How Senate IP Subcommittee Witnesses on Patent Eligibility Responded to Questions from Senator Blumenthal

By Steve Brachmann
July 12, 2019

“[N]o empirical or economic study has proven that innovation has increased or prices have reduced as a result of the AliceMayo framework. There have been assertions that this has occurred by some commentators and policy organizations, but these have been merely conclusory assertions without any support from economic or statistical studies.” – Adam Mossoff

Through the first half of June, a series of hearings on the state of patent eligibility in America held by the Senate Intellectual Property Subcommittee rendered a variety of interesting exchanges regarding current U.S. subject matter eligibility under Section 101 relating to various important sectors of the U.S. economy. During the second hearing, Senator Richard Blumenthal (D-CT) talked to panelists regarding his concerns about patent abuses in the pharmaceutical industry. During his period of questioning, Blumenthal grilled witnesses on the subject of whether the expansion of subject matter eligibility that would result from the proposed Section 101 draft text would exacerbate issues related to “patent thicketing,” a process by which drug companies attain large patent portfolios covering various aspects of a single drug formulation.

In recent months, Senator Blumenthal has come out strongly against both patent thicketing and “product hopping,” referring to the drug company practice of earning Food and Drug Administration approval for reformulated drugs and preventing market entry to generic drug makers who would otherwise be able to market the old formulation. Both of these activities are targeted by the Affordable Prescriptions for Patients (APP) Act, introduced in early May by Blumenthal and Senator John Cornyn (R-TX). This bill considers both of those activities to be anticompetitive and would enable the Federal Trade Commission to take enforcement action against pharmaceutical companies engaging in them. The APP Act is simply one of a list of drug-related patent bills that have been introduced into either house of Congress so far during the 116th Congress.

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Along with Senators Thom Tillis (R-NC) and Mazie Hirono (D-HI), Senator Blumenthal entered a series of questions for the record to be answered by panelists attending the recent patent eligibility hearings. Blumenthal’s sole question was:

“Striking the appropriate balance between encouraging innovation and protecting consumers is a key goal of our patent system.

a.What impact will broadening the subject matter that can be patented have on industry?
b. What impact will broadening the subject matter that can be patented have on consumers?
c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

Although the questions don’t overtly single out the pharmaceutical industry, panelist answers largely indicate that this sector was on most people’s mind while responding.

Tillis asked certain witnesses targeted questions, while Hirono and Blumenthal seem to have sent the same questions to all witnesses.

The following is a collection of excerpts from panelist responses to Senator Blumenthal.

Sherry Knowles, Principal, Knowles Intellectual Property Strategies

“The questions presented refer to the effect of ‘broadening’ the subject matter that can be patented. With kindness, the current issue faced by the Subcommittee on Intellectual Property is not whether to broaden the scope of Section 101. It is whether to restore the application of patent eligibility to what it always has been historically, as repeatedly codified by Congress starting with the Patent Act of 1790… With indulgence from the Senator, I would like to rephrase the questions to refer to ‘restoring’ instead of ‘broadening.’”

a. What impact will broadening the subject matter that can be patented have on industry?

“Restoring patent eligibility to its historic and statutory textual scope will motivate additional medical solutions to treat and diagnose cancer and other serious diseases, which translates to saving and extending lives. This may in turn translate to lower healthcare expenses due to a decrease in long hospital stays, repetitious procedures and extended end of life care…  I am a breast cancer survivor whose life was saved by two isolated natural products that would not have been be patent eligible under the Myriad law. If Myriad had been the law in the United States years ago, I would not be giving testimony because I would have already died.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The impact of restoring the subject matter that can be patented on patients is that new medical solutions may be invented that save or extend their lives. The highest public interest is life itself.

“It is essential to disconnect motivation for creating new medical solutions from drug pricing and distribution. If the drug or diagnostic is not invented because there is no motivation to do so, the pricing and distribution problem goes away because the solution will not exist.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“The proposed amendment to Section 101 addresses whether and how many new medical solutions will be created by inventors. It does not address pricing.”

