Giachino (00:05.0050 - 00:27.0139)
Welcome to IP Protection Matters. I'm your host, Renee Giachino.
Today, we are joined by John Manchester, the Director of IP Policy at the US Chamber of Commerce. We will be talking today about how a proposal to fine patent owners based on subjective valuations threatens America's innovation ecosystem. John, welcome to IP Protection Matters.
Manchester (00:27.0579 - 00:29.0159)
Thanks for having me, Renee. It's good to be with you.
Giachino (00:29.0500 - 00:46.0369)
Before we dive into this proposal and what it might mean, I'm going to start with a question that I usually finish our discussion with. Why should we care about IP protection in general? In other words, why does IP protection matter?
Manchester (00:47.0009 - 01:11.0650)
That is a great question. The short answer is IP protection allows us to have so much of what we see every day in terms of life-saving innovations, whether that's medicines or breakthrough technologies, whether it's online or in cell phones. It allows us to have so many great things in our world. So that's why it's important.
Giachino (01:12.0080 - 01:37.0555)
The US Chamber of Commerce recently led a coalition letter to the leadership of the House and Senate Judiciary Committees expressing strong opposition to this proposal to fine patent owners based on subjective valuations. Let's start our discussion then on this issue with you giving us the details of what you have heard and learned about this patent fine proposal.
Manchester (01:37.0834 - 03:31.0250)
I should stress that this is at this point a rumor. There's been a lot of smoke around this issue, but we haven't been able to see any fires yet. Nothing has been publicly released, but this is what we've heard. Essentially, the PTO (United States Patent and Trademark Office) is exploring a value-based patent fee instead of today's flat predictable fee schedule. Patent holders could be charged up to 5% of an invention's assessed value or revenue. That would be, I suppose, government-assessed value or revenue.
So how is this different than the current system? Today's fees are flat and tied to administrative costs, whether it's filings, examination or maintenance fees at the PTO. All of those fees are assessed just so that the PTO can recoup all the investments they have to pay examiners, improve their IT systems and the like.
So how is this harmful to the IP ecosystem? Let's say you're a small biotech or clean energy startup. You could face massive new annual fees the moment a patent looks promising, even before you've earned any real revenue. Successful innovations in pharmaceuticals, AI or quantum computing could trigger millions in added fees over its lifetime. That's just a taste of some of the issues with this proposal.
So recently, we sent a letter, The Chamber, along with a coalition of about 40 individuals and companies in the IP space, to the leaders of the House and Senate Judiciary Committees pointing out the flaws in this rumored proposal and encouraging them to look into it and to ensure that our IP system is still the global standard. Because if this were to be instituted, it would have really, really disastrous effects.
Giachino (03:31.0750 - 03:47.0419)
John, going back to something that you started the conversation talking about. That is how this proposal seeks to charge investors based on how much their ideas essentially are worth rather than a flat fee. Who and how will that value be determined?
Manchester (03:47.0899 - 04:57.0145)
That's a great question. We're sort of unsure how that would be determined. I think there are a couple of ideas floating around of comparing an invention to other inventions and how much money they've made. But truthfully, we don't really know how they would value it. I think that's part of the issue. There are patents that you can own right now that might not be worth anything, but then in the future might be worth a lot of money. There are patents that might be worth a lot right now that might not be worth much in the future.
Truthfully, an issue is you're just punishing companies and individuals when they're successful, right? We know of companies and individuals that spend millions if not billions of dollars creating life-saving medicines or breakthrough innovations with the hope that once they are successful, they can recoup their investment. In this scenario, they would spend all this money, be successful and then immediately be slapped with more fees on top of that. It would have really negative effects on the IP system.
Giachino (04:57.0726 - 05:19.0179)
That gets to what you and your colleague Brad Watts wrote about when you said patents often represent potential rather than immediate profitability. How that is relevant to this discussion, I would assume is, first to the impact to small businesses and startups.
Manchester (05:19.0459 - 06:10.0279)
It is a huge problem for small businesses and startups. They often lack the financial resources to navigate an IP system that can often be complex and unpredictable. This proposal, if instituted, would impact people in companies large and small, but big companies at least currently would have the money to weather the storm. These smaller startups would just not be able to survive.
These entities are the backbone of American innovation, and so many of our groundbreaking technologies are because of them. By imposing valuation-based fees, the government risks stifling the very entrepreneurial spirit that drives our economy.
Giachino (06:10.0279 - 06:21.0750)
Taking it from the economy, let's talk about the impact on American jobs. There has been a lot of discussion that there is potentially serious adverse consequences there as well. Is that right?
Manchester (06:22.0320 - 07:20.0109)
This would have a huge impact on jobs. Just as I was pointing out with the small businesses and startups, you're often looking for investors into your startup and you need to be able to show that I’ve got this valuable idea that I'm going to patent and we're going to be able to monetize it, make back our money and hopefully make a profit.
If you're an investor looking at this great idea, whenever it's successful you're anticipating having millions, if not hundreds of millions, of dollars in fees and fines. That's a huge problem. They would just put their money elsewhere.
I think whether you're a big company or a small company, this would have a huge impact on jobs. That's something the Trump Administration has really focused a lot on is stimulating the economy. So I think they should be cautious.
