Amicus Curiae Brief — Bristol Myers Squibb Company, Petitioner v. Robert F. Kennedy, Secretary of Health and Human Services, et al.

Supreme Court briefJan 16, 2026

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Nos. 25-749, 25-751

In the Supreme Court of the United States

JANSSEN PHARMACEUTICALS, INC.,

Petitioner,

ROBERT F. KENNEDY, SECRETARY OF HEALTH AND HUMAN

SERVICES, ET AL.,

Respondents.

BRISTOL MYERS SQUIBB COMPANY,

Petitioner,

ROBERT F. KENNEDY, SECRETARY OF HEALTH AND HUMAN

SERVICES, ET AL.,

Respondents.

On Petitions for Writ of Certiorari to the

United States Court of Appeals for the Third

Circuit

BRIEF OF AMICUS CURIAE PACIFIC

RESEARCH INSTITUTE IN SUPPORT OF THE

PETITIONS FOR A WRIT OF CERTIORARI

Richard A. Epstein

Apartment 512

150 Bloomingdale Road

White Plains, NY 10605

Benjamin M. Flowers*

*Counsel of Record

Joseph P. Ashbrook

ASHBROOK BYRNE

KRESGE FLOWERS LLC

PO Box 8248

Cincinnati, OH 45249

(614) 705-6603

bflowers@abkf.com

Counsel for Amicus Curiae Pacific Research Institute

TABLE OF CONTENTS

TABLE OF AUTHORITIES ...............................ii

INTEREST OF AMICUS CURIAE .................... 1

SUMMARY OF ARGUMENT ............................ 1

ARGUMENT ....................................................... 3

The Inflation Reduction Act enables the

government to use its monopsonist

position to force drug sales at belowmarket prices. .......................................... 5

II.

The Inflation Reduction Act empowers

CMS to leverage its control over the

Medicaid and Medicare markets. ......... 7

The Third Circuit’s decision below

misconstrues the role of consent coerced

by government power............................. 12

The Program violates the Takings

Clause and the unconstitutionalconditions doctrine. ............................. 12

The Third Circuit’s appeal to

voluntariness ignores the relevance of

monopsony power. ............................... 18

The Third Circuit ignored

foundational economic principle of

how bundling undermines

voluntary choice. ............................ 18

The Third Circuit’s

unconstitutional-conditions

analysis is risible. .......................... 22

CONCLUSION ................................................. 24

TABLE OF AUTHORITIES

Page(s)

Cases

Armstrong v. United States,

364 U.S. 40 (1960) .......................................... 13

Astra USA, Inc. v. Santa Clara

Cnty.,

563 U.S. 110 (2011) .......................................... 6

Charles River Bridge Co. v. Warren

Bridge Co.,

36 U.S. 420 (1837) .......................................... 10

Horne v. Dept. of Agriculture,

576 U.S. 350 (2015) .................................... 4, 14

Koontz v. St. Johns River Water Mgt.

Dist.,

570 U.S. 595 (2013) .................................. 15, 16

Medina v. Planned Parenthood S.

Atlantic,

606 U.S. 357 (2025) .......................................... 6

Monongahela Nav. Co. v. United

States,

148 U.S. 312 (1893) ........................................ 13

NFIB v. Sebelius,

567 U.S. 519 (2012) .............................. 6, 16, 17

iii

Nollan v. California Coastal

Comm’n,

483 U.S. 825 (1987) .................................. 16, 21

O’Hare Truck Serv., Inc. v. City of

Northlake,

518 U.S. 712 (1996) ........................................ 22

Parker v. Brown,

317 U.S. 341 (1943) .......................................... 5

Post v. Jones,

60 U.S. 150 (1856) .......................................... 20

S. P. Dunham & Co. v. Kudra,

44 N.J.Super. 565 (N.J. Super.

Ct. App. Div. 1957) ................................... 19, 20

Sheetz v. Cnty. of El Dorado,

California,

601 U.S. 267 (2024) ........................................ 13

South Dakota v. Dole,

483 U.S. 203 (1987) ........................................ 16

Constitutional Provisions, Statutes, Rules,

and Regulations

26 U.S.C. §5000D ............................................... 7, 8

42 U.S.C. §1320f .................................................... 7

42 U.S.C. §1320f-1 ................................................. 7

42 U.S.C. §1320f-2 ................................................. 8

42 U.S.C. §1320f-3 ............................................. 8, 9

Inflation Reduction Act, Pub. L. No.

117–169, 136 Stat. 1818 (2022)........................ 1

Supreme Court Rule 37 ......................................... 1

U.S. Const. art. I, § 8, cl. 1................................... 16

Other Authorities

Brian Buntz, The 50 best-selling

pharmaceuticals of 2022, Drug

Discovery and Development (Apr.

