[Ip-health] 'Government Patent Use': A Legal Approach to Reducing Drug Spending

Kapczynski, Amy amy.kapczynski at yale.edu
Tue May 3 14:22:42 PDT 2016


Yes, but I don’t think the uncertainty is as bad as you suggest here —there is strong caselaw suggesting lost profits are inappropriate, meaning that the courts would reject the idea that a company was entitled to full price.  And, even if a court went with lost profits, caselaw requires the company to show that the profits were likely to accrue.  In a case like this, where there is significant rationing happening, I don’t think the company could show that at their patented price, the expanded sales would have been likely to occur.  That’s why I think there’s a very strong case that the gov almost certainly wouldn’t be worse off.  And of course, one way to test the waters would be to use the power for a particular population (how about the Indian Health Service, where the new hep C drugs aren’t even on the formulary because of their price), and see what negotiations, or a court, would lead to.  The gov could limit exposure by picking a set number of doses, given whatever its own lawyers thought its risk would be.
In other words, the law is on the gov’s side in some important ways, and there are easy ways to proceed w/o big downside liability.

Should also say — as we do in the papers — that all of this work is very indebted both to the attention that Jamie, and the Sanders team have done to bring attention to the possibility of using 1498.

Amy

On May 3, 2016, at 5:04 PM, Jamie Love <james.love at keionline.org<mailto:james.love at keionline.org>> wrote:

The uncertainly over the compensation is uncertainly about how much less the government would pay when using 28 USC 1498.   If the government use of the product is insensitive to the price, then 28 USC 1498 is more appealing, because you would have bought the product anyway, at a high price.  But if you intend to use it more intensively if the price is lower, such as treating everyone who has HCV, rather than patients with advanced disease, or stockpiling Cipro, then the compensation becomes a risk to consider.  Having read a lot of 1498(a) cases, the compensation is hard to predict.  I agree that the rules for the government have some attractive features, but depending upon the context and the judge, there can be some unpleasant surprises too.

Jamie

On Tue, May 3, 2016 at 10:46 PM, Kapczynski, Amy <amy.kapczynski at yale.edu<mailto:amy.kapczynski at yale.edu>> wrote:

Agree that legislation that clarified the appropriate level of compensation would be very beneficial. A test case could also establish more certainty.

But I don’t think there’s any way that the gov would be worse off employing this statute than it would be if it doesn’t — there is strong caselaw rejecting the lost profits approach here, meaning companies can only obtain a reasonable royalty. Even if a court rejected that approach and chose lost profits, those profits would logically and legally have to be capped at the doses the gov actually would have bought — i.e., the current spending.

Btw, I am working on a law review article with some colleagues describing how we think courts should approach the compensation question.  Would welcome thoughts on that,

Best
Amy


On May 3, 2016, at 4:29 PM, Jamie Love <james.love at keionline.org<mailto:james.love at keionline.org>> wrote:

Our own take on 28 USC 1498 is that it can be useful, but it is not necessarily well suited for dealing with drug patent cases, given the case law on compensation to patent holders, which includes uncertainty on what can be big ticket items.

If 28 USC 1498 is what you have to work with, you use it.  Al Engelberg and others proposed this in 2001 for Ciprofloxcin, and we supported that effort then.  (http://www.cptech.org/ip/health/cl/cipro/<https://urldefense.proofpoint.com/v2/url?u=http-3A__www.cptech.org_ip_health_cl_cipro_&d=AwMFaQ&c=-dg2m7zWuuDZ0MUcV7Sdqw&r=-ddH8Zceq1hAY-PYLwkNHeKcPT9OK3Kb_YdJ7DDd_Uo&m=MPw9Wmrmv4VhfbYbUzWUPhnME7KSUFcM7ifS-biAz9Q&s=PMr-mbrcm11aOCiB0ymUOqmT29faV20hPyP77L3A-3k&e=>).  1498 was also used for drugs earlier by DoD.

When Bernie Sanders proposed that the Department of Veterans Affairs use 1498 for HCV drugs, the issue of compensation to Gilead was a concern.  Sanders offered a still to be considered legislative reform that would have fixed this.    Zack Struver did an informative video about the issue here: https://www.youtube.com/watch?v=xAY4Ua7B2mQ<https://urldefense.proofpoint.com/v2/url?u=https-3A__www.youtube.com_watch-3Fv-3DxAY4Ua7B2mQ&d=AwMFaQ&c=-dg2m7zWuuDZ0MUcV7Sdqw&r=-ddH8Zceq1hAY-PYLwkNHeKcPT9OK3Kb_YdJ7DDd_Uo&m=MPw9Wmrmv4VhfbYbUzWUPhnME7KSUFcM7ifS-biAz9Q&s=HZO__4HratjjmnVcaUYBGGRfcL4OCad3x3lynxGxp-A&e=>

On Tue, May 3, 2016 at 8:04 PM, Kapczynski, Amy <amy.kapczynski at yale.edu<mailto:amy.kapczynski at yale.edu>> wrote:

Aaron Kesselheim and I just published this in Health Affairs:
http://content.healthaffairs.org/content/35/5/791.full<https://urldefense.proofpoint.com/v2/url?u=http-3A__content.healthaffairs.org_content_35_5_791.full&d=AwMFaQ&c=-dg2m7zWuuDZ0MUcV7Sdqw&r=-ddH8Zceq1hAY-PYLwkNHeKcPT9OK3Kb_YdJ7DDd_Uo&m=MPw9Wmrmv4VhfbYbUzWUPhnME7KSUFcM7ifS-biAz9Q&s=tQqlLY5P8HkR8FTNd0ei6-sdXSxCe_psB0uS6f9WR48&e=>

Abstract:

The high cost of patent-protected brand-name drugs can strain budgets and curb the widespread use of new medicines. An example is the case of direct-acting antiviral drugs for the treatment of hepatitis C. While prices for these drugs have come down in recent months, they still create barriers to treatment. Additionally, prescribing restrictions imposed by insurers put patients at increased risk of medical complications and contribute to transmission of the hepatitis C virus. We propose that the federal government invoke its power under an existing “government patent use” law to reduce excessive prices for important patent-protected medicines. Using this law would permit the government to procure generic versions of patented drugs and in exchange pay the patent-holding companies reasonable royalties to compensate them for research and development. This would allow patients in federal programs, and perhaps beyond, to be treated with inexpensive generic medicines according to clinical need—meaning that many more patients could be reached for no more, and perhaps far less, money than is currently spent. Another benefit would be a reduction in the opportunity for companies to extract monopoly profits that far exceed their risk-adjusted costs of research and development.
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