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

By Gene Quinn
March 28, 2018

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.

The Author

Gene Quinn

Gene Quinn is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

Warning & Disclaimer: The pages, articles and comments on IPWatchdog.com do not constitute legal advice, nor do they create any attorney-client relationship. The articles published express the personal opinion and views of the author and should not be attributed to the author’s employer, clients or the sponsors of IPWatchdog.com. Read more.

Discuss this

There are currently 15 Comments comments. Join the discussion.

  1. Bemused March 28, 2018 10:56 am

    Yet another glaring example of elected representatives prostituting themselves for re-election donations from big pharma and big tech.

    Native American tribes which have historically (and overwhelmingly) voted for Democratic candidates in general elections should send a Senator McCaskill an “F you too” message by voting for her opponents in the primary and general elections in MO.

    For far too long, we’ve silently accepted this state of affairs. Time to send a message to the Swamp in Washington DC: You sell your ethics and integrity for campaign donations and you hurt your constituents; you lose your job.

    Any elected representative who has had a hand in destroying the US patent system needs to go – regardless of whether that person is Democrat, Republican, Socialist or Communist – and is going to see me send money to their opponent.

    [I’ll put away my soap box now]

  2. Anon March 28, 2018 12:34 pm

    Our friends in Congress should be disabused of the notion of:

    While the definition of “sham transactions” might be in the eye of the beholder

    Sham transaction has a definite and fully recognized legal meaning.

    This is not an “in the eye of the beholder” type of item per se.

    If the deal IS a sham, then it must be pronounced to be a sham – in the proper legal context.***

    Failing to do that is failing to make the necessary case, and only invites this type of improper legislative grandstanding.

    ***I will note that the PTAB started down a path of making a case that the deal was in fact a sham deal, but for whatever reason, failed to close the legal loop there and did not come out directly with the statement that the deal was a sham deal.

    Why did they fail to do this?

    I do not have an answer for that question.

  3. Matt March 28, 2018 2:55 pm

    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.

    I think that because, as provided for in AIA Section 18, CBMs are nothing but a special form of post-grant review, then the PACED Act’s post-grant review-related provisions are likely intended to apply to CBMs as well.

  4. Anon2 March 28, 2018 5:12 pm

    Gene: “We should be able to all agree that drug prices are an issue of national importance…”

    I understand the sentiment… the segue is to build consensus, win the ear of the reader… but we do not all agree. In fact quite reasonable people (by which term I mean “rational” or “of reason” rather than its other meaning “moderate” or “compromising”) disagree.

    Otherwise very good post!

  5. Anon March 28, 2018 5:30 pm

    When it comes to drug prices (and their import – and impact), I would like to see recognition of US prices bearing the “forced altruism” of large transnationals attempting to exploit lower costs in other nations having profits supplemented by higher US prices (and the attempts to stop secondary market forces from equalizing the natural limits of such actions).

  6. Benny March 29, 2018 5:35 am

    Discriminatory? Discrimination means unequal rights and obligations. Non-discriminatory means equal rights and obligations for US citizens regardless of historical descent. The idea of tribes having special rights is rooted in discrimination against native Americans.

  7. Anon March 29, 2018 8:31 am

    The idea of tribes having special rights is rooted in discrimination against native Americans.”

    Benny, you are correct here.

    But I feel that you do not grasp the entire picture, either of the past or of the current conditions in relation to the legal aspects involved with the American Indian Tribes as Sovereigns.

    Your comment about “for US citizens” shows a lack of understanding that the the legal issues here are NOT just about US citizens.

  8. Anon2 March 29, 2018 9:29 am

    Anon@5

    I don’t follow the intricacies of global pharma… what constitutes the particular “force” you are referring to? Trade barriers? Taxation? Regulation? Fraud? Infringement or threat of infringement? I’m curious.

  9. Anon March 29, 2018 9:33 am

    After a first blush read of the proposed law, I have to wonder whether the writers of the law took the time to understand the legal implications in what they are trying to do, and, whether anyone is going to notice the Trojan Horse in the section that switches the “adjudicative” body of the administrative agency of the Legislative branch into an Article III court in order for the PTAB to make the call on denying sovereignty. See (b)(3) and (f)(3).

  10. Anon March 29, 2018 9:36 am

    Anon2,

    Think exhaustion doctrine and the secondary market.

  11. Anon2 March 29, 2018 10:03 am

    Anon@10

    So… intersection of patent law and trade barriers… government artifice… forces private entities to respond in the manner you speak of to seek out the most profitable configuration… which although best for the companies given the realities of the imposed force is a situation you find disagreeable and amounts to “forced altruism”: you end up paying more for something sold in another country and you can simply rely on free market forces to equalize the difference in cost to a natural difference representing the difference in the cost of shipping etc., and in any case you cannot legally obtain the something without penalty/fines.

  12. Anon2 March 29, 2018 10:05 am

    sorry “can’t simply rely on free market forces” and you “cannot legally obtain the something from the other country”

  13. Anon March 29, 2018 11:53 am

    Again, Anon2 – the natural aspects (the legal natural aspects) of the exhaustion doctrine should be allowed their full reign and I should not be forced against my will to support business model choices wherein international price schemes would violate those natural aspects of exhaustion principles.

    IF a Big Corp wants to sell something – by all means, that decision (including price points) is up to them.

    Once sold though, that item is exhausted, and ALL natural legal protections – so exhausted – should not be fettered.

  14. Anon2 March 29, 2018 12:39 pm

    Anon@13

    Interesting. Do you believe government should intervene when a seller differentiates price to match different price points/demand/ability to pay in different markets? I do not necessarily mean “geographically” defined markets either.

    Would there be something fundamentally wrong with Big Corp say charging based on two pools (voluntary) a “no information provided pool” where the drug simply has a price and is provided widely to the market (this would be a standard primary market if you will), and an “private and income based pool” where the price for the drug is based on the income of each customer under a private contract directly with the customer (and limited to certain life saving drugs duly prescribed by a doctor as being necessary) and on condition that the drugs will not be resold (this would be the secondary market if you will… one which in a free society would represent sales which otherwise might not exist) The agreement would be if Big Corp ever finds out the person sold the drug (rather than used it as prescribed) he will be ejected from the private income based pool, i.e. he would no longer eligible to participate in the secondary market.

  15. Anon March 29, 2018 1:05 pm

    Would there be something fundamentally wrong…”

    The short – and easy – answer: yes. Engaging in the marketplace and doing as you suggest to artificially “create” a marketplace are two very different things.

    The “fundamentally wrong” aspect should be readily apparent: ANY considerations – no matter how much against public policy – would soon over ride any natural market place with the constrained marketplace option.

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