Acting Principal Deputy Assistant Attorney General Michael Murray Delivers Remarks to the Honorable Lee Yeakel IP Inn of Court

Remarks as Prepared for Delivery

Recent Developments at the Intersection of Intellectual Property and Antitrust Law 

Good evening and thank you for inviting me to join you this evening. I’m pleased to have the opportunity to discuss the Antitrust Division’s intellectual property and antitrust portfolio, which has been a cornerstone of our efforts over the last few years. I’d like to thank Tim, Jacob, and Craig for their excellent setup, which allows me to dive into some of the critical issues we’ve spent the last several years addressing.

Assistant Attorney General Makan Delrahim articulated the Antitrust Division’s guiding principles for IP enforcement early in his tenure.[1] The New Madison Approach, as he termed it, is named for founding father James Madison’s commitment to strong intellectual property rights, which he saw as critical to preserving innovation. Honoring its namesake, this approach fosters a balance between patent holders and implementers: it ensures that patent holders have sufficient incentives to innovate and develop new technologies, while licensees have appropriate incentives to adopt those technologies.

The New Madison Approach has played a particularly important role in recalibrating the application of antitrust law to conduct involving standard essential patents (SEPs) and the alleged “hold up” problem. For some time, certain advocates have been pushing the view that SEP holders, after making the commitment to license their SEPs on FRAND terms, might renege on this commitment and refuse to do so. Instead, they might exploit their newfound position as standard-essential to “hold up” implementers for supra-FRAND rates or discriminatory terms. Some have argued this conduct is not merely a contractual problem (or even a patent problem), but an antitrust one, as well. And they have proffered that the hammer of antitrust liability and treble damages should be deployed in such instances. Some have gone so far as to argue that the potential competition concerns mean that injunctions should be all but unavailable to SEP holders who have made FRAND commitments.

The New Madison Approach takes into account the potential for this kind of conduct to actually harm competition, but also takes into account related concerns and phenomena: dynamic competition and innovation over the long term; potential anticompetitive conduct by implementers—known as the “hold out” problem—the flip side of the hold up coin; and actual observations of how standards development organization (SDO) members have behaved over the last several years. By comprehensively analyzing the landscape, the New Madison approach is able to reach a more balanced conclusion and to establish a framework that favors neither patent holders nor implementers, but the consumers who depend upon healthy competition in these markets.

As explained earlier, there are four basic premises underlying the New Madison approach. These are: First, that the hold up problem is not an antitrust concern. Second, that SDOs should not be transmuted into vehicles for implementers to engage in concerted action to skew negotiations and conditions in their favor. Third, that SDOs and courts should retain the high bar typically required to restrict a patent holder’s right to exclude, given that right is a foundational patent right. Fourth, and relatedly, that a unilateral and unconditional refusal to license a patent should be considered per se legal for antitrust purposes.

We can discuss these premises further in the Q&A that follows if there is interest, but for now I would like to expand a bit on the issue of whether and when hold up might actually occur, as a factual and empirical matter. Some advocates have begun to take the existence and prevalence of holdup in the SEP space as nearly a given—something that is not only occurring, but is perhaps pervasive and may even be presumed. But the evidence says otherwise. As the Antitrust Division recently explained in a letter it issued to IEEE-SA (which I will discuss in a moment), “concerns over hold-up as a real-world competition problem have largely dissipated.”[2] While theories that competition might be harmed by ill-intentioned SEP holders were introduced in the early 2000s, they remain today, as AAG Delrahim described them, “an empirical enigma.”[3]

There are a few likely culprits that help to explain why we are not observing SEP hold up as a common phenomenon. As far back as 2007, the Division and the Federal Trade Commission explained, in our joint report on Antitrust Enforcement and Intellectual Property Rights, that “[w]hether and at what point hold up can occur will vary, depending on a variety of factors.”[4] These factors may or may not be present in any given case, and include things like what substitutes might be available, the existence and extent of switching costs, the significance of any relationship-specific investments and, importantly, market power.

Market power for antitrust purposes is “the ability to profitably maintain prices above, or output below, competitive levels for a significant period of time.”[5] Consistent with Supreme Court guidance, we do not assume that a patent, even a standard essential patent (or a copyright or trade secret, for that matter) necessarily confers market power on its owner.[6] This is a basic premise that we recognize in our IP Guidelines, as do competition enforcers across the globe, including the European, Canadian, and Chinese competition agencies.[7] Whether market power exists is a fact-specific question—just like the question of whether hold up is actually occurring. To ascertain whether a patent owner has market power, we look to factors such as the presence of alternative products or technologies that may constrain a firm’s ability to affect market prices or output, and potential barriers to entry that may limit or prevent rivals from entering in response to higher prices or reduced output.

We need several factors to be present, then, for hold up to be possible in the first instance. That should preclude a presumption that hold up is occurring as a general matter. Moreover, merely because factors indicating hold up might be possible are present does not necessarily mean hold up will occur. There are, in fact, many reasons to be skeptical. Numerous patent holders in the SDO space are also implementers, and so would risk other patent holders retaliating in response to perceived hold up. Many are also repeat players in SDOs, and a reputation for reneging on FRAND commitments might encourage the SDO to try to design around a bad actor in the future or to alter policies to better police such behavior. Indeed, SDO members—both patent holders and implementers—are sophisticated parties with long term stakes in developing successful standards that can be readily deployed.

