Abstract

Congressional leaders, policy activists, and scholars contend that patents are a principal cause of rising drug prices. They argue that a solution exists in two federal statutes that allegedly authorize agencies to impose price controls on drug patents: 28 U.S.C. § 1498 and the Bayh-Dole Act. These “price-control theories of § 1498 and the Bayh-Dole Act” maintain that Congress has already endorsed the unprecedented and controversial policy of breaking patents to lower drug prices in private transactions in the healthcare market.

Neither § 1498 nor the Bayh-Dole Act authorize agencies to impose price controls, as confirmed by their plain text and by their interpretation by courts and agencies. Section 1498 is an eminent domain statute that applies only when a patent is used by and for the government, such for the military, the Post Office, or the Veterans Administration. The Bayh-Dole Act promotes commercialization of patented inventions derived from federal funding of upstream research; consistent with this commercialization function, this law specifies four delimited conditions when a federal agency may “march in” and license a patent when a patented product is not sold or available in the marketplace. Applying canons of statutory interpretation, the meaning of these two statutes is clear. Neither specifies that “price” triggers regulatory controls over private market transactions. Congress knows how to enact price-control laws, such as the Emergency Price Control Act of 1942 or when it specifies “reasonable price” as a goal of legislation. The price-control theories of § 1498 and the Bayh-Dole Act profess unprecedented agency powers lacking any authorization in existing statutes. Yet academic scholarship, as well as policy and legal work based on this scholarship, continue to promote the price-control theories of § 1498 and the Bayh-Dole Act. These are policy arguments masquerading as statutory construction.

ICLE Academic Affiliate Adam Mossoff was a guest on National Public Radio’s Planet Money podcast to discuss the purpose and value of patents in the economy.  The full episode is embedded below.

MALONE: Adam Mossoff – law professor at George Mason University, patent expert, and knows a lot about how patents get turned into actual, you know, money.

MOSSOFF: You know, patents are property rights, and they, like all property rights, might lead to great success or may not.

MALONE: Property rights. And Adam gave us this comparison that I find really useful. He said, you know, a patent is just an idea sketched out and then legally tied to the inventor. And that really is kind of like somebody who say, you know, just owns a piece of vacant land.

BERAS: Yeah. Adam says vacant land isn’t inherently a business. Its owner would have to figure out what to do with it.

MOSSOFF: They can sit and wait for the land to grow in value. They can lease it out and become a landlord. They can build a factory on it. They can build an office building on it. They can build a home. And then, they can sell that home.

ICLE Academic Affiliate Adam Mossoff moderated a Hudson Institute webinar on how the development of new and valuable technologies often spurs misguided arguments that the need to respect patent rights somehow gets in the way of implementing new technologies. Specifically, with the Internet of Things (IoT) expected to reach $650.5 billion USD by the year 2026, the panel explored spurious claims that a growing number of patent rights somehow hinders innovation. Panelists included:

• Bowman Heiden, Director, Center for Intellectual Property, Executive Director, Tusher Center for the Management of Intellectual Capital, UC-Berkeley
• Monica Magnusson, Vice President, IPR Policy at IPR & Licensing, Ericsson
• Richard Varey, Partner, Bird & Bird

Video of the full event is embedded below.

As former judges and government officials, legal academics and economists who are experts in antitrust and intellectual property law, we write to express our support for the Avanci business review letter issued by the Antitrust Division of the U.S. Department of Justice on July 28, 2020 (the “2020 business review letter”). The 2020 business review letter represented a legally sound and evidence-based approach in applying antitrust law to innovative commercial institutions like the Avanci patent pool that facilitate the efficient commercialization of new standardized technologies in the fast-growing mobile telecommunications sector to the benefit of innovators, implementers, and consumers alike.

Read the full letter here.

Abstract

Google v Oracle is a blockbuster copyright case. This decade-long lawsuit arose from Google’s unauthorized copying of 11,500 lines of code in the Java computer program in launching its Android smartphone to vast commercial success. When Oracle sued Google for copyright infringement, Google argued that the Java computer program was uncopyrightable or that its copying was fair use. On the first issue of copyrightability, the Supreme Court punted. Instead, Justice Stephen Breyer’s majority opinion sets forth a novel and sweeping fair use defense for Google’s unauthorized commercial copying of computer programs like Java (known as APIs).

This article first explains that the Computer Software Copyright Act of 1980 is clear that APIs are copyrightable, and that the Court should have explicitly addressed this issue. This copyrightability analysis is important, because it elucidates the peculiar nature of Justice Breyer’s fair use analysis in the substance of his opinion. At a minimum, it confirms the Court’s ultimate decision: a de facto denial of copyright protection in all APIs. In sum, the Google Court did not skip deciding that APIs are not copyrightable. Rather, Justice Breyer reached this same result through a novel and creative application of fair use doctrine.

