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Possible Patent Infringement Risk for Companies Making COVID-19 Equipment Without DPA Contracts

April 02, 2020

With each passing day, more US companies are voluntarily rising to answer the president’s call to manufacture face masks, ventilators, and other critical coronavirus (COVID-19) protective equipment, but without a government contract, they may not be exempt from patent infringement liability.

To address the evolving needs created by the COVID-19 pandemic, US President Donald Trump through an executive order recently invoked the Defense Production Act of 1950 (DPA), which broadly authorizes the US government to drive industrial production and distribution of certain critical goods and services. The president’s authority permits him to, among other things, compel private companies to prioritize certain specific contracts and incentivize private production through loans and guarantees.

While many private US companies have already voluntarily agreed to manufacture “personal protective equipment and ventilators”—the goods currently designated as “scarce and critical material essential to the national defense” in the order—it is not yet clear whether these companies are entitled to the same patent infringement immunity afforded to government contractors, or whether President Trump will explicitly immunize from patent infringement the private production of critical goods and services under the DPA.

Given this potential uncertainty, companies should take certain precautions to minimize their potential exposure and liability to a patent infringement claim.

Statutory Background

The DPA grants the US president an “array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base.” 50 USC § 4502. While “national defense” was originally limited to war and military preparedness, Congress eventually extended it to include “emergency preparedness activities,” id. at § 4522(14), which include “all those activities and measures designed or undertaken to prepare for or minimize the effects of a hazard upon the civilian population, to deal with the immediate emergency conditions which would be created by the hazard.” 42 USC § 5195(a)(3).

Once invoked, the DPA, through Title I, confers upon the US government the ability to exercise certain powers, including, but not limited to, the following:

  • Priority Power: The president may “require that performance under contracts or orders . . . which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders by any person he finds to be capable of their performance.” 50 USC § 4511.
  • Allocation Power: The president may “allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate.” 50 USC § 4533.

To invoke these Title I powers, however, the president must find “(1) [that] the material is a scarce and critical material essential to the national defense, and (2) that the requirements of the national defense for such material cannot otherwise be met without creating a significant dislocation of the normal distribution of such material in the civilian market to such a degree as to create appreciable hardship.” 50 USC § 4511(b).

President Trump’s March 18 executive order includes an explicit finding that “personal protective equipment and ventilators” are “scarce and critical material essential to the national defense” under the DPA. Although the executive order delegates the president’s DPA powers to the secretary of the US Department of Health and Human Services (HHS), it expressly authorizes the HHS secretary to both prioritize contract performance and allocation resources for combatting COVID-19.

Put differently, the HHS secretary can use the priority power to require a private company to prioritize a DPA contract to manufacture critical materials (e.g., ventilators) and complete it ahead of any other contract, as well as use the allocation power to control the distribution of materials (e.g., face masks) and/or facilities (e.g., convention halls) used for responding to the spread of COVID-19. The failure to comply with a directive or order to perform specific contracts or distribute product on a particular timeline can result in substantial penalties, as well as concomitant discomfort from a public relations perspective.

Patent Infringement Immunity for DPA Contractors

Although the DPA forecloses liability for certain antitrust and breach of contract claims arising from the acceptance or performance of a compelled or voluntary DPA contract, it does not expressly immunize, indemnify, or otherwise exempt from liability patent infringement claims. See In re Agent Orange Prod. Liability Litig., 597 F. Supp. 740, 845 (E.D.N.Y. 1984) (stating in dicta that at most Section 4557 would immunize against strict liability torts).

However, depending on the circumstances, a DPA directed contractor may rely on the “government contractor's defense” to transfer liability from the contractor to the US government when the contractor, with the government’s authorization or consent, manufactures an infringing product for the government. Crater Corp. v. Lucent Techs., Inc., 255 F.3d 1361, 1363 (Fed. Cir. 2001) (affirming dismissal of patent infringement claims after finding that 28 USC § 1498(a) applied, and therefore, patentee's only recourse was against the government).

Section 1498(a) of Title 28 of the US Code provides in pertinent 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 Court of Federal Claims for the recovery of his reasonable and entire compensation for such use and manufacture.

For the purposes of this section, the use or manufacture of an invention described in and covered by a patent of the United States by a contractor, a subcontractor, or any person, firm, or corporation for the Government and with the authorization or consent of the Government, shall be construed as use or manufacture for the United States. (Emphasis added.)

