U.S. inventors, courts, and patent examiners need to know which types of inventions are eligible for patent protection, and clarifying that question is a top priority for the U.S. Patent and Trademark Office, Director Andrei Iancu told Bloomberg Law.

Uncertainty about which inventions are abstract ideas or laws of nature—and therefore unpatentable—is discouraging investment in growing areas such as personalized medicine and cryptography, critics of the patent system say.

Rulings from the U.S. Supreme Court on down to the lower courts have contributed to the current situation, where the patent office, courts, and practitioners are all having trouble predicting whether an invention is eligible under Section 101 of the Patent Act, Iancu said.

“The lines are somewhat murky, and the patent office itself is trying to apply what we learned from the courts,” he said.

The patent office received 602,354 invention patent applications in fiscal year 2017. Iancu suggested there’s been too much focus on eligibility when the office’s 8,100 examiners are analyzing patent applications.

Patent examiners should first analyze the other patentability requirements—whether an invention is novel and nonobvious, and whether the patent describes the invention with enough precision, he said. If a patent satisfies those requirements, the examiner should think about why the patent might still be ineligible, according to Iancu.

Abstract ideas and laws of nature are exceptions to the general rule that inventions that meet the other requirements are patentable. According to Iancu, the Supreme Court decisions describe the scope of the excluded categories, but the patent office and the lower courts shouldn’t read those exceptions too broadly.

“If we all use some judicial restraint and stick closely to what the Supreme Court has said, it will go a long way toward adding clarity to this area of law,” Iancu told Bloomberg Law.

Iancu, who has been PTO director for nearly six months, said the patent office will make some changes at the Patent Trial and Appeal Board, the body that handles administrative validity challenges such as inter partes reviews. The proceedings are controversial. Supporters say they provide a cheaper way than suing in federal district court to attack weak patents used in frivolous litigation, while critics say the rules are stacked against patent owners and weaken the patent system.

Iancu told Bloomberg Law that the office soon will issue new guidance on when the board will use a larger-than-normal panel of judges to decide a particular case. Critics say the PTAB uses the practice to get the result it wants in a particular case, a charge Iancu denied. Instead, the board uses the larger panels to ensure consistency in how it rules on certain issues, to make the proceedings more predictable, he said.

The new guidance on enhanced panels will improve transparency about the proceedings, he said, and allow participants to comment on how the board is handling the case.

Iancu also plans to improve the office’s trademark operations. He said the office has seen a 1,100 percent increase in applications from China over the past five years, and there’s concern many of them are fraudulent. The office is considering ways to address the issue, such as requiring foreign applicants to retain U.S. counsel, he said.

The trademark office received 4,756 from mainland China in 2013, and by 2017, that number swelled to 50,942. Among the U.S. states, only California had more trademark applications in 2017. The office had a total of 594,107 new registration filings in 2017, up from 433,654 in 2013.

The increase in trademark applications is a top priority for the office, Iancu said, because it also affects other important issues, such as registration pendency rates. Technology will help increase efficiency, but the office has also hired additional examiners to deal with the bigger workload, he said.

Bloomberg Law: Thank you for joining us today.

Andrei Iancu: Thanks for having me. It’s really a pleasure and an honor.

BL: Tell us what’s been done, and what will be done, to make patent eligibility more predictable.

AI: There are several ways in which we at the PTO can direct policy setting. Giving guidance to examiners is the number-one approach. We have more than 8,000 examiners. They interact with the applicants daily, and we review hundreds of thousands of patent applications a year. So that’s the most imminent, immediate, and most important approach.

By the way, the guidance to examiners is not just for examiners. It is for the applicants, obviously, but it also sets the tone for the entire discussion.

The Patent Trial and Appeal Board issues lots of decisions every year, so that’s another way of disseminating policy. We advocate through our solicitor’s office, whether it’s at the Federal Circuit or other courts, and we provide views in conjunction with the Solicitor General—the Department of Justice—at the Supreme Court as well, so that is yet another way where we can advocate for policy.

Plus, public speaking, which I’ve done some of it, and meetings like this. I’ve already spoken publicly in Section 101 patentability, subject-matter patentability.

