Bioterrorism Countermeasure Development: Issues in Patents and Homeland Security



Order Code RL32917
Bioterrorism Countermeasure Development:
Issues in Patents and Homeland Security
Updated August 3, 2007
Wendy H. Schacht
Specialist in Science and Technology
Resources, Science, and Industry Division
John R. Thomas
Visiting Scholar
Resources, Science, and Industry Division

Bioterrorism Countermeasure Development: Issues in
Patents and Homeland Security
Summary
Congressional interest in the development of bioterrorism countermeasures
remains strong, even after passage of legislation establishing Project BioShield.
While, to date, no relevant bills have been introduced in the 110th Congress, the issue
is under discussion. During the 109th Congress, several bills were introduced
(although not enacted) that would have generated additional incentives for the
creation of new technologies to counteract potential biological threats. These bills
proposed reforms to current policies and practices associated with intellectual
property, particularly patents, and the marketing of pharmaceuticals and related
products.
Patent ownership appears to be important in the promotion of innovation,
particularly in the pharmaceutical sector. Patent title provides a limited-time
monopoly over the use of a discovery in exchange for the public dissemination of
information contained in the patent application. This permits the inventor to receive
a return on the expenditure of resources but does not guarantee that the patent will
generate commercial benefits. The requirement for patent publication is expected to
stimulate additional innovation to meet similar demands in the marketplace.
Currently, the Bayh-Dole Act and the Hatch-Waxman Act include provisions
that utilize patent ownership to facilitate the development and commercialization of
new pharmaceuticals. The Hatch-Waxman Act also contains FDA marketing
approval policies that are designed to promote the creation of new drugs. Similar
market-exclusivity provisions are contained in the Orphan Drug Act.
The approach taken in the 109th Congress by bills S. 3 and S. 975 allowed for
the restoration of that portion of the patent term used during the FDA approval
process, and/or the extension of a patent term to reward technological innovation in
the area of bioterrorism countermeasures. The proposed legislation also provided for
additional FDA-administered marketing exclusivities for eligible and designated
countermeasures. Another bill, S. 1873, permitted a countermeasure product to
qualify as an orphan drug and increased market exclusivity from 7 years to 10 years.
Encouraging the development of new counterterrorism technologies and
ensuring affordable access to new drugs and medical devices are both significant
goals. These aspirations may potentially conflict, however. Introducing augmented
patent- and exclusivity-based incentives may stimulate innovative firms to engage in
the R&D for new countermeasures, as well as to shepherd these products through
time-consuming and costly marketing approval procedures. Commentators have
expressed concern, however, over whether such heightened protections for innovators
will be in proportion with the risks and costs of developing new countermeasures.
Striking a balance between encouraging the development of new countermeasures
and maintaining the traditional goals of our public health system is a central concern
of the current discussion with respect to homeland security.
This report will be updated if events warrant.

Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Patents and Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Role of Patents in Pharmaceutical/Biomedical R&D . . . . . . . . . . . . . . . . . . . . . . 5
Legislative Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Bayh-Dole Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Hatch-Waxman Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Orphan Drug Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Proposals for Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Patent Term Fundamentals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Proposed Patent Term Restoration Reforms . . . . . . . . . . . . . . . . . . . . . . . . 16
Proposed Patent Term Extension Reforms . . . . . . . . . . . . . . . . . . . . . . . . . 17
Proposed Marketing Exclusivity Reforms . . . . . . . . . . . . . . . . . . . . . . . . . . 18
March-In Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Concluding Observations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
This report was funded in part by a grant from the John D. and Catherine T.
MacArthur Foundation

Bioterrorism Countermeasure Development:
Issues in Patents and Homeland Security
Introduction
Congressional interest in the development of bioterrorism countermeasures
remains strong, even after passage of legislation establishing Project BioShield.1
Several bills considered, but not enacted during the 109th Congress, including S. 3,
the Protecting America in the War on Terror Act of 2005, S. 975, the Project
Bioshield II Act, and S. 1873, the Biodefense and Pandemic Vaccine and Drug
Development Act, would have generated additional incentives for the creation of new
products and processes by the private sector to counteract potential biological threats.
These bills proposed reforms to current policies and practices associated with
intellectual property, particularly patents, and the marketing of pharmaceuticals and
related products. While no relevant bills have been introduced in the 110th Congress,
the issue continues to remain under consideration.
Patents appear to be important in the promotion of innovation, particularly in
the pharmaceutical sector. This report explores the role of patents in encouraging the
development and commercialization of new inventions and discusses the
relationships between patent ownership and the generation of biomedical products.
However, the grant of a patent on a pharmaceutical does not permit marketing of the
product without the approval of the Food and Drug Administration (FDA). Thus,
this report also examines policies concerning the use of FDA marketing exclusivity
as an additional incentive to industry research and development (R&D) in this arena.
Current law and suggested legislative changes are discussed to provide a context for
any further exploration of related issues during the 110th Congress.
Patents and Innovation
Patent law is based upon the Patent Act of 1952, codified in Title 35 of the
United States Code. According to the statute, one who “invents or discovers any new
and useful process, machine, manufacture, or any composition of matter, or any new
and useful improvement thereof, may obtain a patent therefore, subject to the
conditions and requirements of this title.”2 Patents are issued by the United States
Patent and Trademark Office (USPTO), generally for a term of 20 years from the date
of filing. The patent grants its owner the right to exclude others from making, using,
selling, offering to sell, or importing into the United States the patented invention.
1 P.L. 108-276, see also CRS Report RS21507, Project BioShield, by Frank Gottron.
2 35 U.S.C.§101

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To be afforded patent rights, an invention must be judged to consist of patentable
subject matter, possess utility, and be novel and nonobvious. The application must
fully disclose and distinctly claim the invention for which protection is sought.3
The grant of a patent does not necessarily provide the owner with an affirmative
right to market the patented invention. Pharmaceutical products are also subject to
marketing approval by the Food and Drug Administration. Federal laws typically
require that pharmaceutical manufacturers demonstrate that their products are safe
and effective in order to bring these drugs to the marketplace. USPTO issuance of
a patent and FDA marketing consent are distinct events that depend upon different
criteria.
The patent system is grounded in Article I, Section 8, Clause 8 of the U.S.
Constitution and is intended to stimulate new discoveries and their reduction to
practice, commonly known as innovation. The Constitution states that “The
Congress Shall Have Power ... To promote the Progress of Science and useful Arts,
by securing for limited Times to Authors and Inventors the exclusive Right to their
respective Writings and Discoveries....” The award of a patent permits the creator
of an idea to exclude others, temporarily, from use of that concept without
compensation. It also places the information associated with an invention within the
public arena.
Patent ownership is perceived to be an incentive to innovation, the basis for the
technological advancement that contributes to economic growth. It is through the
commercialization and use of new products and processes that productivity gains are
made and the scope and quality of goods and services are expanded. Award of a
patent is intended to stimulate the investment necessary to develop an idea and bring
it to the marketplace embodied in a product or process. Patent title provides the
recipient with a limited-time monopoly over the use of his discovery in exchange for
the public dissemination of information contained in the patent application. This is
intended to permit the inventor to receive a return on the expenditure of resources
leading to the discovery but does not guarantee that the patent will generate
commercial benefits. The requirement for publication of the patent is expected to
stimulate additional innovation and other creative means to meet similar and
expanded demands in the marketplace.
Innovation produces new knowledge. One characteristic of this knowledge is
that it is a “public good,” a good that is not consumed when it is used. This “public
good” concept underlies the U.S. patent system. As Professor John Shoven points
out, “the use of an idea or discovery by one person does not, in most cases, reduce
the availability of that information to others.”4 Therefore the marginal social cost of
3 For more information see CRS Report RL30756, Patent Law and Its Application to the
Pharmaceutical Industry: An Examination of the Drug Price Competition and Patent Term
Restoration Act of 1984 (“The Hatch-Waxman Act”)
, by Wendy H. Schacht and John R.
Thomas.
4 John B. Shoven, “Intellectual Property Rights and Economic Growth,” in Intellectual
Property Rights and Capital Formation in the Next Decade
, eds. Charls E. Walker and Mark
(continued...)

