§ 1498: A Guide to Government Patent Use, a Path to Licensing and Distributing Generic Drugs

This guide provides practical information on how the U.S. government can use a long-standing U.S. federal statute, 28 U.S.C. § 1498, to authorize use of any patented technology by or for the government and the American public. The guide aims to clarify ambiguity and misperceptions surrounding the U.S. government’s “government patent use” power under § 1498. It explains, in accessible language, the substantive powers that § 1498 provides to U.S. government officials, and it explains what effective and successful use of § 1498 looks like in practice. The guide takes a comprehensive approach, outlining what U.S. government officials should expect from contractors, patent holders, and courts before, during, and after “using” a patent pursuant to § 1498. Together, the sections below highlight § 1498’s broad scope and its highly flexible application to any and all patented technology, regardless of whether the technology was developed with public or private money. Section 1498 permits the U.S. government to use—and thereby expand public access to—any technology covered by a U.S. patent. Any time a patent stands in the way of government procurement—e.g., when a particular patent holder asks an unreasonable price, or is unable to manufacture enough of a patented product to meet the government’s supply needs—§ 1498 can be used to procure the product from competitors, or to allow the government to manufacture the product itself. As a result, § 1498 has broad utility. In years past, the statute has been used in many different technological contexts—including, for example, pharmaceuticals, military equipment, and financial technology—and it could be applied in any number of technological contexts in the future. SECTION 1 of this guide highlights some problematic features of the patent system, which § 1498—a core part of the U.S. patent system for over a century—is well suited to correct. While acknowledging the important role that patents play as economic incentives for innovation, Section 1 focuses on the enormous costs, both human and economic, that can result from healthcare corporations’ strategic, profit-maximizing use of patents. For example, patents have sustained the high prices of life-saving drugs for hepatitis C infection and HIV/AIDS, prolonging these costly and deadly epidemics. Further, the U.S. has faced preventable shortages of treatments, tests, and other supplies throughout the COVID-19 pandemic. Shortages of one COVID-19 treatment in particular, remdesivir, grew so severe in the summer of 2020 that patients and doctors were forced to ration the drug; these were exacerbated by patents that blocked competition and expanded supply. Section 1498 can address such problems, as the remainder of the guide explains. SECTION 2 provides a legal and historical overview of § 1498. It introduces the text of § 1498 and clarifies its meaning: the U.S. government has the authority to use or manufacture any patented invention, without the consent of the patent holder, in return for “reasonable and entire compensation” to the patent holder. Section 2 then summarizes how this authority functions in practice, describing when and how government patent use occurs and by providing brief historical examples of patent use under § 1498. It highlights the versatility of § 1498, including the law’s value as leverage in a negotiation (where the mere prospect of government patent use, without actual exercise of the power, may bring patent holders to the negotiating table). SECTION 3 describes in detail how § 1498 operates in practice. Section 3 begins by describing a first type of government patent use under § 1498: direct, independent government patent use, in which the U.S. government itself makes, sells, and/or distributes a patented invention. Section 3 then describes a second type of government patent use: third-party use on behalf of the government, which is included within the statute as patent use “for” the U.S. government. Section 3 also explains the flexible “government use test” that courts have created to establish whether a third party’s use of a patent is properly “for” the U.S. government and therefore covered by § 1498, and it provides a roadmap for U.S. government officials to meet the government use test. SECTION 4 details litigation that may arise upon government patent use under § 1498. Section 4 focuses primarily on the “reasonable and entire compensation” paid to a patent holder when the U.S. government uses their patent: what constitutes “reasonable and entire compensation,” and how is this value determined? Reasonable and entire compensation is determined by a federal court, the Court of Federal Claims, which has historically taken a conservative and even-handed approach that typically provides the patent holder with a “reasonable royalty” based on the market value of the patented invention. Section 4 provides specific examples and trends deduced from these data, which provide guidance to government policymakers on what to expect when using, pursuant to § 1498, a particular patent in a particular instance. Finally, Section 4 reiterates the value of § 1498 as leverage in negotiation and explains how § 1498’s compensation structure creates much of this leverage. SECTION 5 discusses government patent use under § 1498 in the specific context of prescription drugs. Special considerations apply to pharmaceuticals because they are heavily regulated by the Federal Drug Administration (FDA), and non-patent regulatory barriers to competition can affect the reach of government patent use. Section 5 explains, broadly, two distinct sets of facts that may apply to a given pharmaceutical. Under the first set of facts, patents are the only barriers to competition for a particular drug. Government patent use under § 1498 is likely to solve these “patent problems”—to accelerate competition and expand access—quickly and straightforwardly. Under the second set of facts, additional non-patent statutory exclusivities prevent generic competitors from entering the market. Government patent use under § 1498 cannot solve the latter sort of “non-patent problems.” However, the government may be able to coordinate with generic manufacturers to work around such non-patent exclusivities.