Google’s significance cannot be understated: the Court held for the first time that an unauthorized copying of a copyrighted work for a commercial purpose to sell a competing product qualifies as a fair use. The Court ostensibly limited its analysis to only APIs, but academics and accused infringers are now arguing that Google applies to other creative works. Time will tell if Google has created a (fair use) exception that swallows the (copyright) rule.

About a month ago, I was asked by some friends about the shift from the first-to-invent patent system to a first-to-file patent system in the America Invents Act of 2011 (AIA). I was involved briefly in the policy debates in the spring of 2011 leading up to the enactment of the AIA, and so this query prompted me to share a short essay I wrote in May 2011 on this issue. In this essay, I summarized my historical scholarship I had published up to that point in law journals on the legal definition and protection of patents in the Founding Era and in the early American Republic. I concluded that a shift to a first-to-file patent system contradicted both the constitutional text and the early judicial interpretations of the patent statutes that secured patent rights to first inventors.

Read the full piece here.

Last March, I published an op ed in the the Washington Times on the proposed VENUE Act, a recently introduced bill taken wholesale from a portion of HR 9 (the tendentiously titled “Innovation Act”).  HR 9 has rightly stalled given its widespread and radical changes to the patent system that weaken and dilute all property rights in innovation.  Although superficially more “narrow” because the VENUE Act contains only the proposed venue rule changes in HR 9, the VENUE Act is just the Son of Frankenstein for the innovation industries.  This bill simply continues the anti-patent owner bias in the DC policy debates that has gone almost completely unchecked since before the start of President Obama’s first term in office.

Read the full piece here.

[Cross posted at the CPIP Blog.]

By Mark Schultz & Adam Mossoff

A handful of increasingly noisy critics of intellectual property (IP) have emerged within free market organizations. Both the emergence and vehemence of this group has surprised most observers, since free market advocates generally support property rights. It’s true that there has long been a strain of IP skepticism among some libertarian intellectuals. However, the surprised observer would be correct to think that the latest critique is something new. In our experience, most free market advocates see the benefit and importance of protecting the property rights of all who perform productive labor – whether the results are tangible or intangible.

How do the claims of this emerging critique stand up? We have had occasion to examine the arguments of free market IP skeptics before. (For example, see here, here, here.) So far, we have largely found their claims wanting.

We have yet another occasion to examine their arguments, and once again we are underwhelmed and disappointed. We recently posted an essay at AEI’s Tech Policy Daily prompted by an odd report recently released by the Mercatus Center, a free-market think tank. The Mercatus report attacks recent research that supposedly asserts, in the words of the authors of the Mercatus report, that “the existence of intellectual property in an industry creates the jobs in that industry.” They contend that this research “provide[s] no theoretical or empirical evidence to support” its claims of the importance of intellectual property to the U.S. economy.

Our AEI essay responds to these claims by explaining how these IP skeptics both mischaracterize the studies that they are attacking and fail to acknowledge the actual historical and economic evidence on the connections between IP, innovation, and economic prosperity. We recommend that anyone who may be confused by the assertions of any IP skeptics waving the banner of property rights and the free market read our essay at AEI, as well as our previous essays in which we have called out similarly odd statements from Mercatus about IP rights.

The Mercatus report, though, exemplifies many of the concerns we raise about these IP skeptics, and so it deserves to be considered at greater length.

For instance, something we touched on briefly in our AEI essay is the fact that the authors of this Mercatus report offer no empirical evidence of their own within their lengthy critique of several empirical studies, and at best they invoke thin theoretical support for their contentions.

This is odd if only because they are critiquing several empirical studies that develop careful, balanced and rigorous models for testing one of the biggest economic questions in innovation policy: What is the relationship between intellectual property and jobs and economic growth?

Apparently, the authors of the Mercatus report presume that the burden of proof is entirely on the proponents of IP, and that a bit of hand waving using abstract economic concepts and generalized theory is enough to defeat arguments supported by empirical data and plausible methodology.

This move raises a foundational question that frames all debates about IP rights today: On whom should the burden rest? On those who claim that IP has beneficial economic effects? Or on those who claim otherwise, such as the authors of the Mercatus report?

The burden of proof here is an important issue. Too often, recent debates about IP rights have started from an assumption that the entire burden of proof rests on those investigating or defending IP rights. Quite often, IP skeptics appear to believe that their criticism of IP rights needs little empirical or theoretical validation, beyond talismanic invocations of “monopoly” and anachronistic assertions that the Framers of the US Constitution were utilitarians.

As we detail in our AEI essay, though, the problem with arguments like those made in the Mercatus report is that they contradict history and empirics. For the evidence that supports this claim, including citations to the many studies that are ignored by the IP skeptics at Mercatus and elsewhere, check out the essay.

Despite these historical and economic facts, one may still believe that the US would enjoy even greater prosperity without IP. But IP skeptics who believe in this counterfactual world face a challenge. As a preliminary matter, they ought to acknowledge that they are the ones swimming against the tide of history and prevailing belief. More important, the burden of proof is on them – the IP skeptics – to explain why the U.S. has long prospered under an IP system they find so odious and destructive of property rights and economic progress, while countries that largely eschew IP have languished. This obligation is especially heavy for one who seeks to undermine empirical work such as the USPTO Report and other studies.