Knowles also included additional comments on pending legislation around drug pricing. She wrote:

If Big Pharma has been making robber barons blush, one would think that their profits, and thus as a surrogate, their stock prices would be disproportionate among other industries. Based on publicly available data and research, this is not the case… [O]ver a three-year period, technology stocks have performed much better than pharmaceutical stocks.

“Instead of trying to use the patent system, which is designed solely to motivate innovation and protect investment, to reduce drug costs, I respectfully suggest that Congress look into the staggering cost of drug development and human clinical trials leading to drug licensing by the U.S. FDA.

Hans Sauer, Deputy General Counsel for IP, Biotechnology Innovation Organization

 a. What impact will broadening the subject matter that can be patented have on industry?

“[R]eform of Section 101 of the Patent Act will conform U.S. standards with internationally-prevailing best practices, meaning that inventions that are patentable in other industrialized countries will also be patentable in the United States. This will help with the orderly dissemination of innovation, provide legal certainty, and help maintain U.S. technological leadership for investment-intensive innovative businesses in technology areas ranging widely from artificial intelligence, telecommunications, business software, to antibiotics, industrial enzymes, and biomarker-assisted methods of medical therapy.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The question, at bottom, is whether the U.S. patent system should incentivize businesses to compete with ever cheaper copies of the same basic products, or by out-innovating each other with new, improved, or disruptive innovative products that may be covered by patents… [I]n my opinion the encouragement of investment in innovation that is inherent in a well-balanced patent system leads to more consumer choice in the long run, and better promotes overall welfare for consumers.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“[T]he kind of invention that is predominantly affected by the current unclear state of Section 101 jurisprudence in the biopharmaceutical space fall more on the side of original or disruptive innovation… For such treatments and tests, the patents that are affected by Section 101 problems are the very patents that make it possible to bring such a product to market in the first place, and absent the availability for patent protection there may not ever be a product to price.”

David Jones, Executive Director, High Tech Inventors Alliance

a. What impact will broadening the subject matter that can be patented have on industry?

“It will harm industry in the tech sector. As written, the proposed legislation will reduce R&D spending and decrease innovation. R&D investment, venture capital funding, and company market capitalization have soared in the wake of the Supreme Court’s eligibility decisions, hitting new records. The increased availability of business method patents will reverse this trend…

“[N]early two-thirds of U.S. patent applications are filed by foreign residents, resulting in the majority of U.S. patents being issued to foreign companies…  [B]ecause the rights conferred by U.S. patents are geographically limited to U.S. territory, virtually all enforcement of the patents granted as a result of the proposed changes would be against U.S. businesses.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“U.S. consumers will have fewer choices and higher prices… Additionally, there would be a net reduction in competition.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“Patent laws are quite literally intended to increase prices. The exclusive rights granted by a patent are intentionally designed to reduce competition and allow patent owners to charge supracompetitive prices… [T]he problem with the proposed bill is that it would extend patenting to non-technological areas where patenting has been shown to decrease innovation. As a result, the proposed reforms would decrease both competition and innovation, leading to fewer choices and higher prices for consumers.”

Adam Mossoff, Professor of Law, Antonin Scalia Law School George Mason University

a. What impact will broadening the subject matter that can be patented have on industry?

“Reliable and effective patent rights are a key factor in economic growth, when combined with stable political and legal institutions and a legal system governed by the rule of law…

“[T]he economic impact of returning patent eligibility doctrine back to its historical role in the U.S. patent system—a mere threshold inquiry or coarse filter before the more searching and stringent patentability requirements of utility, novelty, nonobviousness, and full and enabling disclosure—will be positive…

“The negative economic impact of the AliceMayo framework is even more concerning given a global economy today in which R&D investments and venture capital financing that are the lifeblood of innovation can move easily from one country to another in search of more reliable legal security in the fruits of inventive labors.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“The famous insight in economics that ‘there is no such thing as a free lunch’ has only one exception: innovation. Innovation drives economic growth by increasing the supply of new products and services made available to consumers in the marketplace, which reduces prices and increases overall social welfare…

“In the healthcare market, this has meant an ever-increasing supply of cutting-edge medical treatments and increasing availability of older medical treatments that are now ‘off patent…’

“In the high-tech market, this has meant an explosion in new products and services at a rate never before seen before, as exemplified in the mobile revolution of the past two decades.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?

