D.C. Cannot Control Prescription Drug Prices, Court Rules

By Carol D. Leonnig
Washington Post Staff Writer
Friday, August 3, 2007

A federal appeals court has struck down a bid by the District to control the price of prescription drugs sold in the city, concluding that the effort to protect D.C. residents from excessively high costs violates federal patent law.

The decision is a blow to consumer advocates and D.C. Council member David A. Catania (I-At Large), who championed the D.C. effort and said it was necessary to keep drugmakers with a monopoly on their patented products from charging inflated prices.

City officials said that they do not expect the ruling to trigger an immediate spike in drug prices but added that drugmakers will now have freer rein to charge higher-than-average prices. They also said they are reviewing whether to continue with appeals.

The controls, signed into law in October 2005, allow residents to sue a drug company if the wholesale price of a patented drug is 30 percent higher than the drug's price in Canada, Germany, Australia or the United Kingdom.

The appellate ruling, signed Wednesday and made public yesterday, is a victory for the drug industry. Its trade group, the Pharmaceutical Research and Manufacturers Association, moved quickly to block the law's implementation after then-Mayor Anthony A. Williams signed it into law.

The industry won a court order in December 2005 that at least temporarily prevented the city from enforcing the law. The case then went to the U.S. Court of Appeals for the Federal Circuit. That court hears appeals in cases involving patent law and other specialized subjects.

A three-judge appellate panel concluded that the D.C. Council and mayor might have had noble intentions with the pricing law but that it improperly usurps Congress's power and interferes with the decisions it made in passing the federal patent law. That law allows drugmakers to maintain a monopoly -- and a pricing advantage -- for years after they patent a new drug.

"In the District's judgment, patents enable pharmaceutical companies to wield too much market power, charging prices that are 'excessive' for patented drugs," the panel wrote. "The Act is 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."

"This may be a worthy undertaking on the part of the District government, but it is contrary to the goals established by Congress in the patent laws," the judges continued. "The District has thus seen fit to change federal patent policy within its borders."

Catania yesterday called the ruling "extreme in its scope" and said he will discuss appealing it with the D.C. attorney general.

"It implies that patents would ban any legislation that affects the ability of patent holders to charge whatever they please, which is absurd," Catania said. "The Supreme Court has already upheld legislation that mandates price discounts to participate in Medicaid formularies. And no one has argued that states cannot enforce antitrust and other rules that limit monopoly prices of drugs indirectly -- although the full logical thrust of the opinion would do just that."

The pharmaceutical industry cheered the ruling by Judges Arthur Gajarsa and William Bryson and Senior Judge S. Jay Plager.

"The decision by the U.S. Court of Appeals for the Federal Circuit is a victory for patients," said Ken Johnson, senior vice president of the industry's trade group. "By ruling that federal patent law preempts the District of Columbia's price control law for patented prescription medicines, the court has preserved crucial incentives for continued discovery and creation of new medicines."

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