Pharma Companies, U.S. Government Spar Over Application of Section 1498 to Patent Infringement Claims Against Moderna’s COVID-19 Vaccine

“The reason that the Government’s Statement… urges this Court to erase the ‘for the Government’ prong of the [Section] 1498(a) inquiry, is that medical treatments and interventions, such as Moderna’s COVID-19 vaccine, fail to satisfy that prong.” – Arbutus Biopharma and Genevant Sciences

Section 1498 March 2, U.S. District Judge Mitchell S. Goldberg of the District of Delaware received several filings related to the impact of the U.S. government’s recent statement of interest filed in a patent infringement suit against Moderna’s COVID-19 vaccine. That statement argued that Moderna should be released from infringement liability under the terms of a government contract that “authorize[d] and consent[ed] to all use and manufacture” of any U.S. patented invention.

The federal government’s statement of interest, filed on February 14, contended that the use of such authorization and consent clauses should eliminate Moderna’s alleged liability under 28 U.S.C. § 1498, the statute governing remedies for patent infringements by government use. While there’s nothing surprising about the positions taken by defendant Moderna or plaintiffs Arbutus Biopharma and Genevant Sciences, the relevance of Section 1498(a) to arguments surrounding government control of drug pricing could make Judge Goldberg’s next ruling an important moment in the drug pricing debate.

United States: Grant of Authorization and Consent ‘Should Generally Be Determinative Of the Issue’

In response to Judge Goldberg’s request for briefing on the government’s statement of interest, the United States submitted a short letter to offer further support for its argument that the U.S. government and not Moderna should be liable for infringement damages under one of two government contracts at issue in Arbutus and Genevant’s lawsuit. According to the U.S. government, the contract’s express grant of authorization and consent to use and manufacture any patented invention embodied in Moderna’s vaccine eliminates any requirement under Section 1498 to show that Moderna was under direct government control, which would be required if the government’s grant of authorization and consent was only implied.

“Indeed, where there is an express grant of authorization and consent, the question of whether a procurement contract is for the benefit of the Government is a truncated inquiry” under the Federal Circuit’s 2007 ruling in Sevenson Environmental Services, Inc. v. Shaw Environmental, the federal government contended. Although the court should be the final authority on the government’s authorization and consent arguments, “[S]ection 1498 and the binding precedent interpreting it makes clear that the Government’s express grant of authorization and consent should generally be determinative of the issue,” the letter concludes.

Moderna: Government’s Statement of Interest Resolves Issues with Contract Redactions

In its response to the federal government’s statement of interest, defendant Moderna argued that the government’s statement resolved issues that had prevented Judge Goldberg from granting Moderna’s Rule 12(b)(6) motion to dismiss Arbutus and Genevant’s patent infringement claims. According to Moderna, the government’s statement of interest is an “unequivocal confirmation that it accepted any liability for any vaccine procured” under the first of two government contracts with Moderna.

Citing to Advanced Software Design Corp. v. Federal Reserve Bank of St. Louis (Federal Circuit, 2009), Moderna argued that while the government’s statement of interest is not dispositive, courts have generally accepted government statements that a particular good is provided “for the Government” as evidence of the government’s authorization and consent without need for additional discovery. Moderna further cited a series of cases in which courts have found a government’s statement of interest as adequate “after-the-fact” authorization and consent for purposes of Section 1498.

Moderna also asserted that no additional discovery would be required for the district court to rule on its Rule 12(b)(6) motion to dismiss Arbutus and Genevant’s claims under the government contract including the broad Federal Acquisition Regulation (FAR) procurement contract provisions now confirmed by the government’s statement of interest. Under broad, express authorization and consent provided by similar FAR provisions, courts in at least the Central District of California have held that Section 1498 removed infringement liability from private defendants to the federal government regardless of whether the contract could be fulfilled with non-infringing products. Given that infringement claims under the government contract including the FAR provisions at issue should only be adjudicated in the U.S. Court of Federal Claims, Moderna argued that the District of Delaware court shouldn’t conduct fact and expert discovery into vaccine batches produced under that particular contract.

