By: Claire Reynolds-Peterson

The Inflation Reduction Act (IRA) passed on August 16th, 2022, introduced a novel and historic power to the Centers for Medicare and Medicaid Services (CMS): the ability to negotiate prices of covered prescription medications directly with pharmaceutical companies.[1] This landmark legislation aims to address one of the underlying causes of the healthcare cost crisis that has raged in the United States for many years, the exorbitant cost of name-brand prescription medications. The first ten drugs selected for price negotiation were announced on August 29th, 2023, targeting therapeutically unique drugs and biologicals that have been licensed for at least 7 or 11 years respectively.[2] The selected drugs represent the highest contributors to covered prescription drug costs under Medicare Part D.[3] All of the affected manufacturers have agreed to participate in negotiations, though many of them are challenging the constitutionality of the IRA in ongoing litigation.[4]

The pharmaceutical giants challenging the legislation argue government interference in drug pricing will stifle innovation and curtail their ability to invest in novel drug development.[5] However, federal investigation of drug pricing revealed that revenue targets have often been tied to increasing executive pay, with companies spending more on stock buy backs than research and development.[6] Furthermore, pharmaceutical companies rarely perform basic scientific research, instead relying on taxpayer-funded academic research to identify drugs likely to produce commercial success based on extant preliminary data.[7] This argument is also undermined by the staggering discrepancy between prescription drugs costs in the United States versus other wealthy nations.

The United States spent $11,702 per capita on healthcare in 2020, a stunning 18.82% of the national gross domestic product (GDP).[8] Germany, France, and the United Kingdom, countries that negotiate pharmaceutical drug prices, put 12.82, 12.21, and 11.98 percent of GDP respectively to healthcare spending in 2020.[9] Approximately one in seven dollars of US healthcare spending goes to prescription drugs alone, leading to the highest per capita spending on drugs of any country— and US drug prices continue to rise rapidly.[10] Between 2016 and 2020, branded prescription drug prices rose 36%, four times the rate of inflation.[11] Germany, France, and the UK all impose control over drug price increases by prohibiting cost increases without additional regulatory review and government approval, in addition to negotiating starting prices immediately upon drug licensing.[12]

As a case study of the effects of price negotiation and capping, the cost of the multiple sclerosis drug Gilenya® was compared between these countries.[13] In the US, the drug costed approximately $84,461 per person per year (in 2022 adjusted dollars), which rose to $116,193 by 2022.[14] In Germany, France, and the UK, the drug costed $43,450, $40,899, and $39,120 US dollars per person per year, with statutory measures preventing price increases over time.[15] This result is on-par with the general trend of US brand-name drugs costing 256% of the average price other countries pay for the same medications.[16] If Medicare had been able to pay the French negotiated drug prices for the six individual drugs that incurred the greatest expenditures in 2017, the government would have saved an estimated $5.1 billion dollars.[17]

As it stands, the IRA negotiation procedures are unlikely to produce results comparable to these other countries. While the European countries set prices upon licensing, the IRA only begins negotiation after a protected period of seven or eleven years during which the pharmaceutical company may set their own price.[18] The IRA then sets a price ceiling based on average non-government manufacturer price from 2021 adjusted in accordance with the increase in the consumer price index, or the first full year after market entry if licensed after 2021.[19] This ceiling price is then reduced by a flat percentage based on how long the drug has been on the market.[20]

The IRA does not reference drug prices in other countries to aid in establishing a fair price, instead relying on domestic free market competition to control the starting price.[21] In contrast, Germany, France, and the UK do not rely on free market pricing. Instead, they look to measures including pricing in other countries (sometimes specifically excluding the US), pricing of alternative treatments, of other treatments in the same therapeutic class, and the actual cost-effectiveness of the treatment in terms of quality-adjusted life-years.[22] Given the common use of anticompetitive strategies to suppress competition and the general failure of market competition to adequately control prices, this appears to be a losing strategy for addressing unreasonable US drug costs.[23]

With lawsuits from six pharmaceutical companies and two industry groups ongoing, the longevity of the IRA provisions for Medicare drug price negotiation remains to be determined.[24] The pharmaceutical companies argue the potential reduction in their profits will stifle innovation and lead to the development and licensing of fewer new drugs in the future.[25] On the other hand, Americans across the political spectrum approve of the new negotiation power and view industry challenges to the legislation very unfavorably.[26] Based on the Congressional investigation into factors underlying drug pricing, including corporate expenditures, the threatened decrease in pharmaceutical innovation could be offset by directing a higher proportion of revenue towards research and development in the future.[27] If reining in astronomical drug prices in the US truly does have the catastrophic drawbacks threatened by the pharmaceutical industry, it may be time to question why the burden of paying such disproportionate costs in support of pharmaceutical innovation falls uniquely on American consumers.