18, 2023).......................................................... 12

CMS, Medicare Drug Price

Negotiation Program: Revised

Guidance, Implementation of

Sections 1191–1198 of the Social

Security Act for Initial Price

Applicability Year 2026 (June 30,

2023).............................................................. 8, 9

Jenna Philpott, US government

unveils finalized drug prices

under Inflation Reduction Act,

Pharmaceutical Technology (Aug.

15, 2024).......................................................... 11

John F. Duffy, The Marginal Cost

Controversy in Intellectual

Property, 71 U. Chi. L. Rev. 37

(2004) ................................................................ 9

John P. Dawson, Economic

Distress—An Essay in

Perspective, 45 Mich. L. Rev. 253

(1947) .............................................................. 20

Joseph A. DiMasi et al., The Price of

Innovation: New Estimates of

Drug Development Costs, 22 J.

Health Econ. 151 (2003) ................................... 9

Restatement (Second) of Contracts

§175 ................................................................. 19

Richard A. Epstein, Bargaining with

the State (1993) ............................................... 15

Richard A. Epstein, Confiscation by

Consent: The warped economics

of price regulation for

pharmaceuticals under the

Inflation Reduction Act, 30 Tex.

Rev. L. & Pol. (forthcoming)

......................................................... 2, 3, 5, 7, 11

Richard A. Epstein, Design for

Liberty: Private Property, Public

Administration, and the Rule of

Law (2011) ...................................................... 22

Richard A. Epstein, The Unfinished

Business of Horne v. Dept. of

Agriculture, 10 NYU J.L. &

Liberty 734 (2016). ......................................... 14

INTEREST OF AMICUS CURIAE *

Pacific Research Institute is a nonprofit, nonpartisan 501(c)(3) organization that promotes freemarket policy solutions to everyday problems facing Americans. The decision below frustrates that

mission. The Third Circuit rejected the petitioners’ challenge to a federal drug-pricing program

that empowers the government to coerce drug companies into selling their drugs for less than fair

market value. The program is unconstitutional.

And because the program reduces the rewards

companies can reap from developing effective

drugs, it discourages companies from investing in

such development, delaying the release of life-saving and life-altering treatments. In hopes of preventing this predictable outcome from coming to

pass, PRI files this brief urging the Court to grant

certiorari and to hold this confiscatory program unconstitutional.

SUMMARY OF ARGUMENT

This case presents a constitutional challenge to

a drug-pricing program enacted through the Inflation Reduction Act. Pub. L. No. 117–169, 136 Stat.

1818 (2022). Under that program, the Centers for

Medicare and Medicaid Services—“CMS,” for

short—may demand that drug companies sell their

* No counsel for any party authored this brief in whole or in

part, and no person other than the amicus curiae, its members, or its counsel made a monetary contribution intended

to fund the preparation or submission of the brief. See Rule

37.6. Counsel for the parties were timely notified of the amicus curiae’s intent to file this brief more than 10 days before

the due date. See Rule 37.2.

goods to the government at a reduced price. Companies have a nominal option to refuse. But in

truth, these companies have no option at all. For

if they refuse the so-called “offer,” they must either

pay a massive excise tax or withdraw all of their

products from Medicare and Medicaid. Neither

choice is viable. The excise tax is so confiscatory

that no company would pay it. Pet.App.50a (Hardiman, J., dissenting). (All Pet.App. cites refer to

the appendix filed in No. 25-749.) And the enormous size of the Medicare and Medicaid markets

makes withdrawal equally impractical. Thus,

companies have no choice but to knuckle under by

accepting the government’s terms. And those

terms leave them far worse than they were before

the passage of the pricing program.

The program in question violates both the Takings Clause and the unconstitutional-conditions

doctrine: CMS acts unconstitutionally when it leverages its monopsony power over the Medicare and

Medicaid markets to extract the forced transfer of

the drug companies’ products at below-market

rates. See Richard A. Epstein, Confiscation by

Consent: The warped economics of price regulation

for pharmaceuticals under the Inflation Reduction

Act, 30 Tex. Rev. L. & Pol. (forthcoming), draft

available at https://perma.cc/DVQ8-4ZZL.

The Third Circuit rejected this argument. It

reasoned that “there is no physical taking when a

party gives up private property as part of voluntary exchange with the government.” Pet.App.17a

(citing Valancourt Books, LLC v. Garland, 82 F.4th

1222, 1232 (D.C. Cir. 2023)). And outside the landpermitting context, it said, such voluntary

transactions do not violate the unconstitutionalconditions doctrine, either. Pet.App.30a–31a.