“My answers to the prior two questions establish that the answer to this question is no…

“[N]o empirical or economic study has proven that innovation has increased or prices have reduced as a result of the AliceMayo framework. There have been assertions that this has occurred by some commentators and policy organizations, but these have been merely conclusory assertions without any support from economic or statistical studies.”

Barbara Fiacco, President-Elect, American Intellectual Property Law Association

a. What impact will broadening the subject matter that can be patented have on industry?

“The impact on industry of legislation that restores patent eligible subject matter to the standard intended by Congress will be to encourage investment in life-altering innovations that have changed society and our economy. It will remove the categorical obstacles to the possibility of patent protection in every technology and return judgments on patentability to the merits and details of the invention… The patent system must assure that risky investments in costly development and commercialization of innovation will not be lost due to a lack of patent protection.”

b. What impact will broadening the subject matter that can be patented have on consumers?

“Consumers are the ultimate beneficiaries of an objective, forward-looking patent system that adds the ‘fire of interest to the fuel of genius’ by providing an incentive to risk money and time to develop and make available new products and services… An effective patent system needs to be open to previously unimaginable innovations and not constrained by traditional notions of technology.”

c. Could the proposed reforms increase consumer prices? If so, in what industries or on what products?”

“[I]ncreased investment incentives should result in more innovation and more products for consumers. While many factors may impact the pricing of a particular product, an overall increased rate of innovation will most likely result in more competition to develop products that improve the quality of life for consumers.”

 

 

The Author

Steve Brachmann

Steve Brachmann is a freelance journalist located in Buffalo, New York. He has worked professionally as a freelancer for more than a decade. He writes about technology and innovation. His work has been published by The Buffalo News, The Hamburg Sun, USAToday.com, Chron.com, Motley Fool and OpenLettersMonthly.com. Steve also provides website copy and documents for various business clients and is available for research projects and freelance work.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 10 Comments comments.

  1. Valuationguy July 12, 2019 10:55 am

    OMG….David Jones is such a high tech idiot/sycophant with his…patent laws are designed to increase price….statement.

    Patent laws are designed to encourage innovation and get those innovations out into the public market faster than otherwise by PROTECTING an inventors interests. While it is technically correct that patented inventions have higher costs to users than FREE ones….his entire statement so mischaracterizes the contract between the inventor and the gov’t that I want to puke.

  2. Pro Say July 12, 2019 12:33 pm

    Look closely to those strings attached to the backs of David Jones and the “High Tech Inventor’s Alliance.”

    They of course belong to the innovation stealing, small inventors / small companies crushing FAANG puppet-masters cabal.

    You know; the same companies who refused to show their faces and answer questions during the Congressional public hearings held last month (they should have been subpoenaed).

    You know; the same companies who tell everyone else that their patents are ineligible and/or invalid . . . while at the same time howling and screaming like banshees to the Patent Office and our Courts that THEIR inventions ARE eligible and valid.

    You know; the same companies being investigated — again — by Congress, the FTC, and other governmental agencies for the things they do — and don’t do.

    You know; the same companies who don’t give a damn about America.

    You know.

  3. Anon July 12, 2019 3:10 pm

    Mr. Jones has an interesting pedigree. Prior to his association with the current Efficient Infringer organization, his background includes a stint (general counsel type) with Microsoft and an interesting (albeit troubling philosophically) stint as counsel and chief antitrust counsel for the U.S. Senate Committee on the Judiciary.

    But perhaps most telling is that his education LACKS any type of technical/engineering/innovation appreciative type of degrees (merely law school and a bachelor of arts English language and literature.

    He may be speaking in earnest even as he may be unaware of how much Kool-Aid he has swilled.

  4. mike July 12, 2019 7:39 pm

    Sherry Knowles and Adam Mossoff nailed it.

    I’ll paraphase in jest (and also somewhat seriously):

    Knowles: “Did you say ‘broadening’? Um, no. This is not broadening. This is RESTORING what has already been codified. Check the history.”

    Boom. Read her other comments for the rest of the truth. Nailed it.

