Last semester I worked with NYU Law’s Technology Law and Policy Clinic to publish a Guide to Government Patent Use under 28 U.S.C. § 1498. The Guide explains how, with very few procedural hurdles and little administrative fanfare, the U.S. government could begin “using” privately owned patents to increase access to necessary technologies, like life-saving drugs and medical supplies. § 1498 gives broad immunity to government actors and third parties who use or manufacture patented technology, so long as their use is “by” and “for” the U.S. government. Just to be clear, the U.S. government has always had the right to use and license privately owned patents. § 1498 merely provides patent holders with a judicial remedy: suing for “reasonable and entire” compensation from the government. § 1498 thereby enables the U.S. government to act swiftly in times of need (most past uses of § 1498 were related to the procurement of military technology during wartime). In exchange, patent holders are provided compensation for the government’s use of their patent.
The Guide’s publication was timely, taking place 9 months into a global health crisis that has yet to abate. Since our first confirmed coronavirus cases last year, the COVID-19 pandemic has highlighted many fundamental flaws in the U.S. healthcare system, including a lack of centralization and foresight when it comes to addressing public health crises. Despite the breakneck pace at which COVID-19 vaccines gained FDA authorization, manufacturing has been painfully slow, leaving us all wishing our government could do something – anything – to speed up vaccine production. Thankfully, the newly-appointed Biden administration has been willing to take sweeping executive actions to address the coronavirus – including using the Defense Production Act to secure necessary COVID-19 supplies. So then why are so many still waiting for their first shot? And could a statute as “simple” as § 1498 make an impact in the U.S. coronavirus response?
Well, it’s complicated.
First, § 1498 comes with a few limitations – some of which we covered in the Guide, and even more were pointed out by commentators at NYU Law and JIPEL’s recent Access to Medicine symposium, which featured a panel discussion on § 1498 and the Bayh-Dole Act (a similar, but arguably more limited statute allowing for government patent use). In particular, the panel emphasized the uncertainty surrounding § 1498’s compensation scheme. What constitutes “reasonable and entire” compensation is somewhat of an open question because it has not been adjudicated to judgment in decades – and it has never been finally determined in the pharmaceutical context. Thus, the specter of unfair compensation looms heavy over § 1498. The government does not want to be on the hook for, e.g., the entire societal health cost savings of a drug, which could total billions of dollars. Likewise, pharmaceutical companies worry that a low compensation award will undercut the profits of their blockbuster drugs (which fund the research and development of many less-successful drug candidates) and set a dangerous legal precedent.
§ 1498’s power is also limited by the U.S. system of regulatory exclusivity. When the FDA approves new drugs, it may grant a period of market exclusivity that prevents generic drugs from entering the market for a period ranging from three to twelve years. This regulatory exclusivity is separate from patent protection and is immune to statutes like § 1498. If a drug is still within its period of exclusivity (notably, this is also the period when profits and prices tend to be the highest and most in need of government intervention), § 1498 is entirely ineffective at removing this barrier to market.
Perhaps just as important are the normative limitations preventing the U.S. government from invoking § 1498. Several panelists noted that the U.S. government has not “used” § 1498 in decades, which some credited to the government’s fealty to the pharmaceutical sector. Many in industry argue that patent protections are necessary for a robust pharmaceutical sector, and the U.S. government regularly wields its international influence to bolster patent protections abroad via international agreements and trade deals. Statutes like § 1498 often receive criticism for disrupting patent incentives, being contrary to the free market, or being akin to theft by the government. “Corporations thrive on predictability,” one panelist at the symposium noted. If the government begins taking over patents on blockbuster drugs, some warn that pharmaceutical manufacturers will stop investing in high-risk, high-reward drugs like cures for COVID-19 and other transmissible diseases.
