Why Don't We Enforce Existing Drug Price Controls? The Unrecognized and Unenforced Reasonable Pricing Requirements Imposed Upon Patents Deriving in Whole or in Part From Federally-Funded Research
Peter S. Arno
Montefiore Medical Center - Department of Epidemiology and Social Medicine
Michael H. Davis
Cleveland State University College of Law
Tulane Law Review, January 2001
Rising prescription drug prices have become a pressing national issue. Hidden from most public discussions is the nature of the public/private relationship when government funds part or all of the research costs. This relationship is inherently problematic, as it introduces conflicts of interest and tends to violate underlying beliefs about private enterprise, government industrial policies, and the market economy. A major part of all new drug development-and an even larger portion of those "blockbuster" developments which are truly innovative-is due to government, usually federal, subsidization. In part this relates to favorable tax treatment, but an even larger amount is the product of direct federal investment in research. Sometimes this research reaches patentable levels, and federal patents are made available to private industry through exclusive licenses.This defies the underlying basis for patent law that the resulting monopoly is a means of returning R & D costs, which in the case of federal patents, have not been borne by the licensee and therefore do not exist to be returned. Other times, federally-funded research enables recipients, including universities but also private enterprises, to obtain patents on their own. The Patent Law, through its "Bayh-Dole" provisions, 35 U.S.C. Section 209, requires such recipients to include in the patent itself, a legend that the invention was obtained with government funds. Such patents are subject to "march-in" rights, the most important of which is the right of the government to license the patent to others if the patentee does not make the invention available to the public on "reasonable terms." The language of the statute and its legislative history clearly indicate this means reasonable prices. Thus, present federal law includes a powerful price control provision. Since it was enacted in 1980, however, it has not been used by any administration, Republican or Democratic. Congressional reviews reveal massive noncompliance of Bayh-Dole by industry, and a willing ignorance by administrative agencies. Each administration has refused to enforce Bayh-Dole, and several have announced that, despite the clear dictates of the law, they do not intend to enforce it. Recognizing the conflicts underlying such federal/private relationships, and the failure of their regulating provisions, it is surely in the public interest to revisit such relationships and enforce this law.
Accepted Paper Series
Date posted: October 15, 2000
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