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[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]

 
                     OVERSIGHT OF THE UNITED STATES
                      PATENT AND TRADEMARK OFFICE

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

                                HEARING

                               before the

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                              MAY 22, 2018

                               __________

                           Serial No. 115-58

                               __________

         Printed for the use of the Committee on the Judiciary
         
         
         
         
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        Available via the World Wide Web: http://www.govinfo.gov
        
        
        
                            _________ 

                U.S. GOVERNMENT PUBLISHING OFFICE
                   
 32-964                  WASHINGTON : 2018              
        
        

                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JERROLD NADLER, New York
    Wisconsin                        ZOE LOFGREN, California
LAMAR SMITH, Texas                   SHEILA JACKSON LEE, Texas
STEVE CHABOT, Ohio                   STEVE COHEN, Tennessee
DARRELL E. ISSA, California          HENRY C. ``HANK'' JOHNSON, Jr., 
STEVE KING, Iowa                         Georgia
LOUIE GOHMERT, Texas                 THEODORE E. DEUTCH, Florida
JIM JORDAN, Ohio                     LUIS V. GUTIERREZ, Illinois
TED POE, Texas                       KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC L. RICHMOND, Louisiana
TREY GOWDY, South Carolina           HAKEEM S. JEFFRIES, New York
RAUL LABRADOR, Idaho                 DAVID CICILLINE, Rhode Island
BLAKE FARENTHOLD, Texas              ERIC SWALWELL, California
DOUG COLLINS, Georgia                TED LIEU, California
KEN BUCK, Colorado                   JAMIE RASKIN, Maryland
JOHN RATCLIFFE, Texas                PRAMILA JAYAPAL, Washington
MARTHA ROBY, Alabama                 BRAD SCHNEIDER, Illinois
MATT GAETZ, Florida                  VALDEZ VENITA ``VAL'' DEMINGS, 
MIKE JOHNSON, Louisiana                  Florida
ANDY BIGGS, Arizona
JOHN RUTHERFORD, Florida
KAREN HANDEL, Georgia
KEITH ROTHFUS, Pennsylvania
  
          Shelley Husband, Chief of Staff and General Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
       
                            C O N T E N T S

                              ----------                              

                              MAY 22, 2018
                           OPENING STATEMENTS

                                                                   Page
The Honorable Bob Goodlatte, Virginia, Chairman, Committee on the 
  Judiciary......................................................     1

                               WITNESSES

The Honorable Andrei Iancu, Undersecretary of Commerce for 
  Intellectual Property, Director of the U.S. Patent and 
  Trademark Office, U.S. Department of Commerce
    Oral Statement...............................................     3

       OVERSIGHT OF THE UNITED STATES PATENT AND TRADEMARK OFFICE

                              ----------                              

                          TUESDAY, MAY 22, 2018

                        House of Representatives

                       Committee on the Judiciary

                             Washington, DC.

    The committee met, pursuant to call, at 10:00 a.m., in Room 
2141, Rayburn House Office Building, Hon. Bob Goodlatte 
[chairman of the committee] presiding.
    Present: Representatives Goodlatte, Chabot, Issa, King, 
Gohmert, Poe, Marino, Labrador, Collins, DeSantis, Buck, 
Ratcliffe, Johnson of Louisiana, Biggs, Rutherford, Handel, 
Lofgren, Johnson of Georgia, Bass, Jeffries, and Demings.
    Staff Present: Shelley Husband, Staff Director; Branden 
Ritchie, Deputy Staff Director; Zach Somers, Parliamentarian 
and General Counsel; Tom Stoll, Subcommittee on Courts, 
Intellectual Property, and the Internet; David Greengrass, 
Minority Senior Counsel; and Veronica Eligan, Minority 
Professional Staff Member.
    Chairman Goodlatte. The Judiciary Committee will come to 
order. Without objection, the chair is authorized to declare 
recess of the committee at any time. We welcome everyone to 
this morning's hearing on oversight of the United States Patent 
and Trademark Office. I will begin by recognizing myself for an 
opening statement.
    Thank you, Director, for testifying before the committee 
today. America continues to be the leader in innovation. We 
brought the world the light bulb, the telephone, the Model T, 
the airplane, the television, the microwave oven, computer 
chips, personal computers, and so much more. We are now the 
leader in developing artificial intelligence; software; cures 
for disease. The list of life-altering and life-saving 
inventions created in this country is endless.
    Our Founding Fathers recognized the need for a strong 
patent system to foster an environment of invention and thereby 
grow the economy and create jobs. A strong patent system 
enables large and small companies alike to invest in R&D so 
that they may develop the next great American innovation. To 
achieve those goals, patents must be of the highest quality. 
Innovative companies must be able to rely with certainty on the 
legitimate patents they are granted, while allowing other 
businesses to innovate without stepping on the rights granted 
to the patent owner by the PTO.
    It is equally important that the patent system include 
mechanisms for weeding out invalid patents so that they may not 
be used to harass legitimate businesses or to extort the 
revenue that companies need to grow. During the 112th Congress, 
this committee passed the America Invents Act to address patent 
litigation abuse and stop patent trolling. This included 
establishing the PTO's inter partes review proceedings.
    The committee's efforts to deter patent trolling have been 
a resoundingly success. The combined effects of our efforts, 
along with several important court decisions, have deprive 
patent trolls of many of the weapons they used to extort 
payments from innocent companies. In recent years, abusive 
patent litigation has decreased substantially, as has the cost 
of defending a patent claim.
    Some stakeholders say these reforms have gone too far. They 
argue that many startups and small businesses can no longer 
rely on their patents to secure funding needed to grow. They 
argue that uncertainty surrounding the validity of patents in 
the U.S. has forced large companies and investors to look 
outside of the U.S. to other countries where their investments 
in the development of new technologies can be better protected.
    They point to the PTO's IPR proceedings as contributing to 
this perception of uncertainty surrounding patent. Users of IPR 
proceedings argue that they are needed to invalidate the many 
improperly issued patents that overworked patent examiners 
continue to issue.
    In this hearing we will investigate whether the PTO is 
implementing AIA post-grant review proceedings as Congress 
intended to address patent litigation abuse and whether it is 
doing so in a manner that is fair to patent owner and 
petitioner alike. We want to hear from Director Iancu regarding 
what, if any, changes he is considering making to these 
proceedings. We also want to hear how he plans to improve 
patent examination to ensure that examiners issue only valid 
patents.
    With the impending expiration of fee setting authority, the 
committee will also take this opportunity to investigate 
whether efforts to curb fee diversion are still working as 
intended, whether the PTO is using its resources wisely, and 
whether it is setting reasonable fees. The committee will want 
to investigate the status of the application backlog; the 
possible transfer of user fees to the Department of Commerce as 
part of a shared enterprise program; efforts to address 
international IP theft, trademark search quality, and any 
actions the agency has taken to address concerns regarding 
waste discovered in connection with previous examiner time and 
attendance investigations.
    I want to thank the Director for his participation in this 
hearing, and I look forward to delving into these very 
important issues.
    Mr. Nadler is not yet with us, so we will proceed to the 
testimony. We welcome our distinguished witness, and if you 
will please rise, I will begin by swearing you in.
    Do you swear that the testimony that you are about to give 
will be the truth, the whole truth, and nothing but the truth, 
so help you God?
    Mr. Iancu. I do.
    Chairman Goodlatte. Thank you. Let the record show the 
witness answered in the affirmative.
    Andrei Iancu is the Undersecretary of Commerce for 
Intellectual Property and Director of the PTO. Before joining 
the PTO, Mr. Iancu was a managing partner at Irell & Manella, 
LLP, where his practice focused on intellectual property 
litigation. Prior to his legal career, he was an engineer at 
Hughes Aircraft Company.
    Your entire written statement will be made a part of the 
record, and we ask that summarize your testimony in 5 minutes. 
There is a timing light on the table for that purpose. Director 
Iancu, we are very honored to have you with us today. Thank 
you, and you may begin.

