Biotechnology and Pharmaceutical Associations Thwart DC's Drug Price Control Law
Summary: Federal Circuit affirms judgment declaring D.C.'s Prescription Drug Excessive Pricing Act of 2005 preempted by federal patent laws and enjoining its enforcement.
In Biotechnology Industry Organization v. District of Columbia, No. 2006 Civ. 1593 (Fed. Cir. 2007), the Federal Circuit affirmed the District Court for the District of Columbia's judgment in favor of the Plaintiffs declaring the District’s Prescription Drug Excessive Pricing Act of 2005 preempted by the federal patent laws and enjoining its enforcement. The Plaintiffs' complaint centered on the following provision of DC's law:
"It shall be unlawful for any drug manufacturer or licensee thereof, excluding a point of sale retail seller, to sell or supply for sale or impose minimum resale requirements for a patented prescription drug that results in the prescription drug being sold in the District for an excessive price. *** A prima facie case of excessive pricing shall be established where the wholesale price of a patented prescription drug in the District is over 30% higher than the comparable price in any high income country in which the product is protected by patents or other exclusive marketing rights."
Plaintiff Pharmaceutical Research and Manufacturers of America ("PhRMA") filed suit in the District Court for the District of Columbia, alleging that the Act was invalid in light of the Commerce Clause of the Constitution and it was preempted by the federal patent laws. Plaintiff Biotechnology Industry Organization ("BIO"), which includes as its members nearly 60 Maryland biotechnology companies, filed a similar suit, which was consolidated with PhRMA's.
On appeal, the Federal Circuit stated:
"There is no express provision in the patent statute that prohibits states from regulating the price of patented goods; indeed, 'the federal patent laws do not create any affirmative right to make, use, or sell anything.' Nevertheless, state law must yield to congressional enactments if it 'stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.'"
The court then noted that "the value of patents lies in the patentees right to foreclose competitors from making, using, and selling the invention," which may allow them an opportunity to obtain above-market profits during the patent’s term. As stated in the legislative history of the Drug Price Competition and Patent Term Restoration Act of 1984 (popularly known as the "Hatch-Waxman Act"), "patents enable innovators to obtain greater profits than could have been obtained if direct competition existed. These profits act as incentives for innovative activities. The court found that DC's Act stands exclusively within the scope of the patent laws, and its effect is to shift the profit incentive benefits of a patented invention from inventors to consumers:
"By penalizing high prices—and thus limiting the full exercise of the market power that derives from a patent—the District has chosen to re-balance the statutory framework of rewards and incentives insofar as it relates to inventive new drugs. *** The fact that the Act is targeted at the patent right is apparent on its face. It applies only to patented drugs."
Comments:
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According to PhRMA's web site, "Winning approval [to market a new drug], on average, takes 15 years of research and development and costs over $800 million dollars." Any effort that stands in the way of recouping that investment will likely have a target on its back from its inception.
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Would the result of this case have been different had DC's Act not been directed "only to patented drugs"?
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See Maryland Representative Chris Van Hollen's (D-MD) proposal for the states: Voluntary State Discount Prescription Drug Plan Act of 2007
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Carol Leonnig's article in the Washington Post
