This transcript is from a CSIS and LeadershIP event hosted on December 3, 2024. Watch the full video here.
John J. Hamre: Good afternoon, everybody. Welcome. We’re delighted to have you here. My name is John Hamre. I’m the president at CSIS. And this is going to be one of the most interesting conversations we’ll have this year.
I mean, I was just saying to Congressman Moran far too few members of Congress are willing to really devote themselves to understanding the complexity of an issue these days. Most of them just come in and spread themselves very thin and superficially. Very few people really dig down into a complex and important topic, and Congressman Moran has done that. And it’s on the issue of intellectual property.
Well, why is that important? Well, intellectual property is like all kinds of property. I was listening to Andrei Iancu, one of my heroes. He’s taught me more about intellectual property and patents than I could ever learn if I went to a good law school, and I’ve learned it from Andrei. It’s like – it’s like regular property. You know, so what happens if somebody illegally just squats in a house you own that you normally want to rent? You have a right to kick them out, don’t you? Well, why don’t we have the same right for intellectual property? I mean, these are the issues that we’re going to explore.
There was a time when property rights got watered down. I don’t know if it was intentionally or accidentally, but it did happen. And Congressman Moran is one of the leaders for something called the RESTORE Act, and this is to try to bring strength back to an important legal protection for innovators in our country, and we’re going to listen about this just now. So it’s going to be a great conversation. Congressman, thank you for your service.
Thank you for being with us today, Andrei. Andrei Iancu is – of course, it’s what we are most proud about in America. He was born in Romania, came to this country kind of as a refugee, became an American citizen, rose up all the way to become an undersecretary in the Commerce Department. That’s why this country is so great. So, Andrei, let me turn it to you and let’s get this going. Thank you both for being here.
Andrei Iancu: Thank you. Well, thank you, John, and thanks to CSIS for allowing us to have these super-interesting discussions on IP and to have a conversation like this with the congressman. Good to see you, Congressman.
Representative Nathaniel Moran (R-TX): Thank you.
Mr. Iancu: Let me – let me start where John began, which is, you know, patents are supposed to be an exclusive right. Patents are mentioned in the Constitution – Article I, Section 8, Clause 8 – where the Constitution gives Congress the right to – you know, to create laws to protect inventors and authors and give them the exclusive right – those are the words in the Constitution, the “exclusive right” – to their discoveries and writings. So, nevertheless, in the last two decades or so courts have said that, yeah, there is an exclusive right in the Constitution, but somehow this exclusive right can be enforced through non-exclusive remedies.
So let me start, you know, where the whole process began, with our Constitution, and get your thoughts about the importance of that right actually being exclusive, what it means. And how is it that somehow courts think that we can perhaps ignore that?
Rep. Moran: Yeah. Well, I’m shocked that some courts over the past couple decades have decided that we can ignore that because our Framers certainly understood the fact that innovation is driving our economy, and innovation in the arts and the sciences. And understanding the human mind needing to be rewarded for its creativity and its ingenuity was so important that they decided they were going to put it in the first article of our Constitution and say this is something we absolutely must protect. And it was really the thing that was driving America at the time, right? That’s why they knew it even centuries ago.
And then when you – when you start to look at, well, how are you going to protect that, that idea of exclusivity is so important because the bundle of property rights, whether or not we’re talking about intellectual property rights or tangible property rights – we all remember, law school, talking about that bundle of rights – if you start taking one of the biggest sticks out of that bundle and say, well, you know what, I mean, you still have a bundle of rights but it’s just not the totality of the bundle that you probably bargained for or certainly that I think our Framers intended at the beginning, well then, now you’ve weakened that bundle of rights. And now you’ve gotten in a situation where all kinds of problems result. I mean, you’re talking about less marketability of your patents. You’re talking about less value for the patents, because if you’re trying to then – you’re trying to sell or license that patent you don’t have as many bundles in there, not as many sticks in that bundle of rights, and so a buyer or a licensee is going to say, well, I’m not going to pay as much for that.
