Hatch: Inadequate Intellectual Property Protections Could Complicate TPP Passage

In a speech at the U.S. Chamber of Commerce, Finance Committee Chairman Orrin Hatch (R-Utah) outlined why protections for U.S. intellectual property rights (IP) are necessary in international trade deals, including the Trans-Pacific Partnership, and highlighted how Trade Promotion Authority (TPA) requires the administration to consult with Congress extensively before it considers the deal for a vote.

“Passing a good TPA law doesn’t, by itself, guarantee that we’ll see good trade agreements.  Sure enough, the TPA statute sets high standards for the administration and for our trade negotiators, but it takes additional hard work to ensure that our trade agreements meet those standards,” Hatch said.

Hatch went on to detail how, without adequate protections, America’s competitors abroad can compromise IP rights.

“Our economic competitors and geopolitical adversaries are well aware of the importance of IP to the U.S. economy,” Hatch continued.  “And, whether it is by stealing American intellectual property directly or by creating bureaucratic and regulatory mechanisms to essentially do the same thing indirectly, a number of foreign governments have long been engaged in a full-time effort to undermine our IP advantage.”

Hatch concluded by saying that if the administration’s trade deal fails to meet high standards for intellectual property rights in TPP, that a renegotiation may be necessary.

“While I understand that parties have deemed the negotiations closed, the agreement cannot enter into force if Congress doesn’t agree to it.  At the end of the day, USTR may need to go back to the negotiating table and try again. That result is not ideal, but it is certainly not unprecedented,” Hatch said. “I understand that renegotiation may be difficult, particularly with so many parties involved.  But at the end of the day, the alternative to renegotiation may very well be no TPP at all.” 

The complete speech, as prepared for delivery, is below:

I know that we all share a desire to protect American intellectual property rights and to ensure those rights are enforced abroad.  That’s why we’re all here today.   

Intellectual property is woven throughout the fabric of our society and is one of the main engines driving our economy. 

Want proof?  Look no further than the diverse group of CEOs who will be presenting their views during this conference.  From publishing to franchising, and from apparel to sound recording and more, strong IP – and strong IP ENFORCEMENT – are critical, not only to their core businesses, but also to the millions of jobs that companies in their industries create.

The people of my state of Utah have a personal stake in the effort to protect intellectual property.

A GIPC study released just this week found that over 200,000 Utahns – nearly one-fifth of the state’s private-sector workforce – are employed by IP-intensive companies.  These employees’ yearly salaries are, on average, 31 percent higher than those of other private sector workers in the state. 

But, that’s not all.

According to this same study, an additional 380,000 Utahns – more than a third of our workforce – have jobs that indirectly support IP-intensive companies.  In other words, more than half of the working people of Utah either directly or indirectly owe their jobs to intellectual property. 

There is good reason for this. 

The GIPC study also found that, in Utah, we spend significantly more per civilian worker on research and development and that, relative to the population, significantly more patents, trademarks, and copyrights are registered to Utahns than the national average. 

So, as you can see, the state of Utah is very much invested in this endeavor.

Sadly, intellectual property is under constant attack, particularly on the international stage. 

Our economic competitors and geopolitical adversaries are well aware of the importance of IP to the U.S. economy.  And, whether it is by stealing American intellectual property directly or by creating bureaucratic and regulatory mechanisms to essentially do the same thing indirectly, a number of foreign governments have long been engaged in a full-time effort to undermine our IP advantage.  

That’s why we have to remain vigilant. 

Make no mistake, this is a fight.  It is a fight on a global scale.  And, I personally believe that, as in most fights, the side that remains the most committed will end up winning.  I have a feeling that everyone here shares this belief and that you are all just as committed as I am.  

So, let’s talk for a few minutes about some of the latest rounds in this fight over American innovation. 

As you all know, earlier this year, Congress passed and the President signed the Bipartisan Congressional Trade Priorities Act of 2015, which, among other things, renewed Trade Promotion Authority, or TPA.  I was a co-author of this bill and worked hard to shepherd it through Congress, which actually meant passing it twice in the Senate. 

I think it is fair to say that we really pushed the envelope to ensure that high standards for intellectual property rights protection would have to come part and parcel with every trade agreement negotiated and submitted to Congress under this law. 

For example, building on the Trade Act of 2002, we retained provisions that require our trade agreements to reflect the high standards for IP found in U.S. law.  We also kept the requirement that trade agreements eliminate price controls and reference pricing, which are used by many countries to deny full market access to things like pharmaceuticals and medical devices, industries where the U.S. is a clear leader. 

We went further than the previous law by calling for an end to government involvement in intellectual property rights violations like piracy and cyber-theft of trade secrets, and including negotiating objectives to ensure that our trading partners limit the unnecessary government collection of trade secret information and protect any information that they do collect from disclosure. 