    Mossoff: “The impact of RETURNING patent eligibility doctrine back to its historical role…”

    Boom again. The Court has overstepped the Constitution. They just got called out on it, and Congress, it’s up to you to fix it and abrogate their mess all the way to the ground!

    Mossoff: “And to these other naysayers with their conclusory assertions, go home. You ain’t got no empirical data that supports what you be claimin’, fool. Bye!”

    Boom one last time.

    I love it. Section 101 Reform for the win!

    Congress, I support your Section 101 reforms. However, please don’t screw up 100 and 112. Fix that, and you’ll save the day for American innovation. Keep up the good work!

  5. RIP Patent Rights July 12, 2019 8:50 pm

    Silicon Valley and Big pharma are in the works on how to carve out their pie. Sen. Tills is a no show in sponsoring Sen. Coons 3rd attempt in passing The STRONGER Patent Act. Why? It’s simple Sen. Tillis is looking after Big Pharma and FAANG is looking after in keeping Patents weak. So the new bill that comes out of Sen. Till and Coons committee will fix 101 but will carve out a back door in 100 112 for Silicon Valley. Patents will remain dead for small patent holders in America. The rude awakening is coming and inventors will be heading to Germany and China to be able to get protection for their IP, Injuctions are dead in the US and mid to small companies can not compete in the courts thanks in no part to the AIA Act PTAB, Alice, EBay, Mayo, Bye bye America greed has killed equal opportunities as major companies like Apple, Amazon and Google no longer need America these companies should be broken down but they own all the politicians so sprechen Sie Deutsch. Or Ni hui shuo zhogwen ma?

  6. Pro Say July 13, 2019 4:00 pm

    FACEBOOK FINED RECORD 5 BILLION DOLLARS BY FTC

    — News reports

    Far more than it would have cost them to correctly take licenses from all the inventor’s combined from whom they’ve stolen innovations from.

    The Winklevoss brothers were only the first of many such ripped-off innovators.

    And as for the “High Tech Inventor’s Alliance” . . . which is a purposely disingenuous misnomer . . .

    It’s actually the HTPPA:

    The High Tech Patent Pirates Alliance.

  7. Curious July 13, 2019 4:13 pm

    High Tech Inventors Alliance members:
    https://www.hightechinventors.com/about

    Adobe, Amazon, Cisco, Dell, Google, Intel, Oracle, salesforce

    Otherwise know as the efficient infringer club — dedicated to destroying the ability of small companies/individuals to obtain and enforce patents.

    Gene: I suggest that anytime “High Tech Inventors Alliance” is mentioned in an article, it is clarified that they don’t represent inventors, per se. Rather, it is an industry lobbying group that advocates for a weak patent system.

  8. Mark Greenstein July 14, 2019 5:44 pm

    As soon as I saw the questions I concluded they were drafted, bought and paid for by Wall Street. Just checked to be sure and it was confirmed. See below:

    Richard Blumenthal

    Senator (CT)
    First Election: 2010
    TOP INDUSTRIES 2009 – 2020
    Lawyers/Law Firms
    $1,903,286

    Securities & Investment
    $1,521,204

    TOP CONTRIBUTORS 2009 – 2020
    Altice USA
    $80,925

    Yale University
    $68,762

  9. Anon July 15, 2019 6:52 am

    The “voice” (an Orwellian metaphor for influence buying) of the juristic Person has overwhelmed the voice of We the People.

    The dangers of Corporatocracy are real.

  10. Night Writer July 15, 2019 8:07 am

    >David Jones, Executive Director, High Tech Inventors Alliance

    > R&D investment, venture capital funding, and company market capitalization >have soared in the wake of the Supreme Court’s eligibility decisions, hitting new >records

    This is a very interesting comment. It is true for large super corporations. But not true for all the other sectors. Plus this is only partially true as it has not played out. The big super corporations are saying to Congress that we can do this innovation thing. Trust us. Our research labs will handle all this. But there is no reason to believe the researchers will be kept on after patents are no longer relevant.

    This comment strikes to the heart of what is going on. Etc. I don’t have time to develop this fully, but I think you can see where it is going.