If we are concerned with the potential for hold up between sophisticated parties, we should also be attuned to other strategic behavior, including the potential for hold out, when implementers might try to exploit an SEP holder’s FRAND obligations. The hold out concern has, in fact, grown in recent years as some have attempted to shift the bargaining power more heavily to favor implementers. For instance, some argue for making breach of a FRAND obligation an antitrust violation, or for making injunctions effectively unavailable to SEP holders who make FRAND commitments. The legal landscape affects negotiation leverage, which in turn informs both patent holders’ and implementers’ incentives. Using antitrust law to enforce FRAND commitments and penalize SEP holders would significantly diminish the incentives of innovators to invest time and money in new inventions—to the detriment of the consumers whom antitrust enforcers are tasked with protecting.

The Division has worked hard to recalibrate this balance in a more consumer friendly way, and I’d like to discuss two areas where we are seeing promising developments. The first is in courts—both domestic and foreign—and the second is in the policy space, and in particular our business review process.

On the amicus side, as we were discussing earlier, the Division submitted an amicus brief in the Ninth Circuit in FTC v. Qualcomm, Inc.[8] Our brief explained that the district court’s opinion failed to identify the requisite harm to competition, condemned legal profit-maximizing conduct, and abandoned clear Supreme Court precedent.[9] The Ninth Circuit found the lower court did indeed err, reversing its opinion and vacating its injunction. The appellate court explained that this case required it “to draw the line between anticompetitive behavior, which is illegal under the federal antitrust law, and hypercompetitive behavior, which is not.”[10] It correctly identified the focal point of the antitrust analysis: harm to competition. In line with this focus, it expressed skepticism that hold up is an antitrust concern, citing experts like retired Chief Judge Paul R. Michel of the Court of Appeals for the Federal Circuit, who argued that “it would be a mistake to use ‘the hammer of antitrust law . . . to resolve FRAND disputes when more precise scalpels of contract and patent law are effective.’”[11] The court further declined to “adopt an additional exception . . . to the general rule that ‘businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing,’” even when SEPs were involved.[12] The Ninth Circuit recently declined to rehear this case en banc, meaning the sound principles and conclusions expressed in the unanimous panel opinion will continue to provide good guidance for the lower courts.

Also as mentioned, the Division filed a statement of interest in the Northern District of Texas in Continental Automotive Systems v. Avanci—which squarely presented the question of whether an SEP holder who makes and allegedly reneges on a FRAND commitment can be liable under Section 2 of the Sherman Act.[13] We explained why accepting the plaintiff’s theory in the case would work an unwarranted expansion of U.S. antitrust laws, hamper incentives to innovate, and harm consumers. The district court dismissed the case, largely along the lines we articulated in our statement of interest. It cited the Ninth Circuit’s recent Qualcomm decision, noting that courts “must be cautious ‘about using the antitrust laws to remedy what are essentially contractual disputes between private parties.’”[14] The court then specifically declined to adopt the approach the Third Circuit established in Broadcom Corp. v. Qualcomm Inc.,[15] holding the “use ‘of deception simply to obtain higher prices normally has no particular tendency to exclude rivals and thus to diminish competition.’”[16] Like the Ninth Circuit, the district court recognized that the crux of the antitrust concern is whether competition has been harmed, and ultimately held that “[i]t is not anticompetitive for an SEP holder to violate its FRAND obligation.” The case is now before the Fifth Circuit on appeal, and we are hopeful that the panel decision will continue to build upon the positive trends we are seeing.

The Division is also pleased that principles of the New Madison approach have been vindicated in recent foreign court decisions. This past May, for instance, the German Federal Court of Justice decided Sisvel v. Haier—a case involving hold out behavior.[17] Haier, the implementer, had been intransigent in negotiations, rejecting Sisvel’s repeated licensing offers but making no offers of its own. The German high court held that an implementer must be willing to take on a license on any terms that are FRAND, and must make offers of its own, rather than merely rejecting the patent holder’s offers. The Court also held that the commitment to offer “nondiscriminatory” licensing terms doesn’t mean that once a patent holder makes an offer to one implementer, it automatically has to make the exact same offer to all other implementers.

The UK Supreme Court’s decision in August in Unwired Planet v. Huawei also aligns closely with tenets of the New Madison approach.[18] There, the Court—like the German court—held that differential pricing was not necessarily discriminatory pricing, and that there are valid reasons for an SEP holder who makes a FRAND commitment to offer each licensee different terms. It further held that SEP holders may be entitled to injunctive relief and are not limited to seeking monetary damages. The court specifically acknowledged the hold out concern, explaining that, “if the patent holder were confined to a monetary remedy, implementers who were infringing the patents would have an incentive to continue infringing until, patent by patent, and country by country, they were compelled to pay royalties.”[19] The Division has advanced this same position in amicus briefs and in our 2019 Joint Statement with the USPTO and NIST, emphasizing that special rules or standards for injunctive relief in the SEP and FRAND context are unwarranted and that FRAND commitments are but one factor to be considered in determining whether an injunction should issue.

It’s been very encouraging to see these early signs of potential convergence by domestic and foreign courts toward sound principles at the intersection of IP and competition law that will encourage dynamic competition for years to come.

The Division also has made important strides in this space through our Business Review Process. For those who might be unfamiliar, this process allows private parties to seek the Division’s enforcement intention regarding proposed conduct.[20] The parties provide the Division with certain documents and information, and the Division may write a letter expressing our intent—or, more often, non-intent—to challenge that conduct. We have continued to be busy with business review requests in the IP space over the last few years.