Our TPA law also directs our trade negotiators to ensure that regulatory reimbursement regimes that make pricing and reimbursement decisions are transparent, provide procedural fairness, are non-discriminatory, and provide full market access for innovative pharmaceuticals and medical devices. 

Finally, the newly-enacted statute calls for the elimination of measures that require U.S. companies to locate their IP abroad as a market access or investment condition. 

From the moment we began drafting the current TPA law about five years ago, it was important to me that we consider what had happened after 2002, when the last TPA law was enacted, and that we not only recognized our successes and learned from our failures, but also take into account changes that had transpired since that time. 

While, in the grand scheme of things, 2002 wasn’t that long ago, we now live in a very different world. 

Technology has advanced dramatically since that time.

International commerce is vastly different.

And, we’ve made significant leaps forward in health and medical science.

It was very important to me that the new iteration of TPA reflect these changes and provide a pathway for the U.S. to succeed in this new global marketplace, particularly with regard to intellectual property.  Needless to say, I am very pleased that we were able to retain and build upon the high IP standards of the previous TPA law and see those provisions signed into law. 

But, I can’t take all the credit.  Don’t get me wrong, I’d like to say that it was all me – but that wouldn’t be the truth.

So, rather than spread falsehoods, I’ll level with you:  It would not have been possible to draft or introduce, let alone pass, our TPA law – with all the high IP standards that are in it – without the hard work and dedication of the people in this room.   

I know it’s been a few months since the bill was signed and that many of us are now focused on new challenges, but I think you should take just a moment and give yourselves a hand for your work in getting TPA across the finish line. 

But like any important battle, a single success does not win the war.  We have a lot more work to do. 

Passing a good TPA law doesn’t, by itself, guarantee that we’ll see good trade agreements.  Sure enough, the TPA statute sets high standards for the administration and for our trade negotiators, but it takes additional hard work to ensure that our trade agreements meet those standards.  And, at least with regard to one pretty significant trade agreement, that’s the phase we’re in today. 

As I’m sure all of you know, last month, the Obama Administration announced that they had concluded what they believe are the final terms of the Trans-Pacific Partnership, or TPP, agreement.  The text of that agreement was just made public this week.

I don’t have to tell any of you just how important this agreement is.  If entered into force, the TPP would be the largest trade agreement in the history of the world, reducing barriers and setting trade standards between a group of countries that represent 40 percent of the global economy. 

A strong TPP agreement would ensure that overall trade patterns in the Asia-Pacific – one of the most economically dynamic and strategically important regions in the world – develop under an American-led model. 

For the purposes of this summit, I think it’s also fair to say that the TPP would not only set standards for IP protection in the Asia-Pacific, it would also influence how those standards are developed and enforced throughout the world. 

In short, all of us have a huge stake in a strong TPP agreement.  And, I think you’d be hard pressed to find anyone in this town who has spent more time touting the potential benefits of the TPP than I have over the past few years. 

However, while the prospect remains intriguing, I am very concerned that, particularly with regard to intellectual property, the administration may not have gotten the best deal possible.  Obviously, now that the text is public, I want to take the time to review it, talk with my colleagues, and consult with all of you and other stakeholders but, as it stands right now, I’m afraid that the current draft of the TPP agreement may fall short. 

One area of deep concern is the standard of protection for biologics under the agreement. 

The term BIOLOGICS refers to medical and pharmaceutical products derived from living organisms, rather than a combination of chemicals.  Biologics are on the cutting edge of medical innovation, especially in the treatment of diseases like cancer and arthritis, which, only a few decades ago, were considered untreatable.  Because these treatments can be much more selective in attacking a disease within the body, they have the potential to treat or cure many diseases without the terrible side effects that often accompany other medicines, meaning that they can not only alleviate patients’ suffering, but also reduce long-term healthcare costs.

Biologics are highly complex, so they are particularly expensive to develop and market.  More often than not, drug companies invest billions of dollars in developing and testing one of these products before it can be brought to market. 

Not surprisingly, these companies don’t typically recoup these costs overnight. On average, these products are on the market for nearly 15 years before their developers see a profit from their investment. 

In 2009, a bipartisan majority in Congress recognized these difficulties and worked to provide 12 years of data exclusivity for new biologics in the United States.  This standard is not an arbitrary number – it is a policy choice, a specific recognition by Congress that, if we want to encourage the private sector to develop new and more effective treatments, we need to give companies enough time to recoup the costs of developing those treatments.

I was a co-author of the legislation that provided that 12 years of data exclusivity, along with my good friend, the late Senator Ted Kennedy.  While some who were in Congress at the time we first introduced the legislation – including the current occupant of the White House – disagreed with us, we fought hard for that standard and we were able to convince members from both parties that it was necessary.

