[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



                   U.S. PATENT AND TRADEMARK OFFICE:
                  THE AMERICA INVENTS ACT AND BEYOND,
                DOMESTIC AND INTERNATIONAL POLICY GOALS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                     COURTS, INTELLECTUAL PROPERTY,
                            AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 30, 2014

                               __________

                           Serial No. 113-110

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov
      
      
                                ______

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                       COMMITTEE ON THE JUDICIARY

                   BOB GOODLATTE, Virginia, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        JERROLD NADLER, New York
HOWARD COBLE, North Carolina         ROBERT C. ``BOBBY'' SCOTT, 
LAMAR SMITH, Texas                       Virginia
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
SPENCER BACHUS, Alabama              SHEILA JACKSON LEE, Texas
DARRELL E. ISSA, California          STEVE COHEN, Tennessee
J. RANDY FORBES, Virginia            HENRY C. ``HANK'' JOHNSON, Jr.,
STEVE KING, Iowa                       Georgia
TRENT FRANKS, Arizona                PEDRO R. PIERLUISI, Puerto Rico
LOUIE GOHMERT, Texas                 JUDY CHU, California
JIM JORDAN, Ohio                     TED DEUTCH, Florida
TED POE, Texas                       LUIS V. GUTIERREZ, Illinois
JASON CHAFFETZ, Utah                 KAREN BASS, California
TOM MARINO, Pennsylvania             CEDRIC RICHMOND, Louisiana
TREY GOWDY, South Carolina           SUZAN DelBENE, Washington
RAUL LABRADOR, Idaho                 JOE GARCIA, Florida
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia
RON DeSANTIS, Florida
JASON T. SMITH, Missouri
[Vacant]

           Shelley Husband, Chief of Staff & General Counsel
        Perry Apelbaum, Minority Staff Director & Chief Counsel
                                 ------                                

    Subcommittee on Courts, Intellectual Property, and the Internet

                 HOWARD COBLE, North Carolina, Chairman

                TOM MARINO, Pennsylvania, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         JERROLD NADLER, New York
Wisconsin                            JOHN CONYERS, Jr., Michigan
LAMAR SMITH, Texas                   JUDY CHU, California
STEVE CHABOT, Ohio                   TED DEUTCH, Florida
DARRELL E. ISSA, California          KAREN BASS, California
TED POE, Texas                       CEDRIC RICHMOND, Louisiana
JASON CHAFFETZ, Utah                 SUZAN DelBENE, Washington
BLAKE FARENTHOLD, Texas              HAKEEM JEFFRIES, New York
GEORGE HOLDING, North Carolina       DAVID N. CICILLINE, Rhode Island
DOUG COLLINS, Georgia                ZOE LOFGREN, California
RON DeSANTIS, Florida                SHEILA JACKSON LEE, Texas
JASON T. SMITH, Missouri             STEVE COHEN, Tennessee
[Vacant]

                       Joe Keeley, Chief Counsel

                    Heather Sawyer, Minority Counsel
                    
                    
                            C O N T E N T S

                              ----------                              

                             JULY 30, 2014

                                                                   Page

                           OPENING STATEMENTS

The Honorable Howard Coble, a Representative in Congress from the 
  State of North Carolina, and Chairman, Subcommittee on Courts, 
  Intellectual Property, and the Internet........................     1
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Courts, Intellectual 
  Property, and the Internet.....................................     2
The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Committee on the Judiciary     4
The Honorable Jerrold Nadler, a Representative in Congress from 
  the State of New York, and Ranking Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     6

                                WITNESS

The Honorable Michelle K. Lee, Deputy Under Secretary of Commerce 
  for Intellectual Property and Deputy Director of the United 
  States Patent and Trademark Office, United States Department of 
  Commerce
  Oral Testimony.................................................     8
  Prepared Statement.............................................    11

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, Ranking 
  Member, Committee on the Judiciary, and Member, Subcommittee on 
  Courts, Intellectual Property, and the Internet................     3

                                APPENDIX
               Material Submitted for the Hearing Record

Response to Questions for the Record from the Honorable Michelle 
  K. Lee, Deputy Under Secretary of Commerce for Intellectual 
  Property and Deputy Director of the United States Patent and 
  Trademark Office, United States Department of Commerce.........    44

 
 U.S. PATENT AND TRADEMARK OFFICE: THE AMERICA INVENTS ACT AND BEYOND, 
                DOMESTIC AND INTERNATIONAL POLICY GOALS

                              ----------                              


                        WEDNESDAY, JULY 30, 2014

                        House of Representatives

            Subcommittee on Courts, Intellectual Property, 
                            and the Internet

                       Committee on the Judiciary

                            Washington, DC.

    The Subcommittee met, pursuant to call, at 3 p.m., in room 
2141, Rayburn House Office Building, the Honorable Howard Coble 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Coble, Marino, Goodlatte, Chabot, 
Farenthold, Holding, Collins, Smith, Nadler, Conyers, Chu, 
DelBene, and Jeffries.
    Staff Present: (Majority) Vishal Amin, Counsel; Olivia Lee, 
Clerk; (Minority) Jason Everett, Counsel; and Norberto Salinas, 
Counsel.
    Mr. Coble. Good afternoon, ladies and gentlemen. The 
Subcommittee on Courts, Intellectual Property, and the Internet 
will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the Subcommittee at any time. We welcome all the 
witnesses and those in the audience as well with us today. I'll 
give my opening statement, and then I'll recognize the 
gentleman from Michigan.
    Intellectual property forms the foundation of our nation's 
innovation economy. The issues surrounding copyrights, 
copyrights--strike that--patents, copyrights, and trademarks 
affect nearly every business in America, both large and small. 
That is why today's oversight hearing over the office tasked 
with managing our nation's intellectual property laws is so 
vitally important.
    Back in 2011, we passed the America Invents Act, the AIA, 
that was most substantial--the most substantial reform to U.S. 
patent law since the 1836 patent law, or Patent Act. The AIA 
re-established the U.S. point system as a global standard, and 
over the past 3 years the U.S. Patent and Trademark Office has 
worked to implement the various provisions of the AIA to ensure 
that the bill realizes its full potential to promote innovation 
and create jobs. Our priority is to ensure that the PTO's 
implementation of the AIA has been in line with congressional 
intent. While the AIA rewrote the underlying patent law and 
procedures at the PTO, the dramatic rise in abusive patent 
litigation over the last several years necessitated our work to 
address abusive patent litigation. Through election year, 
patent--though in an election year, pandering and politics 
thwarted our efforts in the Senate. The fight goes on, and I'm 
certain that the Innovation Act, which passed the House last 
year with 325 votes and the support of the White House, will 
ultimately become law. We need to build on our work with the 
Innovation Act to ensure that the U.S. patent system operates 
fairly.
    Abusive patent litigation is a scourge on our economy, and 
it is the product of those taking advantage of loopholes in the 
current system to engage in what amounts to litigation 
extortion. In that vein, I call on the USPTOq to address the 
issues surrounding pre-GATT, or submarine, patent applications. 
Some of these applications have been sitting at the PTO longer 
than I've been in Congress. These are applications that, if 
issued, would receive 17-year terms of protection from the date 
that they issue--from the date they issue, not the date they 
were filed. But this is not the PTO's fault. This is a result 
of legal gamesmanship by applicants. Such dilatory behavior by 
these applicants reflects the serious abuse of PTO procedure, 
it seems to me. I called on the USPTO to use its--to use its--
strike that--to use their existing authority under the law to 
start publishing these dilatory applications so that the public 
has notice if vital technologies like those that cover the 
personal computer or the Internet are to be ripped from the 
public domain.
    American innovation cannot be held hostage to frivolous 
litigation from weak or overbroad patents. Companies are 
shutting down and folks are losing jobs. We need to work 
together to ensure that the American economy does not continue 
to suffer.
    I hope to hear more today from our esteemed witness and the 
steps that need to be taken to promote America's innovation 
economy and create jobs.
    I'm now pleased to recognized the gentleman from Michigan, 
the Ranking Member of the full Judiciary Committee, Mr. 
Conyers, for his opening statement.
    Mr. Conyers. Thank you, Chairman Coble.
    Today's hearing provides a long overdue opportunity for us 
to review our ongoing efforts to strengthen our nation's 
intellectual property system, and so I'm pleased that the 
Honorable Michelle Lee, the Deputy Under Secretary, will be 
here with us to help us understand the overall strategy for us 
moving forward.
    The health of our intellectual property system is integral 
to the health of our nation's economy. It provides critical 
incentives that foster innovation, which in turn creates jobs. 
For example, IP-intensive industries account for more than a 
third of the U.S. gross domestic product and support about 40 
million jobs in the United States.
    So as we examine the work of the Patent and Trademark 
Office, here's what I think we ought to be looking at 
carefully. The office, to be truly effective in protecting the 
integrity of our intellectual property system, we must ensure 
that the agency has sufficient resources, and I'm sure this is 
going to be seen as the most basic problem before us.
    Unfortunately, the current funding mechanism has failed the 
patent system by allowing an estimated billion dollars in fees 
over the last two decades to be diverted to other agencies, and 
that's why many of my colleagues and myself have introduced 
H.R. 3349, the Innovation Protection Act. It's bipartisan 
legislation that establishes a permanent statutory funding 
mechanism for the United States Patent and Trademark Office. 
This legislation would ensure that the office receives a 
consistent stream of funding that would better enable the 
agency to address abusive patent litigation.
    A major contributing factor to the problem of abusive 
patent litigation is the issuance of ambiguous or poor quality 
patents. Thus, the most effective step we can take is making 
sure that such patents are not issued to begin with, and by 
ensuring sufficient resources for USPTO would be a most 
important step in the right direction. With ample resources, 
the USPTO could hire and retain more examiners to increase 
patent examination quality and to issue strong patents. It 
would modernize the IT system to examiners--available to 
examiners to improve the speed and quality of the examiners' 
work product. And with more funding, it could provide examiners 
more technical training and expertise.
    Accordingly, I'd like to hear from the Deputy Director 
about the impact the current funding mechanism has had on 
USPTO's past and future efforts to improve patent quality--
patent examination quality.
    Now, a strong U.S. intellectual property system also 
requires that the Patent and Trademark Office register 
trademarks worthy of the protection of such authority that 
conveys to trademark owners. Trademarks provide owners a legal 
right against unlawful infringers. They also incentivize owners 
to produce high quality products and services. Otherwise, the 
trademark owners' reputations suffer. The upward trend in 
trademark registration application reflects the increasing 
awareness of the importance of the trademark.
    And so I will put the rest of my statement in the record, 
and yield back the balance of my time, Mr. Chair.
    Mr. Coble. I thank the gentleman from Michigan.
    [The prepared statement of Mr. Conyers follows:]
Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, Ranking Member, Committee on 
    the Judiciary, and Member, Subcommittee on Courts, Intellectual 
                       Property, and the Internet
    Today's hearing provides a long-overdue opportunity for us to 
review the ongoing efforts of the U.S. Patent and Trademark Office to 
strengthen our Nation's intellectual property system.
    The health of our intellectual property system is integral to the 
health of our Nation's economy. It provides critical incentives that 
foster innovation, which, in turn, creates jobs. For example, IP-
intensive industries account for more than one-third of the U.S. Gross 
Domestic Product and support about 40 million jobs in the United 
States.
    So as we examine the work of the U.S. Patent and Trademark Office, 
there are several factors that should be considered.
    To begin with, for the Office to be truly effective in protecting 
the integrity of our intellectual property system, Congress must ensure 
that the agency has sufficient resources.
    Unfortunately, however, the current funding mechanism has failed 
the patent system by allowing an estimated $1 billion in fees over the 
last two decades to be diverted to other agencies.
    That is why I, along with many of my colleagues on this Committee, 
introduced H.R. 3349, the ``Innovation Protection Act.'' It is 
bipartisan legislation that establishes a permanent, statutory funding 
mechanism for the USPTO.
    This legislation would ensure that the Office receives a consistent 
stream of funding that would better enable the agency to address 
abusive patent litigation.
    A major contributing factor to the problem of abusive patent 
litigation is the issuance of ambiguous or poor quality patents.
    Thus, the most effective step we can take is making sure that such 
patents are not issued to begin with. By ensuring sufficient resources 
for the USPTO, this would be accomplished.
    With ample resources, the USPTO could hire and retain more 
examiners to increase patent examination quality and to issue strong 
patents.
    It could modernize the IT systems available to examiners to improve 
the speed and quality of the examiners' work product.
    And with more funding the USPTO could provide examiners more 
technical training and expertise.
    These all contribute to superior patent examination quality.
    Accordingly, I would like to hear from Deputy Director Michelle Lee 
about the impact the current funding mechanism has had on the USPTO's 
past and future efforts to improve patent examination quality.
    Second, a strong U.S. intellectual property system also requires 
the USPTO to register trademarks worthy of the protection such 
authority conveys to the trademark owners.
    Trademarks provide owners a legal right against unlawful 
infringers. They also incentivize owners to produce high quality 
products and services, otherwise the trademark owners' reputations 
suffer.
    The upward trend in trademark registration applications reflects 
the increasing awareness of the importance of trademark.
    And, the Office has an important responsibility to ensure that the 
public interest is served well regarding the agency's trademark 
registration approval process.
    Just last month, for example, a non-political, administrative 
tribunal within the USPTO cancelled the trademark of Washington's 
professional football team after having determined that the trademark 
was disparaging to Native Americans.
    Section 2 of the Trademark Act specifically provides, in pertinent 
part, that a trademark is ineligible for registration if found to 
disparage an individual or group.
    Accordingly, I would appreciate having our witness address whether 
this law needs to be further strengthened.
    Finally, we must consider the challenges presented by international 
competitors.
    Our intellectual property system is the envy of the world because 
it forms the foundation for our inventiveness and dynamic business 
culture. It is clear that the protection and enforcement of 
intellectual property is vital to maintaining our competitiveness 
globally.
    Unfortunately, some other countries, particularly China and India, 
do not share our view of promoting and protecting intellectual property 
rights.
    I would like the Deputy Director to discuss whether there are 
measures that Congress should consider to better equip her agency to 
prevent and deter international infringement of U.S. intellectual 
property rights.
    I thank the Chairman for holding today's hearing and I look forward 
to hearing Ms. Lee's testimony.
                               __________

