BRCA gene

Co-authored by Adriana Benedict and Tiffany Jang

The U.S. Patent and Trademark Office (USPTO) and European Patent Office (EPO) have been granting patents on isolated human DNA since the early 1980s.  Many countries have followed their lead.

More than three decades later, the U.S. has become the first country to reject the patent eligibility of isolated DNA following last week’s Supreme Court ruling in Ass’n of Molecular Pathology v. Myriad Genetics.  Will its opinion have any global ripple effects?

The USPTO has promoted harmonization with its standards of patentability through training and technical assistance programs since 1985.  USPTO patent standards have spread in part due to a partnership established between the USPTO, EPO and Japanese Patent Office (JPO) in 1983.  As noted by the Australian Law Reform Commission, in 1988, these Trilateral Offices issued a joint statement explaining that

Purified natural products are not regarded as products of nature or discoveries because they do not in fact exist in nature in an isolated form. Rather, they are regarded for patent purposes as biologically active substances or chemical compounds and eligible for patenting on the same basis as other chemical compounds.

In response to some uncertainty regarding claim drafting for isolated DNA sequences, the USPTO Manual of Patent Examination and Procedures was updated in 1990 to provide clear guidelines to this effect. Similarly, the JPO’s Implementation Guidelines for Inventions in Specific Fields explicitly provides that isolated genes are patentable; and in the E.U., isolated DNA is patentable under Biotechnology Directive 98/44/EC (although patents on isolated DNA may only be issued in the E.U. if the inventor can show that the genetic sequence exhibits surprising or unexpected properties).  Importantly, the European Commission was influenced by the U.S.’s acceptance of gene patents in its deliberations leading up to the directive.  When it proposed the Biotechnology Directive in 1988, it noted:

[W]hereas the two leading nations in biotechnology, the United States of America and Japan, have been able continuously to adapt their patent protection according to the latest needs of industry, science and consumers, the Member States, representing comparable potential of intellectual manpower and capital, are immobilized by a not yet completed and . . . outdated legal framework.

Other countries have followed suit.  Isolated DNA sequences are patent eligible in Canada as biomolecules, and the Intellectual Property Office of Singapore recognizes patents on genes, in accordance with Howard Florey Institute [Relaxin].  In February of this year, the Federal Court of Australia held that isolated DNA is patentable under the Statute of Monopolies because it embodies a chemical compound, and thus is a “manner of manufacture,” rather than genetic information.

But the Supreme Court is forcing the USPTO to reverse course. In the long-awaited Myriad opinion, the U.S Supreme Court ruled late last week that isolated human DNA is not patentable subject matter because it is naturally ocurring, while complementary DNA (cDNA) is patentable subject matter because it is not naturally occurring. cDNA is a synthetic form of DNA that does not contain introns (nucleotide sequences that don’t encode for proteins), while isolated DNA is composed of exons (protein-coding nucleotide sequences) interspersed with introns.  Because both isolated DNA and cDNA have important research applications, the Supreme Court’s decision in Myriad will have an enormous impact on the future of biotechnology, biomedical research, and diagnostic and therapeutic efforts.

Prior to Myriad, the recognition of human genes as patentable subject matter meant that the owners of patents on isolated DNA could hold monopolies on the genetic information embodied in DNA sequences, raising the cost of access to this information for both patients and scientific researchers. This led to a concern that, among other things, exclusively licensed patents on isolated DNA stood in the way of patient access to secondary opinions confirming the results of genetic tests.  To address this concern, the America Invents Act had directed the USPTO to explore this challenge and propose possible solutions to it; the USPTO’s final report, however, was delayed more than a year and has yet to be released.   

Under common law precedent regarding 35 U.S.C. § 101’s definition of patentable subject matter, laws of nature, products of nature and abstract ideas cannot be patented in the U.S.  As explained in Mayo v. Prometheus, laws of nature constitute “the basic tools of scientific and technological work.”  In addition to playing a major role in the Supreme Court’s ruling in Mayo last year, the law of nature exception has a long history of Supreme Court precedent, including Mackay Radio & Telegraph Co. v. Radio Corp. of America, Funk Bros. Seed v. Kalo Inoculant, and Parker v. Flook.  Indeed, even in Diamond v. Chakrabarty, the case considered to have paved the way for gene patents, the Court expressly stated that “laws of nature, physical phenomena, and abstract ideas have been held not patentable.”  Prior to today’s ruling, it was the long-held practice of the U.S. Patent and Trademark Office (USPTO) to grant patents on isolated DNA. It had been widely believed that because human DNA does not exist in nature in isolated form, isolated DNA could be patented on the grounds that it is a product of human ingenuity.

