By Michael Rosen

Public health activists seeking to lower prescription drug prices have recently seized on two fundamentally flawed approaches that would eviscerate patent rights and distort patent law: Section 1498 “government patent use” and “Bayh-Dole march-in rights.” For obvious reasons, policymakers should resist this siren song.

In this post, I’ll examine the first of these problematic approaches; in a future post, I’ll consider march-in rights.

According to the patent statute, 35 U.S.C. § 1498(a):

Whenever 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, the owner’s remedy shall be by action against the United States in the United States Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture. 

In other words, patent law prevents not only private parties but also the federal government from infringing a patent without “license” or “lawful right” and entitles the patent owner to “reasonable and entire compensation” for infringement, including costs and attorney fees. This provision originated in the 19th century as a mechanism for shielding government contractors from personal responsibility for patent infringement when acting under the color of government authority. It aims to recognize that patents, like all property, cannot simply be seized by the government and are instead subject to the Constitution’s Takings Clause. Citizens can vindicate their rights against illegal government patent seizures in the Court of Federal Claims, a specialized court designed to litigate alleged government depredations.

But in recent years, public health activists have mangled Section 1498’s meaning beyond recognition in an ill-considered effort to persuade the government to obliterate the patent’s underlying protection of groundbreaking, lifesaving, and life-enhancing pharmaceuticals and thereby reduce their prices. Just last week, a coalition of physicians, lawyers, and public health specialists at Columbia, Harvard, Yale, and other prominent universities wrote an open letter to Sen. Elizabeth Warren (D-MA) urging her to persuade Secretary of Health and Human Services Xavier Becerra to “intervene when patients and public health are harmed by excessive drug prices,” to “break patent barriers,” and to “drive down prices.”

Specifically, the letter invoked what it characterized as the “government patent use power” of Section 1498, arguing that the provision “permits both direct patent use by the government itself as well as third-party use on behalf of the government.” The signatories exhorted the executive branch to “use this power to curb excessively high drug prices” by “buy[ing] patented drugs from a lower-cost manufacturer” or by “authoriz[ing] a third party (e.g., a contract drug manufacturer) to use a patent in the government’s place.” Sen. Warren duly passed the letter to Becerra, urging him to “move swiftly to use your existing authorities to give sorely needed relief to the millions of Americans paying far too much for their prescription drugs.”

It’s difficult to decide where to begin debunking the legally inapposite and practically unsound claims presented in the letter, but let’s start with its fundamental misunderstanding of the purpose and history of Section 1498. Far from a “government patent use power” that “permits” the government to unwind patents, the provision bars the government from using or manufacturing an invention “without license of the owner thereof or lawful right to use or manufacture” it. Far from a get-out-of-jail-free card for government seizures of private property, it binds the government to provide “reasonable and entire compensation” for its illicit taking. Encouraging the government to willfully expropriate property is the very opposite of Section 1498’s purpose.

Furthermore, practical difficulties abound in this plan. First, pressuring the government to buy infringing drugs from a generic manufacturer—and thereby subject itself to suit in the Court of Federal Claims—would not necessarily shield that manufacturer itself from liability. Second, enlisting one of these generic drugmakers as a government “contractor” is fraught with many of its own challenges, not the least of which is that, on the rare occasions, the government has intentionally infringed patents; it has procured patented goods and services solely for use by government officials or agencies. Finally, even if the Department of Health and Human Services navigated these challenges, it would nevertheless be forced to provide “reasonable and entire compensation” to the patent owner, which would effectively offset any savings the government would otherwise achieve by authorizing generic versions of the drugs.

It is true, as the letter notes, that in certain extreme situations involving urgent national security needs, the federal government has threatened to invoke Section 1498, but supposedly inflated pharmaceutical drug prices hardly qualify as such an emergency. Instead, we should encourage pioneering research and development efforts to develop lifesaving and life-enhancing treatments by ensuring our patent system remains strong, not by distending its provisions beyond recognition.

The post Beware the Siren Song of “Government Patent Use” as a Way of Lowering Drug Prices appeared first on American Enterprise Institute – AEI.