Some the most important and beneficial achievements of the Trump administration have occurred at the crossroads of antitrust and intellectual property.

This is due in no small part to the effective, visionary leadership at the helms of the Justice Department Antitrust Division and of the U.S. Patent & Trademark Office. Assistant Attorney General Makan Delrahim and PTO Director Andrei Iancu have made a tremendous difference by their devotion to property rights and the Rule of Law. This was highlighted this past fall at Eagle Forum Education & Legal Defense Fund’s discussion and dinner.

Together, Mr. Delrahim and Mr. Iancu withdrew from the antipatent 2013 Joint Policy Statement that diminished IP rights for standard-essential patents. Along with NIST, DOJ and the PTO issued a new, improved, pro-IP rights 2019 joint policy clarifying that SEP owners’ FRAND commitments don’t amount to a compulsory licensing clause.

In antitrust, Mr. Delrahim has set forth an intellectual framework for antitrust and IP called the New Madison Approach. This intellectual basis calls for enforcement humility, especially where patent exclusivity is exercised unilaterally by a patent owner. It urges reliance on contract or patent law remedies whenever possible. It explains how patent rights drive dynamic competition. DOJ’s weighing in on IP-antitrust cases such as Continental v. Avanci, FTC v. Qualcomm and Intel v. Fortress has led to important legal precedents solidifying the beneficial principles of the New Madison Approach to guide antitrust enforcement and analysis.

A brief look at timely antitrust principles should give the incoming administration and Congress prudential, principled guidance in such matters as deterring predatory Federal Trade Commission litigation against such innovators as Qualcomm and dealing appropriately with Big Tech platforms.

One of the crowning achievements of the past half-century has been the establishment of the “consumer welfare” standard as the bedrock principle for assessing anticompetitive conduct. The U.S. Supreme Court laid the capstone in its 1979 Reiter v. Sonotone case, saying, “Congress designed the Sherman Act as a ‘consumer welfare prescription.’”

Before the adoption of the consumer welfare standard, antitrust application tended toward the subjective, lacked principle and yielded to politicization — at odds with the Rule of Law. Justice Antonin Scalia had found preconsumer-welfare-standard antitrust law “did not make any sense then.” Thanks to Judge Robert Bork and his The Antitrust Paradox, antitrust makes more sense now.

A recent Heritage Foundation report sums up the consumer welfare standard as antitrust law’s being “concerned solely with economic welfare (as opposed to an approach that included vague noneconomic objectives) and it should help to ensure that consumers were protected from anticompetitive behavior.”

The consumer welfare standard, because of its well-reasoned, well-founded basis, has delivered an objective measure and impartial approach to matters of monopolization — the power to control prices or exclude competitors coupled with exclusionary conduct.

Mr. Delrahim observes that “the consumer welfare standard has served as a neutral principle for the administration of the antitrust laws. It focuses enforcers and courts on harm to competition and requires them to evaluate competitive effects. The consumer welfare standard is agnostic to considerations other than the actual competitive process.”

The D.C. Circuit decided U.S. v. Microsoft (2001) on the consumer welfare standard: “[T]o be condemned as exclusionary, a monopolist’s act must have an ‘anticompetitive effect.’ That is, it must harm the competitive process and thereby harm consumers. In contrast, harm to one or more competitors will not suffice.” The court found several of Microsoft’s practices were exclusionary without sufficient efficiency benefits.

Alden Abbott, FTC general counsel and former Heritage scholar, clarifies the Sherman Act’s Section 2 monopolization: “Most successful early government enforcement actions were against hardcore cartels and mergers to monopoly — cases that would not raise an eyebrow today. Indeed, the two major cases involving structural break-ups of dominant enterprises — Standard Oil and American Tobacco — involved predatory practices and mergers to monopoly that clearly would be attacked by current antitrust enforcers.”

The Supreme Court unanimously has applied the consumer welfare standard in judging individual corporate conduct. It ruled in Verizon v. Trinko (2004): “The mere possession of monopoly power, and the concomitant charging of monopoly prices, is not only not unlawful; it is an important element of the free-market system. The opportunity to charge monopoly prices — at least for a short period — is what attracts ‘business acumen’ in the first place; it induces risk taking that produces innovation and economic growth. To safeguard the incentive to innovate, the possession of monopoly power will not be found unlawful unless it is accompanied by an element of anticompetitive conduct.

“Firms may acquire monopoly power by establishing an infrastructure that renders them uniquely suited to serve their customers. . . . [A]s a general matter, the Sherman Act ‘does not restrict the long recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.’” Trinko recognizes innovation effects while denying a duty to deal to help one’s competitors.

To be sure, there are bad actors and bad acts that breach antitrust laws. Some firms holding monopoly power don’t break antitrust law under the consumer welfare standard’s tests. They haven’t acted anticompetitively. Yet, as DOJ has shown, other laws often provide remedies that appropriately apply.

For example, Google and Amazon practice predatory infringement of patents and IP. Restoration of strong IP rights, improving access to injunctive relief and treble damages against willful infringers, would bolster the ability of innovators to hold behemoths accountable. Section 230 reform or repeal could make Internet platforms accountable to police IP-infringing content and not only take it down one instance at a time, but make sure it stays offline. Antitrust scrutiny of mergers or acquisitions where monopolists aim to gobble up potential competitors to quash competition rather than enhance the big company’s efficiency is in order.

