[Congressional Record Volume 147, Number 173 (Thursday, December 13, 2001)]
[Extensions of Remarks]
[Pages E2286-E2288]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
ANALYSIS OF SECTION II OF H.R. 2887
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HON. SHEILA JACKSON-LEE
of texas
in the house of representatives
Wednesday, December 12, 2001
Ms. JACKSON-LEE of Texas. Mr. Speaker, on October 11, 2001, the
Committee on Energy and Commerce favorably reported H.R. 2887, the
``Best Pharmaceuticals for Children Act.'' I commend the Committee for
its great work to reauthorize legislation to promote labeling of
prescription drugs for use in children. However, I am concerned that a
section of this legislation may violate the Takings Clause of the
United States Constitution. As a member of the Committee on the
Judiciary, I have vigorously sought to protect private property rights
and to pursue just compensation for those whose property rights are
violated. My analysis of section 11 of H.R. 2887, brings me to the
conclusion that it would violate current exclusive rights of
manufacturers and in turn expose the U.S. government to substantial
claims for just compensation. Attached are legal memoranda by Professor
Laurence Tribe of Harvard University that validate my concerns:
Memorandum to the United States Congress--Constitutional Analysis of
H.R. 2887's Proposed Amendment to Hatch-Waxman Act Eliminating Three-
Year clinical Studies Exclusivity Period
(By Laurence H. Tribe)
I have been asked to address the implications under the
Fifth Amendment Just Compensation Clause (sometimes called
the Takings Clause) of H.R. 2887, which proposes to eliminate
the three-year clinical studies exclusivity period under the
Hatch-Waxman Act. Section 11(a) of the reported version of
H.R. 2887 provides that a generic drug may be approved under
the Federal Food, Drug and Cosmetic Act (``FDCA'') even when
its labeling omits a pediatric use that is protected by
patent or marketing exclusivity under Section
505(j)(5)(D)(iii) and (iv). Section 11(b) of H.R. 2887
implies that Section 11(a) applies to already running three-
year exclusivity periods.
The FDCA establishes a quid pro quo that H.R. 2887 would
retroactively abrogate. In order to gain regulatory approval
from the FDA, a pharmaceutical company must invest enormous
time, money, and human resources to develop extensive
clinical data regarding its drug. At the end of a three-year
period, the protected data is opened to the public and may be
used by competitors. In exchange, Section 505(j)(5)(D)(iii)
and (iv) provide that the FDA ``may not make the approval of
[a competitor application]. . .for three years.'' H.R. 2887
now proposes to undo the bargain struck by current law.
Under the Supreme Court's decision in Ruckelshaus v.
Monsanto Co., 467 U.S. 986 (1984), and related precedent, the
retroactive elimination of the exclusivity period qualifies
as a taking of private property for public use and therefore
triggers the right to just compensation.
Analysis
1. The Ruckelshaus Decision.
Fifth Amendment analysis must begin with the text of the
Clause: ``nor shall private property be taken for public use,
without just compensation.'' The meaning of that text as most
authoritatively set forth in the Supreme Court's decision in
Ruckelshaus v. Monsanto Co., 467 U.S. 986 (1984), which held
[[Page E2287]]
that the government's use of private proprietary research
data for public regulatory purposes constituted a compensable
taking. Ruckelshaus is highly instructive because the
statutory change at issue in that case was the elimination of
an exclusive pesticide marketing scheme, closely analogous to
the change effected by H.R. 2887. The fact that Ruckelshaus
concerned pesticides, while the instant controversy involves
pharmaceuticals, obviously is not material to the
constitutional analysis.
The Federal Insecticide, Fungicide, and Rodenticide Act
(``FIFRA'') at issue in Ruckelshaus originally limited an
agency's use of studies submitted by an initial applicant to
support later applicants' efforts to obtain approval of
similar formulations. In 1978, FIFRA was amended to weaken
that restriction. The 1978 amendments were then challenged in
court, and the Supreme Court held in Ruckelshaus that they
worked a taking and triggered the right to just compensation.
The Supreme Court noted that, with respect to trade secrets
submitted by Monsanto under FIFRA between 1972 and 1978,
``the Federal Government had explicitly guaranteed to
Monsanto and other registration applicants an extensive
measure of confidentiality and exclusive use. This explicit
governmental guarantee formed the basis of a reasonable
investment-backed expectation.'' 467 U.S. at 1011 (emphasis
added). The Court then explained that ``[i]f EPA, consistent
with the authority granted it by the 1978 FIFRA amendments,
were now . . . to consider those data in evaluating the
application of a subsequent applicant in a manner not
authorized by the version of FIFRA in effect between 1972 and
1978, EPA's actions would frustrate Monsanto's reasonable
investment-backed expectation with respect to its control
over the use and dissemination of the data it had
submitted.'' Id.