Petitioners in Myriad challenged the legality of Myriad’s patents on BRCA1 and BRCA2 genes, mutations of which are known to be associated with heightened risk of breast and ovarian cancer. Myriad’s patents on isolated DNA had originally been struck down by the Southern District of New York in a ruling that was later reversed and subsequently affirmed after being remanded by the Supreme Court.  In a unanimous holding (with the exception of some minor concurrences by Justice Scalia on biological explanations), Justice Thomas explained that isolated human DNA is not patent eligible subject matter under § 101 because it constitutes a law of nature.  Specifically, the Court explained that:

1. Myriad did not invent anything by isolating or locating the BRCA1 and BRCA2 genes, but rather identified what already exists in nature;
2. the relevant “patent descriptions simply detail the ‘iterative process’ of discovery by which Myriad narrowed the possible locations for the gene sequences that it sought;
3. the claims at issue cover the information contained in a genetic sequence rather than chemical compositions themselves; and
4. deference to past USPTO practice was not persuasive in the absence of explicit statutory support for the patentability of isolated genes, which is absent from Title 35 of the U.S. Code.

In contrast, the Court explained that cDNA—with the exception of very short strands free from intervening introns—is patentable because it differs from naturally occurring DNA, which contains both introns and exons.

Myriad paves the way for increased competition in the provision of genetic tests for BRCA1 and BRCA2 mutations because Myriad will no longer have a monopoly on all research and diagnostic methods that use the isolated BRCA1 and BRCA2 nucleotide sequences.  On the coattails of the Court’s ruling, many diagnostic companies and research institutions such as Ambray Genetics and the University of Washington announced their intentions to incorporate BRCA1 and BRCA2 into their next-generation sequencing panels, significantly reducing the cost of BRCA1 and BRCA2 diagnostic testing.  Similarly, GeneDX has announced its plans to launch comprehensive genetic testing for hereditary cancers, and DNATraits has said that it will provide a test for $995, less than a third of the cost of Myriad’s test. There has also been speculation that whole genome sequencing will become easier without Myriad’s patents on isolated BRCA1 and BRCA2 sequences. However, Myriad will retain its monopoly over BRCA Analysis, the only test currently used worldwide for determining susceptibility to hereditary breast and ovarian cancer based on an analysis of BRCA1 and BRCA2 mutations.  Additionally, Myriad will retain a monopoly on all research that involves the cDNA of BRCA1 and BRCA2, which includes many research methods that use a probe to assay for gene expression.

Following in the footsteps of Mayo v. Prometheus and Bilski v. Kappos, Myriad is the third case since 2010 in which the Supreme Court has used subject matter eligibility to limit long-standing practice of the USPTO.  This apparent trend demonstrates the risk in exporting the maximum reach of U.S. law and practice at any given time via the USPTO and trade agreements negotiated by the office of the U.S.  What is clear for now, however, is that the Supreme Court is scaling back on the maximalist tendencies of U.S. patent policy, referred to by some as the global IP ratchet.

Will other countries once again follow suit?

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That’s why I was pleasantly surprised by the answer I got at Google’s annual shareholder meeting when I asked cofounder Larry Page why the company is a member of the U.S. Chamber of Commerce, an organization that has publicly opposed many of Google’s positions and interests.

After receiving applause for my question, Google’s head lawyer David Drummond – who was helping Page to answer questions – responded that the company’s membership in the U.S. Chamber is something senior leadership debates a lot. He added that while there are some things that the U.S. Chamber is good for, there is a lot of stuff it does that Google doesn’t agree with.

He concluded by saying that, “while we are members for now, it’s something that we do review.”

