LEDA Home Page Harvard Law School LEDA at Harvard Law School



Patent Law, Antitrust Enforcement, and Public Access to Pharmaceuticals and Medical Technologies

Laura J. Sigman

Class of 2003

Harvard Law School

May 15, 2003

Submitted in satisfaction

of the Food and Drug Law (Winter 2003) required course paper

and the Third-Year Writing Requirement

Supervised by Professor Peter Barton Hutt

ABSTRACT

Patent and antitrust laws impact public access to pharmaceuticals and medical technologies. Two instances—one involving Roche’s new class of HIV/AIDS drugs, the other an antitrust action brought against Boston Scientific Corporation for violations of an anticompetitive agreement pertaining to cardiac treatment technology—illustrate the salient effects that medical products can have on public welfare. This paper provides a summary of patent laws, including provisions designed to advance the public interest, and explains the economic motivations underlying the patent regime. It also discusses the rationale behind antitrust laws and describes how courts account for public welfare when imposing damages for anticompetitive behavior. While it is difficult to assess the value of benefits and harm to the public, particularly where public health is concerned, legal regimes should aim to balance interests of producers and incentives for innovation with public needs for access to pharmaceuticals and medical devices.

  1. Background

Fusion inhibitors, the first new class of HIV/AIDS drugs developed in seven years, have the potential to successfully treat HIV/AIDS patients who are resistant to traditional therapies.[1] At the offering price of approximately $20,000 per patient per year, however, the impact of these new drugs will depend largely on patients’ abilities to access them.

Developed by Swiss-based Roche and Durham, North Carolina-based Trimeris, Inc., both pharmaceutical companies, the fusion inhibitor known as Fuzeon is the first to reach the market: as of the end of March 2003, it had received Food and Drug Administration (FDA) approval in the U.S. and was available in Europe under a special program in advance of official approval by European Union regulators.[2] In contrast to protease inhibitors, a widely-used treatment for HIV/AIDS that work inside already-infected cells, fusion inhibitors function by preventing the HIV virus from penetrating human immune cells.[3] While both types of drugs can lower amounts of the virus in the blood of infected patients, rapid mutation of HIV has resulted in the evolution of viral strains that are resistant to protease inhibitors. Fusion inhibitors offer an alternative treatment that, when combined with other drugs, might effectively treat the estimated 14% of HIV patients who are infected with drug-resistant strains.[4]

The proposed price of Fuzeon is almost three times as high as the most expensive single AIDS drug currently available, although many patients take combinations of drugs that cost $14,000 per year on average.[5] According to Roche, the projected price of Fuzeon is due to factors including the high costs of its development (estimated at $600 million[6] ), and the difficulty of manufacturing the drug, a lengthy protein chain that requires more than 100 chemical steps to produce.[7] Manufacturing constraints, furthermore, limit production capacity of the drug to amounts sufficient to treat up to 15,000 patients in its first year on the market; since the number of people wanting access to the drug substantially exceeds the production capacity, a high pricing scheme will serve to curb initial demand. And patent protections, which will extend to Fuzeon for approximately twenty years, will prevent the production of less expensive generic equivalents of the drug.

* 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 100 101 104 106 108 110 112 113 115 116 117 118 119 121 125 126 130 131 133 134 136 138 140 143 149 150 154 158 159 161 162 169 170 172 173 182 183 184 187 188 192 193 194 195 196 197 200 204 205 206 209 210 211 212 214 215 216 217 218 219 221 223 227 228 229 232 233 234 238 239 240 242 243 244 245 247 248 249 250 251 252 253 254 255 256 257 258 259 260 261 262 277 278 283 284 286 287 288 290 291 292 295 300 301 302 303 306 309 310 312 313 319 321 323 324 330 332 333 334 336 337 339 340 341 342 343 344 346 347 348 349 350 352 355 357 358 359 360 363 364 365 368 372 374 375 376 378 379 38 380 383 385 389 39 390 393 394 395 396 398 401 402 403 404 405 407 408 409 41 410 413 414 415 416 436 437 438 442 444 446 447 448 450 451 452 453 456 457 458 459 46 460 462 464 466 467 468 469 47 471 472 476 477 484 485 486 487 488 49 490 492 493 494 495 496 497 499 50 500 501 505 506 507 508 509 510 511 512 513 514 515 516 517 518 519 52 523 524 525 526 527 528 530 531 533 534 535 536 537 547 549 55 551 552 553 554 555 556 557 559 56 563 567 569 572 574 577 579 580 581 583 591 592 593 594 595 596 597 598 599 601 602 608 609 610 611 612 613 614 615 616 617 618 619 62 620 621 623 626 628 629 631 632 633 637 638 64 641 642 643 644 645 646 647 650 651 653 654 655 657 658 66 660 661 663 664 665 666 667 668 669 670 673 674 675 677 679 682 684 686 688 689 690 691 692 693 696 697 699 700 701 702 703 704 705 710 711 712 713 715 716 718 721 722 723 724 725 726 729 73 732 733 734 735 736 737 739 74 740 742 75 750 751 752 753 754 755 756 757 759 761 762 763 764 765 766 767 768 769 77 771 772 774 775 776 777 778 780 781 783 784 785 786 787 788 789 790 791 792 793 795 796 797 798 80 802 803 804 807 82 83 84 86 88 89 90 92 93 96 98 99 *

Intravenous ultrasound (IVUS) technology is a state-of-the-art technique used to screen and treat coronary artery disease, the leading cause of death in the U.S. IVUS represents a significant advance beyond angiography, a standard method of assessing the condition of arteries that produces a two-dimensional image of their interior: IVUS enables cardiologists to more accurately determine the size of blood vessels, the location and composition of plaque buildup in the arteries, and the precise placement of stents, metal devices used to keep open blocked arteries.[8]

In 2000, the United States filed suit against Boston Scientific Corporation (BSC), one of the major producers of IVUS technologies, for alleged violations of a Federal Trade Commission (FTC) anticompetitive order. The order mandated that, in order to acquire two competitor companies that manufactured IVUS products, BSC had to share with the Hewlett-Packard Corporation (HP), certain patents and technology associated with IVUS manufacture and production. Access to this information and technology would enable HP—which already produced computer consoles that, when connected to BSC-manufactured IVUS catheters, generated visual images of the interior of arteries—to develop its own IVUS catheters. Thus, the order would prevent a BSC monopoly in IVUS technology by facilitating HP’s ability to compete in the market.

In the Boston Scientific case, the FTC argued that BSC’s actions had driven HP to exit the IVUS market, taking with it its state-of-the-art IVUS system. By violating the anticompetitive order, the FTC argued, BSC had harmed the public not only by driving HP to withdraw from the market, leaving physicians and cardiology patients without access to what many thought was the best IVUS technology available,[9] but also because the resulting lack of market competition eliminated incentives for innovation and slowed research and development (R&D) in IVUS technology.[10]

On March 31, 2003, the Federal District Court of Massachusetts entered judgment against Boston Scientific Corporation of a record-setting civil penalty in the amount $7.04 million for violating the FTC anticompetitive order.[11] While the government had sought $35 million in damages, the highest civil fine previously awarded for violation of an FTC order was $4 million.[12] In assessing the penalty, the court considered harm to the public, deterrence of future violations, and vindication of the FTC’s authority.

  1. Introduction

The U.S. government regulates the pharmaceutical and medical manufacturing industries through numerous avenues: while the FDA is charged with assuring that products are safe for the public, intellectual property protections and antitrust regulations play an indirect, but perhaps equally important, role in providing for the well-being of the public through the provision of pharmaceuticals and medical devices. By offering protection to developers of medical products,[13] intellectual property laws set out to provide incentives for innovation in the development of treatments for diseases and of preventative measures to promote public health. Regulation of market competition aims to maintain a market that operates efficiently and facilitates access to medical products and treatments.

Legal regulations of intellectual property and of market competition, along with factors such as development costs and manufacturing capacity, affect incentives for production of medical products and their pricing. Thus patent and anticompetitive laws are often analyzed with respect to their effects on medical manufacturers and pharmaceuticals. While it is essential to maintain appropriate incentives to ensure continued medical advances and a well-working market system to facilitate access to these advances, the formulation and enforcement of patent and antitrust laws with respect to medical products has a potent impact on public health that cannot be extricated from the calculus involved in formulating and enforcing these laws. As the Roche and Boston Scientific cases will demonstrate, legal regimes affect the distribution of innovate drugs and medical devices that have the potential to improve the health of thousands or millions of people. The extent to which lawmakers and judges have weighted public welfare in their consideration of regulations and damage awards, however, has not been uniform or consistent.

This paper sets out to examine the impacts of patent laws and damage awards for antitrust violations on the provision to the public of pharmaceuticals and medical devices. Focusing on two cases in particular—the Roche and Boston Scientific Corporation examples discussed above—it will analyze trends in the patent protection laws and in the enforcement of anticompetitive orders, and how decision-makers incorporate impacts on public welfare in devising and enforcing regulations. It will examine methods of assessing benefits and harms to the public. Finally, it will discuss how these laws and regulations affect the distribution of drugs and medical devices.

  1. Patent Protection

The feasibility of Roche’s decision to charge $20,000 for its fusion inhibitor drugs derives at least partly from legal regimes in place in the U.S. The analysis below introduces the current layout of patent law, the incentives it offers, and the rationale underlying the patent regime. It then explores ways in which current patent laws may produce inefficiencies from a public policy point-of-view.

A. Introduction to the Patent System

The U.S. patent system is rooted in the Constitution: Article I, Section 8 authorizes Congress “To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries.”[14] Pursuant to this authority, Congress passed the first patent statute in May of 1790,[15] and it continues to regulate patent system.

The modern era of patent regulation in the U.S. has been influenced largely by two bodies of legislation: the 1952 Patent Act, offering strong patent protection, and the 1982 Federal Courts Improvement Act, creating the Federal Court of Appeals to oversee patent litigation and resulting in an expansion in the scope of patent protection.[16] The growth of the global economy, furthermore, has led to international agreements regarding patents that impact U.S. and foreign laws as well as national and global markets for patented products. The Uruguay Round Agreements Act of 1994, P.L. 103-465, significantly revised the General Agreement on Tariffs and Trade (GATT), the main agreement governing international trade and related aspects of intellectual property, and incorporated agreements on “Trade-Related Aspects of Intellectual Property,” which became known as the TRIPS and impose further requirements on signatory countries.[17]

Under current U.S. patent law as modified following GATT-TRIPS, the patent term extends 20 years from the date a patent application is filed (the term was formerly 17 years from the date the patent was issued).[18] During this time period—minus the amount of time the patent spends going through the application of “prosecution” process[19] —a patent-holder has exclusive rights to “make, use, and sell” the patented product, including exclusive rights to assign and license the patent.[20] As a result of GATT-TRIPS, infringement of patent rights now extends to unauthorized acts of offering for sale and importing a patented product or process.[21] In addition, provisional patent applications are allowed in the U.S. pursuant to GATT-TRIPS; these applications do not have to include full claims, but only a drawing and brief description, in order to establish an applicant’s priority to the invention.[22] A complete application must be filed within one year, and this begins the 20-year clock.[23]

To qualify for patent protection, an invention must meet the requirements for patentable subject matter, novelty, utility, non-obviousness, and description adequate to allow “one of ordinary skill in the art” to reproduce the invention.[24] Patentable subject matter includes “any new or useful process, machine, manufacture, of composition of matter, or any new and useful improvement thereof....”[25] Remedies for violations of legal entitlements to intellectual property rights are similar to entitlements for real property: injunctions are the standard form of relief for violations of patent rights.[26]

GATT-TRIPS brought about revolutionary changes in the intellectual property laws of many developing countries at the same time as it harmonized patent law among countries worldwide.[27] As overseas markets were becoming increasingly important to US businesses, business exporters were increasingly concerned about the opposition to strong patent protection common in developing countries.[28] As a result of GATT-TRIPS, virtually all important commercial fields are subject to patent protection; patent applications worldwide are subject to tests for an “inventive step” and “industrial application” defined according to U.S. laws’ requirements for “nonobviousness” and “utility”, respectively; patentees are granted rights to control imports of the patented products; and compulsory licensing of patented technology is severely curtailed.[29] These changes have had particularly strong effects on industries such as pharmaceuticals, since many countries previously refused to enforce patents on such products for public health and access reasons.[30] The impact of patent laws on the supply of pharmaceuticals will be discussed further below.

B. Patent Law and the Advancement of Public Welfare

While patent laws limit production, use, and sale of patented inventions to the holder of patent rights for a twenty-year period, provisions exist to facilitate the use of certain inventions under specified circumstances. There are numerous situations in which the government can regulate access to patented technology, particularly to pharmaceuticals and medical technologies. Perhaps most common is the situation in which a patent holder does not use or license his or her patent, and society suffers because of this. When public welfare, particularly public health, is consequently put at risk, government intervention frequently supercedes patentees’ rights. In addition, nonuse of patents may comprise anticompetitive acts that are regulated through antitrust law, discussed below. The patent law provisions outlined in this section are important ways in which efforts to advance the public interest are incorporated into the patent regime.

Legislative Exceptions

Medical devices and pharmaceuticals, as well as procedures for using them, are patentable subject matter. Patent rights for these products and procedures, however, are limited by certain exceptions granted in the public interest. For example, although medical and surgical procedures are protected by patent laws, legislation passed by Congress in 1996 prevents owners of such patents from enforcing their exclusive rights.[31] Doctors and health care organizations thus are exempt from infringement of patents on medical and surgical procedures.

