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A US Federal Court of Appeal has thrown out a bid by the District of Columbia to control prescription drug prices, ruling that such a policy violates Federal laws designed to encourage innovation.
Three judges upheld a lower-court ruling that the Prescription Drug Excessive Pricing Act of 2005, which sought to allow DC residents to sue a drugmaker if the wholesale price of a patented drug was 30% higher than its price in Australia, Canada, Germany or the UK, is unconstitutional because it interferes with Congress’s objective in passing patent legislation, which was to encourage innovation by rewarding investment for developing new products.
The Act was passed by the DC Council and signed into law by mayor Anthony Williams in October 2005, but Pharmaceutical Research and Manufacturers of America (PhRMA) immediately gained a court order temporarily preventing it taking effect. In December 2005, the US District Court for DC ruled that the Act was pre-empted by Federal patent laws and therefore unconstitutional.
Presiding judge Richard Leon stated that via the patent laws Congress sought to “encourage and reward the innovation, research and development of new drugs”, but the Act did not “square with the Congressional purpose and objectives” of these laws. The DC government appealed his ruling, and the Court of Appeal agreed to review the case.
The latter court has now upheld the District Court’s ruling. It was the DC government’s belief, the three judges said, that patents give drugmakers too much market power and this lets them charge “excessive” prices for patented drugs. The Act was “a clear attempt to restrain those excessive prices, in effect diminishing the reward to patentees in order to provide greater benefit to District drug consumers”, the judges wrote.
However, while this may be “a worthy undertaking” by the DC government, it is contrary to the goals established by Congress in the patent laws. “The District has thus seen fit to change Federal patent policy within its borders,” they concluded.
PhRMA described the Appeal Court decision as “a victory for patients” which preserves “crucial incentives for continued discovery and creation of new medicines.” PhRMA senior vice-president Ken Johnson said the judges had noted Congress’s acknowledgement of the “vital role of patent incentives in encouraging the world-leading innovation of America’s pharmaceutical research companies”.
The Biotechnology Industry Organization (BIO), which also filed suit against the Act, commented that like other price control measures the move would not have had the intended effect of increasing patient access to drugs. “Instead, it would have discouraged the development of new therapies,” said BIO chief executive Jim Greenwood.
The free-market Washington Legal Foundation (WLF), which took its own action in the courts against the law, agreed that the judgement “will likely protect critical pharmaceutical R&D”.
Meanwhile, supporters of the Act and DC Council members are reportedly considering whether to continue with the appeal process against the rulings.