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Letter to Chairs and Ranking Members of House Ways and Means and Senate HELP Committees on Prescription Drug Price Controls

Written Testimonies & Filings Dear Chairman Sanders, Ranking Member Cassidy, Chairman Smith, and Ranking Member Neal: As former judges, former government officials, and scholars who are experts in patent . . .

Dear Chairman Sanders, Ranking Member Cassidy, Chairman Smith, and Ranking Member Neal:

As former judges, former government officials, and scholars who are experts in patent law, healthcare policy, or both, we write to express our concerns about lobbying efforts for the government to impose price controls on patented drugs. Some activists and academics have written to Congress and to agency officials arguing that existing laws are “tools” for the government to impose price controls on patented drugs to lower drug prices.[1] Their arguments mischaracterize these statutes by inaccurately claiming that Congress has endorsed the imposition of price controls on patented drugs. It has not.

Drug pricing presents a multi-dimensional policy issue because the U.S. healthcare system comprises a complex, intermingled system of federal and state laws and regulations, as well as a myriad of equally complex and intermingled set of public and private institutions. Yet, activists and others inaccurately reduce the causes of drug prices to a single issue: patents. They argue that the federal government can “lower drug prices by breaking patent barriers,”[2] and they claim that two statutes can be used to achieve this policy goal: the Bayh-Dole Act and 28 U.S.C. § 1498.

Neither the Bayh-Dole Act nor § 1498 are price-control statutes, and thus they do not authorize the federal government to impose price controls on patents. This is clear by their plain legal text, as well as by their consistent interpretation by courts and agencies. The Bayh-Dole Act promotes the commercialization of patented inventions that may result from government funding of research, and § 1498 secures patent-owners in obtaining compensation for unauthorized uses of their property rights by the government. Neither law says anything about drug prices. If the government used either law to impose price controls on patented drugs, this would conflict with the clear purpose of these statutes. It would also represent an unprecedented and fundamental change in U.S. patent law. From 1790 through the twentieth century, Congress rejected bills that would impose compulsory licensing on patents.[3] The calls to use the Bayh-Dole Act or § 1498 for similar purposes fundamentally are at odds with these statutes and threaten to undermine the U.S. patent system’s historic success as a driver of U.S. global leadership in biopharmaceutical innovation.

This letter explains why neither the Bayh-Dole Act nor § 1498 can be used to break patents to impose price controls on drugs. First, it sets forth the proven success of the patent system as a driver of innovation in healthcare, which is the framework to evaluate the argument to “lower drug prices by breaking patent barriers.”[4] This argument threatens to undermine the legal system that has saved lives and improved everyone’s quality of life. It then describes the Bayh-Dole Act and § 1498, explaining how neither authorizes price controls on patented drugs. The policy argument seeking to impose price controls on drugs contradicts the clear text and purpose of these statutes.

Read the full letter here.

[1] See Letter to Senator Elizabeth Warren from Amy Kapczynski, Aaron S. Kesselheim, et al., at 1 (Apr. 20, 2022), https://tinyurl.com/yt62wt4t. Professor Kapczynski and Professor Kesselheim are the co-authors of this letter, which is based on their articles, and thus this letter is identified as the “Kapczynski-Kesselheim Letter.”

[2] Id. at 8

[3] See, e.g., Bruce W. Bugbee, Genesis of American Patent and Copyright Law 143-44 (1967) (discussing the rejection of a Senate proposal for a compulsory licensing requirement in the bill that eventually became the Patent Act of 1790); Kali Murray, Constitutional Patent Law: Principles and Institutions, 93 Nebraska Law Review 901, 935-37 (2015) (discussing 1912 bill that imposed compulsory licensing on patent owners who are not manufacturing a patented invention, which received twenty-seven days of hearings, but was not enacted into law).

[4] Kapczynski-Kesselheim Letter, supra note 1, at 8.