Similar acts of Congress provide general access to technologies that are otherwise protected by patents when access is seen to advance the public interest. For example, the Clean Air Act, 42 U.S.C. §7608 (1994), provides the government with authority to impose compulsory licenses on patents involving air pollution control, and the Atomic Energy Act, 42 U.S.C. §2183 (1994) does the same for inventions related to nuclear energy.[32] Under the Plant Protection Act, 7 U.S.C. §2404 (1994), plants protected by patents may be subjected to compulsory licenses if the government determines that such action is “necessary in order to ensure an adequate supply of fiber, food, or feed in this country and its owner is unwilling or unable to supply the public need...at a price which is reasonably deemed fair.”[33]

March-In Rights

The Bayh-Dole Act, which governs the transfer of technology developed under federal grants and contracts, provides for compulsory licensing in the public interest.[34] Although inventors supported by federal funding may generally elect title to their inventions under this Act, “March-In Rights” apply to small businesses or nonprofits that have funding agreements with a Federal agency to support certain inventions, and the statute allows the relevant agency to grant a nonexclusive, partially exclusive, or exclusive license to the subject invention, on terms that are “reasonable under the circumstances,”[35] when one of the following situations applies[36] :

(1) action is necessary because the contractor or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in such field of use;

(2) action is necessary to alleviate health or safety needs which are not reasonably satisfied by the contractor, assignee, or their licensees;

(3) action is necessary to meet requirements for public use specified by Federal regulations and such requirements are not reasonably satisfied by the contractor, assignee, or licensees; or

(4) action is necessary because the agreement required by section 204 has not been obtained or waived or because a licensee of the exclusive right to use or sell any subject invention in the United States is in breach of its agreement obtained pursuant to section 204.[37] [emphasis added]

March-In Rights thus have the potential to safeguard the public interest in limited circumstances pertaining to inventions, the development of which is funded by federal grants.[38] Congress did not intend them to create a private cause of action against competitors.[39] Rather, March-In Rights are an extraordinary remedy that Congress intended the government to use to protect the public.[40]

Despite the potential to use March-In Rights to access patents to advance public welfare, these rights have rarely been used, and their impact might be due more to their deterrence effects than to government action invoking them. This might be due to the burdensome process of exercising March-In Rights—administrative proceedings and other remedies must first be exhausted, and exercising March-In Rights requires lengthy process, including a notice and comment period, full fact-finding, and an administrative hearing, as well as appeal rights to the U.S. Court of Federal Claims.[41] March-In Rights have been invoked only once by the federal government acting through the Department of Health and Human Services in response to a petition by a CellPro, a small biotechnology company;[42] they have never been exercised by the National Institutes of Health (NIH). While this perhaps illustrates a limited impact of March-In Rights on the advancement of public health,[43] the effectiveness of this provision of the Bayh-Dole Act may rest more in their deterrence effects: in the view of McGarey and Levey, “there is value in the in terrorem effect march-in has on federal funding recipients and their licensees.”[44] They propose that “the greatest value of the march-in authority may be the threat it poses and the resulting incentives for federal funding recipients to ensure appropriate commercialization of their inventions.”[45] Ideally, this deterrence effect would mean that federally-funded technologies that have public value are marketed in a way that provides greatest access. Whether this is the case will be discussed below.

Compulsory Licensing

Perhaps more useful than March-In Rights is the government’s right, under the Bayh-Dole Act,[46] to a practice a patent that was developed with the assistance of federal funding through a compulsory licensing provision in section 202(c)(4) of the Act. Under this section, the federal agency providing funding “has a nonexclusive, nontransferable, irrevocable, paid up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world.”[47] In contrast to March-In Rights, the government’s license under this section is not limited to practice “for or on behalf” of the nation, and lengthy administrative processes are not required before the government to exercise its rights. This makes it easier to expeditiously exercise rights under 202(c)(4) when public welfare is at stake, such as in a public-health emergency.

Beyond provisions for use of patents in the Bayh-Dole Act, which is restricted to patents that involve inventions produced with the support of federal funding, the federal government may infringe patent rights without a license pursuant to 28 U.S.C. §1498.[48] This statutory right may be invoked when the practice of an invention is “by or for the United States,”[49] and the patent owner’s only remedy is suing the government for monetary damages after the government has violated the patent; injunctive remedies are not available.[50] Section 1498 provides a practical avenue for government recourse against a patent-holder who does not practice an invention in accordance with the public interest.

As Saunders asserts in his article “Patent Nonuse and the Role of Public Interest as a Deterrent to Technology Suppression,” compulsory licensing is frequently used to provide greater access to medical technologies and pharmaceuticals in order to advance the public good.[51] Saunders explains:

Protection of the public health remains the most frequently cited and least controversial reason for resorting to compulsory licensing. For instance, the proposed Public Health Emergency Medicines Act, H.R. 3235, 107th Cong. (2001),[52] would amend the Patent Act to grant the Secretary of Health and Human Services and the FTC, respectively, the right to establish compulsory licensing, without authorization of the right holder, for use of patented inventions relating to health care upon a determination: (1) that the patent holder, contractor, licensee, or assignee has not taken, or is not expected to take within a reasonable time, effective steps to achieve practical application of the subject invention in a field of use; (2) that establishing other use of subject matter of the patent is necessary to alleviate health or safety needs that are not adequately satisfied by the patent holder, contractor, licensee, or assignee; (3) that the patent holder has engaged in specified anticompetitive behavior, including excessive pricing; (4) that an invention covered by a patent cannot be exploited without infringing upon the first patent, insofar as the invention claimed in the second patent involves an important technical advance; or (5) that the invention claimed in the patent is needed for research purposes that would benefit the public health and is not licensed on reasonable terms and conditions. The bill proposes that compensation paid to patent holders should be “reasonable,” accounting for such criteria as how much the patent holder invested and risked in the drug’s development and how significant the government contribution was to the drug’s research and development. It also would permit the government to authorize generic producers to manufacture on-patent drugs in the United States for export to countries undergoing public health emergencies.[53]

Although proposals for generalized compulsory licensing in the U.S. have not yet been passed (they are often opposed on the grounds that they would reduce incentives to develop and disclose new inventions, see discussion of incentives in patent law below), legislation providing for compulsory licensing provisions in specified circumstances demonstrates the consideration of public health and welfare in exceptions to patent protection.

While Congress has passed legislation to enable compulsory licensing as a means of providing access to patented technology to which the public is denied access by patent owners, federal agencies and courts may also used compulsory licensing to preserve competition as part of antitrust agreements and as judicial remedies in antitrust cases, respectively. Saunders explains that

[t]here is...a long-established use of compulsory patent licensing as part of merger reviews and federal antitrust remedies. The Antitrust Division of the Department of Justice, along with the [FTC], regularly makes approval of mergers contingent on an agreement by the firms to license their patents to competitors and others in order to avoid market concentration. Similarly, the Antitrust Division and the FTC have persuaded the courts to impose compulsory licensing as part of a remedy order after finding that the defendant-patentee had violated the federal antitrust laws.[54]

As a judicial remedy, compulsory licensing has been used, for example, in United States v. Glaxo Group, Ltd .[55] The use of compulsory licenses as part of anticompetitive agreements overseen by the FTC, as in the Boston Scientific case, is discussed further in the Antitrust sections below.

Judicial Decisions

[Judicial decisions have considered public welfare in deciding whether or not to provide injunctive relief for violations of patent-holders’ rights. The consideration of public interest by the judiciary dates back to 1871, when, in the case of Bliss v. Brooklyn ,[56] the court denied injunctive relief to the owner of a patent on a fire house coupling when he refused to use or license the patent. The court based its decision on the conclusion that the city needed the invention to prevent fires, and thus citizens’ safety was involved. As a result, the city was allowed to continue to use the coupling device, allowing the city to use the patented technology.[57]

In 1908, the U.S. Supreme Court left open the possibility of refusing, on public interest grounds, to grant injunctive relief to a non-using patent owner claiming violation of his exclusive rights.[58] Although the Court in Continental Paper Bag held for the nonusing patentee, it considered whether the patentee’s “nonuse was reasonable” and whether “the rights of the public were involved.”[59] Furthermore, the Court acknowledged the possibility of future cases “where, regarding the situation of the parties in view of the public interest, a court of equity might be justified in withholding relief by injunction.”[60] Courts use balancing tests and deny injunctive relief when such a denial prevents the serious harm to the public interest, outweighing harm to the patentee.[61] In Hybritech Inc. v. Abbott Labs , for example, a patent infringement case involving diagnostic test kids that use monocolonal antibodies to test for conditions such as pregnancy, cancer, and hepatitis, the Federal Circuit Court held “that the public interest in enforcing valid patents outweighed any other public interest considerations.”[62] In this case the court considered the impact on the public interest, in its decision to affirm a preliminary injunction against the defendant, as one of four factors in its analysis: “(1) reasonable likelihood of success on the merits; (2) irreparable harm; (3) the balance of hardships tipping in its favor; and (4) the impact of the injunction on the public interest.”[63] Although the court ultimately held that public access to medical technology was not determinative in this case, it emphasized that “the focus of the district court’s public interest analysis should be whether there exists some critical public interest that would be injured by the grant of preliminary relief.”[64] Thus, the public interest can be a determinative factor in patent infringement cases.

In other cases, courts have explicitly considered public health in their decisions as to whether or not to grant injunctive relief to patent holders whose exclusive rights have been violated. In City of Milwaukee v. Activated Sludge ,[65] the Seventh Circuit denied a permanent injunction to a patentee who was not using or licensing the patent on a system used to treat raw sewage in Milwaukee based on consideration of the public interest: “The court believed that enjoining the city [from practicing the invention in violation of the patent] would have led to the closing of the sewage plant and would have forced the city to dump the raw sewage into Lake Michigan, resulting in pollution and a public health risk.”[66] In another case involving a patentee’s refusal to use or license a patent, the Ninth Circuit opined that the patentee’s action was a “public offense.”[67] Although the court in Vitamin Technologists v. Wisconsin Alumni Research Foundation invalidated the patent, and thus did not reach the question of whether the inventor’s suppression of his patent was outweighed by public health interests, it did hold that a case could arise where a court would be justified in withholding injunctive relief in view of the public interest.[68] Vitamin Technologists involved a patent on a process to enrich oleo-margarine with vitamin D. The patentee suppressed the patent in attempt to protect the dairy industry and the butter market from competition with lower-priced, vitamin-enriched margarine, but there was evidence that the patent could help to prevent scurvy and rickets in low-income consumers.[69]

Although the cases discussed above have deliberately incorporated the public interest into their analysis, it seems that the number of cases are few, and most of them are not current. To what extent courts continue to emphasize public welfare in patent law cases is a question for further research.

Hatch-Waxman Act

Consideration of public health issues played a part in the passage of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly known as the Hatch-Waxman Act, which addressed discontinuities between patent rights and Food and Drug Administration (FDA) regulations of pharmaceutical and medical devices.[70] After the 1962 FDA drug amendments, the standard twenty-year patent term was effectively altered as a result of the lengthy review of new drug applications (NDA).[71] On one hand, the 1962 drug amendments harmed drug producers by effectively shortening the patent terms: new drugs sometimes were issued patents before the FDA had approved a new drug application (NDA), so the patent term would begin to run but the product could not be marketed until FDA approval had been secured.[72] On the other hand, generic manufacturers, and people who wanted access to generic drug equivalents, suffered because generic drug producers had to wait until the patent on a new drug expired before beginning the process of obtaining FDA approval.[73] Roche Products Inc. v. Bolar Pharmaceutical Co. [74] deemed it patent infringement for a generic manufacturer to produce and test a drug before its patent expired, even for the purpose of preparing an FDA application, effectively extending the period of patent monopoly.[75]

The Hatch-Waxman Act remedied these two distortions, reaching a compromise to satisfy the interests brand-name and generic drug manufacturers.[76] The Act restored part of the patent term for pioneering drugs to compensate for marketing time lost during the FDA regulatory review process;[77] this provision is limited, however, in that the effective patent term cannot exceed 14 years, no matter how much time is lost in clinical trials and review, and total time restored cannot exceed five years.[78] These provisions are aimed to balance incentives for pioneering drug companies to innovate (see discussion below of economics of patent law and incentives to innovate)—providing public health benefits through new treatments—with financial benefits to the public of market competition in pharmaceutical production.

Hatch-Waxman set out to advance market competition with generic drugs by overturning Roche v. Bolar . The Act created a narrow exception to patent infringement under which generic manufacturers may use pioneering drugs still covered by patent to obtain bioequivalency data for its FDA marketing application.[79] Codified at 35 U.S.C. §271(e)(1), the provision states as follows: “It shall not be an act of infringement to make, use, offer to sell, or sell within the United States or import into the United States a patented invention . . . solely for uses reasonably related to the development and submission of information under a Federal law which regulates the manufacture, use, or sale of drugs or veterinary biological products.”[80] Following Eli Lilly & Co. v. Medtronic Inc. ,[81] the exemption under 271(e)(1) applies to medical devices subject to FDA approval in addition to pharmaceuticals.[82]

Hatch-Waxman established an abbreviated new drug approval procedure for generic copies of drugs, allowing them to reach the marketplace sooner than they did previously, while avoiding the estimated $800 million average costs of discovering and developing a new drug.[83] As Glover explains,

the Act, in effect, revoked the trade-secret status of innovators’ safety and effectiveness information. Instead of proving safety and effectiveness, a generic manufacturer was allowed to show only that its copy is bioequivalent to a pioneer product and that FDA could, therefore, rely on the pioneer's safety and efficacy data to approve the copy.... The Act retains only a very limited vestige of the pioneer companies’ former, complete proprietary rights in this extremely valuable data. For example, under the Act, FDA is prohibited from approving generic copies of a pioneer drug for five years after approval of an innovator product using new chemical entities, and for three years after approval of other pioneer drugs and innovations in existing drugs.[84]

In addition to the benefit to generic manufacturers of the expedited drug approval process under Hatch-Waxman, the Act facilitates increased generic drug production by providing incentives for generic drug companies to challenge pioneering patents and decreasing the likelihood of patent infringement claims once generics enter the market.[85] Under these provisions, a generic manufacturer obtains exclusive marketing rights for 180 days when it is the first to certify to FDA that a pioneering drug patent is invalid or is not infringed by the generic product, so long as the copy is approved before the patent expires.[86]

The compromise achieved in Hatch-Waxman Act advances public health in two ways: by extending limited rights to pioneering drug patent holders, preserving the public interest in innovation, while increasing public access to drugs by facilitating speedy market availability of generic equivalents. As Glover explains, “consumers are receiving the benefits of both an expanding stream of ever more effective, precise, and sophisticated medicines, as well as early access to low-cost generic copies.”[87] Whether this compromise achieves the appropriate balance between the public benefits of innovation as motivated by patent protection and public health needs for increased availability of lower-cost drugs is subject to debate, and will be further discussed below.

International Laws

In addition to U.S. laws aimed to advance the public interest, GATT-TRIPS also provides exceptions to the general patent terms and conditions in attempt to advance public health worldwide. These provisions apply to the U.S. as well as to other signatory countries. GATT-TRIPS member countries are granted discretion in extending patent protection to surgical procedures. Article 31 of the TRIPS Agreement, in conjunction with the Paris Convention, provides members with the right to grant compulsory licenses “to prevent the abuses which might result from the exercise of exclusive rights conferred by the patent...,”[88] a provision similar to the law in 28 U.S.C. §1498(a) (discussed above).[89] Even more generally, Article 8:1 of the Agreement provides that “[m]embers may, in formulating or amending their laws and regulations, adopt measures necessary to protect public health and nutrition, and to promote the public interest in sectors of vital importance to their socio-economic and technological development, provided that such measures are consistent with the provisions of this Agreement.”[90] The interpretation of these laws, however, has been the subject of substantial controversy (see below).

C. The Economics of Patent Law

Throughout the history of patent law, several fundamental objectives have shaped its development. An early and continuing motivation behind patent law is to recognize the inventor’s efforts and his natural rights in accordance with the Lockean theory of labor-desert.[91] Early patent laws also aimed to limit monopolies except for the purpose of fostering new inventions, to establish procedures for determining infringements and remedies, and to reconcile the interests of the inventor with the public good.[92] Many of these rationales remain true in today. The discussion below will examine motivations underlying patent laws. It will also attempt to assess the effectiveness of the current patent regime in balancing the competing interests that it sets out to advance.