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the widespread application of that information is near zero because the stock of
knowledge is not depleted. “Ordinarily, society maximizes its welfare through not
charging for the use of a free good.”5 However, innovation typically is costly and
resource intensive. Patents permit novel concepts or discoveries to become
“property” when reduced to practice and therefore allow for control over their use.
They “create incentives that maximize the difference between the value of the
intellectual property that is created and used and the social cost of its creation.”6
Studies demonstrate that the rate of return to society as a whole generated by
investments in research and development (R&D) leading to innovation is
significantly larger than the benefits that can be captured by the person or
organization financing the work. Some estimate that the social rate of return on
R&D spending is over twice that of the rate of return to the inventor.7 Ideas often are
easily imitated as the knowledge associated with an innovation is dispersed and
adapted to other products and processes that, in turn, stimulate growth in the
economy. That can happen in the absence of appropriability defined as “factors,
excluding firm and market structure, that govern an innovator’s ability to capture the
profits generated by an innovation.”8 The appropriability of an invention depends on
the level of competition in the industry and the type of information related to the
innovation; the more competition and the more basic the knowledge, the less
appropriable it is.9 The difficulty in securing sufficient returns to spending on
research and development has been associated with underinvestment in those
activities.

The patent process is designed to resolve the problem of appropriability. If
discoveries were universally available without a means for the inventor to realize a
return on investments, there would result a “much lower and indeed suboptimal level
of innovation.”10 While research is often important to innovation, some
commentators have noted that it can constitute less than a quarter of the cost of
commercializing a new technology or technique, thus requiring the expenditure of
4 (...continued)
A. Bloomfield (New York: University Press of America, 1988), 46.
5 Robert P. Benko, “Intellectual Property Rights and New Technologies,” in Intellectual
Property Rights and Capital Formation in the Next Decade
, 27.
6 Stanley M. Besen and Leo J. Raskind, “An Introduction to the Law and Economics of
Intellectual Property,” Journal of Economic Perspectives, Winter 1991, 5.
7 For a list of relevant research in this area see Council of Economic Advisors. Supporting
Research and Development to Promote Economic Growth: The Federal Government’s Role
,
October 1995, 6-7.
8 David J. Teece, “Profiting from Technological Innovation: Implications for Integration,
Collaboration, Licensing, and Public Policy,” in The Competitive Challenge, ed. David J.
Teece, (Cambridge: Ballinger Publishing Co., 1987), 188.
9 Edwin Mansfield. “Intellectual Property Rights, Technological Change, and Economic
Growth,” in, Intellectual Property Rights and Capital Formation in the Next Decade, 10-11.
10 Kenneth W. Dam, “The Economic Underpinnings of Patent Law,” Journal of Legal
Studies
, January 1994, 247.

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a substantial amount of additional resources to bring most products or processes to
the marketplace. The grant of a patent provides the inventor with a mechanism to
capture the returns to his invention through exclusive rights on its practice for 20
years from date of filing. That is intended to allow the inventor to recoup his
research spending and to encourage those investments necessary to further develop
an idea and generate a marketable technology.
Issuance of a patent furnishes the inventor with a limited-time monopoly, the
benefits of which are mitigated by other factors, particularly the requirements for
information disclosure, the length of the patent, and the scope of rights conferred.
The process of obtaining a patent places the concept on which it is based in the public
domain. In return for a monopoly right to the application of the knowledge
generated, the inventor must publish the ideas covered in the patent. As a disclosure
system, the patent can, and often does, stimulate other firms or individuals to invent
“around” existing patents to provide for parallel technical developments or meet
similar market needs.
Patents may also provide a more socially desirable outcome than its chief legal
alternative, trade secret protection. Trade secrecy guards against the improper
appropriation of valuable, commercially useful information that is the subject of
reasonable measures to preserve its secrecy.11 Taking the steps necessary to maintain
secrecy, such as implementing physical security, imposes costs that may ultimately
be unproductive for society.12 Also, while the patent law obliges inventors to
disclose their inventions to the public,13 trade secret protection requires firms to
conceal them. The disclosure obligations of the patent system may better serve the
objective of encouraging the diffusion of advanced technological knowledge.
The patent system thus has dual policy goals — providing incentives for
inventors to invent and encouraging inventors to disclose technical information.14
Disclosure requirements are factors in achieving a balance between current and future
innovation through the patent process, as are limitations on scope, novelty mandates,
and nonobviousness considerations.15 Patents give rise to an environment of
competitiveness with multiple sources of innovation, which is viewed by some
experts as the basis for technological progress. This is important because, as
Professors Robert Merges and Richard Nelson found in their studies, in a situation
11 American Law Institute, Restatement of Unfair Competition Third §39, 1995.
12 David D. Friedman, et al., “Some Economics of Trade Secret Law,” 5 Journal of
Economic Perspectives
, 1991, 61.
13 35 U.S.C. §112 (2000).
14 Robert P. Merges, “Commercial Success and Patent Standards: Economic Perspectives
on Innovation,” California Law Review, July 1988, 876.
15 The Economic Underpinnings of Patent Law, 266-267. Scope is determined by the breath
of the claims made in a patent. Claims are the technical descriptions associated with the
invention. In order for an idea to receive a patent, the law requires that it be “new, useful
[novel], and nonobvious to a person of ordinary skill in the art to which the invention
pertains.”

