This story is part of the Prospect’s series on how the next president can make progress without new legislation. Read all of our Day One Agenda articles here.
In late September 2001, with Americans still reeling after the deadliest terrorist attacks in U.S. history, yet another frightening episode rapidly unfolded. A string of letters addressed in childlike block script began arriving at various media and congressional offices, each laced with deadly anthrax spores. Once the envelopes were opened, the powdered pathogen could be dispersed by air and inhaled by recipients and bystanders, causing severe respiratory illness.
In the following weeks, 22 people were infected by anthrax sent through the mail, including the infant son of one ABC producer who’d brought his new baby into the office to meet his colleagues. As illnesses mounted, national-security officials reportedly grew concerned that anthrax could be deployed maliciously on a larger scale. As a prophylactic measure, the Bush administration decided to stockpile a few million units of Cipro—a drug that reversed the progress of anthrax poisoning and kept exposed individuals from getting too sick.
But there was a problem. Cipro was manufactured by Bayer, which had held a patent on it since 1987. That put the company in a position to extort the federal government by charging exorbitant prices to churn out the 100 million pills it wished to buy. With negotiations nearing a standstill, then-Secretary of Health and Human Services Tommy Thompson took an unusual step: He threatened to override Bayer’s exclusivity rights, and license the drug to a generics manufacturer instead. Bayer folded, agreeing to sell the pills for less than a dollar apiece.
The feared citywide anthrax attacks thankfully never materialized, but the event remains an important episode in a certain corner of intellectual-property law. It was the only time in modern history that a federal official declared an intention to use Section 1498 of the federal code—the so-called “eminent domain for patents”—to lower the price of a necessary drug. Eighteen years later, experts increasingly see 1498 (along with “march-in” rights through the Bayh-Dole Act of 1980) as potential sticks with which to whack the pharmaceutical industry. If invoked by a president, they could be powerful, if limited, tools for reining in drug costs without the cooperation of a hamstrung Congress.
The promise of wielding either 1498 or march-in rights lies in the patent system’s role in drug-pricing dynamics. A firm can secure patents on effective molecular compounds that guarantee them a years-long period of market exclusivity, ostensibly to incentivize the risk of researching and developing new drugs. Because the United States lacks the coherent regulation that keeps pharmaceutical prices down in peer countries, the monopoly conferred by drug patents essentially grants unlimited, unilateral pricing power to manufacturers. As you may suspect, firms set the prices of patented drugs unconscionably high, and only after the period of exclusivity ends can generics manufacturers compete against them to eventually make the treatments more affordable.
But if patent law has facilitated soaring costs for life-saving drugs, it’s not exactly immutable. Section 1498 “exists as the sort of ‘eminent domain equivalent’ in intellectual-property law,” explained Dr. Aaron Kesselheim of Harvard Medical School, who co-authored a law review article on the topic. “It presents an opportunity for the government to step in and say, ‘We’ve tried negotiating, we’ve tried leaving it up to the market, and you guys are pricing it at too high a level, and it’s causing a sort of national crisis’ … I think that it would provide a sort of safety net if the current systems aren’t able to get to a point where essential medicine is available to those who need it.”
The 2001 Cipro incident, Kesselheim said, presents a fairly straightforward example of how even the specter of 1498 can act as leverage to lower prices. In more extreme situations where a firm refuses to play ball, the government can license the drug to enough generics manufacturers and pay appropriate damages to the original firm to offset lost profits. That last part, Kesselheim insists, is key: “You’re not just taking intellectual property and running away with it,” he emphasized. “You’re providing a reasonable royalty for it.” That’s consistent with eminent domain’s requirement for “just compensation” for whoever’s property the government takes.
While Section 1498 has been on the books since 1910 and has been used repeatedly to procure items for military purposes, like night-vision goggles and lead-free bullets, it’s only rarely been used in a pharmaceutical context (including a number of times in the 1950s and 1960s that predated the advent of a standardized generic-drug industry). But in recent years, ballooning costs have triggered genuine public-health crises that have renewed interest in the measure. If wielded by a confrontational chief executive, it could weaken the unchecked industry power that allows pharmaceutical firms to rake in such astronomical profits.
For Kesselheim, it seems obvious that the reason Section 1498 has remained taboo boils down to pharmaceutical lobbying and industry power, as well as a potentially valid concern with driving away investment in the sector and reducing its motivation to bring drugs to market. This being the case, he and other experts I spoke to stressed that it ought to be used sparingly, and not as an indiscriminate cudgel.
So-called "eminent domain for patents" or "march-in rights" could be powerful tools for reining in drug costs without the cooperation of a hamstrung Congress.
One example of circumstances that could reasonably lead a sympathetic president to trigger 1498 played out in Louisiana in 2017. The state faced one of the worst hepatitis C epidemics in the country, but the estimated $85,000 per-patient cost Gilead Sciences charged for their cure for the disease made treating all 35,000 of the state’s infected uninsured and Medicaid recipients prohibitive. Dr. Rebekah Gee, secretary of the state Department of Health, helped launch an inquiry into the use of 1498 as a potential tool to bring such treatment within the confines of state health care budgets. Dr. Joshua Sharfstein of Johns Hopkins led the investigation, and assessed the situation to be a very strong contender for using the statute.
