The Cipro Dilemma---In the anthrax crisis, Tommy Thompson distorted patent law to save public health. Good move?

Matt Fleischer-Black
The American Lawyer
January, 2002

As secretary of Health and Human Services, Tommy Thompson is responsible for protecting the public health of 274 million U.S. citizens. He has the power to mandate immunizations and quarantines. He can give the order to distribute medicines. The courts, history shows, will defer to his judgment. Thompson has a second major mission. He oversees the government's role in nurturing intellectual property by parceling out funds for basic scientific research. He also guides the transfer of the government's own discoveries to pharmaceutical companies. In more ways than one, Thompson is the country's medicine man.

During a health crisis, Thompson's first priority is to save lives, not protect patents. So, in October, when people started dying from anthrax infections and the strongest available antibiotic disappeared from pharmacy shelves, Thompson twisted the arm of that medicine's owner, Bayer AG. He might disregard the company's patent, he said, if the company didn't drop its price. Bayer did, and Thompson promptly went before a national gathering of 6,000 public health administrators to crow about his toughness at the bargaining table.

The boast was an appropriately shallow finale to his weeklong display of bureaucratic mumbo jumbo, during which he and his staff made at least five misleading or false statements about his powers to break patents in times of crisis. If Thompson had known history and the law he wouldn't have been so tongue-tied and hamstrung during the early days of the anthrax crisis. When the next public health crisis unfolds, a patent will likely be at the center. Let's hope that Thompson or his successor gets his powers straight. Members of Congress laid down the law for national security situations a long time ago. In 1918, at the tail end of World War I, gunships were in short supply not because of enemy torpedoes, but because of patent infringement suits. Shipbuilders were battling in the courts and had obtained injunctions against one another. Congress responded with a law that allowed the government to get its orders filled even when patents stood in the way.

More than 80 years later, the government wanted medicine, not munitions. A run on ciprofloxacin, sold by Bayer under the Cipro brand, left the country facing a potential shortage.

On Tuesday, October 16, Senator Charles Schumer, a New York Democrat, suggested that Thompson allow other drugmakers to produce generic Cipro for the government's backup supply. "We should not put our best response to anthrax in the hands of just one manufacturer," he said.

The 1918 law gave Thompson the power to reach past Bayer, Schumer advised, noting that at least five companies had facilities approved by the Food and Drug Administration to manufacture the generic version of Cipro. Effectively, Schumer framed an impossible question for Thompson: Would he choose patents, or the people?

Unsurprisingly, Thompson's team tried to choose both. "Right now we have enough Cipro and other antibiotics for the contingencies before the American public," an HHS spokesman said. He added: "We have to be careful about patent protections. There's a balance there."

Thompson might have been aiming to maintain his political balance and not look like a hypocrite. He knew that a month later, in mid-November, representatives at a World Trade Organization meeting in Qatar would debate whether nations held the right to disregard patents in order to address major public health concerns, a position the U.S. opposed at the time. Although Bayer had only one American plant up and running that could make Cipro, it told HHS that it could fill the government's order. Bayer is estimated to have invested tens of millions of dollars developing Cipro. The company's 17-year monopoly is scheduled to end in December 2003. After Schumer's announcement that Tuesday, Thompson spent the next several days navigating through the political, legal, and health landscape, proving that it's not easy to be a bureaucrat and a populist.

On Wednesday, October 17, Thompson himself started talking about patents on NBC's Today Show, saying that disregarding them was not something the agency had done or would do. HHS lawyers had advised him that it would be illegal to give a generic company the order to pump out Cipro.

Federal contracting lawyers were scratching their heads. The 1918 law plainly says that the government can take a license for itself. "They can't seriously be suggesting that they can't buy generic Cipro because Bayer has a patent," says a former Reagan administration health official. Thompson's attorneys were hung up on a different law, the one controlling FDA decisions about generic drugs. That afternoon, HHS general counsel Alex Azar III and FDA chief counsel Daniel Troy told Schumer adviser Alfred Engelberg, a retired patent lawyer, that the government couldn't buy generic Cipro because the FDA could not yet give final approval.

