PREVAIL Act Will Bolster Property Rights

Just before Congress recessed for Thanksgiving, the U.S. Senate Judiciary Committee moved the most proproperty-rights legislation in years.

The committee reported out, on a bipartisan 11-10 vote, the Promoting and Respecting Economically Vital American Innovation Leadership Act, or PREVAIL Act (S. 2220, H.R. 4370). Sens. Chris Coons and Thom Tillis, with cosponsors Dick Durbin and Mazie Hirono, lead this propatent rights bill.

PREVAIL codifies Trump-era Patent and Trademark Office administrative reforms. It makes other rule-of-law changes to a biased tribunal of the Administrative State whose job is to deprive inventors of private property rights that patents supposedly secure.

Gene Quinn, founder and chief editor and commentator on IPWatchdog.com, calls PREVAIL’s Senate committee passage “a long-awaited victory” for its lead sponsor.

The Patent Trial and Appeal Board has become a tool for predatory patent infringement. Rather than streamlining patent validity reviews, PTAB has been weaponized.

"Every day PTAB remains tilted against patents, PTAB kills not only patents, but associated startups and the jobs, wealth, consumer benefits, new knowledge, new products and technologies they would have created"

Mr. Quinn notes “a growing understand[ing] in the U.S. Senate that the PTAB is being abused by big-tech giants using various tactics.” An infographic compiled by the Innovation Alliance shows that more than half of the top 20 most frequent filers at PTAB are Big Tech behemoths that routinely practice predatory patent infringement. Other regular PTAB users include Chinese national champion firms.

The Alliance of U.S. Startups and Inventors for Jobs (USIJ), a strong supporter of the PREVAIL Act, says, “Rather than curbing unnecessary litigation, the PTAB has multiplied proceedings and costs for all involved.”

PTAB from its beginnings in the early 2010s has operated by rules and procedures that vary dramatically from those governing patent validity analysis in federal court and the U.S. International Trade Commission. PTAB invalidates contested patent claims three-quarters of the time. About seven of every 10 patents brought before PTAB are fully invalidated. And PTAB cancels at least one patent claim in 85 percent of the patents it reviews.

“The PTAB is harming innovation in America because it is making it untenable for individuals and small entities to even get started,” Mr. Quinn observes. Another way to put it is that every day PTAB remains tilted against patents, PTAB kills not only patents, but associated startups and the jobs, wealth, consumer benefits, new knowledge, new products and technologies they would have created.

This evidence is overwhelming. Anyone of open mind can’t fail to understand the urgency of reforming PTAB in the manner PREVAIL would do.

Which brings us to the committee vote. Most Democrats voted for PREVAIL, several of them expressing their remaining concerns. Almost half of Republicans voted for PREVAIL. Unrelated issues factored into several GOP votes against, while some voiced substantive concerns.

The most frequent concerns heard from senators on both sides of the aisle at the Judiciary Committee related to pharmaceutical patents, drug prices and PTAB. These concerns are unfounded. The special interests trafficking in such nonsense seek to mislead, confuse, spread false narratives and unjustifiably tie PTAB reform to the hyper issue of drug costs.

First, a USIJ white paper rebuts the false claim that PTAB denials of certain requested patent challenges often involve pharma patents. In fact, USIJ finds that PTAB declined to institute proceedings on four patents—less than half a percent of the 604 denials—on pharmaceuticals. Moreover, only 6 percent, or 73 petitions of the 1,288 fiscal year 2024 petitions for PTAB institution, pertained to pharmaceutical or biotech patents. Most filings challenged patents in other technological areas.

Second, research from George Mason University’s Center for Intellectual Property x Innovation Policy disproves the assertion that pharma patents delay generic competition’s entry into the marketplace. C-IP2’s analysis finds that a drug’s effective patent life averages 13.35 years. And regardless of any patents and exclusivities placed on the FDA’s Orange Book after a drug’s market entry, those additions don’t extend its effective patent life, C-IP2 reports. Thus, patents don’t cause drug prices to rise.

In other words, concerns over alleged abuse of the patent system through “evergreening” or “patent thickets” lack a factual basis. False claims and unwarranted worries should be dismissed, particularly in relation to the urgently needed PREVAIL Act.

Rather, lawmakers should remember that our Constitution dictates that patents secure private property rights in one’s inventions. The right to exclude others from using, making or selling one’s invention is balanced by publication of the patent so that other innovators may learn the teachings of the new invention. Those inventors may learn and invent around the state-of-the-art invention.

The PREVAIL Act will begin to restore weakened U.S. patent rights while fostering dynamic competition, technological progress and the incentive to take economic and entrepreneurial risks. Congress should make this legislation a top priority in the new year.

Regulation by Market or Government?

Postmodern “trust busters” resent that most people “Google it” when looking for something online. And that Google’s free search tools are supported by advertisers willing to pay for access to users.