 STATEMENT OF THE HONORABLE ANDREI IANCU, DIRECTOR OF THE U.S. 
  PATENT AND TRADEMARK OFFICE, UNDERSECRETARY OF COMMERCE FOR 
       INTELLECTUAL PROPERTY, U.S. DEPARTMENT OF COMMERCE

    Mr. Iancu. Thank you. Chairman Goodlatte, Ranking Member 
Johnson, and members of the committee, good morning and thank 
you for this opportunity to discuss the operations, programs, 
and initiatives of the United States Patent and Trademark 
Office.
    I am honored to be here with you today and proud to 
represent an agency that plays such an important role in our 
Nation's innovation, entrepreneurship, and overall economic 
growth. While I have been on this job for only a few months, I 
have already seen the experience, dedication, and 
professionalism of the office's employees. Together we are 
focused on engaging in a new dialogue surrounding the patent 
system, a dialogue centered on the brilliance of inventors, the 
excitement of invention, and the incredible benefits they bring 
to the American economy and country as a whole.
    For the intellectual property system to function as 
intended, rights owners and the public must have confidence in 
the system. I believe that we need to take steps to strengthen 
that confidence. This requires focusing our efforts on an 
intellectual property system that is reliable, predictable, and 
high quality, and that promotes inventors, invention, and 
investment.
    Mr. Chairman, my written statement has detailed information 
on an array of USPTO programs, initiatives, and recent 
accomplishments. In the time I have remaining, I would like to 
highlight some issues of particular interest. First, we are 
pleased that the administration and Congress continue to 
provide the USPTO with access to all anticipated fee 
collections to support a budget that maintains the workforce we 
need and that improves operations.
    A critical factor in managing the agency's budget has been 
fee setting authority, which is scheduled to expire this coming 
September. This authority has allowed the agency to efficiently 
and cautiously adjust user fees as needed to recoup operational 
costs and drive effective operations. We look forward to 
working with this committee on legislation that extends this 
important authority as soon as possible. I want to thank 
Congressmen Chabot and Johnson for introducing legislation on 
this issue yesterday.
    Second, on patents. We are carefully reviewing the AIA 
trial process conducted by our patent trial and appeal board to 
ensure that the agency's approach to these critical proceedings 
is consistent with the intent of the AIA and relevant court 
rulings and the overall goal of ensuring predictable, high-
quality patent rights. We recently issued guidance on the 
impact of the recent SAS case of the Supreme Court that 
requires the USPTO to decide the patent ability of every claim 
challenged in a petition when an AIA trial is instituted.
    Although in the near term this adds work for the parties 
and our administrative patent judges, our board is well-
positioned to address the increase at this time. We are 
assessing whether further adjustments, procedural or 
substantive, or additional resources will be needed.
    Earlier this month, we also published the notice of 
proposed rulemaking that would change the claim construction 
standard for interpreting claims in PTAB proceedings to the 
same standard used in patent litigation in district courts and 
at the ITC. We are also studying the institution decision, the 
amendment process, and the variety of standard operating 
procedures, among other things.
    The current patent eligibility legal landscape is another 
critical area, and we are considering ways to increase the 
certainty and predictability of the eligibility analysis. At 
the PTO, we are working to provide more concrete tests to the 
extent possible, given Supreme Court precedent, to guide 
examiners and the public toward finding the appropriate lines 
to draw in this area. Last month, for example, we issued 
guidance with respect to the conventionality analysis in step 
two of the Alice framework.
    This is an area we must all address and one on which we 
will continue to engage stakeholders and the public and should 
Congress decide to explore a legislative adjustment of section 
101, we would work with this committee to explore viable 
options. Third, on the trademark front, we are working to 
manage a recent increase in foreign filings and to assess ways 
to declutter our register in a balanced manner.
    Finally, with respect to our technology, we are continuing 
to improve the USPTO's infrastructure for all operations, 
including production systems for both patent and trademark. 
Thank you again for this opportunity to testify today, and I 
look forward to your questions.
    Chairman Goodlatte. Thank you, Director. We will now 
proceed under the 5-minute rule with questions, and I will 
begin by recognizing myself. You have stated that the PTO is 
examining how and when the PTO institute post-grant 
proceedings, the standards it employs during proceedings, and 
how the PTO conducts the overall proceedings. What specific 
changes to AIA post-grant proceedings are you likely to make in 
the coming months, and why are these changes necessary?
    Mr. Iancu. So, just a couple of weeks ago we had proposed a 
new rule to change the claim construction standards to make it 
the same as the standard used in district courts and at the 
ITC. The main motivations for that change would be to increase 
predictability and consistency with other proceedings on an 
issued patent and to increase judicial efficiency.
    We are looking at the amendment process, among other 
things, to increase the ability and to simplify the process for 
amendments during the AIA trial process itself, and we can go 
into more details about that as needed. We are also looking at 
the institution process. The office has discretion as provided 
by the AIA on institution once the substantive standard is met, 
and there are a variety of things to consider during the 
institution process.
    For example, have the same issues been considered already 
by the examiner during the initial examination or by a court in 
parallel litigation or otherwise? Those are just some examples. 
And we are also looking at the actual hearing itself; we have 
heard from stakeholders that perhaps there is not enough time 
in some of the proceedings at the hearing. Some folks have 
asked whether there can be testimony, witness testimony, at the 
hearing, or an increased opportunity for such testimony. There 
are pros and cons for those issues.
    Chairman Goodlatte. Let me stop you there and go to a 
couple of other questions I want to get in my time here. You 
have stated that the U.S. Supreme Court's recent decisions 
regarding and establishing a new patent eligibility test are 
difficult to follow and that something must be done to provide 
better clarity on where the line of eligibility should be 
drawn. Can you explain in some detail the problem with the 
Court's current patent eligibility test and what if anything 
should be done to fix it?
    Mr. Iancu. Sure. So, the Supreme Court's framework from 
Alice is a two-step analysis that the courts and the Patent 
Office are implementing. And there is some confusion in 
industry as to what some of the terminology means and what is 
patentable and what is not patentable.
    So, things such as what exactly is an abstract idea? What 
exactly does it mean to be directed to--those specific words: 
directed to--the abstract idea? What does it mean to be 
conventional, which is part of step two? And what we can try to 
do from the office's perspective within that construct is to 
try to provide better guidance for our examiners and, 
obviously, the applicants who come before us as to some of 
those terms, as we did last month when we provided additional 
guidance as to the term ``conventional.''
    What does it mean, and how should the examiners document 
it? That was an example of things we can do, and we are looking 
at providing additional guidance on some of the other aspects.
    Chairman Goodlatte. The AIA established a reserve fund 
whereby Congress appropriates back to the agency fees collected 
from its users, and excess revenue is deposited to a PTO 
account. Is the PTO annually receiving all the funds it 
collects from its users, or are some of those funds not being 
appropriated back to the agency?
    Mr. Iancu. By and large Mr. Chairman, we have been 
receiving our appropriated funds. The only exception in memory 
was during sequestration. But other than that, the system is 
working, I believe, as intended and as provided in the AIA. 
Obviously, fee setting authority, as I have mentioned in my 
testimony, is critically important, and hopefully we can work 
on that before it expires in September.
    Chairman Goodlatte. With the impending expiration, can you 
explain how the agency has demonstrated that it is capable of 
setting fees to only recover the cost of examining patent 
applications and registering trademarks and not more?
    Mr. Iancu. Sure. So, we are entirely funded by user fees. 
We are not funded by taxpayer funds, and we carefully watch our 
expenses. We very cautiously raise fees; it is a multiyear 
process. Before we raised the last fees, it took several years 
to go through that process. We go through a public comment 
period; we have the public advisory committees, the patent and 
trademark advisory committees, that look at what we do, and we 
discuss with them those efforts.
    And I should say that we do not only raise fees. Sometimes 
we lower fees in order to drive a more efficient operation. So, 
for example, we lowered some trademark filing fees in order to 
make sure that we encourage electronic filing. That is just one 
example.
    Chairman Goodlatte. Thank you very much. My time has 
expired. The gentlewoman from California, Ms. Lofgren, is 
recognized for 5 minutes.
    Ms. Lofgren. Thank you, Mr. Chairman, and I have been 
looking forward to this hearing. Mr. Iancu, this is the first 
time we have had a chance to meet, and there have been some 
proposed changes in the office that, frankly, cause me concern. 
I wanted to express my concern on the rulemaking on claims 
construction from BRI to the judicial standard.
    Congress has been active on this, and as the chairman 
knows, we worked very hard, and we worked in a bipartisan basis 
to accomplish a reform. And we did that in the context of 
competing interests and consideration of various alternatives. 
And in the end, the standard was a part of a much larger 
package to decrease patent litigation, and we accepted this.
    And it just causes me concern, especially in light of the 
recent Supreme Court decision upholding the constitutionality, 
that the office would move forward and move in a different 
direction. I am not saying that it is unlawful, but it does 
seem to me to circumvent Congress' prerogative on this issue. 
And, you know, you are seeking for us to eliminate our 
prerogative to set fees while you are assuming our prerogative 
in a way that I think is disturbing, honestly.
    Now, as I have looked at the suggestions on why this is 
necessary, I have not found them compelling. One concern I have 