The Third Circuit misunderstood the role that

voluntary consent plays in both the takings and

unconstitutional-conditions contexts. In many private- and public-law contexts, courts give no effect

to voluntary consent secured through the improper

leveraging of market power. Most notably, it is not

a defense to a charge of cartelization that the buyers consented to cartel pricing. Indeed, if consent

were a defense to antitrust violations, the entire

system of per se offenses under the antitrust laws

would disappear. The same principles compel the

conclusion that drug companies’ consent is constitutionally irrelevant when secured by the government’s exercise of monopoly or monopsony power.

Indeed, given the many areas in which the government exercises such power, the Third Circuit’s reasoning creates an avenue the government can easily use to evade constitutional limits.

The Court should grant certiorari and reverse

the Third Circuit’s judgment.

ARGUMENT

The Inflation Reduction Act empowers the government to extort the transfer of patented pharmaceuticals. That action triggers the Fifth Amendment’s Takings Clause, which guarantees that no

“private property be taken for public use, without

just compensation.” That the drugs are personal

property, not real property, does not affect the

analysis. “Nothing” in our constitutional history

“suggests that personal property was any less protected against physical appropriation than real

property.” Horne v. Dept. of Agriculture, 576 U.S.

350, 359 (2015). To the contrary, “[a]s this Court”

long ago “summed up in James v. Campbell, a case

concerning the alleged appropriation of a patent by

the Government: ‘A patent confers upon the patentee an exclusive property in the patented invention which cannot be appropriated or used by the

government itself, without just compensation, any

more than it can appropriate or use without compensation land which has been patented to a private purchaser.’” Id. at 359–60 (quoting 104 U.S.

356, 358 (1882)) (formatting altered, internal citation omitted).

The government eviscerates the Fifth Amendment’s protection of private property when it takes

patents or patented products at prices below their

fair market value. Any forced price reduction violates the unconstitutional-conditions doctrine, too.

In arguing otherwise, the government has insisted that all sales the drug-pricing program compels are consensual; drug companies have a legal

right to walk away. But that argument assumes

that the law adopts an extreme and untenable libertarian version of consent. Under this version of

consent, transactions with the government are

consensual whenever the property owner has a legal right to refuse, no matter how irrational or impractical refusal might be.

That extreme version of consent does not comport with our Constitution. Nor does it accord with

legal principles more broadly. Consider the antitrust laws. When monopoly power is at stake, as

with cartels, consent is utterly irrelevant:

monopolists’ transactions are illegal without regard to whether they are consensual, and customers may sue for enforcement without regard to

whether they consented to the transactions at issue. Were the law otherwise, it would be well-nigh

impossible for consumers injured by per se antitrust violations to sue for redress. This insight

matters here because the government often acts as

a monopolist. The Fifth Amendment and the unconstitutional-conditions doctrine exist to protect

citizens from the government’s exploitation of its

monopoly position. Treating the government’s extreme libertarian version of consent as a defense in

the constitutional context would have the same effect it would in the antitrust context: those

harmed by the abuse of monopoly power would

lack any right to obtain redress for their injuries.

While Parker v. Brown created a judge-made exception to the antitrust laws for anticompetitive

conduct that governments undertake in their sovereign capacities, 317 U.S. 341 (1943), that statutory doctrine does not (and could not) immunize

such conduct from scrutiny under the Takings

Clause or the unconstitutional-conditions doctrine.

Because the Third Circuit undermined these

constitutional restrictions on government power,

this Court should grant certiorari and reverse.

The Inflation Reduction Act enables

the government to use its monopsonist

position to force drug sales at belowmarket prices.

In 2022, Congress passed the Inflation Reduction Act. The Act creates the “Drug Negotiation

Program”—“the Program,” for short—at the heart

of this case. This section explains how the Program works. Because the Program’s operation is

easiest to understand in light of some background

on Medicare and Medicaid—two massive federal

healthcare programs through which tens of millions of Americans get prescription drugs—this

section starts there.

“Medicare is a federal medical insurance program for people ages sixty-five and older and for

younger people with certain disabilities.”

Pet.App.10a (quotation omitted). “Medicare is divided into Parts, one of which is Part D,” a prescription-drug program through which the federal

government “subsidizes the cost of prescription

drugs and prescription drug insurance premiums

for Medicare enrollees.” Pet.App.11a (quotation

omitted).

Medicaid, for its part, “offers federal funding to

States to assist pregnant women, children, needy

families, the blind, the elderly, and the disabled in

obtaining medical care.” NFIB v. Sebelius, 567

U.S. 519, 541 (2012). “Today, all 50 States participate in Medicaid.” Medina v. Planned Parenthood

S. Atlantic, 606 U.S. 357, 363 (2025). “To gain payment under Medicaid for covered drugs, a manufacturer must enter a standardized agreement

with HHS; in the agreement, the manufacturer undertakes to provide rebates to States on their Medicaid drug purchases.” Astra USA, Inc. v. Santa

Clara Cnty., 563 U.S. 110, 114 (2011).