Particularly apropos to mention this week, as COVID-19 vaccines are beginning to roll out across the United States, is a letter we issued earlier this year. This summer, several pharmaceuticals companies utilized the expedited process we implemented in March to help those working to respond to the ongoing pandemic.[21] They proposed to exchange limited information regarding the manufacture of monoclonal antibodies that might be developed to treat the virus, in order to expedite production and hopefully get effective treatments to consumers more quickly. We are very proud of the Division’s excellent work to review their proposal, identify the relevant competition concerns, and quickly issue a positive letter to the parties.

Another critical step we took this year was supplementing our 2015 IEEE business review letter. Now, the Division typically does not need to act after issuing a positive business review letter. This was a highly unusual action we deemed necessary after hearing several reports over the last three years that the 2015 IEEE Letter was being misused and mischaracterized by stakeholders, not only here in the U.S. but abroad as well. Particularly concerning were reports that parties, like IEEE, were representing to competition enforcers outside the U.S. that our 2015 Letter was an endorsement of IEEE’s policy, including its approach to limiting injunctive relief for SEP holders (among other things). We were beginning to see evidence that other agencies were relying on those mischaracterizations of our letter, and that this approach might be chilling participation in IEEE’s SDO process and potentially hampering innovation.

When our competition advocacy is being abused and perversely appears to be harming consumer welfare, we not only have the ability to respond, but the obligation to do so. As my colleague, Deputy Assistant Attorney General Alex Okuliar recently explained,[22] our review process itself reserves the Division’s authority “to bring whatever action or proceeding it subsequently comes to believe is required by the public interest.”[23] The stakes for consumers when our efforts are misconstrued and misused are very real. Adoption of policies or standards that undermine innovation—particularly when there are international ramifications that may magnify these effects—portend significant damage to consumer welfare. Much of the growth in our economy derives from dynamic competition and innovation, so behavior that impairs innovation is especially harmful. While there was a clear need for us to act here, we are confident that the circumstances necessitating our 2020 IEEE Letter were uncommon and that this supplement will remain an outlier. IEEE is now well-positioned to ensure that their policies and advocacy are aligned with modern antitrust law and policy, and that they are working to ensure consumers across the globe continue to benefit from a healthy competitive process and continuing innovation. We look forward to seeing positive developments from them in this space.

This year we also issued a positive letter in response to a request from Avanci LLC.[24] Avanci aggregates patents that are essential to the 2G, 3G, and 4G cellular standards, and licenses them to vehicle manufacturers en masse on behalf of the patent holders. It plans to perform similar functions with SEPs for the 5G standard, and sought our review of its pooling practices.

We spoke with industry stakeholders, conducted our own analysis, and concluded that Avanci’s business model is unlikely to harm competition.  Indeed, it may benefit consumers. Transaction cost savings from pooling may be passed on to consumers in the form of lower prices. Patent pools integrate complementary technologies, reduce transaction costs, and help avoid expensive infringement litigation. Implementers don’t have to negotiate separate licenses with each patent holder. Patent holders can join together to find implementers, negotiate licenses, and, if necessary, the pool can facilitate the enforcement of the pool’s patents in court. In this way, patent pools provide a solution to otherwise prohibitively high transaction costs associated with the licensing of thousands of essential patents that go into cellular standards. Avanci also requires an independent evaluation of the pool’s patents for essentiality to the standards, giving comfort to implementers that they are licensing patents they need to implement the standards.  There are, of course, also potential anticompetitive effects of such arrangements. After careful analysis, we determined that Avanci’s arrangements offset many of those potential concerns. For example, Avanci permits SEP holders to negotiate their own individual licenses with implementers, enabling the SEP holders to compete with the aggregate license if they choose to do so, or license in other fields of use. It also includes mechanisms to prevent the exchange of competitively sensitive information.  Based on these safeguards and other factors, we informed Avanci that we did not intend to challenge its aggregation practices in court.

To conclude: we have prioritized efforts to preserve innovation and dynamic competition by focusing on balancing patent holder and implementer incentives and heading off potential wrong turns in the law. Looking back on these past several years, I would say the Division has made great strides and enjoyed considerable success in this endeavor. It’s our hope and expectation that these successes will pay off for years to come, and that the Division will have continue to have many future successes in this area.

 


[1] Makan Delrahim, The “New Madison” Approach to Antitrust & Intellectual Property Law, 1 J. of L. & Innovation 1 (Oct. 2019).

[2] Letter from Makan Delrahim, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Sophia A. Muirhead, Gen. Counsel & Chief Compliance Officer, IEEE, at 4 (Sept. 10, 2020).

[3] . Makan Delrahim, The “New Madison” Approach to Antitrust & Intellectual Property Law, 1 J. of L. & Innovation 1 (2019).

[4]  U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Enforcement and Intellectual Property Rights: Promoting Innovation and Competition, Ch. 3, § I, at 35, n.12 (Apr. 2007), https://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/222655.pdf.

[5]  U.S. Dep’t of Justice & Fed. Trade Comm’n, Antitrust Guidelines for the Licensing of Intellectual Property § 2.2 (Jan. 12, 2017), https://www.justice.gov/atr/IPguidelines/download.

[6] Id.; Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 45-46 (2006) (“Congress, the antitrust enforcement agencies, and most economists have all reached the conclusion that a patent does not necessarily confer market power upon the patentee. Today, we reach the same conclusion.”).

