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COVID-19 and Considerations for March-In Rights and Compulsory Licenses

August 24, 2020

Introduction: How has COVID-19 Affected the Medical Research Market?

The COVID-19 pandemic has had an enormous and likely long-term impact on research into infectious diseases, ushering in a flurry of an investigation into possible treatments and vaccines. The pandemic is also influencing how those in the wider healthcare system will bring relevant diagnostics and therapies to the market and ultimately to those in need.
Many of the future underlying innovations in diagnostics, treatments, vaccines, and other related healthcare services for COVID-19 will come from a university, research institution or another recipient of federal research funding. The desperate healthcare, social and political needs for these innovations may dramatically influence how future research and medical innovations enter the market and ultimately reach patients in need. As such, COVID-19 could substantially affect how both the United States and the world deal with similar crises in the future.

What Are March-In Rights and How Are They Relevant?

For research supported in whole or in part by federal funds, march-in rights permit the government to "march-in" and force the relicensing of patents that it determines have not been adequately licensed and to grant additional licenses to other "reasonable applicants," (Bayh-Dole Act of 1980 (Pub. L. 96-517; 94 Stat. 3015; 35 U.S.C. §§ 200–212). March-in rights essentially ignore the rights of exclusivity under any patent grant (35 U.S.C. § 203; Executive Order 12618 signed by President Ronald Reagan, December 22, 1987)). The government can invoke such rights by showing that at least one of four criteria is met, including if the organization holding the rights has not taken “effective steps to achieve practical application of the subject invention” or has failed to satisfy “health and safety needs of consumers” (Id.).

Federal Government Immunity from All Patent Claims: 28 U.S.C. §1498 Explained

In addition to march-in rights, 28 U.S.C. §1498 provides for federal government immunity from all patent claims (not just federally funded ones). The patent holder’s remedy is a suit for reasonable compensation against the government in the U.S. Court of Claims, and there is no right for injunctive relief. During the 1960s and 1970s, the federal government frequently relied on §1498 to procure low-cost generic pharmaceuticals.1 During the 2001 anthrax scare, the government’s threats to make and distribute a patented antibiotic and thereby employ the protection provided under §1498 was the impetus for Bayer to offer steep discounts for supplying the antibiotics to the U.S. government.2

The World Trade Organization’s TRIPS Agreement and Compulsory Licensing

Internationally, the World Trade Organization’s Trade-Related Aspects of Intellectual Property Rights Agreement of 1994 (TRIPS) allows member countries to use the subject matter of a patent without the authorization of the patent owner. This has been interpreted to permit compulsory licensing of patented innovations. TRIPS Article 31 suggests that, except in cases of national emergency or extreme urgency, such use shall only be made after attempts to receive authorization have failed within a reasonable amount of time; that such use shall also be predominantly for the domestic market; and that “the right holder shall be paid adequate remuneration in the circumstances of each case, taking into account the economic value of the authorization.” But “adequate remuneration” and “economic value” are not defined in the Article. Rather, the country where the pharmaceutical would be distributed decides the amount of the remuneration, and the patent holder has the right to appeal.3

TRIPS Article 31 can be interpreted broadly and can permit the country in need to manufacture locally or import the pharmaceutical from other sources (the goal is to have a supply that is reasonably priced). The license must be non-exclusive (so that the patent holder and any other licensee may manufacture as well), and the scope and duration of the license must relate only to the specific product that is needed, not others. (Id.).

TRIPS Article 31 has been invoked numerous times in recent history. For example, compulsory licenses have been used in India, Mozambique, Thailand, Brazil, and Zimbabwe for HIV treatments and in Thailand for cardiovascular treatment.4

Does COVID-19 Warrant Using March-In Rights or Compulsory Licensing?

There are many considerations for whether governments should exercise march-in rights or compulsory licenses, including the potential impact of the exercise of such rights on the business concerns of industry, balanced with the public interest. Moreover, the COVID-19 pandemic presents a unique set of circumstances in which march-in rights, compulsory licenses or §1498 are realistic and viable scenarios to consider.

Arguments in Favor of March-In Rights/§1498/Compulsory Licenses

There are numerous reasons that march-in rights or use of §1498 would be advantageous in the COVID-19 crisis. In the current climate, many companies, universities, and other research organizations across the United States are in the midst of extraordinary efforts to develop diagnostics, vaccines and treatments for COVID-19. It is not difficult to imagine that unleashing the power of the U.S. federal government to oversee and organize a mass campaign to disseminate a cure or preventive measures for the disease could be of enormous benefit to the American people. Conversely, one can also imagine that any delay in disseminating such potentially life-saving therapies could be devastating for the population.

