Questioning the frequency and wisdom of compulsory licensing for pharmaceutical patents

University of Chicago Law Review

Volumn 78, Issue 1, 2011, Pages 71-93

  Epstein, Richard A ^a   Kieff, F Scott ^b  

^a NEW YORK UNIVERSITY SCHOOL OF LAW   (United States)

^b GEORGE WASHINGTON UNIVERSITY   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 79955979065     PISSN: 00419494     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Article

References (100)

1. See Ministry of Public Health and National Health Security Office, Thailand, Facts and Evidences on the 10 Burning Issues Related to the Government Use of Patents on Three Patented Essential Drugs in Thailand: Document to Support Strengthening of Social Wisdom on the Issue of Drug Patent *3 (Feb 2007), online at http://www.moph.go.th/hot/White%20Paper%20CL-EN.pdf (visited Oct 15, 2010) ("Thai White Paper I") (discussing CL for drugs to treat AIDS and heart disease).
2. See also Ministry of Public Health and National Health Security Office, Thailand, The 10 Burning Questions Regarding the Government Use of Patents on the Four Anticancer Drugs in Thailand *4-5 (Feb 2008), online at http://www.moph.go.th/hot/White%20paper%20CL%20II%20FEB%2008-ENG.pdf (visited Oct 15, 2010) ("Thai White Paper II") (discussing CL for cancer drugs). Brazil has also adopted a CL approach.
3. See Jon Cohen, AIDS Drugs: Brazil, Thailand Override Big Pharma Patents, 316 Sci 816, 816 (2007) (discussing Brazil's decision to follow Thailand by using CL for an anti-HIV drug considered unnecessarily expensive).
4. For a helpful review, see Cynthia M. Ho, Unveiling Competing Patent Perspectives, 46 Houston L Rev 1047, 1049-51 (2009).
5. See generally Richard A. Epstein, A Clear View of the Cathedral: The Dominance of Property Rules, 106 Yale L J 2091 (1997).
6. Thai White Paper I at *12 (cited in note 1). See also id at *67-76, 97-102.
7. Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS), 33 ILM 1197 (1994).
8. TRIPS Art 31(b), 33 ILM at 1209.
9. See Kevin Outterson, Disease-Based Limitations on Compulsory Licenses under Articles 31 and 31BIS *3 (Boston University School of Law Working Paper No 09-26, May 2009), online at http://ssrn.com/abstract=1407522 (visited Oct 15, 2010).
10. Id.
11. See id at *1-5.
12. See WTO, Declaration on the TRIPS Agreement and Public Health, WTO Doc WT/Min(01)/DEC/2 (2001) ("Doha Declaration"), online at http://www.wto.org/english/thewto-e/minist-e/min01-e/mindecl-trips-e.pdf (visited Oct 15, 2010).
13. Id at ¶ 1.
14. Id at ¶ 5.
15. For the conflation of "grounds" with "commercially reasonable terms and conditions," see Amy Kapczynski, et al, Addressing Global Health Inequities: An Open Licensing Approach for University Innovations, 20 Berkeley Tech L J 1031, 1059 nn 122-23 (2005) (quoting the text of paragraph 4(b) but failing to mention the commercially reasonable terms and conditions language in Article 31 of TRIPS).
16. For the connection in American law, see Federal Power Commission v Hope Natural Gas Co, 320 US 591, 602-06 (1944) (dealing with just and reasonable rates)
17. Duquesne Light Co v Barasch, 488 US 299, 310 (1989) (same). The precise context of these cases differs from the TRIPS agreement because the rate regulation effort there is focused on the overall return to the utility, not the contribution from the particular host company. But under TRIPS reasonableness must be determined relative to the situation between the two parties, for which the two tests stated in the text give the far better response.
18. For a discussion, see Richard A. Epstein, Overdose: How Excessive Government Regulation Stifles Pharmaceutical Innovation 91-96 (Yale 2006).
19. James Bessen and Michael J. Meurer, Patent Failure: How Judges, Bureaucrats, and Lawyers Put Innovation at Risk 2 (Princeton 2008). For a more detailed discussion of the topic, see id at 46-72.
