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.
- 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