“Through Medicare and Medicaid, the federal

government pays for almost half the annual

nationwide spending on prescription drugs.”

Pet.App.11a (emphasis added, quotation omitted).

The Inflation Reduction Act

empowers CMS to leverage its

control over the Medicaid and

Medicare markets.

1. Before Congress created the Program, federal law “barred [CMS] from using its market

share to negotiate lower prices for the drugs it covered.” Pet.App.10a. Under then-existing law, drug

companies and pharmacies bargained over price.

Each did so with the ability to walk away if they

could not come to mutually agreeable terms with

the government.

The Inflation Reduction Act upended this market-based, voluntary approach. The Program empowers CMS to negotiate prices directly with drug

companies for brand-name drugs.

42 U.S.C.

§1320f; 26 U.S.C. §5000D. First, CMS identifies

the fifty qualifying single-source drugs with the

highest total qualifying expenditures. 42 U.S.C.

§1320f-1(d). CMS then ranks these drugs by expenditure, highest to lowest. 42 U.S.C. §1320f1(b)(1). Finally, CMS selects annually a fixed

number of drugs whose prices it negotiates under

its new powers. 42 U.S.C. §1320f-1(a). The number increases from ten drugs in the 2026 price period, to fifteen in the 2027 and 2028 periods, and

twenty drugs for all subsequent periods. Id.; see

also Pet.App.47a (Hardiman, J., dissenting).

Once CMS selects drugs, the Inflation Reduction Act allows CMS to set prices, employing a

dressed-up system of strict controls. Companies

submit data to CMS. 42 U.S.C. §1320f-2(a)(4).

CMS then makes “a written initial offer that contains [its] proposal for the maximum fair price of

the drug.” 42 U.S.C. §1320f-3(b)(2)(B) (emphasis

added). “Not later than 30 days after” receiving

the initial offer, the manufacturer must either accept such offer or propose a counteroffer. 42 U.S.C.

§1320f-3(b)(2)(C). This option to propose a counteroffer supplies no protection, as the government

could always open with an exceptionally low offer

that it later agrees to raise to the price it wants. If

the parties have not agreed on a price through this

process by a statutorily defined date, the manufacturer becomes subject to excise-tax penalties discussed below. 26 U.S.C. §5000D; 42 U.S.C. §1320f3(b)(2)(E); CMS, Medicare Drug Price Negotiation

Program: Revised Guidance, Implementation of

Sections 1191–1198 of the Social Security Act for

Initial Price Applicability Year 2026 at 169 (June

30, 2023) (“CMS Guidance”). All prior bargaining

is done in the shadow of CMS’s robust regulatory

authority.

How does the CMS calculate its “maximum fair

price?” The answer is murky. The statute says

that the “maximum fair price negotiated … for a

selected drug … shall not exceed the lower of” the

amount calculated under one of two subsections.

42 U.S.C. §1320f-3(c)(1)(A). One of those subsections sets prices based on “the average non-Federal

average manufacturer price for such drug for 2021,

… increased by the percentage increase in the consumer price index for all urban consumers ….” 42

U.S.C. §1320f-3(c)(1)(C)(i). This price is then lowered by certain applicable percentages, ranging

from 75 to 40 percent. 42 U.S.C. §1320f-3(c)(3). Finally, CMS may, at its discretion, further lower the

price by relying on numerous factors, including

whether the drug has “therapeutic alternatives” or

received “prior Federal financial support.” CMS

Guidance at 132, 150.

2. By design the “maximum fair price” will not

equal a drug’s fair market value. The reason turns

on drug-pricing economics.

Producing new drugs requires high initial fixed

costs—companies spend immense amounts on

R&D and regulatory approval. See Joseph A. DiMasi et al., The Price of Innovation: New Estimates

of Drug Development Costs, 22 J. Health Econ. 151,

154–56 (2003); see also John F. Duffy, The Marginal Cost Controversy in Intellectual Property, 71

U. Chi. L. Rev. 37 (2004). Thereafter, companies

bear only a low marginal cost for producing each

additional dose. But because of the high fixed

costs, most drugs cannot be profitable unless drug

companies can obtain higher prices from subsequent users willing and able to pay more than marginal cost. To recover the high initial fixed cost

drug companies reach different deals with different customers. Accordingly, this standard pricing

scheme for drugs necessarily fails if front-end costs

cannot be spread over a large base that includes

government purchases under Part D. Thus, drug

companies cannot receive fair market value if

forced to sell at an “average non-Federal average

manufacturer price.” See 42 U.S.C. §1320f3(c)(1)(C)(i). Because this price is further reduced

by 40 percent, 42 U.S.C. §1320f-3(c)(3), the

“maximum fair price” is guaranteed to be much

lower than a drug’s fair market value.

