The U.S. Court of Appeals for the Federal Circuit affirmed a district court’s ruling that the District of Columbia’s Prescription Drug Excessive Pricing Act of 2005 (the Act) is preempted by federal patent laws and facially unconstitutional as invalidated by the Commerce Clause of the United States Constitution. Biotechnology Indus. Org. v. District of Columbia, Case No. 06-1593 (Fed. Cir., Aug. 1, 2007) (Gajarsa, J.).
According to the Act, "[a] prima facie case of excessive pricing shall be established where the wholesale price of a patented prescription drug in the District is over 30% than the comparable price in any high income country in which the product is protected by patents or other exclusive marketing rights." Once a prima facie case of "excessive pricing" is shown, the burden shifts to the defendant to prove that the price is not excessive.
Pharmaceutical Research and Manufacturers of America (PhRMA) and Biotechnology Industry Organization (BIO) initially filed suit in the United States District Court of the District of Columbia, alleging that the Act was invalid as it violated the Commerce Clause of the Constitution and was further preempted by federal patent laws. The district court consolidated the two actions and issued an opinion stating that the Act was preempted by federal patent laws and invalidated by the Commerce Clause of the Constitution. The District appealed the preemption ruling.
On appeal, the Federal Circuit initially found that it had subject matter jurisdiction to hear the case because, while patent law did not "create" the cause of action, it was a necessary element of the case. As to the issue of standing, the Federal Circuit found that members of both plaintiff organizations had shown that the Act threatens them with "concrete, imminent injury" due to the "realistic danger of sustaining a direct injury as a result of the statute’s operation or enforcement," and thus satisfied the elements of causation and redressability.
The Court next addressed the preemption argument. While acknowledging the lack of an express provision in the patent statute that prohibits states from regulating the price of patented goods, the Court stated that "state law must yield to congressional enactments if it ‘stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress.’" The Court pointed out that Congress has decided that patentees’ present amount of exclusionary power, the present length of patent terms and the present conditions for patentability represent the best balance between exclusion and free use. The Court also noted that the Act applies only to patented drugs and represented an attempt by the District of Columbia to change federal patent policy within its borders. The Court stated that the underlying determination about the proper balance between innovators’ profit and consumer access to medication is exclusively one for Congress to make. Accordingly, the Court held that the Act stood as an obstacle to the congressionally established balance of objectives for federal patent law and thus preempted by federal patent law.
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