News
Academy
Editorial PodcastsEditorial VideosPeer ExchangeProfiles in Medicine
Conference CoverageConference Listing
Pharmaceutical Executive
Partner Perspectives
Content Engagement HubsE-BooksEventsSponsored PodcastsSponsored VideosWebcastsWhitepapers
Subscribe
Corporate CommunicationsCorporate CommunicationsCorporate CommunicationsCorporate CommunicationsCorporate Communications
Direct-to-ConsumerDirect-to-ConsumerDirect-to-ConsumerDirect-to-Consumer
Emerging BiopharmaEmerging BiopharmaEmerging Biopharma
IR Licensing and PartnershipsIR Licensing and PartnershipsIR Licensing and Partnerships
Market AccessMarket AccessMarket AccessMarket Access
Medical AffairsMedical AffairsMedical AffairsMedical Affairs
OperationsOperationsOperationsOperationsOperations
Patient EngagementPatient Engagement
RegulatoryRegulatoryRegulatoryRegulatory
Sales & MarketingSales & MarketingSales & MarketingSales & MarketingSales & Marketing
Spotlight -
  • Latest Executive Roundtables
  • Asembia 2025
  • Sales Effectiveness
IS1
  • Applied Clinical Trials

  • BioPharm International

  • Cannabis Science and Technology

  • Chromatography Online

  • Nutritional Outlook

  • Pharmaceutical Commerce

  • Pharmaceutical Executive

  • Pharm Tech

  • Spectroscopy Online

  • Turbo Machinery Magazine

Corporate CommunicationsCorporate CommunicationsCorporate CommunicationsCorporate CommunicationsCorporate Communications
Direct-to-ConsumerDirect-to-ConsumerDirect-to-ConsumerDirect-to-Consumer
Emerging BiopharmaEmerging BiopharmaEmerging Biopharma
IR Licensing and PartnershipsIR Licensing and PartnershipsIR Licensing and Partnerships
Market AccessMarket AccessMarket AccessMarket Access
Medical AffairsMedical AffairsMedical AffairsMedical Affairs
OperationsOperationsOperationsOperationsOperations
Patient EngagementPatient Engagement
RegulatoryRegulatoryRegulatoryRegulatory
Sales & MarketingSales & MarketingSales & MarketingSales & MarketingSales & Marketing
IS1
  • Applied Clinical Trials

  • BioPharm International

  • Cannabis Science and Technology

  • Chromatography Online

  • Nutritional Outlook

  • Pharmaceutical Commerce

  • Pharmaceutical Executive

  • Pharm Tech

  • Spectroscopy Online

  • Turbo Machinery Magazine

    • Academy
    • Partner Perspectives
    • Subscribe
Advertisement

Article

Pharmaceutical Executive

November 1, 2005

Pharmaceutical Executive

Pharmaceutical Executive-11-01-2005
Volume0
Issue 0

Legal: State Compulsory Licenses

Author(s):

Tamsen Valoir

Under one bill, states could license patented drugs to generics companies, paying patent holders a royalty.

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 domain law.

Tamsen Valoir

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..."

The current legislative proposals do not meet the TRIPS conditions because they fail to require prior efforts to obtain reasonable terms, among other requirements. However, by closely tracking the language in TRIPS, it should be possible to draft legislation that allows use without authorization of the patent holder.

States are considering ways to cope with high prices. It might be wise not to dismiss compulsory drug legislation too quickly, but to consider its effect on public opinion, an area where the pharma industry is losing ground.

Tamsen Valoir is a partner in the Houston office of Baker & McKenzie. She can be reached at tamsen.valoir@bakernet.com

Articles in this issue

RX Club Award 2005 Coverage
RX Club Award 2005 Coverage
Turkey
Marketing to Professionals: Detailing
Marketing to Professionals: Detailing
Opinion: It's All Relative
Opinion: It's All Relative
Thought Leader: A Q&A with Steve Rauschkolb
Thought Leader: A Q&A with Steve Rauschkolb
From the Editor: Lost World
From the Editor: Lost World
Washington Report: Out of Commission? Crawford Steps Down
Washington Report: Out of Commission? Crawford Steps Down
Valeant Pharmaceuticals is Soldiering On
Valeant Pharmaceuticals is Soldiering On
Global Report: Drug Evaluation in the UK
Global Report: Drug Evaluation in the UK
Legal: State Compulsory Licenses
Legal: State Compulsory Licenses

Newsletter

Lead with insight with the Pharmaceutical Executive newsletter, featuring strategic analysis, leadership trends, and market intelligence for biopharma decision-makers.

