CAFC Finds Washington DC Drug Price Law to be Unconstitutional

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

Earlier in 2007, the CAFC found a the District of Columbia’s new Drug Price Law to be unconstitutional as preempted by the patent laws. The law would have prohibited a manufacturer from enforcing a minimum retail price restriction or from charging “excessive prices” for patented drugs. (I.e., not more than 30% more than is charged in Canada or the UK). The appellate panel found that those limits conflicted with the incentive goals of the patent laws because they would limit the “full exercise of market power.”  In October 2007, the CAFC also denied a rehearing en banc. That denial includes two interesting opinions:

Judge Dyk in Favor of Rehearing: Judge Dyk recognizes the broad holding of the original CAFC opinion — that “any state law regulating the prices of patented pharmaceutical products would likely be preempted as a result of the panel’s holding.”  In Judge Dyk’s opinion, a rehearing is not necessary to change the outcome — but rather to change misguided language in the decision.  In particular, Judge Dyk notes that the majority’s discussion of the “full exercise of market power” is overly broad:

“A patent grant is designed not to allow the patent holder to exploit the grant for the maximum profit that the market will bear, but merely to confer a right of exclusivity.”

There are many proper state activities that limit a patentee’s market power. These include:

  • Taxing the sale of patented products;
  • Regulating the sale of patented products (such as tobacco formulations and unsafe lamp oil);
  • Prohibiting the sale of patented products (such as casino games); and
  • Prohibiting price-fixing agreements on patented products.

Judge Dyk argues that like these, price regulation — especially the prohibition on international price discrimination — are not preempted by the Patent Act (even though they may be bad policy).

Judge Gajarsa argued against Judge Dyk’s position — In the process, however, Judge Gajarsa essentially rewrote the panel decision. Arguing that the decision is not based on a requirement that a patentee have full market power but rather, that the DC act is preempted because it upsets the careful balance of rights and incentives created by the US Government in the area of pharmaceutical development.

This case could easily go to the Supreme Court.

5 thoughts on “CAFC Finds Washington DC Drug Price Law to be Unconstitutional

  1. I know it is early this morning, and I know I should resist this, but, I just cannot.

    Schindler, nice list!

    Lonnie

  2. J. Dyk is obviously right on. There may be pharma-related laws that would preempt D.C.’s law, but the Patent Act? Everyone learns in Patents Class 101 that a patent is a right to exclude, not to use, practice, sell or import. Prices on selling patented pharmaceuticals are not meant to exclude, they’re meant to recoup research costs and earn ROI. If SCOTUS hears this case, Appellant D.C. will either win on these grounds or lose on some pharmaceutical regulation-related grounds. I haven’t read this opinion or the complaint, but I wonder if the case rests solely on the Patent Act. Sounds like some judges at the CAFC might be “Pharma-Whipped” on this one. (although I fully support GSK!)

  3. The CAFC couldn’t have said it better than if I had said it myself!

    See, PhRMA v. Concannon, 249 F.3d 66, 74 n. 5 (1st Cir. 2001); and,

    PhRMA v. Concannon, 201 F.R.D. 12 (D. Me. 2001).
    :-)

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