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Citations:

1. Inflation Reduction Act of 2022, Pub. L. No. 117–169, 136 Stat. 1818 (codified as amendments to one hundred thirty-eight different U.S.C sections); Price Negotiation Program to Lower Prices for Certain High-Priced Single Source Drugs, 42 U.S.C.A. § 1320f (Westlaw through Pub. L. No. 118-13).
2. Medicare Drug Price Negotiation Program: Selected Drugs for Initial Price Applicability Year 2026, CTRS. FOR MEDICARE & MEDICAID SERVS., (Aug. 2023), https://www.cms.gov/files/document/fact-sheet-medicare-selected-drug-negotiation-list-ipay-2026.pdf.
3. Id.
4. Sydney Lupkin, All in: Drugmakers say yes, they’ll negotiate with Medicare on price, so reluctantly, NPR (Oct. 4, 2023, 5:00 AM), https://www.npr.org/sections/health-shots/2023/10/04/1203417818/medicare-drug-price-negotiations-begin.
5. Id.
6. STAFF OF H.R. COMM. ON OVERSIGHT AND REFORM, 117TH CONG., REP. ON DRUG PRICING INVESTIGATION, at 40–42, 164–67 (Dec. 10, 2021). https://oversightdemocrats.house.gov/sites/democrats.oversight.house.gov/files/DRUG%20PRICING%20REPORT%20WITH%20APPENDIX%20v3.pdf
7. Id. at 175.
8. Global Health Expenditure Database, WORLD HEALTH ORGANIZATION (Oct. 10, 2023), https://apps.who.int/nha/database/country_profile/Index/en (select United States of America from drop down menu).
9. Global Health Expenditure Database, WORLD HEALTH ORGANIZATION (Oct. 10, 2023), https://apps.who.int/nha/database/country_profile/Index/en (select Germany, France, and United Kingdom respectively from drop down menu); Leah Z. Rand & Aaron S. Kesselheim, Getting the Price Right: Lessons for Medicare Price Negotiation from Peer Countries, 40 PHARMACOECONOMICS 1131, 1131 (2022).
10. Rand, supra note 9, at 1131.
11. H.R. COMM. ON OVERSIGHT AND REFORM, supra note 6, at iii.
12. Rand, supra note 9, at 1134, 1135, 1138.
13. Id. at 1136.
14. Id.
15. Id.
16. ANDREW W. MULCAHY ET. AL., INTERNATIONAL PRESCRIPTION DRUG PRICE COMPARISONS XV (RAND Corporation 2021)(eBook)
17. Rand, supra note 9, at 1135.
18. Id. at 1139; CTRS. FOR MEDICARE & MEDICAID SERVS., supra note 2.
19. 42 U.S.C.A § 1320f-3(c) (Westlaw through Pub. L. No. 118-13).
20. Id.
21. Rand, supra note 9, at 1139.
22. Rand, supra note 9, at 1132, 1134–35, 1137–38.
23. H.R. COMM. ON OVERSIGHT AND REFORM, supra note 6, at i–ii, 80, 94–95, 173.
24. Joshua Cohen, Lawsuits to Block Medicare Drug Price Negotiations are Unpopular Among Voters, FORBES (Oct. 1, 2023), https://www.forbes.com/sites/joshuacohen/2023/10/01/lawsuits-to-block-medicare-drug-price-negotiations-are-very-unpopular-among-american-voters/?sh=6f589a932d28.
25. Id.
26. Id.
27. See H.R. COMM. ON OVERSIGHT AND REFORM, supra note 6.

By: Rebekah Gil

For years, social media platforms have been the main source of news and political information for users across the globe. However, those platforms have also been questioned on the reliability of the content published and promoted throughout their apps.

