DC Price Controls Struck Down

The Washington Times reported Friday:

A federal judge yesterday struck down a new D.C. law that tied the cost of patented prescription drugs sold in the District to wholesale prices in foreign countries.

The Prescription Drug Excessive Pricing Act of 2005 sought to permit civil sanctions against drug companies if patented drugs were sold for more than 30 percent above prices in Australia, Canada, Germany or the United Kingdom.

U.S. District Judge Richard J. Leon yesterday ruled in favor of two trade groups that sued the District in October to block the law.

"Punishing the holders of pharmaceutical patents in this manner flies directly in the face of a system of rewards calculated by Congress to insure the continued strength of an industry vital to our national interests," Judge Leon said in a 28-page opinion.

Judge Leon called the law a "well-intentioned" but "thinly veiled effort" to force drug makers to limit prices.

The price controls couldn't be more thinly veiled - DC didn't even try to hide behind the "reimportation" lie.

The Washington Post adds:

Under the measure, the manufacturer of a drug that cost 30 percent more in the District than in the four designated countries would have to prove that the price was not excessive. The drug company could seek to justify the price based on research-and-development costs, its profit margin or other factors. If the manufacturer failed in that effort, a court could impose civil penalties.

Leon's opinion said the District law is in direct conflict with federal patent law, in which Congress designed a "carefully crafted bargain" intended to provide pharmaceutical companies with incentives to develop drugs. Those incentives include exclusive sales rights for a certain period, he said.

...

The opinion also said the law would violate the constitutional protection of interstate commerce because, among other reasons, the drugs are manufactured, stored and bought outside the District.

"Although no other state has adopted a statute like the D.C. Act to date, it takes little imagination to envision the harm to interstate commerce that could be caused by the domino effect of similar legislation being adopted in many, or every, state," Leon wrote

This appears to be a good ruling. Price controls are clearly bad policy, but also a policy that is preempted by Congress. It is especially absurd to demand that companies justify why they are not observing foreign price controls that the D.C. Council does not even have the guts (or more likely, the power) to explicitly impose.

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