Senator Asks Department of Veteran Affairs to Break Patents on Hepatitis C Drugs

By Donald Zuhn --

Last week, in a letter addressed to the Secretary of the U.S. Department of Veteran Affairs, Senator Bernard Sanders (I-VT) urged Secretary Robert McDonald to use his authority as Secretary "to break the patents on Hepatitis C medications for the treatment of veterans suffering with the disease."  Senator Sanders (at right) notes in the letter that as Chairman of the Senate Committee of Veterans' Affairs, he held a hearing in December 2014 regarding the impact of Hepatitis C drug pricing on veterans' access to treatment, and "raised concerns that the price of these new Hepatitis C drugs, specifically Sovaldi, which is manufactured by Gilead Sciences, even when discounted, would preclude veterans from accessing these life-changing drugs."

With regard to Solvaldi, Senator Sanders indicates that the drug is priced at $1,000 per pill, or about $84,000 for a course of treatment, and contends that "[t]his price was not a function of cost.  It was, pure and simple, an abuse of monopoly power."  As a result of the drug's price, the Senator states that "the concerns I raised last year have become a reality -- VA is being forced to stop enrollment of new patients in treatment because of lack of funds."

While suggesting that one solution to the problem would be for "Gilead Sciences to simply provide the drug to VA at no cost, as they have done abroad in the Republic of Georgia, India, and other places throughout the world with high rates of HCV infection," the letter notes that "the company has not stepped up to do this for our country's veterans," and declares that "[i]nstead, they have prioritized an outrageous compensation package for Gilead's CEO John Maitin, valued at over $190 million, including stock options and shares."

Senator Sanders proposes an alternative course of action to Secretary McDonald, asking the Secretary "to utilize federal law, specifically 28 USC § 1498, to break the patents on these drugs to authorize third parties to manufacture or import them for government use."  The Senator concludes that "I cannot think of a more clear-cut situation where the government use provision should be applied," adding that "[o]ur nation's veterans cannot, and should not, be denied treatment while drug companies rake in billions of dollars in profits."

In the letter, Senator Sanders suggests that Secretary McDonald utilize 28 U.S.C. § 1498.  Section 1498(a) of Title 28 provides that:

§ 1498. Patent and copyright cases

(a) Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.  Reasonable and entire compensation shall include the owner’s reasonable costs, including reasonable fees for expert witnesses and attorneys, in pursuing the action if the owner is an independent inventor, a nonprofit organization, or an entity that had no more than 500 employees at any time during the 5-year period preceding the use or manufacture of the patented invention by or for the United States.

Nothwithstanding the preceding sentences, unless the action has been pending for more than 10 years from the time of filing to the time that the owner applies for such costs and fees, reasonable and entire compensation shall not include such costs and fees if the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.

For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States. . . .

A discussion of the history of § 1498 can be found at pages 10-14 of Zoltek Corp. v. United States (Fed. Cir. 2012).  The opinion notes that a precursor to the section was initially enacted by Congress in 1910 in response to the Supreme Court's decision in Schillinger v. United States (1894), where the Court held that patent infringement was a tort for which the Government had not waived sovereign immunity, and as a result, determined that a patentee lacked a remedy for infringement by the United States.  In William Cramp & Sons Ship & Engine Bldg. Co. v. Int’l Curtis Marine Turbine Co., 246 U.S. 28 (1918), the Supreme Court applied the 1910 Act to the issue of patent infringement by government contractors who constructed warships for the U.S. Navy during World War I, finding that the 1910 Act did not shield the contractors from infringement.  The Acting Secretary of the Navy, Franklin D. Roosevelt, responded to the Court's decision by writing to the Senate Committee of Naval Affairs that:

[I]t seems necessary that amendment be made of the Act of June 25, 1910 [as] the decision is, in effect, . . . that a contractor for the manufacture of a patented article for the government is not exempt . . . from injunction and other interference through litigation by the patentee[, and as a result] manufacturers are exposed to expensive litigation, involving the possibilities of prohibitive injunction payment of royalties, rendering of accounts, and payment of punitive damages, and they are reluctant to take contracts that may bring such severe consequences.

Acting Secretary Roosevelt proposed an amendment in which the Government waived sovereign immunity for its own unlawful use or manufacture of a patented invention, but also assumed liability when its contractors did so for the Government.

