[Ip-health] Unreasonable pricing and The ‘Coronavirus Preparedness and Response Supplemental Appropriations Act, 6 2020

James Love james.love at keionline.org
Thu Mar 5 04:57:23 PST 2020

The ‘Coronavirus Preparedness and Response Supplemental Appropriations Act,
6 2020’’ will provide welcome funding to deal with the expanding COVID19
pandemic. The current language on affordability (this Draft text
however, is worse than weak, it actually makes things worse, by limiting
the ability of the government to address concerns over the pricing of new
drugs, vaccines diagnostics or other relevant medical technologies.

The sole mention of affordability is this sentence in the current draft.

“the Secretary may take such measures authorized under current law to
ensure that vaccines, therapeutics, and diagnostics developed from funds
provided in this Act will be affordable in the commercial market:”

By using “may” rather than “shall,” the sentence adds no new authority and
no new mandate to protect the public from unreasonable, excessive or
unaffordability prices.

Even worse, however, is the language in the text that says:

“That in carrying out the previous provision the Secretary shall not take
actions that delay the development of such products:”

Among the mechanisms that are available under current law to address
pricing and affordability are those concerning patents, including
specifically 28 USC 1498(a), and 35 USC 202, 203, or 209.

28 USC 1498(a) allows the federal government to use any patent, or have any
product manufactured “by or for” the federal government, subject to payment
of reasonable compensation.

35 USC 203 gives the federal government the right to grant compulsory
licenses on patented inventions to third parties, under the so called
“march-in” authority, if federal funds were used to fund the invention.

One of the problems is the language, added in 1984, that provides that the
march-in rights “shall be held in abeyance pending the exhaustion of
appeals or petitions” to the United States Court of Federal Claims.

35 USC 202 and 209 provide for additional federal rights in federally
funded patented inventions that do not suffer from the delays associated
with appeals. This is the royalty free right to use the inventions,
expressed in the statute as an “irrevocable, paid-up license for any
Federal agency to practice the invention or have the invention practiced
throughout the world by or on behalf of the Government of the United

The federal government also has the ability, in funding agreements, to
“provide for such additional rights, including the right to assign or have
assigned foreign patent rights in the subject invention, as are determined
by the agency as necessary for meeting the obligations of the United States
under any treaty, international agreement, arrangement of cooperation,
memorandum of understanding, or similar arrangement”.

Moreover, for federally owned inventions licensed to a drug company (this
covers inventions by employees of the NIH, FDA, CDC, Army, Navy, BARDA,
etc), there is an additional, often overlooked leverage:

   (3) empowering the Federal agency to terminate the license in whole or
      in part if the agency determines that—

      (A) the licensee is not executing its commitment to achieve practical
      application of the invention, including commitments contained in any plan
      submitted in support of its request for a license, and the
licensee cannot
      otherwise demonstrate to the satisfaction of the Federal agency
that it has
      taken, or can be expected to take within a reasonable time,
effective steps
      to achieve practical application of the invention;

      (B) the licensee is in breach of an agreement described in subsection

      (C) termination is necessary to meet requirements for public use
      specified by Federal regulations issued after the date of the
license, and
      such requirements are not reasonably satisfied by the licensee; or

      (D) the licensee has been found by a court of competent jurisdiction
      to have violated the Federal antitrust laws in connection with its
      performance under the license agreement.

The definition of “practical application” is important here. As set out in
35 USC 201(f), this includes

“to establish that the invention is being utilized and that its benefits
are to the extent permitted by law or Government regulations available to
the public on reasonable terms.”

Beyond the provisions in 28 USC 1948(a) and 35 USC 202, 203 and 209, the
federal government can enter into contractual provisions on pricing.

Contracts can address such issues as the use by a drug or vaccine
manufacturer of non-patent intellectual property, such as the exclusive
rights in regulatory test data or orphan drug exclusivities. For example,
Bristol Myers Squibb sought the ability to claim exclusive rights in NIH
funded clinical trial data on the cancer drug taxol, but had to enter into
an agreement on the pricing of the drug.

More generally, any grant or subsidy can include contractual provisions on
pricing, regardless of who holds the patent or other intellectual property

The proposed legislation can blow all of these measures up, by preventing
the federal government from undertaking any measure that would “delay the
development of such products.”

Companies can claim that ANYTHING that reduces the price reduces incentives
to invest in more rapid development, and under this act, and litigate that


Draft text

28 USC 1498(a)
35 USC 201
35 USC 202
35 USC 203
35 USC 209

James Love.  Knowledge Ecology International
U.S. Mobile +1.202.361.3040
U.S. office phone +1.202.332.2670
http://www.keionline.org <http://www.keionline.org/donate.html>

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