Or now you’re – now you’re getting into a place where maybe you got predators out there saying, well, we’re going to engage in predatory infringement. You guys all know that. You’ve seen it before, where people are – and maybe I’m skipping ahead on what you want to talk about, but these are the – these are the things that were going through my mind – and we can get into some more of that down the line in the discussion. But I think, how can – how can an inventor who’s put so much blood, sweat, equity, and tears into getting something going – even if they can’t manufacture it, how can then they be told, well, you have no bargaining leverage and you’re just going to have to wait on the back end for a court to determine what your monetary damages might be, because we’re going to take away from you a real, viable, or an absolute, or at least a rebuttable presumption for a right of an injunction if infringement exists and is ongoing?
Mr. Iancu: Yeah. I think, I mean, you’ve touched on all the right points. One of the biggest problems is that if you take away the right to exclude, you’ve basically automatically denigrated the right from being property to being something else. It cannot be property, I don’t think, if you cannot exclude somebody from it.
And I was talking to Professor Adam Mossoff earlier today, and the example he gave – which I think is fantastic, but there’s many examples like this – is if you have – you own your house –
Rep. Moran: Are you going to say squatters? Because this is what’s coming to my mind.
Mr. Iancu: I’m going to go to –
Rep. Moran: That’s exactly what’s coming to my mind as you’re talking.
Mr. Iancu: But here’s the best part, is let’s assume that you’re still living there.
Rep. Moran: Yeah.
Mr. Iancu: You’re living in your house. You’re making use of almost all of it except the garage or one of the rooms, OK? And if you don’t have the right to kick them out, first of all, it’s not really all that pleasant to live with somebody there the whole time against your will even if they pay you rent. Maybe you don’t want them. But more importantly, how the heck are you going to sell that house?
Rep. Moran: That’s right.
Mr. Iancu: You’re willing to move, you’re willing to go, and you want to sell it or rent the rest of it.
So this goes to your point of marketability. There is, like, a mental block that some people have when it comes to intellectual property, and they distinguish it from other – but as soon as you put some real property to the concept, you immediately see the fault in this – in this analysis.
Rep. Moran: Yeah. And I love the tangible – the tangible analogy there, because when you look at the tangible property rights that’s exactly right. And we would never – and in America we’ve seen this happen in the last year or so where squatters have begun to move into people’s physical property and everybody’s outraged about it. They’re like, how in the world could we let this happen? We can’t let this happen. Of course we can’t, you’re right, because if we just allow people to come into our homes and then stay and we can’t get them out, we can’t eradicate them – it kind of felt like that, maybe a little bit, if you guys had people over for Thanksgiving; after about three days, you’re ready for people to scoot on coming off the Thanksgiving break. But you know, you’ve got to have that ability on the tangible side and the intangible side as well to say, no, no, no, this is my property and it must be protected fully.
Mr. Iancu: And again, back to Constitution, they saw that and that’s why they said “exclusive right.” You have the right to exclude them from your house, from your property.
And it’s not just a domestic issue. Imagine that the squatter is Chinese, for example, and they squat in a corner of your military base. And you know, here they come onto the military base and they say: Don’t worry, you can use the rest of it, but we’re just going to take this over here and you – we’re going to pay you rent, but – you know, but you can’t kick us out. And the same thing is in – happens with our technology, you know, in some of the most advanced stuff. Again, if we can’t stop them – and it could be foreign entities that are actually infringing and they’re selling in our market space. Talk a bit about that and the impact on our international competitiveness.
Rep. Moran: Yeah. From an international standpoint and a national security standpoint, this is, I think, one of the really important tools we’re going to have to deal with China in the next four years under the new administration. I know there’s been a lot of talk about tariffs. There’s been a lot of talk about are we militarily comparable to China to push back if they were to get more aggressive against Taiwan, in other areas. But one of the main tools we have is the soft power economics, generally speaking.
So let’s go back to the beginning of why the drafters of the Constitution felt like this was important. Innovation grows our economy, right? It frees us up. You guys know in your own personal lives if you have economic freedom you can make all kinds of other choices. It gives us leverage to negotiate other issues we’ve got with China. So that’s from a broader perspective.