The international aid organization Doctors Without Borders (Médecins sans Frontières) and the Universities Allied for Essential Medicines have been urging governments to seize the patents on any coronavirus therapies that have benefited from taxpayer-funded research.5

Proponents of march-in rights or the use of §1498 could justifiably argue that the present scenario is the exact reason that march-in rights and the taking statute exist – to be used during an unprecedented worldwide pandemic in which saving lives should be the top priority of governments and businesses.

Arguments Against March-In Rights/§1498/Compulsory Licenses

Opponents of march-in rights or the use of §1498 for the current pandemic would likely point to the market itself as the best way to bring effective diagnostics, vaccines, or cures to market efficiently. For example, numerous pharmaceutical companies, including Gilead and Johnson & Johnson, have already pledged to make COVID-19 vaccines and treatments widely accessible to the public.6 U.S. health insurance companies Cigna and Humana have also eliminated all COVID-19-related co-payments for testing.7 Many leading American universities, research institutions and private companies have also pledged to make relevant patented inventions more freely available, with less investment than would normally be required.8 The Yale School of Public Health recently announced that it has received FDA approval for a saliva-based test for COVID-19, which it will not seek to commercialize. Instead, Yale will provide instructions for the test as an “open source” protocol, allowing designated laboratories to follow Yale’s directions to develop their own tests. This may drive down the cost of the test for consumers.9 These efforts demonstrate that the market could be capable of adjusting without governmental interference to deliver these innovations to the public.

Opponents of march-in rights or the taking statute could also argue that the downside of exercising these abilities would far outweigh their benefit. For example, frequent use of TRIPS 31, §1498 or march-in rights could lead to a destabilized market, a disincentive to spend on research and development, a less predictable patent system and consequently, the loss of the public’s faith in the value of licenses. If the result were to be long-term damage to incentives for producing innovations for cures for other diseases, that would be a negative outcome that would far outlive the present pandemic. Indeed, if the world were to experience another pandemic in the future (and most epidemiologists view this as a near certainty), organizations might very well forego the investment of monetary resources needed for developing vaccines and treatments in the present, under the theory that all efforts would ultimately be of no benefit once the government steps in and forces licenses.

Conclusion

In summary, arguments exist both for and against implementing and preserving §1498 and the march in rights regime in the current COVID-19 pandemic. How society confronts these issues today will certainly lead to long lasting effects on all innovators.

Attorney Advertising. The information contained in this Legal Alert provides a general summary of the topics covered and is not intended to be and should not be relied upon as legal advice. You should consult with your legal counsel for advice and before making legal, business or other decisions.

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1 Brennan et al., A Prescription for Excessive Drug Pricing: Leveraging Government Patent Use for Health, Yale Journal of Law and Technology Vol. 18 Issue 1 (2017) (available at https://digitalcommons.law.yale.edu/cgi/viewcontent.cgi?article=1124&context=yjolt)

2 https://www.theguardian.com/business/2001/oct/23/anthrax.businessofresearch

3 The TRIPS Agreement specifically provides that “the legal validity of any decision relating to the authorization of such use shall be subject to judicial review or other independent review by a distinct higher authority in that Member” (TRIPS, Article 31(I)).

4 https://www.ip-watch.org/2012/03/12/india-grants-first-compulsory-licence-for-bayer-cancer-drug/

http://www.cptech.org/ip/health/cl/recent-examples.html#:~:text=Mozambique%20%2D%20On%20April%
205%2C%202004,as%20a%20fixed%2Ddose%20combination

5 https://msfaccess.org/msf-calls-no-patents-or-profiteering-covid-19-drugs-tests-and-vaccines-pandemic (March 2020); https://www.statnews.com/2020/04/02/invoking-bayh-dole-may-be-needed-to-get-affordable-covid-19-treatments/ (April 2, 2020).

6 https://stories.gilead.com//articles/an-update-on-covid-19-from-our-chairman-and-ceo (April 4, 2020); https://www.sciencemag.org/news/2020/03/1-billion-bet-pharma-giant-and-us-government-team-all-out-coronavirus-vaccine-push (March 31, 2020).

7 https://www.cnbc.com/2020/03/29/cigna-and-humana-waive-coronavirus-treatment-costs.html (March 29, 2020).

8 https://otl.stanford.edu/covid-19-technology-access-framework; https://autm.net/about-tech-transfer/covid19/covid-19-licensing-guidelines; https://opencovidpledge.org/partners/

9 https://www.livescience.com/covid-19-saliva-test-yale.html (August 17, 2020)

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