In August 2021, Texas passed House Bill 20 which prohibits large social media platforms from moderating content based on a user’s viewpoint and geographic location.[1] The bill additionally states that it applies to platforms regardless of whether the viewpoint is expressed on a social media platform or through another medium.[2] Some of those large social media platforms are represented by trade associations whose mission is to make the internet safe.[3] NetChoice is an example of one association, created in 2001, that represents some of the largest social media platforms like Meta, TikTok, and X.[4] Their specific mission states they “work to make the Internet safe for free enterprise and free expression”.[5]

Right before the H.B. 20 bill passed, NetChoice filed a suit against Texas, arguing the bill violated social media platforms’ First Amendment right to free speech.[6] The main argument was focused on the idea that social media platforms are similar to newspapers and similarly have a constitutional right to protected speech in the form of editorial discretion.[7]

On September 16, 2022, after back and forth between the courts, the Fifth Circuit upheld Texas’s law entirely.[8] In agreement with Texas’s main argument, the Fifth Circuit labeled social media platforms as “common carriers”.[9] Meaning, they facilitate the transmission of speech, like phone companies and postal services.[10] The court concluded that the platform’s censorship is not speech under the First Amendment, and therefore the House Bill remains constitutional.[11] This ruling contradicts an Eleventh Circuit decision decided just five months prior.

Similar to Texas, Florida passed SB 7072 which also regulates social media platforms, and limits their ability to censor and remove content based on political viewpoints.[12] However, unlike the Fifth Circuit, the Eleventh Circuit struck down the social media law in a similar case in which NetChoice was also a party.[13] The court disagreed with the notion of social media platforms acting as “common carriers”.[14] It instead declared that “[p]latforms are private enterprises, not government … entities”, siding with NetChoice that the law violates companies’ free speech rights.[15]

Other tech companies have entered the discussion saying the social media laws, should they remain enacted, will stop tech companies from controlling what content gets published, some of which could be potentially harmful.[16] While the states argue that the law will make sure users have equal access to the platforms.[17]

With both circuits at odds, the Supreme Court granted certiorari of both cases and said on September 29th that it would decide the constitutionality of the social media laws in both Texas and Florida.[18]

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Citations:

1. H.R. 20, 87th Leg., 2 Sess. (Tex. )
2. Id.
3. NetChoice, https://netchoice.org/about/ (last visited Oct. 13, 2023)
4. Id.
5. Id.
6. Nithin Venkatraman, NetChoice, L.L.C. v. Paxton: 5th Circuit Sets Up Supreme Court Battle over Content Moderation Authority of Social Media Giants, Harvard Journal of Law and Technology (Oct. 21, 2022), https://jolt.law.harvard.edu/digest/netchoice-l-l-c-v-paxton-5th-circuit-sets-up-supreme-court-battle-over-content-moderation-authority-of-social-media-giants

7. Rebecca Kern, 5th Circuit Upholds Texas Law Forbidding Social Media ‘Censorship’ — Again, Politico, https://www.politico.com/news/2022/09/16/5th-circuit-upholds-texas-law-forbidding-social-media-censorship-again-00057316 (last updated Sept. 16, 2022).
8. Amicus Brief Moody v. NetChoice, Knight First Amendment Institute at Columbia University, https://knightcolumbia.org/cases/moody-v-netchoice (last visited Oct. 13, 2023)
9. Mark Joseph Stern, The 5th Circuit’s Reinstatement of Texas’ Internet Censorship Law Could Break Social Media, Slate, https://slate.com/technology/2022/05/texas-internet-censorship-social-media-first-amendment-fifth-circuit.html ( May 12, 2022)
10. Id.
11. Netchoice, L.L.C. v. Paxton, 49 F.4th 439, 444
12. Adi Robertson, Florida’s Social Media Moderation Ban Is Probably Unconstitutional, Says Court, The Verge (May 23, 2022, 4:23 PM), https://www.theverge.com/2022/5/23/23138172/eleventh-circuit-blocks-florida-content-moderation-ban
13. Id.
14. Id.
15. Id.
16. Ashley Capoot, Supreme Court to Hear Texas and Florida Social Media Cases over Right to Moderate Content, CNBC, https://www.cnbc.com/2023/09/29/supreme-court-to-hear-texas-and-florida-social-media-cases.html (last updated Sept. 29, 2023)
17. Id.

18. Amy Howe, Justices Take Major Florida and Texas Social Media Cases, SCOTUS Blog (Sept. 29, 2023, 9:48 AM), https://www.scotusblog.com/2023/09/justices-take-major-florida-and-texas-social-media-cases/

By: Nathan McKay

With a recent fall in venture capital funding the Electronic Sports industry (Esports) has fallen on tough times.[1] Esports is a catchall term referring to any competitive video game league. Esports organizations will often field multiple teams each specializing in a particular game, each with its own associated league. Esports has always been a dynamic industry and while there are longstanding staples such as League of Legends and Call of Duty, recent years have seen entire leagues rise and fall and occasionally rise again.[2] This means that larger organizations find themselves in a precarious situation, wanting to field teams in new leagues while minimizing risk in the event that any particular league or team doesn’t gain traction. 