as well as the potential of res judicata arising from district 
court interpretation tying the hands of the PTAB, which does 
not happen now because there are different standards.
    And if you make this change, the PTAB could be bound by res 
judicata to follow a district court or the ITC's finding and 
validity, which would completely blow up what we were trying to 
do as a Congress to clear this out. I did not see anything in 
your testimony addressing that threat, which is a potential, 
but it would be a very serious one for us.
    You know we were well aware of the competing views on this 
among different industries, and when we made the decision that 
we did, you know, it is hard to get legislation passed and into 
law. This was a rare exception to how hard that was, and signed 
into law, and the Republicans and Democrats worked together to 
make it happen.
    And it looks to me that the people who disagreed with the 
decision and lost in the Congress; they went to the Supreme 
Court. They lost in the Supreme Court, and now they are going 
to you, and you are reversing what the Congress decided to do 
and what the court said was permissible to do. So, I have a 
concern about that.
    Now, it is my understanding, according to the study out of 
the PTO Office, that 83 percent of all petitions challenging 
Orange Book-listed patents resulted in a patent being 
unchanged. So, I do not consider, you know, the death squad 
argument a very persuasive one. You know, one of the reasons 
why this works is that during the process you can do claim 
amendments. Are you looking to eliminate claim amendments if 
you go to this judicial standard as well? In which case, that 
would thoroughly, I think, undercut what the Congress tried to 
do and, I fear, return to the kind of unbridled patent fooling 
that led us to work together to make some changes.
    So, I guess those are a lot of questions without much time 
for you to answer, but I think they are significant ones, and I 
think they are shared among many members, both Republicans and 
Democrats. So, if you could address those issues.
    Mr. Iancu. Sure. Let me try to be brief in the amount of 
time left here. So, first of all, the AIA statute provides for 
discretion to the Patent and Trademark Office----
    Ms. Lofgren. I did not challenge that you did not have the 
discretion, but that using the discretion was essentially 
preempting the prerogative that the Congress had given an 
indication to do.
    Mr. Iancu. So, this is an exercise of that discretion based 
on 5-plus years of experience. You know, it turns out, after 
more than 5 years and thousands of petitions for post-grant 
review, IPRs, and the like, that more than 80 percent of our 
petitions and the patents in our--in IPR--are involved in 
parallel litigation. And one of the purposes of the proposal is 
that we want consistency, perhaps, between the office and 
district court litigation and the ITC, which, again, more than 
80 percent of the patents are involved in.
    Among other things, it reduces gamesmanship between the 
various forum, and it really does work to enhance and drive 
towards the congressional intent that was behind the AIA to 
provide an alternative to district court litigation. So, 
getting the standards closer together or on the same page would 
reduce the potential discrepancy and therefore enhance the 
forum as a true alternative to litigation.
    To answer, Congresswoman Lofgren, the last question, as I 
mentioned in my opening statement, we do plan to have an 
amendment process and to enhance it. And then, one final point: 
in order to have a predictable patent system that folks can 
rely on, it seems that the meaning of a patent--when one sits 
down to look at a patent and try to invest in it or invent 
around it, where the owner or the public--it seems that the 
meaning of that patent or the boundaries of that patent, at 
least objectively, should not depend on the forum on which it 
might happen some years down the line that that patent is 
challenged in if one is to make predictable decisions based on 
that patent.
    So, those are some of the reasons behind our proposal, and 
obviously the proposal is up for comment, and we will see what 
the public has to say.
    Ms. Lofgren. Mr. Chair, I know that my time has expired, 
but----
    Chairman Goodlatte. It has expired.
    Ms. Lofgren. If I could ask for just 30 seconds.
    Chairman Goodlatte. You have already got 2 minutes and 30 
seconds.
    Ms. Lofgren. But there are so few of us here.
    Chairman Goodlatte. Someone can yield to you, and you can 
follow up.
    Ms. Lofgren. All right.
    Chairman Goodlatte. The chair recognizes the gentleman from 
Ohio, Mr. Chabot, for 5 minutes.
    Mr. Chabot. Thank you, Mr. Chairman. Mr. Director, back in 
2016 the House Oversight Committee conduced a review of your 
agency and found there to be over $18 million in unsupported 
hours paid by the PTO, including at least one employee who was 
paid for 730 hours that he did not work, resulting in the 
erroneous payment of $25,000 to the employee. At the time, the 
Inspector General testified that the PTO did not fully address 
all the recommendations issued in the 2015 report.
    While the legislation that I introduced yesterday, along 
with my colleague on the other side of the aisle, Mr. Johnson, 
gives the PTO Director the ability to raise and lower fees to 
support the operations of the PTO, since you have been 
Director, what has the agency done, and what is it doing to 
address examiner time and attendance abuses described in the 
2015 general report?
    Mr. Iancu. Congressman Chabot, this is a critically 
important issue to me and to the Office. No abuse should be 
tolerated, and any abuse needs to be quickly discovered and 
promptly dealt with. All of the recommendations by the OIG have 
been implemented, and more. Things such as badging in and 
badging out have been implemented now; logging in and logging 
out as well; use of collaboration tools; and mandatory schedule 
notifications to managers. Things of that sort have been 
implemented, and we continue to look at whether other measures 
are necessary. But we have gone beyond what the recommendations 
were, and for good reason, because this is such an important 
issue.
    Mr. Chabot. Thank you very much. I will move on. What is 
the PTO doing to investigate reports that there has been a 
flood of questionable trademark applications from overseas, 
many containing false information?
    Mr. Iancu. This is a very important issue as well. The 
number of applications, trademark applications, from China, for 
example, have increased more than 1,100 percent in the past 5 
years, and we believe that a significant number of those and 
some others from overseas are fraudulent. They have fraudulent 
claims to use, for example.
    So, the office has, first of all, dealt with the increase 
well. In other words, we have staffed up; we have worked more 
efficiently, so our pendency times and things like that on the 
trademark operations have not suffered.
    Mr. Chabot. Is the number that accurate? Let me just ask 
you this, because my time is kind of limited, too. Is it 
reasonable for us to believe that you will give additional 
scrutiny to those coming from overseas, especially those in 
which there is some indication they may be questionable?
    Mr. Iancu. We are, and we are looking at some additional 
measures as well that we can discuss, time permitting.
    Mr. Chabot. Thank you very much. And again, because I am 
running out of time; I do not think I have time for two. But, 
one, is there any evidence that suggests that some large 
companies are using IPR proceedings as a tool to invalidate the 
patents of small companies--I happen to be the chairman of the 
House Small Business Committee right now--to prevent them from 
growing and becoming a competitive threat?
    Mr. Iancu. You know, I am not aware directly of specific 
statistics to that extent. Having said that, the process is 
available to be used as necessary by folks who have questions 
about the validity of a patent. If there is any abuse on any 
side we need to look at it carefully and address it, obviously.
    Mr. Chabot. Okay. We may be providing some information 
about that to you, and we would welcome working with you on 
that. I do have time for one final question; I have got all of 
42 seconds. What is the current status of the patent 
application backlog?
    Mr. Iancu. It is doing well under our measures. So, our 
backlog has decreased; our pendency time has decreased, both 
for the first office action as well as the ultimate issuance. 
So, the first office action pendency is down to a little bit 
over 15 months, total pendency is down to a bit over 24 months, 
and we keep improving on those numbers.
    Mr. Chabot. Thank you very much. Mr. Chairman, my time just 
expired. Thank you.
    Chairman Goodlatte. The chair thanks the gentleman and 
recognizes the gentleman from Georgia, Mr. Johnson, for 5 
minutes.
    Mr. Johnson of Georgia. Thank you, Mr. Chairman, and 
congratulations to you, Mr. Iancu, on your position. As you 
know, the fee setting authority for the USPTO has allowed the 
USPTO to efficiently set user fees to recoup operational costs. 
I have worked with Congressman Chabot to introduce legislation 
that would renew the USPTO's fee setting authority, which is 
scheduled to expire in September of this year.
    Do you believe that it is important that the USPTO be 
allowed to control its finances, and if so, why?
    Mr. Iancu. Yes, thank you, Congressman, both to you and to 
Congressman Chabot for introducing the legislation yesterday. 
It is critically important for our office to be able to set our 
fees appropriately. We are entirely based and supported by user 
fees; we are not supported by taxpayer dollars beyond what is 
provided by our users. We run a more than 12,000-person 
operation, $3.5 million budget, give or take, and it is 
critically important that we be able to manage efficiently and 
effectively the fees and those operations to serve our users.
    And as I mentioned a bit earlier, we need to be able to 
increase the fees as necessary to continue the highest level of 
operations, but sometimes we also reduce fees as appropriate to 
run an efficient operation. We have reduced some trademark 
filing fees, for example, to encourage electronic filing.
    Mr. Johnson of Georgia. All right. Thank you. Let me ask 
you this. How is it that you provide training and guidance to 
USPTO's employees that support the issuance of high-quality 
patents? And is your fee setting ability impacted, or does that 
impact your ability to train and your employees?
    Mr. Iancu. Yes, absolutely. So, our ability to set the fees 
appropriately and efficiently allows us, among other programs, 
to train our examiners at the highest levels possible. 
Currently, we have consistent training seminars for our 
examiners; we have programs for our examiners to work with the 
public and with our stakeholders for training purposes, which 
is a two-way training kind of thing. All those activities 
obviously require resources, and having fee setting authority 
is critically important for that.
    Mr. Johnson of Georgia. What guidance has the USPTO 
provided to patent examiners and the public to understand 