This economic model is not unique to drugs. Indeed, almost two hundred years ago, this Court observed a similar pricing model in the context of

contracts giving third parties exclusive franchises

to build bridges over rivers. The contracts allowed

these parties to charge supercompetitive prices for

several years until they recovered their fixed costs.

Thereafter, tolls were sharply decreased to cover

only marginal costs See Charles River Bridge Co.

v. Warren Bridge Co., 36 U.S. 420, 536–37 (1837).

Today, as in the nineteenth century, businesses

will not invest in products or services if they cannot recover upfront, fixed costs and make a normal

profit.

3. In practice, companies have no choice but to

accept the CMS-imposed price. True enough, the

manufacturer has a legal right to “walk away and

choose not to do business with the government.”

Pet.App.49a (Hardiman, J., dissenting). “But a

manufacturer that does so must pay a daily excise

tax that begins at 185.71 percent and rises to 1,900

percent of the selected drug’s total daily revenues

from all domestic sales.” Id. “The Congressional

Budget Office observed that ‘[t]he combination of

that excise tax and corporate income taxes could

exceed a manufacturer’s profits from that product.’” Pet.App.49a–50a (quotation omitted).

A drug company’s only alternative to paying

this confiscatory tax—a tax “Congress knew that

no manufacturer would ever be able to pay,”

Pet.App.50a—is to “decline to participate in the

Program by terminating Medicare and Medicaid

coverage of all of its products.” Id. (citing 26 U.S.C.

§5000D(c)). That option is no more viable than

paying the confiscatory tax. By law, CMS is the

sole buyer in this market—a market that comprises over a third of all Americans. And many of

those Americans are poor or otherwise unable to

secure other forms of health coverage, meaning

there is no other avenue for selling these drugs to

many consumers. The result? CMS exercises monopsony power: unless drug companies participate

in Medicaid and Medicare, they lose access to a

massive percentage of the market for drugs, dramatically impairing their ability to turn a profit.

All told, drug companies subject to the program

face a trilemma. They must either (1) sell the

drugs at the dictated prices, (2) pay a confiscatory

tax, or (3) leave Medicare and Medicaid altogether.

All choices leave the companies worse off than they

were before these negotiations began. But drug

companies must accede to the demands and choose

option one, as they cannot afford to pay the tax or

leave the market over which CMS exercises monopsonistic control.

The facts of this case illustrate the Program’s

coercive nature. CMS has dictated the prices of

two drugs, Eliquis (produced by Bristol Myers

Squibb) and Xarelto (a Janssen product). Under

the program, CMS forced price cuts of 56 and 62

percent for these drugs, respectively. See Jenna

Philpott, US government unveils finalized drug

prices under Inflation Reduction Act, Pharmaceutical Technology (Aug. 15, 2024), https://perma.cc

/2WK9-R4DF. Both are blood thinners with $18.2

and $7.4 billion in sales in 2022. Brian Buntz, The

50 best-selling pharmaceuticals of 2022, Drug Discovery and Development (Apr. 18, 2023), https://

perma.cc/G3CN-6GPF.

II. The Third Circuit’s decision below

misconstrues the role of consent

coerced by government power.

The Program is unconstitutional. The Third

Circuit’s contrary holding rests on a misunderstanding of the relevance of voluntary consent in

the monopoly and monopsony contexts.

The Program violates the Takings

Clause and the unconstitutionalconditions doctrine.

The parties’ certiorari petitions and Judge Hardiman’s dissent below illustrate why the Program

violates the Constitution.

1. Consider first the Fifth Amendment, which

forbids the government to take private property for

public use “without just compensation.”

The government needs the power to take private property for public ends; otherwise, holdouts

(like the owner of property needed to connect the

east and west ends of the intercontinental railroad) could extort the government (and, ultimately, the taxpayers) in connection with legitimate public projects. For that reason, the Fifth

Amendment does not prohibit takings. Instead, its

just-compensation requirement protects property

owners from governmental abuse by ensuring

property owners are left no worse off when the government takes their property. This requirement

keeps the “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.” Armstrong v. United States, 364 U.S. 40,

49 (1960).

The facts of Armstrong drive home this insight.

There, subcontractors asserted “materialmen’s

liens under [Maine] law for materials furnished to

a prime contractor building boats for the United

States.” Id. at 41. The U.S. Navy made the liens

unenforceable by sailing the ships out of Maine waters. The Court held that this constituted a taking

of the subcontractors’ materialmen’s liens. Id. at

48. Had the Court held otherwise, those subcontractors would have borne a huge fraction of the

shipbuilding costs for a national asset.

