IP VIPs Slam U.S. Government’s Bid to Extend Section 1498(a) to Private Patent Infringement

From top left: Frank Cullen, Brian O’Shaugnessey, Adam Mossoff, Eb Bright and Judge Susan Braden

The Council for Innovation Promotion (C4IP) on Monday held a webinar featuring some big names in the IP world to clear up what the organization characterizes as misguided views on the use of Title 28 of the U.S. Code, Section 1498(a). The event was prompted in part by a recent U.S. government statement of interest filed in a patent infringement suit against Moderna, Inc.’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 statement of interest came in the context of a suit brought by Arbutus Biopharma and Genevant Sciences against Moderna. In response to Judge Mitchell Goldberg’s request for briefing on the government’s statement of interest, the United States submitted a short letter further arguing that the U.S. government and not Moderna should be liable for infringement damages under one of two government contracts at issue in the lawsuit. According to the 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.

But Arbutus’ brief  countered that Section 1498 requires a defendant to show that alleged patent infringement was “for the Government” and with the government’s “authorization and consent” and that “[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.”

Frank Cullen, C4IP Executive Director explained yesterday that, in addition to the statement of interest, certain members of congress have been urging Health and Human Services (HHS) Secretary Xavier Becerra to misuse Section 1498 to lower drug prices. In a letter dated June 23, 2022, Senator Elizabeth Warren (D-MA), Rep. Lloyd Doggett (D-TX) and 98 of their Democratic Congressional colleagues wrote to Becerra asking him to “utilize administrative authorities, including government patent use compulsory licensing under 28 U.S.C. 1498 and march-in and royalty-free rights under the Bayh-Dole Act, to lower prescription drug prices.” According to the letter, 80% of voters favor breaking patents to reduce drug prices and using tools like Section 1498 is the mandate of President Biden’s executive order on Promoting Competition in the American Economy. “Utilizing patent licensing authorities under these statutes could introduce generic or biosimilar competition and dramatic price relief in a matter of months,” the letter added.

But the C4IP panelists variously called this interpretation of Section 1498 “legally incorrect” and “absurd” and said such an approach would result only in Americans footing the bill for private patent infringement to the tune of multimillion dollar damages awards.

History Lesson

The problem is partially rooted in a fundamentally flawed understanding of the history and intent of the statute, said Professor Adam Mossoff of the Antonin Scalia Law School, speaking on the panel. Section 1498 is a century-old statute enacted first by Congress in 1910 and amended in 1918 and 1941, he explained. It sets out the terms for patent owners to obtain compensation when “an invention described in and covered by a patent of the United States is used or manufactured by or for the United States without license of the owner thereof or lawful right to use or manufacture the same,” designating the Court of Federal Claims as the venue for the patent owner to obtain “reasonable and entire compensation.” During the 19^th century, Mossoff noted, courts consistently upheld patent owners’ rights via the Fifth Amendment Takings Clause and mandated payment by the government to owners for infringement. But the Supreme Court created some confusion in the late 19^th Century about the scope of protection via several decisions, which led to Congress stepping in to resolve the uncertainty in 1910. Understanding this historical backdrop is key to understanding that Congress’ intent in creating the statute was to compensate patent owners for government infringement and use only.

The Realities of Investment

Earl “Eb” Bright, President and General Counsel of ExploraMed, a venture-backed medical device incubator, told the panel that, when investing in a high-risk field like medical devices, where “it takes 6-10 years on average before you make any money, and tens of millions if not over $100 million to do pre-clinical and clinical testing, having strong IP rights is very, very important before going down that long and extensive path.”

Bright noted that Section 1498 was created to encourage a balance between IP rights and encouraging private industry to provide needed products to the government, and when the balance is upset as drastically as implied by the statement of interest, it can discourage investors. “If they’re just going to step in and take IP from private industry, they’ll discourage future investment in new fundamental technologies,” Bright said. When it takes 10 years and close to $2 billion in investment to get a product to market in the pharmaceutical space, not including the time and investment to get insurance companies and Contract Manufacturing Organizations to pay for it, “investors need to know at the end of that long path they’re getting a return on investment. Upsetting the balance by changing laws midway through will discourage any of that future investment,” Bright added.

Also on the panel was Judge Susan Braden, who served as Chief Judge on the Court of Federal Claims. Braden has been a vocal opponent of the calls to misuse Section 1498 and noted in a recent article for IPWatchdog that Judge Goldberg has recognized the broad implications of signing on to the government’s position. Goldberg “recognized the dangerous implication of the Justice Department’s position, which “could mean that every government-funded product used to advance any policy goal articulated by the U.S. Government—such as IV needles to fight HIV to cancer drugs to fight the war on cancer—would be subject to a §1498(a) defense,” Braden wrote.

Absolutely Absurd

Braden told the panel that she served on the Court of Federal Claims for over 17 years and as the leading adjudicator on many of the cases that arose under 1498(a). “Almost every one of them concerned traditional military or government use cases,” she said. But since members of congress started quoting from what Braden said is a data-deficient and legally inaccurate Yale Law Review article on Section 1498(a) and calling for the statute to be employed to lower drug prices, this kind of misuse has become more common. Braden said the idea that the government could actually lower drug prices via Section 1498(a) is “absolutely absurd” since they can’t use it as a matter of law firstly, and secondly, there’s no data to support that it would result in lower drug costs. “It would impose a tax on the general public,” Braden commented.

While she conceded that there are a very few brand name pharmaceutical drugs today with a high price point (most brand drugs are comparable to generics and covered by government plans, she noted), this is because only a handful of people use them and there is a very limited window for investors to recoup their money. “Investors that put the money behind some of these blockbuster drugs, which took years to develop, only have a very short period of time to gain returns on that investment,” Braden said, noting that by the time a blockbuster drug gets through trials and regulatory approvals, there are usually only a few years left on the patent. Braden said this raises many issues about potential alternatives to keep those blockbuster drug prices low, but “this statute is not the way, nor will it lower pharmaceutical drug prices.”

An Old Experiment

Ultimately, the panel warned against the potentially dire outcomes of misusing and misinterpreting Section 1498, including national security risks. “The flawed premise is that if we just take away property rights, then everything will become readily available and innovation will continue to fall from the sky like manna from heaven,” said panelist Brian O’Shaughnessy, chair of the IP Transactions and Licensing Group at Dinsmore and also senior vice president for public policy at the Licensing Executive Society.

“We’ve run the experiment. Prior to the Bayh-Dole Act, when universities could not take title to their inventions simply because there was a modest amount of federal funding, there were absolutely no drugs – zero drugs – that came out of university labs. Since the Bayh-Dole Act has been implemented, there have been over 300 FDA-approved drugs. So clearly the ability to rely on IP protections to incentivize investment and to take risk has paid benefits. Let’s not reinvent the wheel.”