CAFC Finds Washington DC Drug Price Law to be Unconstitutional

BIO and PhRMA v. District of Columbia (Fed. Cir. 2007).

In 2005, the District of Columbia (DC) adopted a set of legislation to reduce prescription drug costs. In particular, the law would bar a manufacturer from placing minimum retail price restrictions or from charging “excessive prices.”

The two major innovator pharmaceutical organizations quickly sued and won a ruling that the law was unconstitutional as (1) preempted by the patent laws and (2) invalid under the commerce clause because the new law restricted transactions that occur outside of DC borders. On appeal, the CAFC affirmed that law is unconstitutional.

CAFC Jurisdiction: Normally, the CAFC has jurisdiction over cases that arise under the patent laws. In addition, the CAFC claims jurisdiction in this type of case because interpretation of patent law is a “necessary element” of the plaintiffs’ claim.

Patent law is indeed a necessary element of the claim here. If the plaintiffs are able to show that the patent laws preempt the Act, the Act will be declared unenforceable and enjoined, but if they cannot, their preemption claim will fail and their members may be required to defend against suits under the Act.

Standing of BIO and PhRMA: BIO and PhRMA are not involved in any of the activities covered by the Act. However, their members would be affected. The Supreme Court has held on several occasions that an organization may sue on behalf of its members if (i) the members would have standing on their own; (ii) the suit is related to the purpose of the organization; and (iii) the member’s are not individual claimants.  The individual members certainly would have standing here because the Act creates injuries that are “(a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical.” (Quoting 528 U.S. 167). This issue is likely the sticking point for the Aharonian-Peterlin lawsuit.

Preemption: Federal Law is the Supreme Law and when State law (or here, DC law) is in conflict, it is the State Law that must yield. Even when there is no direct conflict, a state law may still be found invalid if it “stands as an obstacle” to accomplishing the full goals and purposes of Federal Law.  For the Patent Laws, the fundamental goal is to “promote the progress of science and useful arts.” This goal is accomplished, according to the CAFC, by offering exclusive rights that allow for above market pricing during the term of the patent. However, there is also the competing issue of keeping prices reasonable for consumers. As the Supreme Court outlined in Bonito Boats, Congress has taken charge of balancing these competing interests.

Here, the DC Act would limit the “full exercise of market power” by restraining excessive prices. That action is contrary to the incentive goals of the patent act, and thus preempted.

Affirmed

Notes.

• It is important here that the DC Act focused exclusively on patented drugs. If it had a broader focus – perhaps all health care related equipment, drugs and services – then the court would have had a more difficult time shooting it down.
• Patently-O previous discussion of the case
• BIO = Biotechnology Industry Organization
• PhRMA = Pharmaceutical Research and Manufacturers of America

   

Comments

[Just Visiting]

I don't know much more difficult a more general law would have been. Isn't the Commerce Clause argument in the opinion pretty much cut and paste?

[SHAHID HUSSAIN ANSARI]

FOR THE PURPOSE OF THE SETTLEMENT OF SUCH DIPUTE,THE STATE LAW MAY NOT INTERPRET WITH THE FEDERAL LAW.

[me]

Is this correctly decided? The argument is that the patent law grants exclusivity, and because the Feds have chosen not to regulate it it is unlimited in its upside? I don't think that is correct. The Feds (and if they don't, the states) have the right to limit the amount of exclusivity granted in a patent - from term length to laws and rules about grant - TO LIMITING THE COST of the exclusive right to SOCIETY!

"by offering exclusive rights that allow for above market pricing during the term of the patent" - where is that in the Constituion, the Patent Laws, the CFR, or even the sily USPTO rules and the MPEP? Exactly nowhere...wrong decision. That may be the outcome of the grant of right, but nowhere is it a requirement of the grant, and thus can be limited.

[George]

>>by offering exclusive rights that allow for above market pricing during the term of the patent" - where is that in the Constituion, the Patent Laws, the CFR, or even the sily USPTO rules and the MPEP? Exactly nowhere...wrong decision. That may be the outcome of the grant of right, but nowhere is it a requirement of the grant, and thus can be limited.<<<

I think it was correctly decided. The price control measure would have frustrated the goal of granting exclusive rights. If you are granted exclusive rights but cannot price your product at an above-market price, what good is the exclusivity?

[me]

I would agree George, but can't you limit how high is too high? I think you can. I am not arguing this legislation was not silly and essentially unenforceable, but a better written Federal Law would be overturned based on the decision breadth, and I don't think that is correct.

[Cool with Commerce Clause]

I think the Fed Circuit's argument would have been more convincing (and cogent) had it explicitly invoked the commerce clause in its decision: Congress chose to encourage interstate commerce by granting patenting; DC's limiting prices on patented drugs interferes with that scheme and thus is impermissible.

[stm]

Could the CAFC have invoked the commerce clause and still maintained jurisdiction of this case? since it would not have thus risen out of the patent code?

It seems improbable that Congress - Rep or Dem - will do anything about overpricing while lobbyists go unchecked - even with the new rules - which are full of loopholes. Patents should promote research and innovation, but not at the expense of public health.