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April 11, 2013

How President Obama's 2013 Budget Affects Intellectual Property

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We’re not fans of the Obama 2013 budget, as you can probably guess. And it’s going nowhere, thankfully.  But it’s instructive to see the impact of the Obama administration’s budget vision as to how it would affect the creative and innovative industries.

On the Positive Side

There’s not much.

  • The Intellectual Property Owners Association reports that the budget will allow USPTO to keep all of its user fees. We agree with this, and we’ve written about the problem of fee diversion in the past. This is actually an area where we found ourselves disagreeing with our usual ally, Rep. Paul Ryan.
  • Additional funding for cybersecurity should, if successful, help reduce the threat of theft of intellectual property from American companies by overseas IP predators, most notably China. Some government agency estimates suggest that U.S. companies have lost more than $400 billion in intellectual property theft to cyberespionage.

Somewhere in the middle

  • The budget makes the R&D tax credit permanent, although it “reforms” the R&D tax credit in ways that reduce its value, especially to the largest companies, which are the ones that invest the most in R&D. So it first erodes the value of the R&D tax credit, and then makes it permanent.

On the Negative Side

There’s lots.

  • The budget cuts back on data exclusivity for biologics from 12 years down to 7 years. This is pretty rotten, especially since part of the Affordable Care Act (“Obamacare”) specifies 12 years of data exclusivity for biologics. So this represents the Obama administration going back on a deal they made in order to secure the passage of the Affordable Care Act. Pretty politically rotten, in addition to being bad policy, since data exclusivity is actually a big deal as far as incentivizing innovation in the critical area of biologics.
  • The budget also bans what it characterizes as “pay for delay” agreements between innovator and generic pharmaceutical companies. But what is negatively characterized as “pay for delay” are actually precisely the kind of patent settlements envisioned and indeed encouraged by the Hatch-Waxman Act. Further, this precise issue is now before the Supreme Court, which will decide one way or another. The fact that the Obama administration views such patent settlements as negative is disappointing. No doubt this is an example of policy being driven by cost savings rather than by a sound policy understanding, and it is yet another example of concerns that in an era of government control of health care, the sole criteria for policy decisions may be which option saves the federal government the most money.
  • The budget also bans patent “evergreening” for biologics. This is just another example of the two previous items, assuming that it is somehow harmful if patents are permitted to last for their full term. And, again, assuming that reducing the incentives for biomedical innovation are somehow a good thing for the American people.

So, all-in-all, it’s pretty disappointing, if not surprising, to see the Obama administration going back on the very terms it agreed to for data exclusivity, and for making policy decisions based solely on what costs the federal government the least money, regardless of its impact on innovation. The Obama administration is big on talking about the importance of “investing in our future.” But it’s the private sector that does the real investment in America’s future. The Obama administration seems to feel that only federally directed, federally controlled, and federally funded spending counts as “investment.”

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