Pandemics and intellectual property: How the government can impact COVID-19 drug and device development

The US patent landscape seeks to foster growth and innovation—especially in life sciences. But amid a global pandemic, public-private partnerships and government authority can impact an otherwise routine landscape of drug and device development. Here are four laws, regulations and international agreements that have implications for developers in the COVID-19 crisis.

 

Aaron Badida, JD is a research analyst at AgencyIQ. To reach him, please email abadida@agencyiq.com.

To contact the editor of this story, please email Alec Gaffney (agaffney@agencyiq.com).

 

Defense Production Act (DPA)

Purpose of the Law
The Defense Production Act (50 U.S.C. App. § 2061 et seq.) was passed by Congress in 1950 under the Truman Administration, which led the US through the Korean War. After two resource-intensive global conflicts in the first half of the 20th century and the start of the Cold War with the Soviet Union, it was determined that the Executive branch—specifically the President—should have the power to marshal US public and private resources in the interest of national defense. Today, the revised DPA primarily serves to allow the Executive the authority to direct entities with government contracts to redirect resources and prioritize federal obligations. The DPA has been reauthorized 53 times. It was last reauthorized in September 2019 and is currently set to lapse in its entirety in 2025.


Overview and Relevant Provisions
The DPA now consists of authorities relating to prioritization and allocations of contracts; expansion of production capacity and supply; and ancillary general provisions. The law provides a mechanism for the government to ensure that supply needs can be met. This can include manufacturing contracts for medical devices, such as those for the Department of Defense or Health and Human Services.


Though passed in the context of wartime, the policy of the legislative text included findings that the government was “dependent on the ability of the domestic industrial base to supply materials and services for the national defense” and that “in order to provide for the national security, the national defense preparedness effort of the United States Government requires…the development of domestic productive capacity to meet…essential national defense needs that can result from emergency conditions[.]”


National emergencies have since been construed to include non-wartime needs, such as cybersecurity. The table below summarizes the instances where DPA has been invoked by Executive Order in the last three decades.

Recent uses of the Defense Production Act

On March 18, 2020, by Executive Order, the White House activated Title 1 (Allocations and Priorities) of the DPA and delegated authority to the Secretary of Health and Human Services for the prioritization and allocation of medical resources. The order specifically noted “health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators, meet the criteria specified in section 101(b) of the Act,” but also provided that the Secretary could identify additional health and medical resources as needed. The statutory criteria include a determination that certain materials are scarce, essential to national defense and could not be acquired without significant disruption to the consumer market.



Current Impact
The global pandemic of COVID-19 caused by the SARS-CoV-2 virus has led to a rapidly increased demand for products such as swabs for screening, masks for protection and ventilators for treatment. Under normal conditions, the private sector may be able to produce enough of these to meet the needs of the federal government. However, the unprecedented strain of COVID-19 on health care systems has led to a shortage of essential items.


As of March 20, 2020, the DPA has been “activated but not invoked,” and the White House has delegated authority to HHS to manage government contracts and ensure the supplies of ventilators, protective equipment and other products integral to COVID-19 containment and treatment are prioritized. If the government does invoke and apply these powers, companies with existing contracts with manufacturers that supply the government may experience delays in fulfillment of their expected supply if resources are diverted under this authority. Developers should evaluate government contracts for medical products and plan for resource allocation.


Notably, the authority is not limited to items specified in the Executive Order. As therapies, vaccines or other responsive medical products are needed to respond to COVID-19, the HHS Secretary may identify additional allocations that need to be prioritized. Invocation of this power could increase the availability of essential products and help to “bend the curve” of the pandemic. However, it’s unclear to what extent a company would be able to manufacture a complex medical product like a ventilator—which must also be manufactured under sterile conditions to avoid introducing infections into the lungs—quickly or easily.



Bayh-Dole Act and Enforcing Regulations

Purpose of the Law
The Bayh-Dole Act (35 U.S.C. 200 et seq.), passed in 1980, was designed to foster collaboration between government agencies, academic research institutions and other nonprofits or small businesses. It was extended by patent regulations (37 C.F.R. 401) to include all private entities. The Act ensures that government-supported innovation is incentivized, protected and brought to market. It also helps incubate smaller ventures.


Overview and Relevant Provisions
Bayh-Dole is a critical piece of the landscape of public-private partnerships for medical innovation. The law outlines the rights that non-governmental parties that receive federal assistance for a project have over the intellectual property resulting from that investment. Regulations incorporate these same rights by reference (37 C.F.R. §401.1(b)). These include:

  • The company owns the patent, though the government retains some degree of rights (32 U.S.C. §202(a)).
  • The company may not license the patent to a third-party licensing without federal agency approval (32 U.S.C. §202(c)(7)).
  • The company holding the patent has a right to an administrative appeal if the government exercises march-in rights to re-take the patent (32 U.S.C. §203(b)).

There are certain exceptions to the absolute right to firm entitlement to the patent, such as issues of national security, but these are likely not applicable in the medical product development context as currently worded.


The march-in rights provision, which gives the federal government the authority to lawfully license a patent to third-parties to fulfill the intent of the legislation, has significant implications during public health emergencies. However, the NIH has never elected to exercise march-in rights despite more than $100 billion dollars in NIH assistance in more than 210 new molecular entities and dozens of petitions to do so.

Though often discussed as a means to contend with high drug pricing, march-in rights were traditionally conceived as a means of ensuring that inventions made with federal assistance were marketed. An enumerated list of findings—subject to administrative review and appeal—must be made before a federal agency is lawfully allowed to exercise this power. These findings are outlined and hypothetically exemplified in the table below.


Legal basis for exercising Bayh-Dole March-in Rights

 

Current Impact
Intellectual property protections are essential to cultivate an environment that promotes innovation and social welfare. At its core, Bayh-Dole seeks to ensure that government support of an invention benefits the general public.


