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Isotopes for Medicine and the Life Sciences (1995)

Chapter: B Legal Considerations

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Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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APPENDIX B Legal Considerations

Two major public laws provide the authority to regulate isotope production and distribution in the United States: these are the Atomic Energy Act of 1954 and the Energy and Water Development Appropriations Act of 1990 (Public Law 101-101). These acts were passed for different reasons and attempt to achieve different goals. The 1954 act promotes the production of isotopes (radionuclides) for research, whereas Public Law 101-101 focuses on an entirely different mandate: revenue generation.

Because there are operating issues that relate to this conflict between generating revenue and supplying research entities with isotopes, "Policies and Procedures for Transfer of Commercial Radioisotope Production and Distribution to Private Industry," which was adopted by the U.S. Department of Energy (DOE) in 1965, has guided the department's decision on initiating and ceasing the production and distribution of specific isotopes. The culture, organizational structure, operating decisions, manufacturing capability, and marketing approach of the Isotope Production and Distribution Program (IPDP) to date have been geared toward fulfilling the research isotope availability objectives of the Atomic Energy Act of 1954. The revenue generation objectives of Public Law 101-101 would seem to require a different approach, one that would make IPDP an effective supplier to commercial customers and that would generate revenue above expenses. Although modified somewhat by language accompanying the fiscal year 1995 (FY95) Energy Appropriations Act, the legal implications of this dichotomy will be addressed below.

THE ATOMIC ENERGY ACT OF 1954

The Atomic Energy Act of 1954 provides the statutory and legal authorities under which IPDP can produce its products and provide related services. The

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

section of the act that applies depends on the type of isotope, radioactive or stable, and the production method. Legal opinions from DOE note that reactor-produced radioisotopes, as by-product materials, are governed by Sections 81-82, and other radioisotopes and stable isotopes are governed by Section 161 of the Atomic Energy Act:

The Commission [Atomic Energy Commission (AEC), now DOE] may distribute, sell, loan, or lease such by-product material as it owns to qualified applicants with or without charge: Provided, however, that, for by-product materials to be distributed by the Commission for a charge, the Commission shall establish prices on such an equitable basis as, in the opinion of the Commission, (a) will provide reasonable compensation to the Government for such material, (b) will not discourage the use of such material or the development of sources of supply of such material independent of the Commission, and (c) will encourage research and development. In distributing such materials, the Commission shall give preference to applicants proposing to use such material either in the conduct of research and development or in medical therapy. (Section 81; 42 U.S.C. 2111)

To execute this mandate, the DOE is authorized to

acquire, purchase, lease and hold real and personal property, including patents, as agent of and on behalf of the United States, … and to sell, lease, grant, and dispose of such real and personal property as provided in this Act. (Section 161g; 42 U.S.C. 2201).

Because financial considerations and the business arrangements were not specifically addressed, the legal ramifications surrounding those issues might become apparent only on implementation, and then only on a case-by-case basis.

PUBLIC LAW 101-101

In 1990 Title III of Public Law 101-101 (the Energy and Water Development Appropriations Act of 1990) established a revolving fund that required IPDP to finance itself through operating revenues, but there was no financial provision for the production of isotopes made exclusively for research. The intended goal was to provide an incentive for cost-effectiveness, bringing the management of isotope production and distribution under the aegis of a single, accountable headquarters so that revenue and expenses could be properly quantified. The designated revolving fund was characterized:

For necessary expenses of activities related to the production, distribution, and sale of isotopes and related services, $16,243,000, to remain available until expended: Provided, That this amount and, notwithstanding 31 U.S.C. 3302, revenues received from the disposition of isotopes and related services shall be credited to this account to be available for carrying out these purposes without further appropriation: Provided further, That all unexpended balances of previous appropriations made for the purpose of carrying out activities related to the

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

production, distribution, and sale of isotopes and related services may be transferred to this fund and merged with other balances in the fund and be available under the same conditions and for the same period of time: That fees shall be set by the Secretary of Energy in such a manner as to provide full cost recovery, including administrative expenses, depreciation of equipment, accrued leave, and probable losses: That all expenses of this activity shall be paid only from funds available in this fund: Provided further, That at any time the Secretary of Energy determines that moneys in the fund exceed the anticipated requirements of the fund, such excess shall be transferred to the general fund of the Treasury.

