Freedom Line Blog

This week, the Biden Administration’s United States Trade Representative (USTR) Katherine Tai appeared before the Senate Finance Committee and House Ways and Means Committee, offering an important opportunity to rally opposition to the administration’s agreement with a misguided proposal in the World Trade Organization (WTO) to suspend patent protections for Covid vaccines, treatments and other therapies created by U.S. pharmaceutical innovators (through what’s known as the Agreement on Trade-Related Aspects of Intellectual Property, or “TRIPS”).

Don’t let the esoteric nature of the treaty fool you – this is an extremely dangerous proposal to attack U.S. patent rights.  As The Wall Street Journal observed, “this may be the single worst presidential economic decision” since the Nixon Administration.

That assessment is well-founded.  Strong patent protections provide the foundation for U.S. pharmaceutical innovation, and explain why the U.S. leads the world by accounting for an astounding two-thirds of all new drugs introduced worldwide.  The Covid vaccines and treatments at issue provide just the latest example.  Contravening that obvious causal relationship, however, some WTO members demand that the U.S. surrender those vital patent and other intellectual property (IP) protections for Covid vaccines, diagnostics and other treatments.  Worse, some misguided politicians here in America who should know better echo those potentially destructive demands.

That would tragically and needlessly undermine the very policies that prompted pharmaceutical innovators to devise and develop the vaccines already providing relief to the world, and leave us less capable of addressing current and future diseases and pandemics.  Ironically, President Biden himself has historically supported patent and other IP rights, including sponsorship of the 1980 Bayh-Dole Act that proved so invaluable in promoting innovation, and which The Economist magazine labeled “possibly the most inspired piece of legislation to be enacted in America over the past half-century.”

It’s also important to note that more rational actors like the European Union, United Kingdom, Canada, Switzerland and Japan oppose the proposed TRIPS patent suspension.   In contrast, WTO members India and South Africa, which back the effort targeting U.S. patent rights, have even joined international rogues China and Russia to create their own joint “vaccine center.”  That betrays the bad faith of their broader effort.

India and South Africa have joined with China and Russia (and Brazil) to establish a joint BRICS vaccine center.

The proposed TRIPS waiver targeting U.S. drug innovators and patent protections is also unnecessary, because treatments are already being provided to impoverished nations across the world, and patent rights are already being licensed at abnormally low prices or even free of charge.  To the extent that difficulties in immunizing impoverished populations remain, as emphasized by the Africa Centres for Disease Control, the problems center on local logistical distribution problems and vaccination hesitancy among the unvaccinated, not supply shortages.  Indeed, biopharmaceutical manufacturers already possess the ability to produce 20 billion vaccine doses in 2022.

More broadly, lawmakers and American consumers must consider the dangerous signal that suspending patent rights for pharmaceutical innovators would send, and the long-term disincentives that would follow if pharmaceutical patent rights were weakened rather than protected.  Pharmaceutical innovation demands billions of dollars in sunk costs of investment and testing, not to mention potential product liability lawsuits for any error.  To suddenly signal that those costs and risks won’t be sufficiently and fairly rewarded through ensuing patent protections would have catastrophic effects over both the short and long terms.  That will increasingly become the reality if we accept policies that deprive innovators and investors of the incentives to create drugs that save millions and even billions of lives.

American patent protections are the leading reason why we continue to produce the overwhelming share of new drugs worldwide, including the Covid vaccines themselves.  The WTO and Biden Administration must recognize and respect that reality, and Congress must act to stop this potentially catastrophic WTO proposal.

For years, we at CFIF have joined fellow conservative and libertarian organizations to spotlight the unfairness under federal law by which songwriters and others receive royalty payments when their songs are played on AM-FM terrestrial radio, but the performing artists themselves do not.

Exacerbating the illogic, performance artists do receive compensation when their songs play on digital broadcast platforms like the internet, satellite and over cable.  Yet terrestrial radio broadcasters remain exempt under existing law from having to pay that same compensation.

There’s no logical or legal justification for that paradox.  It amounts to crony capitalism in the form of a special government carve-out, and we’ve called for changes in federal law to finally correct it.

Fortunately, we can report good news in Congress on this unresolved issue.

New legislation before the House of Representatives entitled the American Music Fairness Act (H.R. 4130) would finally secure a performance right for artists whose recordings are played on terrestrial radio, with exceptions allowed for smaller mom-and-pop stations.

As we and fellow conservative and libertarian organizations wrote in our coalition letter to the House in 2021, that would protect artists’ natural intellectual property (IP) rights:

The Constitution protects intellectual property rights and specifically delegates to Congress authority to protect creative works.  Artists who produce music therefore have the right to protect their intellectual property, including both the writer and performer of a given recording.  When a given work is transmitted, common sense and basic fairness dictate that the medium of transmission should not affect the existence of these rights.  Yet, under the current regime, a performer does not hold effective or enforceable rights to his or her product when it is distributed through terrestrial radio.”

Opponents of the American Music Fairness Act might illogically allege that the proposal would introduce needless regulation of the market.  The truth, however, is that the market is already regulated in the discriminatory manner described above.  The proposed law would simply level the playing field and better respect the value of the artists’ works.

Opponents might also falsely attempt to portray H.R. 4130 as creating a “tax.”  As Grover Norquist of Americans for Tax Reform cogently answered, however, a tax is a compulsory payment to government while royalties at issue here are voluntary payments to broadcast others’ creations:

[W]hat is proposed is not, in fact, a tax but a royalty.  The definition of a tax is the transfer of wealth from a household or business to the government.  Taxes aren’t voluntary; paying a royalty is.  It is completely within the rights of broadcasters to decide not to pay for the use of a performer’s song by simply not using the song.  This may not be an ideal option, but these songs actually are the property of someone else…  Just as dishonest as calling a tax a fee or fine, so too is it wrong to apply the word ‘tax’ to a royalty payment.  Creating the negative perception that this legislation creates a new tax may be convenient in the short term and assist opponents in gaining political support;  in the long run it is incredibly unhelpful to those who work to reduce the burden of government in our everyday lives.”

Here’s the bottom line:  Performing artists have a natural right to enjoy the fruits of their labor and creativity, just like any of us do for our work.  Indeed, artists already receive payment from non-terrestrial radio stations, reflecting the value of the artists’ work.  Accordingly, the existing federal carve-out is unfair and illogical, and this bill simply corrects that imbalance.

It’s therefore time for Congress to pass the American Music Fairness Act (H.R. 4130) and achieve common-sense reform at last.