We’re looking at a broader statement of what we believe the law is, given what the Supreme Court has told us, and all the other courts, and given the statutory intent and our deep knowledge and experience in this area. So, instead of reacting to every new case that comes out, we’re hoping to have some forward-looking positions as to where the lines of patentability should be drawn.

BL: Can you maybe share with us some of the specific positions that you might be taking, or some of the specific changes you might be recommending going forward, on Section 101 of the Patent Act?

AI: The patent statute was amended in 1952, and that was critically important in several respects. It outlined very specific bases for patent validity or invalidity. So what you need for a patent is for it to be novel under Section 102, to be non-obvious under Section 103, to be adequately disclosed and claimed pursuant to Section 112. A way to think about Section 101 is if a patent application passes with flying colors in those three categories—it is brand-new, totally novel, non-obvious, and it’s really well-claimed and disclosed—under what circumstances do we still want to say ‘no patent’ to that? The Supreme Court has told us, generally, when it is that we still don’t want to issue a patent even if the other statutory grounds are met. And it would be good to clarify what those specific grounds have been.

A couple of examples. There’s general consensus that natural phenomena and products of nature—gravity or blood cells that exist in human beings naturally—should not be patented, even if they’re brand-new discovered, non-obvious, and they’re perfectly well claimed. Other examples are fundamental economic principles such as hedging, or escrow accounts. The Supreme Court has told us that those also should not be patented.

So what we’re trying to do is to try to identify those areas. If the invention is not in one of those areas, then it is probably better to allow the other statutory grounds to do the work. Put a different way, let’s say that you have something that is totally novel, brand-new discovered, non-obvious, and it also is very well disclosed and claimed under 112 such as it is perfectly well enabled. The enablement requirement under 112 says that the invention has to be so well-described that one of skill in the art can actually make it without undue experimentation. If you can make something, build it, create it without undue experimentation, why would it be abstract?

And the answer is, it would still be abstract if it is in one of the categories that the Supreme Court has said that we don’t like no matter what, such as mathematical formulas. So those are just some parameters for thinking about Section 101, and from those principles perhaps we can create guidance that clarifies where the lines should be drawn on a lot of those applications.

BL: Would it be fair to say that under that framework you would look at 101 last, and novelty, obviousness, and enablement should be analyzed first?

AI: Not necessarily. It’s just the way of thinking for the examiner and the applicant on how you approach the analysis. You don’t want to issue office actions piecemeal. Causing the pendency rate of applications to increase is the last thing we want to do.

You don’t want to have this back and forth on 102 and 103 and 112, and then, let’s say that it passes all those things, two years later, the examiner says, “Great job on that stuff, but by the way, invalid under 101.”

We still want to do all of them together, but the examiner should think about it with 101 at the end of the process. If the examiner thought the invention is perfectly well-described pursuant to 112, enabled, not indefinite, and maybe ask yourself—why would you think it is abstract? And again the answer would be, perhaps if it matches the few categories that the Supreme Court has identified.

BL: Do you think these changes can just be made at the PTO, or at the courts, or does Congress have to step in on 101?

AI: We are certainly going to try at the PTO. The two guidance memoranda that we already issued have improved the status quo a little bit. The courts likewise can help. The PTO and the lower courts shouldn’t over-interpret what the Supreme Court has said in its Section 101 jurisprudence. And if we all use some judicial restraint and stick closely to what the Supreme Court has said, it will go a long way toward adding clarity to this area of law.

I am aware that there are efforts to try to push some legislation in this area. I don’t know how effective it would be and how long it would take to get there. But, for now, we at the PTO have a lot of work to do on a daily basis, so we need to focus on what our examiners have to do.

BL: You’ve mentioned you’re hoping that the lower courts interpret the Supreme Court judiciously and that they’ll be able to bring some clarity. Do you think the Federal Circuit has done that in the last five years in interpreting the 101 two-step test? Has that been helpful?

AI: The entire body of law from the Supreme Court and the rest, and as applied by the Federal Circuit and the lower courts, has created the situation we are in now. The lines are somewhat murky, and the patent office itself is trying to apply what we learned from the courts. Likewise, the system as a whole has resulted in a decreased level of clarity.

BL: Tell us about some of the trademark initiatives you have at the PTO.

