Patents Pending: The American Prospect Online, 2/23/05

A D.C. official takes a renegade approach to get lower-priced drugs for residents

By Barbara T. Dreyfuss

Unless the drug industry starts to negotiate significantly lower prices, it may find itself battling debt-strapped states for control over the manufacture of drugs. States already take land and other property in order to benefit the public by building things such as roads and schools. Now some legislators and officials are saying they should be able to take away a drug company’s intellectual property, its patent. They want to give these patents, which allow a company to manufacture a product, to competitors that agree to sell the drugs to the states at much lower prices.

Patents are the key to huge drug-company profits. The industry will fight vociferously to protect them. In West Virginia, where the issue came up last summer, industry lawyers warned a legislative advisory council away from proposing such action on patents, claiming it would be unconstitutional. With virtually unlimited resources, the drug companies could drag states through courts for years. Still, the specter of states compelling companies to license their patents to other firms terrifies the industry. And even the fight to do this would open the industry to further scrutiny on pricing policy. All of which, some officials hope, could make drug companies more willing to negotiate discounts.

That’s what District of Columbia Councilman David Catania hopes will happen. Catania, a Republican who recently registered as independent after breaking with President Bush over the same-sex-marriage issue, introduced a compulsory license bill February 1. It authorizes Washington, D.C.’s mayor to declare a health emergency and, under eminent domain authority, issue a compulsory license to a generic firm to produce select patented drugs.

Under eminent domain requirements, the patented drug company would be given “just compensation” for the patent. The councilman argues that if drug companies were smart, they would “start talking about price reductions now rather than leave themselves open to a long, drawn-out due process review and hearings to determine just compensation.” Such review and hearings, he warns, would expose “just how pervasive the price gouging and profiteering has been.”

That’s precisely what happened when the Bush administration’s former health and human services secretary, Tommy Thompson, wanted to pressure the Bayer Corporation to give the government better discounts on its antibiotic Cipro during the anthrax scare. Thompson started threatening to have generic companies make Cipro if Bayer wouldn’t offer the government better pricing. Bayer immediately gave the government dramatic price discounts. Thompson acted after the Canadian government said it would override the patent and contracted with a generic company, Apotex Inc., to make Cipro. Catania, who chairs the District’s health committee, plans hearings March 22 with Washington health-care leaders, AARP, drug-company representatives, and a key legal architect of the bill, West Virginia University law professor Kevin Outterson. Outterson argues that states (the District of Columbia has all the legal powers of a state, notes Catania) derive the legal authority to have a company manufacture a patented product owned by another firm from two sources. First, states already take property for building roads and government sites under eminent domain powers, and could extend those powers to intellectual property, such as drug patents. Second, in a 1999 U.S. Supreme Court opinion (Florida Prepaid Postsecondary Education Expense Board v. College Savings Bank), the Court said that a state’s infringement of a patent, for a public purpose, is not by itself unconstitutional, so long as the state compensates the patent owner for the loss of the patent. To meet the public purpose clause of the Court’s ruling, Outterson proposes that states only break a patent to make drugs for public employees and Medicaid enrollees.

Outterson explained his ideas in late January at a meeting of the National Legislative Association on Prescription Drug Prices, a group of senior legislative leaders of eight Northeast states, Hawaii, and the District of Columbia. Outterson told them he knows of two states where legislators are drafting bills based on his proposal, and at the meeting Vermont legislators publicly indicated interest in doing so.

Catania says he doesn’t know if this bill “will be the silver bullet that brings sanity to pricing pharmaceuticals in the District,” but he believes states will be watching closely to see what happens with this “very new, fresh approach.” While the idea of a state seizing drug-patent rights and giving them to a generic manufacturer may seem extreme, remember that a growing number of state leaders, both Republican and Democratic, are already advocating illegal action, namely importing drugs from Canada, in a desperate attempt to get lower priced drugs.

States have always been a laboratory for innovative policies. Given the tremendous budgetary and constituent pressure on legislators to do something on drug costs, patent pending may take on new meaning.

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