Keep up the heat

Obviously there are some doubts at Google as to the value of its affiliation with the U.S. Chamber.

This is all the more reason why we need to keep pushing the company to end its membership.

Recently, U.S. Chamber Watch and our allies from the Corporate Reform Coalition gathered more than 300,000 consumers signatures on a citizen’s petition and got 26 investor groups to send letters asking Google to live up to its “Don’t Be Evil” slogan by ending its ties with the U.S. Chamber.

These consumers and investors are concerned that Google is privately undermining many of the policies it has publicly supported –from green energy to Internet privacy – by being a dues-paying member of the U.S. Chamber.

From the answer I got at the shareholder meeting, it sounds like there are those in leadership positions at Google who feel the same.

We will continue to promote our citizen’s petition and hope you will share it with your friends.

Getting Google to leave the U.S. Chamber would be an important victory because it would send a signal to other companies that being successful doesn’t mean that they have to support the regressive policies of the U.S. Chamber – policies that hurt our economy, our environment, and our democracy.

Jake Parent is the coordinator of Public Citizen’s U.S. Chamber Watch. To learn more about Chamber Watch, follow @uschamberwatch on Twitter and sign up for email updates.

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Unfortunately, Congress is wasting time passing legislation (HR 2231) that opens more federal areas to new drilling but won’t result in lower prices for American households because it won’t provide enough oil to have a significant impact on the world market.

Consumers need more tools to help avoid exposure to increasingly high gas prices. Real legislative solutions to help families would expand access to mass transit and provide greater incentives for fuel-efficient and alternative fuel vehicles, investments in energy efficiency and rooftop solar technology. Simply expanding access to an increasingly expensive, globally priced commodity like oil may make oil companies and their shareholders wealthier, but it dooms consumers to a future of monetarily and environmentally costly energy.

Give consumers more tools to fight high prices, not corporate gifts and empty political rhetoric like “Drill Baby Drill.”

Tyson Slocum is the director of Public Citizen’s Energy Program.

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This bill allows American banks to escape important public protections built into the Dodd-Frank Wall Street Reform Act, by booking their high-risk swap transactions abroad. Proponents claim the bill helps Wall Street’s competitiveness in the global arena, but in truth, the bill exposes American taxpayers to high-risk gambles and actually exports jobs.

If these offshore swaps deals blow up, as did AIG’s London book of CDS (credit default swaps) in 2008, American (not British) taxpayers will foot the bill.  And because British taxpayers won’t be on the hook, , British supervisors will not have the same supervisory incentive to avoid reckless risks.

Proponents of HR 1256 argue that American banks must remain “competitive” and shouldn’t be burdened with tougher rules than their foreign rivals.  This is deceit of chutzpah dimension.  HR 1256 will encourage U.S.-headquartered banks to employ highly paid traders in foreign jurisdictions with lax oversight, not American traders working in the U.S.  These traders will pay personal income tax not to Uncle Sam, but to those foreign jurisdictions.

• Wall Street banks are not patriots with exclusive allegiance to the stars and stripes. JPMorgan employs 18,000 local bankers in more than 80 countries. Total employment at regional U.S. bank PNC, by comparison, is 20,000.  Of Goldman Sachs 32,000 employees, more than half are foreign nationals working abroad, with 5,300 in London’s Canary Wharf alone. Goldman Sachs describes itself as a “a leading global investment bank.”  Citi operates in 140 countries.
• US bank shareholders are not all Americans, so Wall Street bank profits aren’t exclusively paid to Americans.  Saudi Prince Alwaleed bin Talal is one of Citi’s largest shareholders. (Conversely, some of the largest holders of the UK’s HSBC are American institutional investors.)
• U.S. banks operating in a foreign country pay taxes in that country. Goldman Sachs paid $465 million in payroll taxes in the UK last year. Some banks attempt to record U.S. profits to convenient oversees tax havens.

It might be desirable to help U.S. factories employing U.S. workers remain “competitive” in the manufacture of cars for domestic and export sale. But subsidizing U.S.-headquartered banks with taxpayer-backed federal deposit insurance (FDIC) funding so that their London employees can gamble in Canary Wharf CDS index parlors cannot be justified.