But from a specific perspective, you see China in particular getting into our research institutions, educational institutions, taking our intellectual property, and then reforming that, and then competing against us, and then doing things like excluding us from their markets, turning around and doing that, and then undercutting our folks here that are trying to do the same thing. And they do it to companies that develop IP here that then want to get into that market in China. They say you can get in the market, but you got to give us your intellectual property first. Then they take it, and then they just redo it, and then they sell it for a lot cheaper back, and then they run our companies out of business because we can’t compete when they are dumping, when they are not having to bear the same regulatory burdens that we are doing, when they’re having a lot different laws to govern and they got the subsidies that are – that are helping them build these instruments, effectively. And so now, all of a sudden, all the companies that are innovating in the West have no – have no ability to get to the world market the way they used to because China is undercutting them.
And then that overall reduces our ability to negotiate other issues, including military issues. I mean, frankly, that soft power drives a lot of the hard power decisions in this world. And it starts with, in my opinion, intellectual property rights.
Mr. Iancu: The ability to defend that intellectual property, it comes in multiple shapes. Trade secrets is one of them. But when it comes to patents or trademarks and so on, copyrights, you know, the ability to defend it comes in multiple ways. One is if they do steal it and they make cheaper products and dump it back in the United States, we need to have a way to actually, again, exclude them. Just getting money from them is not enough, obviously.
But then there is a second really important aspect to this, which is the ability of enforceable – meaningfully enforceable rights to drive domestic innovation to grow our domestic economy. So where – which, by the way, a lot of it, especially the disruptive stuff, happens, you know, in the most entrepreneurial startups and small businesses. Talk a little bit about that aspect and the importance of IP and the ability to exclude, you know, to incentivize it domestically, innovation.
Rep. Moran: Yeah. Well, you know, the desire to exclude altogether is important for the small guys because, back to this negotiating leverage, if they can’t get to market to manufacture, if they don’t have enough startup capital to get to manufacturing, then, you know, their choice is really we need to license this out. Well, if they’re going to go to market to license it out, they need to get the best value that they can for that innovation. That’s number one. But number two is a company that wants to take that intellectual property and then just say, well, we’re not going to pay you for it, we’re actually just going to infringe, and then we’ll see if the courts actually say anything, and if they do then we’ll end up paying whatever the courts decide is the market value on the back side, well, we don’t want the court deciding that. We want the free market deciding what is the value of that on the front side so that they can get that negotiation done.
But none of that will happen if there is no fear of that company that wants to perpetually infringe if they have to get cut off, because they know they won’t get cut off. They’ll just be able to continue to market whatever thing that they’re using that patent to enhance. They get to keep using it; they’re just going to pay a little bit of money at the back side of that. So that needs to happen on the front end, no question about it, for there to be full protection for the little guys.
Because that’s where, really, innovation starts isn’t it? I mean, that’s where – I mean, we’ve got these big companies out there that are innovating. That’s great. That’s fantastic. But those big companies 20 years ago were little companies. And that’s where the greatest innovation, I think, takes place.
Mr. Iancu: It does, and the statistics bear that out. You know, small companies under 25 people innovate at something like – don’t quote me exactly, but at approximately 60 percent higher rate per capita than the big corporations, and so on. There’s no question that disruptive innovation happens by and large at, you know, these, you know, extremely, you know, entrepreneurial small – and you can go back in history, right? Thomas Edison, you know, he was not a big corporation when he invented the light bulb. The Wright brothers were like, you know, mechanics in a, you know, bicycle shop.
Rep. Moran: And one of the things I think that we can do from almost a non-patent standpoint to help with innovation and the little guys, and to protect them, and to keep things domestic, is looking at our tax code. You guys know this next year there’s going to be a lot of discussion about the tax code. GILTI’s on the table and there’s a lot of other things that are going to have to be renewed in the tax code. So we want to make research and development an easier proposition – tax credits or tax reductions for people that are innovating, that are putting back their resources into research and development. We also want to make sure that they are incentivized to keep their intangible property here domestically instead of – instead of putting it across the sea, so there’s no tax advantage to put it in Europe or put it in Asia or put it somewhere else. We want to make sure that they’re going to keep their intellectual property base here, and that intangible property then is not taxed in a way that drives them to do that overseas.