That just-compensation requirement leaves the

owners of seized property no worse off than they

were before the taking, by giving them the “full and

exact equivalent” of the property seized. Monongahela Nav. Co. v. United States, 148 U.S. 312, 326

(1893). Just compensation, in other words, equals

the “fair market value” of the property in question.

Sheetz v. Cnty. of El Dorado, California, 601 U.S.

267, 273 (2024).

The Program violates the Fifth Amendment because it takes property—the drug companies’ patented products—without just compensation. That

is a physical taking; the compelled sale means

“forcing the” companies to “turn over physical

doses of Eliquis and Xarelto to Medicare beneficiaries at certain prices.” Pet.App.53a (Hardiman,

J., dissenting).

As Judge Hardiman noted in dissent, the

scheme resembles the forced transfer in, Horne,

576 U.S. 350. There, the government engaged in a

taking by requiring raisin growers to surrender a

fraction of their crops to the Department of Agriculture (for either destruction or sale in impoverished countries) as a condition for marketing the

remainder of their raisins. Id. at 354–55. Similarly here. The government takes the companies’

drugs by requiring them to transfer ownership of

those drugs. And because the forced transfer is

made at a rate far below the drugs’ fair market

value, the companies are denied just compensation. Therefore, the Program violates the Takings

Clause. Indeed, the constitutional violation here is

starker than in Horne. The taking in Horne conferred at least some benefit on raisin growers: the

takings restricted supply and thus increased the

value of the farmers’ other raisins. Indeed, the fact

that the government created the program in conjunction with farmers made it “highly unlikely

that” the takings’ “economic effect cut[] against the

farmers as a class.” Richard A. Epstein, The Unfinished Business of Horne v. Dept. of Agriculture,

10 NYU J.L. & Liberty 734, 747 (2016). Any “direct benefits” from the program would have “offset

the economic burdens imposed.” Id. The Program

offers no such offsetting value to drug companies

whose products are taken.

2. Relatedly, the Program violates the unconstitutional-conditions doctrine.

Broadly speaking, that doctrine “vindicates the

Constitution’s enumerated rights by preventing

the government from coercing people into giving

them up.” Koontz v. St. Johns River Water Mgt.

Dist., 570 U.S. 595, 604 (2013). Often, the doctrine

protects the public from governmentally implemented monopoly power. See Richard A. Epstein,

Bargaining with the State, Ch. 4 (1993). One

mechanism that governments (and businesses) use

to leverage monopoly is “bundling.” This technique

involves offering or “bundling” two goods together

so that they are sold only as a pair, with one desired product and another that is desired less or

not at all. When a monopolist precludes the possibility of separate purchases of these items, people

must buy both components of the bundle together

to get the more desirable one at a cost lower than

their perceived combined value.

To illustrate with a simplistic hypothetical,

suppose that the government is the sole seller of

fruit, separately offering tomatoes for $25 and bananas for $50. The customer values tomatoes at

$10 and bananas at $80. If sold separately, he will

buy only bananas for a net gain of $30. But, if

forced to buy the bundle at $80, his net gain drops

to $10, because he values the package at $90 ($10

+ $80). Thus, the inefficiency comes from the

forced combination that the seller monopolist can

impose.

Just this inefficiency emerges in the land-permitting context, when the government uses its monopoly power over permits to bundle a sought-after

permit with an unrelated government demand.

“By conditioning a building permit on the owner’s

deeding over a public right-of-way, for example,

the government can pressure an owner into voluntarily giving up property for which the Fifth

Amendment would otherwise require just compensation.” Koontz, 570 U.S. at 605; accord Nollan v.

California Coastal Comm’n, 483 U.S. 825, 831

(1987). “So long as the building permit is more valuable than any just compensation the owner could

hope to receive for the right-of-way, the owner is

likely to accede to the government’s demand, no

matter how unreasonable.” Koontz, 570 U.S. at

605. “Extortionate demands of this sort frustrate

the Fifth Amendment right to just compensation,

and the unconstitutional conditions doctrine prohibits them.” Id.

The Court has recognized a similar dynamic in

the Spending Clause context. This Court has interpreted that clause, U.S. Const. art. I, § 8, cl. 1,

as empowering the government to spend funds in

service of public programs. Using this power, the

federal government often makes conditional offers

to States and private actors, requiring that funding recipients accede to conditions the federal government lacks the power to command directly. Insofar as the recipients “voluntarily” agree to these

terms, no constitutional problem arises. NFIB,

567 U.S. at 577 (op. of Roberts, C.J.) (quoting

Pennhurst State School and Hospital v. Halderman, 451 U.S. 1, 17 (1981)). But when the government coerces agreement, it exceeds its constitutional authority by achieving indirectly that which

it lacks authority to achieve directly. Id. at 579–

580; accord South Dakota v. Dole, 483 U.S. 203,

211 (1987).

