IP VIPS Send Letter to Congress Countering Calls for Government Price Controls on Drugs

Twenty-five intellectual property luminaries sent a letter today to several members of Congress asking them to beware of misleading and inaccurate assertions by “activists and academics” that government price controls on drugs will lead to lower costs for consumers.

The letter was sent to Senators Bernie Sanders (I-VT) and Bill Cassidy (R-LA), Chairman and Ranking Member, respectively, of the Senate Committee on Health, Education, Labor & Pensions; and Representatives Jason Smith (R-MO) and Richard Neal (D-MA), Chairman and Ranking Member, respectively, of the House Committee on Ways and Means. It was signed by prominent IP scholars such as Professor Jonathan Barnett of the Gould School of Law at the University of Southern California; Professor Adam Mossoff of the Antonin Scalia Law School at George Mason University; and Kristen Osenga of the University of Richmond School of Law; retired Chief Judges Paul Michel, Susan Braden and Randall Rader; retired judge Kathleen O’Malley; former National Institute of Standards and Technology (NIST) Director Walter Copan; and former U.S. Patent and Trademark Office (USPTO) Director Andrei Iancu, among others.

The letter details the history and purpose of both the Bayh-Dole Act, which has been covered extensively on IPWatchdog, and 28 U.S.C. § 1498. It primarily focuses on debunking a letter sent by Professors Amy Kapczynski, Aaron S. Kesselheim and others last year to Senator Elizabeth Warren (D-MA) claiming that the Bayh-Dole Act and/or Section 1498 can be used as tools to break patents and impose price controls. “In our view, § 1498 is a powerful general-purpose tool to target excessive pricing, while the Bayh-Dole Act is particularly helpful for patents that received government research support,” said the Kapczynski-Kesselheim letter. “We believe that the two can and should be used together as part of a cohesive strategy when drugs of high public health importance are sold to US patients at excessive prices.”

Bayh-Dole Can’t Be Used to Break Patents

The Kapczynski-Kesselheim letter followed a 2021 petition by Knowledge Ecology International (KEI) asking the National Institutes of Health (NIH) to march in under the Bayh-Dole Act to force licensing to additional parties of the prostate cancer drug Xtandi in order to lower the drug’s cost. The petition was denied on March 23, 2023, and a report by NIST summarized the legal basis for such denials by explaining that NIH had determined “the use of march-in to control drug prices was not within the scope and intent of its authority,” according to today’s letter.

Apart from the well-documented fact that Bayh-Dole was not intended to allow government to break patents as a means of lowering drug prices, the letter notes that, even if this were the intention, it would fail. The Bayh-Dole Act only applies to a small subset of patents, namely, those covering “subject inventions,” as defined by the statute. According to the letter:

“A 2019 study found that, of the 1,151 patents in the Food and Drug Administration’s (FDA’s) Approved Drug Products with Therapeutic Equivalence (the ‘Orange Book’) covering 197 top-selling drugs, only 30 patents included a disclosure that the patent was covered by the Bayh-Dole Act or was assigned to a government agency. This is only 10.2% of these 197 approved drugs in the Orange Book, and a mere 2.6% of the total patents covering FDA-approved drugs.”

Furthermore, march-in rights would not apply unless all of the patents covering a particular drug were subject to the Bayh-Dole Act, which is rare, explains the letter. In the same 2019 study referenced above, “only two of the 197 drugs (1%) in the Orange Book were completely covered by patents that had Bayh-Dole Act disclosures or were assigned to a government entity,” it adds.

Courts Have Categorically Rejected Applying Section 1498 to Private Uses

As for 28 U.S.C. § 1498, the letter refutes recent claims that this statute can be interpreted to confer “a generalized ‘patent use power’ on agencies that they can invoke to break patents to lower prices on prescription drugs in the healthcare market.” Instead, says the letter, Section 1498 applies only “when patented inventions are directly used by the federal government or made for the federal government pursuant to a government contract (in which case the contractor is immunized by the government).”

In February of this year, the U.S. government filed a statement of interest in a patent infringement suit brought by Arbutus Biopharma and Genevant Sciences against Moderna, Inc.’s COVID-19 vaccine, arguing that Moderna should be released from infringement liability under the terms of a government contract that “authorize[d] and consent[ed] to all use and manufacture” of any U.S. patented invention. According to the government, the contract’s express grant of authorization and consent to use and manufacture any patented invention embodied in Moderna’s vaccine eliminates any requirement under Section 1498 to show that Moderna was under direct government control, which would be required if the government’s grant of authorization and consent was only implied.

But today’s letter noted that a Delaware district court rejected that argument in March of this year, holding that “the advance purchase contracts for COVID-19 vaccine doses that were manufactured by Moderna for use by and for private citizens did not trigger the jurisdictional mandate in § 1498 that a patent-owner’s lawsuit must proceed only against the federal government in the Court of Federal Claims.” Ultimately, the statute is limited to unauthorized uses of patented inventions by or for the federal government, and even one of the sources cited in the Kapczynski-Kesselheim letter has noted that Section 1498 would “need to be ‘modified’ in order ‘to apply to governmental payment for drugs prescribed for beneficiaries of such federal health programs as Medicare and Medicaid,’” says the letter.

Additionally, even if Section 1498 could be used for this purpose, because it requires the government to pay “reasonable and entire compensation” to a patent owner, using this mechanism would “vastly expand[] the federal government’s financial liabilities in paying for medical care.” The proponents of using Section 1498 for price controls also don’t acknowledge how doing so would interact with the Hatch-Waxman regime, or generally how such a scheme would be implemented in the existing legal and regulatory framework.

“Failing the burden of evidence-based policymaking in making the proper case for breaking patents as the sole solution to lower drug prices in a complex healthcare market, [academics and activists] instead bootstrap the necessary policy and economic arguments by arguing that Congress has already approved of a price-control policy in two existing federal statutes,” concludes the letter. But, adds the letter, their mischaracterizations of the statutes “contradict their text, their function, and the consistent and repeated interpretation of these statutes by courts and agencies.”

This article was updated on October 3, 2023, to correct the link to the referenced NIST Report, Return on Investment Initiative (April 2019).

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