Now, there’s a reason I’m spending so much time talking about a domestic IP law in a speech that is predominantly focused on international trade.  I think most of you know what that reason is, but, just to help clarify, I’ll be more specific. 

In the new TPA law, Congress set out a series of negotiating objectives, including several dealing with IP.  A key objective, which I mentioned earlier, was to, and I’ll quote from the statute here: “ensure that the provisions of any trade agreement governing intellectual property rights…reflect a standard of protection similar to that found in United States law.” 

Well, as it relates to biologics, that standard is pretty clear: Twelve years of data exclusivity.  That is the law in the United States.   

Sadly, while we’re still reviewing the text, we already know that this is one area where the current version of TPP falls short. 

The agreement appears to include a standard for only five years of data exclusivity for biologics, apparently with the possibility of an additional three years based on factors that are, as of right now, unclear at best.  On top of that, officials from some of our negotiating partners have publicly stated that the agreement gives them years to implement their commitments related to biologics.

Of course, since the day negotiations concluded, administration officials have tried to make assurances that they pushed as hard as they could for more years and this deal was simply the best they could get.  However, given that this same administration has repeatedly proposed to peel back domestic IP protections for biologics, they’ll have to forgive those of us who doubt their commitment to getting 12 years of protection for U.S. companies who sell these products abroad. 

The consequences of this apparent failure could be profound.

Rather than promoting new investment and expansion from this critical industry, the agreement will likely limit the ability of American innovators to recoup the costs of their investments.  As a result we’ll see less investment in research and development, fewer new products coming to the market, fewer innovative cures and treatments for diseases, and, of course, more costs shifted to U.S. consumers in order to make up for losses incurred overseas.

That last one – more costs to American consumers – is particularly biting in light of the accounts we’ve heard about the final days of TPP negotiations.  According to those reports, some of our partners refused to accept additional data protections for biologics because doing so would lead to increased spending in their centralized health care systems.  So, in essence, it appears this agreement would once again require the American public to pay higher costs at home in order to subsidize socialized medicine in other countries. 

Something tells me that the administration will downplay that particular side effect when it tries to sell this agreement in Congress. 

Obviously, we need to spend more time going through and discussing the text before making any definitive statements.  And, of course, there are other factors to consider with this trade agreement beyond data protection for biologics, and I intend to review all of them very closely. 

With regard to intellectual property, we will also need to scrutinize the text to determine whether the deal gets us where we need to be on copyrights, patents, and the protection of trade secrets.  I will fully examine all of these areas to ensure the agreement meets the clear negotiating objectives we set forth in our TPA law. 

However, I don’t want to understate the concern that a number of my colleagues and I have with regard to the outcome on biologics.  And, combined with additional concerns many members of Congress have with regard to things like market access provisions, industry- and product-specific carve-outs on dispute resolution, and labor policy, this agreement may be very difficult to pass as-is. 

With our TPA statute, Congress made clear what the substance of a successful trade agreement should look like.  Those standards aren’t mere suggestions – they are the law.  And, if Congress determines that an agreement doesn’t satisfy the demands of the law, the agreement won’t pass. 

While I understand that parties have deemed the negotiations closed, the agreement cannot enter into force if Congress doesn’t agree to it.  At the end of the day, USTR may need to go back to the negotiating table and try again. That result is not ideal, but it is certainly not unprecedented. 

I understand that renegotiation may be difficult, particularly with so many parties involved.  But at the end of the day, the alternative to renegotiation may very well be no TPP at all. 

But for now, let’s set aside the substance of the deal and talk about implementation. 

Even if Congress determines that the deal comes close enough to meeting our objectives, we also need to ensure that our trading partners will actually live up to their commitments in the agreement.  There are countless examples where administrations – both Republican and Democrat – have allowed trade agreements to enter into force without first ensuring that our trading partners were meeting their commitments and intended to continue doing so in the future. 

This is particularly relevant with regard to the TPP and protection of intellectual property rights because we know that this administration has fallen short on enforcing these types of commitments in the past. 

For example, though our free trade agreement with Chile nominally went into force in 2004, we know that Chile is still not in full compliance with its IP commitments, yet the Obama Administration has refused to take any action.

And, by the way, Chile is a TPP partner!

With the Korea Free Trade Agreement, the Obama Administration allowed the agreement to enter into force knowing full well that the Koreans were not in compliance with their obligation to create an independent review mechanism for pricing and reimbursement of pharmaceuticals and medical devices, once again leaving American innovators with little recourse. 

My point is that prior to an agreement entering into force, the U.S. maintains significant leverage to ensure that our trading partners will live up to the terms that they’ve agreed to.  With TPP, the administration needs to use that leverage with regard to all commitments under the agreement, including IP commitments. 