    Mr. Coble. The gentleman from Virginia, the Chairman of the 
full House Judiciary Committee.
    Mr. Goodlatte. Thank you, Mr. Chairman.
    And Deputy Director Lee, welcome.
    When we look at the array of agencies and departments 
within the Federal Government, only a certain number carry out 
a mission that is explicitly called for in the Constitution. 
The U.S. Patent and Trademark Office is one of them. As the PTO 
carries out its constitutional mission, we need to conduct 
appropriate oversight to ensure that our IP laws are being 
implemented fairly and in line with congressional intent.
    In recent years, the PTO has been tasked with implementing 
the America Invent Act. The AIA was the most significant reform 
to U.S. patent law in my lifetime. I believe that it is 
imperative for this Committee to examine the rules and 
procedures that the PTO has adopted to implement this important 
law, in particular, the various post-grant proceedings called 
for in the AIA. The post-grant proceedings were designed to 
create a cost-effective alternative legal forum at the PTO to 
provide a simpler way to review questions of patentability, 
thus reducing the cost of frivolous litigation on job creators. 
It is important for the PTO to operate these proceedings as 
true alternatives to the courts. It is also important for the 
programs to operate fairly for both the patent owner and those 
accused of infringement.
    It also appears that the business method transitional 
program has been implemented successfully by the PTO and is 
operating quite well. I hope to hear more from the Acting 
Director on this provision of the AIA.
    With regard to frivolous patent litigation, I remain 
confident that the Innovation Act, which passed the House with 
325 votes, will become law. Though some in the Senate caved to 
election year politics and special interests, this is a bill 
that truly puts our economy first. I appreciate the support of 
the White House for the Innovation Act and, in particular, the 
provisions that went directly to curtailing abusive patent 
litigation, specifically a modernized fee-shifting statute 
based on the Equal Access to Justice Act.
    As we work to enact the Innovation Act, the PTO is also 
taking steps to improve patent quality internally with improved 
prior art searches and clearer guidelines. While I applaud 
these efforts, I also want to caution against attempting to 
simply implement provisions of the Innovation Act through 
rulemakings. In some instances, we have seen proposed 
rulemakings for issues like attributable owner disclosures that 
have Draconian penalties and little to no benefit in reducing 
frivolous patent litigation or improving patent quality. These 
kinds of rulemakings could impose an exorbitant tax on business 
and innovation. While we share the common goal of approving the 
patent process, we must tread carefully. Rulemakings are not a 
substitute for congressional action.
    On the patent quality front, I strongly believe that the 
PTO should not simply be in the business of granting patents 
and leaving the mess created for the courts and Congress to 
fix, but rather, focus on tightening the requirements for 
patent eligibility to reduce the number of weak or overly broad 
patents from entering the system.
    There are also some patent applications that have been 
pending for a very long time. These pre-GATT, or submarine 
patent applications, have in some cases been pending for 30 or 
40 years. This long pendency is not the fault of the PTO, and I 
appreciate that the PTO provided Congress with a report 
detailing these several hundred pending submarine patent 
applications.
    Apart from being a drain on PTO resources, I believe that 
the public has a right to know if widely adopted technology 
could suddenly be removed from the public domain. If such 
applications were to issue as a patent today, they would be 
entitled to a 17-year term and would not expire until the year 
2030. Moreover, because these applications have not been 
published, the public has no notice that patents may issue that 
claim the invention in question, and the public has no 
opportunity to provide the PTO with prior art that could 
directly apply to the overly broad claims in many of these 
applications. And so I call on you to exercise your authority 
under existing law to publish these applications immediately.
    Patent and trademark quality are key components of the 
PTO's overall mission, but I also want to ensure that the PTO 
is properly spending the fees that it collects, that its 
employees are acting appropriately when it comes to hiring 
appropriately qualified individuals and that the PTO's IP 
attaches have appropriate resources and authority in our 
embassies abroad. When it comes to our efforts overseas, we 
need to ensure that our IP trade agenda, IP attache program, 
and training and capability building programs are in line with 
compelling U.S. economic interests and job creation.
    Intellectual property powers the engine of American 
innovation and creativity, it creates new jobs, and helps grow 
our economy. I look forward to hearing from Director Lee on 
these important issues.
    Thank you, Mr. Chairman.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from New York and the Ranking 
Member of the Subcommittee, Mr. Nadler, is recognized.
    Mr. Nadler. Thank you, Mr. Chairman.
    Today, we conduct an oversight hearing of the Patent and 
Trademark Office. A strong patent system is important to foster 
innovation. Patents serve as one the key drivers of the 
Nation's economy. I hope that today we will consider what steps 
we can take to continue to improve the patent system. To do 
this, we will examine the implementation of the Leahy-Smith 
America Invents Act of 2011, which was the largest modification 
to U.S. patent law in more than 50 years.
    The America Invents Act was designed to help process patent 
applications faster, reduce the applications backlog, increase 
patent quality through expedited patent challenges, and to 
improve examiner recruitment and detention.
    The PTO is a fee-funded agency and the America Invents Act 
provides a model for funding to ensure that the USPTO receives 
access to the user fees collected each year.
    As we study these issues today, I want to stress that I 
believe that it's very important that the PTO continue to 
receive all of these funds so that it can continue to issue 
high quality patents.
    The bill gave the PTO fee setting authority, which has 
allowed the PTO to develop an operating reserve. This enables 
it to launch new initiatives in response to the customer's 
needs. To date, the office has implemented most of the 
provisions of the America Invents Act. Of the 37 America 
Invents Act provisions, 28 were delivered on time. Though this 
implementation rate has been a success, I would like to hear 
today about the planning and implementation of the patent 
review processing system. This system was launched in a new 
Patent Trial and Appeal Board and is the board's e-filing and 
case management system for trial proceedings.
    The America Invents Act required the office to establish 
three or more satellite offices by September 16, 2014. The PTO 
opened one satellite office in Detroit in July 2012 and 
recently opened another one in Denver. I would like to hear how 
these offices are helping to reduce the patent backlog and how 
these operations--their operations have been running so far.
    As we examine the continued implementation of the America 
Invents Act, we will study why changes are needed, if any, for 
the patent system as a whole. One of the key goals of the 
America Invents Act was to help the PTO quickly review patent 
applications, and another goal was to establish higher quality 
patents, and the PTO has worked to achieve that goal.
    I'm happy the PTO has made improving patent quality a top 
priority. I would like to hear how the PTO plans to improve 
patent quality as it continues to implement the America Invents 
Act. Also, as quality continues to improve, we expect this will 
play a large role in curtailing abusive patent litigation. In 
recent years, there has been increasing awareness about abusive 
patent litigation. There's also been a public and private 
effort to combat it. We need to continue to develop other 
creative solutions to deal with instances of such litigation 
without diminishing the rights of legitimate patent holders. In 
particular, the House passed the Innovation Act last December 
with strong bipartisan support to address many of the concerns 
that have been raised about abusive patent litigation. During 
our work on the bill, we heard from many stakeholders about how 
the bill could be modified and improved, and we attempted to 
work with all interested parties. The Senate has continued to 
work on this important issue, but the bill has been put on hold 
as stakeholders continue to attempt to work out their 
differences. We must not become discouraged as we continue to 
attempt to find common ground to deal with this problem.
    Last year, the Administration announced seven legislative 
recommendations designed to increase transparency of patent 
ownership information to curtail abusive litigation and ensure 
high quality patents. We should continue to study these 
recommendations as we continue to develop ways to improve the 
system.
    I would also like to hear today about efforts, such as the 
intellectual property rights attache program, that the PTO has 
taken to work with our trading partners to improve intellectual 
property rights and enforcement.
    The Supreme Court has recently issued several opinions that 
impact some of the legislative issues we will discuss today. 
For example, in the Octane and Highmark cases, the court issued 
opinions lowering the standard for awarding attorney's fees in 
patent cases.
    I would like to hear how the Patent Office is working on 
executive actions to address the question of overly broad 
patent claims, particularly in the context of software.
    The Administration has called on the PTO to provide new 
targeting training toward examiners on the scrutiny of these 
types of claims. I commend the PTO for developing four training 
modules focused on functional claiming under Section 112(f), 
which is often used in software patents. This is an important 
step in taking the executive action to increase patent claim 
clarity seriously.
    Finally, we should make sure that American companies 
continue to receive adequate patent protection in key overseas 
markets.
    This hearing will provide us with an opportunity to 
evaluate the efforts of the PTO to implement the America 
Invents Act and provide suggestions of how we can improve the 
patent system going forward.
    I look forward to hearing from the witness, and I yield 
back the balance of my time. Thank you.
    Mr. Coble. I thank the gentleman.
    The statements of other Members of the Subcommittee will 
made part of the record without objection.
    Before I introduce our distinguished witness today, Ms. 
Lee, I'd like you to stand and be sworn, if you will.
    [Witness sworn.]
    Mr. Coble. Thank you. You may be seated. Let the record 
show that the Ms. Lee responded in the affirmative.
    Our witness today is the Honorable Michelle Lee, Deputy 
Under Secretary of Commerce for Intellectual Property and 
Acting Director of the U.S. Patent and Trademark Office. In her 
position, Ms. Lee provides leadership, oversight and day-to-day 
management to one of the largest intellectual property offices 
in the world, which consists of 12,000 employees. She also 
serves as one of the principal advisors to the President on 
both domestic and international intellectual property matters. 
Prior to her role as Deputy Director, Ms. Lee served as the 
first Director of the Silicon Valley Patent and Trademark 
Office, where she established and led the new office. Her 
experience also includes being the first Head of Patent 
Strategy at Google, where serving as the company's Deputy 
General Counsel, she--while serving as the company's Deputy 
General Counsel. She received her J.D. from the Stanford Law 
School and her M.S. and B.S. in electrical engineering and 
computer science from the Massachusetts Institute of 
Technology.
    Ms. Lee, we're delighted to have you with us.
    I must advise all of you, we expect a vote on the Floor 
imminently, so at that time, we will declare a brief recess, 
should be no more than 35 or 40 minutes, I'm thinking.
    Ms. Lee, there's a timer before you on your desk. When the 
green light becomes amber, you're being warned you have a 
minute to go. And if you can wrap up on or about 5 minutes. You 
won't be severely punished if you fail, but on or about 5 would 
be fine. We're pleased to have you with us today.