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where only “a few organizations controlled the development of a technology,
technical advance appeared sluggish.”16
Not everyone agrees that the patent system is a particularly effective means to
stimulate innovation. Some observers believe that the patent system encourages
industry concentration and presents a barrier to entry in some markets.17 Others
believe that the patent system too frequently attracts speculators who prefer to
acquire and enforce patents rather than engage in socially productive activity.18 Still
other commentators suggest that the patent system often converts pioneering
inventors into technological suppressors, who use their patents to block subsequent
improvements and thereby impede technological progress.19
Some experts argue that patents do not work as well in reality as in theory
because they do not confer perfect appropriability. In other words, they allow the
inventor to obtain a larger portion of the returns on his investment but do not permit
him to capture all the benefits. Patents can be circumvented and infringement cannot
always be proven. Thus, patents are not the only way, nor necessarily the most
efficient means, for the inventor to protect the benefits generated by his efforts. A
study by Yale University’s Richard Levin and his colleagues concluded that lead
time, learning curve advantages (e.g. familiarity with the science and technology
under consideration), and sales/service activities were typically more important in
exploiting appropriability than were patents. That was true for both products and
processes. However, patents were found to be better at protecting products than
processes. The novel ideas associated with a product often can be determined
through reverse engineering — taking the item apart to assess how it was made. That
information then could be used by competitors if not covered by a patent. Because
it is more difficult to identify the procedures related to a process, other means of
appropriation are seen as preferable to patents, with the attendant disclosure
requirements.20
Role of Patents in Pharmaceutical/Biomedical R&D
The utility of patents to companies varies among industrial sectors. Patents are
perceived as critical in the drug industry. That may reflect the nature of R&D
performed in this sector, where the resulting patents are more detailed in their claims
16 Robert P. Merges and Richard R. Nelson, “On the Complex Economics of Patent Scope,”
Columbia Law Review, May 1990, 908.
17 See John R. Thomas, “Collusion and Collective Action in the Patent System: A Proposal
for Patent Bounties,” University of Illinois Law Review, 2001, 305.
18 Ibid.
19 On the Complex Economics of Patent Scope, 839.
20 Richard C. Levin, Alvin K. Klevorick, Richard R. Nelson, and Sidney G. Winter.
“Appropriating the Returns for Industrial Research and Development,” Brookings Papers
on Economic Activity
, 1987, in The Economics of Technical Change, eds. Edwin Mansfield
and Elizabeth Mansfield (Vermont, Edward Elgar Publishing Co., 1993), 254.

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and therefore easier to defend.21 In contrast, one study found that in the aircraft and
semiconductor industries patents are not the most successful mechanism for
capturing the benefits of investments. Instead, lead time and the strength of the
learning curve were determined to be more important.22 Research undertaken by
Professor Wesley Cohen and his colleagues demonstrated that patents were
considered the most effective method to protect inventions in the drug industry when
biotechnology is included.23
The high cost of drug development and the concomitant uncertainty associated
with clinical trials necessary for marketing approval lends significance to patents in
the pharmaceutical arena. Studies by Joseph DiMasi of Tufts University and others
indicate that the capitalized cost of bringing a new drug (defined as a “new molecular
entity” rather than a new formulation of an existing pharmaceutical product) to the
point of marketing approval is $802 million (2000 dollars).24 Additional research
done by Federal Trade Commission analysts found the costs to be even higher;
between $839 million and $868 million (2000 dollars).25 At the same time, the total
capitalized costs appear to be growing at an annual rate of 7.4% above general price
inflation.26
A large portion of new drug costs (in terms of money and time) are associated
with the size and breath of clinical trials necessary to obtain FDA marketing
approval. According to a study supported by the Federal Reserve of Boston, only
10% of potential drug candidates reach the human trial phase and only a small
portion of these actually reach the market.27 In research presented at a conference
sponsored by the Federal Reserve Bank of Dallas, Duke University’s Henry
Grabowski found that only 1% of drug compounds reach the human trial stage and
22% of those entering clinical trials receive FDA approval.28 Professor Iain
21 Ibid., 255 and 257. See also: Intellectual Property Rights, Technological Change, and
Economic Growth,
12 and 13.
22 Appropriating the Returns for Industrial Research and Development, 253.
23 Wesley M. Cohen, Richard R. Nelson, and John P. Walsh, Protecting Their Intellectual
Assets: Appropriability Conditions and Why U.S. Manufacturing Firms Patent (or Not)
,
NBER Working Paper 7552, Cambridge, National Bureau of Economic Research, February
2000, available at [http://www.nber.org/papers/w7552].
24 Joseph A. DiMasi, Ronald W. Hansen, and Henry G. Grabowski. “The Price of
Innovation: New Estimates of Drug Development Costs,” 22 Journal of Health Economics,
2003. Capitalized cost includes the “time cost” associated with an investment and the cost
of testing drug products that fail.
25 Christopher P. Adams and Van V. Brantner, Estimating the Costs of New Drug
Development: Is it Really $802m?
, Federal Trade Commission, December 2004, available
at [http://media.romanvenable.net/images/drugCost.pdf].
26 The Price of Innovation: New Estimates of Drug Development Costs, 180
27 Carrie Conway, “The Pros and Cons of Pharmaceutical Patents,” Regional Review,
Federal Reserve Bank of Boston, March, 2003, available at [http://www.findarticles.com].
28 Henry G. Grabowski, “Patents, Innovation, and Access to New Pharmaceuticals,” Journal
(continued...)

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Cockburn notes that “as drug discovery became more science-intensive,... it became
not just more expensive but also more difficult to manage.”29 Furthermore, returns
to new drug introductions vary widely and the median new drug does not bring in
sufficient profits to cover the costs of bringing the product to the marketplace.30
According to research by Grabowski, John Vernon, and DiMasi, only 34% of new
drugs (new chemical entities) introduced generated profits that equaled the industry
average R&D cost.31
Patents are particularly important in the pharmaceutical sector because of the
relative ease of replicating the finished product. Imitation costs vary among
industries. For example, while it is expensive, complicated, and time consuming to
duplicate an airplane, it is relatively simple to chemically analyze a pill and
reproduce it.32 The degree to which industry perceives patents as effective has been
characterized as “positively correlated with the increase in duplication costs and time
associated with patents.”33 In certain industries, patents significantly raise the costs
incurred by nonpatent holders wishing to use the idea or invent around the patent —
an estimated 40% in the pharmaceutical sector, 30% for major new chemical
products, and 25% for typical chemical goods — and are thus viewed as significant.
However, in other industries, patents have much smaller impact on the costs
associated with imitation (e.g. in the 7%-15% range for electronics), and may be
considered less successful in protecting resource investments.34
The significant costs of pharmaceutical R&D, coupled with the uncertainty of
the clinical trial process, lend consequence to patents in this area because “the
disparity between the investments of innovators and those of imitators is particularly
large in pharmaceuticals — almost as large as when software pirates simply copy the
diskettes of an innovator.”35 While the capitalized cost of developing a new drug to
the point of market approval is over $800 million, it takes only between $1 million
28 (...continued)
of International Economic Law, 2002, 851.
29 Iain Cockburn, “The Changing Structure of the Pharmaceutical Industry,” Health Affairs,
Janurary/February 2004, 15.
30 Henry G. Grabowski, “Patents and New Product Development in the Pharmaceutical and
Biotechnology Industries,” Science and Cents: Exploring the Economics of Biotechnology,
Proceedings of a 2002 Conference, Federal Reserve Bank of Dallas, 95-96 available at
[http://www.dallasfed.org/research/pubs/science/grabowski.pdf] and Henry Grabowski, John
Vernon, and Joseph A. DiMasi, “Returns on Research and Development for 1990s New
Drug Introductions,” 20 Pharmacoeconomics, 2002.
31 Returns on Research and Development for 1990s New Drug Introductions, 23.
32 Federic M. Scherer, “The Economics of Human Gene Patents”, 77 Academic Medicine,
December 2002, 1350.
33 Appropriating the Returns for Industrial Research and Development, 269.
34 Edwin Mansfield, Mark Schwartz, and Samuel Wagner. “Imitation Costs and Patents: An
Empirical Study,” The Economic Journal, December 1981, in The Economics of Technical
Change
, 270.
35 The Economics of Human Gene Patents, 1352.