Proponents call the bill the “Swaps Jurisdiction Certainty Act”, implying that traders simply want to know the rules.  However, the CFTC has promulgated nearly all the necessary rules, and provides that “certainty” already.

Technically, the bill would allow U.S. regulators to de-certify a specific nation from overseeing U.S. banks operating there. However, that is only allowed following a joint finding and vote by the Securities and Exchange Commission and Commodity Futures Trading Commission that the nation’s rules are not “broadly comparable.” Given that Wall Street has already blocked regulations in court on technical definitions, “broadly comparable” represents a standard that nearly any set of rules might meet.  Politically, de-certifying a nation will be difficult, and is an empty threat.

CFTC Chair Gensler has said the results of such a bill “blows a hole” in Wall Street reform; we agree.

Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch division. Follow him on Twitter at @BartNaylor.

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Maybe a secretive national security office or covert operations outfit? Think again. Actually the most powerful government office you’ve never heard of, according to the former head of the office, is called the Office of Information and Regulatory Affairs, referred to as OIRA for those in the know. To be fair, many readers of this blog are probably in the know — which is a good thing, since tomorrow is the Senate confirmation hearing for the new nominee to head OIRA, Howard Shelanski.

But for those who aren’t familiar with OIRA, a little background is in order. OIRA is a small office within the Office of Management and Budget, meaning, for all intents and purposes, that it’s an extension of the White House. Its job, in a nutshell, is to review regulations from agencies and give the green light before agencies can go ahead with putting those regulations in place. Sounds pretty banal and technical, right? Not quite.

On the surface, OIRA seems like any other White House office that Republicans love to bash (particularly since this one deals with so-called “job-killing” regulations). But scratch below the surface, and you find that Republicans have actually been proposing numerous pieces of legislation in the last few years that would give much more power to this small White House office. In fact, when it comes to Republicans giving the White House more authority, it’s hard to find a better example than OIRA. If you’re like me, you’re probably starting to hear the “Twilight Zone” music somewhere in the background …

Why is this happening? Because Republicans and the Big Business interests that bankroll their campaigns believe that OIRA is their ally in seeking to stall, water down and even roll back crucial new regulatory standards.

OIRA’s recent track record, not to mention historical record, bears this out. OIRA was established in the Reagan administration to counter what Republicans saw as “overzealous regulators.” Under the Obama administration, OIRA still routinely overrides decisions from the Environmental Protection Agency, Occupational Safety and Health Administration, and other agencies working to protect the public. OIRA, as it was first conceived, is working, and Republicans want to make sure it only gets stronger.

Last week, a group of prominent Congress members sent a letter to newly appointed OMB director Sylvia Burwell asking her to inform Congress of the status of rules that have been “badly delayed” by OIRA review. They rightly point out that a fundamental lack of transparency has kept the explanation for those delays hidden behind closed doors. For example, the silica rule, a crucial worker safety rule that would protect workers from exposure to a known carcinogen, has been under review at OIRA for an astonishing 814 days. What could possibly warrant such a lengthy review? Don’t bother asking anyone at OIRA … they won’t tell you.

Instead, urge HSGAC members to ask Shelanski if he’ll end the gridlock or continue to thwart life-saving regulations.

Amit Narang is the regulatory policy advocate for Public Citizen’s Congress Watch division.

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A total of 24 state representatives and 11 state senators signed their names to the letter, which is addressed to U.S. Sens. Thomas Carper (D–Del.) and Chris Coons (D–Del.) and U.S. Rep. John Carney (D–Del.).

The letter, which was initiated by state Rep. Paul Baumbach and state Sen. Bryan Townsend, reads in part,

There is no more critical foundation to our government than citizens’ confidence in fair and free elections. The Citizens United decision directly undermines this confidence, and was issued in the absence of any evidence or searching inquiry to refute the fair assumption that unbridled and opaque spending in politics harms American democracy. […] The United States of America’s elections should not be permitted to go to the highest bidder, and yet this is the risk that rises from the ashes of the Citizens United decision.

The letter represents the second major response to Citizens United in the past two years in Delaware. In 2012, Common Cause Delaware and Public Citizen helped pass a bill requiring reporting of independent political expenditures in excess of $10,000 in Delaware. Common Cause Delaware also played a leadership role in securing this victory for free elections.

