Friday, August 03, 2007

Stupid Federal Appeals Court...

It's been months, months, since I last blogged, which is really a shame because there are so many interesting things I could have blogged about. Supreme Court rulings, 2008 Presidential Primary shenanigans, new web projects, plans to move, looking at new cars, etc, etc. And yet, for whatever reason, I didn't "pick up my pen" and it is my loss.

But today I read something that really makes my blood boil, so I'm back at the keyboard ready to take a stand. Feel free to read my primary source first, but if don't have the time, here's the summary. Pharmaceutical companies hold patents on drugs that give them sole authority over who gets to manufacture the drug. As a general rule, they elect to only allow themselves to make the drug, which means they have zero competition and without competition they can set whatever prices they want. Most non U.S. countries combat this by regulating the price of drugs, the result is in the United States drug costs are quite a bit higher than any where else in the world.

So, the District of Columbia, in their own effort to combat what they see as excessive prices, adopted a city ordinance that allows for a civil suit if the cost of a patented drug is 30% higher than in Canada, Germany, Australia or the United Kingdom. On appeal to the Federal Circuit Court of Appeals--my least favorite court for a number of reasons I've previously blogged about--deemed this to be in violation of the patent laws and an illegal usurpation of federal power.

I say fooey to that. But D.C. Council member David A. Catania has a more nuanced responce.
It implies that patents would ban any legislation that affects the ability of patent holders to charge whatever they please, which is absurd. The Supreme Court has already upheld legislation that mandates price discounts to participate in Medicaid formularies. And no one has argued that states cannot enforce antitrust and other rules that limit monopoly prices of drugs indirectly -- although the full logical thrust of the opinion would do just that.
I tend to agree. Patents only authorize the patent holder to control manufacture and use, it does not convey absolute pricing control, although absent regulation it is the natural result of a patent. But if this court ruling is correct, it means that if I obtain a patent on gun, which a state later decides to ban, or at least regulate, for safety reasons, the state would be in violation of the Patent Act and unable to do so. Essentially, anything patented is beyond state regulation! (The Congress, I presume, can still regulate under the ruling since they have the authority to trump the Patent Act.)

As is well documented, on the topic of patent law interpretation (as opposed to patent application) the Federal Circuit has a very poor record. If the Supreme Court accepts cert, and I pray they do, you can bet the farm they will overturn as they have nearly everytime the Federal Circuit has claimed its specialized area of law trumps all others.

When will Congress realize that giving an appeals court exclusive jurisdiction over a single area of law while denying them any jurisdiction over other areas ensures that the exclusive area will become paramount in all matters? Laws must be balanced with consideration to the competing interests and a specialized court like the Fed Circuit is tantamount to pressing down on one side of the scales.

4 comments:

Anonymous said...

Before reaching the patent aspect, the Federal Circuit is probably right that DC is legislating over interstate commerce.

With respect to patent law, a closer reading of the patent law may have led the Federal Circuit to not strike down the DC laws over the patent law. Fundamentally, patent laws are negative, not positive rights. A patent allows you to restrict others, but doesn't give you the right to practice the patent. There are many other laws that can easily pre-empt patent laws, such as environmental regulations or FDA regs. State laws, such as gambling restrictions, drinking ages and criminal laws all trump patent law.


David

Sean Kellogg said...

David... come now, that's now how the ICC works. States (which D.C. is consider for these purposes) can regulate interstate commerce all they like so long as it does not (a) violate the dormant commerce class, and (b) does not violate a explicit federal law.

So, you point to me the Federal Law that says states cannot impose price controls on drugs and then we can talk. Which is why the Feds used patent law as their backing. A desperate attempt to perpetuate the relevance of patent law by a court who has been beaten up pretty bad by the Supreme's of late.

Author said...

My understanding of the DC law is that DC residents would have the right to buy drugs for less money than citizens of other states. This is facially discriminatory, and thus is presumed to violate the dormant commerce clause.


David
P.S. Even if the law is facially neutral, I think the law would fall to the balancing test. Price controls are a significant interstate burden, and I, personally, am not convinced that the local benefit outweighs the burden on interstate commerce.

Sean Kellogg said...

The test for discrimination is not whether it treats the citizens differently, but whether it treats manufactures differently. If the test were as you say it is, no state regulation could EVER pass scrutiny because state regulations, by definition, are localized to the citizens within the state. For example, a regulation that says a warning labels must go on certain products sold in the state of CA would violate your test because it only impacts those citizens in CA. The proper test, as I said before, is whether it discriminates against in-state or out-of-state manufacturers.

As for balancing... maybe you're right, it's hard to say. BUT, the ICC is not a self-enacting clause (unlike the dormant commerce clause). The court must point to a federal law exercising the ICC powers and say that the state law is violating it in some way. I cannot accept the idea that the Patent Act was drafted with the intention to prohibit regulation of this nature. I mean, consider how this decision will impact state anti-trust laws?!