Avoiding Risk of Patent Infringement Liability Resulting From Work Done for the Government in Connection With COVID-19 Pandemic

By statute, the federal government has waived its sovereign immunity and consents to suit for patent infringement, but only in the United States Court of Federal Claims and only for monetary compensation, not an injunction.¹  The same statute extends certain protections to companies and individuals that provide goods and services to the government using a patent of another. The purpose is to ensure that the government is able to obtain what it needs from third parties, regardless of potential patent infringement, with compensation provided later to patent holders in a suit against the government. However, the protections available to entities providing goods and services to the government are not necessarily automatic: Care must be taken, especially with the negotiation of applicable contracts, in order to avoid liability for patent infringement.

In a suit between private parties, Section 1498(a) operates as an affirmative defense. The accused infringer raising the defense must prove that the use of the patented invention was (1) “for the Government” and (2) “with the authorization and consent of the Government.” The first prong is relatively easy to establish. It imposes only the requirement that the use or manufacture of a patented product or method occur pursuant to a contract with the government and for the government.

Proving the second prong can be accomplished by pointing to language in the government contract whereby the government expressly authorizes and consents to all use and manufacture of any invention covered by a patent in the course of performing the contract. Language to this effect is set forth in the Federal Acquisition Regulations.²  The regulations also contain indemnity provisions whereby the contractor assumes liability for patent infringement, which of course should be avoided if at all possible. Authorization and consent can also be established implicitly, where the evidence indicates that performance of the government contract necessitates infringement. This approach may be relevant in situations where (1) the government expressly contracted for work to meet certain specifications; (2) the specifications cannot be met without infringing the patent; and (3) the government had some knowledge of the infringement. But attempting to show implicit authorization and consent is hardly ideal, because it is likely to raise disputed issues of fact, making it difficult for the accused infringer to prevail in court on summary judgment.

Even where an express “authorization and consent” provision is included in the government contract, it is advisable to include a detailed work plan including detailed specifications of the product or service to be provided. This detailed plan can be valuable in proving that performance of the contract required infringement of a third-party patent, and avoidance of infringement would have resulted in a breach. The inclusion of such a plan may be of particular importance when a manufacturer is making products (e.g., ventilators) for the government that were clearly designed by others and likely patented.

Adequate protection against patent infringement liability may require additional steps beyond using the contract language discussed above. The Federal Acquisition Regulations contain provisions requiring that the contractor give the government written notice, promptly and in reasonable detail, of a claim for patent infringement based on performance of the contract.³

The risk of liability for patent infringement could be further mitigated if the federal government has (or can obtain) a license to the relevant patents. Under the Bayh-Dole Act of 1980, the government has the power to exercise so-called “march-in” rights to obtain a license to patents stemming from federally funded research. This act permits the government to obtain such rights, and potentially extend them to others, when health and safety needs are not being “reasonably satisfied.” However, compulsory licensing of patents has been widely viewed in the United States as antithetical to intellectual property rights, especially in view of the negative effect it would have on financial motivations to undertake expensive research in the pharmaceutical and medical device fields. Accordingly, despite repeated calls to do so in the pharmaceutical field, the federal government has never invoked Bayh-Dole “march-in” rights. Thus, entities contracting with the government to provide products and services in connection with the present pandemic should assume that the best protections from patent infringement liability are based on Section 1498(a) and not from patent rights the government might theoretically obtain through Bayh-Dole.

Working with the government to provide life-saving products and treatments in response to the COVID-19 pandemic is noble and of critical importance. But doing so while mitigating the risk of liability for infringement of third-party patents requires careful consideration of the measures listed below:

• Insist on language in government contracts that expressly place liability on the government for patent infringement stemming from performance of the contract (e.g., 48 C.F.R. § 52.227-1)
• Include detailed product/service specifications in any work plan in the event that it later becomes necessary to document that performance of the contract required patent infringement
• Strenuously avoid language in government contracts that forces the contractor to indemnify the government for infringement
• Provide prompt and detailed written notice to the appropriate government contracting official of any actual or threatened patent infringement suit against the contractor
• Keep in mind that the protections afforded under federal statute (Section 1498) do not apply to contracts with state agencies or private entities (such as medical facilities); for those nonfederal entities, mitigation of risk of liability for infringement of third-party patents should be evaluated based on the law of each particular jurisdiction
• Assess the overall level of risk for infringement of third-party patents as part of any diligence undertaken during the contract negotiation and drafting process