Arbutus and Genevant: More Discovery Needed on ‘For The Government’ Prong of Section 1498 Inquiry

A brief filed by plaintiffs Arbutus Biopharma and Genevant Sciences argued that the government’s argument for a truncated Section 1498 inquiry due to the presence of FAR provisions is not supported by existing legal precedent. Under Sevenson, Section 1498 requires a defendant to show that alleged patent infringement was “for the Government” and with the government’s “authorization and consent.” “[W[hether Moderna’s infringement was for the benefit of the U.S. population or the Government is a factual dispute that can only be resolved on a fully developed record,” the plaintiffs contended.

“The reason that the Government’s Statement… urges this Court to erase the ‘for the Government’ prong of the [Section] 1498(a) inquiry, is that medical treatments and interventions, such as Moderna’s COVID-19 vaccine, fail to satisfy that prong. The law could not be clearer: ‘Medical care is provided for the benefit of the patient, not the government.’ (Larson v. United States, U.S. Claims Court, 1992). Moderna’s inability to satisfy § 1498(a) is no reason to change it outside of the proper legislative avenue. The Government’s argument is nothing more and nothing less than an invitation to rewrite the statute for political purposes.” – Plaintiffs Arbutus and Genevant

The plaintiffs note that the government’s misreading of Sevenson has also been advanced by other politicians, including Senator Elizabeth Warren (D-MA), who have called upon the U.S. government to invoke Section 1498 to pursue drug price reduction schemes by buying generic drugs under a government use license. Within that context, the plaintiffs argue that the federal government’s effort to erase the “for the Government” prong from the inquiry “is as transparent as it is baseless.” Under Larson, a government’s general interest in the provision of medical services, even where the government funds or reimburses such services, does not provide the requisite benefit to the federal government for Section 1498’s liability shifting provisions to apply.

Arbutus and Genevant assert that they are entitled to discovery on several points relevant to the Section 1498(a) inquiry, including the complete unredacted terms of contracts between Moderna and the government, negotiations leading up to those contracts and any discussions of plaintiffs’ patents related to efforts to avoid the effects of inter partes review (IPR) estoppel by shifting liability under Section 1498. Not only would the application of Section 1498 negatively impact judicial efficiency, as trying the issue later in the case would allow for duplicative proceedings on infringement and validity arguments, but the plaintiffs also argue that they would be prejudiced by litigating their claims in the Court of Federal Claims, where there is no entitlement to a trial by jury under the Seventh Amendment.

Professors, Scholars and Former Government Officials: Eminent Domain Statute is Inapplicable to Purchase Contracts

Further supporting Arbutus and Genevant’s contention that the District of Delaware had already properly disposed of the Section 1498 argument was an amicus filing from a group of nine professors, scholars and former government officials. Signatories to the amicus filing include the Honorable Susan G. Braden, Chief Judge (Ret.), U.S. Court of Federal Claims; the Honorable Paul R. Michel, Chief Judge (Ret.), U.S. Court of Appeals for the Federal Circuit; Richard A. Epstein, Laurence A. Tisch Professor of Law, New York University School of Law; Adam Mossoff, Professor of Law, George Mason University’s Antonin Scalia Law School; and Kristen Osenga, Professor of Law, University of Richmond School of Law.

The Amici filing provides analysis of the provenance, legislative history and statutory text of Section 1498(a) to argue that the statute at issue is an eminent domain statute concerned about the government’s liability for infringement under the Takings Clause. As such, Section 1498 is thus largely inapplicable to private transactions in the marketplace involving private parties, even if the government has an incidental interest due to public funding of the transaction. “As this Court recognized, Moderna’s contract is not an example of a contractor making and using a patented invention ‘for the United States,’ as Moderna vaccine doses were distributed by private companies for use by private healthcare patients,” amici assert.

Along with supporting the plaintiffs’ reading of Larson, amici also pushed back on Moderna’s arguments under Advanced Software. In that case, the Federal Circuit applied Section 1498(a) liability shifting provisions when it found that a regional Federal Reserve bank acted “for the Government” when infringing a patented process for determining fraudulent Treasury checks. As amici note, the legal and economic relationship between Federal Reserve banks and the U.S. federal government is easily distinguishable from a private company providing medical services under a government contract, which more closely follows the facts of Larson.




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