And then I think, frankly, the RESTORE Act, one of the things it does is it reemphasizes the need to use the American judicial system as opposed to the Chinese judicial system or another judicial system where they might get injunctive relief a little bit easier. I mean, we’ve seen since eBay came on that the injunctions granted went from 94 percent down to, I mean, some estimates in the 70 percent range once infringement was found after final judgment. Well, that’s driving people to say, well, maybe I need to take my judicial case somewhere else. We don’t want those cases disposed overseas; we want those cases disposed here in the United States under our laws so that China doesn’t then begin to turn the screws on us in some other areas as well.
Mr. Iancu: What’s actually absolutely remarkable is, you know, that even though we basically invented – our Framers invented the modern patent system, it’s – and it’s in our Constitution, this “exclusive right” – in China it’s basically automatic, almost automatic, that they can get an injunction if infringement is found, while –
Rep. Moran: Yeah. And we should – we should take – we should take a lesson in that. Some of the things that I know we undercut ourselves to do here in the United States or take away as tools effectively are interesting to me, because we look at China and they’re the very tools that China is using the dominate the world economically and from a diplomatic standpoint.
And so, you know, when people talk to me all the time about foreign aid, they – I have a lot of folks that’ll say from time to time, oh, the United States shouldn’t be giving any foreign aid, and that term is kind of used generally across the United States. Well, when we talk about the influence that we can have on other countries through our economic connections – and sometimes that’s foreign investment in those connections – the value of that, I think, is seen best when you start looking at China’s Belt and Road Initiative. They’re doing it, and they’re doing it with great success in the Global South, in Africa, and in South America, and they’re changing the foreign policies and the military policies of countries around the world. Why? Because of economics. Because they’re investing in those countries in infrastructure – in ports, in roads, and the things that those countries need. And we sit back and say, well, but we’re not going to do that. We’re not going to get involved. We’re going to let China do that. And it reduces our influence and minimizes us in a corner.
We do the same thing, I think, from the intellectual property standpoint. We let them use a strongarm and we sit back and say, yeah, but we don’t want to really use a strongarm when it comes to intellectual property rights. So our inventors say, well, you’re not protecting us here, and so I may have to go over there to get more protection; but frankly, that doesn’t do me any good long term because now I’m at the whims and the will of the Chinese Communist Party.
Mr. Iancu: Yeah. Look, I mean, capital is limited. So, I mean –
Rep. Moran: That’s right.
Mr. Iancu: Right? So, you know, if you’re going to have a startup and invest in entrepreneurial enterprises, you know, you would rather have all that investment happen in the United States, but you know, if your odds of success are better for one reason or another – the IP regime or whatever – in a foreign country, you might go there. And we do see – we’ve seen in the last couple decades huge growth in investment in foreign startups, a stagnation on that front in the United States. And you know, the RESTORE Act, I think it’s beautifully named not just to restore the injunctive rights but it’s also to restore the American entrepreneurial system.
Rep. Moran: Yeah, it sure is. And it’s pretty amazing that when I – when I was looking back again at the – at the text of it, I thought, wow, you know, this – it’s one paragraph. That’s it. I mean, that’s – when you – when you really reduced down what needed to happen, it was really just one paragraph that could make such a difference. And we write these lengthy 400-page bills in Congress all the time, and they don’t do squat, and they don’t go anywhere, and they frankly have very little effect. And in one paragraph, we can restore the ability of inventors to be protected for their innovation. We can grow our economy.
And if you’re talking about the threats that face the United States over the next decade, it’s China, it’s our debt, it’s our budget shortfalls. Well, we can grow the economy only through innovation. That has been the hallmark of the United – of the United States and America for the last two centuries, is innovation, innovation, innovation. That’s where we lead. That’s where we dominate. China, as much as they try to make that happen, they don’t have – I don’t think – I don’t think the spirit internally and the culture in China is that entrepreneurial spirit like the United States has. It is our culture. It’s what – it’s what we do best. And so we need to relinquish that and let that be set free. But the only way we do that is protect it, give it foundation, give it undergirding.
