Safeguarding Cutting-Edge U.S. Innovation

To hear U.S. importers of patent-infringing components and products tell it, the U.S. International Trade Commission serves the ulterior interests of “patent trolls.” Nothing could be further from the truth.

Predatory patent infringers such as Apple and the domestic auto industry rage against the USITC because of the effectiveness of its remedy—exclusion orders under Section 337 of the trade law. These effectively prevent them from bringing in imports with patent-infringing parts that infringers would use to collect ill-gotten gains that deprive American innovators of the just fruits of their innovative labor.

This trade remedy is one of the remaining strengths of the U.S. intellectual property system. Big Tech firms, foreign interests and implementers of cutting-edge American innovators’ IP have weakened the U.S. patent system over the past few decades.

They’ve thrown patent eligibility law into chaos, created an Administrative State tool at the Patent Office with which they easily wipe out issued patents, and made it very hard to obtain a judicial injunction against infringers (a remedy still readily available for copyright and trademark), even after defending a patent’s validity and proving infringement in court.

Now these anti-IP special interests have redoubled their efforts to defang the USITC and tilt the patent, including the standard-essential patent, royalty regime in their favor. Such self-interested mischief threatens U.S. competitiveness and global technological leadership, especially in critical and emerging technologies vital the America’s national interests. As Locke’s Notebook has previously explained:

Foundational technology involves discovering and developing scientific and mathematical solutions to fundamental, complex problems related to [critical technologies such as] wireless Internet and telecom connectivity. This type of R&D is arduous, riskier, expensive and longer-term.

Research and development apply those solutions to form the system on which end-user devices operate. These key inventions lay the foundation of a new technological ecosystem, such as 5G itself in wireless connectivity.

These innovators pour a large part of their royalty earnings into R&D and pioneer invention to state-of-the-art levels. Like iconic inventors such as Edison, they focus on invention rather than manufacturing. Whom the infringers’ lobby disparages as “trolls” or nonpracticing entities are inventors who license their IP to get back to the lab.

In other words, technology implementers rely on foundational technology and standard-essential patents for their second-level, follow-on innovations to work and interoperate. The honest ones pay fair royalties for the privilege. The savvy ones pay royalties and respect the division of labor that brings forth ever-better innovation and enables products that run on others' inventions.

Thus, the USITC appropriately protects American innovators even from domestic implementers. For example, medical device innovator Masimo Corp. recently won USITC exclusion and cease-and-desist orders to halt importation of Apple Watches that infringe Masimo patents related to reading blood-oxygen levels.

Regrettably, denizens of the infringers’ lobby are behind property rights-undermining initiatives like the European Union’s Framework for Transparent Licensing of Standard Essential Patents proposal of a compulsory licensing scheme on SEPs.

Domestically, these interests propose destructive legislation such as H.R. 3535, the Advancing America’s Interests Act, which would weaken the USITC’s ability to issue exclusion orders that halt importation of U.S. patent-infringing goods; the Standard Essential Royalty Act, a compulsory licensing regime; and the Defending American Patents Act, which would deny U.S. innovators access to foreign courts to enforce their patents.

U.S. auto makers are innovative in their lane, but must rely on American innovators in other technological spheres if their vehicles are to have features that attract buyers.

Computer and wireless device firms are innovative in their lanes, but must rely on American innovators who engineer the technologies that make voice communications, GPS, apps and other product features operable and interoperable.

Instead of trafficking in dangerous, destructive nonsense, such as lumping U.S. foundational innovators into fictitious mischaracterizations and pushing anti-IP policies, Big Tech firms, the auto industry and other technology implementers should pony up and pay fair royalties for the patent-protected inventions they desperately need in their consumer products.

IRA, Sen. Manchin and the Future of Drug Innovation

In an op-ed in the Wall Street Journal headlined “A Law That Isn’t Red or White—and Sure Isn’t Green,” Sen. Joe Manchin claims his “Inflation Reduction Act” isn’t so bad one year in.

“I’m proud of the Inflation Reduction Act,” the senator asserts. He gives several examples of how his law advances fossil fuel projects that use green technologies such as carbon-capture. He also acknowledges “this administration’s best efforts to botch the law’s [coal and oil-and-gas provisions’] implementation.”

