economy and that our tax law should reflect the importance of these entities and provide tax rules that allow S corporations to grow and compete with a minimum of complexity and a maximum of flexibility.
According to the latest figures available from the Small Business Administration, there were approximately 3.1 million S corporations in the United States in 2002 with a total of $3.9 trillion in revenue. There were about a half million S corporations in 1980, so the growth of these entities has been striking. Surprisingly, the growth of S corporations has continued even after the advent of the Limited Liability Company, LLC, which offers many of the same benefits, but more flexibility, as S corporations. In fact, S corporations now outnumber both C corporations and partnerships. These are predominantly small businesses in the retail and service sectors. In my home State of Utah, over half the corporations have elected subchapter S treatment.
Subchapter S of the Internal Revenue Code was enacted in 1958 to help remove tax considerations from small business owners' decisions to incorporate. This elective tax treatment has been helpful to millions of small businesses over the years, particularly to those just starting out. Subchapter S provides entrepreneurs the advantage of corporate protection from liability along with the single level of tax enjoyed by partnerships and limited liability companies.
However, Subchapter S in its current state contains a variety of limitations, restrictions, and pitfalls for the unwary. Even though some very important improvements have been made over the years, including many first introduced in the 1993 S Corporation Reform Act I mentioned earlier, more needs to be done to bring the tax treatment of these important businesses into the 21st century. The two biggest constraints that small businesses face are difficulties in getting access to capital and the tax burden. The bill we are
introducing today addresses both of these vital issues.
Small businesses create two-thirds of all new jobs in the economy and account for roughly half of the overall employment in the country. Throughout the 1990s small businesses accounted for sixty to eighty percent of all new jobs. They are especially important in industries where technological innovation is important. According to the Congressional Research Service, small firms account for nearly forty percent of all scientists, engineers, and computer specialists working in the private sector.
During the most recent downturn of 2001-2002, when the state of Utah lost jobs, small businesses actually created jobs and helped soften the blow for many Utahns. Today, as our economy is booming, small businesses continue to generate the bulk of new jobs.
In rural America, the role of small enterprises is even more important. Small businesses account for 90 percent of all rural establishments. In 1998, small companies employed 60 percent of rural workers and provided half of rural payrolls.
Perhaps the biggest challenge facing many American businesses, but especially smaller ones, is attracting adequate capital. Unfortunately, subchapter S is currently a hindrance, rather than a help, for many corporations facing this challenge. For example, current law allows for only one class of stock for S corporations. Further, S corporations are not currently allowed to issue convertible debt, nor are they allowed to have a nonresident alien as a shareholder.
Several of the provisions of the S Corporation Reform Act of 2006 are designed to alleviate these restrictions on S corporations and help them attract capital. With these changes, S corporations will be more competitive with other small enterprises doing business as partnerships or limited liability companies that do not face such barriers.
Even though electing subchapter S currently offers significant tax relief to a small corporation by eliminating the corporate level of taxation, S corporations still face some significant tax burdens and a myriad of potential pitfalls and tax traps for the unwary. Some of these impediments exist in the requirements of elective S corporation status, and others are in the rules governing the day-to-day operations of the entities. In either case, these provisions can stifle growth and impede job creation.
Most of the provisions in our bill aim to eliminate these barriers and make it easier for companies to elect subchapter S and to operate in this status once the election is made.
The Small Business Job Protection Act of 1996 made many important changes to subchapter S. One of the most significant was to allow, for the first time, small banks to elect to be S corporations. This opened the door for many small community banks to become more competitive with other financial institutions operating in towns and neighborhoods throughout the country. The availability of Subchapter S has been a positive development in increasing the profitability and competitiveness of many community banks. Some 2,300 banks have chosen to be S corporations, representing 25 percent of all banks. However, some of the operating rules under subchapter S remain unduly inflexible, complex, and harsh on banks.
The bill we introduce today attempts to address many of these challenges by clarifying and relaxing some of the operational rules that apply to S corporations. These changes are designed to make it significantly easier for community banks to take advantage of the benefits of subchapter S. In my opinion, businesses should be allowed to focus on meeting their customers' needs and maximizing their shareholders' profits, and not preoccupied with conforming to Byzantine government rules.
While the corporate structure of an S corporation would not generally make sense for larger companies, the tax structure applied to S corporations is quite sensible and can serve as a model for other companies. Economists hail the single level of taxation of profits in the S corporation law as a much more efficient approach, and something that would be desirable for all enterprises.
The S Corporation Reform Act of 2006 enjoys the support of a broad range of associations and trade groups, many of which have worked with us in crafting the bill.
I urge my colleagues to take a close look at this bill, and to support it. Thousands of small and growing businesses in every state will benefit from the improvements included in the bill. Its enactment will lead to an increased ability of these enterprises to attract capital and create new jobs.
I ask unanimous consent that the text of the bill and section-by- section explanation of the bill be printed in the Record.