What Is the Source of the Federal Government’s Power to ‘Commandeer’ Patents, and What Are Patent-Holders’ Rights?
In the fight against COVID-19, researchers are racing to develop new treatments and an effective vaccine. Patents encourage investment into that potentially life-saving research by giving inventors the exclusive right to their inventions for a period of years. But patent-holders might also wield their rights in ways that render future breakthrough technologies prohibitively expensive or in short supply.
If patents stand in the way of broad access to medicines that might end the pandemic, governments might consider intervening. The United States Government has the power to do so under two statutes: the Bayh-Dole Act, and §1498 of Title 28 of the U.S. Code.
March-In Rights Under the Bayh-Dole Act
Congress enacted the Bayh-Dole Act to address concerns that the results of federally funded research were rarely commercialized. The Act has been widely regarded as a success. Since its passage, federal funding under the Act has played a role in the development of more than 200 vaccines.
But there’s a catch. The Government provides research grants to universities and nonprofit labs, but it conditions those grants on retaining so-called “march-in” rights. In short, march-in rights permit the Government to force a patentee to license its patents—including to the patentee’s competitors—on “terms that are reasonable under the circumstances.” Those rights, however, may only be exercised in certain enumerated circumstances. One such circumstance—relevant to the current pandemic—is “to alleviate health or safety needs which are not reasonably satisfied.”
If the Government exercises its march-in rights, a patent-holder has limited recourse. As long as the right is properly exercised, the patent-holder cannot refuse the Government’s request. It may only demand that the compulsory license include “reasonable” terms.
It is not clear what “reasonable” requires under the Bayh-Dole Act, since that provision has never been litigated. But if parties were to litigate its meaning, Courts might look to reasonable-royalty calculations used in ordinary patent disputes. Those methods calculate reasonable royalties by determining the royalty rate that parties would have agreed to in an arms-length negotiation in a hypothetical world where the parties had not resorted to litigation.
If that methodology were used to calculate a compulsory “march-in” license for a COVID-19 treatment, the resulting rate could potentially be quite high. Thus, while the patent-holder might not be able to deny the Government’s march-in rights, the patentee could nevertheless receive compensation commensurate with the value of its patented technology.
Patent Commandeering Under 28 U.S.C. §1498
In addition to the Bayh-Dole march-in rights, the Government could invoke its powers under §1498. In essence, §1498 provides that, if the Government makes or uses any patented invention in breach of a patent holder’s rights, the patent holder may only demand “reasonable and entire compensation.” It may not, for example, demand injunctive relief to stop the Government from using the patented technology. This effectively permits the Government to infringe patents, without risk that it will pay more than reasonable compensation and costs. However, §1498 strips the Government of sovereign immunity, allowing the aggrieved patent holder an avenue to sue for uncompensated patent infringement.
The Use of Either Power Would Be Extraordinary
It would be all but unprecedented if the Government were to exercise its march-in rights under the Bayh Dole Act, or intentionally infringe a patent under §1498.
Congress passed the Bayh-Dole Act over 40 years ago, yet the Federal Government has never exercised its march-in rights. Indeed, several industry groups actively lobby against such an exercise, arguing that it would chill public-private partnerships.
Section 1498 has more history, but the Government has rarely exercised its rights under that statute as a matter of policy. Patent-holders often sue the Government for infringement under §1498, but those cases rarely if ever include evidence that the Government infringed a patent intentionally, let alone as a matter of official policy.
But that is not to say the Government has never used §1498 as a policy lever. During the 2001 anthrax scare, the Federal Government publicly announced it might invoke §1498 to make life-saving antibiotics. But before the Government could use its power, negotiations proved fruitful. Under Government pressure, the drug’s producer agreed to import more antibiotics and lower the drug’s cost. So while the Government did not end up intentionally infringing under the statute, that experience proved that the Government can use §1498 as a powerful leverage in negotiating with private patent-holders.
While the Government invoking its powers to commandeer patents would be without modern precedent, the Government is taking unprecedented steps to fight COVID-19. And if the Government does exercise either of those powers, litigation will likely ensue. Patent-holders may test the boundaries of the Government’s powers over patent rights. And they almost certainly will dispute the amount of compensation due for a patent that helped end the pandemic.
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