   TESTIMONY OF THE HONORABLE MICHELLE K. LEE, DEPUTY UNDER 
  SECRETARY OF COMMERCE FOR INTELLECTUAL PROPERTY AND DEPUTY 
  DIRECTOR OF THE UNITED STATES PATENT AND TRADEMARK OFFICE, 
              UNITED STATES DEPARTMENT OF COMMERCE

    Ms. Lee. Thank you, Chairman Coble.
    Mr. Coble. Put the mike on, Ms. Lee.
    Ms. Lee. Okay. Thank you.
    Chairman Coble, Chairman Goodlatte, Ranking Member Nadler 
and Ranking Member Conyers, and Members of the Subcommittee, 
thank you for this opportunity to discuss the USPTO's options, 
operations, programs and initiatives.
    Mr. Chairman, promoting innovation, stimulating growth, and 
creating an environment that generates high-paying jobs 
continues to be a top priority of the Obama administration and 
vital to our country's long-term competitiveness. I'm honored 
to be a part of an agency that directly serves America's 
entrepreneurs by providing the intellectual property protection 
they need to secure investment capital and allowing them to 
build their companies and bring cutting-edge products and 
services to the global marketplace.
    I am also very proud to be a part of an agency that was 
ranked as the number one best place to work in the Federal 
Government out of 300 agency subcomponents by the Partnership 
for Public Service Survey. This ranking is a tribute to my 
predecessors, to the USPTO's management team, our employee 
unions and, most importantly, to our 12,000 dedicated 
employees.
    Mr. Chairman, our business is thriving, and I believe that 
is a good sign for the economy. This fiscal year, we expect to 
receive nearly 600,000 patent applications and more than 
450,000 trademark applications. We have reduced the patent 
application backlog by 24 percent since January of 2009, 
despite an on average 5 percent increase year over year in 
filings, and we continue to make progress in reducing the 
backlog and the pendency of applications. Our trademark team 
has long been at its optimal backlog and pendency targets. On 
average, it takes just 10.3 months to receive a final decision 
on a trademark application.
    The USPTO and the American public continue to benefit from 
the legislative changes enacted by the Leahy-Smith America 
Invents Act. During the last 3 years, the USPTO has fully 
implemented these changes to modernize the U.S. patent system, 
transitioning from a first inventor to file system, 
establishing timely and cost-effective post-grant review 
proceedings, and taking advantage of new authority to enable 
sustainable funding.
    Mr. Chairman, the Administration believes that additional 
legislative changes building on the AIA would further enhance 
patent quality and lessen abusive patent litigation. This 
Committee deserves substantial credit for moving forward a bill 
that addresses these goals. We continue to hope that a bill can 
reach the President's desk, and are committed to working with 
Congress and our stakeholders to build balanced and effective 
consensus legislation.
    In the meantime, we are not waiting. We are implementing an 
array of initiatives to improve our patent system now and for 
the future. We have launched a multifaceted enhanced patent 
quality initiative to expand examiner training, both legal and 
technical; to collect more data to further improve our 
examination process and training; to harness the power of the 
crowd, or public, to find the best possible prior art during, 
and not after, examination; and to gather input from all of our 
stakeholders on how further to improve quality.
    High quality patents reduce the potential for abusive 
litigation, permitting our companies to focus on innovation. 
For those who receive abusive demand letters or lawsuits, we 
have launched an online toolkit to help them know their rights 
and available resources before entering into costly litigation 
or settlement. We are committed to helping under-resourced 
applicants benefit from the patent system through our pro bono 
and pro se assistance programs and in increasing the 
transparency in our patent system.
    Further, our Patent Trial Appeal Board is operating exactly 
as you, Congress, intended. We are providing a faster and 
lower-cost alternative to district court litigation in 
determining the validity of patents. As required by the AIA, 
every one of our trials to date has completed with a high 
quality ruling within the statutorily-required 1-year deadline, 
despite an increasing volume of petitions, more than 1,600 per 
year, which is more than 200 percent of that originally 
predicted.
    Moreover, as also required by the AIA, we have opened four 
satellite offices to increase our capacity to handle 
applications and to provide services and information to help 
entrepreneurs and inventors. Offices in Detroit and Denver are 
already up and running in permanent space and have patent 
examiners on the ground locally. Permanent offices in San Jose 
and Dallas will officially open next year. Patent Trial Appeal 
Board judges are working in all four locations on appeals and 
post-grant review proceedings. These satellite offices have 
been extremely well received by the local innovation 
communities and play a strategic role in helping the USPTO 
fulfill its mission.
    Mr. Chairman, with our colleagues at the Department of 
Commerce, we issued a green paper last year that analyzed key 
copyright issues in the digital environment. We are currently 
engaging with our stakeholders and the copyright office to 
develop recommendations.
    Finally, on the international front, the USPTO continues to 
play a significant role in promoting protection and enforcement 
of intellectual property rights for our innovative companies 
entering foreign markets.
    Mr. Chairman, my written statement contains more detailed 
information about our many domestic and international 
intellectual property related activities, and I thank you for 
this opportunity and am pleased to answer any questions you or 
your Committee Members may have.
    Mr. Coble. Thank you, Director Lee, for being here and for 
your testimony.
    [The prepared statement of Ms. Lee follows:]
    
    
    