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and $2 million to obtain approval for a generic version of the pharmaceutical.36 This
difference is a result of the costs associated with clinical trials needed to demonstrate
the safety and efficacy of a new drug, data that could be utilized by generic
companies if not protected by a patent.37
Legislative Developments
In order to explore options for incentives to encourage the development and
marketing of new bioterrorism countermeasures, it might be instructive to look at the
state of current legislation that may be relevant to the surrounding issues. The Bayh-
Dole Act and the Hatch-Waxman Act include provisions that utilize patent ownership
to facilitate the development and commercialization of new pharmaceuticals (or, as
is the case with the Bayh-Dole Act, all technologies). The Hatch-Waxman Act also
contains FDA marketing approval policies that are designed to promote the creation
of new drugs. Similar, market-exclusivity provisions are contained in the Orphan
Drug Act. These laws are discussed below to provide the existing legal context
within which new approaches may be considered.
The Bayh-Dole Act
P.L. 96-517, Amendments to the Patent and Trademark Act, commonly referred
to as the “Bayh-Dole Act” after its two main sponsors, former Senators Birch Bayh
and Robert Dole, evolved out of congressional interest in developing a uniform
federal patent policy to promote the utilization of inventions made with the support
of the federal research establishment.38 Such action was deemed necessary because,
at the time the legislation was under consideration, only 5% of federally-owned
patents were being used. While there were possibly several reasons for such a low
level of utilization (including no market applications), this was thought by many to
be one consequence of the practice by most agencies of taking title to all inventions
made with government funding and only permitting the nonexclusive licensing of
contractor inventions.39 Without title to inventions, or at least exclusive licenses,
companies were deemed to be less likely to engage in and fund the additional R&D
necessary to bring an idea to the marketplace. The Bayh-Dole Act, by providing
universities, nonprofit institutions, and small businesses with ownership of patents
arising from federally-funded R&D, offers an incentive for cooperative work and
commercial application. Royalties derived from intellectual property rights provide
the academic community an alternative way to support further research and the
36 Patents, Innovation, and Access to New Pharmaceuticals, 852.
37 The Economics of Human Gene Patents, 1352
38 House Committee on Science and Technology, Government Patent Policy, 95th Cong., 2nd
sess., May 1978, H.Rept. Prt. 4.
39 Ibid., 5.

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business sector a means to obtain a return on their financial contribution to the
endeavor.40
Each nonprofit organization (including universities) or small business is
permitted to elect (within a reasonable time frame) to retain title to any “subject
invention” made as a result of R&D funded by the federal government; except under
“exceptional circumstances when it is determined by the agency that restriction or
elimination of the right to retain title to any subject invention will better promote the
policy and objectives of this [legislation].”41 The owner of the intellectual property
must commit to commercialization of the patent within a predetermined time frame
agreed to by the supporting agency and the performing organization. As stated in the
House report on one of the relevant bills, “the legislation establishes a presumption
that ownership of all patent rights in government funded research will vest in any
contractor who is a nonprofit research institution or a small business.”42
Certain rights are reserved for the government to protect the public interest. The
government retains “a nonexclusive, nontransferable, irrevocable, paid-up license to
practice or have practiced for or on behalf of the United States any subject invention
throughout the world....” The government also retains “march-in rights” that enable
the federal agency to require the contractor (whether he owns title or has an exclusive
license) to “grant a nonexclusive, partially exclusive, or exclusive license in any field
of use to a responsible applicant or applicants...” with due compensation, or to grant
a license itself under certain circumstances. The special situation necessary to trigger
march-in rights involves a determination that the contractor has not made efforts to
commercialize within an agreed upon time frame or that the “action is necessary to
alleviate health or safety needs...” that are not being met by the contractor.43 To date,
the government has never exercised these march-in rights.
Other provisions of the Bayh-Dole Act “authorize” the government to withhold
public disclosure of information for a “reasonable time” until a patent application can
be made. Licensing by any contractor retaining title under this act is restricted to
companies which will manufacture substantially within the United States. Initially,
universities were limited in the time they could grant exclusive licenses for patents
derived from government sponsored R&D to large companies (5 of the then 17 years
of the patent). This restriction, however, was voided by P.L. 98-620, the Trademark
Clarification Act of 1984. According to S.Rept. 98-662, extending the time frame
for licensing to large firms “is particularly important with technologies such as
40 For discussion of this law, additional provisions, and implementation see CRS Report
RL32076, The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization
of Technology
, by Wendy H. Schacht and CRS Report RL32324, Federal R&D, Drug
Discovery, and Pricing: Insights from the NIH-University-Industry Relationship
, by Wendy
H. Schacht.
41 Government Patent Policy, 5.
42 House Committee on the Judiciary, Report to Accompany H.R. 6933, 96th Congress, 2nd
sess., H.Rept. 96-1307, Part 1, 3.
43 15 U.S.C. §203.

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pharmaceuticals, where long development times and major investments are usually
required prior to commercialization.”44
The Hatch-Waxman Act
P.L. 98-417, the Drug Price Competition and Patent Term Restoration Act of
1984 (commonly known as the Hatch-Waxman Act),45 as amended by Title XI of
P.L. 108-173, the Medicare Prescription Drug and Modernization Act of 2003, made
several significant changes to the patent laws as they applied to pharmaceutical
products in an attempt to balance the need for innovative new drugs and the
availability of less expensive generic products. The Hatch-Waxman Act established
several practices intended to make it easier for generic drugs to reach the market
while permitting brand name companies to recover a portion of their intellectual
property rights lost during the pharmaceutical approval process.46
The changes legislated in the Hatch-Waxman Act include methods for extending
the term of a patent to reflect regulatory delays encountered in obtaining marketing
consent from the Food and Drug Administration (FDA); a statutory exemption from
patent infringement for activities associated with regulatory marketing approval;
mechanisms to challenge the validity of a pharmaceutical patent; and a reward for
disputing the validity, enforceability, or infringement of a patent claiming an
approved drug. The Hatch-Waxman Act also requires the FDA provide periods of
marketing exclusivity for a pharmaceutical independent of the rights conferred by
patents.
The infringement provisions in the Hatch-Waxman Act apply to pharmaceutical
patents and differ from traditional procedures associated with other patented products
and processes. A statutory exemption is created for certain claims of patent
infringement based on acts reasonably related to seeking FDA approval to market a
drug that has been patented by another firm. The company making a generic product
is permitted to use data paid for and compiled by the original manufacturer to
establish the drug’s safety and efficacy. The generic firm must only prove that their
product is bioequivalent to the innovator drug. This may allow a bioequivalent drug
to reach the market as soon as the patent on the original pharmaceutical expires.
Nowhere else in patent law does such a robust “experimental use” exemption exist.47
44 Senate Committee on the Judiciary, Report to Accompany S. 2171, 98th Cong., 2nd sess.
S.Rept. 98-662, 1984, 3.
45 21 U.S.C. § 355 and following.
46 For a detailed discussion of the Hatch-Waxman Act see CRS Report RL30756, Patent
Law and Its Application to the Pharmaceutical Industry: An Examination of the Drug Price
Competition and Patent Term Restoration Act of 1984 (The Hatch-Waxman Act)
, by Wendy
H. Schacht and John R. Thomas, and CRS Report RL32377, The Hatch-Waxman Act:
Legislative Changes Affecting Pharmaceutical Patents
, by Wendy H. Schacht and John R.
Thomas.
47 See CRS Report RL32651, Scientific Research and the Experimental Use Privilege in
Patent Law
, by John R. Thomas.

