For well over a year, Senator Elizabeth Warren (D-MA) and some members of Congress have engaged in a campaign to urge the Health and Human Services Secretary Xavier Becerra to break patents on pharmaceuticals to lower drug prices by invoking a century-old statute, Title 28 of the U.S. Code 1498. This is their “game plan”: HHS should contract with generic drug companies willfully to infringe pharmaceutical patents, thereby requiring any damages to be paid from public funds.
This strategy took a new tack in early March 2023, when the Biden Administration’s Justice Department filed a surprise “Statement of Interest” in a private lawsuit on behalf “the Government and its Department of Health and Human Services and the Department of Defense.” The case, filed in Delaware federal court, was initiated by Arbutus Biopharma and Genevant Sciences, which allege that that patents they own were infringed by Moderna in producing its version of the COVID-19 vaccine. Strangely, the Justice Department did not move to intervene but instead simply decided to “inform” the trial judge that he did not have jurisdiction to decide infringement claims against Moderna that arose from a 2020 Army contract to purchase Moderna’s vaccine because the Government consented to any liability under Section 1498.
Although the Justice Department proclaimed its “Statement of Interest” should resolve the applicability of Section 1498, the federal trial judge was not persuaded. He reminded the Government that Congress enacted this law in 1910 to clarify that the Government could be responsible for paying the owner “reasonable compensation” if it infringed a patent in exercising eminent domain authority. And, in 1949, Section 1498 was amended to immunize contractors who worked in the WWII effort, but only if any infringement was “for the Government” and “with the authorization and consent of the Government.”
Significantly, precedential appellate law holds: “The fact that the government has an interest in [a] program generally, or funds or reimburses all or part of its costs, is too remote to make the government the program’s beneficiary for the purposes underlying § 1498.” Larson v. United States (Cl. Ct. 1992). Therefore, in the Arbutus case, the federal trial judge pointed out that Section 1498 was inapplicable because, although the Government may have paid for the Moderna vaccine, it was not produced “for the Government,” but “for the use” and the benefit of private citizens. More importantly, he 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.”
Notably, the Government also did not concede that Moderna engaged in patent infringement; instead, it wanted an Article I court to make that decision, where many of the judges are former federal lawyers, and have the public pay for any damages—even though that amount could well be in the billions.
The timing of the Justice Department’s “Statement of Interest” is also curious. Within a week, Moderna paid a $400 million “catch up” payment to the National Institutes of Health for rights to use a chemical technique that Moderna had hotly disputed was not patentable. Moderna has offered no explanation for the reversal of its prior position.
Just the Beginning
The recent imposition of the Justice Department into a private infringement lawsuit likely will not be the last effort of this Administration to misuse Section 1498 (a) to advance a policy agenda undermining property rights in patents, particularly in the pharmaceutical industry. All American industries where patents are central to their business, however, should be concerned. Continued diligence will be required to prevent other efforts to expand the scope of Section 1498(a) well beyond that which Congress intended and transfer the cost to U.S. taxpayers.