“Under the Bayh-Dole Act of 1980, the government can retain ownership rights in some patents for inventions generated by government-funded research…. The particular intellectual property issues raised by the new coronavirus vaccine vary wildly by who, and in what circumstances, the vaccine is developed.”
Almost a third of the recently signed $8.3 billion bill to fund the United States response to the coronavirus outbreak is devoted directly to vaccine research and development. And while the realities of drug development and FDA approval mean it is unlikely any vaccine will be available before next year, the government has numerous tools at its disposal in seeking to reduce the strain on the nation’s health care system.
As many as nine different pharmaceutical companies worldwide are rushing to develop a safe and effective vaccine. Some are using traditional vaccine methods, including testing previously developed vaccines for other viruses. Others are using new technology to address the outbreak. The rush to find and deploy a coronavirus vaccine raises several interesting legal and regulatory issues, including balancing speed with efficacy, understanding ownership, and vaccine costs.
Tensions Between Timing and the Regulatory Process
Initially, both President Trump and Vice President Pence pushed for rapid development of a coronavirus vaccine. As recently as March 3, President Trump sought the deployment of a vaccine within a matter of months. Dr. Anthony Fauci, the head of the National Institute of Allergy and Infectious Disease, noted that “this is the fastest we have ever gone from a sequence of a virus to a trial,” but an FDA-approved product will not be available for a year to a year and half.
While labs around the world are hunting for an effective vaccine, the push for speed has been somewhat tempered by the realities of drug testing and approval process. Animal trials are ongoing, and the first small-scale, human safety trials are targeted to begin in April. If proven safe, then the vaccines would be deployed in small-scale efficacy trials, before being deployed in large-scale trials for approval.
No doubt some will ask whether the pressing need may call for an expedited process. Most drugs take years to move from concept to FDA approval, so the current estimates illustrate the best case scenario for the FDA approval of a drug. The application for the coronavirus vaccine will likely be granted a “fast-track” approval process. Notably, the fast-track process allows the applicant access to additional guidance and meetings with the FDA. The FDA also would begin its review of sections of the application before the entire application has been completed. This may allow the applicant to address technical issues and questions related to, for example, the manufacturing process, before submitting its final clinical trial data. Once all clinical data is received, the FDA would likely grant “priority review” for approval within six months of filing, instead of the typical 10-month review. Dr. Fauci and U.S. Department of Health and Human Services Secretary Alex Azar have repeatedly emphasized that evidence of safety and efficacy must be established before any vaccine is deployed in the U.S., balancing safety with the need to bring new efficacious therapies to market.
A Question of Ownership and Control
The U.S. government has committed to spending $3 billion to help develop a new coronavirus vaccine. As of now, government agencies and scientists have been closely partnering with the pharmaceutical industry on the project. But this sparks several important questions: Who will own the vaccine funded by those dollars? What price will the vaccine fetch on the market? How much will consumers pay?
Historically, the U.S. government has not taken an ownership interest in pharmaceutical products developed using money from, for example, National Institutes of Health grants and funding. This stance has sparked debate recently as drug prices increase. But under the Bayh-Dole Act of 1980, the government can retain ownership rights in some patents for inventions generated by government-funded research. 35 U.S.C. §§ 200-212.
The particular intellectual property issues raised by the new coronavirus vaccine vary wildly by who, and in what circumstances, the vaccine is developed. Below are five scenarios to consider that may affect ownership and use of IP rights related to a vaccine:
- The U.S. Government Owns its Employees’ Work
If a U.S. government researcher develops the vaccine as part of government work, the agency that employs that scientist likely would be automatically assigned the patent application. 37 CFR § 501.6. However, the U.S. government does not own or operate any pharmaceutical manufacturing facilities. In that situation, the agency would need to find an industry partner to develop the commercial version of the vaccine, under a license from the government.
- The U.S. Government Has a License to Research that It Funds
If a U.S.-funded project at a company or university develops the vaccine, the ownership question is more complicated. Typically, an employee would be required to assign her invention to the company or university as part of her normal employment agreement. Under the Bayh-Dole Act, if federal funds were used to develop the vaccine, the company must elect to retain possession of its IP rights and undertake disclosures to the government. 35 U.S.C. § 202. In return, the government would have a non-exclusive, irrevocable license to practice the invention, if needed. If not elected by the company, the patent would be owned by the funding agency.
