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In the latest round of Administrative State ping-pong, Congress has taken the first step toward disapproving an Obama-Biden-era EPA rule that turns puddles into “navigable waters”—at least in nefarious government regulations.

The Biden administration recycled the repealed Waters of the United States, or WOTUS, rule. With a Republican majority in the U.S. House, a resolution of disapproval, H.J.Res. 27, has now passed that body, 227-198.

The Trump administration withdrew the Obama WOTUS rule and replaced it with a Navigable Waters Protection Rule. The Navigable Waters Protection Rule curbed the excesses of Obama-Biden’s overbroad WOTUS rule and set a more rational, balanced rule. The NWPR respected private property rights while preserving the statutory intent of the Clean Water Act.

The Environmental Protection Agency announced in 2021 its intent to revoke the Navigable Waters Protection Rule and again to inflate the definition of “waters of the United States.” Biden’s WOTUS rule promises to sweep more than 60 percent of the nation’s streams and millions of acres of wetlands into federal jurisdiction as “navigable waters” on paper.

Last year, the EPA moved to pull the NWPR and replace it with the Obama-Biden WOTUS retread.

Members of the U.S. Congress who are at least a little familiar with the U.S. Constitution, along with land owners across the country who get caught in the crossfire of the Administrative State’s regulatory ping-pong match, are sick and tired of the back and forth regulation-deregulation swings from one presidential administration to the next.

This situation renders impossible any semblance of certainty and predictability for property owners. It’s untenable for the many innocent property owners who suffer the painful, expensive consequences of such a ludicrous, dysfunctional state of the regulatory state.

Ah, there’s a twist. The U.S. Supreme Court recently ruled against the EPA’s overreach and its stretching a statute way beyond what its words say, in West Virginia v. EPA. And SCOTUS appears game to continue reining in the runaway Administrative State’s regulatory overreach.

Awaiting the high court’s decision are Michael and Chantell Sackett, property owners whom the EPA has wrapped in red tape since 2007, on WOTUS regulation-related grounds, blocking them from building a house right beside an existing house in a developed neighborhood. (CPR supported the Sacketts’ successful SCOTUS petition.)

Talk about poster children for victims of the abuses of power and bureaucratic theft of private property by the Administrative State run amok. That’s the Sacketts.

The very first day of the Supreme Court’s fall term this past October, SCOTUS heard arguments in Sackett v. EPA.

Across First Street, the resolutions expressing Congress’s disapproval of bureaucracy-empowering regulations operate under the Congressional Review Act. The CRA provides an expedited process for Congress to disapprove of a recent rule or regulation.

Of course, President Biden is expected to veto the CRA measure—but the point will have been made, with probable judicial action constraining EPA bureaucrats on this very piece of regulatory territory.

Conservatives for Property Rights numbers among the 100-plus organizations supporting Congress’s CRA disapproval. CPR observed: “This [latest Biden] rule would compound the regulatory vagueness and expand the EPA’s and the [Army Engineers] Corps’s discretion far beyond what is reasonable. It is tantamount to a wholesale taking of private property without just compensation.”

Next stop for the CRA is the U.S. Senate. There, Sen. Shelley Moore Capito leads the companion resolution, which all Republican senators have cosponsored. Stay tuned! Maybe not all of the 23 Senate Democrats standing for re-election are entirely empty-headed.

A fiendish scheme to advantage implementers over innovators is floating on K Street. The “Standard Essential Royalty Act” would give a facade of fairness and an illusion of impeccability to standard-essential patent royalty-setting.

SERA proposes a novel way of determining the royalty rates implementers pay inventors for use of their high-value SEPs. The gist of SERA is creation of a Standards Royalty Court. This court would be “the exclusive means for determining a royalty rate for” SEPs (subsection 336(a)).

That is, the Standards Royalty Court would be a compulsory licensing regime in the federal judiciary.

If you’re in the business of inventing cutting-edge technologies and participating in standards-development bodies—both activities requiring healthy investments of financial and human resources—then SERA compels you into a deal you cannot refuse. Your only option, if you want to get paid by those whose products need your standard-essential patented invention, is the SERA court.

You’d be compelled to accept the court-dictated royalty rate, no matter how much it undervalues your SEP below what market-based negotiations would value your invention.

SERA contains a couple of other gifts to denizens of the Infringers Lobby. The court would set an overall “reasonable royalty rate or rates” of a standard (subsection 334(b)(1)), then decide the proportion of that capped rate assigned to each SEP owner (subsection 334(b)(2)).

And within three years, the court would repeat the exercise and “adjust”—i.e., reduce—the initially determined royalty rates and allocations (section 335).

SERA falls far short of fair and is so peccable because it’s built on the same foundation of sand as the Infringers Lobby’s bogeyman the “patent troll,” its mythological “patent hold-up” and hypothetical royalty stacking.

Implementers and their minions have long touted evidence-free aspersions toward SEP innovators’ royalties and licensing practices. Analysts have subjected those fictitious claims to scrutiny.

“Vested interests . . . promote the notion that patent licensing fee rates are ‘perceived’ to be too high in mobile technologies; but without substantiation for such claims. Speculation that patent fees, largely for mobile SEPs, may total 30 percent of smartphone costs[, a] . . . grossly inflated figure[,] is based on theories of hold-up and royalty stacking that lack empirical support and it ignores marketplace realities including cross licensing and discounting rates for other reasons in patent-licensing agreement negotiations . . . .”

