Summary: The United States has two viable statutory mechanisms for addressing situations in which patent holders are unable or unwilling to supply sufficient quantities of goods or services to combat the coronavirus crisis: march-in rights under the Bayh-Dole Act and governmental use under 28 U.S.C. § 1498. Though each of these mechanisms presents challenges, these should be surmountable in many cases to ensure that diagnostics, vaccines, therapies and support equipment are produced and distributed rapidly and in sufficient quantities.
In an effort to ensure that diagnostics, vaccines, therapeutics and life-support equipment for coronavirus are developed, manufactured and made available rapidly and in large quantities, governments around the world have begun to explore compulsory licensing options. Generally speaking, when a government orders compulsory licensing, the holder of a patent is required to license it (usually at a reasonable rate) to other manufacturers in order to ensure the continuity of, or an increase in, production and supply of the patented article.
Before the present crisis, the global dialogue around compulsory licensing of patents has focused largely on the availability of medicines in the developing world, and most cases in which compulsory licenses have been ordered in countries including Brazil, India and Thailand have involved drugs targeting HIV/AIDS and cancer. Not surprisingly, the emergence of the coronavirus pandemic has reignited discussions of compulsory licensing around the world. As of mid-March, 2020, compulsory licensing measures relating to patented coronavirus technologies had been authorized or proposed in at least Chile, Ecuador, Israel, Germany, and Canada, with more likely to follow.
Unlike many countries, the United States lacks a general statutory framework for the compulsory licensing of patented articles. While limited compulsory licensing legislation exists with respect to special technology categories such as nuclear materials, air pollution control, and plant varieties, these are infrequently utilized and the results of special purpose litigation enacted decades ago. Thus, in the U.S., the discussion around compulsory licensing of technologies relating to coronavirus has centered on two principle statutory mechanisms: federal march-in rights under the Bayh-Dole Act, and governmental use under 28 U.S.C. § 1498. These two mechanisms are discussed in greater detail below, together with some common challenges that will be faced by suppliers seeking to produce goods responsive to the crisis.
A. March-In Rights under the Bayh-Dole Act
The Bayh-Dole Act of 1980 was enacted to rationalize the previously chaotic rules governing the ownership of federally-funded inventions. Most importantly, it allowed research institutions to patent inventions arising from government-funded research and penalized institutions that failed to pursue patent protection for such inventions. In return, the Act gives the federal government a non-exclusive, paid-up license under each such patent, and authorizes the government to exercise so-called ‘march in’ rights, which compel the owner of such patent to license it to one or more third parties to the extent necessary, among other things, to address health or safety needs.
Petitions have been filed over the years urging federal agencies to exercise their march-in rights under the Bayh-Dole Act, primarily in cases involving under-supplied or costly pharmaceutical products. At least six of these petitions have been filed with the National Institutes of Health (NIH) alone. To date, however, neither NIH nor any other federal agency has exercised its march-in rights under the Act.
While the federal government’s Bayh-Dole march-in rights have frequently been suggested as potential mechanisms for increasing the availability of lifesaving drugs, they have some limitations. Most importantly, march-in rights apply only to inventions that were made using federal funding. While many new drug candidates have arisen from federally-funded university laboratories, a significant amount of biomedical research is conducted by the pharmaceutical and medical device industry without federal support. It is unclear whether and to what degree the federal government funded, even in part, the patented vaccines, diagnostics, therapeutics and devices that will be most critical to combat coronavirus. Notwithstanding these drawbacks, march-in rights under the Bayh-Dole Act could be valuable tools to lift patent barriers that may currently impede the supply of goods and services needed to fight coronavirus.
B. Governmental Use and § 1498
The provisions of 28 U.S.C. § 1498 offer a different approach than the Bayh-Dole Act with respect to the use of patented technologies. Tracing its origins to the 1910 Government Use Statute, today’s version of § 1498 is not a compulsory licensing law, but a limited waiver by the U.S. government of its sovereign immunity. Under this statute, if the federal government (itself or through its contractors) uses or manufactures an invention patented in the United States without the permission of the owner, the owner is granted a remedy – the pursuit of a claim for “reasonable and entire compensation” in the U.S. Court of Federal Claims. No other remedy is permitted, and the patent owner cannot seek to enjoin the government’s use of the invention.