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Additional, special provisions for addressing pharmaceutical patents are
contained in the 1984 Act, including specific procedures for challenging the
enforceability, validity, or infringement of approved drug patents. To encourage such
patent challenges, generic applicants that file a challenge in court receive 180 days
of market exclusivity provided by the FDA after that patent is found invalid, not
infringed, or unenforceable or when the patent expires.
To balance such arrangements that appear to favor generic manufacturers, the
Hatch-Waxman Act provides that the patent term for pharmaceuticals may be
extended for a portion of the time lost during the FDA approval process. As noted
above, ordinarily patent term is set at 20 years from the date the patent application
is filed. The 1984 Act provides that for pharmaceutical patents, the patent term may
be extended to reflect part of the time lost during clinical testing. More specifically,
this term extension is equal to one-half the time between the effective date of the
investigational new drug application and the submission of the new drug application
(NDA), plus the entire time lost during FDA approval of the NDA.48
The Hatch-Waxman Act sets some limits on the length of the term restoration.
The entire patent term restored may not exceed five years. Further, the remaining
term of the restored patent following FDA approval of the NDA may not exceed 14
years.49 The act also provides that the patentee must exercise due diligence to seek
patent term restoration from the USPTO or the period of lack of diligence will be
offset from the augmented patent term.50 Patent term extension does not occur
automatically. The patent owner or its agent must file an application the USPTO
requesting term extension within 60 days of obtaining FDA marketing approval.
The Hatch-Waxman Act also established so-called “marketing exclusivities”
administered by the FDA. The term “marketing exclusivity” refers to a period of
time during which the FDA affords an approved drug protection from competing
applications for marketing approval. During this time, the FDA will not accept
applications for market approval of generic versions of the brand name
pharmaceutical. Two sorts of marketing exclusivities are available to innovative
drug companies under the Hatch-Waxman Act: five-year new chemical entity
exclusivity,51 and three-year new clinical study exclusivity.
A drug qualifies as a new chemical entity, or NCE, if the FDA has not
previously approved that drug’s active ingredient.52 The purpose of NCE exclusivity
is to encourage the development of innovative drug products that include an entirely
new active ingredient (commonly termed the “active moiety”), in contrast to “me-
48 25 U.S.C. § 156.
49 35 U.S.C. § 156(c).
50 35 U.S.C. § 156(d)(2)(B)
51 Some authorities refer to this sort of exclusivity as new molecular entity, or NME
exclusivity. See Gerald J. Mossinghoff, “Overview of the Hatch-Waxman Act and Its
Impact on the Drug Development Process,” 54 Food and Drug Law Journal, 1999, 187.
52 See 21 C.F.R. §314.108(a).

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too” drugs that consist of chemical variants of previously known compounds.53 The
statute expressly stipulates that a drug does not qualify as an NCE if it consists of the
salt or ester of a previously approved active ingredient as these are considered only
minor chemical changes to the active ingredient.54 NCE exclusivity prevents a
subsequent generic applicant from relying upon the data submitted by the innovative
drug company during a five-year period. As a result, firms are precluded from filing
generic applications for five years from the date of the approval of the NDA for that
active moiety.55
The practical effect of NCE exclusivity is to restrict a potential generic
manufacturer from bringing a product to market for five years plus the length of the
FDA review of the generic application.56 If, for example, the FDA requires two years
to approve a particular generic application, the real-world impact of the NCE
exclusivity has been seven years of protection. In this respect NCE exclusivity
operates differently from other forms of FDA-administered exclusivities, which
generally prevent the FDA from approving applications, rather than accepting them
in the first instance.57
Alternatively, a pioneer drug company may obtain a three-year new clinical
study exclusivity in exchange for submitting an NDA58 or supplemental NDA59 that
contains reports of new clinical studies of a known drug conducted by the sponsor
that are essential to FDA approval of that application. The FDA has granted new
clinical study exclusivity for such changes as new dosage forms, new indications, or
for a switch from prescription to over-the-counter status for the drug. The purpose
of the three-year new clinical study exclusivity is to encourage improvements upon
drugs that are already known.
The Hatch-Waxman Act imposes four requirements that an investigation must
fulfill in order to qualify for new clinical study exclusivity.60 First, the study must be
new, in that it could not have been previously used for another FDA drug approval
proceeding. Second, the study must be a clinical study on humans, as compared to
53 See Abbott Labs. v. Young, 920 F.2d 984, 986 (D.C. Cir. 1990)
54 21 U.S.C. §3 55(c)(3)(E) (2004) (with respect to §505(b)(2) applications); 21 U.S.C. §
355(j)(5)(F) (2004) (with respect to ANDAs).
55 21 U.S.C. § 355(c)(3)(E)(ii) (with respect to §505(b)(2) applications); 21 U.S.C. §
355(j)(5)(F)(ii) (with respect to ANDAs).
56 See Marvin M. Goldenberg, “Medicare and the New Generic Drug Legislation,” 29
Pharmacy and Therapeutics no. 2 at 89,February 2004, 90.
57 See Elizabeth H. Dickinson, “FDA’s Role in Making Exclusivity Determinations,” 54
Food & Drug Law Journal, 1999, 195.
58 21 U.S.C. §355(c)(3)(E)(iii) (with respect to §505(b)(2) applications); 21 U.S.C. §
355(j)(5)(F)(iii) (with respect to ANDAs).
59 21 U.S.C. § 355(c)(3)(E)(iv) (with respect to §505(b)(2) applications); 21 U.S.C. §
355(j)(5)(F)(iv) (with respect to ANDAs).
60 21 U.S.C. § 355(c)(3)(E)(iii)-(iv) (with respect to §505(b)(2) applications); 21 U.S.C. §
355(j)(5)(F)(iii)-(iv) (with respect to ANDAs).

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a preclinical study, and not a bioavailability or bioequivalence study. Third, the
study must have been “conducted or sponsored” by the applicant. Finally, the study
must be “essential to the approval” of the application or supplement. The FDA has
defined the term “essential to the approval” as meaning “that there are no other data
available that could support approval of the application.”61 A study that is interesting
and provides useful background information, but not essential to approving the
change in the drug, does not provide sufficient basis for an FDA award of new
clinical study exclusivity.62
In contrast to NCE exclusivity, new clinical study exclusivity does not prevent
the FDA from accepting a generic application with respect to the drug. If the new
clinical study exclusivity continues to bar the issuance of marketing approval at the
close of FDA review, the FDA will issue a tentative approval for the generic product
that will become effective once the new clinical study exclusivity has run its course.
In addition, new clinical study exclusivity only applies to the use of the product that
was supported by the new clinical study.63 If, for example, the new studies support
a new indication or dosage form of the previously approved ingredient, then the
three-year exclusivity applies only to that particular use or dosage form. The FDA
is not barred from approving a generic drugs for other indications or dosage forms.64
A drug product may be subject both to NCE exclusivity and new clinical study
exclusivity during the life of that product. Commonly, a new drug will initially enjoy
a five-year NCE exclusivity. Later in the life of that product, the sponsor of the drug
may perform additional clinical trials to qualify the drug for additional three-year
exclusivities.
Orphan Drug Act
Congress enacted the Orphan Drug Act65 in order to encourage firms to develop
pharmaceuticals to treat rare diseases and conditions.66 Such drugs are called
“orphan drugs” because firms may lack the financial incentives to sponsor products
61 See 21 C.F.R. § 314.108(a)
62 See Upjohn Co. v. Kessler, 938 F. Supp. 439 (W.D. Mich. 1996).
63 See Valerie Junod, “Drug Marketing Exclusivity Under United States and European
Union Law,” 59 Food and Drug Law Journal, 2004, 479.
64 See Thomas J. Parker et al., “FDA Marketing Exclusivity for Single Enantiomers of
Previously Approved Racemates,” 15 Journal of Proprietary Rights no. 1 at 8, January
2003.
65 Orphan Drug Act, P.L. 97-414, 96 Stat. 2049 (1982) (codified as amended at 21 U.S.C.
§§ 360aa-360ee, 26 U.S.C. § 45C, 42 U.S.C. § 236).
66 See, e.g., Gary A. Pulsinelli, “The Orphan Drug Act: What’s Right With It,” 15 Santa
Clara Computer & High Technology Law Journal,
1999, 299. The Orphan Drug Act also
applies to varying degrees to biologics and medical devices, which, along with drugs, are
commonly termed “orphan products.”