Plainly, the Supreme Court's decision in Ruckelshaus
provides strong support for the conclusion that the
elimination of the three-year clinical studies exclusivity
period would effect a compensable taking.
2. There is a Protectable Property Right.
I understand that proponents of H.R. 2887 take the position
that the elimination of the three-year clinical studies
exclusivity period does not work a taking because it does not
implicate any property rights at all. I find this surprising,
to say the least, because the Government did not even dispute
in the Ruckelshaus case that ``Monsanto has certain property
rights in its information, research and test data that it has
submitted under FIFRA to EPA and its predecessor agencies
which may be protected by the Fifth Amendment to the
Constitution.'' 467 U.S. at 1001.
Indeed, in Tri-BiO Laboratories, Inc. v. United States, 836
F.2d 135 (3d Cir. 1987), the court upheld the refusal of the
FDA to allow a generic animal drug manufacturer to
incorporate in its application the research and testing data
submitted by another manufacturer which had earlier obtained
approval to market the predecessor brand name drug. The FDA
insisted that such testing data was proprietary and
confidential and that its use ``to review generic drug
applications would constitute expropriation.'' Id. At 138.
The court agreed that the FDA's rules ``provided pioneer
animal drug manufacturers with [a] reasonable investment-
backed expectation that the FDA would refrain from
nonconsensual use of research material.'' Id. at 140-41.
``Use of that material in processing the [competitor's]
application, therefore, would constitute a Fifth Amendment
taking, requiring payment of compensation by the
government.'' Id. at 141.
The Supreme Court has long held that intangible property
rights are protected under the Fifth Amendment's Just
Compensation Clause. See. e.g., Armstrong v. United States,
364 U.S. 40, 44 (1960) (materialman's lien protected);
Louisville Joint Stock Land Bank v. Radford, 295 U.S. 555,
596-602 (1935) (real estate lien protected); Lynch v. United
States, 292 U.S. 571, 579 (1934) (contracts protected). See
also Laurence H. Tribe, American Constitutional Law Sec. 9-2,
p. 591 n.11 (2d ed. 1988) (observing that the Supreme Court
has tended toward ``a broadened conception of `property' in
takings analysis,'' ``incorporating wholly intangible forms
of property'').
By the same token, the Court has also opened that the
retroactive alteration of the terms on which a patent is
granted would work a compensable taking of private property.
See, e.g., Richmond Screw Anchor Co. v. United States, 275
U.S.C 331, 345 (1928) (elimination of patent infringement
action ``is an attempt to take away from a private citizen
his lawful claim for damage to his property by another
private person, which but for this act he would have against
the private wrongdoer. This result . . . would seem to raise
a serious question . . . under the fifth Amendment to the
Federal Constitution.''); William Cramp & Sons Ship & Engine
Bldg C. v. International Curtis Marine Turbine Co., 246 U.S.
28, 39-40 (1918) (``rights secured under the grant of letters
patent by the United States [a]re property and protected by
the guarantees of the Constitution and not subject therefore
to be appropriated even for public use without adequate
compensation'').
Under these principles, the exclusivity guaranteed by
Section 505(j)(5)(D) (iii) and (iv), which is mirrored in FDA
regulations, see 21 CFR Sec. 314.127(a)(7), is a prototypical
property right. As the Supreme Court has explained, the right
to exclude ``is central to the very definition of the
property interest,'' Ruckelshaus, 467 U.S. at 1011, for it is
``one of the most essential sticks in the bundle of rights
that are commonly characterized as property.'' Kaiser Aetna
v. United Sates, 444 U.S. 164, 176 (1979); see also Nollan v.
California Coastal Comm'n, 483 U.S. 825, 830-32 (1987)
(same); Loretto v. Teleprompter Manhattan CATV Corp., 458
U.S. 419, 435 (1982) (``The power to exclude has
traditionally been considered one of the most treasured
strands in an owner's bundle of property rights.''). See
generally Thomas W. Merrill & Henry E. Smith, What Happened
to Property in Law & Economics?, 111 Yale L.J. 357, 360 (Nov.
2001) (``property rights attach to persons insofar as they
have a particular relationship to some thing and confer on
those persons the right to exclude a large and indefinite
class of other persons (`the world') from the thing'').