                      __________
                      
    Mr. Coble. We try to confine ourselves to the 5-minute rule 
as well, so I will start with a quick question to you, Ms. Lee.
    The USPTO IP attache program has been an important part of 
the United States international IP advocacy. The two countries 
of highest priority have been China and India. If you would, 
Ms. Lee, speak more to the key issue that the PTO's attaches 
are working on in those countries, particularly on the issue of 
trade secret theft in China and in India, the changes that we 
are seeing or hope to see in regards to patents protection. And 
market access under the newly elected pro-reform prime 
minister.
    Ms. Lee. Thank you, Mr. Chairman, for your question about 
the IP attache program. That program is designed to have IP 
experts on the ground. We currently have IP experts on the 
ground in just under a dozen countries, including three in 
China and one in the U.S. Embassy in India.
    And what our IP attaches do is they serve multiple 
purposes. One is they advise American companies who are 
entering that country on the IP landscape on a range of issues, 
including patents, trade secrets and copyrights, and how to 
protect their intellectual property. In addition, our IP 
attaches work closely with the host government. They work with 
judicial officials to make sure that the country has rules that 
are in compliance with and we can influence and share 
similarities and values on IP. So we work with judicial 
officials, we work with law enforcement officials there, we 
work with policy makers there. Really we're trying to create an 
environment that is favorable for American businesses to export 
their products and services overseas.
    Specifically, in terms of what we are doing in China, I 
mentioned we have three IP attaches on the ground there. We 
also have a team of dedicated China experts at the USPTO. I co-
chair the U.S.-China Joint Commission of Commerce and Trade, 
and we will be meeting--on the IP working group--earlier this 
fall to discuss important topics, including trade secrets and 
other intellectual property matters. And we provide training to 
American companies in the United States through what we call 
our China IP road show. We go to multiple cities throughout the 
country advising companies on the IP landscape in China.
    And on the front--on the Indian front--we are working 
together, of course, through our IP attache program and also 
through our Global IP Academy to train policymakers, judicial 
officials and law enforcement officials. The same is true for 
representatives from other countries as well besides India and 
China.
    Mr. Coble. I thank you for that. Director Lee, I want to 
commend you for your stewardship at the PTO and thank you as 
well for working closely with us on the Innovation Act. I 
appreciate that. There are a good number of people who are 
intellectual property advocates who believe you would be a rock 
solid Director of the agency. Now, my record for endorsements 
is dismal, so I won't dare call this an endorsement, because it 
might end up being a liability, but you've been very--we 
appreciate very much the exchange we have enjoyed with you 
during your tenure there.
    If you would, with that in mind, what are some of the key 
challenges that you've faced as Acting Director?
    Ms. Lee. So I have to say I'm blessed to be the current 
leader of an agency that, for the most part, Mr. Chairman, is 
exceedingly well run. I've got an extremely talented and 
capable senior executive team and advisors by my side, and none 
of the good work that I'll describe to you over the course of 
the day could be accomplished without the help of that team, 
but as we look ahead, certainly one of the challenges we face 
is that our Patent Trial and Appeal Board proceedings have been 
extremely popular.
    Members of Congress, with their foresight, created these 
AIA trials. There are three new post-grant proceedings, 
including post-grant review, inter partes review, and covered 
business method review. And I have to say, the public's 
interest in and appetite for these proceedings is significant.
    As I mentioned in my opening comments, there have been 
about 1,600 petitions filed per year, and that's 200 percent 
more than we originally projected. So a goal--or a challenge of 
the agency, a challenge that I think we are absolutely up for, 
is to ensure that we continue to issue high quality rulings 
from our Patent Trial and Appeal Board within our very strict 
1-year statutory requirement. We have hit all of our deadlines 
so far, and I'm optimistic that we are--we can meet the 
challenge going forward, but it's something we will need to 
keep our eye on.
    Mr. Coble. I thank you.
    I see my red light has illuminated. Let me try to get one 
more question in.
    How is the Patent Trial and Appeal Board handling the 
backlog pending appeals?
    Ms. Lee. So we have a backlog of our ex parte appeals, and 
the backlog with the AIA trials is just beginning to build. So 
I guess the key is that with the AIA trials, we've been hitting 
our 1-year statutory deadline. So we need a little bit of 
backlog, because we want to make sure that our Patent Trial and 
Appeal Board judges are fully engaged and they're not sitting 
around waiting for cases to be filed, but the backlog of the 
AIA trials is something that we need to keep an eye on, but 
I'm--I mean, the good news is that we seem to be hitting our 
deadline.
    Mr. Coble. I thank you for that. I see my time has expired.
    The gentleman from New York, Mr. Nadler.
    Mr. Nadler. Thank you, Mr. Chairman.
    Ms. Lee, do you think that the USPTO currently has the 
resources and flexibility to continue to reduce the patent 
application backlog, to shorten patent pendency, improve patent 
quality, and enhance the administrative appeal and post-grant 
processes? Do you have enough resources?
    Ms. Lee. So thank you for the question, Congressman Nadler. 
That's a very important question. And I have to say, with the 
implementation of the AIA, right, and the ability to keep our 
user fees, that has been a tremendous improvement over past 
years. We now have, working with our stakeholders, an operating 
reserve, which also very favorably impacts our ability to 
deliver in terms of reducing backlog and pendency, and 
improving quality. I mean, prior to the implementation of the 
AIA, we were on a year-to-year budget, and if there were 
fluctuations in fees, important projects like patents quality 
or even, for example, IT investment, IT investment was 
oftentimes the first thing to go.
    So now that we're able to set our fees, which we engaged in 
a very comprehensive outreach to our stakeholders to set it at 
an appropriate level, now that we have an operating reserve, 
which provides a little cushion for fluctuations in terms of 
filings or what have you, I think we are very much able to 
focus on further reductions on the backlog and pendency, and 
I'm very excited to be giving an enhanced emphasis on patent 
quality. We're really at a point in our history where, like no 
time in the recent past, we're truly able to focus on----
    Mr. Nadler. So your testimony is that not only is it a 
great improvement, but it's adequate at this point?
    Ms. Lee. Yeah. I think we set our fees based upon what we 
think it costs us to provide----
    Mr. Nadler. Okay.
    Ms. Lee [continuing]. The service. So as long as we can 
keep it----
    Mr. Nadler. Yes. Thank you.
    Ms. Lee. Yes.
    Mr. Nadler. Now--thank you. How have you improved on your 
efforts to train the patent examiners to ensure they stay 
abreast of the latest developments in the law?
    Ms. Lee. So we have initiatives underway to--we give them--
when the Supreme Court comes out with rulings, we take a look 
at those rulings, and if they affect examination processes, 
then what we will do is we will issue guidance to our examiners 
on how to examine in light of the new case law.
    In addition, we are constantly training our examiners on 
the new developments in the case law, not just through the 
guidance, but through training in person on video. Much of that 
training material is available on our Web site for the public 
to see. And we also have technical experts from outside the 
walls of the PTO come into the PTO. They are the experts in 
perhaps the latest in computer vision technology or artificial 
intelligence or semiconductor manufacturing, and they have the 
ability to come into our office through our patent examiner 
technical program to train our examiners, and that's been 
tremendously helpful in terms of keeping our examiners up-to-
date.
    Mr. Nadler. Good. That was my next question, which you 
already answered.
    Do you believe that the fiscal year 2015 appropriation bill 
that the House has passed and the Senate Appropriations 
Committee has approved will provide the office with the 
adequate authority to spend anticipated fee collections as 
estimated by the Congressional Budget Office?
    Ms. Lee. So, for the fiscal year 2015, the House approved--
the House passed and the Senate approved the USPTO keeping and 
spending all that we predict that we will collect in 2015. And 
any amount in excess of that--any amount in excess of our 
projected fee collections will go into a fee reserve fund. So 
to answer----
    Mr. Nadler. For the office? For the office?
    Ms. Lee. Into a fee reserve fund. And then the way we can 
access that fee reserve fund is by submitting a reprogramming 
request to our appropriators to access that fund. So it's our 
hope that--and we anticipate a slight overage there, and some 
amounts of money arriving into that fee reserve fund, we hope 
to be able to access those funds as well.
    Mr. Nadler. That sounds good. Thank you. As the number of 
filings continues to grow, does the PTO plan to provide a full 
text searchable database of Patent Trial and Appeal Board 
filings? We have heard these filings are in the patent review 
processing system site, and there's often very limited 
searchability. Do you have any plans to manage these PTAB 
filings differently in the future?
    Ms. Lee. Thank you for your question on that one. And the 
answer is yes. We had a lot to implement when the AIA came out, 
including a lot of IT systems to go along with, so it was no 
minor feat to get all the processes, the rules implemented and 
the IT systems up and running. So, as a first matter, we stuck 
to the basic functionality, but it is clearly our goal to add 
additional functionality and make it more user friendly to use, 
and that includes things like being able to search the text of 
our documents. So the answer is yes. And we are looking to 
phase out our current system by fiscal year 2015 with hopefully 
a next generation system that will be much improved.
    Mr. Nadler. Thank you. My last question is really twofold. 
Is there any way to predict the number filings for a given 
case, and do you have any metrics on which patent review 
processing system documents users want to access most often?
    Ms. Lee. So let me answer your second question as far as 
access to documents. We don't actually currently track which of 
the documents are accessed more frequently than others or the 
number of accesses, but it is entirely possible that in our 
next generation IT systems, that is something we can add, 
that's a feature we can add.
    And your first question about the number of documents in 
any given case----
    Mr. Nadler. Number of filings, yeah.
    Ms. Lee. Yeah. In any given Patent Trial and Appeal Board 
filing, a litigation before the Patent Trial and Appeal Board 
is much like the litigation in district court, and I think the 
number of documents filed depends upon the number of motions 
that the parties may have. So there's always a variable, and at 
this point, it's hard to predict the number, given the newness 
of the proceedings, but I imagine over time, perhaps we can 
gather more data on averages and such, but it depends a lot on 
the number of motions filed by the litigants and the number of 
opinions that then need to be written afterwards.
    Mr. Nadler. Thank you very much.
    I've exceeded my time. And I want to thank the Chairman for 
his indulgence.
    Mr. Coble. Thank you. I appreciate the gentleman.
    Thank you, Ms. Lee.
    The gentleman from North Carolina.
    Mr. Holding. Thank you, Mr. Chairman.
    I'm delighted to now of your expertise in international 
intellectual property matters and your focus on ensuring that 
our companies, you know, have access to foreign markets and our 
intellectual property is protected.
    I'm concerned about countries that have embarked on some 
trademark destruction when it comes to tobacco products and 
plain packaging of tobacco. Australia was the first country to 
prohibit the use of trademarks on tobacco products in 2011, and 
other countries, like Ireland and the United Kingdom, seem to 
be taking a similar path toward destruction of intellectual 
property rights vis-a-vis trademarks on tobacco products.
    So I'd like for you to describe what USPTO's position is on 
these proposals and these laws that encumber the use of 
trademarks, and specifically, what will USPTO do to defend the 
intellectual property system vis-a-vis these trademarks of our 
companies?
    Ms. Lee. Thank you, Congressman. So are you talking about 
the bad faith filing of trademarks in certain countries? So, 
for example, if the U.S. has a trademark that they filed for or 
registered for in the United States, that other bad faith 
actors overseas then go out and file for trademarks?
    Mr. Holding. No. I'm talking about when a country enacts a 
