Up and Running: Senate IP Subcommittee Debates USPTO Oversight After Setting Ambitious Agenda in February

Today, March 13, the Senate Subcommittee on Intellectual Property met to discuss “Oversight of the United States Patent and Trademark Office,” with USPTO Director Andrei Iancu as the sole witness. IPWatchdog will report the details of that hearing in full, but in the meantime it is worth reviewing what the Subcommittee covered in its first hearing, held February 26, which included the report of the Intellectual Property Enforcement Coordinator (IPEC) on the findings of the IPEC’s Annual Intellectual Property Report. While the hearing was nominally about the IPEC report, comments made and questions raised by Subcommittee members throughout the course of the hearing made it clear that the Subcommittee intends to play an important role in the debate around IP and patent law during the 116th Congress.

Both Sides Commit to Tackle Challenges

The scope of the Subcommittee’s agenda was made clear in the opening statements of Sen. Thom Tillis (R-NC), Chairman of the Subcommittee. “Our nation’s innovation economy is facing what I believe are a number of challenges in the 21st century, from competition of state actors like China to confusion about what even is eligible to be patented,” Sen. Tillis said. He voiced his belief that Congress could address those challenges in a bipartisan, bicameral way and he said that the Senate IP Subcommittee will be holding hearings on the need to reform patent eligibility standards, modernizing the U.S. Copyright Office and reforms to the Patent Trial and Appeal Board (PTAB) “to ensure that patent rights are treated the same way all vested property rights should be treated.”

Sen. Chris Coons (D-DE), Ranking Member of the IP Subcommittee, echoed the sentiment that intellectual property was a bipartisan issue. “We literally lose hundreds of billions of dollars every year as countries all around the world, but recently principally China, have brazenly stolen the fruits of our ingenuity,” Sen. Coons said. “Counterfeit goods [not only hurt] American companies but line the pockets of organized crime and often present grave safety threats to Americans.” Sen. Coons added that most Americans might not realize that there are counterfeit pharmaceuticals, aircraft parts and auto parts that are widely distributed around the world, presenting clear health and safety risks to consumers who purchase those fake items.

IPEC Vishal Amin Discusses Current Goals and Initiatives

The sole witness appearing before the Senate IP Subcommittee at its first hearing was the Honorable Vishal Amin, who has served for two years as IPEC for the Trump Administration. While the IPEC office was created a little more than 10 years ago, Amin noted that technology and digital trade have greatly evolved during that short period of time. “As this office enters its second decade, it has never been more clear the importance that we must continue to place on intellectual property as a driver of innovation and job creation,” Amin said. He discussed his efforts as IPEC to convene a series of roundtable discussions involving various stakeholders in economic sectors which are impacted by IP, including a roundtable scheduled for Tuesday, March 5, involving representatives from major professional sports leagues to discuss IP issues in those industries. Amin also noted that his office was currently reviewing public comments solicited last year regarding a new three-year Joint Strategic Plan on Intellectual Property Enforcement, which is expected to be unveiled later this year.

Chairman Tillis Discusses Free Trade Agreements and Issues in India

Sen. Tillis spent a good portion of his first questioning period discussing international IP issues, especially as those issues relate to trade agreements between the U.S. and its trading partners. Tillis expressed his encouragement at the strong IP protections written into the U.S.-Mexico-Canada Agreement (USMCA), although he noted that the exclusion period for generic versions of biologics was 10 years in the USMCA versus the 12-year period of exclusivity in the United States. Overall, however, Tillis said that the USMCA represented a trend reversal from the baseline of IP rights in the now-abandoned Trans-Pacific Partnership (TPP) Agreement.

Sen. Tillis also noted issues for American companies trying to do business in India, where those firms experience challenges from compulsory licensing and drug price control policies. “In relation to India, you’re looking at the world’s largest democracy in negotiations with the world’s oldest democracy,” Amin said. He added that the U.S. government recognized the importance of continuing to raise these issues as part of the ongoing U.S.-India Trade Policy Forum, although he acknowledged that addressing patent issues in India was going to take a long-term effort. Amin also discussed the issue of counterfeits coming from China, noting that 88% of foreign mail coming into the U.S. comes from China, a major source of counterfeit goods. Asked by Tillis whether Congress should work to modernize the IP system through patent reform, Amin said that the White House wasn’t looking to get in front of the reform process but that they were waiting to see how the U.S. Supreme Court would apply the law in IP cases, as that court has been taking up those cases at a more rapid pace in recent years.