Although no further guidelines or instructions were provided, the revolving fund clearly was meant to induce or at least to encourage IPDP to operate as a for-profit business but without any guidance regarding business principles. The law did not take into account the distinction between supplying isotopes to the research community, characteristically at a financial loss, and supplying commercially used isotopes to the private or clinical sector at "full cost recovery." Subsequent interpretations within DOE have led to isotopes being priced at full cost; the recent Conference Report on the FY95 Energy and Water Development Appropriations included language specifically freeing the Secretary of Energy from the provisions of Public Law 101-101 in setting fees for isotopes and related services, however.

Since the outset of the government's isotope production activities, a persistent issue has been when the government should terminate the production of specific isotopes so as not to compete with the private sector. This initially was to occur when private industry demonstrated that it could be a reliable supplier of the isotopes that it agreed to produce. The relevant policies that DOE adopted in 1965 state that the government is to refrain from competing with private sources when the materials are reasonably available commercially. What determines "reasonable" is not detailed. The Federal Register (March 9, 1965, p. 3247—3248) notes:

Withdrawal guidelines.

  1. The AEC will voluntarily withdraw from the commercial production and distribution of particular radioisotopes whenever it determines that such radioisotopes are reasonably available from commercial sources.

  2. The AEC will withdraw from the commercial production and distribution of particular radioisotopes on petition from a private organization based upon a demonstrable private capability and encompassing the following but recognizing that all these factors need not be completely satisfied:

    1. There is effective competition in the production and distribution of the radioisotopes in question; however, a single source of supply under certain conditions may be acceptable (e.g., very limited market). [This will be further considered below in the discussion of antitrust.] Foreign producers will be accepted in determining effective competition provided they are actively marketing the radioisotopes in the U.S.

    2. There is assurance that the private producers will not discontinue the

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

venture in a manner that would adversely affect the public interest, to the extent resumption of production by AEC would involve a significant delay. [This may become an important issue in legal responsibility.]

  1. The proposed private radioisotope prices are reasonable and consistent with encouragement of research and development and use.

Government isotope requirements. It is the Atomic Energy Commission's policy to obtain radioisotopes from commercial sources where it has formally withdrawn from the production and distribution of those radioisotopes. However, the AEC maintains the right to produce an isotope for Government use in those circumstances where the Government is a substantial user, or the use is of special programmatic interest to the AEC, and, where procurement from industry would result in significantly higher cost to the Government.

Filing a petition.

  1. An organization requesting that the AEC withdraw from the production and distribution of a particular radioisotope may submit a formal petition to this effect. Such a petition to this effect. Such a petition should contain sufficient evidence to demonstrate adequate technical, financial and managerial resources, as well as seriousness of intent.:

  2. The petition should include:

    1. Product specifications to show evidence of their comparability to AEC products or adequacy to meet user demands.

    2. Estimate of current demand. (The petitioner's production capabilities in conjunction with that of other suppliers should be adequate to meet this demand.)

    3. The petitioning organization's production, processing and distribution capability, including identification of the production facilities (e.g., nuclear reactors and/or cyclotrons) available to it and the extent of commitment upon them in relation to market requirements.

    4. Price schedule.

    5. Delivery schedule.

    6. Proposed date of AEC withdrawal.

The AEC may request additional information if the above information is inadequate for AEC to make a ruling.

  1. Upon making a finding favorable to the petition, the AEC will publish for public comment:

    1. The private organization's petition or a summary thereof, exclusive of company confidential information, and will designate the place where a copy of the petition, exclusive of company confidential information, may be seen. (The petitioner should identify those portions of his petition which contain company confidential information; however, the information published must be sufficient to permit meaningful public comment.)

    2. A notice of AEC's intent to withdraw. AEC will make a final decision on the withdrawal petition upon receipt and evaluation of public comment.

  1. Upon making an unfavorable decision on a petition, either prior to or subsequent to receipt of public comment, AEC will inform the petitioning organization of the reasons for its decision.

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×
  1. When AEC determines to withdraw voluntarily from the commercial production and distribution of particular radioisotopes, it will similarly publish a notice of such intent for public comment.

[This methodology allows private industry to obviate the production of certain isotopes (presumably the most profitable ones) upon statement of intent with rather modest performance requirements. It also places substantial "burden of proof" responsibilities upon the AEC (DOE).]

AEC radioisotope prices.