law, vis-a-vis tobacco products, and says that the company 
cannot use their trademarks on a tobacco product. So you have 
the plain--you have a pack of cigarettes, and it is a plain 
package with no trademarks allowed to be used on there.
    Ms. Lee. You know, this is the first time I'm hearing about 
this.
    Mr. Holding. I'm very surprised it's the first time you're 
hearing about it, because it's----
    Ms. Lee. So I appreciate the question.
    Mr. Holding. It's a----
    Ms. Lee. Sounds like it's an important issue. And if you 
don't mind, let me discuss with my team, and we will get back 
to you with an answer on the record, but that sounds like a 
very important issue, and I could see it might be of concern to 
some of our stakeholders.
    Mr. Holding. Sure. Well, I would appreciate that. I'm 
concerned that it's a matter of first impression, because it 
has been--you know, obviously it's an important matter 
involving, you know, a great deal of resources.
    Switching gears a little bit, as you know, in the inter 
partes proceedings provisions that were included in the AIA, a 
new--you know, as a new, expeditious way to challenge validity 
of patents, the basis for invalidating these patents is 
strictly limited to Section 102 and Section 103 challenges, and 
the tradeoff for the limitation is that a third party can 
include all challenge claims of a patent within a petition 
seeking an inter partes review and as long as the position--the 
petition, excuse me, doesn't exceed the PTO's specified page 
limitation.
    And assuming that the threshold level has been met by the 
petitioner, I'd like for you to tell me why is it that the 
Patent Trial and Appeal Board is not instituting review on all 
of the alleged claims in a petition but on only some of them?
    Ms. Lee. So thank you for your question. And when we review 
the petitions, it's my understanding that we do look on a 
claim-by-claim basis, and we do indicate whether or not the 
petition is granted on a claim-by-claim basis.
    Mr. Holding. Okay. What do you think the PTAB's authority 
to institute proceedings on less than all of the claims in the 
petition is? Do you have--where is the authority for that in 
the AIA?
    Ms. Lee. My guess is that when the statute came out, it was 
not clear as to whether or not the proceedings would be 
instituted on all claims or partial claims, but that the USPTO 
then had to interpret the rules, and we've done so.
    I will say, though, that now that we've had some amount of 
experience with these Patent Trial and Appeal Board 
proceedings, quite frankly, we are engaging in an eight-city--
and we already engaged in an eight-city road tour where we got 
the public's input on ways we can improve the procedures and 
the programs by the PTAB so that it can be even more effective. 
And if this an issue of concern--and I think we heard some 
comments on this issue in our road show--this is absolutely an 
issue that we can consider and discuss and re-evaluate.
    Mr. Holding. Following up on the road show, you know, I've 
heard from stakeholders that the PTO's interpretation of these 
proceedings, you know, is adding to the cost, complexity, 
burden to the patent system without any gains in efficiency, 
economy or clarity. Did you get some responses like that during 
the road show?
    Ms. Lee. Thanks for sharing that. Actually, we heard quite 
the opposite.
    Mr. Holding. Okay. Well, good. Good.
    Ms. Lee. We heard that these proceedings are providing a 
cost-efficient and more timely manner in which to adjudicate 
the validity of the patents with the expertise of a technically 
trained panel of three judges. And based upon the increase in 
our petitions filings, they seem to be very popular.
    Of course, that said, I'm sure there's plenty of room for 
improvement, and we are, as I said, eager to engage the public 
in that conversation to make those proceedings even more 
effective and even more useful to the----
    Mr. Holding. Good. Well, I'll share the input from some of 
my stakeholders and you can share some of the other input, and 
we'll compare notes.
    Ms. Lee. Appreciate it.
    Mr. Holding. Thank you.
    Ms. Lee. Thank you.
    Mr. Holding. Thank you, Mr. Chairman.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from Michigan, Mr. Conyers.
    Mr. Conyers. Thank you very much.
    Deputy Under Secretary Lee, we have a sequester. I think 
there has been some kind of an agreement worked out with 
appropriators about how much of your fees that you collect are 
kept back. And it seems to me that with all the creative 
strategies that you've discussed, we have a problem of our own. 
And I'm not sure if maybe new appropriators may work out 
something with you that would be better than the present 
situation, but most of your progress, or much of it, is going 
to be obstructed by the appropriation processes in the 
legislative body.
    Do you have any words of wisdom or a view about how we 
might deal with this matter, which seems to be to me at the 
heart of our relationship right now that's creating the 
problem?
    Ms. Lee. So, Congressman, are you talking about the $148 
million that we lost in sequestration and the impact that it 
had on the agency, because, you know, as a result of the 
sequester, we had to cut a number of our critical IT projects, 
right? We were well underway, we were implementing those, and 
we had to make some very expensive and costly cuts to the 
investment in our IT program. In addition, we had to stop the 
hiring that was occurring and we had to stop the expansion of 
our satellite offices in certain cities. Fortunately, Detroit 
was already up and running, so Detroit was not affected, but we 
couldn't hire more patent examiners.
    So when we talk about our goals of reducing backlog and 
pendency times, right, due to the sequester, we had to slow 
down our reductions on those fronts, and our timelines of 
achieving, for example, 10 months until a first office action, 
or a total pendency of 20 months, got bumped out further 
because of the sequester.
    Mr. Conyers. Absolutely. And we're proud of our Detroit 
office, and we're pleased that it was selected. I'd like to go 
out there and visit, but I've been informed that we don't have 
a director of that office yet. And so I know you're probably 
looking for it, so you can't promise me that we're going to get 
one right away.
    How can you be working with so many people in one location 
and there's no director in about the second year almost of its 
existence?
    Ms. Lee. Right. So I'm happy to share with you the progress 
we've made in terms of the hiring of the director in the 
Detroit office. I'll share with you what information I can, and 
that is we put up a job posting. And I have to say, there was 
incredible interest, and we've seen a number of very talented 
candidates who have submitted applications. So we've reviewed 
those applications and we've ranked them, and we are in the 
process of selecting a handful of candidates to come back to 
our office in the next couple of weeks for interviews, and we 
are very excited about the prospects there.
    That said, in the meantime, we've also been engaging in--
you know, you've got the examiners on the ground there doing 
the work of the agency, and we have Patent Trial and Appeal 
Board judges there working on appeal cases, and we engage in a 
variety of outreach and education efforts, but with our 
director, we hope to do even more.
    Mr. Conyers. Well, that is encouraging. I'm glad to hear 
that.
    Now, has it occurred to you that there may be a need for 
even further transparency in the patent system?
    Ms. Lee. What sort of transparency are you referring to?
    Mr. Conyers. Well, that it's clearly understood by those 
that are seeking patents that the way to get there is more 
easily accessible and determinable by them through a little bit 
more transparency. Don't you think it's a pretty complicated 
process, without it being anybody's fault? It's just the nature 
of the beast here.
    Ms. Lee. Right. So I--the USPTO has a number of efforts 
underway, and the satellite offices help us tremendously in 
terms of increasing the transparency of the patent system to 
our stakeholders. So everything from, you know, how do you file 
a patent, how do you register your trademark, what issues might 
I consider in terms of trade secrets to protect my business, 
right, just the general training and education and background 
on intellectual property and intellectual property awareness, 
we're using our satellite offices to, and our Alexandria 
office, to provide greater transparency there.
    Also, with our satellite offices and through Alexandria, 
we're also looking to provide more transparency on our goals 
and our metrics and our programs and procedures. And we're 
always seeking public input on them, such as the Patent Quality 
Initiative.
    Also, we are going to be engaging in outreach to our 
stakeholders on what they view as patent quality and what the 
agency can better do or do more of to increase the quality of 
patents.
    So, as far as transparency goes, we have metrics on our Web 
site. But I agree with you, Congressman. I mean, the more 
transparency on the work of the PTO, how you navigate the 
system and what we provide, I think the better for the 
innovation economy in our companies and our innovators.
    Mr. Conyers. Ms. Lee, I thank you.
    And I thank the Chairman.
    Mr. Coble. You're indeed welcome.
    Mr. Farenthold, the gentleman from Texas.
    Mr. Farenthold. Thank you very much, Mr. Chairman.
    Ms. Lee, I appreciate you coming to talk to us today.
    First and foremost, I want to put in a plug for the patent 
reform bill that Mr. Jeffries and I authored, along with the 
remainder of the House-passed Innovation Act. It sure would be 
nice if the Senate would pick that up.
    I want to go on to some recent problems that came out of an 
Inspector General's report from the Department of Commerce 
recently talking about the Patent Trial and Appeal Board, or 
PTAB, and the Office of the Commissioner of Trademarks. Their 
findings demand immediate attention and hands-on corrective 
action, with PTAB fraud, waste and mismanagement resulting in, 
and I'm quoting from the IG report, ``more than $5 million in 
wages and bonuses,'' being paid to employees from 2009 to 2013 
who were not actually doing any productive work. According to 
the IG, some of the 20--I'm sorry--30 to 50 paralegals involved 
spent more than half their time that way over multiple 
consecutive years. Despite PTAB managers being fully aware of 
this, it appears that little corrective action was taken until 
they noticed the Inspector General's investigation last year.
    Worse still, the report details how PTAB paralegals, 
supervisory paralegals, specialists and senior management 
involved received more than three quarters of a million dollars 
in bonuses, and appallingly, 95 percent of the paralegals 
received the absolute highest performance rating.
    Now, we did have three whistleblowers out of this group of 
paralegals who reported this, so I think that's outstanding 
that we have a Federal workforce saying, ``Hey, we're doing 
nothing, why are we getting paid for it?'' But it did go on for 
a long time.
    And in the case of the trademark offices, we've seen 
violations of Federal law, regulations and ethical standards 
that go directly to the top of the organization, to the 
commissioner of trademarks herself. According to the review, 
Commissioner Cohen was personally, repeatedly and substantially 
involved in hiring of an obviously unqualified and repeatedly 
rejected applicant, who just happened to be the live-in 
boyfriends of her daughter.
    In addition to the allegations involving Commissioner 
Cohen, the OIG reported that the hiring practices at the USPTO 
regularly involve the use of ``preferences,'' that are, if not 
illegal, are at the very least, they show some unreasonable 
favoritism.
    Regarding the PTAB IG report, I have several questions. 
And, Ms. Lee, have you met with the IG to discuss these 
reports?
    Ms. Lee. Yes, I have.
    Mr. Farenthold. And what's your view of the recommendations 
of the OIG?
    Ms. Lee. Yeah. Well, thank you, Congressman, for the 
opportunity to address these two very, very important issues.
    Let me just say that the USPTO takes the allegation and the 
work of the OIG very seriously and view it with utmost 
importance. And we are carefully reviewing the Patent Trial and 
Appeal Board matter, the report, which just came out yesterday, 
and we are reviewing it in terms of evaluating appropriate next 
steps. We will provide a full response within 60 days, as 
required, and will include in there details of our intended 
next steps with regards to each of the allegation--or the 
allegations and with regards to each of the recommendations 
made in the report.
    Let me just say, though, that much of what the OIG 
recommended in terms of management and organizational 
improvements is already underway or already completed at the 
USPTO, including the elimination of the paralegal timekeeping 
issue, which is at heart in the report. This is because as soon 
as the IG identified this issue in February of 2013, the USPTO 
conducted its own investigation and confirmed the problem. We 
further commissioned a second independent investigation by 
Grant Thornton, a third-party expert group, which recommended 
structural improvements to the PTAB program.
    And as I said, therefore, many of the recommendations in 
the IG report are already completed or are in the process of 
being completed.
    Mr. Farenthold. All right. Well, the IG expressed some 
concerns that one of the reasons this was allowed to continue 