“Initially, we started talking about it as a cost issue, and then took a step back and said, ‘This is about solving a public-health problem,’” he recounted. After all, hepatitis C is an infectious disease, and treating it serves the interests of both patients and the broader public. “So it was a very strong public-health rationale, not just to treat more people but reducing the spread substantially,” he said. “I think people understand intuitively why the government would want to protect people from a major public-health threat, and then the question becomes, what are the tools at the state’s disposal to be successful in doing that?”
Once Sharfstein and his team advised Gee to go forward in her pursual of 1498, Gilead struck a deal with the state of Louisiana that offered the hepatitis C drugs on a fixed subscription basis for five years. While Sharfstein couldn’t say whether the publicized inquiry had anything to do with it, “by raising the specter of 1498, Dr. Gee showed people she was really caring about solving the problem—she wasn’t just trying to negotiate a slightly lower price.” In other words, her move had served to assure Gilead that the state was committed to buy at a volume that made the eventual subscription deal worthwhile. That’s what gives Section 1498 its power: Even the occasional suggestion of its use can keep drug companies in line.
Notably, Louisiana’s experience was preceded by the unsuccessful attempt to use another tool to reduce the price of a different hepatitis C treatment. The Bayh-Dole Act of 1980 awards private entities patents to commercialize publicly funded research, and it helped lead to the privatized, high-profit U.S. drug industry. But Bayh-Dole included a caveat—the government enjoys the right to “march in” and take back any patent whose fruits have not been made sufficiently accessible to the public on “reasonable terms.”
While so-called “march-in rights” are generations younger than 1498, they’ve never been successfully used for drugs. A coalition of public-interest groups asked the National Institutes of Health to overturn AbbVie’s hepatitis C treatment patent in 2013, citing reasons similar to those that Sharf-stein outlined years later, but the NIH declined, arguing that cost was an insufficient justification for doing so. In other words, the NIH contended the drugs were indeed available on “reasonable terms,” despite the fact that only 15 percent of hepatitis C patients nationwide have actually received treatment largely due to staggering costs.
“It’s crazy that it’s this paper tiger that’s never really been used,” said Jay Thomas of Georgetown Law, who wrote an analysis of march-in rights for the Congressional Research Service. “It’s just kind of sitting there moribund.” As Thomas outlined, while Section 1498 applies to any patented drug, march-in rights apply only to patents born directly out of publicly funded research. This translates into around 25 percent of important medicines, Dr. Arti Rai of Duke Law told me by phone. March-in rights also pose serious timing obstacles, since the government could only license the drug in question for manufacture after the end of a potentially years-long appeals process.
Still, Thomas believes, breaking precedent and using march-in rights could spook drug companies into better practices: “It would be something good to use once,” he said, “because then the next time the VA says, ‘We’d like to pay this much per pill,’ the drug company will go, ‘OK! Because otherwise, we’ll get marched in!’”
In this sense, march-in rights could have relevance far beyond the drug being marched in, creating a stick to force better pricing practices across the industry. It would require an NIH director ideologically committed to the idea that excessive prices prevent drugs from being distributed on “reasonable terms,” and there has been substantial controversy over this point.
As Rai tells it, the fact that march-in has never been used undermines the premise of Bayh-Dole itself. “It was supposed to be in the public interest,” Rai said. “It was certainly a part of why Bayh-Dole got passed, so the commercialization was balanced by public interest … march-in is part and parcel of Bayh-Dole, and the fact that it hasn’t been used is problematic from my perspective.”
However, Rai noted, a growing category of drugs is practically impervious to the levers of 1498 and march-in rights, even if a motivated president did decide to use them. While standard drug compounds can be easily licensed and manufactured as generics, the same doesn’t necessarily apply to biologic drugs. So far, these highly expensive drugs make up only a small but increasing portion of the pharmaceutical industry, but can’t be easily licensed because their manufacturing process is often too difficult to devise without trade secrets—something 1498 and march-in can’t easily force a firm to divulge. Moreover, high prices for treatments like insulin and EpiPen are driven by patents on delivery devices rather than the drug itself, complicating the legal calculus for breaking them.
Ultimately, as efforts to facilitate affordable treatments of anthrax and hepatitis C suggest, having march-in rights and 1498 on the table could do much to restore government power relative to the pharmaceutical industry, empowering it to act on patients’ behalf. Bernie Sanders has indicated a willingness to invoke both means for years, and Kamala Harris has signified an openness to doing so as well. Meanwhile, better regulation of Big Pharma could make pricing less dependent on the unilateral whims of a patent holder, and greater public funding for R&D and clinical trials could undermine the industry’s argument that its eye-popping prices are necessary. This would make the development, testing, and provision of life-saving drugs more democratically accountable.
In the absence of systemic overhauls, Jay Thomas has other ideas. “Maybe we have to get antitrust authorities in,” he opined. “[These companies] are very coddled. Right now, they’re not efficient innovators. Like, ‘Oh, we’re not going to innovate if we actually have to sell U.S.-developed technologies to U.S. citizens on reasonable terms.’” Thomas laughed. “I don’t think that’s going to work.”
Candidate Spotlight
KAMALA HARRIS and BERNIE SANDERS have both publicly endorsed using “march-in” rights to commandeer the patents of prescription drugs not offered under reasonable terms, and license them to competitors. ELIZABETH WARREN and BETO O’ROURKE vowed to do the same in statements to the Prospect. Harris, Sanders, and O’Rourke have also endorsed using Section 1498, the “eminent domain for patents” authority, which could potentially affect more medications than march-in rights. CORY BOOKER does vow to “take patents away” from drug companies that sell medications at lower rates abroad, but he doesn’t specify a mechanism.
