Senators Push the Increase Inflation Act (A.K.A. “The Patent Eligibility Restoration Act”)

March 20, 2024

There is an old saying that in Washington, no bad idea stays dead for long. The Patent Eligibility Restoration Act (PERA), proposed by Senators Thom Tillis (R-NC) and Chris Coons (D-DE) seems designed to prove that proposition.

The basic idea behind the act is to increase the types of things for which people and corporations can get government-granted patent monopolies. These could raise the price of a wide range of items from prescription drugs and medical procedures to computer software and smartphones. It is also likely to mean billions of dollars more being wasted every year in patent suits and related litigation.

Few people seem to recognize how important patent monopolies are in the distribution of income. We will pay more than $600 billion this year on drugs (almost $5,000 per family) that would likely sell for less than $100 billion in the absence of patent monopolies or related protections.

Drugs are almost invariable cheap to manufacture and distribute. They are expensive because the government has given a monopoly to the company that produces them and will arrest any competitors. When a drug is needed for someone’s health or even life, that means drug companies can charge tens or even hundreds of thousands of dollars.

When you hear of families struggling to raise $100,000 for their kid’s cancer treatment, that is not because the drugs are expensive. It’s because the government-granted monopoly allows a drug company to charge an outlandish price.

And drugs are just part of the story. Patent monopolies cause medical equipment, computer software, computers, and many other items to cost far more than they would in a free market. Taken together, patent monopolies and related protections almost certainly cost us over $1 trillion a year.

There are strong economic and moral arguments for making these monopolies shorter and weaker. Among other things, they encourage drug companies to lie about the safety and effectiveness of their drugs.

We could just pay for the research upfront – we already spend close to $60 billion a year on research through the National Institutes of Health and other government agencies – and let new drugs be sold as cheap generics. But the industry would kill to prevent this sort of outcome.

In any case, it is absurd to go in the opposite direction and look to have more areas with government-granted patent monopolies as PERA would do. Among other things, it would allow companies to claim patents on genes they identified. This would radically raise the cost of treatments and medical research.

It would also allow patents on a range of abstract scientific discoveries and innovations. This brings back memories of two famous patent cases from the 1990s. Apple sued Microsoft when it introduced Windows, claiming that the new menu-based system infringed on Apple’s operating system by having the same “touch and feel.” Thankfully, the courts sent Apple packing on this one.

There was a similar story when Amazon attempted to claim a patent on one-click shopping. Having your system save customers’ information might have seemed a rather obvious approach once we had Internet shopping, but Jeff Bezos thought everyone should have to pay him a fee for using this method. Again, the courts sent Bezos packing.

However, with PERA, Amazon may have had a case. After all, if they had raced to the patent office they might have had a valid patent.

This is the sort of nonsense that we can expect to see in large quantities if PERA becomes law. It is 180 degrees at odds from what we should be encouraging businesses to do. We want them to develop better ways to do things and produce better products, not more creative ways to game the patent system. PERA will be a great bonanza for patent lawyers, but really bad news for just about everyone else. 


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