Mr. Iancu: Well, music to my ears. But let’s talk about the bill a little bit. It’s not just a paragraph. It’s a sentence.
Rep. Moran: Yeah.
Mr. Iancu: You know, and it’s not the kind of bill that we have to pass it to know what’s in it. We sort of know what’s in it.
Rep. Moran: That’s right. It doesn’t take you long to read.
Mr. Iancu: It’s just like a minute.
Rep. Moran: Yeah.
Mr. Iancu: So let’s talk a bit about it. And, you know, the key phrase here is that the patent owner shall be entitled to a rebuttable presumption that the court should grant a permanent injunction with respect to the infringing conduct.
Rep. Moran: Yeah.
Mr. Iancu: So let me ask a few questions about this, and just to raise, you know, some concerns that have been voiced on one side or the other and see what you think about them. One concern that’s been raised is, why is it a rebuttable presumption? Why isn’t it just simply automatic? Why doesn’t it just say that the owner shall be entitled to an injunction?
Rep. Moran: Yeah, I think – you know, I’m a lawyer, and I was a judge for a while. I didn’t do this kind of judicial work, but I do think there is great value in judicial discretion when you’re looking at facts of the case. I’m not a believer that the legislature, unless it absolutely has to, should mandate every situation. We cannot, I don’t think, conceive of every situation. But what you want to do is you want to balance that power, again, between the inventor and the infringer in that situation. And this is only when there’s been a final judgment of infringement. So we’re not talking about instances other than that. That’s really important to know.
So we’re not cutting people off from using the patent unless there’s been a determination that’s a final judicial determination that infringement has taken place. And so under those circumstances instead of putting the burden on the plaintiff, like you saw under eBay for the four factor test to come up with all this proof to the judge to convince them that, OK, we really need an injunction afterwards to show irreparable injury and to balance the interests and to show the public there’s no public interest that’s disserved by what’s going on.
Well, instead of that, why not give him – give him or her the rebuttable presumption to say, hey, man, you’ve been infringed. We’ve made that finding. We’ve had a full trial. And if there is – if there’s some good reason, that goes back to, really, the test that you saw before eBay of, absent special circumstances, they’re going to be entitled to that injunction. So it really reverts back to the law that was there for 200 years that still gives some discretion to the court, but says, yeah, but we’re going to start leaning in favor of the one that has been infringed, that we have found infringement in favor of.
Mr. Iancu: And the reality is, again, it’s a property right. And this is an equitable remedy. And it’s – forever, since the beginning, it was an equitable remedy. And therefore, you had a presumption. It was a strong presumption. But nevertheless, it’s a presumption. And as you said, you know, it’s always been the case that the defendant has the opportunity to say, look, there might be some extenuating circumstances, like in, you know, 1 percent of the cases, or whatever small number, that we just cannot do it this time. It happens in property, in real property, right? Sometimes you have exceptions to kicking out squatters.
Rep. Moran: Yeah. And you want to – you want to – you want some good cause ability in there for the court to say, OK, under this fact scenario we’re just not going to do it. But it should be the exception, not the rule. And it should certainly, I think, start in favor of the plaintiff and keep the burden on the defendant to come back to that court and say, well, in this case it shouldn’t happen.
Mr. Iancu: Now, on the other side of the argument there are folks – so the previous question is posed by people who want really strong patent rights. But now there are people who are on the other side and say, well, look, if you pass this bill and now you have injunctive relief again, we’re going to have all sorts of trouble with having companies stop selling products that consumers like, or we’re going to have the troll problem again, when trolls are going to sue people and get them off the market. What do you think –
Rep. Moran: Yeah, I think these are red herrings. Because what is not going to stop –it’s not going to stop the production of current products that are ongoing where there’s a contention of infringement. What it’s going to do is it’s going to force everybody to the negotiating table. It’s going to redistribute the negotiating power the way it should have been in the first place. And then you’re going to get a free market determine the free market value of that patent between two willing – two willing parties, with that appropriate threat of injunction overhead to say, if you don’t give us what is the market value of this patent or this intellectual property right, then we’re potentially going to get an injunction, and potentially, after a trial, stop you from using this intellectual property. But it brings people back to the table and it rebalances the equities at the table.