[7] Canadian Competition Bureau, Intellectual Property Enforcement Guidelines § 4.1 (Mar. 13, 2019), https://www.ic.gc.ca/eic/site/cb-bc.nsf/eng/04421.html#sec04; Commission Regulation 316/2014, § 5, 2014 O.J. (EC); Guidelines on the Applicability of Article 101 of the Treaty on the Functioning of the European Union to Horizontal Co-operation Agreements, ¶ 269, COM (Jan. 14, 2011); Korea Fair Trade Comm’n, Review Guidelines on Undue Exercise of Intellectual Property Rights § II.2.C (Dec. 17, 2014); Taiwan Fair Trade Comm’n, Disposal Directions (Guidelines) on Technology Licensing Arrangements § 3 (Aug. 24, 2016); State Council Anti-Monopoly Comm’n, Guidelines on Intellectual Property, Art. 2, 27 (the Department is using an unofficial translation of the Guidelines); State Admin. for Market Regulation, Regulations on prohibiting abuse of intellectual property rights to exclude and restrict competition Art. 6 (Nov 3, 2020).

[8] FTC v. Qualcomm Inc., 969 F.3d 974 (9th Cir. 2020).

[9] Br. of the United States as Amicus Curiae in Support of Appellant and Vacatur, FTC v. Qualcomm Inc., No. 19-16122 (9th Circ. 2020), https://www.justice.gov/atr/case-document/file/1199191/download.

[10] Qualcomm Inc., 969 F.3d at *982.

[11] Id. at *997 (quoting Amicus Curiae Br. of the Honorable Paul R. Michel (Ret.), at 23).

[12] Id. (quoting Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc. 555 U.S. 438, 448 (2009)).

[13] Continental Auto. Sys., Inc. v. Avanci, LLC, No. 19-CV-02933-M, 2020 WL 5627224, at *12 (N.D. Tex. Sept. 10, 2020).

[14] Id. at *11, n.13 (quoting Qualcomm, 969 F.3d at *997).

[15] Broadcom Corp v. Qualcomm Inc., 501 F.3d 297, 314 (3d Cir. 2007).

[16] Continental Auto., 2020 WL 5627224, at *11 (quoting Rambus Inc. v. FTC, 522 F.3d 456, 464 (D.C. Cir. 2008)).

[17] Sisvel Int’l S.A. v. Haier Deutschland GmbH, [BGH] [Federal Court of Justice] May 5, 2020, KZR 36/17.

[18] Unwired Planet Int’l Ltd. v. Huawei Techs. Co., [2020] UKSC 37.

[20] 28 C.F.R. § 50.6.

[21] Letter from Thomas O. Barnett, Covington & Burling LLP, to Makan Delrahim, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice (July 15, 2020).

[22] Alexander Okuliar, Deputy Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, Promoting Predictability and Transparency in Antitrust Enforcement and Standards Essential Patents, Remarks to the Telecomm. Industry Ass’n (Dec. 8, 2020).

[23] 28 C.F.R. § 50.6(9).

[24] Letter from Makan Delrahim, Ass’t Att’y Gen., Antitrust Div., U.S. Dep’t of Justice, to Mark H. Hamer, Baker & McKenzie (July 28, 2020), https://www.justice.gov/atr/page/file/1298626/download.

