More SEP Foolishness from the EU

The European Union is demonstrating how big-government bureaucracy by nature goes off the rails. Both procedurally and substantively, the EU is headed toward wasting taxpayer money as well as effecting a government takeover of what belongs only in private market negotiations between private parties. The action is regional, but its damage will be global.

Recently, the EU requested proposals for a study on details of specific provisions of a regulation that’s barely off the starting line. This study is way too premature to be worth a hoot should some version of the regulation be adopted.

And it’s not like the regulation is inconsequential, substantively. The proposed rule would displace private-sector, market-based negotiation of licensing standard-essential patents with a government regime of bureaucrats determining fair and reasonable SEP licensing rates.

As Ed Martin and I discuss in a recent op-ed on U.S. innovation and security: “Last year, the EU proposed a government program to determine which patents are essential to a technological standard and to set an aggregate royalty rate that would supplant market-based rates. The EU’s plan would harm all innovators, including European firms such as Ericsson and Nokia. Some European Commissioners have urged China to set up a patent price regulation program.“

The EU Parliament has passed the regulation. That’s it. Next comes a decision from the EU Council of Member States. If the EU Council approves the regulation, then begins a process to reconcile the European Commission’s, the Parliament’s and the Council’s versions of the regulation.

Plainly, the regulation is far from adoption. And if it eventually is, the final version is likely to differ from the EU Parliament's version. That’s because the Commission, the EU Council and the Parliament don’t understand to what this regulation would apply, how it would apply or its effects.

The EU request for proposals to conduct the study solicits methodologies for determining to which standards the EU SEP regulation should apply and methodologies for testing the essentiality of certain patents to a given standard developed by a standards-development organization. The essentiality checks would assess SEPs registered under the regulation.

However, the first topic for the study (i.e., which standards the regulation should cover) indicates that the EC and the Parliament don’t understand what it is this regulation would apply to. Worse, the solicitation asks potentially interested parties to answer this question!

Notably, an IP publication is closely following this mess. IP Fray writes, “SEP enforcement in the EU continues to expose the SEP Regulation’s flaws that are due to an insufficient understanding of reality (July 4, 2024 ip fray article), and the proposal is also controversial on the international stage (June 27, 2024 ip fray article). All this is compounded by the fact that the Parliament does not understand what the impact of the regulation is likely to be as indicated by their amendments to the regulation’s text.”

When pushing result-based, rather than evidence-based policy, the fact that just such a regulation stands at marked variance from reality and has sparked widespread international criticism might ought to be taken as a caution sign.

The EU threatens to screw up SEP license rate-setting by stripping it from the private parties (innovators and implementers) and handing it to government bureaucrats who have little knowledge and no stake in a prospective deal. It would harm private property rights, the incentives to innovate, economic and practical benefits of new innovations, and Western competitiveness with China.

The EU proposal is so ill-conceived it would ensure that China captures the lead in critical and emerging technologies—and thus reduce the free world’s security and innovation edge for decades to come. The wisest course is to ditch the fatally flawed regulation.

Crisis This Constitution Day

This Constitution Day, the Democratic presidential candidate is committed to government price controls and to marching in on the patents of products developed from the findings of federally supported basic research.

She said so in 2019, and the Biden-Harris administration she is part of has set up a price controls regime for drug price-setting and proposed a technology-neutral price-based patent heist scheme.

Thus, this Constitution Day holds special import for our nation’s future, given these and other recent assaults on our form of government. Court-packing threats. Attacks on the Senate filibuster. Regulations designed to destroy established energy industries. An Administrative State that snubs the rule of law, due process, fairness and individual rights. Bureaucracies abrogating the separation of powers.

The Founding Fathers would be shocked to see how little regard Americans seem to have for the democratic republic they carefully crafted. The Founders expressed awareness of, and devoted attention to fashioning, a federal structure that would constrain the new government. States, branches of government and separated powers were intended to prevent any “long train of abuses” like that endured at the hands of the British Parliament and King George III.

To achieve success, Constitutional Convention delegates had to reach many compromises on issues, many of which were contentious or complicated. For instance, in balancing large-state and small-state equities, the solution provided states representation in the House based on population, while each state has equal representation in the Senate.

One of the noncontroversial matters considered was James Madison’s and Charles Pinckney’s proposal to include among Congress’s powers the authority to write federal patent and copyright laws. This power became Clause 8 of Article I, Section 8. The measure “secures” the private property rights of authors and inventors in their creative and inventive works.

The intellectual property clause specifies these IP rights as “exclusive” and “for limited times.” This combination of exclusivity and limited duration facilitates achieving the Founders’ stated purpose for the clause: “[t]o promote the progress of science and useful arts.”

Madison’s and Pinckney’s IP proposal was adopted 12 days before the Constitution was approved. There was no debate and no opposition to it. Yet George Mason law professor Adam Mossoff notes how unique was the IP clause in Article I Section 8: “No country’s founding document had done this before.”

When the new Constitution went to the states for ratification, the “father of the Constitution” James Madison, John Jay and Alexander Hamilton explained its contents in a series of essays, the Federalist Papers. Madison briefly discussed the IP clause in Federalist 43.

“The utility of this power will scarcely be questioned,” Madison wrote. In other words, secure, exclusive property rights to the fruits of one’s intellectual labor would surely achieve the goal of incentivizing pursuits that advance knowledge and practical inventions.

