The public comment period on the Justice Department’s “Draft Policy Statement [DPS] on Licensing Negotiations and Remedies for Standards-Essential Patents Subject to F/RAND Commitments” has ended, and quite a number of conservatives and center-right groups filed comments. This post highlights some of the main points these comments register.

These commenters cite the draft’s imbalance disfavoring patent owners and the 2019 joint policy statement's, or JPS's, superiority that’s based on the New Madison Approach.

Not lost is the connection between U.S. intellectual property rights and U.S. national security. The DPS misses this consideration altogether.

On all counts, these commenters find the 2021 draft fails and the 2019 statement wins.

Imbalance Against Innovators

Eagle Forum Education & Legal Defense Fund cites the inherent imbalance, as the DPS “would tilt the playing field in favor of implementers and against innovators.”

Senior Research Fellow Alden Abbott of the Mercatus Center writes that the draft statement’s “analysis of [SEP] licensing . . . , though purporting to be balanced, in reality strongly favors the interests of [standards] implementers at the expense of the sources of innovation, the SEP holders.”

Conservatives for Property Rights notes the DPS “tilts the government’s interpretation of FRAND commitments in favor of implementers and against innovators, who bore the risks. Further, the DPS dictates what licensing negotiations may and may not entail, approached through a distorted lens.”

Abbott, former Federal Trade Commission general counsel, finds the draft policy “errs badly in opining that SEP holders almost never should be able to obtain injunctive relief” and “errs in propounding a framework for bargaining over SEP license terms.”

The Global Antitrust Institute observes, “Despite its gloss of balancing the interests of SEP holders and implementers, the DPS proposes what appears to be an extreme antitrust enforcement posture” thus “setting up a sharp conflict with existing case law.”

Eagle Forum ELDF warns that the DPS “would exacerbate the state of [injunctions] jurisprudence that has followed eBay, where the tail of Justice Kennedy’s concurring opinion has wagged the dog of the [Supreme] Court’s unanimous opinion.”

Abbott states that “the [DPS’s] highly defective treatment of injunctions . . . merits total repudiation.” It “distorts bargaining between SEP holders and implementers and thereby disincentivizes economically beneficial investment in standards-related patenting.”

CPR notes that the draft’s “heightened antitrust exposure [against SEPs] puts a thumb on the scales for implementers.”

Abbott also dismisses the DPS’s highly prescriptive licensing negotiating framework: “government's efforts to micromanage the steps of private licensing negotiations” will “generate outcomes that are economic welfare-inferior.”

After making a similar point, Eagle Forum ELDF notes that the DPS “would jeopardize the dynamic competition that proceeds from a balanced playing field, broader [private party] discretion, and fact-based private negotiations primarily subject to contract law.“

GAI warns how the DPS “would tend to undermine the functioning of good-faith negotiations as traditionally understood.” Its enforcement stance “is troubling on at least two grounds. First, it runs counter to the antitrust wisdom that the focus of antitrust inquiry be on the effects of conduct on final consumers. . . .

"Second, . . . the DPS implicates antitrust as properly mediating bargaining disputes . . . without adequately specifying what types of negotiating strategies might be condemned as conferring undue leverage. This lack of clarity injects considerable uncertainty into the bargaining process ex post, and likewise into ex ante decisions on R&D investment. Even a minor chilling of innovation incentives could have outsized cumulative effects on consumers.”

Well-Founded New Madison Approach

Assistant Attorney General for Antitrust Makan Delrahim developed the New Madison Approach to IP and antitrust. New Madison underpins the 2019 Joint Policy Statement the DPS would replace.

Conservatives for Property Rights writes that “the 2019 JPS and the New Madison Approach strike a wise, prudent balance that shows due respect for both innovators and implementers in their complementary roles. They reflect a neutrality that promotes appropriate application of intellectual property, antitrust, and contract jurisprudence where the important interests of innovation policy and competition policy cross paths.”

Abbott discusses how the NMA strikes an appropriate balance between innovators and standards implementers regarding SEP licensing. “The NMA was a badly needed antidote to a set of public policies and judicial decisions that regrettably undermined incentives to develop economically beneficial SEPs.”

Eagle Forum ELDF says, “The ‘New Madison Approach’ takes a constructive approach to antitrust enforcement where patent rights are being exercised, FRAND-involved patents included.”

CPR praises how “the 2019 JPS states that a FRAND commitment does not amount to a compulsory licensing commitment by a SEP owner, which had been the effect under the 2013 JPS.”

Abbott urges that “the 2021 DPS should be scrapped, and the federal government should strongly reaffirm in all respects the 2019 [SEP policy statement] and the New Madison Approach.”