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    Good morning. It is my pleasure to be with you today, even if only through a video screen. Thank you very much to Shinshu University and my hosts for your kind invitation to join the list of distinguished speakers, panelists, and participants in today’s important event. It is my great privilege to be here today representing the women and men of the Criminal Division of the U.S. Department of Justice, and I look forward to speaking with you about some of our important work over the past year enforcing the federal criminal laws.
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  • Nuclear Weapons: Action Needed to Address the W80-4 Warhead Program’s Schedule Constraints
    In U.S GAO News
    The National Nuclear Security Administration (NNSA), a separately organized agency within the Department of Energy (DOE), has identified a range of risks facing the W80-4 nuclear warhead life extension program (LEP)—including risks related to developing new technologies and manufacturing processes as well as reestablishing dormant production capabilities. NNSA is managing these risks using a variety of processes and tools, such as a classified risk database. However, NNSA has introduced potential risk to the program by adopting a date (September 2025) for the delivery of the program's first production unit (FPU) that is more than 1 year earlier than the date projected by the program's own schedule risk analysis process (see figure). NNSA and Department of Defense (DOD) officials said that they adopted the September 2025 date partly because the National Defense Authorization Act for fiscal year 2015 specifies that NNSA must deliver the first warhead unit by the end of fiscal year 2025, as well as to free up resources for future LEPs. However, the statute allows DOE to obtain an extension, and, according to best practices identified in GAO's prior work, program schedules should avoid date constraints that do not reflect program realities. Adopting an FPU date more consistent with the date range identified as realistic in the W80-4 program's schedule risk analysis, or justifying an alternative date based on other factors, would allow NNSA to better inform decision makers and improve alignment between schedules for the W80-4 program and DOD's long-range standoff missile (LRSO) program. W80-4 Life Extension Program Phases and Milestone Dates NNSA substantially incorporated best practices in developing the preliminary lifecycle cost estimate for the W80-4 LEP, as reflected in the LEP's weapon design and cost report. GAO assessed the W80-4 program's cost estimate of $11.2 billion against the four characteristics of a high quality, reliable cost estimate: comprehensive, well-documented, accurate, and credible. To develop a comprehensive cost estimate, NNSA instituted processes to help ensure consistency across the program. The program also provided detailed documentation to substantiate its estimate and assumptions. To help ensure accuracy, the cost estimate drew on historic data from prior LEPs. Finally, to support a credible estimate, NNSA reconciled the program estimate with an independent cost estimate. GAO considers a cost estimate to be reliable if the overall assessment ratings for each of the four characteristics are substantially or fully met—as was the case with the W80-4 program's cost estimate in its weapon design and cost report, which substantially met each characteristic. To maintain and modernize the U.S. nuclear arsenal, NNSA and DOD conduct LEPs. In 2014, they began an LEP to produce a warhead, the W80-4, to be carried on the LRSO missile. In February 2019, NNSA adopted an FPU delivery date of fiscal year 2025 for the W80-4 LEP, at an estimated cost of about $11.2 billion over the life of the program. The explanatory statement accompanying the 2018 appropriation included a provision for GAO to review the W80-4 LEP. This report examines, among other objectives, (1) the risks NNSA has identified for the W80-4 LEP, and processes it has established to manage them, and (2) the extent to which NNSA's lifecycle cost estimate for the LEP aligned with best practices. GAO reviewed NNSA's risk management database and other program information; visited four NNSA sites; interviewed NNSA and DOD officials; and assessed the program's cost estimate using best practices established in prior GAO work. GAO is making two recommendations, including that NNSA adopt a W80-4 program FPU delivery date based on the program's schedule risk analysis, or document its justification for not doing so. NNSA generally disagreed with GAO's recommendations. GAO continues to believe that its recommendations are valid, as discussed in the report. For more information, contact Allison B. Bawden at (202) 512-3841 or bawdena@gao.gov.
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  • Defense Health Care: Implementation of Value-Based Initiatives in TRICARE
    In U.S GAO News
    The Defense Health Agency (DHA)—the agency within the Department of Defense (DOD) that administers DOD's health care program, TRICARE—has identified a number of value-based initiatives for potential implementation with civilian providers and hospitals under the TRICARE program. These initiatives aim to help DHA build a value-based health care delivery system, in which providers are rewarded for value of services provided instead of volume of services provided. For these initiatives, value is generally measured in terms of improved health outcomes, enhanced experience of care for the patient, and reduced health care costs over time. GAO found that DHA has identified 20 value-based initiatives, including a program that makes incentive payments for hospitals that meet certain quality metrics for maternity services and a program that promotes adherence to medication regimens by waiving co-payments, among others. According to DHA officials, the 20 initiatives include five that have been implemented (two complete, three underway); three that will be implemented in the future—two with anticipated 2020 start dates are currently on hold due to the department's need to focus on the response to the Coronavirus Disease (COVID-19) pandemic and one that is expected to be implemented in January 2021; eight that are still under review, but no decisions have been made about whether and when they might be implemented; and four that were considered but will not be implemented. In fiscal year 2019, DOD offered health care services to approximately 9.6 million eligible beneficiaries worldwide through TRICARE, its regionally structured health care program. Beneficiaries may obtain health care services through DOD's direct care system of military hospitals and clinics or from its purchased care system of civilian providers. DOD contracts with private sector companies—referred to as managed care support contractors—to develop and maintain networks of civilian providers and perform other customer service functions for its purchased care system. The National Defense Authorization Act for Fiscal Year 2017 (NDAA 2017) required DOD to develop and implement value-based incentive initiatives in its TRICARE contracts. The NDAA 2017 also included a provision that required GAO to review these initiatives. This correspondence describes the initiatives DHA has developed and the status of each, as of June 2020. To do this work, GAO interviewed knowledgeable DHA officials and analyzed available documentation on each initiative, including decision papers, congressional reports, and Federal Register notices. For more information, contact Debra A. Draper at (202) 512-7114 or draperd@gao.gov.
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  • Veterans Community Care Program: Improvements Needed to Help Ensure Timely Access to Care