Supreme Court decisions issued between 2010 and 2014?
    Mr. Iancu. So, with respect to section 101, patentable 
subject matter, for example, there have been a number of 
Supreme Court cases as well as Federal circuit decisions that 
we track very closely, and we issue guidance to examiners 
whenever important cases come out from the Supreme Court and 
the Federal circuit as well. We provide summaries to our 
examiners of those cases, and where appropriate, we provide 
guidance of how to implement those decisions in future 
examination.
    On a going-forward basis, especially with patentable 
subject matter, we want to provide forward-looking type of 
guidance to our examiners as to where we think the Supreme 
Court law is requiring the lines of patentability to be drawn 
and how to make it more clear to the examiners and the 
applicants that come before them as to how to draw those lines.
    Mr. Johnson of Georgia. Thank you. Can you give us a 
critique on how you believe the Patent Trial Appeal Board has 
been functioning?
    Mr. Iancu. I do think that the PTAB has been functioning 
well. It has met its statutory deadlines in virtually all cases 
with very few exceptions. We have not gone over the 12-month 
period; we have never gone over the 18-month statutory period. 
So, it has gone well from those points of view. I am aware of 
significant criticism; I am also aware of significant support 
both ways from stakeholders. There is a lot of attention on our 
operations from the PTAB.
    There is criticism, as I have mentioned earlier, that there 
is an inconsistency between the treatment we provide to patents 
in reviewing patents and the PTAB versus the district court, 
and to that end we have proposed a change in the claim 
construction rule standard a couple of weeks ago. And we are 
looking at other potential changes as well on a variety of 
subjects, and we will see if we need to make more.
    Mr. Johnson of Georgia. Thank you sir. With that, I yield 
back.
    Chairman Goodlatte. The chair recognizes the gentleman from 
California, Mr. Issa, for 5 minutes.
    Mr. Issa. Thank you, Mr. Chairman. Director, like Ms. 
Lofgren, I am concerned about a change in standards, and I just 
want to run through quickly: you oversee the examiners who, 
essentially, decide what is patentable, what is not patentable, 
what the claims are, and they do so based on their expertise, 
correct?
    Mr. Iancu. Yes, correct.
    Mr. Issa. Okay. And when somebody comes back to the Patent 
and Trademark Office for an inter partes reexamination, you 
currently use essentially a de novo standard, because you are 
able to look at it to a great extent in the same way as the 
examiner looked at it but with new information, correct?
    Mr. Iancu. Well, I do not know that I would say that it is 
de novo, because the original examination is of record.
    Mr. Issa. No, I understand that, but I said, ``Except as to 
new information.'' In other words, the question that a judge is 
being faced with is ``Here is something we did not previously 
consider. Had an examiner had it, would they have granted this 
claim?'' And if they look and say, ``With this new information, 
the answer is no,'' they make that decision. So, their judgment 
is much more similar to the examiner than it is to the 
restrictions that an Article III judge has under current law, 
correct?
    Mr. Iancu. I do not know that I would put it quite like 
that, because----
    Mr. Issa. Well, I am putting it like that because you are 
considering moving a standardization to the standard that an 
Article III judge has, which is a deference to the examiner.
    Mr. Iancu. There is a presumption of validity that exists 
in district court litigation. Having said that, if I may----
    Mr. Issa. Go ahead, please.
    Mr. Iancu. Having said that, a significant difference 
between a PTAB proceeding on an issued patent versus the 
original examination is that for the PTAB proceeding, just like 
in district court, the original record in its entirety is 
available to the PTAB panel. And from that point of view, that 
proceeding is much more akin to what happens in district court. 
The same record is available.
    Mr. Issa. Let's continue on, because I want to get this one 
thought in, and it is going to take the whole time. So, when 
you go to an ex parte reexamination, essentially going back to 
a senior examiner--but let's just say it is the same examiner 
for purposes of the public understanding that there is no 
difference--those examiners do look at the record and the new 
evidence, and they make a consideration essentially. And I have 
had examiners give me this personally for years; they 
essentially are making a de novo decision there.
    They are looking and saying, ``If the original examiner had 
known this, would he or she have given it?'' And sometimes they 
are even looking at a material mistake. But the reality is ex 
parte reexaminations have a standard that is much more similar 
to PTAB than to Article III. Is that not correct?
    Mr. Iancu. Well, a reexamination is being conducted by 
examiners in the----
    Mr. Issa. Okay. Well, let's go back to ex parte 
reexamination, then. At the time that PTAB was envisioned, 
there were groups that wanted a one-and-done, and they wanted 
this other standard, and they did not get it. So, now here we 
are; you have a court which has a bad habit, which is it does 
not amend patents. And you and I have spoken offline, so let me 
just run through a question for you, and information for the 
public and the others on this panel.
    Currently, the PTAB judge does not have the benefit of the 
expertise of the examiners, and we, you and I and others, have 
called that an on-ramp. In other words, can we bring examiners 
from the other part of your operation as undersecretary in to 
provide direct guidance and help for the patent, PTAB, judge so 
that we can have more amendments and a more accurate 
reexamination?
    And then, the second part of the question is because at the 
end of this they may have a shambles of a patent, but they 
still have patentable material, can we have an equally 
expedited process through an ex parte reexamination? In 
whatever time the chairman would give you, I would like your 
thoughts on both how we could give you the on-ramp capability, 
specific authority to use examiners from the other part of your 
operation to make the system work better, hopefully, and then 
what your thoughts would be on a post-PTAB conclusion of a 
quick reexamination to empower the patent holder to legitimize 
whatever patentable material is left.
    Chairman Goodlatte. The time of the gentleman has expired, 
but the Director may answer the question.
    Mr. Iancu. Thank you. So, the amendment process is very 
important, Congressman Issa, because it is part of the AIA. The 
statute does provide for an amendment, the right to have some 
amendments considered, and it requires that any amendment claim 
should be addressed in the final written decision.
    The statute likewise requires that the final written 
decision come within 12 months after institution, barring some 
extension up to 18 months. So, that means that whatever 
amendment needs to take place, part of the statute needs to 
happen during the AIA time frame. We are looking at how to do 
that in an expeditious and efficient manner that allows the 
parties in the IPR process, or the PGR, as it may be, to 
participate and have an appropriate amendment.
    And potentially, an on-ramp, as you call it, perhaps 
bringing up an examiner to assist is one option among many, and 
that we can do at the Office within our current system if, 
logistically, it works out. We can also do an ex parte reexam 
afterwards or at any time the provisions are in place. And the 
question that the Congressman raises with respect to an 
expedited option; that is something we are looking at as well.
    Mr. Issa. Thank you, Mr. Chairman.
    Chairman Goodlatte. The chair thanks gentleman and 
recognizes the gentlewoman from California, Ms. Bass, for 5 
minutes.
    Ms. Bass. Thank you, Mr. Chair. Director, I would like to 
ask you one question, and then I want to yield some time to my 
colleague. I wanted to know what actions that your Office is 
planning to take to engage stakeholders on issues related to 
patent qualities.
    Mr. Iancu. Sure. So, we have a whole variety of programs at 
the PTO to address patent quality and to improve and increase 
the quality of the patents that we issue. It is a very 
important issue for us.
    To address the Congresswoman's specific question about 
engaging stakeholders on that issue, we spend a lot of time 
with stakeholders; I have myself. We have several programs on 
the specific issues; so, in particular, we have a program where 
we have meetings between our examiners and stakeholder groups 
at large to discuss the technology and issues surrounding 
improving understanding of that particular technology.
    We also have meetings, and we encourage meetings between 
examining groups and companies, where, again, the understanding 
of a specific technology area can be developed both from the 
PTO's point of view and the public's point of view.
    Ms. Bass. How are those meetings noticed? How do people 
know about them?
    Mr. Iancu. Well, there are discussions with stakeholders 
directly.
    Ms. Bass. They are public announcements of meetings?
    Mr. Iancu. You know, I am not sure. I have been there only 
3 months, so I do not know if there are public announcements, 
but I can look into that.
    Ms. Bass. Okay, thank you. And I will yield my time to Ms. 
Lofgren.
    Ms. Lofgren. I thank the gentlelady for yielding. I just 
wanted to get back to the questions I was asking earlier, which 
is, you know--and I think my colleague from California, Mr. 
Issa, got into some of this as well--the biggest patent quality 
issue is overbroad claims. And you know, the IPR was envisioned 
not just as a way to invalidate patents but to bring some 
sanity back to the scope.
    There is an issue relative to what evidence can be brought 
to bear on that decisionmaking, but I am interested in, instead 
of going to the judicial standard, why you might not seek our 
legislation to provide for greater evidentiary provision as an 
alternative.
    And I also want to say: my staff has been investigating 
this in terms of the USPO; we have looked at the change. And 
they have been told that in the past, not a single past PTAB 
decision would have been decided differently under a judicial 
claim construction. And if that is the case, I do not see how 
greater predictability and certainty would be the result, that 
generally these are the same issues.
    I sound unduly critical; I hope I do not, because we do 
appreciate you and everybody in your office. But your scope is 
the efficiency of the office and the like. You know, we were 
responding to, you know, the Eastern District of Texas and 
everybody having to appear and be held up by patent trolls, 
which is really not the focus of your office. And so, I am 
concerned, however well-intentioned your efforts are in terms 
of, you know, your world, with some missteps we end up where we 
were before we adopted the bill.
    And understanding that we gave discretion to the Office, I 
