Two Ways Government Can Assume Patent Licensing Powers During COVID-19

By: Matthew D. Kohel | 4.22.20 | Media

Patents are valuable intellectual property, and the law provides the owner of these assets with certain rights of exclusivity. However, as the world is fighting to contain and mitigate the effects of COVID-19, there is a critical need for personal protective equipment (PPE) and other medical devices that may be in short supply, such as COVID-19 tests, and to bring effective medicines to the market. Compulsory licenses are one way this can be done, and they are a powerful tool that the federal government can use during the current health emergency to make medical equipment and potentially life-saving pharmaceuticals rapidly available.

Visit our  COVID-19  Resource PageCompulsory licensing is a way of side-stepping intellectual property protection. Under a compulsory license, a government allows a party other than the patent owner to make a patented product or process without the patent owner's consent. A common example of compulsory licensing is in the music industry, where a compulsory license allows a musician to record and sell a previously recorded song as long as they pay royalties to the person who wrote the original composition and is the legal copyright holder of the work. Compulsory licenses are also used by cable television providers and webcasters for similar purposes.

To address the compelling public health emergency presented by COVID-19, compulsory licensing can be used in the United States under two statutes that allow the federal government to override intellectual property rights: the Bayh-Dole Act, adopted in 1980 as part of Section 35 of the United States Code, and 28 U.S.C. § 1498, a compulsory licensing statute that borrows from eminent domain principles.

The 1980 Bayh-Dole Act

Although the intent behind the Bayh-Dole Act was innovation through government-funded inventions that could benefit the public, under this statute, the federal government obtains a "nonexclusive, nontransferrable, irrevocable, paid-up license to practice or have practiced for or on behalf of the United States any subject invention throughout the world." 35 U.S.C. § 203(c)(4). Thus, the government is granted a license in inventions resulting from its funding.

In addition, the Bayh-Dole Act provides federal agencies with "march-in rights" that allow them to grant licenses to third-parties to make "inventions" and technology that were developed with government funding. Notably, the Bayh-Dole Act broadly defines "invention" to mean, among other things, "any invention or discovery which is or may be patentable or otherwise protectable under this title." 35 U.S.C. § 201(d). As a result, this statute covers not only granted patents, but patentable technology that a company intended to maintain in confidence.

The government can utilize these march-in rights when "action is necessary to alleviate health or safety needs." 35 U.S.C. § 203(a). In light of the government's funding of COVID-19 drug research, these march-in rights could be utilized when viable treatments emerge if the government feels that the inventor is not taking reasonable steps to make the invention accessible. See 35 U.S.C. § 203(a).

On April 17, 2020, the National Institutes of Health announced a wide-ranging partnership between federal researchers and sixteen pharmaceutical companies named Accelerating COVID-19 Therapeutic Interventions and Vaccines, or ACTIV. According to the NIH's news release, the goal of ACTIV is to "develop a collaborative framework for prioritizing vaccine and drug candidates, streamlining clinical trials, coordinating regulatory processes and/or leveraging assets among all partners to rapidly respond to the COVID-19 and future pandemics." Under the Bayh-Dole Act, the government could compel any of these companies to license their rights to a third party to bring their funded inventions to the market if the government determined that they have not done enough to reasonably address the pandemic.

Government Use Under 28 U.S.C. § 1498

Separate from the government's ability to license inventions developed with its funding, 28 U.S.C. § 1498 gives the government the authority to use patented technology – or have patented technology used on its behalf – so long as the patent owner is awarded "reasonable and entire compensation" for the use. 28 U.S.C. § 1498(a). Under Section 1498(a), the patent’s owner exclusive remedy for the government’s use is an action against the United States in the Court of Federal Claims for its "reasonable and entire compensation." Unlike a traditional patent infringement suit, injunctive relief is not available to the patent owner. "Reasonable and entire compensation" includes the patent owner’s "reasonable costs" in bringing the action and is similar to “just compensation” under the Fifth Amendment of the Constitution.

However, the ability of the patent owner to recover reasonable costs, including its reasonable fees for expert witnesses and attorneys, is most likely not available to patent owners whose inventions are taken by the government to combat COVID-19. That is because the statute carves out reasonable costs if "the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust." 28 U.S.C. § 1498(a). And even in times where a public emergency does not exist, Section 1498(a) places a further limitation on the recovery of reasonable costs. Under Section 1498, reasonable costs can be recovered so long as the patent owner "is an independent inventor, a nonprofit organization, or an entity that had no more than 500 employees at any time during the 5-year period preceding the use or manufacture of the patented invention by or for the United States." 28 U.S.C. § 1498(a).

The government has invoked Section 1498 to obtain drugs in the past. For example, the government relied on this statute multiple times in the 1950s and 1960s to get reasonably priced generic drugs. Moreover, the government threatened to utilize Section 1498 to stockpile the antibiotic ciprofloxacin, to fight the use of anthrax as a chemical weapon.

In conclusion, the Bayh-Dole Act and 28 U.S.C. § 1498 give the federal government the authority to circumvent a patent holder’s rights of exclusivity when a public health emergency arises. As the pandemic has unfolded, the United States has grappled with the limited availability of PPE and medications to treat COVID-19. Because the United States is facing a shortage of critical supplies, patent owners should understand their rights in the event the government exercises its compulsory licensing powers under these statutes.

If you have questions about your intellectual property rights, particularly during the COVID-19 response, please contact the author, Matt Kohel. Matt has extensive experience in intellectual property litigation and stands ready to advise and assist.