20. See, for example, Michael Heller, The Gridlock Economy: How Too Much Ownership Wrecks Markets, Stops Innovation, and Costs Lives 49-78 (Basic Books 2008) (arguing that "[d]rugs that should exist are not being created" because licensing negotiations are plagued by insuperable holdout problems, thus retarding innovation and replacing it with litigation).
21. Michael A. Heller and Rebecca S. Eisenberg, Can Patents Deter Innovation? The Anti-commons in Biomedical Research, 280 Sci 698, 699 (1998).
22. We also have previously offered a range of reasons why such concerns are often overblown or better addressed through private ordering than through legal reform.
23. See, for example, F. Scott Kieff, On Coordinating Transactions in Intellectual Property: A Response to Smith's Delineating Entitlements in Information, 117 Yale L J Pocket Part 101, 106-09 (2007) (exploring additional reasons)
24. F. Scott Kieff and Troy A. Paredes, Engineering a Deal: Toward a Private Ordering Solution to the Anticommons Problem, 48 BC L Rev 111, 114-16 (2007) (offering a private ordering solution for cases in which the problems persist)
25. Richard A. Epstein and Bruce N. Kuhlik, Is There a Biomedical Anticommons?, 27 Reg 54, 55 (Summer 2004) (exploring some reasons why the problems are likely to be less prevalent than feared).
26. See, for example, Ian Ayres and Gideon Parchomovsky, Tradable Patent Rights, 60 Stan L Rev 863, 864 (2007) ("Patent thickets can be found in several key industries, such as semiconductors, biotechnology, computer software, and the Internet.")
27. Carl Shapiro, Navigating the Patent Thicket: Cross Licenses, Patent Pools, and Standard Setting, in Adam B. Jaffe, John Lerner, and Scott Stern, eds, 1 Innovation Policy and the Economy 119, 120-22 (MIT 2001) (providing the same observation).
28. See TRIPS Art 31(b), 33 ILM at 1209.
29. Id.
30. Quick-take condemnations involve "[t]he immediate taking of possession of private property for public use, whereby the estimated compensation is deposited in court or paid to the condemnee until the actual amount of compensation can be established." Black's Law Dictionary 310 (West 8th ed 2004).
31. See Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski, The Price of Innovation: New Estimates of Drug Development Costs, 22 J Health Econ 151, 180 (2003) (estimating $802 million).
32. For a higher estimate, see Jim Gilbert, Preston Henske, and Ashish Singh, Rebuilding Big Pharma's Business Model, 21 In Vivo: Bus & Med Rep 73, 74 (2003) (estimating $1.7 billion).
33. Drug Price Competition and Patent Term Restoration Act of 1984 ("Hatch-Waxman Act"), Pub L No 98-417, 98 Stat 1585, codified as amended in various sections of Titles 15, 21, 35, and 42.
34. See Henry G. Grabowski and Margaret Kyle, Generic Competition and Market Exclusivity Periods in Pharmaceuticals, 28 Managerial & Decision Econ 491, 493, 496 (2007).
35. For more on the limitations of prizes, tax credits, and other rewards as substitutes for patents, see F. Scott Kieff, On the Economics of Patent Law and Policy, in Toshiko Takenaka, ed, Patent Law and Theory: A Handbook of Contemporary Research 3, 34-K) (Edward Elgar 2008).
36. For a description of the program and a rejection of constitutional challenges to it, see Pharmaceutical Research & Manufacturers of America v Walsh, 538 US 644, 650-55, 668, 670 (2003).
37. See Michael E. Levine, Price Discrimination without Market Power, 19 Yale J Reg 1, 2-3 (2002).
38. See John F. Duffy, The Marginal Cost Controversy in Intellectual Property, 71 U Chi L Rev 37, 40-41 (2004). On the importance of price discrimination in the context of antitrust litigation
39. see In re Brand Name Prescription Drugs Antitrust Litigation, 186 F3d 781, 784-85 (7th Cir 1999).
40. See, for example, Thai White Paper II at *39 (cited in note 1).
41. For costs, see note 24 and accompanying text.