  1. AEC radioisotope prices will be established to provide reasonable compensation to the Government (which ordinarily will be the higher of AEC full cost recovery or reasonable commercial rates) unless this would significantly interfere with (a) research and development and use or (b) encouragement of private sources of supply. In individual cases, if (a) and (b) cannot be equally accommodated, greater weight will be given to encouragement of research and development and use.

  2. The AEC will publish a 30 day prior notice of proposed price changes, including the reason for the proposed changes.

  3. The AEC will not change the price of a radioisotope during the period it is reviewing a petition for AEC withdrawal from production and distribution of that isotope.

AEC radioisotope production technology research.

  1. AEC will place the conduct of radioisotope production technology research and development it deems necessary to be carried out with groups most qualified to perform such work, whether these be AEC facilities or private organizations.

  2. AEC will conduct or support production technology research and development on radioisotopes from which it was withdrawn as it deems necessary, but only to the extent that AEC has satisfied itself that industry is unable, is unwilling or simply is not carrying out such work adequately or where it determines that direct AEC effort is necessary in the interest of the atomic energy program.

These guidelines provide the environment which the partnerships proposed in other parts of this report would enter. The multiple guidelines and instructions clearly have legal implications.

The enriched stable isotopes represent another class of products. Although nonradioactive, the production of these isotopes utilizes technologies that have originated in and, in the United States, that are largely confined to the research and development programs of DOE (or its predecessors, the Energy Research and Development Agency (ERDA) or AEC. Most of the enriched stable products from which DOE was "petitioned out" of commercial sales came at the request of ISOTEC, a company that has been the sole commercial supplier of many of these products. In the view of many isotope customers and others, the ISOTEC monopolistic (or quasimonopolistic) position has not served the marketplace well, lead-

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

ing to repeated customer requests for DOE reentry into the production of many of these withdrawn enriched stable isotope products. Since mid-1989, ISOTEC has been wholly owned by Nippon Sanso, a Japanese firm. In the case of Cambridge Isotope Laboratories, there appears to be a need to consider the possibility of DOE competing with a U.S.-owned firm through reentry into the production of enriched stable isotopes from which DOE (ERDA/AEC) had previously withdrawn.

The reactor products, on the other hand, could apparently be reentered into the market by DOE with no objection from U.S. suppliers, since none exist. To date, however, no isotope withdrawn from the DOE program has ever been reinstated. The result has been that DOE produces only those commercial isotopes that private industry either cannot produce because of the unique facilities required or will not produce because of their unprofitability. With the enactment of Public Law 101-101 in 1990, which required IPDP to be self-sustaining, IPDP may have gained greater authority to compete with private industry and foreign producers, but this has been of little assistance to the financial viability of the program. DOE has been considering revision of policy to state that IPDP will end production of a specific isotope only when demand no longer exists or the isotope's commercial price is lower than IPDP's full cost of production. The DOE's explanation for this change is that existing policy often created monopolies in the marketplace that could result in shortages of critical isotopes. This of course not only has implications financially but implications legally under antitrust analysis.

THE TECHNOLOGY TRANSFER ACT OF 1986

Also germane to the present considerations of partnership relations and various legal and financial arrangements for isotope production is the Technology Transfer Act of 1986 (Public Law 99-502). The purpose of the act was to amend the Stevenson-Wydler Technology Innovation Act of 1980 to promote technology transfer by authorizing government-operated federal laboratories to enter into cooperative research agreements and by establishing a Federal Laboratory Consortium for Technology Transfer within the National Bureau of Standards. Public Law 99-502 enables each federal agency to permit the director of any of its government-operated federal laboratories to:

  1. enter into cooperative research and development agreements on behalf of the agency with other Federal agencies; units of State or local government; industrial organizations (including corporations, partnerships, and limited partnerships, and industrial development organizations); public and private foundations; nonprofit organizations (including universities); or other persons (including licensees of inventions owned by the Federal agency); and

  2. negotiate licensing agreements under section 207 or under any authorities for Government-owned inventions made at the laboratory and other inventions of Federal employees that may be voluntarily assigned to the Government. (Section 12)

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

The act also enables government-operated federal laboratories to exchange personnel, services, and property with collaborating parties; grant patent licenses or assignments, or options thereto, in any inventions made in whole or in part by a federal employee; and retain for the government a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention or have the invention practiced throughout the world by or on behalf of the government. It also permits the employees or former employees of a laboratory to participate in efforts to commercialize inventions or products that they made while in the service of the government.