Ranking Member Coons Focuses on China and Counterfeit Trafficking

Sen. Coons focused his questions more squarely on the issue of China, noting that the IPEC’s report reflected that 87% of counterfeit goods seized at U.S. points of entry came from China. While these goods represented more than $1 billion in economic value, estimates indicated that these seizures only represented 1% to 3% of all counterfeits being imported into the United States. Amin responded that the Department of Justice (DoJ) placed a high priority on IP cases that involve issues of health and safety, trade secret theft and large-scale commercial counterfeiting. He also noted that prosecutors in the DoJ were trying to think creatively in prosecuting IP crimes, as such crimes were often tied to other illicit activities like failure to pay taxes or other criminal actions. Coons seemed to agree with this assessment:

“In the work I’ve done on wildlife trafficking, one of the striking things was the intersection between folks engaged in human trafficking, trafficking in drugs, trafficking in weapons. Folks who are moving things illicitly across our border don’t particularly differentiate what they’re moving.” – Sen. Chris Coons

Sen. Coons also asked what steps the U.S. was taking to address online piracy which, he admitted, didn’t have the “immediate threat vector” of pharmaceuticals but still cost the American economy billions of dollars every year. Amin discussed issues with the current generation of illicit streaming devices (ISDs), adding that the conversation about piracy just 10 to 15 years ago was concerned with optical disc formats. Looking ahead, Amin expected that the next big issue would be illicit streaming apps that can be operated separately from ISDs on a typical smart television set and his office was looking at ways to communicate about these issues with TV manufacturers.

Senator Blackburn Explores the IP Needs of the Music Industry

Sen. Marsha Blackburn (R-TN) noted in her questioning period that about one-third of all music entertainment downloaded or streamed by consumers is pirated, hurting the economy of cities like Memphis and Nashville, where much of America’s music industry is located. In discussing Chinese copyright issues, she asked Amin whether IPEC utilizes the specialized IP courts in China or whether they rely on U.S. resources. Amin said that IPEC relies heavily upon regional IP Attachés in Beijing and Shanghai to address issues in that country, adding that another Attaché office will be coming soon to Guangzhou. “I think when it comes to the court system in China, it’s an incredibly complicated question in terms of how the courts address issues as they pertain to U.S. companies operating in China,” Amin said.

Sen. Blackburn also spoke about the recent passage of the Music Modernization Act (MMA), a piece of legislation that took seven years of Congressional effort to pass into law. She noted, however, that AM/FM radio broadcasts remained an outlier not covered by the MMA. “When it comes to broadcasters, they will say for retransmission, they expect to be paid for that content because cable operators are making money off of that,” Blackburn said. “But when it comes to playing music, they do not want to compensate the creators of that work.” She further noted that compensation is typically split in such a way that songwriters will be compensated while musicians aren’t paid. Amin responded that, while the MMA was a huge victory that solved a meaningful legitimate problem facing songwriters, the Trump Administration was waiting to see how the MMA would be implemented by the U.S. Copyright Office before pursuing additional reforms.

At the end of her questioning period, Sen. Blackburn quickly asked whether algorithms should be protected by either patents or copyright. Amin said that the answer to that was complicated and would vary based on the application of the algorithm.

Senator Blumenthal Bangs the Drum on Drug Patents

Following Sen. Blackburn was Sen. Richard Blumenthal (D-CT) who spent his time hammering Amin on the issue of pharmaceutical companies and what he felt was their misuse of patents to preserve their ability to raise prices. He cited a 2017 study which found that the top 12 drugs in terms of gross revenue had their periods of exclusivity extended to 38 years thanks to the filing of an average of 125 patent applications covering each individual drug; while Blumenthal didn’t name the study, it’s likely that he was referencing the findings of I-MAK’s Overpatented, Overpriced study.

