Unreasonable pricing and the “Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020”

For more on KEI’s work on COVID-19, see keonline.org/coronavirus.

The “Coronavirus Preparedness and Response Supplemental Appropriations Act, 2020’’ will provide welcome funding to deal with the expanding COVID-19 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 unaffordable prices.

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

“That in carrying out the previous proviso, 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 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 203(b)).

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 States”.

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” (35 USC 202(c)(4)).

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 (b);

(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.

35 USC 209(d)(3).

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 rights.

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 litigate that issue.


Draft text

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