Taking Sen. Manchin at his word about this aspect of the IRA, an unmentioned part of this law renders it a destructive mistake. The costs to individual human beings and to society from the drug price controls may haunt Sen. Manchin long after he retires from politics.

The IRA’s price-setting process lacks a level playing field, transparency and due process. The Information Technology & Innovation Foundation notes its “ambiguous and poorly crafted processes, which the Centers for Medicare & Medicaid Services (CMS) will use to calculate” a targeted drug’s price.

A big clue of IRA’s unfairness: the drug price controls regime employs pricing by uneven bargaining power. There’s zero actual negotiation.

Biopharma innovators will face a choice between taking the government’s price or declining it and paying an excise tax of up to 1,900% on all drug sales. That’s the epitome of confiscatory and extortionate taxation and a preordained outcome.

The arbitrary, capricious unfairness continues. The Biden administration on August 29 named the first 10 medicines subject to their prices being set by the government. This gave pharma companies a month to provide CMS information for determining its initial price bid.

Stacked listening sessions this fall will build a record backing low-ball prices. Drug makers get only one opportunity to counteroffer in meeting with CMS.

Sen. Manchin’s IRA law prohibits drug companies hauled into the CMS star chamber from appealing the government’s decision in court or even administrative review.

The prices CMS dictates won’t account for the adverse effects of Biden’s high inflation. The selected drugs’ makers have until October 2, 2023, to give CMS data and evidence to consider in setting prices. This information may be outdated by the time price-controlled rates take effect January 1, 2026—years after the data were drawn and inflation keeps reducing the value of money.

As for due process, CMS has been opaque in setting up the drug pricing regime. The agency has ignored the Administrative Procedure Act. The APA requires that due process protections be observed in executive branch rulemaking and other agency actions. CMS has written the rules of the drug price controls game unilaterally.

IRA lets federal agencies operate in a black box. This law amounts to a cornerstone ensconcing the Administrative State.

Further, IRA’s drug price controls will impose a heavy cost on medical innovation. Government price dictation will reduce funds for research and development of new pharmaceuticals. That means fewer new medicines developed.

A University of Chicago study explains the effect of “a drug-manufacturer-revenue loss of 15 percent from the IRA . . . in R&D and new drugs . . . . [A] 15 percent cut in the CBO's [Congressional Budget Office] prediction of 45 new drugs per year would suggest around 6.8 fewer drugs per year, totaling around 121 lost over the 18-year horizon.” And CBO doesn’t account for all the factors the Chicago study does.

That report assesses specifics, such as the first 10 drugs. Chicago researchers examine the effects of the IRA-shortened patent life of small-molecule drugs, of price-cutting by drug-class competitors and IRA-created deterrents to generic drug entry.

For example, CMS exempts large-molecule medicines—biologics—from “negotiation” for 13 years after Food and Drug Administration approval. It subjects small-molecule drugs—pills—to price controls after only 9 years. Seven of the first 10 price-controlled drugs are small-molecule.

This variety of takings of private property without just compensation raises fundamental property rights and constitutional concerns. CMS will take away years of patent term, erasing billions of dollars of valuable time on the market at market prices.

It also has practical effects. Biologics must be administered in a doctor’s office or a clinic. You can’t take them at home with your breakfast. Convenience for patients managing chronic conditions translates into medication adherence, which oral drugs promote.

It’s hard enough to discover and develop ways to treat or cure diseases such as cancer, diabetes or Parkinson’s. Government price controls shrinking the innovation pipeline condemn patients to earlier death, longer suffering and more expensive medical care over the long run.

Sen. Manchin and President Biden run roughshod over property rights with their IRA. Their regrettable law ironically runs counter to the president’s Cancer Moonshot.

I hope Sen. Manchin doesn’t get sick starting in 2026.

Reality of IRA Price Controls Is Dark

President Biden took major credit when he announced the first 10 medications to face price negotiations with the Centers for Medicare and Medicaid Services. He embraced the government price-setting mechanism as “a key part of Bidenomics.”

Will Mr. Biden still be crowing when the price controls he and Sen. Joe Manchin made a cornerstone of their “Inflation Reduction Act” don’t work as touted? Will he still praise government price controls on Medicare pharmaceuticals when Bidenomics meets economic reality, as this experiment in socialized medicine plays out?