As the Court explained in Ruckelshaus, ``[W]ith respect to
a trade secret, the right to exclude others is central to the
very definition of the property interest. Once . . . others
are allowed to use those data, the holder of the trade secret
has lost his property interest in the data.'' 467 U.S. at
1011. ``[T]he value of a trade secret lies in the competitive
advantage it gives its owner over competitors. Thus, it is
the fact that operation of the [statutory change] will allow
a competitor to register more easily its product or to use
the disclosed data to improve its own technology that may
constitute a taking.` Id. at 1011 n.15.
The three-year exclusively period is enforceable by means
of a suit against the FDA under 21 C.F.R. Sec. Sec. 10.30,
10.35. It is also transferable. See 59 Fed. Reg. 50338, 50339
(Oct. 3, 1994) (``an applicant may purchase an application or
rights of data and information in an application (i.e.,
exclusive rights to a new clinical investigation), from which
exclusively would flow'').
Thus, the three-year exclusivity period--acquired at great
expense and heretofore protected by law--is the very essence
of an ``investment-backed expectation'' that is fully
protected by the Fifth Amendment from any taking without just
compensation. Penn Central Transp. Co. v. City of New York,
438 U.S. 104, 124 (1978).
Moreover, the confidential and proprietary research
submitted by drug manufacturers--which under H.R. 2887 would
be used by the FDA in order to approve generic versions of
the same pharmaceuticals--also qualifies as a ``trade
secret'' under applicable state law. ``A trade secret is any
information that canbe used in the operation of a business or
other enterprise and that is sufficiently valuable and secret
to afford an actual or potential economic advantage over
others.'' Restatement (Third) of Unfair Competition Sec. 39
(1995). The Uniform Trade Secrets Act, Sec. 1(4), promulgated
in 1979 by the National Conference of Commissioners on
Uniform State Laws, contains the equivalent definition of
``trade secret.'' Tellingly, confidential information
regarding the production of pharmaceuticals is the very first
illustrative example of a trade secret provided by the
Restatement. See Restatement (Third) of Unfair Competition at
Sec. 39, Illustration 1. See also MILGRIM On Trade Secrets
Sec. 1.09 (2001) (providing numerous examples where
pharmaceutical information has been classified as a trade
secret).
Conclusion
The retroactive elimination of the three-year clinical
studies exclusivity period would undoubtedly effect a
``taking'' of ``private property'' within the meaning of the
Fifth Amendment. Any public purposes that may be advanced in
favor of H.R. 2887 bear only on whether the taking is
altogether void--which it is if the property is not put to a
``public use,'' equated by the Supreme Court with ``public
purpose.'' See Hawaii Housing Auth. v. Midkiff, 465 U.S. 229,
239-41 (1984). If property is taken for a ``private use''--
i.e., a purely private purpose--then the taking violates
substantive due process and cannot be saved by an amount of
compensation. See, e.g., Thompson v. Consolidated Gas
Utilities Corp., 300 U.S. 55, 77-79 (1937).
A ``purpose purpose,'' however compelling, has no bearing
whatsover on whether just compensation is required in order
to make the taking valid. Compensation for a taking of
private property is invariably required precisely when that
taking is for a public purpose or use. See, e.g., Jed
Rubenfeld, Usings, 102 Yale L.J. 1077 (1993). The Just
Compensation Clause is concerned not with the question
whether a given taking was substantially justifiable but
solely with the question of who should pay for presumptively
justifiable takings. As the Supreme Court has often put it,
one of the principal purposes of the Just Compensation Clause
is `` `to bar Government from forcing some people alone to
bear public burdens which, in all fairness and justice,
should be borne by the public as a whole,' '' Dolan v. City
of Tigard, 512 U.S. 374, 384 (1994) (quoting Armstrong v.
United States, 364 U.S. 40, 49 (1960)).
From the fact that just compensation would be required, and
the further fact that the Just Compensation Clause is self-
executing, see First English Evangelical Lutheran Church of
Glendale v. County of Los Angeles, 482 U.S. 304, 315, 316 n.9
(1987), it follows that H.R. 2887 would represent an enormous
tax lien automatically levied by the measure's proponents
upon the rest of the nation. It would, despite protestations
of its proponents that no tax expenditure would be required
and thus that no added appropriation or tax levy would be
needed, have to be
[[Page E2288]]
funded either by new or higher taxes or by an equivalent cut
in spending on military or other discretionary budget items.
H.R. 2887, therefore, cannot be evaluated as though it would
provide some sort of pharmaceutical free lunch. Someone's ox,
to mix metaphors just a bit, would plainly have to be gored
to pay for whatever public benefits the measure might
provide. That the cost could quietly and painlessly be laid
at the feet of private investors in pharmaceutical companies
is a pure mirage. Those investors know their rights, and they
know the address of the U.S. Court of Federal Claims.
____________________