Moreover, he pointed out, “The public good fully coincides in both cases with the claims of individuals.” That is, the newly formed nation and its citizens benefit from the new knowledge and the inventions that expand America’s economy, improve the standard of living, and create wealth and new industries.

For a limited duration, creators and inventors enjoy exclusive ownership rights to the new property they have created. Meanwhile, the public derives benefits from these fruits of ingenuity.

The brilliance of this win-win model is lost on those who would distort core features of the U.S. Constitution.

Government price controls, such as those enacted in the Inflation Reduction Act, create imbalance in the IP clause’s promise of secure private property rights. Price controls and extortionary taxes undermine the constitutional IP framework, which over more than two centuries has proven extraordinarily fruitful.

Likewise, misuse of the Bayh-Dole Act’s “march-in” rights to “snatch” patents throws IP rights into uncertainty. The reckless Biden-Harris plan to misuse march-in rights based on product price—which is not one of the four narrow, specified grounds—throws licensing federally funded inventions into turmoil. Already this proposal is causing inventions tied to federally funded basic lab research to be regarded as toxic, tainted, too great a risk to assume.

On the promise of exclusivity and the free market, decisions are made about private investment, research and development, years before there’s a product, a price or a market.

In fact, most inventions never get to market or earn enough revenue to cover their costs. The most successful inventions and creative works are often the most valuable.

This Constitution Day, we should consider how the Constitution’s IP framework has served our nation extremely well. We must enter the fray against the live threats to the successful U.S. innovation model. If these threats take root, we have much at stake to lose. And the loss will take generations to recover from.

Kamala Harris’s Price Controls Fraud

Democratic presidential candidate Kamala Harris has pledged an economic policy of government price controls. Her anti-“price gouging” reaction may play great at the Democratic faithful’s convention in Chicago, but it’s not likely to play in Peoria—or Phoenix or Green Bay or Winston-Salem or anywhere in Georgia outside of liberal pockets of Atlanta.

Harris is talking about using price controls against groceries. But no one believes she’ll merely apply price controls so narrowly.

The Biden-Harris administration recently announced its first round of the U.S. government setting Medicare Part D drug prices. The “Inflation Reduction Act’s” drug price control measure starts with 10 medicines and escalates from there.

Above all else, know this: Harris and Biden own the highest inflation we’ve suffered in decades. They’re primarily responsible for inflation’s spike and its continued costly effects.

Harris broke the tie in the 2022 Senate vote to push the IRA into law. The IRA along with the 2021 $2 trillion “American Rescue Plan” stimulated inflation. Just because the rate of inflation has now eased to about 3%, we’re still stuck with the inflated prices of many things that remain at or well above the 9% inflation high-water mark Biden-Harris caused.

As I warned in 2020, Biden and Harris would be—and have been—a disaster in health care. See my Washington Times op-ed from four years ago and be forewarned yet again.

On drug price controls, Harris’s new DNC platform calls for adding 50 medicines a year to the IRA price controls in order to reach 500 prescription drugs.

Thanks to Harris, Biden and their IRA, seniors are experiencing higher Medicare and Part D costs along with significant disruptions in their health coverage. This year, there are the fewest standalone Part D plans since the program’s creation.

Some 89% of health insurers expect to drop more medicines from their Part D plans. Medicare patients are highly likely to see more coverage restrictions, like step therapy. And Part D premiums will rise for many seniors.

The hype from Harris, Biden and Democrats has claimed that IRA drug price controls will save beneficiaries on prescription costs. However, most Part D patients won’t see any cost savings from price setting.

Rather, they’re likely to face higher out-of-pocket costs. Assessing different plan designs offered, Milliman determines that IRA drug price setting’s out-of-pocket impact in 2026 will see more than 3 million beneficiaries paying more to take government-priced medicines.

There's also the Harris drag on the economy. Andy Laperriere notes in the Wall Street Journal that economies expand only when greater output is achieved. Higher output “comes from higher productivity, technological innovation, and increased labor input.”

But Harris’s rein of price controls and regulatory terror will weigh like an anchor on productivity gains, innovation and work incentives. Laperriere warns that Harris’s “economic agenda is price controls, higher energy costs, record regulatory costs on the private sector, and an array of government handouts.”

The National Association of Manufacturers estimates the total cost U.S. regulations impose is $3.1 trillion annually. The Competitive Enterprise Institute’s estimate of total yearly compliance costs and economic effects of federal regulations is $2.1 trillion. The Biden-Harris administration has wielded a much heavier regulatory hand than its immediate predecessor administrations, CEI says.

Ask anyone who’s lived under a government-run health system and they can tell you that price controls don’t work. Government price controls cause shortages, black markets, rationing and inflation—just like the real-world results that are beginning to appear in Medicare.

Columnist Catherine Rampell recently pointed to the lack of detail Harris has disclosed about her price control plans. Rampell’s best guess about its particulars leads her to write, “It’s hard to exaggerate how bad this policy is . . . a sweeping set of government-enforced price controls across every industry, not only food.”

Rampell’s advice to Harris exposes what’s behind Harris’s “price gouging” fraud: “If your opponent claims you’re a ‘communist,’ maybe don’t start with an agenda that can (accurately) be labeled as federal price controls.”