The Court’s decision in NFIB is illustrative.

There, the Court held that Congress exceeded its

Spending Clause power when it enacted the

Medicaid expansion under the Affordable Care

Act. 567 U.S. at 581–82 (op. of Roberts, C.J.); id.

at 671–91 (Scalia, Kennedy, Thomas, Alito, JJ.,

dissenting). The preexisting “Medicaid program”

required participating “States to cover only certain

discrete categories of needy individuals.” Id. at

575 (op. of Roberts, C.J.). “The Medicaid provisions of the Affordable Care Act, in contrast, require[d] States to expand their Medicaid programs

by 2014 to cover all individuals under the age of 65

with incomes below 133 percent of the federal poverty line.” Id. at 576. States could, theoretically,

opt out of the expansion. But those States that

opted out would be stripped of all their Medicaid

funding, an amount equaling “over 10 percent of a

State’s overall budget.” Id. at 581–82 (quotation

and citations omitted). That, the Court said, “is

economic dragooning that leaves the States with

no real option but to acquiesce in the Medicaid expansion.” Id. at 582. This operated as a “gun to the

head” that vitiated any otherwise-valid consent by

participating States. Id. at 581.

The reasoning of NFIB and the land-permitting

cases translates effortlessly to the Program. In all

of these contexts, the government wields its monopoly position to extract nominal agreements to

acts that would otherwise violate the Constitution.

In the land-permitting context, the government extracts transfers of land that could otherwise be

taken only with just-compensation. And in NFIB,

the government used its coercive offer to impose

state-run Medicaid coverage that it would lack constitutional authority to mandate directly. Similarly, here:

the government, by threatening

exclusion from the critical Medicare and Medicaid

markets over which it exercises monopsonistic control, unconstitutionally coerces these companies

into surrendering their property rights without

just compensation. Congress engages in impermissible coercion when it threatens to strip the States

of funds equal to 10 percent of their budgets, and

it does the same when it requires companies to

hand over their products or else face exclusion

from programs comprising “almost half the annual

nationwide spending on prescription drugs.”

Pet.App.11a (quotation omitted, emphasis added).

The Third Circuit’s appeal to

voluntariness ignores the

relevance of monopsony power.

The Third Circuit’s reasoning reflects its failure

to understand how market power can vitiate the

relevance of consent.

The Third Circuit ignored

foundational economic

principle of how bundling

undermines voluntary choice.

In its decision below, the Third Circuit began

from the following premise: “there is no physical

taking when a party gives up private property as

part of a voluntary exchange with the government.” Pet.App.17a. From there, the Court reasoned that there could be no takings problem under the Program, since drug companies voluntarily

agree to participate. To quote the court, the companies “face a choice: forgo participation in certain

Medicare and Medicaid programs or accept federal

reimbursements for selected drugs on less

lucrative terms.” Pet.App.32a “Economic realities

may provide a strong incentive for a manufacturer

to choose the latter.” Id. “But this choice is not a

taking.” Id.

The argument fails. In both private- and public-law settings, “consent” is irrelevant when it is

secured by one party’s leveraging monopoly power

over another.

Start with the private law, and in particular

with the contract-law doctrine of duress. “If a

party’s manifestation of assent is induced by an

improper threat by the other party that leaves the

victim with no reasonable alternative,” any agreedupon contract can be voided. See Restatement

(Second) of Contracts §175(1) (emphasis added).

Critically, the “reasonable alternative” standard

“is a practical one under which account must be

taken of the exigencies in which the victim finds

himself.” Id. cmt. b. Thus, the theoretical option

to reject the offer will not suffice where circumstances make rejection infeasible. Critically, for

present purposes, the lack of any practical option

can arise from a party’s de facto monopoly power.

S. P. Dunham & Co. v. Kudra, 44 N.J.Super.

565 (N.J. Super. Ct. App. Div. 1957), is a classic

case in this line. The defendant, Kudra, cleaned

furs that the plaintiff department store (Dunham)

agreed to store for its customers during warmweather months. During a cold snap, Kudra refused to return the furs unless Dunham paid a premium price, unjustified by any change in position.