Conservatives and those who revere private property rights and the Rule of Law should pay close attention to what should be conserved. Throwing a bedrock legal standard that ensures fairness and objectivity in antitrust — and thus promotes free enterprise, dynamic competition and property rights — overboard for a short-term, specific target would be radical, destructive, and unprincipled.

For real technological progress, government can’t dictate it. Only private initiative, coupled with secure property rights, the rule of law and a free market, will deliver innovation that matters, commercialization that succeeds and the freedom to benefit from the fruits of one’s labor.

The area of energy illustrates these divergent models of private sector-led versus government-controlled progress. In the late 19th century, Thomas Edison worked to commercialize direct current electricity. DC uses lower voltage and is safer. But DC is more expensive and limited to very short distances from a central power generator, making it less attractive.

DC went up against alternating current and AC’s proponents Nikola Tesla and George Westinghouse. AC operates on much higher wattage and can be distributed great distances more economically. Eventually, the market chose AC for electric energy, which supplanted gas lighting due to being cleaner.

The U.S. government didn’t select the commercial winner and loser; market competition did, on private investors’ dimes. The private investment that fueled R&D and commercialization of DC and AC was made because of secure, reliable, enforceable patents.

Today, shale drilling technology fuels the U.S. oil and gas boom. Before the pandemic, it made America a net energy exporter. “Black gold” makes economic sense because the United States enjoys an abundance of petroleum and can extract it cheaply and safely.

Unfortunately, command-and-control is raising its ugly head. California, which resembles a zoo run by poisonous snakes and drunken hyenas, is outlawing the sale of gasoline-motored automobiles by 2035. This Left Coast state can’t even ensure basic electric service. The Golden State has become the Blackout State, its citizens increasingly living like people in a Third World dictatorship.

Nationally, wild-eyed zealots aim to abandon our oil and gas industry for a highly aspirational “green” revolution. Unlike the innovation-driven, private-sector-led electricity revolution of Edison vs. Westinghouse, Green Raw Deal dogma relies on government force and subsidies. This in spite of the fact that government stinks at picking winners and losers.

For instance, the U.S. House passed H.R. 2, a command-and-control, government-central-planning agenda in lieu of a highway bill. This legislation attempts to speed the displacement of gasoline and diesel automotive engines with electric vehicles and alternative fuels. It overlooks the abundance of oil and gas here, their significant contribution to the U.S. economy and jobs, and their strategic benefits against rivals such as Russia and Iran.

Abandoning our oil-and-gas industry on a pipe dream of wholesale automotive shifts is like walking a tightrope across the Grand Canyon blindfolded and without a safety net. It will weaken our economy and our competitiveness against an aggressive China. There’s also the extreme vulnerability to our national security such foolish government fiat would cause. We’d quit exploiting our abundant natural resources, forego the competitive advantage and rapidly switch to a technology whose batteries would rely almost entirely on rogue states including China to supply the rare-earth minerals.

The bill, which died in the Senate, skirts competitive forces for encouraging innovation in new technologies and forms of energy. It throws gobs of taxpayer money at subsidizing electric and hydrogen fueling stations and infrastructure. Obviously, government precipitating big change that the market hasn’t adopted means inefficiency, inferior quality, huge expense and costs us waste, fraud and abuse. These risks are gravely concerning.

H.R. 2 substitutes politicians’ and bureaucrats’ fiat commands for the wisdom of consumers and the market. There’s little evidence of consumer demand or that they’ll adopt unproven, expensive vehicles. Auto makers are researching and developing electric and hydrogen vehicles, but American consumers love their gasoline-fueled cars, trucks and SUVs.

American drivers will likely reject having to buy an expensive vehicle that takes far longer to refuel than a quick pit stop at the gas station. Those who shell out big bucks for a Tesla car must wait 10-12 hours to recharge their batteries. If they can get access to a proprietary supercharger, they’re still stuck in “park” for an hour or so, versus a couple of minutes pumping gasoline. Teslas can only carry you between 300 and 400 miles on a battery charge, so it wastes a whole lot of people’s time waiting to get back on the road. That’s probably an unacceptably exorbitant cost in lost productivity and convenience.

Pickups and SUVs dominate the market. And gas and diesel vehicles cost significantly less than alternative vehicles. Some 124 million of the 134 million U.S. cars, pickups, trucks and SUVs run on gas or diesel. The 10 million alternative energy vehicles include the largest subset of 4 million electric-gasoline hybrids. These facts call into question the market viability of government-dictated energy sources and government-favored automotive technologies.

A transportation sector report acknowledges the necessarily long-range timeline to EVs' commercial feasibility. "Diesel’s dominance will continue for years to come, especially in longhaul, irregular-route trucking operations that require the range and flexibility currently provided by internal combustion engines."

To be sure, private-sector R&D into electric vehicle technology is underway and growing. Risking massive private investments into uncertain, novel technologies is the appropriate route through the many expensive dead ends, unknown hurdles and bankruptcies ahead.