Economic Security Is National Security

Thirty center-right groups joined a coalition letter focused on the dangers to U.S. national security the DPS poses. This letter, whose signers include CPR, the American Conservative Union, Americans for Tax Reform and FreedomWorks, says “the joint policy statement gives China a tremendous gift that harms U.S. national security.” The DPS “provides Chinese and other rogue nations’ state-owned or state-backed firms, as well as Big Tech, a powerful opening to infringe SEPs with, at best, delayed and partial accountability. They will surely take the ball the statement hands them and run with it. They will infringe first and pay a pittance later.

“Meanwhile, competitive adversaries will have had months or even years to make commercial use of the stolen SEP technology that is central to making cutting-edge technological devices interoperate on the newly standardized foundation for a new technology. That translates into national champions of our adversaries, such as Huawei and ZTE in wireless technology, commanding lucrative earnings for their products and devices, while displacing the true American inventors and stealing their deserved financial returns on R&D investments.”

Eagle Forum ELDF calls the New Madison Approach important “for America’s industrial competitiveness against Chinese national champions that increasingly engage in standards-development organizations.”

* * * * *

Clearly, the DPS forebodes serious dangers at the antitrust-IP intersection. Not the least of its harms is jeopardizing our national security and innovation.

Key takeaways from these insightful comments:

  • The 2019 Joint Policy Statement on SEPs rests on a firm legal, philosophical and constitutional foundation, correcting earlier imbalance against SEPs;

  • The New Madison Approach undergirding the 2019 policy statement strikes the appropriate balance between innovators and implementers, while placing antitrust in its proper place in relation to IP and contract law;

  • The proposed policy statement returns with a vengeance to the infringer-implementer-biased imbalance, deprives SEP innovators of fundamental patent rights and remedies, and assaults the consumer welfare standard;

  • The tempestuous proposal’s one-sided, overly prescriptive course will disrupt standardization, quash U.S. innovation, reduce American wealth creation and R&D and jeopardize U.S. national security.

Generally, these commenters say DOJ should pull the DPS, and the 2019 JPS and the New Madison Approach should be reaffirmed.

One thing that remains on the table for many in Congress and the White House is certain to damage some treasures of America’s health system. In the name of “lowering drug prices,” government price controls will wreck the mechanisms that spark U.S. biopharma innovation.

There’s nothing “moderate” or “reasonable” about any of the government price controls Washington’s considering. They snatch private property and deny property rights. They open the door to socialized medicine.

Even after “Build Back Better” stalled, the kind of government-imposed market disruptions that characterize socialized medical systems could well become part of comparatively smaller social spending legislation.

Don’t miss the fact that, along with child care and eco-extremism, BBB drug pricing retreads still threaten the discovery and development of many new medicines.

The proposed price controls rest on a flimsy foundation. It isn’t pharma innovators that collect all the money spent on pharmaceuticals. Half of “drug spending” goes to payers, providers and middlemen. And the generic drugs that comprise 90 percent of prescriptions don’t get developed without novel brand drugs and their time of exclusivity.

On the table: Putting bureaucrats into direct price “negotiations” with biopharma companies, just as socialized medical systems have. There, the government sets artificially low prices for drugs, and drugmakers must take it or leave it.

The government-set prices will apply to government programs like Medicare as well as to private health plans. A pharma innovator that declines the “negotiated” price could get slapped with a 95 percent excise tax on the drug.

Confiscatory taxation of medicines drains the incentive and the R&D money essential to creating new drugs to fight diseases.

They will drastically change Medicare Part D, the highly popular, market-based drug benefit, and spill over into private coverage. Sucking the profits out of top brand drugs forces the reduction of drugs Part D plans could cover.

Part D plans will probably start looking a lot more alike—erasing the consumer choice and competitive nature of this program. The same shrinkage will happen in private insurance.

Thus, government price-fixing on leading brand medicines, a 95 percent punitive tax and fewer new treatments in the pipeline and on insurers’ formularies—with those that are on the list at the dictated price returning far less research funding—will harm health plans and Part D, seniors and other patients who need cutting-edge drugs to stay out of the hospital.

This isn’t conjecture. It isn’t scare-talking. It’s a cautionary tale because these kinds of harms have happened in Europe and socialized medicine countries.

Where governments have imposed price controls on medicines, it’s resulted in reducing innovation and limiting access to medicines. A new report finds that for each 10 percent reduction in drug prices in Europe, there is an 8 percent delay in access to medicines.

That is, government price controls delay drugs’ market entry. And they’re usually accompanied by rationing of prescription drugs.

If you like the jobs and economic contribution of the biopharma sector, then be careful what you wish for with drug price controls. Such European price controls cause venture funding in drug R&D to fall 14 percent. Drug price controls of that magnitude reduce biotech startup funding by 9 percent and biotech patents by 7 percent.

Biopharma is an IP-intensive sector. IP-centric industries devote more resources to R&D. They outperform non-IP-intensive industries across key economic metrics, including higher wages and job creation.