    In U.S GAO News
    The Department of Veterans Affairs (VA) established an appointment scheduling process for the Veterans Community Care Program (VCCP) that allows up to 19 days to complete several steps from VA providers creating a referral to community care staff reviewing that referral. However, as the figure shows, VA has not specified the maximum amount of time veterans should have to wait to receive care through the program. GAO previously recommended in 2013 the need for an overall wait-time measure for veterans to receive care under a prior VA community care program. Subsequent to VA not implementing this recommendation, GAO again recommended in 2018 that VA establish an achievable wait-time goal as part of its new community care program (the VCCP). Potential Allowable Wait Time to Obtain Care through the Veterans Community Care Program Note: This figure illustrates potential allowable wait times in calendar days for eligible veterans who are referred to the VCCP through routine referrals (non-emergent), and have VA medical center staff—Referral Coordination Team (RCT) and community care staff (CC staff)—schedule the appointments on their behalf. VA has not yet implemented GAO's 2018 recommendation that VA establish an achievable wait-time goal. Under the VA MISSION Act, VA is assigned responsibility for ensuring that veterans' appointments are scheduled in a timely manner—an essential component of quality health care. Given VA's lack of action over the prior 7 years implementing wait-time goals for various community care programs, congressional action is warranted to help achieve timely health care for veterans. Regarding monitoring of the initial steps of the scheduling process, GAO found that VA is using metrics that are remnants from the previous community care program, which are inconsistent with the time frames established in the VCCP scheduling process. This limits VA's ability to determine the effectiveness of the VCCP and to identify areas for improvement. In June 2019, VA implemented its new community care program, the VCCP, as required by the VA MISSION Act of 2018. Under the VCCP, VAMC staff are responsible for community care appointment scheduling; their ability to execute this new responsibility has implications for veterans receiving community care in a timely manner. GAO was asked to review VCCP appointment scheduling. This report examines, among other issues, the VCCP appointment scheduling process VA established and VA's monitoring of that process. GAO reviewed documentation, such as scheduling policies, and referral data related to the VCCP and assessed VA's relevant processes. GAO conducted site visits to five VAMCs in the first region to transition to VA's new provider network, and interviewed VAMC staff and a non-generalizable sample of community providers receiving referrals from those VAMCs. GAO also interviewed VA and contractor officials. GAO recommends that Congress consider requiring VA to establish an overall wait-time measure for the VCCP. GAO is also making three recommendations to VA, including that it align its monitoring metrics with the VCCP appointment scheduling process. VA did not concur with one of GAO's recommendations related to aligning monitoring metrics to VCCP scheduling policy time frames. GAO continues to believe this recommendation is valid, as discussed in the report. For more information, contact Sharon M. Silas at (202) 512-7114 or silass@gao.gov.
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  • Performance and Accountability Report Fiscal Year 2020
    In U.S GAO News
    Presented is GAO's Performance and Accountability Report for fiscal year 2020. In the spirit of the Government Performance and Results Act, this annual report informs the Congress and the American people about what we have achieved on their behalf. The financial information and the data measuring GAO's performance contained in this report are complete and reliable. This report describes GAO's performance measures, results, and accountability processes for fiscal year 2020. In assessing our performance, we compared actual results against targets and goals that were set in our annual performance plan and performance budget and were developed to help carry out our strategic plan. An overview of our annual measures and targets for 2020 is available here, along with links to a complete set of our strategic planning and performance and accountability reports. This report includes A Fiscal Year 2020 Performance and Financial Snapshot for the American Taxpayer, an introduction, four parts, and supplementary appendixes as follows: A Fiscal Year 2020 Performance and Financial Snapshot for the American Taxpayer This section provides an overview of GAO's performance and financial information for fiscal year 2020 and outlines GAO's near-term and future work priorities. Introduction This section includes the letter from the Comptroller General and a statement attesting to the completeness and reliability of the performance and financial data in this report and the effectiveness of our internal control over financial reporting. This section also includes a summary discussion of our mission, strategic planning process, and organizational structure, strategies we use to achieve our goals, and process for assessing our performance. Management's Discussion and Analysis This section discusses our agency-wide performance results and use of resources in fiscal year 2020. It also includes, among other things, information on our internal controls and the management challenges and external factors that affect our performance. Performance Information This section includes details on our performance results by strategic goal in fiscal year 2020 and the targets we are aiming for in fiscal year 2021. Financial Information This section includes details on our finances in fiscal year 2020, including a letter from our Chief Financial Officer, audited financial statements and notes, and the reports from our external auditor and Audit Advisory Committee. This section also includes an explanation of the information each of our financial statements conveys. Inspector General's View of GAO's Management Challenges This section includes our Inspector General's perspective on our agency's management challenges. Appendixes This section provides the report's abbreviations and describes how we ensure the completeness and reliability of the data for each of our performance measures. For more information, contact Timothy Bowling (202) 512-6100 or bowlingt@gao.gov.
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  • Whistleblower Protection: Actions Needed to Strengthen Selected Intelligence Community Offices of Inspector General Programs
    In U.S GAO News