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to treat small patient populations.67 Among the incentives offered via this legislation
was a seven-year term of orphan drug marketing exclusivity.68 This period
commences from the date the FDA issues marketing approval on the drug.69
Orphan drug marketing exclusivity applies only to the indication for which the
drug is approved. As a result, the FDA could approve a second application for the
same drug for a different use. The FDA cannot approve the same drug made by
another firm for the same use, however, unless the original sponsor approves or the
original sponsor is unable to provide sufficient quantities of the drug to the market.70
As originally enacted, the Orphan Drug Act defined an orphan drug as one for
which there was no “reasonable expectation that the cost of developing . . . will be
recovered from sales in the United States of such drug.”71 Congress changed the
definition to its present form in 1984.72 Currently, in order to qualify for orphan drug
status, the drug must treat a rare disease or condition (1) affecting less than 200,000
people in the United States, or (2) affecting more than 200,000 people in the United
States, but for which there is no reasonable expectation that the sales of the drug
would recover the costs.73 This change allows drug sponsors to avoid showing
unprofitability if the target population consisted of less than 200,000 persons.
Proposals for Change
Legislation introduced during the 109th Congress would have expanded upon
existing mechanisms in the patent and food and drug laws to encourage the
development of bioterrorism countermeasures. These bills would have allowed for
the restoration of that portion of the patent term used during the FDA approval
process, and/or the extension of a patent term to reward technological innovation in
the area of bioterrorism countermeasures. In addition, the bills also provided for
additional FDA-administered marketing exclusivities for eligible and designated
countermeasures. While no legislation was enacted, a discussion of the relevant
provisions may provide a framework for further discussion of the issues during the
110th Congress.
67 See, e.g., David B. Clissold, “Prescription for the Orphan Drug Act: The Impact of the
FDA’s 1992 Regulations and the Latest Congressional Proposals for Reform,” 50 Food &
Drug Law Journal,
1995, 125.
68 21 U.S.C. §360cc.
69 Id.
70 21 U.S.C. § 360cc(b).
71 Orphan Drug Act, P.L. 97-414, § 526(a)(2), 96 Stat. 2049 (1982) (codified as amended
at 21 U.S.C. § 360bb(a)(2) (2000)).
72 Health Promotion and Disease Prevention Amendments of 1984, P.L. 98-551, 98 Stat.
2815 (1984).
73 21 U.S.C. § 360bb(a)(2).

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Patent Term Fundamentals
As noted previously, several mechanisms exist for lengthening the basic 20-year
patent term. Among them are Hatch-Waxman Act provisions compensating patent
proprietors for delays in FDA regulatory approval proceedings.74 This term extension
is potentially available for a single patent relating to a drug product, or to a medical
device, food additive, or color additive subject to regulation under the Federal Food,
Drug, and Cosmetic Act.75
Under current law, the period of extension is ordinarily set to one-half of the
clinical testing phase, less any period during which the applicant did not act with due
diligence, plus the entirety of the FDA approval phase.76 The nature of the regulated
product sets the precise dates that commence the testing and approval phases that
together comprise the regulatory review period. For a human drug, antibiotic, or
human biological product, the clinical testing phase begins on the date the
Investigational New Drug (IND) application is filed, while the FDA approval phase
period starts on the date of filing of either the New Drug Application (NDA) or
Product License Application (PLA).77 For a patent claiming a medical device, the
clinical testing date commences on the effective date of the Investigational Device
Exemption (IDE) or, if no IDE was submitted, on the date on which the applicant
began the first clinical investigation involving the device. The FDA approval phase
commences on the date on which the application for product approval or notice of
completion of a product development protocol under Section 515 of the Federal
Food, Drug, and Cosmetic Act was initially submitted.78 Other sorts of regulated
products, such as veterinary biological products and food or color additives, are
addressed in an analogous manner.
The Hatch-Waxman Act capped the maximum extension period to five years,
or a total effective patent term after the extension of not more than fourteen years.79
In addition, the Hatch-Waxman Act does not go so far as to provide a patent term
extension in the usual sense — that is to say, a temporal extension of the original
right to exclude others from practicing the patented invention. During the period of
term extension, the rights provided by the patent are instead limited, generally
speaking, to the specific use that the FDA has approved. For example, in the case of
an extended product patent, the patent’s rights during the extension period are
generally “limited to any use approved for the product” that subjected it to regulatory
approval delays at the FDA.80
74 35 U.S.C. § 156 (2004).
75 35 U.S.C. § 156(f) (2004).
76 35 U.S.C. § 156(c) (2004).
77 37 C.F.R. § 1.740(a)(10)(I) (2004).
78 37 C.F.R. § 1.740(a)(10)(v) (2004).
79 35 U.S.C. § 156(b) (2004).
80 35 U.S.C. § 156(b)(1) (2004).