We know that the administration grasps this concept, at least with regard to its own policy priorities. 

For example, Panama had to make statutory and regulatory changes to its labor laws before the administration would even submit that free trade agreement to Congress for approval.  In addition, with the Colombia Free Trade Agreement, the administration refused to send the deal to Congress until the Colombians made changes to their labor regime that weren’t even required under the agreement.   

Given the scope of TPP, the administration needs to be as serious about using the leverage of entry into force with ALL parties to the agreement and on ALL the commitments that have been made.  And, I think it’s only reasonable for the administration to provide details to Congress as to how each TPP country intends to implement the agreement and how the administration intends to make sure those countries follow through.

Those details should be provided BEFORE Congress votes on the deal.   As Chairman of the Senate Finance Committee, I intend to push hard to ensure we get this and other important information. 

We cannot afford to repeat the mistakes of the past.  The TPP is too big and too important, and, in all likelihood, we’ll only have one chance to get it right.  This is true with the entire agreement, but especially true with intellectual property. 

Getting the standards right and effectuating real change around the world for American innovators is no doubt a long-term proposition.  But, anything less diminishes not only the legitimacy of all of our international trade agreements, but also the prospects for continued innovation here at home and throughout the world.

Now, with the remaining time we have together, I’d like to touch upon one of my top domestic IP initiatives: The creation of a harmonized, uniform federal standard for protecting trade secrets.

Trade secrets – such as customer lists, formulas, and manufacturing processes – are an essential form of intellectual property. Yet, in the U.S., trade secrets are the only form of IP where misuse does not provide the owner with a federal private right of action. Instead, trade secret owners whose rights have been violated have to rely on state courts or federal prosecutors if they want any kind of legal recourse.

This, of course, forces rights holders to wade through a number of costly and complicated multistate procedural and jurisdictional issues. And, at the federal level, the Department of Justice lacks the resources to prosecute many trade secret cases. These systemic failures put many companies at a great disadvantage, since the victims of trade secret theft need to recover information quickly before it crosses state lines or leaves the country.

At a time when cyber theft of trade secrets is at an all-time high – most particularly with Chinese competitors – it is critical that we give U.S. companies the ability to protect their trade secrets in federal court.

There is no doubt that China and other foreign competitors are working furiously to steal American innovation from all sectors of the economy, including the high-tech, life sciences, manufacturing, agricultural, aeronautics, financial services, and energy industries.

That is why I am pleased to be partnering with Senator Chris Coons and Representatives Doug Collins and Hakeem Jeffries on the Defend Trade Secrets Act, a bill we introduced earlier this year. To date, our bipartisan, bicameral bill has received broad support from associations and companies all across the business community, including here at the U.S. Chamber of Commerce.

The bill is rather simple.

If enacted, it would provide a federal private right of action for misappropriation of trade secrets. It uses an existing federal criminal law – the Economic Espionage Act – to define trade secrets, and it draws from the Uniform Trade Secrets Act, which has been enacted in a number of states, to define misappropriation. 

Simply put, the Hatch-Coons bill harmonizes U.S. law with regard to the protection of trade secrets. 

Under the status quo, each state has their own trade secrets law, and they vary in different ways. Not all of these differences are significant, but they can affect the definition of what is a trade secret, what an owner must do to make sure a trade secret is, in fact, a secret, what constitutes misappropriation, and what damages are available.

Our legislation will create a single national baseline or minimum level of protection and give trade secret owners access to both a uniform national law and the federal courts, which provide nationwide service of process and execution of judgments. 

It is also important to note that the bill will not preempt state law, so states will still be free to add further protections.

The proposed legislation does one more thing – and trade secret owners tell us that this is a critical component of the law not available in the states: It creates an ex parte seizure ability.

Trade secrets are different from other forms of intellectual property because they are protected under the law only if they remain secret. Once the public knows about a trade secret, even if it was wrongfully disclosed, that trade secret loses its legal protection.  Our bill provides a limited right of action for the owner of a trade secret to go to court ex parte and get it back, before the misappropriator has a chance to share it with a competitor or with the world.

In my view, the Defend Trade Secrets Act is ready to move, not just through the Senate Judiciary Committee, but also on the Senate floor.  This is the type of bill that could move by unanimous consent before Congress adjourns for the holidays.

I hope all of you will help us make this happen. It’s the right thing to do.

Like I said, protecting intellectual property and American innovation is a fight.  But it is a fight I am committed to winning.

I know all of you are also committed to winning this fight.  And, I look forward to working with you in the rounds that lie ahead. 

Thank you, once again, for all that you do for American inventors and innovators.  And, of course, thank you for taking the time to listen to an old Senator so early on a Friday morning.