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Intellectual Property & Licensing

‘Killer Acquisitions’ Reexamined: Economic Hyperbole in the Age of Populist Antitrust

Scholarship Abstract Major competition regulators, and substantial portions of the scholarly community, have rapidly adopted the view that “killer acquisitions” and “kill zones” constitute significant sources . . .

Abstract

Major competition regulators, and substantial portions of the scholarly community, have rapidly adopted the view that “killer acquisitions” and “kill zones” constitute significant sources of competitive risk arising from incumbent acquisitions of emerging firms in digital markets. Based on this view, policymakers in the United States, European Union, and other jurisdictions have advocated, and in some cases have taken, substantial changes to merger review policies that would erect significant obstacles to incumbent/startup acquisitions. A review of the relevant body of
evidence finds that these widely-held views concerning incumbent/startup acquisitions rest on meager support, confined to ambiguous evidence drawn from a small portion of the total universe of acquisitions in the pharmaceutical market and theoretical models of acquisition transactions in information technology markets. Moreover, the emergent regulatory and scholarly consensus fails to take into account the rich body of evidence showing the critical function played by incumbent/startup acquisitions in supplying a monetization mechanism that induces venture-capital investment and promotes startup entry in technology markets. The prospect of an acquisition transaction in the case of technical and commercial success generally promotes innovation and competition by providing a transactional device that expands startups’ access to the capital inputs required to undertake R&D and the commercialization services required to convert R&D outputs into commercially viable products. At the same time, these acquisitions enable incumbents to access the specialized innovation capacities of smaller firms. Proposed changes to merger review standards would disrupt these efficient transactional mechanisms and are likely to have counterproductive effects on competitive conditions in innovation markets.

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Antitrust & Consumer Protection

Game Over at the Federal Trade Commission

Popular Media In baseball, it’s three strikes and you’re out. By that standard, antitrust enforcers at the Federal Trade Commission should have stepped off the playing field . . .

In baseball, it’s three strikes and you’re out. By that standard, antitrust enforcers at the Federal Trade Commission should have stepped off the playing field a while ago.

In tallying up the losses, it’s hard to know where to start. The regulatory parade of follies includes the agency’s debatable effort to block Altria’s minority equity investment in Juul, a struggling e-cigarette maker; its puzzling suit to block Facebook’s acquisition of Within, a metaverse fitness app; and now a federal court’s rejection of its challenge to Microsoft’s acquisition of the video-game publisher Activision (which the FTC immediately appealed).

Read the full piece here.

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Antitrust & Consumer Protection

Illusions of Dominance?: Revisiting the Market Power Assumption in Platform Ecosystems

Scholarship Abstract It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful . . .

Abstract

It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful of firms enjoy market power due to a combination of network effects and switching costs. This assumption supports both proposed and enacted regulatory interventions under competition law that place significant limitations on a wide range of practices by platform incumbents. In this paper, I revisit this market power assumption from theoretical and empirical perspectives. As a matter of theory, informed by selected real-world examples, I show that the conditions under which a platform incumbent can plausibly exercise market power are substantially more demanding than is commonly assumed. As a matter of empirics, I provide evidence from the food-delivery and cloud-computing markets, showing that widespread attributions of market power to leading platforms in these markets lack persuasive evidentiary support. Contrary to conventional wisdom, both theory and evidence cast significant doubt on the standard view that platform ecosystems are prone to converge on entrenched monopolies that justify preemptive intervention by competition regulators.

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Antitrust & Consumer Protection

The Antitrust Assault on the Startup Economy

Popular Media In the age of the internet, unfounded claims can achieve widespread adoption at remarkable speed. Antitrust regulators have apparently fallen prey to this malady. In . . .

In the age of the internet, unfounded claims can achieve widespread adoption at remarkable speed. Antitrust regulators have apparently fallen prey to this malady.

In the U.S., Europe, the U.K. and other jurisdictions, regulators have adopted the view that acquisitions of startups by large tech platforms are being used systematically to “kill” competitive threats. Other regulators assert that acquisitions by large tech platforms create “kill zones” into which startups are reluctant to enter.