Subscribe Now!
Related Videos
Marcel Botha, 10XBeta
Matthew Yelovich, Cleary Gottlieb, Theranos Case
Marcel Botha, 10XBeta
Related Content
Advertisement
Stock.adobe.com
August 1st 2025

Pharma Industry Execs React to President Trump’s 60-Day MFN Deadline

Mike Hollan
Members of the industry believe the US should remain an innovation-friendly market.
Peter Ax, UpScriptHealth
August 1st 2025

Tariffs and Drug Prices: Understanding the Impact on Pharmaceuticals

Miranda Schmalfuhs
Peter Ax, founder & CEO of UpScriptHealth, discusses the impact of tariffs on the pharmaceutical industry and how digital health platforms could potentially help offset them.
FDA Approves Label Update for Novartis’ Leqvio to Enable Twice-Yearly Monotherapy for LDL-C Management in Adults with Hypercholesterolemia
August 1st 2025

FDA Approves Label Update for Novartis’ Leqvio to Enable Twice-Yearly Monotherapy for LDL-C Management in Adults with Hypercholesterolemia

Don Tracy, Associate Editor
The updated label no longer requires Leqvio (inclisiran) to be used in combination with statins for low-density lipoprotein cholesterol management.
Navigating Distrust: Pharma in the Age of Social Media
August 1st 2025

Navigating Distrust: Pharma in the Age of Social Media

Miranda Schmalfuhs
Ian Baer, Founder and CEO of Sooth, discusses how the growing distrust in social media will impact industry marketing strategies and the relationships between pharmaceutical companies and the patients they aim to serve. He also explains dark social, how to combat misinformation, closing the trust gap, and more.
Stock.adobe.com
August 1st 2025

Report Says President Trump Pushed for Vinay Prasad’s Removal

Mike Hollan
Sources also say that the administration plans to split CBER in two, with one of the section focused entirely on vaccines.
President Donald Trump
August 1st 2025

President Trump Issues Letters to 17 Major Pharma Companies Demanding Action on Most-Favored-Nation Order

Mike Hollan
The letter states that the companies have 60 days to meet the President's requirements.
Related Content
Advertisement
Stock.adobe.com
August 1st 2025

Pharma Industry Execs React to President Trump’s 60-Day MFN Deadline

Mike Hollan
Members of the industry believe the US should remain an innovation-friendly market.
Peter Ax, UpScriptHealth
August 1st 2025

Tariffs and Drug Prices: Understanding the Impact on Pharmaceuticals

Miranda Schmalfuhs
Peter Ax, founder & CEO of UpScriptHealth, discusses the impact of tariffs on the pharmaceutical industry and how digital health platforms could potentially help offset them.
FDA Approves Label Update for Novartis’ Leqvio to Enable Twice-Yearly Monotherapy for LDL-C Management in Adults with Hypercholesterolemia
August 1st 2025

FDA Approves Label Update for Novartis’ Leqvio to Enable Twice-Yearly Monotherapy for LDL-C Management in Adults with Hypercholesterolemia

Don Tracy, Associate Editor
The updated label no longer requires Leqvio (inclisiran) to be used in combination with statins for low-density lipoprotein cholesterol management.
Navigating Distrust: Pharma in the Age of Social Media
August 1st 2025

Navigating Distrust: Pharma in the Age of Social Media

Miranda Schmalfuhs
Ian Baer, Founder and CEO of Sooth, discusses how the growing distrust in social media will impact industry marketing strategies and the relationships between pharmaceutical companies and the patients they aim to serve. He also explains dark social, how to combat misinformation, closing the trust gap, and more.
Stock.adobe.com
August 1st 2025

Report Says President Trump Pushed for Vinay Prasad’s Removal

Mike Hollan
Sources also say that the administration plans to split CBER in two, with one of the section focused entirely on vaccines.
President Donald Trump
August 1st 2025

President Trump Issues Letters to 17 Major Pharma Companies Demanding Action on Most-Favored-Nation Order

Mike Hollan
The letter states that the companies have 60 days to meet the President's requirements.
About
Advertise
Contact Us
Editorial Board
Editorial Submission Guidelines
Do Not Sell My Personal Information
Privacy Policy
Terms and Conditions
Contact Info

2 Commerce Drive
Cranbury, NJ 08512

609-716-7777

© 2025 MJH Life Sciences

All rights reserved.