Senator Bernie Sanders proposal to expand Veterans access to patented medical inventions

This is a video by Zack Struver about Senator Bernie Sander’s proposal to expand Veterans access to patented medical inventions. The video discusses both the proposal by Senator Sanders to give the U.S. Department of Veterans Affairs the authority to use compulsory licenses on patents on medical inventions, including drugs, and the history of “government use” provisions in current U.S. statutes, including 28 U.S.C. 1498, which Sanders proposes modifying.

Below is the transcript from the video, with citations.

On May 12, 2015, as a result of the Department of Veterans Affairs’ inability to afford hepatitis C (HCV) treatments that have a retail price of up to $95,000, Senator Bernie Sanders asked the VA to use government use provisions in U.S. patent law to import affordable generic versions of sofosbuvir and other HCV drugs. The Department declined, on the grounds that the statute created too much uncertainty over the amount of compensation that would be due to patent holders.

At a meeting of the Senate Committee on Veterans Affairs on July 22, 2015, Senator Sanders introduced an amendment that would allow the VA to set a “reasonable and affordable royalty” as compensation for the use of patented medical technologies, including drugs. The amendment would effectively create a compulsory licensing mechanism for the VA that would account for the VA’s limited budget, the research and development costs of the patent holder, and the health outcomes of the patented invention.

When Sanders introduced the bill, some members of the committee questioned the constitutionality of the proposal to limit compensation for patent holders. As the legislative history of government use in the United States shows, however, Congress has great latitude in determining remedies on the government use of patents.

The Federal government has the right to use patented inventions without permission from patent holders, subject to payment of reasonable compensation. The primary statute governing such use, 28 U.S.C. section 1498, titled “Patent and copyright cases,” was codified in 1949 and has been amended since then.

The origins of section 1498 date back to a series of Supreme Court rulings in the 19th century related to various inventions, including patented military technologies and stamps. The Supreme Court ruled that since Congress had granted the Court of Claims jurisdiction over contractual disputes and constitutional violations, they could only hear patent cases in which the government had failed to comply with express or implied contracts. U.S. v. Burns, 79 U.S. 246 (1870) (held that U.S. must honor contract for use of patent entered into on its behalf by a military officer); James v. Campbell, 104 U.S. 356 (1881) (held that patent holders have a right to compensation for government use, but it must be provided for in statute); U.S. v. Palmer, 128 U.S. 262 (1894) (held that Court of Claims has jurisdiction to hear contractual disputes over government use of patents).

These rulings did not, however, deal with a critical question about the jurisdiction of Federal courts: can a patent holder sue the federal government for patent infringement?

In Schillinger v. U.S., 155 U.S. 163 (1894), the Supreme Court conclusively answered no. They decided that the Court of Claims had no jurisdiction to hear patent infringement cases against the Federal government, unless Congress consented to waiving the government’s sovereign immunity from litigation.

During famed landscape architect Frederick Law Olmsted’s 1875 renovation of the Capitol grounds, the U.S. government entered into a contract with an outside construction company for the laying of concrete. The contractor, who received 28 ½ cents per square foot of pavement, used John J. Schillinger’s patented method (US105599 A) for the pouring of “concrete pavement laid in detached blocks or sections,” which involved the “arrangement of tar paper, or its equivalent, between adjoining blocks of concrete.” Schillinger, who had previously protested to the Office of the Architect of the Capitol that only an authorized licensee should be awarded the contract, sued the United States government for the “wrongful infringement” of his patent.

After almost twenty years spent fighting in courts and in Congress, the Supreme Court ruled against Schillinger in 1894. Justice David J. Brewer issued the opinion of the Court, noting that patent infringement suits amounted to tort claims, and that Congress had not waived sovereign immunity for tort damages. Additionally, the Court ruled that Schillinger had no constitutional basis for his claims, as Congress did not allow the courts jurisdiction to hear tort claims for the “taking” of property under the Fifth Amendment.

Reporting on the Schillinger case, The New York Times proclaimed in its headline that “Government Can Do No Wrong” (Nov. 21, 1894).

The Supreme Court affirmed the principle of sovereign immunity for patent suits in 1901 in Russell v. U.S., where the Court explained that, “it is the prerogative of a sovereign not to be sued at all without its consent or upon such causes of action as it chooses. It has not chosen to be sued in an action sounding in tort.” Russell v. U.S., 182 U.S. 516, 535 (1901).