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Proposed Patent Term Restoration Reforms
Proposed legislation introduced in the 109th Congress included provisions that
act similarly with respect to patent term restoration on bioterrorism countermeasures,
although they potentially allowed for longer periods of expansion of patent term than
is currently available under the Hatch-Waxman Act. It should be noted that the
Hatch-Waxman Act refers to the lengthening of patent life in compensation for
delays in FDA marketing approval as an “extension of patent term.”81 However, the
legislation used the word “restoration” to refer to this concept, while employing the
word “extension” in the context of a distinct reward for technological innovation in
the area of bioterrorism countermeasures.
Both S. 3, The Protecting America in the War on Terror Act of 2005, and S.
975, The Project Bioshield II Act, would have introduced a new 35 U.S.C. § 156a
into the Patent Act of 1952. As with current law, these bills would have lengthened
an eligible patent on a bioterrorism countermeasure on a day-per-day basis for the
time lost during the FDA approval phase. These bills would also extend patent term
on a day-per-day basis during the entire period of the clinical testing phase, however,
rather than merely for one-half of that period as provided in the Hatch-Waxman
Act.82 In contrast to the Hatch-Waxman Act, the proposed legislation placed no cap
upon the maximum period of increase in patent term.
Notably, the Hatch-Waxman Act sets the first day of the regulatory review
period as the date that the drug sponsor’s commences clinical studies at the FDA.
However, both S. 3 and S. 975 considered the regulatory review period to commence
on the later of either the date the clinical testing phase begins at the FDA, or the date
upon which the USPTO issues the patent sought to be extended.83 In circumstances
where the USPTO issues the patent after the sponsor has commenced clinical studies
at the FDA, the relevant regulatory review period under current law may actually be
longer than under the proposed legislation.
Both S. 3 and S. 975 stipulated that this patent term restoration is mutually
exclusive with respect to “extension of patent term” available under current law.84
As a result, only a single patent that claims a countermeasure product may be
lengthened by either the period established by the “extension of patent term”
provision of the existing Hatch-Waxman Act or the new “restoration of patent terms
relating to countermeasure products” under proposed 35 U.S.C. § 156a, but not both.
81 35 U.S.C. § 156 (2004).
82 S. 3 at § 113(c) (introducing 35 U.S.C. § 156a(b)); S. 975 at § 331(b) (introducing 35
U.S.C. § 156a(b))).
83 S. 3 at § 113(c) (introducing 35 U.S.C. § 156a(a)(2)); S. 975 at § 331(b) (introducing 35
U.S.C. § 156a(a)(2)).
84 S. 3 at § 113(c) (introducing 35 U.S.C. § 156a(b)(4)); S. 975 at § 331(b) (introducing 35
U.S.C. § 156a(b)(4)).

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Proposed Patent Term Extension Reforms
Legislation offered during the 109th Congress also would have created the
possibility of “patent term extension,” codified at 35 U.S.C. § 158, that has no direct
analogy under current law. Under S. 3 and S. 975, this term extension would be
available to entities that have developed FDA-approved countermeasure products.
The period of term extension under both bills ranged from a minimum of six months
to a maximum of two years.85 The Secretary of Health and Human Services would
be granted discretion to set the period of term extension based upon such factors as
the nature of the threat to be countered, the difficulty and expense in developing the
countermeasure, and the impact of patent extension upon consumers and healthcare
providers.86
Considerable discussion occurred with respect to whether the term extension
provided by proposed 35 U.S.C. § 158 would have to be applied to a patent claiming
the countermeasure itself, or instead to any one patent that the countermeasure
innovator selects within its intellectual property portfolio. The concept that a
countermeasure innovator could enjoy expanded patent life with respect to an
unrelated product was termed a “wild card” term extension.87 Under this regime, a
countermeasure innovator could potentially obtain a term extension of a patent
relating to a best-selling mainstream pharmaceutical, thereby shielding it from
generic competition for an additional period of six months to two years. Supporters
of a wild card patent term extension urged that patent-based incentives on profitable
products, such as “blockbuster” drugs, are needed to encourage firms to develop
potentially less profitable countermeasures.88 Detractors have expressed concerns
over the equities of requiring patients to finance the development of countermeasures
through the purchase of medications to treat their particular illnesses or medical
conditions.89
S. 975 appeared to employ this “wild card” patent term extension concept. That
bill stipulated that patents eligible for the extension period of six months of two years
must relate to “designated products,” with that term in turn generally defined as any
drug, antibiotic drug, device, or biological product.90 This definition contrasts with
85 S. 3 at § 113(c) (introducing 35 U.S.C. § 158(a)(d)(1)); S. 975 at § 301(b)(4)(a)(iv).
86 S. 3 at § 113(d) (introducing 35 U.S.C. § 158(a)(d)(2)); S. 975 at § 301(b)(4)(a)(ii).
87 See Chris Mondics, “Drug firms on Senate agenda,” Philadelphia Inquirer, April 10,
2005, A5.
88 McKenna, Long & Aldridge, Press Release, ‘Bioshield’ Drug-Patent Plan Draws Fire,
April 1, 2005 available at [http://www.mckennalong.com/news-inthe-1273.html].
89 Generic Pharmaceutical Association, Press Release, Legislation Promoted as a
Countermeasure Against Bioterrorism Would Counter Bipartisan Measures to Constrain
Prescription Costs,
February 8, 2005 available at [http://www.gphaonline.org//AM/
Template.cfm?Section=Home].
90 S. 975 at § 331(c) (introducing 35 U.S.C. § 158(a)(3)).

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that provided with respect to term restoration as compensation for FDA regulatory
review, which expressly stated that the patent must claim a countermeasure product.91
The situation with respect to S. 3 was less clear. In a statement on the floor of
the Senate, Senator Judd Gregg appeared to disavow the notion that S. 3 created
“wild card” exclusivity. According to that statement, S. 3 created “additional
incentives involving marketing exclusivity that could be granted for up to two years
for the product that was used as a countermeasure. This is an important distinction
from the so-called ‘wild card’ exclusivity idea, which would allow a company to
extend the patent protection of a different product....”92 It should be noted, however,
that S. 3 expressly restricted the availability of term restoration to patents that claim
countermeasure products, but incorporated no similar restriction with regard to term
extension.93 As a result, some observers expressed concerns about whether the bill
provided “wild card” exclusivity or not.94
Proposed Marketing Exclusivity Reforms
As noted previously, the food and drug laws provide for certain FDA-
administered marketing exclusivities. Among these exclusivities is the five-year new
chemical entity exclusivity,95 a three-year new clinical trials exclusivity,96 and a
seven-year orphan drug exclusivity.97 Subject to certain exceptions, these
exclusivities generally prevent the FDA from granting marketing approval with
respect to another sponsor’s competing drug during the statutory period.98
S. 975, introduced in the 109th Congress, would have expanded upon these
existing mechanisms with respect to new drugs that were developed by certified
researchers and that qualify as countermeasure products. In particular, the five-year
new chemical entity exclusivity would be doubled to ten years; the three-year new
91 Id. at § 331(b) (introducing 35 U.S.C. § 156a(a)(3)(A)).
92 Senator Judd Gregg, Congressional Record, April 6, 2005, S3264.
93 Compare S. 3, § 113(c) (introducing 35 U.S.C. § 156a(a)(3)) with S. 3, § 113(d)
(introducing 35 U.S.C. § 158(a)(2)).
94 See “GphA to Gregg: Clarify That ‘Wildcard Exclusivity’ Not in S. 3,” INSIDE CMS,
March 10, 2005.
95 See 21 U.S.C. § 355j(c)(3)(E)(ii) (2004) (with respect to § 505(b)(2) applications); 21
U.S.C. § 355(j)(5)(F)(ii) (2004) (with respect to Abbreviated New Drug Applications).
96 See 21 U.S.C. § 355j(c)(3)(E)(iii), (iv) (2004) (with respect to § 505(b)(2) applications);
21 U.S.C. § 355(j)(5)(F)(iii), (iv) (2004) (with respect to Abbreviated New Drug
Applications).
97 See 21 U.S.C. § 360cc(a) (2004).
98 In addition, under the five-year new chemical entity exclusivity, the FDA will not consider
applications for a generic version of a new chemical entity for five years after approval of
the original. As a result, the practical period of exclusivity is five years plus the time that
the FDA takes to review the competitor’s application. See Valerie Junod, Drug Marketing
Exclusivity Under United States and European Union Law
, 59 FOOD & DRUG L.J., 2004,
479.