Polls show that no matter which party they identify with, Americans simply want their voices to be heard and listened to by lawmakers. Eight in 10 Americans say they oppose the Citizens United decision; it’s only a matter of time before public opinion becomes visible and powerful enough that a majority of Congress is moved to follow it.

So far, 14 other states have called for an amendment to overturn Citizens United. Connecticut and Maryland also used sign-on letters, while Colorado and Montana made the call through ballot initiatives. Resolutions calling for the constitutional amendment were passed by the legislatures of California, Hawaii, Illinois, Maine, Massachusetts, New Jersey, New Mexico, Rhode Island, Vermont and West Virginia, as well as by the D.C. Council in Washington, D.C. Nearly 500 local municipalities also have called for an amendment.

Public Citizen is proud to work with lead groups Common Cause Delaware and Americans for Democratic Action on this effort, with assistance from People For The American Way.

Jonah Minkoff-Zern is a senior organizer with Public Citizen’s Democracy Is For People Campaign.

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Today’s news that former D.C. Councilmember Michael Brown plans to plead guilty to corruption charges highlights the urgency for the Council to pass pay-to-play legislation before the next city elections. Brown reportedly plans to plead guilty to federal charges of accepting payments for favors from undercover agents posing as government contractors.

Pay-to-play scandals involving D.C. officials are so pervasive that perhaps the biggest news here is that it is news at all. The District of Columbia, like several jurisdictions around the nation, is embroiled in a series of “campaign-contributions-for-government-contracts” scandals that have caused immense harm to the image and credibility of the D.C. government.

These scandals do not just damage the public’s confidence in government. They often waste taxpayer dollars, cause the business community to think twice about engaging in government services and endanger otherwise promising careers of public officials.

In the wake of this wave of pay-to-play allegations, D.C. Mayor Vincent Gray and Attorney General Irvin Nathan have drafted the “Comprehensive Campaign Finance Reform Amendment Act of 2013” (B20-0003). The measure offers a number of desperately needed campaign reforms but, most important, it contains sweeping pay-to-play restrictions that would squarely address the recent campaign finance scandals of government contractors attempting to influence District elections.

It is long past time for the District to move forward on this legislation and get it in place in time for the next election – before contractors try to buy more favors, before citizens and businesses alike lose more confidence in their government, and before other public officials are tempted to cross the line into scandal.

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Well, try going to the search engine and entering “Google’s political spending.”

You’ll get something like this:

Ironically, the top result is Google’s “transparency policy.”

As you can see, while we get a few results for the company’s direct lobbying activities (which it is required by law to disclose), there’s little else to indicate what Google is doing with its other political dollars.

To make things clearer, I should explain that companies can spend money on politics in a few ways.

First, they can spend directly on lobbying themselves. They can also make direct political expenditures to back candidates or contribute to federally registered political committees. And in some states, they can contribute directly to candidates. This spending generally has to be disclosed.

But they can also spend money that doesn’t have to be disclosed. This spending can vary, but is most commonly done when a company makes contributions to “social welfare” organizations like Karl Rove’s Crossroads GPS or to “trade associations” like the U.S. Chamber of Commerce. Neither the organizations nor the companies have to disclose these types of contributions, and the organizations can spend money on a wide range of political activities.

Although we know Google has supported some good policies in the past — from green energy to Internet privacy — without knowing where its political dollars are going, it’s hard to be sure whether or not Google is undermining the causes it promotes. If you are investor in Google, you just have to have faith.

While we don’t know what Google is doing with much of its  political spending, we do know that it is a member of the U.S. Chamber. The trade association spent more than $32 million in the 2012 elections. The U.S. Chamber was also the biggest lobbyist organization in the country, spending more than $136 million in 2012 on such activities.

Google is undermining policies it supported in the past by funding the U.S. Chamber, which supports regressive policies such as fracking and championed SOPA and PIPA (anti-privacy legislation opposed by Google because it could have harmed the company’s users and destroyed sites like YouTube).

