A US federal Court of Appeals has thrown out a bid by the District of Columbia to control prescription drug prices, ruling that such a policy is violative of federal laws designed to encourage innovation.

Judges Arthur Gajarsa and William Bryson and Senior Judge Jay Plager have 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’ objective in passing patent legislation, which was to encourage innovation by rewarding investment in the development new products.

The Act was passed by the DC Council and signed into law by Mayor Anthony Williams in October 2005, but the Pharmaceutical Research and Manufacturers of America (PhRMA) immediately sought, and won, a court order temporarily preventing it from taking effect. In December 2005, the US District Court for DC ruled that the Act was preempted by federal patent laws and therefore unconstitutional. Presiding judge Richard Leon stated that, through 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 Appeals agreed to review the case.

The latter court has now upheld the District Court’s ruling. It was the DC government’s belief, said the three judges, that patents enable drugmakers to wield too much market power and that this allows them to 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, adding that, 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.

A victory for patients

PhRMA has described the Appeal Court decision as “a victory for patients” which preserves “crucial incentives for continued discovery and creation of new medicines.” The judges had noted Congress’ acknowledgement of the “vital role of patent incentives in encouraging the world-leading innovation of America’s pharmaceutical research companies,” said PhRMA senior vice president Ken Johnson, adding: “the court also recognised that America’s patent system provides strong incentives for inventors - including pharmaceutical and biotechnology research companies - to invest the resources necessary to research and develop treatments that benefit patients and the public health.”

The Biotechnology Industry Organization (BIO), which had also filed suit against the Act, commented that, like other price control measures, it would not have had the intended effect of increasing patient access to drugs. “Instead, it would have discouraged the development of new therapies for the diseases which plague us and our loved ones,” said BIO’s 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.” The WLF suit had argued that, if allowed to take effect, the Act would have “devastating long-term adverse effects on health care,” as drug companies would be unwilling to invest such massive sums if state drug price controls deprived them of any assurance that they could recover those costs by utilising the market advantages provided them under the patent system.

After reviewing the latest court decision, WLF chief counsel Richard Samp said: “the DC government sought to tinker with the delicate balance crafted by Congress in the patent law system for short-term relief from higher drug prices. But if more such laws were adopted, the loser in the long run would be American patients. Price controls lead to decreased spending on pharmaceutical R&D, with the inevitable result that fewer drugs will be developed,” he added.

Meantime, supporters of the Act and DC Council members are reportedly considering whether to continue with the appeal process against the court rulings. By Lynne Taylor