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Professor Eugene Quinn
Temple University School of Law
JURIST Guest Columnist

The United States Supreme Court issued a decision on Monday, May 19, 2003, in Pharmaceutical Researchers and Manufacturers of America v. Walsh, a case that has become known to all who watch the popular media as "The Maine Rx Case." Strictly speaking this is not an intellectual property case, but when the pharmaceutical industry suffers a blow like this it is certainly going to catch the eye of intellectual property attorneys and health care specialists alike. This is particularly true where the decision may have the effect of altering the incentive to invent fostered by the patent laws.

The Supreme Court ruled that the pharmaceutical industry was unlikely to succeed in its challenge to a pioneering Maine law designed to lower prescription drug prices for the poor and uninsured. The case found its way to the Supreme Court because, in response to increasing Medicaid expenditures for prescription drugs, Congress enacted a cost-saving measure in 1990 that requires drug companies to pay rebates to States on their Medicaid purchases. In further cost cutting measures States have since enacted supplemental rebate programs to achieve additional cost savings on Medicaid purchases and purchases for other needy citizens. Now enter the "Maine Rx" plan. In 2000 Maine established the Maine Rx Program "to reduce prescription drug prices for residents of the State." Under the program, Maine will attempt to negotiate rebates with drug manufacturers. If a company does not enter into a rebate agreement, its Medicaid sales will be subjected to a prior authorization procedure that requires state agency approval to qualify a doctor's prescription for reimbursement by the State.

The Petitioner in the Maine Rx Case is an association of drug manufacturers who brought this challenge to the program before its effective date. The Petitioner claimed that the Maine Rx Program is preempted by the Medicaid Act and violates the negative Commerce Clause. Without resolving any factual issues, the District Court entered a preliminary injunction preventing the statute's implementation, concluding, inter alia, that any obstacle, no matter how modest, to the federal program's administration is sufficient to establish preemption. The United States Court of Appeals for the First Circuit reversed the District Court's ruling, finding no direct or actual conflict between the federal and state program that warranted the preemption of the Maine Statute.

The Supreme Court, per Justice Stevens, concluded that at this early stage of the litigation the petitioner has simply not carried the burden of showing a probability of success on the merits of its claims. Therefore, despite what you may have heard coming from the popular media, this case is not yet a victory for Maine and not yet a loss for the Pharmaceutical Industry. To be sure, all things being equal the Pharmaceutical Industry would have preferred the Supreme Court to reverse the First Circuit and agree with the District Court, but the case will go on and the Maine Rx Program will not be enjoined.

Undoubtedly this decision will be taught in Constitutional Law classes throughout the country as an example of what States can do without running afoul of the dormant Commerce Clause. To some Constitutional Scholars the decision will be hailed as right on the money, to others it will be seen as a significant step backwards in the ongoing saga of federal vs. state rights. Such a narrow view of the case, with focus given only to the facts and issues surrounding preemption based on the negative implications of the Commerce Clause, misses the larger social and political realities presented by this case. To paraphrase Ian Malcolm from the motion picture Jurassic Park, to focus on whether it can be done without addressing whether it should be done is to miss the forest for the trees.

Thomas Jefferson, an inventor himself, rejected the natural-rights theory of intellectual property rights and recognized the social and economic rationale embodied in the patent system. The exclusive rights granted by a United States Patent are not designed to provide to the inventor any natural or god-given right to discoveries or inventions. To the contrary, for better or for worse, the American idea of intellectual property has always been based upon a capitalist foundation. Intellectual property rights, patent rights in particular, are a reward intended to provide an inducement. The exclusive rights that make up the patent grant are given to an inventor to encourage the bringing forth of new knowledge and inventions that will hopefully benefit society. To call these rights a monopoly is not appropriate. The patent grants to the inventor the ability to reap monopoly profits for a time, but if and only if the product covered by the patent is coveted by individuals willing to part with their hard earned money.

So what does this have to do with the Maine Rx Case? According to a recently released study conducted by the Tufts Center for the Study of Drug Development, the average cost of developing a new prescription drug is approaching $900 million. While this figure does admittedly seem very high and has been challenged by activists lobbying for cheaper drugs, no one can doubt that the investment necessary to bring a drug to market in the United States is alarmingly high. Not only must a drug company fund research and development and acquire patent rights, before a drug can be marketed a rigorous FDA drug approval process must also be navigated. This FDA process can take between 10 - 15 years, and includes various trials aimed at confirming the efficacy of the drug. In short, whether or not the cost of bringing a drug to market is $900 million or not, a significant investment of time, energy and capital must be expended before a drug can ever reach the US marketplace. That being the case, and the reality that corporate America is capitalist to its core, the carrot that must be present for drug companies to engage in the effort to create new drugs must be enormous. Without the possibility of enormous return on investment it would simply be bad business to invest hundreds of millions of dollars to take a drug to market.

At first glance the Maine Rx Case seems like a positive decision, based on sound legal principles and which leads to good social policy. When one looks below the surface and takes a peek at what might become of the industry if the Maine Program becomes widespread, one must ask what if any impact this will have on the incentive to research, develop and market new drugs. The fact that life saving drugs cost so much is truly tragic. The fact that they exist at all is a miracle, at least to those who can afford them. It may seem cruel, but if drug companies are not allowed to reap significant rewards life saving drugs might not exist at all. A policy that allows this to happen wrecks havoc on the incentive to invent, and is short sighted.

I do not profess to have the answer, but it seems to me that there needs to be a concerted effort on multiple fronts to make drugs affordable while preserving the incentive to invent. The real problem is that drugs in the US are so expensive compared with drug prices in other countries, such as Canada. What bothers me is that it seems that we in the US are subsidizing lower drugs elsewhere. If drug companies cannot make an adequate return in foreign countries to help cover sunk costs associated with research, development and approval, they must charge higher prices where they can. This leaves States like Maine and people like you and me to subsidize others in countries like Canada. This seems fundamentally unfair, particularly to the most needy in our own country.

Eugene Quinn is currently a Visiting Professor of Law at Temple University School of Law, where he teaches and specializes in the areas of Intellectual Property, Business and Internet Law.

May 20, 2003


JURIST Guest Columnist Eugene Quinn is currently a Visiting Professor of Law at Temple University School of Law. Professor Quinn teaches and specializes in the areas of Intellectual Property, Business and Internet Law, and is a member of the patent bar and admitted to practice in New Hampshire.

Professor Quinn is the author of numerous articles on patent law, copyright law and the Internet. His latest article, titled An Unconstitutional Patent in Disguise, examines the constitutionality of the circumvention prevention measures of the DMCA. He holds an LL.M. in Intellectual Property from Franklin Pierce Law Center; a J.D. from Franklin Pierce Law Center; and a B.S.E.E. from Rutgers University. For his Internet home page, click here.