- The U.S. Government Can “March In” with a Compulsory License for Research it Funded
Assuming the company develops the product for the market, the government would not take any ownership role. In situations where the funded company fails to bring the product to market, or where “action is necessary to alleviate health or safety needs,” the government has “march-in” rights under the Bayh-Dole Act to force the funded company to license its rights to a third party to bring the patented invention to market “upon terms that are reasonable under the circumstances.” 35 U.S.C. § 203(a). This “march-in” procedure has never been used in the pharmaceutical industry, but the current crisis raises the specter of its use. In response to calls to use this procedure to lower drug prices in the past, the government’s position has been that this right may only be used where a company does not bring the product to market – not to lower prices.
Even if the government were to exercise its “march-in” rights, allowing another company to use the technology will still require that company to file an FDA application and receive approval by the FDA. As noted, even after an application is complete, expedited FDA review takes six months, at a minimum. Given the timing issues, the government would not likely use this procedure unless there was a clear indication in advance that the original company was incapable of meeting demand. The current government policy is to not use “march in” as a tool to promote competition, but to reserve it for situations where the technology is not made available at all.
- Even if Not Government Funded, a Vaccine Could Be Subject to Compulsory License
If a company develops the coronavirus vaccine without U.S. government funding, then the government would have no rights to ownership of the intellectual property. But that would not necessarily mean that the government would be powerless to stop a company from using its patent to hold up the market, for example, by charging exorbitant prices.
If a company were unwilling or unable to provide the vaccine to the U.S. market, the government could simply order another company to manufacture the vaccine for the government. If the vaccine is not covered by patents, then this presents no IP issues. But even if patents have been issued, the government could bypass those rights in the name of the public good. As noted by the Supreme Court in the recent Oil States decision, a patent is a public franchise. As such, the government has an eminent-domain-type power with respect to patents, including patents covering pharmaceutical products. Under 28 U.S.C. § 1498, the federal government can use or manufacture any patented product, and must provide only “reasonable” compensation to the patent holder. The government could elect to either contract with another manufacturer to produce a version of patented drugs, or it could use the threat of Section 1498 to negotiate a license from the brand-name manufacturer to use their drugs at a steep discount. The statute also says that “reasonable and entire compensation shall not include such costs and fees if the court finds that the position of the United States was substantially justified or that special circumstances make an award unjust.” Id. It would be highly unlikely that a court would find that some amount of reasonable compensation is not due, even in a pandemic. But this limitation may knock down a request for entire compensation.
Compulsory licensing has been used in other countries, including Germany, in response to drug shortages or high prices. Although, it has never been used in the U.S. for pharmaceuticals, the statutory right exists and could be explored in an emergency epidemic.
As noted above, even if the government were to use this authority, the replacement product would still need to be reviewed and approved by the FDA.
- Regulatory Exclusivities Could Limit These Policy Levers
A vaccine is a biologic product, so it would be regulated as such by the FDA. 42 U.S.C. § 262(i). According to statute, the first FDA-approved version of a vaccine would be eligible for a period of market exclusivity, separate from any patent protection. In practice, the FDA would not accept an application for an alternative version of the same vaccine for four years, and even then would not approve any application for 12 years. Id. § 262(k)(7). At this point, it is unclear if the government could set aside this exclusivity when facing a national emergency. If not, then even if the patent issues could be worked around, there would be challenges to getting a second version of a vaccine on the market.
Vaccine Costs to the American Consumer
Under the Affordable Care Act, health insurance plans are required to cover federally recommended vaccines with no out-of-pocket expenses. Assuming that the government recommends the coronavirus vaccine, then insurance companies would be required to pay all costs for patients. The low cost will likely help ensure greater uptake by the public, preventing the spread, and reducing strain on the health care system for next year’s coronavirus season.
However, the low cost to patients does not mean the vaccine will have a low cost to the health care system. Pharmaceutical companies do not sell directly to hospitals and doctors. Instead, health insurance companies use outside companies, called Pharmacy Benefit Managers or PBMs, to negotiate the price and distribution of prescription drugs with companies. The PBMs set the “formulary” or list of approved treatments for particular conditions, set in tiers of preference. Each PBM separately negotiates prices of formulary drugs, which is why the cost of some drugs can vary wildly based on insurance carrier. Drugs not on a formulary require the patient to pay full price, while the formulary drugs usually include rebates to the PBM to lower the net cost to patients. At this time, it is uncertain what price would be negotiated for a vaccine.