In 1907, Congress reacted to what they viewed as a flawed legal framework for dealing with patent infringement suits against the government. Senator Philander C. Knox led the charge. Knox, a former Attorney General under William McKinley and Teddy Roosevelt, and Counsel for Carnegie Steel, had the perspective of working for both the government and an industry that relied on strong intellectual property protections.

Knox proposed that Congress create remedies for patent infringement by the Federal government. Rather than shifting power solely into the hands of patent owners, however, Knox called for a balanced approach. “It seems necessary and proper to provide for patentees a remedy for the invasion of their rights,” Knox wrote in the Senate report on his legislation, “while making all necessary provision for the protection of the interests of the Government.”

Congress passed Knox’s proposed legislation in 1910, for the first time granting the courts jurisdiction to hear tort claims against the Federal government. The act, titled “An Act to provide additional protection for owners of patents of the United States, and for other purposes,” provided “reasonable compensation” for the use of patented inventions “by the United States without license of the patent owner thereof or lawful right to use the same.” 36 Stat. 851, chap. 423.

The act was amended in 1918, after a young Acting Secretary of the Navy, Franklin D. Roosevelt, sent a letter to Congress asking them to reverse a Supreme Court decision from that year that held that the 1910 legislation did not shield government contractors from litigation. Roosevelt reasoned that such a legal landscape would open contractors up to expensive litigation, and harm national defense and the public interest. The revised statute expanded the earlier legislation, which waived sovereign immunity for use of patented inventions “by” the federal government, to include use “by or for” the federal government. 40 Stat. 705.

The government use provisions have been amended since 1918, most significantly to extend limitations on remedies for the government use of copyrighted materials and plant varieties. Pub. L 87-726 (1960), 28 U.S.C 1498(b); Pub. L. 91-577 (1970), 28 U.S.C. 1498(d). See here for the full legislative history of 28 U.S.C. 1498.

Other areas of U.S. law use the Constitutional authority to limit remedies for patent infringement, when the government has an interest in doing so. For example, government nuclear power plants and the Tennessee Valley Authority can be sued only for reasonable compensation when they infringe energy patents. There are also different rules for use by and for state institutions. 16 U.S.C. 831r (Tennessee Valley Authority); 42 U.S.C. 2184 (nuclear technologies). See here for more areas of U.S. law with limitations on remedies.

Senator Sanders wants to use the flexibility in our Constitution to empower the Secretary of Veterans Affairs to break patent monopolies if a price is “excessive or a barrier to care.”

Specifically, the Secretary would consider if:

“(1) the price of the technology is the primary factor prohibiting the Secretary from being able to provide access to the technology to all veterans for whom the technology is considered clinically appropriate; and

(2) there is no comparable and equally efficacious technology available to the Department at a reasonable and affordable price.”

The Department of Veterans Affairs, using the Secretary’s determination, would be allowed to buy less expensive generics and pay only a “reasonable and affordable royalty” as compensation.

That royalty would take into account “the impact of paying the royalty on the [health care] budget of the Department,” and “The extent to which the owner of the patented invention has recovered or is expected to recover … [its] research and development costs” through sales to patients outside of the V.A.

The proposal by Senator Sanders would ensure that high prices do not create a barrier to access, and it would put patent monopolies at risk, rather than patients. It would also create a realistic system of compensation for patent holders, based on the limited budget for Veterans’ health care.

The history of our law on government use for patented inventions is instructive.

Until 1910, an 1894 Supreme Court ruling held that patent holders could not sue the federal government for patent infringement. Their right to do so was granted by Congress, and then only in a limited way. For example, patent holders cannot get an injunction to prevent the federal government from infringing patents.

However, the law passed in 1910 was not designed to deal with the issue of excessive pricing of drugs.

The Sanders proposal does not eliminate patent holders rights in infringement cases involving the federal government, but it does put veterans in a better position.

The VA would be able to reject patent monopolies when prices are too high and make compensation to patent holders affordable.

Congress has a choice: it can allow the V.A. to continue rationing care and slashing funding for other essential health care programs for veterans, or it can use its constitutional authority to put veterans first.