PACED Act has nothing to do with drug prices, discriminates against Native Americans

On March 7, 2018, Senator Tom Cotton (R-AR) and Senator Claire McCaskill (D-MO), along with Senators Pat Toomey (R-PA), Joni Ernst (R-IA), David Perdue (R-GA), introduced the Preserving Access to Cost Effective Drugs Act. The bill, which is also known as the PACED Act, is allegedly for the purpose of restoring “the power of the Patent and Trade Office and federal courts, and the International Trade Commission to review patents regardless of sovereign immunity claims made as part of sham transactions.”

While the definition of “sham transactions” might be in the eye of the beholder, this bill is clearly, and objectively, aimed at stopping the type of transaction Allergan entered into with the Saint Regis Mohawk Tribe on the RESTASIS patents.

“It’s far past time that we crack down on patent abuse, which is raising costs for our seniors,” said Senator Tom Cotton in a statement released upon introduction of the PACED Act. “This bill will make sure unscrupulous patent holders can’t game the system and block their competitors from entering the market. That’ll go a long way to help seniors get the drugs they need.”

“We watched a company brazenly try to exploit a potential legal loophole to game the system in an effort to protect their bottom line-and keep Missourians from access to cheaper generic drug options in the process,” explained Senator MCaskill. “That should be illegal, and our bipartisan bill would make it so by ending this astounding assertion of sovereign immunity to avoid patent review, before any other companies follow suit.”

“Sham transactions involving the transfer of patent ownership from a pharmaceutical company to a tribe for the sole purpose of shielding the patent from challenges are a clear abuse of our patent system and set a dangerous precedent for other consumer products,” Senator Toomey said. “The PACED Act will improve our patent system and protect patients and consumers from higher drug prices by eliminating this egregious loophole.”

“Congress cannot look the other way as some pharmaceutical companies attempt to stifle competition and prevent Americans from accessing affordable generic drugs,” said Senator Ernst. “Failure to act could incentivize other industries to use similar tactics to block competitors. Through the Preserving Access to Cost Effective Drugs Act, we can speed up the entry of safe and affordable generic drugs into the market while maintaining the integrity of the U.S. patent system.”

“Gaming the patent system is not good for consumers or businesses,” said Senator Perdue. “I’m disappointed this legislation even has to be offered due to a few bad actors trying to do an end run around the U.S. Patent and Trademark Office.”

What is disappointing is how this piece of legislation seeks to mislead Americans.

Although the text of the bill reads as if the abrogation of sovereign immunity commanded will be levied in an even-handed and neutral manner, nothing could be further from the truth. Indeed, the text of the bill reads as if Congress would abrogate sovereign immunity claims that could be made by States or State Universities. That, of course, means that the bill will never apply to States or State Universities because Congress cannot through a piece of legislation enact something that violates the Constitution. Thus, a good portion of the bill is facially, and indisputably, unconstitutional.

Let’s be honest. The bill also has nothing to do with drugs or drug prices, how how much Missourians desire cheaper generics. The PACED Act is discriminatory, has nothing to do with lowering drug prices, and doesn’t change the fact that to date no Indian Tribe has ever asserted sovereign immunity in a patent dispute in federal court. ONe has to wonder whether these Senators even know what this bill will do.

States Unaffected by PACED

The PACED Act will have no impact on States and State universities because as to States, it is blatantly unconstitutional.  See College Savings Bank v. Florida Prepaid Postsecondary Edu. Expense Bd., 527 U.S. 666, 680-81 (1999)(“There is a fundamental difference between a State’s expressing unequivocally that it waives its immunity and Congress’s expressing unequivocally its intention that if the State takes certain action it shall be deemed to have waived that immunity. In the latter situation, the most that can be said with certainty is that the State has been put on notice that Congress intends to subject it to suits brought by individuals. That is very far from concluding that the State made an “altogether voluntary” decision to waive its immunity.”)(emphasis in original).

The PACED Act, by its express terms, amends several statutes to say that a “patent owner” may not assert sovereign immunity to IPRs, post-grant reviews, Hatch-Waxman proceedings or in proceedings before the ITC. Curiously, it does not seem to prevent a claim of sovereign immunity with respect to patents challenged in a covered business method (CBM) proceeding, which on its face has to raise questions about the seriousness, thoughtfulness, and thoroughness of the vetting of this bill.

In any event, under College Savings Bank, the prohibition against raising sovereign immunity would be conditions for participating in the patent system that States have not consented to, and which would be found coercive because participation in the patent system is an “otherwise lawful” activity. See id at 686 (“In any event, we think where the constitutionally guaranteed protection of the States’ sovereign immunity is involved, the point of coercion is automatically passed—and the voluntariness of waiver destroyed—when what is attached to the refusal to waive is the exclusion of the State from otherwise lawful activity.)