Since its enactment, § 1498 has been invoked periodically in cases relating to the government’s procurement of military technology and other equipment. Though less frequently, § 1498 has also been used to bolster the U.S. supply of drugs and biomedical technologies at prices lower than those charged by patent holders. Milton Silverman and Philip Randolph Lee report that during a three-year period during the 1960s, the Department of Defense’s Military Medical Supply Agency (MMSA) utilized § 1498 to obtain supplies of approximately fifty drugs including the antibiotic tetracycline from alternate sources, including producers in countries where the drugs were not patented. Though the federal government’s use of § 1498 in the pharmaceutical sector declined by the 1970s, the Department of Health and Human Services threatened to invoke the statute again in 2001 during the post-9/11 anthrax scare. Since then, commentators have proposed using the government’s powers under § 1498 to drive down drug prices, but no meaningful utilization of this power has occurred for pharmaceutical products in nearly two decades.
But today, with highly-publicized shortages of coronavirus testing kits, facial masks, ventilators and other critical supplies, the prospect of U.S. government intervention through § 1498 has again attracted attention (see commentary here and here). Section 1498 is an attractive mechanism for addressing coronavirus-related shortages as, unlike march-in rights under the Bayh-Dole Act, it is not limited to inventions that were developed using federal funding. Rather, § 1498 applies to any product or service required by the federal government.
Some commentators who have analyzed the use of § 1498 in connection with the supply of drugs have expressed concern over the limited scope of § 1498: it only applies to products that are “used or manufactured by or for the United States”. In the context of ordinary prescription drugs, this scope might not be broad enough to address the needs of patients covered by private insurers or health plans. However, the case for government use (and the applicability of § 1498) is far stronger in the context of coronavirus, which has been declared a national emergency by the U.S. federal government. In his Proclamation describing coronavirus as a national emergency, President Trump called for policies to “accelerate the acquisition of personal protective equipment and streamline bringing new diagnostic capabilities to laboratories.” To the extent that the federal government supports, procures, distributes or administers coronavirus tests, vaccines, treatment or equipment, such activity would likely be classified as government use under the terms of § 1498.
C. The Rest of the Story: FDA Approval
Though critical, removing patent barriers to the production of a pharmaceutical product or device will not ensure that it is supplied in significant quantity or at an acceptable level of quality. First, many vaccines, diagnostics, drugs and medical devices are regulated by the FDA. Thus, whether the ability for a secondary supplier to operate under existing patents is achieved through march-in rights or § 1498, the supplier will be required to gain FDA approval of the product that it wishes to produce, as well as its own manufacturing facilities and processes. In fact, in several instances NIH justified its refusal to exercise march-in rights by citing the lack of any approved manufacturing facility for the compound in question.
In a 2016 article, Amy Kapczynski and co-authors offer a detailed summary of the regulatory approval steps that would be required for a secondary supplier to manufacture an FDA-regulated therapeutic under § 1498. Suffice it to say that securing the necessary approvals is neither swift nor effortless. This being said, many manufacturers of generic drugs, both within and outside the U.S., already have FDA approval to produce pharmaceutical compounds, and the FDA should act rapidly to implement expedited procedures to approve these existing producers with respect to coronavirus-specific products.
Another regulatory issue that has been raised in the context of alternate supplies of FDA-approved products is market exclusivity. In the U.S., manufacturers of FDA-approved drugs receive a period of regulatory market exclusivity under the Hatch-Waxman Act that is independent of the patent protection that they may also enjoy. Exclusivity periods range from six months (for the first generic version of a drug that is approved) to three years (for a new use of a previously approved drug) to five years (for a new drug compound) to seven years (for a new “orphan” drug). These periods may run concurrently with patent protection, but because they arise independently of patent rights, they are not waived or suspended when the government exercises its right to operate under a manufacturer’s patents pursuant to the Bayh-Dole Act or § 1498. Thus, it is possible that even if the federal government invoked its march-in rights or § 1498, a manufacturer could prevent others from manufacturing a product under these regulatory exclusivities.
There are several possible answers to the issue of regulatory market exclusivity with respect to products to combat coronavirus. First, as a general matter, Congress should reconcile governmental rights under the Bayh-Dole Act and § 1498 with FDA market exclusivity periods by amending the relevant federal regulations to suspend such exclusivity in the event of an exercise of governmental march-in or use rights.
Barring legislative change, it is worth remembering that market exclusivities only exist for a few years after a drug is approved, and do not exist with respect to drugs that have been on the market for a longer period of time. Thus, these restrictions, while potentially important for newer treatments and vaccines, may not be factors with respect to older ones (e.g., those previously developed and approved for SARS, MERS, HIV and other diseases). Likewise, many medical devices (ventilators, respirators, facial masks and the like), while potentially including patented features, may not be subject to FDA regulation, or, if they are, are not subject to the same types of market exclusivity as drugs. Thus, federal mechanisms for using patented technologies under the Bayh-Dole Act and § 1498 should seriously be considered in the fight against coronavirus.