think it would be very smart to have some collaboration with 
this committee before you make steps of this nature, because we 
had a much broader view of this whole thing than is your legal 
obligation to look at. So, I do not know if you have a comment 
on this.
    Mr. Iancu. Sure, I can comment on a variety of the points 
the Congresswoman makes. We are very much engaged with 
stakeholders and with members of the committee to discuss this 
and many other issues.
    Ms. Lofgren. No one talked to me.
    Mr. Iancu. And I would be very happy to do so, and we do 
have quite a bit of time left in the comment period, and I 
would be very happy to come and speak with you as well. Now, to 
address a couple of the other points you have raised, the 
ultimate question of the breadth of a patent, obviously, it is 
not good to be overbroad, but the question is, overbroad to 
whom and when? Right?
    So, the ultimate question of a patent's enforceability is 
when it comes to a court when an owner wants to enforce that 
patent and the accused infringer wants to defend against it. 
Ultimately, the breadth is in that context and----
    Ms. Lofgren. Well, if I may, my time is about to expire. 
That is a law school answer, and in the real world we have got 
patent trolls out there holding people up. And I see once again 
my time has expired, Mr. Chairman, and I yield back.
    Chairman Goodlatte. It has indeed. The chair recognizes the 
gentleman from Iowa, Mr. King, for 5 minutes.
    Mr. King. Thank you, Mr. Chairman. Director, I appreciate 
your testimony here this morning, and I would like to start out 
with: can you give us a sense of where America has men as far 
as the strength of our patent system in this country in 
relation to the rest of the world, historically or, say, the 
last half a century or so?
    Mr. Iancu. I am sorry, Congressman, I missed the question.
    Mr. King. Oh, okay. Could you give us a sense of where 
America has been in its standing in the world with our patent 
system and, say, in relation to the rest of the world over the 
last half a century or so?
    Mr. Iancu. Yes. So, for a long time in a variety of studies 
we have been the number one system in the world. The ranking in 
a variety of studies has been decreasing in recent times. There 
are a number of studies that we can point to as well as 
anecdotally. We hear evidence of that; one example is the U.S. 
Chamber of Commerce study where we had been ranked number one 
for a number of years, and we fell to number 10 a couple years 
ago, and this year we fell to number 12.
    I should say that the rankings at the top are close to each 
other, so even though we are ranked number 12, we really are 
only half a point behind on a scale to eight behind the first 
position. And in other words, we can make up ground.
    Mr. King. Okay. I like the attitude part of that thing, but 
when was the last year we were number one?
    Mr. Iancu. I believe 2 or 3 years ago.
    Mr. King. Okay. And do you have any idea as to what has 
caused that to slip, and is it the other countries are getting 
better? We are getting worse?
    Mr. Iancu. Well, it is a combination of both, actually, 
Congressman, and from our point of view, the various studies 
point to two main issues. One is decreased certainty with 
respect to patentable subject matter--that is section 101--and 
the second is the decreased certainty caused by post-grant 
proceedings such as the IPR, and we are looking at the PTO at 
ways to address both of those issues.
    Mr. King. Did the passage of the American Inventions Act in 
2011 impact the result of our standings in the world with 
regard to our patents?
    Mr. Iancu. The American Invents Act does a number of 
things, and some of the things have helped the patent system, 
but the one issue that is in the AIA that has negatively 
impacted the various rankings is the implementation of the IPR 
process. That does not mean that we cannot improve it and make 
it work as it was intended by the AIA, and those are the types 
of steps we are trying to undertake right now.
    Mr. King. Did the changing of the ``first to invent'' 
versus ``first to file'' impact this?
    Mr. Iancu. Congressman, I have not seen specific evidence 
of that particular issue.
    Mr. King. It would come to you anecdotally first?
    Mr. Iancu. We would probably see it anecdotally. We have 
heard comments on both sides of that issue, but it is not one 
of the main issues. The main issues were the couple that I have 
mentioned earlier.
    Mr. King. Yes, and I appreciate that, and it is valuable 
information to this committee. Also, we have heard the 
President talk about the piracy of U.S. intellectual property 
by the Chinese in particular. And he has pegged that number, at 
least in Twitter, at $300 billion a year. Do you have any data 
that supports that or contradicts it? Would you speak to the 
scope of that?
    Mr. Iancu. I personally do not have that with me right for 
today. I can definitely look into that. However, I do know that 
the piracy of the intellectual property of American companies 
is very, very large, and we fully support, and we do work in 
the interagency process in the administration. We do support 
the administration's efforts in this area.
    Mr. King. Okay. I would like to point out to you that I 
have introduced legislation a number of years. In this Congress 
it is H.R. 1048, and what it does is it directs the U.S. Trade 
Representative to conduct a study, which I understand he 
already does, to determine the value of U.S. intellectual 
property that is pirated by the Chinese and then to apply a 
duty on all products coming from China in the amount equivalent 
to recover that intellectual property loss plus an 
administrative fee and then distribute those proceeds to the 
rightful property rights owners.
    It is a self-correcting piece of legislation that 
essentially says if you are going to steal from us we are going 
to back-charge you for it, so go ahead and keep it up. And that 
is in the repertoire of our trade negotiators today, and I 
wanted to point that out to you, and I noticed you wrote down 
H.R. 1048. Do you have any comments on that?
    Mr. Iancu. Well, all I will say is that we definitely 
support efforts to enforce our intellectual property worldwide 
and to protect our companies from having their IP stolen.
    Mr. King. Thank you, Director. I appreciate it. I yield 
back, Mr. Chairman.
    Chairman Goodlatte. Thank you very much. The chair 
recognizes the gentleman from Rhode Island, Mr. Cicilline, for 
5 minutes.
    Mr. Cicilline. Thank you, Mr. Chairman. Thank you to our 
witness. Many U.S. patent holders are finding that technology 
that they have designed has been usurped and at times reverse-
engineered in a foreign jurisdiction. For example, some U.S. 
businesses who sell their products in China find that another 
company has replicated their design and obtained a Chinese 
patent for the U.S.-owned product. Of particular concern to me 
is the theft of American design defense technology.
    It is my understanding that PTO's Intellectual Property 
Attache program and its Office of Policy and International 
Affairs are working to improve policies abroad for the benefit 
of U.S. stakeholders. What would you recommend to a U.S. 
business that has discovered that its patent has been 
misappropriated in a foreign jurisdiction? I have heard from a 
number of constituents, actually, about this issue and would 
love some guidance from you as to what you think the 
appropriate course of action is.
    Mr. Iancu. Well, I appreciate the Congressman's mention of 
our attaches. They perform critically important functions 
overseas and they support our companies doing business 
overseas. In a situation as you have mentioned, the U.S. 
companies doing business overseas should obviously take 
advantage of enforcement mechanisms in those countries. They 
can get in touch with our attaches in the relevant region; they 
can also get in touch with the USPTO itself here at 
headquarters in D.C. and elsewhere. And between our attaches 
and folks at the headquarters, we can provide help and guidance 
through the enforcement mechanisms in the relevant country that 
they are operating in.
    Mr. Cicilline. And does that include technical assistance? 
Because for a lot of these operations they may not have the 
capacity to sort of engage in the work that is necessary to 
protect their patents.
    Mr. Iancu. Yeah, we can help them understand the local 
laws, for example, and how to navigate those and direct them to 
the appropriate folks in the relevant jurisdictions for 
technical work and the like.
    Mr. Cicilline. And are there additional steps that the 
attache program in the Office of International Affairs is 
taking to reduce patent theft in China specifically? This seems 
to be a well-documented problem. Are those offices taking steps 
to make a significant impact in that area, and if so, what are 
those steps?
    Mr. Iancu. Well, we are watching carefully what is 
happening overseas and what is happening with the potential 
theft of our IP. With respect to China in particular, we have 
an office at the PTO that is focused expressly on China and 
what takes place there. And through our attaches we keep our 
ear closely to the ground to make sure we have the appropriate 
information. And I should say that the PTO is working closely 
in the interagency process, including with the USTR, to address 
the theft of American IP in China and elsewhere.
    Mr. Cicilline. Thank you. Thank you, Mr. Chairman. I yield 
back.
    Mr. King [presiding]. The gentleman yields back, and the 
chair will now recognize the gentleman from Pennsylvania, Mr. 
Marino.
    Mr. Marino. Thank you, Chairman. Welcome, Director. 
Congratulations.
    Mr. Iancu. Thank you.
    Mr. Marino. We have discussed a lot of things: 
Constitutional cases; ex parte reviews. I just want to make 
something that is very basic a question I have for you. What 
are the two or three tools you need to improve the 
effectiveness and the efficiency of your office?
    Mr. Iancu. So, first of all, we need the fee setting 
authority. It is critically important to the fundamental 
operation of the office, and as we know, it expires shortly. 
But I am very happy to see that there is a bill introduced, and 
hopefully we can work on that or other legislation in that 
regard.
    We are very carefully monitoring the balance of the IP 
system on a variety of issues as well. So, the key to a well-
functioning patent system is a careful balance; the rights of 
the owners and the rights of the public as one example. We are 
meeting with stakeholders across the spectrum and trying to 
understand their various needs. So, the discretion given to us 
in the various statutes to implement the patent laws and 
balance them, balance the process carefully: this is something 
we need and that we are implementing with a very steady hand.
    Because to achieve balance we just simply have to be 
carefully monitoring the various needs on all the sides. And we 
are engaged in that process as we speak.
    Mr. Marino. Do you have enough qualified personnel?
    Mr. Iancu. I think we do. We have more than 12,000 
employees of the USPTO, many, many of them with higher 