Incentives for Innovation

Under classical economic analysis of law, the main objective of property rights is to create incentives to efficiently develop and utilize scarce resources. As Richard Posner explains, “The proper incentives are created by parceling out mutually exclusive rights to the use of particular resources among the members of society. If every piece of land is owned by someone—if there is always someone who can exclude all others from access to any given area—then individuals will endeavor by cultivation or other improvements to maximize the value of land.”[93] He notes that this principle applies to all valuable resources, including patented inventions. [94]

The rationale for patent law follows the theory of property law: it is based largely on the premise that protection of intellectual property is necessary to induce innovation.[95] “The standard rationale of patent law,” Landes and Posner explain, “is that it is an efficient method of enabling the benefits of R&D [research and development] to be internalized, thus promoting innovation and technological progress.”[96] Without patent protection, the producer of a product that is easily copyable may have difficulties recovering his fixed costs associated with R&D,[97] and “there is no incentive to incur [costs of production] because there is no reasonably assured reward for incurring them.”[98] Temporary monopolies, Posner argues, are advantageous to consumers and society as a whole, because “the prospect of monopoly profit creates the indispensable incentive to undertake risky, socially beneficial innovation.”[99] In the absence of patent protection, if an inventor foresees this risk, he may not be motivated to invent in the first place, causing a potential loss to society due to a failure to innovate.

Implicit in this analysis is the notion that there is value to society of innovations, and that extending property rights to patents enhances that value by making innovative inventions available to the public. Posner notes the additional benefit to society that patent law provides by requiring disclosure of the steps involved in creating the patented item, enabling others to build on that invention:[100] “in a world without patents, such inventive activity as did occur would be heavily biased toward inventions that could be kept secret, in just the same way that a complete absence of property rights would bias production toward things that involve minimum preparatory investment.”[101] The Supreme Court explained in 1974 that patents serve three purposes: “to promote invention, to encourage development and commercialization of inventions, and to encourage inventors to disclose their inventions.”[102] Thus, patent law benefits society by providing incentives for innovation and encouraging the disclosure and increased public stock of knowledge.

The objective of providing incentives to innovate underlies many of the terms of patent law discussed in previous sections. Fundamentally, the period of the patent term—formerly 17 years, now 20 according to GATT-TRIPS regulations—is designed to provide incentive enough for inventors to have reason to produce their inventions without limiting forever public access to the patented technology.

The incentives that patent laws provide, while facilitating innovation, may in some cases provide perverse incentives that thwart attempts to stir innovation and advance the public interest. In the area of biomedical research, there is evidence that patent protection may paradoxically lead to decreased incentives for innovation, ultimately harming the public: “[t]he recent proliferation of intellectual property rights in biomedical research suggests a different tragedy, an “anticommons” in which people underuse scarce resources because too many owners can block each other. Privatization of biomedical research must be more carefully deployed to sustain both upstream research and downstream product development. Otherwise, more intellectual property rights may lead paradoxically to fewer useful products for improving human health.”[103]

Furthermore, the patent regime may provide perverse incentives to obtain patent protection, leading to “defensive patenting” that could be detrimental to public welfare. Landes and Posner explain that

patents often are sought not because the applicant considers patenting a more effective method of recapturing his fixed costs of innovation than trade secrecy or lead time..., but because he wants to prevent others from obtaining a patent that might be used to prevent him from using his innovation without paying someone else a licensing fee. The more readily patents are granted and are upheld in court and the broader the legal protection they confer, the greater the incentive for defensive patenting of the kind just described, patenting not motivated by inability to recover the fixed costs of invention by other means.[104]

In addition to the risk that patent laws will be used for perverse incentives in this way, the benefits of patent protection may facilitate pricing schemes that prevent widespread access to pharmaceuticals and medical devices.

Monopoly Effects

While innovations undoubtedly provide public benefits, legal protection of patents stir innovation at the cost of limiting public access to patented inventions and technologies. By granting exclusive rights to patentees to produce and market a patented technology for a specified term, patent law impedes entry of competitors and forms a government-protected monopoly.[105] As Merges and Nelson explain, analyses of patent law are concerned with a tradeoff “between incentives to the inventor and underuse of the invention due to patent monopolies.”[106] Analysis of the life of patent protection “is concerned with the tradeoff between increased inventive effort resulting from longer anticipated patent life and greater deadweight costs associated with longer monopoly.”[107]

The monopoly that a patent owner enjoys is an intrinsic part of the incentives for innovation in the patent regime. Posner contends that “[t]he principal argument for monopoly as a way of encouraging innovation is that the reward for successful innovation and cost minimization is often greater for the monopolist, since the competitive seller’s success may be promptly duplicated by his rivals.”[108] This argument is used to justify the monopolistic effects of patent protection.

Despite the benefits of patent protection, the monopoly power it confers has inevitable downfalls both for competition and public welfare. Heller and Eisenberg note that “[b]y conferring monopolies in discoveries, patents necessarily increase prices and restrict use—a cost society pays to motivate invention and disclosure.”[109] The costs of monopoly are particularly salient in the pharmaceutical and medical devices markets, where adequate substitutes are frequently unavailable. The effects of monopoly on pharmaceutical pricing are discussed below.

Posner’s economic analysis explains the effects of monopoly generally, but his analysis might not address the unique pressures present in markets for pharmaceuticals and medical products that are essential to public health.[110] First, in a monopoly, Posner contends, output is smaller than it would be in a competitive market because at a higher price, quantity demanded is lower, so manufacturers produce less.[111] This assumes, however, that demand for the product is elastic. If demand is inelastic, as may well be the case with pharmaceuticals and medical devices, consumers are likely to spend more than they can afford for a product that enjoys the benefit of monopoly.

Second, Posner argues that “[higher] monopoly price causes some consumers to substitute other products, products that the higher price makes more attractive. The substitution involves a loss in value.... The effect of monopoly is to make some consumers satisfy their demands by switching to goods that cost society more to produce than the monopolized good. The added cost is a waste to society.”[112] However, there may be no adequate substitutes, as is often the case with patented technologies including medical inventions; Merges et al. attest that “some Federal Circuit...cases suggested that a patent almost insures that there are no adequate substitutes.”[113] Thus, consumers are left with only two choices: forego the product or pay more than they can afford. In the case of pharmaceuticals and other medical technologies, monopoly price schemes thus may translate into decreased access to products that improve health.

Posner’s analysis suggests that pharmaceuticals and medical manufacturers benefit, at the expense of consumers, from the monopoly provided by patent protection: “The transfer of wealth from consumers to producers brought about by monopoly pricing is a conversion of consumer surplus into producer surplus.”[114] He further notes that the deadweight loss to society “measures only a part of the cost imposed by monopoly—the cost that is borne by those who stop buying the product when the price rises from the competitive to the monopoly level. It ignores the cost to those consumers who keep on buying the product but pay more.”[115] In the case of pharmaceuticals and medical devices, the losses associated with monopoly have additional negative externalities in terms of detriments to the public health; these externalities may include not only pain and suffering, but also lost income and productivity and the potential spread of infectious disease, putting society at further risk.

Balancing Public Welfare

Exceptions to exclusive rights under patent law, as introduced above, aim to balance the goals of providing incentives for innovation, limiting the risks associated with monopoly power, and incorporating the public interest into the patent regime. The rationale underlying these provisions is discussed in this section.

The numerous exceptions to patent law discussed above are efforts to balance public welfare with otherwise exclusive rights of patent holders to their inventions. Sauders notes that “the ‘exclusive right’ [to possess intellectual property] exists only because the framers [of the Constitution] believed it was in the public interest for it to exist.”[116] As a corollary, Saunders continues, “owners of property rights must surrender some or all of their rights when necessary to preserve the public interest. This proposition is the justification for land use restrictions and eminent domain.”[117] Like their analogs in real property law, exceptions to intellectual property rights in patent law provide for government and other access to otherwise-protected property.

Patent suppression, though legal, is often detrimental to society,[118] and many of the provisions in patent law introduced above aim to advance the public interest by circumventing patentees’ attempts to suppress their inventions. Courts have held that a patent does not impose on a patentee a duty to use or license it,[119] and a patentee who does not develop an invention may recover lost profits if his rights are infringed.[120] However, patent rights—including the right to suppress a patent—are limited by numerous provisions for compulsory licensing and unlicensed use, as well as by antitrust laws.

When a patent is suppressed or otherwise misused in a way that is detrimental to society, many of the legislative exceptions and judicial remedies discussed enable compulsory licensing. Such licenses are frequently invoked to advance the public health.[121] Although objectors to compulsory patent licensing argue that this would reduce incentives for innovation and disclosure of new inventions, several studies have cast doubt on this idea.[122] In addition, Saunders notes possible benefits of compulsory licensing: “a compulsory licensing remedy can serve as a strong incentive for patentees and exclusive licensees to use the patent or negotiate a license when they might otherwise shelve a technology. It may also introduce dynamic efficiencies by reducing expenditures on uneconomic invent-around R&D.”[123] These effects may advance the public interest by making available beneficial technologies.

In cases where patent holders’ rights have been infringed, decision-making entities explicitly considers the public interest as a mitigating factor in judicial remedies. As one study explains, “[i]njunctive relief invariably takes account of the public interest.... There is clear, if dated, precedent for not enforcing patent rights to their fullest when such action would harm the public.”[124] Rather than impose the usual remedy of injunctive relief, a legislative report maintains that recovery should be limited to “reasonable compensation without prohibiting the use of the patented invention whenever the court finds that the particular use of the invention in controversy is ... required by the public health or public safety.”[125] One author finds justification in the Constitution for allowing violations of patent rights for just compensation: “[t]he spirit that animates these cases grew from the same sensibility underlying the ancient doctrine of waste: it was a shame to let an idle patent prevent the defendant from using technology to do the great work envisioned in the Constitution ... to bring new technology into actual use as quickly and thoroughly as possible. Toward this end, courts sought to free the defendant’s productive energies, yet still recognize the legitimacy of the property right, by coupling the denial of an injunction with an accounting of the defendant’s profits—a ‘reasonable royalty,’ in other words.”[126] Like the theory of compensation in eminent domain takings under the Fifth Amendment to the Constitution, “reasonable compensation” is required for the Government’s unlicensed uses of inventions.[127]

Judicial holdings regarding patent laws frequently cite the public interest in accessing patented technologies as a motivating factor for their decisions. Depending on the specific situation, the court may refuse to grant injunctive relief to a patent infringer if the public interest is at stake, or it may grant a compulsory license to facilitate public access to a suppressed patent. Yet when injunctive relief is denied, courts face difficulties in determining what is an appropriate measure of damages for past patent infringement. This is why the injunction, and not monetary damages, is the standard remedy in patent cases due to what Merges et al. call the valuation problem : it is difficult to put a precise monetary value on a patented invention and the injury caused by patent infringement, particularly when a fifteen-to-twenty year patent term is involved.[128] Determining the injury to the patentee, and the corresponding damages for a patent violation, necessarily entails speculation about what would have happened to the patentee without the infringement; what other measures competitors could have taken to compete if the patent-holder controlled the market; and what will happen in the market over the remainder of the patent term.[129] (The problem of speculation is discussed further in the Antitrust section.)

Despite the valuation problem, damages, instead of injunctive relief, are often used to remedy patent infringement when the public interest is at play. The Sixth Circuit in 1978 adopted a four-factor test that has been frequently used to determine lost profits:

To obtain as damages the profits on sales he would have made absent the infringement, i.e., the sales made by the infringer, a patent owner must prove: (1) demand for the patented product, (2) absence of acceptable noninfringing substitutes, (3) his manufacturing and marketing capability to exploit the demand, and (4) the amount of the profit he would have made.

When actual damages, e.g., lost profits, cannot be proved, the patent owner is entitled to a reasonable royalty. A reasonable royalty is an amount ‘which a person, desiring to manufacture and sell a patented article, as a business proposition, would be willing to pay as a royalty and yet be able to make and sell the patented article, in the market, at a reasonable profit.’[130]

Judicial efforts to set appropriate damages face obstacles similar to those setting damages in antitrust cases: it is particularly difficult to determine what the market would have been in the absence of the infringement. Nevertheless, the four-factor test used above represents an attempt by courts to determine as best they can the appropriate amount of damages in order to compensate patent owners at an appropriate level. Their ultimate objective is to deter infringement that is inefficient while, by denying injunctive relief and limiting damages to a “reasonable” amount, preserving avenues for infringing patent rights when doing so benefits public welfare.

In addition to the judiciary’s efforts to consider public welfare in determining remedies for patent misuse or infringement, Congress aims to balance the public interest with incentives for innovation in its patent-related legislation. One study notes that in the Bayh-Dole Act, discussed above, “Congress sought to promote the utilization, commercialization, and public availability of federally-funded inventions” by giving funding recipients the benefits of having title to their inventions.[131] The statute itself states that the objectives of the Bayh-Dole Act include ensuring that “inventions...are used in a manner to promote free competition and enterprise” and “the commercialization and public availability of inventions made in the United States by United States industry and labor.”[132] Furthermore, provisions for compulsory licensing and March-In Rights under the Act aim “to ensure that the Government obtains sufficient rights in federally supported inventions to meet the needs of the Government and protect the public against nonuse or unreasonable use of inventions.”[133] The Act specifies that public health or safety needs justify government intervention to require licensing of a patent.[134]

The Hatch-Waxman Act also aims to advance the public interest by increasing the availability of generic drugs while still preserving incentives for innovation under patent protection. Congress’ explicitly explains its intention to facilitate better public access to generic drugs: “The purpose of Title I of the bill is to make available more low cost generic drugs by establishing a generic drug approval procedure for pioneer drugs first approved after 1962.”[135]

The public benefits of generic drug availability are well-established. Generic drugs usually cost 25-50% less than their brand-name equivalents.[136] When generic competitors are introduced, prices of all versions of the drug are driven down. Furthermore, brand-name companies benefit substantially by maintaining a market monopoly: if the introduction of a generic into an otherwise-monopolized market for a drug is delayed by even a day, this “can mean millions in profits for the brand-name company,”[137] and millions extra spent by consumers. These factors motivated efforts in the Hatch-Waxman Act to increase public access to generics.

One commentator contends that the Act has achieved its purpose of balancing the interests of patent holders with the needs of the public: “The U.S. pharmaceutical market is robust, competitive, and working to the benefit of consumers.”[138] In fact, some critics argue that the Act has been implemented in a way that prioritizes generic drug access above patent holders in a way that Congress did not intend:

The published district court opinions appear to be contrary to Congress' intent in some respects. In particular, many of those decisions have favored the early dissemination of generics and have drawn a balance that appears to give little weight to protecting patentees, despite the fact that such protection was one of Congress' concerns in enacting Hatch-Waxman. Some early district court opinions were focused more on the interests of patentees but analyzed the issues in terms of the intent of the accused party. These decisions were cast into doubt by AbTox. Indeed, as the "solely for uses reasonably related to" language suggests, Congress intended to create only a narrow exemption.[139]

Thus, there is evidence that Hatch-Waxman has been effective in advancing public welfare by providing better access to generic drugs—perhaps moreso than Congress intended.

