Back in June, the City of New London, Connecticut, condemned a working-class neighborhood near the Thames River, citing the
need for "urban revitalization." The city then sold the land to a private developer, who wanted to turn the waterfront property
into office buildings, upscale housing, and a marina. Susette Kelo, refusing to give up her little pink dream house with a
view, protested, taking the case to the Supreme Court. However, the Court ruled that the action was legal under the eminent
Eminent domain was intended to give the government power to take private property for the public good to build roads and schools,
or to redevelop blighted neighborhoods. But Kelo's community was never blighted. Kelo v. City of New London illustrates the growing sweep of eminent domain law. Now, states hope to apply this law to control drug prices.
The Latest Legislation
Vermont and the District of Columbia have proposed legislation that would allow them to issue compulsory drug licenses to
patent holders under the eminent domain process. Under these bills, states would then contract with a generic manufacturer
to produce the drug, paying the drug company a "reasonable royalty"—a proposed four percent—on each sale. The competition
would facilitate the "public good" by offering state residents cheaper drugs.
Legislators have also drafted the "Model State Pharmaceutical Eminent Domain Act" to help other states considering a similar
move. The act calls for compulsory licenses in instances where state officials declare that the public health and safety would
be improved—but doesn't specify guidelines for determining that standard. The Vermont bill has some guidelines, like whether
the drug is "essential for maintaining health or life," the cost of the drug in relation to the cost in other countries and
to average resident-income levels, as well as unspecified "extenuating circumstances." However, the bills are vague, and the
threshold for allowing a compulsory license seems startlingly low.
Some say these bills are intended simply to pressure drug companies to address cost disparities on their own. Think back to
the anthrax scare, when the US government threatened Bayer with compulsory licensing of Cipro (ciprofloxacin)—as the Canadian
government had done—if it didn't lower the price. It worked: Bayer kept its exclusive license but halved the price. That said,
companies must heed the warnings for compulsory licensing that are already in the environment.
There's precedent Under US federal law, compulsory patent licenses are available for "reasonable and entire compensation," and are also available
for inventions made using federal funds. The Federal Trade Commission's (FTC) decision concerning the 1997 merger between
Ciba-Geigy and Sandoz into Novartis illustrates this point. FTC required Novartis to grant all requesters a non-exclusive
license to their intellectual property of patented technologies for gene therapy drugs—and in some cases, mandated maximum
royalties—to protect competition in that area.
States can regulate Some industry observers say compulsory licensing conflicts with the commerce clause, which gives the federal government an
exclusive right to regulate commerce between states. However, where the federal government has not acted, states can regulate.
Even if state-issued compulsory licenses have difficulty passing constitutional muster, the state could probably act as a
market participant—for example, it could buy drugs at reduced cost for all state employees—which would effectively lower the
price as shown in Reeves v. William Stake (1980).
TRIPS compliant Some suggest the Trade-Related Intellectual Property Rights (TRIPS) agreement prevents states from enacting compulsory drug
licenses. However, TRIPS does allow such licenses under certain conditions, a as the Doha Declaration in 2001 confirmed, stating: "We recognize that under
WTO rules no country should be prevented from taking measures for the protection of human, animal, or plant life or health..."