Sen. Blumenthal also referenced various statements made by President Trump such as the patent system “will not be used as a shield to protect unfair monopolies.” He asked Amin if he could do anything to further the President’s stated policy goals in this regard, adding that he was disappointed to see very little substance on this issue in the IPEC report. Amin reiterated that the goal of his office was that the U.S. Patent and Trademark Office should be issuing high quality patents that can withstand legal and judicial scrutiny. Amin added that, while IPEC wanted to make sure that there was no abuse of the patent system, his office wanted to stay as neutral as possible in its approach on issues such as this, where many people had taken strong positions on which industries should or shouldn’t be receiving patents.

Senators Tillis, Coons Continue Questions on Capacity Building, IPEC Staffing Issues

Returning for a second round of questioning, Sen. Tillis found it interesting that Sen. Blumenthal was in such strong agreement with a policy from the Trump Administration. “One of the reasons I was excited about getting this committee formed was I really do believe that it’s one of the few areas on the Judiciary Committee where we can come up with some bipartisan consensus,” said Sen. Tillis, adding that IP was like “an island of consensus in an otherwise sea of not.” Tillis noted that the U.S. enjoyed a high pace of innovation in the pharmaceutical and biotech industries and that he didn’t want to send the message to companies in those industries that their investment in IP wouldn’t be recoverable, as that could have a significant impact on innovation and the price of medicine. “What we need to do is have you guys focus on making sure that high quality patents are being issued, [cast light on] any sort of exploitation, and then let the courts sort out the gray area,” Tillis said.

Sen. Tillis also asked about the progress of the Commercial Law Development Program (CLDP), an initiative to build the capacity of foreign governments to promote and protect IP rights. Amin responded that the CLDP program was focused more on lesser developed countries and markets that were just establishing their own IP systems. He added that many markets had moved on from the initial phase of capacity building to the point where the U.S. was sending prosecutors to work with foreign agencies involved with IP enforcement.

Sen. Coons also returned for another round of questioning where he noted that domestic IP policy had a major impact on international efforts and that domestic system had seen its ranking slip significantly in recent years due to unfair post-grant proceedings at the USPTO as well as Section 101 jurisprudence, which has led to uncertain patent eligibility in some sectors. Amin said that, while his office was interested in making sure that IP rights were working for innovators and creators, he believed that the U.S. IP system was the best “bar none” and it remained a major part of America’s competitive advantage compared to foreign counterparts.

Sen. Coons also spoke to budgeting issues and asked if the office of the IPEC had the resources necessary to coordinate actions across the federal government. Amin noted that he now had three full-time employees in IPEC and that he was grateful that Congress had helped provide him with a permanent staff.

Some Figures From the IPEC Annual Report

• There was an 8% increase in counterfeits seized during fiscal year 2017 jointly by U.S. Customs and Border Protection and Immigration and Customs Enforcement Homeland Security Investigations;
• The 34,143 shipments seized by officials from these agencies included counterfeit items that would have totalled $1.2 billion in value had they been genuine.
• Grants from the Department of Justice (DoJ) to local law enforcement agencies led to the arrest of 423 individuals violating IP laws, the serving of 87 state and local IP search warrants and the disruption of 428 piracy or counterfeiting operations during the year ending June 30, 2018.
• At the end of fiscal year 2018, there were 195 IP rights investigations pending at the Federal Bureau of Investigations (FBI), the majority of which dealt with trade secret theft and the infringement of copyright and trademarks.
• During FY2018, the FBI made 22 arrests, obtained 16 convictions and obtained restitutions totalling more than $64.5 million.
• Enforcement actions at the National Intellectual Property Rights Coordination Center (IPR Center) included the referral of more than 16,000 investigative leads to law enforcement partners.
• The IPR Center’s Operation Team Player program led to the seizure of nearly 172,000 counterfeit sports- and entertainment-related items valued at an estimated $15.69 million and resulted in a 16%  increase in arrests over the previous year’s operation during FY2018.
• In March 2018, the DoJ charged nine Iranian nationals affiliated with the Mabna Institute who stole more than 31 terabytes of academic and IP data from universities, private sector companies and other sources leading to the imposition of sanctions under Executive Order 13694.
• Last October and November, multiple Chinese operatives faced DoJ charges for attempts to steal trade secrets from U.S. aviation and aerospace companies, trade secrets related to commercial airliner turbofan engines and trade secrets held by semiconductor firm Micron Technology.
• In November, the Attorney General announced the creation of a China Initiative composed of officials from the FBI, DoJ and several U.S. Attorneys working together to identify priority Chinese trade theft cases.