In contrast, another critic argues that brand-name drug companies have made efforts to evade the public-interest provisions of Hatch-Waxman. Companies have been accused of the following actions: “sneaking patent-extending riders into complex and unrelated legislative packages”; disabling competitors by “paying chemical supply houses not to sell needed ingredients to rival drug manufacturers”; directly “paying competitors to stay out of the market”; and “filing unfounded ‘citizen petitions’ and patents to delay the marketing of a generic drug.”[140] The intentions of Hatch-Waxman to advance the public interest are uncontested; whether the Act achieves its intended results is still open to debate.

D. Effects of Patent Laws on the Availability of Medical Products

Despite attempts in patent law to consider the public interest and facilitate increased access to pharmaceuticals and medical devices, the drug industry as well as the U.S. and GATT-TRIPS regimes for patent protect have faced increasing criticism. Most of this criticism has focused on the prohibitively high prices for pharmaceuticals and the resulting inability of the poor to access important medical technologies. While barriers to access exist in the U.S., much of the controversy has centered around the developing world’s lack of access to pharmaceuticals that could alleviate numerous widespread public-health crises.

The example of Roche’s fusion-inhibitor treatment for HIV/AIDS illustrates the practical effects of the patent regime. Under the protection of patent laws, Roche has a government-enforced twenty-year monopoly on its product. In the absence of patent protection, another pharmaceutical company would undoubtedly reproduce the drugs and market them at a lower price as soon as possible.

Pharmaceutical Pricing

That the effective monopoly granted to patent holders enables them to charge high prices for their products is virtually uncontested.[141] “With greater legal protection for patentees...comes a greater danger that the inventor will be enabled to charge a higher price than he needs to recover the fixed costs of his invention, thereby restricting access to the invention more than is necessary.”[142] Producers often choose a profit-maximizing price that causes deadweight loss to consumers. While pharmaceutical companies argue that they have the right to benefit from their efforts, their critics counter that they should not reap large profits at the cost of denying those in need access to critical treatments.

Public opinion has become critical of pharmaceutical companies such as Roche for charging unaffordable prices for necessary drugs. For example, a June 2002 ABC special entitled Bitter Medicines: Pill Profit and the Public Health, criticized major drug companies for charging unjustified amounts for their products.[143] The companies have also been accused of acting unethically to delay generic versions of their drugs from reaching the market, as was discussed in more detail above.[144]

The government and public-interest groups have taken numerous initiatives to secure lower prices for pharmaceuticals. In Maine, for example, the government devised a project under its state Medicaid program to require manufacturers to rebate to low-income consumers a portion of the price of drugs. Although this project was ultimately held unlawful under the Social Security Act,[145] other states such as Michigan, Florida, and Massachusetts have attempted to initiate similar projects.[146] The Florida project, which requires drug manufacturers to agree to a 10% discount, on top of the 15% discount imposed by federal law, in order to be considered a preferred drug under Florida’s Medicaid program, was upheld under the federal Medicaid statute by the Eleventh Circuit Court.[147] In addition, Massachusetts and eight other states have announced the creation of a nonprofit company to manage drug costs.[148]

Despite efforts by states to limit pharmaceutical prices, the high costs of drugs in the U.S. drives many consumers to seek their medications elsewhere. While some consumers turn to Canada, where the government strictly regulates drug prices, manufacturers are threatening to stop selling to Canadian suppliers who provide the drugs to Americans.[149] A number of legislators have proposed amendments to current law to allow importation or direct sale of prescription drugs from Canada.[150] The pharmaceutical industry opposes these efforts as attempts to circumvent U.S. patent laws.

Consumer groups, furthermore, are initiating action against pharmaceuticals. For example, a conglomeration of individuals, unions, and consumer groups has brought suit in federal court in Boston. The plaintiffs seek to force pharmaceutical companies to reduce prices of prescription drugs, and to recover from the companies hundreds of millions of dollars in profits that the plaintiffs allege was the result of price manipulation.[151] All of these efforts ultimately aim to improve public access to pharmaceuticals.

Access to Medical Technologies in the Developing World

In addition to the high domestic costs of medical products facilitated by patent-induced monopolies, patent protection of pharmaceuticals in the U.S. impacts public welfare internationally. The pharmaceutical industry has evoked frequent criticism because of the public health implications of patent monopolies in medical industries.[152] As explained earlier, when drugs are protected by patent monopolies, their prices remain higher because of the lack of generic substitutes and market competition. The result is often that populations in developing countries cannot access medicines and medical technologies that they need: up to one-third of the world’s population does not have access to essential medicines, and the figure reaches one-half in the poorest parts of Africa and Asia.[153]

This phenomenon has been particularly problematic with the spread of HIV/AIDS over the past few decades. As of 2001, more than 30 million people were known to have HIV/AIDS.[154] At least 25 million of these individuals are in sub-Saharan Africa.[155] Most of these people, however, cannot access treatments to treat their disease because of the prohibitive costs of the drugs that are available, most of which are produced in industrialized countries and protected by patents through national and international laws.

Despite the severe threat that HIV/AIDS poses to the population and provisions in the TRIPS-GATT to account for public health needs, emergency measures taken by developing countries to import patented pharmaceuticals have been the subject of much controversy. Developing countries have sought broader compulsory licensing provisions for patented products. As one author notes, “Brazil, for instance, threatened to produce generic forms of AIDS medication patented by Merck & Co. and Roche Holding, Ltd. Brazil's threat was based on its national emergency legislation as well as Articles of the TRIPS Agreement, which allow member states limited rights to infringe on patents when doing so would protect public health or promote vital public interests.”[156]

The U.S. government, despite the legality under GATT-TRIPS of emergency measures to address public health needs, has threatened sanctions against countries that violate patents such as those on AIDS drugs. Abbott maintains that these U.S. actions are not grounded in international law and threaten to undermine the World Trade Organization and the TRIPS.[157]

U.S. officials themselves have recently cited public health emergencies as justification for patent infringement under GATT-TRIPS. During a bioterrorism scare, for example, “the Bush Administration proposed seeking congressional approval to infringe on Bayer's patented anthrax drug Cipro.”[158] These threatened infringements are based on claims analogous to the necessity defense discussed earlier.

One author provides a rationale for determining when patent infringement is justified: “The disproportionate-infringer value, measured in terms of lives saved and suffering avoided, is advanced as a motivation to provide a privilege. In these cases where infringers possess sufficiently high values, the court can easily determine that property rule protection for patent holders is inefficient.”[159] In the international and domestic cases discussed above, the situations merit the right to infringe patents. Ultimately, protection of patent rights must be balanced with the interests of the public if they are to meet the needs of society.

  1. Antitrust Law Enforcment

While patent laws have the effect of conferring a time-limited monopoly on patent owners, the Federal Trade Commission (FTC) oversees the enforcement of antitrust laws to prevent anticompetitive acts and illegal monopolies. Although the patent and antitrust regimes may seem to contradict each other, a patent-enforced monopoly is a limited exception to antitrust rules, and having patent rights does not confer the right to violate antitrust laws. [160] Where anticompetitive behavior comes into play, the FTC and the courts step in to remedy the situation.

As in the patent regime, public welfare is a common impetus behind antitrust laws. Often, the remedies imposed for antitrust violations are the same as those discussed above: compulsory licensing, and monetary damages rather than injunctive relief. This section will investigate the incorporation of the public interest into enforcement of antitrust laws and FTC agreements.

A. Introduction to FTC Enforcement Actions

In the Boston Scientific case introduced above, the FTC intervened in a proposed merger between competing companies. In order to complete the merger, BSC was required to license to HP its patent on certain parts of IVUS technology. The objective of the anticompetitive order was to preserve market competition for IVUS technology by enabling HP to compete with BSC; ostensibly, market competition benefits the public by providing incentives for innovation and increasing availability of the technology. As discussed above, compulsory licensing is an accepted judicial remedy for violation of antitrust laws.[161] When BSC did not comply with the terms of the order, and HP exited the market, the court imposed damages to advance numerous objectives: remedying harm to the public; purging BSC of its gains from anticompetitive behavior; punishing bad faith; and deterring future violations of FTC orders.[162]

In this case, there is clear overlap between patent and antitrust laws. Part of the FTC anticompetitive order involved compulsory licensing; this was seen as a step taken in the public interest in order to ensure market competition, access to IVUS products, and innovation in IVUS technologies. As in the case of United States v. Glaxo Group, Ltd ., compulsory licensing is often used as a remedy in antitrust law. BSC’s patents gave it an effective monopoly and power to suppress technology; its refusal to license its patent as agreed in the FTC anticompetitive order became patent abuse punishable through antitrust law. [163] Efforts to account for the public interest through court-awarded damages for antitrust violations are discussed below.

B. Antitrust Enforcement and Public Welfare

In the Boston Scientific case, the court, in assessing damages for violations of a FTC anticompetitive order, considered harm to the public resulting from Hewlett-Packard Corporation’s (HP) departure from intravenous ultrasound development and production. In particular, the court took into account harm to the public caused by the withdrawal from the market of HP’s state-of-the-art catheterization technology, and the decrease in research and development (R&D) that followed HP’s exit from the market.[164]

Incorporating these factors into damage assessments involves speculations about harm caused (1) to patients and doctors who did not have access to state-of-the-art technology, and (2) to anyone who would potentially have benefited from the development of more advanced catheterization technologies if R&D had continued at a level analogous to that occurring prior to HP’s departure from the IVUS market. The potential benefits to the public of HP’s continued production of IVUS catheters and of R&D motivated by continued market competition—and harm to the public caused by their failure to materialize—are outcomes that did not occur.

Assessing the value of harms or benefits that are speculative in nature is often difficult because such results never came to fruition; i.e., parties’ actions precluded the relevant scenarios from taking place. For purposes of this paper, I refer to such speculative measures as “invisible” costs and benefits. The court nonetheless incorporates these factors into its determination of appropriate damages. Further complications arise when assessing health benefits and costs because of the controversial nature of placing a monetary value on quality-of-life and on life itself.

Cost-effectiveness and cost-benefit analyses can provide tools for valuing “invisible” benefits and harm that result from patent and antitrust laws as well as from parties’ illegal actions. Policy-makers frequently use these methods of analysis to determine whether a medically-related decision, such as making available a potentially life-saving drug that has dangerous side effects, is good public policy. While cost-effectiveness analysis measures benefits in terms of qualitative standards such as years of life added or changes in mortality rates, cost-benefit analysis considers the monetary values of such benefits. Either approach entails measuring all pertinent costs and benefits and determining the ratio between the two. [165]

Analysts utilize six basic steps, outlined by the U.S. Department of Health and Human Services, in applying cost-effectiveness or cost-benefit analysis to medical decisions: (1) Define the nature of the intervention, types of patients to be treated, and alternative forms of treatment; (2) Identify costs of the intervention, including direct medical costs and indirect costs, such as lost earnings or other social costs; (3) Identify benefits of the intervention, including net health benefits (adjusting for adverse side effects) and indirect benefits such as greater productivity; (4) Measure costs by assessing a monetary value of all components of intervention, including the value of an individual’s time, and by applying a discount rate to costs that will occur in the future; (5) Measure benefits by converting them into a single standard (dollars in the case of cost-benefit analysis) and adjusting for future benefits; and (6) Account for uncertainties using techniques such as sensitivity analysis.[166] This is one example of an attempt to value health benefits in monetary terms that could be applied to patent and antitrust cases involving medical technologies and consequential impacts on public health.

C. The Economics of Antitrust Law

Economic analysis of tort law offers theories for assessing damages that apply to remedies in antitrust cases. In tort law, legal scholars frequently determine proper damage awards based on the amount of harm that an injurious party causes. Three theories underlying damage determinations have been used in the past: (1) compensation; (2) deterrence; and (3) corrective justice. The first two of these theories use tools that apply to the analysis of patent and antitrust laws related to pharmaceuticals and medical devices. The third theory—corrective justice—aims to recreate the situation that existed prior to the injurious event; it focuses on ex post compensation and does not aim to ensure that parties make reasonable ex ante decisions. Because this paper aims to analyze the benefits and harms to the public of legal regimes and judicially-imposed penalties for injurious behavior, corrective justice falls outside the scope of this paper and will not be addressed.[167]

Deterrence and Punitive Objectives of Damage Awards

While Polinsky and Shavell emphasize that, in order to effect appropriate deterrence—the primary objective of punitive damages—the calculation of damages should depend on the harm caused and the possibility of escaping liability, courts traditionally consider additional factors in assessing damages.[168] In cases involving antitrust violations, such as Boston Scientific , courts look to six factors in order to determine the appropriate amount of damages to impose on violators: (1) harm to the public; (2) benefit to the violator; (3) good or bad faith of the violator; (4) the violator’s ability to pay; (5) deterrence of future violations; and (6) vindication of the FTC’s authority.[169] In contrast to Polinsky and Shavell’s argument, courts consistently consider both gain to the defendant and ill will or bad faith in assessing damages. A table summarizing factors considered by courts in assessing antitrust damages is included in the Appendix.

According to Polinsky and Shavell’s theory on proper deterrence, a defendant corporation’s wealth generally should not be considered in assessing damages.[170] This is because, if damages are set equal to harm multiplied by a factor accounting for the probability of escaping liability, the defendant “would be induced to take the optimal precautions and to participate in risky activities to the proper extent,” compensation advances the consideration of two social objectives—deterrence and punishment—in determining when and at what level punitive damages should be awarded beyond compensatory damages.[171] The basic premise of their hypothesis is that to achieve appropriate deterrence of injurious future behavior on the part of similarly-situated, risk-neutral parties, injurers should pay for the harm their conduct generates. [172] Their calculus of harm incorporates the probability that injurers will escape liability, and this excess liability imposed beyond compensatory damages is labeled “punitive damages.”[173] Punitive damages are calculated by multiplying the amount of harm caused by the inverse of the probability that the defendant will be caught. Regarding the punishment objective of damages, Polinsky and Shavell propose that imposing punitive damages in the case of a corporate defendant might not achieve the goal of penalizing the blameworthy individual, and thus deterrence may be a more persuasive rationale than punishment for assessing punitive damages on defendant corporations.[174]

The authors conclude that the optimum level of damages will achieve deterrence whether the corporation is large or small.[175] Setting damages at a higher level because of a corporation’s relative wealth would have the effect of over-deterring behavior that has social benefits, increasing prices, and possibly causing corporations to withdraw from the relevant marketplace.[176] Furthermore, Polinsky and Shavell argue that imposing punitive damages on the basis of corporate wealth would discourage growth and development by imposing a tax on corporate size and success.[177]

Deterrence Applications to Antitrust Remedies

Although Polinsky and Shavell’s methods for assessing damages are aimed mainly toward tortfeasors, aspects of their theory can be used to apply proper punishments in order to deter pharmaceuticals and medical manufacturers from harmful anticompetitive behavior. The authors note the increasing tendency for courts to impose punitive damages in contract cases,[178] and they explain that punitive damages are socially beneficial when they are necessary to induce the performer to perform adequately, i.e., when a party may escape liability for harm caused.[179] Thus, their arguments can be applied to injuries caused by violations of anticompetitive orders, antitrust agreements, and patent laws; such injuries, though based largely on statutory and not common law, are analogous to torts in that they cause harm and should be appropriately deterred in order to maximize social welfare.