Secondly, the coronavirus pandemic presents many unique issues unsolvable by § 1498. For starters, most COVID-19-related medicines have been limited by manufacturing and supply chain issues more than patent rights (one notable exception is the drug remdesivir, a small molecule antiviral that faced shortages throughout 2020). Biologic products, like the current batch of COVID-19 vaccines, require difficult-to-source ingredients and are manufactured by complex bioprocessing techniques. These delicate supply chains are difficult to scale to meet the needs of the entire vaccine-eligible U.S. population, and not every pharmaceutical factory is equipped for preparing biologic vaccines. If facilities do not exist, or if key biomolecular ingredients are in short supply, then government patent licensing under § 1498 would realize little benefit. Plus, many of the complex bioprocesses used to create vaccines are protected by trade secrecy — not patents. Even if the government used § 1498 to license all COVID-19 vaccine patents, it would do nothing to uncover manufacturing processes that pharmaceutical companies maintain as trade secrets.
In any case, pharmaceutical companies have done quite a good job working together to combat the coronavirus, with the Biden administration occasionally jumping in to grease the wheels. For instance, Moderna has declared that it will not enforce its patents against companies seeking to market COVID-19 treatments, and AstraZeneca has pledged not to make a profit on its COVID-19 vaccines. Pfizer and AstraZeneca have both committed to providing some amount of affordable vaccines to low-income countries. The Biden Administration also recently announced that Johnson & Johnson will be expanding vaccine production by repurposing some of Merck’s facilities to manufacturing their COVID-19 vaccine.
Where breaking patent barriers could arguably have the largest impact is in the developing world, where commentators indicate there is untapped biologics manufacturing potential, and where many countries are hunkering down for months – if not years – without sufficient vaccine supplies. Unfortunately, these issues are not within the purview of § 1498 either. As we discuss in the Guide, § 1498 is strictly limited to uses that directly benefit the U.S. government, rather than third parties, the public, or foreign citizens. Additionally, our international trade agreements (TRIPS in particular) make it very difficult to provide other nations with patented products, even when a compulsory license has been issued. South Africa and India have asked for a temporary waiver of some TRIPS provisions so that they can begin manufacturing their own coronavirus vaccines, but several wealthier nations – including, unsurprisingly, the United States – have opposed granting the exceptions.
So then where does § 1498 fit in? The statute is probably best used for targeted interventions on drugs where patent protections act as the only barrier for entering the market. Drugs like Truvada for PrEP (a daily medication that prevents HIV infection in HIV-negative people) make excellent candidates because they are no longer protected by regulatory exclusivity and generic alternatives have already been approved by the FDA. The government could realize incredible cost-savings by producing and distributing generic PrEP as part of its existing efforts to eradicate HIV. § 1498 also makes a useful bargaining chip in government negotiations with pharmaceutical companies. Because compensation is so uncertain, many drug manufacturers may be willing to come to a favorable licensing deal if it means avoiding litigation and potential underpayment. For example, historians almost unanimously agree that § 1498 played a role in former Secretary of Health and Human Services Alex Azar’s negotiations with Bayer to produce Ciproflaxin following the 2001 anthrax crisis (Secretary Azar denied ever invoking the statute).
For broader drug pricing interventions, government patent use under § 1498 cannot, and should not, carry the day. Instead, forward-looking policy should strike a balance between intellectual property rights, limited regulatory exclusivity, well-defined government intervention, and rewards for pharmaceutical companies that act in the best interests of society. With the right incentives – regulatory benefits, enhanced exclusivity periods, or even financial awards — companies may be willing to voluntarily give up patent protection by, e.g., licensing their patents to a patent pool dedicated to advancing global health. It is worth noting that a COVID-19-specific patent pool was launched by the World Health Organization last year, but has been largely unsuccessful without incentives for participating companies.
In the fight to lower prescription drug prices, § 1498 is a welcome tool in the government’s toolbelt. But you wouldn’t mow your lawn with a machete, and you probably wouldn’t bring one to a gun fight either. § 1498 is ill-equipped for addressing the myriad supply chain and manufacturing issues holding up COVID-19 vaccine supplies, and broader drug policy reform is too complex (and important!) to be handled with piecemeal government intervention. For these issues, a more nuanced and calculated approach is necessary. Other times, however, you need to grab the machete and figure out the compensation on the back end. For those times, we have § 1498.