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E.O.: Assaulting Property Rights Is a Strange Way to Promote Competition

President Biden’s July 9 executive order, “Promoting Competition in the American Economy,” purports to promote competition. Let’s just say the order presumes a whole lot. Its false presumptions lead to policies that weaponize a blunt instrument: antitrust.

The White House claims that the E.O. addresses anticompetitive problems arising from consolidation in industrial sectors such as banking, hospitals, agriculture, technology and biopharmaceuticals. Unfortunately, the “trust busting” order is long on concentrating Big Government’s power and short on fostering competition.

Two fundamental flaws underlie the E.O.: One, the order assumes a static, zero-sum economy. It may reslice the pie, but won’t grow the pie.

Two, it presumes intellectual property exclusivity to be anticompetitive. However, patents and IP are vital for sparking new competition, creating new markets and displacing monopolists.

The order supplants decisions in the market made by hundreds of thousands of businesses and investors with skin in the game and by millions of consumers. The E.O. empowers bureaucrats with nothing at risk if they choose wrongly or regulate unwisely to make decisions in Uncle Sam’s ivory tower. And the order hands bureaucrats an A-bomb with orders to seek and destroy.

This makes the E.O. a recipe for concentrated power and market lethargy. It locks in incumbent firms, protecting consolidation! It will kill dynamic competition and the kind of innovation that solves big problems and gives the United States an edge against China.

This order badly hurts inventors' private property rights. For example, the E.O. turns back the clock on the New Madison Approach that has restored balance between antitrust and IP.

For small and large inventors, whose innovation stands to spark dynamic competition, the companies that could implement their inventions hold asymmetric advantage. Implementers have no risk in the invention, while inventors have incurred substantial sunk costs.

Many implementers stoop to predatory IP infringement. Inventors need the exclusive period of the patent term in order to fend off those thieves and to go from 0 to 60 commercializing their inventions.

So, patent exclusivity enables innovators to shake up static markets and compete with established corporations. But throughout, the E.O. presumes that IP harms competition.

Other examples of the E.O.’s misguided directives include:

  • Undoing Standard-Essential Patents’ Access to IP Remedies: The order threatens to reverse the 2019 Joint Policy Statement on Remedies for Standards-Essential Patents. The Justice-USPTO-NIST statement affirmed access to injunctions and other available remedies for SEPs subject to fair, reasonable and nondiscriminatory, or FRAND, licensing commitments. Returning to the 2013 approach turns FRAND into a compulsory licensing clause and weakens IP rights, harming both competition and innovation.

  • “Unjustifiably” Delayed Generic Drug and Biosimilar Market Entry: The E.O. disrupts the balance the Hatch-Waxman Act and the Biologics Price Competition and Innovation Act strike between biopharma innovation and faster market entry by generic drugs and biologics. Twisting the patent system to diminish innovators’ market exclusivity rights leads to fewer new medicines as well as fewer generics.

  • Industry-Specific M&A Rules: The order calls for industry-specific merger and acquisition rules for banks, health care, and other sectors. This is an unsound regulatory move. It introduces adverse unintended consequences by undermining the rule of law.

  • Reversals of Approved Deals: Putting reversal of previously approved mergers, including vertical mergers, on the table injects costly uncertainty for investors and businesses across the board. It reduces competition by inducing extreme caution. Such roadblocks to M&A disincentivize startup activity by foreclosing exit strategies while abetting monopoly.

  • Bayh-Dole Product Price or March-In: It discourages NIST from including in its Bayh-Dole final rule anything that relates to the law’s march-in rights or price of a product from federally funded inventions. This directive leaves unaddressed the most remarked-on part of the proposed rule. It leaves unsettled — and open to deliberate misreading — the statute’s narrow grounds for marching in on a patent. Nothing in the law itself justifies basing march-in on the price of a product.

But wait, there's much more! So, suffice it to say that this E.O. disrespects private property rights. It will make America poorer.

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