Polinsky and Shavell’s theory necessarily leaves questions to be answered in the case of inducing optimal deterrence for pharmaceutical and medical products companies. First of all, there is the question of how to determine the amount of harm caused. This is a particularly difficult issue in the case of antitrust and patent violations that result in beneficial medical products or technologies not being advanced or produced.[180] In determining punitive damages, Polinsky and Shavell contend that courts should consider only actual harm , and not potential harm.[181] Accounting for potential harm, the authors argue, would cause overdeterrence for two reasons: (1) damage awards would be raised when harm is low but not lowered when appropriate; and (2) consideration of potential harm would require a costly inquiry into what might have incurred, increasing administrative and litigation costs.[182]

As an example of an improper determination of punitive damages, the authors cite the case of the Exxon Valdez oil spill, in which the appellate court upheld a $5 billion punitive damages verdict on the ground that although 11 million gallons of oil spilled, another 45 million gallons could have spilled, substantially increasing the potential harm.[183] Because an appropriate punitive damages calculation would include the probability of escaping liability, Polinsky and Shavell argue that the injurer will decide her actions based on the average or expected damage amount, as she cannot predict what the actual harm will be. This means that she will be optimally deterred even if actual harm—and consequently damages—turns out to be less than average.[184]

Furthermore, Polinsky and Shavell propose that courts should not impose punitive damages to remove the defendant’s gain even when gain to the injurer exceeds harm to the victim, nor should courts consider an injurer’s ill will or malice in determining damages for defendant corporations.[185] Even though the defendant’s gain may exceed the harm, they argue, basing damages on harm will achieve proper deterrence, while setting damages in order to remove gains would result in overdeterrence. This is because courts will set damages equal to harm when harm exceeds the gain, but they will set damages equal to gain when gain exceeds harm; consequently, expected damages will exceed expected harm, and potential injurers will make ex ante decisions to limit their behavior in ways that decrease social utility.[186]

Calculating actual damages in cases such as antitrust violations by pharmaceuticals and medical manufacturers, however, poses challenges different than those addressed by Polinsky and Shavell. In the context of injuries arising from torts, there are clear injuring and injured parties; this holds true even in the context of class actions and mass torts, such as asbestos and tobacco litigation, where the class of persons damaged, though not fully known, can be defined (i.e., those who have been harmed by the products). When medical companies violate antitrust or patent agreements, injured parties are harder to define because they suffer a “negative” injury—denying them access to something from which they otherwise might have benefited, i.e., a potentially helpful or lifesaving treatment—rather than a “positive” injury—taking away or damaging something to which they previously had access, i.e., healthy lungs, employability.

Some scholars argue that liability rules do not in fact deter behavior that decreases social welfare. Schwartz, for example, argues that tort law does not achieve deterrence in the way that economic theorists such as Polinsky and Shavell suggest.[187] Although the strong form of the deterrence argument—that tort law achieves deterrence in a comprehensive, systematic way—Schwartz acknowledges that there is little evidence contesting the more moderate form of the argument—that tort law provides some meaningful deterrence even though it does not deter comprehensively.[188] He points out that other incentives—such as a party’s sense of morality and the potential for negative publicity resulting from injurious actions—interact with tort law in a beneficial way to effect deterrence.[189] Schwartz’s argument, however, is addressed specifically to deterrence objectives of tort law; he does not consider the deterrence effects of antitrust laws and punishments for violations of them.

Setting Damages for Antitrust Violations

Polinsky and Shavell’s theory considers mainly punitive damages; in cases such as BSC, however, courts face challenges in determining compensatory damages—let alone punitive damages—because it is not always clear how much harm is caused. Accurately determining the amount of harm caused is critical to effecting appropriate deterrence according to Polinsky and Shavell’s theory. However, determining harm in situations involving medical treatments and advances is significantly more complex than in tort or contract cases in which the injured party is a clearly-defined firm or individual. Calculating harm to the public requires an assessment of the potential benefits to the public resulting from pharmaceuticals and medical devices; a method for this calculation is not included in standard economic theories of deterrence.

In the Boston Scientific case, an expert economist proposed several methods for determining the appropriate amount of damages in order to effect the goals of deterrence and advancing the public welfare.[190] As part of his calculation, Dr. Schumann considered the impact of BSC’s violations on the IVUS market and on consumers; the effects of BSC’s violation on Hewlett-Packard; the benefit to BSC from its acquisitions; the benefit to BSC from HP’s exit from the market; and BSC’s ability to pay fines and penalties.[191] As an alternative, he cited Elzinga and Breit’s theory that optimal deterrence of anticompetitive activity calls for a fine of 25% of a firm’s pretax profits for every year of violation.[192]

Ultimately, the court in Boston Scientific adhered to legal precedent rather than traditional economic analysis or expert opinion. The holding affirms that BSC’s anticompetitive actions led to decreased competition, consequently eliminating “BSC’s incentive to invest in research and development in catheter innovation.”[193] Furthermore, the court noted a “poignant concern ... that people with heart disease were harmed” by BSC’s violations of the anticompetitive order, since “after HP’s exit, patients with heart disease were left with technology inferior to that available in 1995.”[194] The damages to cardiac patients clearly fall in the category of “invisible benefits” that are difficult to value.

In addition, the Boston Scieintific court’s analysis relies on the idea that anticompetitive acts harm the public primarily through their detrimental impacts on innovation and on access to medical technologies. Posner cites three main arguments against monopoly that apply to this situation:

(1) The monopolist has less to gain from innovation. He already has appropriated much of the available consumer surplus....

(2) The monopolist has less to lose than the competitive firm from not innovating....

(3) Firms differ in their ability to innovate. If there is more than one firm in the market, therefore, the market is more likely to contain at least one above-average innovator, and he will cause the rate of innovation to rise.”[195]

Thus, the court accepts standard theories on incentives underlying patent and antitrust laws and attempts to assess damages in order to deter future harm to the public.

  1. Conclusion

“Our society ensures that large numbers of people, in the United States and out of it, will be simultaneously put at risk for disease and denied access to care. In fact, the spectacular successes of biomedicine have in many instances further entrenched medical inequalities. This necessarily happens whenever new and effective therapies—from antituberculous drugs to protease inhibitors—are not made readily available to those in need. Perhaps it was in anticipation of late-twentieth-century technology that Virchow argued that physicians must be the ‘natural attorneys of the poor.’” [196]

Despite consideration of public welfare in both patent and antitrust law, the current legal regime falls short of providing an optimum distribution of pharmaceuticals and medical devices. Though statutes and judicial decisions explicitly provide for measures to circumvent laws when the public interest is at stake, these provisions have not provided an adequate counter-balance to the strong rights of patent holders. Nor has enforcement of antitrust laws and FTC agreements led to optimal deterrence of anticompetitive actions that harm the public in terms of detrimental effects on innovation and access to medical technologies.

Numerous instances have arisen in which the public health is at risk, at least partly because of legal regimes that enable disparate distribution of medical goods. While the economic rationale behind patent and antitrust laws is widely accepted, the effects that these laws are having on public health worldwide have been strongly criticized. Ultimately, an adequate solution to address the public interest in accessing pharmaceuticals and medical technologies might require government actions more drastic than modifications in patent and antitrust laws—perhaps government purchasing of licenses to patented products or subsidization of medical products, ideas that are beyond the scope of this paper. Whatever the solution may be, it will maintain incentives for innovation, deter anticompetitive behavior, and balance manufacturers’ desire to make a profit with populations’ needs for medical treatment.

SOURCES

Abbott, Frederick M. 2001. The TRIPs-Legality of Measures Taken to Address Public Health Crises: A Synopsis. 7 Widener L. Symp. J. 71 (Spring).

AIDS Weekly. 2003. Healthcare Costs: New AIDS Drug Price Spurs Questions. March 31. Via NewsRx.com at 27.

AIDS Policy and Law . 2002. New Fusion Inhibitor Drug Stops HIV From Spreading. Vol. 17, No. 14. August 2.

Asbury, Carolyn H. 1985. Orphan Drugs: Medical Versus Market Value. Lexington, MA: Lexington Books.

Associated Press State & Local Wire. Boston Scientific Fined for FTC Violation. March 31, 2003.

Attorney General’s Antitrust Commission Report. 1955. p. 230.

Biotech Week . 2003. Roche: Swiss Drug Giant Sets High European Price for New Drug. March 19. Via NewsRx.com at 131.

Brooks, Richard R.W. 2002. The Relative Burden of Determining Property Rules and Liability Rules: Broken Elevators in the Cathedral. 97 Northwestern U. L. Rev. 267.

Calabro, Sara. 2002. The Hands That Feed: Healthcare PR—and in Particular Pharmaceuticals—Was the Driver That Kept Agency Heads Above Water in 2001. PR Week (US) , June 24.

Calfee, John E. 2000. Prices, Markets, and the Pharmaceutical Revolution. Washington, D.C.: AEI Press.

Chistoffel, Tom and Stephen P. Teret. 1993. Protecting the Public: Legal Issues in Injury Prevention. New York: Oxford University Press.

Consumer Project on Technology website. http://www.cptech.org/.

Consumers Union of U.S., Inc. 2001. Generic Drugs: The Stalling Game. 66 Consumer Reports , no. 7 at 36, July.

Danzon, Patricia M. 1999. Price Comparisons for Pharmaceuticals: A Review of U.S. and Cross-National Studies. Washington, D.C.: AEI Press.

Dembner, Alice. 2003a. Prescription Drug Lawsuit Expected to Proceed. Boston Globe , at B1.

Dembner, Alice. 2003b. Drug Firms Fend Off Discount Initiatives. Boston Globe , January 21 at A1.

Dunner, Donald R., J. Michael Jakes, and Jeffrey D. Kerceski. 1995. A Statistical Look at the Federal Circuit’s Patent Decisions: 1982-1994. 5 Fed. Circuit B.J. 151.

Eisenberg, Rebecca S. 1996. Public Research and Private Development: Patents and Technology Transfer in Government-Sponsored Research. 82 Va. L. Rev . 1663.

Elzinga, Kenneth G., and William Breit. 1976. The Antitrust Penalties: A Study in Law and Economics. New Haven: Yale University Press.

Epstein, Richard A. 2002. Steady the Course: Property Rights in Genetic Material. University of Chicago Law School, John M. Olin Law & Economics Working Paper No. 152, 2d ser., June.

Farmer, Paul. 1999. Infections and Inequalities: The Modern Plagues. Berkeley: University of California Press.

Firn, David. 2003. Roche AIDS Drug Approved by U.S. Financial Times (London). USA Edition. March 15.

First Report of the National Patent Planning Commission. 1943. H.R. Doc. No. 239 (78th Congress, 1st Session).

Fox, Allan M., and Alan R. Bennet, eds. 1987. The Legislative History of the Drug Price Competition and Patent Term Restoration Act of 1984. Washington, D.C.: Food and Drug Law Institute.

Gallini, Nancy T. 2002. The Economics of Patents: Lessons from Recent U.S. Patent Reform. Journal of Economic Perspectives 131, Spring.

Goldberger, Mark J. 2003. Department of Health and Human Services, Food and Drug Administration, letter to Robin L. Conrad, Hoffman-La Roche, Inc. March 13. http://www.fda.gov/cder/foi/appletter/2003/21481ltr.pdf.

Glover, Gregory J. 2002. Hatch-Waxman Law Has Played Critical Role In Medical Advances. 18 Pharmaceutical Litigation Reporter no. 4 at 12, August.

Grubb, Andrew, and Maxwell J. Mehlman, eds. 1995. Justice and Health Care: Comparative Perspectives. New York: John Wiley & Sons.

Heller, Michael A., and Rebecca S. Eisenberg. 1998. Can Patents Deter Innovation? The Anticommons in Biomedical Research,” 280 Science 698.

Helms, Robert B., ed. 1980. The International Supply of Medicines: Implications of U.S. Regulatory Reform. Washington, D.C.: American Enterprise Institute for Public Policy Research.

Landes, William M. and Richard A. Posner. Forthcoming. The Economic Structure of Intellectual Property Law. Chapter 11. Cambridge, MA: Harvard University Press.

Laporte, Claire, and Steven G. Tidrick. 2002. What Uses of Generics Relate to FDA Submissions? National Law Journal C11, January 21.

Leubsdorf, John. 1978. The Standard for Preliminary Injunctions. 91Harvard L. Rev. 525.

Mazzoleni, Robert and Richard Nelson. 1998. The Benefits and Costs of Strong Patent Protection. 27 Research Policy 273.

McGarey, Barbara M. and Annette C. Levey. 1999. Patents, Products, and Public Health: An Analysis of the CellPro March-In Petition. 14 Berkeley Tech. L.J . 1095.

Médecins Sans Frontières (Doctors Without Borders) website. http://www.msf.org/.

Merges, Robert P. 2000. One Hundred Years of Solicitude: Intellectual Property Law, 1900-2000. 88 Cal. L. Rev. 2187.

Merges, Robert P., and Richard R. Nelson. 1990. On the Complex Economics of Patent Scope. 90 Colum. L. Rev. 839.

Merges, Robert P., Peter S. Menell, and Mark A. Lemley. 2000. Intellectual Property in the New Technological Age. 2d ed. New York: Aspen Law and Business.

Pauly, Mark V. 1995. Valuing Health Care Benefits in Money Terms. Chapter 6 in Frank A. Sloan, ed. 1995. Valuing Health Care: Costs, Benefits, and Effectiveness of Pharmaceuticals and Other Medical Technologies. New York: Cambridge University Press.

Polinsky, Mitchell A., and Steven Shavell. 1998. Punitive Damages: An Economic Analysis. 111 Harvard L. Rev. 869.

Posner, Richard A. 2003. Economic Analysis of Law. New York: Aspen Publishers.

Saunders, Kurt M. 2002. Patent Nonuse and the Role of Public Interest as a Deterrent to Technology Suppression. 15 Harvard J. L. & Tech . 389 (Spring).

Scanlon, Bill. 2002. Boulder Firm Developing AIDS Drug; T-20 Proves Effective in Stopping HIV Spread. Rocky Mountain News at 19A. May 29.

Scherer, F.M. 1977 The Economic Effects of Compulsory Patent Licensing.

Schuck, Peter H., ed. 1991. Tort Law and the Public Interest. New York: W.W. Norton & Co.

Schumann, Laurence. 2002. Report of Dr. Laurence Schumann in United States v. Boston Scientific Corp ., Civil Action No. 00-12247 (D. Mass). Matter of Public Record.

Schwartz, Gary. 1994. Reality in the Economic Analysis of Tort Law: Does Tort Law Really Deter? 42 UCLA L. Rev . 377.

Shankerman, Mark. 1998. How Valuable is Patent Protection? Estimates by Technology Field. 29 RAND Journal of Economics 77.