H.R. 2, the Green Raw Deal and other “virtue-signaling” socialism borrow the failed, wasteful government approach that pales beside successful private-sector solutions, such as to electrification and to manned flight.

The omnibus FY2021 appropriations bill omits language that special interests wanted badly. A concerted lobbying effort has sought to convert the Transitional Covered Business Method program at the Patent Trial & Appeal Board into a longer, if not permanent, regulatory tribunal at the U.S. Patent & Trademark Office for canceling issued patents.

Also, today is the anniversary of a business method patent issuing in 1891 to Levy Maybaum for his invention of a new method for businesses to be secured against financial losses caused by defaults on debts (see picture below).

The Transitional CBM program has long been a poster child for the “death squad” label earned by the PTAB. The Transitional CBM program instituted administrative hearings almost 85% of the time, and its patent cancellation rates averaged around 98%. This particular administrative tribunal sunset on September 16, and despite last-minute efforts to keep it going, it was right to let it cease operations—with the PTAB continuing to decide thousands of petitions in its several other administrative review programs.

The Transitional CBM program was the only PTAB review program created in the America Invents Act of 2011 with a sunset provision. This was no accident. As USPTO Director Andrei Iancu has recognized, the Transitional CBM program contradicted the fundamental technology-neutrality principle of the U.S. patent system. This principle has been key to the success of our patent system in securing reliable and effective property rights in all new inventions that have driven growth and jobs in the U.S. innovation economy for two centuries—including business methods.

Lobbyists used a rhetorical ploy in their continuing efforts at reviving the Transitional CBM program—seeking to raise it from the grave like a zombie to eat the fruits of the intellectual labors of innovators—claiming business method patents are a recent judicial creation. Many point to the Federal Circuit’s 1998 decision in State State Bank & Trust Co. v. Signature Financial Group, Inc. as having created these patents out of whole cloth. This is deeply mistaken, as scholars have repeatedly shown.

Importantly, Maybaum’s 1891 patent was neither an outlier nor a mistaken issuance by the Patent Office (as the USPTO was called back then). Professor Michael Risch laid to rest this policy canard in his extensive historical survey of the first U.S. patents that issued to inventors between 1790 and 1839. His findings are truly significant.

To set the necessary background context, it is important to remember that business methods are secured under patent law as “processes.” Inventions of new processes have been secured under the U.S. patent system since the first Patent Act of 1790 (identified legally as an “art” at the time). The first U.S. patent was issued to Samuel Hopkins for his invention of a new process for making potash.

This protection of processes was but one example of many of how the U.S. patent system diverged from the English patent system. England did not secure processes to inventors at that time. The United States instead adopted a private property rights system in which it secured to all inventors the fruits of their productive labors. (England changed its patent law in 1840 to permit the patenting of processes.)

In his first-hand study of the U.S. patents that issued between 1790 and 1839, Professor Risch found that 12.58% of total U.S. patents were for invented processes. The highest ratio of process patents was between 1790 and 1793, which was under the original examination review panel of Henry Knox, Edmund Randolph and Thomas Jefferson. (This is significant if only because Jefferson is known today as a patent skeptic.) Of the 12.58% of patents on processes that issued between 1790 and 1839, Professor Risch found that 7.16% were for what we would now classify as business methods. Patents on business methods continued to issue after 1839, such as Maybaum’s patent in 1891.

Thus, patents on new and useful business methods were not a novel creation by the Federal Circuit in 1998 with its State Street decision. The patenting of business methods is deeply rooted in the birth in 1790 of the unique American patent system that secured property rights in the fruits of inventive labors of all innovators. In the famous words of economist Zorina Khan, the U.S. patent system “democratized invention.” The rest is history: an explosion in effective and reliable property rang in innovations that became the drivers of the Industrial Revolution in the 19th century, the computer and pharmaceutical revolutions of the 20th century, and the biotech and mobile revolutions of the 21st century.

The attack today on business method patents is one battle in a larger campaign by Big Tech and patent skeptics in attacking patents on computer software programs. Of course computer software programs are inventions equally deserving of patent protection in today’s digital revolution as much as the analog machines of the Industrial Revolution. The now-defunct Transitional CBM program confirmed this policy agenda.

The Transitional CBM program improperly broadened its statutory mandate to include within its regulatory reviews patents on computer software programs, even when it was clear these were not so-called “pure” business method inventions. In one notorious case, the Transitional CBM program canceled patents on novel inventions of graphical-user-interface computer software programs used by brokers in commodities markets.

The sunsetting of the Transitional CBM program has brought a modicum of the rule of law back to the U.S. patent system at the PTAB. This program rightly came to an end in September—it should never have been created in the first place. Congress should reject any future efforts to raise it from the dead.

Adam Mossoff is a patent law expert at the Antonin Scalia Law School at George Mason University, a Senior Scholar at the Hudson Institute, and a Visiting Intellectual Property Fellow in the Edwin Meese III Center for Legal and Judicial Studies at The Heritage Foundation.

Locke's Notebook

Conservatives for Property Rights          All rights reserved, © 2020