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Moderna’s Vaccine Patent Defense Poses Shield for US Deal Makers

May 19, 2022, 9:35 AM

Covid-19 vaccine makers may find shelter from patent lawsuits under a legal theory Moderna’s floating in a case that could shape post-pandemic deals between drugmakers and the government.

Moderna Inc. is fighting an attempt by Arbutus Biopharma Corp. and Genevant Sciences GmbH to seek royalties for sales of its Covid-19 vaccine. It argues their claims are misdirected and should instead be brought against the government, citing a law designed to protect government suppliers.

Legal experts say if Moderna is successful, the outcome could provide a roadmap to dodge lawsuits for other drugmakers working with the US on Covid and other pandemic-like response efforts.

“This is the beginning of what’s going to be a very interesting legal issue for Moderna, for other vaccine makers, and for others who might want to claim a piece of the pie,” said Robin Feldman, a University of California Hastings College of Law professor specializing in drug patents.

Section 1498 of the US Code has traditionally provided a haven for contractors accused of infringing patents with production for the US government. The law works by putting the government on the hook for paying aggrieved patent owners when their innovations are used by contractors without authorization.

In seeking to toss claims in the lawsuit, Moderna says the plaintiffs sued the wrong entity because it’s been supplying vaccine doses to the US government as part of the nationwide vaccination effort. Arbutus and Genevant claimed that Moderna used their technology for a drug-delivery system without permission.

Moderna’s move also comes as advocates and lawmakers are calling on the government to step in and lower drug prices. Section 1498 is one of the possibilities being floated.

If the vaccine maker’s bid fails, “there could easily be more lawsuits,” Feldman said. “Others with patents they believe are relevant and other vaccine manufacturers are watching this litigation closely.”

‘Extraordinarily Powerful’

Under 28 USC §1498, patent owners whose inventions are manufactured for the US without permission can seek compensation by filing suit against the government in the US Court of Federal Claims.

“Section 1498 is an extraordinarily powerful tool,” said Zain Rizvi, a research director at the consumer group Public Citizen. “The government routinely uses patents in exchange for reasonable compensation across a range of industries.”

Moderna argues that because Arbutus and Genevant want royalties on vaccine sales to the federal government, that fight “can only proceed against the Government in the Court of Federal Claims,” rather than in the US District Court for the District of Delaware, where the lawsuit was initially filed.

“Assuming that Moderna’s allegations are correct,” 1498 “would have enabled companies like Moderna to develop and research vaccines without fear of being mired in patent lawsuits, and allowed the government to close vaccine purchase deals without the wild card of unpredictable liability,” said Charles Duan, senior fellow at the free markets think tank R Street Institute.

‘New Phenomenon’

Section 1498 has cropped up in patent cases involving a wide range of industries, including spacecraft, lightbulbs and technology for check-cashing, policy analysts say.

“There’s a long tradition of using Section 1498 in patent infringement cases, and Moderna’s motion to dismiss fits nicely within that tradition,” Duan said.

But in the Covid era, “defense and health care have become more intertwined,” and the modern “vaccine preparation status has to be one in which the government is always ready,” said Arti Rai, a former Justice Department litigator and leader of policy analysis that led to an Obama era patent law overhaul.

“What’s happening in this new era is the government is the main customer for health products. And it has been in the past, in the sense it’s paid for them in Medicare and Medicaid, but never the direct purchaser in the way it is now,” Rai said. “It’s a new phenomenon.”

Whether other drugmakers lean on 1498 going forward largely depends on what’s in their contracts with the government, attorneys say.

“Unless there are some provisions of their contracts that are wildly different from those in Moderna’s, [and] I have no reason to believe they are or would be, then this is definitely a defense they have,” said Daniel Takash, regulatory policy fellow at the Niskanen Center.

“Now comes the fighting over the spoils,” Feldman said. Companies on all sides will “look at every option to protect the dollar flow.”

National Health Problems

Section 1498 can be read as giving the government authority to authorize generic competition of a patented technology as long as it compensates the company holding the patent. Some advocates have pointed to the law as a way to control drug pricing.

The provision “is pretty important in the government toolbox when it comes to solving these big sort of national health problems,” Duan said.

In March, advocates behind the Make Meds Affordable Campaign urged the Biden administration to deploy its authority under Section 1498 to greenlight production of generics for a handful of drugs with the aim of lowering prices.

“At its core is the simple idea that patents are neither sacrosanct nor immutable,” Rizvi said. “But Section 1498 should not only be invoked for vaccine manufacturers to deflect IP claims and protect profits.”

Calls for Section 1498 to be used as a drug pricing control mechanism however pose a thorny situation for Moderna and other drugmakers looking to use the law for their own protection, law experts say.

The pharmaceutical industry “has fought tooth-and-nail against 1498,” said Matthew Lane, executive director of the Coalition Against Patent Abuse. And after Moderna’s case, “they will have to come up with a good argument for why it’s ‘1498 for me but not for thee.’”

To contact the reporter on this story: Ian Lopez in Washington at ilopez@bloomberglaw.com

To contact the editors responsible for this story: Alexis Kramer at akramer@bloomberglaw.com; Karl Hardy at khardy@bloomberglaw.com