Mr. Iancu: Yes. Couldn’t agree more. Again, it’s like with any other property, right? If there – you know, like buying a car. The only reason I’m buying a car is because if I just take it – (laughs) – without your permission, you know, you’re going to call the police or, you know, you’re going to try to keep me out of it through the rule of law. But if I can just take the car and then maybe pay you five years later, if I win in court, you know, I probably will never buy one.
Rep. Moran: And this idea of trolls – and I know that – I know that there are some out there, I’m sure. But the truth is, there’s a – it’s been overly broad. That term has been used overly broad. And you get – what you get swept up into that overly broad term is a bunch of really great investors – inventors that couldn’t get it to market that really own a genuine intellectual property right, that need to enforce that property right, but because they’re such a small guy there’s no way they can do it against the big guys out there unless rights like this exist, and rights like this come back in place to say, again, we need to rebalance the negotiating power here at the table.
Otherwise, the big guys are just going to – and I love the big guys. I’m sure there’s probably some big guys in the room here today. Really, I have no problem with the big patent holders. But at the end of the day, there has to be some balancing of that negotiating power. And that’s good for the free market and for everybody long term. And they’re still going to make plenty of money off of whatever product they use.
Mr. Iancu: Yeah. I want to, if it’s OK with you, I’d like to give an opportunity to – if there are any questions in the audience.
Rep. Moran: Easy questions only.
Mr. Iancu: Yeah, no law school questions there, Professor. But – (laughs) – I don’t know why everybody’s looking at Adam. (Laughter.) Any questions? Otherwise, we’ll keep going here ourselves, but thoughts? Anyway, you can keep thinking.
Rep. Moran: I can talk about turkeys. I did two great turkeys last week. And I can tell you how I did both of them. They turned out great.
Mr. Iancu: While you guys are thinking, let me ask you, Congressman, just stepping back, how did you come to IP? And, you know, a member of Congress has a thousand or a million issues to deal with. Why are you taking an interest in this?
Rep. Moran: Well, it was – it’s kind of part of my background a little bit, but then more than that it’s really my district has such an impact on it. You guys probably all know the Eastern District of Texas. And that’s where I’m from. I represent 17 counties in Northeast Texas. That include Tyler, Marshall, and Texarkana, and those areas. I started practicing law in 2002. And back then, Judge Ward was running the rocket docket in the Eastern District of Texas as smoothly as anybody. And as a local council guy with local large litigation firm in East Texas, which is pretty small comparatively speaking, we got swept into some of those intellectual property cases. And so there was a period of time there, probably about five years, where I was involved in quite a bit of intellectual property, both local council and then at some point even tried as a codefendant a case with Judge Ward back in 2008. That’s been a long time ago.
And so that gave me a real – a love and an understanding for how complex it is, but how important it is. And how important it is that the parties on both sides get surety of the process and surety of the end point at some point. I mean, that’s really what made, I thought, the Eastern District of Texas unique and special was it didn’t favor a plaintiff or a defendant. It favored a process that brought – that brought an end to a controversy that was causing business entities to not know what their rights were. And at some point, you need to have surety. And as a business and litigation and commercial litigator throughout my 20 years or so, that’s what my business guys always needed. They needed surety. They weren’t in that – they were not in the business – especially the small guys – not in the business of litigation. They were in the business of making widgets, or the business of whatever it is they were in the business is.