Knowing PACED is unconstitutional as to States, the law says its application is only to be applied to the extent it is “not inconsistent with the 11th Amendment”, which effectively means it will not apply to the States at all. This will keep the States and State universities from opposing PACED, make it look non-discriminatory and enable the sponsors to claim it treats all fairly when, in fact, it knowingly and intentionally discriminates against Native American Indian Tribes.

In short, having PACED prevent States from raising sovereign immunity defenses and then saying it only applies to states insofar as it is not unconstitutional is nothing more than legislative subterfuge.

PACED Act Not About Drugs

In a town where bills are notoriously and routinely misnamed, PACED could be the poster-child for misleading names. The title the bill clearly and directly claims the substance of the bill tackles issues associated with rising costs of drugs, and guarantees to preserve access to those drugs. Such a claim is so egregiously false it deserves 4 pinocchios! See WAPO pinocchio scale.

If the goal is to preserve access to reasonably priced drugs, why isn’t the bill limited to pharmaceuticals or biologics? If the need for this bill is to stop the rising costs of drugs, as the Senators explain, why does the bill prevent Indian Tribes from claiming sovereign immunity regardless of the substance of the patent owned?

If the goal of the bill is to preserve access to reasonably priced drugs, why doesn’t it do anything to curb the prices charged by brand name pharmaceutical drug companies? Of course, anything that addressed brand name pharmaceutical drug companies directly would be politically impossible because it would lead to a long, drawn out, brutal fight with one of the most powerful lobbies in the world. Still, how can a bill proclaim to do something — anything — about drug prices when it isn’t directed to anything except for patents owned by Indian Tribes? What about the tens of thousands of patents owned by companies like Eli Lilly, GlaxoSmithKline, Merck, Pfizer, Bristol Myers Squibb, AbbVie, AstraZeneca, Novartis, Roche and Johnson & Johnson? Surely a bill that would do something to ensure reasonably priced drugs has to do more than discriminate against Indian Tribes? Apparently not.

We should be able to all agree that drug prices are an issue of national importance, but the PACED Act is not limited to drug patents, medical device patents, or any other patent related to public health. Neither is it applicable to those companies that actually control the latest, greatest, patented, brand name drugs.

If the goal is to address the rising costs associated with healthcare the PACED Act is extraordinarily overbroad and completely ineffectual. But that isn’t the intent of the bill. Instead, PACED is nothing more than a thinly veiled attempt to block the participation of Native Americans from the patent system as sovereigns. To do this a legislative subterfuge is being used; namely the myth that States and Native American Indian Tribes are being treated the same.

One only need to look to the entities backing the PACED Act, which include software trade groups and Silicon Valley/Big Tech lobbying entities that have no direct, or even indirect, involvement in prescription drugs or healthcare. This has to necessarily mean PACED is using the public’s very real concerns over prescription drug prices as a smokescreen to fundamentally deprive Native Americans of the benefits of their sovereignty.

No Tribe has Sought to Block Patent Challenges

Senator Cotton’s press release announcing the introduction of the bill explained: “Under current law patent holders can pay Indian tribes to take ‘ownership’ of their patents, which allows the tribes to claim sovereign immunity and avoid review in the case of a dispute.”

While that may be technically true, it is extremely misleading to say the least. Indeed, no Native American Tribe has ever attempted to block any drug company’s efforts to invalidate any patent a Tribe owns. Tribes have only sought a forum for those proceedings. It is entirely reasonable for Native American Tribes to demand the procedural certainty and fairness that comes with a proceeding presided over by an Article III judge, respects the right to a trial by jury as to factual issues, and includes the presumption that patents paid for and issued by the United States Government are valid. In other words, Native American Tribes have demanded fairness, and have not wanted to have disputes adjudicated by employees of the Executive Branch, as none other than Chief Justice John Roberts of the United States Supreme Court called the Patent Trial and Appeal Board.

The PTAB system affords no procedural protections to patent owners, protections routinely found in a district court proceeding. The PTAB is also made up of inexperienced “judges” who are often appointed when they are only junior associates with only a few years of legal experience. With so much riding on the outcome of these disputes, and the history of how America has treated Native Americans, who could possibly think it is an abuse for Native Americans to seek the protections and procedure of a real court with a real judge?

The Alternative to the PACED Act

Instead of a clearly discriminatory bill that will never apply to States or State universities, the Senate should concentrate on making the IPR system fair for everyone. If a fairer IPR system that is truly balanced cannot be fashioned Congress should eliminate the post grant proceedings altogether.

Ironically, if the PTAB and PTAB process were seen as fair and even-handed, there would be no incentive for any company to transfer its patents to sovereign tribes or State universities in order to escape the clutches of PTAB jurisdiction.

Simply stated, the problem is IPRs, not Native American Tribes or sovereign immunity. Congress should fix the problem rather than passing a discriminatory, misleading and ineffectual piece of legislation.