Can Moderna get the Government to pay for its patent liability to Arbutus or Alnylam?
Zachary Silbersher
As I previously blogged here and here, Moderna has been tagged with two patent-infringement lawsuits directed to its LNP technology for delivering its mRNA vaccine for Covid. Moderna has now lodged its first defense two each suit—and in each case, it’s the same. Moderna claims both plaintiffs, including Arbutus/Genevant and Alnylam, have each sued the wrong party. Moderna contracted with the U.S. Government to provide the vaccine, and pursuant to that contract, Moderna claims that the Government agreed to bear the brunt of any residual patent liability. Will the Government have to pick up the tab for Moderna’s patent infringement?
Under 28 U.S.C. § 1498, under certain conditions, contractors that sell products “for the United States” cannot be sued for patent infringement in federal district courts. Rather, the patent owner must proceed directly against the United States Government in a special federal court known as the Court of Federal Claims. The Court of Federal Claims only hears suits brought against the U.S. Government.
The statute was originally enacted in 1910, and broadened during World War I. The purpose of the statute was to incentivize contractors to supply procurements required for war without worrying about liability for patent infringement. As a result, the statute has two consequences. First, it essentially acts as a waiver of what may otherwise be the Government’s sovereign immunity from suit. Second, it essentially acts as indemnification of the contractor for patent liability.
Under Moderna’s telling, Section 1498 contemplates Government procurement within the context of national emergencies. Covid 19 is just such an emergency. The Government put out the call for quick vaccines, and Moderna heeded that call. It entered a contract with the U.S. Government to supply at least 100 million doses within a short time frame, and it lived up to that promise. To the extent any third-party patent holders claim that Modern’s doses infringe their patents, then those patent holders must proceed against the U.S. Government within the Court of Federal Claims, and any corresponding claims against Moderna must be dropped.
That said, although Moderna has filed motions to dismiss, it is not seeking to dismiss either lawsuit altogether. Rather, Moderna’s motions to dismiss are only “partial” in each case. For instance, Arbutus’ complaint alleges that Moderna has manufactured vaccine doses within the U.S. for distribution abroad. As a result, Moderna appears to acknowledge that even if its motions to dismiss are successful, that will not dispose of the entirety of Arbutus’ or Alnylam’s claims. Instead, those plaintiffs will be permitted to continue their suits in the District of Delaware for any sales by Moderna of vaccine that were either manufactured or sold outside of Moderna’s contract with the U.S. Government.
Even if Moderna’s motions are successful, that does not mean that either Arbutus or Alnylam lose the opportunity to seek damages for Moderna’s vaccine sales made pursuant to its contract with the Government. Rather, they would have to commence a separate suit for those sales within the Court of Federal Claims. The defendant would be the U.S. Government, rather than Moderna.
Technically, both Arbutus’ and Alnylam’s claim for relief against the U.S. Government within the Court of Federal Claims would be similar to what its claiming against Moderna in Delaware. Typically, a patent holder cannot seek an injunction against the U.S. Government within the Court of Federal Claims. Yet, in this case, neither Arbutus nor Alnylam has sought injunctive relief against Moderna, so it would not be giving that up. Section 1498 may also preclude recovery of lost profits from the Government, but neither Arbutus nor Alnylam appear to sell their own Covid vaccine, and thus, claims for lost profits would likely be tenuous.
All that said, Arbutus and Alnylam are unlikely to capitulate to Moderna’s motions. Moderna claims that, for Section 1498 to apply, two requirements must be met. First, the alleged patent infringement must be “for the Government,” and second, it must have “authorization and consent of the Government.” The crux of the dispute is likely to focus on the first requirement—namely, whether Moderna’s sales were “for the Government.”
Moderna claims that its vaccine sales were clearly “for the Government.” For instance, Moderna points to its contract with the Government states that the doses were procured “for the United States Government.” (See the contract at C.1). Yet, the contract also emphasizes that Moderna is acting “independently” and “not as an agent of the [United States Government].” (See C.3).
There is also some precedent holding that simply because the Government pays for healthcare, that does not mean that health care is provided “for the Government.” In one case, the court rejected a § 1498 defense in a patent case—much like Moderna’s defense to these cases—on the ground that, although the patented splints were reimbursed by Government programs, that medical care was provided “for the benefit of the patient, not the government.” Here, however, Moderna has an explicit contract with the Government, which makes its argument somewhat stronger.
With respect to the second requirement, Moderna also claims that its sales were made with the “authorization or consent” of the Government. In particular, it points to the contract’s incorporation of a regulation (FAR 52.227-1), which states, “[t]he Government authorizes and consents to all use and manufacture, in performing this contract or any subcontract at any tier, of any invention described in and covered by a United States patent . . . .” Importantly, the contract does not include other FAR provisions, such as 52.277.3, titled, “Patent Indemnity,” which provides that the contractor shall indemnify the Government for patent liability. At this point, it appears that Arbutus and Alnylam may have a hard time proving the “authorization and consent” requirement has not been satisfied.
Alnylam also sued Pfizer for patent infringement. Pfizer’s response to Alnlyam’s complaint is due May 27. Whether Pfizer also follows Moderna’s § 1498 playbook will likely either bolster or detract from the force of Moderna’s defense.