Shavell, Steven, and Tanguy van Ypersele. 1998. Reward Versus Intellectual Property Rights. Reprinted in William Fisher, Readings for Intellectual Property, Spring 2003, Harvard Law School.

Silverman, Milton, and Philip R. Lee. 1974. Pills, Profits, and Politics. Berkeley, CA: University of California Press.

Sloan, Frank A., ed. 1995. Valuing Health Care: Costs, Benefits, and Effectiveness of Pharmaceuticals and Other Medical Technologies. New York: Cambridge University Press.

Staff of the Subcommittee on Patents, Trademarks, and Copyrights of the Senate Committee on the Judiciary, 85th Congress. 1959. Compulsory Licensing of Patents Under Some Non-American Systems. Committee Print.

Stark, Amy Stark. 1994. The Exemption from Patent Infringement and Declaratory Judgments. 31 San Diego L. Rev . 1057.

Teret, S.P. 1986. Litigating for the Public’s Health. 76 Am. J. Pub. Health 1027-1029.

U.S. Department of Justice. 1999. Press Release. Ohio Steel Company Agrees to License Patents in Order to Resolve Justice Department’s Antitrust Concerns (August 26). Available at http://usdoj.gov/atr/public/press_releases/1999/2646.htm.

TABLE OF CASES

Bliss v. Brooklyn , 3 F. Cas. 706 (C.C.E.D.N.Y 1871) (No. 1,5444).

BMW of North America, Inc. v. Gore , 116 S.Ct. 1589 (1996).

City of Milwaukee v. Activated Sludge, 69 F.2d 577 (7th Cir. 1934)

City of Newport v. Fact Concerts, Inc. , 453 U.S. 247 (1981).

Continental Paper Bag Co. v. Eastern Paper Bag Co , 210 U.S. 405 (1908).

Eli Lilly & Co. v. Medtronic Inc. , 496 U.S. 661 (1990).

In re The Exxon Valdez , No. A89-0095-CV, 1995 WL 527988, 6 (D. Alaska Jan. 27, 1995).

Foster v. American Machine and Foundry Co. , 492 F.2d 1317 (2d Cir. 1974).

Gertz v. Robert Welch, Inc. , 418 U.S. 323 (1974).

Hybritech Inc. v. Abbott Labs , 849 F.2d 1446 (Fed. Cir. 1988).

In re Indep. Serv. Orgs. Antitrust Litig ., 203 F. 3d 1322, 1325 (Fed. Cir. 2000).

Kewaee Oil Co. v. Bicron Corp. , 416 U.S. 470 (1974).

Panduit Corp. v. Stahlin Bros. Fibre Works, Inc ., 575 F.2d 1152 (6th Cir. 1978).

Pharmaceutical Research and Manufacturers of America v. Thompson , 313 F.3d 600 (D.C.App. 2002).

Pharmaceutical Research and Manufacturers of America v. Meadows , 304 F.3d 1197 (11th Cir. 2002).

Roche Products Inc. v. Bolar Pharmaceutical Co ., 733 F.2d 858 (Fed. Cir. 1984).

SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc ., 211 F.3d 21 (2d Cir. 2000).

Tektronix, Inc. v. U.S ., 552 F.2d 343 (Ct. Cl. 1977).

United States v. Boston Scientific Corp ., (D. Mass 2003), posted at http://pacer.mad.uscourts.gov/recentopinions.html at 20.

United States v. Gen. Elec ., 115 F. Supp. 835 (D.N.J 1953).

United States v. Glaxo Group, Ltd. , 410 U.S. 52 (1973).

United States v. Louisiana-Pacific Corp. , 967 F.2d 1372 (9th Cir. 1992).

United States v. Nat'l Lead Co., 332 U.S. 319, 348 (1947).

Vitamin Technologists v. Wisconsin Alumni Research Foundation , 146 F.2d 941 (9th Cir. 1945).

APPENDIX [*]

Civil Penalties in Antitrust Cases

CASE
FACTORS ADDRESSED
HOLDING
A.A. Mactal Construction Co., Inc., 1992 WL 245690 (D.Kan 1992)
1. Good/bad faith
2. Deterrence
3. Seriousness, history, and duration of violation
4. Ability to pay
Benefit to defendant
  1. No evidence of good faith efforts to comply, so no basis for mitigation of maximum penalty.
  2. Clear from statutory language of CAA that Congress intended penalties to serve strong deterrence purposes; “penalty must be high enough to ensure that there is no incentive for violators to simply absorb the penalty as a cost of doing business...deterrence is effective only to the extent that the risk of incurring significant civil penalties for noncompliance is real and substantial” (at 2).
  3. No basis for reducing maximum penalty on these grounds
  4. Defendant has limited ability to pay; this factor alone could result in a dramatic reduction in penalty
  5. Congress did not intend courts to assess penalties below economic benefit a defendant derived through noncompliance; “recovery of economic benefit is essential”
SUM: Held on summary judgment that defendant was liable for violations of the Clean Air Act.
Penalty imposed: $126,000
Maximum penalty: $25,000/day under CAA; $475,000 total
Percent of maximum: 26.5%
Number of violations: 19
Company resources: “inconclusive”
US-recommended penalty: N/A

Alpine Industries, 2001 WL 587856 (E.D. Tenn. 2001)
  1. Good/bad faith
  2. Ability to pay
  3. Vindication of FTC authority; deterrence
  4. Injunctive relief
  1. Good faith is the most important of all criteria in determining relief; co. acted in bad faith by continuing to rely on representations made during negotiations even after it was aware that the FTC staff was looking at the plain meaning of the order. Co. was in bad faith once it knew staff was looking only at plain meaning. Defendant agreed to language of consent order.
  2. Court does not wish to destroy defendants because of efficacy of product.
  3. Mentioned as factors but not discussed at length
  4. Court considers this more important than monetary penalties
SUM: Penalty of $1000/day, or $1,490,000, imposed for 1490 days of violation of FTC order against unsubstantiated product claims for air purifiers. Injunction against future violations was held to be more important than the civil penalty.
Penalty imposed: $1,490,000; $1000/day
Maximum penalty: $10,000 per violation
Percent of maximum: 10%
Number of violations: 1490
Company resources: N/A
US-recommended penalty: N/A

American Hospital Supply Corp., 1987-1 Trade Cases (CCH) ¶67,609 (N.D.Ill. 1987)
  1. Good/bad faith
  2. Insignificant effects of acquisitions on catheter market
  3. Benefit to defendants
  1. Important factor considered by court. Co.’s voluntary reporting of violations to FTC, as soon as the co. realized the possible violations and before FTC knew of them, reduced the behavior from bad faith to egregious negligence. Restructuring by co. to prevent future violations considered as mitigating factor in imposing penalties.
  2. “De minimus argument will be considered as an element in mitigation.”
  3. US recommended consideration of this; Court did not discuss it in length but penalty seems to account for this factor
SUM: Before reporting violations to the FTC, co. made 8 violations of order requiring it to obtain FTC approval on acquisitions of firms selling urological catheters. Summary judgment granted.
Penalty imposed: $600,000
Maximum penalty: $60,000,000
Percent of maximum: 1%
Number of violations: 8 acquisitions; 6291 days
Company resources: “total catheter sales revenues of the companies in issue at the time of the acquisitions were approximately $300,000”
US-recommended penalty: $1.5M-$2.25M for 6291 days of violations
Ancorp National Services, Inc., 367 F.Supp. 1221 (S.D.N.Y. 1973), aff’d 516 F.2d 198 (2d Cir. 1975)
  1. Good/bad faith
  2. Harm to public
  3. Ability to pay
  4. Benefit to defendant
  5. Previous maximum penalties
  1. Faulted co. for not “inquir[ing] of the FTC as to the scope of the order before embarking on the course of conduct which resulted in the offenses charged here”; court did not discuss the vast array of products the company bought, for which it did not receive discriminatory payments.
  2. Harm to public was not demonstrated b/c there was no evidence that payments affected business or price of newspapers sold to the public; evidence was speculative and inconclusive.
  3. Court noted that co. had filed for bankruptcy.
  4. Court noted that payments received in violation of order amounted to $192,762.40.
  5. Court discounted co.’s argument that penalty was excessive.
SUM: Court found 122 violations of FTC order prohibiting newsstand operators from receiving compensation from suppliers for selling suppliers’ products when payments were not being made to competitors.
Penalty imposed: $204,200 ($2500 for 80 violations; $100 each for 42)
Maximum penalty: $610,000 ($5000/violation at that time)
Percent of maximum: 33.5% (average for all violations)
Number of violations: 122
Company resources: most recently before trial, liabilities of $51,943,210, current assets of $27,682,578, earned deficit of $4,576,648; filed for bankruptcy
US-recommended penalty: $5000 per violation; 117 violations ($585,000 total)

U. S. v. Atlantica, S.P.A., 478 F.Supp. 833 (D.C.N.Y., 1979)
  1. Good/bad faith; willfulness of violation
  2. Ability to pay
  3. Benefit to defendant
  4. Harm to public
  5. Deterrence
  1. 1. Court notes but does not give much weight to co.’s argument that it did not act willfully or in bad faith because other members of the Conference were offering rates below the tariffs. This might be a mitigating factor, but does not prove absence of willfulness.
  2. Court discounts assertion that co. is in voluntary liquidation under Italian law.
  3. Benefit of over $1.5M to defendant was considered by ct.
  4. Court found harm to public was undebatable.
  5. Court adds this to factors addressed in Consolidated Foods Corp. and “feels it to be most important”; “deterrence cannot be achieved by penalties that fall short of the illegal profits that the wrongdoers stand to gain.”
SUM: Defendant, cargo shipping company, admitted to violating 1916 Shipping Act by charging rates lower than conference tariffs.
Penalty imposed: $1,345,000 ($5000/day)
Maximum penalty: $2,992,000 (accounting for violations of two sections; court declines to impose penalties for 18(b)(3) violations)
Percent of maximum: 45% (100% for section 16 violations)
Number of violations: 269
Company resources: N/A
US-recommended penalty: N/A
Beatrice Foods Co., 351 F.Supp. 969 (D.Minn. 1972), aff’d 493 F.2d 1259 (8th Cir. 1974)
  1. Good/bad faith
  2. Vindication of FTC authority; deterrence
  3. Ability to pay
  4. Notice by FTC
  1. Co. was faulted for not inquiring whether FTC approval was necessary prior to making the acquisition, but court considered evidence establishing that violative conduct was consistent with co.’s “reasonable understanding of the scope of the governing order.” Court granted some good-faith credit because of “defendant's difficulty in finding a ready market for a minority stock interest in a closed corporation” where principal stockholder of the corp. became deceased. Ct. also recognizes defendant did divest itself of its other properties as required and eventually of the Valley Gold stock, though some 49 days too late and beyond the last extension of time.”
  2. Penalty was sufficient to command respect and attention and something substantially more than a mere license fee (at 971).
  3. Penalty was “appropriate, nonconfiscatory”, did not wreak irrevocable harm on co.
  4. Rejected co.’s argument that penalties should not accrue until it is given notice of the violation by the FTC; order was sufficiently clear to give notice of what was prohibited and there is no requirement that the FTC give notice.
SUM: FTC action against dairy for violating cease and desist consent order; summary judgment granted; penalties imposed for making an acquisition without getting FTC approval and for divesting certain assets 49 days late. Court also ordered divestiture.
Penalty imposed: $166,200 ($200/day)
Maximum penalty: $4,155,000 ($5000/day)
Percent of maximum: 4%
Number of violations: 831 violations (2 counts)
Company resources: revenues more than $1,003,000,000 for 1969
US-recommended penalty: $3,910,000 + $565,000 = $4,475,000 ($5000/day)

FTC v. Consolidated Foods Corp., 396 F.Supp. 1353 (S.D.N.Y. 1975)
  1. Good/bad faith; willfulness of violation
  2. Continuation of violation
  3. Harm to public
  4. Benefit to defendant
  5. Ability to pay
  6. Vindication of FTC authority, deterrence
  1. No bad faith found because of “defendant's reliance upon post-order defenses as to the availability of which there is a 'substantial ground for difference of opinion'”
  2. Not a continuing violation, but each individual discount was a separate violation
  3. Harm to the public is not relevant in this case; order did not concern consumer protection.
  4. Record indicates that company did not benefit from noncompliance.
  5. Ability to pay not considered by court: “threatened financial position of a division of a company ... cannot excuse payment of penalties by the company itself.”
  6. Vindication of FTC authority was the only factor found pertinent; court notes importance of “meaningful deterrence against violations whose effect is continuing and whose detrimental effect could be terminated or minimized by the violator at some time after initiating the violation.”
SUM: Case of price discrimination by means of illegal discounts in violation of FTC order. Penalty imposed was “minimum necessary to vindicate the Commission's authority in light of the seriousness of the matter.” Injunction denied.
Penalty imposed: $25,000
Maximum penalty: ($5000/day)
Percent of maximum: 10%
Number of violations: number of specific violations, not days
Company resources: threatened financial condition not considered
US-recommended penalty: $250,000, 94 days
Danube Carpet Mills, Inc., 540 F.Supp. 507 (N.D.Ga. 1982), aff’d 737 F.2d 988 (11th Cir. 1984)
  1. Good/bad faith
  2. Harm to public
  3. Ability to pay
  4. Benefit to defendants
  5. Vindicating FTC authority
  1. Upheld finding of bad faith even though co. discontinued sales of carpet once it was notified of violation; failure to test carpet constituted bad faith; court found that appellants would have continued production and sale of the nonconforming carpet had the CPSC not tested carpet.
  2. Upheld finding of significant harm to public from mere sale of carpet that violated the order, despite no specific evidence of actual harm.
  3. Penalty did not overestimate ability to pay.
  4. Dist. Ct. stated that co. had a competitive advantage from selling non-conforming carpet, but did not quantify this advantage.
  5. Conduct was an unfair method of competition and a deceptive act or practice in commerce under the FTCA.
SUM: Upheld sum. judgment finding of 7 violations of order prohibiting sale of carpet that violated flammability standards. One indiv. roll of carpet, not style, constituted a violation. Extrinsic evidence was not necessary to rule on definition of “any product” in cease and desist order; term was not ambiguous.
Penalty imposed: $24,500 ($3500 per violation)
Maximum penalty: $5000 or $10,000; not reached by court
Percent of maximum: 70% or 35%
Number of violations: 7
Company resources: $3.5M net worth
US-recommended penalty: $70,000

Florsheim, 1980-2 Trade Cases (CCH) ¶ 63,368 (C.D. Cal. 1980)
  1. Bad faith
  2. Benefits to defendants
  3. Vindication of FTC Authority
  1. Court found deceptive debt collection practices constituted bad faith.
  2. All gross profits earned ($138,000 for one year) were from the sale of forms that violated the order
  3. Penalty assessed “must be substantially more than a mere license fee”
SUM: Court found violation of FTC cease and desist order prohibiting deceptive acts and practices in commerce against defendant, who operated as a corporation, in business of preparing and selling forms to trace delinquent debtors and secure payments; court also granted injunction against future violations.
Penalty imposed: $75,000
Maximum penalty: $3,052,450,000
Percent of maximum: 0.0025%
Number of violations: at least 305,245, counting each form sold as one violation
Company resources: $138,553 gross profit for 1974
US-recommended penalty: $10,000 per violation
ITT Continental Baking Co., 420 US 223 (1975)
  1. Continuation of violation
  2. Harm to public
  3. Benefits to defendant
  4. Vindication of FTC authority, deterrence
  1. Under consent order, “acquiring” meant both the act of first obtaining asset and subsequent retention and use of those assets, violation of the order was a “continuing failure or neglect to obey it,” and daily penalty could be imposed.
  2. Mentioned by Ct.
  3. Continuing penalty provisions were added by Congress to avoid financial benefits to defendant; ‘acquiring’ continues until benefits are disgorged.
  4. Court notes that maximum penalty is available to prevent defendants from treating penalties as merely a license fee; continuing penalty provisions ensure deterrence effects.
SUM: District Ct. imposed only a single penalty against manufacturer of baked goods for violation of FTC order prohibiting acquisition of other bakeries for a designated period, on the theory that the order proscribed only the initial act of acquisition. Supreme Ct. held that 'acquiring' meant both the act of first obtaining asset and the subsequent retention and use of those assets, violation of the order constituted a 'continuing failure or neglect to obey' it, and daily penalty could therefore be imposed under the Clayton and the Federal Trade Commission Acts. Consent decrees and orders should be construed basically as contracts for enforcement purposes; it is proper to rely on certain aids for construction surrounding formation of the order; this does not violate the ‘four corners’ rule of Armour. Remanded for determination of penalties.
Penalty imposed: N/A
Maximum penalty: $5000/day
Percent of maximum: N/A
Number of violations: N/A
Company resources: N/A
US-recommended penalty: $1000/day from date of the contract of acquisition to date of filing of the complaint on each of the three counts.