was fear of angering some of the unions. His recommendations 
specifically call for a review of the labor agreement to ensure 
that the PTAB can implement policies or even modify terms that 
is needed to prevent waste and abuse of government resources.
    If you generally are following up on the report, can this 
Committee assume that you will do everything you can to review 
these labor agreements and make sure that managers are held 
accountable?
    Ms. Lee. Absolutely. Absolutely.
    Mr. Farenthold. All right. Well, listen, I appreciate this. 
Let's talk about the commissioner. I'm out of time. We'll talk 
about the commissioner of trademarks in my second round of 
questioning. Thank you.
    Ms. Lee. Okay.
    Mr. Coble. I'll give you 1 more minute, the gentleman from 
Texas.
    Mr. Farenthold. Thank you very much.
    When did you first become aware of the issue with the 
commissioner?
    Ms. Lee. I think our office first became aware of it about 
3 weeks ago when the OIG met with us.
    Mr. Farenthold. Do you agree that the Commissioner of 
Trademarks is an at-will employee?
    Ms. Lee. I believe she is.
    Mr. Farenthold. Okay. Well, I understand you have until 
September 7th to comply with the requirement that you respond 
in 60 days. Do you think you'll be able to take any action with 
respect to Ms. Cohen before then?
    Ms. Lee. So we've already taken actions. I mean, basically, 
as soon as we received the IG's report on this issue, we 
immediately conducted a review of the hiring for the position 
that was at issue in this case. We also created a task force, 
which is composed of high-level officials in the PTO as well as 
an independent outside third-party expert in this area to look 
at the USPTO's hiring practices.
    I mean, the USPTO values impartial, fair, and transparent 
hiring processes, and we intend to reply fully to all of the 
allegations within 60 days, but we're just evaluating the facts 
now. We received the report 3 weeks ago, and we will follow up 
and take the appropriate----
    Mr. Farenthold. My final request is you keep us apprised of 
both of these matters as they develop.
    Ms. Lee. Absolutely.
    Mr. Coble. The gentleman's time has expired.
    Ms. Chu, let's try to get--we have a vote on, but the 
gentlelady from California, Ms. Chu.
    Ms. Chu. Thank you so much. First, congratulations, 
Director Lee, on your appointment as Deputy Director and Acting 
Director. I'm so glad to see such a well qualified person in 
this position.
    Ms. Lee. Thank you.
    Ms. Chu. Director Lee, in June, the Supreme Court issued 
its decision on Alice Corporation v. CLS Bank International. 
The court ruled that the patent claims in question in the case, 
which involved the claims to a computerized scheme for 
mitigating settlement risk, were ineligible to be patented. How 
does this decision impact the Patent Office and how are you 
responding to the case?
    Ms. Lee. Well, thank you for the question, Congresswoman 
Chu. It does affect the examination of cases before us, and as 
soon as the ruling came down, we are in a position at the PTO 
where we have to offer guidance to our examiners on how to 
examine cases, right, if the case law has implications on the 
examination process. So, within days of the ruling coming down, 
our Deputy Commissioner for Patent Examination Policy issued 
initial guidance on examination of these types of claims, and 
we have published that. It's posted on our Web site, and we are 
seeking public input on our preliminary guidance. We welcome 
that input from everybody, and we look forward to receiving 
that input. We also receive input from our examination corps, 
and if there are further changes to the case law, we are always 
willing to and looking to improve our guidance and eventually 
making it final until there are further changes in the case law 
development.
    So, then, after that, we will then train our examiners to 
ensure that they're examining in compliance with the guidance, 
and for those cases that are still pending that have not yet 
been issued a final patent number, we think it's incumbent upon 
us to take a look at those cases in light of the new 
developments in the case law to make sure that they are still 
in a position for allowance or if there needs to be further 
change.
    Ms. Chu. Thank you. Let me ask about another issue that I'm 
very concerned about, and that is patent assertion entities. 
Many times, they can be individual consumers or small- to mid-
sized businesses, customers of public safety units in local 
governments, and of course, they receive demand letters 
alleging patent infringement. For Main Street businesses, it's 
certainly difficult to figure out how to react to a demand 
letter, especially if they can't afford a lawyer. I understand 
the PTO uploaded an online tool kit on its Web site to help 
these individuals and businesses. How has the tool kit helped 
level the playing field, and have you received feedback from 
those who have used it?
    Ms. Lee. Thank you very much for the question. We're very 
pleased with our patent litigation online tool kit. Basically, 
you can go to the USPTO Web site, and if you look under patent 
litigation, there are a set of tools that are very useful to 
particularly unsophisticated small businesses who are on the 
receiving end of these demand letters. You know, what is a 
patent? Just because I get a demand letter, does that mean I 
need to write a check? Or what are my options if I decide that 
I do want to fight this? And on that Web site, they can pull up 
information about the litigation history of the patent. They 
can pull up information about who else that patent has been 
asserted against so that if they want to collaborate with other 
defendants in the defense of infringement with others, they can 
do so, and this is the kind of information that previously 
patent lawyers and litigating attorneys had access to, but if 
you were a small business and you're just trying to make a 
quick assessment of what are your options, it's really handy to 
have these tools, and we've provided that, working with a 
number of partners, for free to the stakeholder community, so 
we're very excited about that.
    Ms. Chu. Well, I think it's a great program. And finally, 
let me ask about the pro bono program of the America Invents 
Act. I am very interested in this because I was the sponsor of 
the amendment in Committee and also a member of the PTO's Pro 
Bono Task Force. Many inventors, individual inventors may not 
have the resources to get legal assistance, and so this pro 
bono program is so important to them, and I was glad to see 
that a new charter was signed last fall and an advisory council 
was formed. When the charter was signed, it was anticipated 
that all 50 States would have a pro bono program by the end of 
2015. How many States are currently covered, and is it expected 
that the pro bono program will cover all 50 States by 2015?
    Ms. Lee. Yes, thank you for the question, and I need to get 
you the precise statistics about the number of States that have 
pro bono programs in them. I think it's a handful of States, 
but it includes Minnesota, California, and a number of others, 
but let me get you the answer, and we'll submit it on the 
record. Let me just say, though, that pursuant to an 
administrative action and a priority, it is our goal to offer 
the pro bono program in all 50 States, and we're going to hire 
a pro bono coordinator, and we're going to look forward to 
working with the members of the patent bar so that we can 
provide pro bono services to innovators regardless of their 
financial resources or those who are underresourced, I should 
say.
    Ms. Chu. Thank you.
    I yield back.
    Mr. Coble. I thank the lady.
    The gentleman from Georgia, Mr. Collins, can we do it 
tersely?
    Mr. Collins. We can do it tersely, efficiently, and get it 
over with.
    Mr. Chabot. Would the gentleman yield for a moment?
    Mr. Collins. For a moment.
    Mr. Chabot. Thank you. I appreciate that. I would ask, Mr. 
Chairman, for the record, if I could submit some questions in 
writing relative to intellectual property rights in India?
    Mr. Coble. Without objection.
    Thank you very much.
    Mr. Collins. Real quickly as we get ready for a vote 
series, I'm interested in the transitional program for covered 
business methods patents, and it's a special review created by 
PTO that came through the AIA. The purpose of the program is to 
re-review already issued patents in the field of computer 
implemented inventions or software. The reason this program 
concerns me is it discriminates against one type of technology, 
computer-implemented inventions, over all others. I don't think 
that we should really be treating one person's property rights 
differently because they made their innovation using software 
rather than hardware. CBM proponents have touted the program as 
a tool for fighting patent trolls, however the latest 
statistics that we've been able to see show that the program 
has been overwhelmingly used against operating companies. Has 
the PTO performed any research on how the program is affecting 
operating companies?
    Ms. Lee. Operating versus nonoperating?
    Mr. Collins. Yes.
    Ms. Lee. That's something that we can look into but we have 
not looked into.
    Mr. Collins. So you have not--we have not researched this?
    Ms. Lee. The petitioners come before us, they have their 
cases, we adjudicate their cases, and oftentimes it's unclear 
whether they are operating or nonoperating. You have to do some 
investigations on that issue.
    Mr. Collins. But it is important to the program, and I 
think that is something that needs possibly to be looked at as 
we go forward.
    Ms. Lee. We can look into that.
    Mr. Collins. It is also my understanding that the PTO is 
pulling back patent applications that have already been allowed 
as a result of the Supreme Court's recent decision in Alice v. 
CLS Bank which related to the question of whether software 
inventions are patentable. While the Supreme Court has 
invalidated the patents at issue in the case, the decision 
reaffirmed what I've always believed, that software is just 
like any other technology, it deserves patent protection when 
it is the true invention. How widespread is the impact of the 
Supreme Court decision, and how many patent applications at the 
PTO will be impacted?
    Ms. Lee. So thank you for the question, and we're not 
pulling back patents that have already issued. What we have in 
our pipeline is a number of cases that may or are affected by 
the changes in law by the Alice-CLS Bank case, and in that 
instance, before a patent number has been provided, it's 
incumbent upon us before the patent leaves the office to apply 
the current law. So for cases that have not left our office, we 
are taking a look at them, we've reached out to our applicants 
and said we are taking a look at that in light----
    Mr. Collins. About how many are those?
    Ms. Lee. I would have to get numbers, the precise numbers.
    Mr. Collins. Can you get those in writing back to us?
    Ms. Lee. Absolutely.
    Mr. Collins. Thank you. As you know, abusive patent 
litigation is also a concern here, and will the PTO's actions 
as a result of Alice help ease abusive patent litigations? If 
so, how, and can you provide us with data on that or what you 
project it will be?
    Ms. Lee. So CLS Bank goes to the issue of patent 
eligibility and what is patentable subject matter.
    Mr. Collins. Right.
    Ms. Lee. And abusive patent litigation occurs and exists 
for a variety of reasons, including some litigation related 
or--but some of them also patent related. I would say that our 
initiatives to enhance the scrutiny of functional claiming and 
to our efforts to train examiners to put statements on the 
record so that if they've considered an issue, right, and 
there's a reason for a certain action, that they make the 
statement on the record. I think those steps more closely 
target the issue of reducing and curtailing abusive patent 
litigation. Basically, the clearer the patent, the clearer the 
boundaries, the clearer the statements in the record, the less 
the opportunity for abuse.
    Mr. Collins. Okay. And I appreciate that, and I think the 
concern, you know, especially in my previous question of 
pulling back patents, and you said is really the--it might harm 
that could be if it was for legitimate and innovative patent 
applications, you know, look at it from the disadvantage if 
it's on a global scale, and you assured me that's not happening 
or won't happen.
    Ms. Lee. We wouldn't want to issue patents that are not in 
compliance with the current case law.
    Mr. Collins. Okay. That is good. I think myself and other 
colleagues are going to be visiting China. I appreciate the 
work that has been done there. We're going there, in fact as 
early as this next week, looking at this from an IP 
perspective. It is something, as those who follow this 
Committee know, that is very close to my heart and something 
that I've worked on a great deal.
    And on that note, it is tragic that the United States 
Senate cannot figure out how to do their job in this area, and 
I would love to see them do that. I appreciate the work that 
you are doing, and I'm sure you'll be back before us on many 
occasions, and I do appreciate your testimony.
    Mr. Chairman, I yield back and give you 19 seconds.
    Mr. Coble. Tersely done.
    Ms. Lee and ladies and gentlemen, we will return 
imminently.
    Ms. Lee. Thank you.
    [Recess.]
    Mr. Coble. Mr. Jeffries is recognized for 5 minutes.
    Mr. Jeffries. Thank you, Mr. Chair, for yielding.