Read the full piece here.

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Antitrust & Consumer Protection

Antitrust Mercantilism: The Strategic Devaluation of Intellectual Property Rights in Wireless Markets

Scholarship Abstract Policy approaches to the enforcement and licensing of standard-essential patents in wireless communications markets reflect the competing interests of entities that specialize in the . . .

Abstract

Policy approaches to the enforcement and licensing of standard-essential patents in wireless communications markets reflect the competing interests of entities that specialize in the innovation or implementation segments of the technology supply chain. This same principle can anticipate the policy preferences of national jurisdictions that specialize in the chip-design or device-production segments of the global technology supply chain. Consistent with this principle, legal treatment of the licensing and enforcement of standard-essential patents by courts and regulators in the People’s Republic of China reflects a strategic effort to deploy competition and patent law to reduce input costs for domestic device producers that rely on wireless communications technology held by foreign chip suppliers. This mercantilist use of antitrust law has derived its intellectual foundation from patent holdup and royalty stacking models of market failure adopted by EU and US competition regulators and has borrowed excessive pricing, essential facility, and other doctrines from EU and US competition law, which have then been applied expansively by China’s regulators and courts to weaken intellectual property rights over wireless communications technologies in service of industrial trade and geopolitical policy objectives. These legal actions can in turn distort the pricing of wireless technologies in global supply chains in communications, computing, automotive and other wireless-enabled markets.

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Antitrust & Consumer Protection

Fragile Giants: Reassessing Market Power in Platform Economics

Scholarship It is widely assumed that platform technology markets are inherently prone to monopoly outcomes in which a single firm or a handful of firms enjoy . . .

It is widely assumed that platform technology markets are inherently prone to monopoly outcomes in which a single firm or a handful of firms enjoy market power due to network effects and switching costs.  This assumption supports dramatic changes, both proposed and enacted, to the application of competition and antitrust law in platform markets.  Remarkably, this assumption rests on weak empirical support.  The history of technology markets shows that incumbent platforms have been repeatedly challenged successfully by innovative entrants.  Consistent with this pattern, a close examination of the cloud computing market finds little evidence to support assertions of platform entrenchment or user lock-in that would justify intervention by competition regulators.

Read the full piece here.

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Antitrust & Consumer Protection

The End of Reason at the FTC

TOTM In a 3-2 July 2021 vote, the Federal Trade Commission (FTC) rescinded the nuanced statement it had issued in 2015 concerning the scope of unfair methods of competition under . . .

In a 3-2 July 2021 vote, the Federal Trade Commission (FTC) rescinded the nuanced statement it had issued in 2015 concerning the scope of unfair methods of competition under Section 5 of the FTC Act. At the same time, the FTC rejected the applicability of the balancing test set forth in the rule of reason (and with it, several decades of case law, agency guidance, and legal and economic scholarship).

Read the full piece here.

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Antitrust & Consumer Protection

Illusions of Dominance?: Revisiting the Market Power Assumption in Platform Ecosystems

Scholarship Abstract It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful . . .

Abstract

It is widely assumed that platform technology markets are inherently prone to converge on monopoly outcomes in which a single firm or a handful of firms enjoy market power due to a combination of network effects and switching costs. This assumption supports both proposed and enacted regulatory interventions that deploy competition law to place significant limitations on a wide range of practices by platform incumbents. In this paper, I revisit this market power assumption from theoretical and empirical perspectives. As a matter of theory, informed by selected real-world examples, I show that the conditions under which a platform incumbent can plausibly exercise market power are substantially more demanding than is commonly supposed. As a matter of empirics, I provide evidence from the food-delivery and cloud-computing markets, showing that widespread attributions of market power to leading platforms in these markets lack persuasive evidentiary support. Contrary to conventional wisdom, both theory and evidence cast significant doubt on the standard view that platform ecosystems are prone to converge on entrenched monopolies that justify preemptive intervention by competition regulators.

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Antitrust & Consumer Protection