The immediate need to rapidly produce ventilatorsprotective equipment, therapies and vaccines to treat and address COVID-19 may result in the federal government using its march-in rights for some medical products.


Contractors that have received federal assistance that resulted in patents for any invention that could assist with pandemic mitigation—and for which the federal agency determines the contractor is not reasonably making the invention available—are arguably within the ambit of an agency enforcing its powers under §§ 203(a)(1) or 203(a)(2).


Opponents of expansively interpreting march-in rights assert that the provision is narrowly tailored to market access and reasonable availability. Proponents of using the power argue that reasonable availability includes reasonable pricing—especially for drugs or devices considered essential.


It’s difficult to tell whether COVID-19 has created a climate that would justify a break with legal precedent. The rights have not been exercised even on record-setting prices that have historically limited access to treatment for drugs that treat HIV and certain types of cancer. For example, Abbot Laboratories patented ritonavir (Norvir) for the treatment of HIV/AIDS and began marketing the drug in 1996. Ritonavir was developed with federal assistance, and concerns over pricing were cited as a primary motivator for a march-in petition submitted to the NIH in 2004. In its decision, the NIH essentially performed a market analysis and found that Abbott was sufficiently meeting the needing and the extraordinary remedy was not warranted.


Still, COVID-19 is an unparalleled situation in terms of rapid spread and immediate economic impact, so developers would be under enormous government and public pressure to make sure treatments are not withheld for profit-related reasons.



Trade-Related Aspects of Intellectual Property Rights (TRIPS)

Purpose of the Agreement
As global trade and multinational partnerships have proliferated, the life sciences sector has emphasized a need to protect their intellectual property and investments into product development, such as the cost of conducting clinical trials.


The Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement created “global minimum standards for protecting and enforcing nearly all forms of intellectual property rights (IPR), including those for patents.” The 2001 Doha Agreement shaped the application of TRIPS in the context of public health.


Overview and Relevant Provisions
TRIPS only applies to World Trade Organization (WTO) member countries, which includes all but 16 relatively small countries throughout the globe. As a global agreement, the provisions tend to be sufficiently broad so as to allow conformity with the contours of a given country’s domestic intellectual property law. Article 27 of TRIPS states that “products and processes, in all fields of technology” can carry patents. Consistent with the mission of the WTO, TRIPS accommodates innovation and minimizes trade restrictions while also considering the needs of less developed countries.


One of those considerations is access to needed drugs at an affordable cost. This can be especially important during a global health emergency, since the infrastructure needed to engage in rapid research and development of treatments is likely to only exist in developed countries with strong economies and robust life sciences sectors.

TRIPS grants a 20-year patent on any invention, which includes drugs and devices used for treatment. However, some products may be subject to additional data exclusivity protections which limit drug development before a certain amount of time. Conversely, some drugs may also be subject to something called compulsory licensing.


Compulsory licensing provisions, formally legalized under TRIPS in the Doha Agreement, can be used to help least-developed countries gain access to a drug. Compulsory licensing can be requested by a foreign government—typically from a least developed country—or used domestically. If a compulsory license is granted, the government allows third-party use of a patented invention without consent of the patent-holder. This is seen as a way to enhance access to affordable generics.



Current Impact
In a global pandemic, drugs and devices developed in the US could be subject to compulsory licensing and shortened patent exclusivity abroad. Given the global impacts of COVID-19, as well as its widespread effects and enormous economic impacts, the use of compulsory licensing in some markets seems likely.


However, Coronavirus-related therapies are likely to be treated as critical humanitarian aid, and developed countries are likely to view distribution of treatment as a matter of national security and global economic importance.


Drug and device manufacturers that do gain market approval for vaccines or therapies should consider that, while the domestic market is likely to be prioritized, global demand for safe and effective treatments will be extraordinarily high as well.



Governmental Use Rights (Section 1498 Authority)

Purpose of the Law
Patents generally protect intellectual property from infringement by a third party. This is complicated, however, when the federal government decides it needs to exercise use of a patent.


In 1910, Congress codified the US government’s ability to infringe on a patent and provided for a remedy under 28 U.S.C. §1498. This allows a patent holder to sue the government in the US Court of Federal Claims by waiving the sovereign immunity the government otherwise would hold.


Overview and Relevant Provisions
Government use rights are a straightforward area of patent law. They essentially outline that the federal government can infringe on a patent, but that the owner can sue for “recovery of his reasonable and entire compensation for such use and manufacture.” This is a form of civil suit that award compensatory damages, making the infringed party whole for the government’s use of its patent.


Current Impact
Government use is an extraordinary measure that can have a chilling effect on innovation. Nothing excludes pharmaceuticals or medical devices from this right. 
Unless the government needed to initiate manufacturing of something it couldn’t obtain a license for or contract with the private sector for, government use is unlikely. This could change if a successful therapy cannot be produced at the needed scale by one or more manufacturers.



Final Thoughts

Intellectual property laws and regulations are focused on balancing innovation, national security, free market forces and even international humanitarian obligations.

When circumstances like those created by COVID-19 instantaneously reshape the global economy and rely heavily on a concentrated group of highly technical industries, the impact of these laws is amplified. Development becomes critical, but significant risk goes in to research and development of medical products. Each of the authorities the government has over drugs, devices and intellectual property are primarily intended to foster innovation and protect inventors; however, relevant industries should pay close attention to what receiving federal assistance can mean, as well as how managing risk should be considered under the strain of a global health emergency.

Aaron Badida, JD is a research analyst at AgencyIQ. To reach him, please email abadida@agencyiq.com.

To contact the editor of this story, please email Alec Gaffney (agaffney@agencyiq.com).

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