education degrees. The examiners that we have, both on the 
patent and trademark side, get significant training, and they 
come in with good qualifications. So, overall, I would say, 
yes, we have the appropriate levels of personnel.
    Mr. Marino. Do you have the state-of-the-art 21st-century 
equipment?
    Mr. Iancu. We have technology that serves the needs of the 
office and of the operations right now. That is a process that 
is in the need of continuous improvement. Technology keeps 
improving. One thing that we are working on is improving 
technology for the initial search process, for example.
    Critically important to the patent quality and the 
predictability of our patents is that we surface upfront the 
most relevant prior art for a particular patent. And given the 
growing amount of publications out there, improved technology 
might help us in that regard, and we are working towards that 
end. So, we have good technology, but we really are always in 
the need for improving it.
    Mr. Marino. Thank you. I yield back.
    Mr. King. The gentleman returns his time, and the chair now 
recognizes the gentlelady from Florida, Ms. Demings.
    Ms. Demings. Thank you so much, Mr. Chair, and thank you to 
the Director for being with us today. With respect to present 
trade agreement negotiations, has your office been involved in 
seeking to include strong IP protection and enforcement 
provisions in a revised agreement? And if so, how has your 
office and your employees been involved?
    Mr. Iancu. And I apologize; we are speaking about NAFTA, 
or?
    Ms. Demings. Yes.
    Mr. Iancu. Yes? Okay. So, yes, our office is working 
closely with the U.S. Trade Representative on NAFTA and, 
frankly, other trade negotiations as well. We are providing 
technical assistance, including in any such agreements state-
of-the-art IP provisions are critically important, and we do 
provide the technical assistance to the Trade Representative in 
that respect.
    Ms. Demings. How does your office advise the administration 
on international and domestic copyright policy issues?
    Mr. Iancu. What I just mentioned is one example, working 
with the Trade Representative on that. We also work closely 
with the Copyright Office itself.
    Ms. Demings. And how do you notify the administration, 
though?
    Mr. Iancu. Well, we work in the interagency process through 
the administration and through the Secretary of Commerce, for 
example. The second part of my title is Undersecretary of 
Commerce for Intellectual Property, so we are called upon to 
advise on all intellectual property issues.
    Ms. Demings. I know you spoke somewhat earlier about the 
attache program and how important and critical it is. Could you 
talk just a little bit? I think my colleague kind of ran out of 
time on that. Could you just talk a little bit more about how 
they promote strong and balanced protection and effective 
enforcement rights abroad as well?
    Mr. Iancu. Sure. The attaches in a variety of regions 
around the world sometimes are the first point of contact for 
American companies doing business overseas, and frankly, for 
others; members of Congress, for example, traveling overseas 
and other administration officials traveling overseas. One 
thing that would help improve the functioning of the attaches 
would be an elevation in diplomatic rank at their various 
missions.
    Ms. Demings. Okay. And also, you spoke a little bit about 
the importance of being able to set or have an authority over 
the fee schedule or the fees. Could you elaborate a little bit 
about why that authority is so critical?
    Mr. Iancu. Sure. As I have mentioned, we are funded 
entirely by user fees, not taxpayer dollars, and we operate a 
very large entity that is focused on delivering the highest 
quality services to our users. To that end, we need to be able 
to attract, retain, train the highest levels of professionals.
    We obviously compete in the STEM world with private 
entities out there. And overall, we need to be able to keep 
pace so that we do have the highest qualified workforce, which, 
as I have mentioned earlier, I think we do right now, and we 
need to be able to efficiently manage that workforce. And in 
addition, our fee setting authority allows us to drive and 
improve certain interactions with our users. For example, we 
can reduce fees in order to incentivize certain activities such 
as electronic filing of applications.
    Ms. Demings. And finally, you are having no challenges at 
all with recruiting or retaining a qualified and well-trained 
workforce?
    Mr. Iancu. Well, I think we are doing a very good job at 
that. I think we have currently the tools in place to allow us 
to do a very good job at that, and I should mention that our 
turnover rate, our attrition rate, is very low compared to 
industry. The USPTO is a wonderful place to work, and I think 
the processes we have in place help that. But our ability to 
have access to our fees and to set them appropriately to 
continue attracting and retaining the highest-level 
professionals is critically important.
    Ms. Demings. Thank you so much. Mr. Chair, I yield back.
    Mr. King. The gentlelady returns her time. The chair now 
recognizes the gentleman from Louisiana, Mr. Johnson.
    Mr. Johnson of Louisiana. Thank you, Mr. Chairman. Mr. 
Director, thank you for being here today. You mentioned in your 
testimony that your Office is actively working to address the 
current inventory of applications that are awaiting review, and 
I think the number has been set at approximately 540,000. Can 
you update the committee on what you are doing to ensure that 
pending applications can be reviewed in a more expedited 
timeframe?
    Mr. Iancu. Sure. So, yes, the backlog is a bit over 
500,000, approximately. So, we always have to balance the 
backlog and the pendency times against the quality, obviously, 
and the resources that we have in the office, and we watch that 
very carefully. We want to make sure we have the appropriate 
number of examiners on staff to be able to review in a timely 
fashion, and they are appropriately trained to provide the 
highest quality during that review.
    We are currently engaged in an examination time analysis, 
an analysis of the overall time given to each individual 
examiner or groups of examiners to review patent applications. 
And we are looking forward in the near term to making some 
changes that would optimize that time allocation even further.
    Mr. Johnson of Louisiana. You have stated that the Patent 
and Trademark Office is looking for ways to simplify patent 
eligibility determinations through the new examiner guidance, 
and I know you may have covered this. We are coming in and out, 
because we all have different meetings. But weeks ago, of 
course, the PTO issued new examiner guidance focused on how 
examiners are to document a finding that a claim is old or 
conventional. And you may have covered some of this already: 
but just briefly, what are the plans you have to change how the 
PTO determines whether the invention is patent-eligible?
    Mr. Iancu. The guidance we have provided a few weeks ago 
deals with the second step, the conventionality part of the 
analysis. They address how an examiner is to document it and 
actually what it means. On a going-forward basis, we are also 
trying to address through guidance what the other parts of the 
Alice framework mean or how they should be applied by the 
examiners, such as what is an abstract idea, for example, what 
does directed to mean and things of that sort. It is not a 
simple issue, and there are a lot of competing issues, 
obviously, and we have to be very careful to have a balanced 
approach.
    Mr. Johnson of Louisiana. I appreciate that. You had a 
dialogue with Congressman King a few moments ago; you were 
talking about our place in the world, so to speak. And in your 
testimony, you mention how the American Invents Act has taken 
significant steps to harmonize the U.S. patent system with many 
of our trading partners overseas, and you talked about how you 
have been working with stakeholders across the industry and the 
world to better harmonize patent law among all these countries. 
So, can you give us just a quick update on how that is going 
and what those efforts look like?
    Mr. Iancu. Sure. So, the AIA provided one major step 
towards harmonization with the first-to-file system. There are 
other efforts, primarily driven by industry, regarding the 
harmonization of prior art, for example, and other such issues.
    So, we are meeting in international forums where both 
various patent offices from various countries as well as 
industry groups from various countries are meeting 
independently and together to address some of those issues. 
There is a meeting coming up, actually, of IP5 in Louisiana, in 
New Orleans, just next month. That is the top five IP offices 
in the world, and we will address harmonization there as well.
    Mr. Johnson of Louisiana. We have a lot of intellectual 
capital in Louisiana. I just want you to know and thank you for 
coming. As a conservative--and many of us agree that we believe 
that the protection of individual property rights and 
intellectual property as well is essential to who we are as 
Americans, so I appreciate your efforts in that regard.
    And I hope as we harmonize this with other countries around 
the world we can share this idea about inalienable rights and 
why this is so important to who we are not only as Americans 
but as human beings. So, I appreciate your efforts, and I will 
yield back.
    Mr. King. The gentleman returns his time, and the chair now 
recognizes the gentleman from Idaho, Mr. Labrador.
    Mr. Labrador. Thank you, Mr. Chairman. What is your Office 
doing to improve patent examination searches so that the 
quality of patents improves?
    Mr. Iancu. As I mentioned a few minutes ago, that is 
critically important. If we want to improve the quality of 
patents, beginning at the very beginning is a good place to 
begin, and that is with the initial search. Over the past 
number of years, past decades, there has been an explosion in 
the number of publications. There has also been an explosion in 
the accessibility to a vast number of publications around the 
world, yet examiners necessarily still look for one or two or 
whatever, a limited number of key references, and the job 
becomes increasingly more difficult, obviously, just by the 
sheer numbers.
    So, we have a taskforce to improve the technology 
surrounding that. There is new technology that is being 
released in the coming months. But also, we are looking at 
potential use of artificial intelligence and how that can be 
used to surface some of the key references.
    Mr. Labrador. What can you do to prevent the Department of 
Commerce from using PTO user fees to support the work of other 
agencies?
    Mr. Iancu. I am in close contact with the secretary and the 
acting deputy secretary and the leadership of the Department of 
Commerce on this and other issues relevant to our office, of 
course. And I am keenly aware of the issue and very focused on 
not having PTO user fees diverted for any other purpose. So, we 
are continuously working on that, so, I am committed to that 
issue, and I believe the secretary and the leadership of the 