These apparent contradictions are why more than 300,000 people led by consumer groups U.S. Chamber Watch, US PIRG and SumOfUs, as well as more than 25 investor groups representing more than $125 billion in assets under management, have asked Google to change its political spending policies.

“Don’t Be Evil”

Google’s unofficial “Don’t be evil” slogan reflects that the company prides itself on being able to make money without doing bad things.

The investors and consumer groups acknowledged in their letters that Google should be lauded for its dedication to empowering people to find new knowledge. Throughout the world, the company is appreciated for its dedication to making the Internet accessible and transparent. The tools Google creates enable an unprecedented flow of information, allowing billions to connect with a global community.

For the company and its founders, this dedication to making information open is fundamental to what drives the company’s success. Google says the following on its website:

Transparency is a core value at Google. As a company we feel it is our responsibility to ensure that we maximize transparency around the flow of information related to our tools and services. We believe that more information means more choice, more freedom and ultimately more power for the individual.

Because the strength of Google’s brand is so strongly tied to these principles, it is troublesome that the company has not yet adopted meaningful and transparent disclosure of its political spending. The lack of transparency undermines what makes Google appealing for users and for investors.

Just read the comments on the petition page we set up.

Many of the people who shared their thoughts suggested that while they want to believe what Google says it supports, the company is doing itself (and its users) a disservice by remaining a member of the U.S. Chamber.

How can we make informed choices – as investors, consumers and citizens – without adequate information?

When companies can funnel money into the political process through organizations like the U.S. Chamber, it means those companies don’t have to be accountable to the public.

If Google’s leaders really want to live up to the slogan “Don’t be evil,” they should adopt a policy to disclose the company’s political spending and they should leave the U.S. Chamber of Commerce immediately.

Jake Parent is the coordinator of Public Citizen’s U.S. Chamber Watch. To learn more about Chamber Watch, follow @uschamberwatch on Twitter and sign up for email updates.

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The government is supposed to serve the public’s best interests. But, too often, corners are cut, resources are wasted or worse, government agencies are defrauded or co-opted to serve narrow political or private interests.

Enter the Whistleblower.

Whistleblowers are often the first line of defense to shield the public from wrong doing when government is no longer protecting the public’s interest.

Sadly, the Obama administration’s actions are creating a chilling effect on whistleblowers who disclose waste, fraud and abuse and diminishing citizens’ ability to blow the whistle. It is a rather ironic state of affairs, considering the administration has promised to be the most transparent ever.

Robert Greenwald’s new film: War on Whistleblowers – Free Press and the National Security State discusses several accounts of whistleblowers who took a stand. The film examines the lives of four whistleblowers Michael DeKort, Thomas Drake, Franz Gayl and Thomas Tamm and describes how the government took aim at destroying their lives for speaking out.

Standing up and speaking truth to power is a right that all Americans have; it is not a liberal or conservative ideology. However, in the current political climate it takes a brave individual to do so. Greenwald’s film shines light on the challenges whistleblowers have faced and exemplifies those who have had the courage to take a stand when they have been presented with information they just couldn’t live without revealing.

Keith Wrightson is Public Citizen’s worker safety and health advocate.

Find or host a free house screening of the War on Whistleblowers near you.

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By Bartlett Naylor and Taylor Lincoln

Congressional interrogators at a June 5 hearing will attempt to show that private consulting firms that advise institutional shareholders on proxy votes are riven with conflicts of interest. One advisory firm (gasp) is indirectly owned by a Canadian pension fund. Imagine: Canadians telling Americans how to vote in corporate elections.

The context for this ersatz hunt for justice, according to the House financial services subcommittee staff memo, was this spring’s campaign over a ballot resolution that would have required JPMorgan Chase CEO Jamie Dimon to surrender his other title as chairman of the board. The proxy advisory firms recommended that shareholders vote to split the CEO and chairman position at JPMorgan.

A cynic might dismiss this hearing as a public castigation of private firms with the temerity to challenge Jamie Dimon and to suggest improvements at JPMorgan, which is the biggest of the nation’s “too big to fail” banks, and, incidentally, one of the biggest campaign contributors to members of Congress.

Here are the real conflicts that members should address to the witnesses who were invited to testify (none of whom, by the way, work for proxy advisory firms).