This expert observed that “aggregating figures in this way is seemingly precise but misleading and defective because it produces severely and nonsensically inflated totals that do not reflect the major factors which substantially reduce rates actually paid, if paid at all. . . .

“On the basis of economic and accounting principles, it is only net royalty payments actually paid, after cross licensing and other reductions, which should be included in cumulative royalty totals. [This more accurate approach shows] a cumulative royalty yield for licensors of around five percent on mobile handset revenues.” This out of $410 billion in 2014 total cellphone revenues.

In another published report, this expert noted how implementer “interested parties who would like to reduce their licensing costs advocate taking away much of the freedom that parties have to bilaterally negotiate the value of IP and applicable royalties.” This is precisely SERA’s goal.

He added, “Patent licensing agreement negotiations with terms determined bilaterally in a free market have provided widespread access to patented technology for manufacturers while fostering large and increasing R&D investments. Intervention to change the basis for charging royalties with the overt objective of reducing them will be a disincentive to ongoing investment, risk-taking, and SSO participation by technology developers (emphasis added).” Again, such interruption of private negotiation within SDO-contractual terms is SERA’s aim.

Granted, innovators involved in SDOs voluntarily yield some of full free-market dealings with potential patent licensees. They commit up front to license their SEPs on fair, reasonable and nondiscriminatory terms. But that’s not a pledge to license SEPs to all comers.

As the Ninth Circuit ruled in overturning the district court’s opinion if FTC v. Qualcomm, a FRAND commitment doesn’t create a duty to deal, a requirement to license one’s SEPs to any and all competitors. Nor is FRAND a promise to bargain-basement pricing of high-value patents.

Innovators’ competitors are trying yet again to saddle innovators, who took the greatest risks and are most directly responsible for creating foundational technology, to a raw deal. That’s exactly what SERA is and would guarantee.

“The [Inflation Reduction Act]’s false promises will eventually be proven hollow—and extremely costly,” a recent Locke’s Notebook blogpost warned.

That blog warned about the IRA’s government price-setting (which, if done by private entities, would be called “price-fixing,” a per se violation of antitrust laws) of pharmaceutical prices and its extortionate 95% tax on drug revenues above the inflation rate.

Well, at the risk of tooting CPR’s own horn, we were right.

Several instances of biopharma innovators cutting back or ending promising new drug projects have already occurred. A recent industry survey about the IRA’s adverse effects provides strong evidence that these aren’t merely a few anecdotal moves. The survey finds:

  • “78% [of innovative drug firms] expect to cancel early-[stage] pipeline projects.

  • “63% said they expect to shift R&D investment focus away from small molecule medicines.

  • “95% said they expect to develop fewer new uses for medicines because of the limited time available before being subject to government price setting.

  • “82% or more of companies with pipeline projects in cardiovascular, mental health, neurology, infectious disease, cancers and rare diseases expect ‘substantial impacts’ on R&D decisions in these areas.”

Let’s be clear: The climate-extremist, wokeness-advancing, socialist policy, massive wasteful spending package that every Democrat in the 117th Congress voted for and nearly every Senate and House Republican voted against enacted property rights-stomping price controls. Those policies are already causing cancellation of existing drug development, reduction of future R&D on drugs that are often taken orally, curtailment of identifying diseases that existing medicines would combat, and tough decisions on R&D for new drugs that would treat or cure a range of illnesses.

The severe consequences the IRA is inflicting on biopharmaceutical innovation (which relies on massive amounts of private investment capital) are only the toxic firstfruits.

Government-run health systems—complete with government price controls—in Europe have some of the same price controls in place as those in the IRA. European patients bear the consequences most directly and harshly. And European price controls have squeezed so much of the juice from the fruits of biopharma innovators’ labor that it’s driving drug firms away.

Eli Lilly and AbbVie can no longer sustain participation in a 2019 agreement with the UK, the Wall Street Journal notes. Bayer, Bristol Myers Squibb and Bluebird are also reducing their business in European countries. As Bayer put it, the German drug innovator is “deprioritising Europe to some degree.”

Again, the sick and infirm pay the price of these antiproperty-rights policies most acutely. While Americans enjoyed access to 85% of newly launched medicines from 2012 to 2021, Europeans’ government price controls and socialized medical systems dramatically constrained access to new drugs: just 59% of new medicines accessible in the UK, 62% in Germany, 52% in France.

And now, the European Union is loading more bullets into the cylinders of Europe’s Russian roulette pistol. “. . . European governments refuse to pay more to ensure their citizens have access to treatments. Bureaucrats in Brussels are therefore now considering legislation that would reduce intellectual property protection for drugs that don’t launch in nearly all European Union markets. Such a deal: Accept price controls, or Europe will hand IP to the Chinese.”

There’s something even more chilling than the EU’s heavy-handed threat here. It’s that the U.S. politicians who put together or voted for the IRA have sown the very seeds that could eventually kill the innovator goose that lays golden eggs of the treatment and cure variety.

Americans, beware: “Cheap” drugs (i.e., politically dictated, economically constrained private enterprise and property rights) come at a very expensive cost. Just ask the half of European patients whose government health system denies them access to the medicines they need.

Locke's Notebook

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