Should a patentee with market power be allowed to charge ...

Patents are no longer referred to as monopolies. Rightly so because the exclusive rights granted do not normally confer monopoly power in any relevant market. However, sometimes patents do confer so much market power that the owner can charge prices that bear no relation to the cost of manufacture (except for being well above that cost). Abbott's patents covering its antiretroviral drug ritonavir likely serve as one such example. Although not likely a true monopoly, Abbott is able to charge much more than its marginal costs. In the US, Abbott charges about $12 per 100 mg pill on its drug under the brand name Norvir. And, most patients are on a multi-pill daily regimine. In other high-income countries around the world, the drug is ordinarily sold at less than $2 per pill. Apparently to relieve political pressure, Abbott also lowers its price paid by the US Gov't for purchases under medicare and medicaid. Abbott has also apparently refused to allow its drug to be combined with other anti-viral treatments that would reduce cost and make life generally easier for patients.

The drug is protected by U.S. Patent No. 5541206, No. 5635523, No. 5648597, No. 5674882, No. 5846987, and No. 588604. And, there is little suggestion that these patents are invalid.

In a recent filing, Knowledge Economy International (KEI) has asked the NIH to use its March-In Rights to force Abbott to lower its price charged to US consumers. http://keionline.org/node/1573. The legal hook for KEI is that the US government funded a substantial portion of the initial drug development. That initial funding was critical and Abbott only fully committed and took-over all research funding once it realized the high likelihood that the drug would be a major profit source. Under Bayh-Dole, the US government has "march-in rights" for patents such as these to ensure that the innovations are reaching the marketplace in a way that serves consumers. However, the US government has never actually used its march-in rights. Although the US Gov't has not actually marched-in, a prior petition to the NIH is seen as one reason why Abbott reduced its price charged for the drug to the U.S. Gov't.

The Norvir situation is one of many cases that KEI sees as problematic. More generally, the organization has asked the NIH to adopt two rules to guide the use of March-In rights.

Rule 1: Ceiling on prices to U.S. residents: The Secretary shall normally grant open licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product or products based upon those inventions are sold in the United States at prices [more than 10%] higher than in other high income countries. . . . A licensee may rebut the presumption of unreasonable pricing by providing evidence that its actual risk adjusted R&D costs would not be recovered, but for the charging of higher prices in the U.S. market, or other evidence specific to the risk adjusted costs for the licensed invention.

Rule 2: Use of invention for a dependent co-formulation technology: The Secretary shall grant licenses to third parties to use patented inventions that have benefited from federal funding, subject to the payment of a reasonable royalty and an appropriate field of use, if a product based on those patented inventions: (a) is a drug, drug formulation, delivery mechanism, medical device, diagnostic or similar invention, and (b) is used or is potentially useful to prevent, treat or diagnose medical conditions or diseases involving humans, and (c) its co-formulation, co-administration or concomitant use with a second product is necessary to effect significant health benefits from the second product, and (d) the patent holder has refused a reasonable offer for a license.

I expect that the NIH will again reject this petition and refuse to exercise any march-in rights or develop a framework for the future. However, you may begin to wonder why Congress included march-in rights if they are never to be used.

Source: http://www.patentlyo.com/patent/2012/10/should-a-patentee-with-market-power-be-allowed-to-charge-monopoly-prices-march-in-rights-and-the-nih.html

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