In sum, you can’t beat something with nothing. For IP skeptics to contest this evidence, they should offer more than polemical and theoretical broadsides. They ought to stop making faux originalist arguments that misstate basic legal facts about property and IP, and instead offer their own empirical evidence. The Mercatus report, however, is content to confine its empirics to critiques of others’ methodology – including claims their targets did not make.

For example, in addition to the several strawman attacks identified in our AEI essay, the Mercatus report constructs another strawman in its discussion of studies of copyright piracy done by Stephen Siwek for the Institute for Policy Innovation (IPI). Mercatus inaccurately and unfairly implies that Siwek’s studies on the impact of piracy in film and music assumed that every copy pirated was a sale lost – this is known as “the substitution rate problem.” In fact, Siwek’s methodology tackled that exact problem.

IPI and Siwek never seem to get credit for this, but Siwek was careful to avoid the one-to-one substitution rate estimate that Mercatus and others foist on him and then critique as empirically unsound. If one actually reads his report, it is clear that Siwek assumes that bootleg physical copies resulted in a 65.7% substitution rate, while illegal downloads resulted in a 20% substitution rate. Siwek’s methodology anticipates and renders moot the critique that Mercatus makes anyway.

After mischaracterizing these studies and their claims, the Mercatus report goes further in attacking them as supporting advocacy on behalf of IP rights. Yes, the empirical results have been used by think tanks, trade associations and others to support advocacy on behalf of IP rights. But does that advocacy make the questions asked and resulting research invalid? IP skeptics would have trumpeted results showing that IP-intensive industries had a minimal economic impact, just as Mercatus policy analysts have done with alleged empirical claims about IP in other contexts. In fact, IP skeptics at free-market institutions repeatedly invoke studies in policy advocacy that allegedly show harm from patent litigation, despite these studies suffering from far worse problems than anything alleged in their critiques of the USPTO and other studies.

Finally, we noted in our AEI essay how it was odd to hear a well-known libertarian think tank like Mercatus advocate for more government-funded programs, such as direct grants or prizes, as viable alternatives to individual property rights secured to inventors and creators. There is even more economic work being done beyond the empirical studies we cited in our AEI essay on the critical role that property rights in innovation serve in a flourishing free market, as well as work on the economic benefits of IP rights over other governmental programs like prizes.

Today, we are in the midst of a full-blown moral panic about the alleged evils of IP. It’s alarming that libertarians – the very people who should be defending all property rights – have jumped on this populist bandwagon. Imagine if free market advocates at the turn of the Twentieth Century had asserted that there was no evidence that property rights had contributed to the Industrial Revolution. Imagine them joining in common cause with the populist Progressives to suppress the enforcement of private rights and the enjoyment of economic liberty. It’s a bizarre image, but we are seeing its modern-day equivalent, as these libertarians join the chorus of voices arguing against property and private ordering in markets for innovation and creativity.

It’s also disconcerting that Mercatus appears to abandon its exceptionally high standards for scholarly work-product when it comes to IP rights. Its economic analyses and policy briefs on such subjects as telecommunications regulation, financial and healthcare markets, and the regulatory state have rightly made Mercatus a respected free-market institution. It’s unfortunate that it has lent this justly earned prestige and legitimacy to stale and derivative arguments against property and private ordering in the innovation and creative industries. It’s time to embrace the sound evidence and back off the rhetoric.

Filed under: copyright, intellectual property, law and economics, patent Tagged: Chamber of Commerce, copyright, creativity, Dan Spulber, economic prosperity, economics, Eli Dourado, empirical study, ian robinson, innovation, Institute for Policy Innovation, Intellectual property, jobs, Mercatus Center, Patent, prizes, Stephen Siwek, trademark, USPTO

An important new paper was recently posted to SSRN by Commissioner Joshua Wright and Joanna Tsai.  It addresses a very hot topic in the innovation industries: the role of patented innovation in standard setting organizations (SSO), what are known as standard essential patents (SEP), and whether the nature of the contractual commitment that adheres to a SEP — specifically, a licensing commitment known by another acronym, FRAND (Fair, Reasonable and Non-Discriminatory) — represents a breakdown in private ordering in the efficient commercialization of new technology.  This is an important contribution to the growing literature on patented innovation and SSOs, if only due to the heightened interest in these issues by the FTC and the Antitrust Division at the DOJ.

http://ssrn.com/abstract=2467939.

“Standard Setting, Intellectual Property Rights, and the Role of Antitrust in Regulating Incomplete Contracts”

Filed under: antitrust, contracts, doj, federal trade commission, intellectual property, licensing, markets, patent, SSRN, technology Tagged: ETSI, FRAND, high tech, IEEE, Joanna Tsai, joshua wright, licensing, Patent, patent holdup, SEP, SSO, standards