Comments

[Skeptical]

Excuse me Senators, but ALL pharma is built on this model of "abuse of monopoly power" - certainly not just Sovaldi.

The "logic" of this thrust is not contained by the present objective, good sir.

[Paul Cole]

High prices for pharmaceuticals are justified by high research and development costs including the cost of obtaining regulatory approval.

However, it is not self-evident from the Wikipedia entry for Sovaldi that an unusually high price would be justified since the main patent WO 2010/135569 was published in 2010, a New Drug Application for sofosbuvir was submitted on April 8, 2013, and received the FDA's Breakthrough Therapy Designation, which grants priority review status to drug candidates that may offer major treatment advantages over existing options and in December 2013, the FDA approved sofosbuvir for the treatment of chronic hepatitis C. Development and approval seem in this instance to have been unusually short.

It will be interesting to see what the company says in reply.

[V. I. Lenin]

I am SO relieved to know that communism is alive and well in Vermont.

[EG]

Don,

With all due respect, Senator Sanders request to Secretary McDonald "to break the patents on" Gilead's Hepatitis C drugs is misguided. This request is on par with that made by our Ohio Senator Sherrod Brown (then a Congressman) to have NIH assert march-in-rights under Bayh-Dole with respect to Xalatan and Novicir. I most heartedly support our Vets, but this request by Senator Sanders to essentially give away these drugs for free "or else" is beyond the pale, and would set an ugly precedent that will most certainly be abused.

[Mercedes Meyer]

Great post. Historically we seem to be in the same antitrust / anti-corporation mindset that led to the Sherman Antitrust Act in the 1890s! History does have a habit of repeating itself.

[Skeptical]

Mr. Cole,

I would take issue with your statement and blind acceptance of "High prices for pharmaceuticals are justified by high research and development costs including the cost of obtaining regulatory approval."

When you build into the development process the "ability" to absorb high prices, you remove from that very process the impetus to improve and make the process more efficient (cost, time or otherwise).

Spare the rod...

[James Demers]

Just wondering what the VA spends, per patient, when providing the prior standard of care for HepC. Ribavirin + PEG-interferon, last time I looked, was not cheap, and the treatments could go on for years. I would bet that Gilead took this into account when calculating the market value of an actual cure for the disease. (Although they may well have multiplied it by 3.)

[James Demers]

I'm not sure how Sanders expects §1498 to be of any help. The "reasonable and entire compensation" recited in §1498 isn't a normal patent infringement award, it's the Fifth Amendment "just compensation" for government takings by eminent domain. And in a case brought under §1498, "the profits that the plaintiff would have made are a proper measure of the damages suffered."
Waite v. United States, 282 U.S. 508, 509 (1931)

[Skeptical]

James,

But that cost will be paid for by all the taxpayers.

Nothing against veterans (God bless them), but please tell me why I (the royal "I") have to pay more in taxes AND pay my own medical bills?

This is in fact nothing more than an exercise in social engineering (yes, you can read that as socialism if you like, albeit it's an odd form in that "The Right" still get theirs, while "The Left" think that they are getting theirs too). In other words, the big picture here is one of ultimate non-sustainability while the Politicians can pretend that they have done something noble.

[Rajesh G]

Its is disturbing to all patients in the world to know that a treatment exists and due to certain limitations (finance) they may not afford the cost of these medicines.
Agreed, lot of efforts has been done by the MNCs to bring novel, innovative medicines into market and deserve monopoly & rewards. However when the situation is beyond normal persons limits, the government of any country needs to step in and provide a balancing solution. Provide MNCs with incentives in other forms and reduce the price of drugs to benefit patients.

[Skeptical]

Rajesh G,

Would you then support a model of removing from the private sector ALL such medicinal subjects?

After all, the actual pricing is driven purely by profit models, and since - as it appears - you believe that Government has this over arching duty to its citizens, the question arises as to the primal propriety of even allowing a profit-driven model to exist in the first place.

I find deeply troubling the phrase and even the notion of "when the situation is beyond normal persons limits." What does that even mean? Who decides? Even if you choose a median value, you are choosing to deny this "essential" benefit to half of the population. IF this is SO essential so as to impose absolute governmental control (and I am particularly NOT arguing whether or not this is the case), then how can you turn around and let ANY part of the population be denied access based on affordability?

You cannot be "a little bit pregnant" with the logical argument you appear to want to use.