42. Orphan drugs are those designed to treat rare conditions. In both the United States and Europe, special procedures are developed to reduce the cost of their approval. For the American response
43. see FDA, Developing Products for Rare Diseases and Conditions, online at http://www.fda.gov/ForIndustry/DevelopingProductsforRareDiseasesConditions/ default.htm (visited Oct 15, 2010).
44. See Duquesne Light Co v Barasch, 488 US 299, 308-12 (1989) (detailing alternative methods of compensation).
45. See Bryan A. Liang, A Dose of Reality: Promoting Access to Pharmaceuticals, 8 Wake Forest Intel Prop L J 301, 324-26 (2008).
46. See Patricia M. Danzon and Michael F. Furukawa, International Prices and Availability of Pharmaceuticals in 2005, 27 Health Aff 221, 228 (2008).
47. See Gardiner Harris, F.D.A. Identifies Tainted Heparin in 11 Countries, NY Times A1 (Apr 22, 2008).
48. Consider, for example, Jay Hoenig, Managing Business Risks: Wise Companies Prepare for-and Minimize Their Exposure to-Risks When Investing in China, China Bus Rev 16, 17-18 (Nov-Dec 2006).
49. See, for example, Thai White Paper II at *6-7 (cited in note 1).
50. See Danzon and Furukawa, 27 Health Aff at 232-33 (cited in note 36)
51. Patricia M. Danzon, Neglected Diseases: At What Price?, 449 Nature 176, 178-79 (2007)
52. Patricia M. Danzon and Michael F. Furukawa, Prices and Availability of Pharmaceuticals: Evidence from Nine Countries, Health Aff Web Exclusive W3-521, W3-534 (2003), online at http://content.healthaffairs.org/cgi/reprint/hlthaff. w3.521v1.pdf (visited Oct 15, 2010) ("Our finding that drug price differentials between countries roughly reflect income differences (except for Chile and Mexico) plausibly reflects the interaction of drug manufacturers' pricing strategies, using income as a rough proxy for demand elasticities, and regulation.").
53. For a discussion on the topic, see generally Richard A. Epstein, Rent Control and the Theory of Efficient Regulation, 54 Brooklyn L Rev 741 (1988).
54. For the latest political distortion under rent stabilization in New York, see Roberts v Tishman Speyer Properties, 918 NE2d 900, 902 (NY 2009).
55. See Pennell v City of San Jose, 485 US 1, 22-23 (1988).
56. See, for example, Michael Waldholz and Rachel Zimmerman, Bristol-Myers Offers to Sell Two AIDS Drugs in Africa at Below Cost, Wall St J B1 (Mar 15, 2001).
57. See, for example, Thai White Paper I at *12, 67-76, 97-102 (cited in note 1).
58. See Twentieth Century Music Corp v Aiken, 422 US 151, 156 (1975) ("The immediate effect of our copyright law is to secure a fair return for an 'author's' creative labor · for the general public good.").
59. See, for example, Broadcast Music, Inc v Columbia Broadcasting System, Inc, 441 US 1, 7-8 (1979) (applying the rule of reason to blanket broadcast licenses).
60. See F. Scott Kieff, Coordination, Property, and Intellectual Property: An Unconventional Approach to Anticompetitive Effects and Downstream Access, 56 Emory L J 327, 379 (2006).
61. Joseph L. Sax, Takings and the Police Power, 14 Yale L J 36, 62-63 (1964) (using this line to distinguish between a noncompensable exercise of "police power" and a compensable "taking").
62. 35 USC § 271(e)(1).
63. See 35 USC § 156(c), (g).
64. 35 USC § 287(c).
65. 35 USC § 287(c)(1).
66. 547 US 388 (2006).
67. MercExchange, LLC v eBay Inc, 401 F3d 1323, 1339 (Fed Cir 2005).
68. eBay, 547 US at 391. For more on the way these factors have long been applied by courts in equity
69. see F. Scott Kieff and Henry E. Smith, How Not to Invent a Patent Crisis, in Terry L. Anderson and Richard Sousa, eds, Reacting to the Spending Spree: Policy Changes We Can Afford 55, 68-69 (Hoover 2009).
70. See Brief of Various Law and Economics Professors as Amici Curiae in Support of Respondent, eBay Inc v MercExchange, LLC, No 05-130, *23-24 (US filed Mar 10, 2006) (available on Westlaw at 2006 WL 639164).