To understand the risk esports organizations face one must understand what makes esports different from the traditional sports industry. Importantly, one must understand how esports teams generate revenue. Whereas traditional sports organizations generate revenue from a variety of sources, esports teams are limited to their post-publisher cut share of league revenue (usually spent entirely on player salaries, another topic of discussion), and any revenue generated from sponsorships and merchandising.[3] Unlike traditional sports organizations, generally, esports organizations don’t own arenas, they don’t sell their own tickets to games, and they don’t sell concessions and other high-margin items to fans. In fact, only a small portion of esports games are actually played in front of a large arena audience.[4] Most games are live-streamed via Twitch and YouTube in smaller studios with occasional attendance room for a small number of dedicated fans and only the larger end-of-season tournaments being held in large arenas.[5] As a result, sponsorships and merchandising are the primary sources of revenue for esports teams, unlike traditional sports teams who usually only rely on these for about 10% of their revenue.[6]

For most of the large games, including League of Legends, the game publisher retains league rights and with it the ticket sales and a large cut of streaming revenue. Riot Games, the publisher of League of Legends, a game with one of the largest esports followings, owns and operates leagues in each major region around the world, with teams paying, currently, around $20 million dollars for a slot in North America. Riot uses live venue revenue to cover costs, usually running the league at a loss as an advertisement for their game and service for the fans.[7]Organizations that field teams within the league are afforded a portion of league revenue, dependent on the league and its associated publisher, but this often isn’t enough to offset costs alone. 

Due to limited revenue options, esports organizations depend on their sponsors more so than other comparable sports organizations as it is one of the few large revenue sources available. Therefore, any loss in sponsorship revenue presents an immediate problem. Sponsors have begun treading carefully around the esports industry [8] and as organizations sell or dissolve specific teams in an effort to adapt to current challenges, sponsors may attempt to cease payment for promotional deals citing a loss in viewership and value to the bargain. Sponsors can potentially defend this breach with the doctrine of frustration of purpose. The strength of this defense will depend on the specificity of deliverables and other provisions within each agreement, particularly any special recognition of the viewership value of specific teams within an organization. Absent these kinds of unique provisions it is highly unlikely that the sale of one or even two high viewership teams under an organization would result in a defensible breach under the frustration of purpose doctrine. This is because it is unlikely that advertisement with a single specific team would be found to be the basis of the contract in a deal where the deliverable is stated as promotion across an organization, its teams, and its players with no additional language pointing to specific teams or players. 

Frustration of purpose, a defense to enforcement, requires a party’s principal purpose to be substantially frustrated without their fault by the occurrence of an event the non-occurrence of which was a basic assumption on which the contract was made.[9] The frustrated purpose must be so completely the basis of the contract that, as both parties understood, without it, the transaction would have made little sense. [10]The doctrine applies when a change in circumstances makes one party’s performance virtually worthless to the other.[11]

A distinction often made is that between a ticket to view an event and a prepaid taxi to an event venue purchased at a markup due to the event. If the event is canceled the ticket holder is due repayment (or is excused for breach through non-payment) because the sole purpose in purchasing the ticket was to view the event, a purpose that was frustrated by the cancelation of the event making the ticket worthless. Conversely, there is no defensible breach in the purchase of a prepaid taxicab to the venue because the rider can still receive what they bargained for, transportation to the venue, it might’ve lost significant value, however, it is not virtually worthless.[12]

Esports organizations will likely have enforceable contracts where the language supports a bargain for advertisement across an organization, without pointing to the particular team or player. Ideal wording, resistant to the frustration of purpose defense in the wake of a team or player sale, where esports organizations seek to enforce sponsorship contracts, would be very general in nature avoiding the identification of specific teams and players. An example might be “[Organization] is to promote [Sponsor] across its Teams, Content Groups, Creators, and Players…”. This kind of wording would suggest that the sponsor bargained for promotion across the organization as a whole and the sale of even the highest viewership team would not render the principle purpose of the sponsor “virtually worthless”. Similar to the taxicab, the sponsor can still receive promotion across the organization, even if such promotion has lost value. For the performance under a general provision to be rendered virtually worthless, the organization would have to dissolve a substantial number of teams and player contracts, such that there is almost no viewership for the sponsor. At this point, other problems would be of greater concern. 