And that’s what I would tell them when they came in to talk to me. Was unless you absolutely have to fight, you don’t want to get drug into this fight. But if it is absolutely essential to what you’re trying to do, get in there. Let’s fight it. Let’s do it. And let’s get some surety and get it behind us so you can get on with your life and your business. That’s why it was important to me. But I saw those young businesses struggle. And I represented some guys that were on the small end of that stick, and saw some of their lives and their livelihoods devastated as a result of bigger entities really crushing down on them and the weight of that litigation. And we needed – we needed some surety. And we needed their innovation. And these – some of these guys were just sitting in their home and they came up with a great idea. And they needed that innovation to pay off for them.
Mr. Iancu: Well, that’s great. And one of the beautiful things about IP, not only, as I find, you know, I’m a little biased, but I think it’s one of the best issues to be working on. But it’s also bipartisan. And as we can see on this bill, it’s a couple Republicans, a couple Democrats, with you in the lead. And, you know, we have – we have Ms. Deborah Ross from North Carolina, who also spoke here on other IP issues.
Rep. Moran: You got Chip Roy, you got Madeleine Dean, you got me, you got Coons, you got – you got –
Mr. Iancu: Hank Johnson and Tillis, yeah.
Rep. Moran: Yeah. I mean, you got – you got everybody all over it. And so it really is the spectrum of people that do believe in ingenuity, and innovation, and property rights solely. And that is not a Republican issue. It’s not a Democratic issue. Madeleine Dean and I have done a couple of bills together on the Judiciary Committee and some in the creative rights space to try to protect those in the arts that are making music and making film, and in particular against artificial intelligence. And she and I see eye to eye on these issues, of saying, we want creativity and ingenuity.
We were – my staff and I were talking about musicals coming over here. And it’s one of my hidden secrets. I love the arts. I love creative arts. I love innovation. I love watching it. I never could do it. And so I so respect those that are able to do it and have the mind to do it. And want to help them protect it so that they can continue to do it.
Mr. Iancu: Yeah. And I often say when you guys cannot get along on anything, you use IP as team building exercises. So it’s great. Are you working – so in the Senate – I misspoke. I think it’s Coons and Cotton.
Rep. Moran: It is Cotton.
Mr. Iancu: Yeah. Not Coons and Tillis, on this one. But are you working with your counterparts in the Senate? I think they’re planning the hearing this month.
Rep. Moran: Yeah. We’re keeping tabs with them. They know this is really important to us. We want to see them drive this. I think that’s where it would be best be driven through, is the Senate. And if we can get it through the Senate, then maybe we can – we can get it – get something done. That’d be nice to get something done pretty quickly. And so we are in constant contact with them about this issue. It’s super important. Again, we take votes. And this is the dirty little secret we’re not supposed to say. We take votes all the time that, frankly, are not that consequential. They’re just not.
This is a consequential vote. This is a consequential issue. And you guys know it. That’s why you’re here in this room. And whether – I know there probably is still stuff to kind of work out as we get through this, if we can get this passed and get it back into place. But the pendulum – frankly, the pendulum swung so far to the wrong side on the eBay case. And it created such a problem for our innovators and our inventors. We have got to swing that pendulum back and find the right ground for us to land long term so that our economy can grow and our innovation can be restored.
Mr. Iancu: Well, on that – anything from the audience? Not seeing anything. Let me just ask one last question, and we can leave it there. But other than just specific patents, you know, patents are a tool. It’s a very important tool. In fact, it’s the foundational tool to innovation. But there are other issues and policy considerations to turbocharge our innovation economy for us and our trading partners overseas, so that we’re competitive. What else are you working on or thinking about domestically, internationally, when it comes just to the innovation economy in general?
Rep. Moran: Yeah. I mentioned some of it earlier. I think the tax code is really big part of this. You guys need to take a heavy interest in what’s going to happen in Ways and Means this next year because the tax code will drive, for both large and small entities, a lot of the innovation that happens in the United States in the coming years. Let me just give you an example. Section 199A is really important. You know, more than 90 percent of the entities that are functioning in the United States are passthrough entities, passthrough tax entities? Well, 199A is a part of the code that allows those passthrough entities to effectively have a lower rate that is equivalent to what a C corporation would have on their tax rate.
