166 contracts disclosed in SEC filings include authorizations to use U.S. patents without consent from patent holders

On 12 October 2022, Knowledge Ecology International (KEI) published a briefing note on the U.S. federal government FAR 52.227-1 authorizations (for non voluntary use of patents) disclosed in 166 SEC exhibits.

KEI Briefing Note 2022:2, Federal government FAR 52.227-1 authorizations (for non voluntary use of patents) disclosed in 166 SEC exhibits, October 12, 2022. This document is best read from the PDF file found here: https://www.keionline.org/bn-2022-2

These are the takeaways from the review of the 166 contracts:

  • The public is not generally aware of the extent to which the U.S. government grants private companies the right to use current and future patented inventions, and this lack of awareness extends to U.S. government officials and Members of the U.S. Congress.
  • This briefing note reports on 166 U.S. contracts disclosed to the U.S Securities and Exchange Commission (SEC) that contain broad compulsory licenses to use patented inventions without the consent of patent holders when the use is “by or for” the U.S. government, under 28 U.S. Code § 1498.
  • An earlier July 19, 2022 KEI briefing note focused on COVID 19 contracts obtained through FOIA litigation found that 59 of 62 contracts examined included an authorization to use patents without consent of patent holders, for a wide range of COVID 19 countermeasures. These nonvoluntary authorizations occurred at the same time the U.S. government was opposing a waiver of TRIPS rules on patents for therapeutics and diagnostic devices, and seeking restrictive rules for TRIPS rules on non voluntary use of patents for COVID 19 vaccines. (KEI Briefing Note 2022:1, Selected U.S. Government COVID Contracts with Authorization and Consent to Non-Voluntary Use Of Third Party Patents).
  • This briefing note identifies 166 contracts disclosed to the U.S Securities and Exchange Commission (SEC) that permit companies to use patented inventions without the consent of patent holders. The compulsory licenses were granted for a diverse set of purposes, and many by different federal government agencies.
  • Due to the SEC standards for disclosure, which address the interests of investors and not the general public, most U.S. government contracts that contain an authorization for nonvoluntary use of patents are not disclosed in SEC filings, and are only available through litigation or U.S. Freedom of Information Act (FOIA) requests, subject to extensive redactions.
  • Only 3 of the 166 contracts disclosed in SEC filings were among the 62 COVID 19 contracts described in KEI Briefing Note 2022:1.
    The actual number of U.S. contracts that include an authorization and consent for non voluntary use of patents is much higher.

  • The U.S. authorizations involve a reference in a contract to a federal acquisition regulation, FAR 52.227-1, titled “authorization and consent,” and typically apply to all U.S. granted patents, without identifying specific patents or notifying patent holders.
  • The authority to grant a FAR 52.227-1 authorization and consent is highly decentralized, managed by federal contracting officers.
  • The use of FAR 52.227-1 authorization and consent in contracts should be more transparent, to avoid giving the public an incomplete and distorted understanding of the role of patent exclusivity.
  • The U.S. government use authorizations are implemented through a statutory elimination of the availability of injunctions to remedy infringement. Exceptions to enforce the exclusive rights of a patent holder through an injunction are allowed under Article 44 of the TRIPS Agreement, and while widely used by the U.S. government, is not generally appreciated as a possible mechanism for non voluntary use of patents by other WTO members. Limitations on the availability of injunctions provide a particularly uncomplicated mechanism for compulsory licensing of patented inventions, as is described in further detail in KEI Briefing Note 2022:3, Selected differences between Articles 30, 31 and 44 of the WTO TRIPS Agreement as regards non-voluntary use of patented inventions.

Consistency with WTO TRIPS provisions

A second briefing note addresses the relationship between limitations on injunctions and other mechanisms for non voluntary use of patented inventions, in the WTO TRIPS Agreement.

KEI Briefing Note 2022:3 Selected differences between Article 30, 31 and 44 of the WTO TRIPS Agreement as regards non-voluntary use of patented inventions. October 12, 2022.

The briefing note is available here: https://www.keionline.org/bn-2022-3. Some takeaways from BN 2022:3 are as follows:

There are three Articles in the TRIPS agreement that have relevance to the U.S. approach to use of patents “by or for” the federal government without the permission from patent holders.

TRIPS Article 30, titled Exceptions to Rights Conferred, permits WTO members to provide “limited exceptions to the exclusive rights conferred by a patent” subject to a requirement that “such exceptions do not unreasonably conflict with a normal exploitation of the patent and do not unreasonably prejudice the legitimate interests of the patent owner, taking account of the legitimate interests of third parties.” Some trade officials in the U.S. consider the U.S. liberal use of 52.227-1 authorizations during the COVID 19 pandemic to be consistent with Article 30 of the TRIPS.

Article 31 of the TRIPS, titled “Other Use Without Authorization of the Right Holder” sets out several rules that must be met to allow non-voluntary use of patents. The requirement for prior negotiation with rights holders is waived in the case of “public non-commercial use,” as well as for “a national emergency or other circumstances of extreme urgency.” However, Article 31 has other provisions that many WTO members consider challenging or restrictive.

Article 44 of the TRIPS, on injunctions, is perhaps that place where the U.S. government approach is most clearly consistent, including in particularly, the highly permissive last sentence in paragraph 2, which states that injunctions can be eliminated when a WTO member provide the possibility of declaratory judgments and adequate compensation, two conditions that are available in the U.S. law. In other words, the U.S. approach to government use is not to grant a compulsory license under the Article 31 framework, but to limit the remedies for non-voluntary use to compensation. The “reasonable” compensation standard in U.S. law is certainly to be considered to meet the “adequate” standard in the Article 44.2 of the TRIPS, particularly given the discretion afforded to WTO members by Article 1 of the TRIPS, which provides that “Members shall be free to determine the appropriate method of implementing the provisions of this Agreement within their own legal system and practice.” Using the flexibility in Article 44, a WTO member can effectively create liability rules, which provide the freedom to use patented inventions, subject to an obligation to provide compensation or remuneration to the patent holders.