    And thank you, Director Lee, for your presence and for your 
service to the country. I wanted to speak for a moment about 
the USPTO's law school pilot certification program. It's my 
understanding that the program was initially jump started and 
piloted in 2008. Is that correct?
    Ms. Lee. I think that sounds about right.
    Mr. Jeffries. Okay. And can you just describe for us, you 
know, how the program works in its current form, what some of 
the benefits are, particularly as it relates to law students as 
well as clients as well as the innovation community.
    Ms. Lee. Yes, thank you very much for the question, 
Congressman, and I'm very excited to say that just this 
morning, we announced an expansion of our law school 
certification program. And to your question, let me explain 
what it is for those who may not be familiar with it. I mean, 
basically, what we do at the USPTO is we provide temporary 
registration numbers to law students so that they can prosecute 
patent applications on behalf of clients who otherwise could 
not afford to hire an attorney, and they are supervised by law 
school professors, so it's really a win-win for both the 
students in terms of developing valuable, practical patent 
skills, and they may one day become patent examiners or patent 
prosecutors or patent litigators, and it's also a benefit to 
our innovation community because they get the advantage of 
these pro bono services that complement our pro bono program, 
so we're very excited to be expanding that program. We 
announced it today, and I believe that a law school in your 
district, the Brooklyn Law School----
    Mr. Jeffries. Yes.
    Ms. Lee [continuing]. Has been added to the list I think as 
of today.
    Mr. Jeffries. No, that's fantastic. Now, as you may know, 
Mr. Chabot and I have introduced legislation relative to this 
program that would sort of enable the removal of its pilot 
status and authorize further the expansion as you move forward 
and also ask for a report to the Congress moving forward just 
so that we can be informed about the good work that the program 
continues to do.
    Now, as you expand the program, potentially being able to 
offer it as you've done with the announcement today and moving 
forward to additional law students, to additional law schools, 
will there be an additional cost that will necessitate an 
additional appropriation, or am I correct in my understanding 
that you have the capacity, at least as of the present moment, 
to absorb the expansion internally?
    Ms. Lee. So thank you for the question. I'm sure my CFO 
will correct me if I'm wrong on this, but my understanding is 
that the beauty of this program is that it doesn't involve a 
lot of resources on behalf of the PTO. It's the volunteer 
students. It's the volunteer professors who agree to oversee 
those students, so I think we pretty much have, maybe with a 
plus or minus, the resources that we need to expand the 
program. If it gets to be so tremendously successful that we 
really have to keep, you know, every law school across the 
country, then perhaps we might have to revisit the issue in 
terms of we want to maintain the quality, but I think, at this 
point, given the rate at which we're moving and the law schools 
that we carefully select for eligibility in the program, we're 
able to manage it.
    Mr. Jeffries. Thank you very much. I want to switch topics 
for a moment. You have indicated in prior testimony as well as 
I think today in an exchange that you support the notion of 
patent litigation reform done in a balanced way and saluted the 
efforts that the Chairman and many of us on the Committee 
undertook last year to try and advance patent litigation 
forward.
    After that litigation or legislation moved out of the 
House, there were two Supreme Court decisions, I believe, 
earlier this year that were decided upon relative to the 
Section 285 provision. One I believe related to the standard of 
review; the other related to the actual substance of Section 
285. Can you comment at all as to how you think that may change 
the landscape moving forward in terms of where our focus should 
be?
    Ms. Lee. So thank you very much for the question, 
Congressman. I think you're referring to two cases in 
particular from the Supreme Court, the Octane Fitness case and 
the Highmark case handed down from the Supreme Court on the 
issue of fee shifting. And those cases increased the discretion 
that the district courts have to award fees to the prevailing 
party in a patent litigation dispute. That said, there's still 
a requirement that it has to be an exceptional case, and I 
think there's still room for legislative reform because I think 
companies could benefit from greater certainty about when fees 
would be shifted and when they would not, so, right now, with 
the current case law of exceptional, there's going to be a lot 
of litigation, a lot of motions brought on these issues, but I 
think there's room for legislative clarification on that issue.
    Mr. Jeffries. Thank you very much.
    I yield back.
    Mr. Coble. I thank the gentleman.
    The distinguished gentleman from Pennsylvania, Mr. Marino, 
is recognized for 5 minutes.
    Mr. Marino. Thank you, Chairman.
    Welcome, Director. It's a pleasure to talk with you. I see 
by your credentials you have an extraordinary background and 
that you actually worked in private industry as counsel.
    I would like to talk with you and get your insight on the 
report from the Office of Inspector General concerning the 
overpay, if you would, please. Now, I know that you were not 
there during that time. You've been in your position for how 
long, your present position for how long?
    Ms. Lee. I was sworn in on January 13, 2014. So 7 months.
    Mr. Marino. Fourteen, okay. When you were sworn in or even 
before you were sworn in, were you brought up to speed on the 
report?
    Ms. Lee. I was informed of the report. It wasn't a report 
yet because it had not issued, but the facts and circumstances 
surrounding the Patent Trial and Appeal Board paralegal matter 
because as I explained earlier today, I mean, the USPTO had 
itself been investigating that matter when it first came to our 
attention in 2013, so the office was well aware of that issue 
as early as 2013 and undertook some efforts.
    Mr. Marino. Can you tell me, is there, are there any plans 
to hold those responsible that collected the overpay, for the 
managers or the supervisors who knew that there was overpay and 
no work being done? Is there going to be any retribution, is 
someone going to be fired?
    Ms. Lee. So thank you for the question. It's a good 
question, and what we're doing is we are reviewing the details 
of that report, which we just got I think yesterday, and 
there's some discussion of that in the OIG's report, and we 
will evaluate all options, including the one you mention.
    Mr. Marino. Okay. Because the report is very clear. I mean, 
you know from your work in private industry, how long would 
someone be employed in the company you worked for under those 
circumstances?
    Ms. Lee. I don't have an answer for that, but I hear your 
point.
    Mr. Marino. I do. They wouldn't be employed very long at 
all, and we have a report from the OIG's office that people 
knew that--in fact, they categorized their time sheet, for a 
matter of fact, into a completely different area. It was called 
``other time,'' very general, other time. And people, through 
investigations, it was learned that they were watching 
television, surfing the Internet, used social media, such as 
Facebook, performed volunteer work for charity from home, 
washed laundry, exercised at home, read books, the news, and 
magazines, shopped online, cleaned dishes, et cetera. Now, this 
is theft from the hardworking taxpayer, and quite honestly, I'm 
getting tired of hearing about this. You're not responsible for 
this, but it's very frustrating for me because we constantly 
hear about this.
    And then what adds insult to injury is we hear that people 
like this are put on administrative leave with pay. Now, this 
is nauseating. This is frustrating, and the people in my 
district are fed up with it. So I am asking you that if the 
facts you find as the Office of Inspector General states them, 
and people were doing these things and lying on their time 
sheets, why would they not be fired?
    Ms. Lee. So I appreciate your concern, and as I said 
earlier, we do take these allegations--and I personally take 
these allegations very seriously.
    Mr. Marino. Good.
    Ms. Lee. And we will get back to you on those issues.
    Mr. Marino. I appreciate that, but even more so with the 
managers and the supervisors that oversaw this, I just--this is 
a perfect example of how large this government has grown, and 
the left hand doesn't even know what the right hand is doing, 
and we're hiring people who just believe that I don't have any 
work to do, so I'm going to collect pay. And we have 
supervisors and managers in charge of these people who are not 
reporting to you or other individuals that there is something 
drastically wrong with the system, but yet we're paying people 
for doing--not just doing nothing and sitting at their desk--
but staying at home and reading books and shopping online and 
doing laundry. This is just--it's unbelievable what takes place 
anymore.
    The government needs to be downsized straight across the 
board by 50 percent, and then maybe we'll get control on people 
that are cheating the taxpayer and not giving the taxpayer a 
hard day's work. So I'm asking you once more, you're giving me 
your commitment that if these allegations are true and these 
facts are accurate, that these people will be fired?
    Ms. Lee. We'll take appropriate action.
    Mr. Marino. What's ``appropriate action''?
    Ms. Lee. We'll have to look at the facts, we'll have to 
consider----
    Mr. Marino. So do you think the Office of Inspector General 
is making these things up?
    Ms. Lee. No.
    Mr. Marino. Do you think the whistleblowers that came 
forward are making these things up? Because what I'm getting 
from you now is they probably will not be fired. This is a real 
easy, simple question.
    I was in industry and worked in a factory for 13 years and 
worked my way up to management, and if anything like this 
happened in private industry, these people not only would be 
prosecuted--fired, but they would be prosecuted as well.
    Ms. Lee. I will say, Congressman, that as I mentioned 
earlier, our Patent Trial and Appeal Board proceedings are 
exceedingly busy now, so I understand----
    Mr. Marino. There's no question that you have been.
    Ms. Lee. And so they are now fully----
    Mr. Marino. You folks are doing a great job.
    Ms. Lee. They are now fully engaged.
    Mr. Marino. You are doing a great job as director, but 
there is no excuse for this. Please do not use the excuse that 
you're very busy, because apparently, there was a bunch of 
people who collected over $5 million that weren't very busy.
    Ms. Lee. I understand.
    Mr. Marino. Thank you.
    I yield back.
    Mr. Coble. I thank the gentleman.
    The gentlelady from Washington is recognized for 5 minutes.
    Ms. DelBene. Thank you, Mr. Chair.
    Thank you, Director Lee, for being here today. I know that 
Representative Chu spoke earlier about the Supreme Court's 
decision in the Alice v. CLS Bank case, which addressed the 
scope of patent eligibility for software-related inventions, 
and I was pleased to learn that the PTO was able to issue 
preliminary guidance very quickly to patent examiners on how to 
interpret that Supreme Court decision, and you mentioned that 
the PTO is now accepting comments on the guidance as it helps 
draft more detailed guidelines, and thank you for doing that. I 
appreciate it. But I do think it's very important that patent 
examiners are consistently applying the new case law, and--
because it's complicated, and while the feedback I've heard on 
this initial guidance has been that it's clear and thoughtful, 
I've also unfortunately heard that, despite this guidance, a 
good number of examiners are rejecting some software patent 
applications based on a possible misinterpretation of the Alice 
case, so I'm concerned about this and am hopeful that we aren't 
in a situation where true inventions are being denied patents 
based on a misinterpretation of the law, and I'm also worried 
that this could lead to an increased number of appeals to the 
PTO, and you'll see an increased number, and it can become a 
widespread problem if this is allowed to continue. So I 
wondered if you could explain what types of quality control the 
PTO is putting in place and implementing to make sure that 
there's consistency in how the patent applications are being 
treated in light of the decision.
    Ms. Lee. Yes, thank you very much for your question, 
Congresswoman.
    We absolutely strive to have consistency in our examination 
that complies with our guidance and the case law, and if there 
are instances where an applicant thinks that an examiner is not 
applying the case law properly, they can't come to an 
agreement, they can't see eye to eye on an issue, we have a 
patent ombudsman program where the applicant can, without 
ruffling the feathers of an examiner, without sort of 
jeopardizing that kind of relationship, can escalate it to a 
patent ombudsman person so we have another person looking at 
the issues to see what the issue is, to see if the case has 
been, the rules are being appropriately applied, so I would 
just refer you to that. But we have a lot of initiatives in the 
agency to ensure consistency. When we issue the final guidance 
on the Alice case, we will train all of our examiners. We've 