Department of Commerce are likewise committed.
    Mr. Labrador. What do you view as the PTO's role in 
protecting American companies from forced technology transfer 
and other forms of theft of intellectual property imposed on 
U.S. companies as a cost of doing business in a foreign 
country?
    Mr. Iancu. The theft of American intellectual property 
overseas has been tremendously high, and the overall 
administration is focused on lowering that. We fully support 
the administration's role in that; I do from the PTO, and 
Secretary Ross is from the Department of Commerce.
    And from the PTO's perspective itself, we work with the 
USPTR and other administration agencies to make sure that the 
appropriate enforcement mechanisms, A, exist in our trade 
agreements, and, B, American companies doing business overseas 
know about them and have the tools necessary to make use of the 
enforcement mechanisms.
    So, those are just some examples of what we do, and we 
provide technical assistance on the specifics of IP protections 
and enforcement to our stakeholders and other government 
agencies.
    Mr. Labrador. Thank you. I yield the rest of my time to Mr. 
Collins.
    Mr. Collins. Thank you. I appreciate the gentleman. I have 
got more questions that will come up later, but just following 
up on some things that we have just stated, you stated that the 
PTO is examining how and when the PTO institutes post-grant 
proceedings and the standard employees during proceedings and 
how the PTO conducts the overall proceedings. What specific 
changes to AIA post-grant proceedings are you considering, and 
why are these changes necessary? And also, again, 
congratulations. Good to see you again.
    Mr. Iancu. Good to see you. So, there are a variety of 
things we are looking at, and some of them include the 
amendment process, as I have mentioned a bit earlier. The 
amendment process is important. It is important to have an IPR 
process that the result of which is not an all-or-nothing 
proposition, and I think that is important for patent owners 
and the public alike.
    The ultimate goal of the goal really is to have good patent 
claims out there, and if we can have a process during an AIA 
trial that drives the towards improved claims, I think that 
would be useful. So, we are looking at various alternatives to 
how to include that in the process while giving both parties in 
an IPR the opportunity to participate in that.
    We are also looking at the hearing itself. Do we need to 
give folks more time at the hearing? Do we need to include, for 
example, more access to testimony at the hearing itself from 
witnesses? And, again, there are pros and cons to this, and 
just because we are looking at it does not mean we are going to 
make a particular change. We are also looking at the 
institution decision; how much of other activities--for 
example, decisions from other tribunals, courts, examiners, and 
the like--do we consider in that decision process as well? 
These are some examples.
    Mr. Collins. That is good. We have got some more, and I 
will be on those in just a few minutes, but I yield back the 
rest of that time.
    Chairman Goodlatte. The chair thanks gentleman and 
recognizes the gentleman from Colorado, Mr. Buck, for 5 
minutes.
    Mr. Buck. Thank you, Mr. Chairman. Sir, I want to talk a 
little bit about the IPR system. What is the alternative to the 
IPR system as it exists now?
    Mr. Iancu. Well, district court litigation; ITC litigation.
    Mr. Buck. Which is more efficient?
    Mr. Iancu. It depends on a case by case, but overall, I 
would say that the IPR process itself is statutorily mandated 
to conclude in 12 months from inception.
    Mr. Buck. I am going to give you a hypothetical. Say you 
owned a small business, and you were looking at an army of 
lawyers to go to district court or the opportunity to go 
through the IPR process. Which would you choose?
    Mr. Iancu. It is a case by case determination, Congressman. 
There are reasons to go to district court and avail yourself of 
the jury; there are reasons to come to the PTAB and avail 
yourself of the 12-month process. I should say that, as it 
turns out, over the past 5.5 years over 80 percent of the IPR 
patents in IPR are involved in co-pending district court 
litigation.
    Mr. Buck. Okay. So, what can you do to ensure that the IPR 
process runs more smoothly than it does right now?
    Mr. Iancu. So, we are looking at that precise issue as we 
speak. We want to make sure that all parties that come before 
us have a fair hearing and have a fair process and that we 
reduce the opportunities for gamesmanship.
    And one of the reasons that we have mentioned for proposing 
a rule change to the claim construction standards--one of the 
various reasons--is to increase traditional efficiency and 
reduce the ability to game the system as between the district 
court and the PTAB process. And I do think that is one example 
that would increase efficiency in the overall system and 
perhaps reduce the litigation fees overall for a particular 
party.
    Mr. Buck. So, there are some claims out there that the IPR 
system has hurt innovation. Do you agree with that?
    Mr. Iancu. I am aware of those claims, and the fact is that 
the IPR system, as implemented, has the opportunity for some 
gamesmanship which could put an additional burden on the 
innovation ecosystem, and we are looking at ways to correct 
some of that and bring it back within the original intent of 
the statute.
    Mr. Buck. So, what are you looking at specifically?
    Mr. Iancu. Well, again, an example is the claim 
construction standard. If we harmonize with the district court, 
I think it is increases the chances of the IPR to be that true 
alternative to litigation and potentially reduce overall fees. 
We are looking also at the institution decision, as I have 
mentioned.
    Mr. Buck. So, what I hear you saying is if the IPR system 
is improved it would be a drastic benefit over the district 
court litigation system. If what you are hoping to do with 
these administrative improvements bears fruit--I mean, you 
cannot do much on the district court side, but you can do a lot 
on the IPR side. So, I am hearing you say that you can make the 
system better by improving the IPR side of the equation.
    Mr. Iancu. Yes, Congressman, I think those changes would 
definitely improve the IPR system, but I should say that I 
think they actually would improve the overall process as 
between the district court and the----
    Mr. Buck. Because more people would use the IPR system and 
take some of the burden off the district court?
    Mr. Iancu. That is one example, and you have judicial 
efficiency as well.
    Mr. Buck. Okay.
    Mr. Iancu. I could go in more detail if----
    Mr. Buck. Well, I am concerned about a U.S. Chamber piece 
that was done. And I have always thought that America was 
number one in everything and certainly in innovation, and I am 
concerned about some of their findings and wanted to get your 
opinion on those findings also with the improvements in the IPR 
system. It seems like between first and 12th--while the numbers 
appear big--there is a very small measuring difference there, 
and I wanted to get your thoughts on that piece and what the 
impact of the revisions that you are talking about will have on 
that.
    Mr. Iancu. I am also concerned with the decline of the 
American patent system in the world. The American patent system 
has been a crown jewel for this country; it has been at the 
crux of our economic growth, our historical and cultural 
development, and we should not cede one inch in this area.
    I do believe that the changes we are considering right now 
will make a significant difference and help us rise back in the 
ranks and once again lead the world. We have always been the 
gold standard in this area, as well as many other areas, and 
other countries look up to us as to how to conduct their patent 
system.
    Mr. Buck. They continue to?
    Mr. Iancu. Well, they have in the past, and we need to 
return to that position at this point.
    Mr. Buck. Great. I yield back. Thank you, Mr. Chairman.
    Chairman Goodlatte. Thank you. The chair recognizes the 
gentleman from Florida, Mr. Rutherford, for 5 minutes.
    Mr. Rutherford. Thank you, Mr. Chairman. Director, thank 
you for being here today. I am going to go a little tangential 
on you here with my topic. You know, the right to own property 
is basic to our American way of life. And so, when the Castro 
regime took power in Cuba, not only did they seize real 
property like the property from the Garcia family who now 
resides in Florida. And in fact, the United States government, 
I am told, is actually paying rent in their home, a property 
that they once owned. And the State Department is now paying 
rent for that property that was seized by the Castro regime.
    But there are also companies like McCarty, who not only was 
a real property seized but their trademark was confiscated as 
well. And so, in 2016, the USPTO renewed the Cuban government's 
request for that trademark, and in response to that, you may 
remember that the U.S. Congress moved in the omnibus 
appropriations bill in 1998, created section 211, which would 
stop the Cuban government from being able to affect trademark 
within America that had been seized as confiscated property.
    Now, because it specifically at that time outlined the 
Cuban government, the World Trade Organization had some issues 
with that. They said that it violated the national treatment of 
most favored nation principles under the TRIPS agreement, 
because section 211, on its face, only applies to Cuban 
nationals and their successors.
    Mr. Issa on this committee has introduced H.R. 1450, which 
will make it clear that section 211 applies to all parties 
claiming U.S. rights in confiscated Cuban trademarks regardless 
of their nationality. And I am curious: Has the USPTO taken a 
position on this legislation? Are you aware of it?
    Mr. Iancu. I am not aware of that specific position or a 
position on that specific piece of legislation. I am aware that 
the issue was at the PTO with respect to these particular 
trademarks. As you may know, Congressman, we have stayed all 
proceedings at the PTO pending current litigation in the court 
system. This is a very complex, long-running dispute that is 
cross-disciplinary, so we are awaiting court decisions.
    Mr. Rutherford. But you know, when your office understands 
how basic the right of property ownership and trademark 
ownership is, I would be surprised if the USPTO would not 
support a change in section 211 that will actually meet the 
WTO's requirement that it not be so specific to Cuba, and it 
opens it up to any nationality that might confiscate an 
American trademark. So, I guess what I am asking you is, what 
do you think of that? And I understand that there is litigation 
going on, but I would like to know where you would stand on 
that.
    Mr. Iancu. Well, I would be very happy to review the 
legislation and come back to you and the committee as 
appropriate.
    Mr. Rutherford. Thank you. I would greatly appreciate that, 
and I see my time is running out. But some of these issues with 