A laboratory director, in deciding what cooperative research and development agreements to enter into, shall give special consideration to small business firms and consortia involving small business firms and give preference to business units located in the United States that agree that products embodying inventions made under the cooperative research and development agreement or produced through the use of such inventions will be manufactured substantially in the United States. Public Law 99-502 also details the authority of the head of a government agency (e.g., DOE) to approve, disapprove, or require the modification of any such agreement as well as the records to be kept by each agency entering into such agreements.

Financial rewards for federal laboratories and scientists are also addressed by the Technology Transfer Act. Public Law 99-502 allows each agency to develop and implement a:

cash awards program to reward its scientific, engineering, and technical personnel for—(1) inventions, innovations, or other outstanding scientific or technological contributions of value to the United States due to commercial application or due to contributions to missions of the Federal agency or the Federal government, or (2) exemplary activities that promote the domestic transfer of science and technology development within the Federal Government and result in utilization of such science and technology by American industry or business, universities, State or local governments, or other non-Federal parties. (Section 13)

The act also delineates the distribution of royalties received by a federal agency from the licensing or assignment of inventions under agreements entered into under its provisions. At least 15 percent of the royalties or other income shall be paid to the inventor or coinventors or the agency may enter into an agreement with the inventor that guarantees a fixed minimum payment to each such inventor each year that the agency receives royalties from that inventor's work. The balance of the royalties or other income shall be transferred by the agency to its government-operated laboratories with the majority share of the royalties or other income going to the laboratory where the invention occurred.

Public Law 99-502 allows an inventor who is or was a government employee and made the invention during employment by the agency to retain title to the invention if the federal agency that has the right of ownership of the invention

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

does not intend to file for a patent application or otherwise to promote the commercialization of such an invention. Public Law 99-502 also preserves the rights of the government to a nonexclusive, nontransferable, irrevocable, paid-up license to practice the invention or have the invention practiced throughout the world by or on behalf of the government. The act would provide a suitable mandate for the various partnership initiatives and obviate certain legal and proprietary claims. The rights of all parties are not clearly delineated here, and the legal implications are apparent.

The implications of Public Law 101-101 for the financial viability of the DOE isotope production program have been discussed at length in this report. In summary, the historical posture of DOE and the mandate implied by Public Law 101-101 as well as the concept of ''prioritization" have resulted in what has proven to be a financially problematic program of isotope production. Among the most frequently offered measures for solution have been partnerships and arrangements involving federal agencies (DOE), universities, and commercial businesses (private enterprise). In the area of scientific research, a number of successful examples can and have been cited. The Nordion-Tri-University Meson Facility arrangement in Canada appears promising and is outlined in some detail in Chapter 5. For a realistic approach, the committee recommends the exploration of these possibilities, with the caveat that the legal implications, especially those regarding antitrust, be considered before specific agreements are entered into or even recommended as policy. Because of the complex and important issues of antitrust, certain basic principles are outlined in the following discussion.

ANTI-TRUST CONSIDERATIONS

A general consideration of antitrust law usually begins with the Sherman Act of 1890, which has two important sections. Section 1 proscribes contracts, combinations, or conspiracies in restraint of trade. The mandate for Section 1 is broad and at times difficult to define accurately. Section 2 of the Sherman Act is more circumscribed and forbids all activities that may lead to monopolization. Both have implications for the various partnerships proposed in this report. The latter components of antitrust legislation such as the Clayton Act of 1914 forbid certain tie-in arrangements and exclusive-dealing group policies, whereas the Robinson-Pattman Act proscribes predatory pricing and price discrimination. The Federal Trade Commission Act, passed subsequently to the Sherman Act forbids unfair methods of competition. This latter mandate has often been interpreted by the U.S. Federal Trade Commission (FTC), and sometimes by the courts, to include anything prohibited by either the Sherman or the Clayton Act. FTC has expanded the perceived mandate even further to forbid whatever is deemed contrary to the public's best interest.

The general area of antitrust and exclusive contracts has become an increasingly important one for medical practice, especially in the new and more publicly

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

visible areas. The discipline has experienced the application of antitrust regulation in resource allocation and distribution (e.g., magnetic resonance imaging and computed tomography imaging equipment), determination of the exclusivity and market capture of delivery contracts, and analysis of the fairness of compensation schemes.