Recently in esports news, Team Solo Mid (TSM), a large and very popular esports organization with teams across multiple popular games including Apex Legends, Dota 2, Tom Clancy’s Rainbow 6 Siege, and more, announced they would selling their slot in the League Champion Series (the League of Legends North American league) and would searching for opportunities in other regions.[13] This calls to question what might happen with their current sponsors. TSM has multiple sponsors including GEICO, Grubhub, Lenovo, Mountain Dew Game Fuel, and more. TSM’s LCS League of Legends team pulled massive viewership, especially in larger games, peaking at an all-time high of 1.7 million viewers during the 2020 League of Legends World Championship.[14] It is without a doubt that TSM’s LCS team represented a valuable component when sponsorship agreements were made. With the LCS team gone and at least a year until TSM fields another League of Legends team in a different region one can be almost certain that sponsors are bringing TSM to the table to have a discussion about deliverables. Retaining sponsor capital will be paramount for TSM, especially in the wake of their former title sponsor FTX going under in the recent crypto crash.[15]

It remains to be seen what will happen. Sponsors will likely raise frustration of purpose as a defense to non-payment, however, TSM might make offers to proportionally reduce payments in light of the recent change. Everything will depend on how provisions surrounding specific deliverables have been worded. If sponsorship contract deliverables fail to mention any specific team or player then it is likely that TSM will have a solid foundation upon which they can stand their ground and demand full payment under threat of further litigation. However, these deals do not exist in a vacuum, and one must consider if enforcement of the current deal over a mutual renegotiation is worth any potential loss of future goodwill among sponsors. A consideration especially prudent during a time when the Esports industry is undergoing massive change and uncertainty.

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Citations:

1. Cecilia D’Anastasio, The hype around esports is fading as investors and sponsors dry up, LOS ANGELES TIMES (Dec. 8, 2022, 11:31 AM PT), https://www.latimes.com/business/story/2022-12-
08/esports-hype-fading-investors-sponsors-dry-up.

2. Michael Crossman, Top 5 companies that failed in esports, CLAIM YOUR FAME (Sept. 22, 2020) https://claimyourfame.gg/top-5-companies-that-failed-in-esports/.

3. Tim Maloney, How Do Esports Teams Make Money? ROUNDHILL INVESTMENTS (Jan. 31, 2022), https://blog.roundhillinvestments.com/how-do-esports-teams-make-money.

4. David Bloom, Esports Stadiums Are Popping Up Everywhere, FORBES (May 31, 2019, 10:44 AM EDT), https://www.forbes.com/sites/dbloom/2019/05/31/esports-stadiums-are-popping-up-everywhere/?sh=5c011ece2521 (the industry is working to catch up, building its own arenas to lower long term venue costs and increase fan bases).

5. RIOT GAMES, https://lolesports.com/article/2023-lcs-summer-split-primer–ticketing-
information/blt91bc05103f15f4d4 (last visited Oct. 13, 2023).

6. Michael Beach, NFL Franchise Values Soar Driven by Ever Expanding Media Rights, CROSS SCREEN MEDIA (Sept. 8, 2022), https://crossscreen.media/state-of-the-screens/nfl-franchise-values-soar-driven-by-ever-expanding-media-rights/.

7. Ormi Wallach, How Do Esports Companies Compare With Sports Teams?, VISUAL CAPITALIST (Jan. 29, 2021), https://esporthow.com/how-does-the-lcs-make-money/.

8. Billy Studholme, Sponsors are wising up to deals with esports teams and adjusting spending accordingly, DIGIDAY (Apr. 5, 2023), https://digiday.com/marketing/sponsors-are-wising-up-to-deals-with-esports-teams-and-adjusting-spending-accordingly/.

9. Krell v. Henry, [1903] 2 KB 740 (Eng.)

10. Shmaltz Brewing Co., LLC v. Dog Cart Mgmt. LLC, 163 N.Y.S.3d 659, 663 (2022)

11. Id.

12. Krell, [1903] 2 KB 740 (Eng.)

13. Field Level Media, TSM Sell LCS franchise to Shopify Rebellion for reported $10M, REUTERS (Sept. 22, 2023 11:28 AM), https://www.reuters.com/article/esports-lol-shopify-rebellion-tsm/tsm-sell-lcs-franchise-to-shopify-rebellion-for-reported-10m-idUSFLM2qZ0Mc.

14. ESPORTS CHARTS, https://escharts.com/teams/lol/tsm.

15. Rohan, What does the FTX collapse mean for TSM and the esports industry, (Nov. 10, 2022),https://esports.gg/opinion/esports/ftx-collapse-mean-for-tsm-and-gaming/.