Analysis

How COVID-19 Could Spur The Gov't To Seize Patents

By Ryan Davis
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Law360 (March 31, 2020, 10:36 PM EDT) -- As researchers scramble to create treatments or vaccines for COVID-19, the U.S. government may face pressure to ensure a breakthrough is low-priced and widely available by invoking rarely used powers to override patents.

Numerous pharmaceutical companies and research institutions are working on potential treatments to curb the pandemic, but some lawmakers and activists have already started raising concern that patents on such a discovery could either make it difficult to access or prohibitively expensive.

For instance, 46 members of Congress wrote to President Donald Trump in February urging him to "use every tool of the federal government to ensure a coronavirus vaccine is affordable and accessible,” and saying that “providing exclusive monopoly rights could result in an expensive medicine that is inaccessible, wasting public resources and putting public health at risk.”

Any COVID-19 treatment is far in the future, and it’s too soon to know if the price could hinder access. But if that becomes a concern to the U.S. government, it could be driven to invoke its powers to effectively seize patents, which it has been loath to use in the past, even when urged to do so for public health reasons.

"There have been some pretty compelling cases, but I don't think there's ever been anything as compelling as this," said John Conley of Robinson Bradshaw & Hinson PA. "So this could be the exception that proves the rule."

The mechanisms at the government’s disposal have been used so rarely that, even in a pandemic, it will likely take a special set of factors for them to come into play. But attorneys believe that life sciences companies should proceed as though it’s not outside the realm of possibility, even if it’s unclear exactly how it would work in practice.

“When there's [a treatment] out there that looks like it's going to work for the majority of people and the price of it becomes prohibitive for the average American to get that treatment, I think that's when there's going to be a call for the government to step in,” said Kevin Nelson of Schiff Hardin LLP.

The government’s powers in this area come in two forms. For inventions created with the help of federal funding, a 1980 intellectual property law called the Bayh-Dole Act provides what are known as “march-in rights,” allowing the government to require the patent holder to grant others a license to the invention when "health or safety needs" are not being "reasonably satisfied."

The government has been pouring hundreds of millions of dollars into COVID-19 research via the National Institutes of Health and other agencies, including through last week’s stimulus bill. So it’s possible a breakthrough may be funded in part with government money and march-in rights could get attention, but the tool has never been used before.

“The mechanism is there, it’s available, the problem is the United States government hasn't been willing to use it in the past. At what point in time do you reach that inflection point?” Nelson said.

However, Joseph Allen, a former Senate Judiciary Committee staff member for one of the IP law's namesakes, the late Sen. Birch Bayh, D-Ind., said the march-in rights provision was never intended to control prices.

The idea was that if a patentee hasn't produced a product that's based on a federally funded invention, or if it can't meet the country's needs in an emergency, then the government can step in. But using march-in rights to lower prices for a drug "just makes no sense at all," said Allen, director of Bayh-Dole 40, a coalition that promotes the law.

"What [venture capitalist] would ever put money into a life science company with that hanging over your head, that it can be taken away from you at the whim of the bureaucracy if somebody didn't like the price of it?" he said.

And since there's nothing in the law about what a reasonable price would be, Allen said, "I think you'd have a hell of a lawsuit" if the government were to use march-in rights as a price control mechanism.

The government has another option for inventions not funded with federal money, such as the use of existing drugs for other diseases to treat COVID-19. A part of federal law known as Section 1498 allows the government to make or use any invention without the patentee’s permission if it gives the owner "reasonable" compensation.

"The government is much more likely to go that route versus march-in rights," said Tyson Benson of Bejin Bieneman PLC, who noted that march-in rights would only be available for certain patents, while "1498 could cover the whole swath of any number of patents."

Unlike march-in rights, the government has used, or at least threatened to use, that provision, sometimes described as eminent domain for patents, to ensure access to drugs. In the 1960s, the government invoked Section 1498 to obtain an antibiotic from a generic supplier in Italy that charged much less than Pfizer’s branded version cost in the U.S.

More recently, during the 2001 anthrax scare, the government floated the possibility of using the section to obtain cheaper versions of the antibiotic Cipro. The section was not actually invoked, but Bayer AG responded by lowering the drug’s price. Something similar could happen if the government felt patents were hindering a COVID-19 drug.

The section is typically "used to threaten to get a better deal," said John Murray of Morris Manning & Martin LLP, and the government and the patent owner would likely have to reach some agreement about what would be "reasonable" compensation.

"They would work out a deal because that's in everyone's interest not to have a legal fight over it," he said.

Any discussion of the government's powers to override patents is likely premature at this point, Benson said, since it is only likely to be a possibility when there is a treatment that is highly effective. The government is unlikely to take such a dramatic action on a treatment that is merely promising, he said.

"You certainly don't want to start setting a precedent where we're going to use 1498 on patents that hold maybe some potential but it's not all the way there," he said.

Even in a public health emergency, for it to make sense for the government to override patents, another company would have to be able to step in to manufacture the product at issue, which may or may not be the case for a potential COVID-19 treatment, Conley said.

And government action would only be necessary if a company with a patent effectively sits on it to restrict access to the treatment. Conley said that seems "highly unlikely," given the potential to make money by selling the government a treatment that almost everyone will need.

"Plus you become famous, you become a hero, you become the new Jonas Salk," he said, referencing the creator of the first polio vaccine. "It seems unlikely that anybody is going to sit on a potential therapy here for patent-related reasons."

The U.S. government’s past rejection of calls to seize patents, which have often come in the context of high drug prices, has been viewed as a reluctance to interfere with pharmaceutical prices out of a concern of undermining the incentive to innovate in the risky and expensive drug space.

The pharmaceutical industry "is not like a typical market where someone else could just come in and introduce a competitive product," said Joel Wallace of Schiff Hardin.

However, those concerns might appear less pressing in the context of a global pandemic, attorneys say.

"If it really relates to this crisis, I think in some countries the government may just order a compulsory license for public use," said Ping Wang of Morris Manning. "This is an emergency; you need to save people's lives. So maybe there will be this kind of a situation."

Since just about everyone in the country would want or need a COVID-19 vaccine, generating a sufficient supply could be a concern. If one company isn't able to make enough, Allen said that would be a legitimate use of march-in rights. But he said "it's like the airbag in your car. It's a fail-safe system, and you would hope that we'd be able to work out something more amicable."

--Editing by Aaron Pelc and Emily Kokoll.

For a reprint of this article, please contact reprints@law360.com.

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