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[Penner]

And I thought the reimportation of canadian drugs was a bad Idea.

At the end of the day this will be bad news for big pharma and  patients alike.

[JimIvey]

This intersection between intellectual property and the sovereign is really getting kind of interesting.  A few years back, the Supreme Court decided that it was not absolutely clear that Congress, in passing the Patent Statute, intended to include patent liability for states.  So, now states are free to infringe patents all they want.  To sue a state, you have to first get its permission.

This article is sort of the next step -- assigning the state's right to infringe.  However, in this case, the state intends to compensate for the infringement.  

There's actually a case in front of the Supreme Court right now that might have a bearing on how the patent issue gets resolved.  This other case pertains to the use of eminent domain to allow a private real estate developer to convert a residential neighborhood into commercial office space.  The greater good of the community proffered as the justification for the taking is a higher tax base to build better schools without raising taxes on the constituents individually.  It's not quite clear how it's going from oral arguments, but the split is interesting -- not along the typical fault lines one sees in this Court.

One thing is relatively clear though in the drug eminent domain idea -- if the state wanted to, they could just manufacture the drugs themselves without fear of patent liability.  It wasn't that way until recently.  

An interesting issue related to sovereign immunity for states from patent liability is whether state universities are also immune.  Universities (even private ones, I think) are already more or less considered government entities for application of Constitutional prohibitions/requirements such as searches and seizures, equal protection, freedom of speech, etc.

For what it's worth, my intuitive feeling is that the state won't succeed with forced licensing of patents to generic drug manufacturers.  I think the main difference here is the state is just undoing what the federal government has done -- and that's a big no-no.  

What's interesting here is that there is big tax money going into other expensive items protected by intellectual property.  In this /. post (http://tinyurl.com/6qngc), Los Angeles figures it can save $5.2 million by switching to OpenOffice.org from MS Office.  What if they could just keep MS Office and not pay for it?  What if they decided to give it to public schools, private schools, low-income residents, etc.?  That's not much of a stretch from mandating generic drugs notwithstanding an unexpired patent covering the drug.

Thanks for the post.

[Isaac]

Actually I think the SC decided that Congress was clear, but that
Congress had not established the necessary prerequisites to
invoke the 14th Amendment.

When I look at 35 USC 296, I find it difficult to imagine
Congress being more clear about their intentions with respect
to sovereign immunity of the states.

If the states were to institute a system of systematically
ripping off the IP rights of citizens and then deny them the
right to sue by invoking the 11th Amendment, they could create
a situation in which Congress could invoke its powers under the
14th Amendment to create legislation like 35 USC 296.  But
I think they'd have to deliberate on the changed situation and
re implement the statute.

[Penner]

An interesting issue related to sovereign immunity for states from patent liability is whether state universities are also immune.  Universities (even private ones, I think) are already more or less considered government entities for application of Constitutional prohibitions/requirements such as searches and seizures, equal protection, freedom of speech, etc.

Jim,

I believe they are not there was a recent case involving a physics professor at Duke who invented some special lasers prior to coming to Duke then left Duke for a CA school.  He then sued Duke and won because they continued to use the lasers for research.

The case more revovlved around using the technology for academic purposes as these things have usually been allowed.  Soon after this, ABS began sending out notices that anyone (even academic non-profit researchers) doing PCR using their own reagents (as opposed to buying their kit) needed to purchase a license to do so.  There were a number of articles in Science on this as it is of big concern to the academic community.

Since Duke is a private school I bet they didn't argue for emminent domain.  It would be interesting to see a state school defend themself from this type of suit.

[JimIvey]

Since Duke is a private school I bet they didn't argue for emminent domain.  It would be interesting to see a state school defend themself from this type of suit.

That's the interesting question for me, given the push for sovereign immunity for states vis-a-vis patents.  However, I'd expect the first defendent to try to extend sovereign immunity to universities to be a public school.  It doesn't surprise me that Duke didn't try to make that case.  

However, if a public school successfully makes such a case based at least partially on the argument that they're considered a state actor for other constitutional questions, you might see a private school try the same thing.  Although I'm not completely certain that private schools are considered state actors for constitutional questions.  As you can probably guess, this is getting way outside patent law.