The central concern embodied in antitrust laws is the fear of exercise or abuse of market power (i.e., the power to control price or to exclude competitors). In principle, market power may be exercised by a firm or by a group of firms acting collectively. Analysis of Section 1 of the Sherman Act determines whether an agreement between competitors unreasonably restrains trade. The act provides "that every contract, combination or conspiracy in restraint of trade or commerce among the several States, or with foreign nations … is illegal." This section of the Sherman Act includes two preliminary requirements: (1) at least two firms or economic units must be involved, and (2) there must be some form of agreement or collaboration between the two or more parties such as an exclusive contract to perform the procedures and to be compensated for this service. Proving the existence of market capture becomes necessary only if these threshold requirements are satisfied. Depending on the type of agreement and its anticompetitive effects, the court either will commence a "rule of reason" analysis or will declare the activity "per se" illegal.

The U.S. Department of Justice Merger Guidelines (Antitrust Division, 1984) and Vertical Restraints Guidelines (Antitrust Division, 1985) define a market in essence as a group of products and associated geographic area in which the exercise of market power would be feasible. Formally, a market was defined as a product or group of products and a geographic area in which the product is sold. According to this definition, a hypothetical, profit-maximizing firm such as a private partner in DOE isotope production, not strictly subject to price regulation, would be the only present and future seller of those products in any patient area. This firm could impose a "small but significant and nontransitory" increase in charges above the prevailing ones for similar but not identical demand for products or likely future levels of demand for products or services.

Obviously, marketplace analysis and determination in a complex field such as isotope production would be difficult. The trier of fact in such considerations often may be perplexed by the implications of the technology and the need for services, as well as the products at issue. Tying arrangements in antitrust suits are often alleged when it appears that the choice or selection of one product is tantamount to selecting a second and different product. As an illustration, this was a major issue in the landmark case of Hyde v. Jefferson Parish Hospital. Such a circumstance of an exclusive contract for one medical group was felt de facto to preclude choice or potential rejection by the consumer (patient) of the tied product. Clearly, violation of antitrust is possible if both products are controlled by the same person, group, or entity. In this case, however, the U.S. Supreme Court was convinced the market was large and that alternatives were available. For a particular isotope, this may well not be the case.

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
×

Although partnerships between academia, industry, and government agencies have served us well in the biomedical research enterprise, there is limited successful experience with purely commercial arrangements. In the United States there is indeed significant concern regarding not only the financial implications but the legal exposure of these types of arrangements as well. It may be that the most appropriate model would be a combination whereby the academic institution would be primarily responsible for the education function in its broadest context, the government agency would be responsible for research (in collaboration with academia) and the facility, and industry would be for marketing, sales, and distribution. An arrangement of this type, although complex and probably unprecedented, might well obviate many of the financial and legal challenges.

REFERENCES

Antitrust Division, U.S. Department of Justice, Merger Guidelines §2, 49 Federal Register 26, 823–827 (June 19, 1984).

Antitrust Division, U.S. Department of Justice, Vertical Restraints Guidelines §6.1, 50 Federal Register 6, 263–272 (February 14, 1985).

Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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Suggested Citation:"B Legal Considerations." Institute of Medicine. 1995. Isotopes for Medicine and the Life Sciences. Washington, DC: The National Academies Press. doi: 10.17226/4818.
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Radioactive isotopes and enriched stable isotopes are used widely in medicine, agriculture, industry, and science, where their application allows us to perform many tasks more accurately, more simply, less expensively, and more quickly than would otherwise be possible. Indeed, in many cases—for example, biological tracers—there is no alternative. In a stellar example of "technology transfer" that began before the term was popular, the Department of Energy (DOE) and its predecessors has supported the development and application of isotopes and their transfer to the private sector. The DOE is now at an important crossroads: Isotope production has suffered as support for DOE's laboratories has declined. In response to a DOE request, this book is an intensive examination of isotope production and availability, including the education and training of those who will be needed to sustain the flow of radioactive and stable materials from their sources to the laboratories and medical care facilities in which they are used. Chapters include an examination of enriched stable isotopes; reactor and accelerator-produced radionuclides; partnerships among industries, national laboratories, and universities; and national isotope policy.

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