Although five generic companies have met the safety requirements to make generic Cipro, Bayer's patent still stands in the way. Under the 1984 Hatch-Waxman Act, the FDA can't allow the companies to proceed for 30 months if an unexpired patent is on record and the patent holder opposes the introduction of generics.

So the government was staring at a green light from a 1918 law and a red light from a 1984 law, and it wanted to avoid a crash. That technicality probably isn't a significant obstacle, according to Engelberg. HHS and the FDA failed to respond to questions posed by phone and e-mail.

Thursday morning, October 18, Thompson quickly forgot about legal technicalities when Canada jumped into the Cipro fray. The Canadian minister of health signed a contract with a generic manufacturer to make extra ciprofloxacin, expressing concerns about the sufficiency of Canada's stockpile. The next morning, Thompson started publicly bullying Bayer on price, threatening to get the law changed so he could ignore the company's patent.

By then, Bayer had sprung into action up north and was trying to persuade Canada to rescind its generic deal. On Monday, October 22, Thompson's counterpart yielded, canceling his generic deal and buying Bayer's pills at a discount (saving face, as his lieutenants had failed to follow legal procedure).

The Canadian deal cleared the way for Thompson to strike the same bargain with Bayer on Wednesday, October 24. Bayer agreed to supply up to 300 million tablets to the U.S. government at prices not to exceed 95 cents a tablet, or one-half of what the government had been paying. Industry advocates with an eye on the upcoming World Trade Organization meeting in Qatar were irked. "If the federal government is going to threaten to break valuable patent rights at the first sign of a crisis," Nancy Bradish Myers, a senior political analyst at Lehman Brothers, warned Wall Street Journal readers, "it will likely serve as a significant deterrent to other drug companies who would like to do the right thing' and use their R&D capabilities to help the government fight bioterrorism."

Others thought that Thompson had betrayed his duty to ensure a supply of a material the country needed. "The U.S. will respect the patent right, even if it means endangering public health. That's a hell of a lot of respect, I must say," economist James Love, a Ralph Nader deputy, said at the time. Bayer isn't complaining about the deal. According to most estimates, Bayer spends 20 cents to make one Cipro tablet, still leaving a healthy operating margin at Thompson's cut-rate price. (Cipro sells retail in the United States for $4.67 per pill.)

The bottom line: Thompson mangled the law, but saved taxpayers money, at least $82 million. "He really drove down the price and avoided litigation," says Bruce Shirk, a procurement partner in the Washington, D.C., office of Atlanta's Powell, Goldstein, Frazer & Murphy, which has worked for Bayer in the past.

But Thompson isn't just a contracting officer at HHS. He runs the place. And he will likely see more patent disputes during his tenure. Back in the summer, before anthrax riveted the world's attention, Thompson was at the center of the debate over the availability of embryonic stem cells the magic seeds supposedly capable of creating both babies and miracle medicines. Thompson found himself negotiating with the Wisconsin Alumni Research Foundation, owner of a broad patent on its stem cells. Thompson's task: to guarantee access to stem cells for the nation's scientists. As with his Bayer negotiations, Thompson failed to mention aloud the public's eminent domain prerogatives under the 1918 law, or even that the government had rights to one of the Wisconsin patents because it had funded the research that produced it.

Still, Thompson's embryonic stem cell negotiations suggested he intended to fill his role as the nation's monitor of biomedical research. Rather than simply touting the party line that patents drive research and development Thompson praised free scientific exchange. (Indeed, Thompson's wobbly stance during the Cipro negotiations gave WTO delegates in Qatar the cover to sign a pact allowing members to disregard patents in order to meet public health needs.)

Prominent economists, including Harvard University president and former Treasury secretary Lawrence Summers, are recognizing that patent rights in the high-tech field can reduce economic efficiency instead of promoting progress.

"Heavy restrictions on the dissemination of intellectual property will do less to create incentives for research and development, and more to destroy the web of scientific and technical communication that make research and development effective," Summers wrote in a recent article coauthored by University of California economist J. Bradford DeLong. Thompson may soon negotiate on behalf of the public over another research tool or patent that serves the public interest. Our medicine man may have to make a harsher eminent domain argument than he made with either stem cells or Cipro.

It wouldn't hurt him to start practicing the speech ahead of time.

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