J.B. Williams Co., Inc., 354 F.Supp. 521 (S.D.N.Y. 1973); aff’d in part, set aside in part, reversed and remanded in part, 498 F.2d 414 (2d Cir. 1974)
  1. Good/bad faith
  2. Ability to pay
  3. Vindication of FTC authority
  4. Harm to public
  1. Co. was notified that ads violated the order but disseminated them anyway; good or bad faith was held to be “most important to the proper assessment of penalties.” Willful violation of an FTC order or “reckless disregard” warrant a penalty at or near the maximum. Failure to change after notice by staff of concerns showed bad faith.
  2. Penalty was lower for one defendant because it had less resources than the other. (This was vacated because there should have been a jury trial on whether the ads violated the order.)
  3. Penalties “serve the distinct function of compelling compliance” with FTC orders (at 528), and high penalties are the most effective means to deter violations of FTC orders.
  4. “[I]t is difficult to ascertain the amount of money actually wasted by deceived consumers and it is far beyond the competence of the court to make an accurate determination in this regard. Nevertheless, where it is established that unlawful advertising has reached a vast audience at great expense, the court may assume that it has caused significant monetary harm to the public and should take this into account” (at 550).
SUM: Court found violation of FTC cease and desist order prohibiting advertising of vitamin that gave misleading impression of effects on energy, tiredness.
Penalty imposed: $456,000 and $356,000
Maximum penalty: $500,000 per defendant
Percent of maximum: 81%
Number of violations: 100
Company resources: N/A
US-recommended penalty: $500,000 per defendant
Louisiana-Pacific Corp., 967 F.2d 1372 (9th Cir. 1992)
  1. Good/bad faith
  2. Public harm
  3. Deterrence
  4. Vindication of FTC
  1. Rejected as being too narrow co.’s argument that good faith means being honest in dealings with the FTC. Found bad faith because co. insisted on a high price even though its obligation was to divest unconditionally.
  2. Public harm may be assumed; it was not a factor in determining size of penalty. Court rejected idea that penalty should be reduced based on lack of public harm.
  3. Properly considered a factor in assessing penalties.
  4. Not an improper factor in assessing penalties.
SUM: United States brought civil action seeking injunction requiring divestiture, as well as statutory penalties, for paper company's violation of Federal Trade Commission (FTC) order requiring company to divest itself of manufacturing plant.
Penalty imposed: $4M
Maximum penalty: $10,000,000 ($10,000/day)
Percent of maximum: 40% (62.5% of number of possible days counted)
Number of violations: 640 days (out of 990 possible)
Company resources: $548,683 for the 1.5 years after expiration of the consent order; estimated profit of $4.2M in 1980.
US-recommended penalty: N/A

Nat’l Financial Services, Inc., 98 F.3d 131 (4th Cir. 1996)
  1. Good/bad faith
  2. Benefits to defendants
  3. Ability to pay
  4. Harm to public
  5. Vindication FTC authority
  6. Previous maximum penalty
  1. Court found that actions were knowing, deliberate, repeated, and numerous. Rejected argument that co. acted in good faith because the FTC did not inform it that debt collection letters violated FTC regulations until 3 years after investigation began, or because co. cooperated with the investigation.
  2. Court found violations produced substantial benefits.
  3. Defendant offered no information on income.
  4. Government need not prove actual harm to consumers to assess penalties
  5. Necessitated large penalty. “Without a real sting, the defendants would be unlikely to be deterred from violating the Act, in light of the substantial profit to be made using aggressive and improper collection practices.”
Although the penalty was larger than in most other FDCPA cases, the large scale of the violations justifies the penalty.”
SUM: Suit against debt collectors for violations of debt collection regulations. Court granted permanent injunction and civil penalties.
Penalty imposed: $550,000
Maximum penalty: $10,000 per violation
Percent of maximum: undetermined
Number of violations: millions of violations
Company resources: N/A
US-recommended penalty: $1.5M
Nat’l Talent Assoc., Inc., 1998 US Dist. LEXIS 22149 (D.N.J. 1998) Not for publication
  1. Good/bad faith
  2. Benefits to defendant
  1. None found because court found that company was selling dreams, analogous to playing the lottery.
  2. Court discussed benefits from the violations in assessing penalties, but did not try to parse out profits from the violations.
SUM: Jury found over 3000 violations of order prohibiting misrepresenting the likelihood that children could become models.
Penalty imposed: $160,000 (10% of average gross profits)
Maximum penalty: N/A
Percent of maximum: N/A
Number of violations: over 3000
Company resources: $1,600,000 average gross profits for 2-yr period
US-recommended penalty: N/A

US v. Papercraft Corp., 540 F.2d 131 (3d Cir. 1976)
  1. Good/bad faith
  2. Continuation of violation
  3. Public harm
  4. Previous maximum penalties
  1. Defendant acted in bad faith by setting an unreasonably high price and not changing after being warned by FTC that the price was too high.
  2. Penalty assessable from date of FTC divestiture order.
  3. Though no previous court equated public harm with the measure of the violator’s profits during the violation, after ITT Continental Banking, the Appeals Ct. cannot say the District Ct. abused its discretion in doing this (at 141). The court noted that there was a “lack of direct evidence showing the economic effect of the harm inflicted upon the public.”
  4. That largest penalty previous assessed in a divestiture case was $200,000 and for violation of an FTC order was $465,000, “are simply irrelevant considerations, given the statutory maximum and our scope of review” (at 141).
SUM: Civil penalties and injunction awarded for violation of Clayton Act (rather than FTCA) divestiture order.
Penalty imposed: $1,441,600: $3,500/day for period after FTC denied motion for extension of time to divest, and $200/day for period while the motion was pending.
Maximum penalty: $10,000/day; $5,090,000
Percent of maximum: 70% (5% of market value)
Number of violations: 509 days
Company resources: $30M market value
US-recommended penalty: N/A

US v. Phelps Dodge Industries, Inc., 589 F. Supp 1340 (S.D.N.Y. 1984)
  1. Good/Bad Faith
  2. Continuation of violation
  3. Deterrence
  4. Public harm
  5. Benefits derived by defendants
  6. Ability to pay
  7. Vindication of FTC authority
  1. Agreement to fix prices was willful and deliberate, constituting bad faith (at 1363). Managers failed to take sufficient steps to ensure employees abided by the Order. Company had to take “energetic steps” to assure compliance.
  2. “[E]ach day that the conduct continues is a discrete offense subject to the maximum penalty (at 1360). “Proof of specific, continuing effects of a violation is unnecessary if a conspiracy has been proved to have commenced and has not been shown to have ended” (at 1361); defendants don’t have to be aware of violative conduct or able to stop it for violations to continue. Defendants did not advance evidence to show when the conspiracy ended (at 1362).
  3. “Effective deterrence requires daily penalties for this type of violation” (price fixing) (at 1361).
  4. Price fixing causes substantial public harm and the “order had the purpose of protecting the public from practices deemed anitcompetitive by the Commission. Violation of the restrictions embodied in the agreement therefore presumptively harmed the public regardless of the quantum of financial loss.” Indirect effects on utilities that purchased the paper cable, e.g., lower earnings and increased charges to consumers, also constitute public harm (at 1365, emphasis added).
  5. “[A]n offender should be deprived of any benefit derived from violating an FTC order, and common sense suggests that courts consider multiplying the amount of benefit by a factor representing the likelihood of detection” (at 1365). Record did not contain sufficient evidence to accurately determine benefit derived. Id . Court considers government argument that absent conspiracy, downward trend in prices would have continued; defendants do not provide adequate support for an alternative (at 1366).
  6. Each is undoubtedly able to pay based on net sales, profits, assets, capital (at 1366-67).
  7. This factor “underlies all proceedings brought to recover civil penalties.” Penalty “must provide a meaningful deterrence” (citing Reader’s Digest ) (at 1367). Many years during which defendants did not violate the order was irrelevant.
SUM: Findings and conclusions warrant substantial penalties. Both failed to demonstrate good faith. Assessment in the full amount claimed by the government is inappropriate because defendants have already paid considerable sums to plaintiffs and no evidence was presented indicating intentionally wrongful conduct by highest corporate officers.
Penalty imposed: $517,500 ($7500/day) and $552,000 ($8000/day)
Maximum penalty: $10,000/day
Percent of maximum: $690,000
Number of violations: 69 days
Company resources: in 1981: $1.438 billion net sales; $2.144 billion total assets; $58.5 million net profits; $473M total current assets; $1.089 billion net stockholders' equity; $15.4M cash and other negotiable instruments
US-recommended penalty: $900,000 and $825,000

Public Interest Research Group of NJ, inc. v. Powell Duffryn Terminals Inc., 913 F.2d 64 (3d Cir. 1990)
  1. Good/bad faith
  2. Benefits to defendant
  3. Ability to pay
  4. Seriousness of the violation
.
  1. Regarding defendants’ attempts to comply with the Act, Dist. Ct. erred in reducing penalty because of inaction of EPA where defendant did not make good faith efforts to comply with Clean Water Act.
  2. “The determination of economic benefit or other factors will not require an elaborate or burdensome evidentiary showing. Reasonable approximations of economic benefit will suffice. District ct.’s finding that economic benefit to PDT exceeded maximum statutory penalty of $4,205,000 is not clearly erroneous (at 80).
  3. Court states that it considers economic impact of the penalty on the violator under 33 U.S.C. § 1319(d).
  4. Numerous violations exceeded permit limits by 100 to 1000 percent, making violations very serious and deserving of maximum penalty.
SUM: Clean Water Act citizen suit alleging violation of pollution permit. District ct. awarded summary judgment to plaintiff and awarded maximum penalty reduced by $1,000,000 b/c EPA and NJDEP did not diligently prosecute; Appeals court reversed the reduction and affirmed the portion of the injunction prohibiting PDT from discharging in violation of its permit.
Penalty imposed: $4,205,000
Maximum penalty: $4,205,000
Percent of maximum: 100%
Number of violations: 386 over 6 years
Company resources: N/A
Recommended penalty: N/A
US v. Reader’s Digest Ass’n., 662 F.2d 955 (3d Cir. 1981)
  1. Good/bad faith
  2. Injury to the public
  3. Ability to pay
  4. Benefits to defendant
  5. Vindication of FTC authority
  1. Bad faith was found where the defendant sent prohibited items after it was informed by the FTC that it was in violation of the consent order, and did not consult FTC prior to the mailing. Clearing mailing with in-house counsel did not constitute good faith.
  2. Government was not obligated to adduce evidence of specific injuries to consumers to uphold finding of public injury.
  3. Little doubt it could pay. Penalty was not insignificant, but was “no more than a moderate [penalty] when compared to [co.’s] financial resources.” 494 F.Supp. 770, 779. Defendant risked $1.4M on postage.
  4. Defendant received substantial benefits from the violations: greater than $5.2M total benefit from the promotions.
  5. Penalty should act as a deterrent without being overly punitive; it was necessary here to vindicate FTC.
SUM: Each individual mailing of simulated checks or currency in violation of FTC consent order was found to be a separate violation, despite no showing that any recipient of the mailing was deceived. Injunction granted against future violations of consent order.
Penalty imposed: $1,750,000
Maximum penalty: $10,000 per violation, or $160,100,820,000
Percent of maximum: 0.001%
Number of violations: 16,100,820
Company resources: $325M assets; $37M mean net profits for the 3 prior years; $475M mean gross revenues for 3 prior years
US-recommended penalty: $1,750,000 minimum

Swingline, Inc., 371 F. Supp. 37 (E.D.N.Y. 1974)
  1. Good/bad faith
  2. Harm to public
  3. Benefit to defendants
  4. Ability to pay
  5. Deterrence
  1. No good faith found even though delay was not willful; co. was required to take energetic steps to comply in order for court to reach an affirmative finding of good faith.
  2. Difficult to assess, but delay in restoring competition indicated “a significant effect on public interest” (at 47).
  3. Minimal, in part because ultimate cost of coming into compliance was very large.
  4. “Swingline has the ability to pay the full penalties demanded. However, the amount asked is substantial in relation to its total assets and its annual profits.”
  5. “In this case, the penalty should not approach the maximum, but should be large enough to hurt, and to deter anyone in the future from showing as little concern as Swingline did for the need to meet an FTC time-table.”
SUM: Delay in complying with an FTC a divestiture order in violation of section 7 of the Clayton Act, regarding acquisition by Swingline of companies engaged in manufacture and sale of heavy duty industrial staplers and fasteners that had been in competition with each other.
Penalty imposed: $150,000
Maximum penalty: $1.3M
Percent of maximum: 11.5%
Number of violations: 260 days: delay in compliance of at least 5 months and possibly 8 months
Company resources: adequate to pay penalty
US-recommended penalty: $5000 per day


[1] AIDS Policy and Law (2002); Firn (2003).

[2] Biotech Week (2003); Firn (2003); Goldberger (2003).

[3] Scanlon (2002).

[4] Scanlon (2002); AIDS Policy and Law (2002); Firn (2003).

[5] AIDS Weekly (2003); Biotech Week (2003).

[6] AIDS Weekly (2003).

[7] AIDS Policy and Law (2002).

[8] United States v. Boston Scientific Corp . (D. Mass 2003) at 3, posted at http://pacer.mad.uscourts.gov/recentopinions.html.