Not to worry. The neo-Brandeisian savants, namely Liz Warren acolyte and Chairwoman Lina Khan of the Federal Trade Commission and Assistant Attorney General for Antitrust Jonathan Kanter at the Justice Department, know what’s best for those poor, exploited folks who keep selecting Google for their online searches.

Among many federal antitrust lawsuits, DOJ sued Google, alleging monopolization. DOJ won in court. The judge said, “Google is a monopolist, and it has acted as one to maintain its monopoly.” The company has paid digital device makers and web browsers to make Google its featured search engine.

Meanwhile, in the free market, competitors in Internet search are gaining ground on Google in the search advertising market. Currently, Google holds 90 percent of global online search and 50.5 percent of the U.S. market. The firm’s lead has slid about 10 percentage points in U.S. market share since 2018. Amazon, Microsoft, Apple and Chinese spy tool TikTok count among the competition eating into Google’s erstwhile search-ad “monopoly.”

In other words, the government is expending massive amounts of taxpayer money on litigation (losing most of their cases because of outlandish legal theories that lack an empirical basis grounded in economics and consumers' welfare) — not to mention weaponizing antitrust laws, pursuing extreme remedies and erecting huge regulatory hurdles against even routine mergers and acquisitions — to force what the free market is accomplishing on its own in the search business.

To be clear, I’m no fan of Big Tech. But not because the firms are large corporations. And I do admire their technological innovation.

But I detest their left-wing, woke “values” they continually force-feed down America’s throat. I despise their heavy-handed viewpoint discrimination, acting like a journalistic enterprise in controlling content while hiding behind Section 230’s treating them as a disinterested, evenhanded marketplace of ideas (instead of the ideological censors they are).

And then there’s their antipatent behavior. Big Tech firms, including Google, are among the most frequent litigants at the Patent Trial and Appeal Board (AKA patent death panels) and some of the most devoted practitioners of predatory patent infringement.

There are several pro-IP bills that would counter the Infringers’ Lobby’s ability to game the patent system they have weakened over the past few decades. This legislation is the PREVAIL Act (S. 2220/H.R. 4370), the Patent Eligibility Restoration Act (S. 2140/H.R. 9474), the RESTORE Patent Rights Act (S. 4840/H.R. 9221) and the Restoring America’s Leadership in Innovation Act (H.R. 8134).

You’d expect Big Tech companies — at least those like Google, whose patented search algorithm secured the firm’s founders the patent exclusivity to commercialize a novel invention discovered at and the technology licensed out of Stanford — to respect patent rights and the integrity of intellectual property.

However, Big Tech companies and Chinese national tech champions exhibit disrespect for private property rights and short-circuit the exclusivity of reliable, enforceable patent terms that would enable innovators to emerge as competitors with a better mousetrap. Big Tech entities assault patents and IP in order to chop-block would-be small competitors and keep them from leapfrogging the existing competitive environment. Otherwise, the technological innovations of IP-centered startups — like Google once upon a time — could use patents to attract investors, create new products and markets, and spark dynamic competition.

University of Southern California law professor Jonathan Barnett explains how reliable IP benefits innovative entrants and poses a threat to incumbent large firms. “[W]eak-IP environments are hospitable for large, integrated firms that maintain internal markets for financing and conducting R&D and then embed the resulting intellectual output in goods and services for the end-user market. By contrast, strong-IP environments enable entry by smaller firms that specialize in R&D and monetize the resulting intellectual outputs through external relationships with third parties. This organizational distortion matters because larger firms tend to excel in incremental and process-related innovation that refines existing technologies while smaller firms tend to excel in product innovation that challenges existing technologies.”

This returns us to the detriments that government actions based on fringe antitrust theories (i.e., a heavy regulatory hand big on sticks and slim on carrots) cause. Strong, ill-founded antitrust policy serves to weaken intellectual property and reduce IP rights, whose natural outcomes in an unfettered marketplace would be dynamic competition, innovative advancement, and wealth and job creation.

On the antitrust side, an important part of the solution is the One Agency Act (H.R. 7737). This legislation would place all antitrust enforcement authority and resources in the Department of Justice. The FTC, the antitrust agency more biased against IP, would yield to DOJ in these matters and focus its attention on such things as consumer protection. These changes would bring greater efficiency, fairness and accountability to antitrust. As a cabinet department, DOJ is more accountable to Congress and speaks for the United States.

The U.S. House Judiciary Committee passed the One Agency Act last spring. Hopefully, the House will approve H.R. 7737 this year.

In short, we need a reset: Strengthen the patent system and private IP rights, curb antitrust’s excesses, and free up the free market by reducing the regulatory state that’s led to a strong-antitrust, weak-patents regime.

As it now stands, America's economic freedom is constrained, property rights are diminished and government systematically commits regulatory takings of private property as a matter of Biden-Harris policy. And Big Tech is both the U.S. government’s target and its pawn.

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.