71. For an academic version of the defense, see Richard A. Epstein, The Property Rights Movement and Intellectual Property, 30 Reg 58, 62-63 (Winter 2008).
72. See, for example, TruePosition Inc v Andrew Corp, 568 F Supp 2d 500, 529, 530-34 (D Del 2008) (involving an injunction against a direct competitor)
73. TiVo Inc v Echostar Communications Corp, 446 F Supp 2d 664, 666-67 (ED Tex 2006) (same).
74. See O'Reilly v Morse, 56 US (15 How) 62, 112-13 (1854).
75. See Bessen and Meurer, Patent Failure at 17 (cited in note 16).
76. Note that in addition to this narrow definition, the authors offer a broader definition that covers "all sorts of patentees who opportunistically take advantage of poor patent notice to assert patents against unsuspecting firms," id, a definition that has no conceivable relevance to pharmaceutical patent disputes.
77. See, for example, Thai White Paper I at *14 (cited in note 1) (pointing to previous failed attempts to negotiate lower drug prices as the reason for using CL). In the case of Thailand, the government argued: Prior negotiation with the patent holders is not an effective measure and only delays the improvement of access to essential medicines. It is only after the threat or the decision to use and implement Compulsory Licensing or Government Use of Patent that the negotiation will be more successful and effective.
78. Id.
79. 434 F Supp 2d 437 (ED Tex 2006).
80. Id at 441-44 (holding that damages for future infringement were an adequate remedy and that the balance of hardships heavily favored Microsoft).
81. See id at 442.
82. See id at 438-41.
83. The operative statutory language is: "adequate to compensate for the infringement, but in no event less than a reasonable royalty." 35 USC § 284.
84. 2006 WL 2037617 (ED Tex), affd in part, revd in part, and remd, 523 F3d 1323 (Fed Cir 2008).
85. Finisar Corp v The DirecTV Group, Inc, 2006 WL 2709206, *1 (ED Tex).
86. 2006 WL 2385139 (ED Tex), affd in part, vacd in part, and remd, 504 F3d 1293 (Fed Cir 2007).
87. Id at *4-6.
88. 469 F Supp 2d 203 (D Del 2007).
89. Id at 224-25.
90. Id at 223.
91. Either governments in the United States (state and federal) have waived their sovereign immunity, making themselves available in various courts for payment of a reasonable royalty, or such suits are available to seek just compensation for government takings. For the connection between intellectual property and takings law
92. see Richard A. Epstein, The Disintegration of Intellectual Property? A Classical Liberal Response to a Premature Obituary, 62 Stan L Rev 455, 513-21 (2010).
93. For a review of the technicalities of sovereign immunity and intellectual property in the United States
94. see generally Eugene Volokh, Sovereign Immunity and Intellectual Property, 73 S Cal L Rev 1161 (2000).
95. See Richard A. Epstein, The Constitutional Protection of Trade Secrets under the Takings Clause, 71 U Chi L Rev 57, 61-64 (2004).
96. 4 44 US 164, 179-80 (1979).
97. 483 US 825, 841-42 (1987).
98. See Michael A. Carrier, Unraveling the Patent-Antitrust Paradox, 150 U Pa L Rev 761, 848 n 366 (2002) (collecting sources and concluding that "[c]ompulsory licensing was a frequently applied remedy in the 1940s and 1950s, with 107 antitrust settlements between 1941 and 1959 calling for such licensing or dedication of between 40,000 and 50,000 patents").
99. For a recent review of issues arising in cases involving antitrust and intellectual property, see Geoffrey A. Manne, et al, Comment on Intellectual Property, Concentration and the Limits of Antitrust in the Biotech Seed Industry *8-18 (Lewis & Clark Law School Legal Research Paper No 2010-9, Dec 2009), online at http://ssrn.com/abstract=1553064 (visited Oct 16, 2010) (cautioning that there are high error costs associated with courts making mistaken judgments about the anticompetitive effects of IP in new contexts).
100. See Illinois Tool Works Inc v Independent Ink, Inc, 547 US 28, 44-45 (2006).