Giachino (07:20.0570 - 07:45.0290)
It is interesting because I think you've really hit something. I think it's naive for us to believe that these innovators, these small businesses and these startups, are just going to throw their hands up in the air and say, OK, we're done and we're not doing business. More likely, as I think you and your colleagues have pointed out [along with] the folks in the coalition, is some of America's most innovative companies will choose to do business elsewhere. Isn't that right?
Manchester (07:45.0290 - 08:32.0335)
That's exactly right. If this idea were to be implemented, we, at least to my knowledge, would be the only country in the world with such a system. I think you would just see companies and individuals go flee elsewhere. They would go to other markets to protect their IP because they would be much, much friendlier.
The Trump Administration, and they have been very smart to do this, they've been focused on reshoring American jobs. If that's the push that they want, if they want to reshore jobs, I think this would harm that push because companies and individuals wouldn't see the benefit of protecting their IP here in the US.
Giachino (08:32.0715 - 08:53.0739)
Let's now turn, if we can, to some of the legal questions, John. Obviously there are legal questions that arise from this proposal. How does this comport with Section 10 of the America Invents Act (AIA). Back us up a little bit. What does that say? Then how does this comport or would this comport with that?
Manchester (08:54.0369 - 10:08.0385)
Section 10 of the AIA basically governs how the PTO can assess their fees, how they can increase their fees and essentially says that these fees can only be instituted in a way to recoup whatever costs they have to run the PTO system. What that means is you can't just say, well, we're going to increase fees by 100% because we want to take this money and put it elsewhere in the government. They have to be directly tied to the cost to operate the PTO.
I'm not a lawyer, but looking at it from my lens, I don't see how it comports with the AIA at all. If the Trump Administration were to go forward with this idea, they would run into some issues there. I imagine the House and Senate Judiciary folks might take a look at that as well. That is why we flagged it in our letter. Not only is this just a bad idea on the merits, but it doesn't really comport with what the AIA says.
Giachino (10:08.0724 - 10:22.0750)
So is that the role that you believe Congress can play in this debate - to step in before this rumored proposal is passed? What role do you see Congress playing?
Manchester (10:23.0260 - 11:15.0440)
I think there are a couple of roles. Right now there is so much rumor and we know so very little about this proposal. There's been a Wall Street Journal article about it, but beyond that it's been mostly rumors. So really asking the folks at PTO or Commerce who are pushing this proposal is this real. And if it is, why are you doing this? Under what legal authority are you doing this?
Then if they continue on, to say, look, this is a bad idea. We would like to talk about this further and we don't think this is how you help American innovation. This isn't how you help job growth. This, in my opinion, is legally dubious. Those are a couple of the ways that Congress could work on this.
Giachino (11:15.0950 - 11:21.0140)
How far-fetched is it, John, do you think to believe that this proposal could also jeopardize national security?
Manchester (11:21.0650 - 12:23.0200)
I don't think it's far-fetched at all. We have so many great and innovative companies in this country that are working on really interesting things in AI or in the defense industry. If this proposal is instituted, you're just going to see them either go out of business or they are going to go to different countries and use the IP protections there. That'll have a really negative effect on our national security.
I think the reason the US has been so successful is that we've always sought to nurture innovators and give them the tools they need to succeed. To say to them, if you put in the work, the blood, sweat, and tears that you're going to have this patent protection that allows you to grow here and to benefit from the IP protections we have here. So I think that's just some of the ways it would harm national security.
Giachino (12:23.0640 - 12:43.0179)
Let's talk a little bit about [how] in the coalition letter it was stated that if patent owners are penalized for holding these valuable IP protections, many would turn to trade secrets instead of public disclosure through the patent system.
Explain to us what that means and the impact that potentially could have down the road.
Manchester (12:43.0320 - 13:37.0354)
Part of the benefit of the patent system, at least from the public and the government perspective, is that you're publicly coming out and saying here's my invention. Here is how I did it. But you're then getting the protection from the government that's saying you have this sort of limited time monopoly to monetize your creation. But then others can hopefully work off of what you've done to create their own new thing and to work off of each other.
If this patent fine idea were to go through, I think you would just see people do the trade secret route where they would keep things private that wouldn't be publicly known. That would have a really negative impacts on innovation because you wouldn't have that public knowledge of what's going on. So that's how it would harm the IP system in the US.
Giachino (13:37.0354 - 13:56.0495)
Our guest is John Manchester, Director of IP Policy at the US Chamber of Commerce. John, one final question for you. Is this rumored proposal another instance of a solution in search of a problem? In your opinion, is America's innovation system working?
Manchester (13:56.0616 - 14:43.0530)
Yes, I do think it's a solution in search of a problem. I do think America's innovation system is working, but I do think if folks at the PTO or folks at Commerce want to have a discussion about how we increase fees to help the PTO continue to do such a great job, whether that's increasing maintenance fees or application fees, I think many companies and individuals are willing to have that discussion.
But if they were to institute this evaluation-based fee, I think you would just see so many people not use the IP system. So many companies would go elsewhere and it would have a really disastrous effect on the future of this country.
Giachino (14:43.0849 - 15:06.0059)
John, thank you so much for the work that you are doing in this space and the work of the Chamber of Commerce. Our guest has been John Manchester, Director of IP Policy at the US Chamber of Commerce. We'll continue to follow your work and the work of the US Chamber of Commerce at uschamber.com.
John, thank you for your time. Thank you for joining me on IP Protection Matters.