Section 1498 May Be a Potential Government Remedy for Approved, Unlaunched Etanercept Biosimilars

A method for government intervention in long-simmering patent disputes on biosimilar medications seems have been hiding in plain sight. And it can be instituted immediately. This is according to a new white paper from New York University School of Law, which highlights a piece of existing legislation that has been on the books for decades but is rarely discussed.

For several years, the biosimilar industry and government has sought ways to utilize the tools at its disposal to deal with patent evergreening and patent thickets contrived by the makers of reference biologics. The Biologics Price Competition and Innovation Act’s (BPCIA) patent dance was insufficient to address the more than 75 patents on individual biologics typically filed by their manufacturers over the course of time.

The Federal Trade Commission (FTC) seemed to be the governmental authority best positioned to tackle anticompetitive patents. However, hope has faded in this respect, with the undercutting of a 2019 Senate bill that would have pushed the FTC to do just that. In a private E-mail discussion with a highly placed lawyer with the FTC, BR&R was told that the agency did not have the authority to invalidate patents it considered anticompetitive.

Section 1498 and Pharmaceuticals

Part of the Patent and Trademark Amendments Act of 1980, 28 U.S.C. §1498 allows the federal government to use any technology assigned a US patent with immunity from patent claims. This means that a technology or product can be used by the US government without permission by offering the holder of the patent “reasonable and entire compensation,” which in the past has been no more than 10% of sales.

Kevin Nelson, JD

The question over use of Section 1498 was raised in 2016 over the production of hepatitis C virus and more recently regarding methods of increasing COVID-19 vaccine production. However, the authors of the white paper, §1498: A Guide to Government Patent Use: A Path to Licensing and Distributing Generic Drugs, also focused on its application to the biosimilar industry. The Technology Law & Policy Clinic at NYU evaluated different scenarios that might occur, while only one actually would realistically apply: An FDA-approved biosimilar is prevented from being prescribed because of patent issues. This would directly address the situation with Humira® and Enbrel® and their biosimilar competition.

In a 2019 interview with Kevin Nelson, Esq., Partner with Schiff Hardin LLP, Chicago, and our expert on intellectual property issues, we discussed FTC’s past actions in the realm of pharmaceutical patents. We asked Mr. Nelson about the use of Section 1498 as a potential remedy for these long-delayed biosimilars, the exclusivity periods for which have expired years ago. He replied, “Section 1498 operates sort of like eminent domain, but with patent and copyright rights. The government (or an entity at its designation) can make or use something that is protected by patent or copyright without the owner’s consent, but has to pay the owner reasonable compensation.”

To date, the question of negotiating reasonable compensation with patent holder has not yet been tested in the pharmaceutical context. The threat of implementing Section 1498 in the pharmaceutical industry was made by Health and Human Services Secretary Tommy Thompson in 2001. The US sought urgently to create a national stockpile of the antibiotic ciprofloxacin (Cipro®), which was owned by the pharmaceutical maker Bayer, to address the potential menace of anthrax. Secretary Thompson made it known that the government was prepared to utilize Section 1498 to allow generic manufacturers to produce massive quantities of ciprofloxacin. Reacting to the threat, Bayer agreed to reduce its price substantially and fulfill the government’s demand.

“From a technical standpoint,” said Mr. Nelson, “Section 1498 appears to allow the government to assign a manufacturer to produce an FDA-approved biosimilar product, and then the issue would be what would constitute reasonable compensation to the brand.” He continued, “Negotiations could take place before or after launch of the product. I would expect the government would try to work out something beforehand. But none of this has ever been tested. I cannot see that process as a possibility for biosimilars that have not yet been approved as there would be safety/efficacy concerns.”

Importantly, by invoking Section 1498, government patent use would be limited to use in federal healthcare populations (e.g., Medicare, Medicaid, Department of Defense, Veterans Affairs). In other words, private health plans and their members would not benefit from this move. Granted, once large quantities of a drug has been produced beyond the factories of the reference manufacturer, it might be hard to “put the genie back in the bottle.” In any case, the reference manufacturer would have to be compensated, at least through the expiration of any remaining, significant patent.  

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