But this next year, after 2025, it goes up from about a 22 percent effective rate to about a 43 percent effective rate for passthrough entities if we don’t do anything. Now, think about those 90 percent entities. Most of those are smaller entities. Those are the innovators. Those are the – when somebody starts to develop a new product, they’re going to – they’re probably going to get online and spend $1,000 to form a business. And it’s probably going to be an LLC, because they’re a lot simpler at the very beginning. So it’s a passthrough tax entity for them. They’re not going to realize – and they may not go see a CPA and realize the difference in the tax consequences of that. And now in one year they’re going to move from, like, 22 percent tax rate to about 43 percent, 43.5 percent tax rate.
They can’t sustain that. So that is just as important as anything else when we talk about how are we building back into our innovators. We’ve got to keep that tax burden low. We need to take the – keep the regulatory burden low. We need to continue to work with our European partners. I mentioned this earlier that, you know, we’re about 25 percent of the world’s GDP. Europe is about 25 percent of the world’s GDP. Together can you imagine the influence we could have on the world if we worked in concert on intellectual property, on pushing back when it comes to trade, export controls, or regulatory burdens, or blocks on technologies coming in from China that we know are taking our national security data and using it inappropriately? Like TikTok. I mean, we dealt with that last year, and I’m glad we did. And hopefully the courts will agree with us on that issue.
But if us – if we and Europe work together on that issue, big deal for us. I just hosted 16 members of the European Parliament in Fort Worth about three weeks ago. And this was one of the things we talked about. We talked about how do we work together to protect our intellectual property, to push back against China on trade issues, and on tariff issues, and on financial issues as well. So it’s important that we work together with those partners of democracy around the world. It’s critically important because if we protect just a quarter of the world’s economy and Europe doesn’t go along with us, well that’s just a new market for China. They don’t have to look to us. They can look to Europe. We need to stand together on that.
Mr. Iancu: Yeah. And the reality is that it’s all an integral system. And we can’t forget about any of the components that you mentioned. It’s not just tax. It’s trade, it’s education, but also manufacturing. And advanced manufacturing, onshoring, all of that. The concept that you can divorce manufacturing from innovation is just purely academic and it’s so impractical. Because the reality is necessity is the mother of invention, OK? It’s real. And unless you have – you’re working your technology, and you’re failing, and it’s not working, something’s not working, and you’re forced to actually innovate to make it better on the ground, you’re not going to innovate at the same rate. So if all this technology is being manufactured overseas and we think we can just simply sit here in the United States and just somehow invent stuff for them to make over there, it’s not going to work. So all that is interrelated.
Rep. Moran: I agree. And the reshoring can happen both in a bipartisan manner, because the Republicans and Democrats both want to see manufacturing come back over here, and both of us understand it needs to happen differently than it did before. And I’m going to give you a quick example. I’ve got in Texarkana a huge tire plant. And when I went through that tire plant about six months ago, half of the tire plant is still on old technology, old machines. And so you got so much more labor there. And it’s a unionized plant. And then you come over to the other side, where there’s new technology, where one guy is now doing the function of what 13 did on the other side of the plant, and that’s the exact number that was given.
And one of the questions I asked was trying to figure out, well, how did the union respond? Because I know that can be kind of tension sometime. And they said, no, they embraced it. It was – because now they’re able to do more. And they didn’t actually have to get rid of folks. They just spread them out. They upskilled them, because they had higher technology. So they’re more efficient, they’re cheaper, they’re higher quality, and now their labor is getting higher skilled and getting paid more. And so the union was, like, we’re all in favor of the new technology coming in. So now this reshoring of manufacturing here can happen with higher technology and still be union friendly when it needs to be in those instances, so that we can get that bipartisan support. It’s not – it’s not an issue that I think is going to be opposed on one side or the other.
Mr. Iancu: Well, Congressman, thank you very much. Thank you for everything you do, and the amazing leader you are for IP and innovation in the United States.
Rep. Moran: My pleasure. I sure enjoyed the conversation today. Thank you so much. Thank you, guys.
Mr. Iancu: Thank you. (Applause.)
(END.)