The Wall Street Journal warns that Mr. Biden’s assertions about the IRA (more aptly the Inflation Stimulation and Innovation Destruction Act) lack candor. “[H]e’s exaggerating the [law’s] benefits while ignoring the larger damage.”

The Journal explains that IRA price controls start with “10 [medicines] this year and a total of 60 by 2029. The law sets the drug price ceiling at between 25% and 60% of its list price, with no price floor. Drug makers that don’t participate or reject the government’s price will incur a crippling daily excise tax that starts at 186% and eventually climbs to 1,900% of the drug’s daily revenues. This is extortion, not a negotiation.” As the Lynyrd Skynyrd song says, you got that right!

Republican leaders of the Senate Finance, House Energy & Commerce and House Ways & Means Committees succinctly summarize the real economic and practical effects IRA drug price controls have already begun to cause: “The ‘Inflation Reduction Act’ (IRA) will raise prescription drug prices–worsen patients’ access to care, destroy new cures before they come to market, eliminate American jobs, threaten the United States’ leading role in innovative research, and create potential constitutional concerns around government overreach.” Ditto the Skynyrd lyric. These adversities will only worsen as price controls expand and IRA robs Medicare to pay for other liberal initiatives.

It’s critical that Americans understand what’s taking place under their noses. The Biden administration’s term “negotiation” is a misnomer. Biopharma innovators whose medicine is targeted must appear before CMS. The exchange over the price Medicare will pay for that drug ultimately comes down to what CMS says the price is—take it or leave it. Leaving it exposes the company to the punitive excise tax the Journal calls “extortion.”

If a mob-run criminal enterprise did the shakedown CMS is doing, law enforcers could throw the book at it and the gangsters would face long jail time, harsh penalties and seized assets.

The Biden-Manchin price control regime assaults property rights, particularly intellectual property. Their socialist approach robs the exclusive rights IP supposedly secures. It’s already driving away investors and upending research developing promising new treatments, especially those that treat or cure more than one disease or cancer.

Price controls will sentence patients to more intensive, expensive measures after their condition has worsened—hospitalization, invasive procedures, longer recovery. Novel medicines that could have been conveniently taken at earlier stages and managed, even cured in some instances, their diseases won’t have been invented. As this escalates government spending on health care, CMS could respond by restricting access to drugs and care.

Early indications are that the public views the Biden-Manchin drug price controls and the IRA more like a bait-and-switch than a set of laws that improves their lives. It seems Bidenomics does little to make citizens better off today than they were four years ago.

New polling shows seniors give the IRA low marks and have high satisfaction with pre-IRA Medicare Part D coverage. A McLaughlin & Associates poll sponsored by American Commitment finds three-quarters consider IRA different from what it was sold as. More than 80% say IRA hasn’t done anything for them, while over 90% disagree with IRA’s diverting Medicare funds to unrelated programs—in the fine print of the partisan law.

A Morning Consult survey for Medicare Today finds 91% of Medicare enrollees satisfied with their pre-IRA-price-controlled Part D drug plan; 86% report their Part D plan yields good value at affordable monthly premiums. This poll reports 2/3 of seniors favor biopharma companies and health plans setting drug prices instead of the government. Four out of five are concerned about government price-setting’s disruption of access to current medications, denial of access to new drugs and interference with their doctor’s best judgment of which medicine is right for them.

CMS lists the blood clot medicine Eliquis as the first of 10 drugs subject to price “negotiation.” CMS spent more than $16 billion for 3.7 million Medicare patients’ prescriptions of Eliquis from June 2022 to May 2023. Eliquis protects patients against stroke, at an average out-of-pocket cost of just $55 a month. The CEO of its maker Bristol Myers Squibb describes eloquently not only the facts CMS and Mr. Biden omit, he also highlights the human and humane elements that price controls and bureaucrats ignore.

These polling benchmarks show voters underwhelmed or worse by Bidenomics’s IRA and very highly satisfied with Medicare drug coverage without government price controls—which IRA is beginning to change dramatically. That combination could cost Mr. Biden votes.

Mark my words: At a minimum, this cruel IRA regime will increase Medicare spending while worsening human suffering.