Regards.

[JimIvey]

1.  State A buys out a patentee for a drug patent.  What stops the state from setting a higher price for sales to consumers in other states/other countries.  What stops the state from refusing to sell to others?

I doubt the state would "buy out" the patent owner.  I'm assuming you mean a forced assignment.  I would expect a more limited forced license to make, use, and/or sell infringing articles within the state.  An assignment is more than necessary and would affect too many rights outside state A.

So, I don't think state A will interfere with other states/countries.  However, a license to make, use, and/or sell within state A seriously undercuts the value of the patent overall.  Some licensees are willing to pay for exclusivity and that exclusivity would be severely undercut.  

2.  State A buys out a patentee for a drug patent.  Patent is deemed invalid by the court/board for various, typical reasons (inequitable conduct, interference, lack of enabling disclosure) or even a reexamination that narrowed or invalidated claims.  Does the state get reimbursed?  

I suspect state A (as a licensee, not an assignee) would be treated like any other licensee.  I believe that means no reimbursment.  However, as many taxpayers expect everything for free, I'd expect some "action" over that point.  Unfortunately for the taxpayers, I believe the Constitution requires reasonable compensation -- in other words, compensation is not optional.

3.  State A buys out a patentee for a drug patent.  Drug requires an element that patentee has rights via a second patent.  Therefore, to make or use the new drug requires that the state buy out more patents.  Either that or the state will have to contract with patentee to make the drug, since I doubt the patentee will allow a third party to infringe on this second patent without some compensation.

I suspect the state will take as many mandatory licenses as it needs to get its needs met.

This raises an interesting notion (pointed out to me by a friend who does licensing work).  Years ago, an article might have one, two, three patents covering it.  A reasonable royalty was about 2-5% (of net, I think -- perhaps gross).  Now, you might have many patents covering a single item.  A complex item such as a car might have as many as 20,000 covering various aspects of it.  As you can see, 2-5% times 20,000 doesn't add up.  If the state were smart, they'd use the existence of many patents to ratchet down the royalties paid to each patent owner.

4.  What if the drug is sufficiently novel or requires such specialized techniques that only the patentee can, within reason, make the drug at a cost required by the state?  Will the state buy out the patentee and then pay them to make the drug, too?

That's a tougher question and I have no idea.  Assuming a license rather than an assignment, one might expect that quantities of this drug would be floating around the marketplace and the state would be able to get its hands on some.  

5.  What if the drug cures the problem, but winds up killing everybody due to really bad side effects.  Is the state sued?  Is the manufacturer sued?  Does the patentee get sued?  

Everybody gets sued.  I think the patent owner wins, though, and escapes liability.

These issues are possibly endless.  Does this stop at drugs?  Could the state buy out a patentee just to avoid a monopoly?

Again, I foresee licenses rather than assignments.  Given what qualifies as an "urgent" matter in current eminent domain cases (merely increasing a tax base is currently being asserted as an urgency), I think a heavily discounted license on Microsoft software is next.

Regards.

[Isaac]

I think there is a more on point case with respect to state
universities than the Duke case cited.  There was a recent case where
someone attempted to sue a state university in order to correct
the inventorship of a patent, and the university successfully
invoked sovereign immunity as a state actor even though there
was no effective state remedy.  It was a CAFC case.
Xechem v. University of Texas.  The issue of whether a state
official could be sued personally was not raised by the
plaintiff, because he didn't name such a defendant.

[JimIvey]

In catching up with some background reading, I came across this:

http://nip.blogs.com/patent/2004/06/competitive_tec.html

There's not much in the way of actual analysis of the University's claim of immunity, but this issue has come up.

Interestingly, the issue appears to be waiver.  And, of course, you can't have a waiver without having the waived right in the first place.

Also interestingly, the University sued for patent infringement first and is claiming immunity from the counter-claims.  It's a bit like climbing into a boxing ring and then announcing that the other guy can't hit you back.  It used to be that sovereign immunity was waived once you stopped acting like a sovereign and started acting like a player in the marketplace.  This area of the law appears to be in a state of flux at the moment.

You can see the denial of a rehearing here:
http://pub.bna.com/ptcj/031380Jan3.pdf

Regards.