Wednesday, 7 July 2010

Patent law changes as eminent domain?

For months, arguments have raged about a controversial article published in the February 26 issue of Science magazine. In "Fixing the Legal Framework for Pharmaceutical Research" (available by subscription only), Sherry Knowles contends that recent changes to U.S. patent law have resulted in loss of revenue for brand-name pharmaceutical companies, to the advantage of generic manufacturers. Knowles suggests that this transfer of profits amounts to a "taking" of property -- a form of eminent domain -- in violation of the Fifth Amendment to the U.S. Constitution.

Knowles, who until this year served as Chief Patent Counsel at GlaxoSmithKline, primarily objects to certain changes in statutory law (specifically, the Hatch-Waxman Act) and several Supreme Court decisions (in particular, KSR, Bilksi, and Ariad) that invalidated patents previously thought to be valid. These changes, Knowles claims, have facilitated challenges by generics to the patents of branded manufacturers. This may, in turn, "stop R&D investment decisions that have already been made and could prevent a product from reaching the market because of patentability issues." Suggesting that the branded manufacturers' subsequent loss of revenue constitutes eminent domain, Knowles argues that the branded companies should be "compensated" with appropriate changes to the judicial and statutory regimes.

The Constitution's Framers included the Fifth Amendment's "eminent domain" provision as a protection against government seizures of citizens' real property. Generally, the Amendment is understood to prohibit a taking (1) by the government (2) of privately-owned land (3) for public use (4) without "just compensation." Citing Consolidated Fruit Jar v. Wright and Patlex Corp. v. Mossinghoff, Knowles argues that patents and land carry comparable property rights. In fact, federal statute 28 U.S.C. § 1498 does consider patent infringement by the government to constitute a form of eminent domain requiring compensation to the patent holder:
"Whenever an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture."
This statute does not necessarily help Knowles's case. Sec. 1498 applies to situations in which the government has infringed a patent by manufacturing a covered invention. Knowles's argument that patent infringement has resulted from a change in statutory law is tenuous. Also, some have argued that the court rulings have clarified, rather than changed, patent laws; if so, then the patents Knowles characterizes as "invalidated" were never valid to begin with, and the government therefore has not "taken" anything. Moreover, the Takings Clause refers to seizures by the government for public use -- whereas it is private generic manufacturers who tend to benefit from recent changes. Although, as Knowles notes, Kelo v. City of New London (wherein eminent domain for the benefit of Pfizer was ruled legal) "blurred" the line between public and private use, it did not eliminate the distinction completely. Finally, Knowles's equating of loss of corporate profits with a government seizure is an idea that, if acted upon, would likely flood the courts with ridiculous lawsuits.

Perhaps the main difficulty is that Knowles attempts to use a constitutional argument in order to address a market problem. A market-based argument might be more credible and effective.

1 comment:

Unknown said...

These laws should be changed.