AI: Let me just begin by saying the trademark operation is in very good shape. Our pendency rates are low, our quality is high, and by and large, stakeholders are quite happy with the work we do in the trademark office.

There are certain issues that we are addressing. We have seen a huge increase in applications from China, a lot of them potentially fraudulent, and that increase has put some strain on our operations. We have hired additional folks to address the increase but, nevertheless, the increase has been significant, approximately 1,100 percent in the past five years from China alone.

So we are looking at what else we can do. And it would include things such as a requirement that applicants have U.S. counsel, so that we can keep a better track on the quality of those applications. We’re also looking at ways to help declutter our register in an appropriate fashion, where all the owners’ rights are being respected. So those are some examples.

BL: Given that there has been a lot of talk in the Trump administration about China and IP, are any actions or discussions underway about how to address the spate of fraudulent trademark applications from Chinese entities?

AI: We are the part of the administration, we’re trying to address this issue in some of the ways I’ve just mentioned. It is important, and my understanding is that the USPTO is not the only trademark office around the world that’s seeing increases of this sort.

BL: You mentioned decluttering the trademark register. I assume what you’re referring to is the trademark registration auditing program?

AI: That’s one approach.

BL: So you’ve been doing that for over a year now. At what point will there be some sort of metrics or data released on how many audit letters have been sent out, what’s the rate of response, if there have been any cancellations resulting, and whether those metrics will be made publicly available on an ongoing basis?

AI: So I don’t know at this time when we would do that. It is important to take stock, though, of where we are. The audit approach is one way we’re looking at decluttering. There are other ways we’re looking at decluttering, and we have a trial program for voluntary expedited challenges, as well. So we do need—and this is one of our initiatives right now or in the next months—to further address the clutter. And once we dive deeper into that, we need to see whether these couple of programs that we have are working well enough or we need to add some other approach.

BL: Has the increase in trademark applications from China been the most difficult challenge the trademark office has faced?

AI: Yes, that’s one of the main ones in recent times, and currently, because it affects quite a few things. As I said, we want to maintain pendency times and quality, and we have done both of those things. That has required an increased level of hiring of new examining attorneys, for example. That adds the additional operation of having to train folks and integrate them into the system, so it has rippling effects. There are other issues we’re very much focused on with respect to trademarks, including the use of technology for the trademark prosecution process and registration process. And these dovetail with each other, but the rapid pace of increase in applications has been the number-one issue.

BL: In the past couple of years, there have been some issues relating to monitoring the work of off-site staff. What is the status of that?

AI: We’re paying very careful attention to that across the agency. Overall, I believe that the program is working well. It has significant benefits to the agency and the system as a whole. It does add to our ability to recruit more broadly, including geographical breadth, which is very important, and it allows for our ability to interact with our stakeholders more broadly across the country. But, of course, along with that we need to manage folks remotely, and we’ve done a very good job with that.

BL: Does the telecommuting program integrate at all with the opening of the new offices in Detroit, Denver, Dallas, and San Jose? Are you opening more offices?

AI: There are no current plans to open more offices. Having said that, those four regional offices do a phenomenal job. I have already visited three of the four. Those offices provide a base for folks locally there to work from. It provides the ability to have outreach to our employees in the neighboring areas, so it’s really important from a management point of view and a recruiting point of view. It allows the PTO to interact with stakeholders, inventors, entrepreneurs in areas far away from Washington, D.C. To me, that is one of the most important things for our growing economy, our ability to incentivize innovation and entrepreneurship in as broad of a geographical and demographic basis as possible.

BL: As you know, for the last few years there’s been some criticism among some in the stakeholder community that the PTAB has been unfair because of some of the ways the rules are set up. What do you think of those criticisms? Do you think they are warranted or not? And are there any changes that might be in the works to address those issues?

AI: There is a perception, or has been a perception, that post-grant challenges are slanted or have been slanted against patent owners. And we need to address it because faith in the system is critically important. The PTO has received criticism from a lot of sectors, including courts, that we haven’t allowed significant numbers of amendments, or any meaningful numbers of amendments, in post-grant proceedings.

So we will make a proposal for a more robust amendment process and, hopefully, folks will take advantage of it.