[9] Boston Scientific Corp . at 29.

[10] Boston Scientific Corp. at 31.

[11] United States v. Boston Scientific Corp . (D. Mass 2003), posted at http://pacer.mad.uscourts.gov/recentopinions.html.

[12] The Associated Press State & Local Wire. Boston Scientific Fined for FTC Violation. March 31, 2003.

[13] Throughout the paper, I will use the term “medical products” to refer to both pharmaceuticals and medical devices.

[14] United States Constitution. Article I, §8, cl. 8.

[15] Merges, Menell, and Lemley (2000) at 129.

[16] Id . at 129-30. See also Dunner, Jakes, and Kerceski (1995) at 154-55 (discussing the pro-patent stance of the Federal Circuit Court).

[17] Merges, Menell, and Lemley (2000) at 320.

[18] Id . at 321.

[19] Merges, Menell, and Lemley (2000) at 133.

[20] 35 U.S.C. §271.

[21] Merges, Menell, and Lemley (2000) at 194.

[22] Id.

[23] 35 U.S.C. §111.

[24] Id. at 131.

[25] 35 U.S.C. §101.

[26] Merges, Menell, and Lemley (2000) at 321-22.

[27] Merges, Menell, and Lemley (2000) at 319.

[28] Id .

[29] Id. at 320.

[30] Id.

[31] 35 U.S.C. §287(c). Merges, Menell, and Lemley (2000) at 150.

[32] The TRIPS-Legality of Measures Taken to Address Public Health Crises (2001) at n. 15.

[33] Foster v. American Machine and Foundry Co. , 492 F.2d 1317, 1324 (2d Cir. 1974). See Saunders (2002) at 444-45.

[34] 35 U.S.C. §§200-212 (1994). See McGarey and Levey (1999) at 1097-99.

[35] 35 U.S.C. §203(1) (1994).

[36] 35 U.S.C. §203 (1994). The TRIPS-Legality of Measures Taken to Address Public Health Crises (2001) at n. 15.

[37] 35 U.S.C. §203 (1994).

[38] Compulsory licensing provisions that aim to provide for the public good are found in other Congressional Acts, including the Semiconductor Chip Protection Act, 17 U.S.C. §§901-14 (1994); the Tennessee Valley Authority Act, 16 U.S.C. §831(f) (1999); the Arms Control and Disarmament Act, 22 U.S.C. §2572 (1999); and the Solid Waste Disposal Act, 42 U.S.C. §3253(c) (1994). See Saunders (2002) at 446 n. 321.

[39] S. Rep. No. 96-480 (1979) at 34. See McGarey and Levey (1999) at 1111, n. 21.

[40] McGarey and Levey (1999) at 1111.

[41] 37 C.F.R. §401.6(b) (1998); 35 U.S.C. §203 (1994). See McGarey and Levey (1999) at 1110.

[42] The CellPro march-in petition is discussed in McGarey and Levey (1999).

[43] Saunders (2002) at 447 n. 326.

[44] McGarey and Levey (1999) at 1116.

[45] Id. at 1096.

[46] 35 U.S.C. §202(c)(4).

[47] 35 U.S.C. §202(c)(4) (1994). See McGarey and Levey (1999) at 1113, n.18.

[48] 28 U.S.C. §1498 (1994).

[49] 28 U.S.C. §1498 (1994).

[50] McGarey and Levey (1999) at 1115.

[51] Saunders (2002) at 442-43.

[52] This Act has not been passed.

[53] Saunders (2002) at 443 n. 305.

[54] Saunders (2002) at 447.

[55] 410 U.S. 52 (1973).

[56] 3 F. Cas. 706 (C.C.E.D.N.Y 1871) (No. 1,5444).

[57] Bliss v. Brooklyn , 3 F. Cas. at 707. See Saunders (2002) at 442.

[58] Continental Paper Bag Co. v. Eastern Paper Bag Co ., 210 U.S. 405 (1908).

[59] 210 U.S. at 429.

[60] Continental Paper Bag Co. v. Eastern Paper Bag Co , 210 U.S. at 430.

[61] Saunders (2002) at 441. See also Leubsdorf (1978) at 540-42.

[62] 849 F.2d 1446, 1458 (Fed. Cir. 1988).

[63] Hybritech Inc. v. Abbott Labs , 849 F.2d at 1451.

[64] Id . at 1458. See Saunders (2002) at 441 n. 296.

[65] 69 F.2d 577 (7th Cir. 1934)

[66] Saunders (2002) at 443.

[67] Vitamin Technologists v. Wisconsin Alumni Research Foundation , 146 F.2d 941 (9th Cir. 1945).

[68] Saunders (2002) at 444.

[69] Id .; Vitamin Technologists , 146 F.2d at 955-56.

[70] Fox and Bennett (1987) at iii.

[71] Id .

[72] Laporte and Tidrick (2002).

[73] Laporte and Tidrick (2002).

[74] 733 F.2d 858 (Fed. Cir. 1984).

[75] Glover (2002).

[76] Consumer Union of U.S. (2001).

[77] Fox and Bennett (1987) at v.; Stark (1994).

[78] Glover (2002).

[79] Glover (2002).

[80] 35 U.S.C. §271(c)(1). See Laporte and Tidrick (2002).

[81] 496 U.S. 661 (1990).

[82] Laporte and Tidrick (2002).

[83] Id .; Fox and Bennet (1987) at v.

[84] Glover (2002).

[85] Glover (2002).

[86] Glover (2002).

[87] Glover (2002).

[88] Paris Convention for the Protection of Industrial Property, July 14, 1967, art. 5(A)(2).

[89] Abbott (2001) at 74.

[90] TRIPS Agreement, art. 8:1.

[91] Merges, Menell, and Lemley (2000) at 124.

[92] Id . at 125-126.

[93] Posner (2003) at 32.

[94] Posner (2003) at 37, 32.

[95] See Mazzoleni and Nelson (1998).

[96] Landes and Posner (forthcoming) at 381.

[97] Id .

[98] Posner (2003) at 37, 32.

[99] Posner (2003) at 281-82.

[100] Landes and Posner (forthcoming) at 381-82.

[101] Posner (2003) at 38.

[102] Saunders (2002) at 426, n. 232, citing Kewaee Oil Co. v. Bicron Corp. , 416 U.S. 470 (1974).

[103] Heller and Eisenberg (1998) at 698.

[104] Landes and Posner (forthcoming) at 414.

[105] Posner (2003) at 276.

[106] Merges and Nelson (1990) at 869.

[107] Id. , citing Nordhaus.

[108] Posner (2003) at 282.

[109] Heller and Eisenberg (1998) at 698.

[110] It is notable that throughout his book, Posner (2003) did not address the circumstances particular to healthcare or medical technologies. The book did include a chapter on Income Inequalities, Distributive Justice, and Poverty.

[111] Posner (2003) at 278.

[112] Id.

[113] Merges, Menell, and Lemley (2000) at 329.

[114] Posner (2003) at 279.

[115] Posner (2003) at 328-29.

[116] Saunders (2002) at 449.

[117] Saunders (2002) at 449 n. 338.

[118] See Saunders (2002) at 451.

[119] Continental Paper Bag Co. v. Eastern Paper Bag Co , 210 U.S. 405 (1908).

[120] Saunders (2002) at 426-27.

[121] See Staff of the Subcommittee on Patents, Trademarks, and Copyrights of the Senate Committee on the Judiciary, 85th Congress (1959) at 45. Cited in Saunders (2002) at 439 n. 286.

[122] See Saunders (2002) at 440 n. 290; see also Scherer (1977).

[123] Saunders (2002) at 440-41.

[124] McGarey and Levey (1999) at 1107 n. 59.

[125] First Report of the National Patent Planning Commission (1943) at 10, cited in Saunders (2002) at 443 n. 303.

[126] Merges (2000) at 2219-20, quoted in Saunders (2002) at 442-43.

[127] Tektronix, Inc. v. U.S ., 552 F.2d 343 (Ct. Cl. 1977).

[128] Merges, Menell, and Lemley (2000) at 322-23.

[129] Id . at 322.

[130] Panduit Corp. v. Stahlin Bros. Fibre Works, Inc ., 575 F.2d 1152 (6th Cir. 1978), citing Goodyear Tire and Rubber Co. v. Overman Cushion Tire Co. , 95 F.2d 978 at 984. See Merges, Menell, and Lemley (2000) at 327-28.

[131] McGarey and Levey (2002) at 1098, n. 11.

[132] 35 U.S.C. §200, cited in McGarey and Levey (2002) at 1098.

[133] 35 U.S.C. §200. See Saunders (2002) at 446 n. 322.

[134] 35 U.S.C. §203(1)(b). See Saunders (2002) at 446 n. 324.

[135] Fox and Bennett (1987) at 95, citing House Report Part I at 14-15, 16-17.

[136] Consumers Union (2001).

[137] Id .

[138] Glover (2002).

[139] Laporte and Tidrick (2002).

[140] Consumers Union (2001).

[141] See,e.g., Posner (2003) at 330; Merges and Nelson (1990) at 869.

[142] Landes and Posner (forthcoming) at 383.

[143] Calabro (2002).

[144] Id .

[145] Pharmaceutical Research and Manufacturers of America v. Thompson , 313 F.3d 600 (D.C.App. 2002).

[146] See Dembner (2003b).

[147] Pharmaceutical Research and Manufacturers of America v. Meadows , 304 F.3d 1197 (11th Cir. 2002).

[148] Dembner (2003b).

[149] Dembner (2003b).

[150] Pharmaceutical Research and Manufacturers of America Website: http://www.phrma.org/issues/reimportation/.

[151] Dembner (2003a).

[152] Helms, ed. (1980) at 70.

[153] Médecins Sans Frontières website, Campaign for Access to Essential Medicines.

[154] Abbott (2001) at 71.

[155] Id.

[156] Brooks (2002) at 316.

[157] Abbott (2001) at 72-73.

[158] Brooks (2002) at 316.

[159] Brooks (2002) at 316, n. 206.

[160] Saunders (2002) at 430, n. 245, citing In re Indep. Serv. Orgs. Antitrust Litig. , 203 F. 3d 1322, 1325 (Fed. Cir. 2000).

[161] Abbott (2001) at n. 15. See, e.g., United States v. Glaxo Group, Ltd ., 410 U.S. 52 (1973); United States v. Nat'l Lead Co., 332 U.S. 319, 348 (1947); United States v. Gen. Elec ., 115 F. Supp. 835 (D.N.J 1953). See also Saunders (2002) at 447 n. 327; Press Release, U.S. Department of Justice, Ohio Steel Company Agrees to License Patents in Order to Resolve Justice Department’s Antitrust Concerns (August 26, 1999), available at http://usdoj.gov/atr/public/press_releases/1999/2646.htm.

[162] United States v. Boston Scientific Corp . (D. Mass 2003) at 30-37, posted at http://pacer.mad.uscourts.gov/recentopinions.html.

[163] Saunders (2002) at 430, n. 246.

[164] See United States v. Boston Scientific Corp . (D. Mass 2003), posted at http://pacer.mad.uscourts.gov/recentopinions.html at 20.

[165] Sloan (1995) at 4.

[166] Sloan (1995) at 4-5.

[167] For an example of just compensation philosophy applied to analysis of a decision involving intellectual property in pharmaceuticals, see 29 Pepperdine L. Rev. 435 (2002), analyzing the court’s decision in SmithKline Beecham Consumer Healthcare, L.P. v. Watson Pharms., Inc ., 211 F.3d 21 (2d Cir. 2000).

[168] Polinsky and Shavell note that “courts’ determinations of punitive damages do not reflect in any clear manner the formula that achieves optimal deterrence. Although courts do consider the magnitude of harm in assessing the proper level of punitive dmages, they do not use harm as the base to be multiplied by an appropriate damages multiplier. Rather, courts take harm into account in a vague way, through application of the general principle that punitive damages should bear a ‘reasonable relationship’ to compensatory damages.” Polinsky and Shavell at 897, citations omitted. See, e.g. , BMW of North America, Inc. v. Gore , 116 S.Ct. 1589, 1601 (1996) (holding that punitive damages must bear a “reasonable relationship” to compensatory damages).

[169] See,e.g., United States v. Louisiana-Pacific Corp. , 967 F.2d 1372, 1379-81 (9th Cir. 1992).

[170] Id. at 911.

[171] Polinsky and Shavell (1998) at 873. See City of Newport v. Fact Concerts, Inc. , 453 U.S. 247, 266-67 (1981) (“Punitive damages ... are ... intended to ... punish the tortfeasor whose wrongful action was intentional or malicious, and to deter him and others from similar extreme conduct.”); Gertz v. Robert Welch, Inc. , 418 U.S. 323, 350 (1974).

[172] Polinsky and Shavell (1998) at 873.

[173] Id. at 874.

[174] Id . at 876.

[175] Id . at 911, 912 (“As long as a corporation—large or small—expects to have to pay for the harms it causes, it will have a socially appropriate incentive to reduce the harms.”).

[176] Id . at 911.

[177] Id . at 911.

[178] Polinsky and Shavell at 936 n. 212-213 (noting the growing trend to impose punitive damages in contractual cases, such as employment termination and insurance litigation).

[179] Polinsky and Shavell (1998) at 938.

[180] See United States v. Boston Scientific Corp . (D. Mass 2003), posted at http://pacer.mad.uscourts.gov/recentopinions.html.  In this case, determining proper damages using Polinsky and Shavell’s theory would require speculative calculations of the harm done to both HP and the public resulting from HP’s withdrawal of their arguably superior IVUS technology from the market. Such harm might include a determination of HP’s lost profits from a product that never went to market; harm suffered by doctors because they did not have access to the most advanced technologies; and harm to cardiac patients who did not have access to technologies that might have improved their health, saved their lives, or caused them less pain. Because of their speculative and indeterminate nature, such benefits would be extremely difficult to measure. Thus, it would be difficult to impose on BSC punitive damages at a level appropriate to deter such behavior.

[181] Polinsky and Shavell at 914-916.

[182] Id . at 917.

[183] In re The Exxon Valdez , No. A89-0095-CV, 1995 WL 527988, 6 (D. Alaska Jan. 27, 1995). See Polinsky and Shavell at 914, n.145.

[184] Polinsky and Shavell at 915.

[185] Polinsky and Shavell at 918, 920.

[186] Polinsky and Shavell at 919.

[187] Gary Schwartz. Reality in the Economic Analysis of Tort Law: Does Tort Law Really Deter? 42 UCLA L. Rev. 377, 378 (1994).

[188] Schwartz at 387.

[189] Schwartz at 384-85.

[190] Schumann (2002).

[191] Id .

[192] Elzinga and Breit (1976) at 134-36. Cited in Schumann (2002) at 35.

[193] Boston Scientific at 31, 33.

[194] Id. at 33.

[195] Posner (2003) at 282.

[196] Farmer (1999) at 12.

[] * I prepared this table as part of my work on the Boston Scientific case at the U.S. Attorney’s Office in Boston during the Summer of 2002. All information is public record.