    The six Intelligence Community (IC)-element Offices of Inspectors General (OIG) that GAO reviewed collectively received 5,794 complaints from October 1, 2016, through September 30, 2018, and opened 960 investigations based on those complaints. Of the 960 investigations, IC-element OIGs had closed 873 (about 91 percent) as of August 2019, with an average case time ranging from 113 to 410 days to complete. Eighty-seven cases remained open as of August 2019, with the average open case time being 589 days. The number of investigations at each IC-element OIG varied widely based on factors such as the number of complaints received and each OIG's determination on when to convert a complaint into an investigation. An OIG may decide not to convert a complaint into an investigation if the complaint lacks credibility or sufficient detail, or may refer the complainant to IC-element management or to another OIG if the complaint involves matters that are outside the OIG's authority to investigate. Four of the IC-element OIGs—the Central Intelligence Agency (CIA) OIG, the Defense Intelligence Agency (DIA) OIG, the National Reconnaissance Office (NRO) OIG, and the National Security Agency (NSA) OIG—have a 180-days or fewer timeliness objective for their investigations. The procedures for the remaining two OIGs—the Inspector General of the Intelligence Community (ICIG) and the National Geospatial-Intelligence Agency (NGA) OIG—state that investigations should be conducted and reported in a timely manner. Other than those prescribed by statute, the ICIG and NGA OIG have not established timeliness objectives for their investigations. Establishing timeliness objectives could improve the OIGs' ability to efficiently manage investigation time frames and to inform potential whistleblowers of these time frames. All of the selected IC-element OIG investigations units have implemented some quality assurance standards and processes, such as including codes of conduct and ethical and professional standards in their guidance. However, the extent to which they have implemented processes to maintain guidance, conduct routine quality assurance reviews, and plan investigations varies (see table). Implementation of Quality Assurance Standards and Practices by Selected IC-element OIG Investigations Units   ICIG CIA OIG DIA OIG NGA OIG NRO OIG NSA OIG Regular updates of investigation guidance or procedures — — — ✓ — ✓ Internal quality assurance review routinely conducted — — ✓ — — — External quality assurance review routinely conducted — ✓ — — — — Required use of documented investigative plans ✓ ✓ ✓ ✓ — ✓ Legend: ✓ = standard or practice implemented; — = standard or practice not implemented. Source: GAO analysis of IC-element OIG investigative policies and procedures. | GAO-20-699 The Council of Inspectors General on Integrity and Efficiency's (CIGIE) Quality Standards for Investigations states that organizations should facilitate due professional care by establishing written investigative policies and procedures via handbooks, manuals, or similar mechanisms that are revised regularly according to evolving laws, regulations, and executive orders. By establishing processes to regularly update their procedures, the ICIG, CIA OIG, DIA OIG, and NRO OIG could better ensure that their policies and procedures will remain consistent with evolving laws, regulations, Executive Orders, and CIGIE standards. Additionally, CIGIE's Quality Standards for Federal Offices of Inspector General requires OIGs to establish and maintain a quality assurance program. The standards further state that internal and external quality assurance reviews are the two components of an OIG's quality assurance program, which is an evaluative effort conducted by reviewers independent of the unit being reviewed to ensure that the overall work of the OIG meets appropriate standards. Developing quality assurance programs that incorporate both types of reviews, as appropriate, could help ensure that the IC-element OIGs adhere to OIG procedures and prescribed standards, regulations, and legislation, as well as identify any areas in need of improvement. Further, CIGIE Quality Standards for Investigations states that case-specific priorities must be established and objectives developed to ensure that tasks are performed efficiently and effectively. CIGIE's standards state that this may best be achieved, in part, by preparing case-specific plans and strategies. Establishing a requirement that investigators use documented investigative plans for all investigations could facilitate NRO OIG management's oversight of investigations and help ensure that investigative steps are prioritized and performed efficiently and effectively. CIA OIG, DIA OIG, and NGA OIG have training plans or approaches that are consistent with CIGIE's quality standards for investigator training. However, while ICIG, NRO OIG, and NSA OIG have basic training requirements and tools to manage training, those OIGs have not established training requirements for their investigators that are linked to the requisite knowledge, skills, and abilities, appropriate to their career progression, and part of a documented training plan. Doing so would help the ICIG, NRO OIG, and NSA OIG ensure that their investigators collectively possess a consistent set of professional proficiencies aligned with CIGIE's quality standards throughout their entire career progression. Most of the IC-element OIGs GAO reviewed consistently met congressional reporting requirements for the investigations and semiannual reports GAO reviewed. The ICIG did not fully meet one reporting requirement in seven of the eight semiannual reports that GAO reviewed. However, its most recent report, which covers April through September 2019, met this reporting requirement by including statistics on the total number and type of investigations it conducted. Further, three of the six selected IC-element OIGs—the DIA, NGA, and NRO OIGs—did not consistently document notifications to complainants in the reprisal investigation case files GAO reviewed. Taking steps to ensure that notifications to complainants in such cases occur and are documented in the case files would provide these OIGs with greater assurance that they consistently inform complainants of the status of their investigations and their rights as whistleblowers. Whistleblowers play an important role in safeguarding the federal government against waste, fraud, and abuse. The OIGs across the government oversee investigations of whistleblower complaints, which can include protecting whistleblowers from reprisal. Whistleblowers in the IC face unique challenges due to the sensitive and classified nature of their work. GAO was asked to review whistleblower protection programs managed by selected IC-element OIGs. This report examines (1) the number and time frames of investigations into complaints that selected IC-element OIGs received in fiscal years 2017 and 2018, and the extent to which selected IC-element OIGs have established timeliness objectives for these investigations; (2) the extent to which selected IC-element OIGs have implemented quality standards and processes for their investigation programs; (3) the extent to which selected IC-element OIGs have established training requirements for investigators; and (4) the extent to which selected IC-element OIGs have met notification and reporting requirements for investigative activities. This is a public version of a sensitive report that GAO issued in June 2020. Information that the IC elements deemed sensitive has been omitted. GAO selected the ICIG and the OIGs of five of the largest IC elements for review. GAO analyzed time frames for all closed investigations of complaints received in fiscal years 2017 and 2018; reviewed OIG policies, procedures, training requirements, and semiannual reports to Congress; conducted interviews with 39 OIG investigators; and reviewed a selection of case files for senior leaders and reprisal cases from October 1, 2016, through March 31, 2018. GAO is making 23 recommendations, including that selected IC-element OIGs establish timeliness objectives for investigations, implement or enhance quality assurance programs, establish training plans, and take steps to ensure that notifications to complainants in reprisal cases occur. The selected IC-element OIGs concurred with the recommendations and discussed steps they planned to take to implement them. For more information, contact Brenda S. Farrell at (202) 512-3604, farrellb@gao.gov or Brian M. 