Patent owners have asked, “Why is it that the same patent is reviewed under a broader standard in the patent office versus in a district court proceeding?” Eighty-five percent of our IPRs [inter partes reviews] have parallel litigation associated with them. So patent owners have asked, “Why is it that in a PTAB proceeding you can invalidate my patent for scope, under which I can never enforce an infringement action, right? That’s a question that needs to be addressed. And that’s the reason for that proposal.

Amendments is another example. The AIA [America Invents Act] allows for amendments in post-grant proceedings. The PTO has received criticism from a lot of sectors, including courts, that we haven’t allowed significant numbers of amendments, or any meaningful number of amendments. So we will make a proposal for a more robust amendment process and hopefully folks will take advantage of it.

BL: The PTO has shifted the burden of proof for amendments. So you’re saying there are going to be more changes to the way the PTAB handles them?

AI: Yes, that’s correct.

BL: Do you have a sense of the way that’s going or what we’re looking at?

AI: I think it has to be done during the AIA [America Invents Act] process, number one. Any amended claim needs to be addressed by the PTAB in the final written decision within the statutory 12 months, unless there are exceptions that can push it out to 18 months. It should be an inter partes process because AIA proceedings are inter partes, after all. Both sides should have the ability to participate. And there should be the possibility, if the patent owner so chooses, of at least some level of iteration such that it’s not an all-or-nothing approach. So those are just some guidelines.

BL: A number of Federal Circuit decisions have overturned PTAB decisions. Do you have any thoughts of why that is and if there are any common threads? And if so, how are you reacting to that?

AI: I don’t have the actual statistics handy, but I believe that the affirmance rate of PTAB decisions is fairly high. Like with any court, there will be a number of cases that the Federal Circuit will have a different view on. I think there are a couple threads that have emerged over time. For example, the Federal Circuit in some cases wants to see a more detailed analysis in the final written decision in some cases that they have sent back. And the final written decisions should be fulsome and hopefully the judges will do that. They do that in most cases.

BL: As far as the Supreme Court’s decision in SAS Institute Inc. v. Iancu, have you seen that cause an increase in your workload and have you adjusted to that?

AI: For now, there is an increase in workload. We are addressing all the new claims and all the grounds that are being petitioned. The main thing that’s adding work right now is that we have gone back to all the existing cases. Even on the cases that had partial institutions, we’ve gone back and added all the other claims, all the other grounds into the proceeding. So, at least for now, that has definitely added to the workload.

BL: Is that going to be temporary? The board used to have to spend time deciding whether to institute each claim, but with the new cases, you don’t have to address each claim in the initiation phase.

AI: With the new cases, it’s not clear yet what impact that will have, because it could be that petitioners will be more selective in the types of petitions they file, in the claims they challenge, in the grounds they bring. Now everybody knows that if we institute at all we’re going to institute on all claims and all grounds, good or bad. So there are significant consequences to the petitioner now. That might lead to a different calculus for the petitioners. We’ll see in about a year or so how that whole system goes through.

BL: So in terms of looking at the need to hire more judges, would you just wait for the shakeout?

AI: We are hiring a few more judges right now. It’s a fairly small number to deal with the current case workload. For a potentially bigger wave, we need to wait and see how this plays out.

BL: Speaking of judges, I know one criticism of the PTAB has been what’s been termed panel stacking, where they put more judges on. U.S. Supreme Court Justice Neil Gorsuch mentioned it, I believe, in Oil States Energy Services, LLC v. Greene’s Energy Group, LLC, as well as [during the] SAS oral arguments, but what are your thoughts on the practice?

AI: The concern has been that panels are enhanced, or judges get added, to obtain a pre-determined result, but that hasn’t really happened. Recently, panels have been expanded to obtain consistency of results between various panels at the PTAB itself. We are looking at changing that practice. And we will have potentially a new approach to that. There has to be a mechanism of bringing consistency among the 300 judges and the various panels both procedurally and substantively and for setting agency policy.

What we want to make sure though, is that there is full disclosure, everybody knows exactly what that process is, who those judges would be and that the parties in a particular case have the ability to comment or participate in any such any such proceeding. We have to have some process for dealing with those sorts of situations.