1. In the JPMorgan proxy vote, the company established a “war room” and spent an estimated $5 million of the company’s money – shareholders’ money – to contest the resolution to split the CEO and chairman roles. JPMorgan’s shareholder-funded campaign was the equivalent of permitting incumbent politicians, but not challengers, to spend taxpayer money to finance their election campaigns.

Meanwhile, AFSCME, Hermes Fund Managers, New York City Pension Funds and Connecticut Retirement Plans and Trust Funds –  which proposed the resolution for the independent chairman – had to spend their own money. Their expenses likely amounted to little more than paying for a flight to Tampa, a hotel room and some staff time.

2. Mutual funds, such as giants Vanguard, Fidelity and T. Rowe Price, provide a means for small investors to hold classes of stocks (growth, international, small cap, etc.). These funds should represent the interests of small investors. But firms such as T. Rowe Price also manage accounts, such as 401(k) plan management, for corporations themselves. Voting “against” management, such as at JPMorgan, isn’t good marketing. While T. Rowe Price supported stripping Wells Fargo CEO John Stumpf of his role as chair, it supported Jamie Dimon. A committee concerned about conflict of interest would ban institutional investors from also managing accounts of the corporations on whose proxy votes it advises. Mutual funds with business ties are less likely to support shareholder proposals, according to Georgia State researcher Rasha Ashraf. [See here, here and here.]

3. During the JPMorgan proxy campaign, AFSCME retained a firm named Broadridge (a private firm that collects proxy votes) to give it updates on how the vote was going. But 10 days before the election deadline, an industry trade association reportedly persuaded Broadridge to stop issuing updates to AFSCME. “They have changed the rules in the middle of the game and it has created an unfair advantage,” said Michael Garland, who heads corporate governance for New York City comptroller John Liu. “It’s like playing a game where only the home team gets to know the score.”

4. The whole framework surrounding shareholder proxy votes is stacked against shareholders. Harkening a Soviet election, shareholders may vote only for the directors nominated by the incumbent board. Congress mandated a modest reform (Dodd-Frank Section 971), allowing shareholders holding, say, 3 percent of the shares to submit one name to run in opposition to the board-nominated candidates. At JPMorgan, 3 percent would be roughly $6 billion worth of stock.

But the Business Roundtable sued the Securities and Exchange Committee for its rulemaking on the grounds that companies would be forced to spend too much money opposing “frivolous” candidates who don’t really care about the best interests of the company, even if they were nominated by someone who happened to have $6 billion invested in it. The court bought that argument, and the rule was tossed out.

Shareholders are thus left with no recourse but to make protest votes against incumbents in whom they do not have faith. At JPMorgan, the CtW Investment Group contested the re-election of Ellen Futter, who serves on JPMorgan’s risk committee when she is not occupied by her day job as head of the American Museum of Natural History. Despite receiving $245,000 from JPMorgan for her part-time committee work, CtW Investment contends that Futter failed to diligently oversee risk, including the firm’s self-described “egregious” $6 billion risk-management fiasco known as the London Whale episode.

Beyond any considerations over protecting her $245,000 in income, Futter may be conflicted in that JPMorgan contributes generously to her museum. The company has given $3 million, Jamie Dimon and wife Judith have contributed thousands of dollars and, just to put a cherry on top, Dimon’s foundation has donated additional thousands.

Now, House committee in search of conflicts, just how tough do you think Ellen Futter is going to be on Jamie Dimon?Leadership on the House financial services committee may wish to intimidate firms that provide advice to shareholder advisory firms. But the committee should really focus on the real conflicts in corporate oversight that are hidden in plain sight.

Public Citizen believes shareholders should be able to exercise true ownership rights, such as over corporate political spending, whether a mega-bank would be worth more divided into separate firms, or whether management feels free to violate the law understanding penalties will ultimately be borne by shareholders as a cost of business. Cleaning out the conflicts of interest will be necessary before such ownership rights can be exercised fairly.

Bartlett Naylor is the financial policy reform advocate for Public Citizen’s Congress Watch division. Taylor Lincoln is Research Director for Public Citizen’s Congress Watch division.

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