confiscation by foreign nationals of property and trademarks--
you know, the real property--the fact that the United States 
government is actually making payments to the Castro regime for 
property that was seized from an American citizen. I know that 
is another issue not for your office, but it does go to the 
basics of, you know, property ownership and trademark 
ownership. So, I would appreciate an answer on that if you 
could send me something in writing and let me know where the 
USPTO stands on that.
    Mr. Iancu. Will do.
    Mr. Rutherford. Thank you.
    Chairman Goodlatte. The chair thanks the gentleman. We will 
return now to the gentleman from Georgia, Mr. Collins, for his 
5 minutes.
    Mr. Collins. Thank you, Mr. Chairman. I appreciate that. 
Let's continue into the conversation where we were at. And as 
we are dealing with really some of the decisional post-grants, 
there is something you had mentioned. You were talking about, 
you know, better review of the appeals process, which is coming 
in to this process, the question will become, does the board 
have expertise and resources to examine amended claims? And if 
not, how can we ensure that the board can competently review 
amended claims, especially as we get more complicated in this 
process?
    Mr. Iancu. So, there are several issues that are important 
with respect to that process. First of all, there is a 
timeliness question. We have to do it within the 12 months 
provided by the statute. Second of all, it is important to the 
office and to the system that whatever claim issues from the 
office should be examined. The PTO should not issue claims, in 
my view, that have not been examined, for the good of the 
patent owner and the public alike.
    So, we are looking at exactly how we can accomplish both of 
those things efficiently--so, within the 12 months and, in 
addition, give the parties in the IPR the opportunity to 
participate fully. There are a variety of options we can 
employ; an example would be to use an examiner from the Corps, 
for example, or from a resentment nation unit. Those are 
examples that can assist the board and provide advice on those 
amended claims. That is one option. There are other options as 
well.
    Mr. Collins. Okay. Let's switch gears, because that is 
something we could talk about for a while. The European Union 
and their so-called incentive review has resulted in some calls 
by stakeholders to basically reduce IP protection. Most 
notably, to introduce a manufacturing exception to 
supplementary protection certificates, or SPCs, critical to the 
ability of U.S. rights holders to protect pharmaceutical 
innovation and deliver new therapies to patients. Can you 
explain how you are meeting these challenges in talking about 
this issue with our partners in Europe? You know, briefly talk 
about that as how we are dealing with that.
    Mr. Iancu. So, the patent system needs to be balanced so 
that we provide appropriate opportunities for the innovative 
ecosystem to apply for and obtain rights, and obviously, first 
of all, to incentivize them to innovate in the first place.
    At the same time American companies are doing business 
overseas, they have to have similar types of protections and 
enforcement mechanisms. So, we do work with our stakeholders, 
and we work with our foreign PTO colleagues in foreign offices 
to make sure that they have similar protections as we do for 
American companies doing business in their jurisdictions.
    Mr. Collins. And I think that is something, and for anybody 
who has heard me talk about this, you know, look, we can talk 
about the Chamber ratings; we are talking about everything. 
But, look, our standards are the standards the rest of the 
world should emulate, and those are the things we are going to 
be pushing forward on, because I believe the best protection is 
the best source of innovation, and when we have the best 
protection, we have the innovation that is incentivized to do 
that.
    So, I think this is going to come up in many other areas, 
especially the trade transfers, the secret transfers with China 
that is just demanding if a company comes in--we will deal with 
those as we go along. Just know that is something that is 
important to me; it is important to the Hill as well. But let's 
go back to some things that have been issued. You talk about 
the uncertainty issues of patentability, so let's go back to 
Myriad and Alice. Sounds like a great TV show.
    These two decisions have increased uncertainty about the 
patent on subject matter eligibility. Now, as someone who has 
dabbled a little bit in subject matter eligibility, it can be 
amazing what comes out when you start dealing with this issue. 
In the matters of life sciences and [indiscernible] in 
particular, how significant do you believe this problem is? We 
have talked about this. What plans do you have about it? And 
also, I am going to add a third party in here. What do you 
think exceeds your authority to actually deal with it, and if 
so, what should we be dealing with up here?
    Mr. Iancu. The issue is very significant. It is significant 
to the office, to our applicants, and it is significant to the 
entire industry. In some areas of technology, it is unclear 
what is patentable and what is not, and that can depress 
innovation in those particular areas.
    Our plan at the PTO is to work within Supreme Court 
jurisprudence to try to provide better guidelines; what we 
think is in and what we think is out. We are trying to work on 
forward-looking guidance that helps examiners and the public 
understand what, at least from the PTO's point of view, we 
think is right.
    Section 101; the code itself has not been amended since 
1952. In fact, the language is by and large written by Thomas 
Jefferson in the early 1790s, with very little amendment ever 
since then. Obviously, we have developed some new technologies 
since then. So, if this committee, or Congress in general, is 
interested in tackling section 101, we would be very happy to 
work with the committee on those issues. In the meantime, the 
PTO is going to do what we must do, which is help our 
examination process.
    Mr. Collins. Well, my time is running out, and I am going 
to yield back, but I do think it would be good from your Office 
to tell us what you believe exceeds your authority, because 
there are some things you said--working with the Supreme Court; 
that is fine, working with innate jurisprudence. But what 
exceeds your authority that Congress probably would have to at 
least take a look at? Whether it is changed or not, Congress 
would have to look at it. If you could get that to us, I would 
appreciate it. Mr. Chairman, I yield back.
    Chairman Goodlatte. The chair thanks the gentleman and 
recognizes the gentlewoman from Georgia, Mrs. Handel, for 5 
minutes.
    Mrs. Handel. Thank you Mr. Chairman. And, Director, I 
apologize for not hearing your testimony, but know that I did 
read it prior to, so thank you for that.
    I wanted to go back to intellectual property theft. Do you 
agree that any new trade agreement that we would embark on as 
the United States should have sufficient IP protections in it 
to prevent trading partners from benefiting from the theft of 
American innovation and creativity?
    Mr. Iancu. Yes, it is important for our trade agreements to 
have very good intellectual property provisions.
    Mrs. Handel. And what do you see as PTO's role in 
protecting American companies from forced technology transfers 
and other forms of theft of intellectual property?
    Mr. Iancu. We have several roles to play in this area. We 
work with the U.S. Trade Representative as well as other 
government agencies to make sure that our various agreements 
have the appropriate provisions, both protection and 
enforcement mechanisms, in them. We have an education role with 
our stakeholders to help them understand their rights in 
foreign jurisdictions, and we have a role to help American 
companies doing business overseas navigate the intellectual 
property landscapes in those various jurisdictions.
    Mrs. Handel. Great, thank you. I want to turn now to online 
platform responsibility. I know that you sit on the Internet 
Policy Task Force, and you did make some encouraging comments 
when you were testifying before the Senate Judiciary Oversight.
    To me, the debate is about a whole lot more than just 
Facebook or Cambridge Analytica and privacy. It is really about 
the broader issue of how these internet platforms are being 
used for reprehensible and illegal activities like human 
trafficking, illicit sale of drugs, cyberespionage, IP theft, 
fraud.
    We really do need to have a broader conversation around 
this and what we can do to curb misuses. We ask that of any 
other business out there, that if they have illegal activities 
coming through we hold them responsible for attempting to deal 
with that. Can you elaborate a little bit more on how we can 
foster greater online platform responsibility?
    Mr. Iancu. Well, I think, first of all, engagement of 
stakeholders is critically important. I think there have to be 
good communication channels between governments agencies and 
stakeholders in this field. And this is a multidisciplinary 
issue; multiple government agencies have input on a variety of 
issues. That is why we do participate on the Internet Policy 
Task Force.
    We do provide our points of view and guidance and the views 
of our stakeholders when it comes to intellectual property and 
how those issues would apply to the internet, online platforms, 
and the like.
    Mrs. Handel. Do you see any specific steps/measures that we 
can take? Is there something that Congress needs to do?
    Mr. Iancu. This is an issue that I would have to get back 
to Congress on. I do not know that specific legislation is 
something that our office has been advocating for----
    Mrs. Handel. It may not be.
    Mr. Iancu [continuing]. In this area.
    Mrs. Handel. Okay. All right, thank you. Mr. Chairman, I 
yield back.
    Chairman Goodlatte. Thank you very much. Director, I thank 
you very much for your participation today. This has been an 
important hearing, and members have had the opportunity to ask 
some close questions about the plans at PTO. I want to say, 
personally, I am encouraged that the effort is being made here 
to assure that the quality of patents is strong, but the 
process is also fair.
    So, we will continue to communicate with you about this, 
and as Mr. Collins suggested, we will watch closely to make 
sure that what you do is related to authority you have under 
the law, and if we think it exceeds it, then we want you to 
come here and discuss those aspects of it with us. So, again, 
thank you for your very helpful testimony today. I want to 
thank you for participating.
    And without objection, all members will have 5 legislative 
days to submit additional written questions for the witness or 
additional material for the record.
    And, Director, if we submit questions we hope you will 
answer them promptly so that we can have the benefit of that 
insight on matters that the committee is interested.
    So, with that, the hearing is adjourned.
    [Whereupon, at 11:48 a.m., the committee was adjourned.]
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