BL: In emerging areas of technology there’s autonomous vehicles, blockchain, and artificial intelligence. What are some of the new issues or questions the agency has had to deal with as it weighs applications in these upcoming areas of technology? What guidance are you giving examiners when they look at such applications?

AI: These are some of the reasons why we need to address Section 101 sooner rather than later. These are applications that we’re seeing now on a daily basis. Blockchain is one example. Cryptography is another. Obviously, artificial intelligence is another example where there is a lot of interaction between machine and software code that activates the machine, there’s machine learning involved. These are issues that, under the current law or body of law for Section 101, many times you don’t know whether a particular application is in or out. And applicants, their lawyers, examiners, judges, and so on struggle to figure out whether it’s in or out. And you know under 101, even when you think you have an answer, other folks disagree, so it’s one of the main motivators in my mind for resolving the issue sooner than later.

BL: In the meantime, is there any guidance you’ll be looking to giving the examiners as they study these applications?

AI: It’s the guidance that I’ve already described. We’ve issued the guidance memorandum on the second step of the Alice test and what it means to be conventional and how to document that. But more importantly, it’s what we’re looking to do next. We’re not talking years here, we’re talking in the next few months, and hopefully we can address these issues.

BL: The PTO recently got an extension to file a petition in In re: Erik Brunetti case [on scandalous and immoral trademarks] and I’m wondering at what stage it’s at now. Is the PTO on track to file, and are you having second thoughts about going to the Supreme Court on that?

AI: Since it’s an active case, I can’t discuss the details, but we will take action one way or another prior to the deadline.

BL: Let’s assume that the Federal Circuit’s Brunetti ruling stands. Under that condition, will the PTO expect any increase in registration application of scandalous and immoral matter and, if so, are you preparing examiners at all to handle that kind of application?

AI: We’ve taken a look at the statistics on that, and we haven’t seen a huge number of applications. We certainly have seen some. But it’s not overwhelming and we can handle the issues, no matter how the ultimate result goes.

BL: What’s the nature of the PTO’s relationship with the White House’s Intellectual Property Enforcement Coordinator? What seems to be Vishal Amin’s priorities and how is that affecting your office?

AI: The IPEC [International Patent Evaluation Consortium] is focused on enforcement issues and also some other policy considerations. What’s critically important is that there is a lot of interest in this administration in intellectual property. Folks are well aligned in making sure that we have a reliable and predictable IP system at home. And we do whatever we can to defend intellectual property rights of our companies abroad.

BL: What is the PTO’s perspective in making sure that innovation and our economy is keeping up with China? China is issuing exponentially more patents and at a quicker clip.

AI: We’re certainly aware of the number of applications from China on the patent side, also the trademark side, as we’ve already discussed. In order to increase innovation and entrepreneurship, we need to increase the predictability and reliability of our IP system. We must do whatever we can to broaden our footprint in the United States for innovation and entrepreneurship, to take it across as much of our geography as possible, to take it across as much of our demographics as possible. There are a lot of, as they say, lost Einsteins in this country, and our country is so innovative, our overall systems are so good. I’m not just talking IP, I’m talking IP entrepreneurship the free market system. It’s second to none. And if we provide the right tools, and we create the right environment, we will maintain our leadership in the world.

BL: The Office of Policy and International Affairs is the only place in the PTO that has a copyright component. Are there any particular plans for that office?

AI: Before I came in, there was a discussion about restructuring that office. I have said publicly that I believe that office provides important functions to the PTO, and to the IP community in general. I don’t think there is a need for significant structural changes to that office. Any possible concerns that people had with the interrelationship of that office and the rest of the PTO operations in the past that can be addressed through closer coordination inside of the office.

There’s so many important policy issues that that office addresses at the intersection of patents, trademark, copyright, trade secret, and the like, issues of international IP policy, not to mention the IP attachés that exist around the world that provide tremendous services to stakeholders that do business, American companies that do business around the world and American government officials that travel around the world and need to know how to operate within the IP ecosystems around the world. So overall, that office is an integral part of the PTO.

BL: Thank you so much for your time and for answering our wide ranging questions.

AI: Thank you for the very interesting discussion.