If you like how U.S. biopharma firms could quickly marshal their decades of research and drug innovation amidst the COVID-19 pandemic and deploy three highly effective and safe vaccines, then know Congress’s drug price control plans threaten future miraculous performances. IP exclusivity and comparatively more market elements in our health system benefited Americans and the world with this scientific success.

The COVID vaccines have benefited our economy. These medicines contributed to the generation of $438 billion that without the vaccines would have been lost. That’s 2.3 percent of 2021’s real gross domestic product.

Drug price controls would slow drug development, foreclose exploration of many promising new molecules and leave more people exposed to infection and illness—time away from working, lost productivity, more spent on avoidable medical costs. Costly, indeed.

You’d expect conservatives to approach reining in Big Tech consistent with free enterprise, property rights and innovation principles.

Yet, what a surprising number on the Right supports is inconsistent with free enterprise, assaults property rights and quashes innovators who could become Big Tech’s competitors. Those conservatives are helping to weaponize antitrust in destructive ways serving the Left’s agenda while weakening intellectual property rights, most notably of patents.

Antitrust is intended to foster fair competition. But it doesn’t displace IP rights of exclusivity.

The foundation of the New Madison Approach, regarding antitrust when it intersects with IP rights and now threatened by the Biden administration, respects the exercise of common, exclusive patent rights. An inventor whose invention is patent-eligible, whose patent is reliable and fully enforceable against infringers, stands a fighting chance with established firms. This is the formula for dynamic (as opposed to static) competition.

Secure, reliable patents give little guys a shot at attracting investment, commercializing their inventions and holding big infringers accountable. Secure private property rights in one’s patents and inventions aligns with free enterprise, property rights and innovation principles.

Rep. Thomas Massie described this better approach for bringing competitors to Big Tech in a statement when the House Judiciary Committee moved a wolf-in-sheep’s-clothing antitrust report. He knows what he’s talking about. Rep. Massie has 30 patents and successfully commercialized his inventions.

Weaponizing Antitrust

As for the Left's antitrust agenda that some conservatives back, consider some examples.

First, S. 2992, the American Innovation and Choice Online Act, makes it illegal to market one’s own products and sales items more prominently on one’s own platform, so-called “preferencing.” The Senate Judiciary Committee voted 16-6 to report out the bill, even though the committee never held any hearings on it. But 14 senators voiced concerns or opposition, including a GOP cosponsor who voted against the problem-plagued antitrust weapon.

Second, GOP-sponsored legislation to lower drug prices wields an antitrust hammer against core intellectual property rights. S. 1435 treats improvements to inventions typical in other technologies as a crime in biopharma.

Going after bad actors who block generic competition by very modestly changing their existing products is one thing. But overbroad definition of “follow-on product” in S. 1435 and H.R. 2873 extends well beyond minuscule modifications. It encompasses significant improvements, such as changes to treat new diseases and changes the FDA classifies as new treatments.

Signs of Hope

There are signs of hope. In June, House Judiciary Committee markup of six antitrust bills showed near-uniform GOP opposition to the four most controversial ones, including H.R. 3816, companion to S. 2992. Sixteen of 19 Republicans voted against H.R. 3816. This included full committee Ranking Member Jim Jordan. This bill squeaked by on a 24-20 vote.

Similar opposition emerged to weaponized antitrust in H.R. 3825, H.R. 3826 and H.R. 3849. H.R. 3825, forcing divestiture of mergers and acquisitions, barely passed 21-20, with 16 GOP “no” votes. H.R. 3826, the Platform Competition and Opportunity Act, passed on a mere 23-18 vote with 15 Republicans opposing. H.R. 3849, dealing with interoperability and data portability, passed 25-19, counting 16 GOP noes. And 16 Republicans opposed H.R. 2873, the antitrust hammer to the biopharma innovation nail, reported out 27-16.

Also, top conservative experts are articulating problems with the direction of antitrust legislation. For example, former FTC official now at the Mercatus Center Alden Abbott regards S. 2992 as regulation rather than antitrust. That’s because antitrust involves promoting competition, while regulation involves government using red tape to hamper targeted businesses.

Former FTC commissioner Joshua Wright, who’s exposed Leftists’ real aim of wrecking the beneficial consumer welfare standard, tweeted, “It would be a particularly odd time for [Republicans] to support a bill (AICOA) that: (1) supercharges an FTC that has made clear it is targeting all commerce (not just tech) while deploying voting shenanigans to strip power from Rs; and (2) circumvents the consumer welfare standard.”

And the House Energy & Commerce Committee recently held a hearing focused on Section 230 reform. This would curb Big Tech’s carte blanche liability shield. Section 230 enables the firms’ escaping accountability when they “cancel” or censor viewpoints that don’t align with their “woke” ideology. Viewpoint discrimination is most people’s main concern.

Maybe we can come out of this with revived commitment to free enterprise, property rights and innovation principles — without destroying the consumer welfare standard in antitrust.

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