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clinical studies exclusivity would be doubled to six years; and the seven-year orphan
drug exclusivity would be extended to ten years.99 No comparable provision
appeared in S. 3.
S. 1873 allowed specified biological, chemical, radiological, and nuclear agents,
as well as certain toxins, to qualify as a “rare disease or condition” under the Orphan
Drug Act. As such, certain countermeasure products designed to diagnose, mitigate,
prevent, or treat harm from one of these agents or toxins would be entitled to orphan
drug exclusivity. S. 1873 further stipulated that the period of orphan drug exclusivity
will be ten years, rather than seven years, with respect to these countermeasures.
March-In Rights
As discussed above, the Bayh-Dole Act provides the government with the right
to “march-in” and license to another manufacturer a patent that was originally
developed by a contractor during federally-funded R&D under certain, very specific
conditions. This right has never been exercised. However, some in industry view
this provision as a potential barrier to on-going innovation. S. 975 would have
permitted the owner of a patent related to a countermeasure made under the
conditions triggered by the Bayh-Dole Act to request that the government agency
that funded the original research waive its march-in rights.100 No comparable
provision appeared in S. 3.
It should be noted that in addition to the march-in rights afforded to the
government under the Bayh-Dole Act, the government also has the authority to take
private property for public use under “eminent domain.”101 While most frequently
applied to real estate, the general principle generally applies to intellectual property
as well.102 As a result, the U.S. government effectively enjoys the ability to declare
a “compulsory license” that allows it to use a patented invention without obtaining
the permission of the patentee. In turn, the federal government has consented to a
suit by private patent owners in order to obtain compensation for government uses.103
Section 1498(a) of Title 28 of the U.S. Code provides in part:
Whenever an invention described in and covered by a patent of the
United States is used or manufactured by or for the United States
without license of the owner thereof or lawful right to use or
manufacture the same, the owner’s remedy shall be by action against
the United States in the United States Claims Court for the recovery
99 S. 975 at § 331(e) (introducing 21 U.S.C. § 505C).
100 S. 975 at 331(d).
101 For a discussion of this and related topis see CRS Report RL32051, Innovation and
Intellectual Property Issues in Homeland Security
, by John R. Thomas.
102 Thomas F. Cotter, “Do Federal Uses of Intellectual Property Implicate the Fifth
Amendment?,” 50 Florida Law Review, 1998, 529.
103 See Lionel Marks Lavenue, “Patent Infringement Against the United States and
Government Contractors Under 28 U.S.C. § 1498(a) in the United States Court of Federal
Claims,” 2 Journal of Intellectual Property Law, 1995, 389.

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of his reasonable and entire compensation for such use and
manufacture.
The remaining paragraphs of § 1498 provide analogous provisions pertaining to other
intellectual property rights, including copyright, plant variety protection certificates,
and semiconductor mark works.104
Under § 1498(a), all patent suits against the U.S. government are litigated in the
U.S. Court of Federal Claims. These Court proceedings are conducted using the
same general standards as does litigation between private parties. The patent owner
represents itself, while the Attorney General and Department of Justice are
responsible for representing the U.S. government in § 1498 cases.105 Unlike private
patent suits, however, there are no jury trials in § 1498 cases.106 Appeals from the
United States Court of Claims proceed to the U.S. Court of Appeals for the Federal
Circuit.107
As compared to remedies available in patent infringement suits against private
parties, the remedies available in § 1498(a) suits are more limited. In private patent
litigation, the adjudicated infringer is ordinarily enjoined from using the patented
invention throughout the remaining term of the patent.108 The adjudicated infringer
may also have to compensate the patent owner for profits lost due to the
infringement.109 Additionally, if a court deems the defendant to have been a “willful
infringer,” the court may order the defendant to pay the patent owner up to three
times the actual damages suffered.110
In contrast, § 1498(a) limits available remedies to “reasonable and entire
compensation” to the patent owner. As a result, the government may not be enjoined
from practicing a patented invention. The courts have also generally limited the
damages that the government must pay to the patentee to the level of a “reasonable
royalty.”111 A “reasonable royalty” for purposes of patent infringement damages is
“the amount that a person desiring to manufacture or use a patented article, as a
business proposition, would be willing to pay as a royalty and yet be able to make or
104 28 U.S.C. § 1498 (2000).
105 28 U.S.C. § 516 (2000).
106 28 U.S.C. § 2402 (2000).
107 28 U.S.C. § 1295(a)(3) (2000).
108 28 U.S.C. § 283 (2000).
109 See Panduit Corp. v. Stahlin Bros. Fibre Works, Inc., 575 F.2d 1152 (6th Cir. 1978).
110 35 U.S.C. § 284 (2000).
111 See Tektronix, Inc. v. United States, 552 F.2d 343 (Ct. Cl. 1977). Some more recent
precedent has suggested that in some cases, the U.S. government may be obliged to pay the
full lost profits of the patentee rather than a reasonable royalty. See Gargoyles, Inc. v.
United States, 113 F.3d 1572 (Fed. Cir. 1997). However, reportedly the last instance that
an award of lost profits was made for government use of a patented invention was in 1930.
David M. Schlitz & Richard J. McGrath, “Patent Infringement Claims Against the United
States Government,” 9 Federal Circuit Bar Journal, 2000, 351.

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use the patented article, in the market at a reasonable profit.”112 Finally, tripled
damages for willful infringement are not available against the government.113
Concluding Observations
The use of patent ownership and marketing exclusivity to encourage innovation
in the pharmaceutical industry is reflected in existing law and government policy.
Studies have shown that these efforts appear to have been successful in facilitating
the development and commercialization of new technologies.114 As such, there
appears to be congressional interest in utilizing and expanding this approach for the
specific purpose of generating innovative bioterrorism countermeasures. While no
legislation in this area has been introduced in the 110th Congress, the three relevant
bills from the previous Congress may provide a guide to additional exploration of the
issues. These bills, S. 3, S. 975, and S. 1873, would have established regimes under
which patent terms would be restored and/or extended and market exclusivity periods
increased to reward innovation in this arena. Although different in the specific
provisions, these bills built upon incentives that have been used in the past.
Encouraging the development of new counterterrorism technologies, on one
hand, and ensuring affordable access to new drugs and medical devices, on the other,
are both significant goals. These aspirations may potentially conflict, however.
Introducing augmented patent- and exclusivity-based incentives may stimulate
innovative firms to engage in the research and development of new countermeasures,
as well as to shepherd these products through time-consuming and costly marketing
approval procedures. Commentators have expressed concern, however, over whether
such heightened protections for innovators will be in proportion with the risks and
costs of developing new countermeasures. Detractors have also questioned the
propriety of financing the development of antiterrorism technologies through
increased prices upon distinct medical products via the wild card patent term
extension. Striking a balance between encouraging the development of new
countermeasures and maintaining the traditional goals of our public health system is
a central concern of the current discussion with respect to homeland security.
crsphpgw
112 Wright v. United States, 53 Fed. Cl. 466 (2002).
113 DeGraffenried v. United States, 228 Ct. Cl. 780 (1981).
114 See The Bayh-Dole Act: Selected Issues in Patent Policy and the Commercialization of
Technology
and Patent Law and Its Application to the Pharmaceutical Industry: An
Examination of the Drug Price Competition and Patent Term Restoration Act of 1984 (The
Hatch-Waxman Act)
.