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    The Federal Deposit Insurance Corporation (FDIC) has designed policies to address the risk of regulatory capture by reducing the potential benefit to industry of capturing the examination process, reducing avenues of inducement, and promoting a culture of independence and public service (see figure). Framework for Reducing Risk and Minimizing Consequences of Regulatory Capture FDIC has several policies for documenting bank examination decisions that help promote transparent decision-making and assign responsibility for decisions. Such policies are likely to help reduce benefits to industry of capturing the examination process. However, GAO found that some examinations were not implemented consistent with FDIC policies and that gaps in FDIC policies limited their effectiveness. For example, GAO found that managers sometimes did not clearly document how they concluded that banks had addressed recommendations. By improving adherence to agency policies, FDIC management could better address threats to capture in the examination process. GAO found that FDIC has policies to address potential conflicts of interest that could help block or reduce avenues of inducement. For example, FDIC has post-employment conflict-of-interest policies designed to prevent former employees from exerting undue influence on FDIC and to reduce industry's ability to induce current FDIC employees with prospective employment arrangements. One such policy requires the agency to review the workpapers of examiners-in-charge who accept employment with banks they examined in the prior 18 months. However, FDIC has not fully implemented a process for identifying when to review the workpapers of departing examiners to assess whether independence has been compromised. In particular, FDIC does not have a process for collecting information about departing employees' future employment. By revising its examiner-departure processes, the agency could better identify when to initiate workpaper reviews. FDIC has identified regulatory capture as a risk as part of its enterprise risk management process. The agency has documented 11 mitigation strategies that could help address that risk. Identified mitigation strategies include rotating examiners-in-charge, national examination training, and ethics requirements. FDIC supervises about 3,300 financial institutions to evaluate their safety and soundness. Some analyses by academic researchers have identified regulatory capture in supervision as one potential factor contributing to the 2007–2009 financial crisis. Regulatory capture is defined as a regulator acting in the interest of the regulated industry rather than in the public interest. GAO was asked to review regulatory capture in financial regulation. This report examines FDIC's (1) processes for encouraging transparency and accountability in the bank examination process, (2) processes to minimize potential conflicts of interest among examination staff, and (3) agency-wide efforts to address the risks of regulatory capture and compromised independence. GAO reviewed FDIC's policies and enterprise risk management framework, analyzed bank examination workpapers, and interviewed supervisory staff. GAO is making four recommendations to FDIC related to managing the risk of regulatory capture, including improving documentation of banks' progress at addressing FDIC recommendations and revising examiner-departure processes. FDIC neither agreed nor disagreed with these recommendations, but described actions it would take in response to them. FDIC's actions, if fully implemented, would address two of the four recommendations. For more information, contact Michael Clements at (202) 512-8678 or clementsm@gao.gov.
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    The Department of Health and Human Services' (HHS) Biomedical Advanced Research and Development Authority has taken steps towards implementing an authority provided by the 21st Century Cures Act to accelerate the development of medical countermeasures. Medical countermeasures are drugs, vaccines, and devices to diagnose, treat, prevent, or mitigate potential health effects of exposure to chemical, biological, radiological, and nuclear threats. However, as of June 2020, HHS had not selected a medical countermeasures innovation partner—an independent, nonprofit entity that the 21st Century Cures Act authorizes HHS to partner with to use venture capital practices and methods to invest in companies developing medical countermeasures. Towards implementing the authority, HHS has developed a vision for the innovation partner, staffed a division to manage HHS's medical innovation partnership and determined an initial amount of funding needed, solicited and considered feedback from venture capital and other stakeholders, and developed preliminary plans for structuring and overseeing the partnership. HHS officials explained this type of partnership approach was new to the agency and required due diligence to develop. According to agency officials, the innovation partner will allow HHS to invest in potentially transformative medical countermeasures that have the potential to benefit the government. For example, the innovation partner could invest in innovative wearable technologies to help early detection of viral infections. HHS officials told GAO that the partner, which is required by law to be a nonprofit entity, will be required to reinvest BARDA's revenues generated from government investments into further investments made through the partnership. BARDA's ultimate goal will be to use these revenues to fund new investments. According to a review of stakeholder comments submitted to HHS, potential venture capital partners identified concerns regarding aspects of the agency's plans for the innovation partner, which the stakeholders indicated could hinder HHS's implementation of the authority. For example, there is a statutory limit to the annual salary that can be paid to an individual from HHS's annual appropriation, which some stakeholders indicated was too low to attract an entity to manage the innovation partner funds. HHS officials told GAO they are assessing options to mitigate some of these concerns, but that plans will not be final until they select the partner. GAO provided a draft of this correspondence to HHS and the Department of Defense for review and comment. HHS did not provide comments on this report and DOD provided technical comments that we incorporated as appropriate. The COVID-19 pandemic and other public health emergencies caused by chemical, biological, radiological, and nuclear agents or emerging infectious diseases raise concern about the nation's vulnerability to, and capacity to prevent or mitigate, potential health effects from exposure to such threats. The 21st Century Cures Act authorized HHS to partner with a private, nonprofit entity that can use venture capital practices and methods to invest in companies developing promising, innovative, medical countermeasures. The 21st Century Cures Act included a provision for GAO to review activities conducted under the innovation partner authority. This report describes the status of HHS's implementation of the authority. GAO reviewed relevant statutes and HHS documentation regarding its plans and actions taken to implement the authority, reviewed responses HHS received to the two requests for information it used to collect information from venture capital and other stakeholders, interviewed HHS officials, and interviewed officials from the Department of Defense, which has partnered with a private, nonprofit entity to make investments using venture capital practices. For more information, contact Mary Denigan-Macauley at (202) 512-7114 or DeniganMacauleyM@gao.gov.
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