Compensation Requirements as a Hurdle in Drug Price Relief
Panel
Panel 9: Competition and Compensation
Moderator
Shelly Gulati, Associate Professor, University of the Pacific, School of Engineering and Computer Science
Description
Some recent proposals to control or reduce drug prices envision a form of compulsory licensing. A typical scheme involves the federal government’s attempt to negotiate with drug companies for a lower price for drugs purchased under Medicare’s part D program, and failing that, the issuance of a compulsory license for an alternative source. The proposals often provide a multi-factored compensation formula for the license related to patent rights and other IP. But the power to define compensation by formula is not unlimited; it is generally acknowledged that patent owners have the right to seek compensation for unauthorized government use of patents through 28 U.S.C. § 1498. The proffered payment must be consistent with the eminent domain-like requirements of this statute. Proponents argue that compensation systems taking into account factors such as R&D costs, health care benefits and the value of government subsidies more than comport with § 1498 because a reasonable royalty is the ceiling. Though it is true that courts reviewing the statute traditionally state a preference for royalties, a drug procurement system for private citizens may challenge this presumption. The history and structure of § 1498 suggests a more substantial compensation burden such as “lost profits” is at least a possibility. It is therefore important to more thoroughly evaluate compensation requirements, lest the government incur significant costs that squelch the effort to manage drug costs and increase access to medicines.
Location
Pacific McGeorge School of Law, Lecture Hall, 3200 Fifth Ave., Sacramento, CA
Compensation Requirements as a Hurdle in Drug Price Relief
Pacific McGeorge School of Law, Lecture Hall, 3200 Fifth Ave., Sacramento, CA
Some recent proposals to control or reduce drug prices envision a form of compulsory licensing. A typical scheme involves the federal government’s attempt to negotiate with drug companies for a lower price for drugs purchased under Medicare’s part D program, and failing that, the issuance of a compulsory license for an alternative source. The proposals often provide a multi-factored compensation formula for the license related to patent rights and other IP. But the power to define compensation by formula is not unlimited; it is generally acknowledged that patent owners have the right to seek compensation for unauthorized government use of patents through 28 U.S.C. § 1498. The proffered payment must be consistent with the eminent domain-like requirements of this statute. Proponents argue that compensation systems taking into account factors such as R&D costs, health care benefits and the value of government subsidies more than comport with § 1498 because a reasonable royalty is the ceiling. Though it is true that courts reviewing the statute traditionally state a preference for royalties, a drug procurement system for private citizens may challenge this presumption. The history and structure of § 1498 suggests a more substantial compensation burden such as “lost profits” is at least a possibility. It is therefore important to more thoroughly evaluate compensation requirements, lest the government incur significant costs that squelch the effort to manage drug costs and increase access to medicines.
Speaker Bio
Professor Daniel Cahoy specializes in the teaching and study of intellectual property law, as well as related issues in technology law and general business law concepts. A professor of business law in the Smeal College of Business, he has published numerous articles in academic law journals on topics such as IP and alternative energy policy, FDA regulatory policy, reforming the U.S. patent system, the use of contracts to extend limited intellectual property rights, and the use of experimental economics to improve jury studies. In 2007, Professor Cahoy was awarded the Junior Faculty Award of Excellence, the Academy of Legal Studies in Business's highest award for a junior faculty member. During the fall 2009 semester, Professor Cahoy was in residence at the University of Ottawa in Canada serving as the Fulbright Visiting Chair in International Humanitarian Law. He served on the Editorial Board of the peerreviewed American Business Law Journal from 2005-2010, including as the Editor-in-Chief from 2009- 2010, and now acts in an advisory capacity. Professor Cahoy is a Past President of the Academy of Legal Studies in Business.
Professor Cahoy is a patent attorney, licensed to practice before the United States Patent and Trademark Office, and is admitted to the New York State Bar and several federal courts, including the United States Court of Appeals for the Federal Circuit. Prior to joining the University, Cahoy practiced in New York City at the large intellectual property-oriented law firm of Fitzpatrick, Cella, Harper & Scinto, where he specialized in complex patent litigation. He gained extensive experience in the development and protection of intellectual property rights in the chemical, pharmaceutical and biotechnology arts while working for such clients as Pfizer, Inc., Bristol-Myers Squibb Co., and Bausch & Lomb Incorporated. He is a member of the Academy of Legal Studies in Business and the American Intellectual Property Law Association.
Professor Cahoy is currently pursuing a number of projects related to the impact of property and intellectual property rights on natural gas extraction (fracking) and climate change (sustainable) technologies. He is also investigating aspects of university patent ownership, including license restrictions and the impact on stakeholders.