The terms of the contract for express or implied consent dictate whether the US government authorized or consented to a DPA contractor's allegedly infringing use of the patented technology.

Practical Considerations for DPA Contractors and Voluntary Manufacturers of ‘Essential’ COVID-19 Equipment

To properly preserve an immunity defense, companies planning to manufacture ventilators or other COVID-19 protective equipment for the US government should ensure that either the contract itself or its incorporated parts (e.g., work plan, appendices, statements of work) expressly identify the specifications, materials, and equipment that the manufacturer must use to complete the contract. Indeed, where a government contract fails to include these details, and the contractor is free to choose and/or substitute features, materials, and or equipment, courts are less likely to find the government authorization or consent needed to immunize the contractor from patent infringement liability.

As the COVID-19 pandemic develops, the government may need to further incentivize the voluntary production of essential supplies by reducing the risk of patent infringement for private companies without an express contract. Although unlikely, the HHS secretary may issue mandated specifications for critical COVID-19 equipment that even a voluntary manufacturer may use to show at least implied consent by the US government. See Connell v. KLN Steel Prods. Ltd., 2009 WL 691292, at *13 (N.D. Ill. Mar. 16, 2009) (applying Section 1498 immunity to dismiss patent infringement suit based on implied consent).

Absent government immunity, voluntary manufacturers should exercise standard care when assessing patent infringement risks to the extent possible, particularly if the manufacturer is copying an existing product, the product is marked with a patent, and/or the voluntary manufacturer will profit from the sale. If the goods are donated and/or a new product is developed rather than copied, the practical risks of patent infringement liability and subsequent damages are greatly reduced, but may still technically remain.

While there may not be enough time to conduct a full freedom to operate analysis while providing urgently needed medical equipment, some basic searching, even if conducted in parallel with supply efforts, may help to identify whether the proposed product is in the public domain or protected by patents. If a potentially problematic patent is identified, a design change may help mitigate the risk of liability or a temporary license may be acquired. Particularly in a time of crisis, the patent holder may consider granting a reduced royalty rate.

As always, the manufacturer should be careful when communicating about a potentially problematic patent and limit any communications about the patent to its attorney, as damages could be tripled if any infringement were found to be willful. Documents referencing a particular patent, such as internal emails, could be used to show that the manufacturer’s infringement of that patent was willful.

Finally, calling on companies to focus on a problem outside of their traditional market and having disparate companies collaborate across industries to solve these latest problems will undoubtedly result in new and interesting solutions. For example, automotive and consumer product design–driven companies have already partnered with medical device manufacturers to produce innovative face masks, ventilators, and other essential equipment.

To preserve their intellectual property rights, companies should consider entering into a written agreement when working with one another, taking care with confidential information including press releases and other publications, and timely filing utility or design patent applications on any inventions or improvements created, where appropriate, while combatting the COVID-19 pandemic.

Coronavirus COVID-19 Task Force

For our clients, we have formed a multidisciplinary Coronavirus COVID-19 Task Force to help guide you through the broad scope of legal issues brought on by this public health challenge. We also have launched a resource page to help keep you on top of developments as they unfold. If you would like to receive a daily digest of all new updates to the page, please subscribe now to receive our COVID-19 alerts. One of our many resources includes a list of current known IP office closures and extensions around the world.

Contacts

If you have any questions or would like more information on the issues discussed in this LawFlash, please contact the authors, John L. Hemmer (Philadelphia) and Ehsun Forghany (Silicon Valley), or any of the members of Morgan Lewis’s COVID-19 Intellectual Property Working Group or our government contracts team:

Intellectual Property

Chicago
Jason C. White

Philadelphia
Eric Kraeutler
Louis W. Beardell, Jr.
Kenneth J. Davis
Christopher I. Halliday

San Francisco
Christina A. MacDougall, Ph.D.

Silicon Valley
Dion M. Bregman
Andrew J. Gray IV

Washington, DC
Dana S. Gross
Jeffrey G. Killian, Ph.D.
Anita B. Polott

Wilmington
John V. Gorman

Government Contracts

Dallas
Sheila A. Armstrong

Washington, DC
Giovanna M. Cinelli
Kenneth J. Nunnenkamp
Stephen E. Ruscus