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Government May Have Ownership or Rights to Coronavirus Vaccines

March 20, 2020, 4:15 PM

From drug pricing to how widely the vaccine should be available, the money the U.S. government is pouring into coronavirus research will give it influence over any eventual vaccine or testing patents. Federal officials even have the “nuclear option” to use the government’s eminent domain-like authority to force drug companies to license their discoveries to competitors.

While the U.S. government could wield its partial ownership of patents from research funded by the National Institutes of Health or the Centers for Disease Control and Prevention, it’s unlikely to take that step just yet, attorneys said. For now the goal is to balance the desire to make any needed tests and drugs available to as many Americans as possible while ensuring drug companies make enough money to keep producing, they said.

“If the government has any ownership in the patent, then the government has a right not only to make use of that patent, but it has the ability to potentially license it,” said Jeffrey Morton, a partner in the San Diego and Phoenix offices of Snell & Wilmer. But that would be an extremely rare move, he said.

Eminent Domain for Patents

The government also has one dramatic option to step in during a pandemic and mandate how a new vaccine, test, or treatment is produced, distributed, or even priced, which is known as compulsory licensing.

In extreme situations the government has “overall authority,” similar to eminent domain for patents, to “use the patent for any purpose it wants as long as it pays sufficient compensation,” said Arti Rai, a professor at Duke University Law School.

Compulsory licensing was created under 28 USC 1498, part of the judiciary and judicial procedure code, which allows the government to authorize the production of cheaper versions of drugs. The section, which applies to all patented inventions, including drugs, has a provision that would have the government pay the patent-holder royalties.

That said, Morton said the government wants to encourage production of new coronavirus tests and vaccines—which means the government will need to account for drugmakers’ need to profit while also making new inventions available to as many Americans as possible.

“This doesn’t happen very often. The U.S. is pretty against compulsory licensing because the benefit of the patent rights have been severely compromised,” said Morton, who is also a member of the firm’s Coronavirus Response Team.

The administration of President George W. Bush had threatened to flex that power during the anthrax scare following 9/11, when Bayer AG had a high-priced treatment the government wanted to make broadly available.

The company complied when the threat of compulsory licensing was floated.

“That would be the nuclear option that the U.S. government would have,” Morton said. “But I think what’s important to note is the patent process is a long process, so it’s unlikely that many treatments for Covid-19 are going to be under patent, unless there’s an existing treatment that can deal with this infection.”

In the unusual case that a new vaccine is patent protected, “the government can request a reasonable compensation level—and under an outbreak that reasonable compensation level could conceivably be dropped to free,” Morton said.

“And there’s little recourse for the company,” Morton added, but he’s unaware of the U.S. ever taking such a drastic step.

March-In Rights

Another option would be “marching in” on the patent, a provision of the Bayh-Dole Act of 1980 that lets the government seize patents for inventions created with government funding and then license them to other entities.

This would be a less dramatic move than compulsory licensing because it can’t wield the power over drugs it didn’t help fund.

No administration has ever used march-in rights, though the process has been initiated a handful of times, with the George W. Bush and Obama administrations declining to pursue the rights.

Government Assertions

While it’s an unusual move for the government to use its patent authority against private companies, a lawsuit that the Department of Health and Human Services brought recently against Gilead illustrates one way in which the federal government has sought to wield that power.

The agency asserts that Gilead refused to license its patents and has “willfully and deliberately induced infringement” on the department’s patents, according to the complaint.

The government is seeking damages and ongoing royalties from the company for HIV drugs.

Obstacles

A major challenge with using government authority for a new vaccine is that not just any drugmaker is prepared to produce vaccines, Rai said.

“It’s harder with vaccines than with ordinary drugs because vaccines require special production and manufacturing facilities,” she said. “It would be more challenging: You wouldn’t only need to break the patent, but force the entity in question to do the manufacturing if you wanted to go the legal authority route.”

The government may not be equipped to manufacture vaccines within its own facilities, she said.

“The other big side of this equation is if the government has this power, why don’t we use it more often?” said Zachary Silbersher, an intellectual property lawyer with Kroub Silbersher & Kolmykov PLLC in New York.

“What about when there isn’t a huge crisis, like when drug prices are too high, why doesn’t the government start selling the drug?” he added. “I think the problem is the government doesn’t want to use its power too freely because it doesn’t want to disincentivize drug companies from innovation.”

To contact the reporter on this story: Valerie Bauman in Washington at vbauman@bloomberglaw.com

To contact the editors responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com; Andrew Childers at achilders@bloomberglaw.com

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