Id. at 569. Kudra thus leveraged its monopoly position; it was the only party that could return the

coats, and Dunham’s relationships with its customers would have been destroyed if it could not

return their coats. Even though Dunham agreed

to the extortionate demand, the Court held that

the store could recover the premium Kudra extorted. Id. at 570–71. See generally John P. Dawson, Economic Distress—An Essay in Perspective,

45 Mich. L. Rev. 253 (1947).

Relatedly, the law finds no voluntary choice

when a person agrees to a contract that leaves him

better off under conditions of necessity where, as

under monopoly, there is only one choice. Consider

this Court’s decision in Post v. Jones, 60 U.S. 150

(1856). The dispute arose when a ship called the

Richmond was stranded at sea, laden with oil and

whalebone. The Richmond sold large quantities of

its cargo to a rescue ship in a transaction that left

her better off than losing everything. Nonetheless,

when she returned to port, her owners sued to obtain additional money for the goods sold. Justice

Grier, writing for the Court, set aside that auction

as a “contrivance” where “the master of the Richmond was hopeless, helpless, and passive—where

there was no market, no money, no competition—

where one party had absolute power, and the other

no choice but submission.” Id. at 159. The Court’s

opinion rejected the contention that “the sale was

justifiable and valid, because it was better for the

interests of all concerned to accept what was offered, than suffer a total loss.” Id. at 160. To avoid

exploitation, the salvor had to accept only reasonable compensation for his services. Id. at 160–61.

The same concerns present themselves in public-law contexts. The unconstitutional-conditions

doctrine discussed above provides one example. In

many contexts, the government acts as a monopolist. It may be, for example, the only entity that

can offer a land-use permit to a property owner

wishing to engage in new construction. Governments can leverage this position to demand concessions on terms to which they are not otherwise entitled. For example, they can demand the transfer

of unrelated land rights—property rights for which

they would otherwise have to pay just compensation—in exchange for the permit’s issuing. See

Nollan, 483 U.S. at 831. The unconstitutional-conditions doctrine bars the government from doing

so.

The same dynamic appears in numerous other

contexts. For example, each State has the power

to grant or deny business licenses. May States condition the award of these licenses on businesses’

prospectively waiving (for example) their First

Amendment right to speak on political matters? Of

course not. True enough, property owners in the

land-use context, and businesses in the free-speech

context, would likely consent to these restrictions

on their rights: provided the rights surrendered

are worth less than the rights gained, the transaction will be mutually beneficial. But that mutual

gain does not cure the underlying constitutional

problem. Instead, precisely because the government can wield its monopoly power to secure these

concessions, consent cannot cure the violations.

Similar insights are fundamental to antitrust

law. Most every transaction between a monopolist

and a buyer is voluntary, in the sense of being mutually beneficial and non-coerced:

there are

always consumers who are better off paying the

monopoly price than declining to do business with

a monopolist. See Richard A. Epstein, Design for

Liberty: Private Property, Public Administration,

and the Rule of Law 56 (2011). Critically, however,

these willing buyers are still injured by the monopolist’s conduct, which increases the prices they now

must pay. For that reason, these consumers always have standing to sue for damages under the

antitrust law notwithstanding their voluntary purchases from the monopolist.

In sum, the law has not traditionally treated as

binding any consent secured through monopolistic

leverage. There is no reason to apply a different

construct in the takings context. Indeed, there is

every reason to treat as irrelevant consent extracted via monopolistic leverage: wrongly allowing the government to raise “consent” as a defense

to a takings claim would routinely enable the government to evade the Takings Clause altogether.

To leave no doubt that such circumvention is improper, the Court should grant certiorari and reverse.

The Third Circuit’s

unconstitutional-conditions

analysis is risible.

The Third Circuit rejected the companies’ unconstitutional-conditions argument, apparently on

the ground that the doctrine applies only in “landuse permitting” context. Pet.App.30a–31a. That

is wrong as a legal matter; the doctrine applies to

rights other than the Takings Clause, and in contexts unrelated to land use. See, e.g., O’Hare Truck

Serv., Inc. v. City of Northlake, 518 U.S. 712, 718–

19 (1996) (addressing unconstitutional-conditions

cases relating to the First Amendment). While the

Court has announced one particular test applicable

to the land-permitting context, that provides no

reason for refusing to apply the doctrine to other

forced transfers.

Indeed, the Third Circuit’s analysis is positively dangerous. If the government is not subject

to the unconstitutional-conditions doctrine when it

extracts agreements to surrender property outside

the land-use context, it will secure broad authority

to circumvent the Takings Clause, as addressed in

the previous section.

Insofar as the Third Circuit’s unconstitutionalconditions analysis rests on the drug companies’

nominal consent, it is equally dangerous. Consent

does not cure the imposition of unconstitutional

conditions. To the contrary, the unconstitutionalconditions doctrine exists to prevent the government from leveraging its power to extract voluntary concessions of constitutional rights. If consent

were a defense, the doctrine would cease to have

any teeth: the government is able to extract concessions only when it makes offers to which it

knows citizens will consent. Here again, the Court

should grant certiorari to reject the Third Circuit’s

misunderstanding of the role played by consent.

CONCLUSION

This Court should grant the petitions and reverse the judgment below.

Respectfully submitted,