already trained the supervisory patent examiners. We've already 
given guidance to our examiners. We already have our technical 
directors instructed on the preliminary guidance, but once the 
guidance becomes final, we will provide the appropriate level 
of training to everybody across the board in much greater 
detail, and that information will be posted on the Web site, so 
the public can see what our examiners have been directed to 
examine toward or to follow.
    Ms. DelBene. Do you have a sense of when final guidance 
might be coming out?
    Ms. Lee. We're targeting September and October, but we--I 
think the deadline for receipt of comments is July 31st. We 
want to be careful in terms of evaluating and reading and 
reviewing all the comments, and we understand that we want to 
issue it promptly, but we also want to be accurate about our 
guidance.
    Ms. DelBene. So what types of things do you use to measure 
whether or not you have consistency out there? So you'll train 
the examiners on the guidance?
    Ms. Lee. Yes.
    Ms. DelBene. And how do you know it's being applied 
consistently, what checks and balances?
    Ms. Lee. We have a quality assurance team that selects 
applications at random or per technology area to test it for 
accuracy and prosecution, and where there is, you know, 
evidence that it's not being applied properly, we will 
definitely go back and that input will be fed back into both 
our examiner training as well as our examination processes, 
what can we do to improve the process so that examiners are 
able to examine more accurately.
    Ms. DelBene. And if it is true that you see an increased 
number of appeals, do you then have a mechanism to try to 
figure out why you're seeing more appeals and understand?
    Ms. Lee. That would certainly be a factor that we would 
look to.
    Ms. DelBene. Uh-huh. So you check all of that kind of 
consistently across----
    Ms. Lee. I don't--we should, and I'll have to check with 
you to see if we currently do, but I wouldn't be surprised if 
we do.
    Ms. DelBene. Okay.
    Ms. Lee. So let me get back to you on that.
    Ms. DelBene. Okay, thank you.
    Thank you, Mr. Chair, I yield back.
    Mr. Coble. I thank the gentlelady.
    The gentleman from Missouri, Mr. Smith.
    Mr. Smith of Missouri. Thank you, Mr. Chairman.
    Mr. Chairman, thank you for holding a hearing on this 
important subject. Also I want to reiterate what a lot of my 
colleagues have said about how unfortunate it has been that the 
Senate has refused to take up and work with and pass the 
bipartisan patent reform bill that we've worked on in this 
Committee for quite some time. I hope that maybe they'll figure 
out how the legislative process works and decide to govern for 
the people of the United States.
    So my question, Ms. Lee, thank you for being here, first 
off, and talking to us. I'm sure we've all heard that Amazon's 
application for .amazon's top level domain was rejected by the 
board of directors at ICANN. They're a California nonprofit 
which is supposed to operate by contract with the U.S. 
Government for the public at large. And my question is, absent 
a separate negotiated treaty or other national law, does the 
USPTO believe that a foreign country can claim a sovereign 
right to a term and prevent use of a mark that the U.S. and 
other countries have otherwise granted trademark rights in?
    Ms. Lee. So could you repeat the question one more time?
    Mr. Smith of Missouri. Okay. Does the USPTO believe that a 
foreign country can claim a sovereign right to a term and 
prevent use of a mark that the U.S. and other countries have 
otherwise granted trademark rights in?
    Ms. Lee. You know, I think I need to get back to you on the 
record, and I will do so. I appreciate the question, but I want 
to make sure that we understand it, and we get to you an 
accurate answer, so let me get back to you.
    Mr. Smith of Missouri. I appreciate that. Thank you.
    Ms. Lee. Thanks for the question.
    Mr. Smith of Missouri. One other question. What are the 
three key problems that American companies face in China and 
India regarding patent and trade secret protection?
    Ms. Lee. So our companies work hard. I mean, when they 
export their products and services overseas, there's always a 
risk and a vulnerability in terms of misappropriation of their 
trade secrets or infringement of their patents or copyrights. I 
mean, it can be in China; it can be in other countries. We are 
working very, very hard with our companies that do business in 
China to increase or improve the environment in which they're 
operating. We give trade secret training to government 
officials in China to create an environment that is more 
favorable for our companies, we work with the leaders there, we 
bring them to the United States to receive training at our 
Global IP Academy so that they share the same values that we do 
with regard to trade secrets, patents, and copyrights. And we 
have a STOPfakes program, which goal is to curtail piracy and 
counterfeiting of U.S. intellectual property matters, so we 
have a number of initiatives underway, and we are constantly 
striving to improve the environment.
    Mr. Smith of Missouri. Do you think that China and India 
are in compliance with the international obligations under the 
TRIPS agreement?
    Ms. Lee. So are you referring to--which aspect of the TRIPS 
agreement are you referring to?
    Mr. Smith of Missouri. In regards to the patent and trade 
secret protections.
    Ms. Lee. So there's a lot of patent and trade secret 
provisions even under the TRIPS agreement, but----
    Mr. Smith of Missouri. Do you think that they're 
noncompliant in any provision within the TRIPS agreement?
    Ms. Lee. I know there's been some discussion in the area of 
compulsory licenses in connection with India, and there have 
been certain circumstances where perhaps that may have been 
triggered or applied or granted where some might argue was not 
in compliance, and that's an issue of concern to us. I mean, 
critically, it is important that innovators have the incentive 
to innovate, and if compulsory licenses are granted in 
circumstances that are beyond the requirements of our TRIPS 
agreement, that's an issue of concern for us, and that's what 
we work with, with our IP attaches, that's what we work with in 
our conversations in our trade negotiations with our partners, 
with officials in the Indian Patent Office. We are focused on 
that issue to make sure that a compulsory license is granted 
where it should be and not granted where it shouldn't be and 
therefore jeopardizing of innovation and investment in 
innovation.
    Mr. Smith of Missouri. Thank you, Mr. Chairman. I yield 
back.
    Mr. Coble. I thank the gentleman.
    The gentleman is recognized for 5 minutes.
    Mr. Marino. Thank you, Chairman.
    Director, do you have enough personnel to examine newly 
submitted patent applications and compare those to already 
established patents to avoid future litigation? Do you 
understand my question?
    Ms. Lee. Do we have enough personnel?
    Mr. Marino. To review patents that are newly submitted to 
see if those patents already exist or if there is any conflict 
between the two?
    Ms. Lee. Oh. So that is what we normally do. When an 
application comes in, it's the job of the patent examiner to 
search what we call the relevant prior art, so they look at 
databases of patents that have previously been issued, they 
search the literature.
    Mr. Marino. I understand the process. What I'm asking you 
is do you have enough personnel to adequately do those 
examinations?
    Ms. Lee. So we're looking to expand the examiner force. We 
are using--we're targeting a hire of a thousand examiners in 
2014. In 2015, we're targeting roughly 750. We have to see.
    Mr. Marino. Good.
    Ms. Lee. And also we're using our satellite offices to tap 
into for the first time previously untapped talent pools, so 
we're very excited about that, and we're looking to expand the 
production capacity of the USPTO.
    Mr. Marino. I'm glad to hear that. Do you think that hiring 
these experts, these additional experts would curtail, I know 
it's not going to eliminate, but would curtail frivolous 
litigation, particularly when we're talking about patent 
trolls?
    Ms. Lee. I think hiring additional examiners so that we 
have the capacity to examine the patent applications will 
ensure that patents issue more quickly, and for our businesses, 
right, who create innovations and inventions, it's important 
that they be able to have the protection that they need to 
enter the marketplace. So the patents need to be examined 
properly, and I think the addition of the examiners will help 
us reduce our backlog and pendency. So really it's pro-
business.
    Mr. Marino. Is there anywhere else in the office that 
you're short of personnel?
    Ms. Lee. We are hiring on the Patent Trial and Appeal Board 
front for administrative patent judges. I mentioned earlier in 
the first session that we've experienced record number of 
petitions, and there seems to be a tremendous appetite for the 
services offered by the Patent Trial and Appeal Board, and 
again, we're recruiting nationwide, including through our 
satellite offices, and we're getting some outstanding 
candidates.
    Mr. Marino. Is that the bottleneck at this point? Is that 
where things are jamming and then perhaps people are waiting to 
do something?
    Ms. Lee. So I wouldn't say that things are jamming. I mean, 
we're still issuing our final opinions in these Patent Trial 
and Appeal Board trials within the 1-year statutory time frame. 
We can outdo ourselves and perhaps lower, get it out even more 
quickly, but I think we're well within statute, and our goal is 
to keep it that way.
    Mr. Marino. Well, I know it takes some time to hire a 
thousand people, but I hope you do that as expeditiously as 
possible.
    Ms. Lee. We will, thank you.
    Mr. Marino. Thank you.
    I yield back.
    Mr. Coble. We're about to wind down, Director Lee. Thank 
you for being here. Let me put a final question to you. As 
Federal agencies have faced budgetary issues, departments have 
looked to creative ways to stretch their budgetary dollars. 
Does the PTO fund any trade missions or trips for the Secretary 
of Commerce or other officials at the Commerce Department or 
other agencies?
    Ms. Lee. Thank you for your question, Mr. Chairman. I'm not 
aware of the PTO funding individuals from the Department of 
Commerce on trade missions. I believe the funding comes from 
elsewhere, but if my statement is incorrect, we will correct 
it, but I'm not aware of our funding of Department of Commerce 
officials.
    Mr. Coble. And I appreciate that. Let me give you a more 
detailed question. Do you have a requirement that the PTO will 
only fund trips that are IP focused and would PTO staff be the 
primary points of contact or does another agency with less 
expertise, such as the ITA, take the lead on the Secretary's 
IP-focused trade visits or participation in bilateral forums, 
such as the U.S.-India strategic dialogue currently taking 
place in New Delhi? If so, does it not make sense for the IP 
experts at PTO to take the lead on such trade missions, 
especially if PTO resources are being used?
    Ms. Lee. So we fund matters that are in line with our 
mission, and I'm not sure I understand your question, but is 
the question, are we funding travel of ITA members who are 
advising the Administration on intellectual property issues?
    Mr. Coble. ITA as an example; ITA, yes.
    Ms. Lee. So do we fund travel of other individuals outside 
of PTO on PTO--on IP-related matters, is that your question?
    Mr. Coble. Yeah.
    Ms. Lee. Let me get back to you on that.
    Mr. Coble. That will be fine. In the same vein, I think 
that we need to make sure that the IP attaches in our embassies 
have sufficient authority in terms of diplomatic rights and 
access to resources. What has the Commerce Department done to 
elevate the position of the IP attaches in our embassies?
    Ms. Lee. So thank you for the question. Our IP attaches are 
a tremendous resource for American companies and the innovation 
community. I will say that this is an issue that we've been 
working with through the Department of Commerce and others is 
that the rank of our IP attaches could be at a higher level. If 
you think about it, right, these IP attaches are, you know, on 
the ground in the foreign countries; they're working with the 
IP leaders in the host country discussing very important 
issues, like compulsory licensing and, you know, trade secret 
policy and so forth. And in foreign countries perhaps even more 
so than the United States, your rank has a lot to do with the 
access that you have to appropriate people who can effect 
change, so that is one issue that we are looking at to increase 
the effectiveness of our IP attaches. They're already doing a 
great job, but if you look at ways to further improve, that's 
one way.
    Mr. Coble. Well, Director Lee, thank you, and thank you in 
the audience for your patience. We apologize again for the 
delayed hearing, but it's been very worthwhile, and this 
concludes today's hearing. Thanks to all for attending.
    Without objection, all Members will have 5 legislative days 
to submit additional written questions for the witnesses or 
additional materials for the record. The hearing stands 
adjourned.
    Ms. Lee. Thank you.
    
    [Whereupon, at 5:11 p.m., the Subcommittee was adjourned.]
    
                            A P P E N D I X

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               Material Submitted for the Hearing Record